 Utilities Send Clear Message - By Ken Silverstein Daily IssueAlert 1/12/2004 Free Copyright 2004. All rights reserved. Advocates of power line communications are sending a clear message: Utility transmission and distribution lines are an effective means of transmitting high-speed data over the Internet and a service that will become increasingly competitive with alternatives now prevalent in the market. The idea has been a backbencher until recently, when some successful field trials were completed. Ultimately, companies in the space want to go head-to-head with such broadband technologies as digital subscriber lines, fixed wireless solutions and cable modems. It's gained the interest of lots of onlookers primarily because utility poles are everywhere and can theoretically be acclimated to Internet usage. “Power line communications-enabled broadband service is the most exciting new utility business opportunity in years,” says Chet Lyons, with the consulting firm Energy Alliance Group. “Five years ago the technology didn't work … and it left a bad taste. Now it works, and it's quite good. Power line communications work on utility existing distribution lines in place and have 100 percent penetration to the target market.” Power line communications is in good shape to compete with cable, he says, noting that most of the costs for cable go toward digging holes and planting wires. But, the majority of the expense associated with power line technologies is in new electronics where costs are dropping quickly. The bandwidth produced by the electronics is still improving too, so the cost structure of power line communications relative to cable should get even better over time, but digital subscriber lines and wireless will remain tough competitors, Lyons says. According to the Federal Communications Commission (FCC), about 15 percent of all homes capable of getting high-speed Internet have chosen to buy the service. That's about 6.2 million residences that have opted to pay roughly $40 a month, versus about $20 for dial-up service. Utilities could capture a sizable share of this market if they offered better prices. Just as importantly, power line communications could support energy services such as automated meter reading, load balancing and security services that would further benefit utility customers. Power line provider Main.net and utility services company Hometown Connections, for example, are teaming to deliver high-speed Internet services over the electric power lines to members of the American Public Power Association. Customers will be able to plug a modem into any electric outlet and have access to broadband Internet service for their computers at competitive rates. The utilities that integrate the offering will also be able to use the Main.net solution for outage detection and electric system management support. Encouraging Developments The city of Manassas, Va., recently announced a full-scale deployment of broadband over power lines that will use equipment provided by Main.net. “Manassas residents and businesses will soon be the first in the United States to buy broadband Internet access over city power lines,” says Allen Todd, director of utilities at Manassas. “The customers from our pilot project were impressed by the speed, reliability and flexibility of the service. Therefore, the city council voted in favor of city-wide deployment….” To work, power line adaptors at substations take the data that is sent over the Internet and convert it to frequencies that can be channeled over the distribution lines. Power-socket modems split the data from the electricity, routing the data to the input/output port on a computer or a peripheral device. While there is a lot of promise, there are also some concerns. Specifically, utilities' wires are a hostile environment in which to send a digital signal. There is electrical noise on the line that occurs when a load comes on the line such as that from an electric appliance. That noise can interfere with the digital power line communication signal, but advanced modulation schemes are helping to overcome this technical obstacle. These modulation techniques also improve throughput, but bandwidth could be increased even more if regulatory limits on radiated and conducted emissions were relaxed. That is something that regulators may consider this year. Meanwhile, utilities are complying with existing FCC regulations and must also observe the electric codes pertaining to the installation and maintenance of power line communication equipment. Moreover, utilities and technology providers are rigorously testing power line communication equipment to ensure the safety and reliability of electric services to their customers. "The latest developments are encouraging and power line communications is becoming competitive with other broadband services," says Brett Kilbourne, associate counsel for the United Telecom Council in Washington that represents utilities with telecom operations. As it stands now, power line communications is best suited for utilities' internal applications, he adds, although the association is trying to crank it up a notch. Consolidated Edison is a utility taking an aggressive position on the issue. It is working with Ambient and the early results are promising, the two say. Meanwhile, Current Technologies is partnering with Pepco and Cinergy to conduct tests that focus on utilization of distribution power lines for broadband Internet access, automatic meter reading, outage detection, and substation monitoring. And, PPL in Pennsylvania has made the technology commercially available to roughly 1,000 customers using medium distribution voltage lines. Finally, Southern Telecom announced earlier that it was testing Main.net's technology to deliver high speed Internet services. The subsidiary of Southern Co. is already a carrier's carrier, or a wholesale provider of dark fiber to third parties who need connections into office buildings throughout metropolitan Atlanta and also over some stretches of the Southeast. Calculated Risk United Telecom Council's Kilbourne sees commercial applications for power line communication technologies in the near future. Urban users may be the best target markets, at least initially, where many users are dissatisfied with their telecom carriers or their cable providers. As bandwidth replaces dial-up service and more homes use the service, utilities would hope to gain market share not only from those prevailing technologies but also from those new to high-speed connections. If the service proves reliable and cost competitive, it could pull in steady subscription fees of $25 to $40 a month from existing utility customers. As the technology advances and more data can be transmitted over the wires at faster rates, additional services such as video conferencing could be offered that would create more revenue opportunities. Meanwhile, the same power line communications network could support automated meter reading, outage management and demand controls. It's all a risk but one worth examining. Lyons, with the Energy Alliance Group, says that utilities need to have long-range vision and careful planning that are all linked to profitability benchmarks. Some variables to watch for, he says, are subscription rates, market potential and access to capital markets as well as the speed with which the network can be adapted to accommodate the technology. “Is it time to start the engines on this one?” asks Lyons. “Some major utilities think so. Revenue models show nice things start to happen when penetration exceeds 10 percent. That's not mission impossible. Customers will find other options if the utility doesn't provide one, and it's harder to displace entrenched competitors. So judge the timing of your entry accordingly.” UtiliPoint's IssueAlerts are compiled based on the independent analysis of UtiliPoint consultants. The opinions expressed in UtiliPoint's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. UtiliPoint's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. Copyright 2004. UtiliPoint International, Inc. All rights reserved. |
