Sam,
I keep coming on articles associated with electric utilities,and I think of your comment. So here is another,
An Exercise in Utility
Electric utilities are starting to get serious about the telecom services market. They have the connections--now they're looking for the expertise and experience.
By Rachael King
Rachael King is public network editor for tele.com. Her Internet address is rdking@teledotcom.com.
Local incumbents may want to believe that, when all is said and done, they still hold that ultimate advantage regarding local competition: They and only they now own the only wires that reach each and every potential customer. Yet even the most entrenched telco knows there's one other entity that can claim that kind of universal access: the local electric company.
Electric utilities and local telcos have several things in common, not the least of which is that they're both former monopolies being pushed into a new era of competition. Both vow to fight to keep as much of their original market share as they can, but both are making plans to charge after new markets to make up for any revenues lost to new competitors. According to a January 1998 report by Frost & Sullivan (Mountain View, Calif.), the telecom industry is expected to experience a compound annual revenue growth rate of 7 percent through 2003, compared with a 1.1 percent growth rate in the electric power industry. Local telcos, of course, are eyeing other telecom services, especially the long-distance market. Electric utilities are eyeing local telcos.
Most utilities are trying to keep a low profile as they explore their local telecom service options, almost as if they're trying to fly in under the radar of the incumbent. But dozens of electric utilities have started planning their local service moves, and a handful have already launched real services.
Similarities aside, there is one big difference between telcos and their budding rivals. The local services market is dominated by six incumbents--the five Bell companies and GTE Corp. The number of electric utilities in the U.S. is about 3,000. Most of those are small operations serving a very limited geographic area. But that lack of size doesn't mean they can be ignored, market watchers say. "Telcos need to be aware that 3,000 small companies doing something will eventually add up to something bigger," says Carol Heiberger, president of the Energy and Telecommunications consultancy (Philadelphia).
At last count, about 80 electric utilities are aggressively pursuing the telecom market, says Heiberger. These companies' telecom interests range from leasing fiber to other carriers to providing business and residential customers with service bundles that include local, long-distance, Internet, wireless, video, energy management, and security services.
Electric utilities have several infrastructure and marketing assets that can help them in pursuing local services business. Most have extensive fiber optic networks--combined, U.S. utilities have at least 30,000 route miles of fiber in place, according to Heiberger. That fiber has been used for utility data networks that manage and control the electric power grid. Utilities have lots of customers--just about every household and business in the U.S.--and lots of money--U.S. electric utilities now take in about $240 billion a year, according to a report written by Heiberger and Tim McElgunn, managing analyst at the Datapro division of Gartner Group Inc. (Stamford, Conn.).
A key advantage that utilities have in pursuing the local market is their ownership of the rights-of-way into each home and business in their operating area. For new local competitors, obtaining rights-of-way to build networks can be a bureaucratic nightmare that involves securing approvals and making siting arrangements with local governments, incumbent providers, and individual homes and businesses. Although the electrical wires that run into homes and businesses can't be used today to deliver telephone service economically, technology trials now being conducted in Manchester, U.K., may yield a way for utilities to provide Internet access over their power wires (see "Current Affairs").
The electric utilities that have started making their move into the local telecom business are taking one of three basic approaches to get there. One approach is to find a local competitor to form a partnership with, in essence marrying the competitor's telecom expertise with the utilities infrastructure advantages. A second strategy is to try entering local markets without any help, either by starting out with service resale or some facilities-based service. A third option is to buy small local providers outright.
The partnership approach may offer utilities and new competitors the best odds for success, some analysts say. "The overall amount of understanding that is required to be in the telecom business is difficult to do from a startup phase," says David Rosen, group vice president of business consulting services at Bell Communications Research Inc. (Bellcore, Morristown, N.J.). Hyperion Telecommunications (Coudersport, Pa.) and RCN Corp. (Princeton, N.J.) have used the partnering strategy with some early success (for more about RCN's utility connections, see "Bell Buster"). Hyperion has created partnerships with the likes of Entergy Corp. (New Orleans) and PECO Energy Co. (Philadelphia), while RCN's partners include Boston Edison Co. (Boston) and Potomac Electric Power Co. (Pepco, Washington, D.C.).
