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Commission Document Attachment

DOC-328172A6

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DISSENTING STATEMENT OF

COMMISSIONER AJIT PAI

Re:

Modernizing the E-Rate Program for Schools and Libraries, WC Docket No. 13-184.

In America’s northernmost library, up in Barrow, Alaska, I saw last summer how broadband can

connect a community that no road reaches. In an 8th-grade classroom in a predominantly Hispanic school

in Los Angeles, I saw the promise of the interconnected classroom come to life. In a library in South

Dakota, in schools in Kansas, I saw the potential of next-generation technologies to empower small

communities and give rural Americans the opportunities found in our nation’s largest cities.

Students and teachers, parents and school boards, librarians and library patrons: They were

promised E-Rate modernization. They deserve a student-centered E-Rate program. They need real

reform. And what does the FCC give them? The status quo.

Whether you call it a DisconnectED initiative, E-Rate 1.2, or just 158 pages endorsing more of

the same, the FCC has forfeited this opportunity for real, bipartisan reform of the E-Rate program. This is

disappointing. Real reform would have meaningfully simplified the application process. It would have

ended the unfair treatment of small, rural schools and libraries. It would have let local communities set

their own education-technology priorities. Instead of slapping a plan together at the last minute after

being called out by Republicans and Democrats alike for numbers that didn’t come close to adding up, the

Commission could have kept its promises, rather than breaking them as it does today.

Let’s start with one point of apparently universal agreement: The E-Rate application process

must be, as the Order puts it, “fast, simple, and efficient.”1 And yet the rhetoric doesn’t match the reality.

Will schools and libraries generally still have to fill out a 17-page application to receive funding?

Yes. Will they still have to follow specialized procurement rules in addition to state and local rules? Yes.

Will they still have to sign a contract before knowing whether funding is even available? Yes. Will they

still have to wait months after applying to receive any commitment of funding? Yes. And will schools

still have to decide how to spend E-Rate funds up to a year before the school year begins? Yes. As

Kevin Bacon put it in A Few Good Men, “These are the facts of the case. And they are undisputed.”2

So what does the Order do to streamline the bureaucracy? Very little. There is the token stab at

trimming a few pages from the initial application for applicants with multi-year contracts—but only for

five-year contracts that give applicants little flexibility to adjust terms to changing needs.3 There is some

scaling back of E-Rate’s procurement rules—but only for a subset of services that are subject to change

every year or two.4 And there’s the elimination of the technology planning requirement—but no one has

had to comply with that requirement for the last two years.5

In fact, the Order adds to the paperwork. Applicants will now be required to keep records for ten

years.6 So if the applicant cannot prove that its initial application passed the 28-day-rule,7 the price-is-

the-primary-factor rule,8 the 30-percent-ineligibility rule,9 the brand new preferred-contracts-must-be-

1 Order at para. 55.

2 Captain Jack Ross, A Few Good Men (Columbia Pictures Corp. et al. 1992).

3 Order at para. 189.

4 Id. at paras. 168, 197.

5 Id. at para. 195.

6 Id., Appendix A, Rule 54.516(a)(1).

7 Id., Appendix A, Rule 54.503(c)(4).

8 Id., Appendix A, Rules 54.503(c)(2)(ii)(B), 54.511(a).

9 Id., Appendix A, Rules 54.504(b).

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considered rule,10 the brand new within-scope rule for multi-year contracts,11 or any one of the myriad

other “rules” that have crept into E-Rate’s specialized procurement process, a school or library may be

stuck with a multi-million dollar bill from the government a decade after the fact.

This assumes, of course, that a school or library gets funding in the first place. To apply, schools

and libraries will be required to calculate up to three separate funding discounts and a five-year internal-

connections budget. These numbers, in turn, aren’t based on a school’s own conditions but the aggregate

statistics of its district and the percentage of the district’s physical buildings in rural areas. Consultants

and surveyors are sure to delight in this new work.

