Telecom vendors are taking an increasing interest in the utility industry's efforts to migrate to IP and secure critical infrastructure.

Dan O'Shea, Analyst, Heavyreading.com

August 27, 2015

15 Min Read
Critical Infrastructure: Why Telecom Is Taking a Renewed Interest in the Utility Sector

It's an industry that's facing a transition from TDM to IP, along with increasing fears that its networks could be disabled by security breaches. Yet its organizational cultures are lethargic, with philosophies toward infrastructure spending that could best be described as intensely thrifty, and it's highly regulated, so it's not under much competitive pressure to change.

What industry are we talking about?

It's the electric power industry (though don't feel bad if you thought we were talking about the telecom operators...).

Even though telecom's evolution from TDM to IP networking is for the most part a done deal, telecom has been through, and still is dealing with, some of the same factors, such as ever-increasing security threats against its infrastructure. And as we've seen in telecom, many of the issues mentioned above create an environment ripe for network investment.

Those challenges aren't limited to the electric power and telecom sectors, of course. Some of those issues (particularly the security threats) could be applied to a number of other verticals -- think oil and gas, water utilities, transportation infrastructures, public safety, homeland security -- that more broadly constitute the critical infrastructure sector, comprising companies and organizations that can't rely on third party communications infrastructure and need to build and run their own networks.

Put it all together and that sector just might represent the next great market opportunity, worth billions of dollars each year in potential sales, for a wide array of telecom industry vendors that have the communications connectivity and security technology expertise to help critical infrastructure operators modernize and protect their networks. (See A Critical Time for Critical Infrastructure.)

Among that group of verticals, the electric power companies may represent the largest and most immediate target: In North America alone, there are thousands of electric utilities of all sizes. "In the US there are more than 4,500 utilities, some of them quite large, but others small cooperatives or municipal operations" says Amir Barnea, head of RAD Data's Critical Infrastructure Line of Business. "In Europe, where transmission and distribution of power are separated by regulation, there are about 200 distribution companies and 50 transmission companies."

The utilities market is no big secret in the telecom community, and both telecom service providers and vendors have been serving the IT communications needs of such companies for years. What's been generally less understood by telecom types, at least until fairly recently, is the operational technology (OT) units of these companies. The OT frameworks consist of the physical grids, monitoring systems, automated Supervisory Control and Data Acquisition (SCADA) devices and other equipment -- including (and here's the big hook!) communications equipment -- that keep their mission-critical services up and running.

But, during the past few years, a growing number of telecom vendors have intensified their efforts to sell their communications platforms and security solutions into the OT side of utilities. Here's a brief list of just some of the vendors with critical infrastructure strategies:

  • Alcatel-Lucent (NYSE: ALU)

  • Cisco Systems Inc. (Nasdaq: CSCO)

  • Ericsson AB (Nasdaq: ERIC)

  • RAD Data Communications Ltd.

  • ECI Telecom Ltd.

Those are the most obvious participants and the ones Light Reading has talked to recently, but the list is sure to grow, as other companies tell us they're in the process of sizing up the market for future engagement.

The size of the utilities market in particular, and the overall critical infrastructure sector in general, is one part of the attraction for these vendors, but the vendors also are being driven by their own needs, including increasing pressure to diversify their customer bases and break from their reliance on a few big telcos for most of their revenue.

Some of them have begun to accomplish this diversification by broadening their appeal to cloud service providers and Web 2.0 companies, but critical infrastructure operators may be the next logical step.

Yet, telecom vendors targeting this market aren't stepping into virgin territory, competitively speaking. A long list of incumbent vendors, particularly in the utility segment, are as well entrenched with utility customers as telecom vendors probably consider themselves to be with their own traditional customers. Among the traditional technology suppliers to the utility sector are:

Still, there are several reasons for the heightened interest telecom vendors have in this market and their willingness to challenge the incumbent utility vendors. One reason is the mashup of the sensor-driven smart grid evolution being brought about by Internet of Things connectivity. All of the sensors and other gear that gather information and monitor grid operations need to connect with one another and with the SCADA devices that ultimately control the power grid.

"The world is being filled with automation," Barnea says. "You have SCADA -- all the devices that turn power on and off -- that make autonomous decisions based on information from sensors. You have teleprotection, which is the very important capability to detect a problem and protect the grid by shutting down a particular line if necessary."

The need to connect automated devices, which might sound a lot like the IoT to the rest of us, is what utility vendor giant GE refers to as the Industrial Internet. "We're in the early innings of the Industrial Internet," says Luke Clemente, general manager of Grid Automation at GE Digital Energy. "It's a significant opportunity that we believe from an end point perspective will dwarf what is in most cellular networks now."

Clemente, telling a tale that telecom vendors know well, adds: "Cellular is 6 billion or more end points, and we're looking at something that is going to be significantly larger when you talk about the Industrial Internet. We see more and more the idea that networks will become ubiquitous and the ability to optimize information for better decision making is going to become a very pronounced change."

