KPN Q3 ahead: results due October 28

KPN entered the quiet period leading up to the Q3 results, due October 28. Interim CFO Steven van Schilfgaarde will probably be present at the call, since he exits Nov. 1, but new CFO Jan-Kees de Jager may be introduced as well.

Focus is on the question: can KPN maintain its guidance, specifically: can it stand by its previous expectation of 'stabilisation' of consumer trends 'towards the end of 2014'?

It is based on price increases, competitor response and upselling (multiplays).

Consensus: revenue € 1.97 bn, EBITDA € 640 mln, EPS € 0.02, capex € 300 mln.

14Q2 trends:

• Consumer Mobile organic revenue improved to -9.0% but still in the same magnitude it has been since 12Q1. EBITDA has been going down rapidly in the last 4 quarters and this will probably continue for one more quarter.
• Consumer Residential organic revenue growth has been negative for 2 quarters and it looks like this could continue. EBITDA growth has been solid, but that may now drop off.

By market:

• A big issue is competition on the fixed-line market. The Ziggo/UPC merger was approved. It will be followed by ACM's decision on KPN/Reggefiber and regulation of the market until 2018. Europe is now moving toward fixed-voice deregulation, but broadband is a different matter. Vodafone appears to have found its strategy for NL: resale & unbundling. It remains to be seen what Tele2 is up to. Potentially, Vodafone could allow Tele2 access to its unbundled network. Continued unbundling may be a condition for approval of the Reggefiber deal, but then what about cable regulation? And beneath all that is the question: is unbundling good (more sales power, high-margin wholesale revenues, Vodafone not just a competitor but a partner as well) or bad (the message KPN puts forward to the regulator) for KPN?
• On the TV market the question is what the impact of Netflix is. Are consumers canceling pay-TV yet? What is happening to VOD revenues?
• On the mobile market, much depends on Tele2 and when it will launch its LTE network.

Recent news:

• John van Vianen, head of Corporate Market, to exit at the end of 2014. No new job and no successor named.
• America Movil once more reduced its stake, now by 1.2 pp to 21.4%. Above 20% they retain the right to appoint 2 members of the Supervisory Board.
• Results Tele2: not impressive. Mobile subs growth slowing. Tele2 hosts an analyst briefing December 12, presumably to launch the Dutch LTE network.
• Eurofiber was put up for sale by ite PE owner Doughty Hanson. CIF, BT and Zayo may be candidates.

Conclusions: pressure remains in the mobile market (Tele2 launch) and in the business market (Eurofiber takeover, Ziggo/UPC merger).