KPN Telecom NV (NYSE: KPN) is to persevere with its so-far unsuccessful IPTV service because it believes it needs a TV-over-broadband service to help achieve its fiber-access broadband targets.

The Dutch incumbent launched its IPTV service in 2006, and although it has a significant broadband customer base (about 2.5 million at the end of 2009) it currently only has 90,000 IPTV customers. That number did at least grow in 2009, up from about 45,000 at the end of 2008. (See KPN Launches IPTV.)

KPN knows it has the capability to sell TV services to the Dutch public, because it has had far greater success selling its digital terrestrial TV service, called Digitenne, which ended 2009 with about 880,000 customers. That gives KPN (Digitenne and IPTV customer bases combined) a 13 percent share of the overall Dutch TV market, and a 23 percent share of the country's digital TV market. (See KPN Takes Fast Route to TV.)

Now KPN is ready to invest in its broadband infrastructure and IPTV systems because it believes the success of the two services is inextricably linked. "TV is [a] key element of competitive triple-play package," noted the carrier today in its presentation to investors and analysts as it announced its full-year 2009 financial results, and looked ahead to 2010 and 2011. (See KPN Closes Year.)

It also noted an increasing trend among consumers to source all their communications services from a single provider, making the creation of an enticing package even more critical.

So what's the plan?

Well, the carrier has been trialling fiber-to-the-home (FTTH) and fiber-to-the-curb (FTTC, using VDSL2 technology for the final copper connection to the customer) in cities around the Netherlands. It's convinced that customers are willing to pay for faster downstream and upstream speeds and the enhanced TV functionality that IPTV can offer, so now it's ready to move from pilot to commercial operations, but on a "gradual, regional" rollout basis. (See KPN Updates on FTTH.)

It has, though, identified some operational issues with the rollout of its fiber-based access services, and is revamping its service activation and sales support mechanisms so that it can process 5,000 orders per week instead of just 800.

While it addresses those issues, KPN plans to invest €50 million (US$70 million) during the first half of this year to upgrade its central offices with VDSL gear to boost its copper-based broadband speeds to 40Mbit/s downstream and 4Mbit/s upstream, double what it can currently achieve with its ADSL2+ equipment. This, it believes, will enable it to offer its IPTV service to 80 percent of Dutch households, and be able to offer high-definition TV to 70 percent.

Then, starting this year, the operator intends to roll out a mix of FTTC and FTTH connections -- the latter through its joint venture with network builder Reggefiber -- with a target to sign up between 600,000 and 800,000 paying customers by 2012. (See Dutch Team Up for FTTH Expansion and KPN, Reggefiber JV Approved.)

KPN says it has already invested in FTTC infrastructure passing 450,000 homes, and has earmarked between €75 million and €150 million ($105 million and $210 million) per year in capital expenditures for the further, gradual rollout of the fiber access systems and activating customers. It hopes to have up to 1.3 million homes passed with FTTH by 2012.

That level of capex is low, but KPN isn't funding it all itself, as its joint venture partner Reggefiber, which has just applied for €130 million ($183 million) of funding from the European Investment Bank (EIB), also needs to pump cash into the rollout.

Reggefiber's application to the EIB shows that the total cost to build FTTH infrastructure in 33 Dutch cities is €540 million ($760 million), with Reggefiber set to stump up €290 million ($408 million) of that total. How much for Dutch fiber broadband?
The FTTC network will offer speeds of up to 50Mbit/s downstream and 4Mbit/s upstream, and will be priced at €75 ($105) per month for the top-end Platinum triple-play service (including either TV service), while a bronze package offering 8Mbit/s downstream and 1Mbit/s upstream will cost €45 ($63.30) each month.

For FTTH connectivity, a top-end package will cost €110 ($155) per month, but enable 100Mbit/s downstream and upstream. A low-end FTTH service package, offering symmetrical 30Mbit/s connectivity, will cost €65 ($91.50) per month.

KPN says its broadband networks are "open" for other service providers to access at set wholesale rates.

If KPN achieves its targets, it will help make the Netherlands one of Europe's most fiber-access-rich countries. (See FTTH Europe: Slow Growth Forecast, BBWF: Sweden Retains Euro FTTH Top Spot, and Telecom Market Spotlight: Europe II.)

— Ray Le Maistre, International Managing Editor, Light Reading