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Dutch courage

01 December 2006

KPN is ripping out its legacy networks, including telephone exchanges and copper wires, and replacing the whole system with a nationwide fibre-to-the-kerb system that will deliver broadband services at 30-50 megabits. Altnets will be welcomed onto the network with a street-cabinet version of local loop unbundling, says Eelco Blok, the CEO of KPN's fixed network. Interview by Alan Burkitt-Gray

Read more: new generation networks all IP broadband networks telecoms investment KPN



 Eelco Blok








 





KPN's All IP project is one of the most radical transformations anywhere in the world being planned by a telecoms operator.
 

And that's radical in the real sense of the world: KPN is replacing all of its network in the Netherlands, right down to the roots. Its core network, its telephone exchanges and its local loops are being replaced in a project that will take until 2010 and cost an estimated €1.5 billion.
 

Some of that sum will come from the sale of the real estate currently used for those telephone exchanges. Instead of a conventional presence at the centre of each community, KPN is building an infrastructure of kerbside boxes: the network will be fibre-to-the-kerb nationwide.
 

That means KPN needs to build a new relationship with the alternative providers that today use unbundled local loops. They are normally defined as the lines that run from telephone exchanges to the customers: with no exchanges any more, the definition becomes meaningless. KPN is aware of that, and so is the Dutch regulator Opta.
 

The All IP network will give KPN and the alternative operators that will use its network capacity of 30-50 megabits to each customer. The company believes that 10-12 megabits, the limit of current technology with ADSL 2+, is just not enough.
 

Eelco Blok, 50 next year, is the person in charge of the All IP project, as managing director or CEO of KPN's fixed network. He reports directly to group CEO Ad Scheepbouwer and is one of the five members of the company's board of management: the others being CFO Marcel Smits, Stan Miller who heads mobile operations worldwide, including E-Plus in Germany, and consumer market chief Baptiest Coopmans.
 

Lucent — now Alcatel-Lucent — was named in the middle of 2006 as the overall systems integrator and KPN later published a list of the main vendors it is using for the All IP project — see panel.

It's been a memorable year for KPN. Not only has it begun its All IP project in earnest, but the Dutch state has sold the last of its shares in the company — from 70% in 1994. And KPN bought the local operations of Tiscali for €255 million, giving it an extra 276,000 broadband customers.
 
 





Competitive market
 



What are the drivers behind KPN's decision to move from a fixed network to a next generation all IP network? "We have a very competitive environment in the Netherlands," says Blok. "We have aggressive cable operators with 95% coverage and state-of-the-art networks. They are able to deliver broadband internet and voice over IP with their analogue and digital TV."
 

He's aware that "the future of a wireline operator is not fixed telephony, but is broadband internet, voice over IP and IPTV in the consumer market and IP VPN, ethernet and value added services in the business market".
 

In order to have "a real answer available to the aggressive cable TV operators you need the bandwidth". With traditional networks "it's only possible to upgrade your network with ADSL 2+ to 10-12 megabits a second per connection". And "that's not enough to deliver all the new world services as broadband internet, IPTV and voice over IP together", he says.
 

That means there's only one solution. "That is to move to fibre-to-the-kerb VDSL 2. Then you are able to upgrade the bandwidth of your network to 30-50 megabits and you will be able to deliver all the new world services." Then KPN will be able to compete with the cable operators.
 

"From a services perspective we really believe that we need to upgrade the wireline network to a bandwidth of 30-50 megabits, given the services that are currently in scope to be offered to the average consumer in the next two, three, four, five years," says Blok.
 

"The pressure is really high," he adds. "The cable TV operators and the alternative DSL operators are also competing with us for the same consumers. The broadband internet penetration in the Netherlands is really, really high. Currently 65-67% of households in the Netherlands have a broadband internet connection." He expects penetration to reach 80-85% in the next two or three years.





Stay in business
 



"We have to upgrade the network to stay in business," he says. That's his measure of the pressure.
 

There's a second driver though: "the opportunity to decrease our cost level through implementing a next-gen all-IP network". When the new network is rolled out it will be possible "to phase out a lot of the traditional platforms, such as the PSTN/ISDN platform, the SDH platform, the ATM and Frame Relay platforms", he says.
 

