7 Predictions for 2018 for the Dutch market: consolidation, newcomers and an IPO

1. T-Mobile NL/Tele2 NL a strong #3
This merger seems inevitable. What is more intriguing, is options for creating an even stronger challenger to the KPN/VodafoneZiggo 'duopoly'. Candidates include the M7 Group (Canal Digitaal, Online, Stipte, Fiber NL) and EQT's Dutch assets (Delta, CIF, Caiway).

2. VodafoneZiggo IPO
Greater independence from the 50/50 parent companies would instantly create value. Hundreds of millions of euros are extracted from the company every year.
Alternatively, either Vodafone or Liberty Global could buy out its fellow shareholder, but this seems unlikely. Both are actively trying to get rid of assets in countries where there is no overlap.

3. KPN creating PTT network
KPN will want to be part of a new wave of consolidation. Most multinationals are ruled out, for various reasons (Orange not looking to expand its footprint, Altice not in takeover mood currently, etc). Bloomberg recently suggested Proximus, TDC and Elisa could be partners. In fact, there could be many more in this league (Swisscom, Eir, Telenor).

4. KPN will start losing broadband market share
Leapfrogging is rather predictable. ADSL, Docsis 3.0, VDSL and next .... Docsis 3.1. Once VodafoneZiggo turns on Docsis 3.1, it may herald a new phase of growth. KPN's broadband market share will decline and at some point it may relaunch FTTH and do a number of small takeovers to regain share.

5. Eurofiber to bid in 5G auctions
Eurofiber is actively exploring value-creating innovation. It has an extensive fiber network, connecting anything (including bridges & traffic lights) outside the FTTH segment. A 5G network could be devised as wholesale-only. The company could consider bidding through a consortium with T-Mobile/Tele2.

6. Talpa Netwerk to bid for Eredivisie summaries
John de Mol, having sold part of his assets to ITV, has re-created a wide-ranging media company, Talpa Netwerk (TV, radio, streaming video & music, web, events). It appears as a no-brainer to buy the very valuable Eredivisie summaries for the SBS channels.

7. Subsidisation moving to high-value plans
Operators will start realising that subsidisation (handsets, mobile data, content) may reduce churn but destroys value by offering it to all subscriptions. Vodafone's Passes may be too expensive for the Dutch market, but the concept or providing benefits to high-value plans deserves to be copied.

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.

What next for satellite DTH service providers?

The telecoms sector is embracing the triple play, but broadband is emerging as the new line rental. Services can be added in a variety of ways:

• Managed services (fixed/mobile voice, SMS/MMS, TV/VOD).
• OTT (partnering with the likes of Netflix).
• Operator OTT (using new technologies such as NFV, SDN, WebRTC, HTML5).

What is there left to do for managed services companies without infrastructure, i.e. satellite TV operators such as M7 Group? They can still be resellers, but if they want more control, there are still some options left.

First, remember that they have one strength (a strong TV portfolio, lots of HD) and two weaknesses (no VOD, no BB).

Here are some options:

• Add broadband:
• Become an unbundler on FTTH (or a wholesale customer of an independent unbundler).
• Partner with an MNO for rural areas, using outdoor LTE antennas (see Cyfrowy Polsat).
• Add VOD:
• Add interactive TV and VOD using HbbTV.
• Add VOD through a Netflix-partnership.
• Add VOD using the new Smart LNB technology.
• Remain focused on TV/video:
• Launch an OTT service (like BSkyB, Sky Deutschland, ONO, etc.).
• Focus on the wholesale market to service resellers, OTT providers, cable headends etc.

UPDATE: the second VOD option requires broadband access and so a hybrid STB, just like TV Vlaanderen (part of M7 Group) is now launching.