FCC Modifies Universal Service Support for Schools and Libraries

(June 15, 1998)  The FCC decided on Friday to modify the way it implements Section 254(h) of the Telecommunications Act of 1996, which mandates universal service support for telecommunications services for schools and libraries.  However, the changes fell far short of what the FCC's critics in Congress wanted, and set the stage for further conflict, and/or Congressional legislation.

The program as initially planned by the FCC would have subsidized computer networking, Internet access, and phone services, at $2.25 Billion in 1998.  Under harsh criticism from Congress, the FCC decided to expand the first funding period to18 months, spend at the rate of $325 Million per quarter, cut Ira Fishman's $200,000 pay, give Internet access and phone service priority over computer networking, and give "disadvantaged" schools priority as to computer networking subsidies. 

The Federal Communications Commission issued a press release late on Friday which describes an FCC Order which has not yet been released.  Irene Flannery, an attorney with the Common Carrier Bureau of the FCC, stated that the Order would be released early this week.   The FCC also released a related Public Notice on Friday regarding revised universal service contribution factors for the third quarter of 1998.

Sen. John McCain (R-AZ), Chairman of the Senate Commerce Committee, which oversees the FCC, was quick to issue a statement criticizing the decision:

"The FCC's latest attempt to recalibrate its schools and libraries program is an exercise in futility. It will fail to give schools and libraries the level of funding they had been led to expect. It will fail to stop the inexcusable waste of money on the fund's administration. And it will fail to keep consumer's bills from going up yet again. Even worse, it ultimately imperils the funding needed to assure that consumers in rural areas have access to affordable telephone service at reasonable rates."

McCain also stated that "it's accountability time. Legislation must be enacted immediately to stabilize the schools and libraries program and give the entire telephone industry subsidy system the coherence and permanence the Congress intended. Then, in the upcoming session I will introduce legislation to address the remaining dysfunctions of the 1996 Telecommunications Act and the FCC.

He continued that "[t]he FCC has shown yet again that it is incapable of exercising the responsible judgment that Congress has a right to demand from an independent regulatory agency. Consumers deserve better treatment, and Congress must assure that consumers' interests --not political interests or special interests --prevail."

The FCC's decision was adopted by a 3-2 majority.  FCC Commissioner Furchtgott-Roth wrote in a separate statement that, "I am fearful that, by today's actions, this Commission has jeopardized not only the schools and libraries program, but the entire universal service mandate, and perhaps more."

Similarly, FCC Commissioner Michael Powell also wrote a dissenting statement in which he said that "I believe the Commission should, in particular, suspend collections for the Schools and Libraries program temporarily in order to resolve the funding questions that loom over all aspects of universal service -- including the new high cost support mechanism -- simultaneously in an integrated proceeding."

According to the FCC's description of its yet to be released Order, there are at least five changes.

• The Order "changes the funding year for the schools and libraries discount mechanism form a calendar year cycle (January 1 - December 31) to a fiscal year cycle (July 1 - June 30).  In order for the transition to take effect immediately, the first funding cycle will be extended by six months. Applications submitted by schools and libraries during the initial 75-day filing window and approved for funding will, therefore, be funded through June 30, 1999."
• The Order "freezes the amount of funding for schools and libraries and rural health care providers at current rates. With regard to the schools and libraries support mechanism, the Commission directed the Universal Service Administrative Company (USAC) to collect and disperse no more than $325 million per quarter for the third and fourth quarters of 1998 and the first and second quarters of 1999."
• The Order adopts "rules of priority" that will "give preference to the most economically disadvantaged applicants."  Request for subsidization of phone services and Internet access will be covered first, and then computer networking for "disadvantaged schools and libraries."  The press release provided no definitions or specifics.
• The Order reiterates the FCC's plan, previously stated in its May 8, 1998 Report to Congress, to reorganization the Schools and Libraries Corp. (SLC) by rolling it into the Universal Service Administration Company (USAC).
• The FCC will lower the salary of Ira Fishman, the CEO of the Schools and Libraries Corp.   He is paid a $200,000.  The Common Carrier Bureau of the FCC manages the program, and the processing of applications is subcontracted out to the NCS Corporation.  Fishman supervises 13 employees in a shell corporation.

The FCC changes do not do the things that many in Congress have demanded.

• FCC has yet to address the issue of high cost universal service.
• The FCC has not decided to terminated the SLC, which a GAO Report termed "illegal."
• The FCC did not temporarily or permanently suspend the operation of its Schools and Libraries program.
• The FCC did not retreat from the idea that computer networking components, such as hubs, routers, and network servers, are covered.

Other Congressional Commentary

Rep. John Dingell (D-MI), the Ranking Member of the House Commerce Committee, which oversees the FCC, wrote yet another stinging letter to William Kennard:

"I strongly support the e-rate and want to save it, but I am not sure that making a smaller illegal program out of a large illegal program serves that purpose. The plain language of The Telecommunications Act of 1996 does not authorize any corporation or grant-giving bureaucracy to fund the purchase of hardware or equipment. The statute only authorizes a discount program to assist schools and libraries in gaining access to "advanced telecommunications and information services." The Commission would forbid the funds to be used to buy personal computers, but would allow them to be spent to install and maintain high-speed computer networks, including "routers, hubs, network file servers and wireless LANS" in schools and libraries. Network file servers have been described as personal computers, only more expensive."

However, some were disappointed that the FCC cut back at all.  Senators Jay Rockefeller (D-WV) and Olympia Snowe (R-ME), who are Kennard's two most ardent backers on this subject, issued a joint release on Friday expressing "disappointment that the FCC cut back this important program because of pressure from the companies."

Rep. Bobby Rush (D-IL), who represents a largely inner city district on the south side of Chicago, stated in a release that he was pleased with the "FCC's decision to continue to fund the E-rate program," and its decision that "the nation's poorest schools and libraries will receive the necessary funding to wire their schools for internet access ..."

On Thursday, the day before the FCC met to make its decision, Rep. Zoe Lofgren (D-CA) and Rep. Cal. Dooley (D-CA) obtained 73 signatures from members of the House on a June 11 letter supporting the FCC's implementation of the schools and libraries fund.  This was down from the 101 members of the House who signed a similar letter dated March 27.