It's one of the last major regulated markets not to be competitive in the UK. But this is all due to change next month following the government's confirmation that the retail water market will open as planned on 1st April.
This means that around 1.2 million eligible businesses in England will for the first time be able to choose who they pay for their water and wastewater services – something which is expected to bring significant savings to businesses all across the country and contribute up to £200 million worth of benefits for the economy.
But what does this mean for existing water providers? We take a look at some of the key predictions…
1) The rise of the multi-utility provider
By opening the retail water market, existing water and energy providers alike will take advantage of the opportunity to diversify their offerings. Whether this involves an established energy company partnering with a water specialist, an existing water company diversifying to provide energy services, or the entry of an entirely new category of integrated multi-utility suppliers, we will likely see the emergence of a newly combined water and energy service.
The customer appetite for these new multi-utility offerings remains to be seen. However, historical evidence seems to suggest that these non-traditional suppliers may see success post deregulation – just look at the rise of the Supermarket-come-Telecoms provider. What’s more, if we see this mirrored within the water market, these new integrated suppliers could pose a new risk for water suppliers who adopt a ‘do nothing’ approach. Likewise, existing energy providers could start to see a new wave of competition from within the water industry.
2) New challenges for regulators
If the above prediction proves to be true, this will pose a challenge not for those offering services to the market, but for those regulating it. The existence of separate regulatory obligations operated by Ofwat and Ofgem will likely come under question amidst the emergence of the multi-utility provider. Clearly, protecting customers against any regulation gaps within the cross over whilst ensuring a fair competitive market place will be a priority. As a result, forecasts of a new type of regulator – a multi-utility regulator – could soon become a reality.
3) The customer will become King
For the first time ever, customer retention and loyalty will need to be high on the agenda for the traditional water supplier. And what’s more, acquisition will play a big role for the more pro-active suppliers. Initial research has suggested that within the water and wastewater sector, customers will likely differentiate suppliers based predominantly on price and service*. Rising competition is expected to largely converge prices among suppliers, meaning enhancing the customer experience will dominate the market. What’s more, many businesses are already predisposed to switching following the deregulation of previous markets. This means that companies will need to put customers at the heart – both through services and communications.
Big Data will play a big part in this. In order to challenge newer competitors entering the market as so-called ‘Digital Natives’, traditional providers will need to get smart with their data – and get to know their customers! Better deals, more tailored services, streamlined customers services and personalised communications will all help in a bid to differentiate from competition.
4) A different breed of utility company
As we’ve seen following the opening up of previous markets, deregulation tends to be a precursor to innovation. As customer experience, service and personalisation will become high on the agenda, it is likely that we will see the emergence of wider product ranges, innovative offers, new billing practices and enhanced distribution processes.
With the dawn of the smart metering, green energy, distributed generation, modern automation systems, Big Data and the Internet of Things (IoT), energy suppliers have been utilising the latest innovations to gain new and retain existing customers since the emergence of a competitive energy market. It is likely that water utility providers will need to replicate this in order to differentiate to better meet customer needs.
Whether these predictions will ring true is yet to be seen. However, it is certain that the emergence of a competitive water market will bring about significant benefits, challenges and uncertainties for both water companies and businesses alike – and we’ll be keeping a close watch.