Senate Communications Subcommittee Berates FCC

(June 11, 1998)  The Senate Communications Subcommittee held a hearing on reauthorization of the Federal Communications Commission Wednesday morning, at which most Senators scolded the FCC Commissioners for their handling of universal service support for high cost rural areas and for schools and libraries.  FCC Commissioners said little to mollify their Senate critics.

The FCC is coming under increasing criticism for its handling of this schools and libraries program, which is also referred to as the "e-rate" by some, and the "Gore tax" by others.  The program was created by the FCC pursuant to the universal service section of the Telecommunications Act of 1996.  The FCC decided to subsidize computer networking, Internet access, and phone service for schools and libraries in the total amount of $2.25 Billion for 1998, and to be raise this money from long distance companies, who in turn could pass the cost on to their customers.

The FCC defined the parameters of the program, but created a separate Schools and Libraries Corporation (SLC) to administer it.  The GAO has ruled that the SLC is illegal.

Recently, several long distance carriers announced that they would charge their customers around 5% of their long distance bill, to support universal service programs.   They further let it be known that they would put items on the bills explaining the charges.  This prompted complaints from both  proponents of the schools and libraries program such as Senators Rockefeller and Snowe, and from rural state Senators, who worried that public support for universal service might be undermined.

The Wednesday event was called a hearing, and the five Commissioners of the FCC were called in to testify.  However, most of the Senators made lengthy statements, and departed before the witnesses spoke, leaving them to explain themselves to empty chairs.   A handful of supporters, and the Subcommittee Chairman, Conrad Burns, stayed to listen, and ask questions.  The rest of the hearing room was packed with reporters, FCC and other government officials, and representatives of the telecommunications industry and education groups.

Sen. Conrad Burns (R-MT) told the Commissioners that, "I think that the bipartisan congressional leadership has accurately reflected the mood on the Hill in its recent communications to the commission. Congress simply does not want a new runaway entitlement program that jeopardizes traditional universal service."

Several Senators defended the FCC, especially Olympia Snowe (R-ME) and Jay Rockefeller (D-WV), and to a lesser extent Ron Wyden (D-OR) and Dorgan (D-ND)

FCC offered little in the way of concessions, or insight into what decisions the FCC will make later this week regarding the funding of the schools and libraries program.   Chairman William Kennard stated that "we all are committed to reforming universal service, and doing it in a way that is consistent with the statute, and doing it on a timetable that is expeditious.  We are moving ahead to address the high cost universal service issues."

Kennard also stated: "in terms of setting the priorities of who gets money from this program, I am absolutely committed to making sure that we reset and resize this fund so that money goes to only the neediest schools.  ... I am committed to restructuring the way that we prioritize funding to make sure that those needy and rural schools get the money first.   I presented a proposal to my colleagues to do that, have a vote on that this week."

Kennard also suggested that he would recommend to the Commission that it vote this week to stretch out the implementation in the first year over an eighteen month period and to "cut the salaries of the top officers of the schools corporation."

Sen. Burns, as Chairman of the Communications Subcommittee, lead off the hearing by reading a prepared statement.  He said:

"I don't think anyone in the Senate ever thought that the limited language which we included in the 1996 Telecommunications Act would be used to create a massive new entitlement program through universal service. Universal service has historically meant the provision of telecommunication services to all Americans, regardless of geographical location. The FCC has expanded the definition of universal service to include broad-ranging social programs, which has caused the commission's progress toward maintaining universal service to be delayed. While such goals as providing Internet access to schools and libraries may be laudable, they were never meant to be part of universal service as it has traditionally been known. Indeed, a huge burden has been placed on rural states in meeting these newfound definitions."

Burns also discussed his proposal to fund the schools and libraries universal service program with the existing federal excise tax on phones.

"I have proposed using the outdated 3 percent excise tax on telephones to fund the Schools and Libraries and Rural Health Care programs. ... The tax was designed to fund World War I and was instituted in an era when telephones were considered a luxury. Well, World War I should be paid for by now and phones are certainly no longer a luxury item. The 3 percent tax was kept alive to provide revenue to offset the deficit. In today's climate of budgetary surplus, this justification no longer makes sense. My proposal calls for cutting the excise tax in half and using the remaining half to fund the Schools and Libraries program and the Rural Health Care program."

Rep. Billy Tauzin (R-LA) is promoting a similar proposal in the House.  Also, FCC Commissioner Powell stated that "I think the idea is tremendously worthy of consideration."

Sen. John McCain (R-AZ), Chairman of the full Commerce Committee, criticized the FCC's implementation of universal service for schools and libraries as a "defective program."  However, in his opening statement he diplomatically blamed it on prior Commissioners, rather than those sitting before him in the hearing room.

"Just because I support the goal of wiring our schools and libraries does not mean that I support the program concocted by the prior Commission.  I don't," said McCain.  "The prior Commission made a series of bad mistakes in the choices it made to implement the program.  And Mr. Kennard, it is your predecessor's mistake that haunts you Commission."

