June 22, 1998

Re:	Fifth Order on Reconsideration and Fourth Report and Order Regarding the Federal-State Joint Board on Universal Service, (CC Docket No 96-45 ).

Introduction and Summary

If love could conquer all, if good intentions always led to good consequences, if hard work were always rewarded with good results, then this Order would be an impeccable work of art. It is the embodiment of immeasurable hard work, good intentions, and, dare I say, love. It embodies hope: hope for a better world in which more funding for new technologies is hoped to lead to better school facilities which are hoped to lead to better education which in turn is hoped to lead to a brighter future for the next generation of America.

Good intentions and hard work are not enough for this Order. It is the third in a series of Orders to impose new taxes to support schools and libraries and other partial implementations of Section 254. I have dissented from these earlier Orders,⁽¹⁾ and I unfortunately must dissent from this Order. In my view, the current Order does not accurately or even approximately reflect either the letter or the spirit of the law.

I dissent with the utmost respect for the efforts and hopes of my colleagues. But, I dissent also because of my utmost respect for the language of the Telecommunications Act of 1996 and Section 254 in particular.

The Telecommunications Act of 1996 embodies the hopes of many Americans: more innovation, more services, more consumer choices, lower consumer prices, less regulation, and universal service. I believe the Act can and will meet these hopes of the American people. But I believe that these hopes will only be met if the Commission is faithful to the language of the Act. I fear the current Order is not.

Neither are the Commission's actions today faithful to the original intent of Congress -- or the current demands of Congressional leaders -- because as I stated only a month ago in this Commission's last report to Congress: priorities matter.⁽²⁾ I remain convinced that rural, high-cost universal service is not just one of many objectives of Section 254; it should be the highest priority. The federal government has had universal service programs for rural, high-cost areas and for low-income Americans for many years. Section 254 embodied these ideals and set forth goals that emphasize rural, high-cost support as well as low-income support and other objectives.

But, despite repeated Congressional demands that the FCC "suspend further collection of funding for its schools and libraries program, and proceed with a rulemaking that implements all universal service programs in a manner that reflects the priorities established by Congress in the Telecommunications Act of 1996,"⁽³⁾ the Commission continues to proceed with selected universal service programs while at the same time delaying these higher priority issues. Rural, high-cost universal service issues should not be resolved and implemented in some dim and distant future after all other universal service issues have been resolved; rural, high-cost universal service issues should be resolved and implemented first. Rural, high-cost universal service should not be viewed as the residual after enormous amounts for other federal universal service obligations have been promised; rural, high-cost universal service should receive the lion's share of any increase in the federal universal service fund.

To understand fully my other concerns about this Order, one need only read one of my several statements related to universal service.⁽⁴⁾ My view of universal service is not universally shared. Not everyone here at the Commission or in the public agrees that Congress' universal service priority was the rural and high cost program. Not everyone here at the Commission agrees that the Telecommunications Act clearly contemplates "a single proceeding" to implement all of the universal service provisions, including both the schools and libraries and the rural, high-cost programs.⁽⁵⁾ Others have different views. I would call many of these other views "myths." Perhaps others might call my views "myths" as well, or worse.

I describe these views as myths not in a pejorative sense, but in the sense of evolved folklore that has not been scrutinized. For, as we shall see, even the slightest scrutiny reveals the fiction of these stories. Below I list 15 of what I consider to be the myths most relevant to this Order. Doubtlessly, there are many more.

1. Long-distance rates have gone down; therefore, we need not worry about new taxes on long-distance services.

The real issue is not whether rates have gone up or down, but whether they would have been lower absent the new tax. Long-distance rates have gone down in recent years, but they would have gone down further without unnecessary fees and taxes for the Schools and Libraries Corporation.

Under current rules, most support for the Schools and Libraries Corporation is borne by long-distance customers. Phone taxes in general, and long-distance taxes in particular, are some of the most inefficient and punishing taxes faced by the American consumer. Prof. Jerry Hausman of MIT has estimated that consumers lose more than $2 for every dollar in long-distance taxes.⁽⁶⁾

Telephone services are already one of the more heavily taxed services based on usage -- through federal excise taxes, federal universal service taxes, state and local excise taxes -- far more heavily taxed than the typical 5 percent sales tax that consumers pay for typical goods and services. These heavy excise taxes discourage use, weaken demand, stifle investment, and retard innovation.

