Competition

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This response reflects the archived comments of the Education & Library
Networks Coalition. (EDLiNK See:  "Schoolboards Association of")

2.  How can these activities [shared services of schools, libraries &
other community groups] be structured so as to foster competition among
telecommunications providers?

> As
> telecommunications technology advances and competition develops among telecommunications
> providers, different approaches and opportunities will arise. Libraries and schools are primarily
> concerned with the ability to meet the needs of patrons, students, teachers and other stakeholders,
> not with favoring particular technologies. It makes no difference to an educational institution
> whether its traffic is carried by a cable operator or a wireless carrier, so long as it can perform its
> mission. Schools and libraries are also aware of the need for any solution to be economically
> feasible, and such factors as geographic location obviously will affect what technological solution
> is the most cost effective. Consequently, the definition of special services should emphasize
> capabilities or functionalities, rather than technology-specific solutions, such as ISDN service or
> T-1 service.  (Comments 4-10-96 pg.10)

> Prospective service providers would submit bids to school and library districts
> upon the request of the contracting officer for each district, issued in accordance with local
> contracting procedures. Issuance of a request for proposals or any equivalent mechanism
> permitted by state or local law would constitute a bona fide request. Districts should also have the
> authority to aggregate demand by forming consortia with other eligible entities.
> 
> To permit the contracting agency to compare bids, bidders would be required to submit
> unbundled rates for individual services, or rates for service packages accompanied by a cost
> allocation showing the costs corresponding to each service in the package. 
> 
> Bids would be reviewed by the requesting entity or entities, again in accordance with local
> contracting procedures. The low bidder would receive the right to serve schools and libraries in
> that region at the discounted rate. If, however, the contracting agency had reason to reject the low
> bid on grounds permitted by its local procedures -- such as a past record of poor service -- the
> contracting agency could select a different service provider. To encourage low bidding by service
> providers, however, only the lowest qualified bidder would have the right to compensation from
> the universal service fund.  (Comments 4-9-96 pg.12)

> Under the Coalition's proposal, any school or library district would be permitted to issue a
> request for proposals, requesting competitive bids for one or more telecommunications services.
> Any entity willing to provide such services would be entitled to bid. Presumably, the provider of
> the lowest cost technology for a given area would be able to underbid the other service providers
> and win the contract. Because service providers will be guaranteed to recover their costs under
> either the benchmark method or the TSLRIC approach, service providers will have an incentive to
> bid at their costs. Thus, new service providers will be encouraged to compete against the local
> exchange carriers for business. 
> 
> As one example, the costs of asbestos removal and installation of internal networks in older
> buildings may make wireless technology a competitive alternative in the educational market. Once
> in place, such providers would have a base from which to expand their services to surrounding
> areas in competition with wireline carriers.
> 
> As another example, the National Cable Television Association ("NCTA") reports that 73% of
> schools and 81% of students currently receive free cable in the classroom. Comments of NCTA at
> n. 12. In other words, the vast majority of schools are already served by a one-way broadband
> network. Cable operators may be able to provide two-way services by installing cable modems
> and routing equipment to connect their school networks to the public switched network. A local
> exchange carrier, on the other hand, would have to install not only a broadband connection to the
> school but miles of internal wiring to compete with a cable operator. If cable operators can
> convert their networks at a low enough cost, they may be able to underbid the LEC in competing
> for school and library business, because they will only have to recover the cost of the conversion,
> and not of the entire network. 
> 
> Cable operators should not, however, receive support or compensation for free services they are
> already required to provide to schools and libraries under their franchise agreements with local
> governments. See comments of NCTA at 18 (stating that any discount off prevailing market price
> meets the Act's requirements, apparently even if free services are already being provided).
> Indeed, we believe that they would have an incentive not to try to recover those costs in an effort
> to underbid competitors for the service. If this proves not to be the case, however, cable operators
> should only be compensated for the additional investment required to convert their school-based
> networks to switched, two-way networks.
> 
> As far as the LEC's are concerned, the Coalition's proposal represents an opportunity to increase
> their market share. If they are able to serve a school or library district at the lowest cost, they will
> be providing additional services to entities that are currently not being served at all. Furthermore,
> by using schools and libraries to introduce new services, they will create demand for these
> services by others in the community.
> 
> In short, the Coalition's proposal promises to create a huge new customer base that is not served
> by any entrenched monopoly at a time when new competitors are poised and looking for new
> markets to enter. There is every reason to believe that there will be fierce competition for this new
> market, if the Commission adopts the right set of rules. On the other hand, if institutions have a
> limited range of services from which to choose and are forced into complicated bureaucratic
> selection processes, they are more likely to make conservative choices to satisfy grant reviewers,
> and those choices may not always be economically rational.  (Reply to Comments 5-7-96 pg.8-9)

