Disbursement of E-Rate Funds Begins

(November 25, 1998)  The FCC's controversial schools and libraries program, or "e-rate,"  is set to begin disbursement of funds, according to statements released by the Schools and Libraries Corp. and Vice President Al Gore.

VP Al Gore

"Today, we are moving toward our goal of providing every American access to the information age so they can learn, explore, and prepare for the future," Vice President Al Gore said in a statement released by the White House Press Office. "The E-rate and the Technology Literacy Challenge Fund will allow our nation to take this giant step forward, improving the education we provide our children. Together, we are using our newest tools to support our oldest goals -- helping our students learn by giving them the best education we can."

"Today, we are taking steps that will forever change the lives of millions of children and change the way teachers teach and children learn," Gore continued. "For the first time in our history, these new tools are making it possible for a child in the most isolated inner-city neighborhood or rural community to have access to the same world of knowledge at the same instant as a child in the most affluent suburb."

The schools and libraries program, which is also called the "e-rate," was established to provide subsidies to schools, libraries, and rural health clinics for various telecommunications services and computer networking equipment.  Most of the money will go to elementary and secondary schools.

The program is based upon the 1996 Telecommunications Act.  Section 254 of that Act codifies the long standing practice of providing "universal service" support for telephone service in high cost rural areas.  However, the Act also includes a subsection which extends universal service support for any school, library and rural health clinic.

Controversy began to build when the regulatory agency with responsibility for implementing universal service, the Federal Communication Commission, issued an Order on May 8, 1997 which expanded universal service support for schools, libraries, and rural health clinics to include various types of networking hardware, including hubs, routers, network servers, and cable, and set an initial level of funding at $2.25 Billion per year.  Under intense Congressional criticism, in June of this year the FCC reduced the subsidy level to $1.275 Billion for 1998.

The FCC Order of May 8, 1997, required that the subsidies be collected from long distance phone companies, who would in turn to recoup the costs from their customers.  This lead critics of the program to decry the new "Gore Tax."   The FCC also caused to be created two corporations under its control to administer the subsidies, the Schools and Libraries Corporation (SLC) and the Rural Health Care Corporation (RHCC).  Congressional critics accused the FCC of illegally forming the corporations, and of attempting to evade Congressional oversight.  In response, the FCC proposed merging the SLC and RHCC into the USAC. 

Congress passed no legislation in the 105th Congress that affects the program.   However, many bills were introduced, and the issue is likely to be revisited when the 106th Congress meets in January.

In a related development, BellSouth announced on Tuesday, November 24, that it is withdrawing from a lawsuit challenging the legality of the e-rate.  BellSouth, along with other telephone companies, filed a lawsuit in federal court in August of 1997 challenging the May 8, 1997 Order of the FCC.

BellSouth's announcement follows the FCC's announcement on Monday, November 23, 1998, that it is making changes in universal service administration.  (See, FCC Report.)

BellSouth's Associate General Counsel, Bill Barfield, explained the decision in a written statement released by BellSouth. 

"The plan to withdraw from this appeal is a business decision for BellSouth. While we feel that the reasons we filed our appeal were sound, we believe that the landscape has changed since then.  Universal service represents a changing tableau. The FCC recently adopted a cost model which is a first step in circumscribing the new universal service fund. The Joint-Board acted yesterday to respond to the most recent issues that the Commission referred to their consideration. The results of this recommendation will be another important piece to the universal service puzzle. At the same time, the FCC has taken steps to bring greater administrative efficiency to the schools and library fund and prioritize the fund's purposes. Because of these recent events, BellSouth has decided not to proceed with the appeal of the original universal service order. We will continue to evaluate the new determinations made by the Commission and take such steps as may be appropriate in the future. Based on these factors, we think that it is in the best interest of our business and our customers to withdraw this appeal."