The price of convenience?
If you've ever moved home, particularly if you're a renter, it's likely you've been offered the opportunity to have the utilities in your new home connected free of charge. This sounds like a pretty good deal (even more so if you're in the middle of moving) and besides, it's free, right? But just how do these utility connection services operate, and are they going to sign you up to the best deal?
There are a number of players in the market offering this type of service, including:
- Compare & Connect
- Direct Connect
- Fast Connect
- On the Move
Collectively, they claim to have helped millions of movers over the years.
Each connection service works with a number of utility providers (be they electricity, gas, telcos or even insurance and removalists in some cases), which they can sign you up to when you move. You provide your details, they arrange the connection, and you pay the bills. Some even offer to disconnect your old utilities. Sounds simple, so what's in it for them?
How do they make money?
The main way these businesses make money is through commissions. Each time someone signs up, the utility provider pays a commission to the connection service. As for how much, they hold their cards close to their chest, but a number of these connection services have told us that the difference between providers is negligible, although there is some variation in the commission amounts they pay.
However, it's also our understanding that while there are a number of suppliers you may be able to choose from, some may work with a preferred supplier. The general practice is to connect you up on a standing deal with no fixed term (although this may not always be the case). While this flexibility means you aren't locked in and are free to shop around, it also probably means you won't be on the best deal available.
Are you getting the best deal?
These services don't partner with all available utility suppliers, so while you may not be paying more for the specific deal you sign up to as a result of the commissions, you may pay more as a result of being signed on to a more expensive deal. Take for example energy providers. Of the utility connection services we looked at, most provided a choice of around two to four energy retailers (some more, but most don't make this information available before signing up).
However, none allowed access to all retailers. There can be as many as 24 electricity retailers to choose from, and the number of deals on offer at any one time can be anywhere from roughly 250 to 3000 depending on the state you're in (you may not have access to all the deals on offer in your state). So while utility connection services will usually have at least one other provider on their books, offering the illusion of choice, it's not really choice.
So who owns these services?
The limited choice on offer becomes a little easier to understand when we look at the ownership structures of these businesses. The 'About us' pages of their websites would have you thinking they're all owned by third parties (some are). Connectnow, for example, says it was started "to help busy home movers save time". What they don't tell you is they're actually owned by energy provider AGL. It's the same story with Direct Connect (which is owned by Snowy Hydro – the parent company of both Red Energy and Lumo Energy – and whose shareholders are the Commonwealth, Victorian and NSW governments) and On The Move (owned by Amaysim – the parent company of Click Energy).
Then there are the others who have varying interests in being involved with such a market: MyConnect and Fast Connect are independently owned (although Realestate.com.au uses Fast Connect for its self-branded utility connection service), while Compare & Connect is 50% owned by Domain, and YourPorter was started by real estate agencies and is powered by iSelect.
A new customer acquisition channel?
So is this foray into utility connection services by energy companies just part of the latest marketing strategy to get new clients on board? An investor presentation for Lumo Energy in 2013 highlighted the benefit of the Direct Connect as a marketing channel, which had grown to account for around 30% of its new customers. Meanwhile, acquisitions from telemarketing and door-to-door sales were on the decline. More recent annual reports (Snowy Hydro's in 2015) have continued with similar comments, saying Direct Connect provides "a valuable 'channel to market' to underpin continued growth in customer numbers".
AGL (which owns Connectnow) has made similar remarks in its financial statements, saying while its commission revenue has declined, "a larger proportion of Connectnow customers [are] choosing AGL as their energy provider".
Further to this point, it's also hard to imagine that energy companies are buying in purely for the injection of cash. Take for example the anticipated commissions revenue for On The Move in 2017 (recently acquired by Amaysim along with Click Energy), which is expected to account for a total of 2.2% of Click Energy's income (or $5m).
How do connection services get your contact details?
Real estate agents are the prime source of referrals, and as such you'll often find the ability to be connected at the tick of a box in a rental application, prior to even being told what deals are on offer. Real estate agents are incentivised to do this by being paid commissions by the connection service when someone signs up to a utility provider. One example we came across saw agents being paid around $30 per successful connection.
The catch for tenants is in the detail: even if you don't end up signing on with one of the utility providers, you may be signing on to have the connection service continue to contact you. One rental application we came across meant you were consenting to have Direct Connect contact you by telephone and SMS for one year after you applied for the property, even if you didn't end up signing on with any utility providers.
Looking for the best energy deal?
Choosing the best energy deal for your needs can be complex and it's not surprising many people want to simply hand the task over to someone else.
- The best place to compare offers is on the government's Energy Made Easy website. You'll want to have at hand: the type of tariff you're currently on and details on how much energy you usually use (you should find this on a recent bill).
- CHOICE is also in the process of setting up an energy switching service. PowerUp compares all the available deals on the market to find the best deal (and doesn't receive commissions). If you're interested in being part of the PowerUp trial you can find out more at powerup.community.