A scenario for the Dutch boadband market, leading up to the inevitable end-game of two fiber networks

There's a fascinating development unfolding in the Dutch broadband market, characterized by a surplus of fiber infrastructure in the access networks. This situation envisions a strategic collaboration between fiber operators Delta Fiber and Open Dutch Fiber, alongside the HFC-network of VodafoneZiggo.

This proposed scenario serves multiple purposes:

1. It presents an exit opportunity for current investors, contingent upon the interest of potential new investors in this venture.
2. It aligns with the economic dynamics of the market by consolidating the number of high-speed broadband networks to just two.
3. A potential split-up of VodafoneZiggo could offer a means to alleviate its debt burden.
4. With reduced competition, the new owner(s) would be well-positioned to gradually upgrade the Ziggo HFC network to a full-fiber infrastructure over the next few years. During this transition period, VodafoneZiggo Retail (the ServCo, including the mobile network) could offer services not only over the Ziggo HFC network but also through the fiber networks of Delta and ODF.

There are potentially four networks in the Netherlands, one from VodafoneZiggo (HFC/Docsis) and the other fiber-based from KPN (4.2m lines, aiming for 6.5m), Delta Fiber (EQT/Stonepeak, 1.5m lines, aiming for 2m) and Open Dutch Fiber (KKR/DTCP, 900k lines, aiming for 2m).

Underlying dynamics:

• VodafoneZiggo is overleveraged, plans a Docsis 4.0 upgrade in due course.
• KPN will ultimately be nationwide, although rural areas remain uncertain because overbuidl is less likely. The latest overbuild plan is for Oss, where E-Fiber (Open Dutch Fiber) already finished.
• Delta Fiber's view is a hybrid market structure with reciprocal wholesale access deals (network sharing). It avoids overbuilding KPN or Open Dutch Fiber. Castricum was cancelled, since E-Fiber (Open Dutch Fiber) had a network already. It started off in white and grey areas (no Ziggo), but increasingly ventures into Ziggo-territory, where also a KPN overbuild is looming.
• Open Dutch Fiber started off in the largest cities but now does any project with sufficient scale (the latest containing just 4k premises). It avoids overbuilding KPN or Delta.

Concluding:

• Geographic fits still exist between KPN and ODF and between Ziggo and Delta.
• With each new overbuild by KPN, the value for KPN of Delta Fiber or Open Dutch Fiber decreases. If KKR/DTCP want to sell ODF to KPN, they better be quick, because KPN will not be willing to pay for any network doubling (such as Oss). This puts the negotiation powers clearly in the hands of KPN.
• If overbuild goes out of control and a sale to KPN is unsuccessful, then Delta Fiber and Open Dutch Fiber may want to hook up to create a Third Digital Infrastructure. Three national networks, however, is a challenge: low occupancy and low returns, with any of two outcomes: price increases (unlikely, if clearly necessary, in a competitive market) or a shake-out (consolidation).
• Delta/ODF could make an offer for the VodafoneZiggo cable network. This would reduce competition to basically two infrastrcutures, but being open networks. Delta has ample experience in upgrading HFC to FTTP. At the same time, a VodafoneZiggo carve-up may be the only scenario for its parents (Liberty Global, Vodafone Group) to somehow make the debt load more manageable.
• VodafoneZiggo would be split according to examples in the UK (Openrach vs. BT Retail/EE), Italy (NetCo vs. ServCo/mobile) and New Zealand (Chorus vs. Spark), where a split is made between fixed (inlc. wholesale) and mobile (incl. retail and mobile wholesale), rather than between networks and services, as is the case in Denmark (TDC NET vs. Nuuday).
• Finally: in a market that is de facto deregulated, ACM's main powers are in competition law. That may stand in the way of any deal. However, one has to acknowledge that, with a dual legacy of copper and coax, a single network (natural monopoly) is not an option for the Dutch market. Having two full fiber networks would be a luxury.