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KPN increases international focus to boost revenues

01 May 1999

KPN, the incumbent in the Netherlands, is under more and more pressure domestically, as new entrants use the market as a stepping stone into Europe. Recently the operator has focused more on pan-European and other international opportunities, forming a JV with Qwest. Chairman Wim Dik talks to Mark Holmes about KPN's plans for growth.

The Dutch market was fully liberalized in June 1997, six months before the EU deadline. Liberalization led to a sharp decline in prices and a number of decisions by the regulator to promote competition, that were contested by KPN, the incumbent. A number of new entrants have been aggressively seeking market share, as Chris Hoare, a telecoms equity analyst at HSBC, explains: "The Dutch fixed market is very competitive and the regulator is tough. There are a number of new entrants. A lot of companies see Holland as a bridgehead into Europe, which is unfortunate for the likes of KPN, because this means that they are going to have to compete with all these guys. So there are a lot of competitors, as well as a tough regulatory environment."
Hoare believes that their growth prospects may be constrained by the nature of the market they are competing in: "I think that KPN has done pretty well relative to other incumbents in getting itself straight for competition. KPN's cost base is pretty much under control. They seem to be relatively customer-orientated. They are really going to have a very difficult time competing, particularly in mobile, but also in fixed. This means that their growth prospects are not great. It is not really a criticism of the company, but more a case of market dynamics."
Increasingly, the operator is looking to international investments to boost profits. Its recently announced JV with Qwest is a key strategic move. The two companies will build and operate a high-capacity European fibre-optic IP-based network. The network will combine KPN's pan-European fibre-optic backbone with a high-capacity transatlantic link to Qwest's North American fibre-optic network.
Hoare can perceive the benefits of the JV: "I think that their alliance with Qwest is very impressive. I think that this provides a good example of them moving quickly relative to their competitors, such as Deutsche Telekom and France Telecom. It gives them a pretty fast-growing revenue stream."
The company may also expand its eastern European footprint. It is considering the acquisition of a controlling interest in BTC, Bulgaria's national telco together with OTE, the Greek incumbent operator. KPN already has operations in a number of eastern European countries including the Czech Republic and Hungary. Hoare notes: "We think that they have done reasonably well in eastern Europe. I think that in general terms the international portfolio they have put together is pretty decent for a company of their size."
In an exclusive interview with Global Telecoms Business, KPN's chairman Wim Dik talks about the regulatory environment, KPN's fixed and mobile operations, the JV with Qwest and international investments in eastern Europe.
How do you view the recent decision by the Dutch regulator to allow competitors cheap access to your local loop infrastructure over five years before prices can be raised?
It is always difficult to consider the decisions of regulators as fair. I could almost consider this to be an unfair question. In actual fact, however, we had already envisaged this decision. So we started discussions at the beginning of the year with the other market players to open our access networks to our competitors.
So when the regulator took this decision, it was more or less the law already and underwrote something that we had already decided for ourselves. You can see that this is a normal development in the market. To have access, as it is called in the jargon, is a logical development: you start with competition for the main traffic and then end up with competition in the local network.
So in principle we have nothing against the decision, as we envisaged it. We find less attractive the fact that they started by putting us under fairly heavy price pressure and making access cheaper than we had planned. One can understand why they do it: they initially want to boost competition. They say that it will be possible later to revert to a more commercial level of pricing.
You can start arguing about the time span and whether five years is a fair time period. We think, in principle, that this is a good decision, but five years in telecoms, if you look at the speed of telecoms developments, is an extremely long time.
So do you agree with claims that KPN has been unfairly attacked by the regulator, compared to incumbents in other countries?
I am not that impressed with the views of other people. Only a few years ago when we met with our investors and analysts, they would comment on a fairly regular basis that KPN believes that the future belongs to them, but should understand that it is benefiting from the regime of a very mild and modest regulator. Now that the regulator has changed his views and brought us more in line with European behaviour, people start saying that we have such a strict regulator, much stricter than anywhere else.
