Tuesday, June 21, 2011

Connecting the Dots between Smart Grid and Broadband Deployment Challenges

This morning I attended a smart grid briefing breakfast at the United States Telecom Association (USTelecom), "Promoting Investment & Innovating in Smart Grid." I've stepped away from smart grid issues for the last couple of months, since my class ended, in order to focus almost exclusively on USF Reform. However, I haven't abandoned my interest in the smart gird, so I was happy for the opportunity to attend another event featuring smart grid power players here in DC. The panelists at this event covered a wide variety of popular smart grid debate topics, from consumer perception to investment challenges to recent government initiatives. Throughout the conference, I continually drew connections between the telecom realm and the utility realm in deploying what are widely considered two of the greatest infrastructure challenges of our time: modernizing the utility grid and modernizing the telecom network. If you have read some of my previous posts on the smart grid, then you will know that I firmly believe that the telecom and electric utility industries are rapidly converging, and I also firmly believe that there are endless opportunities for telecom providers of all shapes and sizes to seize to help facilitate smart grid deployment. However, there are a lot of regulatory uncertainties in both industries, and there are many daunting challenges that both industries must overcome to not only converge, but to achieve their stand-alone goals of ubiquitous broadband and smart grid. It is also becoming clear to me that the smart grid will never achieve its full potential without cooperation from the telecom industry, and if the telecom industry does not play nice with the utility industry then there will be duplicate broadband networks where the utility provider becomes a competitor to the telecom provider—and who wants that to happen? Not me.

There is already some evidence of this phenomenon emerging in rural areas, as an electric cooperative in Missouri recently announced its intent to deploy FTTH to meet dual smart grid and broadband deployment goals. Ralls County Electric Cooperative received a $19.1m grant and matching loan from the Rural Utilities Service (RUS), and plans to complete the FTTH network, which will cover 4,500 homes and 300 businesses with 1,200 miles of fiber, by May 2013. Overall, I am very excited to see another example of a rural cooperative serving the double role of utility and broadband provider, but I also hope that more rural telecom cooperatives will follow in the footsteps of NineStar Connect in Indiana. Electric cooperatives entering the broadband market are a competitive threat for rural telecom cooperatives/companies, but not necessarily—there are opportunities to consolidate infrastructure and achieve broadband and smart grid deployment goals without one stepping on the toes of the other.

The panel at the USTelecom conference included Jeffrey Dygert (AT&T), Betty Ann Kane (Washington DC Public Service Commission), Mike Oldak (Utilities Telecommunications Council), Larry Plumb (Verizon), and Nick Sinai (White House Office of Science and Technology Policy). The panel was moderated by Robert Mayer from USTelecom. The session kicked off with a short presentation on a recent survey by Black & Veatch. The survey respondents included executives, managers, supervisory personnel, technical and support staff from many types of utility companies (integrated, generation only, etc.). The most interesting finding to me was that even the utility industry is having a hard time defining what the "smart grid" actually means. If the utility industry doesn't believe that the smart grid is well defined or understood, how on earth will consumers define and understand it? Do any of my telecom readers see a connection here with the challenges of defining "broadband?" Practically every corner of the telecom industry has a different definition—from 1.5 Mbps to 100 Mbps, technology-specific, technology-excluding, and so on—the only consensus on the definition of broadband is that there is no consensus on the definition of broadband. When you consider the role of the consumer in defining terms like "broadband" and "smart grid," precise definitions get even more incoherent and divided. Other interesting findings in the Black & Veatch survey included: utilities have a negative impression of the business case for the smart grid, and utilities widely believe that state regulators are not on the same page in terms of expectations and visions for the smart grid (30.6% of respondents reported that they perceive their visions/expectations and the visions/expectations of state regulators as "miles apart"). Doesn't this sound like the telecom industry too? Rural telecom providers and state utility boards are definitely not always on the same page in terms of broadband investment, deployment and adoption goals. I would bet that like the utility respondents, only about 0.5% of rural telecom industry players would report that they are "extremely in sync on vision and all critical issues" with their state regulators too.

