KPN: Facing up to the Growing Challenges

Erik Hoving is chief officer for strategy, innovation and technology at KPN Group. In a recent interview, he talked about the challenges facing KPN in the highly competitive European market and discussed KPN’s development strategies. With customer needs always at the front of his mind, he is meeting the challenges head on and is confident about his company’s future prospects. Erik also shared his thoughts about ZTE, now KPN’s strategic partner, and what Western and Asian telecommunications companies can learn from each other.

Journalist: Could you introduce KPN and its main business focus?

Erik Hoving: KPN is a North-West European operator with its heritage in the Netherlands. We are the incumbent operator and a full, integrated access player in the Netherlands. We provide fixed, mobile, and IT services, but in Germany and Belgium we are a mobile-only operator. In the Netherlands, we are a service provider, a communications provider to both consumers and businesses.

Journalist: What challenges do you face as a multinational operator?

Erik Hoving: There are many challenges we face at the moment in Europe.

There are a number of economic challenges that we have. In Europe, we have economic challenges related to the economy and a potential economic recession. These kind of challenges are keeping us busy.

We are faced with a number of business challenges. As the incumbent operator in the Netherlands, we are faced with challenges from cable companies on television, broadband Internet, and telephony.

In the Netherlands, we are facing a challenging business market as competition is increasing. 

In the mobile phone consumer area, especially in the Netherlands, we see that new players, who we call “over-the-top” players, enter our business. These are the likes of Google, Facebook, and WhatsApp. They gradually get their hands on our customers in a competitive manner, in the sense that people are using their telephone to connect to Facebook rather than connect with KPN. People are definitely connecting to Facebook. So increasingly in the marketplace, competitors are capturing the attention of our customers.

Then in technologies, we see a huge change in usage from voice to data. People in the past used our network primarily to make voice calls.  That has massively changed now to usage of huge amounts of data. So they use the Internet to download information and stream video. This means, from a technological perspective, you have to completely rebuild the infrastructure within a couple of years to accommodate data. 

Journalist: In face of these challenges, what is KPN’s overall development strategy?

Erik Hoving: We have two very clear goals in our mind. First, we have to make sure that we balance all the things we do for multiple stakeholders. We have our shareholders, employees and customers. But I would put it a little differently. Primarily, we have our customers. We have to make sure that we keep our customers close to us and ensure our customers keep very close to the way we operate, the way we do business. Ultimately, customers are the reason why we are in business. Second, we have to make sure that we our shareholders want to stay with us and see KPN as a trustworthy investment. And third, our strategy is based on making sure that we have a balanced view of our stakeholders.

If you want to see where we are going in the coming years, we actually have two parts to our strategy. One part is to bring the broadband world into the Netherlands. We have called this ambition “becoming the broadband port of Europe.” We want to build the best quality broadband networks (access plane) in the Netherlands in terms of fiber, upgraded copper, and mobile access to consumers and businesses. The second thing is that we believe there is room for a mobile-only player. But then we have to become and remain the challenger. These are the two things we are striving towards.

Journalist: The amount of mobile data traffic is significantly increasing worldwide. What approaches has KPN taken to profit from mobile data growth?

Erik Hoving: I can say a simple thing—partly we are in the business that if people want it, we build it. We are building a network that people definitely want, and we profit and benefit from the huge amount of data. What created the demand for data? It was basically iPhones and smartphones. It wasn’t the operators who created the demand of data; it was the need for smartphones and tablets to be interfaced with computers that created the huge demand. We fulfill the needs by building data networks. We actually, at this moment are in the game of fulfilling the demands. That’s why we benefit.

At the same time, it is also a problem because the demands for voice go down, and with it, our traditional voice and SMS revenue. People shift their behavior from voice and SMS to data. On one hand, there is growth in data, and on the other, there is a decline in voice and SMS. So this is the balance we have to strike.

But primarily our biggest thing is to introduce products and services that our customers in the future really want. They want HDTV and broadband Internet access in their homes, mobile broadband Internet access, and very good quality voice. We should be able to deliver to our customers without trouble—good quality products and good services.

Journalist: To facilitate mobile data growth, KPN and ZTE are now working on the expansion of HSPA+ networks in Germany and Belgium. Have you encountered any difficulties? How do you rate ZTE’s project team and solutions such as SDR?

Erik Hoving: We built a partnership with ZTE, and we are learning a lot from each other. In any relationship there are always moments that you like each other and don’t like each other. There are always things that go well and things that go wrong. I think that, fundamentally, we built the relationship on trust. This means we do what we say we will do. I think that we have never missed any fundamental milestones, any fundamental achievements that we planned for. Actually for us, ZTE is very easy to work with. They are very customer friendly, very open to suggestions, and at the same time, extremely good at executing the plan we have agreed to. I think that from a relationship perspective, the relationship with ZTE in Germany and Belgium is very good. The ZTE team is extremely well organized and extremely close to customer. I am very positive about it.

We often say that the way we work with ZTE is changing our own organization. So I am very positive about that. I am also very positive about the kind of technology and products that ZTE has introduced. It is really the combination of people, products, and technology that is good for KPN.

Journalist: In what ways is ZTE changing your organization?

