Cheap gas, regulatory uncertainties, and a technology revolution are re-making the U.S. utility industry. Top executives at three very different companies—CMS, NRG, and the Midwest ISO—share their...
Utilities and BPL: Betting Against the Odds
Why broadband over power line (BPL) can't stand alone as a high-speed Internet offering.
value could increase by about $400 per customer. However, there is little that the utility can do to change this circumstance other than strive to keep cap-ex per line as low as possible or to receive a subsidy.
Combining the three factors—higher ARPU, lower churn, and lower cap-ex—could increase BPL enterprise value by about $1,800. This would place this BPL player's enterprise value in the mainstream of our panel. The economics of the BPL players operating in Areas A and C could also improve with these factors, although they would not compare as favorably to the panel as does the BPL player in Area B. The BPL market for the U.S. market as a whole likely would be a blend of these three areas. This means that ARPU and enterprise value per customer likely would be lower industry-wide than for the player operating in Area B.
Management: What to Consider?
Assuming that BPL is sufficiently financially attractive to raise the interest of electric utilities, is it material enough an opportunity (, is it big enough) to merit management attention? A definitive estimate of the size of BPL opportunity (, its industry-wide value) is difficult to gauge fully at this time because the key driver—cap-ex per customer—is still in flux. We estimate values for BPL industry-wide based on combinations of market share and cap-ex per line at various levels of service offerings and ARPU.
As shown in Figure 3, the potential market value is greatest with high market shares and high levels of ARPU.
If we take the middle of the ranges shown in this figure, industry-wide value for BPL is around $2.9 billion. This value depends on a set of modestly favorable assumptions: moderate to low cap-ex (about $400 per customer), ARPU that is higher than that for standalone, high-speed Internet access (about $45 per month), 10 and a strong market share (about 20 percent). 11 To attain a 20 percent market share nationwide, BPL would have to capture at least 10 percent of the market where broadband is already available and nearly all of the addressable market in areas where broadband currently is not available.
This value of $2.9 billion is relatively small when compared with the market capitalization of the electric utility industry. In Figure 4, we show the market capitalizations for five large electric utilities in the United States.
If we assume that each of these utilities entered the BPL business, and we further assumed a uniform allocation of total BPL industry value (, $2.9 billion) based on number of residential customers for these utilities, we see that the contribution of BPL to overall enterprise value would be between 0.2 percent and 1 percent for each utility. 12 If we make our assumptions more optimistic—higher market share, higher ARPU, and lower cap-ex per customer—total industry value may increase three-fold, to about $10.4 billion. Still, using the simplifying assumptions made earlier, the impact on the utilities shown above would be less than 4 percent.
In our view, all other things being equal, the size of the opportunity would have to