Utilities and BPL: Betting Against the Odds


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

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

Fortnightly Magazine - April 2005

You could almost feel former FCC Chairman Michael Powell's enthusiasm for broadband over power line (BPL) technology when he called it "the most important third way" to provide broadband to markets across the United States.

Despite advances by DSL and cable modems, the United States ranks 10th in penetration of broadband and data rate of the broadband services offered (among Organization for Economic Cooperations and Development countries)-a fall from the number three spot in 2000.

Although investment in broadband facilities to serve enterprise and large business customers is well under way, the FCC recognizes that improving the U.S. position requires addressing the mass market-and it is here that BPL holds promise. But is BPL financially attractive enough to the nation's electric utilities to warrant investment and management attention?

The Story of Broadband Demand

Figure 1 - BPL-Per-Customer Economics

During the 1990s, entrepreneurs built excruciatingly detailed cost models of telecom networks, but the projections for demand, pricing, and market size were remarkably simplistic. The resulting impact on investors was widespread and devastating. Today's investors are much smarter, and they pay closer attention to demand.

BPL is best suited for mass-market applications, and BPL initiatives right now are targeted at this segment-particularly residential customers, the majority of whom already have two broadband options, DSL and cable modem-while other options are being piloted or deployed. 1

Broadband market analysts typically measure the size of the residential segment in terms of households. Analysts expect that by year end 2005, overall Internet penetration will reach around 64 percent of the 115 million households in the United States. Assuming current levels of price and income elasticities, 62 percent of households using the Internet will subscribe to broadband service, if available in their area. 2 By the end of 2005, approximately 46 million U.S. households will subscribe to broadband service (or would if it were available), and approximately 89 percent (or about 102 million U.S. households) will have access to DSL or cable modem. The remaining 11 percent (or approximately 13 million households) are too difficult or costly to serve via cable modem or DSL services.

This snapshot of the general landscape in which BPL will compete confirms a common phenomenon faced by developers of telecom infrastructure. Geographic markets that are viewed as highly attractive because of high density levels have already attracted rivals, while areas that are less attractive because of low density levels are wide open to new entrants. New entrants into markets where incumbents already are operating typically face an uphill battle. In these markets, BPL has to compete with DSL and cable modem in terms of price, service quality, 3 and brand. For the market currently unaddressed by DSL and cable modem, BPL has an advantage, but the lack