Telco and energy convergence

The lines are blurring between telecommunication and utility providers. It’s now more common for telcos to invest in energy generation, while a number of power companies have started to leverage their assets and customer base by offering mobile, internet, and media services.

The convergence is being driven by a desire to make strategic gains—each industry is keen to improve its resilience, reach, and competitiveness. What remains to be seen is the extent to which these industries will displace each other, or find ways to unite and grow stronger together.

Where do the interests of power companies and telcos intersect?

The links between energy and telecommunications are obvious—both industries manage large networks of complex assets that are used to deliver critical services that millions of consumers, businesses, and communities rely on.

As the world becomes more interconnected, the delivery of these services has become a more competitive and commoditised space. Internet, telecommunications, and power providers are fighting for the same subscribers—consumers who are tech-savvy, aware of their options, and increasingly fickle.

In a maturing telecommunications market, and a deregulated energy market, the average revenue per user is also falling. Providers need to find ways to differentiate themselves, strategically cut costs, and expand into value-added offerings.

A broader set of products and services is a way to attract more customers and a higher spend per customer. Australia’s AGL Energy saw a chance to “evolve as a multi-product brand” in 2019 by providing data and telecommunications through its acquisition of Southern Phone Company for $27.5 million. It has also recently announced an innovation initiative in telco called ‘AGL Next’.

For telcos, an overlap in infrastructure and customer base aren’t the only factors—the cost, a drive to reduce their carbon footprint, and reliability of power has triggered their interest in the energy industry.

The power imperative underpinning telcos’ foray into energy

Being able to efficiently and reliably manage power usage across their own networks is one of the biggest influences on telecommunications providers’ operating costs. Jumps in electricity prices cause multi-million dollar increases in energy costs for telcos. The never-ending demand for higher Internet speeds and data throughput increases the power consumed by network equipment. Cooling existing equipment and adding new sites to cater for 5G’s rollout all add to energy costs.

Telcos are also dependent on a reliable power supply to ensure their network is functional. Network failures are often high profile and their negative effects can be lasting.

Delving into power generation helps telcos address these concerns. So far, that’s played out through:

• Investing in sustainable and renewable energy supply including wind and solar farms.
• Investing in back-up power supply networks such as generators and batteries.

By paying for their own supply, telcos can control usage in a variety of ways such as:

• Generating ‘green’ power they can buy at a reduced rate via the grid.
• Deferring to standby power sources to pay less at peak times and avoid outages.
• Synching standby power to the grid to generate income from extra energy generated.

Telcos are more aware than ever before that the cost and availability of power can constrain their capacity to build the networks needed to provide the data, speed, and services customers crave.

While power consumption increases, they’re also conscious of their social licence to operate—given the environmental impact of energy production. One way to offset an increase in power is to implement green power generation initiatives. For instance, Australia’s largest telco, Telstra, has committed to using 100% renewable energy by 2025 to not only improve its network but demonstrate its commitment to operating responsibly. Having a sustainability message has been shown to have an impact on market share and brand success, particularly among younger customers and those who see the broader benefits of generating green power.

Rather than be limited by energy—telcos want to control it.

There’s also a big cost driver behind the convergence as both telcos and utilities use and share the same assets. Shared infrastructure both generates more revenue and saves deployment costs for these service providers.

In part, although to a lesser extent, this switch in thinking about power also explains energy companies’ moves to expand into telco territory. Diversification helps power companies shield themselves from a potential drop in demand due to reducing reliance on grid power—such as the emergence of standby power, micro-grids and advances being made in battery storage. Energy companies also have assets that could be used for the provision of telco services. Generating revenue from these assets is very appealing. For instance, it’s very cost effective to add optical fibre, either underground or overhead, when installing power infrastructure. A power company’s poles and towers can also be purposed as a telecommunication asset. An example of this is TasNetworks launching a LoRaWAN grid network this year, described as an ‘unprecedented partnership’ between regulated utility and unregulated utility businesses, and a licensed telecommunications carrier.

Does convergence create any unexpected opportunities or issues?

Australia’s deregulation of the energy industry was designed to give consumers more choice and reduce monopolies, so it’s likely that convergence between energy and telecommunications will face scrutiny. The ACCC is already keeping a close eye on how both markets operate.

Additionally, while cross-selling services across a larger customer base is a clear benefit, it’s not a simple undertaking.

There may be an opportunity to increase profits and provide a one-stop shop for customers—but any merger or acquisition comes with the need to carefully manage an expanded portfolio of products and customer service challenges that arise. Telcos moving into energy retailing—and vice-versa—is unlikely to happen without significant planning.

Many telcos have their hands full targeting growth based on providing digital services and increasing their network’s capabilities to offer differentiated experiences like 5G.

Delivering 5G will require a tenfold increase in assets that draw power—and more data being processed, which also uses more power. This means telcos’ attention is likely to remain focused on making wholesale energy more affordable and ensuring standby networks are effective.

However, this does raise another point about how the interests of telcos and energy companies may coincide.

Building a superior network in a world where more people are connecting using a 5G network means a lot more infrastructure—it could get to the point where every piece of real estate has some kind of antenna that needs energy. Collaborative partnerships could involve better sharing of infrastructure and the associated costs of monitoring and maintaining it.

Traditionally there hasn’t been a great deal of trust between telcos and utilities but if working together delivers efficiency and cost savings, alliances start to look attractive. Plus, given that governments at all levels have a clear interest in the security and supply of critical services, utilities and telcos may face more forced ‘cooperation’ in future.

How can you prepare for what might happen next?

The dissolution of industry boundaries is largely arising from shrinking margins and increasing volatility: telcos and utilities are naturally exploring new ways to engage customers and protect their supply chains.

However, safeguarding and extracting the most value from existing investments may be a more important area to focus on right now—and positions your organisation to confidently pivot in future.

We work with telcos and utilities day-in and day-out to help them reduce the cost of operating sophisticated networks by getting a clearer picture of asset condition through remote monitoring, as well as capitalising on data to better manage and maintain networks.

Our solutions make integrated asset management less ‘hands-on’ and more accurate. For instance, by helping a company monitor tower health for predictive maintenance, or enabling a telco to automate the remote controlling of its standby power. In a shared arrangement we provide solutions to manage KPIs between asset owners and tenants.

Thinking about synergies with other industries makes sense, but there are core improvements that every asset-intensive business can invest in to become stronger, smarter, and more agile.