I’ve read many articles from pundits that suggest the electric utility industry today is facing challenges similar to those the telecom industry faced 20 years ago. Frequently, commenters vehemently disagree. From where I’m sitting though – having spent 20 years as a telecom industry analyst – I see key similarities and some important takeaways for utility management teams.
Both industries operate in a critical infrastructure business that Uncle Sam long ago determined would best serve the American public in a regulated monopoly model – one designed to ensure availability of service to all, at a reasonable price, while allowing a fair return on investment to the utility/telecom. Massive networks were built across the country and the farmer in Middleofnowhere, Iowa didn’t have to pay an order of magnitude more for his kilowatt-hours or voice minutes than the customer in downtown Des Moines. Both businesses are subject to federal and state level oversight, and both have been deregulated in the last couple of decades.
Solar = Cellular
Both have also seen emergent technologies threaten their business model. However, while electric utilities are still in the early days of grappling with the demands of distributed generation (mostly solar) and electric vehicles, the once-dominant landline telephone companies have struggled for years to reinvent themselves. Today, wireless connections account for more than 80% of the voice market (ignoring VoIP, more on that below).
Telecom Providers: Then and Now
(Sources: Navigant Research, Securities and Exchange Commission, AT&T, and Verizon)
The irony? Incumbent telecoms were given wireless spectrum for free in the early days of cellular. A lot of telecoms sold off their wireless divisions, plowing that money into their landline networks. Still, as recently as 10 years ago, telecom valuations were strong and the deal market was hot. Even as the Verizons of the world began selling off their regulated access lines to (later bankrupt) buyers like FairPoint Communications and Hawaiian Telcom, many companies firmly believed that cellular would never overtake the ubiquitous, five-9’s service provided by POTS – Plain Old Telephone Service.
Today, wireless spectrum is worth billions; Verizon is paying Vodafone $120 billion for the 45% of Verizon Wireless that it doesn’t already own. Meanwhile, telecoms like CenturyLink, which acquired the former Qwest in 2011, have seen their share prices fall as much as 20% in the last year. CenturyLink, which sold its wireless division to Alltel in 2002, has focused on broadband, data/business services, and fiber. And guess what? Broadband and business services are going wireless too.
The point is, old school technology companies need to embrace the disruptors, not fight them – especially not via lawyers and regulatory restrictions, which is what electric utilities seem to be trying when it comes to the solar industry. In the end, technology advances get cheaper and better, and consumers change their behavior and their spending habits. As detailed in Navigant Research’s report, Solar PV Market Forecasts, solar is expected to reach grid parity without subsidies in a few years.
In other words, you’re not going to beat ‘em, so you’d best join ‘em. In my next blog I’ll describe a few fledgling efforts on the part of electric utilities to enter the solar installation and electric vehicle charging businesses and explain why more should do so.
Tags: Finance & Investing, Science & Technology, Smart Utilities Program, Utility Innovations
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