Ironically, at a time when the federal government is contemplating stiff new taxes on tobacco products partly to reduce demand for what is perceived to be a harmful product, the federal government has also imposed new taxes on telecommunications services. Are telecommunications services perceived to be as harmful as tobacco?

2. Access charge reductions offset any increase in universal service fund contributions.

I remain concerned with recent attempts to tie reductions in access charges to the level of universal service contributions.⁽⁷⁾ Even to the extent that federal-mandated access charges have been reduced to offset increases in universal service obligations, almost 20% of the schools and libraries contributors do not benefit from reduced access charges. Thus, for example, wireless carriers have paid proportionately higher fees, despite the fact that they have received no access charge reduction.

Moreover, there is no assurance that the consumers who benefit from access charge reductions will be the same consumers who will bear the new universal service burden. For example, business consumers could disproportionately benefit from the access charge reduction while residential consumers pay for new universal service fees. The issue should not be whether, despite massive tax increases that just offset decreases in federal access fee and charges, IXCs have no net differences in costs. The issue should be whether, absent massive new taxes, consumers would be better off.

3. Line items for new taxes related to universal service are simply a means to develop a "hidden rate increase."

This assertion defies economics and common sense. If long distance carriers could pad their profit margins by simply adding useless line items on their bills, companies would have already done it. But adding line items is not a means to higher profits.

In a competitive market, prices are determined by costs. If a business tries to raise prices above its actual costs, it will lose its customers to competitors that have not raised prices. Many economists believe that long-distance service is a relatively competitive market.

Simple economics and market realities dictate that competitive businesses must pass along new taxes to their customers. Competitive businesses take prices as given by costs not by the wishes of outside spectators. Those who claim that a business should not pass along a new tax to consumers are simply saying that the business is not competitive in the first place; only a non-competitive business has the luxury of not passing all of a tax along to consumers. In addition, a new tax and higher costs will likely reduce net market demand thereby reducing the number of firms that a competitive market can support.

Moreover, even if long-distance carriers were not competitive, they would still pass along part of a new tax to consumers. To the extent that taxes raise prices and thereby reduce market demand for a service, profits in an industry are likely to decrease as the result of a new tax. Consequently, a new tax cannot plausibly be a blessing to the long-distance industry, whether it is competitive or not.

Line items for new taxes are a means of letting customers understand why rates are not lower than they would be absent the new taxes. These line items are not a means of promoting "hidden rate increases." To the contrary, the only "hidden rate increases" would occur if rates were higher as the result of hidden and unexplained taxes.

Only a stupid and foolish firm -- destined for failure in the American telecommunications market -- could fantasize about profiting from a new tax. I have yet to meet a viable firm in any market that appeared to be stupid or foolish. I have also never met a stupid or foolish consumer. And I have yet to meet an American consumer who doesn't want to be told about a new tax.

4. The federal government should tell businesses to inform customers only about net new taxes, not about new taxes that are offset by decreases in existing taxes.

It would be easy to dismiss this myth as a flagrant violation of the First Amendment. But even if government should interfere with truthful communication between a business and its customer -- an interference that should never happen -- customers should always know about new taxes, even if other taxes have decreased substantially more. The issue for consumers is not just whether prices have gone up or down, but also whether prices would be lower absent a new tax. Only in Washington could disclosure of such a new tax be considered deceptive.

Depriving businesses of the opportunity to converse freely with their customers is a flagrant violation of the First Amendment. Depriving consumers of information about new taxes demoralizes a democratic society.

If the British government had successfully hidden new taxes from American colonists in the middle 18th Century, we might today still be saluting the Union Jack. Doubtlessly, the British government of that time may well have tried to hide the series of new taxes and regulation of commerce from the American colonists. Efforts by governments to hide information from the public may work in the short term, but never in the long term.

5. The new tax rates in this Order reflect a reduction in tax rates that would otherwise result.

Technically, absent Commission action, a higher tax rate would result on July 1, 1998 because of the automatic increase for funding the schools and libraries program that would otherwise take place. However, that increase in the tax rate has only been delayed for one year. The Commission does nothing to adjust the annual $2.25 billion cap, which will instead go into effect next July. Thus, on July 1, 1999 there will be another increase in the quarterly contribution to the schools and libraries fund of almost $240 million, or another 75% increase.

