1

The Future of Universal Service Fund Support for Organizations

After a Decade, What We Still Donât Know about the E-Rate[1]

Heather E. Hudson

Professor and Director, Communications Technology Management Program

University of San Francisco [2]

ãThe telecommunications companies wanted more competition and the ability to expand. In exchange, we insisted on a strong, continued commitment by the telecommunications companies to ãpreserve and advanceä universal service including access to advanced telecommunication services for schools, rural health care providers and libraries.ä ö Senator Jay Rockefeller (D-WVa)[1]

Abstract

The Telecommunications Act of 1996 mandated discounts for high speed connectivity for schools, libraries, and rural health care centers that became known as the E-Rate. This paper presents an analysis of available data on the disbursement of funds, issues that need to be considered, recommendations for the future of the program, and research questions that still need to be answered.

1. The Context: Internet and Broadband Access in the U.S.

The Telecommunications Act of 1996 expanded the definition of universal service to include schools, libraries, and rural health care facilities, and access to ãadvanced services.ä The goal was to provide opportunities for students and community residents to take advantage of these ãadvanced servicesä even if they were not yet available in their homes, i.e. to help to bridge what became called the ãdigital divide.ä Access to the Internet was a high priority.

ÊÊÊÊ Affordable access to services available over broadband is becoming increasingly recognized as an important contributor to social and economic development. A 2001 Brookings study by Crandall and Jackson estimated that widespread adoption of basic broadband in the U.S. could add $500 billion to the economy and produce 1.2 million new jobs. In 2004, Charles Ferguson argued that as much as $1 trillion could be lost over the next decade due to present constraints on broadband development.[2]

Broadband in schools is important both to enable multiple users to be online, and to allow for data-rich applications such as multimedia web access and video conferencing. An Alaskan analysis of school bandwidth requirements states: ãDial-up connectivity does not allow for efficient data flow and usually will not allow such services as e-mail for group use. Normally, a school with dial-up will only transmit information, not being able to rely on downloading or browsing.ä It notes that ãLess than T-1 [1.544 mbps] connectivity allows Internet use for data transfer, web searches, e-mail and web posting. Under normal circumstances, information flows at speeds allowing for group use, but may be overwhelmed. Video services can be used with some loss of picture and sound quality, but usually will require that other traffic, such as Internet use, be shut down.ä[3] Also, as applications become more demanding of bandwidth, many K-12 schools have expressed an interest in an Internet 2 connection. A study by the Pennsylvania Department of Education states that full use of the applications provided by Internet 2 requires nearly 10 megabits per second.[4]ÊÊ

Yet despite U.S. global leadership in communication technologies and Internet services, broadband availability in the U.S. lags many other industrialized countries. (The U.S. currently ranks 15th among industrialized countries in broadband access per 100 inhabitants according to the OECD.[5])Ê Broadband costs in the U.S. also remain high.Ê American consumers pay 10 to 25 times more per megabit than users in Japan. Also, average speed of broadband in the U.S. has not increased in the past five years; consumers in France and South Korea have residential broadband connections 10 to 20 times higher than in the U.S.Ê Further, the official FCC definition of broadband (at least 200 kbps in one direction) is considered outdated and inadequate by many experts.

American broadband adoption is also highly dependent on socio-economic status: almost 60 percent of households with annual incomes above $150,000 have broadband, compared to fewer than 10 percent of households with incomes below $25,000.[6] The gap between rural and urban access persists: broadband penetration in urban areas is almost double that in rural.[7] Rural subscribers with dial-up are much more likely than their urban counterparts to list lack of availability as the reason that they do not have higher speed Internet connection.[8]Ê

Further, access is most limited in the poorest regions. Seven of the ten states with the fewest high speed lines per capita are also among the ten poorest states in the country (Alabama, Arkansas, Idaho, Kentucky, Mississippi, Montana, and West Virginia).[9] Six of these same states are among the ten with the fewest Internet users per 100 residents.[10]

2. Expansion of Universal Service

The Telecommunications Act of 1996 expanded the Universal Service Fundâs original mandate to extend reasonably priced telephone services to rural and other underserved areas, to include support for the cost of telecommunications services for schools, libraries, and rural health care providers:

ãElementary and secondary schools and classrooms, health care providers, and libraries should have access to advanced telecommunications services ·.

