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Cheaper phone bills on the horizon?

CNET's Declan McCullagh says a move in Congress to eliminate the E-rate program might cut $10 off the monthly tab.

Don't get too excited yet, but there's a chance your monthly telephone bill will get a few dollars cheaper.

Some members of Congress have begun speculating whether a government entitlement program riddled with waste and corruption and funded by taxes on telecommunications companies should be terminated. If the so-called E-rate program ended, the average phone bill would drop by $10 or more a year, an annual total of $2.25 billion.

There's no way to tell whether E-rate is working, its setup likely violates federal law, and nobody seems to be in charge.

Rep. Joe Barton, chairman of the House Committee on Energy and Commerce, suggested at a hearing last week that the E-rate program had become a billion-dollar boondoggle. "This committee has no choice but to develop legislation to scrap the status quo and apply some common sense to the E-rate program," the Texas Republican said.

E-rate was created in 1996 to wire schools and libraries to the Internet by providing discounts of up to 90 percent on approved products and services. Since then, E-rate administrators have vacuumed in $14.6 billion in telecommunications taxes but have, inexplicably, handed out only $9.2 billion.

A recent Government Accountability Office report exposes the Federal Communications Commission's slipshod management of the E-rate program. Among the GAO's findings: There's no way to tell whether E-rate is working or worth keeping around, its current setup likely violates federal law, and nobody seems to be in charge.

"FCC established an unusual structure for the E-rate program but has never conducted a comprehensive assessment of which federal requirements, policies and practices apply," the report concluded. No wonder one E-rate "provider" pleaded guilty last year to bid rigging and wire fraud, and agreed to pay $20 million in restitution.

If E-rate were run by a private firm that had to follow standard accounting rules, this scheme would have been toast long ago.

But this is Washington, D.C., where the mere act of questioning an entitlement program counts as political doughtiness of the first order. Barton deserves credit for being courageous enough to raise the possibility of rethinking E-rate, which has been a third rail of technology policy for nearly a decade.

"The mismanagement of the E-rate program seems to know few bounds," Barton said. "Unscrupulous vendors have fleeced the program, while underserved communities and telephone customers are paying the price. The FCC, these merchants and certain schools all must share the blame for this disgrace."

This is shaping up to be a partisan divide. At last week's hearing, Rep. Jay Inslee, D-Wash., suggested that he might be open to modest reforms such as moving E-rate away from the FCC and to another agency. More partisan Democrats, including Michigan's John Dingell and Bart Stupak, seem opposed to any changes.

A taxing reform process
A decade ago, when Internet connections were rare and expensive, there was some justification for a national effort to link up schools and libraries.

Today, though, broadband connections are plentiful and inexpensive: More than 94.3 percent of U.S. ZIP codes had high-speed lines available through one or more providers as of last year. In 2002, according to the Department of Education's estimates, 99 percent of public schools and 92 percent of school classrooms enjoyed Internet hookups. Thanks to cheaper products and wireless connections, those numbers are probably approaching 100 percent today.

In inimitable Washington style, that good news has been used to raise taxes instead of reducing them. The FCC has boosted E-rate taxes from about $1.7 billion in 1998 to $2.25 billion today. As a result, consumers and businesses pay more than they otherwise would on long-distance and wireless phone bills.

In 1999, the FCC ordered phone companies to hide the E-rate taxes from consumers.

Does this process sound a bit odd? It should. Only Congress has the power to raise taxes. Federal agencies don't.

But politicians have been leery of confronting this constitutionally dubious entitlement program. In fact, the FCC in 1999 ordered phone companies to hide the E-rate taxes from consumers, prompting an angry dissent from then-Commissioner Harold Furchtgott-Roth, who called it a naked attempt by the commission "to distance itself from certain federal charges."

Opposition to any reforms will come from the influential American Library Association, whose members benefit from this popular entitlement. Justifying E-rate taxes is a top priority of the ALA's Washington office, and the group mounted lobbying campaigns when E-rate appeared to be threatened.

Reformers once tried to fix E-rate and then phase it out over five years. Both Rep. Billy Tauzin, R-La., and Sen. Conrad Burns, R-Mont., introduced legislation in 1998 that failed.

One reason Tauzin and Burns didn't succeed six years ago: E-rate's waste and fraud had not come to light. The difference today is that Rep. Barton has far better arguments on his side.