Commercial-grade phone service is expensive, so there’s a program that helps schools afford it. There are rules about what phone companies, like AT&T, can and can’t charge the schools that apply through that program. And the FCC now says that not only did AT&T not follow those rules, but also it charged two school districts the highest rates in the entire state to keep their phone lines connected.

In a filing (PDF) made yesterday, the FCC proposes charging AT&T a total of more than $170,000 for violating an FCC rule and significantly overcharging two Florida school districts for their phone service.

There’s a program, overseen by the FCC, called E-Rate. The E-rate program allows schools and libraries to use money from the Universal Service Fund — a federal fund into which all telecom providers pay — to cover the cost of their phone and internet service.

But where there’s a pile of government money to be had, businesses can be… less than scrupulous. So there’s a rule in place for telecom companies, called the “lowest corresponding price” rule.

That rule defines a service provider’s lowest corresponding price (LCP) as the lowest price it charges to nonresidential customers who are similar to and located in the same general area the school or library in question. So, for example, a school with about the same student population, just in the next town over. It’s a benchmarking tool.

The rule then says that service providers cannot charge more than the LCP for e-rate services. It’s a provision that basically exists to prevent businesses from milking the Universal Service Fund for their own gain (which, in turn, leaves less money available for other applicants in need). And that’s what the FCC says AT&T has violated.

The FCC alleges that not only did AT&T not price-match properly, but in fact that the two school districts were charged the highest rates in the entire state of Florida.

“Charging school districts among the highest rates in the state for telephone or broadband internet service is outrageous,” FCC Enforcement Bureau Chief Travis LeBlanc said in a statement. “Schools and libraries across the country heavily rely upon federal and state funds to afford these critical services. We expect that every service provider will offer participating schools and libraries the same low rates that they charge to other similarly situated customers.”

AT&T, meanwhile, denied any wrongdoing, with their VP of Federal Regulatory issues saying in a statement, “The FCC today issued a Notice of Apparent Liability alleging that AT&T apparently violated the Lowest Corresponding Price rule in the E-Rate program. The allegations lack merit and we look forward to making that case in detail in response to the NAL. 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.”

The FCC plans to fine AT&T $106,425 for violating the rule, as well as ordering it to repay $63,760 to the Universal Service Fund. However, it’s worth noting that this kind of filing, a Notice of Apparent Liability, is not final. When the process finally grinds to a halt, AT&T could end up paying much more or much less, depending how persuasively everyone’s lawyers argue.