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Managing the Telecom Value Curve

There are opportunities for utilities despite the telecom market correction of 2001 and 2002.
Fortnightly Magazine - June 15 2002

elements of the business, and repositioned where it enjoys a competitive advantage.

Utilities hoping to leverage their assets, expand to new markets, and succeed in telecommunications must adhere to working inside the portion of the risk frontier where they possess competitive advantages. This is not to say a utility can never succeed in retail services. However, to do so it is vital for them to succeed first at the lower levels of the value curve and only gradually engage in higher-value services. At each step of the progression, a utility must build upon its experiences, establish credibility in the marketplace, and identify the source of its competitive advantage. Gradually, the risk curve can be shifted to position a utility to be less risky and achieve higher returns ().

One unique structural issue in the telecommunications industry is that the most recent entrants should enjoy a cost advantage since incumbent providers are saddled with less efficient and higher cost networks. This should make it easier for electric utilities to break into the retail service sector. However, as the Interpath example identifies, there is much more to achieving a sustainable competitive advantage and satisfying customers than a cost advantage.

No Boilerplate Solutions

Given the general telecommunications market correction of 2001and 2002, there is much concern and skepticism about the virtue of utilities engaging in telecommunications. There is no question that much long-haul transport capacity is available. However, there is a critical last-mile and local loop capacity shortage, particularly outside the largest ten metropolitan areas. With almost a 3.5 percent slice of the gross domestic product, telecommunications is a fundamental building block of the new economy. The underlying demand for telecommunications services is still growing and there are significantly fewer competitive options to serve that demand.The opportunities are real, and they are growing. There is a significant and valuable role for utilities to play in this vital sector of the marketplace.

There are no boilerplate solutions for electric and gas utilities to succeed in the telecommunications business. The value curve analysis provides a proven framework and methodology to assess each utility's situation. Astute managers will assess every opportunity in the context of the utility's market, demographics, business strategy, and competitive environment. These are core considerations for succeeding in the expanding telecommunications industry.

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