This historic chain of events:
- 2008: acquires 41% of Reggeborgh's Reggefiber FTTH venture, with calls/puts for the remaining 59%. Pays in assets (its own FTTH efforts) + EUR 100m cash. Accepts regulation as part of the deal. At the time, Reggefiber Newco had just 10k HP.
- 2011: acquires other FTTH assets (mainly ISPs) from Reggeborgh and Reggefiber, alters joint venture agreement with Reggeborgh.
- 2012: raises Reggefiber stake to 51% for EUR 99m upon reaching 1m HC.
- Oct. 2013: cuts Reggefiber expansion plans to 250k HP/annum (from 350-400k). Capex per HP down to EUR 800 and falling.
The recent developments:
- Jan. 2014: to expand Reggefiber stake by 9% to 60% + consolidation & control.
- Price to be paid (as becomes clear recently) EUR 161m, i.e. at the upper end of the range (EUR 116-161m). This suggest Reggefiber's equity is valued at (at least) EUR 1.789bn.
- At this time, Reggefiber (passive network) had 1.688m HP and 547k HA. KPN (active network) does not disclose its number of HP anymore, but has 484k HA.
- When this call option is exercised, Reggeborgh may immediately exercise its put option for selling its 40% stake to KPN. At the above valuation, fair value would be EUR 716m. This suggests, that Reggeborgh will indeed exercise immediately. As a result, KPN will go to 100% of Reggefiber for a total of EUR 877m once ACM approves.
The ACM process:
- Despite the initital approval by OPTA + NMa (now ACM), going to full control (60%) once again requires ACM approval.
- ACM reportedly pushes its judgement beyond the EC's judgement on the Ziggo/UPC merger. The latter had a Oct. 17 2014 deadline, but this is pushed back for an unknown period of time. Further, ACM plans its market assessments for regulation until 2018.
- It is now questionable if ACM can delay its judgement of the full Reggefiber takeover for much longer.
Considerations for ACM:
- As with Ziggo/UPC, one might primarily expect approval. Not much changes, after all. But looking a bit deeper, reveals that changes may be coming.
- Originally, KPN acknowledged that FTTH was clearly on its roadmap, with DSL technologies (VDSL, bonding, vectoring) for the interim. Moreover, the open access Reggefiber network enables competition, both from unbundlers (ODF access) and resellers (layer 3). This is all changing now.
- Recently, KPN decided to:
- Slow down the FTTH roll-out (see above).
- Abandon the FTTH USPs (gigabit, symmetry), in order to market broadband and triple plays nationwide, independent of the access network.
- Despite the clear benefits for ARPU.
- And despite the fact that years of investments in VDSL (since 2009) haven't delivered yet. DSL net additions are still solidly negative. BB growth is clearly in FTTH.
- Move focus to VDSL. But it has clear disadvantages:
- KPN never discloses the capex cost per HP, which are not just a fraction of FTTH capex. Apparently, the true cost of VDSL could be several hundred EUR/HP. The topology is entirely different from what Reggefiber is doing, so there is no re-use of VDSL assets (including inner rings and outer rings).
- Vectoring is still largely unproven.
- Performance dropps off sharply at distances larger than 100 meters or so.
- We all know that "up to 100 Mb/s" really means: "don't expect anything better than 50 Mb/s".
- As we feared, there are now rumours of KPN switching to GPON technologies on FTTH networks. This means: a shared network (like cable and cellular), slower speeds, no open access. And yes, perhaps a few percent savings per HP.
What does all this suggest:
- Taking over Reggefiber wasn't about overbuilding with FTTH. With hindsight, is was all about taking out a dangerous newcomer.
- KPN turns out to be a copper company after all, just like incumbents in surrounding countries (Germany, Belgium, UK). The Netherlands are set to drop in international fiber rankings.
- Reggefiber was hard to push to include rural areas, imagine what KPN intends to do (hint: LTE).
- KPN appears to be steering toward a cozy duopoly with New Ziggo - each minimising capex and maximising dividends. Unbundling will become a thing of the past and resellers will be marginalised - unless ACM steps in.
- This creates opportunities for full fiber companies such as seen in the UK (B4RN, CityFibre, Gigaclear, Hyperoptic).
- Indeed, Google Fiber! It wanted to work with CityFibre in the UK, but the latter didn't want to give up its plans with Sky and TalkTalk. Google Fiber walked away and could very well be looking at the Netherlands, Belgium and Germany right now.
- Rumor has it that there is a gentlemen's agreement with Reggeborgh that precludes Reggeborgh's return to the Dutch market as a newcomer on the FTTH market. With a fresh EUR 877m it could clearly do so. Instead, Reggeborgh now focuses on Germany (Deutsche Glasfaser) and (as is rumoured) Belgium.