By Michael MacMillan
As the prospect of deregulation creeps ever closer, local utilities are preparing themselves for competition in a world where specialization is risky. Diversifying, offering a variety of services, is not so much a trend as a plan for survival.
One service utilities are eyeing is telecommunications, a notion that has many observers scratching their heads. What business does an electricity provider have getting into the local and long distance communications market? But with hundreds, sometimes thousands of kilometers of transmission and distributions lines spread across their districts, it makes perfect sense for utilities to look in this direction.
Wires are carriers, transporting energy from one source to households and businesses. And they are the one asset municipal utilities would be certain to retain if deregulation were to take effect tomorrow. Telecommunication systems operate on a similar principle. Thus, the utility/telecommunication philosophy is simple; if utilities add fibre lines to their systems, business should come knocking.
Recent events in the U.S. bear this out. In September, Dallas-based Texas Utilities Co. spent $328 million to buy Lufkin-Conroe Communications, a privately held local phone company with 100,000 access lines in southeastern Texas. This past June, AT&T and Peco Energy formed a joint venture called EnergyOne in June to offer small utilities, among other things, long-distance phone and Internet services. In Canada, action has been less pronounced, due in part to a slower pace of industry change, and a lack of competition in the telecommunications market. This is expected to change. And soon.
Patrick Boshell, Electricity Today's fibre optic columnist and president of Toronto-based UTILiNK, a company involved in the implementation of network and fibre optic infrastructure, has been preaching this message for years. In order to survive and grow he is convinced that local utilities must go this route. "They can do anything with just two more (fibre) strands, literally anything," Boshell said.
Certainly utilities are no strangers to the technology. They have their own reasons for laying down fibre optic cable, and have been doing so for years. Automatic meter reading, wireless phone systems, remote terminal units and SCADA systems are as common in many local utilities as poles and wire. To make the jump, all they need do is add more fibre strands and lease it out to the first comer.
Boshell said buyers are not hard to find. In most towns and cities, large long-distance phone companies like AT&T and Sprint contend with what industry insiders call a "point-of-presence" (POP), usually found at the outskirts. This is the point where national telecommunications infrastructure ends, and large urban centers begin. Rarely do cities have an infrastructure already in place that will allow providers to access customers within the city. As a result, these companies are forced to turn local customers away.
UTILiNK solves this problem by installing dark (or unused) fibre throughout the utility's jurisdiction, and a one-time connection from the provider's POP directly to the municipal utility. Since all players tend to have their POPs in the same location, major construction will usually only have to be done once. Acting as a middleman, the utility then helps the provider reach businesses and households via its own fibre system. The utility gets the service at a discount since infrastructure construction makes up half the cost of the provider's normal charge.
At this point the utility becomes "the carrier's carrier." Everybody wins. The utility finds a new value-added service and maximizes its fibre resources, while long-distance providers get a cheap and efficient means to reach new customers at minimal effort.
Boshell worries that utilities do not take telecommunications seriously. Customers, he said, will have little incentive to be loyal to their local electricity provider in a competitive environment. If someone from out of province, or even out of country can provide cheaper electricity, customers will leap at the chance. However, if a local utility can offer their customers a wider range of services, including local phone and Internet service, and at the same time use the profits from those services to lower the cost of electricity per kW/hour, then they have a double incentive to stay on board.
And when the utility does well, so does the host community. Lower electricity rates and a viable communications system attracts more businesses and investment.
"Businesses, when they looked at places to set up, used to look at things like workforce and taxes. Now, the number one thing to look for is access, the telecommunications infrastructure," Boshell said.
Forming UTILiNK was partly in reaction to what Boshell calls the "arrogance" of other fibre companies who install fibre on a utility's distribution system, and then charge them for using it. He likens this to getting something for nothing. Having spent much of his life working with and for electric utilities he would like to see a proper merging of the two worlds. And by proper he means letting utilities control the fibre they install.
Utilink is currently partnered with Hamilton Hydro, but Boshell hopes to partner with most, if not all, municipal utilities in southern Ontario. But there are obstacles to overcome. Management often see fibre as an enormous expense, something Boshell dismisses. "The utility can lease out the excess capacity of the strands to offset the cost of installation, and it will pay for itself very quickly," he explained.
Most municipal utilities also lack the expertise and staff necessary to install and maintain the type of system Boshell advocates. Once partnered with a utility, Utilink, provides the consultation and staff to take care of the system.
But for now, Boshell said utilities should take a close look at the potential behind fibre optic technology.
"A strand of fibre is the grain of sand that opens up the Sahara desert."
Patrick Boshell is our fibre optic columnist. He is speaking at our Fibre Optic Technology forum in Edmonton , October 23-24 and Vancouver, October 27-28. ET