Boon or boondoggle?

The E-Rate subsidizes Net access for schools and libraries -- and your telephone company wants to kill it.


Nicholas Confessore
December 17, 1998 1:00AM (UTC)

According to conservatives, it's the biggest big-government boondoggle to come along in years: "A hidden tax," thunder Reps. Billy Tauzin, R-La., and Jerry Weller, R-Ill. A "new entitlement," trumpets the Cato Institute's Lawrence Gasman. "Sticking it to the taxpayer," rails Sen. Conrad Burns, R-Mont.

The object of all this opprobrium is a federal program you've probably never heard of that springs from a mammoth, 113-page act of Congress you'll never read. It's called the E-Rate, and it's shaping up to become the next great battleground of the information age -- with the GOP, free-market ideologues and telecommunications companies on one side and Vice President Al Gore, the Federal Communications Commission and about 30,000 schools and libraries on the other.

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The E-Rate is a federal program that helps connect schools and libraries to the Internet. It subsidizes the start-up costs associated with network hubs, Internet-grade wiring and other infrastructural necessities; the poorer the school or library, the higher the discount. It also gives schools and libraries new discounts for their phone service, based on the principle of Universal Service.

The E-Rate is itself an extension of Universal Service, a 70-year-old program that helped make telephone service ubiquitous in this country. In 1934, forward-thinking legislators, realizing that telephones were rapidly becoming essential to modern American life, enshrined Universal Service in the Communications Act passed that year. The program created a system of subsidies that spread the costs of equal access between all phone companies, ensuring that all Americans would have access to affordable telephone service. Business users subsidized residential users, and to a lesser extent, cheap-to-connect urban dwellers subsidized more costly to connect rural users.

The legislators who came up with the original concept understood that Universal Service wasn't a handout. When telephone service is ubiquitous, everyone benefits -- businesses and customers, governments and citizens, rich and poor. The more universal access becomes, the more valuable it is to each individual user.

So just as the original Universal Service was implemented to provide all Americans with equal access to phone services, the E-Rate was intended to help erase the "digital divide," the gap between technology haves and have-nots. The E-Rate -- which Congress passed as part of the 1996 Telecommunications Act -- had broad bipartisan support, partly because it wasn't supposed to cost consumers a dime. Rather, the telephone companies expected to rake in so much dough from the law's deregulation provisions that they gladly agreed to the E-Rate as an explicit quid pro quo. It was, says Jeffrey Chester of the Center for Media Education, "the only major public interest provision of the 1996 Telecom Act."

Proponents liken the E-Rate to Eisenhower's interstate highway bill -- a national infrastructure program for the Internet, expensive but temporary. "The E-Rate was never intended as a long-term program," says Leslie Harris, who heads a nonprofit communications advocacy group. "[Congress] thought, 'Let's build the digital highways, provide access for everyone in the United States, and once we've made that investment, we won't need the E-Rate.'" The expectation of E-Rate support helped thousands of schools leverage funding for computer hardware from foundations, governors and school boards.

So why all the pious noise about new entitlements and hidden taxes? Why are the E-Rate's opponents making schools and libraries out to be the equivalent of digital welfare moms?

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Lately it's begun to dawn on some of the sharper telecommunications companies that the average wired family of the future would be accessing the Web and sending e-mail over local telephone lines. The current E-Rate only applies to schools and libraries, but the industry "views the program as a dangerous precedent," according to Harris. If the E-Rate is successful, affordable Internet access might become viewed as an essential good à la basic phone service, threatening the vast profits telecommunications companies hope to earn from exponential growth in Internet usage. That's why they're working so hard to completely sever any connection between the E-Rate and the Universal Service concept.

The GOP is wholeheartedly backing the telecommunications industry in this effort; Republicans see the E-Rate as a handy political cudgel with which to hammer Gore. The vice president has long been the most vocal and visible supporter of the E-Rate, and he is expected to make education the defining issue of his 2000 presidential campaign. Quite simply, if the current E-Rate program is successful, Gore will get most of the credit, bolstering his education credentials for the upcoming election. So Republicans, most prominently Tauzin, Weller and Burns, have taken to calling the E-Rate the "Gore Tax." (Never mind that nearly every House Republican, including Weller and Tauzin, voted for the 1996 act that created the E-Rate.)

