As deregulation slowly takes hold of the U.S. electric utility industry, many companies are beginning to take a look at wireless telecommunications as a way to hold on to their customers.
With strong brand names, customer bases and billing capability, electric utility companies could prove to become formidable competitors in the wireless arena within several years.
Many electric utility companies realize many of their customers are up for grabs once deregulation hits their area, and in addition to other businesses, they see telecommunications as a way to strengthen their core businesses, use existing assets like microwave towers and rights of way along gas pipelines and generate new revenue streams and customer loyalty bonds.
Deregulation in the electric utility industry has manifested itself so far in California and in a few Northern states. Unlike the federal government-mandated deregulation process in the telecommunications industry, deregulation of the electric utility industry is mandated by each state. Thirteen states have set dates for deregulation, and another 27 states are in the process of setting dates, said Paul Spaduzzi, president and founder, Spaduzzi & Associates Inc., a consulting firm that helps utility companies form telecommunications strategies. Total utility deregulation may not occur until well into the next century, he said.
As such, some electric utility companies are sitting tight rather than preparing for competition, and rapid consolidation within the industry means electric utilities are focusing more on restructuring their businesses. Mike Kujawa, senior analyst with Allied Business Intelligence in Oyster Bay, N.Y., predicts the industry will support only 10 to 20 electric utility companies in 15 years from the nearly one thousand companies that exist today.
Bigger players like electric utility giant Enron are looking to the Internet to give them experience in unregulated businesses. Enron’s subsidiary, Enron Communications Inc., recently completed the Enron Intelligent Network, a new Internet application delivery platform that overlays the public Internet to deliver bandwidth-intensive applications to the enterprise desktop. The first applications are targeted at the broadcast- and content-provider markets.
“Wireless telecommunications is still a big area companies are looking at,” said Spaduzzi. “But electric utilities are so risk aversive because of their core business. Wireless has grown so fast, and it’s extremely competitive and primarily involves one of the main talents a company must have: marketing and sales. That’s not an expertise in the core business.”
In addition, the capital involved in making a wireless business successful is more than most utility companies are willing to spend, said Spaduzzi.
Analysts say, however, electric utility companies are selling off generating plants and will have cash to infuse in other businesses. Many wireless companies are actively seeking partners and strategic investors.
Perhaps the more aggressive entities in the wireless telecom arena are the electric utility cooperatives made up of private independent electric utility businesses that are consumer-owned and established to provide at-cost electric service. About 875 electric co-ops serve 32 million people in 46 states.
“Some of them are beginning to merge to form larger service areas,” said Kujawa. “With competition coming, they are looking for ways to hold on to their customers.”
The National Rural Telecommunications Cooperative, a national organization with more than 800 rural electric- and telephone-company members (the majority of which are electric utility companies) signed an alliance and distribution agreement with Intek Global Corp. Intek has a nationwide 220 MHz network under the Roamer One brand name. Intek’s affiliated company, ILAC, bid for spectrum under a joint bidding arrangement with NRTC. Rural utility members in several states purchased the exclusive statewide rights to provide 220 MHz two-way radio service.
Many co-ops are developing business plans for dispatch, personal communications services and paging offerings. A group of co-ops called Tri-Corners Telecommunications Inc. acquired enough local multipoint distribution service spectrum to offer voice, video, data and other wireless last-mile services throughout Colorado. Brookings Municipal in South Dakota signed a franchise agreement last year with Sprint PCS.
Still other electric utility companies are trying their hand at reselling mobile phone and paging services along with other telecommunications services, like long-distance. The strategy doesn’t require many marketing dollars since most offer these services to customers who call in with questions about their bill.
“A lot are doing that type of thing,” said Spaduzzi. “There is no overhead at all, it brings in additional cash flow and trains people on how to be better customer-service and sales people.”
KN Energy and Pacificorp formed a partnership called Enable in 1997 to market the Simple Choice package of services to utilities. Simple Choice products include mobile phone service, paging, wireless Internet service and other telecommunications and back-office billing systems. Pacificorp, an energy and telecommunications utility, is marketing the packages to 1.4 million retail customers throughout Washington, Oregon, Idaho, Montana, Wyoming, California and Utah.
Ultimately, wireless service offerings from many electric utility companies may come out of the need for telecommunications services within their own businesses. Southern Co.-the largest electricity provider in the United States-created Southern Linc, a commercial integrated Digital Enhanced Network service offered in the Southeast since 1996, out of its own need for reliable communications among its employees.
“Companies are primarily looking at what type of wide-area network to deploy for their own use and trying to justify the expense,” said Spaduzzi.
