The next big thing in Web access: Power lines
Bringing broadband over local power lines may be the means by which high-speed Internet access becomes universally available. Here’s what’s involved and how to invest in it.
By Michael Brush
Come May 24, Web surfers in the tiny town of Everetts, N.C. -- population 172 -- will finally get to enjoy what many of us have taken for granted for years.
A simple, high-speed connection to the Internet.
An eastern North Carolina town so small it doesn’t get cable or DSL, Everetts will finally get hooked up with a land-based broadband link -- thanks to a cutting edge technology that will deliver Internet signals through the town’s electrical lines. (There’s always satellite for remote areas, but it can be clunky.)
The emerging technology is known as broadband over power line (BPL).
Everetts’ step into the present with BPL is notable even beyond the Tar Heel State because it may well signal a step into the future for the rest of us. And it could be an early sign of a big opportunity for astute investors, too.
The reason: The town’s high-speed hookup, along with several other experiments in BPL around the country, are starting to make it clear that BPL technology could just be the next big thing in high-speed Internet access.Make that idea pay.
Win $25,000
and change the world.
The roster of players in this fertile field is growing quickly. Big power companies like Cinergy (CIN, news, msgs) in Ohio, PPL (PPL, news, msgs) in Pennsylvania and Progress Energy (PGN, news, msgs) in North Carolina, for example, are teaming up with EarthLink (ELNK, news, msgs) and private BPL providers like Current Technologies and Amperion to offer BPL. They’re already rolling out commercial BPL services in Cincinnati, Allentown, Pa., and Raleigh, N.C.
In several other towns and cities around the globe, many utilities are busy running small BPL trials in test markets.
Obviously, BPL is still developing. But if the stars align just right, experts say, BPL could become a big part of our lives over the next few years. Here’s how:
Like those pioneers in Ohio, Pennsylvania and North Carolina, many people all over the world will be turning to BPL as a faster and cheaper alternative to DSL and cable.
Consumers will be making cheap phone calls over their power lines, too, since BPL can be used for Internet-based phone calls -- known as Voice over Internet Protocol (VoIP). Movies on demand might not be far behind.
Large structures like hotels, apartments and corporate offices -- or even Navy ships -- will be wired with BPL, providing a cheap way to distribute broadband to every nook and cranny.
Remote towns all around the country, not only Everetts, will use BPL to get the high-speed Internet connections they’ve been denied for years.
BPL will be used for home networking, distributing high-speed Internet access around your house through the electrical wiring.
How BPL works
In fact, the first application to take off is likely to be home Internet access, in part because it is pretty straightforward. Users connect their computers to power lines outside their homes in two ways, depending on what kind of service they get. They can use a Wi-Fi networking connection that links them right into the power line. (Wi-Fi is a wireless network where signals can be transmitted a few thousand feet at most.) Or they can pay $30 for a modem that plugs into a wall socket. That modem sends their signal to a coupler that routes it around a transformer, so it can hit the main power line.
Once connected to power lines, Internet signals get shuffled along by repeaters. At some point, they’re bundled with other signals and channeled onto the Internet backbone by a node. The bottom line to all this for investors: These are all pieces of equipment that will sell briskly if BPL ever takes off. (We’ll get to potential stock-market plays in a moment.)
The future for BPL
But will BPL succeed? Though there are several challenges we’ll get to in a second, the technology has many things going for it, including:
It’s easy to use. And no, you don’t get shocked.
“All you do is take the modem out of the box plug it in, and, if you can sign up for e-mail, you can sign up for our service,” says Jay Birnbaum, the general counsel for Current Communications. The Germantown, Md. company has joined with Cinergy to provide BPL in the Cincinnati area.
The price is right. The going monthly rate is a little cheaper than DSL or cable. And you get more speed. Users pay $30 per month for the slowest speed, or 1 megabit per second (Mbps). That beats most DSL and cable connections, depending on the time of day. BPL users can pay an additional $5 and $10 for speeds in the 2 Mbps and 3 Mbps range, Birnbaum says.
BPL offers the same speed in both directions. This makes it a lot easier to send large picture or music files. DSL and cable typically offer fast downloading connections but very slow speeds for sending files.
And so far, Web surfers trying out BPL in small trial groups around the country think it’s cool. “The technology works very well,” says Rick Swink, who oversees BPL trials and development at the Washington, D.C.-based Pepco Holdings (POM, news, msgs). “The customers seem to be very happy.”
Based in part on good feedback from its trials, Cinergy, one of the leaders among utility companies developing BPL, predicts 15% to 20% of its customers will eventually sign up. The company has only been wooing paying customers for several weeks. “But so far the response has been good,” says Alex Pardo, who oversees BPL development at Cinergy Ventures Group. The company plans to introduce VoIP later this summer.
Here’s another plus for BPL: It has very strong support in Washington, D.C., right from the top. “President Bush has given talks on delivering broadband to rural areas,” says Reggie Bruce, the chief executive of Copper Road, the small Raleigh, N.C., company that’s bringing BPL to Everetts. “I think the politics are behind it to make it work. The DSL and the cable companies are not going into these sparsely populated areas because it does not fit their business model.”
