UPDATE: A couple of Palladium Class mega-uber value readers have taken me to task over this post and the previous one on KPN, claiming that I have oversimplified the situation. Sometimes I worry that I am writing in too compact a fashion and assuming too much in terms of my readership, to the detriment of what I'm trying to convey. In fact, some friends have occasionally chided me about the need to be clearer, to spell things out, and this looks like a case in point. Mea culpa. It wasn't intentional though - I was merely trying to convey a sense of what the casual listener might have walked away with from the Q&A on KPN's conference call, namely a distinct impression that wholesale was the only option. So here's my followup, and I hope it's clearer:
- Both readers say that surely KPN must be envisaging some collocation provisioning, and yes, I would be surprised if they weren't. One goes on to say that this may be forced upon them by the regulator in any event, so why not play nice and make provisions ahead of time? Agreed, though it seems that the regulator is being pretty passive at present.
- One states that while the ULL players would undoubtedly find building out to all 28,000 nodes unpalatable, collocation probably does make economic sense in certain dense areas. I agree, but I still have questions about just how willing some local authorities will be to grant permission for new street cabinets to companies other than those with established rights of way, i.e., KPN and the local incumbent cablecos. For those areas where it is uneconomical to collocate, there will still be the KPN wholesale offering. The choice for the competitors is then whether to take this as a compromise and move forward with a better product, or stick with DSL and wither.
What I like, and dread, about this whole situation, is that it calls so many fundamental assumptions into question. Yes, KPN's plans may necessitate/stimulate further investment from competitors, which after all is what the EU is after. So KPN is actually helping to advance the EU's vision and the free market. In the case of Amsterdam, surely having two competing fiber offerings, plus coax and DSL, is an improvement on the status quo?
But let's get real for a minute. When we talk about stimulating further investment from competitors, exactly who are we talking about, and how crucial is the Dutch market to any of them? Is the pain actually worth it?
Start with Versatel, on which I and many others have expended far too much print in the past. Now a part of Tele2 (whose share price got hammered once again yesterday on some wobbly results), it is, in my opinion, just one small piece in a large and fairly incoherent puzzle - and probably not worth the effort.
Tiscali - this company has withdrawn from so many other markets that I've lost count, and I'd be surprised if the Netherlands ranked highly among the three which remain.
bbned - there have been countless stories about Telecom Italia looking to dispose of this business, and I can't honestly believe that anyone at the mothership regards this as a core business, especially if there are major new investment hurdles to be jumped. Perhaps someone in the Netherlands does see it as a strategic asset and will buy it - only time will tell.
Orange/Wanadoo - France Telecom has some major fish to fry in the UK, Spain and its home market. Q2 saw negative net adds in Dutch broadband, and the mobile business in the Netherlands is one which, in my experience, many analysts/investors think the company could do without.
I know there are others, but this is a pretty representative list of the majors. While I understand the pro-KPN case in theory, I'm not sure it matches up well with the reality of the situation, and perhaps a direct way of summing it up would be that KPN is moving the goalposts and testing the appetite for those remaining to chase the ball. Part of this relates to technology change, obviously, and the need to get more bandwidth closer to the end user, but it is also a convenient strategic coincidence in that it necessitates a change to the rules of business as usual.
This is, after all, exactly what telco executives are paid to do, thwart and exhaust the competition, and KPN shareholders should be very happy with recent developments. The beast is awake, thinking, calculating its own capacity for pain against the predators which threaten it, searching for a way to convince the attackers that pursuit is not worth the exhaustion. I would never fault anyone for fighting their corner, playing the hand they're dealt, etc., and KPN ranks top of the list in this regard.
I guess my concern is that the whole model is founded on very slippery ground. KPN (and every other EuroTelco) sprang to life in a carve-out from a post-and-telecom state monopoly, funded over decades by excessive call charges and taxes on citizens, who were then given the chance at IPO to buy back a piece of something they already owned. The stated purpose of this was to promote efficiency and competition, to the benefit of the consumer, and arguably it has worked to a certain extent. Fast forward to the present, and the same former state entity is looking to decommission its local exchanges and sell the associated real estate (i.e., assets ceded to it by the state in the first place) to recoup its expenditure in FTTC, a move which we must accept many of its competitors will not be able/willing to follow. Is this what the founding fathers/mothers of telecom privatization had in mind? Could they have even envisaged a world in which this was possible/necessary?
I don't have the answers - I am struggling with the issues, which is why I return to them so often. If I felt entirely comfortable with my position, I would move on to another issue which interested me. However, for the past few months I've been haunted by the possibility that the entire access model is flawed and that telco privatization will prove to have been a cataclysmic miscalculation. I don't have any beef with KPN - they are smart, they are working the system against competitors with their legacy cash flows, i.e., they are doing what any public company should be expected to do. The question for me is (and not only in relation to KPN, but more generally), is access to information something we are comfortable with as a pawn in a game of chess?