America Movil may swap its 28% KPN stake for 100% of E-Plus and Base

What could Carlos Slim's rationale be for making an unsolicited public offering for a minority of KPN's shares?
KPN finds the price too low, but so does Slim, of course, or else he wouldn't see any upside potential.
Then again, even the people at Blackstone aren't financial wizzards: after buying a 4.5% stake in Deutsche Telekom in 2006 for 14 EUR/share, the stock price declined and now hovers around EUR 8.50.

Here are the options:

• A purely financial investment, based on KPN's near halving of its share price in a year's time. This doesn't really make sense because based on multiples the stock isn't cheap and the future looks grim: mobile is going down, there may be a new market entrant as early as next year, the broadband market share keeps dropping, TV is not generating much cash, Germany and Belgium are losing momentum.
• Reducing the overall risk of America Movil. In itself, this makes sense, because its portfolio is heavily geared toward high-risk Latam countries.
• Taking control of KPN. America Movil will likely demand a few seats on the board. The question remains: why? The KPN management is doing whatever it can and Slim isn't in the position to know better. And synergies will be very limited.
• A first step toward a full public offer for all of KPN. Hard to tell, but this could be the case. The question remains: why first build a minority share? And what will the KPN management do?
• Sort of take control of E-Plus. This could make sense. Slim now holds a trump card in the possible consolidation of the German mobile market, where arch rival Telefonica may be looking for an exit to reduce its debt. Slim can easily fund an offer for O2 Germany and create a strong competitor to Deutsche Telekom and Vodafone. Or else he could demand a nice price for E-Plus and exit Europe once he sells E-Plus to Telefonica or anybody else.

Whatever the case is, here is my guess at what will happen next: America Movil will at some point split KPN. Their interest is probably in the mobile assets, and possibly in the non-Dutch ones only: E-Plus (Germany), Base (Belgium) and Ortel (European MVNO). Some assets may be sold off (iBasis) and what remains is a focused Dutch integrated operator (which may spin off its passive network assets to become a service provider - but that's a different story).

Carlos Slim could make this work by swapping his 28% KPN stake for a 100% stake in KPN Mobile International plus debt.

KPN: results 12Q1 preview

KPN reports 12Q1 tomorrow, April 24 at 7:30 AM. Here's what's going on at the company.

Consenses:

• 12Q1: revenue EUR 3136m, EBITDA 1131m, EBIT 560m, net 309m, EPS 20c.
• 2012: revenue EUR 12715m, EBITDA 4778m, EBIT 2430m, net 1341m, EPS 95c

Reported numbers: the DSL-market is beiung slaughtered, but FTTH is on the rise.

• Tele2: the DSL market is still losing ground.
• Ziggo: but FTTH is gaing momentum.

Results 11Q4 and guidance: see here and here and here.

• 2012: EBITDA EUR 4.7-4.9bn, capex 2.0-2.2bn, FCF 1.6-1.8bn, DPS 90c.
• 2013: the previous 95c DPS was withdrawn from guidance
• Broadband market share NL: to 45% by 2015

Financials. Doubts remain over the sustainability of current trends.

• Several profit warning in 2011.
• Several ratings cuts.

Management & structure: see here and here. KPN is nearing the end of its restructuring.

• C-level management was installed; new CFO pending.
• An Executive Committee was created.
• Yes Telecom management was discharged; Atlantic Telecom is integrated in Telfort Business.
• Job cuts ongoing.

Regulation: no relief yet.

• MTR: tariffs will reach a (preliminary) bottom by Sep 1 2012.
• International roaming: preliminary tariff bottom from July 1 2014.
• Increased regulatory oversight from Opta (KPN hopes to resolve this by the end of 2012).
• NMa investigation of collusion on mobile market.

M&A: see here. 

• KPN Spain is for sale.
• Base is for sale, rumoured value EUR 1.8bn (= 6.6x 2011 EBITDA). A sale and subsequent debt reduction will not automatically lead to an improved net debt/EBITDA ratio, since the EBITDA-margin is quite high.
• What about the other international assets: E-Plus, iBasis, Ortel?
• Reggeborgh ISP takeovers pending at NMa. Will probably be approved.
• Acquisition of Reggefiber ISPs was approved, but the Caiway deal was not.
• Ongoing tower sales.

Mobile NL:

• T-Mobile NL is for sale. A new owner could step up competition.
• Auction 2012, likely to cost KPN EUR 300-400m; enabling a newcomer?