To avoid seeming anti-education, Republicans are pushing a Tauzin-Weller bill that would scrap the E-Rate program in favor of that perennial Republican panacea, block grants. The block grants would be paid for by one-third of the current 3 percent telephone excise tax, with the rest of the tax being abolished, and would provide about $2 billion for the E-Rate, which is about what the existing program costs.

It sounds good -- but there's a principle at stake: Switching to block grants would yank the E-Rate out from under the protective rubric of Universal Service and throw it into the normal appropriations process, where it will be subject to the usual horse-trading. And that's just what the telephone industry wants. The Tauzin-Weller bill would also repackage the E-Rate as a GOP-sponsored education program, rather than as a Gore-sponsored extension of the principal of Universal Service. In other words, the Tauzin-Weller bill allows the GOP to take credit for the E-Rate while nicely complementing the aims of the telecommunications industry -- which doesn't want anybody getting any ideas about Internet access as an essential service.

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Consumers, as usual, are getting screwed. Deregulation was supposed to usher in an era of huge profits for telephone companies. And it did: The 1996 act's reduction of access charges (which long-distance companies pay local phone companies) has alone saved those companies $2.4 billion in the last year. That money was supposed to fund the E-Rate -- but now, those same companies want to keep the money and, in a particularly cheeky maneuver, charge consumers for the E-Rate.

The main problem for its opponents is that the E-Rate, for obvious reasons, sells pretty well to the public. In its original form, the E-Rate would have directly benefited any child attending one of the 73 percent of U.S. schools with no Internet connection, and especially those millions of schoolchildren whose families can't afford computers or Internet service at home. This is a rather large constituency, so those who oppose the E-Rate need to redefine it.

Enter the rhetoric of entitlement. By characterizing the E-Rate as a "hidden tax" and a "new entitlement," Republicans, conservative think tanks and industry lobbyists cast it as an ideological child of the welfare state -- just another "big government" program sucking money from the taxpayer. Because they are also proposing to cut the general phone excise tax, the GOP gets to be the party of both fiscal responsibility and educational largess.

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"What we're doing is cutting taxes for nearly everyone in America and saving the E-Rate program in the process," as Tauzin has put it. Meanwhile, companies like AT&T and BellAtlantic have begun to itemize the "cost" of Universal Service on phone bills, frequently adding a hefty surcharge to cover "administrative expenses." In combination, these strategies aim to convince consumers not only that they are being bilked, but that they are being bilked for the benefit of the poor -- the ThinkPad Queens, if you will.

It's really a bait-and-switch. The E-Rate was not "hidden"; it was touted as one of the three main goals of the 1996 act and had broad bipartisan support. Nor is it an "entitlement," any more than laws mandating restaurants to provide wheelchair ramps are a form of welfare. As a report by the Center for Media Education, "Deepening the Digital Divide," recently noted, the E-Rate is about access: It simply applies the principle of Universal Service, unchallenged for seven decades, to evolving communications technologies. For telephone companies to start itemizing the cost of the E-Rate on telephone bills is like McDonald's itemizing the cost of a wheelchair ramp on the receipt for a Happy Meal.

Meanwhile, schools and libraries suffer -- as do children who are being deprived of tomorrow's essential workplace skill, computer literacy. Ironically enough, Republican critics of the program have been quick to use the announcement of the most recent wave of E-Rate grants as an occasion to issue self-congratulatory press releases about their support for education.
While waiting for their proposals to scrap the E-Rate to move through Congress, those same Republicans have already pressured the FCC into cutting E-Rate funding by about half -- leaving in the lurch thousands of schools that have invested in computer equipment in preparation for E- Rate support.

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Jackson County, Fla., is cutting an innovative "distance learning" program that it can no longer afford. Schools in Tennessee have spent $20 million preparing for the E-Rate, money that is now essentially wasted.

"The E-Rate has become a political football," says the Center for Media Education's Chester. A football indeed -- in a game that consumers, libraries and schools are losing.


Nicholas Confessore

Nicholas Confessore is a writing fellow at the American Prospect.

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