FCC Eyes Internet Access Subsidy
The Federal Communications Commission this week is expected to tighten rules for the third time on a program that provides subsidized Internet access to schools and libraries, but has been persistently criticized for its largess and lax oversight.
Spurred by continued allegations of widespread fraud, commissioners Wednesday plan to adopt regulations that would disqualify telecommunications service providers that repeatedly flout the rules of the government’s multibillion-dollar “e-rate” program, intended to wire thousands of rural and poor schools and libraries for high-speed Internet access.
The program is financed by a monthly $1-to-$2 “universal access fee” that appears on virtually every telephone bill. Critics accuse participants -- which range from telecom upstarts to industry giants such as Lucent Technologies Inc., IBM Corp. and the four Baby Bell companies -- of inflating service costs, charging for unauthorized equipment and technology and not seeking competitive bids.
Congress, the FCC, the Justice Department and more than a dozen states have launched investigations into the program in recent months.
“Based on what we’ve seen so far, we are not talking about a couple of isolated incidents but widespread instances of fraud and abuse,” said Ken Johnson, a spokesman for Rep. W. J. “Billy” Tauzin (R-La.), chairman of the House Commerce Committee and a longtime critic of the e-rate program. “Schools are hooked up to the Internet for free and the federal government is robbed blind.”
The Center for Public Integrity, a Washington-based watchdog group, said it learned of one unnamed school that paid $20,000 annually to lease a piece of computer networking gear that could be purchased outright for $20,000. The school also was paying an unusually high $96,000 a year for a maintenance contract, the center said in a study published earlier this year.
The program “is honeycombed with fraud and financial shenanigans,” the report declared, “but the government officials in charge say they don’t have the resources to fix it.”
That study echoed similar findings issued in October by the FCC’s inspector general, which concluded: “The results of audits and the allegations under investigation lead us to believe the program is subject to unacceptably high risk of malfeasance.”
Despite e-rate’s success in bringing high-speed Internet access to thousands of schools and libraries nationwide, the program’s critics point to projects they say were never intended to be funded.
In Fresno, for instance, telephone equipment provider Lucent installed a “homework hotline” in 1999 that was paid for in part by funds from the e-rate wiring program. More recently, e-rate program officials have delayed or denied applications from IBM Corp., alleging the computer concern won some contracts without competitive bidding.
Lucent said the Fresno work was performed by its former networking subsidiary Avaya Inc., which is now an independent company. Avaya officials did not return calls seeking comment.
IBM spokesman Andy Kendzie acknowledged that some of the company’s e-rate applications have been denied or delayed, primarily in Texas and a few other states. But he denied any wrongdoing by IBM.
“We have been fully compliant with FCC’s rules,” Kendzie said. He blamed the holdup of IBM’s e-rate applications on regulatory red tape and said IBM has written the FCC asking the agency to “streamline” the process.
Action by the FCC on Wednesday would mark the agency’s third attempt to reform the e-rate program, which has proved to be one of the most controversial aspects of the Telecommunications Act of 1996.
In 1998, the FCC shut down Schools & Libraries Corp., a nonprofit company that the FCC created to oversee the e-rate program, after the corporation drew fire for allegedly turning a blind eye to excessive funding requests. The corporation’s $200,000-a-year chief executive resigned from his post after criticism that his salary was lavish. The FCC later slashed the CEO’s pay to $150,000.
In addition, the FCC established a nonprofit group called the Universal Service Administration Co. to administer e-rate and two other related telephone-subsidy programs.
The new rules would authorize USAC to disqualify any company, school or library that repeatedly violated program rules aimed at ensuring fiscal accountability such as competitive bidding and fair dealing. The FCC could also make recommendations to the Justice Department to prosecute wrongdoers.
But it’s unclear how much of an effect the new rules will have, given that more than 75% of the nation’s schools already have been wired under the program. What’s more, the rules would do little to address the lack of government oversight of the e-rate program. Only two FCC auditors are assigned to e-rate transactions, which finance an average of 30,000 Internet connection projects each year.
Rather than wait to see if the FCC rules work, Rep. Thomas G. Tancredo (R-Colo.) has reintroduced a bill to terminate the e-rate program, branding it “an additional hidden tax on the already overtaxed American people.”
The measure is pending before the House Committee on Energy and Commerce.
