May 12, 1997


by Andy Oram
American Reporter Correspondent

CAMBRIDGE, MASS.—Lurking behind the Internet hype that emanates from government officials and high-tech businesses alike is a sense among the general population that being “connected” is good for the public interest. Three institutions—schools, libraries, and health-care providers—are the direct beneficiaries of this attitude, through clauses in the 1996 Telecommunications Act that provide them with discounts on advanced services. On May 7, the Federal Communications Commission explained how they planned to implement the discounts in their Report and Order on universal service. They also offer a Web site for people concerned with the details of obtaining the discounts.

Discounts to the schools, libraries, and health-care providers come directly from the same universal service fund that provides poor people with telephone access. While many enthusiasts would like the government to fund Internet access for the entire public (or some subset, as in a RAND study recommending universal access to email) most commentators find such a goal too broad, and not worth the expenditure of public money that is much needed in other areas of society. But many have-nots will be able to get an information fix from their local school or library, thanks to the Telecommunications Act.

To start the process, each organization is encouraged to combine with other organizations (including regular businesses that can’t be reimbursed from the fund) in order to get better rates from providers. Having contracted to receive the service, the organization then submits a funding request to the Administrator of the universal service fund. Some proof may have to be submitted that the most cost-efficient bid was chosen. Existing contracts can also be funded. Funds either go to paying back the organization’s costs, or can be deducted from the universal service fees paid by the telecommunications carrier.

Up to 2.25 billion dollars of the universal service fund can be spent each year on telecommunications services and Internet access for schools and libraries; up to 400 million dollars can be spent on health-care providers. (If it’s not all spent during one year, some of it can be applied to the following year.)

Schools and libraries can get discounts on both equipment (wiring the schools, buying routers, etc.) and services. Discounts range from 20% to 90% and are steeper for high-cost areas and disadvantaged areas. In defining these terms, the FCC aimed at avoiding burdensome extra calculations. Therefore, they defined “high-cost” as “rural,” using a system already set up by the Office of Management and Budget. Rural areas tend to be more expensive, of course, because the link to the central telecom provider is farther. Similarly, the FCC decided to define how “disadvantaged” a school is by the percentage of students in the national school lunch program, because that program already has well-established guidelines.

The definition of library depends on another 1996 act called the LSTA, but excludes university libaries because they are attached to institutions that are excluded from universal service (institutions of higher education); libraries must be independent to receive funds. The degree to which libraries are defined as “disadvantaged” depends on the schools in their area.

Health-care providers have very different needs from schools and libraries, and are treated differently in the Telecommunications Act. First of all, it covers only public and non-profit health-care providers, and these must be located in rural areas. (Once again, the OMB system is used to identify rural areas.) Unlike schools and libraries, health-care providers cannot deduct costs for purchasing equipment. The goal of the provision for health-care providers is to make the Internet and telecom costs of rural providers the same as urban providers in the same state.

While some have questioned the need for the government to subsidize hospitals and health clinics, the FCC cites many potential public benefits to providing them with Internet access. First comes individual patient care: an electronic network allows consultation between doctors in remote facilities, transmission of medical images, and similar things that will hopefully improve treatment in out-of-the-way areas. But beyond patient care, the Internet may enhance the clinic’s ability to deliver public education on health matters and to coordinate responses to public emergencies.

One business impact of the universal service fund is that discounts can be applied to services obtained from a wide range of companies, such as Internet providers, not just from the traditional telephone companies that pay into the universal service fund. Some would argue that the FCC is allowing the school/libary/health-care provisions to transfer income from telephone companies to other companies (possibly their competitors). But the FCC denied that the effect would be anti-competitive, and decided that the fairest and most competitive course would be to let all providers compete on an equal basis for the customers’ business.

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