Monday, December 04, 2006

Squeeze those pipes

I'm trying to get dug out after a busy few days, and wanted to highlight a couple of interesting/disturbing bits of news from the always fascinating Dutch market which may have been missed outside the country. It appears that an internal briefing by civil servants at the Ministry of Economic Affairs was leaked to a journalist from Dagblad De Limburger last week, in which it was asserted that the transaction values in the Essent/Casema/Multikabel deals made it infeasible for the investors (Warburg Pincus and Cinven) to generate a return without significant price hikes.

When I say significant, we're talking about ARPU rising from EUR23 to EUR83 over the next five years, which looks, um, challenging to say the least (though Multikabel has come up with some interesting strategies on "yield management," formerly called bait and switch). The Ministry is apparently concerned not only about price hikes, but also about the negative impact this would have on any plans which the investors might have for network upgrades. In turn, if the affected cable networks, accounting for more than 50% of all cable homes in the Netherlands, were to dramatically cut back on investment, it is feared that KPN would also feel less motivation to push forward its investment in FTTN.

I assume the Ministry must be concerned that the Netherlands' position in the upper echelon of the OECD broadband league table will be eroded as a result, particularly as the focus in the next phase of broadband development moves toward quality and depth rather than quantity and breadth, in my view. This situation once again seems to underline the tension, and perhaps fundamental inconsistency, between long-term infrastructure planning and the short term (2 - 5 year) investment horizons of the capital markets, both public and private.

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