KPN to Cut 380 Jobs – Then What?

Summary Bullets:

  • KPN’s retrenchments are a response to the shift from circuit to packet switching technologies, increased competition, and the lower margins available now.
  • KPN has got some fat in its balance sheet; its next move will be vital to its future.

The reorganisation of KPN’s staff, with the net loss of 380 jobs just before Christmas, is harsh for those who face a bleak winter, but it seems mild in comparison with what other operators have gone through moving from circuit switching to packet switching. But that’s not the only problem KPN faces.

To put this news into perspective, the loss of 580 jobs from around 18,500 is about three percent of the business division workforce. It was flagged back in July and confirmed by the loss of its divisional boss in October.

KPN also created 200 new jobs in its consumer division. Many are likely to be filled by former enterprise workers, and hint at KPN’s future concerns. Lead items here are the integration of Reggefibre (whose revaluation on acquisition cut KPN’s Q3 profits by EUR 114 million), and the development of fibre-based products, starting with FTTH, quad-play and smart homes.

KPN said the retrenchments were due to its business customers migrating from traditional services to IP-based services, and buying new lower-revenue services such as cloud and hosting, security and M2M solutions. Customers are also downsizing and rationalising their IT operations. “This is causing a decline in the total business market size and consequently pressure on KPN’s revenues, which is not fully offset by revenues from new services,” KPN said in a press release.

The Dutch telecommunications regulator confirms these trends. The number of customers taking multiple fixed lines dropped from 32,000 in Q3 2012 to 29,000 in Q2 2014 as VoIP lines rose from 2,000 to 5,000. KPN has kept its share of revenue, but total revenues from fixed telephony have slid from EUR 1,312 million to EUR 880 million, a drop of one-third in three years.

New competitors, notably OTT firms and international carriers, have entered the market on the back of IP. The regulator reports data from 11 competitors to KPN for broadband and leased lines. KPN has had to slash prices to keep its 50-60 percent share of the residential market, but with DOCSIS 3.0 widely implemented, cable operators can beat DSL on speed. Tellingly, the number of cable users overtook DSL customers around February this year.

That’s not all: the Dutch regulator believes opening access to KPN’s networks will attract new investment in telecoms, so it is pushing hard for that.

KPN needs quickly to find value added services to sell to differentiate itself and open new revenue streams. Its primary decision now? Compete or cooperate. It has bulked up its balance sheet with EUR 5 billion from selling E-Plus to Telefonica Deutschland and EUR 2 billion from a new bond. But it can’t afford to stand still. We await its next move with interest.

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