Monday, August 02, 2010

BPN 1425 KPN responds to poor FTTH uptake

KPN is one of the few incumbents to pursue FttH, though the decision to go full-steam for FttH rather than the cheaper solution of upgrading its copper network (FttC with VDSL2 in the last mile) took some time. The company initially considered that VDSL could compete effectively with DOCSIS3.0, and its latest data release shows that it still believes that copper at least in the medium term is still sufficient for most customers.

Nevertheless, at the end of 2009 the company announced that FttH was indubitably the superior technology, and that it would invest some €1.3 billion to expand the number of FttH-connected homes, essentially concentrating on FttH instead of expanding FttC. Despite this appropriate emphasis on FttH, the company is still struggling to convince most customers to sign up.

This is partly due to poor marketing, but also – and ironically – due to the success of its VDSL roll-out. VDSL serves the last mile, and large-scale roll-outs began in earnest from January 2008. The VDSL network is capable of providing up to 30Mb/s, and delivers IPTV to 80% of households and HDTV to 70%. The company plans to expand the VDSL footprint to ‘outer suburbs’ (completing this job by the end of 2011) and so increase IPTV coverage to 88% of households, but otherwise there will be no further roll-out of FttC.

In poorly marketing FttH, KPN targeted what it refers to as ‘sub-optima’ customers in its roll-out areas, or a demographic less interested in services delivered or less able to afford them. The pricing for bundled packages was also set too high, which has dissuaded many consumers from switching from their existing DSL service (considered by many to be acceptable for their needs). In reality, only about 9% of customers capable of receiving FttH sign up for the service, though this is an improvement on the 2.7% sign-up of the first quarter of 2009.

To address these poor figures, KPN has set in train a number of measures to reduce its pricing and improve the way it targets and sells to customers. It aims to reach a 60% sign-up rate of activated homes and at least 250,000 customers by 2012. Prices for its FttH tiers (from this month) have fallen by €10 per month. Yet the difference between VDSL and FttH offers, if anything, is less pronounced than before. In the pre-July pricing structure there was a €5 difference between a 20Mb/s Premium VDSL offer and a 50Mb/s Silver FttH offer. There is still a €5 difference between these two in the new pricing structure, but VDSL has been ramped up to 40Mb/s. The inclusion with FttH of an additional TV receiver, HD recording capability and more IPTV channels may be enough to tempt some customers, but KPN’s experience thus far is that the majority of customers, if they are happy enough with their service, will not switch. To address this, the company aims to improve it fibre delivery mechanism, shortening delivery times and improving its ‘first time right’ ratio. The company at least needs to convince customers that switching from copper to fibre is seamless, that there are real benefits for households’ use of IP-delivered services, and that it will not cost them more.

BPN 1424

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