It should also be noted that -- while the Schools and Libraries Corporation has estimated $2.02 billion in demand for the first year of the program⁽⁸⁾ -- the Commission's Order today authorizes $1.925 billion to be disbursed over the next 12 months (July 1, 1998 to July 1, 1999). While this amount does not fully meet demand and it precludes funding additional applications, I am not sure how much of the initial demand will go unmet by this "cut." Moreover, even the proposed tax rate for the remainder of 1998 is higher than the most responsible tax rate -- zero. The Schools and Libraries Corporation has already raised enough revenue to fund practically all requests for telecommunications services in 1998, the only item eligible for discounts under the Act.

The real issue is not whether the rate is higher or lower than it would be if an arbitrary deadline is not met; the real issue is whether tax rates are as low as they could be and as low as they should. The answer is a resounding "no!" Rates can and should be zero for the remainder of 1998.

6. There is great urgency to adopt this rule and proceed with wiring the schools immediately.

Enormous efforts have been made, probably entirely well intentioned, to rush this item through the Commission by mid-June. The rationale given is that carriers need time to adjust their July bills. Last December, rates were changed and carriers somehow managed to change their January bills. Moreover, the rates changed last December did not legally go into effect until February,⁽⁹⁾ yet billing disasters did not ensue.

Further delays may yet occur. Most Senators at last week'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 had hoped that the Commission would 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 have been disappointed.

I am not convinced that such a minor 6-8 week delay in a new program would 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, even if the discounts were legal. 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.

Finally, there is a reasonable question about whether this Order should be delayed as it is subject to the Congressional Review Act.⁽¹⁰⁾ The Commission's response that it is acting under the 1996 Telecommunications Act exception seems insufficient, since this Order relies on several sections of the Communications Act of 1934 that were not amended by the Telecommunications Act of 1996.⁽¹¹⁾ Thus, I remain convinced that this Commission's actions regarding universal service contributions cannot take effect until 60 days after submission to Congress, providing it with an opportunity to express its disapproval of the agency determination through resolutions.

7. Absent the FCC's Schools and Libraries Corporation, there is no federal support for infrastructure development in schools and libraries, and these institutions will not be connected to the Internet in a timely manner.

To the contrary, the General Accounting Office recently reported that federal programs supporting infrastructure for local schools and libraries exceed $10 billion annually.⁽¹²⁾ The federal support does not include countless tens of billions of dollars from state and local governments and from the private sector. The addition of a few billion dollars from the Schools and Libraries Corporation will not materially affect the diffusion of internet access to American schools; indeed, the Department of Education has reported that eighty percent of American schools were connected to the Internet before receiving any money from the Schools and Libraries Corporation.

8. The universal service section of the 1996 Act was primarily intended to benefit the schools and libraries of America.

That is not the plain language of Section 254. That is not the plain language of recent correspondence from Members of Congress to the Federal Communications Commission.⁽¹³⁾ To the contrary, the universal service section of the Telecommunications Act of 1996 was primarily intended to aid rural America. Although the primary purpose of Section 254 is to provide support for high-cost, rural areas, "the potential pot of revenue that the FCC can collect for universal service from fees on interstate services is limited."⁽¹⁴⁾ Thus, it is inconsistent with Congressional intent to promise some potential universal service beneficiaries enormous and unending benefits, while the primary universal service beneficiaries (rural, high-cost programs) have not even fully voiced all of their concerns.

9. The Schools and Libraries Corporation will disproportionately aid rural America.

This statement may or may not be true. I have asked the Schools and Libraries Corporation for information that will help determine the accuracy of this statement.⁽¹⁵⁾ The Schools and Libraries Corporation responded in part on June 9, 1998, that they are "not able at this time to disaggregate those requests by urban and rural status because many requests are for services shared by a number of eligible entities, which may include any combination of schools and libraries in urban and rural areas." This inability is despite the fact that rural is a criterion for the level of support for which each school qualifies.

10. The Schools and Libraries Corporation's program will only benefit education and the students of America.

If this myth were true, presumably only education interests would be lobbying for the current Schools and Libraries Corporation program. In fact, however, the computer industry, which will provide much of the "inside wiring," has lobbied intensively for the program. 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?