And what approach does the Order take to reducing the backlog of E-Rate appeals? Far from

making the application process simpler, it layers onto our rules exceptions that have qualifications that

themselves have exceptions—with everything to be ironed out at some indeterminate point in the future.12

To be sure, the Order will reduce the FCC’s backlog by mandating that applicants go back to the

Universal Service Administrative Company (USAC) if they think USAC has erred.13 But this is just

window dressing. Stripping schools and libraries of their procedural rights doesn’t do them any service.

And adding yet another step to the process won’t expedite action.

By doubling down on complexity, the Order’s approach also will exacerbate the rural-urban E-

Rate gap. Small and rural schools and libraries cannot afford to hire the consultants that help large, urban

school districts navigate the E-Rate process. That’s why so many rural schools and libraries simply don’t

participate in the E-Rate program today. That is a real digital divide—and the Order doesn’t even try to

address it.

But don’t take my word for it. Just this week, Cortney Buffington, the executive director of the

Kansas Research and Education Network, wrote me: “The fact of the matter is that the truly needy

schools and libraries in our state suffer because of the complexity and cost associated with the e-rate

program. . . . [O]ur members cannot afford for us to carry upwards of 2–3 years of accounts payable

waiting for payments from the Federal Government. Nor can we afford to efficiently navigate the

consortium application process without driving up costs, or finding ways to game the system to make up

for it.”14

Moreover, the Order keeps in place for priority one services E-Rate’s inequitable funding

approach that gives many large, urban districts 90 percent discounts without limit. The more you spend,

the more you get. It’s no wonder that, as the current program stands, a handful of urban schools walk

away with the lion’s share of funding while students attending other schools that need funding are

deprived year after year. Indeed, the District of Columbia gets the second-most E-Rate funding each year

on a per student basis ($139.97)—about three times the national average ($44.28)—yet not one school or

library in our nation’s capital can credibly be called rural. Once again, those inside the Beltway win

while rural America is left behind.

10 Id. at para. 174.

11 Id. at para. 189.

12 For example, the Order promises to fund the broadband needs of all schools, except that mobile broadband

service doesn’t count—with the qualifier that it does if an applicant can “demonstrate to the Commission and USAC

that individual data plans are the most cost-effective option for their situation by submitting the cost comparison

information upon request.” Id. at para. 146. And are mobile broadband services category one or category two

services? The Order doesn’t say, leaving applicants to guess which discount matrix will apply and whether it affects

their category two budget.

13 See id., Appendix A, Rule 54.719(a).

14 See also SECA NPRM Reply Comments at 3–4 (“The single biggest complaint and concern of applicants is the

timeliness of their receipt of their funding commitment decisions letters.”).

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The Order’s new budgets for internal connections only make it worse. The poorest rural and

remote schools and libraries will have the same per-student budgets as their urban brethren, even though

their broadband prices are higher, their tax bases are lower, qualified labor is harder for them to find, and

competition is less prevalent in rural areas. And anyone who has been to the Alaska bush can tell you that

Wi-Fi routers don’t cost the same everywhere in the country. When you have to take a plane to get to the

closest Wal-Mart, you get used to $10-a-gallon milk.

The Order also displays a curious disregard for the priorities of the local school boards,

principals, teachers, parents, and librarians that E-Rate supports with funding. Instead of letting local

communities set their own priorities, the Order reflects a Washington-knows-best mindset. It retains the

priority system, with the FCC determining what gets funded each year (or week!) depending on the

political winds. Just days ago, it looked like Wi-Fi was the priority and funding for Internet connectivity

came in second. Today, Internet connectivity nudges back into the lead. Last year, mobile data services

were given priority. Now, no longer. Indeed, managed Wi-Fi will now be eligible for E-Rate funding—

but applicants better hope that they qualify for funding in the first two years since that eligibility has a

built-in sunset.

Here’s the thing. The FCC has no business micromanaging the technology priorities of our local

schools and libraries. We simply aren’t equipped to tell every library that it needs to buy these Ethernet

wires or those Wi-Fi routers. We cannot assess the relative value of web hosting or caching servers or a

larger broadband pipe to a school’s academic achievement. And because every school and every library

has its own unique needs, its own budget constraints, its own infrastructure with its own lifecycle, we

should have the humility to recognize that local schools and libraries might be in a better position than

officials in Washington, DC to set their own priorities. Some have called this notion “radical.” I call it

common sense.

