July 10, 2014

E-Rate Proposal Fails to Make Passing Grade

On Friday, the FCC will meet to consider reforming the E-rate program, the federal broadband initiative for schools and libraries. Ensuring that U.S. students are empowered with the connectivity required to succeed embodies a worthy cause. However, the program has suffered from poor administration and significant waste, fraud, and abuse. The reforms proposed by FCC Chairman Tom Wheeler, could make the problems even worse.

Rather than simplifying the process for participation, for example, Chairman Wheeler’s proposal builds on the already complex bureaucracy and continues to disadvantage students in rural locations in favor of urban schools. He wants to spend $5 billion on his plan, but has not identified where all of that money would come from. Chairman Wheeler’s proposal also fails to include recommendations by Republican commissioners.

“Chairman Wheeler should focus the FCC’s E-Rate reforms on protecting the program’s core mission of connectivity, realizing honest savings, and deploying real dollars, rather than promising future spending that could undermine E-Rate’s effectiveness or increase the economic burden on American ratepayers.” – Sen. John Thune, 7/9/2014

E-rate Program Designed to Be Simple and Efficient

Congress established the Schools and Libraries program, known as E-rate, as part of the Universal Services Fund under §254 of the Telecommunications Act of 1996. Through that law, E-rate aimed to “enhance ... access to advanced telecommunications and information services” for schools and libraries. The law ordered telecommunications providers to supply their services to schools and libraries at discounted rates, set by the FCC. To pay for the program, the law also assessed a fee – currently 16.4 percent – on phone bills. The program cost more than $2 billion last year, and more than $30 billion since it began in 1998.

Schools must apply to the non-profit corporation that runs the program, Universal Service Administrative Company, and submit a plan for how they will use their desired technology. Once the plan is approved and the discounted price is determined, USAC pays for it using funds from the USF. On its face, the program appears simple and straightforward.

The Complex, Inefficient, and Bureaucratic Reality

Unfortunately, the program is anything but simple. E-rate is highly bureaucratic, paperwork intensive, and lends itself to fraud.

“The current E-rate program is burdensome, slow, and not always focused on the right goals.” – FCC Chairman Tom Wheeler, 2/5/2014

Congress delegated nearly all authority over the E-rate program to the FCC, but the commission has been criticized for its management of the program since it began. Despite evidence of problems in the program, the FCC has done little to push reform or exercise oversight.

To begin with, the E-rate application process is complex and lengthy. According to one FCC commissioner, Ajit Pai, the process “is so complicated that it can deter schools from participating in the first place.” Schools must navigate a complex web of FCC rules and regulations, a bureaucracy so overwhelming that schools often hire special consultants to give them an advantage. The filing process can take months, and getting a funding commitment from the administrator can take years. 

Moreover, the program seems to favor urban schools over their rural counterparts. Schools in Washington, D.C., get roughly three times the amount per student that schools in Kansas get, despite broadband being cheaper to deploy in cities. Rural states like New Hampshire, Vermont, Montana, and South Dakota receive the least money per student.

The program also has been plagued by waste, fraud, and abuse. An Atlanta school district purchased millions worth of equipment not needed to get the schools connected. An owner of an Illinois technology company was convicted of bribing school officials to get E-rate contracts. In Puerto Rico, $100 million was allocated to connect 1,500 schools, but after three years only nine schools were connected. More than $20 million in equipment was found stored in warehouses.

The President’s Unnecessary Upgrade

President Obama and FCC Chairman Wheeler set a goal to connect 99 percent of schools to 1 Gbps broadband – more than five times the speed a typical residential subscriber receives – by 2017. Before undertaking such a massive upgrade, at a cost of billions of dollars, we should examine whether schools need or want this speed. Most, if not all, applications a school needs will function flawlessly at much slower speeds. Students can view streaming online content in HD at five Mbps – 1/200th of the speed the president wants – and can view 3D content at 12 Mbps. By selecting an arbitrary and excessive speed target, the president diverts money that could be used to meet actual needs for more basic service.

Smart E-Rate Reform

FCC Commissioner Pai has put forward thoughtful reform ideas that the commission could adopt immediately to better use E-Rate resources. He suggests giving schools more certainty on how much funding they will receive, simplifying the application process to no more than one page, adding transparency and accountability to the program, requiring schools to contribute at least one dollar for every three they receive, and requiring schools to disclose where the money is being spent.

By ensuring that money is spent more effectively and efficiently, the fund could downsize over time, leading to a reduction in the USF tax. Unfortunately, Chairman Wheeler’s proposal does not adopt the common-sense ideas put forward by Commissioner Pai, and likely will increase spending without adopting the reforms E-rate desperately needs.

Congress should urge the FCC to correct course and not repeat the mistakes of the past. It should revisit E-rate as part of the discussions over communications law reform. If the funding stream were switched from a fee on phone bills to the normal appropriations process, Congress could have an additional avenue for oversight of the program.

While helping to increase deployment of Wi-Fi to schools and libraries is a legitimate policy goal, the FCC and Congress should work to create a more efficient, equitable program.

Issue Tag: Technology