Broadband Over Powerlines

By Angel M. Cartagena, Jr.

It's one way to bring competition to the broadband market.  But it's up to regulators not to get their lines crossed.

Even though the Telecommunications Act of 1996 mandated that broadband service be widely available in the United States, the actual market for that service today is a duopoly—with customers in most jurisdictions connecting to the internet through either their incumbent local exchange carrier (ILEC), which provides broadband service through digital subscriber lines (DSL), or their local cable operator, which provides the service through cable modem. Some believe a duopoly does not provide consumers the opportunity to get the best combination of rates and services, and many now are looking to electric companies as a third competitive provider of broadband over powerlines (BPL), sometimes referred to as powerline communications, or PLC.

The technology itself is proven and working. Several U.S. utilities have pilot BPL projects, and one—the municipal electric utility of Manassas, VA—already offers the service to all its customers. PPL has a 60-customer pilot project in Allentown, PA, that was highly successful, and the utility is looking at ways to make it available to all customers.

Progress Energy has taken a two-pronged approach to testing the viability of BPL: The technological phase was successfully completed in mid-2003, and the company is currently undergoing a BPL market test for approximately 500 homes. Ameren is pursuing a pilot that makes them the provider of not only the technology but also customer service. Other utilities conducting pilots include Cinergy, Southern Company, PEPCO, Idaho Power, and Consolidated Edison.

And the United States is not the only country experimenting with BPL. Spanish electricity company Iberdrola SA, for example, offers BPL service to customers in two Madrid suburbs. Last-mile broadband service (essentially from the distribution pole to the other side of the outlet) is also being used in Finland, Iceland, and Russia. The European Union is seeking, moreover, to develop a common regulatory framework for the development and deployment of BPL technology throughout its member nations, according to Business Europe.

Federal Communications Commission (FCC) Chairman Michael Powell is among those considering the possibility of making BPL a third line available to broadband residential customers. But in order to do so, regulators and the industry have to navigate numerous sticky regulatory issues. Even then the industry must determine the best business model for achieving a successful BPL venture.

Really Open Access
The current regulatory landscape for broadband is a muddy one. Interestingly, the regulatory paradigm for ILEC and the local cable provider has differed despite the fact that the FCC has jurisdiction over both modes of providing service.

Telephone companies that provide DSL service are regulated under Title II of the Communications Act of 1934, which includes common carrier provisions and obligations that are not shared by cable operators. These provisions—adopted based on the ILECs’ historical possession of monopoly power over their respective service areas—require them to provide network access to competitors on nondiscriminatory, cost-based terms (also known as open access). Federal and state regulators currently face the challenge of determining how much market share an ILEC must lose before those obligations are eliminated. Many ILECs believe the requirements are no longer necessary given the number of competitors that have taken away their potential customers.


Cable modem broadband service, in contrast, is not subject to open access obligations because the FCC deemed cable to be an information service only. This classification has been challenged in court and, if overturned, could open cable companies to the same requirements now imposed on ILECs. Many believe that cable’s exemption from open access obligations has been unjust because of the lack of competition in the provision of cable services—after all, many U.S. cities and towns have only one cable company—and because it has given cable companies an unfair competitive edge over ILECs.

One issue the FCC must face in adding BPL to the regulatory equation is whether to impose similar access obligations on BPL companies. Having BPL as a legitimate third pipe into the home, however, also gives the FCC the ability to go in the other direction—to declare that broadband service now has sufficient competition to eliminate all access obligations, thereby allowing the three broadband technologies to compete without restriction.

Radio Static
Powerline systems are a type of carrier current system that electric utility companies have traditionally used for protective relaying and telemetry. They operate between 10 kilohertz (KHZ) and 490 KHZ, although today many utilities rely on the 1-30 megahertz (MHZ) bandwidth for BPL transmission. A carrier current system transmits radio frequency energy to a receiver by conduction over the electric power line.

Under Part 15 of the FCC’s current rules, which regulate carrier current systems and powerline carrier systems, each is subject to different emission limits. The FCC also limits the amount of conducted radio frequency (RF) energy that may be injected into a building’s wiring by an RF device that receives power from the commercial power source, including carrier current systems that couple RF energy onto the AC wiring for communications purposes.

This conducted energy can cause harmful interference to radio communications by two possible paths. First, the RF energy may be carried through electrical wiring to other devices also connected to the electrical wiring. Second, at frequencies below 30 MHZ, where wavelengths exceed 10 meters, long stretches of electrical wiring can act as an antenna, permitting the RF energy to be radiated over the airwaves. Due to low propagation loss at these frequencies, such radiated energy can cause interference to other services at considerable distances.

