Ofwat has published its assessment of the costs and benefits of retail competition for household water customers.
Quantitative benefits are easier to evaluate than qualitative ones, so it’s no surprise that the analysis focuses on cost savings and efficiency gains, with limited analysis of the non-financial benefits.
Experience from the energy and telecom markets tells us that when price becomes the primary driver of competition, the market can be viewed as consisting of two main segments:
Ofwat’s analysis shows that in the best scenario, household competition will deliver savings of around £8 per household per year and in the worst scenario it will increase costs by nearly £3 per year per customer. Even if the market passed all the financial savings through to customers in the form of lower prices, the case for competition based on cost savings alone is marginal.
Which brings us back to the non- financial benefits. Other markets, telecoms especially, have competed on a number of other fronts: brand values, additional features and value-added services, for example. Whilst bottled water brands have successfully been able to differentiate, it remains to be seen whether that is possible in water supply. Incumbents and new entrants are going to require some very innovative marketing if they are to make a success of a competitive household water market.
During the 1980s, Britain’s monopoly gas, water, electricity and telecommunications industries were privatised and regulated. Since then, the utility industries have been on a 30-year journey, which in many ways has been a risky experiment with the critical infrastructure of the nation. The different sectors have been liberalised to a greater or lesser extent, with telecommunications the one market to have embraced competition throughout the supply chain. A lot has been learnt:
Let us hope that the collective memory of UK plc is good. As the water sector journey moves on there are many areas in which we can learn from the experiences of the telecommunications industry.
Andrew Keevil assists technology companies with strategy and marketing, specialising in new proposition development.