Summary:

There’s cash in the smart grid for telcos — close to $5 billion by 2016, according to a report out this morning from Pike Research, and most of that revenue opportunity will go to wireless operators such as AT&T and Verizon.

A telco base station.

There’s cash in the smart grid for telcos — close to $5 billion by 2016, according to a report out this morning from Pike Research. While the “lion share” of utilities will opt to build and use private networks for their smart grid services says Pike’s report, the revenues from the smart grid for service providers (telcos, wireless network operators) will more than double over the next six years from $2.2 billion in 2009 to $4.9 billion in 2016.

Most of that revenue opportunity will go to wireless operators — like AT&T, Verizon Wireless, and T-Mobile — with a smaller portion going to fixed line network operators, like a DSL or fiber network provider. As I pointed out this summer, the market opportunity has already been large enough for long time rivals AT&T and Verizon to include the smart grid as another weapon in their fierce battle over market share and subscribers.

For wireless operators, the smart grid is all about using their wireless networks to sell “machine-to-machine” services. So-called M2M services run data over networks used by devices, but they don’t include consumer customers and cell phone accounts (see our recent report on machine-to-machine networks at GigaOM Pro, subscription required). Consumers can be fickle when it comes to ditching their cell phone companies, resulting in churn and continuous upkeep. A smart grid utility deal, or a machine-to-machine service, in contrast, can be relatively low maintenance and can also diversify traffic on cellular networks.

For utilities (like Texas-New Mexico Power (TNMP)) using a public network for smart grid services can be a benefit in certain cases, particularly if the utility is small and doesn’t want to be an IT network operator. Cellular operators can also offer utilities the tech advances of their networks, on which they’ve spent billions of dollars. For example, Verizon plans to expand its 4G Long Term Evolution (LTE) wireless network nationally, which it says can be used for the smart grid.

The decision to use a private or public network has been a fierce debate. We’ve published both sides of it, with SmartSynch CEO Stephen Johnston’s article 10 Reasons Why Utilities Want to Use Public Networks for Smart Grid (SmartSynch has built a business off of public network smart grids), and my piece 10 Reasons Why Utilities Want to Build Their Own Networks.

As Pike Research points out, there will continue to be hurdles to utilities embracing public networks for the smart grid. Utility concerns include if public networks can guarantee coverage, prioritization of utility traffic, and assurance of service availability over network upgrades. At the end of the day, the big question will be cost — public network costs “may still be higher than private networks,” says Pike.

But telcos are trying to bridge this cost gap by lowering the pricing they offer to utilities to use their networks. This will likely be the single biggest reason for the growth in revenue for telcos and the smart grid. As service providers realize the value of utilities as customers, they’re start to be even more aggressive on the pricing.

To read more on the smart grid check out GigaOM Pro (subscription required):

Image courtesy of osde8info.

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