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Tennessee Utility Seeks Service Provider Partner for Fiber Network December 20, 2011

Posted by TelUS Consulting Services in CLEC catagory.

As the nation’s electrical power infrastructure is upgraded to support more sophisticated applications and capabilities, power companies have been upgrading their communications infrastructure and an announcement this week from Tennessee’s Johnson City Power Board offers a new twist on how the communications upgrade might play out.

Like many power companies, JCPB, a community-owned nonprofit, recently opted to build its own fiber optic network, rather than lease the network from a communications service provider or partner with a service provider on the build. But JCPB hasn’t closed service providers out entirely.

JCPB is now seeking qualified companies to be a third-party service provider for commercial Internet and telephone services delivered over the utility company’s fiber network. According to a report published by Johnson City Press, the JCPB made the decision in October to explore the idea of working with a third-party communication services provider. This is not a new approach as I have been personally involved with several utilities that have taken the same approach. The approach can be challenging for both utility and service provider however if approached with a partnership mindset such approach can be mutually rewarding to both parties.

The Johnson City Press reports that JCPB did a feasibility study that showed a third-party approach would give the JCPB the best return on investment, balancing low risk with possible profits.  The report specifically talks about the service provider offering last mile services and equipment to commercial customers. Perhaps some commercial customers are already connected to the fiber network, eliminating the need for the service provider to do any additional network construction. Additionally the Press reports that the feasibility calls for the power board to “most likely make a capital investment of $1.5 million over five years, which could include installing more of a fiber backbone to reach businesses if needed.”

Revenues from communications services could reach $1.3 million over 10 years, depending on the agreement with the third-party vendor, the Press report states. To achieve that goal, the JCPB would need to capture about 20% of the areas’s total market for data services, about 15% in phone services and about 5% of private data services over five years, the report also notes.

Those goals would appear to be attainable, depending how services are priced and depending on the competitive offerings available in the area. Many customers in smaller markets such as Johnson City are predisposed to buy from the incumbent local provider, and although it’s not clear whether the third-party provider will be locally based, the fact that the local power company cooperative owns the network would appear to be a strong draw.

JCPB reportedly installed the fiber network to support advanced metering infrastructure and has plenty of unused capacity. The JCPB example illustrates the changing roles of telcos, utilities, and other service providers in a broadband world and demonstrates the type of partnership opportunities which may increasingly become available.

The challenge I have seen in the past is a utilities inability to manage such high profile public relations issues as telecom and data for the small amount of bottom line it represents as compared to their regulated utility business. Additionally, being from the Tri-Cities area myself, there are no local companies with the financial strength and technical know how to take on such a large undertaking as a partnership with a small utility. The revenue potential represented here will certainly make it challenging. One alternative however is for JCPB to partner with a company who has Federal Broadband initiative funds (such as a specific CLEC I worked for). This would ensure the proper funding and resources and allow both companies a much longer ROI model.

Joe Buck, NCE



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