The E-Rate program is part of the federal Universal Service Fund (USF). Since the 1960’s there was a universal service fund that was administered by AT&T that provided funds to support the expansion of telephony into rural places. This was funded by a small surcharge on interstate long distance calls.
But when AT&T was broken up the funding for USF got murky and so Congress changed the administrator of this funding as part of the Telecommunications Act of 1996. In the Act the Congress directed the Congress to create the Universal Service Administrative Company (USAC) who collects and disburses funding for universal service. USAC is still funded based upon interstate telecommunications. Most telcos pass these fees along to customers on their bills, although this is not mandatory and companies could fund this out of their fees.
The Universal Service Fund has four major components. The High Cost Fund pays to support providing telephony in rural places where the costs are much higher per customer than average. The Low Income Fund pays for some of the installation fees and also some of the monthly fees for telephone lines for low income subscribers. The Rural Health Care Fund provides subsidies for rural tele-health and tele-medicine. And the Schools and Library Funds provides subsidies for Internet access and telecommunications services and infrastructure for schools and libraries.
The USF is undergoing major change due changes ordered by the FCC in Docket 11-171 in 2011. The fund is being transitioned to be called the Connect America Fund and will divert the High Cost Fund to be used to support rural broadband instead of rural telephony.
The Schools and Libraries Fund is commonly referred to as the E-Rate program. This program was started in 1997 where the FCC determined that, “telecommunications services, Internet access, and internal connections, including installation and maintenance,” for schools and libraries were eligible for discounted rates. The E-Rate program will pay from 20% to 90% of the cost of eligible services based upon the poverty and the urban/rural nature of the population supported by a given school. The Fund pays the neediest schools and works its way through the list of applicants each year until it runs out of funding.
What the FCC is doing as part of Chairman Wheeler’s announcement is to look at the definition of what is eligible for reimbursement from the E-Rate program. These definitions haven’t been upgraded for a long time and the fund pays for things like pagers and telephone lines (although one has to imagine the payments for pagers must be very tiny).
The FCC now wants to divert some of the fund to help pay for the basic infrastructure at schools to deliver broadband to the classrooms. President Obama has announced a policy goal, referred to as ConnectED, of bringing faster broadband to all of the schools in the country. His goal set a near-term goal of bringing 100 Mbps connections with a near-future goal of bringing gigabit speeds to schools
The FCC is responding to those policy goals with this change in the E-Rate funding. In Docket WC 13-184 the FCC had looked at some of these issues and had noted that there was a challenge in getting bandwidth from the wiring closet of schools into the classrooms. The FCC now wants some of the E-Rate funds to be used to rewire schools or to deploy other technologies that can bring bandwidth to where students can use it. It certainly is important for this fund to keep up with the times. It makes a lot more sense to use these funds to improve bandwidth at schools rather than to continue to pay for telephone service and for T1 lines. .