All telecommunications carriers serving a geographic area shall ·provide such services to elementary schools, secondary schools, and libraries for educational purposes at rates less than the amounts charged for similar services to other parties.ä[11]

The Federal Communications Commission (FCC) sets the overall policy for the program, which is administered by a nonprofit entity, the Universal Services Administrative Company (USAC). Funds come from telecommunications carriers, which are required to contribute a set portion of their revenues to the USF. Carriers generally pass through these costs to customers through itemized charges on their telephone bills. USAC makes payments from this central fund to support the Schools and Libraries program, and Rural Health Care program as well other Universal Service programs (Low-Income and High-Cost).

The E-Rate (short for ãeducation rateä) was created by Section 254 (h) of the Telecommunications Act of 1996[12] to provide discounts on a wide variety of telecommunications, Internet access and internal connections products and services. All public and private nonprofit elementary and secondary schools are eligible (except those with an endowment of more than $50 million). Libraries are also eligible, subject to conditions that they meet the definition in the Library Services and Technology Act and have a budget completely separate from a K-16 school.

3. The Funding Process

Up to $2.25 billion worth of discounts can be made available each year. First priority is given to requests for support for telecommunications services (services to communicate electronically between sites) and Internet access, while second priority services are internal connections (e.g. wiring, routers, wireless local area networks to connect classrooms) and maintenance of internal connections. Priority 1 services are funded first, and remaining funds for Priority 2 begin with the most economically disadvantaged schools and libraries.[13]

Schools may apply for all ãcommercially available telecommunications servicesä ranging from basic telephone services to T-1 and wireless connections, Internet access including e-mail services, and internal networking equipment. Discounts are not available for computers (except network servers), teacher training, and most software.[14] Approved costs are billed directly to USAC, up to the limit of the subsidy. Schools and libraries are responsible for the remainder, and must demonstrate that they can cover their portion of the costs.

The applicable discount rate is based on a schoolâs economic need and whether it is located in an urban or rural area. The proxy for economic need is the percentage of students who are eligible for free or reduced-priced lunches under the National School Lunch Program. The librariesâ discount rate is based on the school district or districts in which they are located. Support for telecommunications services and Internet access is provided to all eligible applicants regardless of their level of need. See Table 1.

Decisions to seek E-Rate support may be made at the school, library, school district or state level. In some instances, states submit applications on behalf of all the districts in the state. Schools must prepare a technology plan which must be approved by the state before they are eligible to apply for E-Rate funds. The purpose of this requirement is to ensure that school staff consider issues such as sources of funding for other equipment and maintenance, training for teachers and students, and strategies for integrating use of computers and the Internet into the curriculum.

Table 1: Discounts Available for Schools[15]

Percentage of students who qualify for the National School Lunch Program	ÊDiscount for schools locatedÊ in an urban area	Discount for schools located inÊ a rural area
Less than 1%	20%	25%
1% to 19%	40%	50%
20% to 34%	50%	60%
35% to 49%	60%	70%
50% to 74%	80%	80%
75% to 100%	90%	90%

The process is rather complex, with a series of forms that must be completed and submitted according to set guidelines and deadlines concerning eligibility, discount categories, service and equipment requirements, allowable equipment and services, etc. Once the schoolâs or libraryâs application is approved, its requirements are posted on USACâs website (www.universalservice.org) for 28 days, following which it may select from competitive bids or negotiate with the carrier serving the area according to E-Rate procurement rules and guidelines.

Since 1997, about $19.4 billion in E-Rate funds has been allocated. After a decade, what do we know about:

á Who got the money?

á How the money was used?

á What difference it made?

4. E-Rate Allocations: Following the Money

Ê4.1. Funds Allocations for Schools and Libraries

ÊÊ Almost $19.4 billion has been allocated since funds were first disbursed in 1998. Of the total funds disbursed for the E-Rate, more than 86 percent (probably more than 90 percent) went to schools. Libraries received 2.8 percent, and consortia of schools and libraries received 11.2 percent. See Table 2.

Table 2: Amount allocated for schools and libraries

Universal Service Fund: Allocations for Schools and Libraries: 1998-2006
Applicant Type	$ Amount	% of $

Schools/ School Districts	16,623,970,411	85.97%
Libraries	549,566,513	2.84%
School/Library consortium	2,163,519,084	11.19%

Total	$19,337,056,008	100.00%

4.2. Allocations by Discount Levels

From 1998 to 2006, 34.5 percent went to schools and libraries eligible for a 90 percent discount, while about 77 percent went to those eligible for discounts of 70 percent or more.[16] See Table 3. Thus, it appears that funds were disbursed primarily to schools in disadvantaged regions ö in rural/remote or low income urban areas. (USAC does not break down most allocations by rural vs. urban location, apparently because funds are often granted to large jurisdictions, although they must provide the data in order to qualify for a discount rate.)

