Utilities fail to fulfill SMR promise
In this deregulated, hyper-competitive age, public utilities increasingly find themselves starving for new revenue streams. So it might appear a bit surprising that they haven’t attacked a seemingly sumptuous smorgasbord that’s been sitting right in front of them for more than two decades.
Specialized mobile radio (SMR) service was established in 1979 by the Federal Communications Commission to enable public entities to provide land mobile radio communications on a commercial basis. These networks pre-date most commercial cellular operations, and their handsets typically are more robust and reliable than ordinary cell phones, because they were designed for use under extreme conditions.
Nevertheless, most utilities use SMR service today for their field work force, operating networks in the licensed 800 MHz spectrum band.
Given the current overcapacity of these networks, it would seem SMR service presents an opportunity for utilities to step forward and gorge themselves on the profit trough by offering LMR service to government and public-safety organizations, enterprises — even consumers. However, for many reasons — government regulation, the inability to develop a commercial business model, and an unwillingness to overextend the networks beyond internal use — most utilities abstain.
“Utilities, quite frankly, are not interested in entering into a commercial wireless model,” said Jill Lyon, vice president and general counsel of the United Telecom Council. “For one thing, they have a hard enough time getting enough spectrum to serve their own needs.”
There’s always an exception to the rule. The Southern Co., a large Southeastern U.S.-based utility has a for-profit division called Southern LINC (Long-range Integrated Network Communications), which delivers commercial wireless service across 127,000 square miles in Alabama, Georgia, Southeastern Mississippi and Northwest Florida. Southern LINC is on target to achieve its fifth income-positive year, allowing it to repay its only shareholder, the Southern Company, and continue to invest in infrastructure and cell site upgrades.
Making money is especially important in keeping up with technology advances, said Bob Dawson, Southern LINC’s president and CEO.
“When the system was designed in the early ’90s it had three-watt mobiles as the primary radio and one-watt portables. As the handsets became smaller and lighter and cuter, they became six-tenths of a watt,” he explained.
Suddenly, customers hit dead zones.
“One of our ongoing challenges has been to go back and add, even in rural areas, more coverage to fill in some of those holes,” Dawson said.
Meeting that challenge is crucial given the reliance placed upon the system by first responders. “A lot of the emergency management response people use us because it gives them a statewide coverage they did not have before and cannot afford to build,” Dawson said.
Southern LINC pretty much stands alone. While Dawson described the wireless communications provider as “a family-owned and run business that’s owned by a large corporation,” it’s not a business model that is likely to occur elsewhere.
“A utility is not used to being a small business. They’re run in different ways,” said Alan Tilles, a partner in the law firm Shulman Rogers Gandal Pordy and Ecker in Washington, D.C., which represents several utilities.
More commonly, municipal utilities take advantage of their SMR capabilities by entering into shared arrangements with city, county, regional and statewide public-safety and government entities. It’s worthwhile for both sides because the networks are very reliable and have good signal strength, and the utilities have the capacity to hand off.
“We build infrastructure better than anyone; our radio systems always have to work, especially when the power goes out,” said Lyon.
Gainesville Regional Utilities in Florida shares its infrastructure with myriad entities across the 965-square-mile Alachua County, which includes the City of Gainesville and the University of Florida. The utility charges a monthly fee for voice and data radio service used by the county sheriff, Gainesville fire department and myriad government agencies, as well as the University of Florida police department. Built on Motorola’s Smartzone technology, the network is still underused.
“We have switching gear that could be utilized by others but they would have to pay us monthly fees and have some of their own investment,” said Ed Hoffman, GRUCom director. “Finding other counties that would want to invest those kinds of money or pay those kinds of fees is not going to be easy.”
It would be easier to market to non-government users, but that’s not likely to happen either.
“While we’d like to increase our profit potential and generate money to provide back to the general fund to the city, we probably never will be able to do that because of the licensing restrictions,” he said.
Specifically, GRUCom’s current licenses are only for public safety.
“I don’t think it’s going to change, so it’s a non-issue for us,” he concluded.
Commercial sales are also a non-issue for Texas Utilities, which employs an SMR system strictly for utility use, despite the fact that — like other utility-developed SMR networks — it’s probably more reliable than any other wireless network in the Dallas area. There are some exceptions, however. “In the case of emergency management, we can work with partners to help in severe storm situations. We can work with people that might need it,” said Texas Utilities spokesman John Walls.
TXU’s model is pretty typical among utilities, said Tilles, who writes the “Commentary” column that appears monthly in MRT.
“These folks have other things they should be worrying about — things in their infrastructure,” Tilles said, pointing to last summer’s Northeast blackout as a hot button for every utility.
Still, he said, it wouldn’t hurt utilities to look at the SMR potential and consider sharing their networks with government and emergency agencies.
“They ought to be thinking about it because they need to do infrastructure and they need a way to lay off some of those costs,” he said. “But they shouldn’t think of themselves as a competitor to Nextel.”
Don’t tell that to Southern LINC, which is signing up commercial customers as fast as possible and even investigating other ways to use the utility infrastructure.
“We get a lot of consumers,” said Dawson. “My view is — and I’m sure other carriers would disagree with this — you just jam them on there and catch up with growth later. I’m trying to stay ahead of the growth with the infrastructure so that people can complete the calls.”
He’s also looking at broadband over power line (BPL), a new technology that runs high-speed data over a utility’s electrical wires.
“I’ve personally seen the BPL stuff. I know it works,” he said.
Consequently, Dawson — who also oversees a dark fiber business called Southern Telecom for the Southern Company — has BPL in his research and development labs, though he concedes “it would probably be in competition with all the stuff we do” because it would spawn some form of Wi-Fi service that could morph into wireless phones that compete with Southern LINC’s SMR service.
For now, though, he’s happy with what’s on his plate.
“[Commercial wireless providers] outside of Southern are looking to go to that third- or fourth-generation phone, looking for higher speed and more bandwidth,” he said. “I would like to do that stuff, too, but I quickly come back to the fact that I’m owned by the electric utility holding company and we are focused on pretty much a single kind of product.”