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Optical/IP

KPN Reports Mixed Q3

The decline in revenues from fixed-line telecom services continues to dog Dutch incumbent (NYSE: KPN), which reported its third-quarter results today. (See KPN Reports Q3.)

Revenues for its fixed-line division fell 5.5 percent in the face of fierce competition, accelerating downward from the drop of 3.8 percent it saw during the second quarter.

Third-quarter net income slid by 9.6 percent from €367 million (US$433.43 million) in the same quarter last year to €334 million ($394.45 million), although that figure beat analysts' expectations of €306 million ($361.39 million), as tallied by Reuters. Group revenues for the quarter were virtually flat at €2.93 billion ($3.46 billion), down 1.2 percent from the €2.96 billion ($3.49 billion) reported last year.

Despite the decline, KPN has raised its full-year outlook. It now expects EBITDA to fall by less than 5 percent, rather than mid-single digits as it has previously forecast. The company expects revenues to remain flat and plans to cut capex from €1.7 billion ($2 billion) to €1.4 billion ($1.65 billion).

"KPN's financial performance does not make for nice reading," writes Ovum Ltd. analyst Dan Bieler in a research note. "However, KPN is at a crossroads and the quarterly results only hint at the strategic changes that the company is gradually putting in place."

CEO Ad Scheepbouwer referred to those changes in a statement: "We have launched a new strategy and all the initiatives are on track: the restructuring of the Group and the Fixed Division has been completed, we are making good progress towards fulfilling our commitment to move to an all-IP network, we have expanded the multi brand portfolio in The Netherlands and have launched a new strategy in Germany which has been well received by consumers."

Bieler says that KPN's strengthening broadband market share and VOIP packages, which grew by 33 percent and 12 percent, respectively, put it on the right track, but it needs to come up with a coherent strategy for its business services. "Things look more worrying for business fixed, where KPN is suffering the gradual erosion of market share manifesting itself in a revenue decline of 11.3%."

KPN has yet to comment on Telefónica SA's acquisition of U.K. mobile operator O2 plc (NYSE/London: OOM), which it has repeatedly toyed with plans to buy.

Neither did it comment on prospects of a sale -- Telefónica has been suggested as a possible suitor -- which could make investors nervous. "Over recent months KPN's share price has been strongly supported by take-over speculation," notes Bieler. Shares in the operator have risen nearly 12 percent since August, and fell 26 cents, more than 2 percent, to €7.92 ($9.34) in morning trading on the Euronext Amsterdam.

— Nicole Willing, Reporter, Light Reading

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