Coal was only part of Brookfield’s hidden AGL agenda, with electricity retailing and Telstra part of its long term plan

Brookfield Asset Management, together with Mike Cannon-Brookes, pursued AGL Energy for its coal, but long term it was about electricity retailing and Telstra. Picture: Andrew Henshaw/NCA NewsWire

All the controversy and intrigue in the Brookfield/Mike Cannon-Brookes bid for AGL Energy focused on coal mines. But, longer term, coal was only part of the action.

There was a deeper Brookfield electricity retailing agenda that would have almost certainly involved Telstra engaging in company changing strategic discussions with Brookfield. (Canadian-based Brookfield had an approximate 80 per cent stake in the AGL bid).

In a prelude to the AGL bid three vital Brookfield deals took place – two involving Telstra.

The first of the deals saw Brookfield outlaying $1 billion last December to buy half of Intellihub – the biggest manufacturer of electricity smart meters in Australia with about half the market. Canada’s Pacific Private Equity holds the balance of Intellihub.

Smart meters were originally devised to avoid sending readers to each dwelling, but they can now manage elements of household power usage more efficiently, and, particularly when combined with a smart phone network, they can provide information that can help power consumers time repairs or select appliances and electric cars.

Modern smart meters will transform the business of electricity retailing so after Brookfield’s $1 billion Intellihub outlay, buying a power retailer like AGL was immediately on the Brookfield agenda. But there were two more deals to do first.

Some eight weeks after the Brookfield deal, Intellihub placed a $100m order to buy Telstra SIM cards for all its new meters.

Telstra SIM cards in the meter (often connected to smart cards in appliances) relay user data back to the power provider via Telstra’s data “toll road” network, called the Internet of things (Iot).

Over time the IoT data toll road will be an enormous piece of Telstra infrastructure. Like a conventional toll road, greater usage delivers greater revenue and Intellihub’s smart meters were set to substantially boost traffic. .

A jubilant Telstra announced: “The deal comes at an exciting time for us, with more than five million devices now connected to our IoT network

“IoT connects everything from vehicles to machines, infrastructure, smart meters, buildings, connected vehicles, solar panels, humidity sensors, traffic cones, buses, whitegoods and garbage trucks, delivering insights and tools that previously weren’t possible,” Telstra said.

Then came the third deal. Telstra awarded Brookfield’s associate Intellihub “preferred meter supplier status” in the proposed giant Telstra electricity rollout.

Some 12 days later, Brookfield lobbed their first bid on AGL which naturally sent Telstra strategists into overdrive.

Had Brookfield bought AGL then suddenly it would be a competitor with Telstra’s new electricity network. One of the attractions to Telstra in going into the electricity retailing business is that the electrical retail majors, like AGL, have not taken advantage of the opportunities that modern technology offered. Their data base management is high cost. Telstra planned a modern Australian data base operation that could be linked to the phone network.

And “free Intellihub smart meters” to Telstra power customers provided the opportunity transform electricity retailing. Incredibly, only 25 per cent of Australian non Victorian dwellings have smart meters. And the Victorian meters, which were compulsory installed many years ago, are older versions.

Had Brookfield bought AGL it would have aimed to convert AGL into an efficient and innovative electricity retailer with modern data base management and smart meters. That would have made it harder for Telstra to gain a major base. And with Brookfield as a competitor almost certainly the other majors would have smartened their game.

Discussions would have almost certainly have taken place whereby, Telstra, rather than starting up its own electricity retailing business, might have bought into the Brookfield/AGL electricity retail operation.

As part of that negotiation Brookfield would have canvassed buying equity in Telstra’s data toll road. No discussions could take place until Brookfield purchased AGL and, for the moment, that bid is dead.

Nevertheless the prospect of a Brookfield negotiation, will have forced Telstra to at least recheck its options as to whether it is better to go along with establishing a totally new power retailing operation or to buy another retailer and transform that business.

The great advantage buying an existing business is that you start with a customer base but, of course. Telstra already has a huge database of customers albeit via the phone system. Transforming AGL into a modern efficient data based electricity retailer would be an unpleasant task involving retrenchments that could damage goodwill.

Telstra still is firmly on the path of developing its own electricity network from scratch and integrating it into its phone network to provide a closely connected power/phone option that has the potential be incredibly powerful in the marketplace.