Speaking of priorities, one of the main objectives of the Order was supposed to be closing the

Wi-Fi gap. The Order promised over $5 billion for Wi-Fi over the next five years, funding that would be

predictable and consistent so that schools and libraries could plan for the future. But as the commander of

the U.S.S. Enterprise told Tom Cruise in Top Gun, “Son, your ego is writing checks that your body can’t

cash.”15

As congressional leaders in the House and Senate recognized, the numbers for the Wi-Fi plan just

didn’t add up and would have blown a $2.7 billion hole in E-Rate’s budget, slashing funds for Internet

connectivity. I thank Chairman Rockefeller, Chairman Upton, Chairman Walden, Senator Thune, and

Senator Markey for their leadership on this issue. I also thank Commissioner Rosenworcel for her efforts.

While we have good-faith disagreement on some issues related to E-Rate, we have a common

understanding of arithmetic.

And so the Wi-Fi plan has been scaled back: The plan will last two years, not five. It will end

automatically instead of continuing in perpetuity. Priority one services will still have first priority and

priority two services will still have second priority (although I concede the Order’s groundbreaking

innovation of changing the nomenclature to “category one” and “category two”). And the $1 billion per

year funding target for Wi-Fi is nothing more than the traditional carry-forward of unallocated E-Rate

funds from prior years, with somewhat better marketing.16

15 Stinger, Top Gun (Paramount Pictures 1986).

16 See Order at para. 78 (“[W]e direct USAC to shift funds targeted for category two services to meet all eligible

requests for category one services, in any funding year in which demand for category one services exceeds available

funds.”); id. at para. 81 (“In the event that requests for category one services are less than the available funding and

demand for category two services is higher than the $1 billion target for category two services at the close of the

funding year window, the Bureau . . . may redirect the excess funding to category two services in the same funding

year.”).

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That’s not real reform, and it leaves a lot of broken promises. The purported 75-percent bump in

Wi-Fi funding for rural schools and libraries?17 It’s closer to 0 percent. The 60-percent increase for

urban applicants?18 It’s been slashed too. And because the Order allows applicants to receive five years

of funding even though this is now only a two-year plan—a curious decision to say the least—the same

schools and libraries at the front of the line that have been getting internal-connections funding over the

last five years are likely to get the lion’s share of the money.19 And so the number of students newly

seeing the impact of Wi-Fi funding isn’t the promised 43.6 million.20 It’s probably closer to zero. That

recent FCC chart showing state-by-state numbers of additional schools and libraries that are likely to get

new Wi-Fi funding over the next five years as a result of the Order? Let’s just say that it’s no longer

operative.

Even these scraps depend on accounting gimmickry. Since February, there’s been the repeated

refrain that the FCC “will invest an additional $2 billion over the next two years to support broadband

networks.”21 But the last public accounting of unused funds in the E-Rate account said that only $600

million was available, with $200 million needed this year just to meet demand for priority one services.22

That leaves us $1.6 billion short. Where will that money come from? The only place it can: the $4.7

billion in committed funds in the E-Rate account. So schools and libraries should be prepared for more

broken promises, as the FCC will have every reason to come after money we’ve already committed to pay

for promises the Order is just now making.

So what’s next? I doubt the recent scramble to claim fiscal responsibility is anything more than a

passing fad. After all, the Order avoids the chief cause of waste in the current program—discount rates of

up to 90 percent with no budgets for big spenders. It adopts connectivity targets that are based on

speculation, not science, and proposes to “size future funding needs” based on these goals, regardless of

their impact on student achievement.23 And several outside parties have already told me they’ve been

promised a post-election increase in the E-Rate budget. They even told me the specific month it was

coming: December. The story was remarkably consistent.

