Winning in Energy

The telecoms and IT Channel has been flirting with the energy market for a while now but much of the industry is still not convinced of the viability of adding a procurement arm and the associated products into their portfolios. In this feature, David Dungay looks to unravel some of the big questions around getting your partner business into energy.

Setting up your utilities offering will undoubtedly come with many questions, one of which is whether it is best to resource a specialist team to focus on the proposition or to give it to your existing account mangers as a value-add.

I asked this question to John Haw, Managing Director at Fidelity Energy, who responded, “We get this question a lot. Resellers are there to solve customer problems by using technology. They are using broadband or VoIP to solve a problem or improve a customer experience. It’s no different with energy, we use a portal which we have built to effectively do all the hard work of managing your energy portfolio for you. Partners are using technology, i.e. our portal, to solve a problem of procuring energy. It is tricky, it is also specialist so you need to know what you are doing.”

Wayne Heap, Head of Partner Networks, Love Energy Savings, commented, “While it is advantageous to specialise within the utilities sector, it certainly isn’t a requirement. Here at Love Energy Savings we have highly successful partners from a multitude of different backgrounds and industries.”

Steffan Dancy, MD of Rydal Communications, added “We have utilities as a value-add product at the moment but I think the way to crack it is to have someone solely focus on it and that’s all they do. We are moving towards that setup at the moment.

We previously had someone just focused on the utilities side of the business who then moved on and we thought we would give it to the comms and IT account managers to cross sell. What we found is there is some knowledge needed around the industry like how the meters work, pricing, and that sort of thing. I didn’t want to do it so we were seen as a jack of all trades as our main focus is comms and IT. Getting your comms guys to go and understand utilities is difficult, there is only so much information you can feed them before you start diluting all areas of your business by having too many products to sell."

Haw added, “I don’t think there is a danger of becoming a jack of all trades, you could have said the same thing about broadband ten years ago. I used to hear ‘we sell voice, I don’t want to touch data’ ‘hosted voice will never catch on’ ‘why would anyone use SIP trunks’. At the end of the day someone will be in your customer base selling your customer energy and there are a lot of energy companies now adding telecoms to their portfolio.

It’s like letting the wolf in the hen house. Why would you let your customer potentially engage with another competitor on a product you don’t have when you could easily offer it?”

Margin Opportunity?

If you are looking at the utilities market in any meaningful way there are several key factors to consider before making the leap.

Heap says, “To bring utilities into an established portfolio it is important to have an understanding of the industry, the more knowledge you have the easier it is when completing sales.

It isn’t a simple industry, but it is a very profitable one. There are various areas partners need to take into consideration, specifically in terms of treating customers fairly and keeping them up to date with the sales process.”

Heap continues, “The earning potential is endless and so are the benefits. Selling these services to your current customer base offers additional value to the customers and creates loyalty. It also gives you opportunities to communicate with your clients on a regular basis with updates on legislation and industry changes, keeping you at the forefront of their minds.”

Dancy added, “LED lighting is a big opportunity for us at the moment. People are going in and looking at the utilities bills and sticking LED lighting in to save customer x-amount per month. With the money the customer is saving they can purchase the kit and then in three years’ time when the kit is paid for they can realise the investment. There is no upfront capex needed.”

Haw said, “Energy procurement and managing a contract is our focus. That’s what our portal is built for. There is a big opportunity for things like bill validation in the public sector especially as the market moves towards CHP (Central Heating Plants).”

Haw continued, “There are other things to consider too. Just yesterday there was an explosion in Austria which sent the price of gas up 10% in a day. So all the customers you put in a contract a year ago are basically buying gas 30% cheaper than anyone trying to buy it today. Customers are pretty grateful when they realise that.”

“Electricity and gas go hand in hand but there isn’t a lot of point getting into water at the moment. The government got it wrong when they deregulated it and you are looking at 1-2% savings for the end customer and £100 profit for the partner. No one is getting excited about that.”

The Full Package

If you have decided utilities is for you where should you start? Do you just dive in and offer everything or can you dip your toe into the market?

Heap says, ”You do not need to offer the full package in order to succeed within the utilities market, if you only offer gas and electricity it will not affect conversion. For businesses new to the market starting off small and perfecting each utility before

entering the next is the best way to position your business.”

Dancy comments on the areas he has had success, “It works really well when you have people moving premises. If you are going in a doing a phone system sale it is a good value-add because it’s another foot in a door for the account manager. When you have that foot in the door you then have more knowledge to imprint in that customers head so at that point you need to have the resource in house to make it work. It’s not as simple as getting a quote and putting in front of the customer. People don’t realise that I think.”

The Financials

CBM: From an M&A point of view, is a utilities business a high value proposition?

Adam Zoldan, Director at Knight Corporate Finance (AZ): As the Utilities market deregulates, we are seeing more and more energy business emerge and M&A will certainly feature as the resellers look to consolidate. As we have seen in comms as competition for the best assets increases, so will valuations.

However, I am less certain of the impact on value of utilities as part of an overall telecom proposition.  Thinking from a buyers perspective they are generally looking for a focus and there is a risk that utilities could dilute this focus – particularly if the reseller is differentiating itself on its technical expertise.

However, if there is clear definition of “customer” where there is a vertical market, a specific size etc, then this could be a real benefit as the reseller becomes a full utility service provider to those customers whilst increasing margin and stickiness.  We are seeing the small business resellers such as XLN, Utilities Warehouse and Verastar have enormous success here.

CBM: Is having a utility arm to your telecoms business an advantage and does it equal a higher valuation?

AZ: We are seeing most telco resellers take the money up front route to utilities (rather than billing themselves), this can be a great boost to cash flow and working capital that can enable further growth and development in the organisation and indirectly this should contribute to value. However we are not seeing the revenue/margin from utilities significantly add to business value and certainly no increase in valuation multiples.

CBM: Are there any business structure considerations partners should consider before selling utilities?

AZ: It is certainly a highly regulated sector and resellers should understand the potential impact of these regulations.  Like any new service, understand what it can do for your customers, your business, and the potential benefits and impact. The cash generation could be a significant boost, but only on the basis that it does not distract resources away from the core strategy.

Ed Says…

Utilities is worth thinking about if you are serious about building long term customers for your business. Other than making them incredibly sticky it can offer some good margin opportunities once you are set-up. The great thing is… everyone needs energy!