PAETEC CEO Enlightens NGN on Energy Strategy

By Paula Bernier

Arunas A. Chesonis, chairman and CEO of large competitive service provider PAETEC (News - Alert), during his ITEXPO West keynote earlier this fall promoted his plan to expand further into the energy space. NGN Executive Editor Paula Bernier sat down with Chesonis at the September event in Los Angeles to discuss the thinking behind this move and what's next for PAETEC.

You mentioned during your keynote that some of PAETEC's customers that spend about $40,000 a month on telecom pay a whopping $440,000 a month on energy. That explains the allure of this space for PAETEC. But why is the company so charged up about this opportunity now?

"It's going to be about how energy and communications are going to get linked together more and more. It's the basic proposition that the offices of the CIOs are going to be pulled more and more into energy purchasing decisions over time, just like they were 10 years ago when you saw more of the telecom managers in telecom purchasing migrate toward IT. A lot of people made that bet, and you look at it today and [see] hosting, data centers, software, network security, cloud computing." Are you saying CIOs are getting involved in energy purchasing decisions because the energy costs to support communications are so high?

"Partly. One way to look at it is: Who are the biggest energy users in most companies, outside of major manufacturing? Typically IT organizations – big data centers, energy load off of all the equipment that runs the business. They get pulled more and more into real estate decisions, whether it's remote users or another satellite office. They're being pulled into energy- efficiency discussions. I know a lot of CIOs who are now being asked not just to worry about the backup power generators, but also to 'help me with my green initiatives. I need a green data center. I need to showcase that to my clients and people who give me money.' And, politically, people have to show something."

How does that translate into what PAETEC is doing?

"We've got sort of a long-term project. It's not going to be a core business tomorrow. But we bought a little gas and electric company last January, almost two years ago, that was brokering energy in upstate New York. And we just wanted to play around with it and see if this made sense and there was really some common interest between IT and energy decisions in telecom and how they play with each other. And there was. It turns out that about a third to half of our clients were buying energy from us and [they said] 'Well, what else do you have for us.' And we said 'Well, we have telecom too.' [And they said:] 'Really, well come over and tell us about that.'" What has the learning curve been like for PAETEC in moving into this new area of business?

"When you think about it, think about the infrastructure ... and you have been used to selling bits and bytes of data and minutes of voice, it's not something you actually take and put on a shelf like at a supermarket. It's all virtual. And that's what gas molecules are – all virtual. It's basically UNE-P on steroids. Most of the energy costs for those companies are an order of magnitude larger than their telecom bill. We find our typical customer spends four times more on energy [than they do on telecom]." So do your telecom and energy sales people go out and do joint sales calls?

"Right now we have eight employees out of 3,700 at PAETEC Energy. Maybe next year we'll have 30 or 40." Currently PAETEC is selling energy services exclusively in New York state. I understand you plan to expand to additional states, potentially around a dozen, within the next three years. Does that mean PAETEC soon will make additional acquisitions in the energy space? "That's a possibility. It's a really weird industry because there aren't a lot of medium-sized players. There are a lot of little folks and a couple big folks. And there are not a lot of in-betweens." We're hearing a lot about smart grid lately. But what does smart grid mean to you, and what will it entail from an infrastructure standpoint?

"If you're thinking about keeping your power strips and your computers on in your office building, there are different ways to shut down that cost. Just because you think you're on standby doesn't mean you're not sucking a lot of power. It's like leaving your phone charger in the socket; it's pretty hot, and that means you're drawing energy." Right, but does smart grid require some smarts in terms of the in-building wiring, on-site meters or end user devices themselves? "Within office buildings you've got meters that haven't actually been connected to every single outlet to track it. So some is hardware, some is software."

What will ultimately motivate businesses and individuals to embrace smart grid? "That's where the world is headed. They talk about climate change. But whether you believe it or don't believe it, it doesn't really matter. You can save money by just being more efficient."

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