AT&T overcharged two Florida school districts for phone service and should have to pay about $170,000 to the US government to settle the allegations, the Federal Communications Commission said yesterday. AT&T disputes the charges and will contest the decision.

The FCC issued a Notice of Apparent Liability (NAL) to AT&T, an initial step toward enforcing the proposed punishment. The alleged overcharges relate to the FCC's E-Rate program, which funds telecommunications for schools and libraries and is paid for by Americans through surcharges on phone bills. The FCC said AT&T should have to repay $63,760 it improperly received from the FCC in subsidies for phone service provided to Orange and Dixie Counties and pay an additional fine of $106,425. AT&T prices charged to the districts were almost 400 percent higher than they should have been, according to the FCC.

AT&T violated the FCC's "lowest corresponding price rule" designed to ensure that schools and libraries "get the best rates available by prohibiting E-Rate service providers from charging them more than the lowest price paid by other similarly situated customers for similar telecommunications services," the FCC said. Instead of charging the lowest available price, "AT&T charged the school districts prices for telephone service that were magnitudes higher than many other customers in Florida," the FCC said. Between 2012 and 2015, the school districts paid "some of the highest prices in the state... for basic telephone services."

Each year, AT&T submitted forms to the E-rate program "inaccurately claiming that it complied with the Commission’s rules," while "depleting limited public funds that could have supplied other schools and libraries with access to crucial learning technologies and services," the FCC said. The FCC document also noted that AT&T "dramatically increase[d] its pricing" after Florida deregulated phone service prices in 2011, leading to the school districts paying much higher rates.

AT&T didn't dispute the amounts paid by the school district but argues that the charges are legal. "The allegations lack merit and we look forward to making that case in detail in response to the NAL," AT&T VP Joan Marsh said in a statement provided to Ars. "Among other deficiencies, the NAL proceeds from the flawed premise that AT&T should have ignored regulations issued by the State of Florida when selling intrastate E-rate services in Florida.”

While the case could end up in court, AT&T must first try to convince the FCC to reduce or eliminate the penalty. But the FCC already disputes AT&T's argument.

AT&T's claim that it could charge higher prices because of Florida regulations is apparently related to a state telecommunications network called Suncom, which has a contract with AT&T that lets schools and libraries purchase E-Rate services at reduced prices. AT&T argues "that Florida regulations bar AT&T from charging the Suncom prices because they specify a procedure the applicants must follow to purchase from the Suncom agreement," the FCC said. "However, the regulations AT&T identified only specify a procurement process that parties should follow if they wish to purchase from the Suncom agreement. They do not prohibit AT&T from charging other customers the same rate in the agreement."

Under E-Rate rules, schools and libraries aren't obligated to negotiate lower rates—providers must offer them the lowest price, the FCC said. AT&T documents show that other customers have been able to get Suncom rates despite not being part of the Suncom agreement, the FCC also said.

The NAL was issued by the FCC's Democratic majority, with Republicans Michael O'Rielly and Ajit Pai dissenting. Pai issued a statement saying he agrees "that AT&T may have violated that rule in Florida" but says the FCC acted too late, after the one-year statute of limitations. The FCC decision claims that AT&T's “violations are continuing because the forms have not been corrected and AT&T has retained the excessive reimbursements," even though the last charges were collected on June 1, 2015.