"That will give us the opportunity to reduce maintenance and operations costs and also downsize the operations part of the wireline organisation with an enormous amount of employees."
 

The company expects top reduce its staff by 5,000 between 2005 and the end of 2007, when the first phase of the All IP project ends, and then a further 3,000 by the end of 2009 in phase two. Cost savings will reach €450 million a year by 2007 and €850 million a year by 2009, says KPN.
 

Is this is similar argument to the one BT is using for its project, called 21st Century Network: reducing costs and collapsing many legacy networks into one? "We have added the services side," says Blok. "We really believe that we need to upgrade the access network for the services growth we expect in the Netherlands."
 

In the UK, 21CN is the responsibility of BT Wholesale and stops at the main distribution frame in the telephone exchange — at which point the local loop, run by Openreach, begins. That's a separate organisation, though still part of BT.
 

In the Netherlands KPN is able to plan the transformation of the whole network, end to end.
 
 





Upgrading the backbone
 



Where is KPN in the rollout of the All IP project? "We started two years ago with our backbone. We are migrating to a full ethernet backbone, from SDH and ATM to ethernet."
 

A total of 80% of the backbone has been upgraded so far. He defines the backbone as the network through to the local exchange. "It's all optical and ethernet technology."
 

The timetable for upgrading the rest of the backbone will be decided in 2007, he says. "The other 20% will be driven by ethernet VPN customers in the business market and the IPTV rollout. We are not just rolling out the new infrastructure. We have to roll out a certain part of the network infrastructure but the commercial decision will drive the roll out."
 

On the services side, "we have implemented a voice over IP platform, based on pre-IMS", says Blok. "We have rolled out an IPTV platform." That is being built by Siemens as the systems integrator and was featured in an interview in the September-October 2006 issue of Global Telecoms Business.
 

So core and services are being covered. What about the last mile? "We have decided to do three pilots in the Netherlands in our network of fibre-to-the-kerb VDSL 2, to really test in a live environment our full new infrastructure. We plan to evaluate those three pilots in Q1 of next year, and then we will make the decision to roll out in the rest of the country, based on the evaluation."
 

The VDSL 2 trials are taking place in the cities of The Hague, Diemen and Enschede. In each area, KPN will replace over 100 junction boxes and connect the new boxes with fibre. Each box can connect between 200 and 400 houses. The existing copper wire will remain, working at up to 30 megabits a second.
 

KPN has decided that the network trials are completely open to other competitors to enable them to test the technology and to try out their own broadband services with customers.
 
 





Transforming telephony



 
KPN has a 42% share of the country's consumer broadband business and is moving its analogue telephone service over to voice over IP. "We are very aggressively selling our own voice over IP product and at the end of Q2 we had already installed 156,000 voice over IP connections. We have continued to grow fast."
 

Shortly after the interview, KPN published its Q3 results, which showed a sharp rise to 270,000 connections — a rise of around 1,250 a day.
 

They are replacing analogue connections: "First line voice over IP," says Blok. "The voice over IP product fully replaces the PSTN and ISDN service."
 

We go into the cost of the All IP programme: "Between €1 billion and €1.5 billion, and we will spend that in the period from 2006 to 2010," says Blok. "We will fund that out of the sale of our real estate that will become available for sale because we are moving all our active equipment from the local exchanges to the street cabinets."
 

Thanks to the migration to an all-IP infrastructure "we will be able to sell almost 80% of our technical real estate that is still on the balance sheet of KPN".
 

The company still owns its exchange buildings — unlike some operators, which reduced their debts by selling and leasing back the real estate. "BT did a transaction like that, a sale and leaseback, and so did Deutsche Telekom and Telecom Italia. Luckily we did not have to sell off our real estate to clean up the balance. We had some other opportunities to clean up our balance sheet."
 

The real estate transaction will raise "probably around €1 billion", thinks Blok. "It will not fund 100% of the investment in the All IP network but it will be between 75% and 100%."
 

BT plans to phase out all its legacy network over time through 21CN. Does KPN have the same ambition?
 

