KPN has said it will sell E5 billion worth of assets.
Dutch telco KPN today announced that it will sell E5 billion worth of assets in an attempt to return to profitability by 2003. The company is currently E21.9 billion in debt, having paid E6.7 billion for its share of German operator E-Plus’ license costs, as well as buying licenses in the Netherlands and Belgium. It made a loss of E626 million in 2000 excluding one-off gains, compared with a profit of E771 million in 1999.
All the major European telcos are struggling with debt problems at the moment. The problem is that following reduced predictions for revenues from next generation mobile services, telecoms operators’ credit ratings are low, making borrowing substantially more expensive. Figures released this week by McKinsey say that investments in UMTS will not be paid off until 2017 on average. Datamonitor believes this is overly pessimistic, but that nonetheless it will take firms at least seven years to make their money back.
But KPN has more to worry about than its rivals. BT, France Telecom and Deutsche Telekom are all underperforming, but at least they’re still making profits. They have the advantage of their core businesses: large and profitable fixed-line telephone networks. Indeed, FT makes four fifths of its profits from its French fixed line business. KPN has spent almost as much on 3G as these giants – but the Netherlands’ population is around a quarter of the UK or France’s and a fifth of Germany’s. As a result, Deutsche Telekom has 49 million landlines and total sales of $38.5 billion, while KPN has just nine million lines and revenues of $9.18 billion.
Whether 3G will eventually pay off is almost impossible to answer at the moment. But through a combination of asset sales and debt restructuring, the big three firms should at least be able to afford the experiment, while KPN will have serious problems generating the revenues it needs to repay its debt. No wonder, then, that few analysts believe the Dutch operator has much of a future as an independent firm.
