In 1BC (before the coronavirus), when Donald Trump was wrestling with the Chinese, KPN did a very unusual thing. As Trump’s campaign put Europeans on edge, prompting a few operators to pull out of Chinese suppliers, the Dutch incumbent telecommunications operator struck a 5G deal with Huawei. His counterintuitive move meant that Ericsson, the Swedish provider which now profits in Europe at Huawei’s expense, would have to be removed from KPN’s existing radio access network.
It was an old-fashioned movement that seemed driven by commercial reality rather than geopolitics. “The decision regarding our mobile modernization was taken through a very strong tender [request for quotation] “, says Babak Fouladi, technical director of KPN.” We choose our partners based on technology and interoperability. ”
Did it pay off? The performance measures are certainly encouraging. Ookla, which performs speed tests, ranks KPN’s 5G service as the fastest in the Netherlands, KPN says in its latest annual report. Umlaut, another monitor, calls it “more innovative”, according to the operator. OpenSignal, of which KPN does not refer to the six monthly updates, is also positive. KPN, he said in September 2020, has seen “impressive speed gains since our last report.” Average mobile download speeds had increased 7.9%, or 4 Mbps, since its last report.
The danger is that the Dutch authorities decide to follow the example set by the United Kingdom, France and Sweden, limiting Huawei’s presence in 5G. KPN has already upgraded 2,800 of its 5,000 mobile sites and made 5G services available to 70% of the population, CEO Joost Farwerck said in January. Switch from Huawei to another supplier ?? and maybe go back to Ericsson ?? would be disruptive and costly, forcing KPN to write off the 4G and 5G network equipment it recently installed.
As unlikely as a government ban may be, it remains a possibility, KPN acknowledged in its latest annual report. “The Dutch government has published a policy that allows it to exclude providers in certain countries from critical parts of telecommunications networks in the Netherlands,” he says. “Further regulations on technical and other requirements for operations are expected in 2022.”
To mitigate the risk, KPN will not allow Huawei to approach its 5G core, the control center of the network. The move mirrors that of Deutsche Telekom in Germany and means that KPN can boast of a multi-vendor network, even though there are single vendors in specific areas. The main work went to Ericsson, which replaced some older basics supplied by Huawei. The salespeople have basically gone back to some sort of cabinet reshuffle ?? only one whose appointees actually know what they’re doing.
Table 1: Key figures of KPN (?? millions)
|2019||2020||Change from year to year|
|Adjusted income||5 486||5,275||-3.9%|
|Adjusted EBITDA AL||2 317||2320||0.1%|
|?? as a% of adjusted revenue||42.2%||44.0%|
|Operating profit (EBIT)||1,041||912||-12%|
|?? as a% of adjusted revenue||20.3%||21.8%|
|Free operating cash flow||1,202||1,172||-2.5%|
|?? as a% of adjusted revenue||21.9%||22.2%|
|Free movement of capital||726||765||5.4%|
|?? as a% of adjusted revenue||13.2%||14.5%|
|Net debt||5,148||5 332|
|Return on capital employed||9.3%||10.1%|
Government bans aside, analysts fear that U.S. trade sanctions, restricting Huawei’s access to vital components, could deplete its inventory and ultimately make its network products less competitive. So far, there have been no signs of an impending crisis, and Fouladi does not appear anxious. “We’re thinking about it a bit in terms of inventory,” he says. “Their products are still there for a lot of operators.”
This could explain why he doesn’t consider open RAN a priority. The new technology, supporters say, will allow operators to mix products from different vendors on the same mobile site, something that is not possible with traditional networks (including those KPN buys from Huawei). It has caught the attention of operators as a potential incentive for competition, especially if Chinese suppliers become unavailable. But Fouladi is currently more of an open spectator of RAN than a participant.
