Shocking the System

Posted: 1/2004

Shocking the System
Regulators Warn Against Applying Old Rules to Broadband Over
Power Line
By Josh Long

Small Internet providers grumble a
duopoly the RBOCs and cable operators controls the consumer broadband
market. That might change within the next few years.

The U.S. utility industry is considering whether to beam
high-speed data over power lines, raising the prospect that the likes of Comcast
Corp. and Verizon Communications Inc. the largest cable and phone company,
respectively will not be the only ones controlling the last mile of wires
extending to homes.

The notion of a broadband-over-power line (BPL) market is
compelling. Yet industry sources say the utility companies face multiple
challenges, such as convincing investors their commercial deployments would
result in a different outcome than their failed broadband businesses. Over the
last few years, several national utility companies, including Enron Corp. and
Dynegy Inc., have sold their unprofitable broadband networks and closed shop.

The phone companies and cable operators, some say, wield
megawatt-sized advantages over the utilities: years of Internet marketing
experience and 20 million broadband customers. Asked at a regulators convention about the potential of the
nascent market, Morgan Stanley analyst Simon Flannery says it already might be
too late. There were 19.9 million broadband lines in service to homes and
businesses at the end of 2002 representing only a fraction of the U.S.
population.

In November, Angel Cartagena, former chair of the public
service commission of the District of Columbia, told state regulators at the
National Association for Regulatory Utility Commissioners annual conference in
Atlanta that BPL really does offer us capabilities beyond our wildest dreams
and promises to break the duopoly.

However, current and former regulators say timing is critical
if the utilities intend to compete with the phone and cable companies. The
utilities must be marketing the service within the next five years, says
Cartagena, president of Cartagena & Associates LLC.

Five to 10 [years] is too long, FCC Commissioner
Kathleen Abernathy told regulators at the NARUC conference. The top U.S. telecom regulator is taking seriously the prospects of a BPL
market. In April 2003, the FCC issued a notice of inquiry seeking public comment
on using power lines to provide broadband services to homes and offices.

Abernathy reiterated the agency must not apply old
telecommunications rules based on a monopoly to a nascent technology like BPL.
Doing so, she said, could be fatal to new technology as it would alienate
investors. FCC Chairman Michael Powell has made similar remarks when discussing
how to regulate Internet-based phone companies.

Nora Mead Brownell, commissioner of the Federal Regulatory
Energy Commission, agrees. She says the industry must better understand the
technology and how it will work on a commercial basis before attempting to
create a framework that will, in fact, kill nascent industries and kill
investment. Too often we are operating without the basis of fact,
she adds.

Dave Shpigler, president of consulting firm, The Shpigler
Group, says there are about two dozen technology or marketing BPL trials in the
country ranging from a handful of users to hundreds of people. Shpigler says
2003 was the first year utilities focused on introducing the technology
commercially.

For example, Prospect Street Broadband LLC, an affiliate of
Prospect Street Ventures, said it has negotiated a 10-year franchise to provide
BPL to the City of Manassas, Va., and called it the first large-scale
commercial BPL deployment in North America.

Shpigler says at Septembers United Power Line Council
conference in Arlington, Va., Cinergy Corp. Executive Vice President Bill
Grealis said the company planned to build a network passing 250,000 homes in
southwest Ohio over three years. A Cinergy spokeswoman could not immediately
confirm that report, but Shpigler provided PHONE+ a copy of Grealis slide
presentation outlining the strategy.

Shpigler says he anticipates virtually all the U.S. utilities will be involved in a BPL trial, commercial launch,
or an investigation to evaluate the viability of the technology by the end of
the year. And he says he expects many wide scale deployments in 2005 and 2006.

PPL Telcom LLC, a subsidiary of Pennsylvaniabased PPL Corp.,
is among the utilities conducting a marketing trial. The trial started in May
2003 and passes 3,000 homes. PPL Telcom is delivering BPL through the home
electrical outlets or wirelessly over an 802.11 network. People have voted
with their pocketbooks in numbers we are quite pleased with, says Charles
Boddy, manager of marketing with PPL Telcom. Both technologies do work and
deliver a level of service that customers through beta and through market trial
have expressed satisfaction with.

I think the market is ripe for a third method of delivery
and the third method would be the BPL method, Boddy adds. Boddy declined to
predict the technology would be ready for prime time.