I think that neither statement is true. Firstly, the regulator was not mild in the past and he is not particularly brutal now. However, I would like to make one remark. We in the Netherlands - and this is more or less a cultural habit in this country, when we are involved in co-operation, as we are within the European Union and we certainly believe in this ourselves very strongly - have a national tendency to try to be the best guy in the class.
So although Mr Arnbak, the regulator, is of Danish heritage, he has very quickly adapted to the Dutch habit of always trying to please whoever makes the rules, in this case, Brussels.
So my complaint is that, although the Brussels regulations are very clear, the Netherlands in general is an early adapter of such regulations, whereas other countries always find nice ways to let it happen later, circumvent the rules slightly or lessen their effect. So in that respect we are living under a stricter regime than anybody else.
KPN recently announced major cuts in its mobile phone charges. How are you going to keep pace with competition in the cellular sector? The Netherlands is the only market to have five cellular operators in Europe. How can you grow revenues in this sector?
Holland, in effect, started with a backlash. We were the most conservative type: we thought in a typically Dutch manner that we didn't need a mobile phone, if our neighbours didn't have one. If you saw people, say 10 years ago, with a mobile phone, they thought that was yuppie type behaviour and that you shouldn't do that, certainly not in public.
So we had cellular penetration rates in the Netherlands of only a few percent, when Scandinavian countries were already witnessing rates of over 10 or 12% and rapid growth was also being experienced in neighbouring countries.
But we subsequently made a really impressive leap forwards in the Netherlands. Now our penetration rate is over 20%: we will reach the 30% mark by the end of this year. We are growing faster and faster. I am not quite sure whether we are ahead of the rest of Europe or are now proceeding at the same growth rate. While I think that Scandinavia is still ahead of us, we are recording impressive growth.
Naturally in that growth market almost everybody has their share of the pie. That is why we have five players in a relatively small market. In my opinion, that is two too many. So some guys who came in with high expectations will leave with big disappointments, and that will certainly not be KPN.
So actually market growth enables us to set even lower tariffs and at the same time maintain very attractive revenue growth. Now it remains to be seen how long we will manage to maintain current growth rates.
We think that our profit and revenues from mobile will still be very significant for a number of years. I am not too concerned by all those guys who shout in the market and still have only a 0.3% market share after months and months.
Do you offer pre-paid services to customers? How many subscribers do you currently have? Which suppliers do you use?
Pre-paid is a very successful market. Only two years ago we thought that pre-paid should not be an item and we were not the only ones. Many of our peers in the mature and developed markets of northern Europe believed that pre-paid was not a solution, claiming that people didn't need it. Well we were wrong and we were utterly wrong.
When we introduced pre-paid, we exceeded every estimate during the first three months about the numbers of people who would want pre-paid mobile. Now it is a big market success. Many people are turning to pre-paid. We are the market leader in pre-paid. Now we have almost a million connections. We started offering this service in January 1998: now in early 1999 we have almost a million connections. Pre-paid is proving to be a very successful business for us.
We are helped by some of our suppliers, Nokia, Ericsson, Unisys and others. Schlumberger and GemPlus are suppliers for the required cards. They are all really involved and are working their hats off to cope with the enormous increase in demand. So pre-paid accounts for a very considerable percentage of the total 2.3 million cellular customers.
How do you view the threat from the cable TV industry, which is developing an alternative to KPN's local loop?
They are not developing an alternative, they already have one. The more painful part is that we are the ones that set up this cable network in the Netherlands. Even before the Second World War, the PTT set up the cable network in the Netherlands. We have owned on many occasions the biggest cable company in the Netherlands, Casema.
We were forced to give up cable by Dutch policies based on the wrong idea that competition comes from alternative infrastructures. We were forced to divest our cable interests. It is even more painful to note that people are starting to understand that you can have a number of competitive services on the same network, which offer the customer just as good service, even if he has only one infrastructure. So in retrospect we would not have been obliged to divest our cable interests, because competition is there anyhow.
