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Profit Pipelines

Douglas Fraser | 10:42 UK time, Sunday, 6 March 2011

Where do you go when you've got 100% of your market? Down? Or into England?

It's a choice faced by Business Stream, the arm's length company spun out by Scottish Water, to face what we're told is the world's only competitive market for water and sewerage.

Of course, that doesn't include residential supply, which remains a monopoly.

But the 130,000 business, non-profit, public sector and charity customers inherited by Business Stream when the market opened up nearly three years ago, can take their business to four other registered competitors.

How many have done so? Hardly any.

Business Stream has 97% of the market, which doesn't look to most folks like a properly functioning market.

One reason may be that the competitors are only interested in picking off the most lucrative customers.

But as chief executive Mark Powles told me in an interview for Business Scotland, his 200 staff - headquartered in Edinburgh's Gyle - are motivated to get up each morning eager to ensure that they keep their customers happy, often by providing advice on how to use less water.

Waterwatch Scotland, the consumer watchdog, doesn't agree. It warned last August, and it's still warning now, that the switching process is too difficult.

Lobbying hard

Even with Business Stream's success in holding onto customers, the only way appears to be decline, so how does Mark Powles grow his company?

The answer is added services, and looking to growth in other markets.
And England's £2bn market for water and sewerage is looking very attractive.

It's been half-hearted in going for competition so far. Only the 2,000 biggest, single-site water users can tender for services.

But this summer, Business Stream hopes the UK government is going to open it up further. To that end, it's lobbying hard. And oddly enough, so is its regulator.

The Water Industry Commission for Scotland is making big claims for what could be achieved if England went the same way as Scotland.

What's doubly odd is that Business Stream is wholly owned by the Scottish government, which hasn't been noted for its enthusiasm in driving competition into the delivery of public services.

It might not be particularly pleased to find such pressure for de-regulation coming from government-owned companies or agencies based south of the border.

Next question is, what happens if Business Stream is successful and gets into a newly-competitive English market?

Expanding there will require some big capital costs. Where would that come from? Being government-owned, it would have to come out of Holyrood's hard-stretched capital budget.

You can hear Mark Powles on Business Scotland, available not only on BBC Radio Scotland just after 1000 GMT on Sunday, but subsequently on iplayer and by podcast.

And while you're at it, you can find out there why taking on a franchise is proving a popular way of starting out in business, both for entrepreneurs and for their lenders.

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