Table 3: Amount allocated by discount bands: 1998-2006

Discount Band	Percent of Funds by Discount Band
20-29%	0.13%
30-39%	0.38%
40-49%	5.99%
50-59%	6.53%
60-69%	9.86%
70-79%	14.22%
80-89%	28.42%
>90%	34.48%

Total	100.00%

4.3. How are the Funds Used? Allocations for Services

ÊÊÊÊÊÊÊ From 1998 to 2006, $9.6 billion or 49.7 percent of total funding was allocated for internal connections (within schools and libraries). About $7.5 billion or 38.6 percent was allocated for telecommunications services. About $2 billion or 10.4 percent was for Internet services.Ê See Table 4.

ÊÊÊÊÊÊÊÊ The allocations have changed in recent years, with 53.7 percent allocated for telecommunications services and 15 percent for Internet access in 2006. The funding for basic maintenance of internal connections has been available only in 2005 and 2006. Most funding for internal connections has gone to schools with discounts of 70 percent or more. See Table 5.

Table 4: Allocations by Service 1998-2006

Summary 1998-2006
	Total	Percentage

Internal Connections	$9,603,450,985	49.67%
Internet Access	$2,004,548,872	10.37%
Telecom Services	$7,470,413,815	38.64%
Basic Maintenance of Internet Connections	$255,634,748	1.32%

TOTAL	$19,334,048,420	100.00%

Table 5: Allocation by Service 2006

Allocations by Service 2006

Internal Connections	$489,812,337	25.0%
Internet Access	$294,134,968	15.0%
Telecom Services	$1,051,532,821	53.7%
Basic Maintenance of Internal Connections	$124,207,180	6.3%

Total	$1,959,687,306	100.0%

4.4. Allocations by State

ÊÊÊÊÊÊ There was significant variation in the funding per capita among the states for the period 1998-2006. Four of the 10 poorest states (measured in GSP/capita) were among the biggest E-Rate recipients per capita: Mississippi, Oklahoma, South Carolina, and Kentucky. The biggest beneficiaries were Alaska and the District of Columbia, which received $201 and $200 per capita, respectively. Other states that have received more than $100 per capita to date include New Mexico and New York. See Table 6.

ÊÊÊÊÊÊ For funding year 2006, the top 10 states in E-Rate funds committed per capita included three of the poorest states, measured in Gross State Product per capita: Mississippi, Oklahoma, and Alabama. Three other states have significant native American populations and isolated areas (Alaska, New Mexico, South Dakota). See Table 7.

Table 6: Top 10 States in Funding per Capita

Top 10 States in E-Rate Funding per Capita 1998-2006

Alaska	$201
District of Columbia	$200
New Mexico	$176
New York	$138
Mississippi	$109
Oklahoma	$100
South Carolina	$95
Louisiana	$87
Texas	$86
Arizona	$76
Kentucky	$76

(Bold indicates states among poorest 10 states in GSP/capita.[17])

Table 7: Top 10 States: E-Rate Funds/Capita: 2006

State	E-Rate Funds/Capita

Alaska	$27.60
District Of Columbia	$19.21
Louisiana	$16.94
New Mexico	$15.27
Mississippi	$13.15
Oklahoma	$10.53
Alabama	$10.10
New York	$9.85
South Dakota	$9.81
Arizona	$9.37

(Bold indicates states among poorest 10 states in GSP/capita.)

ÊÊÊÊÊÊ The bottom 10 states in funding per capita received just $12 to $32 per capita in the period 1998 to 2006. They include several states with significant rural areas: New Hampshire, Nevada, Vermont, Idaho (also one of the poorest states), Hawaii, and Iowa. See Table 8.

ÊÊÊÊÊÊ Is the reason for this low rate of support intentional rejection of federal funding, or significant alternative support from state and local levels? ÊNew Hampshire, Nevada, Maryland, Washington, and Virginia rank in the top 15 states in high speed lines per capita according to FCC data. Or do organizational problems such as small school districts or lack of a mentor or champion hinder some of these states that could benefit from more funding support? The latter was apparently the case in Vermont based on field interviews by the author.

Table 8: Bottom 10 States in Funding per Capita: 1998-2006

Bottom 10 States in E-Rate Funding per Capita 1998-2006

New Hampshire	$12
Delaware	$13
Nevada	$17
Vermont	$25
Idaho	$26
Hawaii	$27
Maryland	$29
Iowa	$30
Washington	$31
Virginia	$32

(Bold indicates state among poorest 10 states in GSP/capita.)