To return your question, does the cable industry pose a threat? Yes it would, if it managed to implement very rapidly everything it could do. Then it would have started along this path already three-four years ago. Casema was the only one to start up, because we had the money, market aggression and the technology know-how to do so. However, when it was transferred to Casema, it transpired that it was proceeding at the same rate of development as France Telecom. They no longer constituted a threat to us. A2000 is the only operator who is slightly active in the market. They offer cable telephony, but the quality of service has not yet attained a level that could harm us very much.
How do you plan to cater for the increases in data traffic on your network? How much do you spend annually on network expansion?
In fact, there is no longer any need to plan for this. We have already implemented such a strategy. Like everybody else, naturally we clearly foresaw that demand for capacity would in future be much, much higher than expected. However, we have been embarrassed by the actual exponential increase in demand that even more intensified plans had been set up to deliver.
So we have speeded it up again. Over the course of this year we are investing another Fls700 million ($337.6 million) to resolve the problem of capacity shortages. This means that we will have invested over Fls3 billion in our fixed network. We think that this investment will bring our capacity to a level where we can deal with the explosive growth in telecoms traffic.
We are going to double our capacity in the western part of the country, which is the most densely populated part of the Netherlands as you probably know. We will go from 300 to 600 Gigabits/second. We see that we can go up to 2,000 Gbps in the near future. To attain that level, we will have to use more advanced techniques which are available. If you look at what you can do with DWDM (dense wave division multiplexing), it is certainly something that helps us boost capacity.
We are going to install the first big switches - as they are called - which are big in capacity and very small in size. A number of these big switches will be installed in the Netherlands in the coming year or two to cope with network capacity. There is another matter, which needs to be considered: that part of the increased capacity demands which are attributable to Internet use.
The Internet in itself does not require a switched network - so you are providing unnecessary capacity coverage if you use your switched network for an activity or service which does not require switching such as the Internet. So we are establishing an overall backbone network called "LAMDA" in order to transfer Internet traffic from our basic fixed switched network to a special network to deal specifically with Internet demand.
In the wake of the bids for Telecom Italia, many view KPN as a possible acquisition target. Do you think that the company will be able to remain independent for the foreseeable future?
Yes. I am bothered on a regular basis by people who think that we should be bought or are going to be bought. They mention all types of candidates. This company is pretty well capable of minding its own business and keeping up its trousers independently for a number of years.
But at the same time I am not a clairvoyant. Somebody asked me about this issue, when we were talking about the future 15-20 years from now. Maybe then things will be different. But KPN will be an independent company for years to come. KPN doesn't need money, because we can raise it ourselves.
We don't need a strategic partner, because we are our own strategic partner. We are not in the situation faced by the Belgian company recently. We are not in the situation faced by TeleDanmark, which required money.
We are not in the situation of some other European or eastern European countries that are still 5-10 years behind and need a strategic partner to cope with present technologies, services and developments. We can do that on our own.
We seek out our own partnerships, such as the KPN/Qwest JV. That is the path that we will follow in the coming years: that might make us more and more attractive for others. Well let them look at it. We are not waiting for this to happen. I am not dealing with it. I perceive no need at all for this to happen for our development. So our shareholders can be very proud of their shares in KPN, because we can walk our own path.
Why did you decide to join forces with Qwest? Could you tell us about the pan-European network that you are building? How much is this costing to build? When will it be complete?
We decided to join forces, because it was a nice fit. That is how relationships sometimes develop between people as well. We were totally convinced. We might have thought, say three-four years ago, that investments in networks should not take precedence over investments in services and we look at content and content organization. But if you look at the telecoms market, operators such as MCI WorldCom and Esprit are the big growth companies. How are they achieving this growth? They invest in networks.
