June 22, 1998
   DISSENTING STATEMENT OFCOMMISSIONER HAROLD FURCHTGOTT-ROTH
     Re:  Fifth Order on Reconsideration and Fourth Report and Order Regarding the Federal-
     State Joint Board on Universal Service, (CC Docket No 96-45 ).
          Introduction and Summary
     If love could conquer all, if good intentions always led to good consequences, if hard
work were always rewarded with good results, then this Order would be an impeccable work
of art.  It is the embodiment of immeasurable hard work, good intentions, and, dare I say,
love.  It embodies hope:  hope for a better world in which more funding for new technologies
is hoped to lead to better school facilities which are hoped to lead to better education which in
turn is hoped to lead to a brighter future for the next generation of America.
     Good intentions and hard work are not enough for this Order.  It is the third in a series
of Orders to impose new taxes to support schools and libraries and other partial
implementations of Section 254.  I have dissented from these earlier Orders, and I
unfortunately must dissent from this Order.  In my view, the current Order does not accurately
or even approximately reflect either the letter or the spirit of the law.
     I dissent with the utmost respect for the efforts and hopes of my colleagues.  But, I
dissent also because of my utmost respect for the language of the Telecommunications Act of
1996 and Section 254 in particular.
     The Telecommunications Act of 1996 embodies the hopes of many Americans:  more
innovation, more services, more consumer choices, lower consumer prices, less regulation,
and universal service.  I believe the Act can and will meet these hopes of the American people.
But I believe that these hopes will only be met if the Commission is faithful to the language of
the Act.  I fear the current Order is not.
     Neither are the Commission's actions today faithful to the original intent of Congress  -
- or the current demands of Congressional leaders -- because as I stated only a month ago in
this Commission's last report to Congress: priorities matter.  I remain convinced that rural,
high-cost universal service is not just one of many objectives of Section 254; it should be the
highest priority.  The federal government has had universal service programs for rural, high-
cost areas and for low-income Americans for many years.  Section 254 embodied these ideals
and set forth goals that emphasize rural, high-cost support as well as low-income support and
other objectives.
     But, despite repeated Congressional demands that the FCC "suspend further collection
of funding for its schools and libraries program, and proceed with a rulemaking that
implements all universal service programs in a manner that reflects the priorities established by
Congress in the Telecommunications Act of 1996," the Commission continues to proceed with
selected universal service programs while at the same time delaying these higher priority
issues.  Rural, high-cost universal service issues should not be resolved and implemented in
some dim and distant future after all other universal service issues have been resolved; rural,
high-cost universal service issues should be resolved and implemented first.  Rural, high-cost
universal service should not be viewed as the residual after enormous amounts for other federal
universal service obligations have been promised; rural, high-cost universal service should
receive the lion's share of any increase in the federal universal service fund.
     To understand fully my other concerns about this Order, one need only read one of my
several statements related to universal service.  My view of universal service is not
universally shared.  Not everyone here at the Commission or in the public agrees that
Congress' universal service priority was the rural and high cost program.  Not everyone here
at the Commission agrees that the Telecommunications Act clearly contemplates "a single
proceeding" to implement all of the universal service provisions, including both the schools
and libraries and the rural, high-cost programs.  Others have different views.  I would call
many of these other views "myths."  Perhaps others might call my views "myths" as well, or
worse.
     I describe these views as myths not in a pejorative sense, but in the sense of evolved
folklore that has not been scrutinized.  For, as we shall see, even the slightest scrutiny reveals
the fiction of these stories.  Below I list 15 of what I consider to be the myths most relevant to
this Order.  Doubtlessly, there are many more.
1.   Long-distance rates have gone down; therefore, we need not worry about new
taxes on long-distance services.
     The real issue is not whether rates have gone up or down, but whether they would have
been lower absent the new tax.  Long-distance rates have gone down in recent years, but they
would have gone down further without unnecessary fees and taxes for the Schools and
Libraries Corporation.
     Under current rules, most support for the Schools and Libraries Corporation is borne
by long-distance customers.  Phone taxes in general, and long-distance taxes in particular, are
some of the most inefficient and punishing taxes faced by the American consumer.  Prof. Jerry
Hausman of MIT has estimated that consumers lose more than $2 for every dollar in long-
distance taxes.
