Power to the People

Utility companies enter the broadband marketplace

Since last week's FCC ruling allowing power companies to deliver broadband services, several utilities and their partners have entered the race. "We view the FCC's decision as a new starting gun," says Bill Moroney, president of the United Power Line Council. "In the next three to five years, you'll see incredible growth in broadband over power lines [BPL]."

One big reason is that utility companies can offer the service without laying any new infrastructure. Plus, they have three ways to deliver it: deploy the service themselves, grant access to multiple Internet service providers, or make the wires available to a company that handles operations.

For consumers, the entry of another triple-play provider (voice, video, data) is welcome news.

Historically, a third-service provider introduces pricing pressures into the marketplace that are more substantial than when only two providers compete. In Manassas, Md., for example, residents can now receive 500 kbps of Internet access for $29 a month from Comtek, the company that was awarded a 10-year franchise by the city. (Cable or DSL costs run about $40 per month.) Comtek handles the technical and business aspects of the service, while the utility company's work crews handle installations. The city gets 10.5% of the revenues, with a sliding scale lowering that rate as penetration increases.

"We'll be able to offer the same services as Comcast, the incumbent cable operator," says Walt Adams, Comtek vice president, commercial services. That is, once the technology allows Comtek to deliver 100-200 Mbps of bandwidth
a rate Adams expects will be reached within 18 months.

Comtek isn't alone in overlaying BPL service.

Current Communications, considered the leader in the field, is deploying a similarly priced service in Cincinnati with utility company Cinergy.

"We see more and more utilities realizing they're better off not trying to learn the business," says Jay Birnbaum, Cinergy vice president and general counsel. "They use us to handle the back-office issues." Current is also working with Potomac Electric Co. in Washington, D.C., and Hawaiian Electric Service to roll out broadband services by early 2005.

Delivering BPL is fairly simple and cheap, according to Moroney, with installation costs for the power company typically running $50-$70 per home. (Cable operators typically pay $300 per home.) The easiest place to install the equipment is in a neighborhood's transformers, which transport the broadband signals via radio frequencies.

Another plus for utility companies: Their crews are the only ones authorized to work on the transformers on top of utility poles. "I've watched a crew go up in the bucket and make the install in 15 minutes without racing," says Moroney. "Picture how much geography three bucket trucks could cover in a day compared to a cable truck."

Such speed, coupled with easy access, has cable operators interested in BPL. Moroney says his group is talking with one cable operator that wants to use BPL to bring digital-cable services to neighborhoods that haven't been upgraded, less than 10% of the U.S., according to Morgan Stanley. Says Moroney: "That should be a wake-up call for the cable industry and DSL providers to improve their services."