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:
- Schweitzer Engineering Laboratories
- Schneider Electric
- Black & Veatch
- Burns & McDonnell
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