April 15, 2009

Tropos Networks is angling to carve out its slice of the smart grid network pie with its wireless WAN technology -- including targeting cellular giants Verizon and AT&T that made news recently in our industry.  The firm yesterday announced a new wireless WAN system called GridCom and described various advantages it offers including one that caught the eye of an analyst we spoke to -- cost.

          A utility that chooses to deploy a WAN aggregation system based on Tropos technology will see payback in fewer than five years, founder and CTO Narasimha Chari told us on yesterday after the big GridCom announcement.

          He then explained how utilities can recoup the investment in the rate base.  The five-year payback is predictable, said Chari, since such an investment is a capital expenditure on what becomes the utility's multi-application network -- and utilities can recover such spending in its rate case.  “But that doesn't hold true for operational expenditures,” Chari said, “and with cellular, it's a recurring fee forever, for every endpoint.”

          The idea of wanting to recover the cost of a private network in energy consumers' bills “makes some sense,” Ben Schuman told us.  He's an equity analyst with Pacific Crest Securities.  “But I don't see it as a huge, game-changing advantage.”

          Schuman had not heard the argument before Tuesday.  Thinking it through, he reasoned that “spending less capital isn't always a bad thing” since a utility might pay only 20-30¢/endpoint/month by partnering with the likes of Verizon and the recovery of capital costs via rate cases requires PUC approval.

          Tropos' argument might go over best with municipal utilities, he added, since those firms could leverage added incentives.  They have to manage the coverage and reliability of their own WiFi communications networks, noted Schuman.

          Tropos has lots of experience with municipals -- to the tune of about 750 of them, it reported.  One that “opened our eyes to broader smart grid applications,” was Burbank Water & Power, said Chari, that last year started deploying a WAN aggregation system to support smart grid applications beyond metering.  That utility plans a DOE-funded pilot to include distribution automation and demand response.

          Tropos handled networking for SCADA plus AMI and video monitoring at Anderson Municipal Light & Power in Indiana and Lafayette Utilities System in Louisiana, too, for example.

          Tropos began as a public safety-focused wireless IP broadband mesh network play and does not plan to leave behind its “smart cities” -- deployments that in some cases have used the firm's MetroMesh architecture to improve worker efficiencies since 2002.  In fact Tropos added about 40 municipal customers last year to hit the 750 mark.

          Burbank will be among the first GridCom customers along with another yet-to-be-named customer in the Middle East.

          “Smart grid requires multiple real-time applications working in tandem over a single, high-speed IP network that is reliable, secure and has a minimum impact on the community,” Fred Fletcher, assistant general manager of Burbank Water & Power, said in Tropos' press release.  Tropos not only met those requirements but also surpassed expectations in performance, manageability and security, he added.

          And Tropos has in hand RFPs from several IOUs, Chari noted.

          The expansion into the IOU business is expected to flow from the joint marketing agreements Tropos has signed with firms such as Itron.

          Tropos listed some of the market advantages of GridCom beyond the cost as latency below 17 milliseconds, resiliency of 99.999% network uptime and utility control over the network's coverage area.

          The system puts one or two routers/square mile sitting between home meters and a utility's control station.  The equipment talks to gear from smart-meter makers such as Itron -- with whom Tropos did a demo last week at the National Smart Grid Conference in Spokane, Wash.

          “We view the IOU space as a very natural, adjacent market for us,” said Chari.  “Our technology and products are applicable but we historically have not directly engaged with IOUs.  We're looking to play a bigger role in the smart grid space, generally speaking.  If you look at the way utilities have used networking in the past, the paradigm is ‘one network for each application,'” such as SCADA, metering and mobile workforce.  “But a single network can support multiple applications.”

          Work from utilities is expected to account for five-10% of Tropos's business by the end of the year, the firm said Tuesday, and it expects to be serving nearly 1 million smart meters by then.