> Under the Coalition's proposal, any school or library district would be permitted to issue a
> request for proposals, requesting competitive bids for one or more telecommunications services.
> Any entity willing to provide such services would be entitled to bid. Presumably, the provider of
> the lowest cost technology for a given area would be able to underbid the other service providers
> and win the contract. Because service providers will be guaranteed to recover their costs under
> either the benchmark method or the TSLRIC approach, service providers will have an incentive to
> bid at their costs. Thus, new service providers will be encouraged to compete against the local
> exchange carriers for business. 
> 
> As one example, the costs of asbestos removal and installation of internal networks in older
> buildings may make wireless technology a competitive alternative in the educational market. Once
> in place, such providers would have a base from which to expand their services to surrounding
> areas in competition with wireline carriers.
> 
> As another example, the National Cable Television Association ("NCTA") reports that 73% of
> schools and 81% of students currently receive free cable in the classroom. Comments of NCTA at
> n. 12. In other words, the vast majority of schools are already served by a one-way broadband
> network. Cable operators may be able to provide two-way services by installing cable modems
> and routing equipment to connect their school networks to the public switched network. A local
> exchange carrier, on the other hand, would have to install not only a broadband connection to the
> school but miles of internal wiring to compete with a cable operator. If cable operators can
> convert their networks at a low enough cost, they may be able to underbid the LEC in competing
> for school and library business, because they will only have to recover the cost of the conversion,
> and not of the entire network. 
> 
> Cable operators should not, however, receive support or compensation for free services they are
> already required to provide to schools and libraries under their franchise agreements with local
> governments. See comments of NCTA at 18 (stating that any discount off prevailing market price
> meets the Act's requirements, apparently even if free services are already being provided).
> Indeed, we believe that they would have an incentive not to try to recover those costs in an effort
> to underbid competitors for the service. If this proves not to be the case, however, cable operators
> should only be compensated for the additional investment required to convert their school-based
> networks to switched, two-way networks.
> 
> As far as the LEC's are concerned, the Coalition's proposal represents an opportunity to increase
> their market share. If they are able to serve a school or library district at the lowest cost, they will
> be providing additional services to entities that are currently not being served at all. Furthermore,
> by using schools and libraries to introduce new services, they will create demand for these
> services by others in the community.
> 
> In short, the Coalition's proposal promises to create a huge new customer base that is not served
> by any entrenched monopoly at a time when new competitors are poised and looking for new
> markets to enter. There is every reason to believe that there will be fierce competition for this new
> market, if the Commission adopts the right set of rules. On the other hand, if institutions have a
> limited range of services from which to choose and are forced into complicated bureaucratic
> selection processes, they are more likely to make conservative choices to satisfy grant reviewers,
> and those choices may not always be economically rational.  (Reply to Comments 5-7-96 pg.10)

