Column: Utility convergence snagged on human factors

What happens when technological developments throw previously separate industries together?

What happens when technological developments throw previously separate industries together?

The standard answer is to rave on about convergence and technological developments, but before that the human element has to be dealt with.

And no, I don't mean human resources, lay-offs and the like. I mean managers getting their heads around the fact that their market is in the process of taking a quantum leap in size.

A case in point, and one only just starting to be addressed in New Zealand, is the confluence of the utility industries--telecommunications, electricity and gas. A conference in the capital last week on the convergence of these three former natural monopolies threw up some interesting issues--and the thorniest seemed to be human/attitudinal rather than technological.

The first issue is the old "glass of water is half, full-half empty" debate. A much larger market means more customers, but it also means more competitors. The attitude taken here--proactive or reactive, positive or defensive--is going to be crucial.

Whichever attitude is chosen will depend on a whole range of variables, but one of these will be how quickly executives get to grips with the issues of the change in market--and that can be difficult. It's hard for a lot of managers to admit to themselves, let alone others, that they don't know their market any more.

Another issue is that someone who was operating in a different industry yesterday could be a competitor tomorrow. This was nicely illustrated by Saturn Communications' Sean Wynne, who spoke of alliances the company already has with a number of electricity companies.

Wynne took great pains to assure his audience that Saturn's core businesses is pay television, telephony and high-speed data/Internet services, and that it is not about to turn into a competitor in the electricity market.

Saturn and the Wellington power company, TransAlta, are working together to install infrastructure. Saturn uses TransAlta's poles, and they also work together to achieve efficiencies in new sub-divisions and the like.

In the future, though, such relationships offer the opportunity to provide a whole raft of bundled services, says Wynne.

"Our co-axial cable means Saturn can provide utility companies high quality access to their customers," he told the conference. "In 10 years people will demand a full package of facilities--power companies will be forced by other utilities to provide services that can’t be provided by using narrow-band technologies."

Such services could include electronic billing and payment, a two-way communications channel that will allow customers more information about their energy consumption and also greater ability to control that consumption, monitoring of energy use by appliances, and security systems.

There are natural synergies, he says. Cable providers can use some of the utilities' infrastructure, as well as having a partner who will use some of capacity on their broadband network. For the utility, such relationships provide capacity they would otherwise have to build themselves, plus the opportunity to provide new services.

He cited a study of United States power utilities by Andersen Consulting late last year which showed that every US utility is looking at starting up fibre options.

"Many are looking at their own roll-out, but most are looking at linking with cable and telephone companies."

The problem with such relationships is the new post-deregulation competitiveness of New Zealand's electricity market. What happens, Wynne was asked, if Saturn has a relationship both with TransAlta and with another power company that wants to move into the Wellington region?

Or, as conference chairman, and former Capital Power CEO Peter Blades put it, the question for power companies in looking at such alliances is: "Am I letting a competitor up my poles?"

Wynne says that under current arrangements Saturn would be unlikely to be able to enter exclusive arrangements with one power company--the Commerce Commission would probably have some fairly pungent things to say about such contracts.

"But other companies may have to pay more than TransAlta."

But there's clearly a lot of unease on the issue among the utilities--again, the human element. One suspects that there's something of an over-compensation factor when former natural monopolies are let off the public service leash and told to become businesses. There's a certain over-selfconsciousness about being competitive. Blades, who has also worked in the telecommunications field, suggests such sensitivity is holding up developments in a lot of areas.

"Convergence isn't happening," he told the conference, "because the players don't trust each other."

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