"At least one provision of the 1996 Telecom Act could not be written more clearly, and ironically it is one that the prior Commission chose to ignore in implementing the schools and libraries program.  Section 254(a)(2) of the Act unambiguously states that the Commission shall initiate a single proceeding to implement and implement the recommendations of the universal service fund joint board."  Sen. McCain complained that the FCC had addressed universal service for schools and libraries, but not for high cost rural areas.

Sen. Fritz Hollings (D-SC) questioned the extent of the need for the program: "The schools in my state are connected."  His other comments and complaints added color to an otherwise dry subject.

Hollings admonished the Commission for the size and extravagance of the program:   "Get on and do your work and stop this here monkey shine.  Going into a non-profit private corporation.  This was illegal.  Nobody ever thinks of that.   Paying a chairman $200,000.00, plus a bonus of $50,000.00. ...   And setting up this extravagant program, going and paying for the wiring and everything else that -- never contemplated." 

(FCC Chairman William Kennard announced later that he would recommend to the Commission that the compensation of the Chairman and CEO of the SLC, Ira Fishman, be scaled back.)

"You went totally overboard, and you caused a royal headache," said Hollings.  "This program is in jeopardy ... and it comes about as a result of the flawed funding process, that approach to this particular problem by the Federal Communications Commission."

Sen. Ted Stevens represents a state which relies heavily on universal service support for high cost areas.   "Universal is to my state absolutely necessary," he stated.  "I fear very seriously that what is coming is destruction of the universal service concept.  There is not money, under the current system, to pay ..."

He went on to characterize the schools and libraries programs as "unreasonable demands, not economically reasonable demands, to hook up the schools and libraries and health providers.  I am clearly worried about what is going on here."    Stevens stressed that the key word in Section 254 is   "enhance".  "You have the discretion to enhance the availability, access to advanced telecommunications information services for public."   However, he said, "It does not say that you have to hook up every single classroom in the country by the year 2000."

Sen. Brownback complained that "Paying for this size of program will likely cause the phone bills of every American to go up.  ... Congress never intended when we passed this Act for anybody's phone bill to go up."

"There are at least three areas where the FCC deviated I believe from the Act," he said.  "First, the Act only explicitly permits discounts to be provided on telecommunications services.  The FCC should immediately stop declaring  ... discounts on non-telecommunications services."

Finally, Sen. Brownback stated that "I believe that the program is broken, but I think also that it can be fixed.  I strongly urge the Commission to freeze this program and initiate a proceeding ..."

Sen. Dorgan (D-ND) stated that "for too long the FCC maintained and Congress foolishly believed that we could create a new two and a quarter billion dollar program, and no one would pay for it.  At least no one would know they were paying for it.  Well, now we know better."

He concluded that, "now that the cat is out of the bag it is appropriate and necessary to reconsider the size of the e-rate program."

"I along with many people believe that this is a new program that constitutes a new tax on the American people," said Sen. Ashcroft.  "I was also concerned a provision of this measure would lead to the creation of a huge bureaucracy.  It has."  He continued that, "I believe that it is important to recognize that these were predictable outcomes from this vague section of the telecommunications act.  While the tax on telephone consumers and the large bureaucracy was the natural result, an all too familiar result, in this tax and spend city.  Trying to hide it from the American people was not.  I am shocked by the enormous effort to keep these increased costs of government, to consumers, this tax, trying to keep it hidden from the American people."

Sen. Kay Hutchinson (R-TX) criticized the bureaucracy of schools and libraries program.  "I think that the bureaucracy that I have been told has been created to pursue this is outrageous."

When Kennard spoke he denied that there was a large bureaucracy, citing that the SLC had only 14 employees.   However, he did not mention that the processing of applications has been contracted out to  the NCS Corporation, which handles many government contracts, particularly from the Department of Education.  It has hundreds of employees in Northern Virginia and Iowa working on the matter.

Snowe and Rockefeller and later Kennard and other Commissioners justified the schools and libraries program on the grounds that there was considerable demand, citing over 30,000 applications.  Sen. Dorgan retorted: "It is not surprising that you have a very high demand for a free service."   Or as Sen. Fritz Hollings (D-SC) put it:

"Don't give me this thirty thousand, or a hundred thousand schools -- How come it got so -- SOOOEY PIG -- Hurry up and put your application in.  Washington got money.  Good God!"

The Senators who participated in the hearing included Conrad Burns (R-MT), Ted Stevens (R-AK), Slade Gordon (R-WA), Sam Brownback (R-KS), Olympia Snowe (R-ME), Spencer Abraham (R-MI), John Ashcroft (R-MO), Kay Hutchinson (R-TX), John McCain (R-AZ), Fritz Hollings (D-SC), Ron Wyden (D-OR), Jay Rockefeller (D-WV), John Breaux (D-LA), Dorgan (D-SD), John Kerry (D-MA).