Is a wave of merging electric utility and telco assets imminent?

Liberalization of telco and energy sectors incentivized traditional telco and energy companies to look for new revenue sources beyond their traditional business scope. Telco companies have started to sell energy, gas and heat while energy companies often offer telco services. Simultaneously, we experienced fast development of internet and related services. Nowadays, broadband internet connection is an essential part of infrastructure and precondition for prosperity even in developing countries. Therefore, in multiple countries governments, both legislatively and financially, support providing households with broadband internet connection. Given the support, energy and telco companies in many countries cooperate with government, municipalities and regulators on deployment of next generation telco infrastructure. All in order to secure cost efficient network construction while avoiding any competition disrupting measures.

Liberalization and technology advances stimulate industry sectors to converge

For a long time ago, services a company provided were simply based on the core industry in which it operated. However, as markets in traditional industries become mature and saturated, companies are finding it difficult to grow their revenues further. In these markets, it is becoming increasingly difficult for traditional companies to find room for cost reduction or significant quality improvement of their goods and services, as they have been doing this for a long time. Instead, everpresent market liberalization continues to invite more and more competitors into their market, which increases pressure on their profitability.

In order to overcome these challenges and grow their revenues, companies are starting to look into entering other industries that are distinct from their core businesses, but at the same time, will still allow them to leverage some of their current capabilities. The primary driver that enables companies to enter new industries is advancing technologies. Therefore, it is not surprising that convergence started in the industry sectors most related to the new technologies. It has been some time since hardware companies such as IBM noticed that in order to grow,
they would need to expand into software and IT services, while software companies such as Microsoft and Google entered the hardware market segment to build digital ecosystems of their own goods and services.

With ongoing market liberalization, next in the line were telco, information technology and media companies. It now seems natural that you can subscribe to TV media content via your telco operator. Similarly, although in the past traditional landline companies were the only providers of telephony services, nowadays, thanks to advanced information technologies, IPtelephony services can easily be bought from internet providers. However, industry convergence doesn’t stop here. For instance, telco companies are looking to enter the banking sector by offering products such as loans and insurance, and the energy sector by bundling energy products with their telco services. Another example is retailers trying to enter the telco industry by offering mobile services packaged with their retail purchases. The telco industry is especially attractive to new entrants, as current players often have margins at 30–40 percent, which isn’t the case for many other industries. The list of examples of industry convergence is only expected to grow in the upcoming years due to ever-advancing technologies and eagerness of companies to grow in spite of significant challenges in their core markets.