Feds Are Fed Up With AT&T's Lame Excuse For Abusing E-rate

In late July, the FCC released a Notice of Apparent Liability (NAL) in which it found the telecommunications giant AT&T Southeast liable for a $106,425 forfeiture. The agency also ordered the company to return $63,760 of E-rate funds it described as “improperly disbursed.” AT&T overcharged two school districts in Florida and, in a response released last week, are trying to justify their pilfer by blaming the E-rate rules and the schools themselves, much as a criminal blames victims for being such easy targets.

Funded By Phone Users

E-rate funds are collected as a surcharge on telephone bills; the funds go to schools to help pay for telecommunications costs at schools, including telephone, Internet access, and infrastructure costs like fiber network construction. The amount a school district receives depends on the number of students in the district that qualify for free and reduced lunches; schools with higher numbers of low-income students are reimbursed at a higher rate. Given that many of our schools are funded through property tax rolls, this means that schools in poorer neighborhoods that are more likely to need help with their budgets receive the higher reimbursement rates.

According to the program rules, phone companies and Internet Service Providers (ISPs) that participate are required to offer the “lowest corresponding price” to schools. Providers aren’t permitted to charge rates that exceed the “lowest corresponding price” or bid higher than that price on contracts to serve similarly situated entities if those entities are eligible to receive E-rate funds. School districts do not carry the burden of getting the lowest corresponding price - telephone and Internet access providers are responsible to ensure that they offer the lowest price in exchange for the opportunity to participate in the program. Between July 2012 and June 2015 alone, AT&T received $1.23 billion in E-rate funding nationwide.

Filching In Florida

In Orange County and Dixie County, AT&T charged the districts prices that were 400 percent higher than other phone rates in Florida, claims the FCC. Their investigation focused only on two types of telephone services. The FCC noted that when Florida deregulated phone services in 2011, AT&T “dramatically increase[d] its pricing.” According to the the NAL, the company repeated the pattern between 2012 and 2015. Each year AT&T would file paperwork, falsely claiming they had followed the rules regarding price.

The NAL describes AT&T’s substantial rate increases after 2011 for the two types of phone service. Increases occurred every year and “both Districts paid among the highest rates of all non-residential customers” which contradicts the purpose of the E-rate program. When pressed as to why they increased rates so dramatically:

Indeed, AT&T has not offered any justification for its pricing at all despite requests from the Enforcement Bureau (Bureau). We are left to conclude that AT&T sought to maximize profits at the expense of the Districts and at the expense of the publicly-funded E-rate program. 

This isn’t the first time big telephone providers have been known to push the limits of the rule. Verizon and others have been criticized for similar behavior but this is the first enforcement action for violating the lowest price requirement. Back in 2012, AT&T was caught overcharging schools for telephone service by 325 percent. In 2010, a Detroit Public Schools audit recommended $3 million be recovered from AT&T, in part because the telecom had not provided the lowest corresponding price. There are other reported instances and probably numerous unreported ones.

AT&T's luck appears to have run out, however, because the FCC seems to have had enough of the bad behavior. In calculating the amount of the fine, the FCC focused only on the instances of false reporting and limited the number of years they included. Considering the large sum of money AT&T has taken from the program, and their pattern of misbehavior, the fine could be much higher. For more on how it was calculated, check out the Common Law Monitor

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AT&T Responds

On August 26th, AT&T filed its response to the NAL and posted a blog the same day. The company argued that they charged the school districts higher rates because they chose to receive services on a month-to-month basis rather than via one-year contracts. The FCC disputes that conclusion, determining that the districts inherently requested one-year service as a matter of course.

Charging more for month-to-month contracts is the way telecom businesses typically operate, which gave AT&T an excuse to increase telephone rates by 400 percent. How convenient that school administrators did not feel the need to shout, "We want an annual contract!" at every turn - their mistake.

The FCC also found that AT&T should not have charged such exorbitant rates because of the presence of the state's E-rate Consortium. The Consortium allows schools to band together and negotiate for lower rates. The schools did not belong to the group but, because it reduced possible rates for similarly situated entities that qualify for E-rate, AT&T was not permitted to charge rates higher than those available to those in the consortium. The company argues, again, that the schools wanted month-to-month service, rather than the yearly contracts that are negotiated for consortium members, so the rates did not apply.

AT&T claims that the "lowest corresponding price" rule is not well-defined and blames their decision to apply a price 400 percent higher than acceptable on that ambiguity. 

Solid Track Record

AT&T has proven to be a virtuoso of swindle over the years, typically in the form of shifty rate practices. David Cay Johnston has written about AT&T's stylistic theivery perfectly described by an incident involving his friend Bruce Kushnick:

When he cross-checked his aunt’s telephone bills over the years, he could hardly believe the numbers. His aunt paid $9.51 for her local phone service in 1984. By 2003 her bill had swollen fourfold to $38.90. In the two decades since the breakup of the AT&T monopoly, even after adjusting for inflation, his aunt’s telephone cost $2.30 for each dollar paid in 1984. And that was without any charges for long-distance calls.

Taking advantage of elderly ladies, school budgets, and taxpayers are all in a day's work at AT&T.