     Telephone services are already one of the more heavily taxed services based on
usage -- through federal excise taxes, federal universal service taxes, state and local excise
taxes -- far more heavily taxed than the typical 5 percent sales tax that consumers pay for
typical goods and services.  These heavy excise taxes discourage use, weaken demand, stifle
investment, and retard innovation.
     Ironically, at a time when the federal government is contemplating stiff new taxes on
tobacco products partly to reduce demand for what is perceived to be a harmful product, the
federal government has also imposed new taxes on telecommunications services.  Are
telecommunications services perceived to be as harmful as tobacco?
2.   Access charge reductions offset any increase in universal service fund
contributions.
     I remain concerned with recent attempts to tie reductions in access charges to the level
of universal service contributions.  Even to the extent that federal-mandated access charges
have been reduced to offset increases in universal service obligations, almost 20% of the
schools and libraries contributors do not benefit from reduced access charges.  Thus, for
example, wireless carriers have paid proportionately higher fees, despite the fact that they have
received no access charge reduction.
     Moreover, there is no assurance that the consumers who benefit from access charge
reductions will be the same consumers who will bear the new universal service burden.  For
example, business consumers could disproportionately benefit from the access charge reduction
while residential consumers pay for new universal service fees.  The issue should not be
whether, despite massive tax increases that just offset decreases in federal access fee and
charges, IXCs have no net differences in costs.  The issue should be whether, absent massive
new taxes, consumers would be better off.
3.   Line items for new taxes related to universal service are simply a means to develop
a "hidden rate increase."
     This assertion defies economics and common sense.  If long distance carriers could pad
their profit margins by simply adding useless line items on their bills, companies would have
already done it.  But adding line items is not a means to higher profits.
     In a competitive market, prices are determined by costs.  If a business tries to raise
prices above its actual costs, it will lose its customers to competitors that have not raised
prices.  Many economists believe that long-distance service is a relatively competitive market.
     Simple economics and market realities dictate that competitive businesses must pass
along new taxes to their customers. Competitive businesses take prices as given by costs not by
the wishes of outside spectators. Those who claim that a business should not pass along a new
tax to consumers are simply saying that the business is not competitive in the first place; only a
non-competitive business has the luxury of not passing all of a tax along to consumers.  In
addition, a new tax and higher costs will likely reduce net market demand thereby reducing the
number of firms that a competitive market can support.
     Moreover, even if long-distance carriers were not competitive, they would still pass
along part of a new tax to consumers.   To the extent that taxes raise prices and thereby reduce
market demand for a service, profits in an industry are likely to decrease as the result of a new
tax.  Consequently, a new tax cannot plausibly be a blessing to the long-distance industry,
whether it is competitive or not.
     Line items for new taxes are a means of letting customers understand why rates are not
lower than they would be absent the new taxes.  These line items are not a means of promoting
"hidden rate increases."  To the contrary, the only "hidden rate increases" would occur if rates
were higher as the result of hidden and unexplained taxes.
     Only a stupid and foolish firm -- destined for failure in the American
telecommunications market -- could fantasize about profiting from a new tax.  I have yet to
meet a viable firm in any market that appeared to be stupid or foolish.  I have also never met a
stupid or foolish consumer.  And I have yet to meet an American consumer who doesn't want
to be told about a new tax.
4.   The federal government should tell businesses to inform customers only about net
new taxes, not about new taxes that are offset by decreases in existing taxes.
     It would be easy to dismiss this myth as a flagrant violation of the First Amendment.
But even if government should interfere with truthful communication between a business and
its customer -- an interference that should never happen -- customers should always know
about new taxes, even if other taxes have decreased substantially more.  The issue for
consumers is not just whether prices have gone up or down, but also whether prices would be
lower absent a new tax.  Only in Washington could disclosure of such a new tax be considered
deceptive.
     Depriving businesses of the opportunity to converse freely with their customers is a
flagrant violation of the First Amendment.  Depriving consumers of  information about new
taxes demoralizes a democratic society.
