Schools lose Net over E-rate freeze

In the far reaches of Alaska, the Internet has become as integral a part of the classroom as a blackboard and textbooks.

But at least three school districts in the state are going without online access while administrators await a decision on the fate of the federal program known as E-rate.

Since August, funds earmarked under the $2.5 billion program have been held up over accounting issues, leaving cash-strapped districts with no alternative but to turn off the Internet.

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What's new:
Three school districts in Alaska are going without online access as federal officials await a decision on the fate of the federal E-rate program.

Bottom line:
Funds earmarked under the $2.5 billion program have been held up over accounting issues, leaving cash-strapped districts with no alternative but to turn off the Net.

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"Maybe we could bite the bullet for a few months," said Kim Langton, superintendent of the Kuspuk School District in Alaska. "I'm hopeful we will get the money eventually, but frankly it would mean taking a big risk. If we are denied the money for some reason, we don't have enough in the budget to cover it."

Kuspuk, which uses E-rate reimbursements to pay for 90 percent of its Internet costs, planned to use this year's funding to help it comply with the No Child Left Behind law, which seeks to outline the best ways to use computers and other technology in the classroom in order to help students learn. Stringent requirements for teacher certification are extremely difficult for rural and remote school districts like Kuspuk, which are hundreds, if not thousands of miles away, from the closest university.

Kuspuk, which serves roughly 416 students, is geographically dispersed, spanning some 12,000 square miles in a part of Alaska that is only accessible by plane an--in the summer months--boats on the Kuskokwim River. Video conferencing over the Internet offered a perfect solution to the district's staffing shortage. The technology could be used to connect all nine of its schools, so that teachers and educational specialists could be shared throughout the district.

"Some of our schools only have one or two teachers for grades K-12," Langton said. "There's no way that you can ask a teacher to be certified in all areas, as No Child Left Behind requires. But using video conferencing, students across the district could take a calculus or physics class from someone hundreds of miles away in another part of the district."

Kuspuk had already selected a service provider for the video service, Technical and Management Services Corporation, which also provides Internet connections for the U.S. Department of Defense in remote places like Afghanistan. But after administrators realized the E-rate program had been frozen, they decided to temporarily pull the plug on the video application and suspend their basic Internet service, which had more than 300 computers connected to it.

"For us, the Internet is a necessity, because of where we live," said Jacquelyn Koenig, a high school teacher in the Kuspuk School District. "The closest library is several hundred miles away. We depend on the Internet for even the most basic teaching materials because we have few textbooks and teacher's manuals."

Hard times all around
Kuspuk isn't the only district in Alaska that is in dire straits. About 50 percent of the districts in the state have not received funding commitment letters for the 2004-2005 school year, said Della Mathis, the E-rate coordinator for Alaska. Typically, Alaska receives between $12 million and $16 million a year in subsidies from E-rate, she said. This year, only $4 million has been allocated.

Southeast Island School District, located in the Alaskan panhandle near Juneau, also canceled its Internet service, and so did Pribolof School District, serving the islands in the Bering Sea, which are closer to China and Russia than they are to the continental United States, Mathis said. Combined, roughly 210 students are affected.

So far, Alaska is the only state that has seen school districts shut off service. But depending on how long funds are delayed, many other schools and libraries across the contiguous 48 states could also find themselves in deep trouble.

Experts caution that smaller school districts and private schools that rely on the subsidies will likely suffer most.

"The high discount applicants aren't going to have any way to continue to pay for their services," said Gary Rawson, the state E-rate coordinator for Mississippi and chairman of State E-rate Coordinators Alliance. "They depend on the reimbursements to pay for the next month's service. And if the money is delayed a couple of months, they've blown their whole year's worth of budget right there."

What's the holdup?
The E-rate program, which was created as part of the 1996 Telecommunications Act, helps link public and private schools as well as public libraries to the Internet by paying up to 90 percent of technology costs such as wiring and connection fees. Consumers pay for the program through a "universal service" fee on their monthly telephone bills. Since it began, more than $8 billion has been dispersed from the E-rate fund.