11. "Inside wiring" is fully required for inclusion under Section 254.

Section 254 speaks of discounts for "services." It is difficult to rationalize inclusion of plant and equipment for discounts under this section. While I support the majority's decision to fund requests for telecommunications service discounts first, I remain concerned with the continued funding of non-telecommunications services by any non-telecommunications carriers. As I explained in the April 10th report to Congress, the Commission has no statutory basis to provide direct financial support for non-telecommunications services and to non-telecommunications carriers.⁽¹⁶⁾ To the contrary, Section 254(h)(1)(B) unambiguously limits recipients to "telecommunications carrier[s] providing service under this paragraph."⁽¹⁷⁾ Moreover, in the context of the rural health care program, the Commission has acknowledged that Section 254(e)'s explicit requirement that only "eligible telecommunications carriers" receive support applies to Section 254(h)(1)(A).⁽¹⁸⁾ If that is so, and I think it is, then I do not see how one could conclude that this requirement does not also apply to Section 254(h)(2), as the Commission does when it relies upon that provision to justify allowing non-telecommunication carriers to receive support for inside wiring. Thus, the requirements for receiving funds in conjunction with section 254(h)(2) are actually stricter than under section 254(h)(1)(B) -- that is, a recipient must be an "eligible telecommunications carrier."

Moreover, much of "inside wiring" turns out not to be copper wire or coaxial cable; instead, "inside wiring" is predominantly computers to support sophisticated ethernets. For example, 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.⁽¹⁹⁾ 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.

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 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. I also asked these questions of the Schools and Libraries Corporation, but to no avail. 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 in this Order the FCC pushes ahead with funding of the program before such vital issues are addressed.

Just last week the Common Carrier Bureau found it necessary to issue a "reiteration" as to what "services" are eligible for discounts to schools and libraries. Did 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? 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.

12. The FCC's interpretation of universal service is consistent with the law.

As I have described in several statements,⁽²⁰⁾ the FCC's current interpretation of universal service is not consistent with Section 254 of the Communications Act. The divergence between Commission interpretation and the statute is not small and cannot be corrected with small and technical changes in existing Orders. Below I touch on a few of the ways in which I believe the Commission's interpretations violate the law.

First, as I have previously indicated, in its zeal to implement a new universal service program for schools and libraries, the Commission failed to meet its statutory mandate of developing an explicit and sufficient support system for rural and high cost telephone users in a timely manner.⁽²¹⁾ Under the 1996 Act, the Commission's primary universal service responsibility was to develop an "explicit and sufficient" support system that would ensure support for local telephone users in high cost and rural areas to replace the complex system of implicit subsidies that could exist in a world without local competition.⁽²²⁾ The expeditious creation of a comprehensive new subsidy system was not only critical for preserving the goals of universal service, but also necessary to provide for a fair transition to competition in the local markets. As such, Congress set a strict time-frame for developing this plan -- the Joint Board was required to make a recommendation within 9 months of enactment, and the Commission was then required to complete "a single proceeding to implement the recommendations" within 15 months after enactment.⁽²³⁾

In this Order, the majority argues that the Commission has taken "significant action to implement the universal service provisions of the Act."⁽²⁴⁾ In support of that contention, the majority notes that " . . . one of the first steps in universal service reform was to make existing high cost support explicit," citing the removal of Long Term Support (LTS) from access charges, and the making of an explicit subsidy corresponding in amount to that generated formerly by DEM [dial equipment minutes].⁽²⁵⁾ While I do not dispute that these two initial steps were taken, they are hardly comprehensive or the type of "significant action" that would be sufficient to satisfy the Commission's responsibility to complete "a single proceeding"⁽²⁶⁾ to replace the entire complex system of implicit subsidies for high cost and rural telephone users with an "explicit and sufficient" support system. Indeed, in recent reports to Congress, the Commission has characterized its somewhat arbitrary decision to provide federal support for only 25% of these costs as merely a "placeholder."⁽²⁷⁾ While I support reexamination of this issue, I question whether establishing such a "placeholder" can fairly be characterized as "significant," especially in comparison to the extraordinary efforts that this agency has taken to establish the schools and libraries program on an expedited basis. Moreover, if we have completed such "significant action," and if all that was left from the May 8, 1997 Order was to fulfill the "timetable for implementation" as the majority suggests, then why is it now necessary again to refer issues to the Joint Board?⁽²⁸⁾

Congress intended -- and the 1996 Act required -- that the Commission focus its efforts on resolving the rural, high cost issues first, as opposed to finding support for new programs. As Commissioner Powell states in his Separate Statement Dissenting in Part, "nothing in the statute . . . would justify implementation of certain programs, such as schools and libraries, prior to implementation of others."

