Hundreds of Millions of Dollars Snatched by Consultants to Navigate Byzantine Federal Program
WASHINGTON, D.C. – U.S. Senate Commerce Committee Chairman Ted Cruz (R-Texas) released a new investigative report examining the hidden consultant ecosystem that has developed around the Federal Communications Commission’s (FCC) Universal Service Fund (USF) schools and libraries program, commonly known as E-Rate. The report, “The Cost of Connection: E-Rate’s Hidden Consultant Ecosystem,” details how decades of bureaucracy have fueled a lucrative consultant industry that now presents itself as a necessary step for schools and libraries seeking to obtain federal reimbursement for internet connectivity.
The report estimates that consultants collect between $200 million and $400 million every year to help schools and libraries navigate E-Rate’s byzantine application, bidding, and reimbursement process. Additional findings conclude that these paid intermediaries are associated with applications for roughly 82 percent of E-Rate funding commitments by dollar value—an extraordinary share for firms that do not provide internet service or build the network infrastructure the program is intended to support.
The report recommends that the FCC reform the E-Rate program by simplifying its rules to reduce reliance on consultants and requiring consultant compensation be publicly disclosed alongside E-Rate applications and funding awards. The report also urges Congress to consider bringing both E-Rate and the broader USF into the annual appropriations process and focusing program support on high-cost and high-need schools.
Upon releasing the report, Chairman Cruz said: “Consultants should not be skimming hundreds of millions of dollars off a program intended to serve children. Twenty-nine years ago, the E-Rate program was created with the fundamental purpose of connecting schools and libraries to the internet. With that goal having been achieved, consultants can now exploit an old system, wasting funding and enabling opportunities for fraud. This report exposes serious flaws and makes key recommendations to modernize the E-Rate program and ensure the program benefits those who truly need it.”
Read the full report HERE.
Background
Established in 1997, E-Rate was created with the intent of connecting schools and libraries to the internet. Twenty-nine years later, more than 99 percent of schools report having internet connectivity. Rather than scaling back to its original purpose, efforts have been made to broaden the program beyond school and library facilities, including by funding Wi-Fi on school buses and off-campus Wi-Fi hotspots. At the same time, the program has grown increasingly complex and consultant-driven. This complexity has led schools and libraries to rely on paid consultants to navigate the program’s burdensome application process. These consultants operate with limited oversight from the FCC or the Universal Service Administrative Company, which administers the USF.
The FCC unilaterally determines how much Americans are effectively taxed in order to fund the USF while subsequently subsidizing E-Rate and the USF’s other programs. As program spending continues to grow, contributions have shrunk making the USF financially unsustainable, even while remaining a program that taxes 42 percent of consumers’ monthly phone bills. Simultaneously, supporters of E-Rate continue to advocate for maintaining or expanding the program, placing additional pressure on the USF and placing additional financial burdens on consumers.
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