Technology for profit - and the customer be damned?

The UK utility sector is witnessing the most radical technological developments in meter reading for many years. At the same time, a newly deregulated market is forcing utilities to compete for the favours of consumers once regarded as tied to their particular supplier.

Little wonder, therefore, that the UK is increasingly seen as the natural battleground to trial new methods of generating revenue within the context of a deregulated market. Any utility development specialist will confirm, though, that trials are fraught with problems, whatever the prospects of medium- to long-term success.

One of these problems is uncertainty – no-one is betting on the result. As a general rule, utilities have not invested a great deal of time and effort in research into customer needs – and this gap in their knowledge may yet prove costly. Studies on the implications of wireless radio based automation, two-way information exchange and deregulation for the end user have until now taken second place to a concentration of industry attention on strategies to reduce costs whilst maintaining service.

We are now arguably in an end game where only serious negotiations with the customer, conceptually and practically, can give forward looking utilities the ammunition they need to persuade shareholders that the time is right for long term investment in AMR, or medium term investment in walk- and drive-by radio systems. In the US AMR has already topped 5% of base installations. Investors need to be warned that a failure to invest quickly – and in the best available technology – carries the risk of making casualties of those attempting to catch up too late.

COST NOT THE ONLY CRITERION

The idea still persists that if utilities make large-scale investments in new technologies, they will lose customers because they will have to increase their costs. This is most keenly felt in deregulated markets, where utilities fear even moderate short-term price differentials – likely where utilities are split between those who invest and those who do not. But is this fear justified? Must we accept that consumer decisions are made only on the basis of costs?

UK statistics provide definitive evidence that price is not the issue. The loss of a state monopoly in the telecommunications sector has seen new providers hitting a shared 30% ceiling of customers willing to transfer loyalties away from the traditional provider. And even the adoption of large-scale telesales and direct sales strategies is failing to convert gas consumers in the numbers that were predicted by analysts on the basis of price differentials.

This suggests strongly that a price model should not be used by utilities when they consider their response to the confirmation in July that the UK government would allocate a unique automatic meter reading (AMR) radio band. Instead we all need to begin assessing the value to the consumer of intangibles like accuracy, fairness, contact and trust before we decide how to proceed with the new opportunity. For example, a new gas company might adopt advanced technologies to buy the trust factor perceived as being ‘owned’ by the old state supplier.

As soon as you introduce the consumer into traditional business models, analysis becomes more creative. Ask consumers what they understand by two-way communications and you are likely to hear references to the Internet, video on demand, home shopping and mobile telephones. Could this be an opportunity? How many industries have a potentially non-negotiable interactive link into peoples’ homes? How many utilities are taking advantage of it?

VALUE ADDED SERVICES ENCOURAGE LOYALTY

Competition fought with the blunt instrument of price slashing benefits no-one in the medium term – not even the consumer. We believe that value added services will finally swing the end user into long-term relations with a supplier. This means examining ways to both prove and deliver concepts like reliability, confidence, trust, value, certainty, support and commitment. And we believe there is no better way to do so than to invest in ‘premium’ technologies.

Lessons can also be learned about ways to sell new technology and its costs to the consumer – and here again the need to establish what the customer wants is vital. Accuracy of bills, for example, is perhaps less important than assuring the customer he will never again have to waste time waiting at home for the meter reader to arrive. There are few places in the world where the price of industrial evolution has not been an exponential speeding up of social and work demands – time, and ways of saving it, are intangibles that consumers are willing to pay for.

Take another example – radio-based rugged handheld or notebook meter reading systems. A simple analysis pitting investment against return may choose to retain systems requiring entrance to the home, with all their inaccuracies and delays. But add in factors such as the potential to expand contact with customers, and investment in radio-based handheld or large-screen notebook devices becomes infinitely more cost effective. It does not take a leap of the imagination to realise that technology which can send real-time messages to consumers about tariff changes can also be used to broadcast special offers and process orders for goods. Several solution providers have moved beyond the simple ‘read and jump’ ethos and are examining the wider implications of investment in AMR, including the prospect of home automation.

MEDIUM AND LONG TERM SOLUTIONS

A fully automated, near zero maintenance meter reading system is widely accepted as being the best long-term solution. Infrastructural investment and lingering concerns about the technology, however, suggest that in practice utilities will be examining the most effective migration paths towards full AMR implementation at a later date. This leaves a relatively simple decision – whether to stick with ‘pedestrian’ meter reading or move to a radio-based solution.

Industry tends to waver between walk and drive-by systems, each of which brings its own benefits. For the consumer, typical rewards fall into the categories of time (the waiting game), security (no need for strangers to enter the property), fairness (accuracy of reading at certain durations and an end to estimates) and long-term cost reduction, albeit at some social cost in unemployment. Significantly, each of these represents a benefit to which utilities aspire. And here lies a lesson – by including the consumer in the investment equation, it transpires that profits need not always act against the interests of the end user.

The UK utility sector is at a crossroads; each decision will impact on utility strategy world-wide. Although there are no easy solutions, an analysis that fails to give due weight to customer needs will likely see the results of this omission in diminishing annual returns. The success stories of our time have usually involved some courage and boldness, and those UK utilities willing to strike out in a new direction will be the ones to reap the benefits. It is not without merit to suggest that both the needs of the consumer and considerations of cost should be treated equally when evaluating the technology equation. The rewards for those adopting a value added consumer based approach – and conversely the damage inflicted on those who refuse to confront the issue – are likely to be considerable.