Initially, the commercialization of the internet in the 1990s opened up a significant new product line for KPN, by allowing the company to offer Internet services over the same copper wire it used to provide households with fixed telephony1<\/sup>. In fact, the internet allowed KPN to become a serious competitor to cable TV players in the TV market in the mid-2000s, through offering TV services over the internet (IPTV) \u2013 a market it had not been able to meaningfully penetrate until then2<\/sup>. The introduction of the internet and the subsequent ability to offer a competitive TV product enabled KPN to alter its business model and bundle TV services with internet and fixed telephony (called triple play, or 3P)3<\/sup>, which boosted KPN\u2019s performance in a number of ways. A 3P bundle, often priced lower than the sum of the individual packages, incentivized customers to consume all their telecommunication services through KPN, and thus allowed KPN to upsell4<\/sup>. This in turn increased KPN\u2019s share of wallet and increased customer stickiness (i.e. reduced churn) because of increased switching costs5<\/sup>.<\/p>\n Clouds start forming<\/strong><\/p>\n In the meantime however, cable players were also able develop internet and fixed telephony services and thus to offer a more than competitive triple play package6<\/sup>. In fact, while the limits of internet speed using a copper cable seemed to have been reached, cable technology allows for a much higher theoretical internet speed7<\/sup>. For example, KPN\u2019s fastest copper-wire internet speed package today offer 60 Mbit\/s download speed8<\/sup>, whereas the main cable player in the Netherlands offers 300 Mbit\/s9<\/sup>. This necessitated KPN to roll out a network based on a new technology, glass fiber, with the potential for much higher internet speeds \u2013 resulting in huge capital expenditures to keep up with competition10<\/sup>.<\/p>\n Not only was KPN forced to invest substantially in its network, it also was not able to capture much of the value this offered to \u201cfree riders\u201d that rely on the internet infrastructure, but do not pay for it. To make matters worse, these players do not only free-ride on KPN\u2019s infrastructure, but are also eroding its revenues. The rise of Netflix for instance has led some consumers to cancel their TV subscription all together11<\/sup>. Internet telephony services such as Skype eroded fixed and mobile telephony revenues, whereas Whatsapp is largely responsible for the demise of SMS revenues12<\/sup>.<\/p>\n New business & operating models<\/strong><\/p>\n These market trends led to some tough financial years for KPN (see figure 1).<\/p>\n Figure 1 – EBITDA development13<\/sup><\/em><\/p>\n In an attempt to stay relevant, KPN has chosen a strategy to work together with disruptors rather than fight them, and adopt a reseller business model. For example, it has integrated the Netflix app into its digital TV menu providing direct access through its interface14<\/sup>. Similarly, KPN has included Spotify with its most premium triple play package through a revenue sharing agreement15<\/sup>. It has taken its reseller business model even one step further by reselling home security & automation systems16<\/sup>.<\/p>\n The internet also forced KPN to change its operating model. It has reduced its store footprint and reduced headcount by ~15,000 FTEs since 200517,18<\/sup>. Besides shifting to a leaner operating model, the intensified competition for customers has also forced KPN to shift to a much more customer-centric model focused on creating customer loyalty.19<\/sup><\/p>\n The way forward<\/strong><\/p>\n Given that the internet provides the majority of the value consumers derive from the current 3P bundle, KPN should consider reorganizing its product offering mainly around the internet product to better monetize this valuable asset. For instance, bundles can be distinguished around quality of service, such as latency, speed, security, and performance guarantees \u2013 all becoming increasingly important given the rising number of devices connected to the internet and their corresponding applications.