E-rate changes called insufficient: Some legislators recommend total restructuring

A program that funds discounts on advanced telecommunications services for schools and libraries remains under attack despite changes adopted by the FCC.

Although the FCC reduced funding and slowed the pace of the "e-rate" program to please Capitol Hill critics, some in Congress say the program is beyond repair and should be scrapped.

"[John] McCain believes it's a fundamentally flawed program, so the FCC should set it up from scratch," said a spokeswoman for the Senate Commerce Committee chairman.

McCain, R-Ariz., and other members of Congress plan to introduce legislation to restructure the program, begun this year to help public and private schools and libraries buy Internet access and other telecom services. It's unclear what action will be taken before Congress adjourns in August.

McCain said he wants a bill to "stabilize" the schools and libraries program and coordinate it with other phone service subsidies. Rep. Billy Tauzin, R-La., chairman of the House Commerce Committee's telecommunications subcommittee, wants an entirely new funding mechanism and a shift in control from the FCC to the Department of Education, his spokesman said.

The tussle between Congress and the FCC centers on universal service, under which carriers pay fees to subsidize local phone service in rural and high-cost areas-and, for the first time this year, schools, libraries and rural health care facilities. The 1996 Telecom Act added the new recipients, and the FCC set up the now-troubled program.

"The FCC's already shot itself in the foot with this program, and we're moving ahead with our own plans," said a spokesman for Tauzin. Under Tauzin's plan, which may be introduced as soon as this week, the $5 billion per year raised by a 3% federal excise tax on phone service would be split equally between a direct tax cut and a new e-rate program, the spokesman said.

Critics and supporters of the e-rate program in Congress and the White House have waged a war of words in recent weeks, prompted partly by the specter of new universal service charges listed on residential customers' long-distance bills. AT&T and MCI say they will still list the charges but will adjust the amounts to reflect the FCC's new funding levels.

McCain and others asked the FCC to suspend funding for the e-rate program for the rest of the year, but the commission voted 3-to-2 along partisan lines to keep both the e-rate and medical programs going with new funding caps that lowered the original ceiling by $1.3 billion.

Commissioners Harold Furchtgott-Roth and Michael Powell, both Republicans, voted against changes. Furchtgott-Roth said the FCC should have frozen the e-rate program for six to eight weeks while it reconsidered universal service as a whole.

Subsidies for schools and libraries capped at $650 million for second half of 1998; total year funded at nearly $1.3 billion

Subsidies for rural medical facilities capped at $50 million for second half of 1998; total year funded at $100 million

Neediest schools and libraries get money first instead of first-come, first-served

Funding cycle changed from calendar to fiscal year starting July 1; initial applications funded through June 30, 1999

Administration consolidated under one entity, the Universal Service Administrative Co.; employees' pay to be lowered July 1