4.5. Unallocated Funds

ÊÊÊÊÊÊÊ In May 2007, USAC projected that $650 million allocated for schools and libraries from funding years 2001 to 2004 had not been spent. The FCC authorized these funds to be carried over to the next funding year to increase disbursements for schools and libraries.[18] This amount represents 26 percent of the funds available ($2.25 billion annually) during the four year period.

5. Benefits of the E-Rate

ÊÊÊÊÊÊÊÊÊÊÊ

ÊÊÊÊÊÊÊÊÊÊÊ After a decadeâs worth of E-Rate support totaling over $19 billion, there has been little rigorous evaluation of the utilization or impact of E-Rate funds. Reports have generally been based on case studies or anecdotal evidence.

In 1996, about two-thirds of public schools had Internet access. By 2003, virtually every public school could go online. Education Week notes: ãPerhaps even more striking, high-poverty schools, as well as their low-poverty counterparts, could boast near-universal access to the Internet by that point.ä[19]Ê A report sponsored by the Education and Library Networks Coalition (EdLiNC) credits the E-Rate with increasing the percentage of public classrooms with Internet access from 14 percent in 1996 to 95 percent in 2005.[20] Similarly, Internet access for libraries also increased dramatically during this period; more than 95 percent of US libraries had Internet access in 2006, compared to 28 percent in 1996.[21] As shown above, more than one-third of E-Rate funds went to the poorest schools (with discounts of 90 percent or more), and a total of more than $16.8 billion went to schools eligible for a discount of 60 percent or more.[22] ÊBut would most schools and libraries have gained Internet access without the E-Rate through state or local initiatives? Perhaps not, but the causality link is missing.

ÊAn earlier EdLiNC report concluded that: Ê

The E-Rate is anÊ important tool for economic empowerment in underserved communities;
The E-Rate is beginning to bring new learning opportunities to special education students;
The E-Rate is transforming education in rural America;
E-Rate-supported technical infrastructure in schools is vital to reaching student achievement goals in No Child Left Behind legislation;
Schools and libraries are devoting significant resources in completing E-Rate applications.[23]

Case studies of Chicago, Cleveland, Detroit, and Milwaukee carried out for the Benton Foundation identified several benefits, but also new challenges resulting from E-Rate support:

Network infrastructure deployment has been accelerated, and Internet access improved dramatically.
E-Rate funding has enabled school districts to leverage existing financial resources.
Professional development needs are increasing geometrically.
School districts are highly dependent on E-Rate funding.
The E-Rate has led to changes in school district planning practices, requiring new knowledge and new collaboration.
The current E-Rate process taxes relationships with vendors.
The need for building upgrades (in wiring and other hardware, for example) can delay deployment of information technology.[24]

6. Beyond Access

Effective utilization of the Internet for education requires not only connectivity, but also capability, content and appropriate context (sometimes called ãthe four Câs). Education Weekâs ãTechnology Counts 2006ä study uses several criteria to evaluate technology on leadership in three core areas of technology policy and practice: access to technology, use of technology, and capacity to use technology.

Concerning Internet access, a teacher commented in Bentonâs 2002 study: ãItâs a great leash, but thereâs no dog.ä[25] Since 2002, the average level of computer access has hardly changed, remaining close to four students per instructional computer. In 2005, there were 3.9 students for every high speed Internet-connected computer in U.S. public schools. However, the number of students sharing a high speed Internet-connected computer ranged from less than 2 (1.8 in South Dakota) to 5 or more (in Nevada, California and Utah).[26] Ê

Education Week found that study respondents listed professional development and connectivity/networking as their two highest priorities for technology spending this school year. Nationwide, 15 percent of public schools reported that the majority of their teachers were at a "beginner" skill level in their use of technology. However, like computer access, teacher skill levels vary from state to state. At least one-third of schools in Mississippi and West Virginia reported a majority of teachers were beginners, compared to only 3 percent of schools in South Dakota.[27] Yet technology skills alone are not sufficient. A budget for technical support and maintenance is needed; otherwise, tech-savvy teachers may end up becoming ãelectronic janitors,ä just to keep the equipment running.[28]

Effective use of the technology also requires applications that can enrich curricula and extend learning. Education Week notes: ã· states are taking steps to help expand the use of educational technology both through standards for students and via efforts to push the boundaries of conventional schooling.ä[29] Twenty-two states have established a state virtual school, and 16 states have at least one cyber charter school. About 19 percent of public schools offered their own distance-learning programs for students. Are state and local initiatives building on the foundation of E-Rate support, or substituting for it?

