Universal Access: What Have We Learned from the E-rate?

Heather E. Hudson, Ph.D., J.D.[1]

Director, Telecommunications Management and Policy Program

University of San Francisco

Abstract

The Telecommunications Act of 1996 mandated discounts for high speed connectivity for schools, libraries, and rural health care centers. Innovative although somewhat complex mechanisms were developed to implement this mandate. Five years after the E-rate (as the schools and libraries program came to be known ) was implemented, what have we learned?

This paper reviews some of the innovative features of the E-rate and how they have been implemented. It also examines possible reasons for disparity in take-up of the subsidies, even among states with significant disadvantaged and/or rural populations. It then analyzes lessons learned from E-rate implementation in Alaska, and possible implications for other countries considering a mechanism to subsidize community or institutional Internet access.

1. Overview

The Telecommunications Act of 1996 expanded the Universal Service Fund’s original purpose to extend reasonably priced telephone services to rural and other underserved areas to include support for the cost telecommunications services for schools, libraries, and rural health care providers. The E-rate (short for “education rate”) was created by Section 254 (h) of the Act[1] 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.

The Federal Communications Commission sets the overall policy for the program, which is administered by a nonprofit entity, the Universal Services Administrative Company (USAC). (Originally, two separate nonprofits were created to manage education/libraries and rural health care, but health care was merged into the education/libraries organization, now called USAC.) The Schools and Libraries program is part of the FCC’s Federal Universal Service Fund (USF). Funds come from telecommunications carriers, which are required to contribute a set portion of their revenues to the Universal Service Fund (USF). Carriers generally pass through these costs to customers through itemized charges on their telephone bills. The FCC makes payments from this central fund to support the Schools and Libraries program, as well as three other Universal Service programs (Low-Income, High-Cost, and Rural Health Care).

Up to $2.25 billion worth of discounts can be made available each year. According to the FCC, first priority is given to requests for support for telecommunications services and Internet access. If additional funds remain, the program supports requests for internal connections products and services, with top priority given to the neediest applicants. Schools may apply for all “commercially available telecommunications services” 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.[2] 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 school’s 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 Libraries’ 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. Support for internal connections is awarded only to those entities with E-rate discount rates of 70 percent or more.

Table 1: Discounts Available for Schools[3]

Percentage of students who qualify for the National School Lunch Program	Discount for schools located in an urban area	Discount for schools located in 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%

1.2. The Process

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. Applicants decided for which of the eligible services they want to seek support. 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.

Once the school or library’s application is approved, its requirements are posted on the Universal Service Corporation’s 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.

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. While the intent is to be fair and consistent to all applicants across the country, the result has been considerable confusion and frustration among some applicants. The FCC is in the process of reviewing this process and related issues through a Notice of Proposed Rulemaking (NPRM).[4]

1.3. An Incentive-Based Approach

An important element of the E-rate program is that it is designed to be incentive-based. Subsidies are not awarded directly to the carrier but to the user, i.e. it is the school or library which is eligible to receive the discount. Like a voucher system, the E-rate can empower schools and libraries because they now have resources for technology, rather than being relegated to the sidelines as unlikely or undesirable customers. In contrast, other countries generally subsidize the carrier directly to install facilities or to provide services at a reduced price. This approach creates no incentives for new entrants nor for keeping construction and operating costs down. Quality of service may also suffer if the facilities and services are perceived to be of low value, and/or the carrier concludes there is little likelihood of ongoing service without the subsidy.

2. How have the States Fared?

All schools and public libraries are eligible for subsidies under the E-rate program. However, given its goals and the weightings based on income and rurality, we might expect to see poorer and more rural states obtaining more than their “fair share” based on population. E-rate and census data were used to determine how much funding each state had received per eligible student and per capita, since eligible student data were available only for 1998. See Table 2.

The State of Alaska tops the list, having received 278.2 percent of what we might expect based on its population ( a total of $27.3 million for 1998-2001 out of a total of almost $4.4 billion awarded). Perhaps Alaska’s high support per capita should not be unexpected, given its vast isolated regions and the high percentage of native residents, particularly in remote areas. Many of these native villagers live close to subsistence, although the average income in Alaska is second highest in the country.