     If the British government had successfully hidden new taxes from American colonists in
the middle 18th Century, we might today still be saluting the Union Jack.  Doubtlessly, the
British government of that time may well have tried to hide the series of new taxes and
regulation of commerce from the American colonists.  Efforts by governments to hide
information from the public may work in the short term, but never in the long term.
5.   The new tax rates in this Order reflect a reduction in tax rates that would
otherwise result.
     Technically, absent Commission action, a higher tax rate would result on July 1, 1998
because of the automatic increase for funding the schools and libraries program that would
otherwise take place.  However, that increase in the tax rate has only been delayed for one
year.  The Commission does nothing to adjust the annual $2.25 billion cap, which will instead
go into effect next July.  Thus, on July 1, 1999 there will be another increase in the quarterly
contribution to the schools and libraries fund of almost $240 million, or another 75% increase.
     It should also be noted that -- while the Schools and Libraries Corporation has
estimated $2.02 billion in demand for the first year of the program -- the Commission's Order
today authorizes $1.925 billion to be disbursed over the next 12 months (July 1, 1998 to July
1, 1999).  While this amount does not fully meet demand and it precludes funding additional
applications, I am not sure how much of the initial demand will go unmet by this "cut."
Moreover, even the proposed tax rate for the remainder of 1998 is higher than the most
responsible tax rate -- zero.  The Schools and Libraries Corporation has already raised enough
revenue to fund practically all requests for telecommunications services in 1998, the only item
eligible for discounts under the Act.
     The real issue is not whether the rate is higher or lower than it would be if an arbitrary
deadline is not met; the real issue is whether tax rates are as low as they could be and as low
as they should.  The answer is a resounding "no!"  Rates can and should be zero for the
remainder of 1998.
6.   There is great urgency to adopt this rule and proceed with wiring the schools
immediately.
     Enormous efforts have been made, probably entirely well intentioned, to rush this item
through the Commission by mid-June.  The rationale given is that carriers need time to adjust
their July bills.  Last December, rates were changed and carriers somehow managed to change
their January bills.  Moreover, the rates changed last December did not legally go into effect
until February, yet billing disasters did not ensue.
     Further delays may yet occur.  Most Senators at last week's hearing encouraged the
Commission at least to freeze temporarily this program while the Commission revisits both the
substance and the ramp-up period of these new universal service programs.  Indeed, in
response to Sen. Wyden's (D-Ore.) suggestion that FCC take 6-8 weeks to fix the universal
service program, I stated that I would welcome the opportunity.  I had hoped that the
Commission would follow Sen. Wyden's counsel to suspend the program and make a public
commitment to address the entire universal service dilemma -- including the rural, high-cost
issues -- in the next 6-8 weeks.  I have been disappointed.
       I am not convinced that such a minor 6-8 week delay in a new program would cause
great harm.  Indeed, recent reports indicate that many schools will not even be able to spend
the money allocated for inside wiring in 1998, even if the discounts were legal.  Internal
connections create substantial disruption to students, and schools typically have the work done
during vacation periods.  Because funding commitments cannot be made until sometime in
June or July, many schools have realized that they cannot finish the installation of inside
wiring before this summer ends.  Thus, to minimize disruption, many schools would wait until
the spring/summer of 1999 to provide internal connections in any event.
       Finally, there is a reasonable question about whether this Order should be delayed as it
is subject to the Congressional Review Act.  The Commission's response that it is acting
under the 1996 Telecommunications Act exception seems insufficient, since this Order relies
on several sections of the Communications Act of 1934 that were not amended by the
Telecommunications Act of 1996.  Thus, I remain convinced that this Commission's actions
regarding universal service contributions cannot take effect until 60 days after submission to
Congress, providing it with an opportunity to express its disapproval of the agency
determination through resolutions.
7.     Absent the FCC's Schools and Libraries Corporation, there is no federal support
for infrastructure development in schools and libraries, and these institutions will not be
connected to the Internet in a timely manner.
       To the contrary, the General Accounting Office recently reported that federal programs
supporting infrastructure for local schools and libraries exceed $10 billion annually.  The
federal support does not include countless tens of billions of dollars from state and local
governments and from the private sector.  The addition of a few billion dollars from the
Schools and Libraries Corporation will not materially affect the diffusion of internet access to
American schools;  indeed, the Department of Education has reported that eighty percent of
American schools were connected to the Internet before receiving any money from the Schools
and Libraries Corporation.