While the Industrial Internet will present utilities with a dizzying number of potential new applications, using all of the data gathered, Clemente says power grids still have to stick to their traditional technology foundations, in terms of being, above all, "safe, reliable and redundant." Those foundations in many cases, and for many years, have consisted mostly of proprietary TDM-based architectures.

Next page: The IP evolution

The IP evolution
What many utilities are facing is an upgrade dilemma -- they need to upgrade the infrastructure that enables their OT systems to communicate, but in some cases they may be culturally averse to doing so.

The macro trends mentioned previously create a natural opportunity for them to consider converging their previously separate IT and OT domains in the interests of creating more seamless, efficient operations based on common standardized technology, but's not such an easy task, as Marciej Kranz, vice president of Cisco's corporate technology group, outlined in a recent blog post.

Aside from the corporate culture clash issues Kranz discusses, utilities as a group simply have been hesitant to spend money on new technology when TDM infrastructures have more than accommodated their fairly limited bandwidth needs, and have proven to be secure and extremely reliable. Why move to IP and M2M protocols to enable IoT connectivity if TDM still does the job?

"The attitude that some of them have had, even when they get an end-of-life notice on a product, is that they'd like to buy up spares and invest in maintaining their old networks rather than investing in new technology," RAD Data's Barnea says. "In telecom, a switch might last three or four years before upgrade. In the utility industry, it could last 12 or 13 years."

Want to know more about the critical infrastructure sector? Continue to watch our dedicated critical infrastructure content channel right here on Light Reading for new developments.

That attitude might be changing, but very gradually. Jay Gill, principal product marketing manager at Infinera Corp. (Nasdaq: INFN), previously worked for Cisco, where he spent some time adapting Cisco IP products for the utilities market. He says that among critical infrastructure operators, utilities and transportation infrastructure operators such as railways are recognizing that they need to upgrade from TDM for both practical reasons (TDM gear is becoming harder to source) and operational reasons -- IP grants them greater flexibility and efficiency in managing increasingly complex, highly automated, information-rich networks.

"A lot of them are still trying to figure out how and when to do that," Gill says. "I think probably 20% of them have done it, or are doing it now, but there is a lot left to be done. There is time for other [telecom vendors] to study this market and figure out how they want to play it."

Infinera is an example of a telecom vendor that hasn't yet made a particular effort to sell to critical infrastructure operators in the past, but could find itself doing that in the future. It's recent acquisition of Transmode, a metro network-focused packet optical vendor that has worked with utilities such as Tucson Electric, could be the catalyst for such a move. (See Infinera-Transmode Closing Imminent; Karl's in Charge... of Metro.)

The transition at hand in the utilities market is convincing an increasing number of telecom vendors to make a more concerted effort to target this sector. Alcatel-Lucent and Cisco arguably have been there the longest. Ericsson has been involved for a long time, too, and counts critical infrastructure as a major piece of its Industry and Society strategy. RAD Data is entrenched enough that it now generates about a third of its revenues from the critical infrastructure sector. (See CEO Chat With Dror Bin, RAD.)

TDM's not dead yet
ECI Telecom, meanwhile, has had success selling to utilities in the past. Then earlier, as it reorganized around its Elastic Network strategy, it identified the utilities market as one of three key growth areas, along with tradition telecom service providers and cloud and web companies. ECI's ElastiGrid architectures doubles as both a metro business services solution and a utility network migration solution -- and it's a packet platform that still supports native TDM.

"TDM is dying, but it's not dead," says Andreas Hegers, head of marketing at ECI. "Even though there is virtually no new growth in the market, it is still out there and there is a need to support it natively for the customers that are still using it."

If utilities are somewhat hesitant to migrate to IP, that hesitancy might seem familiar to telecom vendors, which encountered the same hesitancy 15 years ago or so in their traditional market, The big difference, of course, is that IP is no longer the fresh unknown that it was then. As Infinera's Gill points out, "All the technology that the utilities need right now is actually very mature."

Next page: Market competition

Market competition
The competitive dynamics between the telecom vendors and the traditional utility vendors should prove interesting, although the utility vendors don't seem to believe those dynamics exist in any meaningful way.

GE and Schweitzer Engineering Laboratories (SEL Inc.), for example, hold the common belief that telecom vendors have not done much yet to penetrate the utility OT market. They also argue that the critical infrastructure market demands specially developed rugged gear for deployment in harsh environments, and that telecom gear designed more for mass market appeal may not measure up.

"The dynamics are just different," says GE's Clemente. "We're a 'specialty' provider... that implies a lower volume, more highly engineered solution. The reverse is true of [public] networks," the implication being that telecom hardware is often mass-produced for a wide variety of possible deployment scenarios.

Explaining where the obvious division lies between GE and the likes of Alcatel-Lucent and Cisco, Clemente adds: "We come from the edge and go up toward the network, and that's kind of where we stop. We really intrinsically understand the OT side of things and how an electric utility operates, so that gives us some inside knowledge into the space and how to design solutions for them. There is a natural barrier for us when we get to the network side of things. That gets us out of our area of expertise. I'm speculating, but I think for the vendors who know networks, and especially high capacity networks, getting down into the OT side and understanding the specifics is challenging."

