Smart Grid Series, Part 2: Making money on the grid
The business case for getting involved with smart grids is clear, but do telcos have more to offer than a fatter pipe?
Smart grids are both an expensive and potentially extremely lucrative undertaking. That is the reason the market has a bevy of players looking to get involved, but also carefully weighing the best path to do so. From a telecom service provider’s perspective, fatter pipes are their biggest bargaining chip, but the ability to do more with them is what makes the market so appealing.
As the market stands today, advanced meter infrastructure (AMI), or the new automated meters themselves, are what is driving investment in grid overhaul. This is largely because most states are putting in mandates that utilities have to update their meters, but it also because they are the easiest to implement, according to BroadbandTrends analyst Teresa Mastrangelo. Most importantly, they are a logical step towards demand response, which is the ultimate goal.
“There are different levels of smart meters – pure smart meters where someone can drive by and capture data or others where they can remotely send that information to some kind of operation center,” Mastrangelo said. “Then we have the next stage, the two-way ones that can involve some kind of demand-response applications where it can monitor what’s happening in your house or start sending information to the end user as to their power usage and maybe entice them to use less power because they’ll save money and vice versa.”
As a result of the AMI focus, smart metering vendor and T-Mobile partner Echelon has shipped about 1.6 million meters worldwide. It has seen the most movement outside of North America, but the US is beginning to quickly gain traction, said Echelon’s director of corporate marketing Steve Nguyen. Initially, Nguyen said utilities that resisted the movement did so because of the steep cost, but they are coming around primarily because they realize that it’s an embedded system, one that does not require overlaying a new network.
“People are beginning to understand it because they are moving beyond an AMI mindset,” Nguyen said. “It’s almost a tipping point in the way they think, and ‘what can we do with these systems?’ There is lots of core value – more accurate service, more timely bills, better visibility to the consumers, reduced inventory, the core operation of a utility and what they actually deliver to the home.”
From the network operator’s perspective, moving to demand response will require them to learn a new way of business, similar to the beginning stages of entering the TV market, Mastrangelo said. They will have to change their business model and ultimately the structure of their company. And, they will have to do this in conjunction with the utilities, which are subjected to much more regulation than they are accustomed to. This changes what they are permitted to do, as well as how they file their proceeding with customers, how they make rate-based changes and how they ultimately structure their business model.
It is for this reason that T-Mobile formed a machine-to-machine (M2M) initiative that is completely separate from the rest of its business. John Horn, national director of M2M for T-Mobile USA, said that as a separate entity, his division can shape its business model separate from the rest of the company and not worry about the normal issues of cost per action and ARPU, which M2M does not follow well. Thus far, T-Mobile has introduced new, tiny embedded SIM cards for use in the telematics, including smart meters, streamlined its certification process to simplify it for M2M and adapted its activation process to allow for more flexible rate plans, Horn said.
MOVING FROM PIPE PROVIDER TO SERVICES PROVIDER
Like T-Mobile, AT&T, Verizon and Sprint executives agreed that AMI is what is driving investment today, but that doesn’t mean they are not already looking towards future smart-grid enabled apps and services. The carriers all said that they aren’t looking to get into the energy reselling business by circumventing the utilities to sell directly to consumers, but that selling services to utilities that go beyond just a fatter pipe is an attractive option.
“We are not interested in reselling electricity, but if we look at the meter side, if the customer wants to buy the meter from us form an implied procurement standpoint, absolutely,” said Chris Hill, vice president of mobility product management at AT&T Business Solutions. “We act as a contractor on a regular basis, but that would be directly to the utility, not an end consumer.”
AT&T also already provides its utility partners with adjacent solutions, Hill said. An example of this is tying in enterprise offerings to inform a utility worker of a network outage and using location-based information to reroute them to exactly where the outage is located. AT&T also provides some degree of consulting to its customers, generally focused on helping them transition into being an IT-centric business and operating large data networks, a change the carriers themselves are also undergoing. “They need the ability to get the appropriate rate of return on those expenses versus having to do capital expenditures to do that,” Hill said.
Any new product or service a telco could provide to utilities would require a new way of thinking about the business. Millions of meters transmitting tiny busts of data are clearly different than a $100 all you-can-eat service plan. Before they can consider advanced services, telcos will be looking to providing quality of service, prioritization of traffic and cybersecurity, in addition to provisioning and activation. When it comes to handling an onslaught of bits of data from millions of meters, their 3G and eventually 4G networks are (arguably) built to handle it. When it comes to what additional services they can provide to increase their revenues, however, it is still largely to be determined.
“AMI is the basic piece, but once the infrastructure is there, I think you will see an explosion in solutions and energy management,” Horn said, adding that T-Mobile’s strategy is not to go out and build the actual solutions, but to bring together the players that can. “It is more about energy communication. As the communication links are all in place, you’ll start to see true energy management.”
Next: Smart grid’s new world of partnerships
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© 2014 Penton Media Inc.
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