FCC cuts E-rate funding

The Federal Communications Commission has decided to cut back funding for the nation's most ambitious program to hook up schools to the Net.

The commission voted 3-2 today to provide $650 million in the second half of the year for the "E-rate" discount program for schools and libraries. The total funding for the year now comes to $1.275 billion--43 percent less than the $2.25 billion the FCC intended to collect for the program.

The decrease in funding comes after an intensifying political battle waged by a powerful group in Congress--combined with long distance companies promising to raise phone rates to pay their share into the program. Consumer groups had criticized the program because they said it will result in unfair surcharges for millions of telephone customers. A group of federal lawmakers also charged that schools were applying to use the discounts for unintended purposes, such as ripping out walls to put in wiring.

Yesterday, FCC chairman William Kennard defended the program, but told a Senate committee that funding likely would be less than expected; applications would be carefully reviewed; and administration costs to oversee the program would be reduced.

The uncertainty about the level of E-rate funding has left the 30,000 schools and libraries that applied for $2 billion in discounts in limbo. Based on the commission's decision, there may not be enough money to go around for those applicants.

The most economically depressed schools will now be given priority and up to a 90 percent discount on all Net-related services. These schools could get discounts on everything from monthly access costs to the guts of their online network, such as internal wiring, hubs, network file servers, routers, local area networks (LAN), email, software, and other hardware.

Even though the FCC won't collect the $2 billion requested from schools and libraries for this year, it has restructured the program to ensure that as many schools as get a break on Net access, without affecting long distance rates. The agency also has put the discounts on an 18-month fiscal year to better accommodate schools.

"The new plan maximizes the chance we will be able to fund schools and libraries at the full amount for telecommunications and Internet connections," Jodie Buenning, spokeswoman for the Schools and Libraries Corporation, which administers the E-rate, said today.

The SLC didn't know how many of its 30,000 applicants had applied for "internal connection" discounts, which could illustrate the true impact of the decision. When schools applied, they didn't know only the neediest schools would get discounts on infrastructure costs.

Wiring every school to the Net is a political issue that has been embraced far and wide. Today, however, Vice President Al Gore found himself fighting to protect the E-rate.

"The E-rate is central to the future of education," Gore said via satellite at the administration's children's Net summit in Los Angeles today. "We will fight any effort by Congress to end the E-rate. It's time to put more children online and that means taking politics offline."

The E-rate was set up under the direction of the Telecommunications Act of 1996.

The program, overseen by the FCC, was supposed to provide up to $2.5 billion in annual discounts starting this year. The discounts are paid for through the universal service fund, the country's traditional subsidy program for phone service. The fund is supported in large part by fees paid by long distance companies, which often are passed down to consumers.

Commerce Department official Larry Irving on the E-rate

Gore, who has been under attack for pushing the program, called on the FCC to provide discounts to all those in need. But with foes renaming the E-rate the "Gore tax," he acknowledged that the decision doesn't rest with the FCC alone.

"The FCC should embrace the E-rate program," Gore added. "Even if the FCC supports this critical initiative, some in Congress will want to end it as soon as next week. That's just wrong."

Schools and libraries have invested a significant amount of time, resources, and money to apply and prepare for the E-rate.

Today, for instance, technology leaders from 24 of the country's largest urban school districts are meeting in Chicago to discuss the impact of the FCC's ruling.

"Louisiana schools, the state department, the office of telecommunication services, and the state library association have all worked real closely to get the information out about E-rate and get schools ready," Carol Whelan, director of educational technology for the Louisiana State Department of Education, said today.

"For the most part we are one of the poorest states in the nation, and we're expecting to save $16 million with the E-rate," she added.

All of the state's schools applied for the E-rate.

"If it falls through, it will slow down the process by a few years," Whelan said. "Students have to be able to function in a very technical society when they get out of school."

Many schools have put off spending other technology grants, which often come with a firm expiration date, while waiting to hear from the FCC. As part of their mandatory E-rate technology plans, many also have integrated the anticipated E-rate services within a complicated web of other technology plans and purchases.

In addition, the application process required that schools sign contracts with the vendors that would actually be providing the discounts on Net access services and products. This means some E-rate applicants are committed to spending millions of dollars they may not get this year.

Unlike the private sector, schools and libraries can't just start over from scratch and quickly update their budgets to accommodate a substantial change. These entities operate on intricate timelines and nonflexible budget processes. Schools, for example, may plan their entire budgets in May but don't find out until the day before fall term if their money has come through.

With summer break here, the FCC's looming decision couldn't come at a worse time. Some schools had planned to implement their anticipated E-rate services while students were on vacation.

"We've just invested so much time and energy in this process, and this threat to possibly get the plug pulled is real disingenuous and would be a terrible loss," John Bailey, director of Pennsylvania's Office of Educational Technology, said today.

Like Louisiana, Pennsylvania also launched a statewide effort to educate schools and libraries about the E-rate and held dozens of meetings to lead them through the complex application process--which apparently was amended more than 80 times in the past year.

Overall, Pennsylvania applied for an estimated $100 million in discounts. Bailey also had to hire a full-time staff member to work with schools. While waiting for the E-rate, many of the state's schools also put off spending $36 million in state technology grant money.

"People who attended our workshops were advised to write in 'out clauses' in vendor contracts in case something like this happened," he added. "But think about cases when a one librarian is doing all the work. There are a lot of people around the country who may not have included out clauses, and can't afford to pay 100 percent of the cost of the contracts they had to sign to apply for the E-rate."

In the past few days, the Clinton administration and Silicon Valley leaders have been publicly pushing the FCC to hold its ground. With today's decision the FCC did maintain the program albeit significantly scaled back.

"What is important right now is preserving the E-rate and getting as many schools access to that discount as possible, but prioritizing is important," Larry Irving, assistant secretary for the National Telecommunications and Information Administration, said in an interview yesterday.

"There is a digital divide in this country: We do have some people who have more of a need for that discount that others," he said. "But [the program] is brand-new. We've got to figure out how this is going to work [while] working in a very contentious political atmosphere."

Similar pleas were made in a letter to the FCC signed by 40 high-tech executives today.

"Curbing the E-rate program would be condoning digital apartheid," Eric Benhamou, chief executive of 3Com, said in the statement.

Still, the pressure was on from opponents of the FCC's implementation of the program. Foes of the program say they support helping schools get hooked to the Net, but not under a formula that results in unfair surcharges for telephone customers.

Last week, the leaders of the House and Senate commerce committees, which oversee the agency, called its implementation of the universal service a "spectacular failure" in a letter to the FCC's Kennard. The committee asked the FCC to suspend collection of funds for the Net connection program.

The criticism heated up when AT&T and MCI Communications said earlier this month they would add surcharges of at least 5 percent to long distance bills starting in July to pay for their share of the program as well as phone service subsidies.

FTC officials say just 1.5 percent of universal funding is slated to go to Net access.

Educators, however, say the E-rate should not be fodder for political games. Those who are in the trenches say they just want to be able to meet the demand society and the economy have put on them to turn out tech-savvy graduates.

"The E-rate was supposed to accelerate the deployment of technology, but in essence it's slowing it down for some schools," said Bailey of Pennsylvania's Office for Education Technology. "The bottom line in all this is that a promise is a promise."

Whelan of Louisiana also said the money for Net access is critical. "If our students don't get access, they will be even further behind the rest of the nation. We can't wait."