A few levels down in the capital, Federal Communications Commission Chairman Michael Powell backs BPL -- not just as an alternate source of broadband but also as a way to keep competition alive in the phone sector. “The FCC is very enthusiastic,” says John Joyce, CEO of BPL equipment maker Ambient (ABTG, news, msgs).
The pure plays on BPL
One problem for investors is that many of the leading companies offering BPL equipment and services are still private -- from Current Technologies and Amperion (which offers the Wi-Fi link up), to Main.net in Israel and Design of Systems on Silicon, a Spanish company.
And one of the two companies in the space that are public -- equipment-vendor Ambient -- looks like a bankruptcy risk because it trades for about 25 cents per share.
But Ambient shares may be safer bet than they look. The company has friends in high places. The New York utility Consolidated Edison (ED, news, msgs) has a stake in Ambient, and Con Ed is running BPL trials with the company. Ambient also has a partnership with EarthLink, an Internet service provider. If BPL ever takes off, Ambient shares could get a nice lift.
Next, investors should consider a small company called Telkonet (TKO, news, msgs). Its equipment transmits broadband signals over the electrical wiring in hotels and apartment buildings. The market is big, given that there are 40,000 hotels and 30 million apartment buildings in the country. Telkonet also has potential customers in government and defense, where BPL might be used on Navy vessels and military bases.
Telkonet has alliances with satellite TV provider DirecTV Group (DTV, news, msgs), a big government contractor called Anteon International (ANT, news, msgs) and Leviton Companies, which makes electrical components. It may also team up with power companies and DSL and cable providers that need help distributing broadband signals in buildings.
Headquartered in Annapolis, Md., Telkonet recently signed a small deal with the Army Corps of Engineers, which will use Telkonet gear to help monitor dams. But bigger deals may soon follow. “We are inundated with business opportunities,” says Ron Pickett, Telkonet’s president and chief executive officer. “It is just every day, more and more proposals. The international side of things has been just explosive.”
EarthLink, though not a pure play, is worth watching for a few reasons. It’s in on several experiments with BPL. So if BPL ever takes off, EarthLink can hit the ground running. EarthLink also got another round of robust earnings-estimate increases in late April, often a positive sign. Finally, the company looks dirt-cheap by one measure. With a forward price-to-earnings ratio of 10, EarthLink trades for half its medium-term growth rate of 20%.
How the utilities may get into BPL
The most profitable way for utilities to offer BPL is to set up a telecom division to run the service outright. That’s what PPL in Pennsylvania is doing. At the other extreme, utilities wary of getting tangled up in a new consumer service will passively offer access to their networks for a fee, says Henry Quintin of Fine Point Technologies, which sells software that helps users install BPL. They’ll make less money, but the risks of getting bogged down in customer service are lower. Pepco is going this route, he points out.
The middle road -- both for profits and risk -- is a joint venture with a service provider. The marriage between Cinergy and Current Technologies is a great example. But can a joint venture like this produce enough profits to move the earnings needle at a giant utility like Cinergy? A quick back-of-the-envelope calculation raises some doubts.
Cinergy hopes to offer BPL service to 250,000 homes within three years, and it expects that 15% to 20% of customers will sign up. That suggests 50,000 customers will be paying $40 per month, or $24 million per year. If the service produces 20% profit margins, Cinergy’s 50% split of profits with Current Technologies would give the utility $2.4 million from BPL. With 180 million shares outstanding, that works out to 1.3 cents per share.
Cinergy’s take, however, could get bigger once VoIP is added -- not to mention video further down the road. Plus, Cinergy will soon start reaching out to more customers in Indiana and Kentucky. So, potential profits could be higher.
Even if it takes a few years to generate meaningful profits, utilities believe they can gain from BPL right away because it helps with automated meter reading and network monitoring. “It is like having an intelligent distribution grid sitting out there,” says Leif Ericson, a business development manager at Southern Company (SO, news, msgs), the big regional power company in the Southeast. “I can tell exactly where that tree fell on the line.”
Potential roadblocks
As good as BPL sounds, it faces several obstacles. Despite exceptions like Cinergy and PPL, for example, many utility companies are notoriously slow to adapt to new ideas. Next, a variety of “last mile” Internet-access technologies compete with BPL -- from DSL and cable to more cutting-edge options like fiber to the premises and WiMAX -- a wireless network that transmits signals over as much as 30 miles.
And despite the warm glow from the nation’s capital, there are several regulatory issues that could snag BPL, says Andy Lipman, a Washington, D.C. lawyer and telecom regulation expert of the law firm Swidler Berlin Shereff Friedman in Washington, D.C.
First off, ham radio operators hate BPL. A vocal group that’s raised lots of money for the fight, they’re concerned that BPL interferes with their radio transmissions. Next, regulators have yet to decide whether VoIP should be treated like regular phone service. If so, that will push up costs and reduce interest among consumers. What’s more, state utility regulators may slap BPL with surcharges to cover the cost of power lines.
Lipman believes upcoming technical studies will prove the ham radio operators wrong. And most of the other potential regulatory snags will be resolved, he says. So if more utilities get on board and consumers go for the service, the future could be bright for BPL companies. After all, the field is still wide open -- given that 80% of Internet users still haven’t made the transition from dialup to any form of broadband at all.
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column.
moneycentral.msn.com
. |
