Telco, Online Energy Retailer Merge To Take On Coal-Laden Utilities

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Originally published on RenewEconomy

Junior telecommunications company amaysim has agreed to pay $120 million for online energy retailer Click Energy in a move designed to challenge the dominance of the big utilities in both the telco space and the energy sector.

The potential merger of telecommunications and energy offerings has long been mooted. But, despite Telstra snapping up PowerShop’s Ben Burge last year to head the newly created Telstra Energy and promising its own line of solar and storage, little has happened to date, although combined offerings have become common in the US and Europe.

“I think it will be standard here in the next few years time,” says Dominic Drenen, who will continue his role as CEO of Click Energy. “We think we can put together a bundled product that is quite compelling. For consumers, they will be dealing with one platform, so it’s just one less hassle.”

The two companies think there are significant opportunities for an “asset-light” retailer that is not burdened by legacy assets such as ageing coal-fired power stations.

“Retailing industry players are burdened with complex legacy systems and pricing structures, with most major providers also owning ageing coal-fired generating assets,” amaysim CEO Julian Ogrin said in a presentation. “Customers face large confusing bills, bill shock, no real online engagement or DIY experience and poor customer service is common.”

Ogrin sees a “once-in-a-generation” opportunity in the forced migration of around 8 million Australian homes changing their broadband service by 2020. He says the telco and energy sectors are typically “inert”, so the opportunity to increase market share in the forced migration of NBN is a unique opportunity.

It expects to have its first combined offers available in 2018, and sees major savings in “back-end” IT platforms and other synergies of around $5 million a year.

The $120 million payment, $80 million in cash and $40 million worth of shares, for Click Energy represents a huge windfall for the private equity investors who bought the company for just $11 million four years ago – California’s Angeleno Group, Zurich-based Robeco Sam, and Australia’s Cleantech Ventures and ES Link.

It also reflects a hefty $800 for each of Click Energy’s 135,000 household customers. amaysim has more than one million customers, from around 650,000 households, although the revenues of the two companies are about equal, reflecting the higher cost of energy services over mobile phones.

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The combined company is estimated to generated revenues of around $500 million, and earnings before interest, tax and depreciation of around $54 million. But this does not include around $5 million of annual synergies from the IT platforms and other merger benefits.

It is targeting around 300,000 households with multiple products – NBN, mobile and energy – within three years, delivering a potential ARPU (average revenue per households) of $200 a month.

amaysim bills itself as a significant disruptor to the telco industry. It launched in 2010, and is now the fourth biggest mobile plan provider in the country, with products including its “bring your own” mobile phone plan.

It says its vision is to become the “remote control for the smart home.”

“The retail energy sector is ripe for disruption,” Ogrin says. “Customers want greater transparency and value for money …. and we will offer no lock-in contracts and no long wait times.”

“Energy will be incorporated into amaysim’s plug-and-play platform that allows customers to buy and manage their mobile, broadband and energy plans with the touch of a button”

The emergence of such business models is one of a number to challenge the incumbent utilities, particularly the generators and retailers who have depended on a traditional dominance of the sector, but may now find themselves too inflexible to move with the times, and keep up with new technologies, including online platforms, rooftop solar and battery storage.

The telco sector has been keeping a watch on the energy sector for the last few years, highlighted by Google’s multi-billion dollar smart control business, Nest Labs, and its purchase of a wholesale power licence; and locally by Telstra’s push into the energy business.

David Crane, the former head of US utility NRG, warned a few years ago that the battleground for customers in electricity will be inside the house.

“When we think of who our competitors or partners will be, it will be the Googles, Comcasts, AT&Ts who are already inside the meter,” Crane said. “We aren’t worried about the utilities, because they have no clue how to get beyond the meter, to be inside the house.”

PwC head of utilities, Mark Coughlin, has also pointed out that telcos are often better at customer services than energy utilities, who are about to face their “Kodak” moment.

“This traditional utility model where the company controls the ‘electrons’ and the consumer has little choice is on its last legs – this model is struggling to meet customer needs,” Coughlin says.


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Giles Parkinson

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.

Giles Parkinson has 596 posts and counting. See all posts by Giles Parkinson