In a previous blog ‘winter is coming’, we explained why the upcoming winter season might actually be the last chance for the European energy industry to establish itself in the connected home space – and to own the customer relationship. Some of the many challengers that are clearly looking to capture the growth from the connected home market are the telcos.
This begs the questions: do telcos have what it takes to capture this growth? At least in the US the answer to this question has been a resounding yes with both Comcast and AT&T having already achieved more than half a million subscribers with their offerings. While the European market is very different to the US, we feel this is still a question that needs to be asked.
However, before answering this questions, we believe it is vital to understand the reasons telcos are pursuing the connected home market.
So why are telcos interested in the connected home market?
Like their counterparts in the US, European telcos are being pushed towards the connected home market due to a combination of pressure from their existing business and the opportunities presented by the connected home. In our research we have identified several of these factors and below we have highlighted three of these:
- The traditional telco market is saturated and profit pools are stagnant. Both in the US and Europe telcos are under increasing pressure to find new revenue streams as growth in their traditional fixed line, mobile, broadband and television has slowed down.
- The connected home fits nicely with the traditional telco business model. Subscription revenue (from fixed line, mobile, tv, and broadband) are at centre of telco business – connected home can be used to expand this model.
- The connected home fits with the core telco competencies. Telco experience in dealing with products like routers clearly will not hurt and the general knowledge and skills around connectivity will definitely apply to connected home devices.
If we agree that telcos are interested in the connected home market, the question still remains what will the role of telcos be in the market? Currently there are three main approaches adopted by European telcos – these give a sense of the potential disruption telcos could have:
1- A B2B platform approach has been adopted by Deutsche Telekom with Qivicon and it is the only major telco platform play in Europe. With its B2B approach the company is happy to let its partners retain the customer relationship and for example the data gathered – and the value extracted from this data – from the connected home devices.
2- Extensive B2C offerings consist of a wide range of products from smart lighting, smart plugs, security cameras, to heating controls. Energy products are an integral part of these offerings as 4 of the 10 telco B2C offerings highlighted on the map below have connected heating controls and 7 out of 10 offer smart plugs – so it is fair to say telcos are already in the connected home energy market! And given that we project annual installations of connected heating controls to reach 2.7M in 2018 (see more in our Connected Home whitepaper), we expect telcos to attack this opportunity to try to capture part the predicted growth.
3- B2C single vertical applications are primarily focused on the security market (similar to the initial approach of US telcos) but there are also applications within the energy vertical – for example Swisscom’s Tiko which we have already discussed in an earlier blog post.
How will telcos impact the connected home energy market?
In the US Comcast used connected security and the connected home as a stepping stone to move to energy and the company now provides energy switching (through the Energy Rewards Program) and offers residential solar PV. In our view there is no fundamental reason why something similar could not happen in Europe – especially when we take into account Magyar Telekom’s rapid success in the Hungarian energy retail market. We believe there are several reasons why telcos are especially interesting for the energy sector, but to keep things short I will condense the long list to the following main points:
- Telcos have clearly proven their interest in the connected home energy market – including areas like demand response and in some markets even energy resale.
- Telcos already have a wide existing customer base they can engage with.
- Many telcos are used to working in the home and have access to an existing network of installers.
These factors, combined with the financial muscle of many of the European’s largest telcos, makes telcos a force to be reckoned with. We felt this threat is something energy companies active in the connected home simply cannot ignore and that is why our latest Connected Home Service report explored the activities, positioning, and strategies of these key European telcos.