KPN’s fibre-backed growth plan is very traditional telco

KPN is banking on network expansion, especially in fibre, to drive a return to growth next year.

There is some talk of digitalisation, mainly around customer care, but essentially this is the strategic plan of a traditional telecoms operator, rather than the lean towards the digital services provider model we have come to expect in this industry.

That said, the Netherlands-based incumbent makes a valid point about its core revenue patterns.

“With the majority of our revenues and EBITDA generated in the Consumer and SME segment, also through our Wholesale partners, we are primarily a mass-market service company,” said KPN chief executive Joost Farwerck.

“Our aim is to grow these mass-market service revenues by end 2021 through a growing customer base and by offering differentiated services and an outstanding digital experience to families and businesses,” he added.

Essentially, the telco is focusing its growth efforts on its core business – telecoms, that is – rather than looking to adjacent sectors for new opportunities. And driving that growth: connectivity.

The operator said it will accelerate its fibre rollout to around half a million homes passed per year, giving it a 50% coverage rate in 2023, rising to around 65% of households by 2025. In 2020 it rolled out fibre to around 300,000 households and covers about a third of the country. KPN “sees  attractive returns from fibre investments with increased network penetration, more loyal customers with an increased willingness to pay for quality, and lower maintenance costs,” it explained.

KPN reiterated the full-year outlook it shared at its third-quarter results presentation in October, including EBITDA AL of €2.32 billion, slightly up on last year’s restated figure, and capex of €1.1 billion. However, it looks like its focus on network expansion will lead to higher spending in the coming years. In last year’s annual report KPN predicted a stable €1.1 billion per year in capex for the 2019-2021 period. It now puts 2021 capex at €1.2 billion, remaining at the €1.1 billion-€1.2 billion level in 2023.

Indeed, it specified that deploying fibre will cost it €450 million-€500 million next year, as a result of the acceleration in rollout, compared with €270 million-€290 million this year.

It predicts EBITDA AL will grow to €2.45 billion in 2023, driven by increasing mass-market service revenues and continued cost savings. However, it did not put a figure on that revenue growth. Service revenues came in at €5.11 billion last year –  out of a total turnover of €5.5 billion – down from €5.19 billion the year before, impacted by falling mobile service revenues in particular in both the consumer and business segments.

Cost-cutting also forms part of the plan.

“KPN will further simplify and streamline its operating model to prepare for the next wave of digitalization, which will truly change customer experience, enhances KPN’s time-to-market and contributes to a next wave of cost efficiencies,” the telco said. It didn’t provide much additional information on that wave of digitalisation, other than to make the right noises about a digitised customer service approach – self-service through an app, essentially – and to highlight the role its fibre, 5G and WiFi infrastructure will play in delivery of digital services to homes, the services themselves coming mainly through partnerships with third parties, it seems.

But it was quite forthcoming on costs. It plans to increase its current cost-savings programme to €375 million-€400 million and make savings of at least €250 million in the 2021-2023 period. Digitalising customer service, network and IT rationalisation and closing offices as more people work from home will all contribute to this.

So, network expansion and cost-cutting. It doesn’t get more traditional telco than that.

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