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Look Twice Before Diversifying into Telephony
Most electric utilities have invested heavily in building private telecommunications networks. In fact, U.S. utility telecommunication networks combine to form the largest private network, second only to that of the Department of Defense. While these networks improve power system control and operational efficiency, they typically contain excess capacity available for sale to other companies. Given increased competition in their core business, many utilities are currently reviewing opportunities to use this excess network capacity. In most cases, the utility is attempting to leverage the following assets:
s Networks. An advanced telecommunications infrastructure, including fiber optic and wireless networks.
s Physical Plant. Rights-of-way and structures that can support wired and wireless network expansion.
s Spectrum. A dedicated allocation of frequency spectrum.
s Staff. A staff experienced in deploying and maintaining a communications network.
s Network Management. A
24-hour telecommunications network management and maintenance operations center.
Where's Your Advantage?
Here's the critical question for any electric utility that would jump into telephony: What is the source of your sustainable competitive advantage?
The dynamics of the telecommunications industry lie a world apart from power generation, transmission, and distribution. The differences present a daunting challenge to utilities who seek to profit from potentially underused telecommunication assets. The value proposition must be clear and must recognize both the technology and market-based challenges.
Standard telecommunication services based upon existing utility fiber or radio networks only provide transport service. Transport represents a commodity service. Ubiquity and cost leadership ultimately prevail for commodity services. Ubiquity (em which makes the telephone so valuable (em requires widespread national deployment; yet, most utility networks are regional. Cost leadership has granted a significant advantage to new telecommunication entrants, like Teleport and Metropolitan Fiber Systems, who have deployed low-cost metro-area fiber networks with low ongoing overhead. In light of their relatively high-cost structures, electric utilities probably cannot expect to become low-cost providers in this area.
Take fiber optics, for example. Even if an electric utility has deployed fiber throughout a major metropolitan area, that alone will not justify the company's entry into the local telecommunications market. Competitive access providers (CAPs) invented and built this market. They offer extensive networks at affordable rates, a national presence, a proven reliability record, and network management/billing systems that are already in place. The electric utility must find some source of competitive advantage that competitors cannot or will not offer.
In short, electric utilities must compete on another dimension. One way to do this is to bundle services to generate greater value for the customer. Essentially, the utility follows a "niche" or differentiation strategy and attempts to add some unique capability. One obvious example is to combine a "wireless packet network" with power-management services. This type of network can offer real value; it can monitor, track, predict, and save power. This new packaged service would enable utility customers to better manage their electric consumption. The sustainable competitive advantage for the utility comes from its experience in deploying a wireless packet and its expertise in managing power consumption.
This bundling/differentiation strategy avoids head-to-head competition with existing wireless carriers. In fact, the actual