Why Utilities Should Aim to Evolve New Business Models and Support Smart Cities

Electric utilities have all required resources at hand to support smart city scenarios. The underlying communications networks must be renewed anyway – why not using the investment for additional revenue?

Ulrich Schälling, Head of Business Line Networks at FNT Software, sheds a light on new opportunities for utilities and how to overcome current challenges.

Think big, start small. That’s probably the exact same thing Chattanooga’s civic leaders thought, when they combined rebuilding their aged power grid with advanced technology infrastructure. The underlying communications network for the new power grid was the key to success as the decision was taken to use available bandwidth for a greater goal. By today, Chattanooga is home of America’s largest ubiquitous fiber network as it provides 10-gigabit-per-second fiber internet service to all residents and businesses. The city has attracted $6 billion in foreign direct investment – and still has ambitious plans to grow and invest in technology.

The number of so called “Gig Cities” is rising around the globe and shows massive opportunities. Though the “Gigabit City Challenge” is not quite accomplished yet, the new associated possibilities started a race between public and private providers – and electric utilities see new chances for their business models to arise.

From the perspective of an electric utility, it means to kill two birds with a stone.

On one hand – driven by digitization and several fundamental changes in customer behavior as well as the imminent obsolescence of technologies in place – utilities have to introduce new technologies. They are already undergoing a transition phase towards packet-data networks. On the other hand, together with the expansion of state-of-the-art network technologies, they are able to sell the available bandwidth of their networks for additional revenue.

Often summarized as “digital transformation” for power utilities, recent market research has proven the huge potential of this approach. Leading analysts are convinced that optimizing revenue and gaining new competitive advantages can only be realized by using digital technologies. According to a report from Navigant Research, for example, worldwide revenue for smart grid communications networking hardware is expected to reach $3.2 billion annually by 2020. Analysts from McKinsey state that optimization potential based on digitization can boost the overall profitability by up to 20 to 30 percent.

Besides the contrary discussions about new technologies and how it’s best to implement, all mentioned aspects have one important basis in common: they all require a robust, resilient, and scalable underlying communications network able to meet the upcoming challenges of digital transformation. It is undoubted, that communications infrastructures remain the fundamental building block for smart cities.

You can’t have a smart city without city-wide connectivity. It is crucial for your residents, for your businesses and for your devices.

However, by setting city-wide connectivity as a new goal on the utilities agenda, it has to be clear that it is just another line of business. Managing best-in-class communications networks to control the intelligent power grid will always be the core business model.

That’s the crux in this story. Today’s electricity markets are characterized by an immense cost pressure and high competition, but additional revenue opportunities will only play a side role. In contrast, selling available bandwidth to business customers will change requirements with regards to how communications networks are operated. The need to adapt new technologies and reuse available capacities to expand business models sets additional in return pressure on electric utilities. They will become in some way a service provider who has to fulfill SLAs of service delivery for business customers – and that’s exactly where the biggest challenges start.

So, you’re probably asking now what’s the best advice if you’re the one overseeing these challenges for your organization?

Well, here is my recommendation: Start sooner than later by making these fundamental changes and the inherent opportunities become visible in your team and throughout your entire organization. Then, become an active driver of the shift towards converged networks and its business opportunities. Finally, before considering to establish new business models with available capacities and bandwidths, you need to have full transparency on your communications network resources. Using a proper planning, documentation and management platform to gain comprehensive and deep insights in your communications network is the key to success. If you don’t have such a system, then this will be your starting point.

In summary, transparency over your network today will help you to be prepared for the current transition phase, the evolution of new business models and other future scenarios. By taking a closer look of your network, you will be able to tell what’s possible and achievable – and what is not. The additional insights acquired about your network will also help you to find an appropriate, strategic approach for your business to overcome today’s challenges.

About the Author

Ulrich Schälling is Head of Business Line Networks at FNT Software. In this role, he is responsible for the strategy and the business with FNT’s innovative software products in the Telecommunications market. Before joining FNT, he has been working in various roles at Alcatel-Lucent in the OSS and system integration business. He holds a Master’s Degree in electrical engineering and has 25 years of experience in the Telecommunications market.