Deregulation is giving electric utilities the opportunity to offer an unprecedented number of non-core services. These new services require IT investment, and none more so than telecomms. Gordon Hesse and Ted Caddell of US utility Conectiv explain what`s involved.
US utility Conectiv
When deregulation appeared on the horizon, Conectiv, a US mid-Atlantic regional utility company, took dramatic steps to offer customers a full range of “vital services” under one master brand name. This new category of vital services was planned to help homes and businesses run better and includes not only electricity and gas, but also heating, cooling, plumbing and telecommunications.
These steps were taken for two distinct reasons. Firstly, the company – a merger between Delaware-based Delmarva Power & Light (DP&L) and Atlantic Energy of New Jersey – was seeking additional sources of revenue to replace income historically lost to the advent of competition. Secondly, research indicated that consumers appreciate the convenience, simplicity, and potential savings that can come from purchasing multiple services from the same company. Especially when that company has a regional strategy, focusing on the 8 million households and more than 700 000 businesses within a 100 miles of its Wilmington, Delaware headquarters.
Investment in IT has been critical to the company`s efforts to brand itself as a provider of vital services within the mid-Atlantic region. From the company`s communications, energy and service businesses to its customer care centre and website, IT is the cornerstone of operations (see Box A). Nowhere is the evidence of new technology greater than at Conectiv Communications.
When the Telecommunications Act of 1996 opened the gates of competition, DP&L began plans to expand and update its existing fibre optic network. The company showed foresight unusual for a regulated utility, and decided to use its network to provide the foundation for a new regional local and long distance telephone company – Conectiv Communications, Inc. The fibre optic network the company established is one of the most advanced in the mid-Atlantic region of the United States.
While it forms the backbone of their facilities-based telephone system, its origins were of a more modest nature. In 1987 the network began serving DP&L facilities and switching stations on the Delmarva Peninsula, DP&L`s tri-state service territory of Delaware, Maryland and Virginia. The network supported the Energy Control System and such internal communications as computer access, telephone trunking and the company`s mobile radio system.
The fibre optic network replaced a very old General Electric analogue microwave tower relay system to help monitor the transmission and distribution system. While the microwave system supported the company`s energy management needs, it was subject to alignment maintenance problems and degradation caused by exposure to weather. Availability of spare parts was also a major issue. In short, it was too susceptible to errors to permit high-speed data communication.
But fibre optics changed all that. Instead of microwave systems being used to transmit voice and data communications, the fibre optic technology allowed for those communications to be converted to digital signals, and then transmitted in pulses of light through thin, lightweight spun-glass strands. The difference in transmission-carrying capability is dramatic. One 96-strand fibre optic cable, no larger than 18 mm in diameter, can carry the same number of voice transmissions as a 35 000-pair cable (if such a cable existed).
Paul Miller, manager of systems planning, was part of the information systems team that made the recommendation to move toward fibre optic technology. “I was hired in 1985 to replace the existing analogue microwave with a digital looped microwave system,” said Miller. “After I looked into the technology, I found problems with it. There were only two systems installed in the United States, and they were not yet functioning properly. Also, the budget for the digital system was not adequate.”
Miller saw the need for further study. “At this point I asked for funding to do a preliminary engineering study to install fibre optic cable in the power space and ultimately recommended this plan for a Synchronous Optical Network (SONET) ring.”
Such a loop system is used to provide reliability and backup capability. In the event of a break in one of the fibre optic cables, transmissions can be automatically re-routed through the other part of the loop, thereby providing uninterrupted service. “As for closing of the ring, I simply took advantage of an electric transmission project planned to extend from Glasgow, Delaware, to Denton, Maryland, and had them place optical ground wire (OPGW) instead of the standard static wire,” explained Miller.
By 1997 the planning and erecting of the fibre optic system was completed within a “fast-track” window of 18 months. In time, this system grew to a “loop” or “ring” which ran from metropolitan Wilmington to Salisbury, Maryland, and back, a total distance nearing 200 miles.
To emerge in the local telecom business, utilities have opted for one of three basic approaches: they either form a partnership with a local competitor, thus blending the competitor`s expertise with the utility`s infrastructure advantages; or they buy a small local provider outright; alternatively, they enter the retail market by reselling service and offering facilities-based service.
Many utilities have fibre optic networks for their own internal telecommunications; consequently, with appropriate regulatory approval ,they can transfer this asset to a subsidiary to provide retail service.
“We chose to use our facilities-based capabilities,” said Jeffrey Allen, vice president and general manager of Conectiv Communications. “Making the decision to go into the business was an easy one. Telephone service has long been thought of as a utility, so adding it to our regional network of home and business offerings was only natural.”
DP&L had a long history of providing a quality product and excellent customer service on a monthly basis, and brought that experience to its new venture. Equipment was purchased as streamlined procedures were developed, and the Network Operations Centre was equipped with redundant heating/cooling systems and backup generation, much more so than that of a typical Central Office. Vendors that normally needed up to six months to deliver switches delivered their wares in less than three months.
The largest purchase was Nortel`s DMS 500 local and long distance switch, the heart of the central office. Costing almost $3 million, it has the capacity for 65 000 lines. It was installed just days before the August 1, 1997 deadline. Nortel`s quality assurance inspectors were impressed when they checked out Conectiv Communication`s installation: of 12 000 wire connections, only two mistakes were found – and according to John Scoggin, chief technical advisor for Conectiv Communications, they were corrected in less than five minutes.
The company launched retail telephone services in Delaware and Pennsylvania in November 1997 after receiving regulatory approval the previous February. But it was not without difficulties. “One obstacle is when your major supplier – in this instance Bell Atlantic – is also your major competitor, that`s a huge challenge,” Allen said. Retail local and long distance service was launched in New Jersey and Maryland in May 1998.
With an investment close to $100 million, the fibre optic network now consists of over 600 miles of fibre optic cable, including rings into two north-eastern counties in Maryland, as well as into south-eastern Pennsylvania. Early in 1998, the company completed laying more than half a mile of sub-marine cable across the Delaware River into southern New Jersey, where 500 000 customers of energy merger partner Atlantic Energy reside.
Southern New Jersey is a natural geography because of its proximity to Conectiv Communications` network in Delaware, Pennsylvania and Maryland. Plans for expanding the service to new territories continue apace. The company. has 40 connections – known as co-locations – with Bell Atlantic central offices. By the end of 1999, Conectiv Communications will have 60 of these connections, many in New Jersey where the company is aggressively adding fibre.
Conectiv Communications has become the only facilities-based alternative offering a bundle of local and long distance voice and data telephone services for business in many of its regions and the only alternative for residential customers. Until the company expands its fibre optic ring to encompass the target market within 100 miles of its Wilmington headquarters, it will serve customers in out- lying areas by reselling telecommunications services using Bell Atlantic`s local network and Frontier`s long distance services.
How does Conectiv Communications fit in? Telecommunications Reports International, Inc., named Conectiv Communications in its “Top 50 CLECs” (Competitive Local Exchange Carriers) in August 1998, noting it was one of the most active in tackling local service competition.
“We have some competitive advantages,” said Allen. “We own, manage and maintain our entire network. Since we control all points on that network, and because our facilities are already in place, we can create cost-effective solutions that meet unique requirements. We also offer choice for local service, a great advantage, considering a recent survey showed that 17 per cent of customers in the target area said they would switch from Bell Atlantic if they had a good alternative. Plus, unlike other long distance service providers in the region, we offer the convenience of both long distance and local service – something customers say they want”.