8.     The universal service section of the 1996 Act was primarily intended to benefit the
schools and libraries of America.
       That is not the plain language of Section 254.  That is not the plain language of recent
correspondence from Members of Congress to the Federal Communications Commission.  To
the contrary, the universal service section of the Telecommunications Act of 1996 was
primarily intended to aid rural America.  Although the primary purpose of Section 254 is to
provide support for high-cost, rural areas, "the potential pot of revenue that the FCC can
collect for universal service from fees on interstate services is limited."  Thus, it is
inconsistent with Congressional intent to promise some potential universal service beneficiaries
enormous and unending benefits, while the primary universal service beneficiaries (rural, high-
cost programs) have not even fully voiced all of their concerns.
9.     The Schools and Libraries Corporation will disproportionately aid rural America.
       This statement may or may not be true.  I have asked the Schools and Libraries
Corporation for information that will help determine the accuracy of this statement.  The
Schools and Libraries Corporation responded in part on June 9, 1998, that they are "not able at
this time to disaggregate those requests by urban and rural status because many requests are for
services shared by a number of eligible entities, which may include any combination of schools
and libraries in urban and rural areas."  This inability is despite the fact that rural is a criterion
for the level of support for which each school qualifies.
10.    The Schools and Libraries Corporation's program will only benefit education and
the students of America.
       If this myth were true, presumably only education interests would be lobbying for the
current Schools and Libraries Corporation program.  In fact, however, the computer industry,
which will provide much of the "inside wiring," has lobbied intensively for the program.
They know a great deal when they see it:  minimally constrained by budgetary considerations,
schools and libraries can be expected to purchase the best and most expensive networking
equipment.  Some manufacturers have brazenly suggested to the FCC that internal networks
for schools should run at 100 Mbits/sec.  This capacity is not just for students to exchange
e-mail with other students in far away lands or for quickly surfing the Web to research term
papers.  Rather, this is sufficient capacity for students to send several dozen simultaneous
television-quality video programs to one another around the school.  Is this capability really
necessary for a well-rounded education?
11.    "Inside wiring" is fully required for inclusion under Section 254.
       Section 254 speaks of discounts for "services."  It is difficult to rationalize inclusion of
plant and equipment for discounts under this section.   While I support the majority's decision
to fund requests for telecommunications service discounts first, I remain concerned with the
continued funding of non-telecommunications services by any non-telecommunications
carriers.  As I explained in the April 10th report to Congress, the Commission has no statutory
basis to provide direct financial support for non-telecommunications services and to non-
telecommunications carriers.  To the contrary, Section 254(h)(1)(B) unambiguously limits
recipients to "telecommunications carrier[s] providing service under this paragraph."
Moreover, in the context of the rural health care program, the Commission has acknowledged
that Section 254(e)'s explicit requirement that only "eligible telecommunications carriers"
receive support applies to Section 254(h)(1)(A).  If that is so, and I think it is, then I do not
see how one could conclude that this requirement does not also apply to Section 254(h)(2), as
the Commission does when it relies upon that provision to justify allowing non-
telecommunication carriers to receive support for inside wiring.  Thus, the requirements for
receiving funds in conjunction with section 254(h)(2) are actually stricter than under section
254(h)(1)(B) -- that is, a recipient must be an "eligible telecommunications carrier."
       Moreover, much of "inside wiring" turns out not to be copper wire or coaxial cable;
instead, "inside wiring" is predominantly computers to support sophisticated ethernets.  For
example,  this Commission would allow universal service "taxes" to support installation and
maintenance of high-speed computer networks -- including "routers, hubs, network file
servers, and wireless LANS" -- inside schools and libraries.  Such internal networks would
rival those of the largest corporations and universities; most small businesses cannot afford the
luxury of installing and maintaining expensive equipment like this.
