Multi-utilities likely to pay dividends - merging of telecommunications and utilities - Statistical Data Included

Business Asia, Nov 2, 1998 by Malcolm Alder

In telecommunications, "convergence" has typically referred to either the loss of distinction between fixed and mobile telephony or the blurring of boundaries with computing, television and other electronic media.

Now, there is another dimension to convergence--merging of telecommunications and utilities, otherwise known as multi-utilities.

The end game of this concept might be captured in a TV commercial as follows:

A dark, empty house is hit by a violent storm. A family is caught in its car. The family makes a mobile phone call and instantly, the house' lights go on, blinds close, heaters turn on, appliances start to prepare hot food and drinks for the family's arrival...

You get the picture.

Later that evening, father logs on to the 'Net and a single bill is there detailing phone calls, electricity, water and gas charges, which he then pays to one company with a single electronic transaction and everything is cheaper than when he used separate companies for each service. Everyone is happy.

Of course, if anything had gone wrong during the storm, a call to a single, world-class call centre would have fixed any problem within an hour.

So the multi-utility is good for the customer, but what about the company?

The utility gains growth at a higher return than its core business and improves its asset utilisation and makes it harder for customers to switch as utility markets de-regulate and competition increases.

The telephone company gains access to critical infrastructure (ie. underground ducts, power poles and building access, as well as preferential access to customers through the utilities' strong, established relationships. When they combine, further synergies come from shared billing systems, customer care centres, sales channels and advanced services such as automated meter reading.

At the long-distance level, telecoms can also run fibre optic cables over longhaul electricity transmission networks, as PowerGrid is planning to do in India, or alongside railway tracks or highways.

Japan Telecom built a nationwide fibre optic network with Japanese Railways as far back as 1992 and TIME Telekom in Malaysia was created from burying fibre optic cable under the PLUS highway when it was built.

The move towards multi-utilities has been strongest to date in the United States and the United Kingdom.

Companies such as Scottish Telecom, a subsidiary of Scottish Power, and Energis are established successes in Britain. But perhaps the venture gaining greatest attention is Norweb Communications' trial of Nortel's equipment to run data over power lines to a school in Manchester. As and when that becomes a fully commercial product then the multi-utility will truly have arrived. But the benefits of convergence are powerful enough even if it never succeeds.

In August this year, Australia saw the consummation of one of the world's largest multi-utility projects so far. EnergyAustralia, CitiPower and Energex, electricity companies covering Sydney, Melbourne and Brisbane, respectively, formed a consortium called Down Town Utilities (DTU).

As the result of a tender process, they selected the US$20 billion US-listed Williams Companies Inc, and Spectrum, a small listed telco, to be their partners. The resulting company, PowerTel, is now building out networks using the DTU partners' city centre ducts and targeting their combined existing customer base of some 2.5 million for its telecoms services.

In cities such as Seoul, Manila, Jakarta, Taipei and Bangkok, the combination of a huge, densely packed population and scarce land make utility ducts and poles probably the most viable source of access for ambitious new telcos to reach key, corporate customers and compete against former monopolists.

In Singapore, the Starhub consortium, which will become the second fixed operator, includes Singapore Power, NTT and British Telecom.

Elsewhere in the region, there are various trials and discussions occurring and while there may not yet be many actual multi-utilities, there is no doubt that this trend will gather pace.

Among the companies that have intentions in this area are China Unicom, Korea Electric Power Corporation, KDD, Japan Telecom and Tenaga Nasional.

For those who embrace this idea early and fully, the pay-off in shareholder value could be enormous.

Making up the numbers

Country                 Mobile subscribers     Annual growth

China                       7,100,000               96%
Hong Kong                   1,200,000               72%
India                         300,000              975%
Indonesia                     600,000              175%
Japan                      18,200,000              125%
South Korea                 3,200,000               94%
Malaysia                    1,600,000               56%
Philippines                   900,000               97%
Singapore                     400,000               35%
Thailand                    1,700,000               37%

Total Asia Region          36,400,000               89%

Australia                   4,900,000               13%