Reggefiber and broadband NL:

• At YE 2011: 951k HP (so probably around 900k HC) and 277k HA.
• Quarterly additions in 11Q4: 107k HP and 38k HA (o/w 25k for KPN).
• In 2012, HP additions will be close to 400k and HA at around 35-40% i.e. 140-160k.
• Expanding the stake from 41 to 51% for EUR 99m at 1m HC or Dec 31 2012. HC will be nearing 900k by 12Q1 and 1m by the end of 2012.
• Expanding stake from 51 to 60% for EUR 116-161m at 1.5m HC or Jan 1 2014. This will lead to consolidation, which will contribute to both net debt and EBITDA.
• Reggeborgh can exercise its put option on the remaining 40% stake from July 1 2017, for EUR 647m.
• When will FTTH net adds start to compensate for DSL losses? FTTH subscriber net adds were 25k in 11Q4, but overall BB net adds were -9k. Looks like both FTTH net adds and DSL net losses could accelerate.

Water-fiber system: cheap way to enter a home

There is a new branch in the ever expanding universe of fiber deployments, ranging from fiber-the-the-X to fiber-through-the-X.

The latest version has been trialed in Germany, in Adenau, last year: WFS (water-fiber system), or fiber-through-the-waterworks. The local water utility in nearby Bonn is working with the Adenau utility and two technology companies, Stadtwerke Bonn is reporting: FRIATEC (manufacturer of ducts and pumps) and egeplast pro cable. Now, it is proposed to bring fiber to the towns of Adenau and Altenahr, using this technology.
'
It looks like the technology works by inserting an empty duct into the water duct, but only for the last few meters from the nearby fiber duct into the home. FRIATEC appears to have a similar solution for gas pipes.

Two memorable quotes:
"Es wird nicht mehr diskutiert, ob der Glasfaseranschluss nötig ist oder nicht. Es geht nur noch um die Frage, wie schnell und in welchen Konstellationen die Glasfaser zu den Kunden gelangt."
"Für Großstädte bringt diese Technik Einsparungen in Millionenhöhe, da aufwändige und kostenintensive Tiefbauarbeiten entfallen und für ländliche Bereiche scheint dies aktuell der einzige reale Ansatz um die Glasfaser bis zum Kunden zu bringen."

B4RN: let the digging commence

B4RN announces that it will actually start digging on March 31. Here is the full text of the release:

B4RN Breaks the First Sod and starts its Community Dig 

March 31st at Jubilee Tower, Quernmore, starting at 1pm, 2pm Grand opening ceremony, 3pm tea and cake.

The community-owned, rural, gigabit Fibre To The Home project, Broadband 4 the Rural North, has passed another major milestone this month. 

The Early Bird offer ended on 29th February, and B4RN CEO, Professor Barry Forde, is pleased to announce that sufficient shares have now been sold to commence the digging which will begin at the event on March 31st.

"We are delighted with the response to the share issue, which has surpassed even our highest hopes," said Professor Forde. "This proves that the appetite for investment and support of such community owned broadband projects is alive and well, and that solving the problem of rural broadband for the next generation is prompting people to invest even in times of economic hardship."

At the launch the local community will be celebrating the start of the dig.  John and Andrew Metcalfe, local farmers, will be breaking the first sod, and are some of the many farmers who will be laying the ducting in order to buy shares in B4RN.  “This will make a major difference to our community, and to me and my young family.  As they grow they will be able to use the technology that children elsewhere take for granted, and we will be able to diversify our business through it. “ says Andrew Metcalfe

The launch will be held at a local beauty spot that is half way along the first of the core routes.  The dig will progress out from either side of the start point,  and all 13 core routes should be live in 3 months, weather permitting. Subsidiary routes and spurs to properties will branch out from that.  There has been so much enthusiasm that the management committee is considering whether to bring forward the timescale for later phases of the build.

B4RN is the only UK community offering gigabit broadband, meaning that consumers will have the opportunity to work, live and play faster and more efficiently than most places in the world. This forward-thinking, fully-fibred approach has been recognised as the optimal solution to the digital divide, and will encourage regeneration of this deeply rural area, bringing new jobs, opportunities and revenue to rural Lancashire.

The support of the local community has been key to B4RN's success to date, and there are many people and businesses within the area who will be earning their shares through sweat and labour as well as investing their money.

Prof. Forde stated, "This is where we can reduce the costs that a traditional telecommunications company would face, by using local skills and knowledge, working directly with the community, and being a part of it. B4RN is a 100% community project, with neighbours helping neighbours. The community spirit is strong in rural areas and B4RN is a showcase for that spirit."

