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Kpn Group Belgium - Strategy seminar executive summary

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Final executive summary on the strategy for the KPN Group Belgium in the Strategy seminar at the Solvay Brussels School of Economics and Management (MA2 students). …

Final executive summary on the strategy for the KPN Group Belgium in the Strategy seminar at the Solvay Brussels School of Economics and Management (MA2 students).

Team:
Céline Abi Abdallah
Pablo Castiel Gazier
Eugénie Verhasselt
Jean-Charles Vanderlinden

Published in Business , News & Politics
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  • 1. KPN Group Belgium - Executive Summary Strategy Seminar Telecom industry in Belgium - Focus KPN Group Belgium « Setting the grounds for future growth » Submitted to : Professor: Olivier Hamoir Assistant: Nicolas Leeuw By : Céline Abi Abdallah - Pablo Castiel Gazier - Eugénie Verhasselt - Jean-Charles VanderlindenCéline Abi Abdallah - Pablo Castiel Gazier - Eugénie Verhasselt - Jean-Charles Vanderlinden
  • 2. KPN Group Belgium - Executive Summary Acknowledgements We would like to thank: The Solvay Brussels School of Economics and Management our professor Olivier Hamoir our assistant Nicolas Leeuw Jean-Paul Philippot (RTBF General administrator) For their constructive feedback, valuable insights and rich learning experience The Informa Group Thomas Wehmeier (Principal Analyst, Mobile Operators) Dexter Thilien (Research Analyst, Mobile Operators) Kalyan Medapati (Senior Analyst, Fixed Telecommunications) For their continuous support and providing best in class intelligence The Belgian Institute for Post and Telecommunications (BIPT) Dirk Appelmans (Spokesman)For helping us understanding the complex belgian telecom landscape and inviting us to the IBPT Industry Information Event on the upcoming 3G and 4G auction in Belgium Céline Abi Abdallah - Pablo Castiel Gazier - Eugénie Verhasselt - Jean-Charles Vanderlinden
  • 3. KPN Group Belgium - Executive SummaryOur recommendation is to launch 6 initiatives: shift customers to postpaid, increase themultiplay presence, add strong MVNO partners, leverage the Ping-ping mobile paymentsolution, create an app-store with gambling applications and launch the 4G. These cumulatedinitiatives will generate a 588M€ total 5 year NPV outweighing the -307M€ cost of regulation,the 4th entrant and data overload. The net value creation of our business plan is 280M€ over 5years with a small decrease in 2012 (-59M€) and 2013 (-24M€) before reaching strong growth(+114M€ in 2016).1.Facing adversityWith declining mobile termination rates (MTR), a huge increase in demand for data and therecent news of the «Voo-Telenet» partnership entering the mobile telecom market, the KPNGroup Belgium (KPN GB) revenues are at threat.Indeed MTR asymmetry declining each year to converge to 1,08€cent/minute in 2013 willhave a total 5 year impact of -168M€ bottom line for KPN. In the mean time the 4th entrantwill put KPNs market share at threat by taking 8% share over 5 years. Finally, the 3Gnetworks already over capacity at peak hours will face a rocketing demand with an averagedata Compound Annual Growth Rate (CAGR) of 114% over the next years and an exponentialgrowth driven by demand for video content. The overall 5 year impact of all these issues isestimated at -307M€.In the face of such adversity KPN GB has no choice but to seek increased revenue byleveraging current streams and launching new ones.2.Leveraging current revenue streamsAs 3rd entrant on the mobile telecommunication market KPN has had an aggressive strategyto capture market share swiftly. It has build its current 29% market share on the B2C marketthrough a strong emphasis on value for money, great costs management and strong MVNOpartnerships. However this strategy has lead to a dangerous 80% proportion of prepaidclients creating a high 34% churn versus 21% for competitors. Moreover its precautious andlate entry on the multiplay market with weak advertising campaign and a narrow range ofproducts has generated 0% growth on the fixed B2C business since 2007. However KPN hasset a strong track record in terms of market share capture.In order to thrive in the current harsh environment KPN should up-sell its prepaid customersinto post-paid in order to reach a healthier mix. To reach this goal the group has to set abroader range of post-paid offers, launch attractive joint smartphone