Plugging into Power Company Networks

Posted: 06/1999

Plugging into Power Company Networks
By Khali Henderson

In the deal-a-minute world of wholesale long distance services, there are a handful of
companies that stand out as primary suppliers. In the same breath as AT&T Corp.,
Sprint Corp. and MCI WorldCom Inc., one would list Williams Network, Tulsa, Okla. Because
of its long history in the carrier’s carrier business, it is often forgotten that this
company’s origins are in the energy industry.

Williams is in good company. With some of the country’s most well-developed, reliable
networks in the country, electric and gas utilities are obvious wholesalers and partners
to America’s competitive telecom carriers–not only in long distance but also in local and
wireless markets.

Williams, which through Williams Gas Pipelines operates the nation’s largest-volume
system of interstate natural gas pipelines with more than 27,000 miles of pipe stretching
from coast to coast, first entered the long-haul wholesale business in 1986, when it ran
fiber optic cable through decommissioned pipelines. This was the groundwork for Williams
Telecommunications Co. (WilTel), which became the nation’s fourth-largest long distance
network. WilTel was sold to LDDS/WorldCom Inc. (Now MCI WorldCom) in 1995. Once its
noncompete agreement expired in January 1998, Williams formed the Williams Communications
Group to build a new, national telecommunications backbone.

Currently, Williams has 17,600 miles of fiber in service, and expects to complete its
32,000-mile network connecting 125 cities by the end of 2000. In addition to providing
point-to-point communications services that transport voice, video and data, Williams
began offering switched voice services June 1. Among Williams’ network customers are San
Antonio-based SBC Communications Inc.; Denver-based US WEST Inc.; New York-based WinStar
Communications Inc.; Cupertino, Calif.-based Concentric Network Corp.; and Tampa,
Fla.-based Intermedia Communications Inc.

Table: Utility Company and Telecom Subsidiaries

Suppliers

Like Williams, which is evolving its wholesale offering to include switched services,
utilities provide services to telecom companies in varying degrees. Cinergy Communications
Inc., a subsidiary of Cinergy Co., Cincinnati, has been leasing space for fiber for about
four years. Spokesman Steven Schrader says the company is considering expanding its
purview to include ownership and operation of fiber itself. Interestingly, the company
also is looking into power line carrier (PLC) technology to leverage its existing
electrical wires for last-mile access (see story).

Others, such as Edison Carrier Solutions, the Rosemead, Calif.-based business unit of
Southern California Edison Co., currently lease tower space to wireless service providers
and dark fiber to wireline providers. Corey Ford, divisional vice president and general
manager, says the next step for the unit is selling transport services.

On the other side of the country, New York-based Con Edison Communications Inc., the
telecom division of Con Edison Inc., already offers lit fiber with capacity of DS-1 to
DS-3 to OC-3 and greater to major interexchange carriers (IXCs), competitive local
exchange carriers (CLECs) and Internet service providers (ISPs).

One joint venture between North East Utilities and Maine Central Power was formed
specifically to build a carrier’s carrier network. Called NorthEast Optic Network Inc.
(NEON), the venture built its network in anticipation of the deregulation that occurred
from the Telecommunications Act of 1996. Director of Communications Fred Kocher says NEON
built its network from Portland, Ore., to New York, hitting second- and third-tier
communities as well as some of the major metro areas. "The vision was that the big
carriers like AT&T, Level 3 [Communications Inc.] and Qwest [Communications
International Inc.], would come to second- and third-tier communities and if the network
was already built, say, ‘We can be more competitive if we just jump on NEON.’ And that’s
exactly what is happening," Kocher says.

Beco Communications, a sister company to Boston Edison, also has a similar model,
building advanced networks for other telecommunications providers. In fact, the company is
in a partnership now with CLEC RCN Corp., Princeton, N.J., which uses network capacity to
deliver a retail bundle of telecom services to business and residential customers.

Matchmaker

Interest in getting into the telecommunications business is only growing as utility
companies are seeking out ways to leverage their existing assets better. Upon request of
some of its 1,000 members, UTC, the Washington-based telecommunications association for
utility companies, in April launched a fiber and tower clearinghouse to match utilities
and pipelines with telecom companies and other organizations interested in leasing or
buying fiber bandwidth or radio sites and towers.

The exchange, facilitated through the group’s website, www.utc.org, is the latest in a
slew of web-based trading floors for telecom bandwidth and minutes. Among the most
prominent are RateXchange, San Francisco, and Band-X, London. In fact, says UTC Membership
Development Director Karnel Thomas, one such matchmaker, Bandwidth Market Ltd., Denver,
already has approached UTC about working together. Such a deal is "futuristic"
but probable, he says.

The exchange is the result of requests from members having difficulty finding suppliers
and buyers. Says UTC President and CEO William Moroney, "Deregulation has brought
about the possibility for utilities and telecommunications companies to enter new markets
and it has opened up new doors for cooperation and mutual benefit."

The twist is that the UTC exchange will include not only bandwidth, but also real
estate for radio towers. Initially, the site will focus on bandwidth and radio tower
locations, but it is expected to be expanded later this year to include utility poles,
ducts, conduits, rights-of-way, building access, fiber installation and microwave
capacity.

The site lists the contact information for utilities with available assets as well as
those looking for such assets or for utility companies with which to partner. UTC collects
and posts the information, although Thomas says he expects the site to become more
automated over time. He also says that in the next year, UTC plans for the site to evolve
to a multiple listing service, such as those prominent in the real estate industry,
whereby a browser can input criteria into a search engine and return a list of prospects.

(The UTC clearinghouse is available to members only in a password-protected area of the
website; nonmembers interested in the service should contact Thomas directly at [email protected].)

Competitors

While the prevailing telecom strategy for utilities has been as supplier, many also are
creating and funding their own retail telecom companies, whether that be in the long
distance, local service, data or the wireless segments.

"We expect the next year to bring a significant shift among energy communications
companies from wholesale to retail," says Boston-based The Yankee Group analyst Beth
Moore in her recent report on energy communications companies. "As these energy
companies get closer to deregulation within their [core] markets, they will begin to focus
more on their retail customer relationships, therefore giving more attention to
identifying how to upsell these customers new services in both the energy and
telecommunications spaces."

With ubiquitous networks and a mass-market presence, these energy company subsidiaries
will be formidable competitors, particularly in the local loop, where they can leverage
their ability to bundle services and sell to the parent company’s customers.

"It’s a natural business for utilities," says UTC’s Moroney. "They will
fare better than startups because they have brand recognition. And they enjoy an
extraordinary public opinion–greater than both the telephone and cable companies."

Khali Henderson is editor-in-chief of PHONE+ magazine. Additional writing and
reporting was performed by Ken Branson, business and finance editor; Kim Sunderland,
Washington bureau chief; and Gail Lawyer, executive editor of X-CHANGE magazine.