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Technology Corridor

Can utilities make a credible play for power line communications?
Fortnightly Magazine - February 1 2003

over three years to recoup those costs. That translates into a rate of $42 per month, George says-a rate that includes a gross profit of 20 percent, but no operating costs or net profit figured in. When operating costs and net profit are added to the calculation, she says, utilities will have to charge customers around $80 to $100 per month to offer the service profitably-much more than DSL or broadband cable. Even if there are additional services that only utilities can offer-for example, energy management-George questions whether customers will be willing to pay the premium price to get broadband plus those services. Entertainment, communication with family members, home networking-those are the interests that consumers have in broadband, George says.

But others directly involved with building out PLC say the capital expense is much less than even $400/residence. Main.net's Marsilii says that his costs are closer to $160 per residence passed. Main.net is involved in nine of the 12 current PLC trials within the United States, and its Israeli parent company, Main.net Communications Ltd., is involved in another dozen trials or deployments worldwide.

One factor that can drive up the capital expense cost is the backhaul cost-the cost of connecting PLC traffic to the Internet. Making that backhaul connection requires either fiber optic cable or a T1 line. Both can be prohibitively expensive. The retail cost of a T1 is between $1,000 and $1,200 per month. But it is possible to get T1s at a much less expensive rate, according to one utility executive involved in a PLC trial, who asked not to be identified. "Depending on how telecom-savvy [utilities] are, and whether they've got good telecom partners, they're either having to pay this really high price for backhaul, or they're not. To the extent you are paying that high price, yes, your price has to be up there [$50-$60 per month] to make your numbers work." On the other hand, he says, if utilities can keep their backhaul costs contained, they will be able to offer a lower service cost to customers while still making a profit.

The key to making PLC economical is good partnering on the telecom side, according to this executive. "The whole name of the game is getting the price point down to where people say they are willing to buy in great numbers. They have already shown that they are not willing to buy [broadband] in great numbers at $40 for cable or $50 for DSL."

In fact, broadband right now is in the dumps. Although close to 80 percent of U.S. homes have access to at least one form of broadband service, the number of actual subscribers is far lower than was predicted two years ago. While around 50 percent of U.S. homes have Internet access, only between 10 and 15 percent of households subscribe to broadband service.

But many experts believe that consumers are willing to buy broadband at lower price points.

In countries like South Korea, Japan, and Canada, the cost of broadband is much lower than in the United States. According to