Even though some utilities like Progress Energy are within the requirements of the FCC’s Part 15 rules, BPL’s potential for radio interference has raised the ire of the nation’s amateur radio community. Amateur radio operators, and the many organizations that represent them, have filed thousands of comments, and placed just as many telephone calls and emails to the FCC, vehemently opposing any regulations that would allow electricity companies to provide BPL service.

The FCC continues to solicit input on this issue from stakeholders as it tries to determine the feasibility of BPL technology.

State Utility Commissions
The Telecom Act directs state utility commissions to share in the responsibility of making broadband service available to all Americans. At the same time, state laws give regulators sole jurisdiction over electric companies providing service in their state. The question becomes whether state commissions will share the FCC’s vision to bring true competition to the broadband market and use their jurisdiction to adopt the types of rules that will encourage investment in and deployment of BPL technology. For example, the most basic question is whether state commissions will permit their electric companies to use their current power networks to provide broadband service. Progress Energy’s greatest concern is whether the rules establishing their lines’ rights-of-way, some of which were written in the 1920s, will allow for BPL, according to Matt Oja, director of emerging technologies at Progress. Even if states decide to permit the use of electric networks for broadband, such decisions may only come after lengthy trial-type proceedings, which impose great costs on companies and can take years to decide.
 


State utility commissions also will be able to decide the cost structure for how electric companies will recover any investment for a BPL network upgrade and how to treat the earnings from BPL. Will state commissions require electric companies to offset their electricity earnings with their BPL earnings so as to stay within a defined rate of return? If so, is this a sufficient financial incentive for electric companies to invest in BPL network upgrades? Some would argue that electric companies should be able to earn market-based earnings for BPL service because they would be competing against DSL and cable broadband providers.

Yet another issue pertains to those states that have restructured their electricity markets. Under rate-of-return regulation, electricity rates for residential customers are subsidized by the rates paid by business customers. Under a restructured market, that subsidy disappears. This presents a difficult challenge for restructured states: Low and fixed-income customers struggle to pay market-based rates. Will state commissions be tempted to ask utilities to subsidize electricity rates with BPL service earnings?

Depending on how they decide these issues, state commissions may find themselves at odds with the Telecom Act’s mandate. Given the difficulty for businesses to make decisions in an environment of regulatory uncertainty, the Telecom Act may need revision in order to provide the FCC with explicit jurisdiction to address these issues. Or it needs to provide the states with guidance to yield uniform decisions that will create an investment-friendly environment for electric companies and BPL technology.

Concerns about Cross-subsidization
Cross-subsidization is a particularly significant concern when a company provides one service in a competitive market, but is a monopoly provider of another service, as is the case with many electric companies. As for BPL technology, the concern is whether electric companies will use earnings or resources from the provision of electric service to subsidize their BPL businesses. Regulators will focus on this issue for two reasons—first, such subsidies could provide electric companies with an unfair advantage in the broadband market and, second, needed resources that are diverted away from the provision of electric service could hurt quality of service. The latter one is acutely important in light of the recent challenges with the restoration of electric service in many states.

Both federal and state regulators have struggled with this issue in various contexts. The FCC has, at times, required companies to establish separate subsidiaries, only to have those requirements overturned by the courts on appeal. States have also struggled with this issue, such as Pennsylvania’s recent brush with the proposed restructuring of Verizon in that state.  The problem with requiring separate subsidiaries is that companies incur great costs when they have to hire new employees, purchase or lease new facilities, and, in many instances, unnecessarily duplicate resources.

A reasonable approach to this issue is the adoption of accounting rules that would permit federal and state regulators to guard against cross-subsidization without requiring companies to incur the cost of creating separate subsidiaries. These costs could easily be a hindrance to many electric companies that are considering investing in and deploying BPL technology. If regulators are to succeed in creating a truly competitive broadband market, they should seek to minimize the costs of market entry for potential BPL providers.

Universal Service and Pole Attachments
Currently, all interstate telecommunications, wireless phone, and paging service providers must contribute 6.8 percent of their long distance and international calling revenue to a universal service fund. The fund is designed to provide rural, low income, and other consumers access to advanced and interexchange telecommunications services at reasonably comparable rates charged for similar services in urban areas. The obligation to contribute to the universal fund, if applied to BPL providers, would add to the costs of providing such service and is a potential barrier to market entry. If regulators decide that BPL service providers must contribute to the universal fund, perhaps that obligation could be forgiven for a set time to allow BPL providers a chance to establish a presence in their respective markets.

Pole attachments have been an issue since before BPL technology arrived on the scene. Pursuant to the adoption of the Telecom Act, an electric utility had to provide access to its poles—if the utility used its poles for any type of communications, including its own—to any company requesting access. Under the FCC’s rules, where access is mandated, the rates, terms, and conditions of access must be uniformly applied to all telecommunications carriers and cable operators that have or seek access.

