Much Needed Increase in E-rate Cap May Not Be Feasible Without Contribution Reform, Some Say

"There can be no question that the amount of the annual funding cap must increase to accommodate present and future demand,” said the State E-rate Coordinators’ Alliance (http://bit.ly/1btOdBG). A permanent increase is the only way to meet program objectives, SECA said. “The crux of any reform and improvement of the E-rate program is ensuring there is a sufficient and predictable funding source to meet the needs of the nation’s schools and libraries.” The E-rate program has the “dubious distinction” of being the only universal service program “underfunded since its inception."

There’s no way to meet the statutory objectives of universal school and library access to advanced telecom without an infusion of cash, SECA said. The FCC’s broadband objectives are similarly unreachable without more money, it said. The “key question,” it said, is how much money is needed. The July NPRM considered a temporary increase in the E-rate cap. That won’t do, SECA said. “The additional needed funding must be permanent and sustainable.” A one-time infusion might help build out fiber, but won’t let schools and libraries sustain a world-class broadband network, it said.

The NPRM was down at times on the FCC’s ability to ever provide as much funding as schools and libraries seek. “Even if there are services that further the educational mission of the school,” the commission asked, “is it now no longer realistic to support all of these services within our budget since funding is always limited?"

U.S. Cellular encouraged the commission to “take a more optimistic view” (http://bit.ly/1aOt8yT). If the agency would tackle USF contribution overhaul, that could help, it said. Streamlining E-rate funding allocation could also help, it said, pointing out that an average of only $1.8 billion has been spent in each of the last 10 years, leaving $5 billion unused in the E-rate account. Critics say inefficiencies in the program lead to spending less than the $2.25 billion available each year, even though requests far exceed the $2.25 billion allocation. “The E-rate budget is by no means open-ended,” and it’s “prudent for the Commission to assess the scope and range of services and activities that should be eligible for E-rate support in light of the boundaries of the E-rate budget, the Commission should also be mindful of potential hardships that schools and libraries would face if the Commission were to start whittling down the list of eligible services and activities,” said the carrier.

The Los Angeles and Houston school districts asked for a $5 billion cap. California’s San Mateo County Office of Education suggested a permanent increase to $4.5 billion with adjustments for inflation to give schools and libraries the “much-needed discounts to continue enhancing their network connectivity” (http://bit.ly/18ehyej).

"The school districts may well be coming in high in the hopes of resetting the terms of the debate,” Guggenheim Partners analyst Paul Gallant told us. “I don’t think higher E-rate funding is a nonstarter if the administration continues to put some real weight behind it. But it seems clear there will be some Republican pushback to anything that implicates consumers’ phone bills, so I don’t think it’s safe to assume that funding actually rises."

The Schools, Health & Libraries Broadband Coalition also pushed for a permanent increased cap. Actual demand, SHLB said, is probably much higher than $5 billion, because potential applicants likely haven’t applied for Priority 2 services, “knowing that they would not be funded” (http://bit.ly/1fdAVsX). The E-rate cap would have to be $6 billion per year starting in 2014 “just to keep up with the growth in IT spending by the Federal Government,” it said. “If the Commission fails to provide additional funding to the E-rate program, it risks failing to carry out the intent of Congress in creating the program."

"Throwing around dollar figures willy-nilly at the front-end of the process could complicate an initiative already guaranteed to be politically divisive at a time of perennial budget deficits,” said Jeff Silva, analyst at Medley Global Advisors. “The mindset for approaching President [Barack] Obama’s ConnectEd initiative at the FCC shouldn’t be artificially limited to being just another attempt a regulatory reform, but rather pursued as an essential investment in human capital with a huge, long-term payoff for the U.S. in terms of global competitiveness and informed democratic participation."

The multiple requests for an increase in the cap “reflects both the success of the program and the growing demand” for broadband, said Micah Caldwell, Independent Telephone & Telecommunications Alliance vice president-regulatory affairs. She encouraged the commission to “remain cognizant of the impact such actions could have on other important universal service programs and objectives.” Funding E-rate might be “laudable,” but “it should not place in jeopardy the commission’s broader broadband deployment goals, such as those it seeks to achieve through implementation of the Connect America Fund,” Caldwell told us. If it can’t expand E-rate funding without undermining the other USF programs, the commission should focus on the “long overdue reform” of the contribution mechanism, she said: That “could result in a greater amount of funding being made available for all worthy programs.”