Trustpower gains with telco bundle

Electricity company’s telco connections reach 87,000

Trustpower’s move into the telco market is having a strong impact on its business, with its latest results showing that acquiring new telco customers is helping to offset a drop in its electricity connections.

According to the company’s Quarterly Business Report released to the NZX, the number of telco connections rose by 11,000 in the past 12 months to 87,000, compared to a drop in 3,000 electricity connections to 273,000. The company also saw a rise in gas connections, up 4,000 to 37,000.

Transpower has nearly reached the milestone of having 100,000 customers with more than once service, and approximately 79% of the customers it acquired in the fourth quarter signed up for two or more products. Among the benefits of bundling electricity and telco connections is reduction in customer churn, as the graph below from the report demonstrates.

According to the Commerce Commission, Trustpower is now the fourth largest supplier of consumer broadband services in New Zealand with an estimated 5% market share and it is strongly rumoured to be a bidder for Vocus’s New Zealand assets. With 13% market share, Vocus is the third largest broadband retailer with a portfolio that includes Slingshot, CallPlus and Orcon. Vocus has itself moved in the electricity market, with the purchase of Switch Utilities, and it retails electricity, as well as mobile, along with its broadband services.

Trustpower is aggressively marketing to new customers as the rollout of the Ultra Fast Broadband nears the first phase of its completion, and connections move off DSL or copper lines and onto fibre infrastructure. Trustpower is offering a fridge, television or washing machine to new customers who sign up to a 24-month power and broadband package.

IDC noted in a report on the telco market it the fridge being offered in the Trustpower deal was RRP $3,999, making this almost a loss-leading strategy: “The contract value of the broadband subscription does not reach the retail value of the product being given away, $3,336 vs $3,999. With power included it would at least reach the value but leave little room for costs of service and margin.”

An investor presentation posted to the NZX shows that Trustpower may be looking to increase its telco offering, noting that in a section about regulatory review with regards to telecommunication that “We are particularly interested in access to mobile networks”.

It already bundles content, offering SkyTV content and is likely to be a contender for the Rugby World Cup package that Spark has indicated it will wholesale to other retail service providers next year.

Meanwhile, the addition of new products is not resulting in a rise in customer service costs, because the company is investing in automation. Trustpower’s investor presentation states that 45.7% of all customer contacts is now serviced without human intervention. “Increase in the numbers of products supplied and associated customer contacts is offset by the migration of customers to non-staffed channels, leading to lower staff numbers.”

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