The UK energy residential supply sector has offered the prospect of this for many years. The comfortable days of the 'Big 6' - when the barriers to entry were so high that new entrants rarely stayed the course - were always likely to be under threat at some point, with chaotic fallout. So what were those barriers?
- Competence: gas may be a relatively easy business to participate in, but electricity is fiendishly difficult, in several dimensions, as many an apparently competent energy player has found to their cost (Shell, BP, Total, Statoil, Conoco, ...)
- Branding & trust (a.k.a. inertia): people were fairly well accustomed to, and comfortable with, buying from "the electricity board" (not realising the concept was otiose from the mid 90's, with the restructuring of the industry and the separation of the supply side from "the wires")
- Low margins: the business might have been comfortable for long-term incumbents, but fortunes were not readily made - indeed, once the market settled down after the initial upheavals of sector restructuring, there was always at least one of the Big 6 thinking seriously about jacking it in
- Capital adequacy: at very least, in order to be able to hedge the commodity price risk (a very necessary requirement in circumstances of volatile wholesale prices), a basic minimum credit standing is required
The picture began to change about a decade ago when a number of aspects came together to facilitate participation by players with quite different business models.
- government and regulators were very keen indeed on seeing new entrants, and proved willing to ignore the kind of arrant dross that was applying for supply licences (interspersed with a handful of genuine and properly-financed innovators).
- for the same "reason" (presumably), Ofgem simply hasn't enforced its own rules on smaller players, e.g. the requirement to provide a telephone call-centre service to customers.
- one of the major barriers to entry - the need for complex systems (again, particularly for the electricity side) ceased to be an issue with the advent of decent-quality off-the-peg supplier software packages at reasonable prices.
- wholesale prices: they started on a multi-year trend of slowly falling. This facilitates the "Northern Rock" trick: sell long (e.g. one-year contracts at fixed price), buy short (on the spot market, where because of the falling price-trend, it'll be cheaper than when you made the sale). Buying spot requires minimal credit; which is, errrr, handy for companies that have almost none...
- the "flipping" model: price comparison firms that offered to switch customers "automatically" (i.e. passively, on the customer's part) onto the cheapest available tariff. A supplier with next-to-zero marketing capabilty could thereby "buy" as much market share as it wanted, simply by pitching its prices accordingly.
- some of the social-policy costs levied on suppliers only apply to the larger players.
- genuine, albeit speculative profitability of the "Northern Rock" model - for just as long as wholesale prices continue to fall AND the supplier isn't going to the trouble and expense of hedging against the possibility of rising prices (not least, because it doesn't have the credit standing to do so! - see above).
- positive cashflow: notwithstanding various unavoidable start-up costs and system overheads, with a customer base once established the supplier is able to get ahead of supply-cost outgoings via (a) direct debit charges and "estimate"-based payments, i.e. borrowing its customers money; and (b) collecting, as it is required to do, ever-increasing "green" levies, which do not need forwarding to the relevant authorities until several months later (if indeed they are ever paid out at all) - another cheap source of "finance".
- ease of syphoning off this cash: small players with no public profile nor recognisable corporate governance can readily and quietly play tricks like borrowing from Related Parties at outrageously high interest rates, "investing" in Related Party ventures, and paying Related Parties for extremely costly "software services" and "consultancy". How do I know about this stuff? Because sometimes it's as plain as day in their annual reports! (That's for the supply firms that aren't so small, they don't have to file full accounts ...) Where were the authorities in all this? Evidently, neither Ofgem nor government could give a stuff.