Will telcos become the OTT players in smart energy?

Article by Australian Smart Communities Association executive director Paul Budde

As I am involved in both the smart energy and the telecoms market I am in a good position to make comparisons and observations in relation to these utility markets.

I have been following the telecoms market for more than 30 years and the electricity market for 15+ years – in both cases well and truly before any form of industry transformation started to take place in either of them.

Obviously the telecoms market was the first to feel the effects of the digital changes. For many years (decades) the telcos refused to accept the changes, fighting any form of change in order to protect their vested interests. At its peak in the 1990s there were often more than 25 anti-competitive investigations simultaneously proceeding against Telstra.

While fighting all of those rear-guard battles the industry took its eye off the future and companies such as Google, Skype, Apple, Facebook, Amazon and many others in the internet and VoIP market had a free rein to develop the so-called ‘over the top’ – OTT – business models, in which they used the existing telecoms infrastructure to distribute their own services to the end-users. Ever since that time the telcos have complained about the situation, and as a result several countries had to implement so-called ‘net neutrality’ regulations to ensure that the telcos wouldn’t misuse their infrastructure monopoly.

Despite what could be called ‘missed opportunities’ for the telcos, they still were able to maintain a strong market position in the basic telecoms market (connectivity), as the massive increase in OTT services also stimulated a far greater use of the telecoms network. And today in most cases the telcos remain strong and healthy players in the connectivity market.

The big buzzwords in this industry are M2M and IoT. In case of the electricity industry this means extending their infrastructure with connected and interactive sensors.

Now let us look at the electricity utility market.

Nothing much changed until 2007/2008, when this market finally had to wake up to the massive changes ahead. Even at that stage they didn’t necessarily felt the need to modernise their industry. However, with increased political pressure in relation to climate change and energy efficiency they were forced to start making changes. Hardly any of their systems had entered the digital age at that stage and massive investments were needed to make that happen.

However, rather than looking at new opportunities, very much along the lines of the telcos a decade earlier they concentrated their efforts on trying to protect their incumbent businesses. This left the market wide open for new developments in renewable energy, battery storage, distributed energy, home automation and so on.

Fairly quickly a range of new catch-phrases arrived – such as smart grids, smart buildings, smart energy and smart cities. But what this ‘smart’ means in essence is connectivity and interactivity; and the most critical element of all of this is adding (tele)communications to the various electricity assets in the grid and in the end-user premises.

In their effort to protect their businesses they were able to convince an equally sleepy energy regulator – steeped in the good old electricity utility business – to allow for massive gold-plating in the old network. Within a few years energy prices more than doubled and as a result upset consumers doubled their efforts to limit their costs, with the result that the electricity companies have seen their business decrease by 15 per cent in the last few years. These price hikes also delivered some severe political back lashes, which led to a very conservative approach towards a much needed industry transformation.

On top of that, since the arrival of an ultra-conservative government most of the smart energy initiatives that were taken at government levels between 2007 and 2013 have been discontinued and without any leadership from the top this heavily regulated industry has been in limbo ever since.

At the same time the world is moving on. The move towards a digital economy is relentless and many organisations are eager to jump into those parts of the market that are left wide open by the utilities. It is not difficult to see this trend is only going to accelerate and the longer the electricity industry stays behind the more difficult it will be to catch up.

And, in sharp contrast to the transformation of the telco industry, the transformation of the electricity industry is not leading to a higher use of energy. While the telcos are still making significant profits from their basic services, this luxury doesn’t exist in the electricity business.

So this industry is experiencing a double whammy – not only is it missing out on the new developments, its basic income is also under threat.

As ‘smarts’ has everything to do with telecoms, it is no wonder telcos are eager to enter this market. The big buzzwords in this industry are M2M and IoT. In case of the electricity industry this means extending their infrastructure with connected and interactive sensors. It is estimated that perhaps as much as 50 per cent of the initial M2M market is related to energy, so this is a key market for the telcos. And once you have such a network in place you can analyse data, and a whole range of new products and services can be developed based on the outcome and analyses.

We also see that telcos are among the leaders in installing renewable energy, and in developing countries we even see telcos becoming energy suppliers – simply because 1.3 billion people in the world don’t have access to electricity but many of them do now have mobile phones. As these need to be powered several telcos are offering renewable energy services packaged in with the mobile phone subscription – now if one looks at the new developments in battery storage it is easy to see where this industry will be moving to. There is no doubt that telcos are set to play a critical role in this market.

There is no easy solution for the electricity industry in all of this, but one thing is certain – if they are to remain relevant and affordable in this changing market they will have to quickly come up with positive developments.

Without proper government guidance (even denial) electricity companies are failing to move fast and deep enough into the renewable market and this will start hurting their (future) revenue income more and more.

As the electricity industry has overstretched itself in its gold-plating there is not a lot of political appetite to allow the electricity companies to increase their prices any further. These prices in Australia are now already among the highest in the developed world and any further increases will have a political cost attached to them – add to this the government’s inertia and we can see a perfect storm brewing. Whatever progress is going to be made in renewables we will need the current grid for a long time to come, and who is going to pay for that?

Another interesting observation is that originally most electricity companies started locally, as city-based systems; it is only fairly recently they have lost that local connection. With smart cities we see the reverse happening, with local communities, and indeed cities, looking to become more and more self-sufficient through renewable energy. Again, by being smart they are increasingly taking a more holistic approach, exploring where energy and telecoms infrastructure can be used in other smart city projects, street lights, smart parking, water and waste management, security. The list is almost endless.

There is no easy solution for the electricity industry in all of this, but one thing is certain – if they are to remain relevant and affordable in this changing market they will have to quickly come up with positive developments.

In Australia Telstra has announced plans to deploy home solar-plus-storage solutions to millions of consumers in Australia. The company will offer entire home connectivity packages including internet, phones, and now solar. Telstra’s entry into the energy market indicates a big change to the industry and could create enormous growth in renewable energy in Australia.

Predictably, other large telcos will follow as the adoption of solar-plus-storage grows. And it is up to the key players in the electrify industry to put up a fight and compete. They will have to decide whether they want to fight rear-guard battles or embrace the future. Some, of course, are already operating in this market and the rest will either have to follow or give up their position to the newcomers.

Previous articleBlackouts a threat as renewable uptake grows
Next articleEnergy companies welcome win over regulator