eRate disaggregates community buying power

Submitted by acohill on Fri, 10/08/2004 - 09:51

The papers have been full of stories this week about the suspension of eRate payments to schools and libraries. The FCC suspended the program because of chronic abuses by some recipients of the payments. That aside, let me point out some structural shortcomings of the effort.

• Any time some companies have to become the tax collector for the Federal government and others don't, you've created a structural and competitive inequity. Erate does exactly that.
• Erate really keeps phone bills higher than they would be otherwise, and essentially increases costs for everyone. It would be interesting to do an analysis of what a typical community pays into eRate and actually gets back in eRate payments. What if it turns out most communities pay more in than they get back? Now, one can make an argument that needy communities get more help than they would otherwise. But see my next point.
• Erate payments disaggregate the ability of the community to pool their broadband demand and negotiate lower prices. Erate takes broadband anchor tenants out of the buying pool, thereby forcing other nonprofits and businesses in the community to pay more than they would otherwise. Again, what we need are some studies that look at how much broadband is being purchased by a community in total and the potential cost savings that could be gained by communitywide broadband aggregation (note: this is an activity that should be part of a technology master plan).
• The higher cost of broadband due to disaggregation puts businesses in the community at an economic disadvantage, and affects local tax payments and the ability of those companies to grow and expand job opportunities.
• Erate delays the inevitable, which is what do the eRate institutions do when eRate goes away? Erate will go away because it is a tax on legacy phone service. Legacy phone service is dead, dead, dead. I can have a voice conversation today without using ANY kind of phone company--I don't even need a VoIP service if my calling party has compatible software.

Erate has no future, and schools and libraries are naive in not making plans to move on. A better strategy for schools and libraries would be sit down with all the broadband users in the community and pool their buying power, make some modest community investments in infrastructure, and take control of the economic future of the community, rather than hoping the "free" money continues (and it won't). Erate was a great success--it helped get schools and libraries online. But it is structurally doomed--this has nothing to do with political philosophies or which party you belong to. It just won't work going forward.