Telecom an inviting area for utilities, but companies need to be cautious

Even though the telecommunications sector has been difficult for many players in the last few years, there are those who see glimmers of light in niche marketplaces. One area that has sparked interest among many observers is the provision of telecom services by municipal electric utilities (MEUs). As the United Telecom Council prepares to hold its second Canadian convention in Vancouver next week, hydro and other utility companies will be investigating the efficacy of moving into the sector. While the financial houses have been more than a little leery of the telecommunications market in general, they are more welcoming to utels. "It’s the MEUs that seem to be gaining access to capital for building telecommunications facilities," consultant Roberta Fox tells Network Letter. "Those are the ones that seem to be able to get the capital." As delegates arrive for the UTC conference, they will find themselves in the middle of an intense debate about the financing of utilities. The Liberal government of British Columbia released an interim report from its five-member energy panel in mid-December. It recommended B.C. Hydro be split into three components – one handling power generation, a second for the transmission grid, and a third that would sell power to businesses and consumers. The final report is due to be issued on March 15. Response to the interim report has been swift and blistering. Thirty major corporations in the province banded together to produce a 20-page reply to the recommendations. "The sale of the B.C. Hydro monopoly assets is the wrong way to balance the budget," the group wrote in its February 12 letter to the government, which was leaked to the Vancouver Sun.Among the firms that sat on the committee are Canadian Forest Products, Scott Paper Ltd., and Teck Cominco Ltd. The companies have facilities in 42 B.C. communities and employ more than 15,000 workers. The committee praised B.C. Hydro for providing reliable power at reasonable rates. The utility returns benefits to the province, the businesses maintain. "These are core infrastructure assets that do not require provincial subsidies and in fact provide ongoing returns to the province and an important competitive advantage for industry," the leaked document says. The deputy minister of Energy and Mines in B.C., who also chaired the government panel, was less than impressed by the reaction from the committee and other groups who complained about the recommendations. "It’s not debate, more like argue and rant," Jack Ebbels told an energy conference in Vancouver last month. "It’s been like sitting in a dentist’s chair with stakeholder after stakeholder coming in." The idea of privatization has been greeted much more warmly in Ontario, where many utels are anxious to begin service. Hydro One, the successor to Ontario Hydro, is about to launch an IPO, which investment analysts expect to be a heavily-subscribed option. That will affect its subsidiary Hydro One Telecom. Among the Ontario cities that are offering, or about to offer, telecom services are Ottawa (NL, Nov. 6/01), Toronto, Hamilton, and Kitchener-Waterloo. Most of them are following the advice from a recent Yankee Group study and are content to act as carriers’ carriers, leasing dark fibre to ILECs and CLECs (NL, Oct. 22/01). But Fox thinks many avenues are open to the utels. "They’re looking at being a carriers’ carrier, they’re looking at being a mid-size or large customer in their selective areas and then they’re also looking at being a reseller," the president of the Fox Group notes. "It depends on which one of them it is. So there’s no reason why in some of the cities where the MEUs are building, and have built, facilities that they couldn’t sell the high-speed to the independents. But that again would mostly be between the COs , that wouldn’t be at the consumer level." While the utility telecom market is inviting, Fox warns against becoming too optimistic. Hydro managers may be guilty of making too many assumptions about the ease with which they can expand their horizons. "They’re selling kilowatts, which are different than kilobytes," she states. "Just because you put fibre in the ground, to learn to be a technology telecommunications company is an interesting growth. That’s the part I’m particularly interested in, watching to see if they can make that migration and do it successfully." Utels could be the apparatus to bring upgraded facilities to rural and remote areas. While providing high-speed Internet should be easy, installation and support must also be considered. Fox also cites the difference in billing practices. "A lot of them seem to be thinking that they can easily convert utilities’ billing systems to telephone company billing systems," she says. "They’re just two very different things. A utility bill stays the same except the kilowatts change. You don’t have movements and changes in a corporation or a consumer in the utility market that you do in the telecom market. So even that part of it, the service charges, the cancellation charges, the install charges; they don’t have the modules."

Telecom an inviting area for utilities, but companies need to be cautious

News | March 12, 2002

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Telecom an inviting area for utilities, but companies need to be cautious

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