Wheeler FCC Driving Toward Controversial E-Rate Overhaul

Keep up with the latest developments and legal issues in the telecommunications and emerging technology sectors, with exclusive access to a comprehensive collection of telecommunications law news,...

By James M. Smith  

Under new Chairman Tom Wheeler, the Federal Communications Commission has intensified and accelerated its initiative to complete a massive transformation of its E-Rate universal service fund program to bring advanced high-speed broadband capabilities to America's K-12 schools and libraries in the next few months--perhaps as early as this summer.

If Wheeler and the Democratic members of the FCC succeed, they will likely do so over strenuous objections of their Republican colleagues and Republican congressional leaders.

The drive to transform the program--formally known as the Schools and Libraries Program--into a high-speed broadband fund to enhance digital learning for students and library users across America has been underway since last summer, but it has picked up tremendous momentum since President Obama singled it out in his January 28 State of the Union address and then doubled down by hawking it during his post-SOTU “tour.” The president first outlined his vision for reform last June when he called on the FCC to overhaul the E-Rate program to connect 99 percent of America's students to broadband at speeds of at least 100 megabits per second (Mbps) by 2015, with a target of 1 gigabit per second (Gbps) by 2020. In the SOTU, Obama made clear that he intends the expansion of the E-Rate fund to be one of the signature accomplishments of his second term, and on Feb. 4 he advanced the ball by announcing $750 million in commitments of services and equipment by the likes of Apple Inc., Verizon Communications Inc., Microsoft Inc., Sprint Corp. and other leading telecom companies.

The familiar ideological tensions between the Obama administration and Republican leaders and foes of “big government” are being played out in microcosm at the FCC, with a showdown on the near horizon.  

Wheeler and his Democratic colleagues on the FCC--particularly Commissioner Jessica Rosenworcel-- spared no time in showing their enthusiasm for the president's goals: Wheeler issued a statement strongly embracing E-Rate reform on the night of the SOTU speech, and within days declared that “E-Rate modernization is at the top of my agenda” and announced a $2 billion “down payment” in broadband support over the next two years using unspent existing funds. Wheeler, Rosenworcel, and fellow Democratic Commissioner Mignon Clyburn have continued beating the E-Rate drum ever since, in speeches across the country and in a March 6 public notice calling for “focused comments” from stakeholders on several key issues. On March 17, Chairman Wheeler went even further, declaring that “E-Rate modernization is a big deal” and exhorting the education community and his FCC colleagues to rally to the cause: “This is a watershed moment in the E-Rate program. I know there are strongly held views on many of these topics, but only a united front will move the E-Rate.”

Momentum Building, But So Is Opposition

Wheeler's March 17 speech framed the key elements of E-Rate transformation: “While the details of E-Rate modernization remain in flux, the goals are clear. For E-Rate modernization to be successful, the updated program must be: (1) focused on delivering faster-speeds to schools and libraries and Wi-Fi throughout; (2) funded and future-proofed; (3) fiscally responsible and fact-based; and (4) friendly to use.”

In a bow to his more fiscally conservative colleagues, he emphasized that “simply sending more money to the E-Rate program to keep doing business as it has been for the last 18 years is not a sustainable strategy…My colleagues and I can't just pour more money into the program as it presently stands.” But he also stated for the first time that he will recommend raising the universal service “contribution factor”--the fees assessed to telecom service providers to fund the federal universal service programs, which are invariably passed through to consumers as a line-item fee in their telephone bills--“should it be warranted.”

The FCC's March 6 public notice is widely seen as an effort to both narrow the key issues and to drive the agency debate to a head in the coming weeks. As Wheeler described it, the FCC wants input on “some of the thornier questions the commission is now facing.”

“How do we establish predictable and widespread funding for internal Wi-Fi connections? Should we (and if so, how) provide one-time support for schools that don't currently have a high-speed connection? What's the best way to phase down support for legacy services like voice so that we can phase-up high-speed broadband? What are ways to maximize cost-effectiveness of purchases to lower recurring costs?” He noted, too, that “less than half of E-Rate funds goes for the kind of 100 Mbps and higher speeds necessary for today's learning environment,” and expressed particular frustration that “in an era when Wi-Fi is at every burger joint and coffee shop, the E-Rate program is not helping to put Wi-Fi in all classrooms.”

Wheeler Avoids Full-Commission Vote--For Now

But Wheeler chose to issue the recent public notice as a bureau-level document, thus avoiding putting it to a vote of the commissioners. In doing so, he exposed anew the growing frictions between the Democrats and Republicans on the agency. Republican Commissioner Ajit Pai immediately issued a statement complaining that Wheeler's end-around “depriv[ed] comissioners of an opportunity to weigh in” and that “even if the right questions were posed, this is the wrong way to pose them.” In recent weeks, both Pai and fellow Republican Commissioner Michael O'Rielly have affirmed their opposition to increasing the universal service program budget, declaring instead that any increase in E-Rate funding “must be offset by reductions elsewhere within the federal universal service budget.” Given that the educational community, the administration and other E-Rate champions believe that a doubling or tripling of the program's funding will be necessary to realize the proposal's high-speed broadband goals--and that most Democrats do not want to raid other components of the overall universal service fund--these pronouncements are widely perceived as a poison pill that would defeat the administration's objectives. Moreover, Republican congressional leaders, as well as the National Association of Regulatory Utility Commissioners, have called upon the FCC to refer E-Rate reform to a federal-state joint board, which surely would slow momentum toward final action to expand the program.

Thus, the familiar ideological tensions between the Obama administration and Republican leaders and foes of “big government” are being played out in microcosm at the FCC, with a showdown on the near horizon. Clearly, Wheeler hopes that he can forge consensus with his Republican colleagues--who have also voiced support for E-Rate modernization, albeit through less expensive means--by leavening expansion of funding with fiscal restraint and a tough businessperson's approach to finding efficiencies in the program. He declared in his March 17 speech that “the future security of the E-Rate program requires that our decisions about the program must be fiscally responsible and fact-based. . . . The FCC has a fiduciary responsibility to both rate-payers who contribute to the program and to students who rely on it to first assure that every E-Rate dollar is finding its highest and best use.” He has also promised a “special strike force for the entire Universal Service Fund … to make certain there is adherence to the rules and the People's money is wisely spent.”

But he went on to say that “if those of us who believe high-speed connectivity of schools and libraries is a national priority don't coalesce around a new structure for E-Rate, we will have shamefully lost a great opportunity. If we don't emerge with a clear vision that looks forward, not backward, we will put the advancement of digital learning opportunities at risk.”

Time to Act Is Now

Clearly, Wheeler and the Democrats are willing to weather a divisive, partisan, 3-2 vote if necessary. In any event, it is abundantly clear that Wheeler and the Obama administration believe that time is of the essence, and they need to act fast--by this summer-- lest another signature administration initiative run aground on the shoals of political deadlock.

Jim Smith is a telecommunications attorney in the Washington, D.C. office of Davis Wright Tremaine LLP, an international law firm of 500 attorneys with a significant telecom, transactional, and corporate practice. He can be reached at jamesmsmith@dwt.com.  

Request Tech & Telecom on Bloomberg Law