Share ownership starts from £100, with 30% tax refunds available to anyone investing between £500 and £20,000 under the Government's EIS (Enterprise Investment Scheme), which makes it an attractive proposition for all investors. £1500 ensures a Foundation Membership with additional bonuses such as a free connection and one year's free subscription to the gigabit service.  B4RN’s coverage area is close to the coast, the Lake District and the Yorkshire Dales, making it an ideal base for weekend breaks, holidays and the chance to explore some of the north of England's most beautiful tourist areas. External investors can nominate a property within B4RN coverage area for the free connection, including holiday cottages.

Full details of the share issue, including the business plan, are available on http://www.B4RN.org.uk along with maps of the coverage area and phases.

Stop SOPA: which are the proper arguments against it?

There's a lot of resistance to SOPA and PIPA, but good argumentation is rather scarce. Look at these links to find useful explanations about what is actually wrong with these bills:

• Five reasons the Internet’s still protesting SOPA and PIPA
• Killing the Internet to save Hollywood
• SOPA, Internet regulation, and the economics of piracy
• Even without DNS provisions, SOPA and PIPA remain fatally flawed

For many, the content industry is the industry one loves to hate. It makes excessive profits (or so it seems), and they slice & dice their products in a consumer-unfriendly way (windowing) to maximise profits. Today, the people want instant access to digital files (streaming or downloading), while the content industry wants to sell very lucrative discs. Hence some sympathy towards illegal downloading.

However, this reasoning is irrelevant. It is Hollywood's right to determine how it wants to sell its products. And illegal file-sharing is still a form of theft. After all, China needs to shut down fake Apple stores, and it is illegal to wiretap the electric grid for free power.

And yet, there are good reasons to oppose bills such as SOPA and PIPA. ISPs simply do not want to police the internet, for two reasons:

• It would produce a lot of administrative work. This could also be a growing burden, as more sites etc. are to be taken down. And then there is the risk of not complying in time and being liable.
• It doesn't work. Technology will always find a way around.
• Not ISPs alone will be targeted by laws such as these, but also the DNS, search enginmes, etc.

Further, content owners would get just too much power:

• They could ask a site to be taken down without a court order.
• Forcing players other than ISPs (search engines, payment processors, advertisers) not to do business with such sites.
• Forcing anybody (mainly sites such as Facebook and YouTube) providing links to such sites (even for discussion purposes etc.) to take these down.
• What would come next? Sites providing recipes being taken down on a request from a restaurant chain?

Hence the risk of limiting free speech, the open internet and innovation.

Finally, the content industry claims that piracy destroys their business. But this is not at all proven, at least not the extent to which this claim would be true:

• File-sharing is not illegal per se.
• And if it is, it is also a form of content discovery. Heavy downloaders may very well be heavy buyers of legal content as well.
• Spendings on legal content (discs) may be down, but concert ticket sales are up dramatically. Assuming that a household's total media budget should not change dramatically over time, this should be taken into account.
• Piracy is going down with the rise of companies such as Netflix and Spotify. UltraViolet may also contribute to an acceleration of legal streaming/downloading revenues.

KPN is reversing its position versus the OTT market

A very disappointing turn of events is taking place at KPN. KPN has been a champion of the European incumbents for a long time, with an open view to the realities of the over-the-top market and open access networks.

Ad Scheepbouwer himself developed in a very positive way, during his 10 years at KPN. Back in 2003, he was quoted saying that companies such as Tele2 are "like parasites on our network". However, in his last days as CEO of KPN, Ad Scheepbouwer was quoted as follows:

Meanwhile, Scheepbouwer is dismissive of suggestions from rivals, such as Telefonica's CEO Cesar Alierta and Vodafone Group PLC's CEO Vittoria Collao that the biggest generators of network traffic, such as Google Inc., should pay for the benefit of reaping a huge amount of revenue from infrastructure in which they have invested. "The Internet is open and free for all to use and the solution isn't to start charging Google money. Then we should have invented Google ourselves."

(Total Telecom, April 5, 2011).

We thought that the A.T. Kearney report (for DT, FT, Telefonica, TI) claiming the opposite of what Scheepbouwer was saying, had been thoroughly buried by now, by Communication Chambers, Plum Consulting, and over here as well. In October, at a Fiber Summit in Amsterdam, Alcatel-Lucent's Ben Verwaayen left no doubt about where his company stands in this discussion: it is firmly behind DT, FT, Telefonica and TI. And we all know where Alcatel-Lucent, and its CEO, are going.

