About ten years ago, there was a great deal of interest by some of the leading cable Multiple System Operators (MSO’s) to focus on utility applications over a two-way cable network infrastructure. Clearly, for these operators, having utilities as long-term anchor tenants would help build economic justification for conversion of many of their one-way systems to a digital two-way network capability. To foster a consistent view and approach to this opportunity, a loose consortium, known as Cable Utility Communication Services (C-UCS), was formed by the top five cable companies. Among the objectives of this group was the codification of the needs for premise communication for each potential utility application, establish the various technology requirements to support these services, promote suitable technical solutions and standards to deliver these services, and establish both a near term and life span value for each of these services. This study and analysis group ran focus groups, engaged major consulting firms, examined potential areas of collaboration with other organizations, and created a detailed analytical economic model detailing their findings. Various utility needs were examined within the scope of this study.

Some of the many basic utility services considered included:

• Automatic Meter Reading (AMR)– the ability of the network to support utility originated meter register access, either on a scheduled basis, or instantaneously by an authorized agent within the utility.


• Remote connection and suspension of service – on line ability to remotely connect and disconnect commodity* service.


• Outage notification – automatic reporting of power* loss and restoration at the service location


• Tamper detection – notification of an attempt to modify the meter or registration equipment.


• Remote user control of temperature and lighting – ability of the end user to control the environment of the premise from anywhere.


• Direct utility initiated load control – signaling by the utility to reduce certain controllable loads, such as air conditioner cycling, water heater cycling, etc.


• Indirect user prescribed load control – execution of user entered prescribed scenarios based on energy pricing signals.


• User access to energy information – ability for the user to access specific consumption information over a communications channel.

Testing the Hypothesis
Back in 1995, using some benchmarks available at that time, the Cable-UCS consortium projected that the overall economic value offered to the utility (either by an avoided generation cost or the benefit afforded by direct labor saving basis) was not sufficient to cover the capital expenditure of the advanced digital set-top box or utility gateway connected to the cable network, even if the capital expenditure was amortized over a ten-year period. Further, the service expenses for operation and maintenance costs required on an on-going basis to support this infrastructure, further confirmed that there was no positive payback on this investment if the community digital broadband services were to be installed on the basis of utility services alone.

The Paradigm Shifts
However, in the interim, an unanticipated shift in the derived consumer value from a host of cable based communications services has rendered these original projections irrelevant. Today, the National Cable and Telecommunications Association (NCTA) statistics show that there are nearly 74 million cable customers in the U.S., which represents 69.8% of the television households. Nearly 97% of the television population has access or cable service available, (homes passed). The costs of basic cable service have steadily increased over the past ten years from $10.27 to $31.58 per month, while the fees for premium service fees have dropped from $18.10 to $7.64 per month. Nearly 74% of the existing cable customers have premium services, such as HBO, and this figure has remained steady over the past 10 years. Over 9.2 million cable customers (17.2% of the premium service customers) have a cable-based modem for high-speed access to the Internet, and 2.1 million customers have telephone service delivered over their cable service. Cable modem services contracts, which range from one to two years, often include a cable modem with an average price of about $150.00. These monthly internet access fees range from $35.00 to $50.00 depending on the "bundle" of services subscribed. Often the cost of the modem is amortized over the term of the agreement, with an early termination penalty. This is a model very similar to cellular telephone contracts where equipment costs are “loaded” into the base service fee.

According to research by Kagan and Associates, more than half (54%) of online household viewers watch TV while on the Internet, demonstrating the multi-tasking dimension that we have now come to embrace.

The overall penetration of digital cable has grown steadily. However, this growth is less than what the cable operators had anticipated with a utility’s direct participation in their infrastructure build-out plans with utility-oriented services as the primary driver. Interestingly, despite the fact that the total number of two-way cable customers is smaller than projected by C-UCS, the revenues realized from customers of high speed access and pay-per-view services enabled by this build-out is much greater than the revenue projections that were originally forecast for mass-market utility services.

While major utilities still have an interest in realizing the benefits of remote data acquisition services and some of the advanced features that the two-way cable infrastructure can provide, the digital cable market build-out by the MSO’s is being driven by higher speed consumer valued products, rather than the low data rate services the utility needs for their applications.

