KPN grows on broadband market again with acquisitions

Thursday 10 November 2011 | 16:30 CET | Background

KPN announced an agreement to acquire part of Reggefiber and Reggeborgh's FTTH assets. These include: 1) the service providers Edutel, XMS and Concepts ICT, owned by Reggeborgh; and 2) Lijbrandt (including the ISP Fabriek for wholesale services and the former ComOne subscribers in the SME market), Reggefiber Wholesale and Glashart Media, owned by Reggefiber. All together, the four ISPs had 110,000 subscribers at the end of 201. The transactions should be completed in the first half of 2012, and as a result have no impact on KPN's guidance for 2011 (which include, among other things, over EUR 2.4 billion in free cash flow).

In part due to the above, the joint venture with Reggeborgh is also being revised. Reggeborgh is the co-owner of Reggefiber with 59 percent of the shares. KPN has owned since 2008 41 percent of Reggefiber, in which it has concentrated its FTTH activities. The new call/put options are as follows (KPN has a call, Reggeborgh a put):

  • KPN will increase its stake to 51 percent from 31 December 2012, or earlier if Reggefiber reaches before then 1 million homes connected. Exercise price: EUR 99 million.
  • KPN's stake will increase further to 60 percent from 1 January 2014, or earlier if Reggefiber reaches 1.5 million homes connected. Exercise price: between EUR 116 and 161 million, depending on the capital invested (capex). This requires clearance from the competition regulator NMa.
  • KPN's share will rise to 100 percent over another year and a half, in the 3.5-5 years after the second option is exercised. Exercise price: EUR 647 million. This option can also be exercised at a fair value to be determined later, in the period seven years after the second option is exercised. 

The new terms bring KPN's control of the venture closer, as under the previous agreement the second option required a minimum 2 million homes connected. Depending on the exercise prices, Reggefiber is valued at EUR 1.0-1.8 billion. We estimate that KPN is paying for the other transactions around EUR 40-50 million. 

Reggefiber had at the end of Q3 844,000 homes passed, 687,000 homes connected (fibre to the utilities cabinet) and 240,000 homes activated (subscribers). These are not all FTTH, as some of the 'old' Lijbrandt lines use FTTB or ETTH.

Broadband market share

As KPN is again acquiring a number of ISPs (in the past it was DSL providers, such as Cistron, hcc!net, Speedlinq, Demon, Tiscali), clearance from the NMa will be required. This is less about Lijbrandt, which is already part of Reggefiber, and more about Edutel, XMS and Concepts ICT, which as Reggeborgh subsidiaries have been to date outside KPN’s sphere of influence. KPN, which recently saw its share on the broadband market fall below 40 percent (see our commentary ‘KPN loses where it most wants to gain: on the broadband market'), needs these takeovers to reach its goal of a 45 percent market share in 2015. The company expects its market share to further increase in 2012. The fact that its share has been in decline recently may work in its favour when the NMa comes to look at the proposed takeovers. Their small size should also mean few regulatory problems. At the current rate, KPN is connecting about 25,000 customers per quarter to fibre – and losing the same amount on the DSL market. With the four ISPs and the earlier announced takeover of Caiway, KPN can grow by about three points on the broadband market, putting it a good way towards its goal for 2015.

Implications Reggeborgh and Reggefiber

The deals with KPN see Reggeborgh largely exiting the consumer fibre market. However, it still owns Eurofiber (business fibre) and a small fibre project in Germany, and has just bought the small provider KickXL.

As a result of these transactions Reggefiber can concentrate completely on the roll-out of passive networks, alongside a wholesale arm that sells ODF access (Reggefiber Operator), regional offices and local shops. Wholesale customers are likely to be neutral about the deal. At the moment there is no alternative fibre network, apart from the former cable networks where CAIW is rolling out fibre. Furthermore, it’s only a question of time before Tele2 and T-Mobile Online start asking for ODF access. 

Implications KPN

The transaction is also logical for KPN. Not only does its broadband market share increase, it simplifies its situation, in line with its new strategy 'Strengthen, simplify, grow'. Wholesale customers can be served better, as there will be just one wholesale provider, rather than a geographic split between KPN and Reggefiber. Expertise on the TV market, currently spread across KPN, XS4All and Glashart Media, can also be better exploited. This is important for further growth in the broadband market, as growth will come not only from infrastructure expansion but also from innovative services. The recent agreement with Spotify can also be seen in this light. 

What will KPN do with the brands acquired and Glashart Media? A few years ago it scaled back to four brands (KPN, Telfort, XS4All and Hi), and it's unlikely it’s now ready to reverse that. KPN has yet to announce any decision, but XS4All already provides a similar brand for Concepts ICT. The other brands could be migrated to the KPN name. For XMS, which is active in buildings and homes owned by the Portaal corporation, Telfort is a more obvious choice. XMS has a limited penetration in the Portaal footprint, so this offers an opportunity for KPN. It’s also unclear whether KPN TV will merge with Glashart Media. It’s an obvious choice, but Glashart’s wholesale channels may push for it to remain independent.


The transaction is totally logical and was to be expected. However, the fact that KPN is acquiring not only Regefiber but also other Reggeborgh assets will mean closer scrutiny from the NMa. While for Reggeborgh the question is what it will do next on the (international) fibre market, for Reggefiber, it’s role at KPN is clear. KPN is going back to a proven strategy: growth by acquisition.

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