*************************************************** 
                         NOTICE
***************************************************

This document was converted from
WordPerfect to ASCII Text format.

Content from the original version of the document such as
headers, footers, footnotes, endnotes, graphics, and page
numbers will not show up in this text version.

All text attributes such as bold, itallic, underlining, etc. from the
original document will not show up in this text version.

Features of the orginal document layout such as
columns, tables, line and letter spacing, pagination, and margins
will not be preserved in the text version.

If you need the complete document, download the
WordPerfect version or Adobe Acrobat version, if available.

***************************************************** 
                                             June 11, 1998

                                            
       STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH 
REGARDING THE CLARIFICATION/REITERATION OF "SERVICES" ELIGIBLE 
             FOR DISCOUNTS TO SCHOOLS AND LIBRARIES


     Today, the Common Carrier Bureau issues a "clarification" or "reiteration" as to what
"services" are eligible for discounts to schools and libraries.  As an initial matter, I point out
that it is this type of confusion surrounding what is and what is not covered by the program
that compels me to follow the abundant Congressional advice that we place this program on
hold temporarily.  Do all the schools really understand that "the costs of tearing down walls to
install wiring" is not a part of the "installation" and therefore not covered?  How many schools
have made such an error in their applications and how much is demand overstated?  If there
were not widespread questions and confusion on the part of  Congressional leaders, school
applicants, and the public, then why would such a clarification or reiteration be necessary? 

     In addition, I remain fundamentally disturbed by this Commission's decision that the
lowest qualified bidder is not necessarily awarded the contract.  Today's Bureau Notice states
that when comparing all of the qualified bids, 

          price should be the primary factor in evaluating bids.  Other relevant factors
     may include: prior experience; personnel qualifications, including technical
     excellence; management capability, including compliance; and environmental
     objectives.

In other words, price does not have to be the sole factor in evaluating bids.  Factors such as
"personnel qualifications" and "management capability" are inherently ambiguous, and will
open up the program to charges of fraud, waste and abuse.  Does prior experience include the
work a bidder is currently doing at a very good price?  How can we ask the American
consumer to fund an administrator's discretion, especially when he is not even an expert in
government contracting?  In addition, while the Notice emphasizes that the value of ineligible
services and products may not be a factor in selection, schools do not appear to have been
notified of that decision until March 27, 1998, after some schools had begun the application
process.  

     Interestingly, the aspect of eligible "services" that needed the most public clarification
does not really concern "services" but, rather, the expensive hardware and software for
sophisticated computer networks that are euphemistically characterized as "internal
connections" for schools and libraries.  Indeed, buried in a footnote of this Public Notice is the
sad fact that this Commission would allow universal service "taxes" to support installation and
maintenance of high-speed computer networks -- including "routers, hubs, network file
servers, and wireless LANS" -- inside schools and libraries.  Such internal networks would
rival those of the largest corporations and universities; most small businesses cannot afford the
luxury of installing and maintaining expensive equipment like this.  Although the Commission
clarifies that "personal computers" and "modems" are not eligible, it should be noted that the
eligible routers, hubs, and servers are much more sophisticated (and expensive) devices than
personal computers.  Moreover, common PC modems simply are not necessary when the PC
is connected to a high-speed network that has a direct connection to the Internet.  (You don't
need a small gate in the white picket fence when you've got an entire highway on-ramp
dedicated to your use.)

     I agree that there has been some confusion as to what type of "services" are and should
be covered.  As an example of the type of sophisticated networks that definitely are eligible
under the Commission's now clarified rules regarding inside wiring,  I have attached as
Appendix A a diagram provided by one of the computer network hardware companies of the
type of system they could provide to a school under the Commission's rules.  This
sophisticated network would require 3 different types of network routers, a microhub, a micro
webserver, a dedicated switch, and an interface card.  All of that is in addition to the eligible
T-1 link, the eligible software and the ineligible desktop PCs that would also be necessary.  