The incumbent utility vendors might not hear the footsteps of the telecom vendors, but that doesn't necessarily mean they are stacking all their chips on TDM. GE has a TDM-based JungleMUX platform that has been deployed by many utilities, but it also more recently has developed a packet-based JunglePAX to address the migration to IP. Schweitzer, which began its business around critical infrastructure protection, also has moved more into IP-based communications, with products such as its ICON optical Ethernet platform, for utility OT networks.

Like Clemente, Paul Robertson, senior product program manager at Schweitzer, believes the OT side won't come naturally to telecom vendors. "There are different standards that affect the OT side, like IEEE 1630, which says the devices in substations can't have moving fans for cooling," he says. "So we had to find a way around that. A lot of the equipment the telecom guys typically use would not be a fit with a rule like that."

The utility OT environment does present telecom firms with a learning curve because even though telecom vendors have mature IP gear ready to move into utilities, the OT environments are filled with specialized interfaces, and incumbent utility vendors that speak their language might have an advantage in helping them along the IP migration path.

Still, Robertson understands that the IP transition does give telecom vendors reason to explore utility opportunities. "I feel like companies like Ericsson and Alcatel-Lucent are always looking at the OT side for a way in," he says. "Telecom is a very competitive market, so you'd expect them to branch out and look at this space, but ultimately, the harsh environment the utilities present dictates what fits and what doesn't."

Next page: Securing critical infrastructure

Securing critical infrastructure
While the utility industry's TDM-to-IP migration may still play out over several years, utilities and all other critical infrastructure operators are facing another technology evolution that needs to happen more quickly -- almost overnight.

The Stuxnet virus and other security attacks targeting power plants around the world have provided evidence that much of the world's critical infrastructure could be vulnerable to a variety of hacker schemes designed to cause power outages and infrastructure shutdowns, and with rapidly increasing automation throughout OT frameworks, the danger only becomes greater.

Echoing GE's comments on the Industrial Internet, Oguz Kalaycioglu, global head of critical infrastructure protection for Ericsson, says: "Some people are saying there will be 50 billion automated devices connected [via M2M to the IoT] by 2020. Many of these devices will be part of critical infrastructure [networks]. Monitoring and securing all of that? It will not be an easy job."

Seeing the rising security threat affecting the electric utility industry, the North American Electric Regulatory Corporation (NERC) developed a set of Critical Infrastructure Protection (CIP) requirements several years ago for adoption by electric utilities in the region. NERC CIP is already in its fifth version, though until very recently, the requirements only applied to the largest electric utilities, according to SEL Inc.'s Robertson. NERC CIP Version 5 changes that, extending the requirements to utilities of all sizes. (See A Critical Time for Critical Infrastructure.)

The NERC CIP V.5 requirements call for utilities to have explicit security procedures and programs in place, and on a technology level may require many utilities to install cyber security software and other solutions they have never previously had to deploy.

"A much wider number of assets will now be affected under NERC CIP, so for us, V.5 did open up a lot of market opportunity to deploy protection solutions for these companies," says Robertson. "There's a big education aspect to working with these regulations -- we know the substation environment very well and we can point out what they need to do to meet compliance. For example, If you have a substation with a communications path out, encrypting it and securing it with a firewall will help. Does every substation need it? It depends on if that path connects directly with the critical infrastructure."

In a complex, increasingly automated OT environment, making these security upgrades is not a small job, as Kalaycioglu notes, and what's worse for utilities is that that have very little time to show their progress. The NERC CIP V.5 compliance deadline is April 2016, and if utilities come up short they could face fines for non-compliance.

On top of the TDM-to-IP evolution, this cyber security revolution is another reason why the critical infrastructure sector appears to be at a major turning point in its adoption of new telecom technology. Together, these trends are drawing the interest of communications technology vendors like moths to a flame.

"These trends are starting to become clear," says RAD Data's Barnea. "These companies are now buying all kinds of stuff they never thought to buy before, like IP/MPLS and firewall solutions, and what they are buying is not for the IT side, but the OT side. It's a very interesting opportunity."

— Dan O'Shea, Managing Editor, Light Reading

About the Author(s)

Dan O'Shea

Analyst, Heavyreading.com

You want Dans? We got 'em! This one, "Fancy" Dan O'Shea, has been covering the telecom industry for 20 years, writing about virtually every technology segment and winning several ASBPE awards in the process. He previously served as editor-in-chief of Telephony magazine, and was the founding editor of FierceTelecom. Grrrr! Most recently, this sleep-deprived father of two young children has been a Chicago-based freelance writer, and continues to pontificate on non-telecom topics such as fantasy sports, craft beer, baseball and other subjects that pay very little but go down well at parties. In his spare time he claims to be reading Ulysses (yeah, right), owns fantasy sports teams that almost never win, and indulges in some fieldwork with those craft beers. So basically, it's time to boost those bar budgets, folks!

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