       How many schools have asked for such extensive and sophisticated networks?  How
much of the demand is for routers?  For webservers and new switches?  For that matter, how
much of the $2 billion in demand is for equipment that is not covered?  I wish I knew.  It
would help this commission and Congress determine how much money we really need to
continue this program and achieve its worthy goals.  More important, however, I think the
consumers who are footing the bill have a right to know.  But, unfortunately nobody knows
the answer to these questions.  I also asked these questions of the Schools and Libraries
Corporation, but to no avail.  The Schools and Libraries Corporation responded in part on
June 9, 1998, that they are "currently processing the more than 30,000 applications that we
received by the close of the 75-day window on April 15, 1998.  Until that process is
completed, we will not be able to produce an electronic database of the information you
requested for all the applications we have received."  A perfectly reasonable explanation: that
they have not had enough time to finish processing all of these applications for this new
program.  The problem, however, is that in this Order the FCC pushes ahead with funding of
the program before such vital issues are addressed.
       Just last week the Common Carrier Bureau found it necessary to issue a "reiteration" as
to what "services" are eligible for discounts to schools and libraries.  Did all the schools really
understand that "the costs of tearing down walls to install wiring" is not a part of the
"installation" and therefore not covered?  How many schools have made such an error in their
applications and how much is demand overstated?  If there were not widespread questions and
confusion on the part of Congressional leaders, school applicants, and the public, then why
would such a clarification or reiteration be necessary?  It is this type of confusion surrounding
what is and what is not covered by the program that compels me to follow the abundant
Congressional advice that we place this program on hold temporarily.
12.    The FCC's interpretation of universal service is consistent with the law.
       As I have described in several statements, the FCC's current interpretation of
universal service is not consistent with Section 254 of the Communications Act.  The
divergence between Commission interpretation and the statute is not small and cannot be
corrected with small and technical changes in existing Orders.  Below I touch on a few of the
ways in which I believe the Commission's interpretations violate the law.
       First, as I have previously indicated, in its zeal to implement a new universal service
program for schools and libraries, the Commission failed to meet its statutory mandate of
developing an explicit and sufficient support system for rural and high cost telephone users in a
timely manner.  Under the 1996 Act, the Commission's primary universal service
responsibility was to develop an "explicit and sufficient" support system that would ensure
support for local telephone users in high cost and rural areas to replace the complex system of
implicit subsidies that could exist in a world without local competition.  The expeditious
creation of a comprehensive new subsidy system was not only critical for preserving the goals
of universal service, but also necessary to provide for a fair transition to competition in the
local markets.  As such, Congress set a strict time-frame for developing this plan -- the Joint
Board was required to make a recommendation within 9 months of enactment, and the
Commission was then required to complete "a single proceeding to implement the
recommendations" within 15 months after enactment.
       In this Order, the majority argues that the Commission has taken "significant action to
implement the universal service provisions of the Act."  In support of that contention, the
majority notes that " . . .  one of the first steps in universal service reform was to make
existing high cost support explicit," citing the removal of Long Term Support (LTS) from
access charges, and the making of an explicit subsidy corresponding in amount to that
generated formerly by DEM [dial equipment minutes].  While I do not dispute that these two
initial steps were taken, they are hardly comprehensive or the type of "significant action" that
would be sufficient to satisfy the Commission's responsibility to complete "a single
proceeding" to replace the entire complex system of implicit subsidies for high cost and rural
telephone users with an "explicit and sufficient" support system.  Indeed, in recent reports to
Congress, the Commission has characterized its somewhat arbitrary decision to provide federal
support for only 25% of these costs as merely a "placeholder."  While I support
reexamination of this issue, I question whether establishing such a "placeholder" can fairly be
characterized as "significant," especially in comparison to the extraordinary efforts that this
agency has taken to establish the schools and libraries program on an expedited basis.
Moreover, if we have completed such "significant action," and if all that was left from the
May 8, 1997 Order was to fulfill the "timetable for implementation" as the majority suggests,
then why is it now necessary again to refer issues to the Joint Board?
       Congress intended -- and the 1996 Act required -- that the Commission focus its efforts
on resolving the rural, high cost issues first, as opposed to finding support for new programs.
As Commissioner Powell states in his Separate Statement Dissenting in Part, "nothing in the
statute . . . would justify implementation of certain programs, such as schools and libraries,
prior to implementation of others."
