TWACS® Attacks AMR Market

As discussed in our recent article, new business requirements in automatic meter reading (AMR) has increased market demand for AMR and repositioned the leading suppliers. (See Changing Business Requirements Shifts Value Demand) The TWACS solution by DCSI is a well received within the AMR market. What makes the TWACS solution compelling to the market and what threatens its potential market dominance is the subject of this current introspective into technologies serving the utilities sector.

TWACS by DCSI (www.twacs.com) enables electric utilities to incorporate two-way data communication with service points across electric powerlines themselves. The value of two-way data communications is created not only by automating the meter reading business process, but also by the market demand for advanced real-time business processes such as meter reads on demand, demand response contracts, and outage management.

When I spoke with Bob Richardson, Sr. VP Business Development at DCSI, I asked him why he believes TWACS is having such strong market reception. His response highlighted the product strength. If the product is truly the source of DCSI’s positive market reception, an examination of its competitive position is in order.

Competitive Position

Early market adaptors of AMR solutions selected drive-by, fixed network, and one-way powerline carrier solutions. Each of these solutions is still attractive to portions of the market and each addresses the specific business requirement of displacing employees from menial tasks of reading meters and replacing them with technology. As the business requirements evolved, the solutions evolved too.

The concept of using the powerline itself to carry the data signal is well known to the utilities sector. The Turtle System by Hunt (www.turtletech.com) entered the utilities market in 1995 earning $1 million in revenue in its first year. Perhaps because of this early success, The Turtle System by Hunt has somewhat defined the perception of powerline carrier technology within the minds of utility decision makers. This is unfortunate because not all powerline carriers are alike. The Turtle System provides one-way communication of the meter data to the utility. And, as implied by the name, the transport of the data over the network is slow, on the order of magnitude of a day. This suffices for the business requirement of reading meters, but fails to meet the growing requirements to enable a real-time enterprise with respect to communicating with loads. As such, The Turtle System has been largely successful with the many smaller rural Cooperative utilities where the business pressure for real-time two-way communication is lower.

In contrast with the Hunt powerline solution, the TWACS solution provides two-way data communications at relatively real-time speeds. (20 second round-trip data communication speeds for on-demand meter reads.) This technological advantage enables DCSI to meet the evolving business requirements of the larger investor owned utilities such as on-demand reads, outage management, and demand response programs, but commands a higher price than one-way powerline solutions.

Investor owned electric utilities, in which the 179 companies provide 80% of the electricity to the United States, place a premium value on two-way communications with service point data in real time. To meet this requirement, a few have adapted an earlier CellNet solution, currently owned by Schlumberger Sema (www.schlumbergersema.com/utilities/). Outside of early installations however, the CellNet solution has not significantly penetrated the market. Other, somewhat similar solutions that utilize wireless fixed networks for data communication with service points have evolved. These solutions vary in the radio frequency used for wireless communication and by the accompanying equipment necessary to transport the data. These newer wireless solutions are attracting much market attention, but have not yet had the same level of success enjoyed by TWACS.

With respect to fixed wireless solutions, sources at DCSI believe that the powerline solution provides similar functionality but at a lower cost. The lower cost of the DCSI solution is related to the aspect that a powerline solution naturally covers all service points within an electric utility. To create a wireless solution that communicates with all service points within a utility’s service area, fixed wireless networks require the build-out to include relatively low-density service areas thereby increasing the price-per-service point.

TWACS Market Success

TWACS market successes support the above analysis of their competitive position.

The TWACS solution is part of the DCSI communications line of business within the ESCO Technologies Corporation (www.escotechnologies.com). TWACS has had noticeable market success since 1986 due to an initial sale to Florida Power & Light (FPL). This somewhat older technology has continued to evolve and expand its value proposition as the market demand and requirements changed.

According to their financial reports, the DCSI unit achieved $192.4 million in new orders in 2002, up from $104.0 million in 2001. This unit has also been highly profitable. The DCSI unit’s earnings before interest and taxes were at 22%. Unlike the bubble internet companies, this is a fast growing and profitable business.

DCSI has been able to attract the attention of both smaller and larger utilities. During 2002, DCSI received $72 million in new orders from smaller rural Cooperative utilities. In the large utility market, DCSI has recently sold a $112 million project to PPL Electric Utilities to be completed in 2004 with over a million service points live in November. This is in addition to their current installations at Puerto Rico Electric Power Authority (PREPA), Wisconsin Public Service (WPS), and Florida Power & Light (FP&L).

Potential Threats

If the competitive position of the TWACS price and performance is driving DCSI’s success, there are two noticeable threats to their future.

First, Cannon Technologies has long provided somewhat similar functionality (www.cannontech.com). They entered the utilities market in 1997 and have mostly focused upon rural Cooperatives. Cannon Technologies might attempt to compete for greater market share, however specific technological issues appear to limit their market penetration. Similar to this threat are a number of companies that have been able to provide powerline AMR solutions outside of North America, but due to specific technological reasons have been unable to significantly compete within US and Canada.

Second, new entrants are beckoning with a number of different technologies. Meter Smart by Hunt Power L.P. (www.metersmart.com related to the Hunt Family of Texas, no relation to the Hunt of Turtle Tech) has entered the market with a large and noticeable campaign. Tantalus (www.tantalus-systems.com) has also entered this market with a fixed network system that utilizes the public wireless spectrum.

Expectations….

DCSI’s current competitive position is strong but not secure for the following reasons. (1) Competitors compete hard for each sale in this market because the value of any individual sale is large (often over $100 million). (2) Much of the market remains to be won. After approximately 10 years of market penetration, most utilities have yet to adapt AMR, leaving 86% of the meters being read manually. And (3) recent studies indicate that the pace of market adoption is accelerating leading to the large potential for the industry leadership position to be readjusted. (See AMR Market Penetration Analysis) Given the dynamics of large sales in an open market that is heating up, no industry player can rest on their laurels.