RCN's strategy is to develop advanced fiber optic networks to provide a wide range of services including not only local and long-distance service but also video programming and data services such as high-speed Internet access to residential customers in selected markets in the Boston to Washington, D.C., corridor. "We are implementing deployment of the network in D.C. through a partnership with Potomac Electric called Star Power, which will potentially serve the 682,000 customers that Pepco has in D.C. and its surrounding areas," says Michael J. Mahoney, president and chief operating officer of RCN. "This complements an existing arrangement we have with Boston Edison, which targets 650,000 customers in the Boston area." These joint ventures give RCN important advantages such as access to rights-of- way and use of existing fiber optic facilities, established customer bases, the ability to enter target markets quickly, and a reduction in the up-front capital investment required to develop its network. RCN's joint venture with Boston Edison--which began in September 1996--has given it approximately 300 route miles of fiber optic cable.
Other utilities have decided to go it alone rather than build partnerships. In November, Conectiv Communications (Newark, Del.), a subsidiary of Delmarva Power & Light Co., started reselling Bell Atlantic Corp.'s local service and Sprint's long-distance service in Delaware and Pennsylvania. "We haven't put any big promotions out, but by the end of the year we had almost 1,100 customers," says Laird Levison, who was chief operating officer at Conectiv at the time of the rollout. Levison has since moved to Carolina Power & Light Co. (CP&L, Raleigh, N.C.), where he is executive vice president and chief operating officer for that utility's telecom operations.
In the first half of this year, Conectiv expects to expand its offerings to customers in eastern Maryland and southern New Jersey. The company has a base of potential customers to draw upon since its parent company, Delmarva, serves about 500,000 electric and more than 100,000 natural gas customers in Delaware, Maryland, and Virginia.
Conectiv is going after the local customers first by competing on price and service bundling. The company says it gives customers a minimum discount of 10 percent compared with Bell Atlantic's service prices. Conectiv's residential local service subscribers in Delaware pay $14.99 a month for service and have a choice of several long-distance calling plans, including one that offers a flat rate of 14 cents a minute for all U.S. long-distance calls. Conectiv also is offering free call waiting for six months to customers who sign up for residential local, regional toll, and long-distance services. The company hopes to have an Internet access service in place by midyear.
Conectiv's strategy is to start off with local service resale and then move customers onto its own facilities-based network, using unbundled local loops. Conectiv has found resale to be one of the toughest parts of setting up its telecom operation. "We had some startup pains with Bell Atlantic," Levison says. He reports that the interworking of the operations support systems, particularly the provisioning system between Conectiv and Bell Atlantic, has been slow. The biggest problem, according to Levison, is that Bell Atlantic's manual order entry system is prone to error--a complaint echoed by other would-be local competitors about the Bell companies.
While Conectiv takes the solo route into the local market, other utilities are buying their way in by acquiring small providers. In December, CP&L bought Interpath (Raleigh, N.C.), an Internet service provider, and last November Texas Utilities Co. (Dallas) purchased Lufkin-Conroe Communications Co. (Lufkin, Texas), the fourth-largest local telephone company in Texas. "We'll see more of this because utilities are selling power plants," says Donald Bradshaw, director of the energy practice at The Yankee Group consultancy (Boston).
CaroNet, the telecom subsidiary of CP&L, bought Interpath to shore up the data side of its operation. CaroNet had primarily been a wholesaler of fiber to other carriers, representing CP&L's fiber assets--870 route miles of fiber optics configured at OC-48. After the acquisition, CP&L renamed its telecom subsidiary Interpath Communications Inc. "One reason we bought Interpath was the brand--CaroNet was not well known," says Chris Darby, president and CEO of Interpath Communications. With the acquisition of Interpath, the company also gained 63 employees from the ISP, along with its customer base (about 9,000 subscribers) and infrastructure--29 points of presence in the Carolinas and Virginia.
Interpath Communications plans to deliver a variety of services to business customers; it now offers Internet access, Web hosting, intranet design, and network support services. Interpath's communications services division, which is responsible for conventional voice, video, and other data services, will have a retail operation by the end of this year. Right now, Interpath is focused on installing its ATM infrastructure, over which it plans to run IP. Interpath also says it has been hiring telecom expertise at a rapid rate. The company is located in North Carolina's Research Triangle Park area, which will enable it to draw from technology resources from companies like Northern Telecom Ltd., Cisco Systems Inc. (San Jose, Calif.), and IBM Networking Systems Division.
Because Interpath is affiliated with CP&L, it has rights-of-way to all its customers' premises. As such, Darby says Interpath will build out the last-mile distribution where it makes sense--in industrial parks or in new construction projects where CP&L is building energy distribution. For now, Interpath doesn't see the need for partnerships with local competitors. "We believe that we have the expertise and resources to do this ourselves," says Darby. "Our vision of a next-generation telecom company may not be consistent with partnerships. I measure us against those who really have a vision of what next-generation telecommunications will be."
I hope you are doing fine,
Hiram |