       Second, I believe that the universal service contributions, at least to the extent they are
providing support for non-telecommunications services, may not be fairly characterized as
mere "fees."  In general, taxes can be distinguished from administrative fees by determining
the recipient of the ultimate benefit: a tax is characterized by the fact that "it confers no special
benefit on the payee," "is intended to raise general revenue," or is "imposed for some public
purpose."   In contrast, a "fee" is a "payment for a voluntary act, such as obtaining a
permit." Here, all these factors  point toward the category of a tax: the fund, which creates
internet access for schools and libraries, confers no particular advantages upon
telecommunications carriers in exchange for their contributions, such as a license or permit;
the funds have not, as far as I can tell, been segregated from other government monies, see
infra; the purpose of the fund is a broad, social one, purportedly to improve education for all
Americans; and the payment requirement is not triggered by a voluntary act on the part of
telecommunications carriers, such as the filing of an application, but is a flat mandate.
       In Thomas v. Network Solutions, the District of Columbia District Court recently found
a similar mandatory contribution to the Intellectual Infrastructure Fund -- known as the
"Preservation Assessment" -- to be an illegal tax, not ratified by Congress.  Money from that
fund was used for the "Next Generation Project," a "program aimed primarily at upgrading the
Internet infrastructure, improving the speed and accuracy of information delivery, and
increasing access for schools."  The Court held that the preservation assessment was "clearly
a tax" as it was collected "for the government's use on public goals, and not in any way to
defray regulatory costs."
       I had encouraged parties to comment on the implications that this case may have for the
Commission's universal service program, and several parties expressed concern that the
Commission's implementation has resulted in an unconstitutional tax.  As at least one
commenter described, "nowhere in this authorization does there appear a grant of power to the
Commission to impose a tax on interstate telecommunications providers to fund universal
service."  Rather, as I have stated above, the legislation merely empowered the Commission
to mandate discounts to schools and libraries.  To the extent that Section 254 is the basis for
this universal service tax, it may not have even followed appropriate Congressional procedures
for a tax authorization.
       The majority's reliance on United States v. Munoz-Flores does not fully address these
issues.  First, the majority misconstrues my concerns as limited to an Origination Clause
challenge.  My primary concern, however, is that in enacting a sweeping new welfare program
for schools and libraries that went well beyond the more modest discount program Congress
authorized, this agency exceeded the scope of its authority and thereby enacted a new tax that
has not been ratified by Congress.  Not only does this situation arguably present Origination
Clause problems,  it raises anti-delegation (i.e., Separation of Powers) questions as well.
       The majority, however, argues that "contributions to the universal service mechanisms
do not represent taxes enacted under Congress's taxing authority.  Rather, they constitute fees
enacted pursuant to Congress's Commerce power."  Although the majority repeatedly
contends that the universal service contributions are not taxes but fees, they simply assert that
this is true, without addressing the factors that traditionally distinguish a tax from a fee and
how those factors apply here, as set forth above.  Simply saying that this is not a tax cannot
make it so, however.
       Indeed, as discussed above, Thomas v. Network Solutions supports the proposition that
the type of scheme developed by this agency to support the schools nd libraries program may
be more fairly characterized as a tax.  The majority argues that the fee is not a tax because "all
telecommunications carriers required to contribute benefit from the ubiquitous
telecommunications network that universal service makes possible."  This statement,
however, is simply not true with regard to the schools and libraries program.  As I have
previously stated, "to the extent that the telephone network can be considered a single
telecommunications system, all users benefit from being capable of serving others. . . . There
are no such direct benefits to telephone customers, however, from the provision of Internet
services to and inside wiring of schools and libraries."  The obvious beneficiaries of this
program are not telecommunications carriers, but the school and libraries who are entitled to
free goods and services.  I have yet to hear proponents of the current program cite
telecommunications carriers as the object of their well-intentioned efforts.
