How Obama’s Plan for Faster Internet Could Raise Your Phone Bill

Obama’s school broadband plan may not add a dime to the deficit, but it could add a dime to your phone bill.

Telephone bills, which contain information for an AT&T customer, lie in a pile May 12, 2006 in Chicago, Illinois.
National Journal
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Laura Ryan
Feb. 11, 2014, midnight

Pres­id­ent Obama has a plan to con­nect 99 per­cent of U.S. schools to high-speed In­ter­net with­in five years without adding “a dime to the de­fi­cit” and “without wait­ing for Con­gress.”

It sounds too good to be true, but the ad­min­is­tra­tion has a trick up its sleeve: a fed­er­al pro­gram that col­lects fees on Amer­ic­an phone bills and uses the rev­en­ue to fund In­ter­net ac­cess at schools and lib­rar­ies in rur­al and low-in­come areas.

The pro­gram, known as E-Rate, was cre­ated in 1996 and is ad­min­istered by the Fed­er­al Com­mu­nic­a­tions Com­mis­sion as part of the Uni­ver­sal Ser­vice Fund. The pro­gram is cur­rently capped at about $2.3 bil­lion per year, but the FCC has the power to lift the pro­gram’s cap — even without con­gres­sion­al ap­prov­al — and raise funds for it by bump­ing up phone fees.

Tech­nic­ally, the FCC is not dir­ectly re­spons­ible for the fees on U.S. phone bills. The agency re­quires all tele­com­mu­nic­a­tions com­pan­ies, both wire­less and land­lines, to pay in­to USF fund, but most com­pan­ies re­coup that money from its cus­tom­ers, noted on con­sumers’ monthly bills as the Uni­ver­sal Ser­vice con­tri­bu­tion. The USF fee has already stead­ily ris­en from 9.5 to 16.4 per­cent since 2009 to ac­count for in­fla­tion and grow­ing costs from the USF’s oth­er three pro­grams.

For now, the FCC is not cur­rently con­sid­er­ing new rev­en­ue for E-Rate, in­stead fo­cus­ing on re­form­ing the pro­gram to bet­ter spend its ex­ist­ing budget.

But FCC Chair­man Tom Wheel­er didn’t rule out the pos­sib­il­ity of a fu­ture cap raise dur­ing re­marks as part of Di­git­al Learn­ing Day at the Lib­rary of Con­gress last Wed­nes­day, and prom­in­ent Sen­ate Demo­crats are ask­ing the chair­man to do just that.

“Now is the time for the FCC to take ad­vant­age of this unique op­por­tun­ity — to ex­pand and up­date that pro­gram and provide it the ne­ces­sary sup­port to make sure that every child is con­nec­ted to the trans­form­at­ive power of tech­no­logy,” said Demo­crat­ic Sen. Jay Rock­e­feller, one of the ori­gin­al au­thors of the E-Rate pro­gram and whose home state of West Vir­gin­ia is both rur­al and im­pov­er­ished.

E-Rate’s budget and struc­ture haven’t changed much since it was cre­ated 1996, but tech­no­logy has changed a lot. The FCC an­nounced last week that it is doub­ling its in­vest­ment in high-speed broad­band in schools im­me­di­ately — from $1 bil­lion to $2 bil­lion — mostly from un­spent funds from pre­vi­ous years. This “down pay­ment” is part of a long-term re­struc­tur­ing of the pro­gram’s man­age­ment and pri­or­it­ies over the next year to speed up the ap­plic­a­tion pro­cess, in­crease over­sight, and phase out fund­ing for out­dated tech­no­lo­gies like dial-up In­ter­net.

“The cur­rent E-rate pro­gram is bur­den­some, slow and not al­ways fo­cused on the right goals,” Wheel­er said. “As man­agers of the pro­gram, the FCC must im­prove the speed and ef­fect­ive­ness with which E-rate is run.”

But the com­mis­sion faces a mam­moth task in bring­ing the na­tion’s schools up to speed: Obama wants schools and lib­rar­ies too have In­ter­net 10 times as fast as their cur­rent speeds with­in five years.

Ac­cord­ing to the FCC, al­most 50 per­cent of schools re­port the same In­ter­net speed as most U.S. homes. But schools share that speed with hun­dreds of people, rather than the hand­ful that make up a typ­ic­al house­hold.

The Con­nec­tED ini­ti­at­ive — the form­al name for the White House school ini­ti­at­ive — got a $2 bil­lion boost from the FCC last week and a $750 mil­lion from the private sec­tor, but it’s un­clear how far that will go.

The White House hasn’t lis­ted a spe­cif­ic fig­ure for how much its Con­nec­tED ini­ti­at­ive will cost, but the FCC re­por­ted last spring that schools and lib­rar­ies re­ques­ted more than $4.9 bil­lion in E-Rate fund­ing for the 2013-14 school year. The Obama ad­min­is­tra­tion es­tim­ates that, if the FCC de­cides to ex­pand E-Rate, it could be done for less than $5 per phone line per year.

Demo­crats also tout the eco­nom­ic po­ten­tial that high-speed In­ter­net in schools could un­lock by cre­at­ing more de­mand in an already-luc­rat­ive edu­ca­tion tech­no­logy in­dustry.

Like many Demo­crat­ic spend­ing plans, any push for ex­pand­ing the pro­gram would meet stiff Re­pub­lic­an op­pos­i­tion — but this time de­bate would go dif­fer­ently.

Even be­fore Wheel­er an­nounced his re­forms, top Re­pub­lic­ans had sent a let­ter telling the FCC to fix the pro­gram be­fore ex­pand­ing it. And E-Rate has a leg­acy of waste and mis­man­age­ment due to its cum­ber­some ap­plic­a­tion pro­cess, out­dated clas­si­fic­a­tion sys­tem, and lack of trans­par­ency.

But if the FCC de­cides to ex­pand the pro­gram, Re­pub­lic­ans would be left with lots to bark about but noth­ing with which to bite. The com­mis­sion would only need a ma­jor­ity of its five mem­bers to sign off on the in­crease, and with three Demo­crats sit­ting on the com­mis­sion, Re­pub­lic­ans would have little re­course to block it.