San Diego-based Sempra Energy is getting into the telecommunications field.
Through a new subsidiary, Sempra Communications, the energy giant is participating in Denver-based Aerie Networks, which plans to lay more than 20,000 miles of fiber-optic cable across the country, linking almost 200 U.S. cities.
Aerie is looking to build the highest capacity platform in the nation, with 8.9 million fiber miles. The platform will connect 194 cities and more than 90 percent of the U.S. business market.
Sempra’s communications subsidiary is taking advantage of the growing convergence between the energy and communications industries, said Stephen Baum, vice chairman, president and chief operating officer of Sempra.
“(This) will enable us to respond to the tremendous customer demand for communications services and bandwidth,” he said. “We look forward to pursuing other attractive investment opportunities in cable-based and wireless communications services to serve commercial and industrial, mass market and international customers.”
Sempra is one of 12 energy companies participating in the venture as owners of the valuable right-of-way that Aerie needs. Each company will either provide its existing rights-of-way, or use its expertise in acquiring new rights-of-way, which can be provided to Aerie at cost, Baum said.
Aerie would then use rights-of-way to lay high-capacity, high-bandwidth fiber-optic cable. In return, the 12 energy companies get 30 percent of the equity of the privately-held Aerie, he said.
Growing Interest
Jeanne Snell, spokeswoman for Aerie, said it was typical for energy companies to be interested in telecommunications. She pointed to Tulsa, Okla.-based Williams Co., which successfully built its own network in the right-of-way of its natural gas pipelines.
Different energy companies are pursuing different strategies, based in part on their assets, local regulations and other factors. The 12 energy companies investing in Aerie have largely chosen to pursue telecommunications while staying focused on their core customers, letting Aerie provide the expertise, Snell said.
Aerie would compete with several organizations like Williams and TouchAmerica, a subsidiary of the Montana Power Co. But there’s more than enough room for another player, said Michael Allman, president of Sempra Communications.
“The demand for bandwidth has just skyrocketed with the need for data transportation. Particularly when you’re getting into things like streaming of video,” he said.
As it stands, every time new bandwidth opens up, it gets snatched up immediately, and then there’s a demand for more, he said.
Aerie’s system, capable of transmitting up to 60 megabytes of information a second, is more than 20 times faster than cable modems or DSL connections. This will increase the capacity of Internet traffic, making possible everything from full-motion, high-definition video , without the “jerkiness” of today’s transmissions , to live two-way video conferencing, Allman said.
User Benefits
For home consumers, it could also mean a single platform for video, data and voice.
“I suppose it could be like AOL, MCI and Disney all rolled into one,” Baum said.
Aerie executives are similarly optimistic about the future. Their fiber-optic system would not be a network per se, but instead a platform for other networks to operate from, said Mort Aaronson, president of Aerie.
“We’re in the business of putting other folks into the business of operating networks,” he said.
As more and more people are getting high-speed Internet connections into their homes, that makes it more feasible for streaming video and other applications. But as more and more people use these functions, the bottleneck is moved elsewhere.
Since the site receiving the streaming video may be hundreds of miles away from the source, this creates the need for a vast inter-city platform capable of handling the traffic, Aaronson said.
Aerie hopes to become that platform because it can offer the lowest prices. With what they hope to be the single largest amount of fiber-optic cable in the country, that can generate tremendous savings due to what Aaronson called “mass-produced bandwidth.”
Aaronson declined to give examples, but did say that Aerie would charge significantly less than the current price of $1,600 to $2,000 per fiber mile.
Already, Aerie is four to five times larger than the largest similar platform, Aaronson said.
“Before anyone’s ever heard of us, (we have) 15,000 miles of real estate and a fully staffed executive management team in place prior to any announcements,” he said.
Aerie will begin construction this summer, with completion scheduled for early 2003. The company has plans for an initial public offering in the fourth quarter of this year, Snell said.
Valuable Right-Of-Way
Sempra is just one of many utility companies investing in fiber optics, said Tom Hausken, senior analyst with Strategies Unlimited, a Mountain View-based market research firm dealing with fiber optics.
“They have a lot of right-of-way, which turns out to be really valuable,” Hausken said. “They’re used to running infrastructure and having these huge thousand-mile networks.”
Whether energy companies will succeed as telecommunications wholesalers depends on how much demand for service there will be in the future, which Hausken called the “trillion-dollar question.”
Hausken agreed that there’s an ever-increasing need for bandwidth, but he felt it might be overstated.
“There’s so many companies getting into it, and there’s so much bandwidth … there’s going to be a bit of a glut. So what may happen is that someday there’s going to be a need for that much bandwidth, but for the moment there’s an oversupply, so it’ll take some time for things to catch up to that level. However, it hasn’t happened so far,” he said.
As more companies get into the market, prices will fall and profits will be squeezed. How well latecomers do depends on their overall strategies, and whether they can find any local bottlenecks to invest in, Hausken said.
With Sempra’s investment in Aerie, Sempra will have access to a next-generation communications capacity and services on future projects. It also will have access to economical construction of associated network infrastructure through Aerie’s team, Baum said.
This is part of an overall plan for Sempra to spend up to $200 million in technology ventures over the next four years, Baum said.
Other investors in Aerie include BP Amoco; Buckeye Partners, L.P.; CMS Energy; Explorer Pipeline Co.; Kinder Morgan; Marathon Ashland Pipe Line; National Fuel Gas Supply Corp.; Pacific Gas & Electric Corp.; Plantation Pipeline Co.; Sun Pipe Line Co.; and TEPPCPO.
Sempra Joins Utility Companies In New B2B ‘Net Site
San Diego-based Sempra Energy is joining with 14 other electric and gas companies to form a consortium which plans to launch an Internet marketplace for the purchase of goods and services between the energy industry and its suppliers.
The business-to-business exchange, due to open later this year, will operate as a single global portal for purchasing anything from transformers and wire to turbines and equipment repairs. The for-profit exchange will be accessible to any company in the energy/utility industry, said Ed Van Herik, spokesman for Sempra Energy.
Building an online marketplace will help both purchasers and suppliers by streamlining the purchasing process and making it easier for buyers and sellers to connect , especially in the case of smaller suppliers, who have been historically underused, Herik said.
The management consulting firm of Pricewaterhouse Coopers has been selected to assist in the development of the exchange and selection of the technology provider.
Other utility companies participating include American Electric Power; Cinergy; ConEdison; Duke Energy; Edison International; Entergy; FirstEnergy; Florida Power & Light; PG & E; Public Services Enterprise Group; Reliant Energy; Southern Co.; TXU; and Unicom Corp.
