Broadband services

KPN to Cut More Jobs After Profits Shrink

KPN has raised its cost-saving targets after reporting a decline in sales and profits last year amid tough conditions in the Dutch market.

Full-year revenues dropped 4.6%, to €8.02 billion ($9.2 billion), while net profit sank 18%, to €239 million ($274 million), compared with 2013.

The Dutch incumbent also flagged a net loss of €37 million ($42 million) in the October-to-December quarter as well as negative free cash flow of €169 million ($194 million) for the full year.

KPN Telecom NV (NYSE: KPN) blamed financial expenses related to a bond tender for the net loss and insisted that free cash flow would have been €405 million ($464 million) in 2014 were it not for one-off expenses aimed at reducing future liabilities.

CEO Eelco Blok expressed confidence that free cash flow would grow in 2015 and believes that further cost cutting will stabilize profits this year in terms of adjusted EBITDA, which dropped 15%, to €2.57 billion ($2.94 billion), in 2014.

The operator is now aiming to reduce costs by €400 million ($458 million) by 2016, up from a previous target of €300 million ($344 million). As a result, it expects to lay off between 2,000 and 2,500 employees this year and next, about 12% of its current headcount, having previously indicated that between 1,500 and 2,000 jobs would go.

KPN has not issued any revenue guidance but sales remain under pressure in the fixed-line sector -- with the long-running telephony decline still causing some pain -- as well as mobile, where competition from T-Mobile Netherlands and Vodafone Netherlands has been driving down prices. (See T-Mobile Netherlands Slashes Roaming Fees.)

Facing similarly stiff competition from Dutch cable companies, KPN has been investing heavily in the rollout of higher-speed technologies including VDSL2, vectoring and FTTH. Its aim is to ensure that 85% of Dutch households can access 100Mbit/s services by the end of next year, up from around 50% today.

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Encouragingly, KPN added another 41,000 broadband customers in the October-to-December quarter, compared with just 13,000 in the same period of 2013. Thanks partly to the take-up of IPTV services, average monthly revenue per fixed-line residential customer rose from €43 ($49) to €44 ($50) over the same period.

Even so, that was not enough to prevent sales in the consumer residential market from dropping 2.4%, to €480 million ($550 million), during this period.

The operator fared better in its domestic mobile market, reporting stable revenues of €352 million ($403 million) in the October-to-December quarter, although hardware sales appeared to offset a service revenue decline.

As in fixed, KPN did well in terms of customer growth, adding another 57,000 subscribers, compared with just 9,000 in the last three months of 2013. Yet average monthly revenue per user shrank from €28 ($32) to €26 ($30) over the period.

Having picked up 4G spectrum licenses -- at considerable expense -- during a government auction in late 2012, KPN has been racing to extend 4G networks and now claims to be ahead of both T-Mobile and Vodafone on 4G coverage. But competition is bound to intensify when number four player Tele2 Netherlands Holding NV launches its own 4G service this year.

KPN also complained about challenging conditions in the Dutch business market, where the take-up of cloud and M2M services has been accompanied by a decline in usage of traditional "high-margin" services. Revenues in this market fell 3.8% year-on-year in the October-to-December quarter, to €752 million ($861 million).

Operators currently examining the business case for quad-play services may be especially interested in KPN's figures. The Dutch operator has made a priority of service bundling and claims that mobile churn is 50% lower when customers are on quad-play packages as opposed to mobile-only deals.

The Attractions of Bundling
Source: KPN
Source: KPN

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

iainmorris 2/4/2015 | 8:41:03 AM
Downsizing KPN really has been downsizing. The sale of its E-Plus mobile subsidiary in Germany obviously reduced its workforce substantially but it's only going to be about two thirds the size it was in early 2013 after cutting another 2,000-2,500 jobs by the end of 2016.
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