     How many schools have asked for such extensive and sophisticated networks?  How
much of the demand is for routers?  For webservers and new switches?  For that matter, how
much of the $2 billion in demand is for equipment that this Bureau Notice clarifies is not
covered?  I wish I knew.  It would help this commission and Congress determine how much
money we really need to continue this program and achieve its worthy goals.  More important,
however, I think the consumers who are footing the bill have a right to know.  But,
unfortunately nobody knows the answer to these questions.  

     Just last week, in response to reported abuses in the applications, I asked these
questions of the Schools and Libraries Corporation.  See June 1, 1998, Letter to Ira Fishman,
attached as Appendix B.   The Schools and Libraries Corporation responded in part on June 9,
1998, that they are "currently processing the more than 30,000 applications that we received
by the close of the 75-day window on April 15, 1998.  Until that process is completed, we will
not be able to produce an electronic database of the information you requested for all the
applications we have received."  A perfectly reasonable explanation: that they have not had
enough time to finish processing all of these applications for this new program.  The problem,
however, is that the FCC plans to push ahead with funding before these vital issues are
addressed.  It would be irresponsible to issue funding commitments, allow public money to be
distributed, or to raise consumers rates -- which is undeniably necessary at least with respect to
wireless rates if not overall -- to pay for these "services" before these questions can be
answered.   

     Congressional leaders have demanded that the Commission suspend the schools and
libraries program until all aspects of universal service are resolved.  Most Senators at
yesterday's hearing encouraged the Commission at least to freeze temporarily this program
while the Commission revisits both the substance and the ramp-up period of these new
universal service programs.  Indeed, in response to Sen. Wyden's (D-Ore.) suggestion that
FCC take 6-8 weeks to fix the universal service program, I stated that I would welcome the
opportunity.  I can only hope that the Commission will follow Sen. Wyden's counsel to
suspend the program and make a public commitment to address the entire universal service
dilemma -- including the rural, high-cost issues -- in the next 6-8 weeks.  

       I recognize that some will argue that we must proceed now.  But I am not convinced
that a minor 6-8 week delay in a new program will cause great harm.  Indeed, recent reports
indicate that many schools will not even be able to spend the money allocated for inside wiring
in 1998.  Internal connections create substantial disruption to students, and schools typically
have the work done during vacation periods.  Because funding commitments cannot be made
until sometime in June or July, many schools have realized that they cannot finish the
installation of inside wiring before this summer ends.  Thus, to minimize disruption, many
schools would wait until the spring/summer of 1999 to provide internal connections in any
event.  

       Sadly, but perhaps not surprisingly, several huge companies that manufacture internal
computer network equipment support the Commission's interpretation and urge the
Commission to move ahead.  They know a great deal when they see it:  minimally constrained
by budgetary considerations, schools and libraries can be expected to purchase the best and
most expensive networking equipment.  Some manufacturers have brazenly suggested to the
FCC that internal networks for schools should run at 100 Mbits/sec.  This capacity is not just
for students to exchange e-mail with other students in far away lands or for quickly surfing the
Web to research term papers.  Rather, this is sufficient capacity for students to send several
dozen simultaneous television-quality video programs to one another around the school.  Is this
capability really necessary for a well-rounded education?  Do Dick and Jane need an Ethernet? 
This is like replacing school hallways with eight-lane highways. 

       One final note of caution to the network equipment manufacturing industry.  As with
any instance of corporate welfare, the beneficiaries -- here the hardware and software
providers in that industry -- are on a slippery slope.  If the government is taxing
telecommunications services in order to subsidize telecommunications services to schools and
libraries, what's to stop the government from taxing computer network equipment
manufacturers in order to subsidize computer networks for schools and libraries?  Network
equipment makers should beware, as many have already argued that it is unfair to allow an
industry to take from a public fund without having the corresponding obligation to contribute
to it.