Summary: The Telecommunications Act of 1996 expanded the traditional definition of universal service--affordable, nationwide telephone service--to include eligible schools and libraries. The act authorized the Federal Communications Commission (FCC) to begin a program to help these institutions acquire advanced telecommunications services. Under FCC's program, often referred to as the 'e-rate' program, schools and libraries can receive discounts from the vendors on the cost of eligible telecommunications services, Internet access, and internal connections. FCC appointed the Universal Service Administrative Company (USAC) as the program's permanent administrator, although FCC retains responsibility for overseeing the program's operations and ensuring compliance with its rules. USAC's Schools and Libraries Division (SLD) is responsible for carrying out the program's day-to-day operations. Schools and libraries do not receive funding directly from the program. The committed funds are held by USAC, which reimburses vendors directly for the discounted portion of the e-rate approved services that they provide. This report provides information on (1) the amount of funds requested and committed for all three program years (1998-2000) and (2) the result of FCC and SLD's steps to reduce the amount of committed funds that go unspent. GAO found that requests for e-rate support have risen steadily each year since program funding began in 1998. For the third and fourth program years, total requests greatly exceeded the program's current annual funding cap of $2.25 billion. For the third program year (2000), the requests exceeded $4.2 billion. Although SLD had sufficient e-rate funds to support all valid requests for telecommunications services and Internet access for the third year, it could not support requests for internal connections from applicants with discount levels of 81 percent or lower, leaving nearly $2 billion of the $3.2 billion requested for internal connections unfunded. For the fourth program year (2001), SLD estimates that applicants requested nearly $5.2 billion in program funds as of April 2001. However, it appears that a large proportion of the nearly $3.5 billion in internal connection requests may go unfunded. Data from January 2001 indicate that more than $880 million (24 percent) of the $3.7 billion committed to applicants for the first two program years remains unused. This is a decrease from $1.3 billion in unused funds (35 percent) at the end of August 2000. GAO also found that FCC and SLD have taken steps to reduce the amount of committed funds that go unspent, including canceling the funding commitments of second-year applicants that have not confirmed that they have begun receiving services associated with these funds.
