There was a lot of discussion about competition this week at the FCC E-rate Modernization Forum. Presenter after presenter praised competition’s impact on bringing about lower prices for schools and libraries. There can be no doubt: competition plays a vital role in driving down costs.
But there is a bigger role for competition, far beyond marginal reductions in per unit pricing. The real game-changer does not come from competition between vendors, but competition between solutions. Let me explain by way of example.
At the start of the E-rate program back in 1997, I recall many conversations about the cost of wiring classrooms and how much money should be budgeted per data drop. Should there be one, two, or three data connections per classroom, and what will the cost be per drop? A traditional view of competition – the kind currently promoted as essential to improving the E-rate program – is centered on lowering per unit costs. For data wiring, that means getting a lower cost per data drop.
But recent gains in student connectivity have not come from lowering the costs of data drops. Instead, the data revolution in schools has come from an entirely new source: Wi-Fi. Today, we are not talking pricing for a data drop in a classroom so much as we are talking about the price to connect 30 devices wirelessly. That is the kind of seismic change that occurs when technologies are allowed to compete.
Hayden Christensen calls this effect disruptive innovation. This type of innovation occurs when a new way of doing things emerges that doesn’t compete with existing paradigms, yet ultimately overtakes them. (To learn more, read my book review of Disrupting Class.)
In the current E-rate discussion, Evan Marwell and Education SuperHighway come closest to embracing the idea of disruptive innovation. Mr. Marwell and his organization have championed the fact that fiber optic connections between buildings hold an immense advantage over the old copper wire telephone company paradigm of connectivity. Indeed, fiber optics is often the answer to lowering the cost of bringing broadband to a building’s front door… but the E-rate cannot be solely focused on connecting buildings. The E-rate should be laser-focused on connecting students and library patrons. Connecting buildings is just a piece of that puzzle.
The E-rate program was established on a technology neutral, pro-competition foundation. It currently allows for fiber optic networks, including discounts on state and regional networks. Fiber optics is good. So is competition between vendors. And so are bulk discounts and the lower prices achieved through group purchases. But these are not disruptive innovations. Today, it all exists within the E-rate program’s current architecture. When it comes to connecting students and modernizing the E-rate program, we need disruptive innovation, not just more of the same.
Where, then, do the opportunities lie for disruptive innovation within the E-rate program? I believe that there are two very present, distinct areas that are ripe for real, transformative change – the type of change that represents a revolution of the E-rate program, not just its evolution.
Opportunity #1 – Eliminate the priority system
As previously stated, disruptive innovation occurs when competition occurs between solutions, not just between vendors. Yet the current E-rate program rules encourage the opposite. New technologies and services are forced into one of two priorities. Most competition only exists within the FCC priority silos. As a practical matter, services and expenditures cannot be compared across these priority lines, no matter how compelling the case may be. Compounding the problem, the FCC’s priority designations don’t match the real world needs and priorities of schools and libraries. And the distinctions between the priorities are increasingly disconnected from the real world altogether. Maintaining imaginary dividing lines between on-campus and off-campus broadband will never bring about disruptive innovation. Only incremental gains and marginal increases exist in a world built on a false dichotomy.
It is time to tear down the FCC priority walls. I envision a world in which a school puts out a bid for connectivity to its students and it receives bids from vendors representing a host of different technologies and service approaches. Here are two hypothetical bid responses:
Vendor A offers a two-part solution. (1) It will lease its fiber optic network to the school district, bringing a high-speed connection to each school building. (2) It will sell a Wi-Fi network, including wireless access points and network switches, to the school district as a one-time purchase, supplemented with maintenance support for the purchased network electronics.
Vendor B offers a turnkey solution. It will charge the school district a certain amount per month per device for a Wi-Fi enabled service that connects all devices within the school district. The vendor will provide its own “back haul” connectivity between the sites, but the school district will not have to bother with that or pay a separate fee for it.
Which solution would be the best choice? The answer, of course, depends specifically on the needs of the school district and the cost of the two service proposals. In an ideal situation, a school district could evaluate these two choices based on their technical and financial merit alone. However, the current E-rate program rules do not allow for this type of cross category review. The FCC priority system forces services into categories and each category has specific rules, discounts, and funding probabilities associated with it.
Eliminating these regulatory distinctions and leveling the playing field between technologies would immediately drive the market to more effective solutions and create more dramatic price differentials than any amount of consortium buying and fiber optic networks would ever produce on their own under the current Priority system.
Opportunity #2 – Adopt an E-filing standard
USAC does a good job administering the program. They aren’t perfect and it is easy to find their faults; yet, when I consider the scope of all that they do, I have to give them credit for their work. USAC hasn’t always done the best job, but they have a long track record of improvement. Day-by-day, inch-by-inch, they have been getting better, and I believe that they will continue to do so.
This path of incremental progress is important for USAC to follow, but it will NOT lead to disruptive, order-of-magnitude types of gains in the administration of the E-rate program. But I believe such an opportunity does exist: the electronic filing and transfer of E-rate paperwork and information.
No single area of the program’s administration has been more universally maligned than the USAC web site. It was important “back in the day” for USAC to build a user-facing online application tool. But that need no longer exists. Internet technologies have evolved to the point that the FCC could establish an e-filing standard that would greatly facilitate the flow of information to and from USAC. This type of electronic transfer is common place in many industries. Adopting an e-filing standard would unleash a well-informed, robust industry of professionals to create tools that effectively serve the schools and libraries community while at the same time allowing USAC to focus on its core mission. In other words, an e-filing standard would create an environment ripe for disruptive innovation, while freeing USAC to further invest in its internal process improvement initiatives.
The students and library patrons of America are greatly impacted by the E-rate program. They deserve the best that we have to give them. The E-rate program has been evolving for 17 years. Hopefully it will never stop evolving. But now is not the time for a slow, stepwise evolution. Our students and library patrons deserve better. They deserve a revitalized E-rate that dramatically enhances the program’s efficacy. The FCC should immediately eliminate their funding priority system and adopt an e-filing standard. These two changes could be brought to bear quickly and without significant regulatory or administrative changes to the program. And despite the relative ease with which these two changes could be implemented, they offer tremendous potential to radically alter the E-rate landscape.
It is time for an E-rate revolution.