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General

KPN simplifies further and becomes an attractive takeover target

Wednesday 9 March 2016 | 12:55 CET | Market Commentary
KPN has unveiled its new strategy for the coming years, under the name 'Simplify, Grow, Innovate'. Its financial bottom line is expected to improve thanks to savings on opex and capex. Simplification, bundling, cooperations and customer satisfaction are the most important elements of the strategy. Integration of its core network is also a key, new operation, expected to make KPN ready for the future. On the access network, the company will continue to develop LTE, while details on the costs of FTTC and FTTH suggest a complete roll-out of fibre is not excluded, even if KPN has chosen to focus for the moment on copper.

Main points

Below we summarise the main points of KPN's plans for the period to 2020. In addition the company is changing its reporting structure, merging Consumer Residential and Consumer Mobile into KPN Consumer; eliminating internal sales and changing NetCo into a cost centre called Networks, Operations & IT.

  • KPN Business: too soon still to talk about growth, the focus is first on stabilisation of revenues. As the telecom market contracts, KPN is searching for growth in IT. Cooperations will be important to strengthen the portfolio, including with potential competitors, both for international services (BT etc.) and IT (Microsoft etc.).
  • KPN Consumer. Focus is on the household, to which KPN aims to sell as many services as possible (via cross-, up- and deep-selling) in order to maximise ARPU. KPN will build on its IPTV platform 'in the cloud', as entertainment is the main area for growth. Partnerships will help provide the content.
  • Networks, Operations & IT. A new operating model (OSS/BSS) will bring operational, financial and commercial benefits. More benefits should come from integration of the core network, driven by the move to all-IP, a CDN and virtualisation (NFV, SDN). On the mobile network, KPN will develop four bands for LTE using carrier aggregation (LTE-Advanced, LTE-Advanced Pro). The LoRa network will support IoT services, and voice quality will improve with the roll-out of VoLTE and VoWiFi. The fixed network access strategy is unchanged, but KPN did give more info on the upgrade costs.

FTTC versus FTTH

KPN suggests that FTTC may be an interim step on the way to FTTH. At the moment it's focused on 'advanced copper technologies', but in certain cases FTTH may be more attractive (if the copper is old or if fibre ducts are already in place). KPN's choices are the following:

  • VDSL from the CO: the central office (MDF site) is the starting point.
  • FTTC: fibre from the street cabinet costs EUR 100 per household. FTTC with the latest developments (vectoring, Vplus, pair bonding): incremental cost of EUR 150 per home.
  • FTTH greenfield: EUR 725 per home (down from EUR 1,000 a few years ago). FTTH as upgrade of FTTC: EUR 350-450 per home.

It's clear that FTTC has a cost advantage, but this is only in terms of capex. If the opex savings are included, FTTH becomes a more attractive option.

Simplification

Customer satisfaction, service bundling, cooperations and simplification are the kep concepts. Simplification is high on KPN's agenda and can be expected to continue for several years. This will lead to lower costs and further job cuts. It affects the portfolio and the organisation, as well as IT and systems. The integration of the core network, the backbone shared by both fixed and mobile, is a big step forwards. Virtualisation is a relatively new development with impressive promises: cost savings and a more flexible sales process (product development, time-to-market, personalisation). This will make KPN a 'leaner and meaner' company, as well as a more commercially focused business. KPN is taking the lead here in the Dutch market, the same as with earlier developments (FTTH, LTE), giving it a big advantage. The developments in the access networks will prepare KPN for 5G and also likely a complete switch to fibre.

Takeover target?

The question is how the competition will react. KPN appears to be working on a leap forward in all areas, becoming an even more focused and cost-efficient player. Deutsche Telekom, which is working on building a pan-European network of all-IP operators, will be follow the developments at KPN closely. 



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