"We really believe that we will be able to phase out all the legacy platforms. It's needed or we will not be able to reduce the cost as much as we really believe that we have to reduce the cost. In the network, costs and platforms are directly connected to each other — maintenance and operations are directly correlated with running platforms." It's "really essential" to shut down the legacy, he emphasises.
 
 





Closing the legacy networks
 



How will this be phased? Will KPN be able to start closing networks before the All IP programme is completed? "In the business market we have already made a move from ATM and Frame services to IP VPN and ethernet VPN, based on a new technology."
 

With a "very aggressive" service offering the company was able not to close down ATM and Frame Relay services but to stop investment two years ago, says Blok. "We haven't made a final decision to migrate the last customers, but that decision will be made in the next six to 12 months. Shortly after that we will be able to phase out the ATM and Frame network." Leased line services will be subject to a similar schedule, he adds.
 

Let's turn to KPN's changing wholesale relationship with its competitors in the Netherlands. How will KPN manage the transformation?
 

From the point that the All IP network is in place "we will offer access to that network on a wholesale basis and we have made the decision not to start a fight with the regulator and the other operators in the Netherlands as, for instance, Deutsche Telekom did", says Blok.
 

The German incumbent is fighting a battle — which has now become a controversy at pan-European level — for a "regulatory holiday" if it goes ahead with VDSL investment, as it wants to prevent competitors having access to the broadband local network. Deutsche Telekom was initially supported by the previous German political leader, chancellor Gerhard Schröder, who lost office in the 2005 election, but the company is opposed by the European commissioner in charge of telecoms, Viviane Reding.
 

KPN has set its face against the idea of a regulatory holiday. "We think that it's better for not only ourselves but also for the growth of the new world services to open up our network from the start," says Blok. "Therefore we have announced that we will come up with wholesale broadband access services on a wholesale basis."
 

But the network topology will be different. Fibre to the kerb means there will be no main distribution frame in the exchanges. If KPN sells its exchanges, there will be no central building for competitors to put their DSLAMs and terminate their core networks.
 

"The regulator has asked us — well, forced us, but I'd rather say asked us — to offer street cabinet co-location access," says Blok. "We have announced street cabinet co-location services. That's now in the public domain. We are about to announce a wholesale broadband access service, and shortly after that we will announce our street cabinet backhaul service."
 

It will be possible for other operators to build their own VDSL service using co-location in KPN's street cabinets and backhaul, or they will be able to use KPN's wholesale operation.
 

How will KPN manage the transition between existing local loop unbundling arrangements and the future network topology? "Currently the unbundling starts at the exchange. The alternative DSL operators that are making use of unbundled local loops will have to migrate to the All IP network," says Blok. "The regulator recently announced that we have to give the other operators a window to make that change."
 

The window will be from two and a half years to five years. "The regulator thinks that is a reasonable period, and that almost matches our current roll-out plan."
 
 





Alternative operators
 



How will KPN manage the relationship with the altnets? They will need to work with the incumbent on detailed questions of services, interfaces and timing. "We started discussions with the alternative DSL operators at the end of last year and, based on what they have told us, we have designed the wholesale service and we have invited them to join us in the three pilots we are running from November."
 

Those pilots will be used to test "not only our own processes and ideas but also the ideas of the other operators", and the operators will be seeing if it is possible "to define a set of wholesale services that can meet most of the requirements of the alternative DSL operators".
 

How will these ideas be extended to business services. "There's very intense competition in the business market," says Blok. "There's Tele2 Versatel, but also BT and Colt have their own infrastructure in the Netherlands." And there's Verizon Business and Orange Business Services: "They are really targeting the large multinationals that are in the Netherlands. It is really tough, but we are doing really well."
 

Does KPN expect to provide local access services as part of the All IP project to these operators? "In some parts of the Netherlands they have their own infrastructure end-to-end and in some parts they don't, and we deliver services to all the other operators in the Netherlands. They have the possibility of buying the All IP wholesale service from us."
 

Is KPN applying its new network strategy in its operations outside the Netherlands? "We have a backbone infrastructure in other parts of Europe and we have already upgraded this to DWDM. We will roll out the ethernet network to the rest of Europe, where we have our own infrastructure, in 2007," he says.
 