A distant second is New Mexico, where $50 million was allocated between 1998-2001, some 177.5 percent of what might be expected based solely on population. Again, rurality, poverty (New Mexico ranks 44^th in average annual income) and a high percentage of native people might account for the relatively high funding levels.

But the other overachievers don’t fit that mould. They include New York, the District of Columbia, and Illinois. DC might be expected to do well given its high level of inner city poverty (although it ranks 36^th in average income). But what about New York and Illinois, prosperous states with a mix of urban and rural areas? Is their success due to good state or local organization, or to professional assistance?

Table 2: E-rate Funding Outlyers

High: More than 150% of population-based allocation: 1998-2001

State:	% of Pop-Based	Funds/Student	Comments:
	Allocation	1998*
Alaska	278.2%	$88.92	most rural; high average income (2nd); high % native pop
New York	182.9%	51.10	high population (3rd); middle average income (28th)
New Mexico	177.5%	51.69	very rural; low income (44th); high % native pop
District of Columbia	170.2%	64.89	most urban; 36th in average income but wide disparities
Illinois	157.9%	35.20	high population (5th); high average income (10th)

*Other states with more than $50 per student: Kentucky, Alabama, Georgia

Low: Less than 50% of population-based allocation: 1998-2001

West Virginia	49.3%	$29.59	lowest average income; mostly rural
Colorado	45.4%	19.16	extensive rural areas; high average income (6th)
Oregon	39.7%	15.71	middle in size and income but extensive rural areas
Utah	39.6%	12.56	extensive rural areas
South Dakota	39.4%	18.29	extensive rural areas; low average income (46th)
Vermont	35.2%	18.26	small but rural
Maine	34.4%	12.82	extensive rural areas
Iowa	33.7%	13.53	extensive rural areas
Delaware	27.0%	7.98	small land area; high income (9th)
Nevada	26.6%	18.13	extensive rural areas
New Hampshire	14.0%	7.20	small but rural

*Other states with less than $15 per student: Maryland, Wyoming, Nebraska

Data on expenditures per student (available only for 1998) give a slightly different picture. Other states with high expenditures include Kentucky, Alabama, and Georgia, while Illinois falls below the $50 per student threshold. (Average for 1998 was $30.39 per student.)[5] These data may indicate that the additional states were among the earliest to get school districts to apply for funds.

At the low end are states that would appear to be almost as deserving as New Mexico, such as South Dakota and West Virginia. Most of New England (except New York and Massachusetts) received less than 50 percent of what might be expected based on population, and New Hampshire ranked last, with 14 percent of what might be expected given its population. In the West, Colorado, Oregon, Utah and Nevada were underachievers, as was Iowa. States with expenditures below $15 per student in 1998 included most of the states with low funding per capita, plus Maryland, Wyoming and Nebraska. Were these laggards that increased applications in subsequent years? Or do other factors account for their low levels of funding?

	Table 3: School Internet Indicators 2001

	Percent of schools	Percent of schools	Students per Internet-
	with Internet connection	with highspeed access	connected computer
	with Internet connection	with highspeed access	connected computer
High Speed Leaders
Delaware	100%	98%	5.1
District of Columbia	91	86	12.6
Ohio	92	82	4.9
Utah	99	82	7.7
Minnesota	98	81	6.2
South Carolina	97	81	7.1

High Speed Laggards
Nevada	82	48	11.3
New Hampshire	96	45	10.4
Tennessee	98	38	9.0
Montana	95	36	6.9
Vermont	100	34	6.4

U.S.	94	67	7.9

Derived from: “Technology Counts 2001”, Education Week[6]

Are some of these states achieving Internet access for their schools without much benefit from the E-rate Program? While nearly all schools now are connected to the Internet, high speed access is much more limited. See Table 3. In only five states plus the District of Columbia do more than 80 percent of schools have high speed access (such as T1s and cable modems). These include the geographically smallest entities, Delaware and DC, where fiber and cable infrastructure is likely to be available throughout the territory. As noted above, DC is also one of the top recipients of E-rate funding on a per capita or per student basis. However, it has apparently been less successful at obtaining computers for its schools, as its ratio of students per Internet-connected computer was the highest in the country in 2001 (and ratio of students to all instructional computers among the highest).

