Utilities spending up big on comms

Hot on the heels of TM Forum’s Smart Grid Quick Insights report is the news that US utilities could spend at least US$3.2 billion on telecommunications equipment and services this year. TelecomPaper reports that according to a study by the Utilities Telecom Council (UTC), this level of communications spending represents a 21 percent increase over the estimated US$2.64 billion utilities spent in 2009 and at least a 3 percent rise over the US$3.1 billion spent in 2010.

Maybe these figures will show just how important the utilities sector may become as a growing revenue stream for beleaguered CSPs. Chief among the categories of telecommunication-related spending is advanced two-way metering and associated networking, spearheaded, no doubt, by the millions of ‘smart meters’ that will need M2M connectivity back to base. The market opportunity has already been large enough for long time rivals AT&T and Verizon to include smart grid in their strategies.

The second category of telecommunication spending is transport networks, with utilities expected to spend around US$813 million on fiber, microwave, Wimax and other forms of transport technology this year. Spending on wireless communications as a proportion of overall telecommunication spending could double over the next five years, growing from 28 percent of telecommunication spending this year to half of all telecommunication spending in 2016.

Although at the moment, companies that run power grids tend to view communications service providers (CSPs) as possible rivals in smart grid, it would make sense to think of them more as potential partners. Yet the two have a lot in common with the rollout of the smart grid being akin to the massive transformation the communications industry has and is going through in the move to all-IP networks and converged services.

As the TM Forum report points out, new business models will likely emerge as part of this trend, including M2M wireless operators, or M2M mobile virtual network operators (MVNOs). Utilities may find the option of becoming an MVNO more economically viable than building an independent communications network and it would allow them to leverage the systems, applications and standards that CSPs have, but that they are not necessarily familiar with.

While most reports of this type seem to focus more on the core technology platforms of the meters and the communications technologies that are needed to connect them together in a network, they overlook the potential opportunities offered by the MVNO and other partnership options.

At the business systems level, utilities’ legacy billing systems will be unlikely to cope with the expected ‘data tsunami’ that the smart grid will generate. The addition of home energy management (HEM) and home area network (HAN) services will require far greater granularity at service charging levels. The existing systems will not likely handle the massive increase in meter readings that smart meters will produce, and are not suitable for the more complex charging schemes, such as time-of-use and dynamic pricing, that the hourly or half-hourly readings from smart meters will enable.

This all implies it may be a little premature to concentrate solely on the communications revenue from any utility/CSP relationship. Smart CSPs should be extending their business systems and cloud services capabilities to their utility cousins and not just focus on the provision of a ‘quick bucks’ network offering.