Tele2 to shake up Dutch broadband market with ambitious growth target

Tuesday 10 September 2013 | 15:24 CET | Market Commentary

Tele2 Netherlands held a presentation for analysts about its future plans on 5 September. The operator provided more information about its ambitions on the Dutch mobile and fixed markets, including a target to grow its share of the consumer fixed broadband market to 15 percent.

To reach that goal, Tele2 plans to increase coverage of its services with wholesale VDSL from KPN and become an active operator on the FTTH network of KPN’s subsidiary Reggefiber. This should lead to an increase in Tele2’s coverage of broadband services of at least 30 Mbps to 45 percent of households in 2014 and 70 percent in 2015.

Telecompaper’s quarterly reports on the Dutch broadband market show that Tele2 had a market share of 5.6 percent at the end of June 2013. This is down from a peak of 7.8 percent after its acquisition of BBned and the consumer DSL brand Alice in the fourth quarter of 2010. The company’s new target of 15 percent market share would be almost three times its current level and nearly twice its historical peak.

The question is how can Tele2 reach its ambitious goal. Options include:

  • Acquiring other DSL providers, such as Online.nl (owned by T-Mobile), Scarlet (owned by Belgacom) or EDPnet. However, these DSL providers are all losing broadband customers, making it difficult to hold on to the acquired market share.
  • Acquiring FTTH service providers. However, there are not many of these available, after KPN purchased five fibre service providers from Reggeborgh/Reggefiber in 2012.
  • Organic market share growth. Tele2 could offer attractive propositions on FTTH to win over cable broadband customers, as well as take customers from other FTTH providers such as KPN, Telfort, Vodafone, CanalDigitaal and XS4LL. Tele2 is considering bundled LTE/FTTH packages to achieve this.

Our current forecast for the development of different broadband technologies on the Dutch market suggests Tele2’s goal may be too ambitious in the near term. Cable’s share of the broadband market is expected to fall slightly, to 43 percent in 2017. This leaves 57 percent for DSL and fibre – so not enough for both KPN to achieve its target of 45 percent of the market and Tele2 to take 15 percent. The fibre market also has at least one other large competitor, Vodafone, which also has growth ambitions, especially since the sale of its stake in Verizon Wireless leaves it with cash to invest.

Tele2’s ambitious goal may still shake up the fixed market. KPN has had little serious competition to date on the fibre market, and the cable operators have had their hands full keeping KPN and its brand Telfort at bay. For Tele2 to succeed, it will need deep pockets to spend on marketing. The Dutch broadband market has shown over the past two years that the brand with the highest share of media spending is also the brand with the strongest growth.

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