The Failure of Dong Energy’s Fibernet

Dk_dp Last week the news hit the wire that Dong Energy was selling it's Fibernet FTTH Open Access Network to Danish incumbent TDC. That Fibernet wasn't a success was not news in any way. When I went over to Copenhagen last year I was struck by a number of things in their operations which I thought were let's say less than optimal:

  • a considerable number of staff compared to the number of customers served
  • a network deployment that followed the energy network rebuild (and hence had little geographic consistency)
  • the absence of truly innovative service offering or national brands over the network

This of course is a recipe for disaster as the costs to deploy the network are sunk in the ground but customers have no incentive to pick up the services and can't be marketed to efficiently.

Perhaps the more intriguing (or depressing depending on where you stand) bit of news is that incumbent TDC is buying the network. I think it's a great deal for the Danish incumbent: according to Idate (see page 14), Fibernet passed 150.000 homes in late 2008. The acquisition cost (including the 100m DKK variable) comes at roughly 57m EUR. That's 380 EUR per home passed, a good deal indeed, especially since TDC is not just buying a passive network but the active equipment as well.

The big question of course revolves around TDC's willingness to continue operating the network in an open access model. According to my sources, that's still up in the air but there's a good chance they will. Not that it would make a real difference in my opinion: probably the crucial aspect of this acquisition is that Fibernet customes will have access to a known brand from now on (TDC's own) and most likely, if the incumbent plays its cards well, the take rate will finally pick up.

Fibernet has fallen for the classic wholesale only model issue: once your network is rolled out, you have very little control over the quality and attractiveness of the offerings that are sold over it and yet your financials are fully dependant on said attractiveness…