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New E-rate plan in store

In the wake of a political battle, federal lawmakers propose a new plan to hook up schools and libraries to the Net.

In the wake of a political battle over funding for the so-called E-rate, federal lawmakers today proposed a new plan to hook up schools and libraries to the Net.

Sen. Conrad Burns (R-Montana) and Rep. Billy Tauzin (R-Louisiana) introduced legislation redirecting 1 percent of the 3 percent federal excise tax on telephones to fund online access for rural and low-income schools, libraries, and health care facilities. The remaining 2 percent of the tax would be cut.

The two seek to replace the current program being overseen by the Federal Communications Commission, which is expected this fall to issue up to $1.275 billion in Net access discounts under the E-rate. More than 30,000 schools and libraries already have applied for the funding.

Under the direction of the Telecommunications Act of 1996, the FCC set up two nonprofit corporations to hand out the discounts, which are supported in large part by universal service fees paid to phone companies by long distance carriers. A bulk of the universal service fees are then passed on to consumers.

The E-rate program has been under intense criticism by many members of Congress on grounds that it will drive up long distance phone bills.

However, the Burns-Tauzin legislation would redirect funds that already are paid by phone users.

The bill also removes the FCC from administering the program. The money collected from the excise tax would instead go into a "Telecommunications Technology Trust Fund," which would be administered by the Commerce Department's National Telecommunications and Information Administration.

"This legislation is an excellent compromise that would allow us to keep our promise of educational access to the Internet without sticking it to the American taxpayer," Burns said in a statement today. "At the same time, we are cutting the new bureaucracy that oversees the program and relying on current agencies."

House Speaker Newt Gingrich has said he will work to overhaul the program as well. He noted he wants Congress to remove the FCC from overseeing the E-rate, and instead set up a block grant program in which the states would be provided with a lump sum of money. States would then decide for themselves how to administer the funds to applicants.

Legislators have slammed the FCC for creating a nonprofit corporation to process applications for the discounts. Consumer groups also criticized the program because they said it results in unfair surcharges for millions of telephone customers. Long distance companies have promised to raise phone rates to pay their share into the program.

Just last week during a Senate hearing, some lawmakers charged that few measures were being take to ensure that schools didn't use the discounts for unintended purposes, such as ripping out walls to put in wiring.

This political environment spurred the FCC last month to cut money earmarked for the program. The total annual discounts were to be up to $2.5 billion this year.

But the FCC argues that the telecommunications deregulation act cut other funds traditionally paid by phone companies to offset the E-rate.

"The cost of providing long distance continues to decline because of FCC actions, and yet there is confusion among consumers," FCC chairman William Kennard testified in June before the Senate Commerce Committee.

Kennard argued that long distance companies such as MCI Communications must explain more clearly why they are raising rates by as much as 5.9 percent to support the Net access program.

"Almost $750 million was requested for internal connections by schools located in districts where over half the kids are eligible for the school lunch program," Kennard said in his testimony.

"How should the carriers recover their contributions to these funding mechanisms?" he continued. "I suggest we just have a schools and libraries line item on every a bill. Less than a dollar per month per line should cover it."