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Universal Service in the United States: unjust, unreasonable, and unaffordable? Telecom Act of 96 Update: The Institution of the "E-Rate" Subsidy for Schools and Libraries Prompts a Political Debate Over the Future of Universal Service in Telecommunications in the United States
Beth Simone Noveck
1. Introduction: Democrats (sic) Debate Democracy and Technology Policy
At a recent conference (May 8-9, 1998) on "Democracy and the Internet," sponsored by the M.I.T. Communications Forum, Benjamin Barber, Director of the Walt Whitman Center for the Culture and Politics of Democracy, best known for his book Jihad v. McWorld (1996), delivered the reply to the keynote address of Ira Magaziner, the Clinton Administration's Senior Advisor for Policy Development and Special Advisor on Electronic Commerce, saying-with a wry smile-that now we know the Republican view on the impact of new technologies on democracy. Magaziner, who had spoken with Panglossian optimism and political aplomb of the needs for a hands-off government policy toward the Internet to loose the engine of electronic commerce, was taken aback. I've been called a Socialist, a pinko, a Communist and all sorts of things, he quipped, but never a Republican!
Barber's barb hinted less than subtly at the dangers for democracy of government abdicating its role of serving the public interest via technology policy. His accusation applies too aptly to the current stance-perhaps better described as a buckling-at-the-knees-toward universal service in telecommunications. Despite a theoretical subscription to expanding universal service for a convergent era, the recent "E-Rate Debate" about subsidizing telecommunications services for schools and libraries has shown Clinton, Gore and the Federal Communications Commission (FCC) unwilling to take on the telecom giants and to take the issue of universal service to the American people. The E-Rate and universal service, while well-intentioned policies, impinge upon a powerful and key lobby regarded as the backbone, figuratively and literally, of wealth production in the next century-interests the Administration as well as Congress are anxious not to alienate. This abdication is all the more disappointing coming from an Administration which has a commendable track record, for the most part, of defending cyber-rights and promoting Internet penetration.
Before the new universal service provisions legislated by the Telecom Act of 1996 have even gotten off the ground, the E-Rate program has already been cut in half. Instead of being hailed as a democratic minimum, the notion of guaranteeing a telephone in every home and an Internet connection in every schoolhouse is under attack, labeled a hidden tax on consumers by the telephone companies responsible for its implementation. The telcos self-righteously claim they have no choice but to pass on the costs of universal service to their customers. Instead of publicizing the virtues of the E-Rate and explaining it to the American people, the Administration sits by, fending off congressional attacks. As with the healthcare debate in the United States, there has been an insufficient democratization of the discussion, though this is an issue likely to galvanize popular will. At a recent Senate Subcommittee hearing on the issue, for example, the only witnesses were the five FCC Commissioners. (There have been a few notable exceptions to the closed-door stance.) Moreover the entire political brouhaha over how and whether to wire schools -- and who will pay for it -- rages on without organized and public debate. Why, and to what end, are we creating the pipelines to pour unknown content into the minds of young people, without the basic literacy skills to accompany the technology? Instead, the vital demotic question for our society of the role of technology in public education is victim to an entrenched political battle in this election year. The additional danger is not only that E-Rate is going down the drain but that universal service as it has served to connect this vast nation since the Telecommunications Act of 1934 is being thrown out with the bathwater.
2. The Universe of Service Expanded by the E-Rate
The Telecommunications Act of 1996 opened the way for an expansion of "Universal Service" (47 U.S.C.A. § 254 et seq.), the provision which guarantees hard-to-reach customers affordable access to quality basic telecommunications services at reasonable rates, to include schools and libraries. The original idea of universal service was to provide equal possibilities for affordable access to the means of trade and communication, bridging regional disparities. In the past, universal service was accomplished via a variety of funding mechanisms aimed at forcing the AT&T monopolist to hook up rural customers. The new Telecom Act sought to deepen and broaden the meaning of universal service to pre-empt a widening of the chasm between information haves and have-nots that divides the country along regional, economic and racial cleavages in the Information Age. Section 254 of the 1996 Act redefined universal service as an "evolving level of telecommunications services" (§ 254(c)(1)) which would allow for an expansion of the definition of basic service to include advanced telecommunication and information services (§ 254(b)(2)). This legislation mandated an E-Rate, or education rate, whereby telecommunications carriers would have to offer their lowest rates to schools and libraries and these institutions, based on a sliding scale, would be entitled to an additional 20-90% subsidy for the costs of wiring, access and telecommunications usage.
On May 7, 1997 (and subsequently on July 18, 1997), the FCC approved administrative rules for the implementation of § 254. These rules arose out of the recommendations made by the Federal-State Joint Board, a bipartisan advisory group composed of three FCC Commissioners, four state public utility commissioners and one state public utility consumer advocate, created for this purpose (§ 254(a)(1)). Under the administrative structure as laid out in 1997, the FCC established three corporations to manage the E-Rate program: the Universal Service Administration Company (USAC), responsible for collecting monies from the eligible telecommunications providers, and subsequently reimbursing them for services rendered to approved institutions; the Schools and Library Corporation (SLC) and the Rural Health Care Corporation (RHCC), responsible for handling the application process. Among numerous other changes implemented to E-Rate midstream will be the likely elimination of the SLC and the RHCC. During the initial 75-day window for applications, 30,000 were received. The USAC had originally been directed by the FCC to collect only as much revenue as required by demand up to a maximum budget of $2.25 Billion.
