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Utilities and BPL: Betting Against the Odds

Why broadband over power line (BPL) can't stand alone as a high-speed Internet offering.

Fortnightly Magazine - April 2005

investors.

The economics of BPL also may be improved through partnering and facility sharing. Partnering with, for example, an Internet service provider may prove attractive because such a relationship can reduce costs through greater scale. The partner also may provide needed technical or marketing expertise. For utilities that view the commercial opportunities of BPL as secondary to enabling improvements to core electric utility operations, partnering also may reduce management distraction.

Without the bundling of multiple services over BPL, high-speed Internet access over BPL as a standalone product may be commercially viable only in certain applications-perhaps from municipal and cooperative utilities, and from some small to mid-sized utilities. Many municipal and cooperative electric utilities view their mission broadly, in terms of providing needed services to their customers, so estimates of low per-customer IRRs may not present a huge hurdle for these utilities, as long as the IRRs are modestly positive and broadband service is needed by customers. This also may facilitate the FCC's vision to provide broadband service in rural areas.

Most investor-owned utilities may not view their charter as broadly, however, so they may be able to justify commercialization of BPL as a standalone product only in limited, niche applications.

Endnotes:

  1. Other broadband technologies that are currently being piloted include fiber-to-the-home (FTTH), loop extended DSL, WiFi and WiMax, 3G wireless, and broadband over satellite.
  2. We assume that households in areas currently without broadband will switch from dial-up to a new broadband service at the same rate as in areas where broadband is currently available.
  3. This includes data rate, reliability, and customer care.
  4. Cap-ex is a major factor affecting the success of the BPL business model. Cap-ex is a function of the prices for BPL equipment, network topology, household density, and market share. Manufacturers have released few prices to date. Overall, cap-ex per customer varies greatly. In our analysis, we use a range of cap-ex values.
  5. This simple model is based on comprehensive and dynamic models that we regularly develop to analyze broadband markets.
  6. We show value as an internal rate of return (IRR) per customer over the "customer lifetime" (, the average period of time that the customer generates revenue before disconnecting or churning to a competitor).
  7. Clearly, a specific BPL deployment may not fit neatly into any of these three scenarios. They are intended as illustrative only.
  8. We selected a panel of 15 wireline communications companies (i.e., we excluded the wireless communications portions). Enterprise value is the value of business operations without debt or cash. We estimated enterprise value per customer by subtracting cash plus debt from market capitalization and then dividing this value by the number of customers. Enterprise value per customer may be compared to NPV per customer calculated with a discounted cash flow (DCF) model. We used DCF to calculate enterprise value for our illustrative BPL provider.
  9. For example, this may be composed of $40 for local voice service, $20 for long-distance service, $40 for broadband Internet access, and another $40 to $60 for video or cable television. A discount for subscribing to a bundle of services is