Erik Hoving: I think that on a very high level we European operators can learn a lot from Asian companies and the other way around.

I think that there are a couple of things that Asian, specifically Chinese, companies like ZTE do extremely well. You set a long-term goal and you work day by day to achieve the long-term goal. You always have in mind what you want to achieve in the long run. Day by day you take steps towards that longer-term objective. It’s something that we have actually, somewhere lost, and by working with ZTE we are getting it back.

The second thing is ZTE works very practically. Sometimes we are making things so complicated, the processes, for instance. Through working with ZTE we have learnt to be very practical again.

At the same time, ZTE can learn a lot from working with E-Plus about how to organize going to the market and how to make money in a very difficult environment. The business environment in Germany is very mature in the way it has been operating. There is a mutual relationship for both parties at the moment.

Journalist: LTE is gaining momentum in Europe as operators such as T-Mobile and Vodafone introduce LTE networks. What is KPN’s LTE deployment plan?

Erik Hoving: At the moment, we are conducting LTE trials with ZTE in Germany and Belgium. In Germany, we are trialing LTE 2600 MHz, 2100 MHz, and 1800 MHz. We are trying out LTE to see what LTE can bring us. We are also trialing LTE 2600 MHz in the Netherlands with a different supplier. 

I think LTE is going to be the next cornerstone of the way we operate in the future. However, I think it is important to get the timing right. I agree with that everybody is investing in LTE networks. I think from a technology perspective I believe in LTE. The question is which LTE? I mean, neither customers nor the market necessarily demand LTE. The market demands profitable content, and customers ultimately don’t care whether it is 3G or LTE—all they want is an iPhone that performs. So I understand if you are a technology company, you are busy with LTE. We are very busy with customers.

And you know, I think that we have a long way to go with HSPA+. Ultimately, I understand that LTE is much more efficient way of using spectrum. I don’t think at this moment that customers care too much. What they actually want is to see their Facebook and to use their iPad. They don’t care about LTE or HSPA+. This is really the technology part of our industry being very busy and doing something. Do I think we’ll investigate it? Of course. We’ll roll out. Basically, all our networks that are being built at this moment are LTE-capable. So if we want to shift to LTE, we can.

Journalist: KPN began cooperating with ZTE in 2005, and now ZTE is KPN’s strategic partner. Why did you select ZTE as a strategic partner? 

Erik Hoving: We selected ZTE for many reasons. KPN is the smallest of the bigger and the biggest of the smaller operators in Europe. We have a group of very big operators in Europe, including Vodafone, T-Mobile, Orange, and Telefonica. In this group, KPN is the smallest. We are significantly smaller than Orange, T-Mobile, and Telefonica. But we are much bigger than the small operators. If you look at the small operators in Europe, we are two to four times bigger. We also have two very distinct strategies: one for the Netherlands and one for outside the Netherlands.

In Europe, we are always looking for a differentiated value proposition. We are the challenger in the mobile arena, which means we have to make choices that are different than others because we want to serve different customers. We want to make money in Germany by giving mobile connectivity for 10 or 15 Euro a month. We cannot follow the traditional choices made by T-Mobile and Vodafone. We always make different choices. When we selected ZTE in 2009, it became very clear that ZTE would be a crucial partner for our challenger strategy. They think with us, and they think the same way as us. They are willing to put their money where the mouth is. They develop things with us, they are very much involved with us, and they operate in Germany and Belgium—very close to us. These things are very different from the incumbent suppliers that we had before. So the relationship has changed from a supplier-operator relationship to a true partnership. ZTE was willing to do that at the same time that we need it. This is why we are very happy with ZTE.

Journalist: How do you think the partnership will evolve in the future?

Erik Hoving: I think partnerships always evolve over the time. We recently signed with ZTE to introduce ZTE to our fixed networks in the Netherlands. So ZTE is not only our international partner, they are also our partner in the Netherlands. I believe the partnership with ZTE will be strengthened in many places. We will investigate ideas further in the partnership, and we will work together on handsets. We introduced a private-branded handset in Germany in 2010, very successfully. I think there is going to be multiple projects we will do with ZTE.

It is very easy for KPN to develop projects and ideas with ZTE and to implement them. There’s no time-to-market for us when we do a project with ZTE. We come with ideas, we bounce them off each other, and then we execute them. So I believe that, especially in mobile in Germany and Belgium, there is going to be continuous deployment of ZTE networks and operations. There will be more relationships between KPN’s German and Belgian operators and ZTE in the handset area. In the Netherlands, I think we will see ZTE as one of our primary partners to create our copper networks. There again, the differentiating thing about ZTE was their ability to bring vectoring and bonding technologies immediately to the market when we asked for it. We are going to introduce vectoring technology with ZTE in the Netherlands within a timeframe we didn’t think was possible. With ZTE, the movement from idea to actual implementation is amazingly fast.

Journalist: Could you tell us what are KPN's goals in the next three years?

Erik Hoving: We have a couple of them. We want to be the number one integrated access player in the Netherlands. What it boils down is this: we want to be the number one in the consumer residential market; we want to be the best mobile consumer player in the Netherlands; and we want to remain the number one player in the business market in the Netherlands.