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April 16, 2003 Provided by System Dynamics Inc.

Power Line Communications: Third Wire To the Home?

The Columbia Institute for Tele-Information (CITI) held Power Line Communications III, the third in a series of conferences on PLC as a potential access competitor to DSL and cable. The focus was primarily on the US market, where PLC is not as advanced as in Europe. The configuration of Europe's power grid is more suitable than the US grid for the delivery of broadband communications. Companies like Main.net Communications have services running to thousands of customers in over 40 countries, including Germany, Sweden and the Netherlands, whereas their services are still under trial in the US.

Our experience with conferences on a particular access technology is that a group of technology suppliers, joined by service providers noted for their enthusiasm for the technology, promote the virtues of their approach. Our hats off to CITI, which did an excellent job including a couple of presenters who represented more skeptical perspectives.

Much of our recent work on PLC has focused on the in-home aspects, with testing of HomePlug as one of its elements. This conference was a good opportunity for an update on PLC access developments over the last 18 months -- during which time PLC access in the US has gone from theory to trials.

After hearing the day's roster of speakers, here are some of our conclusions on the pros and cons of PLC as an access technology in the US. Our bottom line is that PLC access works, but big hurdles remain to make it a major business.


Positives

Power lines reach virtually every home. Power companies own rights of way and have a significant fiber infrastructure which they could leverage. They generally have excellent reputations in their community and their reliability is taken for granted.

PLC does not require plant upgrades like those required by the cable plant. It has the potential to provide services roughly comparable to current cable modem and DSL services, with the potential for increased speeds in the future.

In contrast with the asymmetry of current cable and DSL services, PLC provides symmetrical bandwidth, a better fit for emerging consumer applications.

Power companies are running PLC trials now and early trial results show promise. Companies currently trialing systems say that the service can be self-provisioned by the user, and are supportive of the PLC concept in industry groups like PLC Forum.


Concerns

There is no standardized technology approach. Vendors don't agree on either (1) the best way to carry data over "medium voltage" (MV) from the substation to transformers, and (2) the best way to get from the MV side to the home.

Premature standardization is not a good thing, but getting volumes up and prices down would take a major effort led by utilities to create a common procurement specification. Much of the market success of cable came from getting key vendors together to define the DOCSIS standards. At the conference Oleg Logvinov, CEO of Enikia, warned "Lack of standards could kill this market."

PLC is coming from way behind compared to cable and DSL, which already have a large and growing market share. MSOs and LECs have gone through all the growing pains of initial market entry: technology shake-out, provisioning, installation procedures, customer service, establishing a brand, etc. The utilities have yet to learn all the vagaries of their plants (in the way LECs learned about bridged taps, for example). And even if utilities move quickly, the timeframe to deploy the requisite technology will take years -- not weeks or months -- for big deployments.

PLC has some of the negatives of both cable and DSL. Like cable it is a shared medium and subject to the traffic imposed by multiple users. Like DSL it has distance limitations since it uses copper wire, whose bandwidth capacity decreases over distance.

The cost of PLC systems -- CapEx and OpEx -- compared with today's broadband systems is far from clear. CapEx costs were estimated at $160 per home passed by Main.net and at $50-$150 by Jeff Tolnar of Amperion. A model created and using assumptions by Rahul Tongia, of Carnegie Mellon University, came up with costs of $30-$35 per month. If Rahul's assumptions are anywhere near correct, its hard to see a business there. The vendors disagreed with many of his assumptions but had not reviewed his model to comment.

Utilities could adopt a variety of potential business models, depending on their mindset and situation. These range from selling access to their wires, to being a wholesaler, or being a complete service supplier to the end user.

There is significant regulatory uncertainty at both the federal and state levels. At the federal level it relates to the FCC part 15 emissions standards. Alan Scrime of the FCC Office of Engineering and Technology (which is involved with a PLC notice of inquiry) expressed concern about what happens when you plug devices that could be radiators and antennas into an existing network that supports other services, some of which are military. At the state level there is enormous variation -- but most regulatory issues relate to the potential for cross subsidization and fairness to rate payers.


Reality Check

Charles Boddy of PPL Telecom described PPL's trials in Allentown, PA using technologies from Amperion and Main.net. PPL Telecom's business model is to roll service out to the end user. They have finished their technical beta trials, are currently into customer betas to test the business-case assumptions, and will then move to market trials to assess market reaction to the service on a paid basis.

Whether the utilities roll out broadband services to their end users themselves or use broadband pipes from others, there are clear benefits from using an always-on broadband connection to control and reduce costs of their mainline business. These include Automatic Meter Reading (AMR), which is already implemented in many utilities, and load management.

There was some discussion of whether voice, data and load management could be the "triple play" for utilities, and whether AMR and load management should be counted as part of the business case for utilities thinking about deploying PLC. Some utilities are testing PLC for these applications, while others are testing cable broadband (more next month).

We're planning to visit with PPL Telecom in Allentown, and will track their progress in translating their trials into revenue producing services.

( www.citi.columbia.edu ) ( www.citi.columbia.edu/powerline3.htm ) ( www.mainnet-plc.com ) ( www.enikia.com ) ( www.amperion.com ) ( www.cmu.edu ) ( www.fcc.gov/oet )( www.ppltelcom.com )


Reference Material

Please see http://www.plexeon.com/power.html for an overview of PLC. See http://www.citi.columbia.edu/events/powerline/shpigler.pdf for a list of trials currently underway.