Mobile Sands

May 5, 2009

Smart Grid – A billion dollar opportunity for wireless carriers?

Filed under: New business models, Uncategorized — Tags: , — AJ @ 4:15 am

Last month, Verizon, AT&T and T-Mobile announced M2M initiatives targeted at the smart grid, talking about how this may be a multi-billion dollar opportunity.  My analysis suggests otherwise. In my opinion, even if all 175M electricity meters in the US were digitally connected to smart grid, it may not generate more than a few 100 million in annual revenue for wireless operators.

Revenue per smart meter

Typically, a smart meter is expected to record information (approximately 50-100 bytes) every 15 minutes, though it is not expected to upload it that often.  Even if, a meter were sending 50 bytes ever 15 minutes, it would send just 4.7 KB/day or 141 KB/month. Not much.

Today, carriers are earning more than $0.3/MB (or $300/GB) for data downloaded by retail consumers. Even though most data plans offer 5 GB per month, average smartphone usage is between 30 MB (for email devices) to 100 MB (for iPhones). If a carrier prices its retail smartphone offering at $30/month and an average subscriber downloads 100 MB, the effective price would be $0.3/MB. (I hope this also explains why AT&T and Verizon charge around $0.25-0.50/MB for any data usage above 5 GB on their “unlimited” plans).

If utilities were able to negotiate the same rate – 30 cents per MB – they will be paying the wireless carrier 50 cents a year per meter. That puts the market size for 175M meters at a mere $87.5M per year. It is unlikely that this number would get any carrier excited, and probably many utilities see more value than 50 cents. The questions remains – how much more? where will the pricing stick?

Not every smart meter needs to be a 2G/3G node

Many utilities are thinking about aggregating multiple residential meters at a concentrator (or a “collection point”) using private local-area networks and to then connect these concentrators using 2G/3G wireless data.

Different companies are advocating different approaches here:

If there are 17.5M concentration points (1 for every 10 electricity meters), a carrier would have to charge $5/month per concentration point for the total available market to exceed $1 billion a year. There may be some justification to the $5/month number. This is what Aeris used to charge its M2M customers according to an April 2005 story in Forbes. However, by 2015 and with all the competitors in this market, I would be surprised if any carrier can charge a utility more than $2/month per concentration point. At that number, the total available market would be little over $400M/year.

Utilities have strong incentives to go for cap-ex that reduces recurring cost

Over the next few years, utilities will have access to billions of dollars of stimulus money. In addition, unfortunately, regulators are agreeing to levy a surcharge of $3-$4 per month for over a decade on consumers in the name of grid modernization.

Take CenterPoint Energy’s 2.4 million smart meter deployment in Houston as an example. Itron has offered to create meters that can be meshed, and GE is providing WiMAX radios to connect mesh concentration points. This is also the deployment in which regulators have allowed CenterPoint to charge each consumer over $3/month for 12 years for grid modernization.

In my opinion, it is much more cost efficient (cap-ex and continuing op-ex) for a utility to integrate low-cost, high-volume cellular (GSM/CDMA/UMTS) modem in meters and negotiate long-term deals with public network providers rather than build a private radio network. But, I guess, that would not create as many “green jobs”!

Comments?

Smart Meters is just something I have been reading about recently. If you have a different view on the topics in this post, please do share.

Notes:
1. Itron investor presentation provides information on number of utility meters in North America and other parts of the world.
2. Interesting article in the MIT Technology Review (registration required) on how the rush to create “green jobs” in the stimulus bill may be hurting technology and innovation.

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