We quickly adapted to this new trend and set up our own Euro rings. So we were the guys who were building networks with a view to fill them with services. Now our friends from Qwest were successful in the same area in the US and were looking at Europe. They had content through EUNET and were looking for a network. So if one party has a network and is looking for content, while the other has content and is looking for a network, you don't need much imagination to understand that if you go together you might end up with a wonderful solution.
We agreed to go down this path together in only a matter of a few months and formed KPN/Qwest. We are very enthusiastic about this JV, because it represents one of the best ideas that we have ever had. In addition it could start immediately. The JV starts contributing from January 1.
We have a joint investment of $700 million. We think that we will have to add another $500 million in the first two years. We think that we will achieve revenues of about $400 million in 1999 and that we will see very rapid growth - significant double digit percentage growth. Now that is very promising.
KPN/Qwest has now completed its first two Euro rings. At present we plan six rings. You asked when the network will be complete. I would say that the first round of six networks would have to be completed within the next two years. But will we stop there? Apparently not, because you should look at the KPN/Qwest JV as a carrier for more new ideas and more services for our customers. It is difficult to answer the question as to where that will lead us, but it will certainly lead us to become a much stronger company than we were before.
Qwest is considered one of the most aggressive new entrants in the US. What influence does their management bring to KPN?
Qwest is an aggressive company: that is what we like about them and they like about us, because we are just as aggressive. In fact, this is no secret.
Anybody who enters into a merger or forms a JV or something else knows that it is only partly a matter of fitting businesses. It is as much a matter of fitting people. What we think of the team of Joe Nacchio is exactly what he thinks of our team. In other words we have (a) virtually the same ideas about the type of development that we are following and understand (b) the speed that we need to reach to be able to gain market share, maintain and build on this position. I think that this is what mainly drives us. We have been meeting regularly since we started this venture to develop our ideas and exchange them. We will derive from such meetings our future planning.
Is Unisource a sustainable proposition? It has been claimed that global alliances such as GlobalOne and Unisource are not working. Do you believe that it is only a matter of time before they are disbanded?
Let me first repeat what I have said in other interviews on the subject of alliances in general. No alliance, whether it is Concert, GlobalOne or Unisource, is expected to hold forever, since an alliance is in principle a relatively loose combination. As a form, alliances in themselves are unstable - it doesn't make any difference if you acquire 2.5% of each others' shares, as the French and Germans did, because that does not change the fact that two giants have to discuss every step that is taken.
This was the case in Unisource and GlobalOne. This also held true for Concert. However, here BT was much stronger than the other partners. They were not successful either. In fact, if you look at Unisource's achievements over the past few years, you will see that it generated the most revenues of the three alliances. Unisource had the smallest loss of the three, but still recorded a loss. Now we have discovered that it doesn't work.
So either you fully integrate the companies/shareholders involved or one partner starts buying all the others. Both forms of integration are stable forms in contrast with the alliance. So you have to strive for a stable form. A good JV is a stable form and much better than an alliance.
It was unlikely that one of us would manage to eat up the other two and we failed to achieve that integration in the field of developments that those three companies had on their own. That doesn't mean that the idea of a joint effort in serving your customers over Europe is not a very good idea in principle.
Now we are trying to preserve the basic thinking behind Unisource and AT&T/Unisource before that matter in the way in which we serve our customers. However, we are replacing the former element of too much shareholder involvement and wheeler dealing by something more stable.
That is why we found a new route for Unisource, but I don't want to talk about it at present, because we have not decided yet and we will come out with the press statement about the new size in the coming months.
The same holds true for AT&T/UniSource. We are well under way and we have to continue that, after the formal contract that runs until July 1 2000 with AT&T is unwound. We are involved in discussions, as AT&T and its new partner British Telecom are interested in unwinding this contract a little bit earlier. We are also interested in doing this, because we are starting out with a new partner and it is in our interests to serve our customers.
So we are both in a very good mood, as we try to find very good solutions within a very short period of time for the former situation. This does mean that the basic premise of setting things up together and engaging in a joint activity to provide a better service to your customers on a pan-European basis is still totally sound.