<\/p>\n In order to be able to cater to this anticipated increase in demand, KPN should also double down on expanding its glass fiber network. It has recently slowed down the roll out, but if it wants to be able to keep up with competition that already offers internet speeds five times KPN\u2019s copper wire network offers, it needs to have a future-proof network.<\/p>\n Lastly, I believe that KPN needs to take a more proactive role in designing Internet of Things solutions. Instead of waiting for the next disruptive product to erode revenues, KPN should proactively participate in designing the future and utilize its core product that makes those innovations possible: the internet.<\/p>\n <\/p>\n Word count: 797\u00a0<\/strong><\/p>\n \u00a0<\/strong><\/p>\n 1<\/sup>Olsthoorn, P, 2014. \u201c25 jaar internet in Nederland\u201d,<\/em> Amsterdam Economisch Board: Amsterdam, the Netherlands.<\/p>\n 2<\/sup>NU news website, 2004. \u201cKPN introduceert digitale TV\u201d<\/em>, Available from: http:\/\/www.nu.nl\/internet\/421246\/kpn-introduceert-digitale-tv.html<\/a>, [Accessed: 11\/15\/2016]<\/p>\n 3<\/sup>Trouw newspaper, 2004. \u201cKPN opent aanval op kabelaars\u201d<\/em>, Available from: http:\/\/www.trouw.nl\/tr\/nl\/4324\/Nieuws\/article\/detail\/1750251\/2004\/10\/05\/KPN-opent-aanval-op-kabelaars.dhtml<\/a>, [Accessed: 11\/15\/2016]<\/p>\n 4<\/sup>Idem<\/p>\n 5<\/sup>Prince, J., Greenstein, S., 2014. \u201cDoes Service Bundling Reduce Churn?\u201d<\/em>, Journal of Economics & Management Strategy, Vol. 23:4, p. 839-875.<\/p>\n 6<\/sup>Totaalwijzer website, \u201cBellen via het internet (VoIP)\u201d<\/em>, Available from: https:\/\/www.totaalwijzer.nl\/artikelen\/bellen-via-het-internet-voip<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 7<\/sup>Columbia Telecommunications Corporation, 2014. \u201cThe State of the Art and Evolution of Cable Television and Broadband Technology\u201d, <\/em>CTC: Kensington, MD, USA.<\/p>\n 8<\/sup>KPN website, \u201cAlles-in-1 pakketten\u201d, <\/em>Available from: https:\/\/bestellen.kpn.com\/<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 9<\/sup>Ziggo website, \u201cAlles-in-1\u201d, <\/em>Available from: https:\/\/www.ziggo.nl\/alles-in-1\/<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 10<\/sup>KPN, 2009. \u201cKPN consumentenstrategie: regionale uitrol glasvezel \u00e9n sneller bestaand netwerk\u201d<\/em>, Available from: http:\/\/corporate.kpn.com\/pers\/persberichten\/kpn-consumentenstrategie-regionale-uitrol-glasvezel-en-sneller-bestaand-netwerk.htm<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 11<\/sup>The Economist, 2016. \u201cCutting the cord\u201d<\/em>, Available from: http:\/\/www.economist.com\/news\/business\/21702177-television-last-having-its-digital-revolution-moment-cutting-cord<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 12<\/sup>Boogert, E., 2011. \u201cVeranderend klantgedrag kost KPN 18 miljoen omzet\u201d<\/em>, Available from: http:\/\/www.emerce.nl\/nieuws\/veranderend-klantgedrag-kost-kpn-18-miljoen-omzet<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 13<\/sup>KPN 2013 annual report<\/p>\n 14<\/sup>KPN website, Available from: https:\/\/www.kpn.com\/televisie\/diensten\/netflix.htm<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 15<\/sup>Peters, S., 2014. \u201cDe telecomsector haalt alles uit de kast<\/em>\u201d, Available from: https:\/\/insights.abnamro.nl\/2014\/07\/de-telecomsector-haalt-alles-uit-de-kast\/<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 16<\/sup>KPN website, Available from: https:\/\/www.kpn.com\/smartlife.htm<\/a>, [Accessed: 11\/16\/2016]<\/p>\n 17<\/sup>Retailnews website, \u201cKPN sluit alle vestigingen van HI\u201d,<\/em> Available from: http:\/\/www.retailnews.nl\/nieuws\/1tlDR8uKRya6bu73kq_vGw-0\/kpn-sluit-alle-vestigingen-van-hi.html<\/a>, [Accessed: 11\/16\/2016]<\/p>\n![\"kpn-ebitda\"](\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/KPN-EBITDA.png\")
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