The turn of events at KPN is not only disappointing , but also points to conflicting views within the KPN management. The current director of Wholesale & Operations dismissed the concept of Google et al contributing only a week ago. When an Alcatel-Lucent worker (!) asked him how he planned to start charging Google et al, he replied: 'we want to join in, ring fencing is pointless', which seemed to suggest that he is firmly on Scheepbouwer's side.

Dish Network goes OTT and LTE

Dish Network has an interesting strategy, further expanded under its new CEO Joe Clayton. Since it doesn't have a fixed-line network, it apparently needs a work-around. This comes in two forms:

• LTE. The company owns 40 MHz of nationwide spectrum (and some). There are TD-LTE plans (probably for a fixed-wireless solution), but a cooperation seems more logical - such as making an offer for T-Mobile USA.
• OTT. Since it has nationwide content rights, why not piggy-back on somebody else's infrastructure? It is a loyal Google TV partner, has the Blockbuster business (including Movie Pass) and could even go further.

Wireless solutions help maintain the digital divide

Can wireless replace wireline? The obvious answer is 'no', but it is remarkable to see that a growing number of companies is trying to answer 'yes'. Some instances:

• Vodafone Germany: migrating DSL subs to LTE.
• Verizon will not expand FiOS beyond the currently planned 18 million homes, instead relying on LTE and the new spectrum it is buying from cable companies (and perhaps also to safeguard peace with those very same cable companies).
• Chinese investors are invading Belgium on the back of a 4G license for TD-LTE spectrum.
• NSN has introduced outdoor CPE for TD-LTE based service.
• O3b is building a global satellite network for 'the other 3 billion'.
• SES (Astra2Connect) and WildBlue Communications are raising speeds (to 10 and 12 Mb/s) and lowering prices (to 28 EUR/mo and 50 USD/mo) for BB-over-satellite.

Observations:

• On the positive side: These solutions are for underserved areas (whether third world or rural) and will provide rather basic needs only.
• On the negative side: These investments will reduce the direct need for fiber to rural areas, which may lead to an ongoing digital divide between rural areas (speeds up to 10 or so Mb/s, but in reality probably a lot lower and possibly capped) and denser areas (to be served by true FTTP, which is gradually moving to 1 Gb/s).

The thin line between following the market leader and collusion

The offices of the three Dutch MNOs, KPN, Vodafone NL and T-Mobile NL, were raided by the antitrust authority NMa on suspicion of price arrangements (collusion) and carving out distribution (retail) channels. The three aren't denying, but guaranteeing full cooperation. KPN stated that five employees have been singled out for the investigation. The NMa stated that they have official statements from two whistleblowers.

There are speculative reasons to believe both sides (it's an investigation, and pending the results no one is guilty):

Speaking for the operators:

• Price arrangements would be stupid because of the PR risk. The operators have only recently been convicted for similar charges dating back to 2001.
• Price arrangements also appear to be unnecessary in the light of the oligopolistic market, where Voda and T-Mo follow KPN - which is not illegal.
• There was a direct reason for all operators to move quickly and raise prices during 11Q2: a rather sudden change in consumer behavior from late 2010, embracing IM/chat/VoIP apps. This put pressure on voice/SMS income. Moreover, charging for these data comms apps was made impossible because of the new net neutrality laws.

Speaking for the whistleblowers:

• They, and the NMa, appear to be very serious.
• The operators are not denying.

What may have been the case?

1. The allegations are true. In this case, consequenses will be severe, both in terms of fines and in terms of regulation. NPS numbers will go down the drain.
2. The allegations are not true. The whistleblowers are in fact disgruntled employees - or so. Naturally, they approach right-wing media and populist politicians, such as the neo-fascist PVV party supporting the current government.

At this point it is impossible to say which is true. Perhaps the whistleblowers speak the truth. But if they cannot see the difference between 'following the market leader' and 'making illegal price arrangements', then the charges may very well be untrue.

B4RN is a go - Gigabit fiber coming to Lancashire

Lindsey Annison kindly allowed us the scoop on B4RN reaching its first target. Wonderful news, and Lancashire will likely be connected to gigabit fiber over the next few years.

Here is the entire press release:

B4RN (Broadband 4 the Rural North) has passed its target, in a mere three months, to gain enough interest to proceed with the project to connect 8 parishes in rural Lancashire to a community designed, built, owned and operated gigabit FTTH network. Full details of the project are available on the website http://www.b4rn.org.uk

There are Press Passes available for the launch event on Dec 15th at 2pm at The Storey, Lancaster.

Thank you for all your support. 

