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Irate over E-rate

A partisan political battle over the schools and libraries subsidy program won't let up, and the E-rate has irked some major long distance and technology companies as well.

It should be good news for schools and libraries that a federal subsidy program for Net hook-ups got a nearly $1 billion increase today. But despite the windfall, the "E-rate" still faces heavy criticism.

A partisan political battle over the program won't let up, and the E-rate has irked some major long distance companies, which support the program financially through money they collect from customers and then contribute to the nation's Universal Service Fund.

Moreover, many schools--which the program is supposed to benefit--have found themselves knee-deep in E-rate bureaucracy over the past two years, which some say hasn't made wiring their facilities any easier.

Amid this contentious backdrop, the Federal Communications Commission today voted 3-2 along party lines to allot $2.25 billion for the E-rate for the year 2000 application cycle.

Last year the E-rate was cut by 43 percent due to political pressure. Nonetheless, more than 62,000 schools and libraries have applied for the E-rate, seeking up to 90 percent discounts on internal wiring costs and access bills. Vice President Al Gore, who has been a solid supporter of the program, will likely play up the cause and funding increase in his presidential bid.

Although the E-rate budget is secure for one more year, a group of Republican lawmakers--who have nicknamed the program the "Gore Tax"-- want to reform the E-rate. They called for the FCC to delay the vote until the last moment today. However, FCC chairman William Kennard pushed forward with the vote just one day after a congressional hearing over the FCC's authorization, where its handling of E-rate also was the focus of debate.

And the fight over the E-rate will only continue on Capitol Hill.

The outcome could ultimately spell relief for telcos--or not. Phone companies have complained that the E-rate is an unfair tax, and that it angers customers, to whom they pass the cost. Others already have warned customers that today's FCC vote means rates will go up.

"Today's vote will increase AT&T's payment to the Universal Service Fund, which means that the 93 cent fee we currently collect from our customers must also increase," the nation's largest long distance provider said in a statement today. "We're still completing the analysis to determine exactly how much that fee will rise. As always, we will collect only our costs, no more or less, and will do our best to inform our customers about the increase."

The FCC contends that companies shouldn't be raising rates, because they have received other cost cuts through deregulation. The agency estimates that the E-rate accounts for 19 cents of every dollar paid into universal service, which mainly subsidizes phone service. But this amount is not broken down on consumers' phone bills, causing further debate.

Rep. Billy Tauzin (R-Louisiana) and Sen. Conrad Burns (R-Montana) are pushing the Schools and Libraries Internet Access Act to fund the program by slashing a 3 percent federal communications excise tax by two-thirds and want to reallocate the remaining revenue to the E-rate.

"We have received a lot of support from long distance companies, in particularly Bell Atlantic," said Ben O'Connel, a spokesman for Burns.

Concern among E-rate supporters
Even some high-tech companies that stand to gain downstream because of the E-rate are concerned about the current system, in which the funding fluctuates from year to year and is complicated to obtain.

"Our model for E-rate is to not have it funded long term by universal service," said Michael Maibach, vice president of government affairs for Intel. "I want to put it into the general fund and dole it out locally. That's how we build roads--let's pay for schools and libraries getting wired that way too."

Numerous school officials say they don't care how the program is funded. They just want a simpler application process.

"It's been a complete nightmare," said Richard Varrati, superintendent of the Cranberry School District in rural Pennsylvania, which has 1,800 students.

Varrati says he missed out on $17,000 in 1998 and expects to be skipped over for the same E-rate discount this year after sending in hundreds of pages of material and placing dozens of frustrating calls to the Schools and Libraries Division of the Universal Service Administrative Company, which administers the E-rate.

"We weren't supposed to check one box on the application, and because we did we lost everything and didn't get funding for 1998. We didn't find out what we did wrong until after we already applied for 1999," Varrati said. "Everyone in our area is being charged to support technology in schools, but schools are being left out based on technicalities."

Still, Tauzin and Burns's Schools and Libraries Internet Access Act is not expected to win quick passage, because it wouldn't provide as much funding as this year's E-rate, and many Democrats support the status quo. It also would not necessarily cut the red tape for schools.

"In 1996 every House Republican voted in favor of the House Telecom Act, which established the E-rate," Rep. Anna Eshoo (D-California) said in a statement. "Now because of presidential politics they are holding wiring our schools and libraries hostage by trying to label this program a Gore tax."

ISPs weigh in
Not surprisingly, Net access providers, who can cash in on the program through contracts with schools, endorse it. They also are monitoring the Schools and Libraries Internet Access Act. By cutting levies for telcos, the bill could defuse any remaining pressure that ISPs contribute to the fund, too.

Dave McClure, executive director of the Association of Online Professionals, said ISPs like things the way they are. Online providers owned by telcos might find themselves in a pickle, however.

"ISPs overwhelmingly support the E-rate because it enables them to do more for schools than could previously through volunteer efforts," he said. "But the ISP portion of the telecommunications companies are held as very distinct subsidiaries, and the Net side of the telcos often take different positions than their parent companies."