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
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
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
Dik: 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
Dik: 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
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
Dik: 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
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
Dik: 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?
Dik: 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
Dik: 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
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
Dik: 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
Dik: 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
Dik: 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
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?
Dik: 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
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
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?
Dik: 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
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
Dik: 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
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
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?
Dik: 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
Dik: 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
Dik: 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
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
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
Dik: 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?
Dik: 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
Dik: 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?
Dik: 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
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?
Dik: 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.