FOR IMMEDIATE RELEASE - 1st December 2011


Residents in North Lancashire launch Fibre Optic Broadband Company

An exciting community initiative, initially across eight parishes of rural Lancashire, to deliver a world class hyperfast fibre optic broadband network is being launched at The Storey in Lancaster on 15th December at 2pm.

Broadband has become essential for every sector of the community and increasingly important for our daily lives. Government and the large telecom companies plan to upgrade broadband to ‘superfast’ but not in many rural areas, where limited internet and mobile coverage affects  businesses, homes and farms. The difficulty is reaching economic viability when private companies’ costs are so high and subscriber numbers are low.

Broadband for the Rural North (B4RN) plans to lower the costs, both in the building of the broadband network and to the end user, by using local contractors and the community. “Farmers and local people have the skillset we need for this project. They know the land and people, and have been offering to work for shares, which means the digging for the core network can start early in 2012. We expect this to be completed in approximately 3 months, weather permitting, and then we will begin to connect the first users,” stated Professor Forde. Shares will be available from 15th December - further information and application forms will be available on the B4RN.org.uk website on that date.

B4RN’s plans are for a hyperfast broadband network fit for purpose far into this century. A 1 gigabit (1000Mbps) connection will ensure that any interaction with the Internet will be quick and easy. Television, films, cheap phone and video calls over the Internet, the ability to extend local mobile phone networks to cover black-spots, local security, telehealth and medicine applications - all will become possible. B4RN will be initially be providing the broadband connection and VoIP telephony, with further services to follow as the network rolls out over the coming years.

Barry Forde, B4RN Chief Executive, will explain the project and launch the share offer in the company to raise the necessary capital required over the next few months. Representatives from the first phase communities of Melling, Arkholme, Quernmore, Abbeystead, Wray, Tatham,
Roeburndale, Wennington and Caton with Littledale will be at the event as well as local dignitaries and celebrities.

B4RN is a community benefit company, owned by its shareholders. Income made will be re-invested in the service and spent within the communities the company serves. The shares are being made available under the EIS (Enterprise Investment Scheme) that offers 30% tax relief, with a minimum investment of £100 and maximum of £20,000.

B4RN hopes to attract the support of local, national and international investors, whilst remaining a truly community-run business, bringing fast, future-proof, sustainable Internet access to the rural uplands, for this generation and those to come, leaving a lasting legacy for the area.


NOTES TO EDITORS

1. B4RN has been more than three years in the planning and development stage. The B4RN project will bring a state of the art, fibre optic broadband connection to the rural communities long before most of the urban areas. Rural Lancashire plans to be a world leader in “hyperfast”.

2. Professor Barry Forde (B4RN Chief Executive) is a networking expert with many years experience of designing, building and operating high performance networks. He was responsible for the CLEO network which provides connectivity to over 1000 schools and public sector sites across Lancashire and Cumbria. Bios are available for Professor Forde and the Management team http://tinyurl.com/6tpdkmt

3. The full business plan is available on the website, along with details of the pricing and payment structure for local residents and businesses. http://tinyurl.com/895uvdx This includes bonuses of free install and connection for 12 months with a £1500 investment, three further free months for early bird investors, and payment in shares for involvement in the deployment of the project.

4. A target of 662 registrations of interest were required for a green light and this was passed in just three months. The project moves one step closer to implementation with the launch of the Share Issue. “The phased network will be built by the community over three years for the seven phases. Now we have passed our target of over 700 registrations of interest in investment and taking a service at £30/month for 1Gbps, we can proceed to raise the capital required for Phase 1,” said Barry Forde.

5. B4RN will initially provide internet and telephony with further services in the future. Each home will have a battery backup so telephony over the fibre means landline connections are no longer required.

6. Christine Conder, a farmer’s wife and rural broadband pioneer, who successfully dug and installed the first rural fibre cable to her farm in Wray in 2009, knows it can be done and sums up the enthusiasm and ethos of B4RN, “If we don’t do it ourselves then it will never get done, so B4RN is the answer, let’s all JFDI.”

6. Photos (to be accredited to B4RN) are available at http://www.flickr.com/photos/b4ruralnorth

Contact details:

Professor Barry Forde, Barry@B4RN.org.uk
Christine Conder, Chris@B4RN.org.uk
Lindsey Annison, Lindsey@B4RN.org.uk

Telephone: 01524 221588 or mobile: 07952 503253 / 07967 670759
Twitter: @dig2agig
Website: http://www.B4RN.org.uk
JFDI (Just Farmers Doing IT)