Will fiber rescue another monopoly?

March 1, 1999

Will fiber rescue another monopoly?

Stephen M. Hardy

Editor in Chief

[email protected]

Each February, utility employees from around the country gather at DistribuTECH, the industry`s leading conference and exhibition in the areas of information technology, utility automation, and energy buying and selling. Over the last few years, Lightwave has sponsored a session on fiber-optic communications. With the fiber-optic networks that utilities have constructed for internal uses--and the rights-of-way along which these networks have been built--suddenly becoming a potential source of revenue, utility staffers on all rungs of the corporate ladder are beginning to wonder how best to exploit this potential windfall.

The speakers from the session`s co-sponsor, Corning Inc., did an admirable job of teaching our audience the basics of fiber-optic technology--and I have to say I learned a thing or two myself in the course of preparing for the event.

For example, in many cases, the interest in fiber comes as a result of legislative-induced market upheaval. As is the case with telecommunications globally, power generation and distribution in the United States has embarked down the path of deregulation. Thus, we see the familiar scenario of monopolies blinking into the harsh light of competition--and deciding to replace the revenue they will inevitably lose to emerging competitors by branching out into new areas. And what path holds more promise than the $200-billion telecommunications industry? Even utilities that aren`t concerned about competition are measuring their chances at getting a lucrative slice of a pie that big, now that the Telecommunications Act of 1996 has removed the barriers that had previously blocked their entry into the marketplace.

The key is figuring out how to leverage existing infrastructure. Utilities can lease their rights-of-way to carriers and then stand back; they can partner with carriers to strengthen their infrastructure`s capability to support the demands expected from telecommunications service; they can extend that partnership and get into service provision; or they can leap into the service provision field themselves, either on their own or by acquiring expertise by buying an existing carrier. Given the fact that the first two of these options require the least in-house expertise, it should come as no surprise that these approaches seem to be the most popular.

Corning`s Jane Li highlighted a Chartwell Utilities Telecommunications Report from 1996 stating that 80% of the utilities surveyed had fiber-optic infrastructure--30% of them leased fiber they had already lit; 40% leased dark fiber; almost 60% leased rights-of-way; nearly 80% rented out pole attachments; and 35% leased duct space. Similarly, a 1997 survey conducted by the UTC (formerly the Utilities Telecommunications Council) showed approximately half the utilities surveyed will use their fiber-optic infrastructure to lease capacity, 40% will lease dark fiber, and 30% will provide dark fiber to investors.

A recent study by the market research firm Frost & Sullivan reveals that even in the early stages of the utility telecommunications renaissance, the returns on such activities can be impressive. Utilities in the United States generated $2.1 billion in telecommunications-related revenue in 1997, with 64% coming from wholesale telecommunications initiatives.

Yet, while wholesale and rights-of-way deals appear the most prudent method of getting into the telecommunications field, some utilities aren`t shy about jumping right in. For example, Montana Power`s Touch America has been providing telecommunications services for years. Texas Utilities chose to buy its way into the market by acquiring Lufkin-Conroe Communications. Such activities can be risky because communications service provision is significantly different from electricity or gas provision.

You can bet, however, that more utilities will try their hand at butting heads with local-exchange and interexchange carriers as well as carrier`s carriers. Thus, whether by themselves or in partnership, retail or wholesale, you can expect companies such as Williams Communications, Electric Lightwave, Enron Communications, AEP Communications, and others will continue to appear in the pages of this magazine.

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