NEWS
	Federal Communications Commission 445 12th Street, S.W. Washington, D.C. 20554	News media information 202 / 418-0500 Fax-On-Demand 202 / 418-2830 Internet: http://www.fcc.gov TTY: 202/418-2555
	This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).
	FOR IMMEDIATE RELEASE: August 5, 1999
	STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH ON ADOPTION OF FULL FUNDING OF THE E-RATE
	On May 27, 1999, the Commission adopted an order (FCC 99-121) fully funding the e-rate. Commissioner Furchtgott-Roth dissented in that vote, indicating he would issue a statement at a later time. That statement is attached.

Re:	Federal-State Joint Board on Universal Service, Twelfth Order on Reconsideration (CC Docket No. 96-45)

I respectfully dissent from this Order on Reconsideration setting the collection rate for the schools and libraries support mechanism at $2.25 billion.⁽¹⁾ I support the implementation of Section 254 in its entirety, including the schools and libraries provisions, within the parameters of the law. In adopting this order, however, the majority continues to spurn the directives of Congress, and instead, persists in its myopic implementation of section 254, feverishly obsessing over the schools and libraries program, while recklessly neglecting rural and high cost universal service programs.

With the Commission's actions in this Order, the schools and libraries program support will now exceed the high-cost program support. This is a complete inversion of the priorities Congress established in section 254. I cannot support an action that so clearly frustrates what Congress intended, and what the law requires.

Another Year, Another Billion Dollars for the E-rate, Another Delay for Rural America

Another year goes by, and the only tangible "accomplishment" in the context of universal service is another billion dollar increase in the e-rate tax. Another year goes by, and the only advance in the high-cost program is another deferral while modelers toil away, consuming finite Commission resources building the imperfect beast -- a complex and complicated model.

As I have stated on numerous occasions: 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. Indeed, over a year ago, Congressional leaders sent the Commission a letter lamenting that "our nation's core universal service program -- i.e. support for high-cost and rural America -- goes unattended by the Commission."⁽³⁾ I recognized this priority over a year ago in my testimony before the United States Senate:

The views of what was affectionately known as the Senate Commerce Committee Farm Team were unmistakable: Section 254 on universal service was of the People, by the People, and for the People of high-cost, rural America. There were, to be sure, other important components of universal service: low-income, telemedicine, and schools and libraries. But these other elements were dwarfed in both the language and the intent of Section 254.⁽⁴⁾

I am greatly disappointed that the Commission has so very little progress on these universal service priorities.

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.

Once again, the Commission has proceeded with only one aspect of universal service and at the same time delayed higher priorities. While I recall the Commission providing numerous assurances that high-cost would not get left behind, another year has passed and where is the Commission? Again seeking to raise the schools and libraries program by another billion dollars. And what about high-cost? The Commission has again extended the implementation of large-carrier high-cost program until at least January 1, 2000. And what about small company high-cost support? It will be addressed in some dim and distant future. It would appear to be the Commission's lowest priority.

One year ago, the Chairman and ranking members of the Senate and House Commerce Committees demanded 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."⁽⁵⁾ Remarkably, with the majority's actions in this Order, the schools and libraries program now exceeds the high-cost program support.⁽⁶⁾ This is not what Congress intended or what the law requires. I oppose the decision in this Order to ignore the pleas of Congressional leaders and instead to proceed with selected universal service programs, while again postponing higher priorities.

The Access Charge Reduction "Smoke Screen"

One year ago I voiced my concern that rates for many Americans would soon rise, ironically, all in the name of universal service. Once again, the Commission has voted to increase support for its pet program by increasing the e-rate tax by another $1 billion. The Commission has religiously promoted a public relations campaign to convince the Washington political establishment that massive increases in the e-rate tax could be offset by access charge reductions and that the American consumer need not ever know about either the access charge reduction or the increased e-rate tax.

I continue to oppose using access charge reductions to justify increases in the e-rate program. The American consumer, not federal bureaucrats, should choose how to spend any reductions in access charges. Moreover, even though access charges have decreased, not all of the e-rate contributors benefit from such reductions. For example, there have been no offsetting reduction in access charges whatsoever for wireless carriers who simply have to charge their customers higher rates.

Similarly, there is no assurance that the consumers who benefit from access charge reductions are the same consumers who bear the new universal service burden. For example, low-volume long-distance consumers who pay the e-rate tax through a flat-rated line item are not likely to benefit from reduced access charges. Conversely, business consumers could disproportionately benefit from the access charge reduction. Although I have made this point for months, the Commission has refused to accept it. Only recently has the Commission, with respect to low-volume users, acknowledged this "unanticipated" effect. Rather than respond by limiting the enormous increase in the e-rate tax, however, the Commission attempted to assuage these consumers by initiating a Notice of Inquiry suggesting that re-regulation of the long distance market may be necessary.⁽⁷⁾ Where access charge reductions could not conceal the e-rate tax, the Commission unholstered its biggest threat of all: the power to re-regulate the long distance industry. This cannot be what Congress intended.

Finally, the validity of these access charge reductions has been called into question by the courts. Access charge reductions are the result of a 1997 Commission decision that was recently reversed and remanded by the D.C. Circuit. Under the Court's Order, the Commission must reconsider those reductions or at least provide further explanation for them. Not only does the Commission ignore the uncertain nature of the legality of these reductions in its suggestion that e-rate increases will be covered by access charge reductions, it overlooks the real savings interexchange carriers might have been able to pass on to end users but for the schools and libraries program. Despite the Commission's efforts to conceal this tax from consumers,⁽⁸⁾ the effect on them is very real.

