Cybertelecom Federal Internet Law & Policy An Educational Project

Erate

The Telecommunications Act of 1996 significantly expanded the Universal Service program to include support for Internet access to schools and libraries, and rural health care programs.  In implementing the program, the FCC created a $2.25 billion fund.  All K-12 schools are eligible for subsidies from the program and the subsidies can be used for a wide variety of purposes including Internet access service, installation and maintenance, and certain hardware.  Different schools receive different levels of subsidies depending up whether they are urban or rural and depending upon what percentage of their students are eligible under the federal school lunch program - schools with the highest levels of eligibility take from the Fund first.  The Fund is collected from telecommunications providers.

Schools and libraries that take advantage of ERate much comply with the Internet Filtering obligations of the Children's Internet Protection Act.

• What is Covered by the School and Library Fund?
• A Guide to the Universal Service $2.25 Billion Fund For Schools and Libraries. 1998
• Statistics indicating how close Nation is to achieving goal of wiring all schools by year 2000
• ERate FCC Proceedings

GAO Erate Background

The Telecommunications Act of 1996 sets forth the nation's goals for providing affordable telecommunications services to consumers nationwide, particularly to populations such as individuals living in rural, isolated, or high-cost areas, or those with low incomes; schools and libraries; and rural health care facilities. The act instructed FCC to establish a universal service support mechanism to ensure that eligible schools and libraries have affordable access to and use of certain telecommunications services for educational purposes.5 In addition, Congress authorized FCC to "establish competitively neutral rules to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms . . . and libraries. . . ."6 Based on this direction, and following the recommendations of the Federal-State Joint Board on Universal Service,7 FCC established the Schools and Libraries Universal Service Support Mechanism, commonly referred to as the E-rate program. FCC designated USAC to carry out the day-to-day activities of the program,8 which is funded from statutorily mandated payments to the Universal Service Fund. FCC oversees USAC and the program through rule-making proceedings, enforcement actions, audits of participants, and reviews of funding decision appeals from participants. FCC also reviews USAC's procedures, including its process for reviewing applications for funding; meets frequently with USAC staff; and provides guidance letters to USAC. A memorandum of understanding between FCC and USAC, first executed in June 2007 and updated in September 2008, as well as FCC orders and rules, set forth the roles and responsibilities of the two parties in the management, oversight, and administration of the program.

The E-rate program provides schools, school districts, libraries, and consortia10 with discounts on telecommunications services, Internet access, and data transmission wiring and components used for educational purposes-that is, activities that are integral, immediate, or proximate to the education of students or to the provision of services to library patrons, such as activities that occur on library or school property.11 Based on indicators of need, eligible schools and libraries qualify for a discount of 20 percent to 90 percent on the cost of services and must show that they can pay for the undiscounted portion of services. Indicators of need include the percentage of students eligible for free or reduced-price lunches through the National School Lunch Program12 and whether the entity is located in a rural area.13 Table 1 shows the discount percentages entities are eligible for based on these indicators. Eligible entities may apply annually for program support.

Based on the broad direction in the act, FCC defined two general types of services that are eligible for E-rate discounts:

• Priority 1 services, which include telecommunications services, such as local, long-distance, and wireless (e.g., cellular) telephone services, as well as data links (e.g., T-1 lines) and Internet access services, such as Web hosting and e-mail services-all of which receive priority for funding under FCC's rules;14 and
• Priority 2 services, which include cabling, components, routers, switches, and network servers that are necessary to transport information to individual classrooms, public rooms in a library, or eligible administrative areas, as well as basic maintenance of internal connections, such as the repair and upkeep of eligible hardware and basic technical support.

Lists of specific eligible services, including the conditions under which they are eligible, are updated annually by USAC, finalized by FCC after a public comment period, and posted on USAC's Web site. Items ineligible for E-rate discounts include, among other things, end-user products and services such as Internet content, Web site content maintenance fees, enduser personal computers, and end-user software.

All eligible and properly completed requests for Priority 1 services are funded up to the available amount of funding.15 Priority 2 services, herein referred to as internal connections, are funded with what remains after commitments have been made for all approved requests for Priority 1 services in a given year. Requests for internal connections services are prioritized by the discount level of the applicant, with funding going first to applicants with the highest discount level-90 percent-and then to applicants at each descending discount level until the funding is exhausted; in 2007, for example, internal connections funding was provided to applicants with discount levels down to 81 percent.16 Because of this prioritization, available funding may be exhausted before all eligible and properly completed requests for internal connections are funded. According to FCC, the rules of priority equitably provide the greatest assurance of support to schools and libraries with the greatest level of economic disadvantage. The rules ensure that all applicants filing during a time period specified by USAC receive at least some support in the event that the amounts requested for support exceed the total support available in a funding year. 17