KPN’s Q4 profit dips as cable competition bites

6 Feb 2007

The Netherlands’ largest telecoms company by subscribers, KPN, has reported a 12.7% fall in core profits for the three months to 31 December 2006, impacted in part by increased competition from cable TV operators in the domestic fixed line market. The former monopoly says it is being challenged by Dutch cablecos which are offering triple-play television, internet and telephony services; the threat has increased since Casema, Essent Kabelcom and Multikabel merged to become the country’s largest cable TV operator. Fourth-quarter profit dropped by 31% after the company incurred a EUR75 million (USD98 million) restructuring charge at its Telfort unit. Net income was EUR427 million, down from EUR618 million in the same period a year ago. Revenues were down 4.1% to EUR3.04 billion, largely as a result of a decline in demand at KPN’s fixed line division. Last year, KPN also benefited from a one-off gain of EUR274 million, as Japanese mobile operator NTT DoCoMo extricated its investment in the business. For the full year 2006, KPN’s net profit was EUR1.58 billion, up from EUR1.44 billion previously, while sales rose by one percentage point to EUR12.1 billion.

Operationally, KPN said that increased earnings at its mobile unit offset the fall in its core fixed line business. Key milestones in 2006 were the turnaround of its German mobile business E-Plus, the signing of more than 500,000 VoIP customers in the Netherlands and a reduction in the rate of people giving up their fixed line for another alternative. KPN lost 130,000 fixed line clients in the fourth quarter after 140,000 in the third, adjusted for those who gave up their fixed line but subscribed to KPN’s internet telephony option instead. ‘Mobile is outperforming the market and is more than compensating for the challenges we’re facing in the fixed line market today,’ said KPN chief executive Ad Scheepbouwer. However, he went on to point out that the planned migration to an all-IP platform and the merger of the firm’s fixed line and mobile operations by 2010 would place a drain on earnings, which would be balanced by the sale of property assets. The company forecast flat core earnings and revenue in 2007, but expects to return around EUR2 billion to shareholders, split evenly between dividends and share buybacks.

Netherlands, E-Plus Group, KPN, NTT DOCOMO