(November 2008) Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
Tilting Toward Telephony: How Electric and Gas Companies Can Leverage Their Systems for a Changing Market
the capabilities that utilities need to be competitive in their core businesses. Currently, utilities have the single greatest commercial need for "real time" communications capabilities in the nation. New supply-side and energy information services will require additional telecommunications capacity. Current estimates of the utility industry's operating costs for telecommunications range from $2 to $4 billion a year, growing 25 percent or more annually. Second, utilities could provide additional services to customers, including automated meter reading and "smart home" technologies. These services would allow customers to monitor and control energy use through "real time" communications.
Still, lest we forget, the primary push behind the entry of utilities into telecommunications is the need for additional revenue and earnings growth. Currently, the telecommunications industry accounts for almost 5 percent of the Gross National Product and generates approximately $200 billion in combined revenues. Of these, wireline service providers account for total earnings of about $160 billion. In addition, studies estimate that PCS/PCN providers could serve 60 million users and generate revenues exceeding $50 billion by 2000. With so much potential revenue at stake, utilities must carefully explore new revenue opportunities and expansion into new markets.
A utility company, in leveraging its network to provide telecommunications, faces many options with different levels of investment and risk. In its publication, Business Opportunities and Risks for Electric Utilities in the National Information Infrastructure, the Electric Power Research Institute outlines various investment options, which include constructing stand-alone telecommunications networks dedicated to core business needs or developing networks to provide local telephony, cable, and value-added services. The most natural course for utilities entering the telecommunications market is to build transmission facilities alongside existing transmission and distribution routes.
The utility industry already has in place many essential components that could be used to provide telephony. Utilities own large telecommunications networks (em with over 18,000 fiber cable miles combined, microwave networks, and extensive rights of way (em and have access to all segments of society, including industrial, commercial, and residential customers. While conventional copper phone wires carry only a few conversations at a time, a single strand of fiber, about the size of a human hair, can carry at least 32,000 conversations at once. Ordinary phone calls, however, will be just one of a half-dozen forms of digitized information that can flow across these networks.
Two Early Forays
Several utilities have already successfully entered the telecommunications market.
In 1985, Williams Pipeline Co.,
a petroleum and natural gas provider, installed 11,000 miles of fiber-optic cable inside its unused pipelines. A small plastic cylinder designed to pull fiber through unused pipelines allowed Williams to install fiber without excavation or the need for additional rights of way. The Williams network cost $120 million to build and extends from Kansas City to Los Angeles. The telecommunications portion of Williams became known as Wiltel Communications Systems. This year, Williams sold its network service operations, Wiltel Network, to LDDS Communications, Inc., for $2.5 billion. However, this transaction did not include the sale of Wiltel Communications Systems.
Entergy, an electric utility, currently uses its PCN to offer telecommunications services to