BPL's growing pains.

In the fast-paced world of telecommunications, nothing truly can be considered new for very long. Only a few short years ago, broadband over power lines (BPL)--the transport of data packets over standard electric power lines--was a futuristic concept that was discussed in theoretical terms. Today, while BPL has not yet achieved widespread deployment, it has made significant inroads and may offer the promise of more to come.

Overview

There are two types of BPL systems: in-house BPL, which operates over existing wiring inside of a building; and access BPL, which transmits data over medium voltage electric power lines. In an in-house BPL system, a home or office's electric wiring carries data throughout the building, allowing users to tap into what is, in essence, a local area network (LAN). There are potential pitfalls, however. Large motors, such as fans or vacuum cleaners, can wreak havoc with the data signal.

Access BPL makes use of existing infrastructure--the power lines and poles already in place nationwide--to transport data over medium voltage power lines. The data signal is amplified along the way through the use of repeaters to allow the signal to maintain satisfactory strength. Near the customer premises, the signal must somehow bypass the stepdown transformer that converts the medium voltage power into the low voltage (220/110 volts) power that enters the home. The necessary bypass is a problem that has plagued the technology from the start.

The Promise ....

The ubiquity of the electric transmission infrastructure has made the BPL concept seem quite appealing. Electric lines reach virtually every inhabited portion of this country. Taking advantage of this preexisting network gives the BPL business model a tremendous advantage over other means of broadband deployment.

While much has been made of the potential for BPL to bring broadband service to the most rural areas, in reality BPL makes most economic sense in mid-to-large-size towns. If a sufficient number of customers live relatively close together, the BPL operator has the opportunity to generate positive cash flow. Where customers are fewer and widely dispersed, infrastructure costs--such as for the repeaters necessary to transmit data signals over long distances--dramatically increase, possibly to the point where BPL may no longer make economic sense.

From a financial standpoint, the economies of scale inherent to multiple dwelling units (MDUs), such as hotels, motels, apartments, condominiums, make these dwellings particularly attractive for the deployment of BPL. In these MDUs, users can plug their laptop into any electric outlet within the building--in a common lounge or poolside, for example--and enjoy the freedom of a high-speed wireless network combined with the security of a wireline network.

There are a number of possible business models that may be adopted for the provision of BPL. Under one, an electric utility could lease use of its lines to a third party BPL provider that also serves as an Internet service provider (ISP). Under another, the BPL provider can lease equipment to a third party ISP, which also provides content to users. Under yet another, the electric utility can serve as all three--infrastructure provider, BPL provider, and ISP.

... and the Danger

Amateur radio operators are up in arms about the interference threat posed by BPL deployment. BPL operates as an unlicensed radio service under Part 15 of the FCC's rules, which stipulate that BPL systems can only operate if they do not cause harmful interference to licensed spectrum users. BPL operates in the same frequency range, between 1.7 megahertz (MHz), and 80 MHz used by the Amateur Radio Service. Despite the FCC's recently strengthened regulatory safeguards, amateur radio operators remain worried that BPL will interfere with their operations.

In addition to the interference problem, BPL faces a host of other technical problems that need to be solved before widespread deployment can become a reality. The question remains of how to most effectively deliver the data signal to the customer premises. As noted previously, it is necessary to bypass the stepdown transformer that converts medium-voltage power to low-voltage power. While utilizing a wireless solution to transmit the data signal to the customer before it reaches the transformer has been proposed, this can create a bottleneck. BPL can transmit data at speeds of between 18 megabits per second (Mbps) and 24 Mbps, but WiFi currently only achieves throughput in the neighborhood of two Mbps.

Finally, there is a whole grab bag of potential pitfalls that need to be overcome. First, utilities are understandably shy when it comes to forays into telecommunications--many were badly burned in the fiber glut of the 1990s. Second, relatively few equipment manufacturers are currently producing BPL equipment. While this may be a chicken and the egg quandary, where equipment manufacturers will emerge once demand increases, it remains a problem for early adopters. Third, the question of quality of service (QoS) needs to be decided. Who, ultimately, is responsible for BPL QoS? The electric utility? The ISP? Customers will insist on accountability.