Second, I believe that the universal service contributions, at least to the extent they are providing support for non-telecommunications services, may not be fairly characterized as mere "fees." In general, taxes can be distinguished from administrative fees by determining the recipient of the ultimate benefit: a tax is characterized by the fact that "it confers no special benefit on the payee," "is intended to raise general revenue," or is "imposed for some public purpose."⁽²⁹⁾ In contrast, a "fee" is a "payment for a voluntary act, such as obtaining a permit."⁽³⁰⁾ Here, all these factors point toward the category of a tax: the fund, which creates internet access for schools and libraries, confers no particular advantages upon telecommunications carriers in exchange for their contributions, such as a license or permit; the funds have not, as far as I can tell, been segregated from other government monies, see infra; the purpose of the fund is a broad, social one, purportedly to improve education for all Americans; and the payment requirement is not triggered by a voluntary act on the part of telecommunications carriers, such as the filing of an application, but is a flat mandate.

In Thomas v. Network Solutions, the District of Columbia District Court recently found a similar mandatory contribution to the Intellectual Infrastructure Fund -- known as the "Preservation Assessment" -- to be an illegal tax, not ratified by Congress.⁽³¹⁾ Money from that fund was used for the "Next Generation Project," a "program aimed primarily at upgrading the Internet infrastructure, improving the speed and accuracy of information delivery, and increasing access for schools."⁽³²⁾ The Court held that the preservation assessment was "clearly a tax" as it was collected "for the government's use on public goals, and not in any way to defray regulatory costs."⁽³³⁾

I had encouraged parties to comment on the implications that this case may have for the Commission's universal service program, and several parties expressed concern that the Commission's implementation has resulted in an unconstitutional tax. As at least one commenter described, "nowhere in this authorization does there appear a grant of power to the Commission to impose a tax on interstate telecommunications providers to fund universal service."⁽³⁴⁾ Rather, as I have stated above, the legislation merely empowered the Commission to mandate discounts to schools and libraries. To the extent that Section 254 is the basis for this universal service tax, it may not have even followed appropriate Congressional procedures for a tax authorization.

The majority's reliance on United States v. Munoz-Flores does not fully address these issues. First, the majority misconstrues my concerns as limited to an Origination Clause challenge. My primary concern, however, is that in enacting a sweeping new welfare program for schools and libraries that went well beyond the more modest discount program Congress authorized, this agency exceeded the scope of its authority and thereby enacted a new tax that has not been ratified by Congress. Not only does this situation arguably present Origination Clause problems, it raises anti-delegation (i.e., Separation of Powers) questions as well.⁽³⁵⁾

The majority, however, argues that "contributions to the universal service mechanisms do not represent taxes enacted under Congress's taxing authority. Rather, they constitute fees enacted pursuant to Congress's Commerce power."⁽³⁶⁾ Although the majority repeatedly contends that the universal service contributions are not taxes but fees, they simply assert that this is true, without addressing the factors that traditionally distinguish a tax from a fee and how those factors apply here, as set forth above. Simply saying that this is not a tax cannot make it so, however.

Indeed, as discussed above, Thomas v. Network Solutions supports the proposition that the type of scheme developed by this agency to support the schools nd libraries program may be more fairly characterized as a tax. The majority argues that the fee is not a tax because "all telecommunications carriers required to contribute benefit from the ubiquitous telecommunications network that universal service makes possible."⁽³⁷⁾ This statement, however, is simply not true with regard to the schools and libraries program. As I have previously stated, "to the extent that the telephone network can be considered a single telecommunications system, all users benefit from being capable of serving others. . . . There are no such direct benefits to telephone customers, however, from the provision of Internet services to and inside wiring of schools and libraries."⁽³⁸⁾ The obvious beneficiaries of this program are not telecommunications carriers, but the school and libraries who are entitled to free goods and services. I have yet to hear proponents of the current program cite telecommunications carriers as the object of their well-intentioned efforts.