The promise of the 1996 Act was that rates would come down, not that they would remain the same as the result of secret deals in which one set of federal taxes goes down and another goes up, while citizens are none the worse for the regulatory sleight of hand. In the end, the issue is not whether, despite massive e-rate tax increases, telecommunications carriers have no net differences in federally-imposed costs. The issue is whether, absent these massive new e-rate taxes, consumers would be better off. The answer is an unequivocal yes. The Commission cannot conceal the facts -- the increase in funding will cost consumers.

Another Tax Increase from Unelected Officials in the Face of Legal Uncertainty

In this Order, the Commission imposes an 80% tax increase on carriers and end users by increasing the funding for the next 12 months of the schools and libraries program to $2.25 billion.⁽⁹⁾ As I have stated previously, the size and scope of the current schools and libraries program is in excess of what was envisioned by Congress, and thus beyond the Commission's authority to establish. Congress did not envision substantial new taxes on interstate or other telecommunications services as a result of the Telecommunications Act of 1996, nor did it envision price increases -- much less substantial price increases -- in any telecommunications market.⁽¹⁰⁾ The harm to consumers from increases in universal service taxes is not just the direct expense of the taxes themselves. Prof. J. Hausman of MIT has estimated that consumers lose a total of more than $2 in consumer benefits for every dollar paid in taxes on long-distance services.1⁽¹¹⁾

I have previously expressed my profound concerns regarding the legality of this tax. The entire $1 billion increase adopted in this Order is the result of the Commission's misguided and unlawful decision to fund inside wiring and other non-telecommunications services. USAC estimates that 62 percent of the total $2.423 billion -- more than $1.4 billion -- requested by schools and libraries for discounts in the second program year are for internal connections.1⁽¹²⁾ I continue to believe that the Commission may not require contributions based on telecommunications service revenues, and use the funds raised to provide support for non-telecommunications services (i.e. inside wiring and internet services), because in doing so, the Commission has established a fee to promote the general welfare (i.e. a "tax") and thus has exceeded its legal authority.1⁽¹³⁾ To compound this legal infirmity, the Commission has insisted that its baseless taxing authority extends to revenues from intrastate telecommunications. I have likewise detailed my view that the statute prohibits the extension of the e-rate tax to intrastate revenues.1⁽¹⁴⁾ An agency comprised of unelected officials simply may not impose taxes no matter what good intentions lie behind them.

I have not been alone in my concern about the legality of the Commission's funding and collection mechanisms. These issues have been raised in an appeal of the Commission's May 1997 Universal Service Order before the U.S. Court of Appeals for the Fifth Circuit. Despite this significant legal uncertainty, the Commission has lunged ahead with an enormous increase in e-rate funding. This massive increase creates massive expectations from schools and libraries across the country. The Order's increase in funding will undoubtedly spawn expanded plans for projects involving non-telecommunications services. In the event the Commission's actions are vacated, these applicants will be left scrambling to meet financial commitments to fund these projects. In this way, the majority's rush to promise a larger federal funding program in the face of this legal uncertainty is irresponsible and imprudent.

"Demand" Does Not Indicate "Necessity"

Finally, I am disturbed that the majority has failed to meet its statutory obligation to demonstrate why $2.25 billion in discounts is "appropriate and necessary to ensure affordable access" to the services identified by Congress in section 254. Congress clearly required the Commission to make this determination.1⁽¹⁵⁾ The Order contains no analysis or justification for the 80% surge in funding level and contribution rate other than bald assertions that more funding is needed and conclusory statements that $2.25 billion is not too much. Absent from this Order is any analytical basis for choosing to fund to the $2.25 billion "cap" established by the previous Commission. Indeed, describing this as a "cap" at all is misleading, as it appears nothing will prevent the Commission from raising the maximum that carriers and consumers can bear next year.

Much of the majority's one paragraph justification for this increase seems to focus on demand for support.1⁽¹⁶⁾ As any parent can attest, however, demand does not indicate necessity. Otherwise, children would be the constant recipients of new bikes, the latest video games, and an endless supply of chocolate candy as they would apparently "need" these goods on a near constant basis. It should not be surprising that demand for resources from a federal program is substantial. As aptly stated by Commissioner Powell, "shame on any school that has not acted aggressively to take advantage of this federal generosity."1⁽¹⁷⁾ Measuring demand, however, is not a proper method of determining necessity.

In disregarding its statutory obligation, the majority avoids the need to address significant indications that $2.25 billion in discounts are not, in fact, necessary. This program is not the only method for schools to obtain access to services and technology for use in the classroom. A report by the General Accounting Office indicates that in 1997 alone $10 billion in funding assistance from 40 different federal programs could have been used for technologies and related services in schools and libraries.1⁽¹⁸⁾ Similar initiatives are well underway at the State level. Moreover, charitable and non-profit groups, as well as corporate funding, have supplemented these governmental efforts. In its haste to fund the schools and libraries program, the majority has failed to satisfy yet another statutory mandate. Indeed, the funding level determined in this Order appears to be dangerously close to picking a number out of the air, a practice on which the U.S. Court of Appeals for the District of Columbia has recently frowned.

Conclusion

As a result of this Order, the e-rate "contribution" factor -- i.e. e-rate tax rate on telecommunications revenues -- nearly doubled from .57% to .99%.1⁽¹⁹⁾ I find this action untenable. I would agree with one commentator who observed that the Commission "should set a majority of the universal service funds aside for furnishing basic telephone service to areas of high cost and poverty. It is more important for all Americans to have access to basic telephone services than for a student to have limited Internet capabilities."1⁽²⁰⁾