Recent Regulatory Developments

The FCC in general, and former Chairman Michael Powell in particular, have embraced BPL. In an effort to facilitate the speedy deployment of the technology, the commission last fall issued a ruling intended to serve as a guideline for BPL deployment. In recognition of the concerns posed by licensed radio operators, the FCC issued a report and order designed to both promote BPL deployment and protect incumbent license holders against harmful interference.

In the report and order, the commission:

* imposed new technical requirements and improved measurement procedures on BPL devices

* established "excluded frequency bands" within which BPL must refrain from operating in order to safeguard aeronautical and aircraft receivers' communications

* established consultation requirements with relevant public safety and government agencies

* established a publicly available BPL notification database

* changed the equipment authorization for BPL from verification to certification

NTCA filed comments in this matter in May 2004. In those comments, NTCA stressed that the commission needed to address not only the technical issues inherent to access BPL, but also certain regulatory matters of critical importance to NTCA's member companies, such as universal service, CALEA, disabilities access, and E911. Failing to address these critical matters, NTCA wrote, "does a disservice to the public who relies on these services and expects them of their telecommunications carriers." In addition, NTCA warned of the need to address the potential for cross subsidization between the regulated power business and the unregulated communications business.

While the FCC's report and order was a giant step toward solving some of the major interference issues, at least one commissioner felt it did not go far enough toward addressing the same regulatory issues NTCA raised. In a separate statement accompanying the report and order, Commissioner Michael Copps specifically referred to these issues, and wrote "I'm ... disappointed that today's item dodges some of the hardest BPL questions ... [which] remain up in the air." Copps lamented that the proceeding was a failed opportunity "to start giving investors and consumers some certainty on the matter." Copps also concurred with NTCA's cross subsidization concerns, asking "is it right to allow electricity rate payers to pay higher bills every month to subsidize an electric company's foray into broadband?"

Market Potential/Early Deployment Efforts

The potential market for BPL is significant. Telecom Trends International Inc., a Virginia-based market research and strategic consulting firm, estimates that the worldwide BPL market will grow from $57.1 million in revenue in 2004 to $4.4 billion in revenue by 2011. In a 2004 report entitled "The Market for Broadband Over Powerline," Research and Markets Inc. projects that BPL in the United States will grow at a compound annual rate of 106% between 2006 and 2012, and that one-third of new U.S. broadband customers and 13% of existing broadband customers will choose BPL by 2012.

While such projected growth is impressive, currently BPL is relatively slow in gaining a foothold in the U.S. market. Only a handful of NTCA member companies responding to NTCA's 2004 Broad band Survey indicated they were facing competitors providing BPL to their customers. Nationwide, fewer than two dozen electric utilities--some investor owned, some cooperative and some municipally owned--have implemented BPL pilot programs.

Among the more visible programs are joint ventures between: COMTek and the City of Manassas Utilities in northern Virginia; Amperion Inc. (a joint venture between American Electric Power, Cisco Systems and Redleaf Group Inc.) and PPL Electric Utilities in Pennsylvania; Ambient Corporation, Earthlink and Consolidated Edison in New York City; Internet America, HILCO Electric and Amperion in Texas; and Cinergy and Current Communications in Cincinnati and parts of Kentucky and Indiana. Many other companies with an interest in BPL will be carefully monitoring the results of these and other trials in order to determine when and if they, too, should cast their nets into the BPL waters.

Conclusion

No longer the "new kid on the block," BPL is facing significant growing pains as it struggles to become a mature and viable technology. The next few years should prove critical in determining whether BPL can ultimately fulfill its considerable promise and provide the long sought-after "third wire" into consumers' homes.

Rick Schadelbauer is NTCA's economist. He can be reached at [e-mail].