U.S. utility companies could become significant players in the wireless telecommunications industry in coming years if they can figure out the right strategy to enter the business.
Analysts indicate utilities seriously are evaluating opportunities to branch out into the telecommunications arena in light of deregulation in their industry. Though only a handful of utility companies are involved in the wireless industry today, the threat of new competition is causing them to look for ways to retain customers.
How utility companies enter the wireless industry remains to be seen. Most, unwilling to invest in new infrastructure, are looking to leverage their existing infrastructure to fit within the telecommunications industry, said Glenn James, a partner in Deloitte & Touche Consulting Inc.’s telecommunications and media practice.
“Just about every major electric and gas company has done a bunch of fiber deals. Some have been successful in the wireless arena,” he said. “Most utilities that have gotten into [wireless] operating 3 GHz microwave systems. They had to relocate when PCS (personal communications services) came along, but they had the infrastructure that the PCS guys required … Most of the activity is in equity infusions, right-of-way access and sharing towers.”
Columbus, Ohio-based American Electric Power, an unregulated utility, in 1996 took advantage of its existing infrastructure and formed AEP Communications Inc. to provide fiber, wireless and information services to wholesale and retail customers. The company also has ownership interests in PCS carriers in Virginia and West Virginia.
“Most of our focus has been on helping new wireless companies get into market, construction services, attachments to towers and helping build new towers,” said Dave Keller, director of carrier markets with AEP. “We’re really trying to be able to keep our ears into the wireless market and leverage what fits with our capabilities in the longer term … We are not going to develop our own wireless service at this time.”
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. The company said its number of commercial iDEN customers is 6.5 times more than the number of power-company customers.
Other utility companies are evaluating strategies to resell wireless services as part of a bundled product offering.
“Utilities understand that 30 percent of their customers are up for grabs when they deregulate. They have to figure out how to offer something different than their competitors,” said John Hart, vice president of marketing with Burlington, Mass.-based Saville Systems, a convergent billing vendor.
Utilities realize they are in position to leverage their large installed customer base, said Noel Dunivant, managing director of marketing research and consulting with Chapel Hill, N.C.-based FGI Inc. Studies show utility companies have a strong brand name and consumers generally are willing to purchase wireless service from their utility company, believing they can offer high-quality service, he said. But many are having a difficult time finding a business case in reselling wireless service.
“The cost of reselling wireless service is simply too high relative to the price a utility wants to charge to make a viable business venture,” said Dunivant. “Consumers will not pay more to obtain wireless telephone service from utilities.”
“The challenge for utilities will be to brand their product and leverage their good name to expand into the telecommunications market and make a buck doing it,” said James. “There has been a lot of discussion around total service resale, whether you can actually make money doing that. Based on rates the FCC has put forth, you can’t do it. The jury is still out. Utilities have to figure out what the value of the customer is.”
Lakewood, Colo.-based Enable, a 1996 creation of KN Energy and Pacific Core, is looking to team with utility companies nationwide to provide services such as back-office billing, customer service and a full suite of products, including cellular, paging and wireless Internet service. Utility customers receive offers on their utility bills to purchase other services and products through Enable. Enable negotiates the reseller agreements.
“We call it the one-call, one-bill, one-check service. Customers receive all services from one company and don’t have to deal with multiple carriers and companies. They write one check,” said Dennis Melton, director of product development with Enable. “Lots of carriers aren’t going to reach the customer the way we are.”
Enable said it reaches 2 million homes in Nebraska, Wyoming, Colorado, Utah and Oregon. Cellular and long-distance service bundles currently have the highest penetration among customers, said Melton. Dunivant said arrangements like these haven’t resulted in any profits to date.
Franchising is another area that may be attractive to both utility companies and wireless carriers. Companies like AT&T Wireless Services Inc. and Sprint PCS, which are actively seeking franchising partners, would have access to utilities’ large customer base, while utility companies could build out networks by leveraging their in-house capabilities without paying for spectrum. Sprint PCS recently signed a franchise agreement with Brookings Municipal in South Dakota, which recently elected to return its C-block licenses to the Federal Communications Commission.
Ultimately, the utility industry’s involvement in the wireless industry may depend on a move by a major player that will spark others to follow. Andrew Wiessman, an attorney with Morrison & Foerster in Washington, D.C., said many utility companies will be accruing large amounts of cash in the coming months and will look for new businesses to invest in. In states furthest along in deregulating utility prices, utilities already are making money from selling their generating plants.
“We’re going to see a concentration of cash like we’ve never seen in U.S. history in the hands of utilities, and they’ll basically be looking for investments they can make in related businesses,” said Wiessman. “There easily could be $50 billion in special bonds issued.
“It’s a follow-the-leader approach. You can bet somewhere along the line that a utility company will buy a wireless company, and everyone else will follow.”
