Europe's electricity utilities - The shocking truth

While there are no shortage of distribution systems that enable the Internet to permeate even the remotest areas of the planet, usage of another - more familiar - network is beginning to make waves within the industry and has the potential to fundamentally shift the balance of commercial power. It is the global electricity grid.

Although the concept of networking via electricity cables is not knew, today, the technology has matured to a level where its viability is finally realistic. And, unsurprisingly, old-fashioned utilities dominate the latest newcomers to the broadband data service market.

Leading the charge in Germany is RWE, the country's largest utility in cooperation with Mannheim utility MVV Energie. Together, they have initiated 'powerline communications', a technology that transmits data over low-voltage electricity lines, allowing customers to connect the Internet.

Powerline is a home-networking technology that turns a home's electrical wiring into a local area network. This enables devices, such as computers, printers, and scanners, to communicate with one another.

However, how successful powerline technology will be remains to be seen. Germany's Siemens recently pulled the plug on its development of powerline technology because of regulatory problems. Furthermore, the UK's Norweb Telecom declared it uneconomical a year and a half ago. But technological advances and stiff competition in the power sector is improving prospects for the technology, particularly in countries like Germany, where utilities are battling to hold on to customers and increase profits.

Powerline technology is likely to gain ground in Europe as deregulation sweeps the continent. Utility giants such as Electricite de France, Italian company Enel SpA, and Endesa of Spain, are testing technology developed by the Swiss firm Ascom. Other German utilities, including powerhouses E.On and Energie Baden-Wuerttemberg AG are also developing the technology.

Huge potential…
With just 28 per cent of Germans and 21 per cent of Western Europeans accessing the Internet on a regular basis, compared to over 50 per cent of north Americans, there is undoubtedly room for powerline technology in the market. Yet, it will have to compete with the cable modem and DSL fraternity.

Pricing may be the key. Deutsche Telekom offers DSL services for approximately 36 euros. MVV Energie, which has about 190 paying customers, undercuts this price by selling its service for about 30 euros, while RWE is about to announce its pricing. MVV aims to have 3,000 customers by early May and RWE is aiming for several thousand by the end of the year.

"The general assumption in the market is that powerline technology is going to be a niche product. Nevertheless, it holds some interesting potential," says Bertold Heil, a new-media consultant with PriceWaterhouseCoopers.
The Ascom system that RWE will begin offering in July 2001 will transfer data at 2Mbps, 30 times the speed of ISDN lines. The modem used in RWE's trials has a speed of 768Kbps, which is the same speed as a digital subscriber line in Germany. While this sounds fast, this capacity - like that of cable modems - is shared by all those households sharing the same electrical transformer. Typically, in Germany, this is about 200.

Unfortunately, according to analyst forecasts, the utilities' move into broadband coincides with a slowdown in the adoption of broadband data services in Europe. A recent study by Jupiter MMXI concludes that the rollout of broadband is being hampered by lack of competition among operators, low customer demand and the high price of technology, not to mention incumbent inertia.

Typical broadband services in Europe cost the consumer 200 euros to install and about 50 euros per month. Jupiter estimates that there are currently around 3.5 million broadband subscribers in Europe and argues that customers are often unaware of the benefits.

"The high prices currently being charged for broadband access means that the majority of consumers are discouraged from the technology. To attract these people, companies need to improve their marketing message to ensure that Europeans understand the added value of broadband," the Jupiter study says. With its ability to undercut other broadband services, the current environment for power companies would seem tailor-made.

Jupiter predicts that Nordic countries will grow broadband penetration the fastest. Similarly, Forrester Research predicts that Scandinavia will match the United States in 2005 with penetration levels between 36 and 40 per cent of all households.
Further, another Forrester Research report expects 50 per cent of European households north of the Alps to have broadband coverage by the end of this year. Austria's Telekabel plans 90 per cent coverage this year, while UPC's Chello plans to expand coverage in France this year from 12 to 54 per cent of all French households. In Belgium, Belgacom is aiming at 75 per cent DSL coverage this year to compete with cable's 95 per cent.

Yet these new broadband access networks amount to nothing unless service providers can persuade subscribers to use them. And for this, they need to provide compelling content. For its part, the UK's BT has so far lined up 50 content providers including CNN and The Cartoon Network. Arch cable rival, Telewest, is able to offer online betting options via Spotingbet.com and can offer additional material for the junior market from Nickelodeon. Around Europe, however, the lack of quality content capable of inspiring subscribers to stay online longer is conspicuous by its absence.

However, because of the perceived potential of the broadband market, a host of other new companies have also entered in effort to secure their slice of the lucrative broadband pie. Some start-ups are investing heavily in dedicated fibre connections to consumers in the hope that this will allow them to undercut other service providers. It probably will, initially, but companies embarking down this road will need to have very deep pockets - as such a business plan will take years to reach profitability.

For example, Fastweb in Italy bundles 10 Mbps Internet access with six hours of free voice calls for 50 euros per month and expects to expand to all major Italian cities by 2002. And Sweden's B2 charges 23 euros per month for 10Mbps and plans to connect one million households within two years.

Wireless access
Other players are betting on broadband access through fixed wireless and satellite. Britain's Tele2 targets users with fixed wireless at prices starting at 56 euros per month. BSkyB delivers broadband access via satellite with a dial-up return path for 64 euros a month.

Because of the range of different broadband access systems, one tactic being employed by some new entrants is to offer service bundles on proprietary equipment, which effectively locks users into an exclusive arrangement with the service provider. Once locked in, service providers hope to raise revenue via e-commerce, advertising and value-added entertainment services.

Powerline technology, while much maligned in recent years, probably poses the greatest threat to the traditional telecom and cable operators with regard to the provision of broadband communications to the residential market. Deregulation of the energy market has already set a successful precedent for companies to move easily between the distribution of gas and electricity, and the more progressive companies are also now offering basic telecoms services.

It makes perfect sense for the consumer market to choose broadband via their local energy supplier, since this will enable them to benefit from a single provider, one monthly bill as well as a range of discounts. Perhaps powerline technology will not be as 'niche' as many people expect.