(Adds FCC vote, quotes, changes to proposal, Obama's call)
By Alina Selyukh
July 11 (Reuters) - U.S. Federal Communications Commission on Friday voted along party lines to begin to transition E-Rate, the largest U.S. educational technology subsidy program, to focus on high-speed Internet and increasingly on Wi-Fi in the next few years.
In a 3-2 vote, the FCC approved Chairman Tom Wheeler's proposal to phase out E-Rate spending on older technologies such as pagers, shift focus to high-speed Internet and commit $2 billion in the next two years to Wi-Fi, without raising the program's budget.
The plan had faced criticisms from Republicans and Democrats alike. To quell a key concern, the final rules ensure that E-Rate's increased focus on Wi-Fi comes secondary to schools' and libraries' requests to fund more basic Internet connectivity.
"While today's item does not make all of the changes necessary to achieve each and every goal, it does make noteworthy steps in the right direction," said Commissioner Mignon Clyburn.
E-Rate, created in 1996 and funded by fees Americans pay on their monthly phone bills, has helped connect most U.S. classrooms and public libraries to the Internet, but rules have limited how much money could fund broadband and Wi-Fi.
The FCC pledged to devote to Wi-Fi $1 billion in 2015 and another $1 billion in 2016 from unused E-Rate funds, dispensed to schools and libraries on a per-student or per-square-foot basis. After that, the FCC would target to keep spending $1 billion a year on Wi-Fi, seeking new savings from phase-outs of old technologies and more efficient bureaucracy.
"We are wringing as much as possible out of each E-rate dollar," Wheeler said.
Wheeler had originally proposed to commit $1 billion a year for five years.
The FCC would reconsider how it dispenses Wi-Fi funding and whether to increase E-Rate's $2.4 billion budget cap at a later time.
The lack of a budget increase had upset education labor unions and groups such as the National Education Association, which said demand far outstrips available funding. But on Friday they praised the changes to the Wi-Fi spending plan and welcomed the vote as a first step.
In their blistering dissents, Republican FCC commissioners Ajit Pai and Mike O'Rielly accused Wheeler of shutting them out of the discussion of the order, of forfeiting a chance to comprehensively reform the program in part by not truly benefiting rural schools, and of relying on fuzzy funding math, a subject especially touchy in an election year.
"Mark my words," Pai said. "In five months, maybe six, we'll be back at this table discussing how much to increase Americans' phone bills."
President Barack Obama last year urged the FCC to expand E-Rate so 99 percent of schools would have access to high-speed broadband and wireless Internet within five years, though his plan suggested a temporary increase in the phone bill fees that fund the program.
(Reporting by Alina Selyukh in Toronto; Editing by Ros Krasny, Jan Paschal and Meredith Mazzilli)