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Marketing & Competing

Fortnightly Magazine - August 1995

may leave a significant amount of money on the table.

Again, the experience of the telecommunications industry is enlightening. Prior to the MFJ, pricing options for long-distance calls were limited. Pricing was calculated from a single rate schedule based on distance, time, and duration of call. After deregulation, pricing options reflected six factors: actual duration, time of day, dial direct, calling card, distance, and volume discounts. The proliferation of pricing options began in an effort to retain customers by offering choices that stretched the customers' long-distance dollars. And pricing was managed sufficiently well. While AT&T's market share has slipped from 90 percent in 1984 to 60 percent today, profits have continued to grow. Meanwhile, the inflation-adjusted price for an average long-distance call has changed negligibly.3

On the second front (em customer retention (em a telecommunications strategy can prove vital in gathering information about customer preference and choice. Historically, businesses have relied on several strategies to retain customers:

s Maintaining customer satisfaction through product performance

s Simplifying the buyer's purchase decision

s Bundling product-related services

s Deterring a flight to competitors.

Each of these strategies can be achieved or significantly reinforced using communications to bundle intelligence and energy. Adding intelligence to energy delivery permits the utility to offer value-added services such as detailed usage data by appliance, information on how to improve efficiency, and beyond-the-meter energy services.

Rewards from Partnership

Utilities have found rewards in developing a telecommunications strategy. The continuing deregulation of the telecommunications business has created several niche markets for startup firms. The magnitude of the rights-of-way controlled by utilities and their existing investment in telecommunications infrastructure have made them partners of preference for many of these new entrants. The primary lines of business that involve electric utilities are competitive access and transport.

Competitive access means connecting a long-distance carrier's facility with a large-volume long-distance customer, "bypassing" the local exchange carrier. Bypass is a rapidly growing business typically found in large urban areas. There are over 20 competitive access providers operating about 6,000 route-miles of fiber-optic cable and connected to over 4,000 buildings.4 According to estimates, about half the bypass business uses electric utility rights-of-way, poles, lines, and/or fiber optics.

Transport involves transmitting high-density communications signals over long-haul distances (the primary business of long-distance telephone providers) (em one of the more mature portions of the communications business. The predominant interexchange carriers (IXCs) operate 100,000 route-miles of transport fiber. While this may sound like capacity oversupply, some regions of the country need additional facilities to provide alternate and diverse routing or to displace aging microwave transport facilities. Electric utilities are estimated to operate over 8,000 route-miles of fiber-optic capacity. Approximately 2,000 of these route-miles are leased by IXCs.5

While both businesses offer a return on investment (25 to 40 percent) that far exceeds the typical regulated return on equity, total returns are often too small to stimulate much interest on the part of the utility executive. This is particularly true where there may be legal and regulatory barriers to overcome. In fact, given the risk-aversion profile of many utilities and the abysmal