While most states have high speed access for between 50 and 75 percent of their schools, in five states, fewer than 50 percent of the schools have high speed access. Three of these states, Nevada, New Hampshire, and Vermont, are also among the lowest per capita recipients of E-rate funds. Does this ranking reflect a low state priority for technology in schools? A lack of institutional commitment to address this technology gap?

3. The Alaskan Experience

It is beyond the scope of this exploratory study to explain conclusively why some states have managed to benefit much more significantly from the E-rate Program than others. However, the experience of Alaska, both the highest per capita E-rate beneficiary and the most rural state as well as a state with a significant minority population, may shed light on what factors may contribute to being able to take maximum advantage of funds available to provide Internet access for schools and libraries.

3.1. The Alaskan Context

Geographically, Alaska is the largest state in the United States, covering an immense area of 586,412 square miles, with a total population of 621,400. About half the population lives in Anchorage; only four communities in the state have a population greater than10,000. The rural population density is only 0.58 per square mile, the lowest in the country. Most of the rural population is actually clustered in villages and small towns. About 16 percent of Alaskans are native American, including Tlingit and Haida Indian tribes in the southeast, Athabaskan Indians in the interior, Inupiat and Yupik (Eskimos) near the Arctic Ocean and Bering Sea, and Aleuts in the Aleutian Islands.

About 44 percent of Alaska's population is located in rural telephone service areas, the highest percentage in the country (the U.S. average is 7 percent). About 95 percent of Alaskan households have telephones, higher than the national total of 93.8 percent, despite the fact that Alaska is the most rural state. In comparison, in New Mexico, which also is largely rural and has a significant native American population, only 87.9 percent of households have telephones.[7] Communication services to remote villages are provided primarily by satellite because of the vast distances and conditions such as mountains, permafrost and lack of roads that make terrestrial networks impractical.

Local telephone service is provided by 25 local exchange carriers (LECs), ranging from major companies with multiple franchises to community cooperatives and small "mom and pop" phone companies. The two major intrastate long distance companies are AT&T Alascom (the current owner of the original long distance network acquired from the military in 1971 and then expanded) and GCI Inc., an Alaska‑based company founded in 1979 that provides voice, video and data communication services to more than 150,000 residential, commercial and government customers.

3.2. Behind the Scenes: The Mentor

Alaska has had a commitment to using telecommunications for rural development since the early 1970s when experiments using NASA satellites first demonstrated that reliable communications could improve rural health care and enhance rural education. In the mid 1970s, telecommunications services were provided by commercial satellite to all permanent communities, bringing telephony and teleconferencing as well as broadcast radio and television.[8]

When the Internet arrived, Alaskans were also quick to see its advantages for an isolated population. By 1999, Alaska ranked first among the 50 states for Online Population and first for Technology in Schools (a weighted measure of the percentage of classrooms wired for the Internet, teachers with technology training, and schools with more than 50 percent of teachers having school‑based e‑mail accounts) and Alaska ranked third in Digital Government, a measure of the utilization of digital technologies in state governments.[9] It is perhaps not surprising, then, that Alaska took full advantage of the E-rate program.

But how did Alaska manage to secure such significant funding? As noted above, the E-rate Program requires an understanding of telecommunications and information technologies, has complex application procedures, and requires that each school complete a technology plan before being certified as eligible for the discounts. Many schools and school districts far larger than those in Alaska have found these requirements daunting. One explanation for Alaska’s success is 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.[10]

It is likely that, without some mentoring, many school districts would not attempt to get E-rate funds. For example, the Northern Marianas in the western Pacific are eligible for E-rate support, but have received little funding, despite the importance of Internet access in this remote region. The local carrier stated that it had lobbied to include the territory in the E-rate program. However, he stated that to his knowledge, no one from the government or the company had provided any assistance to the schools to help them apply.[11]

