KPN is Back in the Black

Dutch carrier KPN Telecom NV (NYSE: KPN) today reported a net profit of €770 million (US$890 million) on operating revenues of €3.67 billion ($4.24 billion) for the first quarter of 2003 (see KPN Closes Profitable Q1).

That's quite a turnaround from the corresponding period in 2002 when it made a thumping big net loss of €348 million ($402.2 million).

Much of the increase in profits came from exceptional items. The sale of KPN’s directories unit and the abandonment of its network-sharing deal with German mobile operator MobilCom AG ( see MobilCom Ends E-Plus Deal) netted €657 million ($759.3 million).

So the net profit excluding exceptional items totaled €113 million ($130.7 million). “KPN’s efforts to drive down costs, improve efficiencies, and simplify the business are now clearly visible in bottom-line profits,” said chief executive Ad Scheepbouwer in a statement.

KPN’s net debt has dropped to €11.17 billion ($12.91 billion), just under half the figure of September 2001, when the carrier approached near-bankruptcy with a debt of €22.3 billion ($25.8 billion). KPN expects to reduce its net debt further, to approximately €10 billion ($11.6 billion), by year end.

Much of KPN’s good news has come from its mobile division, where operating revenues increased by 15.2 percent to €159 million ($184 million), compared with only 0.2 percent growth in fixed (€3 million/$3.5 million). The total number of KPN mobile customers increased only marginally, from 13.4 million at December 31, 2002, to 13.5 million at March 31, 2003.

All the same, KPN i-mode service is doing dismally. The total number of customers for the service in the Netherlands, Germany, and Belgium increased from 236,000 at December 31, 2002, to 285,000 customers as of March 31, 2003 (see I-Mode's Arrested Development). Scheepbouwer still maintains that KPN will meet its one million user target this year (and, no doubt, that scheep can fly).

Scheepbouwer also gave mixed messages on rumors that KPN is discussing a possible merger with the German arm of mmO2 plc. “We are not talking to mm02," he told analysts in a conference call, but then went on to say: “There is a price for everything, though. My door is always open.”

“Financially and strategically it would be a good move for the operator to merge with mm02," says Bena Roberts, wireless services analyst at Current Analysis. "Consolidation is a must for operators to survive. If all else fails, if they do merge, KPN can blame the lack of i-mode subscribers on the joint venture and save face that way.”

— Justin Springham, Senior Editor, Europe, Unstrung

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