7. Rural Health Care

In section 254 of the Telecommunications Act of 1996, Congress sought to provide rural health care providers ãan affordable rate for the services necessary for telemedicine and the instruction relating to such services.ä Specifically, Congress directed telecommunications carriers ãto provide telecommunications services which are necessary to health care provision in a State, including instruction relating to such services, to any public or nonprofit health care provider that serves persons who reside in rural areas of that State, at rates that are reasonably comparable to rates charged for similar services in urban areas of that State.ä[30]

The Rural Health Care Division of USAC administers a program that provides up to $400 million annually so that rural health care providers pay no more than their urban counterparts pay for the same or similar telecommunication services. To qualify for universal service support, a health care provider (HCP) must be a public or not-for-profit organization located in a rural area. In addition, not-for-profit HCPs, in both rural and urban areas, may qualify for Internet access assistance if they are unable to access the Internet via a toll-free or local call, and must therefore dial into the Internet via a toll (long distance) call.

The HCP may seek support for eligible services, which include mileage-related charges, various types of connectivity from leased telephone lines to frame relay, integrated services digital network (ISDN) or T1 circuits, mileage charges, and one-time installation charges. End user equipment such as computers, telephones, fax machines, as well as maintenance charges, are not eligible for support.[31] All telecommunications common carriers may participate, including interexchange carriers (IXCs), wireless carriers, and competitive local exchange carriers.

Each eligible HCP requests bids for telecommunications services to be used for provision of health care through postings on the USAC website. Requests for bids must be posted on the USAC website for 28 days before the HCP can enter into an agreement to purchase services from a carrier. The HCP must consider all bids received and select most cost-effective method to meets its health care communication needs. [32]

By 2003, only 1194 of 8300 potential applicants had received support, and the fund disbursed only $30.25 million in first five years out of a potentially available $200 million. Therefore, the FCC implemented several changes to eligibility requirements and comparative pricing guidelines designed to make the USF discount more widely available and simpler to implement.[33] For example, eligible health care providers could receive 25 percent discounts off the cost of monthly Internet access[34], and rural health care providers in states considered to be entirely rural can receive support equal to 50 percent of the monthly cost of advanced telecommunications and information services.[35]

Despite these modifications, the program continued to be underutilized; the FCC notes: ã·in each of the past 10 years, the program generally has disbursed less than 10 percent of the authorized funds.ä[36] According to USAC data, a total of $168.5 million was disbursed for Rural Health Care from 1998 to 2005 inclusive.[37] Some $97.4 million or 58 percent of the funds during that period went to Alaska, primarily to link village clinics to regional hospitals, and to link the hospitals to medical centers in Anchorage, under the AFHCAN initiative. [38]

The FCC therefore authorized a two-year pilot program in September 2006 that could allocate up to $100 million in RHC funds for construction of dedicated broadband networks to connect health providers in a state or region, and to support the cost of connecting these networks to Internet2. The purpose of the pilot program is also to provide information that could guide revision of the current RHC rules. The objective would also be to contribute to increasing broadband connectivity for many purposes: ãIf successful, increasing broadband connectivity among health care providers at the national, state and local levels would also provide vital links for disaster preparedness and emergency response and would likely facilitate the Presidentâs goal of implementing electronic medical records nationwide.ä[39]

Awards for pilot program funding had not been announced as of August 2007. This initiative merits careful evaluation to determine whether it contributes to both health care and infrastructure access goals.

8. Key Issues

U.S. universal service policy is now under review by Congress and the FCC. After a decade, we should know much more about the effectiveness of the E-Rate and other USF programs. However, policy decisions do not usually wait for research. The recommendations below are based on what we do know. They are followed by a research agenda that identifies what we still need to find out.

8.1. Should the E-Rate Program be continued?

Yes. Despite the lack of hard data, there is significant evidence that the funds have contributed to providing access to the Internet for school students and for community residents through public libraries. However, the program needs some revision and greater oversight (see below).

8.2. Should the E-Rate Program remain under the FCC?

Some federal officials have proposed that the E-Rate should be merged with other Department of Education technology programs. However, because of its direct role as a key component of universal service policy,Ê the E-Rate should remain independent of other government departments and under the administration of the FCC.

