Feeds

Endesa's power line broadband coup

A kickstart for utility product expansion?

  • alert
  • submit to reddit

Beginner's guide to SSL certificates

Attempts to sell broadband services through the power network have been beset with problems. However, Spanish energy provider Endesa has managed to provide an exception, with a penetration rate of 19 per cent. Datamonitor's Martin Yuill examines how the company has managed to find success where so many others have failed...

Over-ambitious strategies and flawed implementation have been responsible for undermining utilities' expansion into non-energy products and services.

Delivering viable product offerings by successfully penetrating other mass-market sectors is challenging: spiralling costs, incumbent competitor pressure and entrenched customer apathy have to be successfully overcome.

Endesa has taken advantage of Spanish regulatory support as well as the more favorable broadband environment found in Spain (broadband penetration along traditional DSL-based lines is not as widespread) to launch what has been an initially successful power line venture, selling broadband Internet connections via its own electricity distribution equipment.

It has looked to sell to what it considers to be 'high-worth' consumers - those willing to pay a premium for fast, 'always-on' Internet access, not best served by conventional dial-up operations. In addition, the latest generation of the technology seems to have ironed out a lot of the interference glitches holding back earlier versions.

Endesa's success seems to be the exception

Between 2000 and 2002, a large number of Europe's major utilities were, to various degrees, looking to develop non-energy products and services. However, an analysis of the current landscape reveals that these initiatives have failed with the majority of multi-service operators undertaking a change of strategy.

One option taken was to freeze expansion, for example, npower's efforts to build a multi-service consumer brand, providing 'essential services to the home' have stalled; the sell-off of its telecommunications business leaving it mainly focused on its home services operations.

Another route was to revert completely to the core business of energy provision. For example, RWE is now focusing exclusively on energy provision after its attempts to develop digital services around the home through its power line broadband initiative failed. Birka Energi has abandoned its residential brand, HemEl, after the failure of its home-related suite of products.

Utilities have been over-ambitious

A fundamental reason for failure is that utilities have attempted to achieve too much scale in their product expansion initiatives without fully realising the necessary operational or perceptional customer relationships and the provision of new products crucial to success.

npower had invested heavily in a dynamic brand identity, its fast M&A growth caused many billing and customer service problems in its energy business - these operational glitches in its core energy business undermined its efforts to grow as a multi-service retailer, shifting the focus on resources and undermining consumer service perceptions.

Operational weaknesses have been more apparent for the failure of RWE's broadband-led, multi-service expansion. Technical problems beset the expansion of RWE's powerline venture, undermining its commercial viability. However, these were not simply restricted to interference problems, regulatory problems associated with the German market also emerged, as did problems from the manufacturing side of the venture.

For Birka Energi's HemEl brand, Norwegian customers simply failed to take to its brand and the home-related services it stood for. Consumers could not connect with its association to the provision of services around the home.

Overwhelming competitive pressure from incumbent providers

In addition to the scale of expansion initiatives being over ambitious, the scope of product expansion has also led to failure. Telecommunications was one of the favoured product choices for expansion due to the 'utility' synergies with energy provision. However, telecommunication incumbents such as Deutsche Telecom and British Telecom continue to hold dominant positions in their respective markets.

In 2001, British Telecom still operated around 20 million residential customer lines within the UK. This makes it hard for new entrants with well-known and resonant brands such as Sainsbury's and the Carphone Warehouse to make much of a market impact. Utilities have been even less successful. Even Centrica, having acquired the relatively well-known One.Tel brand has only made a slight impression on the market share positions held by the dominant and incumbent rivals.

Innovation rather than price is crucial

An important reason for the failure inherent in this type of product expansion is that utilities have tried to compete against these powerful incumbent players on a price basis. This traditional approach to market penetration does not serve utilities well. Price-centric and over-expansive product offerings are responsible for magnifying the customer apathy and heavy incumbent competition undermining the multi-service utility approach to date.

Product expansion should look to exploit service opportunities to develop existing customer relationships. Utilities expanding into home services insurance provision have had success as a result of realizing this opportunity. Traditional businesses operating in the home services environment would cover local businesses and trades people found in the yellow pages. The ability of such a provider to supply an overarching level of service quality, supported by the relevant infrastructure supplied by either Home Serve or British Gas has to be called into question.

The latest generation of Powerline has offered utilities the opportunity to sell an innovative product to a niche customer grouping; rural customers or those in countries with a low DSL penetration rate - which fills demand in an innovative fashion. By approaching product expansion in this measured service-centric fashion, utilities have a far greater opportunity to develop a profitable bundle of services that are truly valued by their residential customers.

Source: Datamonitor

Secure remote control for conventional and virtual desktops

Whitepapers

Cloud and hybrid-cloud data protection for VMware
Learn how quick and easy it is to configure backups and perform restores for VMware environments.
A strategic approach to identity relationship management
ForgeRock commissioned Forrester to evaluate companies’ IAM practices and requirements when it comes to customer-facing scenarios versus employee-facing ones.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Three 1TB solid state scorchers up for grabs
Big SSDs can be expensive but think big and think free because you could be the lucky winner of one of three 1TB Samsung SSD 840 EVO drives that we’re giving away worth over £300 apiece.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.