JEA Risk Management, Strategic Planning

by Peter Kallai, Enablence Technologies Inc.

In 2004, the Jackson (Tenn.) Energy Authority (JEA) embarked on one of the largest U.S. fiber-to-the-premises (FTTP) deployments of the time.

JEA operated a more traditional business, providing electricity, natural gas, propane gas, water and wastewater services to more than 31,000 homes and businesses.

The deployment was a move into unknown territory and a response to customer demand.

Advanced broadband services were crucial to the community’s economic prosperity.

After receiving local government support and revenue bond issue funding, JEA went ahead with the $54 million project.

Now its FTTP network boasts 16,500 cable, 10,843 Internet and 7,000 telephone subscribers.

JEA is preparing for the next phase of its FTTP deployment with a smart grid initiative expected to begin in 2010.

From Concept to Deployment

As early as the mid-1980s, customers disgruntled with the service from JEA’s incumbent cable provider had asked if and when JEA would roll out a competing service.

Then-JEA President John Williams considered the idea, and JEA investigated services deployed in other communities.

Williams was interested in the capabilities of fiber and the advanced telecommunications services it could support.

In 2001, JEA hired Kim Kersey as senior vice president of telecommunications.

He served seven years during the planning, construction and operation of the fiber network.

Now he works as a consultant providing guidance on fiber deployments to municipalities, electric utilities and independent telephone companies.

“By going through these various business models that we did, it probably delayed us getting to profitability by a couple of years,” Kersey said, “so I think a network that is being launched today with a good view of the history of JEA and of how other networks began has a much clearer idea of how to begin, of how to structure their business model and how to clarify their approach.”

Also in 2001, JEA pursued a fiber network deployment that would provision the delivery of triple-play services: digital high-definition television (HDTV), ultrahigh-speed Internet and IP telephone.

Despite consumer demand, incumbent service providers had been slow to provide such leading-edge services to the community.

JEA also realized that advanced broadband development could enhance economic growth by attracting and retaining anchor employees and skilled knowledge workers who need high-speed Internet connections.

The utility conducted feasibility studies to analyze deployment costs of a new FTTP network and its expected rate of return based on community interest.

Further analysis revealed that FTTP compared favorably to DSL and HFC options in its ability to cost-effectively support broadband services such as HDTV and IP video.

JEA selected Enablence Technologies, a provider of end-to-end broadband access solutions accustomed to working with local municipalities and public utilities.

In addition to finding the most economical and robust technology platform to support its network deployment, JEA realized it needed a partner that would provide the long-term support and guidance to overcome the learning curve of deploying and operating a financially viable fiber network.

Many Challenges Remained

JEA planned to repay completely the bond issue that had funded the project with revenues generated by the new communications services without impacting the municipal tax base.

JEA’s decision to compete with incumbent service providers, however, did not go uncontested. One local Internet service provider tied up the project’s financing for nearly a year with a lawsuit.

To settle the suit, JEA agreed to provide local Internet and telephone service providers open access on its new network while JEA focused primarily on cable services.

JEA included in the terms of the agreement the customer growth benchmarks other providers must meet to keep JEA from offering those services, as well.

When the service providers did not achieve the first customer benchmark, JEA offered retail Internet and telephone services of its own, in addition to those from the outside providers.

Though JEA eventually moved into full retail services, the inability of the outside providers to achieve sufficient customer growth for Internet and telephone set the project back.

Michael Johnston joined JEA after the network’s launch. He became vice president of IT and broadband following Kersey’s retirement.

“Open access works best if a municipality is willing to fund it to some degree from the tax base or if a provider guarantees a minimum amount of revenue to the project each month,” Johnston said.

Up and Running: Managing the Numbers

JEA’s original business plan called for the fiber network to pass more than 26,000 residential and 5,000 commercial, educational and other nonresidential sites.

For the network to hit its financial benchmarks, 40 percent of those sites had to subscribe to television services within the first three years of operation, while about 25 percent also had to take telephone and Internet or data services.

JEA hit these penetration targets and found itself a victim of its own success, Johnston said.

“Growth is a two-edged sword, a very sharp, two-edged sword,” he said.

In the early years, JEA focused on subscriber growth as its key performance metric, rather than average revenue per user (ARPU).

The capital-intensive cost of acquiring and hooking up new customers, however, can create significant cash flow problems for a network operator, especially when growth substantially exceeds the business plan.

JEA had to secure more financing to support its incremental growth. The utility also adjusted its business model to focus instead on ARPU and increasing the number of existing subscribers using two or three services.