But should a community access program be run by an agency comprised primarily of lawyers and economists? Not without other input. The Federal-State Joint Board includes some state commissioners and consumer advocates, but other types of expertise are needed. Oversight should include representatives from other federal agencies includingÊ NTIA (National Telecommunications and Information Administration) concerning national communications infrastructure policy, the Department of Education (DOE), and Health and Human Services (HHS), which is already involved in the Rural Health Care initiatives). There should also be participation of experts on research and evaluation of ICT applications, and possibly of federal research bodies such as the National Academy of Sciences and National Science Foundation. This latter group would be responsible for guiding evaluation research on the utilization and impact of E-Rate funding. Ê

8.3. What Key Elements of the E-Rate Process should be retained?

The E-Rate funds allocation process has several unique features that should be retained:

á Awards to the user: The E-Rate funds are awarded to the user (school or library) rather than directly to the carrier or vendor. This approach can empower the schools and libraries as customers of the carriers, rather than supplicants. In some cases, schools and libraries have become ãanchor tenantsä for these carriers, encouraging them to bring broadband into previously unserved communities.

á Competitive bids: The E-Rate process requires competitive bids for approved services through the USAC website. This approach not only creates incentives to minimize costs, but also encourages new entrants in addition to incumbents and large vendors to provide equipment and services for schools.

These approaches differ from the models used in most other countries, where subsidies go directly to carriers, and incumbents may be required to provide discounted or free service to schools. In these other models, carriers have no incentive to provide high quality of service to schools if they see no revenue potential. Further, if they receive direct government subsidies to provide the service, they may have no incentive to minimize costs. The incentive-based E-Rate model, while not perfect, is far superior.

8.4. Should the Funding Formula be changed?

Graduated discounts are greatest for schools and libraries in rural/remote and low income urban areas. This general formula should be maintained. However, given the limited support for schools and libraries that are not eligible for significant discounts, it could be argued that funding should be available onlyÊ to those that are clearly disadvantaged, e.g. eligible for discounts of 60 percent (or possibly 70 percent) or more.Ê Allocations to other applicants could be gradually phased out. Alternatively, the discount percentages could be reviewed and possibly decreased. Do discounts of 80 percent or 90 percent provide sufficient incentives to schools and libraries to find additional sources of funding, or to be prudent and efficient in their utilization of ICT facilities and services?Ê

Some of the remaining funds might then be made available for capability and content as well as for research on the E-Rate Program. (see below). A small amount of funds should also be allocated for outreach, to ensure that all eligible recipients are aware of the program, and to provide training and support to help them with the funding process.

8.5. Should E-Rate Funds support Capability and Content?

Some educators advocate expanding E-Rate funding beyond connectivity to support training, technical support, and content. In general, given the pressures on the funding base and ongoing requirements for connectivity subsidies, E-Rate funds should be limited to supporting connectivity, while other sources should be tapped for these additional important needs.

However, as noted above, if funding formulas were changed, some E-Rate support could be allocated for these purposes. For example:

á A small percentage of funds (e.g. up to 10 percent) could be used for competitive grants for training and content development.

á The $650 million that was unused and carried forward from funding years 2001 to 2004 could be used for capability and content.

Several alternatives have been proposed to fund additional activities in technicalÊ training and support and content development. One approach is to provide support from other government agencies, such as the federal Department of Education. For example, the Enhancing Education Through Technology (EETT) program, which was authorized as Title II-D of the No Child Left Behind Act (NCLB), enables schools to address core teaching and learning needs through technology, including access to courses online, professional development programs for teachers and technology skills and tools for students.[40]

States distribute funds to school districts with 50 percent allocated by a poverty-weighted formula and 50percent by competition. EETT gives schools broad discretion to use program resources for technology-related acquisition, enrichment, professional development and integration purposes aimed at improving student achievement and student technology access.[41]

However, although the EETT was authorized in the NCLB legislation at $1 billion per year, it was funded at about $690 million for its first three years in Fiscal Years 2002-2004, and was reduced to $496 million in FY2005 and to $272 million in FY2006.[42] Clearly, additional funds are needed to enable this program to achieve educational technology goals and to complement the support for connectivity through the E-Rate.

Another source of federal funds could be the proceeds from FCC spectrum auctions. Digital Promise proposes establishment of a nonprofit nongovernmental Digital Opportunity Investment Trust (DO IT) ãdesigned to meet the urgent need to transform learning in the 21st century.ä The trust would use FCC spectrum auction funds for learning software and tools to make use of Internet and for information and communication technologies for education. The proponents draw parallels to the historic use of revenues from the sale of public lands ãwhich helped finance public education in every new state and created the great system of land-grant colleges voted by Congress and signed by President Lincoln during the darkest days of the Civil War.ä[43]

8.6. How Can the E-Rate Process be Improved?

Waste, Fraud and Abuse:

