Wireless carriers shouldn’t expect much business from utilities. At least, not yet

Utility companies, like local water and electricity providers, traditionally build their own private wireless networks. And that tendency shows no signs of changing in the short term despite the increasing availability of low-power wireless IoT networks from carriers.

In the longer term, however, several factors will determine the balance between how deeply utilities rely on commercial wireless carriers and how much they keep in house.

The traditional reasons that utilities tend to use their own private wireless networks have not faded. They include:

  • State regulatory structures that encourage utilities to build their own networks.
  • Utilities' skepticism that carriers will provide reliable connectivity during emergencies.
  • Carriers' lack of ubiquitous coverage, especially in rural areas.

But some argue that things are changing. The internet of things (IoT) is increasingly moving from hype to reality, in part due to the IoT-style networks that AT&T, Verizon, Comcast and others are building. These networks – based on technologies like LoRa, NB-IoT and LTE M—promise to support millions and millions of low-cost devices and connections. For example, utilities could connect water meters or power monitors to these networks in order to remotely manage their systems.

However, those in the industry pointed out that utilities move slowly, and may not jump at the latest IoT trend to come along.

"Going forward, I don’t think we will see U.S.-based utilities relying on [carrier provided] NB-IoT or LTE Cat M1 any time soon," said Richelle Elberg, a principal analyst at research and consulting firm Navigant Research. "Longer term, I do think we see that for apps that are not critical, things more along the lines of asset monitoring and management. But that’s not imminent in my opinion."

Rate of return model favors capex

The rate of return model under which many utilities run is a roadblock to a transition to commercial networks. Investor-owned utilities' rates are set by public utility commissions. These are based on complex computations that include the utilities' asset base, approved capital projects for the cycle (which is often three years) and a reasonable rate of return, which often is 8% to 10%. Those numbers a plugged into a formula determine what the utility can charge customers.

If, during the cycle, the utility needs to add opex expenses (leasing dark fiber from a telecommunications firm, for instance), it can't go back to the PUC. Burdened by this unaccounted-for cost, the utility may not meet its financial targets and its profits will shrink. In other words, the extra costs come out of its profits. For this reason, utilities tend to shy away from opex.

That may be changing, at least in some places. The quick evolution of the telecommunications landscape is leading progressive states such as California and New York to consider alternatives in which capex is not a burden.

"U.S. utilities are much more driven to invest in their own networks," Elberg said. "They use the rate of return business model. If they use capex, they get money for that … They make money when they build their own network, but opex eats into their profit margins."

Another issue pushing against utilities’ move to commercial wireless carriers is network coverage.

"If commercial providers can deliver with reliability, we'll use them," said Brett Kilbourne, the VP of government and industry affairs at the Utilities Telecom Council, an advocacy group for critical infrastructure and utilities. "The problem we have is commercial carriers tend to have services in certain areas and those don’t overlap with the areas you need them. I'm talking about generation in remote areas, transmission in remote areas … Commercial carriers are not interested in deploying [in these areas]."

The third issue and perhaps most important reason is reliability. Public cellular networks have a long history of melting down during hurricanes and other crises, since commercial networks generally aren’t built to the specifications required by utilities. That may be changing though, considering AT&T is building the FirstNet nationwide wireless network for public-safety users like police and firefighters.

Interestingly, the relationship between FirstNet and at least some of the nation’s utilities is strained. Utilities were initially eyed as potential users of the FirstNet network, but questions about build-out speeds and rural coverage raised doubts in the utility community, Kilbourne said. The biggest point of contention was the level of priority utilities would have to FirstNet—utilities worried that their connections to the network could be pre-empted by first responders during emergencies.

"In reality, even though we were actively engaged early on, we are less engaged now," Kilbourne said.

Thus, if utilities are reluctant to use FirstNet, why would they use carriers' low-power, wide-area networks (LPWANs)? 

Carriers make progress among utilities

Certainly, some utilities are using carrier networks. Jay Olearain, Verizon's product director of IoT solutions, said that several utilities are using its Grid Wide Utility Solutions' network services. He would only name two: Hawaii Electric is running its meter-reading services in concert with its solar energy program over Verizon’s network, and The Dakota Valley Electric Cooperative—one of 17 electric cooperatives in North Dakota—is also using Verizon's wireless network.

Olearain said that the one of the obstacles to utilities using carrier networks is that, to date, wireless networks have been evolving at a frantic clip. The ink was barely dry, so to speak, on 3G technology when research began on 4G. That uncertainly kept utilities from making widespread commitments.

But Olearain argued the situation is changing.

"We're no longer in generational technology," he said. "We can support utilities' longevity requirements, particular with LTE-M1 low power that is optimal for smart grid and applications that require low bandwidth."

Although the market may well be changing, it’s still early days. And the market will likely evolve differently for rural utilities compared with suburban and urban utilities with bigger footprints and more resources.

Thus, a mix-and-match strategy among utilities might develop, with water and power companies outsourcing some operations to commercial wireless network operators while keeping other operations internal.

"In many cases, a utility strategy that integrates both commercial and private LTE is beneficial and eliminates the multiple purpose-built field area networks traditionally used today," wrote Mike Zeto, AT&T’s VP of smart cities, in response to questions from FierceWireless.