The major electricity utilities are combining telecoms operations and looking for a foreign partner.
The major electricity companies, led by Tokyo Electric Power, will merge their telecoms operations early next year. They are also looking for a foreign alliance partner to take a 20-40% stake in the merged company, which will focus on providing telephone services using the Internet Protocol (IP) and other advanced systems. They currently have the second-largest optic fiber network in the country, after the incumbent telco NTT.
The front-runners to invest in this group are Qwest and Cable and Wireless, although the power companies are also in talks with other foreign groups. Both companies have a good chance of landing the deal; they can both supply technological expertise in IP services and are both financially secure enough to make the investment. The winner will be decided on the basis of how much they are prepared to invest and who its other technological partners are. However, the move would be a good one for either.
The opportunities provided by the deregulation of the telecoms industry are frequently exaggerated. A major problem is that a large proportion of customers, especially residential users, are not prepared to go through the upheaval of changing supplier even when it is cheaper. And in countries where the deregulation process has made headway, many customers switch back to the incumbent telco after experiencing major problems from new, inexperienced suppliers.
This alliance stands a much stronger chance than many of getting round this problem. Power companies are experienced in dealing with consumers, as well as having a large client database. They are also in a position to offer a single bill for electricity and telephones, thus providing a convenience incentive for consumers to switch. In exchange, either of the prospective foreign partners will be able to provide substantial support in terms of billing, running and managing the running of the network, and making relationships with partners work.
So whilst the merged company’s optic fiber network will be necessary for call routing, its key advantages will be the ability to leverage the power companies’ existing customer base combined with the foreign partner’s experience of having done the same kind of thing before elsewhere. These could allow the alliance to succeed where others have failed in the competitive telephony market.
