The recent announcement by national electrical company ENEL that it intends to deploy Fiber to the Home to most Italian homes has created a lot of noise and tension in the Italian market, and deservedly so. It is a very disruptive announcement and raises a number of issues. One of these is that as a state owned company ENEL is subject to European State Aid regulation and cannot therefore invest directly in black and grey areas (where NGA broadband is already available.)
But Enel isn’t the first example of an electricity company making a move in fiber infrastructure. In many European countries, from Switzerland to Norway via Germany, Sweden and Iceland, electricity companies have been investing in fiber to the home deployment (and sometimes commercialization as well).
The obvious convergence between the two business models is infrastructure: electricity distributors are first and foremost infrastructure companies, the electricity network being at the heart of their business. That means they understand deployment constraints, infrastructure maintenance and, probably first and foremost, infrastructure funding. As more and more electricity companies fiber their distribution equipment to make their own operations smoother and more reliable, the question of extending that deep aggregation network into a full-fledged retail network makes sense.
The second and more forward looking perspective for electricians is that many are thinking about the Internet of Things as a way to not only deliver better electricity services to end-users but also to potentially expand their own service footprint: once an IoT network is in place for smart metering and smart grid, why not use it for something else and generate extra revenue ?
There are many successful examples of electricity companies moving into the FTTH space: Altibox (Lyse Energi) in Norway, NetCologne in Germany and Chattanooga’s EPB in the US have shown how electricity providers could become effective retail broadband providers as well. The Swiss municipal utilities (in Zürich, Geneva and most large Swiss towns) have become wholesale providers of FTTH access lines for Swisscom’s retail competitors. Different models have worked for different players.
There have been failures as well. We documented the most spectacular one in a report a few years ago, that of Dong Energi in Denmark. Many reasons explain that failure, but suffice it to say that the synergies can be overestimated, and the complexity of moving into a new business underestimated.
The disruptive nature of ENEL’s announcement is that it would be the first move by an electrical player into FTTH on such a scale. The only other electricity player with national ambition that I know of is Gagnaveita Reykjavikur, the fiber network owned by Orkuveitu Reykjavíkur, the Icelandic electricity provider. However, while their national ambitions are not to be scorned they are operating on a tiny scale compared to what ENEL is considering.
So there are many unknowns about ENEL’s success in this endeavour, the most obvious one (to me) being that the expected cost will inevitably be significantly higher than what the plan currently anticipates. I’ve seen enough deployment plans around the world to know that the best tend to cost more than what’s in the spreadsheets, and this could typically be a case of overestimating the synergies.
Still, it will be interesting to see how this move plays out, both from a regulatory point of view and from a practical and operational one. Even more intriguing is ENEL’s announcement that they see as a blueprint to be replicated in some of the other 30 countries in which they operate. My bet is that it could also spark some revised plans from other electricity providers, especially in countries where FTTH has seen little to no deployment. As governments look for a vector for digital infrastructure investment, their own state-owned electricity companies are likely to be pretty high up on that list.