Thursday, August 22, 2013

KPN: looking back to the Eelco Blok era

The end of the current KPN executive board could be near, so let's take a moment to look back to the Eelco Blok era, that started April 6, 2011. Let's first focus on things that didn't go so well.
  • Finance/corporate
    • Profit warnings: at 11Q1, and 11Q4.
    • Dividend reductions: at 12Q2, 12Q4 and 13Q1.
    • Rights issue: at 12Q4.
    • Failed sale plans: Base (2012) and E-Plus (2012).
    • Failed acquisitions: Caiway (2012).
    • Overpaying (that is, what the market perceives) for Dutch 4G licenses: Dec. 2012.
    • Sale of E-Plus to Telefonica: no consent form major shareholder and silence on what the cash will be used for (having just raised EUR 4bn in a rights issue): at 13Q2.
    • Replacing most executives, threatening continuity.
  • Business/government relations
    • Raid by cartel office: Dec. 2011.
    • Increased oversight by regulator: Dec. 2011.
    • Attempts to control OTT services, leading to Net Neutrality regulation.
    • Hassle over large government contract, in the end losing it to Tele2: 2011-2013.
    • Fine KPN Business over illegal discounts: Jan. 2013
  • Business/strategy
    • Ortel expands into Europe, then is sold.
    • Handset lease model introduced (2012) and abolished (2013).
As a result of all this, the share price dropped and the interest of investors was aroused. In the end, America Movil stepped in and will most likely replace current management.

The roll-out of new networks was somewhat successful. The LTE network was largely constructed even before the auction ended, allowing KPN to launch services just six weeks later. Pricing however hasn't been convincing. The FTTH efforts were strengthened by expanding the Reggefiber stake, by acquiring Reggefiber and Reggeborgh units, and by signing Vodafone, Tele2 and CanalDigitaal as wholesale customers. Still, adding 400k HP per annum is just too slow (see next post). When it comes to WiFi, the deal with FON took a long time to materialise and be implemented.

How about the services? TV and triple play services haven't been convincing for a long time. On the OTT front, cooperation was limited to Spotify.

All in all, there hasn't been a clear focus or growth strategy. Management was surprised by changing market conditions on many occasions, leading to a long list of profit warnings and dividend reductions. KPN turned into a defensive player with a hybrid strategy on several fronts.

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