JEA employed special promotions and service packages that took advantage of the huge bandwidth capabilities of its fiber network to build customer loyalty and overcome the customer churn typical of the industry.

Today, JEA’s network has passed more than 30,000 homes, more than 16,000 of which are subscribers.

One-quarter of these subscribers pay for two services, and another quarter have taken the full triple-play package. JEA’s fiber deployment is complete, but it continues to grow organically with the community.

What’s Next?

Like many of its utility peers that have rolled out FTTP networks, JEA is looking at using its fiber pipe for smart grid services to more effectively monitor and manage real-time power usage from the local grid.

Before the end of the year, JEA intends to roll out advanced metering infrastructure (AMI) that will allow it to remotely read and disconnect power meters and provide automated pre-payment services, Johnston said.

“This will give us the ability to gather data in real time if there is an outage and quickly set up automated voice response in our call center to let residents know what is happening when they start calling in,” he said. “Not only does this improve our response time, it also allows us to improve the customer relationship.”

JEA expects to expand into real-time monitoring inside homes to help consumers make more informed decisions about their energy use and consumption.

It might seem odd that a utility would provide new telecommunications services to its community first and more effective power management second, but it makes fiscal sense for scenarios where fiber is being run from the plant all the way to the premises, Kersey said.

“In most cases, it doesn't make financial sense for a utility to roll out fiber to the home or business for AMI purposes unless it plans on also rolling out new broadband services that increase revenue and make the community more attractive to employers: the triple play of voice, data and IPTV,” Kersey said.

“Implementing fiber-to-the-home solely to manage and monitor power usage can become a negative generator since activities that encourage more efficient energy use and conservation by users ultimately reduces revenues for the utility, even as it eases the strain on aging power generation equipment.

“For this reason, a fiber network should be regarded as an investment in the overall economic health of a community to deploy advanced telecommunications services.”

Lessons JEA Learned Along the Way

The RFP stage. Municipalities and utilities often fail to clearly identify the core elements that their networks will need and define how change and order issues will be addressed, Kersey said.

He advises a careful review of requests for proposals that others have tendered and soliciting advice from those who have been there, done that.

“Technology is changing all the time,” Kersey said. “Don’t skimp on getting good technical advice from where ever you can get it, particularly in the area of IP video.”

Choosing a Vendor. The network is going to be in service for a long time, which emphasizes the importance of making certain it is constructed the right way at the outset, Kersey said.

“This isn’t all about price,” he said. “It’s better to pay more than the lowest bid to get a good-quality network. It’s hard enough to go through construction process, harder still to make the thing work if it is not built properly. This can destroy customer confidence in what you are doing.”

Working Through Red Tape. The municipality should expect up to two years to get a project running from concept through defining the business model and the request for proposal, carrying out market research, performing due diligence on vendors and getting all of the necessary regulatory and financing prepared. This varies with the individual circumstances.

Proceeding With Deployment, Managing Customer Relations. Keeping customers informed and managing customer expectations on the front end is crucial.

Because the utility offers services through a competitive business model rather than the monopolistic model to which it is accustomed, it might be dangerous to talk about fixed price points at the outset.

Instead, communicate to the community how the construction and rollout will occur and what benefits fiber will bring.

It is also vital to have a process to handle customer orders efficiently. Compared with providing utility services, there will be a dramatic increase in the number of touch points with customers, which will strain existing contact center operations. Additional staff and staff training will be required.

Also, getting the network up, running and stable will require different technical skills than the utility’s IT staff is trained to provide. Some of these skill sets can be learned by existing staff, others will require new hires.

A utility has the advantages of existing customer relationships and an existing billing infrastructure. It can provide subscribers with the convenience of a one-stop shopping and a single, combined bill.

Johnston warns that the little things can strain existing customer relationships at the outset when the new network might have bugs to work out, especially relating to phone and IPTV services.

For municipalities and public utilities considering a fiber deployment and struggling to understand where to start and how to manage the risk, Kersey has reassuring advice.

“Don’t think you are going into this alone,” he said. “There are a number of people and organizations that can help.”

Those include state fiber associations, the national FTTH Council and a growing community of existing fiber network operators willing to share their insights.

Author

Peter Kallai is vice president of strategic analysis and marketing at Enablence Technologies Inc., a supplier of fiber-to-the-home equipment for triple-play residential and business services and optical components and subsystems for access, metro and long-haul markets. Reach him at peter.kallai@enablence.com.

More Electric Light & Power Articles
Previous articleAlstom reports success in developing carbon capture technologies
Next articleGE steam turbines to boost output, efficiency of Saudi Arabian power plant

No posts to display