Thursday, December 11, 2014

What next for KPN in 2015?

Let's look at the big picture:
  • KPN heavily outsources and offshores functions. This implies de-emphasising the network, at least at the management level. Things are left to vendors such as Ericsson. NFV/SDN will only add to this. As a consequence, the emphasis is more on services.
  • Market shares are high in general, leaving little room for domestic takeovers.
  • There is ample cash, even taking into account debt reduction (€ 2 bn), pension fund (€ 200 mn), the Reggefiber buy-out (€ 770 mn) and cash outflow at Reggefiber (a total of probably half a billion or so over the next few years). The sale of E-Plus left KPN with € 5 bn and a 20.5% stake in Telefonica Deutschland (value € 2.5). Further, Base (€ 800 mn or more) and iBasis (pocket change) can be sold. In all, the war chest could be € 5.5 to 6 bn.
  • KPN ended its pan-European MVNO strategy a few years ago.
  • KPN wasn't willing to sell to America Movil (at 8 €/share), a very unfortunate decision.
Based on this, KPN is more of a hunter than a target (E-Plus was the company's prime asset). Assets for sale:
  • Netherlands: Caiway, Delta Cable, T-Mobile NL,  Eurofiber (all impossible because of concentration issues), Film 1 (no interest), M7 Group.
  • Europe: Bouygues Telecom, Orange Swiss, Sunrise, Yoigo, fibre operators in Germany & Italy, Telefonica Deutschland.
Creating value, other than focusing on the core businesses, could involve a major strategy shift:
  • Structural separation. Spinning off is a good idea. Network & services are different animals. KPN could retain a stake in the NetCo. Vodafone and Tele2 could buy into the NetCo to speed up FTTH overbuilding.
  • Acquire M7 Group (compare AT&T/DirecTV). This will strengthen KPN's position on the TV market. Vodafone and Tele2 may also be interested.
  • Gain control of Telefonica Deutschland to re-enter Germany, but now as a full-service provider.
  • Buy fibre operators abroad to export the expertise built up in Reggefiber.
  • Buy independent mobile operators across Europe. A tie-up with Proximus could be considered. Or even TeliaSonera, bundling together more incumbents.
  • Takeovers in other parts of the value chain (compare Telstra/Ooyala or Verizon/EdgeCast).
  • Expand in content through a broadcaster: SBS or RTL (compare Comcast/NBC).
  • Sell the company. Possible buyers: Altice, private equity.

No comments: