Rep. Markey Introduces Sweeping E-Rate and E-Books Bill

February 9, 2010. Rep. Ed Markey (D-MA), Rep. Lois Capps (D-CA), and Rep. Doris Matsui (D-CA) introduced HR 4619 [LOC | WW], the "E-Rate 2.0 Act of 2010".

This bill would expand the Federal Communications Commission's (FCC) e-rate program to provide for subsidies for broadband access for households containing someone who qualifies for the federally subsidized school lunch program. It would also expand the e-rate program to include community colleges and the federal head start programs. Finally, it would create an e-books subsidy program.

It was referred to the House Commerce Committee (HCC). All three sponsors are members.

Rep. Markey (at right) stated in a release that "with the expansion of the scope of technology, students need more than just Web access at school, and our E-Rate 2.0 bill is intended to reflect those expanded needs".

He also said that this bill would increase "the range of the latest telecommunication services and devices accessible to low-income students, including residential broadband services and e-books incorporated into students’ classroom lessons".

This bill would amend the universal service tax and subsidy programs section of the Communications Act of 1934. This section is codified at 47 U.S.C. § 254.

Subsection 254(h) pertains to the FCC's e-rate program. It provides for telecommunications carriers to subsidize telecommunications services at elementary and secondary schools, libraries, and health clinics. As implemented by the FCC, subsidies are provided for telephone service, internet access, and internal connections.

The e-rate language of the statute, which was enacted in the Telecommunications Act of 1996, is maddingly vague. Rep. Markey was one of its drafters. This vagueness enabled former FCC Chairman William Kennard and others at the FCC, and Rep. Markey and other legislators, free reign in the ensuing years to implement programs with only limited statutory constraints.

HR 4619 also has the appearance of statute carefully drafted with intentional uncertainty.

Broadband Access Subsidies. First, HR 4619 would amend subsection 254(h) by creating a pilot program with a five year duration "to extend broadband service to students who -- (i) qualify for funding under the federally subsidized school lunch program; (ii) attend secondary schools that receive support under this section; and (iii) who possess a computer for use at home."

This bill would authorize the appropriation of an additional $500 Million per year for this program. The e-rate is currently funded by a tax collected by service providers from their customers. The FCC has fixed e-rate spending at $2.25 Billion per year, pursuant to agreement with legislators, and codified in its regulations.

This bill provides that the FCC would give money to "secondary schools to dispense vouchers to eligible students to be used for monthly service fees for residential broadband service for such students".

This provision would be codified in subsection 254(h), and would be described as an e-rate program. However, the existing e-rate programs, as well as other universal service programs, are funded by service providers, who in turn tax their customers. In contrast, the first proposal in HR 4619 would be funded by Congressional appropriation.

Community Colleges and Head Start. Second, this bill would would amend subsection 254(h) to expand the eligible recipients of e-rate subsidies to also include two new categories of recipients: community colleges and the "head start programs".

The bill also expressly provides that these two new programs cover "broadband equipment and services".

The bill would provide that $150 Million per year be spent on these two new programs. However, the bill is not clear as to whether this money would come from appropriation, the FCC's existing system of service provider taxation of customers, or what.

Universal E-Book Service. Third, the bill would amend subsection 254(h) to provide subsidies for certain secondary schools "to apply for meaningfully discounted services and technologies for the use of electronic books".

It also references $50 Million per year, but again, is vague as to whether this is an authorization for appropriation, use of the FCC's existing subsection 254(h) tax and subsidy system (which relies upon "telecommunications carriers"), or a new tax system based upon book publishers, device makers, or whomever.

The statute vaguely states that secondary schools would "apply for meaningfully discounted services". It does not state to whom they would apply. The current statute contains similar language. It mandates that "All telecommunications carriers  ... upon a bona fide request for any of its services that are within the definition of universal service ... provide such services to elementary schools, secondary schools, and libraries for educational purposes at rates less than the amounts charged for similar services to other parties ..."

The existing statute provides that the application is made to the "telecommunications carriers". The FCC sets the discounts (and hence, prices), and the "carriers" collect the discounts through taxes imposed on their other customers.

One construction of the just introduced bill would be that it treats book publishers, device makers, or others, like "telecommunications carriers". That is, all would be subject to universal service obligations. Under the language adopted in the Telecommunications Act of 1996, "carriers" must facilitate universal phone service (which the FCC then interpreted to also include internet service and internal wiring in implementing the e-rate programs) by providing discounts, and paying for them by taxing other customers. Analogously, under this construction of HR 4619, book publishers must facilitate universal access to books by providing discounts to schools on e-books, and paying for them by taxing, or raising prices, on their other customers; or, devices makers must facilitate access to books by providing discounts on e-reader devices.

However, HR 4619 stops short of stating that these e-book applications would be directed to book publishers and/or device makers, and that they would be required to sell e-books and devices at prices and terms fixed by the FCC. Although, this is a construction of that would likely withstand Chevron scrutiny.

Under this construction, this bill would expand the FCC's statutory authority beyond carriers and other communications businesses, to the book publishing and distribution industries. It would be imposing common carrier like obligations on unregulated industries.

It would place before the FCC a plethora of new issues. Would the FCC have authority to regulate digital rights management, and if so, how would it do so? Would the FCC have authority to mandate the price regulated sale of a book in e-book format when the publisher does not already sell that book in e-book format? Would the FCC have authority to regulate secondary sales of discounted e-books? What of books for which the applicant asserts that the rights holder is in dispute, or not locatable? Which publishers and rights holders would be subject to this FCC regulatory scheme?

Does the phrase "apply for meaningfully discounted ... technologies for the use of electronic books" also mean that schools can apply to device manufacturers, such as the makers Kindles, iPads, and other e-book readers, for price discounted devices?

Also, would the FCC apply "public interest" obligations on book publishers, rights holders, authors, device makers, and/or software developers, and if so what would they be? (This section of the bill includes the phrase "consistent with the public interest".)

And, how would the FCC regulate proprietary formats and devices? (The bill mandates implementation on a "technology-neutral basis".) Would the FCC mandate that publishers and rights holders publish books in non-proprietary formats, accessible on any e-book reader, and/or available via a web browser? Would the FCC impose technology mandates on equipment makers and software writers?

There are also Constitutional impediments to such a regulatory scheme. In 1943 the FCC successfully prevailed upon the Supreme Court to hold that the First Amendment ("Congress shall make no law respecting ... freedom of speech, or of the press") does not apply to broadcast speech in the same manner that it applies to print publishing. See, National Broadcasting Company v. US, 319 U.S. 190 (1943) and Red Lion v. FCC, 395 U.S. 367 (1969). HR 4619, if enacted, could place the FCC in the tenuous position of arguing that the First Amendment does not apply to books either.

Finally, whether such a book regulatory regime would reduce the intellectual quality of the U.S. book publishing industry towards the vast wasteland of FCC regulated broadcast industry is yet another question.

Pilot Programs. Each of these three provisions is described in the bill as a pilot program. It should be recalled that during debates over FCC implementation of the e-rate program in 1998 and 1999, proponents argued that the FCC's multi-billion dollar funding level was temporary, and would be in place only for the time that it took to connect schools, libraries and health clinics to the internet.

Notwithstanding these representations, the e-rate program has evolved into a perpetual program with a consistent funding level. Perhaps Rep. Markey intends the same for his pilot program proposals.

Increasing E-Rate Funding. Finally, the bill would require the FCC to increase the funding level of its e-rate programs to account for inflation.