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General

KPN Q4: performance by division

Wednesday 25 January 2012 | 16:27 CET | Background

We look at the operational developments at each of KPN's divisions in Q4 2011. Underlying revenues and EBITDA exclude the impact of regulatory changes.

Dutch Consumer Mobile: same trends continue

The earlier signaled changes in consumer behaviour (fewer calls and SMS, more use of communications apps) are continuing. This resulted in an 8 percent annual decline in ARPU to EUR 23. The number of SMS per subscriber was down 19 percent from a year earlier to 47 per month, and the number of minutes fell by 4.2 percent to 114 per month. At the same time KPN lost 84,000 subscribers in the quarter for a total 5.34 million at year-end, down 4.7 percent from 2010. Its market share fell to 44 percent, in part due to a structural decrease in subsidies and sales at retail chains. 

Revenues fell 11 percent to EUR 407 million, and service revenues were down 13 percent to EUR 375 million. Of the 13 percent drop, 5.8 percent was due to regulatory effects and around 5 percent was from the change in consumer behaviour. 

Measures undertaken by KPN to address these issues:

  • Better distribution, more shops.
  • More competitive propositions, with KPN asking for feedback from customers, and more focus on data. Telfort and Simyo will compete on the low end of the market. 
  • Better services provision.
  • Network investments (HSPA and LTE) in order to remain the 'best network', with more LTE tests.


Dutch Consumer Fixed: fibre not yet compensating for DSL

KPN is losing out to cable on the broadband market, but is still winning customers with its triple-play and fibre offers. The number of DSL customers fell by 34,000 in the quarter, while the FTTH base grew by 25,000. Its broadband market share fell to 40 percent, but in fibre areas it's at 46 percent. In the latter areas, ARPU is EUR 10 higher. 

On the IPTV market, KPN launched a new user interface. TV ARPU was up 20 percent year-on-year to EUR 12. The company added 84,000 subscribers in the quarter, offsetting the loss of 26,000 Digitenne customers. In total it had 1.40 million TV subscribers at year-end (573,000 for IPTV, 827,000 for Digitenne). The number of revenue-generating units per customer, including mobile, increased, but is still around 1.9, the same as in the three preceding quarters. 

The number of fixed RGUs fell by 0.9 percent to 6.70 million. At the same time the number of triple-play subscribers rose 37 percent from a year earlier to 658,000. Net line loss was 40,000. ARPU for fixed services fell 4.8 percent to EUR 20.51. Total sales were down 5.7 percent to EUR 412 million due to losses in telephony (-19%) and broadband (-4.7%), in part compensated by growth in TV (+41%).

KPN's goal remains growing the broadband market share to 45 percent by 2015. To achieve this, the company is taking various measures:

  • In fibre areas, it's raising the maximum speed to 500Mbps.
  • It's acquiring four fibre providers from Reggeborgh and Reggefiber, assuming the NMa clears the deal. The planned takeover of Caiway also still needs NMa approval.


Dutch Business: contracting market, integration with CM

The Business segment is also suffering from declining sales of traditional services and regulation, while data, DSL and hardware are growing. ARPU was down 8.9 percent to EUR 41 due to a change in the mix towards data and M2M services, which generate lower revenues than voice and SMS.  Some 69 percent of customers now subscribe to mobile data services. The transition to IP services is also driving price and margin erosion. KPN said these developments are leading to a contraction in the overall market. The takeover of Atlantic Telecom added some growth, as did the acquisition of Yes Telecom in the mobile market. 

Underlying sales were down 2.1 percent to EUR 587 million, and EBITDA fell 9.6 percent to EUR 177 million.

Actions:

  • KPN Business is planning a ‘challenger brand’.
  • Cooperation with Corporate Market (previously Getronics) to develop ICT services such as unified comunications, secure managed devices, private cloud and services aggregation. KPN spoke even of an accelerated integration of Business and Corporate Market.

Corporate Market: impairment

Difficult market conditions, price pressure and changes in the ICT market led to an impairment charge of EUR 298 million. Customers are still delaying orders, especially financial companies and government bodies.