Why did you decide to expand your stake in Pantel in Hungary? Why have you decided to team up with OTE to bid for Bulgaria's incumbent operator BTC? How would this investment improve your eastern European footprint?
Let me start by talking about central and eastern Europe in general. If you decide to start sniffing around outside your home market, you do so for two reasons. Firstly your customers are global anyhow, so you follow them and serve them where they are. Secondly, there is a more defensive approach: you lose market share in the Netherlands and you seek profitable growth somewhere else. Now where do you find profitable growth? Of course, it is easier to find such opportunities in markets boasting higher economic growth rates than elsewhere. Markets in Asia boasted higher growth rates until recently, but now they are in a temporary low.
You are now finding high growth in central and eastern Europe, because these countries are recovering from the backlash of 50 years of governments which did not develop their infrastructure. Now they are picking up speed in telecoms very rapidly. They are achieving in 5-10 years what we did in 50 years, with help from everybody in the west.
Now we are very much involved in the Czech Republic, Hungary and Ukraine. We are talking with Slovakia and Slovenia. We are now talking with Bulgaria. We aim to take a management controlling stake in SPT. We aim to obtain a controlling interest in Pantel in Hungary and Pannon GSM in Hungary.
The Bulgarian government is offering a 51% stake in one go. It is in principle attractive to obtain a majority stake immediately. We still need to determine in the rest of the negotiations the relationship between the not too shiny economic situation in Bulgaria and the initial price that we have to pay. It is not for nothing that the only consortium left in the bidding is OTE/KPN.
Many other parties are thinking that they should do something else. So this acts as a warning sign. It certainly does imply that you have to be very careful investigating the business case before you say "yes". In general, our interest in eastern Europe is very, very lively.
We think that it is a growth area with a lot of potential. We know our way around in the meantime. We know that we are very welcome there in general, because the size of the Netherlands does not pose any threat. They like us and our procedures. We were quick to move to privatization and turned relatively quickly to the stock exchange. We have that experience. We can share that with them and therefore assist them with their development.
What levels of returns have you seen on your investments in eastern Europe? Are your investments based on plans to offer integrated fixed/mobile packages to customers?
As you know, any investments in business are made on a long-term basis, because you start by investing and rolling out networks, trying to pick up neglected investments. You can now see parts of networks in eastern Europe, which can be transferred to our museum here in the Netherlands and exhibited as a fairly nice token of former technology. So there is a lot to be done.
On the other hand these are all profitable companies, SPT Telecom in the Czech Republic is a profitable company and Pantel and Pannon in Hungary are profitable companies. BTC in Bulgaria is a profitable company. You invest in a growing business which in itself raises money.
Are these businesses providing with the necessary investment the yields that we want to have in the long run? Not yet, but they will. And they will provide even bigger yields. So we are still adhering to the path that we mapped out and are within the time limits that we set ourselves for recouping our investments.
We want to obtain a controlling interest in Pantel and Pannon, so that we can offer fixed/mobile packages. We have already started this process in the Czech Republic, because we offer fixed and mobile with SPT. So in the long run we believe very much in fixed/mobile in eastern Europe, just as we do in the Netherlands.
How are relations with the Czech government following demands by the transport and communications minister that the Telsource consortium remove the chairman of Telsource and COO of SPT Telecom?
We have in general a very good relationship with the Czech government. But there are different forces at play. The minister of communications doesn't always quite understand modern times. Now and then he falls back into former habits there, regarding SPT Telecom as still a fully state-owned company and harking back to the time when political nominations could be made.
We differ in our vision and that now and then leads to discussions. We are very confident that we will come through this period. It should also be noted that there are some different factions in Czech politics, who make it a kind of sport to accuse each other of unfit behaviour and unfortunately hit each other. They sometimes use our company as a stick to beat another faction.
