What's Next

When it comes to building a broadband Internet business, it is very hard to compete with the phone and cable companies. Their advantage is location, location, location, which is to say they're right inside your house. Both companies have comprehensive local networks that were largely built and paid for before most of us had even heard of the Internet. It has been almost impossible, then, for any start-up broadband ISP to compete. But that may be about to change, thanks to that other network in your walls -- the one belonging to the electric company. Power-line Internet is coming.

Two power-line Internet companies -- Current Technologies LLC of Germantown, Md., and Amperion Inc. of Andover, Mass. -- have started trials with electric utilities. Their technologies vary slightly, but what they basically do is run an Internet signal over the so-called medium-voltage wiring that's strung on the pole behind your house. Medium voltage to the power company generally means anything up to 10,000 volts. The power line is used as a network backbone -- it can carry data traffic for something under a mile ( or further if a repeater is installed in the line ) before it has to be converted to some other medium like optical fiber or coaxial cable. So while the fingers and toes of the network are carrying the current that powers your electric blanket, the arms and legs of the network look like any other ISP.

Where the two companies vary is in how they connect the Internet to your home from the utility pole or power line out back. Amperion makes the connection using a short-range radio network ( an 802.11b Wi-Fi network ), while Current actually jumps the utility transformer and carries the Internet right into your home wiring. Amperion's solution is easier, but I think Current's solution is better because it puts a network outlet in every wall socket and doesn't suffer from wireless network blind spots like the one in the shadow of my stainless-steel refrigerator. Customers of both companies use standard networking gear that can be bought at places like CompUSA: Wi-Fi wireless adapters in the case of Amperion, and HomePlug power-line adapters for Current.

These technologies are another benefit of Moore's Law, which has made computer chips so inexpensive that it is now reasonable to use them for filtering the noise out of electric lines, allowing the lines to be used for data service. This is something that simply couldn't be done at a reasonable cost until now.

I am very excited about the idea of power-line Internet because it will lead to more competition, innovative new services, and lower prices -- and because I believe it is actually going to happen. This is an important part of the story that many people outside the power industry ( and quite a few inside, too ) don't understand. Sure, the FCC still has to give final approval, and state utility commissions have to approve rate structures that have not yet been submitted, but those barriers will fall over the next couple of years. This new kind of network is going to be implemented on a grand scale simply because now that it exists the electric companies, which are hardly known for their entrepreneurial flair, will come to understand that they can't do without it.

It isn't just that the utilities want the additional revenue; they need this network for their own purposes. Utilities have discovered that it is much cheaper to gain system capacity through power conservation than by building more power plants. That's why they give rebates on new refrigerators that use less energy. A megawatt hour regained through conservation is useful today, while creating a new megawatt hour can take a decade of planning and construction. The key to encouraging conservation is to find a way to monitor electricity use second by second and vary rates accordingly. This means that power could be made almost free at 4 a.m. but very expensive at 4 p.m., encouraging customers to run their dryers at night and rewarding conservation at any time of day. To do this requires a smart electric meter and a way of continuously linking that meter back to the power company. In other words, it requires a network.

Right now San Diego County is running a pilot to replace 20,000 old electric meters with intelligent ones linked back to the utility through a wireless network that has nothing to do with the Internet. It would be even better if those new meters could be paid for not just through electrical savings and reduced power-plant construction costs, but also through revenue from an Internet service. This fact turns power-line Internet from some venture capitalist's dream to a near certainty.

Hardly known for entrepreneurial flair, utilities will learn that they can't live without these new networks.

The people behind these new services are pretty substantial too. The founders of Current Technologies, for example, once owned the 13th largest mobile phone company in America, which they sold to SBC Communications, as well as a variety of other communication and broadcasting properties that they sold to Liberty Media for $3 billion. This is not an undercapitalized operation.

"This has the potential to be very disruptive technology," says Jim Mollenkopf, director of systems engineering for Current. "The medium-voltage networking equipment can be installed by the same utility linemen using the same tools they are used to using. There is no special training required. Installing service in the house requires no truck roll at all -- the customer just buys adapters at Best Buy or Comp-USA and plugs them into the wall."

Both Current and Amperion plan to work in partnership with electric utilities, leveraging not only the copper-wire power network but also the fiber data network that utilities sometimes already have in place on the same poles. They will begin with Internet service, and additional ser-vices like phone and even video will eventually follow. And it is in those additional services where opportunities lie for other entrepreneurs.

Take voice service, for example. At Current's demonstration home in Potomac, Md., phone service is provided by Vonage, a company that links broadband users into the regular voice network so they can make all calls over their Internet connection at substantial savings. What Vonage can do, you can too, and it really isn't that hard.

The Telecommunications Act of 1996 made competitive local phone service possible, forcing the former phone monopolies to sell cheap access to the voice network to their competitors. These competitive local exchange carriers ( CLECs ) haven't done that well because the incumbent local exchange carriers ( ILECs -- the former monopoly carriers ) have made it as difficult as possible for them. But a CLEC that offers local phone service through an Internet service provider doesn't need to use the old phone company network. All it really needs is a source of local phone numbers that can be assigned, and this often comes from the state utility commission, not the ILEC. A CLEC that doesn't need local network services doesn't need to pay for those ser-vices and therefore has a lower cost structure. So power-line networking could create thousands of little phone companies that have dramatically lower costs than the traditional phone companies with which they'll compete.

Power-line Internet won't compete with cable TV in the same direct way it will with phone service because television requires more network bandwidth than the power-line networks will be able to provide initially. According to Mollenkopf, Current Technologies will be able to deliver up to two megabits per second to each Internet customer, which is fast for an Internet connection but too slow to carry 40 channels of video. But the power-line network would be ideal for video rentals, and the best way to do that is not over the Internet, but -- because it's much cheaper -- over the power-line backbone. Here, too, a local operation with a local video server has a performance and cost advantage over any national competitor.

With about 20 million homes already having broadband Internet service, there are hundreds of start-ups building innovative new services that count on the broadband market reaching some critical mass. Power-line Internet service will make that critical mass come about sooner and will in the process destabilize the phone companies. The parts are nearly all in place for this to happen. Electric utilities will shortly have a great incentive to enter this business. They already have reliable billing and customer-support systems in place, and while customers are often angry with their phone or cable TV provider, most people -- most people outside California, anyway -- don't hate their power company.

Contributor Robert X. Cringely is a writer, broadcaster, and entrepreneur specializing in technology. Contact him at cringely@inc.com.