European utility telecom divisions confront new market conditions
Unlike European telecommunications companies, who are for the most part developing broadband strategies with similar goals, the communication divisions of Europe’s utilities are responding to regulatory, technological, and market changes with a diverse range of business plans.
The clearest message to come out of the 2006 European Utility Telecom Conference, held last month in Rome, was that there is not a “one size fits all” model for Europe’s utilities.
UTC Europe, the trade association that organised the conference, represents the telecommunications and information technology interests of Europe’s electric, gas, and water utilities and other critical infrastructure organizations. For decades, UTC Europe’s members have built, owned, and managed some of Europe’s largest private fibre and wireless communications networks, which have been used to ensure secure and reliable delivery of core utility services.
But today these utilities face new regulatory, technological, and business challenges to maintain the quality of these private networks. At the same time, many utilities are using their telecom experience to develop and sell new, competitive commercial communication services.
UTC has identified 63 utility telecom operators or “utelcos” in Europe, which has 600 commercial utilities, said Peter Moray, UTC Europe’s director of European services, during a utelco workshop at the conference. The utelcos tend to be in Europe’s most mature and liberalised utility markets-Spain, Portugal, the UK, and Scandinavia. Moray’s utelco figure is for large commercial utilities and does not include municipal and cooperative utilities, which have built extensive FTTX networks in Scandinavia.
“The utelco market is easy money,” Moray said. “To enter the utelco market, you need an appetite for unregulated income and the capability to leverage utility assets.”
The purpose of the utelco workshop was to start a dialogue among members to understand why some utelcos succeed and others struggle. The results of the discussions will be used to help UTC Europe’s lobbying activities.
In newly deregulated telecom markets, utilities often develop a carrier’s carrier business to leverage their intercity rights-of-way or existing fibre infrastructure. Many go a step further and create completely independent telecom companies. In cities, power distribution companies have begun to create broadband access companies.
The latest big utelco network builds are in Eastern Europe. In Romania, the national grid operator, Transelectrica, is completing a more than 5,000-km OPGW network, supplied by Prysmian. The network is for internal use and for a utelco subsidiary called TeleTrans. The subsidiary sells fibre capacity and services including Ethernet, VPNs, and voice over IP. It pays a percentage of its income to the parent company. The company plans to expand services, “but will need investors to make the next step,” Ion Nedelcu, director general, TeleTrans, said during the workshop.
Another important project presented at the workshop is Slovenia’s Stelkom, a utelco Elektro Slovenija (ELES) and other utilities jointly created in 2002. The utelco uses ELES’s more than 1,000-km fibre-optic network. The system is multilayered, comprising an SDH/DWDM network and an IP/VPN/MPLS network.
There is not one clear set of answers for success. Many big utilities that entered the utelco market during the telecom boom of the 1990s have exited to focus on their core utility business, which is far more lucrative. This is the case of Scottish Power, which spun off Thus, its utelco division.
“Going public was needed to turn Thus into a successful telecoms company,” says David Gray, utilities account director at Thus. “We moved from being a regional company to a national player providing IP services.”
Italy’s ENEL is another major utility that sold its telecom business. In 2004, ENEL sold Wind, which it had built into one Italy’s leading alternative carriers.
“The new trend is to focus on one’s core business,” says ENEL’s chief executive officer Livio Gallo. “Starting in July 2007, every customer in the EU will be able to choose his energy supplier.”
ENEL, which retained an internal communications network following the sale of Wind, will complete a nationwide IP network called Leonardo by the end of this year.
The pressure to improve optical infrastructure comes not only from increased competition but also from the EU Smart Grid effort, which includes an array of new utility systems that require advanced communication services. These services include a lot of interaction between customers and utilities for applications such as demand-side management, multidirectional power flows, remote billing, and communications between utilities and household appliances such as air conditioners and heaters.
Most of these services require very reliable point-to-point data connections, which are posing a problem for utilities as telecom operators such as BT move to all-IP networks. BT and other telecom operators are phasing out dedicated point-to-point services that they have been selling to utilities.
Utilities tend to keep telecom equipment longer than telecom companies, which means they are even more likely to have to interconnect new and legacy equipment that uses old protocols. This has created a growing demand for companies like RAD. RAD has invested in technologies such as pseudowire and MPLS. The company’s TDM/IP multiplexer is being used by utilities in Europe and Asia to transport legacy services over IP networks and new Ethernet/IP services over existing (SDH/ATM) backbones.
Many big utilities with nationwide or regional operations are building networks to handle new services and legacy services such as supervisory control and data acquisition (SCADA), a computer system for gathering and analysing real-time data.
“We need to have our own dedicated networks because of response times,” explains Patrick Jubert, head of fibre-optic network operations for Réseau de Transport d’Electricité (RTE), France’s national grid operator. “An operator like France Telecom cannot guarantee this.”
RTE started building its nationwide fibre backbone later than most western European utilities and has built nearly 11,000 km of its planned 15,000-km network. RTE is offsetting the cost by leasing fibre capacity to provincial government-run telecom companies and also by jointly building 2,000 km of its backbone with these companies.
In Scandinavia, there are many small utilities, which are often owned by municipal or regional governments. These utilities have developed telecom models that work very well locally for political and demographic reasons.
In Sweden, there are 150 electric companies. Municipalities own about 90% of them. The municipal companies, which also run housing corporations, often sell broadband access as a service along with electricity and heating. Thus, broadband is just another wall plug in many Swedish apartments. Tenants who want the service just plug in their PC and television.
Some of the most recent FTTX activity is in Stockholm and Västerås. In central Stockholm, only the city government can dig up the street. A city-owned company called Stokab provides a carrier-neutral citywide fibre network that is used by most alternative service providers. To access buildings, Stokab is installing fibre alongside city-owned heating pipes that go through basement walls from building to building in Stockholm.
At the same time, Stockholm’s three big city-owned housing companies-Svenska Bostäder, Familjebostäder, and Stockholmshem-are connecting more than 100,000 apartments with fibre. Residents of the apartment building pay a monthly charge for the service and fees to the service providers they select.
Stokab is building a 250-km fibre network around Lake Mälaren that will go west to Västerås, which has 130,000 inhabitants in 60,000 households. The Västerås city-owned utility, Mälarenergi, has a telecom company called Mälarenergi Stadsnät, which will connect 50,000 residential users with FTTX by 2007. Here as in Stockholm, the city controls the fibre network and sells capacity to service providers on an equal access basis.
Denmark has become one of Europe’s fastest growing FTTH markets. A report by Denmark’s National IT and Telecom agency said that by mid-2005, Danish utilities had passed 13,500 homes, and that under announced plans they would reach 500,000 by mid-2007, and 1.2 million when all the announced projects are completed.
Electric distribution companies located in areas that do not have broadband access providers are building most of these projects. Denmark, though small in size and population-5.5 million-has 120 electric utilities, of which 115 are distribution companies. Some 78 of these distribution companies are cooperatives. Co-op members must approve the FTTH projects, which means most connect to the networks, theoretically guaranteeing their success.
The construction by utilities and municipalities of open-access FTTX networks in Vienna, Amsterdam, and many French cities seems to indicate that the trend, which began in Scandinavia, is spreading. The projects bode well for equipment makers and will accelerate the FTTX and broadband access plans of communications companies.