Shock to the System?

Broadband over power line — or BPL — is one of those technologies that just wanders through the desert year after year, never really finding the promised land. After power companies blamed regulation for their lack of action, Congress eased off a few years ago. Then in October 2004, the FCC officially adopted rules allowing power companies into the broadband game. But here we are two years later, and according to Parks Associates, only about 400,000 homes nationwide are expected to subscribe to BPL by the end of 2007 — mostly in rural areas without access to cable modem or DSL services.

The question for cable operators is whether or not BPL will ever become a significant competitive threat. After all, Parks predicts that BPL customers will number just 2.5 million by 2011. That’s fewer than 10% of cable’s current helping of nearly 30 million broadband customers, and we can only assume an even smaller chunk of the broadband universe in five years. And let’s not forget that electric utilities have zero experience marketing new services to customers. They have much catching up to do.

Despite all this, however, cable operators would be wise to keep checking the rearview mirror — lest they be “shocked” (sorry) by new BPL developments. On the technology side, BPL primarily serves as an Internet access conduit. But with broadband video and IPTV gaining steam over the next few years, BPL operators could easily start offering a triple-play combo of Internet access, VoIP and IPTV video service over that same broadband infrastructure.

The Telecommunications Industry Association predicts that 87% of Internet connections will be broadband by 2010. At that point, cable’s triple-play market penetration could be reaching its peak based on that classic hockey-stick shaped adoption curve, which means even modest BPL gains could suck away customers and revenue from cable operators and telcos. Wall Street won’t like that. All the more reason for cable to stay focused on sticky products that make it painful for customers to defect. (How about storing user-generated content like family pictures and videos at the head-end? What customer would want to re-upload all that stuff?) Make no mistake: The technology exists for the electric utilities to peel off cable broadband subscribers one by one.

Will it happen? Well, the power industry’s lumbering nature should put cable execs at ease in the short term. But well-funded players are already plotting and scheming: Consider prominent BPL firm Current Communications Group, whose investors include not only John Malone’s Liberty Media but also Hearst, Goldman Sachs and Google. Not exactly a mom-and-pop crowd. If somebody can prove BPL has legs, there’s no telling how many business mavericks could enter the game (perhaps through private-equity buyouts). Cable should be prepared. Just in case.