This approach of having fewer customers paying higher fees for advanced services such as digital multi-channel viewing, pay-per-view, subscription premium and internet access does not displace the revenue that these cable operators can also realize with lower fee utility-based telemetry services provided to the mass market. It stands to reason that the the provision of additional utility services could further enhance the profitability of these cable systems, providing additional users and revenues without the need for significant infrastructure upgrades.

A Gap Emerges
The economics of most organizations are driven by deliberate stratification of their markets, which in many cases factor considerations such as economies of scale and the largest potential for near-term return. This approach has forced many national communications organizations to concentrate only on “tier-one” cities, (or as one provider calls them, “the NFL franchise cities”) or “tier-two” cities (Baseball farm team cities).

These strategies overlook most of the rural and suburban areas as non-justifiable, or as areas that are slated for deployment of advanced services at a much later stage, if at all. Co-incident with these decisions, many cable operators are in the process of property trade and sale negotiations, attempting to aggregate service territories into contiguous service footprints. While these approaches make sense for the cable operators’ shareholders, they create a significant digitaldivide within the population.

Filling the Gap
To take advantage of the gap that exists in these markets, a number of utilities have undertaken bold steps to progress towards becoming providers of a full range of services that include water, electricity, and communications. In many cases these undertakings have been made by municipally-owned organizations, who realize the potential of leveraging customer loyalty, and community sense and purpose to deliver all these services. Although investor-owned electric utilities currently provide electric service to nearly 73% of the population, a significant, and increasingly more vocal, community of need for advanced communication services in underserved areas has emerged, driving some nimble municipal and publicly owned organizations to be more aggressive and innovative.

According to the National Rural Electric Cooperative Association (NRECA) “Consumers have confidence in electric cooperative utilities to provide the power to fuel their needs, including the information revolution.” This thinking has given rise to the concept of a municipally owned metropolitan area network. (MAN) satisfy the need of the local community to have better options and competition for cable and communications services. While the aforementioned utility services may not be the leading driver in securing the necessary community support, often these services get an opportunity to “ride on the coattails” of the premier services of telephony, basic cable, premium services and broadband internet access that are offered.

Community communications initiatives such as those offered in Glasgow, KY are prime examples where the competition provided by the municipally owned cable system now provides an infrastructure that supports other utility needs. Other areas such as Grant County Public Utility District are advancing fiber-optic networks to deliver high-speed internet access for consumers as well as Automatic Meter Reading (AMR) for the utility. In a world of convergence, action and results-oriented products are driven by nimble organizations that can quickly and effectively recognize opportunities and successfully execute plans to harvest them. These are some of the characteristics of municipal area network providers who are in various stages of deployment of fiber optic communication services. Whether these be fiber to the neighborhood, fiber to the curb, or fiber to the farm or home, each of these ventures have taken a total holistic view of providing integrated services to the community.

A quick search of municipal organizations shows that well over 30 municipal electrics are in various stages of evaluation, deployment, or operation of metropolitan area communications networks.

So is there a common denominator that has transformed some rural electric providers into communications strongholds? The decision to move forward may not be based on technology or business alone, but also could be rooted in a sense of local community and customer service built over decades of the provision of critical commodity services.

Municipal, rural electric cooperatives and public power authorities have begun to leverage the trusting relationships they have built over years of basic commodity service provision in the electricity and water commodities. This focus has given these long local champions the opportunity to enter into the next stage of service offerings. The addition of metropolitan communication services as part of the utility service portfolio becomes the next logical commodity provision potential for many of these organizations, and often is best received when the promotion of these offerings stresses local benefits that are both economic and cultural in nature.

Before leaping into the fray however, a responsible municipal electric utility contemplating such a move should carefully consider all the ramifications of adding communications to their service options and should put focused effort into developing a solid business case for moving forward. The rewards may be significant but they do not come without corresponding risk.

The rights earned by these local providers to potentially offer these services will only provide a temporary bridge of confidence, because the true test of loyalty will be based on the customer’s most current experiences. Even though these services may be provided by a local organization the customers’ expectations remain high. The functions and performance of the service must, at a minimum be comparable with what can be expected from a nationally recognized provider. Most importantly, the business venture must be economically viable of its own accord, with care to avoid any cross-subsidization from other services, in order to avoid forcing rate increases for any commodity provision service already established.

So how then should a local utility progress down this path towards convergence?

The Business Case
The following information provides a high level outline of the principle zones of focus that must be addressed in evaluating utility-provided MAN services. Every utility has its own spectrum of expertise and experience to from which to draw. The most important first step in developing the business case is for the organization to objectively assess any gaps in their ability to fully develop such a plan. Any identified gaps in expertise should be addressed prior to moving forward.

