June 1 , 2002
Powerline Telecommunications: Mission Impossible?
there is a wide variety of constituencies [such as] incumbents in the telephone industry arguing against utility entry into telecom," he says. Spiwak outlines some of those arguments.
"The first is the competitive advantage myth that utilities have a better brand name. Second, there is the cross-subsidization myth-that utilities will supposedly take [a] dominant position and leverage it into the telecommunications market [by] pricing below cost, driving the incumbents out and recouping by charging super-competitive pricing," Spiwak says.
But he jokes, "I don't think Bell Atlantic is going anywhere anytime soon."
Furthermore, Spiwak argues that price gouging would be difficult considering that utilities are regulated at both the state and federal levels.
He adds that the utilities' uncertainty over what will become of their transmission and distribution assets as a result of electric deregulation also has played a factor in their withdrawal from PLT technology or secrecy about their involvement.
"Given Federal Energy Regulatory Commission Order 2000, [utilities] don't know if they are going to own the assets or not," he says. "[Furthermore], you don't know if they are going to control their local distribution. Will FERC make them unbundle?"
Spiwak explains that the Federal Communications Commission has established regulations forcing incumbent telephone companies to unbundle the high-frequency portion of the copper loop. Would utilities have to unbundle the high-frequency portion of the powerline?
Another reason Spiwak names for the utilities' lack of interest in PLT technology is that they have been caught up in dealing with electric deregulation. In addition, utility investment in transmission is down 50 percent.
"If they are not going to invest in transmission, why the hell would you want to invest in powerline technology?"
Moreover, the debate over whether captive ratepayers or utility shareholders own the assets likely will be a big issue among state regulators with regard to PLT, he predicts. In fact, a source at the National Association of Regulatory Utility Commissioners reveals the current regulatory thinking on PLT technology.
"Let's say that the technology works, and a distribution utility decides that it wants to offer Internet service and decides to charge $10 a month. [I] would imagine that they need to seek approval from the public service commission for at least the rate that is charged.
"For example, say that the distribution charge is two cents, and they are going to offer $10-a-month Internet service. The commission would want to see two cents per kilowatt-hour flowing back to the utility as that portion to that rate base," he says.
"They would not allow [utilities] to use a rate base to supply a competitive service without the competitive service having to flow some money back to the ratepayers that paid for the wires," he adds.
Furthermore, the NARUC source says if another company wanted to provide Internet service on powerlines, in a deregulated state, the utility would have to provide its lines to the competitor at the same rate it charged itself.
"The rate that they charge themselves would have to be equal to the two cents per kilowatt-hour that is the tariff rate," adds