In addition, in order for even an intentional delegation of Congress' power to tax to be judicially sustainable, Congress must provide the agency with standards by which its compliance with the delegation can be measured.⁽³⁹⁾ The Commission has misread Section 254 as providing a very broad authority to tax, disregarding the limitations that Congress carefully included in that provision: that there would be a single federal universal service fund based on interstate revenue; that discounts be provided to schools and libraries; that only telecommunications carriers may receive credit; and that support may only be used for telecommunications services. Given at least the possibility of a constitutional difficulty arising from the delegation under the Taxing Clause, the Commission should have interpreted Section 254 "narrowly to avoid constitutional problems."⁽⁴⁰⁾ In order to avoid delegation problems, the Commission should have read section 254 to authorize only what it says, and no more -- a discount for services, not a guaranteed entitlement to free goods as well as free services. The Origination Clause cases cited by the majority are, of course, irrelevant to this issue.

Second, the majority argues that the Origination Clause is not implicated here because "in United States v. Munoz-Flores and elsewhere, the Supreme Court has held that Congress does not exercise its taxing powers when funds are raised for a specific government program."⁽⁴¹⁾ In that case, however, the Supreme Court made clear that:

A different case might be presented if the program funded were entirely unrelated to the persons paying for the program. Here, [the program] targets people convicted of federal crimes, a group to which some part of the expenses associated with compensating and assisting victims of crime can fairly be attributed. Whether a bill would be "for raising Revenue" where the connection between payor and program was more attenuated is not now before us.⁽⁴²⁾

I remain concerned that -- again to the extent that telecommunications carriers alone are being assessed to pay for a computer network and Internet access program -- the agency has created a program "entirely unrelated to the persons paying" for it.

Finally, the majority also argues that "the contribution requirements do not violate the Origination Clause of the Constitution because "universal service contributions are not commingled with government revenues raised through taxes."⁽⁴³⁾ As several commenters noted, however, "[b]oth the Congressional Budget Office and the Office of Management and Budget count payments into the fund as federal revenues and payments out of the fund as federal outlays."⁽⁴⁴⁾

Third, I continue to object to the fact that the contributions for the schools, libraries, and rural health care support mechanisms are based not only on interstate but also on intrastate revenues. As I have described on several occasions, the legality of this approach to calculating contributions is highly questionable.⁽⁴⁵⁾ As I read the Communications Act, it does not permit the Commission to assess contributions for universal service support mechanisms based on intrastate revenues. Rather, the Act makes clear that the power to collect charges based on such revenues rests within the exclusive province of the States.⁽⁴⁶⁾

Fourth, I fail to see how the Commission may lawfully differentiate among otherwise "bona fide requests." The Commission's rules already consider a schools' economic status in determining the level of support to which they may qualify. Now the Commission will take economic status into account to determine whether the schools are even eligible for participation -- at least participation in funding for inside wiring, despite the fact that the schools have submitted an otherwise "bona fide request" under our rules. If the Commission's rules already addressed such discrepancies in economic advantage adequately, then the newest proposal seems, at best, unfair to schools that will now be prohibited from participating, if not altogether arbitrary. Indeed, I do not see how the Commission has the discretion to prioritize among such bona fide applications. The universal service provisions mandate that "upon a bona fide request" the "telecommunications carriers . . . shall" provide a discount.⁽⁴⁷⁾ All of the applications that met our previous rules are bona fide requests, and the Commission has not determined that its previous rules were incorrect -- as I have urged. As such, I am concerned that the Commission has failed to establish a system that would fund all such bona fide requests as required. The statute does not endorse differentiating among such bona fide requests; the current plan to fund internal wiring based on need cannot be what Congress intended.

13. The Schools and Libraries Corporation is efficient.

The Common Carrier Bureau Public Notice regarding the third quarter contribution factors also established the administrative expenses for the Schools and Libraries Corporation. In objecting to the second quarter contribution factors, I noted that Schools and Libraries Corporation was allocated almost four times as much money for administrative expenses as the high-cost/low income funds and that the administrative budget increased from $2.7 million to $4.4 million or by 65% in just one quarter. These increased administrative expenses continue in the third quarter, despite the fact that the Schools and Libraries Corporation has still failed to provide an accurate estimate of all its administrative costs for the first quarter.⁽⁴⁸⁾ In contrast the administrative expenses for both the High Cost and Low Income programs combined is only $1.2 million. I cannot endorse such a disparity -- and certainly not one of this magnitude -- between the administrative expenses of the Schools and Libraries and those of the other universal service corporations, especially without more adequate safeguards against excessive spending by the schools and libraries program.

