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At Last! After 15 Years, Govt Tells Phone Companies to Follow Low-Price Rule for Schools

Following years of neglect and a ProPublica story last week, regulators are about to tell phone companies to comply with a rule that they charge bargain rates to schools.

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(File photo by Scott Olson/Getty Images)

After 15 years of neglect, federal regulators are finally planning to tell phone companies selling services to schools and libraries how to comply with a rule requiring them to charge bargain prices.

Last week ProPublica revealed that the Federal Communications Commission had failed to provide guidance for the low pricing rule case since the 1997 launch of the school program, called E-Rate. Lawsuits and other legal actions in four states turned up evidence that AT&T and Verizon charged local school districts much higher rates than it gave to similar customers or more than what the program allowed.

The preferential pricing rule, called lowest corresponding price, was designed to give schools a leg up in the complicated world of voice and data pricing, and to make sure school children had access to the Internet. But despite evidence of inflated pricing, the FCC never brought an enforcement case against a service provider for violating the rule.

While the main victims of this failure are the nation's schoolchildren who receive suboptimal broadband access, there's another set of victims: the vast majority of people with a cellular or landline phone contract. That's because the program provides a subsidy to schools to help them pay for the telecom services. Telephone consumers pay for this subsidy, usually through a “Universal Service Fund” charge on individual phone bills. The subsidy fund is capped at about $2.25 billion a year.

Schools and libraries draw on this fund to help pay for the services provided by the telecom companies — virtually all schools are eligible, but the poorer the school, the more it can draw. Here's the rub: Requests for help almost always exceed the available funding. So when phone companies charge inflated rates to schools and government regulators turn a blind eye, this fund is depleted faster; fewer schools and libraries benefit; and money taken from millions of telephone customers goes to boost corporate profits instead of to help as many schoolchildren as possible.

Now, the FCC will finally teach phone companies about the preferential pricing rule. Over the next week companies that participate in the program will be attending annual training sessions in Atlanta and Los Angeles that are designed to explain the program's rules. This year's training sessions — unlike those in past years — will include lengthy discussions of the bargain pricing rule, according to a power point presentation posted on the website of the private company that administers the E-Rate program for the FCC, the Universal Service Administration Co.

The presentation tells companies that schools are "not obligated to ask" for the lowest corresponding price, "but must receive it!"

Asked to explain why the upcoming training sessions for providers were going to discuss the pricing rule for the first time, a spokesman for the FCC released a statement saying the new guidance was "prompted by an internal discussion last August of issues raised in the whistle-blower case."

That case was brought in 2008 by Todd Heath, who audited school telecom bills in Wisconsin. He alleged in federal court that Wisconsin Bell, a unit of AT&T, was charging several schools far more than others for essentially the same services, thus violating the pricing rule. The company says it follows the E-Rate rules and is contesting Heath's allegations in court. One of their defenses is the FCC's lack of guidance about the pricing rule.

ProPublica interviewed several FCC officials responsible for E-Rate last December, in a discussion mostly about the lowest corresponding price rule. None of them mentioned the prospect of new training about the rule, even after it was pointed out that the FCC had provided phone companies virtually no guidance on the price rule for the previous decade.

Oh, now I see!  The companies never got formal training in following this law, therefore they’re under no obligation to follow it.  I guess that means I should watch out when I see those cherry-pickers coming up the road.  I doubt anybody gave them a training course in not committing arson or not selling military secrets to the Chinese.

Again, we have a situation where some company skates through on a lame excuse that’d get any of us laughed out of court (and into a jail cell) for trying.  They’re not even pleading ignorance, just that there wasn’t a class to teach them how to not steal from customers.

Now the challenge will be to follow up to ensure there aren’t any unintended consequences that impact the level of service the schools receive.  As these companies will not be happy about the loss of revenue (their only real concern in today’s business environment, unfortunately) they will structure the package of services they offer to the schools such that the schools will not be happy with those package of services.  Yes, I’ll give you the lowest rates, but a set of services and support that are so bad you’ll want to pay us more to “upgrade” your service to something that really provides what you need.

Oh, and then in 5-10 years the next excuse with the next whistleblower lawsuit will be “but no one trained us on the level of service and support we should provide under these rules…”  *sigh* I hate to be so cynical, but really? 15 years before the FCC takes action?

Shame on the FCC as well as the companies.  The telecommunication companies have the best and highest paid attorneys.  Are we now to understand them incapable of making credible efforts to follow the law. I think not.  At minimun you call and ask a question insisting on a response.

Isn’t there an old saying, that ignorance of the law is no excuse.  It applies in this situation.

Emmett Smith

May 8, 2012, 2:26 p.m.

Check your hearts at the door. These are government facilities and the government passed a law ordering private industry to give it a price break. This is government theft just like the Telecom Deregulation Act that left the TelCos regulated and stole their private property was government theft. Telecommunications is critical for this country’s security and success, as well as the safety and success of your children and the government has no legal or moral authority to mess with it.

