Mobile competition in Germany hits KPN profits

Dutch incumbent KPN reported declining profits and revenues for the third quarter, with tough competition in Germany’s mobile-phone market largely blamed for the slump.

The operator’s net income fell by 38%, to €250 million ($324 million), compared with the third quarter of 2011, while revenues dropped 3.6% to about €3.1 billion.

Dutch incumbent KPN reported declining profits and revenues for the third quarter, with tough competition in Germany’s mobile-phone market largely blamed for the slump.

The operator’s net income fell by 38%, to €250 million ($324 million), compared with the third quarter of 2011, while revenues dropped 3.6% to about €3.1 billion.

E-Plus, KPN’s Germany subsidiary, managed to sign up 210,000 new postpaid customers in the quarter, compared with 92,000 during the same period of 2011, but had to slash prices in response to competition from the country’s MVNOs, triggering a 9% fall in earnings before interest, tax, depreciation and amortisation (EBITDA).

“In Germany, competition on price has intensified in recent quarters, which is leading to a slowdown in E-Plus’ top-line growth,” said Eelco Blok, KPN’s chief executive. “The growth from higher postpaid net adds is being offset by customers optimising their tariffs.”

KPN (The Hague, the Netherlands) said that conditions remain difficult in its domestic market, where total revenues dropped 5.7% to €1.56 billion and EBITDA shrank 12% to €777 million.

The company’s mobile-phone unit lost customers to rivals during the quarter, although it managed to boost its profitability by introducing handset-lease arrangements that have lowered its spending on high-end smartphones.

In broadband, KPN says that FTTH activations are steadily growing, but it continues to spend heavily on rolling out infrastructure. Capital expenditure was $48 million higher than in the third quarter of 2011.

Analysts polled by Reuters think KPN may struggle to hit 2012 EBITDA targets of €4.7–4.9 billion.

Moreover, the company’s net debt was 2.7 times EBITDA last quarter, up from 2.6 times EBITDA in the second quarter and exceeding a company target of 2.5 times EBITDA.

According to Reuters, analysts at Espirito Santo think KPN may be forced to slash its dividend because of the need to pay down debt while it continues to invest in FTTH and ‘4G’ LTE networks.