However, he is in favor of the changes that this would bring. “Conceptually, we are very supportive of open RAN,” he told Light Reading. “It’s always a good thing to bring more competition and innovation to the industry.” What Fouladi rules out is any deployment of open RAN technology over the next two years. Its start-up problems make the mistrust understandable. But given KPN’s recent move from Ericsson to Huawei, and its willingness to cushion that mobile network, Fouladi’s relative lack of interest is even less surprising.
A diet rich in fiber
The other major equipment supplier with a leading role at KPN is Nokia. As part of its latest network strategy, KPN plans to expand fiber optic networks to half of all premises over the next three years and 65% of them by 2025, up from just a third today. The Finnish supplier was responsible for this project.
This is a major broadband upgrade that will eat up resources. In fact, Chris Figee, CFO of KPN, recently told investors that he spent around $ 294 million ($ 355 million) on fiber deployment last year, down from just $ 127 million ( $ 153 million) in 2019. KPN added approximately 319,000 households to its fiber footprint in 2020. This year it plans to grow to another half a million.
Can this be justified? From a sales perspective, KPN insists that fourth quarter fiber service revenue growth “outpaced” losses in copper service revenue for the first time. As far as Fouladi is concerned, integral fiber will also provide KPN with the “future proof” network which will enable it to avoid similar revisions in the years to come.
To minimize future efforts, the operator is basing its deployment on a mix of Nokia’s GPON and XGS-PON technologies. The GPON standard, the main flavor of today’s full-fiber networks, meets immediate needs and could be sufficient for several years. Eventually, it will give way to XGS-PON, a 10 gigabit system intended for professional customers initially. About 90% of the mobile sites have also been “bundled” using 10 gigabit links.
Fouladi says his employees helped develop a “combo card” to simplify the fiber upgrade. “We chose Nokia as our fixed supplier and when they created the combo card, we were part of this development team and we are very involved in their R&D in this area,” he says. After XGS-PON, and maybe a decade from now, he hopes to take advantage of 25G PON, a technology Nokia is backing on the 50G PON endorsed by Huawei as the industry’s next transition.
In synchronicity with this expensive network work, KPN attempts to simplify and automate operations, a process that involves shutting down old platforms and networks to save money. On the network side, the deployment of fiber supports the dismantling of copper, while the transition of KPN to a fully Internet network allows it to eliminate ISDN and SDH lines. 3G is also planned for the knacker’s yard.
In IT, this rationalization seems to be an even more complicated task. “Throughout history we’ve had a lot of acquisitions and multiple services and now we’re trying to take all the different billing and provisioning systems and build them into two stacks, a consumer stack and a stack. commercial, ”explains Fouladi. As systems are moved into these stacks, the old platforms are shut down, he explains.
Automation remains a priority area. KPN has already taken manual efforts to deal with network alarms and alerts that occur on a daily basis. The next step, says Fouladi, is predictive maintenance, or the use of advanced systems to anticipate when problems might arise. “We are testing it and already have some success stories and I can see that it will be rolled out this year,” he says.
The success of such initiatives can be glimpsed in the company’s income statements. KPN has been able to cut its annual costs by 140 million euros ($ 169 million) over the past two years and estimates that it can save another $ 250 million ($ 302 million) over the next three with rationalization additional. Its underlying profit margin fell from 38.6% in 2015 to 44% last year.
KPN profit margin
Somewhat inevitably, these initiatives resulted in layoffs. Indeed, KPN’s workforce has been decimated over the past seven years. In 2014, it employed more than 18,000 people. By 2020, that number had fallen to exactly 10,102, according to the operator’s accounts. Much of the divestment activity is to blame, but “simplification and digitization” was responsible for exactly 308 of KPN’s 1,146 job cuts last year alone, he said in a recent report. results.
Fouladi is unwilling to comment specifically on the human cost and whether automation still has many jobs to claim. “There is a work change that needs to be taken into account, but our goal is simplification and digitization and we see it in the efficiency of the organization,” he says. With sales growth proving so elusive in the telecommunications industry in Europe, this efficiency seems more important than ever.
?? Iain Morris, International Editor, Light Reading