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Millions Lost in Cyberspace

June 30, 2004

Tucked into the Telecommunications Act of 1996 was a little-known program called the "e-rate," setting up a tax that has cost consumers and phone companies upward of $2 billion a year. What has that money bought? A rudderless program riddled with fraud and waste.

The e-rate tax is aimed at providing schools and libraries with Internet access. The program, championed by Al Gore when he was vice president, was supposed to help schools allow low-income students to close the "digital divide" and gain new social and economic opportunities. Sen. John McCain (R-Ariz.) began raising questions about it during a hearing on the program six years ago. Since then, its problems have become more apparent. The e-rate fund has distributed $12 billion over six years, and estimates place the amount wasted in the billions. Because of lack of oversight, it's impossible to know the extent of the losses.

During a recent House hearing, legislators documented some of the lapses. They showed, for instance, how most of the $101 million in e-rate funds spent in Puerto Rico went to dubious purchases, such as 73,000 wireless connection cards for individual computers. The cards, purchased at more than $300 apiece five years ago, have grown obsolete in a warehouse outside San Juan. Most Puerto Rican children still access the Internet through dial-up modems on roughly two computers per school.

Other rural projects cited by supporters as successes have enormous per-pupil costs. A conflict of interest is built into the program's core: Its dollars are doled out by a nonprofit corporation run by telecommunications service providers whose businesses benefit from the money. They are barely overseen by the Federal Communications Commission.

Legislators are planning more hearings after the Fourth of July recess, and the e-rate program will come up for congressional reauthorization next year. Its overall success or failure has never even been measured. Unless the schools and libraries that want it renewed can help make the program accountable, there's not much point in continuing it.

The FCC should take over from the board and put e-rate on probation. Grant applicants should have to submit plans that use proven technologies in cost-effective ways. Surfing the Internet isn't enough.

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