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Union Fenosa: broadening horizons

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Union Fenosa has joined Endesa and Iberdrola in entering the rapidly-expanding Spanish broadband market. All three have chosen to target niche customer groupings through alternative platforms in a bid to differentiate themselves from conventional broadband providers. Yet, notable market failures suggest that Union Fenosa will struggle for sustained commercial success with its venture.

Union Fenosa is launching a broadband service through its telecommunications subsidiary, Ufinet. Using satellite broadband technology, the company is looking to sell to rural customers, taking advantage of Spain's fragmented broadband infrastructure and subsequent limited penetration. It is initially trialing its product with 1,000 rural users and has a 10,000 users expansion target.

By taking a cautious, targeted, approach to expansion, Union Fenosa is learning from the mistakes made by other European utilities. In 2002, RWE set a 300,000 take-up target for its Powerline Communications broadband venture. This looked to offer consumers telephony, Internet and security products centered around the home and was in direct competition to the package offered by Deutsche Telekom (DT), which could utilize its telecoms network to promote conventional ADSL technology. As a result RWE signed up only 2,000 customers citing severe competitive pressures as one reason for exiting the market.

Union Fenosa should take note of some of the other reasons responsible for RWE's demise. Problems with the technology and exorbitant manufacturing costs prevented RWE from competing with the rates offered by DT. The satellite broadband platform used to deliver Union Fenosa's offering is inherently linked with high fixed manufacturing and delivery costs.

Although designed to target niche groupings that are willing to pay above the odds for their broadband, Union Fenosa has significantly lost first mover advantage in this area. Afitel, a network communications company, looked to target rural consumers with satellite broadband in 2000, but found that this approach was not economically viable. In 2004, Endesa and Iberdrola are already active within the niche market that Union Fenosa is targeting. Indeed, Endesa has already recorded a 19 per cent penetration rate through its Powerline Communications offering.

Therefore, although Spain offers an advantageous market opportunity for utilities to develop broadband products, Union Fenosa may already have missed the boat.

Source: Datamonitor

Related Research: Datamonitor, "Bundled Services Review" (DMEN0265)

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