In 2019, standard variable rates could be capped and Npower and SSE might be one company. Yet, even then, the customer may not see much benefit.
Will early 2019 be remembered as the beginning of the end for competition in the UK energy market? That is likely to be the time when Theresa May’s price cap on energy bills takes effect and two titans of the market complete the merger they proposed last week.
The new company to be created by Npower and SSE means the so-called “big six” energy suppliers will shrink to five. More importantly, it means half of the market will belong to just two companies: the new firm and British Gas.
The move certainly makes sense for Npower’s parent Innogy, SSE, and its shareholders. Supplying electricity and gas to households has become a tougher business.
Both firms have been losing customers to more than 50 smaller companies, who are mostly cheaper and more innovative, and now hold a fifth of the UK retail energy market. And with millions of their customers on the standard variable tariffs that May is capping, both face further financial pressure that could last for years.
The rationale for the deal is strengthened by the fact that Npower’s brand is tarnished, and it has been making a significant loss since 2015. SSE, meanwhile, has the highest proportion of households on the tariffs that will be capped.
But will the merger help customers? There are already warnings that such mergers are “rarely a good thing for consumers”. The removal of one big player in a market that is still largely differentiated on price could clearly hurt competition.
The new giant could primarily use its economies of scale to maintain profit margins and rewards for its shareholders. And the mooted efficiencies of integrating SSE’s old IT system with Npower’s newer one could prove to be a pain rather than a panacea, making costs and customer service worse rather than better.
The counter-argument is that those efficiencies could be realised and then used to give a bloody nose to Centrica’s British Gas, driving down prices for consumers in the process.
British Gas is a member of the “big six”, but in reality it has always been the “big one”, utterly eclipsing the other five in scale. Its new rival could be the first with the advertising clout, lobbying power and size to offer a potential counterweight.
Advocates for the merger believe that an energy company solely focused on supplying households, as opposed to running power stations and energy networks, will be more focused and single-minded. It also won’t have those other units to fall back on – so will in theory be hungrier and more competitive, too.
All eyes are now on whether the European commission and UK competition watchdog will wave the plan through, as the groups hope. Given the new supplier’s sizeable revenues and fact it will have just a million fewer customers than British Gas, it is far from certain that it will be given the green light.
What is guaranteed, barring a dramatic political surprise, is that 11 million households on standard variable tariffs will have their prices capped sometime in 2018 or 2019. It is hard to see how this will help competition.
Business secretary Greg Clark maintains that this year’s record switching between suppliers will not be harmed by the cap, as it would be designed in such a way that competition could continue under the ceiling.
But few in the industry seriously believe switching won’t decline under a cap. Some consumers will be lulled into the idea that they are being protected by the government, while others will not want the hassle as the savings from switching fall from as much as £300 now to perhaps as little as £70.
Any fall in switching will benefit the incumbents with the biggest customer bases today. And with 12.7 million customers, the new Npower/SSE will stand to benefit more than most.
Why the social media small fry find it so hard to grow into big fish
Nothing stands still for long in the fast-moving world of social media. Just ask Twitter, or Snap, owner of Snapchat. Once upon a time – only eight months ago in the case of Snap – these were must-have investments at flotation.
The investment bankers whipped up the excitement. The world agreed that the valuations looked rich but, hey, this was a chance to own a slice of a business that could be the next Facebook or Google. The shares flew out of the traps. Snap, priced a $17 a pop, hit $27 almost immediately. Twitter, whose IPO in late 2013 was pitched at $26, reached $69 at the start of 2014.
Look at them now. Snap has drifted close to $12 after yet more disappointing figures. New users are arriving at a “lower rate than we would have liked”, conceded co-founder Evan Spiegel.
Over at Twitter, the shares have recovered ground since lows this summer but are still below the IPO price, at $20. And it, too, is trying new tricks. The original 140-character limit on tweets is being increased to 280, infuriating some users and pleasing others.
If there’s a common explanation for their woes, it’s that Snap and Twitter are corporate minnows with niche products compared with Facebook and Google. Advertisers follow eyeballs religiously, and the arrival of automation to sell advertising reinforces the process and drives rate down.
It’s easy to forget just how small Snap is. A daily average user base of 178 million sounds enormous until you see quarterly revenues of just $208m. Net losses tripled to $443m in the latest period. At least revenue is still growing at Snap: for Twitter, third-quarter revenues were down 4% to $590m. On the other hand, the company is at least close to making a profit, unlike Snap.
It all feels like splashing around in the shallows while Facebook makes the social media waves. Twitter has 330 million monthly average users, whereas Facebook has 2 billion. Investors are belatedly getting the message: sometimes Goliath wins.
Belfast built ships. So could it build post-Brexit banks?
One of the many issues the UK government has to tackle in Brexit talks is the border on the island of Ireland. A report in the Financial Times last week suggested that the EU was demanding that Northern Ireland stay in the customs union and single market to avoid a hard border on the island.
Putting the political ramifications to one side, this could raise an interesting economic proposition. International banks with large London operations are looking for new office space in EU cities such as Frankfurt, Dublin and Paris to make sure that Brexit does impede their ability to do business after March 2019.
Imagine Goldman Sachs boss Lloyd Blankfein tweeting: “Just left Belfast. This city built ships (popped into the Titanic museum) reckon can build banks too.”
It would add a new twist to the banker’s Brexit-related tweets, in which he has both extolled the virtues of Frankfurt and posted a picture of building work on its new London headquarters, with the words, “expecting/hoping to fill it up”.