Are consumer broadband over powerline (BPL) services enough to make the business case for utilities?
After years of development, technology to deliver high-speed data over the existing electric power delivery network has emerged in the marketplace. In some sections of Cincinnati and Manassas, Va., consumers now have an alternative to DSL and cable for broadband Internet access. It's real and it works.
The technology is viable, the Federal Communications Commission (FCC) has issued new rules for mitigating potential radio interference from broadband-over-powerline (BPL) systems, and the first commercial-scale BPL networks are being built out. But is it a good business bet?
This is a key question for utility executives, and like many business-case questions, the answer is: It depends. At least that's what the Electric Power Research Institute (EPRI) and its market intelligence subsidiary, Primen, found in a recent examination of the current status of the BPL market. "Internet access for consumers has been the focus of initial BPL deployments, but what we think is likely to make or break the business case in the long run is the bundle of broadband services that can be offered, and the ability to use BPL as a communications platform for utility applications," says Clark Gellings, vice president for innovation at EPRI.
Pricing Internet Access
Take, for example, the high-speed Internet access market. The broadband market in the United States is ex-pected to double in the next few years from approximately 30 million households.
Today, the pioneering commercial BPL providers are pricing Internet access service at levels below current DSL and cable prices, starting at about $28/month-less than the typical $35 to $50 for DSL or cable. Both the city of Manassas and Current Broadband (Cincinnati's BPL provider) expect they can obtain a 20 percent share of the broadband market in their respective network territories, and both estimate positive cash flow within about three years.
Continued price competition is likely to drive down Internet access prices; in fact, some DSL companies already have dropped prices to as low as $27/month in a few locations, in an attempt to gain market share from cable. New competitors and a trend for "value priced," dial-up access also will apply pressure.
In the face of such downward price pressure, broadband services other than Internet access will be important to boost the amount of revenue per customer. Multiple services also will be needed to make BPL competitive with the convenience and discounted bundled prices offered by other Internet providers.
Parks Associates, a research firm that specializes in digital and home networking markets, reported that 65 percent of all Internet households are willing to subscribe to a bundled service package for data, voice, and video services that would save them $20 a month.
Cable, for instance, already can offer an attractive bundle of high-speed Internet access, TV, video on demand, and voice over Internet Protocol (VoIP-telephone service via the Internet). As a result, BPL providers are planning or investigating similar additional consumer broadband services to stay in the game. Watch for VoIP, video on demand, and streaming video to round out the BPL consumer broadband portfolio.
An Evolving Market
But competing just on the basis of current market conditions will not be sufficient. Along with price changes or vol-atility, expect changes in the availability, performance, and types of services offered as alternative broadband network technologies emerge. In particular, new and converged wireless and fiber networks are likely to alter the competitive landscape in many areas.
Consider the new fiber networks in which Verizon and other phone companies are planning to invest billions of dollars. Seeing a diminishing profit future in DSL and landline telephone, telecommunications companies are building fiber to the customers' premises from the telephone switch.
Previously impeded by very high costs, new fiber networks can use passive optical networks and advanced components that are now projected to bring the network cost to as low as $800 per home passed (compared with $50 to $200 per home passed for BPL, depending on customer density and other factors, plus another $30 to $300 per home for modems, depending on the BPL system type). Also, a recent FCC ruling, stipulating that such networks do not have to be made available to competitors, has removed a key barrier to deployment.
Although fiber to the home requires a huge investment, it will boost network speeds and allow Verizon and others to offer bundles of services now beyond the capability of DSL lines. Verizon's first deployments in Texas and California will have data speeds of 30 megabits per second (Mbps). This compares with today's DSL rate of about 1.5 Mbps, cable at 1 to 3 Mbps, and BPL at up to 3 Mbps.
The Bells' foray into fiber will enable them to sell "cable" TV, which, when packaged with Internet access and telephone service, could garner sufficient revenue to justify the billions of dollars needed for the investment in fiber.
In addition, wireless broadband services might become larger players in the broadband mix. Several municipalities are making entire neighborhoods, towns, or cities into big Wi-Fi hotspots. Although wireless broadband offers lower performance than BPL and other broadband services-and presents challenges according to topology of the area served-systems are relatively inexpensive to build.