So mark my words: Any talk of fiscal responsibility will be short-lived. In five months, maybe

six, we’ll be back at this table discussing how much to increase Americans’ phone bills. Universal

service contribution rates have jumped 60 percent under this Administration. What’s a few billion dollars

more?

* * *

One year ago, then-Chairwoman Clyburn brought the Commission together to begin the process

of reinvigorating, revitalizing, and revamping E-Rate. I enthusiastically supported that Notice of

Proposed Rulemaking because it held out the promise of a better E-Rate program, one centered on

17 FCC, Modernizing E-Rate: Providing 21st Century Wi-Fi Networks for Schools and Libraries Across America at 5

(July 1, 2014) (Modernizing E-Rate June 2014 Report), available at http://go.usa.gov/XpeT.

18 Id.

19 Indeed, schools and libraries with the highest discounts (the 90% applicants) requested almost $1.7 billion in P2

funding this past year, see Letter from Mel Blackwell, Vice President, USAC, to Julie Veach, Chief, WCB, FCC,

CC Docket No. 02-6 (April 17, 2014)—enough to consume almost all the funding made available under the Order’s

reframed Wi-Fi plan in a single year.

20 Modernizing E-Rate June 2014 Report at 8.

21 FCC, FCC to Invest Additional $2 Billion in High-Speed Internet in Schools and Libraries (Feb. 3, 2013),

available at http://go.usa.gov/XptY.

22 Wireline Competition Bureau Announces Carry-Forward of Unused Schools and Libraries Universal Service

Funds for Funding Year 2014, CC Docket No. 02-6, Public Notice, DA 14-609 (May 2, 2014), available at

http://go.usa.gov/XptQ.

23 Order at para. 266.

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students and not bureaucrats. That document was backed by a bipartisan, unanimous vote. As I said back

then, and I as believe today, “When it comes to our children’s education, we should not be afraid of the

hard choices. We should not tinker around the edges. We should shoot for the moon. And we should

aim to win.”24

We should have adopted a student-centered E-Rate program. A one-page application. A funding

commitment process that would last no more than a week. A 50 percent bump in funding for rural and

remote schools and libraries, rather than the 0–10 percent offered by the Order. An end to the outdated

priority system, allowing local communities make their own decisions. An increase in funding by up to

$1 billion each year for next-generation services, all without raising fees a dime.

What disappoints me most is not that the Chairman’s office rejected my own longstanding

proposal, nor that it rejected the compromises I offered working within the Order’s framework, nor that it

rejected all of these belatedly.

No, what disappoints me most is being told that further simplifying the application process and

giving applicants additional flexibility were “non-negotiable.” That reducing incentives for waste and

fraud was a “red line” that could not be crossed. That increasing the equity of the program for rural

schools and libraries apparently violated a “bedrock principle.” And that having the money to meet our

promises was too “radical” an idea, at least when proposed by a Republican.

It is unfortunate that take-it-or-leave-it, party-line votes have become the new normal for high-

profile Commission items. Making it worse, the final draft of this item was not provided to me until

10:13 a.m., 17 minutes before this meeting. Needless to say, I did not have a chance to carefully review

the revised item upon which we are now voting. I was able to notice, however, that the pre-discount cost

of the Wi-Fi plan increased by $300 million overnight. This is not good process.

And it is devastating substance for America’s teachers, librarians, parents, students, and library

patrons, many of whom I’ve met over the past several months, and all of whom believe, as I said almost

one year ago, that “E-Rate is a program worth fighting for.”25 After the band packs up and goes home,

and after the happy headlines fade, they are the ones who will have to wait years more for 21st-century

digital opportunities—for real E-Rate reform.

For all of these reasons, I dissent.

24 Modernizing the E-Rate Program for Schools and Libraries, WC Docket No. 13-184, Notice of Proposed

Rulemaking, 28 FCC Rcd 11304, 11477 (Statement of Commissioner Ajit Pai).

25 Remarks of Commissioner Ajit Pai, “Connecting the American Classroom: A Student-Centered E-Rate Program,”

American Enterprise Institute (July 16, 2013), available at http://go.usa.gov/jbD3.

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