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Thursday, October 04, 2007

Dwindling competition

Funds for Learning every now and then releases a paper on some aspect of the E-Rate, and they're usually worth a look. I especially like them because they're short, with lots of graphs and tables, which is how I like my info.

They've just released a new report on the dwindling number of service providers in the E-Rate program. It's very short and has some interesting figures. The main gist is that the number of service providers in the E-Rate program has dropped every year since the program's inception. That's bad, because it might indicate decreasing competition. And the E-Rate application process already inhibits competition more than it should.

Of course, it got me thinking (one of my difficulties in life is that everything gets me thinking). I wondered what the numbers look like broken out among Categories of Service, so I did a quick analysis. Here's what I noticed.

By 2003, more than half the Internal Connections (IC) service providers (SPs) had left. (It's hard to get a clear picture since then from the quick analysis I did, because Basic Maintenance (BMIC) split off in 2005.) The E-Rate program is frustrating for service providers, because the funding is unpredictable. Also, the overhead associated with E-Rate funding is hard for IC SPs, since many of them only have one or two E-Rate projects, as opposed to a telecom, which has an entire E-Rate office. Every year, I'm contacted by a few gung-ho IC bidders, who think that the E-Rate is a gold mine. Within a year or two, almost all of them have given up on the E-Rate.

The number of Telecommunications Services (TS) providers plummeted 25% in the first two years, and has basically been steady ever since. I notice that the Eligible Services List for 1999 did not make clear that TS could only be delivered by common carriers, while the ESL for 2000 did make that clear. Does that explain why the number of SPs dropped so suddenly?

Since 2003, the number of SPs has held steady for TS and Internet Access (IA). The numbers for IC/BMIC are a little less clear (again the 2005 split created some double counting), but the total effect seems to be a drop in SPs.

Here are the starkest numbers to me. For 1998, there were twice as many SPs in TS as in IA, and twice as many IC as TS. For 2007, the number of SPs for TS, IA and IC (including BMIC) look about even.

I'd like to compare the numbers for funded FRNs, and take a closer look at the "churn" that Funds for Learning mentioned (looking at the number of SPs leaving the program and the number of new ones coming in), and remove the double-counting caused by the IC/BMIC split, but unless someone's going to pay me to do it, I'd better get back to work.

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