The Universal Service Administrative Company (USAC), which oversees E-rate for the Federal Communications Commission, halted funding in August, pending adoption of new accounting rules. USAC, which is a private not-for-profit company, had been using generally accepted accounting principals, or GAAP, standard rules used by the largest corporations in the United States. But the FCC wanted it to use the same accounting rules that other government agencies use, called Gov. GAAP.

Under the new accounting rules, USAC must have money in the bank before it's permitted to issue "commitment letters" to schools and libraries guaranteeing them that they will be reimbursed. Because there is a long period of time between when the letters are issued and when schools actually submit the paperwork for reimbursement--roughly 18 months--in the past USAC was able to issue letters before it had actually collected all the funds from carriers.

The change in the accounting rules has caused a major backlog in the system. While USAC is able to pay for all reimbursements that were approved before the freeze, it can't issue any more commitment letters until it collects more money from service providers. Because the majority of commitment letters typically go out between August and October, most of the schools and libraries seeking funds have not received letters yet.

When the program was halted in mid-August, USAC had committed only about $800 million of the $2.5 billion budget available for reimbursements, said Mel Blackwell, vice president of external communications for USAC.

Without the commitment letters, schools and libraries have no guarantee that their services and projects have been approved.

The FCC and USAC both say they regret the inconvenience that has been caused by switching to the new accounting standards. They expect to begin sending 2004-2005 commitment letters by the end of November.

"It's extremely unfortunate that some schools are in the situation they are in," said Mark Wigfield, a spokesman for the FCC. "We regret that has happened, and we're sorry for the timing. But we have to run the program in accordance with the law."

Even after the E-rate tap is turned back on, delays will likely persist indefinitely, Blackwell said. Because USAC can send out letters only after it has collected money from service providers, it will be able to allocate only a portion of the remaining $1.7 billion.

Exactly which schools will be in line for the first batch of letters hasn't been finalized yet, according to Blackwell. He said that USAC is still working out the details with the FCC.

Carriers left holding the bag
Schools and libraries will undoubtedly continue to feel the crunch, but so will the service providers and vendors supplying them. Because some schools and libraries depend on the previous year's E-rate reimbursement to front the cost of continuing their services, a delay in the process could impact carriers. Some, like BellSouth--which serves roughly 2,000 E-rate applicants over a nine-state area--say they will continue to serve these customers regardless of whether they have commitment letters.

"We expect to eventually collect all this money," said Harry Cook, segment marketing manager for BellSouth. "We are working with the schools and the FCC to get this money collected. But at some point, if these delays become the status quo, some tough decisions will have to be made."

Continued delays could put BellSouth and other carriers in precarious financial situations of their own.

"Anytime you have large collections that drag on for a long time, you have to make decisions from an accounting standpoint," he added. "Since we are publicly traded, there are certain requirements we must follow to inform our investors."

Trouble in E-rate land
The accounting changes and the ensuing chaos in the program have come at a time when the E-rate program is already under scrutiny from lawmakers over charges of fraud, waste and abuse. In the past few years, several companies and school officials have been singled out for shady dealings.

For example, a string of bid-rigging contracts was discovered in Chicago and San Francisco. IBM and other companies have been blamed for offering kickbacks to schools in exchange for E-rate contracts. Executives from companies such as NEC Business Solutions and Connect2 Internet Networks have been convicted of fraud. So have school officials in Puerto Rico. In Atlanta, the public school system is being audited for allegedly violating the program's rules and procedures. The district has issued a detailed report defending its use of E-rate money.

And the list goes on and on.

Congress has already begun investigating the program. Committees in both the House of Representatives and the Senate have held hearings to look deeper into the various fraud charges. There have even been some rumblings that the E-rate program could be in jeopardy as some members of Congress look into revising the Telecom Act.

"I'm sure the funding will get worked out for this year eventually," Kuspuk's Langton said. "But I am more concerned about Congress reauthorizing the universal services fund. I don't think it's a slam dunk. Unfortunately, I don't think people realize how vital this funding is for us. Without it, we can't sustain our Internet connections. And without the Internet, we're completely shut off from the rest of the world."