FCC Chairman's E-Rate Proposal Dogged by Funding Controversies

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By Bryce Baschuk  

July 9 — The Federal Communications Commission is preparing for a narrow vote on Chairman Tom Wheeler's proposal to expand Wi-Fi access for the nation's schools and libraries, agency observers said in separate interviews July 9.

The FCC plans to vote on an order during its July 11 meeting to spend $2 billion to fund Wi-Fi in U.S. schools and libraries over the next two years though it does not indicate how funding will be allocated over the following three years.

The proposal, which generally seeks to modernize the 18-year-old E-Rate program, has sharply divided critics over its proposed funding models and whether or not the FCC should increase the program's $2.4 billion annual budget cap.

Failure to enact substantive changes to the E-Rate program could mar President Barack Obama's State of the Union pledge to provide schools and libraries with gigabit per second broadband Internet connections within the next five years.

Contribution Rate Controversy

Critics of Wheeler's proposal said it is short sighted for the chairman to allocate unspent funds for a short-term Wi-Fi spending boost while delaying a vote on a long-term E-Rate funding increase until long after he's left office.

The agency's modernization effort doesn't seek to increase E-Rate contribution rates from telecommunications providers nor does it seek to increase the program's annual budget cap. Instead, the commission will pay for its expanded Wi-Fi funding by redirecting $2 billion in existing funds from reserve accounts it identified in March.

The two Democratic authors of the E-Rate provisions in the 1996 Telecommunications Act admonished Wheeler in a recent letter for failing to increase the funding cap. “We find it unfortunate that the proposal you are considering does not appear to address permanent funding changes to put the E-Rate program on a solid financial foundation for the future,” said Sens. John D. Rockefeller IV, (D-W.Va.) and Ed Markey (D-Mass.) in a July 8 letter sent to Wheeler.

Sen. John Thune (R-S.D.) said he also had serious concerns with Wheeler's proposal and urged the chairman to delay the July 11 vote. “While I disagree with some of my Democrat colleagues who believe the FCC should simply increase the existing cap on E-Rate funding, they are correct that Wi-Fi's ‘impact cannot be felt where there is no broadband to support it,”' Thune said. “Moving forward in a partisan manner, relying on untested budget assumptions, and shifting E-Rate's priority from connectivity to Wi-Fi will only erode the chairman's and FCC's stature, and potentially jeopardize support for E-Rate.”

Kicking the Can?

The decision to maintain the E-Rate budget cap sidesteps a long-running partisan feud about whether the government should ask Americans to contribute more money to the program.

The 1996 Telecommunications Act directs U.S. telecommunications providers to contribute to the universal service fund (USF) in the form of fees that subsidize the deployment of broadband infrastructure to American schools and libraries. Those fees, which are generally paid by consumers in a line item charge in their monthly telephone bills, ultimately go to fund the E-Rate program.

Some Democratic policy-makers say the program's cap should be increased, and potentially doubled, to account for the cost of providing modern broadband services to the nation's schools and libraries. Congressional Republicans staunchly oppose any E-Rate funding increases and have urged Wheeler to seek fiscal restraint as he seeks to modernize the program.

Wheeler's proposal aims to offset some money by phasing out E-Rate funding for legacy technologies like pagers and dial up Internet service. The order also seeks to increase the efficiency and transparency of the program, streamline the application process for eligible institutions and create new protections to reduce fraud and abuse, among other proposals.

Party-Line Vote Looms

Republican FCC Commissioner Ajit Pai said negotiations between the Chairman and Republicans had devolved over budgeting concerns, according to a July 8 statement.

“As it stands, the proposal will blow a $2.7 billion hole in E-Rate's budget—one that the FCC has promised outside parties it'll fill with a post-election increase in Americans' phone bills,” Pai said. “The chairman's office has no interest in seriously negotiating with the Republican commissioners and is determined to pass this item on a party-line vote.”

Republican FCC Commissioner Michael O'Rielly said the FCC's E-Rate proposal “cannot simply be a blanket call to further increase overall USF spending,” in a recent blog post.

Democratic FCC Commissioner Jessica Rosenworcel has bargained hard with Wheeler to increase the program's $2.4 billion annual budget cap, commission sources told Bloomberg BNA. Rosenworcel had previously urged Wheeler to further expand the program's funding cap by adjusting for the inflation that has occurred since the program's $2.25 billion cap was implemented in 1998. The Commission began indexing the annual funding cap to inflation in 2010.

The FCC's other Democratic commissioner, Mignon Clyburn, has generally supported the chairman's call for E-Rate modernization but has remained silent on the funding debate.

Looming Connectivity Gap

Critics of the chairman's proposal said there is a real problem with focusing on Wi-Fi access if it means schools won't be able to pay for adequate connectivity in the first place.

Wheeler has offered to shift current funding for broadband connectivity service to institutions via cable and fiber networks to internal connectivity services, like Wi-Fi routers and receivers.

Rockefeller and Markey said the FCC's efforts to make Wi-Fi connectivity ubiquitous in U.S. schools “cannot come at the expense of the already limited funding that keeps these institutions connected,” according to the letter. “It would be ill-advised to guarantee a permanent set-aside for Wi-Fi, if that set-aside could end up cannibalizing funding for basic Internet connectivity.”

Harms Smaller Institutions?

Wheeler's proposal to limit subsidy allocation on a per-pupil level would severely disadvantage smaller, poorer and rural schools, some critics told Bloomberg BNA. The FCC is considering a new, per pupil funding cap of $150 per student over the next five years and offer Wi-Fi funding to libraries at a rate of $1 per square foot, according to recent filings at the commission.

Rockefeller and Markey told Wheeler they opposed per-pupil or square foot distribution mechanisms “because it is not an effective means of getting resources to schools and libraries with the greatest need,” according to their letter. “To the extent that you make adjustments to support for Wi-Fi, we ask that you consider it a two-year test project, subject to further review, rather than a broader departure from the need-based system that has made the existing E-Rate program a success.”

The proposed per student funding cap is a “significant departure from the original intent of the E-Rate,” said Noelle Ellerson, the associate executive director of the School Superintendents Association. The program has “always been focused on serving the neediest of students, hard stop. The very act of diluting E-Rate dollars to a per-pupil basis switches it to an entitlement program,” she told Bloomberg BNA in an interview. “That is an unfortunate step away from an equity-driven program at the very time we talk about education as a civil rights issue.”

“I don't have any heartburn about that,” said John Harrington, the chief executive officer of Funds for Learning, an E-Rate consulting firm. “All the chairman has proposed are limits on the amount of funding that they could receive for internal connections,” Harrington told Bloomberg BNA. “Quite frankly, a wireless access point costs the same as it does in Juneau, Alaska as it does in Ft. Lauderdale, Florida.”

Wheeler's proposal would create a minimum funding level of $6,000 for schools with less than 22 students in order to alleviate funding disparity concerns, recent FCC filings said. In addition, the per-pupil cap only applies to on-campus connectivity funding and does not limit subsidies for telecommunication services that are brought to schools and libraries.

To contact the reporter on this story: Bryce Baschuk in Washington at bbaschuk@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

Read the E-Rate modernization proposal here: http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0620/DOC-327777A1.pdf.