Pension fund backs KPN's €1.2 billion fibre plan

KPN has unveiled a new plan to roll out fibre to the best part of 1 million premises in underserved areas at a cost of €1.2 billion, but will share the financial burden with pension fund APG.

The Dutch operator will establish a 50:50 joint venture with APG, with the pension fund contributing €450 million in return for its 50% stake, half as an initial payment and the remainder in annual instalments based on the progress of rollout. The whole project will require capex of €1.2 billion, some of which will be financed via the debt market.

The JV aims to deploy fibre to around 910,000 premises in what it deems underserved areas, comprising 685,000 households in medium-dense areas and 225,000 businesses. The connections rolled out by the JV will be in addition to the 2.5 million connections KPN has pledged to achieve under its own steam in the coming years, meaning that in total the two projects will provide FTTH to 80% of Dutch households by 2026, as well as extending coverage for businesses.

The infrastructure rolled out by the JV will be a wholesale network, open to third-party retail providers, with KPN as the anchor tenant.

It’s a slightly different model than we are used to in this space, where for the most part pension funds, seeking reliable, long-terms returns, invest in existing infrastructure businesses. However, this deal essentially does the same job. The big difference is that by joining the project from the start, APG helps KPN to fund the build, rather than to monetise it after the fact.

Or as KPN puts it: “This transaction illustrates KPN’s ability to access long-term pension fund capital at attractive terms to help further accelerate and increase the rollout of a part of our state-of-the-art fibre network whilst crystallising significant value for KPN upfront.”

KPN cedes some control by doing it this way, but the agreement with APG includes a call option on one share, which would enable the telco to take control of the unit and reconsolidate it in future.

KPN chief executive Joost Farwerck took the opportunity to talk up KPN’s progress in fibre and its market position in the Netherlands, making the usual remarks about the attractiveness of the APG deal for all involved. “Through this JV we further accelerate the fibre rollout and bring forward the long tail in smaller villages and business parks. It ensures almost nationwide fibre coverage by 2026,” he said.

The telco added that the deal should support its endeavours to grow service revenues – which slipped below the €5 billion mark in 2020 – as well as enabling accelerated savings linked to the phasing out of services on the copper network. Incidentally, KPN’s annual report for last year shows that the year-on-year improvement in fibre service revenues more than offset the decline in copper service revenues for the first time. Pushing on with that fibre rollout may be a costly endeavour, but it’s one that the operator really needs to pursue.

The APG joint venture is slated to be up and running soon though. The deal is subject to regulatory approval, but the firms expect it to start operations in the second quarter of this year, which effectively means sometime in the next three months.