Should an LDC procure electricity hedge products by using an Internet-based auction?
We propose that local distribution companies (LDCs) should use an...
The Next Convergence: Energy, Telecommunications and Internal Infrastructure
s The technology is digital.
s The medium is cyberspace. The product is a strategic system for billing, collection and customer services (BCCS) that integrates knowledge and choice through an automated customer interface.
The impending obliteration of the business boundaries between the gas, electric and other energy industries will launch a series of convergent waves of change. Executives, regulators, legislators, investors and, naturally, consumers must ride this wave over the next 10 to 15 years. Even as the gas-electric wave turns from a freshet to an Amazon, the next convergence is beginning. This next convergence will fuse energy, telecommunications and the internal, largely retail infrastructure of consumers. However, before companies can make money by playing convergence they must master the transforming forces, anticipate the emerging value chain and position themselves to market to the convergent consumer.
One legacy of decades of regulation is an inefficient gas and electric production, transmission, distribution and control system. Annual capacity-use factors fall well below those in competitive industries. This once-hidden, excess capacity now stands visible to customers, new entrants and aggressive industry players alike.
Competition creates transparency of prices and functions. Transparency and transactions create liquidity. Customers benefit from excess capacity, market liquidity and the eagerness of competing suppliers to earn a revenue stream. Customer switching inevitably follows. The entire historical structure of the "endowed" revenue base of the incumbents collapses to be replaced by an "earned" revenue base.
The new, powerful and enormous value chain that will emerge as a consequence of convergence and competition may be rather daunting. The new value chain's vocabulary will change. Its structure and operating practices will evolve. Its response times will grow amazingly swift. The new value chain will, however, offer tremendous professional opportunity for today's energy executives (em if they can adapt.
A New Value Chain (em
Keyed to Customer Response
Convergence will create an entirely new value chain of flowing-content industries. To recognize this new value chain, a utility or energy or telecom company also must identify consumer purchases and needs. The company also must identify the customer's response to proliferating offerings, strategic choke points and the system for delivering consumer satisfaction.
Consumer purchases can be divided into at least three mega-categories: consumer nondurables (e.g., clothes, food); episodic acquisitions (e.g., home, car, boat, major vacation, wedding, large appliances), and; flowing content (e.g., telecommunications services, cable, electricity, gas, water, sewage).
In addition to an internal technological infrastructure, flowing content requires an external delivery infrastructure. The external structure takes the form of permanent or semi-permanent connections such as pipes, wires, and wired and wireless bandwidth before it can turn valuable to consumers. It is only when content is ennobled by desired features that real value is created.
The reason why suitable business models and successful marketing strategies are nascent in the flowing-content business is because these industries have been tightly regulated. The buying
decision was imposed on the consumer by regulators and monopolists. With deregulation, the buying decision becomes a combination of planned and spontaneous.
As content managers are freed creatively and conduits remain largely regulated, content will increasingly