Trustpower says customer churn lower when telco services added to power and gas

Trustpower, the multi-utility company controlled by Infratil, said customers who buy electricity and telco services have a much lower rate of churn than those that only buy one service.

The Tauranga-based company's general manager of commercial operations, Chris O'Hara, told those attending the Downstream energy conference in Auckland, that the overall churn for the electricity industry was 19-20%, nearly 14% for Trustpower's electricity customers, and just 8% for those taking power and telecommunications.

O'Hara's address was focused on whether Trustpower's ten-year journey into retail utility convergence had been worth it.

"Ask me in another 10 years and I might know," he said.

O'Hara said there had been few global success stories on utility convergence, apart from a couple of telcos that have moved into offering power and gas services.

"There are real differences between telecommunications and the energy sector. Telecommunications has more moving parts and is more complex," he said.

But he said it it could be a real "door-opener" in a crowded retail electricity market where market research has shown 69% of New Zealanders have been approached at least twice by power companies in the past two years.

"Having that point of difference to create conversations has a real value. When we're talking broadband, we can introduce energy and turn the original proposition on its head," he said.

Trustpower initially moved into the space in what it thought would be a low-risk way, partnering with internet services provider ihug. O'Hara said it turned out not to be so low risk and it suffered "significant brand damage" when its partner didn't provide the required level of customer service.

In 2006, it created its own Kinect brand while outsourcing the wholesale supply of ISP services and the next year acquired Southland-based CallSouth to boost its scale. But outsourcing provided an unsustainable cost model and it became an ISP in its own right to drive down costs, despite the significant capital spend required.

Mr O'Hara said in 2013 the company had to decide if it wanted to be a electricity company that dabbled in other stuff or a genuine multi-utility provider that could create a new space in the competitive market. The rollout of ultrafastbroadband has added to the complexity.

It decided to forge ahead, converging all its services under the one Trustpower brand and re-entering the metropolitan markets of Auckland, Wellington and Hamilton with new bundled offers.

Some of the lessons learned has been that it takes time to build credibility in a new space in the market and companies had to "stick with it" to be successful. Building internal credibility was also pretty tough, with even some board members wanting to build up a side business that could be flogged off when it had sufficient numbers, he said.

"There's now a belief it's the right thing to do," O'Hara said.

Investing in core capability is necessary to drive down costs and deliver the right customer experience and while acquiring capability can be a quick way to build scale, "you have to be careful you're not buying someone else's problems", he said.

Mr O'Hara acknowledged there could be a threat from telcos moving into offering electricity and gas "but I don't see that happening anytime fast."

Asked whether Trustpower had also considered entering the mobile market, Mr O'Hara said it couldn't find a commercial model that worked in partnership with existing mobile providers.

"We've been looking at ways to do different things where we would not have a reliance on cellular carriers but our experience and research shows customers don't see that fixed line providers have to be mobile providers and the reverse."

(BusinessDesk)