As utilities shift to smart meters and more customer-oriented systems under new government-mandated Smart Grid initiatives, they will quickly face the need to handle billions of real-time energy utilization transactions. In this new energy arena, the high volume, low-cost model of M2M is the optimal solution to support energy utilities’ communications infrastructure needs. Indeed, the proliferation of SIMs in new meters to enable remote reads is alone driving massive amounts of M2M transactions.

That said, M2M and Smart Grid are a natural fit – but tough choices still remain for utilities.

In markets where the regulatory environment gives utilities latitude to make their own decisions on Smart Grid infrastructure, energy companies can choose whether to build their own communications networks or outsource the job to established telecom providers. Whatever route utilities take will hinge on their confidence in managing four challenges:

1.  Balancing Capital Requirements with M2M Expertise – While networks increase the asset base of utilities, they are expensive to build, own and operate.  As utilities assess the impact of M2M on their networks and their need for network expansion, there may be times when undertaking outsourcing partnerships with telecoms for support makes sense.   For example, networks must be capable of handling settlement for M2M transactions that can unpredictably peak or decline, a situation familiar to experienced telecoms providers.  For a smaller utility that may not have a large pool of assets, partnering with a telecom may alleviate the enormous time and capital investment of building a new network, allowing the utility to direct more funds to upgrading its own infrastructure.  Engaging in an outsourcing partnership with a telecom provider may also alleviate the sharp learning curve amidst a quickly evolving and changing technology set, and reduce the ongoing cost of maintaining the network. In short, an outsourcing partnership with a telecom could be the right business model for some utilities to achieve their best balance of risk and capital investment as they seek to handle the evolving requirements for M2M growth.

2.  Scalability, Reliability and Reach – According to Lux Research, as a result of Smart Grid, the amount of data utilities will have to communicate, manage, and analyze will increase 900 percent over the next decade. Partnering with a telecom offers a distinct advantage: access to an already established communications network and source of industry experience. However, if a utility opts to engage in an outsource arrangement with a telecom, it should demand proof that a carrier’s network is scalable to handle the explosive surge in real-time transaction volume; is ubiquitous to reach the remote areas covered by utilities; and has “five 9s” reliability as well as disaster recovery capabilities in times of natural calamities or outages.

3.  Data Security – The increased reliance on IP-based technology in Smart Grid systems raises utilities’ vulnerability to cyber attacks.  Because the data transferred from businesses and households is sensitive information, utilities are justifiably concerned about network security issues. If the choice is to outsource, telecom service providers must be ready to demonstrate that they have the expertise and technology in place to prevent data breaches.

4.  Back Offices Built for M2M – In tandem with pursuing a new network infrastructure, the utility must also look to new back office systems expressly designed for the high-volume needs of M2M. Today’s utility billing systems were not built to manage the pace or volume of Smart Grid information in an M2M environment. Telecom service providers do offer a key advantage in this respect: Most are familiar with complex billing through partnerships with third-party billing systems providers that have already proven their capabilities in meeting Smart Grid demands.

While the conversion to Smart Grid is still in its earliest stages, whether utilities choose to go alone or partner with telecom companies will set their course on how they’ll handle the four challenges that confront them en route to Smart Grid.  Given the active involvement of Verizon, AT&T, and Vodafone with M2M-based Smart Grid solutions, it’s clear that telecom industry leaders already understand the sheer scope of this opportunity and the potential for partnerships with utilities.