       In addition, in order for even an intentional delegation of Congress' power to tax to be
judicially sustainable, Congress must provide the agency with standards by which its
compliance with the delegation can be measured.  The Commission has misread Section 254
as providing a very broad authority to tax, disregarding the limitations that Congress carefully
included in that provision: that there would be a single federal universal service fund based on
interstate revenue; that discounts be provided to schools and libraries; that only
telecommunications carriers may receive credit; and that support may only be used for
telecommunications services.  Given at least the possibility of a constitutional difficulty arising
from the delegation under  the Taxing Clause, the Commission should have interpreted Section
254 "narrowly to avoid  constitutional problems."  In order to avoid delegation problems, the
Commission should have read section 254 to authorize only what it says, and no more -- a
discount for services, not a guaranteed entitlement to free goods as well as free services.  The
Origination Clause cases cited by the majority are, of course, irrelevant to this issue.
       Second, the majority argues that the Origination Clause is not implicated here because
"in United States v. Munoz-Flores and elsewhere, the Supreme Court has held that Congress
does not exercise its taxing powers when funds are raised for a specific government
program."  In that case, however, the Supreme Court made clear that:
              A different case might be presented if the program funded were entirely unrelated to
       the persons paying for the program.  Here, [the program] targets people convicted of
       federal crimes, a group to which some part of the expenses associated with
       compensating and assisting victims of crime can fairly be attributed.  Whether a bill
       would be "for raising Revenue" where the connection between payor and program was
       more attenuated is not now before us.
I remain concerned that -- again to the extent that telecommunications carriers alone are being
assessed to pay for a computer network and Internet access program -- the agency has created
a program "entirely unrelated to the persons paying" for it.
       Finally, the majority also argues that "the contribution requirements do not violate the
Origination Clause of the Constitution because "universal service contributions are not
commingled with government revenues raised through taxes."  As several commenters noted,
however, "[b]oth the Congressional Budget Office and the Office of Management and Budget
count payments into the fund as federal revenues and payments out of the fund as federal
outlays."
       Third, I continue to object to the fact that the contributions for the schools, libraries,
and rural health care support mechanisms are based not only on interstate but also on intrastate
revenues. As I have described on several occasions, the legality of this approach to calculating
contributions is highly questionable.  As I read the Communications Act, it does not permit
the Commission to assess contributions for universal service support mechanisms based on
intrastate revenues.  Rather, the Act makes clear that the power to collect charges based on
such revenues rests within the exclusive province of the States.
       Fourth, I fail to see how the Commission may lawfully differentiate among otherwise
"bona fide requests."  The Commission's rules already consider a schools' economic status in
determining the level of support to which they may qualify.  Now the Commission will take
economic status into account to determine whether the schools are even eligible for
participation -- at least participation in funding for inside wiring, despite the fact that the
schools have submitted an otherwise "bona fide request" under our rules.   If the
Commission's rules already addressed such discrepancies in economic advantage adequately,
then the newest proposal seems, at best, unfair to schools that will now be prohibited from
participating, if not altogether arbitrary.   Indeed, I do not see how the Commission has the
discretion to prioritize among such bona fide applications.  The universal service provisions
mandate that "upon a bona fide request" the "telecommunications carriers . . . shall" provide a
discount.  All of the applications that met our previous rules are bona fide requests, and the
Commission has not determined that its previous rules were incorrect -- as I have urged.  As
such, I am concerned that the Commission has failed to establish a system that would fund all
such bona fide requests as required.  The statute does not endorse differentiating among such
bona fide requests; the current plan to fund internal wiring based on need cannot be what
Congress intended.
13.    The Schools and Libraries Corporation is efficient.
       The Common Carrier Bureau Public Notice regarding the third quarter contribution
factors also established the administrative expenses for the Schools and Libraries Corporation.
In objecting to the second quarter contribution factors, I noted that Schools and Libraries
Corporation was allocated almost four times as much money for administrative expenses as the
high-cost/low income funds and that the administrative budget increased from $2.7 million to
$4.4 million or by 65% in just one quarter.  These increased administrative expenses continue
in the third quarter, despite the fact that the Schools and Libraries Corporation has still failed
to provide an accurate estimate of all its administrative costs for the first quarter.  In contrast
the administrative expenses for both the High Cost and Low Income programs combined is
only $1.2 million.  I cannot endorse such a disparity -- and certainly not one of this magnitude
-- between the administrative expenses of the Schools and Libraries and those of the other
universal service corporations, especially without more adequate safeguards against excessive
spending by the schools and libraries program.