14. The FCC's interpretation of universal service reflects the intention of Congress.

As noted above, the FCC's interpretation of universal service does not follow the letter of the law. Based on the recent correspondence from Congress, it is clear that the FCC's interpretation of universal service does not follow the spirit of the law either.⁽⁴⁹⁾ In particular, the Commission has failed to complete work on the highest Congressional priority, rural high-cost service, while creating massive new unintended grant programs for schools and libraries.

15. There is no good solution to the problem.

There is a good solution to the problem. It is to follow the intent of Congress. That advice is eloquently phrased in the recent letter from the leadership of the Commerce Committees of both the House and the Senate. If we follow the advice of Congress, we will set the collection rate for the schools and libraries program to zero until such time as we can resolve the highest universal service priority: rural, high-cost support.

Conclusion

Most observers of politics and telecommunications regulation in Washington would agree that the Commission's handling of universal service over the past two years has led to a great deal of hand-wringing. Some would say that we have made substantial progress, but no one would say that we solved all of the problems related to universal service. Some would say that we are not headed in the right direction; many go so far as to say that we should stop and start over again.

The problem with the FCC's implementation of Section 254 is not one of intent or effort. Many hard-working, well-intentioned people have dedicated the better part of two years of their lives to working on the implementation of this section. Their efforts have not been in vain. We have learned much about both what is possible and not possible under Section 254; we have learned something about what is not sustainable; we have learned about concerns of consumers who thought that the Telecommunications Act would lead to changes in regulations that would allow rates go down, not merely stay the same or increase; we have learned about the fears and concerns of rural America when its understanding of Section 254 is not adequately addressed. Above all, we have learned that Section 254 is one of the most difficult and most important sections of the Act.

Despite good intentions and efforts, some mistakes have been made in the implementation of Section 254 over the past two years. The best outcome would be to learn from those mistakes; the worst outcome would be to ignore them.

Congressional leaders have demanded that the Commission suspend the schools and libraries program until all aspects of universal service are resolved. I believe the Congressional leaders are correct. It would be perhaps 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 programs before Congressional concerns can be fully addressed.

America is a great nation not because we have the most advanced technologies in the world. We are a great nation because we are a nation whose People love liberty, whose government serves the People, and whose government is governed by laws written by the People. When government agencies follow the law as it is written, there is no greater investment in our future.

The proponents of the E-rate program often cite its educational value. The E-rate, we are told, is an "investment" in the future of America. I believe the FCC can and ought to make a contribution to the education of American children. Our greatest contribution, however, is not in serving as a tax collector, even for the most wonderful of programs. Our greatest contribution is in following the law, and being a showcase for democracy.

Some in America believe that all of the parts of Section 254 cannot be implemented, that the section is hopelessly complicated and self-contradictory. According to these skeptics, it is time to give up. It is time to rewrite the section, or worse, implement only part of it. The inevitability of defeat is palpable among the skeptics.

I believe the skeptics are wrong. I believe that Section 254 can be fully implemented. I believe that a strict and narrow reading of the law is not only what Congress intended but also the only way by which Section 254 can be fully implemented.

We at the FCC can and must rededicate ourselves to following the letter of the Communications Act, and Section 254 in particular, as written by Congress. We must, as Congressional leaders have suggested, start over. It will be a difficult process, but it is possible, and it is urgent. In the meantime, the American public can rest assured that no new taxes will be levied by the FCC, that universal service will remain accessible to all Americans under existing rules, and that schools and libraries will continue to receive ten billion of dollars of federal support annually for infrastructure in addition to countless billions of dollars from state and local governments and countless billions more from the private sector.

In the end, the FCC will have contributed far more to the education of American children than any amount of funds for any educational purpose. The FCC, building on its past good intentions and good efforts, will have taught a lesson that the greatest myths are the myth of inevitable defeat and the myth that government agencies cannot solve difficult problems.