So, can someone explain to me how the federal government can justify requiring a business to change prices for some entity, just on a whim?

Mark, the simple answer is that the price is subsidized by us, the other customers, as the article explains.  You could just as easily ask how it’s not theft to take the subsidy and still charge premium prices by merely claiming ignorance.

The deeper answer could be that, despite deregulation, the telecommunications market is still highly monopolistic and abusive.  You generally have two, maybe three, vendors that charge identical markup for minimal-value service and walk in lock-step.  Anti-trust laws can involve consumer protection, including fair pricing.

Taking that a step further, the country has broadly interpreted Congress’s power to regulate interstate commerce, and this would certainly qualify.

at&t is deliberately ripping us poor off and that no doubt being used to shut us down and cut off info. That corporation is a demon. You’ll see. They been stabbing us in the back for years and getting worse.

your real name

May 9, 2012, 11:18 a.m.

You mean the phone companies actually stole from us?  But that’s not possible!...  Why would they do that?

You really think the Telco’s kept the money or gave it to their congressional pals who oversee the FCC

You didn’t answer the question. 

What gives the federal government the authority to randomly pick customers of a company and demand they get reduced prices? 

“To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;” is not even REMOTELY applicable.  Not even slightly. 

As for phone service, the options are numerous these days.  For instance, I charge schools vastly less than “E-rate” for dedicated internet services.  Maybe I should raise my rates the officially approved ones so I can be in compliance with officially approved pricing structures?

Perhaps, if there were any sane people involved in this, they would change the laws so that COMPETITION would be cheap and easy, and such mindless stupidity as “E-Rate” could just be forgotten. 

In my home town, for instance, I charge the private school less for a YEAR’s worth of more bandwith, than the public school pays PER MONTH.  But, the school district does not allow competitive internet purchases by the individual schools.  It signed a monumentally stupid deal about 10 years ago, and now requires every individual school to remit huge amounts of money for their internet to the district’s “service” agency to pay for the absurdly expensive deal they signed onto long-term. 

NEVER put politicians in charge of business deals or services, they are gauranteed to make the worst possible decisions.

About “the phone companies stole…”  ???  No, they can’t steal from you, unless an employee comes to your house and takes something.  You freely give them your money, and they provide a service.  If youi don’t like it, choose an alternative (many exist). 

The only stealing going on is the government stealing your money and giving it to the phone companies…

OMG! All republicans are crazy or possessed!

“She”, what is the purpose of your post above?  Do you actually expect people to believe you?

Mark, I think I did answer the question.

#1.  They aren’t forcing a cheaper prices, because there’s a subsidy to compensate them.  I would consider it theft if they take the subsidy and then fail to use it.

#2.  You’re an exception.  In suburban New York, I have two possibilities for broadband (Optimum/Cablevision and Verizon/FiOS), which provide the same mediocre service at the same high price.  Beyond that, there are satellite-based providers, with several times the price for much less bandwidth.

#3.  Regardless of what the Commerce Clause text says, it’s been interpreted widely, allowing for Civil Rights legislation (“by what authority can Congress force you to sell to a negro?”) and so forth.

Any of those gives Congress and the FCC the authority to make those decisions.  We can debate the validity or long-term use of that authority, but that’s another matter, and we’d probably agree.  But there’s nothing legally out of line.

Why complain?  It sounds like you have a golden opportunity, if you can do it cheaper than the mandated rate.

Mark, you touched on the issue of ‘purchasing’ which affects both private and public institutions. When those in charge ‘solve’ one of their myriad problems by listening to sales pitches which promise to take on the entire burden of service and accounting, it’s all too easy to sign on to their one-click solutions, badly considered or not.

In private industry particularly, companies selected for employee 401K contributions are too often chosen for the benefit of the employer - easing the amount of company management, not towards serving the best interests of the employee.

John: 

1.  The subsidy IS the theft. 

2.  I seriously doubt there’s only 2 options.  The biggest reason there’s only limited options is usually regulatory hurdles or limitations that prevent competition.  This (providing internet) is a free market, or used to be, as the FCC and Congress have run amok, doing their utmost to squash smaller, competitive ISP’s. 

3.  Unlike you, I believe that the Constitution means what it says, and it says it for better than excellent ideas.  In fact, the reasons for the limitations placed on the federal government were not just deliberate, but if ignored, will result in national collapse.  So, please don’t argue that we’re supposed to ignore the plain word, in exchange for pretending that x is really y and the lust for power and control is really just a deep desire to improve our lives.

Oh, I get it, Mark.  You’re a “kill the messenger” type who can’t be bothered to read.  Never mind.  My mistake for participating with what must clearly be the only person on the entire planet capable of independent thought.

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