3.3. Carrier Involvement

Another unusual feature in Alaska is the participation of carriers in helping the schools to acquire funding. The second long distance carrier, GCI, set up a project office and Web site for schools, and offers a package of services including connectivity via leased line or VSAT, an onsite school server, and services including e‑mail, Web access and technical support).[12] Local telephone cooperatives have also partnered with schools and libraries to obtain discounted Internet access.[13]

GCI apparently views the E-rate initiative as a win‑win opportunity for both schools and the company. This investment appears to have paid off very well, as GCI has received more than $19 million from the fund from 1998 through 2001.[14] GCI has installed VSATs at schools to provide the Internet access; they may become “anchor tenants” for satellite-delivered Internet services to other customers. The value-added “one stop shop” for schools has also turned into a new business opportunity. Not only does GCI serve several schools in Alaska that have subscribed to this SchoolAccess service, but it has rolled out the service for rural New Mexico and Arizona schools, despite the fact that GCI is not a carrier in their states.[15]

3.4. Extending Access to the Community

Many school districts in Alaska asked whether they could make their Internet access available to others in the community because no other Internet service was available. However, FCC rules require that any school, school district, or library buying discounted telecommunications services must certify that those services are to be used only for educational purposes. To address this matter, in January 2001, the State of Alaska filed a petition with the FCC for a waiver of the rule requiring the "educational purposes only" requirement so that, under certain circumstances, schools or libraries could make the telecommunications service used to access the Internet available to be used by an AfterSchool/Internet Service Provider (AS/ISP which would then provide local or toll-free Internet access to the community. In December 2001, the FCC granted the State’s petition, subject to five conditions:

C There is no local or toll-free Internet access available in the community or communities to be served by the use of the school district's telecommunications service.

C The school (or library) does not purchase more discounted telecommunications services for Internet access than it needs for educational use.

C The telecommunications service currently used by the school (or library) to access the Internet must be purchased on a non-usage sensitive basis.

C The AS/ISPs can offer service only during hours when the school (or library) is closed. The school districts (or libraries) must include specific language in their agreements with AS/ISPs that imposes this requirement.

C The school districts (or libraries) must make the telecommunications services to be shared available to AS/ISPs in a competitively neutral manner that does not require or take into consideration any commitments made by an AS/ISP. However, the school district or library may establish minimal technical requirements the AS/ISP must satisfy to protect the integrity of the school's or library's telecommunications network. It may also require proof that an AS/ISP is actually capable of providing the service and is prepared to offer it within a reasonable timeframe.[16]

It should also be noted that any costs the school district or AS/ISP incurs in implementing the waiver program (such as additional telecommunications equipment or construction costs) are not eligible for the discount provided for the school's telecommunications services through the E-rate program. Schools may share these costs or require that they be totally the responsibility of the AS/ISP.[17]

This waiver could permit Alaskan residents of many remote rural communities to access the Internet with a local (or toll-free) phone call for the first time. Procedures to implement this local service subject to the restrictions of the waiver are now being developed. The E-rate coordinator’s “other related duties” include drafting a “plain language” guide for schools and libraries about how to proceed.[18]

A major concern of the FCC has been to ensure that subsidized E-rate services do not compete with commercial services. However, Alaska was able to demonstrate that no local commercial ISPs, or ISPs offering local services, are available in these communities. The waiver may also provide a precedent for other rural areas that have no local Internet access, but do have Internet service to the school or library. For example, a WiFi (802.11b) network could be installed to cover the community, with links to the Internet through the school or library. Service could be provided by the school district, the local government, a nonprofit organization, or a for-profit entity. The procedures Alaska develops to ensure “competitive neutrality” and the technical solutions adopted by the ISPs could provide useful models for other regions.

4. Findings and Issues for Further Research

4.1. Access: Necessary but not Sufficient

Of course, providing technology does not guarantee that it will be used effectively. Many other conditions must also be met such as capacity to use the technology and content designed for curricula and appropriate for various age groups and learners. Steps to achieve these conditions are likely to include training for teachers, content development for various subjects and grade levels, and possibly competency testing.[19] These requirements are beyond the scope of the Universal Service Fund, but must be included in any strategy designed to achieve its goals of providing access to communication technology to improve access to information for students and the general public.