Philadelphia, for instance, is creating a wireless broadband system to provide access to all of its 1.5 million residents. Dianah Neff, CIO for the city of Philadelphia, says the buildout will cost about 10 times less than other alternatives the city examined. Cost is pegged at $10 million for cells on streetlights and other structures in a citywide, 135-square-mile area. Neff reports Internet access speeds will be 1 Mbps and should give underserved areas access to very affordable broadband.
Also on the horizon is WiMax, or worldwide interoperability for microwave access, a long-distance, fixed-wireless network. Development is supported by IEEE Standard 802.16, which will enable standardization of components and thus lower the cost of a WiMax network. WiMax enthusiasts expect the network to be at very high speeds that are competitive with other providers, and with a predicted point-to-point range of 25 miles.
Backed by industry giant Intel, chips that enable WiMax soon will be standard equipment in many laptop computers. By bringing mobility of Internet access to the broadband mix, WiMax could be an attractive option for some consumers in the next few years.
Utility Applications Might Tip the Scale
However, unlike many of the alternative broadband technologies, BPL is unique in its promise as a high-value communications system for utility-specific applications. While consumer broadband service may be the initial application and an important revenue source for a BPL network, a powerline-based network expands options for the power industry and offers both savings and revenue opportunities.
Among a long list of possible services: dynamic pricing, demand response, and remote monitoring, as well as internal utility applications such as outage detection and restoration monitoring, equipment monitoring to allow conditional maintenance rather than typical preventative maintenance, fault location, distributed resource control and dispatch, lightning detection, and switching.
Those already engaged in BPL commercial deployments are expecting such utility applications to improve the business case as networks are built out. The city of Manassas, which uses data from the BPL network management system to help locate outages, intends to integrate the system with its outage mapping system. Other utility applications are anticipated in the future, including fault detection and automated meter reading.
Likewise, Cinergy's Current Broadband is investigating outage detection and restoration service, along with automated meter reading. Enhanced power distribution services-including remote switching, power-quality monitoring, direct-load control, and peak-shaving options-also are factors in the company's business case.
Some companies, such as Hawaiian Electric Company (HECO), see utility applications as a critical element of BPL. The development and integration of BPL-enabled utility applications is a primary focus of a phased BPL deployment at the company, which is in the field-trial stage of substation equipment monitoring, distribution automation, advanced meter communications, and load control.
Con Edison, an investor in BPL technology developer Ambient, also is looking to utility applications to drive the business case. In fact, Con Edison's Tim Frost, director of corporate planning, says utility applications are the primary motivator for the utility's interest. Although the company is testing broadband Internet access for customers, the field tests are handled by partner Earthlink and are not the primary focus of Con Edison's efforts.
Frost envisions BPL as a potentially vital part of the long-term strategy for creating an intelligent, self-sensing grid. "The first thing to focus on is creating the intelligent grid," Frost says. "There is considerable promise for non-linear optimization models that can work with an intelligent grid to potentially save energy, create new capacity, figure location value of assets, and where to place distributed generation or distributed resources."
EPRI's Gellings weighs in with analysis done by the Consortium for Electric Infrastructure to Support a Digital Society (CEIDS), which evaluated the business case for a system that could support meters or sets of devices that could be the communications and control hub for the customer. The study, using California as its hypothetical area of deployment, found that demand response, avoided costs of new generation and T&D, and other energy optimization features make a strong case for deployment.
"The CEIDS analysis showed investment in such a communications system could be worth roughly seven times the initial expenditure," Gellings says.
Does this mean BPL is a business to bet on? Evidence suggests that at least in some utility situations, it might be.
In the short term, if a company is entering the consumer broadband arena, it should carefully evaluate the likely competitive response in its territory and anticipate the technology changes that could alter the market dynamics within a few short years.
But given the potential long-term savings that utilities could realize from a converged communications and power delivery system, companies should calculate the odds of a payoff from the broad range of enhanced utility applications-which certainly could make BPL a game worth playing.
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