About KPN and discrimination

The recent announcements of KPN have  (to say the least) spurred  a lot of reactions. First of all  the negative  impact of smartphones and Internet based  texting substitutes on the topline was a surprise to many. The announcement of a policy change in mobile subscriptions, differentiating the price to reflect the usage of certain type of applications (texting substitutes, VoIP, Youtube , to be defined)  apparently drew blood .

“ Foul ! ” has been cried by Net Neutrality defenders, although the telecom regulator has reacted neutral up till now. A recent poll in NL showed that 86 % of the respondents thought this was a very bad idea, upon which  a majority of the elected politicians  agree.

Why does a respectable company like KPN takes the risk of  this negative press? Let’s do some digging.

As James Enck so well has explained so well a telco executive is stuck between a rock and a hard place. The shareholders demand large amounts of cash (either as dividend or indirect as share buyback)  while the old cashcows are losing their steam fast. Well paid voice minutes on fixed lines? Endangered species . Cash flow out of copper lines and broadband? Badly needing more fiber to the home, especially when in competition with cable, losing landline customers all the time. Voice minutes on mobile?  Price levels dropping in a saturated market. Highly profitable texting? Under attack by texting substitutes and chatting like Whatsapp.  The new renevue potential is TV, but that’s is a long and hard road to go. Ouch:  time is running out but the brakes are on….

And mobile broadband? Everybody has been taken by surprise by the Iphone and everything in its wake. Not only is the casual usage much, much higher than anything seen before, the shift in how we communicate is blindingly fast.  To get more capacity out there a bit more spectrum helps, but there is no substitute for more antenna’s and more backhaul . The cheapest and fastest method is by deploying femtocells, but still this requires a lot of money.

And to add insult to injury,  the marketeers have treated broadband as an add-on to voice and texting, pricing it very low in a bundle expecting that most of the revenue would come from voice and text. (KPN offers Euro 12,50 a month for 100 minutes and mobile broadband).

A quick back-of-the-envelope calculation shows that at current price levels (in bundles 3 cts per minute voice and 3 cts per textmessage, 250 Mbyte data for 8 euro) there is not much difference any more between data kbytes and voice kbytes in price. Texting is off the scale, thousands of times more expensive per kbyte: no wonder this is the first service that is under attack from alternatives.

So it would make sense for them  to restructure the mobile offerings and make them much more data centric, with voice and texting as an add-on. Price the broadband at a normal level, allow anything and don’t expect windfall profits from texting.

The idea to still offer cheap data subscriptions (or to modify the conditions for current very cheap tiers) that would not allow certain types of applications (streaming video, VoIP, chatting) so the revenue level would be sufficient fits this approach. (I do wonder how you could implement this filtering in cost-effective manner, maybe some lessons can be learned in the Middle East…….).

It would be an interesting case to test the new net-neutrality rules as proposed by the EC, especially if KPN would not discriminate between applications, but only forbid  types of applications for very cheap tiers.

For me the jury is still out: there is no specification known of the new subscription types, only some generic comments.

The driver for all this is clear : the rock and the hard place are approaching each other .


About Herman

Herman Wagter writes on Dadamotive about facts and figures behind issues that interest him. His work as interim manager and consultant has involved him directly in the impact of hyperconnectivity and sustainability on society. As an independent agent and "mobile warrior" he has experienced the pro's and con's of how organizations and projects can be structured, and what the effects on the final result can be. In his opinion we are entering an era of profound change, driven by these fundamental forces. Following the trends, discovering the fun and debunking the half-truths is a passion he likes to share with others.
Posted in: Hyperconnectivity.