Utility/provider alliance unites services on fiber
In a landmark utility and service-provider partnership, Boston Edison Co., an electric power company connected to 650,000 homes and businesses, and RCN Inc., a subsidiary of broadband network services company c-tec Corp., Princeton, NJ, have agreed to provide one-stop shopping for broadband, multimedia services over fiber-optic networks. Telecommunications analysts applauded the move from strategic management insight and network implementation points of view, but cautioned the companies about service selection and target marketing.
The joint venture plans to supply local and long-distance telephone, video, and high-speed Internet access services from RCN (Residential Communications Networks), and eventually energy management and property monitoring services from Boston Edison.
Starting operations in Boston and eastern Massachusetts, the two companies plan to expand their existing fiber-optic networks into adjacent towns and cities. Before the partnership, Boston Edison had installed about 200 miles of fiber-optic cable networks, more than any other electric company in Massachusetts.
The unregulated venture is majority owned and controlled by RCN, which presently furnishes voice, video, and data services to 40,000 business and institution customers in parts of Boston and New York City over fiber-optic networks and expects additional rollouts soon. The cost of implementing the proposed venture services over optical-fiber networks is estimated at approximately $300 million and is expected to reach more than 1.6 million people within five years. In delivering these services, the venture is competing directly with established local telephone companies and cable-TV operators, such as nynex and Continental Cablevision.
Boston Edison chairman, president, and chief executive Thomas J. May comments, "Our future is in using innovative energy and telecommunications technologies to meet the changing needs of customers. The synergy inherent in these emerging competitive markets will allow us to provide new and existing customers with an array of low-cost, high-value services. We have been exploring our involvement in the telecommunications industry for more than a year and have evaluated many options. RCN`s technological leadership and presence in the Boston market made them the ideal choice. We recognize that we are in the customer service business, and we want to be the best users of technology to deliver new services as they become available."
C-tec chairman and chief executive David C. McCourt reports that his company opted to partner with Boston Edison because of the utility`s large existing fiber-optic network, expert technology, and sales and marketing experience in reaching 100% of the homes and businesses in its market. He states, "This is the most comprehensive agreement so far for a major telecommunications provider and an electric company. This joint venture with Boston Edison combines the resources of two prominent companies to create a competitive provider of broadband telecommunications and energy services to one of the most sophisticated technology and telecommunications markets in the world."
Adds McCourt, "The winner in this new marketplace will be the company that sees changing customer expectations and creatively employs technology to get to market first at the least cost, with a quality product that customers will buy. Speed to market is critical in this business. Boston Edison has demonstrated it can move quickly and with agility, both essential to success."
According to Richard G. Tomlinson, president of Connecticut Research, a telecommunications consultancy in Glastonbury, CT, "The joint venture marks an important new milestone in the entry of electric utilities into telecommunications. Most utility involvement, to date, has been passive, such as leasing dark fiber, rights-of-way, conduit, or fiber transport on a wholesale basis. Boston Edison has chosen an aggressive role, using its existing fiber and the $300 million new fiber build of the joint venture to position itself with the technological advantage of an interactive network as the utility industry enters a competitive age."
Donald L. Dittberner, president of Dittberner Associates Inc., a telecommunications management consultancy in Bethesda, MD, equally praises both companies, "The formation of [this] joint venture represents one of the first genuine moves of electrical utilities in the United States to leverage the advantage of their rights-of-way and existing telecommunications capacity in the form of fiber-optic facilities to provide telecommunications services as a public carrier. [Boston Edison] teaming with an experienced and innovative telecom operator [c-tec] is a judicious move. Typically, electrical utilities have little marketing skill in telecommunications services as well as an inability to move rapidly in a business sense."
Adding some perspective, analyst Tomlinson says, "The Energy Policy Act of 1992 opened the door to competition in the form of "wheeling" [transferring outside power over the local utilities transmission facilities] for wholesale electric customers. This transfer is the analog representation of "bypass" in telecommunications. Now, state Public Utility Commissions are moving toward wheeling for retail customers as well. Therefore, electric utilities are looking at their telecommunications options in a new light; not just to make internal operations more efficient, nor just to bring revenues, but to enable value-added services that will strengthen their position with end-user customers. Twenty-two electric utilities and ten utility holding companies have announced plans that entail direct participation in telecommunications, but few are of the scale of the Boston Edison-RCN venture."
