The Dutch market is set for a new year with a new composition. VodafoneZiggo is on track with its merger integration, T-Mobile and Tele2 are set to complete their merger, and KPN has laid out its strategic plan for the coming years. What else can we expect on the increasingly saturated Dutch market in the new year? A new round of infrastructure investment is set to begin, services innovation is shifting to the internet, and the content sector is thriving.
Market leaders optimistic
All three big operators in the Netherlands are undergoing a period of integration. Efforts at simplification are underway at multiple levels, driven by new network technology and a strong focus on cost reduction. The limited growth outlook means efficiencies are needed to keep growing margins. All three operators appear optimistic. VodafoneZiggo is targeting higher margins, and KPN aims for "cable-like margins", while T-Mobile sees its future in 'invest and disrupt'.
And where does that leave the remaining small players on the Dutch market? Further consolidation is likely, although the upcoming spectrum auction could open the door for a newcomer on the mobile market. Candidates include EQT, which owns the brands Delta, CAIW, Caiway and Glasvezel buitenaf, and the quickly growing MVNO Simpel.
Fixed: cable first for nationwide gigabit broadband
The upgrade of fixed networks will continue unabated. VodafoneZiggo and Delta (EQT) are expected to provide near-nationwide gigabit broadband from 2020, following the upgrade of their cable networks to Docsis 3.1. KPN continues with its copper network where fibre is not yet deployed. Rural areas remain difficult for the incumbent, and other players are capitalising on this with the roll-out of new fibre networks, such as CAIW (EQT) and Kabelnoord. L2 Fiber (Rotterdam), T-Mobile (The Hague) and the other small cable operators are also rolling out FTTH. VodafoneZiggo will have a clear advantage once it upgrades to Docsis 3.1 compared to its national rivals, but at regional level it will face stiff competition from fibre, which already covers 36 percent of the country.
Outside the cable market, copper and fibre can cooperate. No one expects to have two fibre networks to the door, so KPN and the other players (EQT, E-Fiber, Rendo, small cable companies) can divide up the market geographically. This could lead to an even closer cooperation, creating a nationwide fibre network operator in which all are shareholders and contribute to the investment budget, leading to economies of scale and synergies. External investors could also be invited in, as Altice and Bouygues are doing in France. Another option is to work with regional or local governments, as Telekom Deutschland has been doing, to create 'smart cities'. The German operator has such projects underway in Stuttgart, Bonn, Hamburg, Bavaria and other places.
Mobile: 5G questions
The mobile market is set for a new generation of network technology, 5G. Offering very high bandwidth, low latency and the ability to connect millions of devices, 5G may be the technology that makes all others irrelevant, including the fixed line, 4G and IoT. For the Dutch market, 5G as a fixed-line replacement is less relevant given the high population density and cable coverage, but it can still play a role in rural areas. 4G will likely serve for some time yet for standard mobile services, and 5G will be used mainly for IoT applications. As Deutsche Telekom says: "5G technology is the basis for mobile industrial applications".
That's the theory for the technology, but other questions remain, such as when will the 700 MHz be auctioned in the Netherlands and how soon will the 3.5 GHz band follow. Could the auctions bring a newcomer to the market? To what extent do the existing networks need densification, and can small cells be used for the many more antennas required? Are there possible synergies with the roll-out of other infrastructure? And what will edge computing and the decentralisation of the data centre bring? Last but not least: when will 5G services start and be available nationwide?
Content: only VZ both operator and broadcaster
There is little evidence of true innovation on the Dutch market. Instead the providers are focusing on bundling services in multiplays and FMC packages, and offering attractive propositions with discounts and extras. Innovation is taking place on the internet, where the big players have other problems (fake news, privacy, monopoly forming). At the same time, content plays an important role in attracting and holding on to customers. While KPN claims it doesn't need exclusive content as it's already the best on the market, VZ is taking up the dual role of operator and broadcaster with its Ziggo Sport offer. As a broadcaster VZ does need exclusive content. Sport and HBO are central to this, but it could lose the HBO content if AT&T decides to keep this for its own OTT service.
All the providers see themselves as aggregators. This implies that broadband (internet access) is the most important service, driving the competition for each household. It's important to remember that in the Netherlands essential content is often available via 'open' TV channels. Sport is an important element of this (especially football: Eredivisie, Champions League, Euro, World Cup), eliminating a possible differentiator for providers.
Furthermore, there are numerous candidates (mainly in the US) ready to step in with their own OTT services; not just AT&T/WarnerMedia, but also Disney/Fox with the planned Disney+ service, Apple and probably also Comcast/Sky. And there's Amazon Prime Video, which has not yet offered much in the Netherlands. If the situation with sports rights changes in the longer term, there could be a shift from open TV channels to OTT services. Sky and Amazon are already active here, along with DAZN, which hasn't yet entered the Dutch market. This is less a threat for the aggregators but more so for players like VodafoneZiggo working with exclusive content.
Open cable: a new type of provider
In addition to KPN Wholesale, OTT and the spectrum auction, newcomers on the Dutch market can take advantage of the opening up of VZ's cable network. Under the new regulation, VZ must present by the start of 2019 a reference offer for wholesale customers. After a period of legal appeals, negotiations with potential customers (T-Mobile, Caiway, YouCa) and technical implementation, a new category of providers will hit the market: the cable resellers. They are like to target first the low end of the market (Telfort), contributing to price pressure. The question is whether the implementation can be completed in 2019.
IPOs: mainly internet companies
Much attention in 2019 will go to IPOs of American internet companies, such as Uber, Lyft, Airbnb, Pinterest, Slack, Stripe and Palantir. At the same time, a few 'one-trick ponies' could disappear from the stock market via takeovers, like Twitter, Snap and Netflix. The big internet players will also face continued regulatory pressure to break up their ever-growing empires, such as Google and Amazon, and clean up their problems of fake news and privacy incursions.
In the telecom sector, Vodafone may pursue listings for some of its subsidiaries. Candidates include Vodafone New Zealand and VodafoneZiggo (after 2019).