Many states have implemented other initiatives to extend information infrastructure to underserved areas and to use these technologies for social and economic development. For example, the Appalachian Regional Commission (ARC) provided funding of over $18 million for 118 projects between 1995 and 2001 in its 13-state region for telecommunications projects, each of which involved at least two sectors from a community or region as end users of the technology, including government, health, education, business or other community interests. In November 2001, ARC launched Information Age Appalachia, an initiative aimed at improving telecommunications and broadband deployment throughout Appalachia, focusing on access to infrastructure, education and training, e-commerce initiatives, and the growth of information-technology sector jobs.[20] In 2001, Michigan launched the LinkMichigan initiative to upgrade the state’s telecommunications infrastructure, by aggregating statewide telecommunication purchases to create a high-speed backbone, implementing taxing and permitting reforms, increasing access to information about existing infrastructure, and providing funds for regional telecommunication planning of last mile solutions.[21]

Several states, among them Arizona, Massachusetts and Washington, are creating statewide web-based education resources. Arizona is creating a statewide secure education portal that state’s 45,000 teachers and 904,000 students can use to access educational content from many sources with a single password. The portal offers free basic package of more than 250 software titles and resources from 15 applications service providers (ASPs).[22]To help states share online educational tools that some are developing, 14 states have joined together to form the U.S. Open e-Learning Consortium. Participants plan to collaborate on many aspects of online education, including assessment, technical standards, software features, administrative functions, and methods of cataloging information.[23]

Other initiatives are designed to extend access to community residents. More than 700 Community Technology Centers supported by the U.S. Department of Education and other funding provide free or low-cost access to computers and the Internet, together with training and learning activities.[24] Some states also support community access centers. For example, New Jersey’s 39 ACE Centers (for Access-Collaboration-Equity) located in economically disadvantaged school districts are supervised centers open during evenings, weekends, and the summer, providing students, their families, and community members with access to programs, resources and services both onsite and online.[25]

4.2. Issues for Further Research

This is an exploratory paper intended to identify issues and to suggest explanations for preliminary findings. Among the findings are:

C Inequities: There are major disparities among the states in E-rate funds received per capita or per eligible student. Not all of these disparities can be explained in terms of economic indicators, demographics or rurality.

C Mentoring: Assistance from resource persons can be valuable in enabling school and library staff to tackle the process of applying for funding.

C Industry: Carriers and service providers can not only assist schools and libraries in preparing applications, but generate significant revenues from the subsidies, and possibly develop new lines of business.

C Incentives: The bidding process is designed to provide incentives to service providers, but many contracts still go to a single source.

Clearly, there is need for further research. Issues to be studied include:

C Beyond Access:

What other conditions must be met for students and community residents, especially the disadvantaged, to benefit from access to the Internet?

C Seizing Opportunities:

What factors have enabled some schools and libraries to obtain significant funding?

What impediments have held others back?

How could laggards be helped to apply for support?

C The Role of the Industry:

Should carriers or service providers be allowed to help applicants prepare technical plans and forms?

Has the opportunity to bid resulted in meaningful competition or entry by new providers?

What new business models been developed (such as for value-added services)?

C Sustainability:

Are schools and libraries able to cover costs excluded from the E-rate program? What would happen if the E-rate program were to be cut drastically or dismantled?

Answers to these questions will help policy makers understand whether the redefinition of universal service in the 1996 Telecommunications Act is accomplishing its goals. They will also help to identify additional lessons from the E-rate experience that may be useful for other countries seeking to ensure that affordable Internet access is available to their schools and communities.

NOTES

[1] Contact information: phone: 1-415-422-6642; fax: 1-415-422-2502; e-mail: hudson@usfca.edu; website: www.usfca.edu/fac-staff/hudson.

Table 1: Discounts Available for Schools[3]

Table 2: E-rate Funding Outlyers

Table 3: School Internet Indicators 2001

3. The Alaskan Experience

NOTES