Telecom market inviting sector for utility companies, UTC research director says

Canadian utility companies are in a strong position to succeed in the telecom market, the American association of utels believes. Despite slower growth than in the U. S., the current state of the utility market is very positive. Beth Griffiths, director of research for the United Telecom Council in Washington DC, highlighted several reasons for the rosy outlook in the Canadian utility telecom market in a paper on Current Trends in Utelcos presented at the UTC’s conference in Vancouver last month.The sector is still growing and demand is high, she said, and utilities are in a strong financial position to make investments. Conversely, the general economic slowdown is making it difficult for alternative telecom providers to hit the market, making it more advantageous for utilities to establish utels. The powerful U.S. lobby group is expanding its area of service and is trying to gain a foothold in Canada. Since the various levels of government have set goals for rolling out connectivity to underserved regions, the incentive is there for utels to provide that service. Griffiths expects that public bodies such as utilities will receive government support to move into those areas as Ottawa proceeds with its aim of making Canada the most connected nation in the world. The utility market in this country is divided between very big companies, which are usually investor-owned, and small systems, which are controlled by municipalities as a rule. The move to privatization provides opportunities and the motivation for utilities to enter different markets. Several utels have already sprung up in Canada, including Hydro One Telecom (NL, Aug. 28/00), NB Power, Telecom Ottawa (NL, Nov. 6/01), Calgary’s Enmax, Gaz Metropolitain, and Manitoba Hydro (NL, Oct. 22/01). Griffiths used the Manitoba company as an example of how utilities can enter the telecom business. Manitoba Hydro is building a long-haul fibre system along its electrical network through an internal business unit, and is working with an outside partner for short-haul connections. Acting as a carrier’s carrier, it will offer its dark fibre and high-speed networks and will provide network maintenance for its customers. The firm has 600 km of cable already in its network and expects to roll out an additional 1,500 km over the next few years. The UTC research director spoke highly of Manitoba Hydro’s strategy, saying it plans to grow carefully, providing products and services to further connectivity in its area, while at the same time increasing the business slowly but profitably. Griffiths believes the overall picture for utels in North America is good. While CLECs have been dropping like flies on both sides of the border, she noted during her presentation that only two utility telecoms have gone into bankruptcy. Telergy, located in upstate New York, went out of business last October. Griffiths noted that the company’s significant out-of-region builds sapped Telergy of funds without yielding the necessary returns. The company was not under the control of its investors and lacked the restrained financial planning and accountability common in a utel, she added. The other utility casualty was EBS, the broadband unit owned by disgraced energy reseller Enron Corp. The buildout of its network was a major drain on the parent firm, with much being spent on constructing and operating a bandwidth trading business. But revenues did not come anywhere close to covering costs. Combine that with the creative accounting practices at Enron and EBS crashed long before it could be properly scrutinized. The cavalier style employed by Enron is atypical of utilities, Griffiths said.Griffiths predicted that utels will emerge from the recession in a better market position than when they entered. She cited several factors, including infrastructure, financial strength, strong customer base and greater efficiencies.

Telecom market inviting sector for utility companies, UTC research director says

News | April 9, 2002

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