8/3/88 NY Times. Utilities Join the Internet-Access Business [No ASND reference]
nytimes.com
By MATT RICHTEL
There's a new power in the Internet access business: your utility
company.
A growing number of electric companies -- once slow-moving,
government-regulated monopolies -- are getting into one of the most
rapidly changing businesses. At least 100 utility companies offer
Internet access, including more than 30 of the nation's biggest
electricity providers, and dozens of others may follow suit.
At the larger end are the likes of Arizona Public Service, whose
Phoenix-based subsidiary, Cyber Trails, has grown into one of the top
10 Internet service companies in the state. At the other end of the
spectrum is Plumas-Sierra Rural Electric Cooperative, a power
provider nestled in the Northern Sierra Nevada mountains that also
serves about 2,000 dial-up Internet customers.
Large or small, electric companies are moving into the Internet
business because of utility deregulation. Eighteen states have opened
their power industries to some form of competition, and most others
are expected eventually to do so as well. That means the utilities not
only have to learn to compete, they have more reason to seek new
sources of revenue.
Moreover, many power companies already have the
telecommunications infrastructures that their Internet subsidiaries could
use to serve outside customers.
So more than 100 utilities have turned to telecommunications, including
long-distance, wireless and local phone service, cable television
access, home security systems and, now, Internet access.
"We have another business in this building, another way to pay rent,"
said Robert Marshall, general manager of Plumas-Sierra and its
Internet access subsidiary, Plumas-Sierra Local Net. "It will help us
hold our own in the big wide world when electricity deregulation hits."
The power companies are joining a host of other businesses in trying to
own a piece of the ground floor of cyberspace. Aspiring Internet
access providers range from mom-and-pop operations to giant
long-distance carriers like AT&T, MCI Communications and Sprint,
and radio and cable television stations. Even while there has been
some consolidation among large and regional Internet service
providers, their overall number has exploded to 4,850 from 1,500 in
the last five years, according to Boardwatch Magazine, an industry
trade journal.
The growth and diversity of Internet service providers means "you
can't even recognize what an ISP is anymore," said Jack Rickard,
editor of Boardwatch.
For their part, power companies say providing Internet services is a
natural move for them. Across the country, many of the 180 large,
investor-owned utilities own large fiber-optic networks that they built
for internal communication across states and among power plants and
field offices. They used only a portion of the capacity, however,
eventually leasing it out to telecommunications businesses. Now, they
are developing their own telecommunications businesses, including
Internet access, said John Castagna, a spokesman for the Edison
Electric Institute, an electric industry trade group.
Castagna said 30 to 40 major utilities were offering Internet access
and others were considering it.
Further, the power companies say they understand other crucial
aspects of the Internet business: billing, customer service and computer
networking.
"You already have expertise on the communications and you already
have expertise on the computer networking," said Ben Preusser,
business manager for Cyber Trails in Phoenix. "All you need to do is
drop a line to the Internet."
Of course, it is not quite that easy. Since the utilities themselves are
regulated, any costs from the Internet business cannot be passed on to
power customers in the form of higher rates. So the Internet
subsidiaries must pay fees for using the utilities' telecommunications
infrastructure, and the start-up costs are the responsibility of the
utilities' parent companies and their shareholders, not the utilities' rate
payers.
Arizona Public Service invested more than $2 million to get its Cyber
Trails subsidiary up and running, Preusser said. This involved buying
modems, routers -- which route Internet traffic to the proper
destination -- and establishing a high-speed line into the backbone of
the Internet. Cyber Trails also leases data lines from US West and
from Arizona Public Service.
Cyber Trails, which began offering Internet access in March 1997, has
6,000 dial-up customers, adds 20 new ones a day, and has one of the
10 largest subscriber bases in the state, Preusser said. He said the
company had marketed aggressively, going after rural areas that
national Internet service providers had ignored, and also had contracts
to provide access to several Indian reservations.
Preusser said the new business was helping Arizona Public Service
learn about the challenges of moving into a new business in a
competitive marketplace -- knowledge that should prove beneficial as
the utility heads into a deregulated and much more competitive
electricity marketplace.
"It's a different set of skills," he said. "It turns out that just leveraging
your existing technology doesn't work all that great."
Carol Heiberger, an energy and telecommunications consultant in
Philadelphia, has a similar view, noting that the relatively low cost of
offering Internet access gives utilities the chance to experiment with a
new business model. "They're practicing running a competitive business
to see what it looks like," she said.
But Ms. Heiberger, who has written extensively on the efforts by
utilities to offer Internet access, said there was no guarantee that
power companies could succeed in this business. On the one hand, she
said, they have infrastructure, marketing, brand recognition and
customer service experience; on the other, they are not accustomed to
the fast-moving world of technology.
Still, the potential problems did not discourage Carolina Power and
Light, which serves 1.1 million residences with electricity, from entering
the Internet business. In January, it acquired Interpath
Communications, a company that provides consulting, Web page
hosting and design, and Internet access to 4,500 businesses in North
Carolina, as well as surrounding states.
The experience of Carolina Power and Light also highlights an
approach taken by dozens of utility companies entering the
telecommunications business: Rather than building from scratch, as in
Arizona, they are buying existing Internet companies or signing joint
ventures with major telecommunications providers. A year ago, for
example, a subsidiary of Potomac Electric Power Co., which serves
Maryland and the District of Columbia, pledged to spend $150 million
to develop long-distance, cable television and Internet services in
partnership with RCN Corp., a major telecommunications provider.
There are other reasons some utilities turn to the Internet. Warren
Dunn, director of communication for National Rural Electric
Cooperative Association, said that at least 60 of the nation's 1,000
rural cooperatives offered Internet access, in part because they
consider it part of their charter to serve their communities.
Marshall, the general manager of Plumas-Sierra, said the utility
cooperative felt it had a responsibility to provide Internet access in a
region others were ignoring.
Before the electric company started its Internet subsidiary in the fall of
1995, residents of the area had to place a long-distance call to get
Internet access.
"We felt advanced technology would not be available unless we
stepped up to do the job," Marshall said.
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Cyber Trails
Matt Richtel at mrichtel@nytimes.com welcomes your comments
and suggestions.
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