By Robert J. Gillispie

Can electric companies compete with telephone and cable companies?

Michael Powell, chairman of the US Federal Communications Commission, is convinced they can. He believes that the next big development in communications services will be use of power lines to provide high-speed Internet, video and telephone connections for US homes and businesses – so-called “broadband” services. The FCC adopted new rules on October 25 that are supposed to spur such a revolution.

The main thing the rules did was allow electric utilities to make broadband services over power lines widely available to their customers.

Utilities had been allowed to offer such services in the past on a limited basis. The main impediment was fear by ham radio operators, government emergency services, the airlines and other users of radio frequencies that widespread access to broadband over power lines would interfere with radio transmissions. The FCC took steps in the new rules to reduce the potential for such interference.

Background

Electric utilities are natural competitors to telephone and cable companies. Electric lines represent one of the few forms of “last mile” access to customers. The only companies with widespread “last mile” access today to customers, which means control over physical facilities that enter individual homes and businesses, are the incumbent telephone, cable and electric and gas utilities. The lack of such access by other companies has proven to be the single most significant barrier to competitive entry into the telephone, cable and Internet markets, since other new entrants must rely upon their primary competitors for such access. New technological advances have made it possible to provide broadband services over power lines.

The FCC faced significant opposition to its plan to open power lines to broadband service from radio operators concerned about radio interference. Broadband-over-power-line services emit radio frequency energy that can interfere with existing public and private uses of radio frequencies. As explained more fully below, the FCC adopted operational requirements for the service to minimize interference with radio operations. It also adopted new measurement and certification guidelines to monitor radio interference. But, its resolution of the issue is in fact imprecise, reflecting the degree to which the FCC believes that its new rules will help spur development of a “revolutionary” new medium and its willingness to take risks in the process.

The FCC believes that the provision of broadband service over power lines will be a worldwide phenomenon. It wants the US to take the lead in developing the new technology required. Its new rules focus in the near term on the development of cost-efficient alternatives for rural Americans to receive high-speed broadband services. In the longer term, the FCC is interested in seeing power companies compete for every class of customer – residential, institutional and commercial.

Broadband services over power lines are not limited to high-speed Internet, video, and telephone access. The electric wiring inside buildings can also be used for a host of new applications, including shared Internet access, shared printing, file sharing among computers, and device control. It can help with setting up home computer networks. The FCC is equally enthusiastic about these potential applications, since each electrical outlet within a home or building is potentially an access point to a variety of broadband services.

Service providers such as Cinergy, Consolidated Edison and Southern Company also anticipate that broadband service over power lines will open the door to a variety of sophisticated power distribution applications, including automated outage detection and restoration confirmation, remote monitoring and operation of switches and transformers, more efficient demand-side management programs and power quality monitoring to detect faulty components before they fail.

This has led the US Department of Commerce to conclude that many electric utilities will deploy power line technology in order to realize these benefits even if they never offer their customers broadband service.

Local governments are also eager to see utilities provide broadband service because it will mean an end to the broadband duopoly of cable modem and DSL (digital subscriber line) service, and may be the only way for many rural communities to get broadband access. Lobbying by local governments provided a counterweight to the opposition from radio operators.

Radio Concerns

The radio operators are not satisfied with what the FCC did. Not only are the rules too loosely drafted in their view, but they also assume that interference will occur, and impose responsibilities on both sides to minimize or avoid such interference.

The new rules require adoption of so-called “adaptive interference mitigation techniques” to minimize radio interference.

What this means is that the FCC barred broadband service on certain frequencies and in certain locations in order to prevent interference with fire, rescue and police radios. In the event of interference, radio operators are supposed to complain to the utilities, which have an obligation in turn to mitigate the interference. The FCC declined to establish entire zones around airports, military complexes, hospitals and the like (as some had suggested) where broadband could not be offered at all through power lines.

The new rules require utilities to build in the ability to deactivate specific units found to cause substantial radio interference and to shift operating frequencies to avoid interference in a specific location.

Although the FCC set these requirements, it left considerable discretion for the utilities to figure out how best to implement them.

The FCC plans to set up a publicly-accessible database that identifies the operating characteristics of each broadband system that utilities offer. The database will be organized by zip code. Consistent with its overall deregulatory approach, the FCC has left the problem of how to organize the database for the industry to solve.

One of the most contested issues was how to measure radio emissions of broadband-over-power-line systems. The FCC concluded that the systems must be tested as they are constructed, and that operators will not be able to rely exclusively on laboratory testing. However, only three typical overhead and three underground installations need to be tested (as opposed to testing all the equipment). Equipment vendors must certify conformance with FCC regulations.

Outlook

The United Power Line Council estimates that the broadband-over-power-line market will generate $2.5 billion in annual revenue by 2010, which would only happen if the utilities succeed in just a few years in providing serious competition for telephone and cable companies.

Utilities face a number of obstacles to compete effectively in the broadband market. A recent study said that cost, reliability and quality are identified by consumers as the most important factors in selecting a broadband service provider. Consumers indicated that while they are eager for alternatives to cable modems and DSL, they are skeptical about the ability of their electric utilities to provide services are comparable prices and quality. One approach utilities might consider to overcome consumer hesitation is to partner with a recognized Internet service provider to offer a package of broadband access and Internet services.