> We propose that if a service is commercially available anywhere in the country, then there should
> be a rebuttable presumption that a school or library is eligible for that service at a discount. In
> certain cases -- described further below -- a carrier would be able to present to the Commission or
> the appropriate state regulator evidence that either (i) the requested service is in fact not
> commercially available; or (ii) the requested service was in fact not being used by a school or
> library as of a date specified in the Commission's rules.  (Reply to Comments 5-7-96 pg.11)

> Incidentally, we note that a number of commenters would exclude internal networks from the list of
> eligible services. We reiterate that such networks are within the scope of services contemplated by the law
> because the Act specifically provides for service to classrooms, and those services are necessary if the
> legislation is to serve its purpose. Section 254(h)(2).
> 
> Continental Cablevision gives a detailed description of its involvement in delivering advanced
> telecommunications capabilities to schools, arguing that this indicates that there is no need for a large
> universal service fund. Comments of Continental at 5-7. This may well be true, if cable operators are
> prepared to bid for services and can convert their networks to switched operation at reasonable cost.
> Tele-Communications, Inc. goes further, however, and claims that "even rural schools do not need federal
> subsidies" to purchase telecommunications services. Comments of TCI at 23. This is simply untrue, as
> indicated by the comments of the South Dakota Public Service Commission and the Wisconsin
> Department of Public Instruction.
> 
> We disagree, therefore, that no subsidy will be required, and that market mechanisms are all that is
> required. The truth of these claims remains to be seen, and depends largely on the willingness of operators
> like Continental and TCI to enter the fray of true competition. (Reply to Comments 5-7-96 pg.13-14)

> All services or functionalities should be eligible for discounts....> Having a range of services available at different prices will ensure that schools and libraries make
> decisions based upon their needs and the economic implications of those decisions. If schools and
> libraries are forced to choose among a few services available at a discount, no matter whether or not they
> are appropriate for their circumstances, resources may be misspent and neither the institutions nor their
> clients will reap the benefits of the telecommunications revolution.
> 
> We also urge the Commission to consider adopting an approach in which unbundled network elements
> would be eligible for discounts. This would encourage the development of a truly functionality-based
> mechanism, in which schools and libraries could determine the functionalities they need and prepare
> requests for proposals based on those functionalities, which a variety of service providers could bid on,
> either singly or in consortia.
> In short, if a service or functionality is commercially available anywhere in the country, it should be
> discounted. Schools and libraries on the cutting edge blaze a trail for those who are not as advanced, but
> others seek desperately to catch up only to face rates that are unaffordable. Given the rate of technological
> evolution, a list of defined services or functionalities to be discounted would likely include outdated
> services before it could even be widely distributed and it would take too much time and deliberation to
> keep the list current.  (Further Comments 8-2-96 pg.6-7)

> The Joint Board and the Commission can use universal service support for schools, libraries
> and health care providers to further competition by adopting EDLINC's proposal. A universal service
> mechanism that allows providers to win the right to serve particular school or library districts (or larger
> aggregations of users) to provide any services or functionalities the user may require will encourage the
> growth of small service providers and undercut existing monopolies.
> 
> For example, by allowing a user to solicit bids from any interested service provider to fulfill a particular
> function, and further guaranteeing the winning bidder steady cash flow and a profit through the
> combination of the user's payments and the universal service fund payments, low cost providers will be
> encouraged to submit the lowest possible bids. In many cases -- such as in the use of wireless technology
> to avoid asbestos removal costs or to reach remote areas -- alternative providers may be able to serve a
> school or library user more cost effectively than incumbent local exchange carriers. If this proves to be the
> case, those alternative providers will have gained a foothold in a particular geographic region, from which
> they may be able to expand by serving other, noneducational users. Thus, our proposal offers the dual
> benefit of providing competition to incumbent carriers and encouraging the growth of small carriers and
> alternative technologies.
> 
> Therefore, universal service support should be structured to permit all potential users to solicit bids from
> as many interested providers as possible, with a minimum of administrative obstacles. In addition,
> universal service support should be available to any entity that has been awarded a contract to deliver a
> covered service to an eligible user.

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