The E-Rate Program has been subject to allegations of waste, fraud and abuse. Some school districts have purchased equipment that was unnecessary, too costly or beyond their capability to manage. Equipment vendors have been accused of fraud and price-rigging.[44] In 2003, USAC, with support from the FCC, convened a task force to recommend steps to strengthen and improve E-Rate compliance procedures and protections from waste, fraud and abuse.[45] In December, 2003, the House Committee on Energy and Commerce requested the Government Accountability Office (GAO) to prepare a report on the FCCâs management and oversight of the E-Rate Program. The GAO found evidence of some mismanagement of E-Rate funds, bureaucratic delays in disbursing funds, and some waste of E-Rate resources. Its report called for the FCC to strengthen its management and oversight by determining comprehensively which federal accountability requirements apply to the E-Rate, establishing E-Rate performance goals and measures, and taking steps to reduce beneficiary appeals.[46] In March 2005, the House Committee held hearings on the GAO report.[47]

USAC and the FCC have taken significant steps to rectify these problems. They are also being addressed through the FCC in its Notice of Proposed Rulemaking (NPRM) on USF management, administration and oversight.[48]

ÊÊÊÊÊÊ A triennial review of FCC and USAC administrative, application and oversight procedures should be required to improve efficiency, effectiveness and transparency of funds disbursement, and to examine changing needs for ICT access.

At the Federal Level:

Although there are strengths in the E-Rate allocation process, the program has proved difficult to implement and administer. Some educators and librarians have found that it places a heavy burden on them in terms of time, effort and expertise. The application process is demanding, and requires careful monitoring and attention to detailed specifications and submissions. The unspent $650 million from funding years 2001 to 2004 (representing 29 percent of available funds) indicates that something is seriously wrong with the disbursement process.

The required technology plan was intended to force schools to think through how they would address the ãother Câsä including teacher competency and relevant content, as well as how they would fund ongoing technical support and maintenance. Yet some schools have simply outsourced the preparation of the technology plan, or used a ãcookie cutterä model that satisfies the requirement but not the intended benefit of preparing the plan.

At the State and Local Level:

States and school districts themselves could work to improve the process and the funding available to their schools. While the preponderance of E-Rate funds is going to poor and disadvantaged states and school districts, there are still eligible schools that remain unfunded. Some have secured funding from their state or from local sources. But other schools that could use the funds have not applied. One strategy that the school districts and state coordinators could use more effectively is mentoring. A resource person who can provide advice, critique draft submissions, and trouble-shoot the process can make a major difference. One explanation for Alaskaâs significant success in obtaining E-Rate funds was the assignment of a state librarian as state E-Rate coordinator to help the schools and libraries prepare applications and navigate the E-Rate labyrinth. She provides advice, explains the requirements, and assists in completing the forms and tracking their progress.[49]

Some educators and librarians are already organized to take advantage of state technology initiatives such as the Texas Infrastructure Fund (TIF). State officials in Vermont, on the other hand, noted that their school districts are very small, and may not have the staff time or expertise to get through the process.[50]

Many school districts state that they would have difficulty finding funds to pay for connectivity if E-Rate funds and discounts were discontinued. While this claim demonstrates the value of the E-Rate subsidy to the schools, it also shows that school districts need to examine how they allocate their available technology dollars, and whether they can diversify their funding sources or include connectivity costs in their annual budgets.ÊÊÊÊÊ

8.7. Should the Rural Health Care (RHC) Program be continued?

Should a program that has disbursed less than 10 percent of its authorized funds since 1998 be continued? The answer is not as simple as it would appear. First, the amount of $400 million per year was a very rough estimate without much foundation. Second, there has been very limited publicity about the program. Third, its application procedures have been very complex, and until recently, the discount for high speed connectivity in many rural areas was minimal.

The FCC has now changed the formulas for calculating the discounts, and included discounts for Internet access. It has also now announced a two-year pilot program to support investment in broadband infrastructure to link health providers and to provide guidance for the future of the program.

The evidence for rural health care is limited primarily to Alaska, where the funds have been key to upgrading communications between hospitals and village clinics, but the revised health care initiative should be given a chance to deliver. The RHC should be allowed to continue at least through the next two years, subject to findings from the pilot program, which should include independent evaluation.Ê

8.8. Should the USF fund infrastructure?

The RHC pilot program includes funding for broadband infrastructure. In addition to linking health facilities, these networks, as the FCC points out, could also provide vital links for disaster preparedness and emergency response and facilitate the goal of implementing electronic medical records nationwide. There is some evidence (for example, in rural Alaska) that extension of broadband networks to connect schools and libraries has also brought broadband to neighborhoods and rural communities that previously lacked access. The FCC should commission studies to determine to what extent E-Rate funding has contributed to extending infrastructure, and should build funds for such research into the new RHC pilot program. Ê

9. Research Agenda

As noted above, there is very little research on the utilization and effects of the nearly $19.4 billion allocated since the E-Rate program began a decade ago. Funding should be allocated for research on the E-Rate program to provide an audit of how funds were used, to determine what impact ICT access had on the user communities (students and teachers, health care providers and patients, the general public, etc. and to guide future policy on both universal service and strategies to extend broadband access.

