If KPN wants to match the French FTTH plans, it should buy out Reggefiber

Tuesday 8 February 2011 | 16:19 CET | Market Commentary

At the launch of Conquests 2015 France Telecom/Orange has unveiled a new part of its multi-year plan Conquests 2015: an accelerated roll-out of FTTH. This is also part of the ‘National Program for Very High-Speed Broadband’, in which the government is trying to stimulate operators to speed up fibre deployment. At the launch of Conquests 2015 in July 2010, FT said it would invest EUR 2 billion in FTTH (to the end of 2015), with the aim of reaching 40 percent coverage in 2012. It’s now added the following targets:

  • 10 million homes passed 2015, split across 3,600 municipalities (of a total 36,600) in 220 metro areas.
  • 15 million homes, or 60 percent of the total, passed in 2020.

FT is also looking to cooperate in other areas on deploying interim technology, such as FTTC (or VDSL) and satellite. The company is also looking for joint investments on FTTH. France Telecom is already active in 15 cities and competes on the FTTH market mainly with Iliad (Free), SFR and Numericable. France Telecom profits clearly from cooperating on the French market. Requirements exist for network sharing, helping to push down sharply the costs. If this didn’t exist, the budget would be much higher than 2 billion. Furthermore, the government is ready to co-invest (see French minister calls for 2 million FTTH lines by end-2011).

Let’s compare these plans to KPN. Reggefiber, the joint venture run by KPN and Reggeborgh, targets 1.1-1.3 million homes passed (16% coverage) by the end of 2012, by connecting 250,000 to 300,000 houses per year at a cost of EUR 250-300 million per year. Its recent loan from the EIB and a number of commercial banks, worth EUR 285 million, will not cover all its plans, as a substantial part has already been invested via shareholder loans from KPN and Reggeborgh. These will have to be paid off with the new loan. So at the end of this year, Reggefiber will again have to look for new capital, as its existing assets are not enough to make the company self-financing. Given the long term of the EIB loan, it’s clear the company has been searching a while for fresh money.

If KPN/Reggefiber continue after 2012 at the same speed, around 3.4 million homes would be connected at the end of 2020, good for coverage of around 45 percent. This is considerably behind the French plans, which don’t even include yet plans by the competition. Furthermore, KPN needs FTTH much more to compete with cable operators, a factor not as pressing for France Telecom.

What’s the outlook for all of the Netherlands? CIF, which is backed by pension funds, and various small cable operators have started rolling out fibre, but they have a reach of only around 10 percent. If Reggefiber’s dream of 80 percent coverage by the end of 2020 is to be realized, then there are a few possibilities for action:

  1. KPN quickly acquires all of Reggefiber and pumps in capital (equity or debt). This won’t mean a huge jump in capex; once the current round of VDSL2 investments is completed, a fair bit will be available that no longer has to go to DSL and can be devoted to FTTH.
  2. UPC and Ziggo deploy fibre in their access networks. For the moment, there’s no plan to do this; they are performing very well in the current market and see no need for FTTH yet. The rise of streaming video is probably the biggest threat to this vision.
  3. Newcomers help Reggefiber. Various players have made themselves known, such as Jelcer (via the sewers) and operators targeting customer-owned networks (OONO, Teleplaza, GlasOperator, WDoo). However these are still very small projects. Vodafone, T-Mobile and Tele2 could in theory be candidates though.

Of the three possibilities, the first seems the most likely. This is just one of the issues the new CEO Eelco Blok will need to commit to when he takes up office this spring.

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