AT&T, feds neglect low-price mandate designed to help schools

When a school or library qualifies for eRate, the fund subsidizes 20 percent to 90 percent of the telecom bill, depending on how poor the school or library is. (A key measure of poverty: the percentage of students who qualify for the government’s free or reduced-cost school lunch program.)

The FCC says the program has been a success. At the time of eRate’s launch, 65 percent of public schools were connected to the Internet. By 2005, about 97 percent were, thanks largely to eRate, according to the FCC.

A few days after signing the act, Clinton highlighted “a requirement for companies to provide a discount for connecting all of our classrooms and libraries to the information superhighway.”

One reason for the bargain-rate requirement is to make sure that as many schoolchildren and library patrons as possible benefit. Another reason to require companies to provide preferential rates, according to the FCC, is that many schools and libraries suffer from a “lack of experience” when it comes to “negotiating in a competitive telecommunications market.” Indeed, telecom pricing is notoriously complex and opaque, and the eRate program benefits “many of nation’s poorest and most isolated communities,” according to an FCC document.

Under FCC regulations, schools are required to try to obtain competitive bids from phone companies, while the companies are required to charge no more than their “lowest corresponding price,” which the agency defined as “the lowest price [a telecom company] charges to similarly situated non-residential customers for similar services.”

Weak enforcement

Almost from the inception of the program, phone companies have advocated for leeway in determining the lowest corresponding price. In 1997, representatives from five former Bell companies–three of which are now part of AT&T–wrote to the FCC that companies should be allowed “to determine the lowest corresponding price … based on a consideration of factors normally used in determining prices within a competitive market.”

Meanwhile, the FCC has repeatedly declined to back the pricing rule with tough enforcement. In 1997, the FCC proposed that companies could get reimbursed through the program only if they first certified that they had complied specifically with the pricing rule–a strong legal requirement that might have left companies liable to the federal False Claims Act if they misrepresented their prices. The FCC cited the “universe of records” a company “must review to determine lowest corresponding price.” But the agency never enacted that certification proposal.

In 2005, the FCC again proposed that service providers, as part of their annual eRate filings, certify specifically they had charged the “lowest” price to schools and libraries. But after industry opposition, the plan was dropped, according to public filings. Wigfield, the FCC spokesman, declined to say why the agency did not require certification. (The FCC does require a broad, annual certification, in which companies are instructed to affirm their compliance with eRate rules.)

The FCC, through the nonprofit firm Universal Service Administrative Co., or USAC, has taken action against phone companies for a variety of infractions–but never has it demanded a refund or penalty for violating the lowest-corresponding-price rule.