Looking at the long-term effects, Tomlinson observes, "While the ultimate form of the packages of bundled services and the scope of the offerings by the Boston Edison-RCN team are not fully known, its example of proactive movement into the broad telecommunications market is not lost on other utility executives. The general industry consensus asserts that the innovative strategic use of communications telecommunications will be a key requirement for future survival, and now is the time to light up passive fiber with an array of revenue-producing applications."
Offering some admonition, analyst Ditt berner doesn`t expect too much from this new activity. He observes, "If properly handled, [the venture] could become a roaring success in the Boston area but will find it extremely difficult to extend beyond the scope of Boston Edison`s electrical network footprint. Further, unless this venture chooses the right set of services and islands of service for initial implementation, revenues could seriously lag planned investments.
"For example, the provision of cable services in areas already cabled by a competitor is a dubious investment. Moreover, in areas not currently served by cable, direct broadcast services, such as DirecTV, represent a serious challenge to the degree of penetration that can be achieved within the new service area, and hence, to long-term profitability," says Dittberner.
He adds that for telephony services, the United States does not offer the same type of price umbrella for basic telephone service that is enjoyed in the United Kingdom, which has spawned highly successful penetration of cable-TV and electrical utility companies into telephony. According to Dittberner, previous multiclient studies on video interactive services performed by his firm indicate that the estimate of $300 million to provide cable-TV, telephony, Internet access, and energy management services for the Boston Edison-served area of 1.6 million persons, and assuming 650,000 homes, is low; he believes that twice that amount is needed.
According to Michael Adams, c-tec president of technology and strategic development, RCN wanted to expand its communications services to a larger fiber-optic network, a larger geography, and go beyond business and government sectors to the residential market.
He explains, "To gain expanded network distribution, RCN needed rights-of-way. It therefore explored a partnership with Boston Edison to obtain a larger geography for both companies and an existing large fiber-optic network to provide immediate trunk distribution. From this base, it planned to quickly expand the fiber networks."
The agreement allows RCN to gain access to additional Boston Edison easements and rights-of-way. Based on these fiber-optic network deployments, RCN is going to broaden its range of multimedia services. In the long run, the competitive edge, maintains Adams, lies in customer care, a quality product, and a reasonable price. As the RCN parent, c-tec is a Pennsylvania telephone company with 100 years of customer service experience, a cable-TV operator, and a systems integration company that designs, builds, manages and operates fiber-optic networks.
As a network contractor, the company has built several fiber-optic networks in the Boston area since the 1980s, such as for Continental Cablevision and nynex. Other networks have been installed in New Jersey, San Francisco, Michigan, Mexico, South America, and Europe. This installed fiber-optic network base, says Adams, totals more than 5000 fiber-route miles in just the last few years.
The venture is anticipated to build out from the metropolitan Boston area and penetrate into the surrounding towns and cities of Somerville, Brookline, Newton, and Cambridge. It will support Boston Edison on enhanced energy management services, and cooperative efforts will be used to build new fiber-optic networks. Boston Edison will separately handle the easement types of networks.
Richard Hahn, Boston Edison vice president of technology, research, and development, notes that the company began constructing its fiber-optic network back in the late 1980s. The 200-mile fiber-backbone network follows the company`s electric transmission corridors in eastern Massachusetts.
It carries telecommunications and high-speed data used in the company`s electrical operations. The network also transports control signals that remotely operate most of the major substations in the Energy Management Center in downtown Boston. As a result, says Hahn, electrical system reliability has increased and operating costs have decreased.
Adds Hahn, "This expensive network was originally built for internal communications use. However, Boston Edison was not using anywhere near the capacity of its fiber network." After passage of the Telecommunications Reform Act of 1996, the company began a search for strategic partners who would help leverage and optimize its fiber-optic capacity. During the search, Boston Edison and RCN came together because of RCN`s communications technology and service expertise in the delivery of multimedia services over fiber-optic networks.
Cites Hahn, "Commercial energy services expected to be provided by Boston Edison include automatic meter reading, remote connect and disconnect, real-time pricing, direct load control, energy management, outage notification, and electronic bill payment. These services require a ubiquitous business communications connection, such as fiber, to the customers. By the time the fiber-optic network begins to reach larger numbers of customers, Boston Edison will have a good handle on the communications technology needed for numerous energy management activities." q