Kpn Group Belgium - Strategy seminar executive summary

KPN Group Belgium - Executive Summary

Strategy Seminar
Telecom industry in Belgium - Focus KPN Group Belgium

« Setting the grounds for
future growth »

Submitted to :
Professor: Olivier Hamoir
Assistant: Nicolas Leeuw

By :
Céline Abi Abdallah - Pablo Castiel Gazier - Eugénie Verhasselt - Jean-Charles Vanderlinden



Acknowledgements

We would like to thank:

The Solvay Brussels School of Economics and Management
our professor Olivier Hamoir
our assistant Nicolas Leeuw
Jean-Paul Philippot (RTBF General administrator)

For their constructive feedback, valuable insights and rich learning experience

The Informa Group
Thomas Wehmeier (Principal Analyst, Mobile Operators)
Dexter Thilien (Research Analyst, Mobile Operators)
Kalyan Medapati (Senior Analyst, Fixed Telecommunications)

For their continuous support and providing best in class intelligence

The Belgian Institute for Post and Telecommunications (BIPT)
Dirk Appelmans (Spokesman)

For helping us understanding the complex belgian telecom landscape and inviting us to the
IBPT Industry Information Event on the upcoming 3G and 4G auction in Belgium



Our recommendation is to launch 6 initiatives: shift customers to postpaid, increase the
multiplay presence, add strong MVNO partners, leverage the Ping-ping mobile payment
solution, create an app-store with gambling applications and launch the 4G. These cumulated
initiatives will generate a 588M€ total 5 year NPV outweighing the -307M€ cost of regulation,
the 4th entrant and data overload. The net value creation of our business plan is 280M€ over 5
years with a small decrease in 2012 (-59M€) and 2013 (-24M€) before reaching strong growth
(+114M€ in 2016).

1.Facing adversity
With declining mobile termination rates (MTR), a huge increase in demand for data and the
recent news of the «Voo-Telenet» partnership entering the mobile telecom market, the KPN
Group Belgium (KPN GB) revenues are at threat.
Indeed MTR asymmetry declining each year to converge to 1,08€cent/minute in 2013 will
have a total 5 year impact of -168M€ bottom line for KPN. In the mean time the 4th entrant
will put KPNs market share at threat by taking 8% share over 5 years. Finally, the 3G
networks already over capacity at peak hours will face a rocketing demand with an average
data Compound Annual Growth Rate (CAGR) of 114% over the next years and an exponential
growth driven by demand for video content. The overall 5 year impact of all these issues is
estimated at -307M€.
In the face of such adversity KPN GB has no choice but to seek increased revenue by
leveraging current streams and launching new ones.

2.Leveraging current revenue streams
As 3rd entrant on the mobile telecommunication market KPN has had an aggressive strategy
to capture market share swiftly. It has build its current 29% market share on the B2C market
through a strong emphasis on value for money, great costs management and strong MVNO
partnerships. However this strategy has lead to a dangerous 80% proportion of prepaid
clients creating a high 34% churn versus 21% for competitors. Moreover its precautious and
late entry on the multiplay market with weak advertising campaign and a narrow range of
products has generated 0% growth on the fixed B2C business since 2007. However KPN has
set a strong track record in terms of market share capture.
In order to thrive in the current harsh environment KPN should up-sell its prepaid customers
into post-paid in order to reach a healthier mix. To reach this goal the group has to set a
broader range of post-paid offers, launch attractive joint smartphone sales, use direct
marketing aimed at selected prepaid users and create 2.400 wifi hotspots over high traffic
zones in Belgium to provide a sustained network quality. This initiative should generate a
positive NPV of 208M€.
The second strategic move for KPN GB should be to conquer the booming multiplay market
(+400k customers per year) by launching a TV offer which will expand its reach from 29% to
100% of the multiplay market, offer all combination of multiplay products and push the 3-play
and 4-play products in a massive 5M€ advertising campaign. This initiative of fast following
Mobistar’s move should yield 226M€ NPV over 5 years.
Finally KPN should leverage further its MVNO strategy. By teaming-up with 2 strong new
partners such as retailers (Colruyt), media and entertainment (RTBF, VRT) or banks (ING, BNP)
KPN GB should reach a 72M€ 5year NPV.



3.New growth opportunities
In an industry where 2/3 of the revenues are made by products that did not exist 15 years
ago, their is a sharp need for innovation. Accordingly KPN should scope out of its core
business to seek new opportunities. By looking at the value chain we can identify revenue
pools in the hardware, gambling and ﬁnancial services market.
To leverage the hardware market, a private label should be launched in order to deliver a truly
unique product that will trade-in new customers to the 1.000 Base shops and dealers as the
same time as creating additional margin versus branded phone (44% margin). Moreover these
sales should increase the smartphone penetration pace among KPN clients creating an
increased demand for data. In order to provide these unique products at an attractive price
KPN GB should partner with ZTE and offer classic phones at 79€ and smart-phones 149€
which is a 40% discount versus current average price. This initiative should create an
additional 16,5M€ 5 year NPV.
The gambling 1,4 billion market also represents an opportunity. Indeed by teaming with
market leader Loterie Nationale to provide gambling apps to the KPN customers this
application will create a unique interactive gambling experience and a high convenience by
giving the possibility to bet by SMS, control the bets and directly charge the cost on mobile
phone bills. This range of gambling apps would take the format of a KPN app-store also
providing industry giant apps (e.g. Nokia, Microsoft). This strategic initiative should create a
23M€ 5 year NPV.
Though not directly involved in the value chain, the 26 billion ﬁnancial services market should
stay on KPNs radar. As stated by a 2011 Gartner report, mobile Near Field Communication
(NFC) payments are a major future stream of revenues for mobile telecom operators.
Therefore KPN should leverage the existing Ping-ping associating Belgacom, Mobistar and
KPN GB. Thus, reaching a fair deal and giving joint control of Ping-ping to all operators would
allow Ping-ping to beat the banks by directly charging users on their phone bills. A 300k€
internet campaign should be launched to raise awareness on this revolutionary e-wallet. This
opportunity would generate a 15M€ 5 year NPV. More importantly this opportunity has a 44%
CAGR with an expected exponential trend.
Finally the 4G rollout should be pursued by 2011 in order to be able to capture early adopters
willing to pay a high premium and lure lucrative consumers away from Belgacom and
Mobistar. The total investment for 4G will be 451M€ over 10 years (licence, investment,
backhaul cost included).

4.Strategic plan
Our recommendation is to launch 6 initiatives: shift customers to postpaid, increase the
multiplay presence, add strong MVNO partners, leverage the Ping-ping mobile payment
solution, create an app-store with gambling applications and launch the 4G. These cumulated
initiatives will generate a 588M€ total 5 year NPV out-weighting the -307M€ cost of
regulation, the 4th entrant and data overload. The net value creation of our business plan is
280M€ over 5 years with a small decrease in 2012 (-59M€) and 2013 (-24M€) before reaching
strong growth (+114M€ in 2016).
In a word, strong grounds for growth have to be set now both in KPNs core business and new
ones for future growth to happen.


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