NES board looks at new revenue option

This morning's vote moves Nashville's utility closer to offering broadband-communications system access

The Nashville Electric Service (NES) board of directors, inching its way toward a decision on launching a new business, voted unanimously today to determine how much to charge businesses to lease the utility's surplus fiber-optic communications infrastructure.

Provided no insurmountable legal or regulatory challenges arise, this morning's 5-0 vote could lead to a sharp expansion of NES' role as a provider of high-speed broadband infrastructure in Middle Tennessee.

NES Vice President-Operations Paul H. Allen acknowledged in conversation with this morning that some controversy is likely, given the competing interests of BellSouth, Comcast and others. Allen said "there's a lot of lobbying going on" regarding related legislative and regulatory issues at federal, state and local levels. NES, he said, will keep its options open as it proceeds.

Coincidentally, NES unveiled its plans just two days after a meeting of the Metro Council Telecommunications Innovation Task Force, which is exploring what role, if any, Metro Nashville Government should take in expanding broadband access in Davidson County.

Allen represents NES on that task force, which intends to report its findings by July 31. Observers expect the Metro task force to challenge local broadband providers to increase high-speed broadband access in Davidson County, and to propose incentives for industry action.

The NES board's vote this morning placed priority on assuring the security and reliability of the power system and the communications network currently supporting power distribution.

However, the vote also gave NES management a roadmap for stepwise exploration of an NES line of business in broadband infrastructure.

Today's action was driven by a $149,000 study and report from NES' consultants, Burns & McDonnell of Kansas City, Mo. The consultants reported that their research in the market found that "the majority of the market supports" NES' getting into wholesale broadband infrastructure leasing, but not into retail voice, video and data services, services that would put the utility squarely in competition with BellSouth, Comcast and other competing carriers.

"We think we can lease our [broadband] infrastructure just like we do poles and electrical equipment," Allen said, noting that the board's acceptance of the Burns & McDonnell report "gives some credence" to the leasing model.

Allen said that among immediate steps in the wake of the Board vote, NES will begin standardizing its contractual agreements with XO Communications, Comcast and 15 other companies, which have over the years provided NES access to unlit "dark fiber" infrastructure, as a form of payment to NES for allowing those companies to attach fiber-optic cables and other fixtures to NES utility poles. Access to NES poles affords cable-television and other providers an alternative to burying cables at great cost.

Provided, as currently expected, the NES board approves proceeding beyond the initial phase of work, NES management will develop one or more business plans for providing broadband infrastructure as a "transport provider," on a wholesale basis. The business could include providing customers some electronics to light-up the dark fiber, but there would be no retail services, Allen said.

Mainly in response to customer requests, and with no marketing of its own, NES has leased fiber it didn't need to local businesses, but it currently earns only about $120,000 per year from its efforts, Allen estimated. Allen cited Wright Industries as one of the earliest such customers. In 1998, the industrial-automation provider needed an affordable way to connect three different buildings located on the NES power grid.

Allen said that a final decision about where within NES responsibility for leasing would ultimately reside has not been made, with options including finance, information-services, engineering and other divisions. One manager was hired with improved leasing operations in mind, in January, and the launch of a business, if approved, may require one or more additional staff.

Earlier story on Metro Telecommunications Innovation Task Force.