Sensing that it was about to get caught in a traditional telco death spiral, Dutch incumbent KPN embarked several years ago on a transformation strategy -- cutting costs, investing in networks, identifying new non-circuit-switched voice revenue streams and selling international operations/stakes -- in an effort to save itself. (See EU to Bless Liberty Deal for KPN Belgian Biz – Report, Eurobites: KPN Cashes In Its German Stake and KPN to Cut More Jobs After Profits Shrink.)

The initial phase of that turnaround process is coming to an end, even if the top line numbers for 2016 might not suggest much in the way of progress. For the full year 2016, KPN's revenues were down nearly 3% at €6.8 billion (US$7.34 billion) but its operating profit was up by 25% to €884 million ($954 million) and full-year capex was down by more than 8% to €1.2 billion ($1.3 billion).

The operator believes it has its consumer proposition in the right place: "Our relentless efforts to innovate and deliver a unique fixed-mobile experience in the consumer market have resulted in increasingly satisfied customers, who are taking more and more services from KPN … our Simplification program [is] delivering an improved digital experience for our retail customers and a meaningfully lower cost base."

Now it plans to focus on the enterprise market:

To achieve its goals in the business services sector, it is shifting its investment focus. KPN notes that its 2016 capex shrunk by more than 8% "following a period of elevated investment levels" -- in other words, it has been investing more in its networks in recent years in the hope of spending less from hereon in.

That doesn't mean it's not spending in 2017 and beyond, though its capex plan for 2017 is for another year-on-year reduction (to €1.15 billion/$1.24 billion) -- instead, the focus of its investments is shifting from the physical network (access, transport) to the supporting IT infrastructure (cloud, virtualization).

What it doesn't intend to splash out on is content. (See DT, KPN, Vodafone Unenthused by Content Ownership.)

KPN, then, looks like it's closing in on being a fiber-rich (in the access network) operator that is now investing in telco cloud capabilities that will ultimately support all manner of services, including IoT, enhanced security, smart home and m-health services, and prepare it for the 5G era. And while its revenues may have dipped in 2016, it is still profitable and therefore has its head above water. (See KPN to Include LTE-M in IoT Mix in 2017 and KPN Is DT Qivicon Partner in Netherlands.)

So what next? Clearly KPN will use its assets to develop a broader range of cloud, video and digital services for consumers and enterprises. But, as a company now focused on the Dutch market and with a more simplified corporate structure, it seems almost inevitable that, as long as it's not beset by disaster in the next 12-18 months, it will become part of a larger communications services and networking empire where economies of scale will increasingly come into play. The same is true, of course, of its neighbor Proximus in Belgium. (The two have often been linked as potential merger partners, it should be noted.)

Regional regulation might stand in the way of such moves, of course, so KPN will need a structure that will help it survive -- at least in the medium term -- as a single-market business with annual turnover in the region of €6 billion ($6.5 billion). But that doesn't look like a long-term position.

The good news, of course, is that KPN did something about its predicament and it's still solvent in 2017. Let's see which of Europe's national telcos are still standing by 2020.

— Ray Le Maistre, , Editor-in-Chief, Light Reading