Electrical wires may soon be delivering telephony services to Canadian customers

In their search to provide telecommunications services, utility companies may have found the "killer app" lying right under their noses. While most firms have been excited by the prospect of using their fibre and wireless networks to serve customers, a growing trend is the implementation of powerline telecommunications (PLT). At last week’s United Telecom Council (UTC) Canadian conference held in Vancouver, American consultant David Shpigler explained to delegates how they can use power lines to their advantage. Telephony transmission along power lines has been suggested and tested for years (NL, Nov. 10/97), but has not been technologically feasible until recently. Nortel Networks Corp. conducted tests of PLT, including a high-profile one in England, but later scrapped plans to develop PLT technology. Most of the research in North America is being done by U.S. firms such as FPL FiberNet, AEP Communications, and Southern LINC, although buzz at the conference suggested that at least one Canadian utility is actively looking at deploying PLT. Shpigler pointed out that utilities have three key reasons to enter the telecom market. First, much of the infrastructure currently in place for utility service, such as fibre, poles and rights-of-way, are needed in the development of telecom. Second, the expertise needed to maintain networks is similar for power and telecom grids. Lastly, utilities have been protected from the battering of the financial marketplace. While other players have been hurt by market trends, utilities have the financial wherewithal to capitalize on telecommunications growth. The PLT network has three main components, Shpigler told conference delegates. The backbone is the fibre network to carry accumulated traffic, and there are no technological barriers to this at present. The "last mile" is made up of a medium voltage transmission ending in the transversal of the transformer. The complete technological solution has not been achieved yet. The "last inch" is carried to the home by low voltage transmission. The technology is close to full functionality. "If the technology moves in the next nine months as it has in the last nine months, will knock out of the market," Shpigler said. Even if that doesn’t happen, he added, PLT is poised to become a midrange product. PLT shares some of the technological shortcomings found in other systems. Like DSL, it is limited by distance in respect to throughput that can be realized by the customer. Like cable, PLT is a shared medium, meaning that QoS relies on the presence of other users. The economic benefits of adoption are evident. In comparing the costs of deploying PLT, DSL, and cable modems, PLT emerges the winner, according to Shpigler. When comparing the fixed costs – the initial network build and customer acquisition costs – DSL is the most expensive at US$1,280. PLT is a close second at US$1,250 while cable is a relatively cheap US$810. But the monthly recurring costs plummet in powerline’s favour. While DSL racks up US$10 per month in recurring costs and cable is close behind at US$8, PLT comes in at a mere US$4, which benefits profit margins. Shpigler, who will speak about PLT business opportunities in a March 27 UTC audio conference, recommended utels move into the market gradually in order to prevent harmful battles with incumbent providers such as telcos and cablecos. The incumbents have two options. They can fight the utel entry through price reductions if the entire market is threatened. But if the utels and other new entrants opt for a select build instead, the incumbents should be willing to sacrifice market share for higher margins in other areas, Shpigler said. The president of the Foxboro MA-based Shpigler Group presented figures estimating an incumbent that fights would generate US$1,500 in operating profit each month. But one that accommodates will retain US$1,860 in monthly operating profit after five years and US$1,660 after a decade. Shpigler predicts that incumbents will prefer to share, unless a PLT entrant rushes in and captures more than one-quarter of the market share. His numbers for slow deployment estimate the migration would be no more than 17 per cent after 10 years (see chart). PLT can be rolled out using three distinct business models, Shpigler noted. One is the service provider, whereby a utel develops its own network and maintains the customer relationship throughout. Among the advantages of this approach are the expertise that already exists within the utility to build and maintain a grid, as does the knowledge for marketing, operations and network management. The market has the potential for solid financial returns. The second alternative is to become a developer, building the PLT architecture but then handing it off to another service provider. This approach sees the utel trade in lower operational obligations for lower financial return. The utility can still leverage its network building skills, while leaving another party to worry about customer support. The last approach is the landlord model. Under this system, the utility does not become a utel at all but merely permits a network operator to build on the power grid. Those who do not wish to invest funds in building a PLT network or actually operating it can still see small returns for minimal investment and effort. The advantage of PLT is that it can send multiple services to subscribers. Shpigler believes retail applications could include second-line telephony, high-speed Internet, video services, and security systems such as home monitoring and medical alert. Utility applications would include automatic meter reading and load management. Despite the promise of PLT, Shpigler cautioned that some questions must still be addressed. The uncertainty over throughput makes the transmission of video over PLT tentative, and high-speed Internet may not achieve the same standards as DSL and cable, he noted. There are also regulatory issues connected with telephony, including 911 service. Finally, the viability of retail applications depends on how competitive the local markets are.

Electrical wires may soon be delivering telephony services to Canadian customers

News | 03/25/2002 5:00 am EST

To keep reading, get a free trial.

Already a Subscriber?

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us