Reseller powers up Newcall's client base

By ADAM GIFFORD

Energy Options Limited (EOL) is starting to sell into the 20,000-strong customer base of listed telephony company Newcall, which bought a 75 per cent stake in the embryonic Auckland electricity reseller last week.

"We bought the shareholding so we could sign up our client base to power as well as telephony products. It's the first time a company like us has undertaken to do another utility," said Newcall sales and marketing director Stephan Goodburn.

Customers of Iprolink, the internet service provider Newcall bought the week before, will also be targeted.

EOL managing director Donald Cheesman said the companies will be run separately. With sales staff seconded over from Newcall, EOL now has six people targeting small and medium-sized companies north of Taupo, the area where the company has access agreements with lines companies, and the same market sector Newcall is targeting with its telephony services.

EOL promises savings of between 5 per cent and 15 per cent on their power bills, made possible because in a deregulated market EOL can sell power along the same lines without the infrastructure overhead of the incumbents.

Newcall bought its EOL shares for $600,000 through the issue of 1,050,000 ordinary Newcall shares at 57c a share, the same price it was trading at yesterday.

This brings total ordinary shares to 120,877,685 and values Newcall at $68.9 million.

Mr Cheesman said EOL had gathered 300 customers since it started trading on November 6.

This puts the value of the customers at $2000 each, compared with the $1550 each Natural Gas Corporation is paying to pick up Transalta's 535,000 power and gas customers.

"However, the bulk of that, more than 90 per cent, is domestic. Typically the profit stream for those customers is a tenth of the market we are selling into," Mr Cheesman said.

It has also a similar price to the $1800 Newcall paid for each of Iprolink's 2000 customers, given the $3.6 million purchase price.

Those customers, being predominantly companies and professional users, would generate higher profits than those subscribing to flat rate services.

Newcall chief financial officer Guy Pierce said EOL's customers were built up in six weeks by a company without marketing and sales expertise.

"That is what we can provide. We see this as a real embryonic opportunity to get into an industry which is only starting to deregulate. We're getting in on the ground floor.

"The price reflects that. If we had waited longer it would have been more."

Mr Cheesman said selling most of the company early meant some immediate gain for shareholders "but more importantly gives us the ability to leverage Newcall's sales skills and capitalise that growth.

"We could have operated at a far lower level in acquiring customers, but Newcall brings a skilled sales force and corporate disciplines which small businesses always struggle with - we understand the theory but we don't have the time and resources to always put it into practice."

He said common call centres and common bills will come later. EOL's metering and billing is currently done under contract by NGC.

"Newcall also has an internet product which is a very logical way to sell a commodity like electricity."

EOL was started by Mr Cheesman and Steve Eskrigge, both formerly with Power New Zealand. A rule change in May meant time of use meters were no longer required for billing commercial customers, which Mr Cheesman said brought the entry barrier for new entrants down from about $1000 per customer a year to $100.

"We left the corporate security blankets because we saw a good opportunity."

Both worked for most of last year without pay setting up the company and structuring agreements with lines companies and generators.

"We put eight months into the enabling process making good contracts so we could hit the market from day one. There is a huge opportunity to be the first mover in this," Mr Cheesman said.

A Deloitte Research report on utilities and e-business released last month spelled out how cheap but powerful e-business platforms were providing challengers with new leverage against incumbent utilities: "For companies with strong IT and web- oriented marketing skills, taking on large, established entities is much more feasible than before."