14.    The FCC's interpretation of universal service reflects the intention of Congress.
       As noted above, the FCC's interpretation of universal service does not follow the letter
of the law.  Based on the recent correspondence from Congress, it is clear that the FCC's
interpretation of universal service does not follow the spirit of the law either.  In particular,
the Commission has failed to complete work on the highest Congressional priority, rural high-
cost service, while creating massive new unintended grant programs for schools and libraries.
15.    There is no good solution to the problem.
       There is a good solution to the problem.  It is to follow the intent of Congress.  That
advice is eloquently phrased in the recent letter from the leadership of the Commerce
Committees of both the House and the Senate.  If we follow the advice of Congress, we will
set the collection rate for the schools and libraries program to zero until such time as we can
resolve the highest universal service priority: rural, high-cost support.
Conclusion
       Most observers of politics and telecommunications regulation in Washington would
agree that the Commission's handling of universal service over the past two years has led to a
great deal of hand-wringing.  Some would say that we have made substantial progress, but no
one would say that we solved all of the problems related to universal service.  Some would say
that we are not headed in the right direction; many go so far as to say that we should stop and
start over again.
       The problem with the FCC's implementation of Section 254 is not one of intent or
effort.  Many hard-working, well-intentioned people have dedicated the better part of two
years of their lives to working on the implementation of this section.  Their efforts have not
been in vain.  We have learned much about both what is possible and not possible under
Section 254; we have learned something about what is not sustainable; we have learned about
concerns of consumers who thought that the Telecommunications Act would lead to changes in
regulations that would allow rates go down, not merely stay the same or increase; we have
learned about the fears and concerns of rural America when its understanding of Section 254 is
not adequately addressed.  Above all, we have learned that Section 254 is one of the most
difficult and most important sections of the Act.
       Despite good intentions and efforts, some mistakes have been made in the
implementation of Section 254 over the past two years.  The best outcome would be to learn
from those mistakes; the worst outcome would be to ignore them.
       Congressional leaders have demanded that the Commission suspend the schools and
libraries program until all aspects of universal service are resolved.  I believe the
Congressional leaders are correct.  It would be perhaps irresponsible to issue funding
commitments, allow public money to be distributed, or to raise consumers rates -- which is
undeniably necessary at least with respect to wireless rates if not overall -- to pay for these
programs before Congressional concerns can be fully addressed.
       America is a great nation not because we have the most advanced technologies in the
world.  We are a great nation because we are a nation whose People love liberty, whose
government serves the People, and whose government is governed by laws written by the
People.  When government agencies follow the law as it is written, there is no greater
investment in our future.
       The proponents of the E-rate program often cite its educational value.  The E-rate, we
are told, is an "investment" in the future of America.  I believe the FCC can and ought to
make a contribution to the education of American children.  Our greatest contribution,
however, is not in serving as a tax collector, even for the most wonderful of programs.  Our
greatest contribution is in following the law, and being a showcase for democracy.
       Some in America believe that all of the parts of Section 254 cannot be implemented,
that the section is hopelessly complicated and self-contradictory.  According to these skeptics,
it is time to give up.  It is time to rewrite the section, or worse, implement only part of it.
The inevitability of defeat is palpable among the skeptics.
       I believe the skeptics are wrong.  I believe that Section 254 can be fully implemented.
I believe that a strict and narrow reading of the law is not only what Congress intended but
also the only way by which Section 254 can be fully implemented.
       We at the FCC can and must rededicate ourselves to following the letter of the
Communications Act, and Section 254 in particular, as written by Congress.  We must, as
Congressional leaders have suggested, start over.  It will be a difficult process, but it is
possible, and it is urgent.  In the meantime, the American public can rest assured that no new
taxes will be levied by the FCC, that universal service will remain accessible to all Americans
under existing rules, and that schools and libraries will continue to receive ten billion of
dollars of federal support annually for infrastructure in addition to countless billions of dollars
from state and local governments and countless billions more from the private sector.
       In the end, the FCC will have contributed far more to the education of American
children than any amount of funds for any educational purpose.  The FCC, building on its past
good intentions and good efforts, will have taught a lesson that the greatest myths are the myth
of inevitable defeat and the myth that government agencies cannot solve difficult problems.