The two companies are leading a charge against the federal universal service program, focusing on the "e-rate" discounts which provide subsidized Internet connections for schools and libraries. Federal regulators scaled back this controversial program after criticism by Congress last summer, but now the program must pass court muster.
"They need to get universal service right before they build this schools and libraries program," said Brianna Gowing, a spokeswoman for GTE. "You don't want to build on a shaky foundation."
The companies are asking the federal appeals court to overturn the FCC order that set up the e-rate program, and start again from scratch. The existing program forces telephone companies to pick up too much of the burden for subsidies, and has exceeded the scope of the original law, they say.
Subsidies built on sand?
Gowing's "shaky foundation"--a characterization shared by most of the baby Bell companies--is the entire system that subsidizes telephone service for rural and low-income callers. The e-rate is just a part of this, but the companies hope to use it as a lever to help reform their role in the subsidy program.
Subsidies for rural and low-income phone service are paid for by small charges added to telephone bills. The tightly-regulated dominant local companies are also required to shift profits from their lucrative business customers to help lower costs for consumers in hard-to-reach areas.
The telephone companies argue that these broad goals should be paid for by society at large. Requiring them to raise their customers' bills--or eat the costs themselves--puts them at a disadvantage compared to new competitors who don't have these obligations, they say.
"It would be a fairer way if everybody shared this cost, not just the telecom companies," Gowing said.
The schools and libraries portion of the subsidy program has added new layers of injury to old wounds, the companies argue.
"What [the FCC] has done is made a massive bureaucracy, and a grant program that doesn't make sense," said Selim Bingol, a spokesman for SBC. "It's not the way the law was written."
The companies also object that some of the firms who will ultimately receive the subsidy dollars, such as cable companies and ISPs, are not forced to pay into the fund, as are the telephone providers.
For their part, the FCC and the Clinton administration have staunchly defended the program. Vice President Al Gore released the first installment of funds from the program with considerable fanfare last month, and regulators began accepting schools' applications for the 1999-2000 funding year today.
Attorneys from AT&T and the Educational and Library Network Coalition also supported the program in court today.
Spokespeople from both GTE and SBC said that they believed today's oral arguments had gone well, but said they did not want to try predicting the outcome of the case.
The arguments were held in front of the U.S. Court of Appeals for the Fifth Circuit in New Orleans. A decision is unlikely to come earlier than next spring.