On June 5 at the MIT Commencement, where President Clinton had been invited to deliver the keynote address to the graduating class, the President touted the E-Rate as the most crucial initiative we've launched to help connect our schools, our libraries, and our rural health centers to the Internet. Yet almost simultaneously the same program unraveled, assailed from all sides. The implosion of E-Rate eclipsed the President's speech in the next day's press and rendered its upbeat message tragicomic. Despite the visionary slogans of the MIT address, the political will evaporated under pressure from Congress and the telecommunication lobby, forcing the FCC to call for a rollback by half of the E-Rate budget from $2.25 Billion to $1.28 Billion-before anything has even been given away-in an attempt to save the program altogether. The same Congress that created the new universal service provisions in the Telecommunications Act of 1996 would now kill it in its infancy, labeling the program Internet pork. House Speaker Newt Gingrich has proposed eliminating E-Rate and replacing it with a system of block grants to states funded out of the federal telephone excise tax. It is rumoured that some in the Senate will make next year's FCC appropriations contingent on the scrapping of E-Rate.
3. The Telcos and the E-Rate Debate
The announcement by MCI and AT&T that they will raise consumer phone rates by 4-6% to cover the cost of the E-Rate program, itemizing the E-Rate charges on customer bills, has undercut the Administration's plan to expand universal service furtively, confirming FCC Commissioner Furchgott-Roth's dissenting comments in a Report to Congress on May 8, 1998 that "the ignorance of most American consumers about this tax is not an accident. It is planned ignorance. AT&T and MCI want to create the impression that customers are being stuck with the bill for a tax they do not understand and to which they never consented-a tactic which has spawned a political battle. The telco monoliths claim to be doing the public a service by rendering the so-called "Gore tax" (named for the Vice-President who has been the most vocal proponent of the E-Rate) more transparent while they actually do a service to themselves, arousing Congressional ire at the Administration and its support for universal service. In a competitive telecommunications environment, these common carriers do not want to be saddled with the burden of social justice cutting into their margins. The telcos would claim the need to pass the costs on to consumers, despite the fact that they might be passing the buck. Instead, given the benefits received from reductions in access charges to local networks, these may more than have offset costs of expanding universal service to include an E-Rate. It is not clear what the economics of these dynamic universal service provisions may mean for the industry in a competitive era of telecommunication convergence. The long distance companies have skilfully manipulated this ambiguity, distorting universal service, an obligation they have always borne, into a new tax to be passed along to consumers. Their public relations efforts have successfully provoked opposition from such groups as the Consumer Federation of America.
4. E-Rate Under Fire: Critiques from All Sides
Critiques have also been levelled against the FCC from supporters of universal service for making the application procedures unnecessarily complex and for limiting reimbursements to the wiring of institutions but not for the erection of potentially more cost-effective wireless networks utilizing spread spectrum technologies. E-Rate is not technology-neutral. Controversy also arose over who would contribute to the fund, with the decision made to exempt Internet service providers from sharing in the costs, though they would benefit from the business of increased Internet usage by schools and libraries. In addition, the Government Accounting Office (GAO), the agency responsible for fiscal oversight of governmental workings, found that the FCC overstepped its administrative authority when it created separate corporations to run the E-Rate program; its administrative structure must be overhauled. Critics say the SLC is flabby and overstaffed. Finally, some critics view E-Rate as a dilution of the goals of serving high cost rural customers and an abandonment of the original intent behind universal service. Among those who support the goals of E-Rate, there are also those who regard the implementation to-date as a contravention by the FCC of the will of Congress. They question the legality of the FCC's actions and raise concerns of administrative overreach and federalism. Furthermore, some E-Rate enthusiasts want to tie these subsidies to the use of smut blocking and filtering software by schools and libraries. This muddies the waters and raises the contentious issue of content regulation, a question hotly debated in the context of indecency and government funding for the arts.
5. Conclusion: The Government as Guarantor of Universal Service
While this is going on the Administration complains about Congress' attacks on E-Rate but not about telcos like MCI & AT&T, who have been, in large part, staunch Clinton supporters. The Administration's strategy to promote social justice quietly, deepening universal service, while letting or even encouraging the telcos to pass on the costs surreptitiously, has backfired and led to a situation that is anything but quiescent. The botching of E-Rate has prompted so much Congressional scrutiny as to endanger the original universal service provisions.
This mess is the direct result of the Administration's hands-off policy of industry self-regulation, a policy which, on the data privacy issue, for example, is putting the U.S. at loggerheads with European views. Individual, as well as industry, self-regulation and regulation by consensus are alternatives to the imposition of legal liability rules and bureaucratic regulation made possible and desirable by the spread of decentralized communications technologies. However, government still has a role to play, primarily as orchestrator of a national conversation about such issues as the why of wiring public schools. Until now efforts to engage the public in the national debate over the future of our telecommunication and information content and conduits emerge from the grass-roots and non-profit sector (e.g. The Civil Rights Forum Communications Project, but not from government. Without public backing to prop up the E-Rate program, the Administration's position bends like the hollow reed in the face of Gingrich's gusts and the telco tempest.
The engine of electronic commerce purrs beautifully of its own accord without tinkering but, without political guidance from Washington and other levels of government, this engine will run the direction of the train amok. As in the old joke, the front of the train, where the info-haves are comfortably seated, will arrive at the future on time, whereas the back of the train, crammed with info have-nots, will end up at a different destination.