Are the Baby Bells and the cable providers in for a shock from the utility industry? In this week's issue of Barron's, columnist Bill Alpert raises the alarm over "broadband over power line," technology that delivers broadband Internet service via customers' power outlets.
Alpert names Sanford C. Bernstein analyst Tom Wolzien, who thinks broadband over power line, or BPL, is the next big danger facing the cable companies' high-speed Internet franchises and has cut his rating on Cablevision Systems (NYSE: CVC ) and Time Warner (NYSE: TWX ) .
A handful of electric utilities are betting on the technology. Progress Energy (NYSE: PGN ) is teaming up with Earthlink (Nasdaq: ELNK ) to offer broadband Internet to about 500 homes in North Carolina neighborhoods. Progress plans to charge customers about $40 a month for the service. Cincinnati-based Cinergy (NYSE: CIN ) has started to market BPL technology to other utilities and electricity companies.
Even so, cable and phone company shareholders need not get worked up about power networks eroding their investment returns anytime soon. Like a lot of other disruptive technologies, there is the tendency for the initial hype to exceed realistic expectations.
For starters, the technology isn't without problems. Reports show that BPL can be noisy and can interfere with radio signals and household appliances. Sorting out that glitch means BPL vendors will need the FCC to work out network "emission" standards. That will take time and political will, and without regulatory certainty, mass-market penetration is unlikely.
The utility companies are latecomers to the broadband arena, where they face a tough battle against DSL and cable providers that offer cheaper, bundled services to customers. Traditionally, new technologies need to enter the marketplace with a price advantage or superior service, or both. Right now, BPL doesn't appear to have either.
Besides, after getting hammered by Wall Street for disastrous investments in unregulated businesses, utilities are adopting a back-to-basics strategy that, for most, probably doesn't include full-scale ventures into the broadband service arena.
Sure, BPL might one day be a threat, but don't hold your breath.
Fool contributor Ben McClure hails from the Great White North. He doesn't own any companies mentioned here.