Many electric companies have avoided the administrative costs of implementing a system for managing the access and use of its poles by avoiding any kind of communications assets on its poles. They wouldn’t be able to avoid it any longer, however, if they wanted to provide BPL service. Hence, these administrative costs would have to be factored into the costs of providing broadband services, unless the FCC could be convinced to create a BPL exemption as an incentive for electric companies to develop and deploy BPL networks.

Pole attachment obligations also need to be addressed in light of interference concerns. The FCC acknowledged that this is a potential problem: “The close proximity of...  BPL equipment on utility poles may affect (and be affected by) the operation of cable television service and high-speed digital transmission service, such as DSL.” The FCC has asked interested parties to comment on this issue.
 
Potential Business Models
In addition to resolving regulatory hurdles, each utility has to figure out the right BPL business model to pursue, which varies according to an electric utility’s business and economic objectives. “The model is flexible right now,” said Amy Burnis, spokesperson for Amperion, a major provider of BPL solutions to the industry. “Some utilities may make their lines available to a third party who would then install BPL equipment. Others may decide to offer broadband directly. It depends on their risk/reward appetite.”

Retail broadband service. Electric utilities are certainly poised to provide this service because they already own the poles and lines that access virtually every residential and business customer in the United States. Providing broadband service to these customers would simply require adding equipment to their wires. The feature of BPL that would make it more attractive than DSL or cable modem is that BPL customers would immediately have in-house networks without having to purchase and install additional wiring in their homes.

The challenge with providing retail service, however, is that there are marketing costs that some companies may be unwilling or unable to absorb. The cost of advertising to create market share where none exists can be overwhelming. An electric company deciding to enter this retail market would also have to hire or retrain staff with expertise in marketing broadband services. The fact that some electric companies have already tried to enter the communications market and have failed may make some electric companies reluctant to try again.



This was true for Progress Energy. The company had an internet service provider (ISP) during the late 1990s, “but it was not a particularly good investment,” says Oja. As a result, if Progress pursues BPL as a business, the company probably will go with a wholesale model.

Wholesale broadband service. Those electric companies that are reluctant to incur the marketing costs associated with selling retail broadband services may want to consider marketing to a smaller group of customers—traditional broadband companies. By traditional, I mean those that primarily or exclusively sell communications services, such as broadband. There are many companies that already have personnel experienced in the marketing and selling of broadband services but that have failed to thrive due to the high costs of building networks. In fact, many of these companies must rely on ILECs to provide broadband service to their customers.

BPL presents electric companies with the opportunity to sell broadband services to these companies. By upgrading their electricity networks to include broadband capabilities, electric companies could make ready-made last-mile broadband networks for competitive broadband companies that seek to eliminate their dependency on ILECs, which are their direct competitors for customers.

Partnerships. Another alternative to selling retail broadband services is the creation of partnerships between electric companies and existing communications companies. Like the wholesale broadband service concept, such partnerships would give electric companies immediate access to existing communications marketing expertise and personnel without having to invest in either the expenses or the personnel. The value brought to the table by the electric company, of course, would be its broadband network.

Two noncommercial benefits can be gained from the development and deployment of BPL technology—security and network management. In the wake of the September 11 terrorist attacks, government officials and security experts have identified the need for the United States to possess communications network redundancy. By providing a third broadband technology, the nation would gain some of that needed redundancy. Not only that, but with the development of the voice-over-internet protocol (VOIP) there would be network redundancy for voice communications as well. Ask anyone trying to get through on a traditional telephone or cell phone to loved ones on September 11, 2001 (which was impossible to do for hours), and it is easy to see the attraction of being able to complete a call over one of three broadband lines—DSL, cable modem, or BPL.

The second benefit of applying BPL technology is network management. As electric networks age and increasingly require maintenance, BPL technology provides electric companies the ability to detect needed repairs and potential problems in the network without always having to physically inspect their respective networks.

Test the Waters
BPL technology provides the opportunity to have true competition for broadband service. Given the exciting opportunities it presents, it is incumbent upon regulators to adopt a uniform set of rules and regulations that will facilitate the provision of BPL service in the United States. But in order to provide broadband access to all Americans, the FCC and the states need to adopt a regulatory scheme that removes unnecessary barriers to market entry and permits electric companies to keep market-based earnings for providing BPL service.

As for how utilities should approach the matter, testing the waters right now is key. “Anyone who asks me what they should do, I tell them to at least start looking into BPL,” says Oja. “That way if and when this technology starts to move forward, even at the regulatory level, they can get involved and have input in the debate.” 

© 2008 Edison Electric Institute