AGL brings energy to rebuilding of Vocus

Vocus boss Kevin Russell. Picture: Hollie Adams

Takeover target Vocus may have found in AGL Energy a potential partner to help resuscitate its business, provided the energy retailer isn’t turned off after its deep dive into the telco’s books.

Having seen three private equity outfits — EQT, Affinity Part, Kohlberg Kravis Roberts and Affinity Equity Partners — walk away from a deal, AGL offers a different set of possibilities for Vocus’s management to ponder.

Most notably an opportunity for Vocus boss Kevin Russell and his team to forge ahead with the turnaround plan without having to tear Vocus into shreds.

Vocus’s quality fibre assets have always been seen as the big prize, with private equity ownership expected to see the consumer brands Dodo and iPrimus, along with the SMB-focused Commander business, on the block.

AGL’s opportunity lies in not divesting Vocus’s consumer brands and instead leveraging Dodo and iPrimus’s internet footprint to sell energy plans.

That is a plan that perhaps makes more sense now given that the rollout of the National Broadband Network is entering the final phase.

As the NBN rolls into the metros, the network is creating a once in a lifetime customer churn event as homes migrate from their existing voice and internet services to those provided over the NBN.

The migration gives consumers the choice to pick the telco that best suits their need and offers the best value through bundled services (media, energy, broadband).

With Morgan Stanley analysts last year citing the energy market as a vital avenue of new growth in a more competitive telecoms market, the energy/broadband bundle has already been successfully tried and tested locally.

Australia’s biggest virtual telco, amaysim, which has more than a million customers, has already used its consumer footprint to integrate mobile data and retail energy services.

The telco’s Click Energy and Amaysim Energy brands have actually helped it as the mobile market gets more competitive, accounting for 54 per cent of the total revenue in fiscal 2018.

Vocus’s extensive fibre assets also provide an opportunity for AGL’s management to diversify the business into data infrastructure (networks and centres), a vital cog of the digital disruption remaking today’s businesses.

Owning a telco will also give AGL a foothold in adapting to changing customer behaviour and needs in an interconnected world. A world where data services are just as critical a utility as electricity and where smart meters, home batteries and electric cars (all reliant on software and core connectivity) start to become more commonplace.

Owning the customer takes on a whole new meaning in this converged environment and Vocus’s mix of assets gives AGL a shot to prepare for this brave new world.

But it won’t be a slam dunk, not by any means. The Australian Competition and Consumer Commission will take a close look at any prospective tie-up and the market will need some convincing AGL’s decision to stray so far from its core competency is in its best interest.

Taking the plunge into telecoms as a hedge against lower wholesale energy prices is a risky gamble for AGL’s management.

While it makes sense on paper, translating those benefits in real life is a different story.

Just ask Vocus about its recent track record with mergers.