AI is changing who captures value. History suggests that when new platforms emerge, existing owners rarely take a large share of the rewards.
Network utilities are not immune; businesses that spent the last century optimising network management may discover that the greatest value in the next century sits with those optimising electrons across the network.
A parallel example comes from the telecom industry, companies that built new digital and wireless networks like Vodafone were seen as leaders, but as the game played out most of the value from this hyper-connected digital economy ended up with customer relationship companies such as Netflix and Facebook.
The same could happen to network utilities with the far higher profits per customer being captured by energy service providers like aggregators and flexibility providers. The highest-margin activity in the future energy system may not be transporting electrons, but deciding where and when those electrons are consumed.
Network utilities have several defence mechanisms ‘moats’ against AI.
An outer ‘moat’ includes the vast installed asset base that others would find impossible to replace – telcos also have this but to them this has become a driver for consolidation and reducing costs.
Regulation provides further protection, slowing the pace of change and setting higher barriers for entry. But regulatory rules may also prevent networked utilities from exploring new business models. And current regulation models, which re-baseline performance every few years, only give the fast movers an advantage until the next cycle when performance in this cycle is baked into expectations for the next.
Despite what some might feel, social media and streaming are not life critical services like energy. Security of supply and trust is essential. Surely this must be safeguarded and the essential service role maintained. But protecting this core business can result in a loss of flexibility elsewhere.
Network utilities still have time to avoid the same fate as the telcos. But they must move fast to defend their core business and retain a healthy asset growth pipeline, and they must build a relationship with their customers.
Network utilities profited because they had unique and protected ownership of vast physical assets. The winners may be the companies that decide where those electrons go.
The choice is be the wires company or become the customer platform.
