KPN has announced plans to roll out FTTH in The Hague, shortly after Primevest started work on its project in the city. Similar overlap has happened in smaller Dutch towns, such as Deurne, Helmond and de Beemster. KPN's message is clear: sharing the passive network layer is not an option and potential newcomers should steer clear.
The authorities are likely watching with mixed feelings but are unlikely to get really concerned unless KPN's strategy truly scares off new entrants. This could become interesting in the event a takeover bid for KPN materialises from Brookfield, as was recently rumoured.
KPN is cooperating (or not?)
KPN's call for cooperation in The Hague and elsewhere is not really a friendly gesture to the competition. It has not gone any further than trench sharing, which lowers the costs of roll-out for both parties but does not stop network duplication. By deploying where new entrants have already announced plans, KPN is giving a double message:
- It does not want any reciprocal agreements with third parties to avoid network duplication or to share the passive network layer. Nevertheless, it has used this model already: KPN is working with parties such as Delta Rijssen Glasvezel Investeringen (Digitale Stad) of investor Dick Wessels (trading as 'Glasvezel in het buitengebied'.)
- It wants to put potential newcomers off the passive layer.
KPN Brookfield and pensionfunds FTTx
Delta Fiber EQT FTTH in cable footprint (except Zeeland) and rural areas
E-Fiber Arcus FTTH in small towns including outlying areas
What does this mean for KPN's strategy?
- The strategy conflicts with the current regulation giving third parties access to KPN's network. Why not the other way around as well? The fragmented ownership of the passive layer at KPN and the many newcomers on the fibre market is holding back network integration and efficiency. Only in time, with the inevitable takeover by KPN of these new networks, can they be integrated. It's unclear how big a (financial) problem this may be.
- This makes KPN's passive-aggressive stance understandable, but it does slow down the roll-out of fibre across all of the Netherlands. Cooperating with the new entrants, which are also targeting rural and outlying areas, would accelerate the process considerably. For a listed company like KPN though, this is not really a concern.
- The state (ministry of economic affairs and the ACM) are monitoring the situation. On the one hand, they support infrastructure competition and will welcome the newcomers. On the other hand, if KPN's strategy scares away newcomers and slows national fibre coverage, the government will be alarmed. It will need to look for ways to stimulate passive network sharing.
Patient capital
To finish, what does it mean for the operators this network duplication? In many places, it will mean three access networks: 1) Ziggo and the other cable operators, 2) KPN and 3) a newcomer. This means any potential long-term market share shrinks to 33 percent from 50 percent. This undermines the business case for most players, with the exception perhaps of one: institutional investors (pension funds and insurers) that can be patient with their capital.
This kind of money, with a long investment horizon, can perhaps settle for a 33 percent market share. This holds at the moment for Primevest (which is working with T-Mobile as service provider and VolkerWessels Telecom as operator of the active layer), in The Hague and eventually could also be the case for KPN, if it's acquired. Brookfield and the Dutch pension funds it's thought to be working with also know how to be patient.
If such an acquisition arises, Brookfield will probably look to cooperate with the new entrants, as 50 percent is always better than 33. In such a case, it would also be doing VodafoneZiggo a favour.