Market Assessment and Competitive Analysis
The utility contemplating such a move into community provided communications services has, at this point, probably already determined at least a perceived gap in the competitive provision of such services. The purpose of this initial portion of business plan development is to better capture the extent to which these opportunities actually exist. The analysis should determine:

• The extent of current service penetration fee structures in place for any competitive offerings;


• The customers demonstrated willingness to pay for these services and extensions of services (such as Digital Subscriber Loop –DSL services, call waiting, caller id, etc);


• Identification of any customer perceived gaps in current service offerings or in the quality of current service offerings of incumbent providers;


• Identification of potential utility services brought about or enhanced by telecommunications infrastructure.


• Any risk to the firm’s position in the community based on the potential for unfulfilled customer expectations.

Product Identification
Next, the firm should use information obtained in the exercise above, combined with insight into their own core competencies, to develop a set of target product opportunities. This set of offerings should be sufficient to satisfy the underserved market without compromising the utility’s ability to deliver, and will serve as a starting point for the development of the economic business case. Considerations include:

• Acceptable price points for services;


• Complimentary “must-have” offerings;


• Customer demand for particular services;


• Estimated “build-out” and operating costs of specific services;


• Any additional burdens of staff, resources and expertise required;


• Utility service enhancement opportunities, including:


• Automatic Meter Reading,


• Remote connection and suspension of service;


• Outage notification;


• Tamper detection;


• Remote user control of temperature and lighting;


• Direct utility initiated load control;


• Indirect user prescribed load control, and


• User access to energy information,

Economic Model Development
Based on the target offering set developed above the firm should perform a sound economic model of the new venture. The company should be very careful in this stage to avoid any propensity to overestimate revenues or underestimate costs of providing these services. In developing this economic model the following should be considered:

• The extent of services that will be offered, and at what fee structure;


• Installation and operational costs


• Financing costs


• Any marketing, customer care, and other support area impacts;


• All ancillary costs items, such as increased back office integration, billing, collections and payment processing requirements.


• The marketing and promotion program costs


• Any discounted or subsidized services (schools, library, government, etc.); and


• Any franchise or license fees.

Miscellaneous Considerations
The following items should be given consideration as well when evaluating these potential service offerings:

• The organization requirements to install, operate and maintain the system(s), including customer service;


• The provision of any service level agreements (SLA’s) along with applicable penalty factors;


• Skill sets required to support the operations;


• Performance monitoring and tracking;


• Front and back office integration issues


• A decision about the types of services that will be provided internally and which will be outsourced to third party organizations;


• Element ownership, warranties and points of demarcation;

Technical Issues
The following technical issues should be considered as part of the overall project feasibility analysis:

• Network design and topology;


• Network reliability and serviceability requirements;


• Direct access [is this in reference to electricity direct access?] levels;


• Technology stability;


• Ability and flexibility to upgrade and services;


• Supplier history and performance record;


• Customer equipment stability and suitability, and


• Integration and extension to future services.

Go/No Go Decision
After thoroughly reviewing the economic, technical, and operational ramifications of entering into this new market the utility should have a solid foundation upon which to make its ultimate implementation decision.

These checkpoints only represent a very high-level overview. There are certainly numerous other items that must be detailed, understood, managed and documented in order to perform a solid business analysis.

For many utilities, undertaking such an extensive process may be an overwhelming task. Many firms have found that this process is expedited and facilitated by experienced independent consulting organizations, where clients can benefit from both the breadth of knowledge across these issues and the depth of experience in each of these fields.

In short, while the integrated utility business model popular a decade ago did not prove to be viable on the basis of utility applications, the model has nevertheless seen application where municipal utilities can fill gaps left open by the competitive telecommunications markets. The changing preferences of customers and evolving technologies have created opportunities for municipals to expand their services and satisfy growing community needs. "

About the Authors:
Mr. Chebra is a Director at Comverge and is responsible for their Maingate AMR product line and has over 25 years experience in telemetry applications. He is the immediate-past President of the Automatic Meter Reading Association (AMRA) and is currently Chairman of their Strategic Leadership Council.

Paul Taylor is a Senior Director with R.W. Beck in Phoenix, Arizona. Mr. Taylor has over 20 years experience in the fields of utility metering, automation, and industry restructuring.