la Frontera In the News

Associated Press

June 16, 1999

TU tests market with utility-bundling deal

by David Koenig, Associated Press Writer

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DALLAS (AP) - Every homeowner knows the tedious chore of calling all over town to arrange for electric, gas, water, phone and cable service in a new location.

A major Texas utility is about to test whether it can profit by offering all those services to tenants in a development on the southern edge of Round Rock, just north of Austin. The 330-acre upscale project, called La Frontera, will include apartments, mid-rise office buildings, stores, a 16-screen cinema and light manufacturing facilities.

La Frontera will mark the first attempt at "bundling" by TXU Corp., formerly Texas Utilities Corp., and will be one of the first tests of the all-in-one approach anywhere in the country.

For TXU, it will serve as a cautious first step toward deregulation, which will pit longtime monopolies against each other and utility newcomers. Last month, the Legislature passed a bill that will let customers pick their power company in 2002.

"In two years, the electric utility industry is going to be competitive. You'll see these types of packaging of services as one way to compete in the marketplace," said Chris Schein, a TXU spokesman.

TXU expects to sell lucrative services such as phone, long distance and Internet service at La Frontera, and it hopes to learn which customers - residential, office, retail or assembly manufacturers - are most interested in bundled services.

The partners in the development, who approached several utilities before striking a deal with TXU, also expect to benefit.

Don Martin, an Austin public-relations executive who is one of three managing partners of La Frontera, said the partners wanted to avoid the usual practice of paying utilities to get them to provide services early in the process. This time, TXU will bear installation costs.

"And we see it as a large marketing advantage with tenants," Martin said. "TXU has high name identification."

By law, tenants won't have to deal with TXU, and nothing in the law prevents other utilities from coming in. But Martin expects the TXU will do very well in the deal.

TXU has experience in most of the services it will offer at La Frontera. It sells electricity and gas in North and Central Texas, it recently bought a local phone company in the Lufkin-Conroe area that offers high-speed Internet access, and it owns a share of a local wireless company. TXU is negotiating with cable companies to offer that service in the new development.

So far, however, bundling experiments elsewhere have had mixed success.

Michael Heim, a utilities analyst with A.G. Edwards, said several companies have tried the strategy but failed to meet income projections. He said customers will buy gas-related extras from a gas utility, but they might not be persuaded to buy long-distance or Internet service from the same firm.

NorAm Energy Corp. of Houston and Sprint Corp. of Westwood, Kan. bundled gas and phone services in Ohio in 1997, but they stopped the trial after six months.