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These successes are placing additional pressure on utilities to seriously consider whether to offer BPL service to their customers. This is especially true where parts of service territories are underserved with broadband, no broadband services are currently available (e.g. rural locations), or customers pay significantly higher prices for Internet access. Along with the opportunity to provide these essential broadband services to customers who are now clamoring for access, comes the responsibility to determine if the BPL business case for a utility justifies moving forward.
Key variables include: Can BPL be provided within an economically viable framework? What kind of BPL network architecture is optimal for the prospective market base? How should the BPL program be implemented and deployed over time? These decisions become all the more complex and challenging given the rapidly evolving alternative communications markets, alternative technologies, anticipated advances in BPL technology and system design, and dramatic changes in the regulatory environment in which BPL will be deployed.
Utilities conducting a business case or due diligence review of BPL should consider as essential elements of their analysis the following “hot issues” that could significantly shape their decisions:
The Value of the “Pipe” and the “Content” – Utilities considering BPL must carefully evaluate the value of the enabling broadband connection (the “pipe”). In addition, they must identify any revenue-sharing opportunities from future voice, data and video content provided over the pipe. Fees for broadband access have dropped by more than 10% annually in recent years. Communications industry analysts believe that the profitability of the pipes will be significantly lower than the returns expected from providing services over that pipe. The sensitivity of the returns to changes in pricing and margins for the pipe and contents will need to be carefully scrutinized in the BPL business case. Each utility’s incremental costs for electronics along with allocated costs for use of the wires will need to be assessed relative to the returns.
New BPL Delivery Alternatives – Every month there are new announcements of BPL technology improvements and new BPL network designs that can afford additional options to utilities. An example is Motorola’s recent announcement of a system based on Wi-Fi that uses wireless transmission to the downstream side of the transformer, then wireline to the premises. According to the supplier, this allows significant savings in deployment because neighborhoods only need to be “lit” if and when customers are signed up. New developments of this nature may continue to change the preferred network design in some localities and strengthen a utility’s competitive position relative to non-BPL options.
Improved BPL Technology – BPL hardware suppliers are now introducing second and third generations of their technologies with improved reliability, serviceability and speed. Demonstrations and commercial deployments are underway that will yield hard economic and performance data which will allow a more accurate and reliable business case to be performed.
Convergence of Communications – As the number of telephone and cable companies continues to decrease and the remaining players become stronger, utilities will face tougher market competition when rolling out new broadband services. The converged companies will have significant financial and marketing resources with which to offer greater speed and a variety of services at lower costs as a part of their bundled Internet services. Utilities will need a business plan that reflects this competitive analysis, with a strategy that can be successful in the face of these pressures.
BPL Procurement Options – As the market for BPL has grown, the range of options for structuring ownership and operating responsibilities for these systems has expanded. On one end of the spectrum, utilities maintain full ownership, administrative responsibilities, and operating control of their BPL systems. On the other end, some utilities have acted solely as “landlords” or supporting infrastructure providers, contracting with BPL specialists to own and operate the BPL facilities on a turn-key basis. Other utilities are opting for more of a “menu” approach, keeping responsibility for areas where they feel they have strength or special expertise such as equipment installation, customer care, or billing, and outsourcing those areas where they feel others have greater expertise or efficiencies that would not be achievable in-house. Each utility’s business case for BPL will need to consider the range of possibilities and its unique mix of capabilities in deciding which functions to perform.
Changing State Communications Regulations– A number of states are becoming proactive in regulating and encouraging BPL. Texas, for example, recently considered legislation to encourage the development of BPL systems by municipal, cooperative and investor-owned utilities. The Texas proposals also were intended to ensure that utility customers did not pay for the telecommunications investments – “cross-subsidization”. State PUC’s have adopted different models for the allocation of costs and income produced by BPL investments, which can have a significant impact on the economic attractiveness to the utility.
With the continuing pressure on utilities to meet reliability and performance standards, any diminution of core electric service, no matter how unintended or unanticipated, attributable to the presence of BPL will complicate future rate base discussions. Careful structuring of contracts with BPL providers and rigorous allocation of costs associated with BPL will be essential to the success in these utility programs.
FCC Regulations – Utilities that choose to be directly involved in BPL will need to be conversant in the requirements for communication providers to meet obligations such as E911 and Universal Service Fund contributions. BPL providers should expect to have E911 and USF obligations that are consistent with other broadband and telecommunications providers. This may indirectly affect utilities with respect to the facilities that are provided, depending on how these services and fees are crafted.
By law, a utility that allows any use of its poles for communications attachments must provide nondiscriminatory access to all attaching entities. A utility that has avoided attachment obligations by denying such access would open itself to all attaching entities by providing BPL over its own lines. An open question, and a challenge in formulating the business case, is whether a utility would be required to open its BPL infrastructure to provide open access for other parties, including traditional Internet service providers.
Cable companies and telecommunications companies that rent space on utility poles can be expected to carefully scrutinize arrangements for signs of discrimination in pole attachment rate matters, especially when their utility pole landlord competes with its attaching "tenants" for broadband customers.
Amateur radio operators have been vigorous opponents of BPL, claiming RF interference from emissions of wires and antennas used in the BPL service. In response, BPL operators have devised numerous technical solutions, including transmission in frequencies that are different from the amateur bands, but opposition continues, nevertheless. The FCC, in response to these concerns, has issued regulations it believes will protect the radio operators.
FERC Interest - Although the Federal Energy Regulatory Commission has no oversight of either telecommunications matters or the distribution poles that will carry most BPL signals, FERC has taken an active role in promoting BPL. There are some suggestions that FERC is interested in the adoption of BPL for administrative uses by utilities. As BPL is extended throughout an electric distribution system, the utility's ability to identify and pattern system problems would be enhanced. Thus, the FERC’s interest in creating a more reliable electric grid dovetails with application of BPL which has the potential to make the network more "intelligent."
Conclusions - These “hot issues” are but few of the myriad of questions confronting utilities that are evaluating a new BPL business option. It is safe to presume that the environment will be in a continuing state of flux and the data used to make these decisions will need to be updated accordingly. By thoughtful identification of the key drivers for each utility’s situation, and a comprehensive understanding of the sensitivity of the outcomes to these factors, risks can be more adequately defined and informed decisions made. The underlying need for expanded broadband access throughout the country, with its significant accompanying economic and social benefits must be recognized. The contributing role that BPL can play in making broadband available to more citizens should also be factored into a utility’s ultimate decision to move forward.