kpn group belgium - strategy seminar executive summary

KPN Group Belgium - Executive Summary

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

Strategy SeminarTelecom 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.



kpn group belgium - strategy seminar executive summary

Documents

mobile telecom market

strong growth

kpns market share

b2c market

adversity kpn gb

year impact

mobile termination rates

strong emphasis