sales, use directmarketing aimed at selected prepaid users and create 2.400 wifi hotspots over high trafficzones in Belgium to provide a sustained network quality. This initiative should generate apositive NPV of 208M€.The second strategic move for KPN GB should be to conquer the booming multiplay market(+400k customers per year) by launching a TV offer which will expand its reach from 29% to100% of the multiplay market, offer all combination of multiplay products and push the 3-playand 4-play products in a massive 5M€ advertising campaign. This initiative of fast followingMobistar’s move should yield 226M€ NPV over 5 years.Finally KPN should leverage further its MVNO strategy. By teaming-up with 2 strong newpartners such as retailers (Colruyt), media and entertainment (RTBF, VRT) or banks (ING, BNP)KPN GB should reach a 72M€ 5year NPV. Céline Abi Abdallah - Pablo Castiel Gazier - Eugénie Verhasselt - Jean-Charles Vanderlinden
  • 4. KPN Group Belgium - Executive Summary3.New growth opportunitiesIn an industry where 2/3 of the revenues are made by products that did not exist 15 yearsago, their is a sharp need for innovation. Accordingly KPN should scope out of its corebusiness to seek new opportunities. By looking at the value chain we can identify revenuepools in the hardware, gambling and financial services market.To leverage the hardware market, a private label should be launched in order to deliver a trulyunique product that will trade-in new customers to the 1.000 Base shops and dealers as thesame time as creating additional margin versus branded phone (44% margin). Moreover thesesales should increase the smartphone penetration pace among KPN clients creating anincreased demand for data. In order to provide these unique products at an attractive priceKPN GB should partner with ZTE and offer classic phones at 79€ and smart-phones 149€which is a 40% discount versus current average price. This initiative should create anadditional 16,5M€ 5 year NPV.The gambling 1,4 billion market also represents an opportunity. Indeed by teaming withmarket leader Loterie Nationale to provide gambling apps to the KPN customers thisapplication will create a unique interactive gambling experience and a high convenience bygiving the possibility to bet by SMS, control the bets and directly charge the cost on mobilephone bills. This range of gambling apps would take the format of a KPN app-store alsoproviding industry giant apps (e.g. Nokia, Microsoft). This strategic initiative should create a23M€ 5 year NPV.Though not directly involved in the value chain, the 26 billion financial services market shouldstay on KPNs radar. As stated by a 2011 Gartner report, mobile Near Field Communication(NFC) payments are a major future stream of revenues for mobile telecom operators.Therefore KPN should leverage the existing Ping-ping associating Belgacom, Mobistar andKPN GB. Thus, reaching a fair deal and giving joint control of Ping-ping to all operators wouldallow Ping-ping to beat the banks by directly charging users on their phone bills. A 300k€internet campaign should be launched to raise awareness on this revolutionary e-wallet. Thisopportunity would generate a 15M€ 5 year NPV. More importantly this opportunity has a 44%CAGR with an expected exponential trend.Finally the 4G rollout should be pursued by 2011 in order to be able to capture early adopterswilling to pay a high premium and lure lucrative consumers away from Belgacom andMobistar. The total investment for 4G will be 451M€ over 10 years (licence, investment,backhaul cost included).4.Strategic planOur recommendation is to launch 6 initiatives: shift customers to postpaid, increase themultiplay presence, add strong MVNO partners, leverage the Ping-ping mobile paymentsolution, create an app-store with gambling applications and launch the 4G. These cumulatedinitiatives will generate a 588M€ total 5 year NPV out-weighting the -307M€ cost ofregulation, the 4th entrant and data overload. The net value creation of our business plan is280M€ over 5 years with a small decrease in 2012 (-59M€) and 2013 (-24M€) before reachingstrong growth (+114M€ in 2016).In a word, strong grounds for growth have to be set now both in KPNs core business and newones for future growth to happen. Céline Abi Abdallah - Pablo Castiel Gazier - Eugénie Verhasselt - Jean-Charles Vanderlinden
  • 5. KPN Group Belgium - Executive SummaryCéline Abi Abdallah - Pablo Castiel Gazier - Eugénie Verhasselt - Jean-Charles Vanderlinden