This is slightly unnerving, but we trust that all these things will improve with time. Nobody at any time provides any proof to corroborate their statements. So our image is tarnished by such actions. It adversely affects normal business proceedings. However, time will certainly show that all these accusations and difficult behaviour have nothing to do with the 1990s and they will vanish.
Why did you decide to increase your stake in Telecom Eireann to 35%? What opportunities are there for KPN in the British market?
We are looked upon by our Irish friends, government and employees as a very attractive and positive supporting strategic partner. Like many other operators, Telecom Eireann has already expressed for a long time now its desire to expand beyond its home market. A very important proportion of that traffic is carried with the UK.
Up until now our agreement within AT&T/UniSource made it prohibitive for us to have our own activities in the UK market. That prohibition has been removed. When we reach an agreement with AT&T about their withdrawal from AT&T/UniSource on a mutually acceptable basis, then that path will be open. That is not a reason in itself to jump head first into the UK market, because it is a difficult competitive market as well.
However, if we join forces with our partner Telecom Eireann, who knows its way around, this may prove to be a very attractive opportunity. We have asked Telecom Eireann to investigate the possibilities. We will study this issue carefully. It may transpire that we will say that we will enter the UK market "on such a basis, along these channels and offering these types of services."
Will you be scaling down your investments in the Asia Pacific? How do view your investment in Indonesia? How do you view opportunities to become involved in the Chinese market?
We are not scaling down anything. We scaled down two years ago an investment in Ratelindo owing to the radio frequency technology that was being utilized. It was completely superseded by GSM developments in Indonesia. As that company no longer had a decent future, we wrote it off.
Now and then you make an investment and subsequently have to accept that it isn't working as you had planned. Telkomsel, our mobile operation, is a very good investment. It was a good investment and will, in our opinion, continue to be a good investment.
Of course developments have been hampered by the Asia crisis, which was a general crisis fortified by the political developments in Indonesia. There is no reason whatsoever for us to consider that the investment is something that we should not have done. On the contrary, we have reported that developments are proceeding at a slower rate and that we will have to wait for a while, before growth picks up again. But we are absolutely certain that growth will come back.
Telkomsel is under good management and is rolling out its network and getting its subscribers. It has cleared its bad debts and cancelled many subscribers who asked for telephones, but never paid their bills. We got rid of them under new management. So in fact there is no reason at all to scale that down. We sit there and enjoy it and hope that the crisis will be over as soon as possible and that our growth will pick up at high speed.
We don't think it is appropriate to go all the way around Asia in general. So we have restricted ourselves to investments in China and India. We have made a very modest investment in China. There are still very limited opportunities for a telecoms operator to provide services in China. Anyone supplying hardware is very welcome. This trend started about seven-eight years ago. In telecoms services, it is very difficult. There are modest opportunities.
We have a JV there called NewBlue Communications. We are investigating some opportunities there. It will only become clear what the possibilities are in the coming weeks and months. I am accompanying the Dutch minister for economic affairs on a trade mission to China. One of my goals there is to discuss again with my partners what we will do and what we will not do.
Why do you believe that KPN has been downgraded by analysts? How do you counter claims that KPN's growth is unlikely to continue and that you cannot reduce costs any more?
Let me start with the latter part. A telecoms operator that is very, very efficient, is not in fact valued highly by analysts, because if you reach all your goals and attain what you promise, you are mostly punished for the simple fact that they lose interest. If you are highly inefficient and backwards and have still eight years to go to scale up to current requirements, you are very popular, because there is money in that.
Now I understand that, even though I don't like it, because I feel that we should in fact be honoured for our position as the most efficient telecoms operator in Europe. That is something about the latter part of your question. There are no more efficiency savings to be made.
On the other hand you can always be more efficient tomorrow than you were yesterday. This never stops, but if you start squeezing a lemon, the last drops are more difficult to extract than the first ones. That is true. Now we have said that we need another two years to make this company fit for its future. That is partly attributable to additional investment, partly to restructuring and to steps to recoup international investments. Once this has been done, we will resume our very successful development of the past ten years.
