Everyone on fiber. That is what the current growth strategy of telecom company KPN comes down to. The company aims to have approximately 6.5 million households in the Netherlands connected to a fiber optic connection by the end of 2026. That is good for the consumer (because: faster and more stable internet) and also for KPN itself, since a fiber optic subscription is often more expensive than a comparable subscription with a DSL or cable provider.
The ‘vitrification’ of the Netherlands is gaining momentum after years of hesitation. For example, since last month Eindhoven was the first of the five largest cities to have a city-wide fiber optic network. The rest of the country is not that far yet. So far, more than half of the Netherlands, 5.2 million households, has access to fiber, according to the latest figures from Telecompaper. At the end of April, 3.3 million connections had been installed by market leader KPN, which competes with Delta and Open Dutch Fiber (with main tenant T-Mobile).
But once such a connection is established, you are not there yet. A connected household must then switch to a fiber optic subscription, emphasizes analyst Konrad Zomer, who follows the share for ABN Amro-Oddo BHF. “You can dig trenches and roll out fiber optics, but if a customer shrugs their shoulders and is still satisfied with the current subscription, then it is expensive for KPN. The construction costs about eight hundred euros per household, quite a lot of money.”
At the end of the first quarter of this year, KPN’s counter stood at just under 1.7 million fiber optic customers. This means that the percentage of people who switch is currently around 50 percent. “The fact that KPN now says that it has passed a tipping point from copper to fiber does not matter much to me,” says Zomer. “Meeting the target of 6.5 million households by 2026 is more important – and KPN is well on track there. Fiberglass is maintenance-friendly: once it’s there, you don’t have to worry about it for a long time, while money comes in every month. Such a stable one cash flow investors find attractive.” This is also apparent from the share price, which is about 20 percent higher than at the beginning of this year.
KPN already earns more from fiber optics. The company made a profit of 179 million euros in the first three months of this year, 27 percent more than in the same period last year. Quarterly turnover rose by 1.6 percent to more than 1.3 billion euros. For that growth, KPN has also made significant cuts in personnel costs in recent years: from 13,200 FTE in 2017 to 9,700 at the end of last year, a decrease of 3,500. Like its largest competitor VodafoneZiggo, KPN also passes on the higher energy costs to its customers: as of 1 July, the rates for existing customers rose by an average of 1.90 euros per month.
In this way KPN knows what growth is after a long time. Although it is still modest, says ING analyst David Vagman from Brussels. “KPN’s profitability is still not fantastic. But there is now confidence that they will achieve their annual target, a gross operating profit of 2.4 billion euros.” The fiber optic strategy nevertheless makes KPN interesting for investors, he says. “KPN is a safe choice in the current market, it performs quite well. But don’t expect too much growth either, the Dutch telecom market is a mature market.”
The two analysts will be ready again on Wednesday morning, when KPN announces its second-quarter figures. Zomer: “I expect these figures to be fine, just like those of the first quarter, but not spectacular. Nevertheless, they are heading for revenue growth this year, and that is the first time in more than ten years.”
A version of this article also appeared in the newspaper of 25 July 2022