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Optical/IP

Eurobites: Mixed Fixed Fortunes

Goede ochtend, my fellow Europhiles, and welkom to the Netherlands, the home of wonderful blooming tulips, "total football," and an ultra-competitive telecom services market.

As much as we'd love to spend some time pondering the flora and sporting prowess of our Dutch friends, it's the third item we're going to examine today, as incumbent operator KPN Telecom NV (NYSE: KPN) is having a tough time with its fixed-line business.

No great surprise there, you might say. Aren't all the major operators in the same boat? Well, it seems the Spanish are faring much better, with Telefònica SA actually increasing its fixed-line revenues in 2004.

So let's delve into some of the detail before we round up some other current European news.

KPN Plans Jobs Cull
KPN saw its share price drop €0.24, more than 3 percent, to €7.07 (US$9.28) this morning as it unveiled its fourth-quarter and full-year 2004 results. The reason? Revenues and profits are down from 2003; things don't look as if they're going to improve in 2005; and, while revenues from its mobile operations in the Netherlands, Belgium, and Germany are increasing (more than 6 percent year-on-year), the carrier's fixed-line business took a hammering from increasing competition and price cuts (see KPN Reports Q4, Full Year).

The fixed-line division's 2004 revenues dropped by 6.5 percent compared with 2003, to €7.2 billion ($9.5 billion) from €7.7 billion ($12.6 billion), though ADSL line uptake was a beacon of success, with broadband lines doubling to 1.4 million by the end of 2004 (the Netherlands has a total population of about 16.4 million).

So to help reduce costs, KPN is to cut about 8,000 jobs -- between 1,500 and 1,750 jobs per year up to and including 2009, with most of the cuts affecting the fixed line business. This will reduce its annual operating costs by €850 million ($1.1 billion) come 2010, reckons KPN.

KPN believes it can generate fixed-line growth in the future, though, with broadband at the heart of its strategy. And with healthy competition from the country's cable operators and alternative DSL players, the Dutch incumbent is holding up well in a country with 17 percent broadband penetration, the fourth highest in the world behind Korea, Hong Kong, and Denmark, according to Point Topic Ltd.

It says it raised its total broadband market share from 39 percent in 2003 to 44 percent in 2004, with KPN providing more broadband connections than the combined cable operators for the first time. And it has been busy boosting that market share recently, having acquired some of its smaller DSL competitors (see KPN Completes ISP Acquisition).

Telefònica's Fixed Gaze
What a difference a few hundred miles can make. Telefònica's investors looked long and hard at the Spanish incumbent's financials yesterday, and although the carrier missed its fourth-quarter profit targets, its share price remained stable thanks to a strong performance from –- you guessed it -- its fixed-line division (see Telefónica Ups Profit in 2004).

Overall, Telefònica's revenues and profits were up in 2004 compared with a year earlier: Total group revenues hit €30.3 billion ($39.9 billion), up 6.8 percent, while net income increased by an impressive 30.6 percent to €2.88 billion ($3.8 billion).

Fixed-line service revenues increased to €10.5 billion ($13.84 billion) from €10.3 billion ($13.57 billion) in 2003, with the increase in wholesale and retail DSL revenues more than making up for the slight drop in voice and dialup Internet services. The profit generated by the fixed-line business also increased, to €1.1 billion ($1.45 billion) from €280 million ($369 million) a year earlier, as greater operating efficiencies (including a 2,000 reduction in headcount) kicked in.

Of Telefònica's 2.5 million DSL connections (a 50 percent rise from 2003) in Spain, 1.9 million are managed by its retail division, giving it a 55 percent share of the whole broadband market. Globally -- that is, including Latin America -- Telefònica has 3.9 million broadband lines, an increase of 61 percent from the year before.

Scandinavians Add to Jobs Woe
Denmark's national carrier TDC A/S (Copenhagen: TDC) announced it is cutting about 4 percent of its staff, about 630 jobs, this year to keep its costs down (see TDC Reports 2004, Cuts Jobs).

And it's not only the carriers that have been handing out the redundancy notices. Ericsson AB (Nasdaq: ERICY) is closing a production and R&D facility in the town of Nynaeshamn with the loss of nearly 400 jobs. About 70 staff will be retained and redeployed.

Belgacom's Swiss Role
Other European incumbents in the news include Belgacom (Euronext: BELG) and Swisscom AG (NYSE: SCM), which have pooled their wholesale talents to create a new international player (see Euro Carriers Form International JV).

Belgacom also announced its 2004 financials and joined its neighbor KPN in noting a drop in fixed-line revenues (see Belgacom Unveils 2004 Results). The Belgian carrier expects competitive conditions to get tougher in 2005 and is planning to launch new services, such as TV over DSL and VOIP, in a bid to retain its current customers, win new business, and increase its average customer revenues (see Belgacom Picks Italtel, Cisco).

Belgacom has been working with Siemens Communications Group on its IPTV strategy and is believed to be planning a June launch for that its TV service (see Belgacom to Trial Interactive TV and Siemens Gears Up for IPTV).

Other recent European news of note includes:

— Ray Le Maistre, International News Editor, Light Reading

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