From companies such as Enron (ENE:NYSE - news - boards) and Williams (WMB:NYSE - news - boards), which have leveraged their long-haul rights-of-way and expertise in commodity trading, to local and regional companies like Florida Power & Light (FPL:NYSE - news - boards) and United Illuminating, which have leveraged their metro and, in some cases, their access rights-of-way, the utility industry is taking a long, hard look at the potential revenue growth and high margins of telecommunications.

Here's why. Before the passing of the Telecommunications Act of 1996, practically all CLEC activity was a function of the reselling of the local loop that was owned by the incumbent local exchange carrier, or ILEC. The Telecommunications Act, among other things, unbundled these local loops, forcing the incumbents to let competitors install their own equipment and to tie their own networks into those of the incumbents. Companies like Covad (COVDE:Nasdaq - news - boards) and Rhythms NetConnections (RTHM:Nasdaq - news - boards) were built to exploit these new "advantages."

However, most of these companies quickly ran into service provisioning nightmares, as the incumbents are, well, let's just say "less than excited" about enabling competitors to use their networks in a profitable manner. Many of the competitors also found their customer acquisition costs prohibitive.

Additionally (and here's the meat), the Telecommunications Act gave alternative service providers the ability to sell voice, video and Internet services over new mediums like hybrid-fiber-coaxial and fixed wireless infrastructures, and the value of owning the local loop quickly became apparent. The upstart alternative-access providers are looking for methods of displacing the incumbents' continued monopolization of the local copper loop. This displacement is the model that companies such as Winstar and Teligent were founded on. They hoped to displace the copper plant with fixed wireless technologies. Unfortunately, a combination of too much breadth and technological setbacks contributed to these companies' demise.

Other than the incumbents, the cable companies were pretty much the only ones that had a lit connection already established, as they had taken their coax along their right of way to the home; this access to the home is one of the reasons companies like AT&T (T:NYSE - news - boards) went crazy buying up cable companies. Rights of way are important because companies must obtain them in order to dig trenches in which to lay fiber or cable. And the only other companies with significant rights of way -- other than the incumbents and the cable companies -- are the utilities.

Those rights of way -- and the egregiously huge amount of money that flowed into teleconomics in the past few years -- led to the utility companies setting up telecom subsidiaries (or, in the case of Mpower, betting the whole farm on telecom).

The Edison Electric Institute, an association of investor-owned electric utility companies, estimates that more than half of its 175 members now have telecom interests and that public utilities now have more than 50,000 route miles of fiber.

I don't think most utilities are taking the right approach to their foray into telecom. They're having a hard time figuring out whether they should be simply selling dark fiber or whether they should be selling services. They're having a difficult time figuring out which services to sell and to whom to sell them. These companies are traditionally regulated monopolies whose business plans have been to simply gauge future demand for services. Such a culture has a hard time adapting to the quicker and aggressive nature of selling telecom services.

What utility companies need to do is borrow a page from the landlord book. When companies like Allied Riser or Cypress Communications negotiate to deploy high-speed networks to a building, they usually have to give up part of the future revenues from the building. In other words, let's say you own the Chrysler Building. When FiberNet comes to you and says that it wants to run fiber-optic cabling all the way up the building to enable carriers to sell services to your tenants, you tell FiberNet that you'll give it access only if it gives you a cut of the revenues that those services generate.