Since 1988 we have consistently delivered for ten years what we promised to deliver. Since 1994 we have done this as a private company. Between 1994-1998 we have delivered on our promises. An investor is not that truthful. Some investors are and I honour them very much and consider them to provide considerable support, but not many do that.
For example, if you say that things will be slightly difficult for one year, while we restructure things, they say: "restructure and we will come back in two years if you have proven it". But you should deserve the trust. As you have always delivered on your promises, you are going to deliver again what you say because this is still the same management.
I have been in this company for 11 and a half years. The same holds true for the CFO and the majority of my partners. This same team has year in, year out said exactly what it was going to do and mostly delivered a little more than that, as we did last year. We said that this was the year where we would re-organize. That costs money, but we will ensure 2-4% profit growth. We delivered 5%. What do we get? Punishment. I don't like that, as I think that it is unfair, because we again delivered what we said.
We are going to deliver what we say in future. I think that shareholders should trust us, as they have a long-standing record that this management team always does what it says. So we need that time to make this company even stronger and more successful in the future. I have started by saying that we can do that on our own and we will do that.
In 1998, KPN recorded volume growth of 20%. Will KPN have to continue to increase volumes at this level to maintain profit margins? Do you believe that the regulatory environment is Holland is too biased towards new entrants?
We will do our utmost to try and make sure that our revenues grow at the same level as volume growth. But we don't need that, because at the same time we are implementing a very strong cost-cutting programme and are convinced that we may well be able to fulfil our promises to the market with some lower volume growth figures.
I do believe that the regulatory environment favours new entrants. One should encourage new entrants, but without impeding KPN's development.
Why do you think that KPN's share price fell 25% in September 1998, following a regulatory decision on asset-based regulation?
That is very easy. Just imagine that somebody like a regulator stands up and says: "I am going to lower all tariffs by 25% and what is more I am going to prescribe the yields of capital return which KPN may make." Everybody who knows a little bit about the industry says: "God, that is crazy, this is going to resemble the Soviet Union, where the government runs companies and prescribes their profit levels."
So your normal investor is then totally bewildered. That is why we reacted in the way that we did. That is why we were delighted when the regulator realized within four-five months that this was crazy and withdrew his yield requirements. We are now waiting for him to come out with the price cap system that we suggested. He is no longer insisting on the 25% reduction: it has remained around the 10% figure.
What are your hopes and ambitions for the company over the next two-three years? Where do you hope to position the company on the European telecoms landscape? What trends do you see emerging in European telecoms in that time frame?
As we discussed earlier on, at one point in time alliances were the big idea. So you would have in Europe three-four absolute giants fighting each other, while the rest would all be swallowed up. Now we know better.
We also know that the market is much more segmented, so we talk about the mobile market, we talk about the fixed/mobile market and we talk about data and IP. If you see the IP development, of course there are a lot of people who tried to claim that they knew it all and that they all had foreseen everything and knew what the new developments were going to be. I don't believe a word of it. Some people saw it earlier than others, but nobody foresaw the enormous development that the Internet became.
So a communications company nowadays that does not understand the enormous importance of IP for its future is no longer in business. In my view any telecoms operator, including KPN, will discover that IP-related businesses will account for a much higher, important share of their future profit. When I talk about the future, I don't mean 10 years from now, I mean less than five years.
The fixed network, which is still the revenue generator today, will not stop bringing money, but this revenue will be relatively less important than it is today. This constitutes a very rapid development. This implies not only a change in financials, but also a change in the way in which you run your company. It represents a change in the transparency of your company and a change in the type of people that you need.
Is there anything that you would like to add?
Let me make one final remark. I hope that I have managed to emphasize that KPN not only understands the directions that the market is taking: it is also pro-active in adapting to them, leading in terms of efficiency, Internet provision and development. We have our own research laboratory with 700 people, which supports our technological know-how. It will enable us to be a very successful, profitable and independent telecoms operator for a number of years.