Universally Taxed and Spent

On August 22nd, the Federal Communications Commission (FCC) directed the Universal Service Administrative Co. (USAC), the agency that administers all of the payouts through the USF, to retroactively accept all e-rate applications for subsidized technologies and services from the 2010 fiscal year. Additionally, to pay for a wealth of new projects, the FCC has carried over another $850 million in reserve funding from previous years.

Perhaps the model by which “slippery slope” is defined, the e-rate program has grown in the last 15 years from a small, optional subsidy program under the Universal Service Fund to potentially funding iPads and Internet service for the unemployed and underemployed in every community. The e-rate program–also known as the Schools and Libraries portion of the Universal Service Fund–used it’s over $3 billion in user fees to offer schools subsidies on the purchase of “telecommunications services, Internet access, and internal connections,” including “installation and maintenance.”

The August 22 decision marks just the second time in the program’s 15-year history that all applications for funding will be accepted.  The services receiving blanket approval under the new FCC ruling (Priority Two services) provide infrastructure hardware and installation for in-school networks.  The ruling means that the nearly 1,000 applicants previously denied subsidy requests will be retroactively granted them, and new requests will be approved.

FCC officials will be quick to point to their funding cap as an inherent barrier to expansion, but they’ve been finding ways around the cap for years.  Each of the last few years, the Commission has discovered rollover funds to supplement and expand the next year’s budget, including this year’s rollover of more than a billion dollars. The President’s National Broadband Plan has also funneled hundreds of millions into different e-rate programs above and beyond the normal ceiling.

But the decision was no surprise to those following the program as it developed under the current administration.  Earlier this year the FCC announced plans to expand E-rate from a program that funds just in-school connectivity to one that funds connectivity and hardware for students outside of the building.  The “Learning On-the-Go” program, as it’s called, quite literally subsidizes iPads and other devices as well as broadband mobile Internet connections for public school kids.  The program was another expansion of FCC jurisdiction provided under the National Broadband Plan.  Section 11.23 of the President’s plan states it clearly: “The FCC should initiate a rulemaking to fund wireless connectivity to portable learning devices.  Students and educators should be allowed to take these devices off campus so they can continue learning outside school hours.”

Of one of his many pilot programs for the new learning-on-the-go campaign, FCC Chairman Julius Genachowski said:

“San Diego will receive support to integrate 24/7 online learning into its entire curriculum to serve 6th graders in 10 middle schools.  Each student will receive a laptop with wireless connectivity, providing them access to the online curriculum beyond school hours.”

But it doesn’t stop there.  Last year, the Chairman foreshadowed the next iteration of e-rate — the subsidizing of all electronics and Internet for a community.  A September 2010 directive lifted the regulation that forced schools to only use their subsidized services on premises and for education.  The rule-lifting means, as Genachowski puts it, that “schools will now have the option to permit the general public to use their Internet connections whenever school is not in session.  These connections will be available to adults taking evening digital literacy courses, to unemployed workers looking for jobs posted online, to citizens using e-government services, and for other uses that local schools believe will help their communities.”

Some argue that most damning of all is that e-rate is funded through The Universal Service Fund, which has itself been the center of controversy lately.  The USF levies a fee on consumers of Internet and phone services of sometimes up to 15% of their regular service charges.  All companies that provide interstate service must pay these charges.  Scott Wallsten in a report released by the Technology Policy Institute in February of this year found that over half of subsidies, or $.59 of every dollar, paid through the High-Cost Universal Service Fund go to general expenses of firms and bureaucracy, not to directly providing support.

Recently, in calling for increased funding for e-rate, Sen. Jay Rockefeller argued that “The E-Rate program has been the singularly most effective and powerful of all of the [FCC’s] universal service programs.”  His statement, intended to support the program, has to leave us all wondering just how bad the other universal service programs must be.

Zack Christenson is a Chicago-based digital strategist who writes on tech policy.

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