The other corresponding challenge shared by the broadband and smart grid realms is return on investment. The Black & Veatch survey reported that only 9% of all utility respondents are "very confident" that they will be able to recover smart grid investments effectively and quickly. I would bet a similar percentage of rural telecom providers feels very confident that they will be able to recover major broadband infrastructure investments at a pace fast enough to justify the cost. With regulatory uncertainty over USF Reform, rural telecom providers who are very confident they will recover broadband investments quickly are undoubtedly becoming an endangered species. If sources of private investment are scared away as a result of the regulatory uncertainty over USF, how will any rural telecom provider justify the business case to invest in broadband in extremely high-cost areas? This is the fundamental challenge the rural telecom industry faces right now, and I find it really interesting that the utility industry is also uncertain about the return on investment for smart grid projects.

Take a look at the following chart, illustrating impediments to smart grid implementation (1 being lowest, 5 being highest impediment). How many of these impediments are shared by the rural telecom industry regarding broadband deployment? *Click image to enlarge.

I count at least 6 shared impediments to achieving smart grid and rural broadband ubiquity: the business case does not justify the investment; customer's lack of interest and knowledge (but to a lesser extent with broadband); it takes too large of an upfront investment; funding uncertainty after stimulus funds (or private investment, for telecom) are gone; commitment to manage, operate and upgrade is daunting; regulators will oppose/delay; and regulators will provide inadequate returns on investment. My question is: how can telecom and utility providers collaborate to overcome or at least mitigate some of these impediments, so that the smart grid and broadband goals can be achieved?

The panelists at the USTelecom conference discussed the challenge of regulatory uncertainty over cost recovery for utility providers, noting that some utility providers have been slow to invest in smart grid upgrades because of this challenge. If the government wants all Americans to have access to broadband and smart grid benefits, then something must be done about these cost recovery uncertainties—on the telecom side, the FCCs proposed USF reforms are certainly not helping. I think there is a lot more customer resistance to smart grid technologies than broadband, but we know that broadband adoption in the US is not a shining example of public policy. I thought about the differences and similarities between smart grid and broadband acceptance and adoption as the panelists described efforts to get consumers on board with the smart grid. I discussed this issue in my review of the UTC Smart Grid Policy Summit back in April, where panelists at that conference described how for the first time in the history of electricity, consumers are being asked to actively participate in the relationship between consumer and utility, rather than just writing a check each month in exchange for continuous service. Larry Plumb noted that when the telecom industry modernized 25-30 years ago, consumers were not involved in the process—telecom providers upgraded to digital switches and consumers were none the wiser, and their telephone habits did not have to change. With the smart grid, utilities are trying to get consumers to completely change their electricity consumption behavior, but unfortunately "most will never care," as Plumb said in the discussion this morning.

I will continue to look for ways in which telecom providers and electric utilities can collaborate on smart grid and broadband deployment goals, but at this point a high level of convergence between the two industries seems very far away. If neither electric utilities nor telecom providers can be assured that investments in smart grid and broadband infrastructure are worth the cost and headache, these critical infrastructure goals will not be achieved anytime soon.

The Black & Veatch survey, "Managing the Transition in the Electric Utility Industry," is available here—I recommend taking a look at it, there are some interesting findings.


You may have noticed that Rural TeleCommentary got a new look—I want to thank Doug Pals and his marketing team at Re:Sourceful Communications for the awesome new logo!

I may be taking a short hiatus from USF Reform issues on this blog, but I am still analyzing reply comments, ex parte filings and other USF news for the JSI Capital Advisor's Blog, so be sure to check that site to get your USF fix.

Later this week, I will be returning to everyone's favorite topic—the AT&T-T-Mobile merger! I haven't written anything on the merger in the last month, because frankly, nothing has happened except a lot of complaining and the president of GLAAD resigned because he filed a letter in support of the merger which was written by AT&T, who donates money to the organization. I'm trying to come up with a fresh take on the topic—one that hasn't been beaten to death by every single telecom media channel.

Cassandra Heyne


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