Boon or boondoggle?

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

By Nicholas Confessore

Dec 16, 1998 | 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.

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?

Next Page: Phone companies want Universal Service to stop where the modems begin

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