Broadband and Energy: Convergence 3.0

1 Jun

Vivint panel in home

We are in Convergence 3.0.  Convergence 1.0 occurred in the 1990s when telecommunications companies wanted to compete with long distance carriers; long distance carriers wanted to be local phone companies; and cable companies wanted to provide voice services.

In Convergence 2.0 we found cable companies, wireless phone companies, and traditional phone companies competing with hardware creators such as Apple; search engines, such as Google and Yahoo; and social media platforms, such as Facebook, LinkedIn, and Twitter, to become a higher form of media company, competing for eyeballs by owning and developing content that can be easily seen on their devices and connected to by their networks.

In this Bloomberg Businessweek article it appears that Convergence 3.0 is here.  Google and AT&T are providing services beyond the electric companies’ meters, services that promote the “Internet of Things” where not only can you turn on your lights with your smartphone, but you can use broadband connectivity as part of net metering services that allow consumers to monitor their energy conservation efforts and sell excess energy that they generate at home back to the utilities.

Consider this quote from the article:

“ ‘The battleground over the next five years in electricity will be at the house,” says David Crane, CEO of NRG Energy (NRG), whose company has made large investments in solar and is facing off against established utilities. “When we think of who our competitors or partners will be, it will be the Googles, Comcasts, AT&Ts who are already inside the meter. We aren’t worried about the utilities, because they have no clue how to get beyond the meter, to be inside the house.” Collaborating with Comcast, Crane’s NRG is running a trial in Pennsylvania that adds electricity to the traditional cable, phone, and Internet triple-play package.”

In addition, also from the article, here is an example of how broadband is used to monitor energy conservation:

Vivint’s business plan exploits the company’s large home-security customer base—800,000 homes across six states and the District of Columbia—to lease rooftop solar arrays. Vivint, which was bought by private equity giant Blackstone Group(BX) in 2012 for $2 billion, installs the solar equipment for free. Customers sign contracts to buy the power their systems generate at rates as much as 30 percent lower than the local utility. In just two years, Vivint’s solar unit accounts for 9 percent of all new rooftop solar installs in the U.S.

Because its customers are still hooked up to the grid, Vivint is able to sell any excess power back to the utilities under state-mandated net metering programs. Vivint and others are also learning how to deploy smart technology that can consolidate energy savings from millions of homes and businesses. Vivint offers a security system that incorporates computerized energy-conserving features—including the ability to set thermostats and control appliances. Utilities can contract with home-automation companies like Vivint to get their customers to defer the use of big appliances or turn down their air conditioning units during peak periods, helping utilities avoid power outages or the need to buy power on the spot market to make up for shortages. Consumers like it because they get paid for saving energy.

You have to ask yourself if we will also see a convergence of regulators and if there is a convergence of regulation, how will this impact capital flow and investment.  The net metering and the associated rates and credits affiliated with the program are regulated by state utility commissions.

Meanwhile, the Federal Communications Commission issued proposed net neutrality rules for the alleged purpose of ensuring that consumers can access the content of their choice at whatever points of the combined 66,000 networks we call the Internet.  These rules are also intended to ensure that app developers can deploy their services without fear of discrimination.

What happens if an electric utility says to a company like Vivint or to a consumer that they can’t use a certain application for accessing their network?  Can the FCC construct an argument under current statute that says the utility is discriminating against the consumer’s choice of application used on its network, thus a net neutrality violation?  And there is the more fundamental question of whether an electric utility is a broadband provider simply because it deploys smart grid technology within its network and allows connectivity with other wireless networks?

If the FCC were to wade into these waters, its strongest regulatory scheme would be section 706 versus Title II.  An electric utility could make a very strong argument that its not a telecommunications company and that Title II shouldn’t apply to it.  Smart grid and net metering are arguably advanced communications technology where computers are talking to and exchange information with each other about a consumer’s energy usage and under section 706 the FCC could make the argument that an electric utility’s prohibition of an application’s use on its network goes against the goal of deploying advanced communications.

Codifying section 706 in rule format may only serve to restrict the FCC even if it wanted to make an exception for electric utilities and avoid the headaches of dealing with over 50 state regulatory boards.

Regulatory arbitrage in the broadband age.  Something to think about.



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