KPN fibre problems serve as a timely reminder

OvumKPN has made good progress pursuing a cost-cutting agenda over the last year, which has seen it increase earnings despite a decline in its top-line revenues. However, problems with an automated activation process for its fibre services have led it to suspend sales in its pilot cities, and as a result have negatively impacted customer satisfaction. KPN’s problems serve as a timely reminder to telcos of the potential pitfalls of rolling out new services, even when delivered over next-generation telco IT systems.
KPN released its 4Q09 results recently, with revenues (excluding disposals) falling 4.8% year-on-year. The positive news was that despite the decline in revenues, EBITDA climbed 3.4% over the same period. KPN has slashed its costs over the last year through initiatives including reductions in the cost of retaining and acquiring new subscribers, and in supplier costs (as a result of more efficient use of suppliers and lower pricing). Two areas where KPN sees further potential for cost reductions are through its ongoing simplification programme (which has included rationalisation of, and reduction in, the number of go-to-market brands, delivery processes and networks) and further reductions to its workforce.
As a mature market operator operating in a saturated and highly competitive domestic fixed market, KPN needs to manage the cost of its operations in order to remain competitive and to maintain its profit margins. The boost in EBITDA during 4Q09 and the resultant increase in dividend are good news for its shareholders in the short to medium term. However, telcos are continually looking for the next ‘killer app’ or means of innovation, to avoid basing their long-term business model on a commoditising service.
KPN’s domestic fixed operation has pinned its hopes on its next-generation access strategy, which is seeing it deploy fibre to the home (as part of its joint venture with Reggefiber) and fibre to the cabinet. KPN is currently conducting trials of this new service in ten regions within the Netherlands, but is already playing catch-up in terms of network speeds with the cable operators – in particular UPC Nederland, which has already implemented DOCSIS 3.0 across its network and is offering top-line speeds of up to 120Mbps.

With UPC enjoying a head-start in NGA provision, the last thing KPN needed was implementation issues with its fibre pilots. KPN is no stranger when it comes to problems in rolling out new services. In early 2007 it suffered from an overload of orders for its VoIP service, leading it to restrict sales in a bid to improve customer satisfaction levels, which had fallen as a result. History now appears to be repeating itself, with KPN suffering from scalability issues in activating new customers for fibre. Instead of an overwhelming surplus of orders, on this occasion the fault lies with KPN’s back-office systems – specifically, an activation process that was set up to be automated not working to plan and as a result requiring substantial manual rework.
In some sense KPN has been lucky – identifying the problem during a pilot gives the telco time to rectify it. It notes that the delays in activation have negatively impacted customer satisfaction, and that as a result it has suspended sales of its fibre services. This will allow activations to catch up with sales, and in the meantime it will work to resolve the problematic process and move from activating approximately 800 orders per week to more than 5,000. Should this have happened during the nationwide rollout of such an important service to KPN’s future, it would be difficult to see how it could restore consumer confidence in its new service, and would have negated a significant proportion of the cost reductions KPN has worked so hard to achieve. This serves as a timely reminder to telcos that the move to new OSS and BSS is not always as smooth as is often made out, and that pilots and contingency planning are vital in order to identify and plan for potential pitfalls.