Many research topics have been suggested throughout the paper. The following is an incomplete list of studies that are needed:

á Best Practices:

What do we know about universal service funds and policies in other countries?

What could we learn about other mechanisms for supporting ICTs for schools and community access (libraries, telecenters, post offices, public kiosks, etc.)?

á Sustainability:

ÊÊÊÊÊ How necessary and/or viable is the E-Rate for schools and libraries going forward:

á How dependent are current recipients on the E-Rate to pay for Internet access?

á To what extent do states provide supplementary or substitutable support?

á Is broadband access now considered a basic budget item?

á How important is free community access (through libraries, and sometimes schools) likely to be in the future, compared to the early days of the Internet?

á Can schools and libraries become anchor tenants or service providers to extend access to other points in their communities (e.g. using wireless)?

á Inequities in Participation:

Some states and territories lag significantly in E-Rate participation for schools, based on per student support.Ê

á Is this also true for libraries?

á Why do some eligible schools and libraries not receive any support?

á What factors have helped the top recipients (e.g. mentoring, industry involvement)?

á What factors have hindered the lowest-ranking recipients (e.g. lack of administrative support, lack of technical expertise)?

á What needs to be done to assist the laggards?

á Funding to the User:

The E-Rate funds are awarded to the user (school or library) rather than directly to the carrier or vendor. This approach differs from the model used in most other countries, where subsidies go directly to service providers.

á Has this approach empowered schools and libraries as customers?

á Has it placed too great a burden on schools and libraries, in terms of time, effort and/or expertise?

á Incentives for Innovation:

The E-Rate process requires competitive bids for approved services through the USAC website.

á To what extent has there actually been competition (bids by other than incumbent)?

á Has this process encouraged service providers to offer services to schools and libraries that were not previously their customers?

á Has it resulted in innovation in services delivered, technologies deployed, efficiencies, etc.?

á ÊHas it resulted in lower prices than initially offered by incumbents?

Is the E-Rate making a Difference?

In access: e.g. for students and residents who do not have computers and/or Internet access;
In extending broadband to previously unserved areas and customers?
In applications: e.g. for schoolwork, job skills, applications for work or benefits;
In the economy: jobs created or upgraded, new economic activities, etc.

10. Conclusions and Recommendations

While not flawless, the Universal Service Programs for schools, libraries and rural health care has helped numerous students in enabling them to use the Internet and other electronic services for education, Êcommunity residents in providing access to the Internet in libraries, and patients dependent on rural health care services.Ê

Based on the above analysis, the following are recommended policies for the future of these programs:

1. Continue the Universal Service Fund organizational programs for schools, libraries and rural health care as a permanent component of universal service.

2.Ê Keep responsibility for the Universal Service Fund programs for schools, libraries, and rural health care at the FCC, but establish advisory committees with membership from NTIA, DOE, and HHS as well as from professional educational, library and health care organizations, and experts on utilization of information and communication technologies (ICTs) in these fields and evaluation of ICT programs and impacts.

3. Continue the following E-Rate policies:

a. Limit funding to connectivity and related facilities

b. Maintain discounts based on poverty and rurality

c. Maintain competitive bidding process for vendors.

4. Require a triennial review of FCC and USAC administrative, application and oversight procedures to improve efficiency, effectiveness and transparency of funds disbursement.

5. Identify funding sources to support the factors critical to effective utilization of ICTs: capacity-building for teachers and others in using ICTs, development and exchange of effective content for education and other development applications, and contextual applications (based on factors such as language, culture, ethnicity, disabilities).

6. Require that a small percentage of USF funds be used for outreach to make more educators, librarians and rural health care providers aware of the programs and how to participate, and for evaluation to update and analyze data on program utilization and to assess impacts of USF support.

ÊNOTES

[1]Ê Support for preparation of an earlier version of this paper was provided by the Benton Foundation.

[2]Ê Contact information: email: hudson@usfca.edu; phone: 415-422-6642; fax: 415-422-2502. Postal address: School of Business and Management, University of San Francisco, 2130 Fulton St., San Francisco, CA 94117.

Table 1: Discounts Available for Schools[15]

[44] See, for example, Dotinga, Randy. ãFraud charges cloud plan for 'wired' classroomsä The Christian Science Monitor, June 17, 2004.