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Thursday, August 07, 2014

Perversity is always ready to consort with human nature

I wonder if we can get some clarification on a misconception that the 7R&O "cleared up" in Paragraph 179.  The FCC "reminded" applicants that consortia can choose a range of service providers to meet applicant needs.

How does that work?  Let's say I've got a consortium with 100 members, all looking for 100 Mbps.  I post a 470, and 3 vendors respond.  The first says, "I can supply all 100 members for $1200/month each."  The second says, "I can supply Internet to 50 members for $1100/month each."  The third says, "I can supply 90 members for $1300/month."  (Let's assume that they are all of equal quality, so price is all that matters.)  [There were a few other potential bidders, but they could only serve 20 or so members, so they figured it wasn't worth bidding.]

Now what?  Well, I guess I give the second vendor a contract for the 50 members it can cover.  But now the first vendor says, "Wait, you gave away the 50 easiest sites, the remaining 50 members are further from the existing cable plant, so I have to charge $1,400/month each."  Now vendor 3 looks good, but can only serve 40 of the remaining members, so for the last 10, I have to go with vendor 1.  Total cost? $121,000.  That's $1,000 more than if we'd just awarded the whole shebang to vendor 1.  What should the applicant do?  Am I even allowed to accept the new pricing from vendor 1, since the bid period was over when I changed the size of the project?  Once I award the 50-member contract to vendor 2, should I post a new 470 for the remaining 50 sites?

If I award it all to vendor 1, how are those 50 members going to feel when they find out they would have paid less if you'd split the award.  But if the award is split, those last 10 members will be paying $200 more per month.

Let's say my consortium was wise enough to know that only one vendor could supply all members, and divided up the bid to allow more vendors to compete.  Remind me again, how are consortia supposed to decrease pricing?  By aggregating demand.  My consortium is disaggregating demand.

I'll restate my position on bulk purchasing: sometimes purchasing as a consortium lowers prices, but sometimes it increases prices.  The FCC should do nothing to either encourage or discourage consortia.

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