Why your telco might soon be selling you electricity

Many of Australia’s telecommunications providers have been trying to turn themselves into tech and media content companies, but industry spectators have an ambitious idea for the incumbents.

All the telcos are facing an increasingly competitive and disrupted environment, with squeezed margins and the National Broadband Network adding a further level of complexity to what it means to be an internet service provider.

Major provider Singtel Optus wants to become a “mobile-led multimedia organisation”, while market leader Telstra has talked up its future in technology, despite a failed investment in US-based video start-up Ooyala.

Investment analysts at Morgan Stanley have a different plan, suggesting the energy space might have more opportunities for large telcos than competing with Amazon, Google and Facebook.

Telstra, for instance, with prior customer relations with 5.4 million households in Australia, already dwarfs the biggest retail energy company in the country, with 4.2 million households, a recent research note from the analysts explained.

The power of the bundle

Many telcos already offers bundles of mobile, broadband and Pay TV, so this would add a further product to the mix – energy.

There are significant benefits to offering bundles for households, and smaller telecommunications companies have already started to make a play in the energy market for this reason.

In New Zealand, an example of this already exists with TrustPower, the country’s fifth largest electricity generator and fourth largest electricity retailer, and an internet service provider.

And in Australia, Vocus and Amaysim have moved into becoming energy retailers, able to sell energy products to their mobile and broadband customers and vice versa. This is known as “cross-selling”.

By cross-selling, a company can improve its average revenue for each household it signs up, lower its costs in attracting them in the first place and, in theory, improve its retention of these customers.

But could telcos go one step further and become an owner and operator of energy assets?

The Morgan Stanley research suggests this could be a lucrative approach.

A $10 to $20 billion investment in energy assets from Telstra could “make sense” for increasing profits and strengthening its balance sheet and earnings as the National Broadband Network’s impacts are felt.

Telstra has acquired some energy assets, though so far this has been to cover its own electricity usage.

Electricity and broadband comparison site Canstar Blue spokesman Simon Downes said it made “natural business sense” for major telcos to want to sell more services, though wasn’t an easy leap.

“If you’re a service provider you’d be looking at energy retailing as a potential gold mine,” Mr Downes said.

“You can understand the appeal of a single provider, but they’ve got to come up with a compelling offer to get customers to go along with it.”

A one-bill household

One way customers can benefit is having the option to get all the household bills in one bundle and, potentially, at a discount.

Trustpower general manager commercial operations Chris O’Hara in a 2015 presentation said customers wanted the comfort, convenience, connectivity and value of multi-product bundled offerings.

More than half its new customers in New Zealand were taking two or more products and multi-product customers are less prone to “churn”.

Churn is where customers stop using the company or their products. Driving lower churn is a major objective of most utility and telecommunications companies and, usually, customers who are on bundles have more loyalty to a company.

Dylan McConnell, a research fellow at the Climate and Energy College, said the energy and telecommunications industries are both utilities-based and have a major role in billing customers.

“People talk about one of the innovations in the electricity space is to have your bill structured more like a phone plan, so it would make sense to have this tie up,” he said.

In April 2017, Amaysim acquired Click Energy for $120 million with plans to cross-sell products to customers.


Source: The Sydney Mornig Herald

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