PG&E adopts a dark fiber and wholesale telecoms services business model

by Steve Blum • , , , ,

The low ball fiber business plan that PG&E submitted to the California Public Utilities Commission drew criticism from several organisations that probably didn’t fully understand it – publicly traded companies usually downplay the profit potential of new ventures, to avoid hyping stocks and running afoul of federal securities laws. In its application for certification as a telecommunications company, PG&E estimated that it "will have approximately 1-5 customers after one year and will have more than 5 customers by the fifth year after commencing provision of the services". That led to speculation that there was some kind of backroom bargaining going on with incumbent telcos or other big carriers.

Not so, said PG&E in its formal reply to that criticism

The key public interest benefit resulting from PG&E adding services to its existing offerings is that it increases the supply of those services at competitive prices, which means there will be more competition in both the wholesale and retail markets, which will in turn result in more innovation and lower prices. Therefore, PG&E’s CLEC will benefit competition and is in the public interest. Certain interveners may have misinterpreted PG&E’s low estimate of the initial number of customers as a limit or cap. But this was a conservative estimate, as PG&E does not want to over-promise and then under-deliver on the benefits of adding new services to its existing offerings. However, PG&E does not intend to limit itself to this estimated number of customers. PG&E will evaluate the economics of serving any non-residential, qualified customers and will provide service to those for whom it is economical to do so. As a financially and operationally qualified provider that would leverage existing assets to offer additional telecommunications at an incremental cost that will benefit its telecommunications customers, PG&E’s expansion of services will benefit competition. PG&E does not claim these benefits will appear overnight, but expects that the competitive benefits will materialize over a few years.

It also stated flat out that "after becoming a [certified telecoms company], PG&E will continue to offer a dark fiber product". And that its wholesale customers could very well include broadband providers that want to offer competitive service to residential customers. Access to high capacity, low cost Internet bandwidth can be a substantial roadblock for entrepreneurial service providers. Where it becomes available, such as along the Digital 395 corridor in eastern California, consumer-level competition follows. The CPUC should simply take PG&E at its word and make its promises legally enforceable.