NEW ZEALAND’S NEXT largest broadband service provider after Spark, Vodafone and Vocus is not a traditional telco. Bay of Plenty-based Trustpower still describes itself as an electricity generator and retailer. While electricity is still the company’s main business, in the last five years it has added gas and telecommunications services. In its own words, Trustpower is now a multi-product retailer.
New Zealand’s next largest broadband service provider after Spark, Vodafone and Vocus is not a traditional telco. Bay of Plenty-based Trustpower still describes itself as an electricity generator and retailer. While electricity is still the company’s main business, in the last five years it has added gas and telecommunications services. In its own words, Trustpower is now a multi-product retailer.
Trustpower is New Zealand’s fifth largest electricity generator and the fourth largest retailer. It has about 12 percent of the retail energy market. It owns hydro plants in New Zealand and Australia. The business is part-owned by Infratil, which has a 50.7 percent share. About a quarter of the remaining shares are controlled by the Tauranga Energy Consumer Trust and the rest are owned by small investors.
Broadband isn’t a bolt-on though, it was a deliberate strategy to get into the sector and, in hindsight, the timing was perfect.
Chief executive Vince Hawksworth says Trustpower made the decision to move into broadband in 2011. “At the time, it was obvious that competition in the electricity sector was going to get more intense with lots of new entrants and new brands.”
Hawksworth says: “We considered our potential responses to that competition. At around the same time, work was starting on the nationwide fibre roll-out. It was clear to us that at some point in the future this was going to change the nature of the telecommunications industry. We also saw the separation of Telecom into what became Chorus and Spark.”
The broadband wholesale market changed. Hawksworth says Trustpower saw that as an opportunity. “It meant as a small player we were effectively a new entrant [and] we could start to have some certainty about the platform and the services we could provide for our customers.”
Hawksworth and his team sold this to the company board by talking about how the telecommunications industry would transform with fibre going past most New Zealand homes. “We could see that a player like us, which already had a lot of customers, would be able to cross-sell. We knew that so long as we could provide a quality level of service we’d be able to make progress.”
It helped that, thanks to the open access model, Hawksworth didn’t have to ask the board for a large capital expenditure budget. “We didn’t need to spend a lot of money before we got our first customer. We took a relatively low-cost approach to starting up,” he says.
This wasn’t without its own set of issues, however. Hawksworth says: “If you start a broadband business this way, then when you start to become successful you have to run really fast to catch up with the investment. However, by then you’ve proven the business case and you’re starting to see results.”
“We planned to ask people if they would 'like fries with that'. Then we would sell them gas or broadband as well as electricity. In the event, we found it worked the other way ”
The recent push wasn’t Trustpower’s first foray into telecommunications. A decade or so ago, the company acquired an Oamaru-based call centre business that specialised in outsourced support for the electricity sector. As part of the transaction, Trustpower also picked up Kinect, a small telco business. Hawksworth admits Trustpower didn’t do much with Kinect, but it did give the company some insight into telecommunications and a foot in the door.
Ultra-fast Broadband and the open access model were the right fit for Trustpower’s ambition. Hawksworth says: “All of our internet provision was effectively done as reselling other people’s services.”
As part of its strategic overview, Trustpower’s management team researched what was most important to broadband customers.
“We realised people have busy lives, so we came to the conclusion that bundling utilities could have some traction. We knew we were able to do this, so, in 2013, we rebranded. It wasn’t just a change of name, we had new colours and a new logo. We also acquired a small energy and gas business in Whanganui called Energy Direct New Zealand. This gave us the opportunity to sell gas as well,” says Hawksworth.
Trustpower relaunched as a triple-play business offering electricity, gas and broadband. Hawksworth says at first the business intended to sell electricity as the lead product. “We planned to ask people if they would ‘like fries with that’. Then we would sell them gas or broadband as well as electricity. In the event, we found it worked the other way. People were coming to us to buy a fibre-based broadband product and buying their electricity with it.”
Bundling resonated with part of the market. Hawksworth says at this point Trustpower started to build the business. In the early days, the company wooed customers with price-led deals. It priced broadband under the average market rate, and introductory prices were lower again for the first months of a contract.
He says since then Trustpower has moved to value-led deals. The company offers a flat-screen TV or a fridge to people who sign up for longer term contracts. The deals appeal to a particular demographic segment, says Hawksworth.
While Trustpower is the only electricity retailer to have a substantial broadband business, it is not the only company playing in both markets. Vocus, which is very much steeped in the telco tradition now offers electricity to its customers.
As with Trustpower, the attraction for Vocus’ customers is a seamless experience, with one bill and a single point of service. Hawksworth notes that Vocus has been acquiring electricity customers at a fast pace by industry standards. It may be competition, but it doesn’t worry Trustpower. As Hawksworth says: “Imitation is a compliment”. He also points out the model is increasingly popular overseas. In Australia, the Dodo and Amaysim telco brands now also sell energy, while in the UK the Utility Warehouse offers similar service bundles.
For Hawksworth and his management team, the switch from copper to fibre represents a once in a generation opportunity to secure new customers. He says people are more open to the idea of changing their service provider when they switch technologies.
Another turning point was what Hawksworth calls the ‘Netflix revolution’ of 2015. This changed peoples attitudes towards fibre and broadband. It also changed usage patterns; customers now use a lot more data.
Before Netflix, Trustpower relied on outsourcing everything. He says that changed: “We worked back from the consumer. We’ve taken a little more control of things. We now have our own operations team. We’ve invested in our own cache for Netflix and Google. We now have some infrastructure and we have our own backhaul.”
The strategy appears to have delivered for Trustpower. Hawksworth says that today the company has 90,000 broadband connections and 100,000 multi-product customers. “We would be one of the fastest growing start-ups over the last four or five years,” he says.
This year, Trustpower reported a net after tax profit of $129 million, up 38 percent on the previous year. Revenues were $946.9 million and around $80 million of this came from the company’s telco business.
If there is a secret to making Trustpower’s strategy work, it’s the nature of its multi-product customers. The electricity business and the telecommunications business share a common problem with customer churn. In practice, customers who buy more than one service from a retailer are far less likely to jump ship. Hawksworth says Trustpower has found that customers buying both broadband and electricity stay longer.
The rise and rise of Trustpower
In last year’s annual monitoring report, the Commerce Commission identified Trustpower as New Zealand’s fourth largest broadband service provider. It comes next after the traditional telcos: Spark, Vodafone and Vocus.
At the time of the report, the Commerce Commission estimated Trustpower had a broadband market share of around four percent. This put it in front of 2degrees, which sits in fifth place with a three percent market share.
While its market share is relatively small, Trustpower is growing at a clip. The monitoring report says Trustpower and 2degrees are the two fastest growing service providers. Under the headline “Smaller players gain ground”, the Commerce Commission said: “Both Trustpower and 2degrees ran strong marketing campaigns in 2016 and successfully gained a significant number of new fixed-line broadband customers.”
In Trustpower’s April 2018 operating report, published on the NZX website, the company said it added 11,000 broadband connections in the previous year, taking these to a total of 87,000. That is a 12.5 percent growth rate. This is an impressive result at a time when the total number of New Zealand broadband connections is only up around three percent.
For now, Trustpower’s telco activity is limited to reselling broadband. Although the main push is with fibre, the company also has copper broadband customers serviced by Unbundled Bitstream Access or UBA. This approach gives Trustpower a degree of control over the user experience without heavy investment in infrastructure. The company has previously made public statements that it would also like to offer mobile telephony but is frustrated by the lack of mobile virtual network operator options at the moment.