"We are implementing techniques that are based on international standards. Sometimes when you are one of the frontrunners it is impossible to connect all the new services to the networks but my experience is that this is just a matter of time. We have a partnership with Telefónica and we offer services on a wholesale basis to Telefónica in some parts of Europe where we have infrastructure — and the other way round. And the same with SingTel in the Asia Pacific area and Sprint for the US."
 

We turn to the relationship with Alcatel-Lucent, as Lucent has now become following its merger this year with Alcatel: it is in overall charge of the All IP implementation process. "We went through a very tough selection process," says Blok. "Lucent came out the best for the system integration and the IMS, and Alcatel for the ethernet and — together with Huawei — for the VDSL 2." It was after KPN made the decisions that Alcatel and Lucent decided to merge.
 
 





Complex projects
 



How will the process work? "It's a joint effort of the KPN team and the Lucent team. At the end, you need one responsible person or company for the rollout, and Lucent Global Services have a lot of experience in running complex projects like this." Not only IP transformations, "but there are several large projects that they have run".
 

There are very few telecoms operators around the world that have contemplated something on this scale, a complete transition from legacy networks to an all IP infrastructure — indeed, a closing down of the legacy networks. There's BT with 21CN and there's KPN with All IP. Any others?
 

"Complete transitions?" says Blok. "It's very hard to find another wireline operator that has made the decision to fully transform its current infrastructure to an all next-gen, all-IP infrastructure. Recently Telekom Austria announced a similar programme to the one we are currently running."
 

But we agree that there are not many others that have decided — or at least announced a decision — to do a complete transformation.
 

"I believe the competitive situation and the pressure we face are the important drivers behind the decision we have made."
 

Of the two companies that are in the vanguard, Blok's team in KPN meet for discussions with their opposite numbers in BT, he confirms.
 

One of the big differences with BT is that KPN has a mobile business, not only in the Netherlands but also in Belgium, under the brand Base, and in Germany, where it operates as E-Plus. BT has a virtual mobile network, but owns no infrastructure. How does KPN's mobile business affect decisions on the All IP project?
 

"They are involved, especially in the backbone part." The rollout of the All IP programme is being coordinated with the 3G network, both UMTS and HSDPA, he says.
 

"The rollout, especially the fibre-to-the-kerb investments, is planned closely with mobile operations." As from January 1 2007 network operations for fixed and mobile in the Netherlands will be integrated, he adds.
 

In particular this means that the fibre to the street cabinets will "a smart rollout", so that the operation takes into account the base stations for the mobile network.

Much of that €1.5 billion is accounted for by the fibre, says Blok. "The cost of fibre is digging the holes."
 

At the same time KPN has decided to stop all investment in copper. "In areas where new houses are built we will directly move to a fibre-to-the-home infrastructure." Copper, it seems, is now truly at the end of its life. GTB
 

 

Eelco Blok

 

Member of the management board of KPN and managing director of its fixed division since June 2006

 

Joined KPN in 1983 and has held various management positions, including director of carrier services, corporate networks and fixed net operator, and was responsible for corporate strategy and innovation

 

Most recently he was chief operating officer for KPN fixed division.

 



 Selected suppliers for KPN All IP programme  Source: KPN
 Overall systems integration  Lucent (now Alcatel-Lucent)
 Network  
 DWDM  Huawei
 IP core network and IP edge  Juniper via Lucent (now Alcatel-Lucent)
 IP aggregation  Cisco
 Next generation ethernet  Alcatel (now Alcatel-Lucent)
 Next generation DSLAM  Alcatel (now Alcatel-Lucent) and Huawei
 Emulated voice  Lucent (now Alcatel-Lucent)
 VoIP consumer and IPTV  Siemens
 VoIP business interconnect  Ericsson
 OSS  
 Trouble ticketing   ARS-Remedy
 Fault management  Micromuse (now IBM)
 System integration IT demand  Atos Origin
 Network activation and configuration management  Intelliden
 Inventory management   Cramer (now Amdocs)
 Service activation and configuration  Staffware (now Tibco)










 
 
 







 



 




 




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