Utility to UTelco: The Rationale
Anytime there’s a business opportunity that looks promising, there will be entrants into the space from many different directions.
For example, when eCommerce originally hit the scene, we saw everyone from music producers to supermarkets to industry analyst groups attempt to hop on the wave and build a new revenue stream for their businesses. Some of them succeeded. Some have not. Some initially failed and then reevaluated the correct approach for their market, and have since retried and succeeded.
The communications opportunity is no different. We’ve seen market entrants from every perspective, including traditional voice, wireless, cable, greenfield CLECs and, of course, the utilities.
What have been the reasons why the utilities decided to enter the communications market? How have they gone about it? And, perhaps most important, where are they headed, in terms of the opportunity in the future?
I’m going to address these issues through a series of blog posts, beginning with the following rationale for utilities’ entry into the market…
There are two considerations that have led to the utilities’ attempt to transform themselves into utelcos:
• An examination of the existing economic conditions, or enablers, as these utilities ultimately realized
• The drivers created by the utilities’ core businesses
First, it became clearer and clearer that the telecom market was indeed demanding more services and increased capacity. In essence, the “demand” side of the classic “supply-and-demand” theory was in place. These utilities looked at their existing infrastructure and said, my gosh, we have the ability to give these customers what they want. But there was a problem…both the telecom and energy (utility) markets were highly regulated. But both also knew that the time had come to de-regulate and increase the competitive landscape, which seemed to put the pieces in place for a win-win in both industries.
Now, the only questions that remained were those the utilities had to answer about their own businesses, since it was clear the market was there.
Once the utilities were separated from state control, they began facing their own competition, which meant they had to find new ways of increasing their revenue or, more specifically, their return-on-assets. The provisioning of traditional services will always be a strong source of revenue for the utilities, but there is more potential there, and telecom became a low-risk means to increasing revenue. In fact, not only is it low-risk because of the commonalities of the two markets’ networks, but those likenesses are even present at the customer service and billing levels.
In addition, utilities are now maximizing their smart grid and metering programs with advanced technology to actively manage and optimize their networks. This means they will be putting higher-bandwidth access technologies in place to help with these initiatives, which opens up the flow between utility and customer for many more services beyond the “smart” requirements of the utilities.
So the opportunity is there. Stay tuned for my next post which will focus on how the utilities should address it.
Marcelo Blatt, Ph.D.
Director, Portfolio Management and Vertical Applications
Network Solutions Division