Underlying sales fell 2.3 percent to EUR 520 million, and EBITDA dropped 17 percent to  EUR 12 million.

Actions:

  • Offshoring and outsourcing of services will be implemented.
  • Investments in the quality of services provision.
  • Efficiency measures will lead to the loss of 2,000 to 2,500 jobs in the coming years, as earlier announced. Most will go in 2012 (900 through cost cuts, 500 through offshoring).
  • Getronics International is being sold, at a book loss of EUR 30 million. Customers with international operations will be serviced by the Getronics Workspace Alliance.

Wholesale & Operations: results under pressure from FTTH success

Revenues fell 4.0 percent to EUR 712 million, and EBITDA was down 11 percent to EUR 436 million. This was partly due to connecting FTTH customers. In addition, rents increased on mobile sites.

Reggefiber increased the number of homes passed to 951,000, and KPN is now active as service provider for 813,000 homes passed. Reggefiber has activated 277,000 homes (subscribers through its own or other service providers), of which 102,000 are customers of KPN brands. 

Actions:

  • Reggefiber will continue the roll out of FTTH.
  • Some 40 percent of the coverage offers speeds of at least 40Mbps and this well be increased to 70 percent by the end of 2012. From Q2, KPN will start rolling out pair bonding technology. By the end of 2013, 76 percent of the population should have access to over 40Mbps on copper and 21 percent over 1 Gbps on fibre.

iBasis

Revenues rose 6.4 percent to EUR 249 million, while EBITDA was unchanged at EUR 7 million. Traffic measured in minutes rose 8.1 percent, while the average price per minute was stable. Despite stiff competition, iBasis maintained its position among the top five players on the international voice market. 

Actions:

  • Focus on value creation.

Germany: strong data growth

E-Plus grew in postpaid thanks to its ‘Mein Base’ offer and a focus on data, while prepaid grew in the wholesale channel. It added a 569,000 subscribers in the quarter for a total 22.7 million. The market share was up slightly to 16 percent, while on the data market its share rose to 7 percent from 5 percent at the end of 2010. On the voice/SMS market, its share reached 18 percent. 

Underlying sales rose 6.1 percent to EUR 823 million, and EBITDA was up 21 percent to EUR 363 million. Underlying service revenue increased 7.2 percent, and data service revenue was up 62 percent.

Actions:

  • The roll-out of HSPA+ will continue, reaching 80 percent of the population with up to 42Mbps by the end of 2012. 
  • Backhaul will be strengthened, partly through network sharing at the regional level. Both fibre and microwave will be used.
  • LTE is under consideration for the medium to long term. Tests are underway in four areas. Depending on demand, E-Plus expects a commercial launch in 2013-14. 
  • Data offers will be optimised further in 2012. ‘Base Plus’ will hit the market this quarter. E-Plus will also target mobile substitution for voice services.
  • The market share should reach at least 20 percent by 2015. 
  • In 2012 new partners will be announced.

Belgium: prepare for data growth

Underlying sales rose 13 percent to EUR 203 million, and EBITDA jumped 67 percent to EUR 79 million, in part due to cost controls. Service revenues were up 15 percent, helped by regional targeting, the opening of new stores, success on the business market, new offers and take-up of data bundles. Jim mobile and RTL are also helping on the wholesale market. Market share rose 1 percent point to 19 percent over the year. Base added a total 61,000 subscribers to reach 4.1 million at year-end. 

Actions:

  • The market share should reach 20-25 percent by 2015. 
  • The new 2.6 GHz licence is available from 01 July 2012.

Rest of World: Ortel disappoints

The French operations were sold, with a book profit of EUR 10 million. Ortel is now active in six countries. In Spain, KPN had 500,000 subscribers, while Ortel in France had 400,000. 

Underlying sales fell 5.9 percent to EUR 50 million, hurt by tough competition, leading to a slowdown in growth at Ortel. Spain also contributed with lower prices. EBITDA reached EUR 14 million, versus a loss of 9 million a year ago, helped by the sale of the French activities.

Actions:

  • The search is on for a buyer for the Spanish operations (Vodafone among those rumoured interested).
  • Ortel needs to accelerate growth. 


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