Basically, KPN reckons that moving to an all-IP network will allow it to lay off the majority of the staff working in its fixed-networks division.
Each year for the next five years (2005 to 2009 inclusive), KPN will cut between 1,500 and 1,750 jobs, with most of the cuts in the fixed-networks division and much smaller numbers in its head office and mobile operations. By 2010 –- when it plans to have an all-IP backbone and, to a very large extent, an all-IP access network -- it will have cut about 8,000 jobs in total. That, it believes, will cut €850 million (US$1.1 billion) from its current operating expenditure level of €9.65 billion ($12.8 billion), as shown in the table below (seeEurobites: Mixed Fixed Fortunes and KPN Reports Q4, Full Year).
Table 1: Reducing Opex the KPN Way
|Job cuts||Opex savings over previous year||Cumulative opex saving|
|Phase 1: All IP Backbone||2005||1,500-1,750||�150 million||�150 million|
|2006||1,500-1,750||�150 million||�300 million|
|2007||1,500-1,750||�150 million||�450 million|
|Phase 2: All IP Access Network||2008||1,500-1,750||�200 million||�650 million|
|2009||1,500-1,750||�200 million||�850 million|
That's a lot of people for any company, but consider this: KPN only employs 18,000 in the Netherlands, 10,000 of whom work for the fixed-network division, says spokesman Bram Oudshoorn. He confirms that, once KPN has completed its five-year headcount reduction program, only "a few thousand" will work in fixed networks.
The need to cut costs is a major focus for KPN, which is experiencing revenue growth in its mobile business in the Netherlands, Belgium, and Germany, but decreasing revenues from its domestic fixed-line business, which was down 6.5 percent in 2004. That reduction comes mainly from the loss of traditional voice business, so KPN has decided its time to bite the bullet and start its transition to a VOIP world, a move that is coming to look inevitable for all national carriers (see Incumbents Get VOIP Wakeup Call).
This year will see KPN's "big push into broadband and VOIP," stated KPN's CEO Ad Scheepbouwer in the carrier's 2004 results statement. "This will have consequences for short-term profitability, but will position us strongly for today's market and deliver greater benefits in the future. In the all-IP world things will become simpler and cheaper, offering the opportunity to achieve significantly lower structural costs. It also means that our services can be delivered with considerably fewer people."
KPN plans to launch VOIP within the next few months, provide higher broadband access speeds, and complete the national rollout of the over-the-air TV service it launched last year (see KPN Takes Fast Route to TV). In addition, KPN plans to launch video on demand (VOD) and delay TV services over DSL later this year, and trial TV services over its mobile networks. It also plans, over time, to migrate its business customers to managed and hosted IP services from the mass of traditional voice and data services it currently offers.
Scheepbouwer believes this "strategy of attacking the market for new services to secure market leadership in the Netherlands, whilst continuing to defend vigorously our Dutch fixed and mobile positions to retain cost leadership, will sustain the Group's strong cash flow."
The first phase of the transition will see KPN complete the construction of its IP core network, working with Lucent Technologies Inc. (NYSE: LU) and Juniper Networks Inc. (Nasdaq: JNPR). (See Lucent Scores Euro Deals.)
At the same time, it will work towards converging its fixed and mobile traffic to run over one infrastructure, and developing services it can offer to its fixed and mobile customers. Siemens Communications Group is its key supplier in a project that will likely attract a great deal of attention from other carriers working towards a converged infrastructure using IP Multimedia Subsystem (IMS) technology, one of the industry's current hot topics. (See KPN Picks Siemens for Convergence, IMS Tops 3GSM Agenda, HR Says Wireless, Wireline Converging, Urgence and Convergence, Fixed/Mobile Convergence Ramps Up, and IP Multimedia Subsystems: Easy Does It.)
Also during that phase, KPN will upgrade its existing DSLAMs to ADSL2+ to provide greater access speeds, and run VDSL pilots, with Alcatel (NYSE: ALA; Paris: CGEP:PA) as its lead access equipment supplier and Nortel Networks Ltd. (NYSE/Toronto: NT) providing metro Ethernet equipment (see KPN Upgrades Its Alcatel DSLAMs and KPN Picks Nortel for Ethernet).
If these pilots are successful, says Oudshoorn, then KPN will initiate phase two of its migration to an all-IP infrastructure and, ultimately, decommission its circuit-switched network. KPN predicts that replacing its current access infrastructure with new, IP-based gear will cost it between €1 billion and €2 billion ($1.33 billion and $1.65 billion) on top of its regular capex (€1.7 billion, or $2.25 billion, in 2004), depending on the success of its pilots.
Oudshoorn, though, notes that KPN is not putting a definite date on when the migration will be complete, nor when it will turn off its public switched telephone network (PSTN). "It will take a number of years, as we will have to dig and lay fiber. We have no target date yet, and also we have to be sure there is a business case."
This contrasts with BT's aggressive stance. The U.K. incumbent says its business case is dependent on switching off its PSTN in 2010, and it has a timetable for switching a growing percentage of the British population to VOIP, or "broadband dial tone," over the next five years.
While it's tempting to take KPN's model -- laying off the vast majority of one's fixed-network staff -- and transpose it onto Europe's other incumbent players, that wouldn't be a valid exercise: Each country's networking and business conditions are different, and the Netherlands is one of the smaller continental nations, at 41,500 square kilometers (about twice the size of New Jersey) with a population of almost 16.5 million, or 6 million homes.
That compares with Germany's 82.5 million people housed in 357,000 square kilometers (about the size of Montana), and the U.K.'s 60 million people housed in 245,000 square kilometers (almost the same size as Oregon).
For example, BT doesn't look as if it's planning to lose the majority of its staff. It has said it will reduce its headcount by between 4,000 and 5,000 a year as it migrates to its 21CN, a process due to be completed by 2010.
That puts BT's job cuts at between 20,000 and 25,000 during the next five years from a total current workforce of about 100,000. But it does expect to cut its opex by £1 billion a year ($1.9 billion) once its 21CN is up and running.
However, KPN's strategy suggests that moving to an all-IP networking environment gives carriers the scope to cut an enormous number of jobs and save a great deal of money. The trick is to do that without compromising service levels and network efficiency.
— Ray Le Maistre, International News Editor, Light Reading