Nov
12
Hawaiian Telcom might have to file for Chapter 11. It might even be a good thing. But its current travails provide an occasion for pondering the future of Hawaii’s three great grids — the telephone company, the cable company, and the electric company.
All three have expensive networks to maintain and develop. All three face upstart competitors who don’t have expensive networks to maintain. All three are trying to come up with fresh ideas for the future. But beyond those similarities we’re talking about three very different stories.
Hawaiian Telcom faces bankruptcy if it can’t negotiate new terms on its debt, and two of the big three credit agencies cut their ratings on its debt in recent days. Bankruptcy would buy time to work on the company’s underlying problems, followed by an investment opportunity if those problems are fixed.
Oceanic Cable and Hawaiian Electric are virtually assured of profitable futures but nonetheless face some major issues of their own.
For Telcom, the problem is simply described. It has an expensive legacy wired telephone network, which revenues will no longer support. The company has lost one in ten of its remaining residential telephone lines in the past year. Mainland legacy phone companies have the same problem but not that bad.
Telcom has a wireless division, but you can’t simply transfer the wired network revenue to the wireless division as people drop their old lines to rely more heavily on their cell phones. For one thing, that revenue from wireless service is much less. For another, there are more choices, and most consumers will choose one of the many other providers.
The company’s strategy, developed by the original management that got shown the door after bungling the transition from Verizon’s operations, is to bundle services. If you have wireless service and a land line from the same provider, you can automatically transfer a cell phone call to your wired phone when you walk through the door. Or you can manage voicemails on your computer, using a Net connection that also comes over the phone line.
The problem, at least so far, is that the advantage of this has not yet proven to be sufficient for large numbers of people to back out of their current separate contracts for cell phone and Web access service. A longer term problem is that if Telcom develops a killer application or a killer marketing idea, there is less of a barrier to entry for a rival wireless provider to offer something similar, or for that matter the cable company.
Which brings us to Oceanic.
Oceanic Cable, or whatever they’re calling themselves these days, also has an expensive wired network. But as a younger company it has a lower cost structure, its network architecture is a little easier to maintain, and instead of aggressive, well-financed wireless competitors it has feckless competition from satellite television services that most consumers seem to have no interest in considering.
Cable companies have more experience than telephone companies at marrying content to technology, and this is especially true of the Hawaii cable company, a national pioneer of interactive services. And now Oceanic can compete with Hawaiian Telcom by offering Internet telephone service over its cable modem Web access channels.
Hawaiian Electric, the third network, could also sell Web access if it wanted to, and it may one day want to. Data can ride an electrical current transmission the same way radio signals ride waves through the air. Hawaiian Electric already does this for internal data transmissions. This is not blue sky stuff, it’s happening now. And the most expensive part of the infrastructure already exists.
The electric company is distracted by a completely different problem. Some utilities on the mainland decided many years ago that it would be more profitable and less controversial to transform themselves into electrical networks only, selling their power plants to others. Let someone else face the anti-nuclear demonstrators or the acid rain complainers. We just run the high-tension lines. But this thinking created a business opportunity for people who wanted to produce power in new ways and sell it to the grid, and the industry took off on the wings of renewable power dreams. For years Hawaiian Electric has been struggling to let individual power producers sell to the grid without making problems for it.
The problem, from Hawaiian Electric’s point of view, is that if the third party provider screws up, it’s still the legacy electric company’s responsibility to make it right. If the wind farm that promised 40 zillion kilowatt hours only supplies 10 zillion because there’s a Kona, the old electric company still has to make up the difference, probably by firing up the expensive old oil-fired generating station that the renewable power sources were supposed to render obsolete. And what if a third party provider sends too much power and the surge damages the grid? A high tension line with too much power will sag! Load balancing, as the electric company people call it, is tricky. It’s an open secret that for years there has been fierce internal fighting at the local electric companies over this, with foot-dragging by the people whose job it is to clean up the mess when third party providers mess up.
And now there are scores of businesses and hundreds of residences installing solar panels to defray their electric bills, intending to sell excess power back to the grid. This makes everything I just said even more complicated, and probably harder to manage as well.
Hawaiian Electric, Hawaiian Telcom and Oceanic Cable have varied opportunities and issues, but they all share this: while they work to solve their problems and exploit their opportunities, they have complex networks to run.
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[...] that note, Howard Dicus wrote a interesting blog entry on the challenges facing the three major local utility [...]
I was a customer for many years. I recently switched from Hawntel (Cell, Land Line and DSL) to Oceanic’s Bundle Package. My reason was the service. It was frustrating to get things done with arrogant employees especially on for the cell phone dept. Long lines and bills that always seem to get new charges.
No problems so far with Oceanic.
Auntie P.