Royal KPN N.V. History

Company Perspectives:

KPN will further exploit growth opportunities on the Dutch market in the area of fixed and mobile telephony with a view to maintaining and expanding its strong market position. It will pursue this goal by focusing on portfolio innovation, customer retention and continual efficiency improvement.

Company History:

Royal KPN N.V. is a Dutch telecommunications provider--the leading telephone service provider in the Netherlands--and is aiming to take a leading position in the international telephony and related services industries. The company's latest form was realized in 1998, following the break-up of parent company PTT Nederland, a government-owned monopoly overseeing the telephone and postal services. (PTT's other major holding, the Dutch postal service, became known as the TNT Post Group.) KPN serves more than eight million fixed-line customers and more than two million mobile telephone customers in the Netherlands. KPN is also active in Internet services, with its PlanetNet and XS4all services making it the country's largest Internet provider, while its corporate networking services and services for third-party telephone carriers also dominate in its Dutch domestic market. On the international front, KPN is a founding member of the Unisource alliance, with members Telia of Sweden and Swiss Telecom, and has entered a partnership with the U.S. telecom giant AT&T. KPN has also been expanding internationally through the acquisition of partnerships in foreign fixed-line and mobile telephone systems in Hungary, Ireland, and the Czech Republic, operating a European partnership with Colorado-based Qwest, and pursuing expansion in the Asian market. Led by former PTT Nederland CEO Wim Dik, who announced his departure in mid-1999, KPN was the subject of takeover rumors as it neared the 21st century.

A Post-Telegraph Monopoly in the 19th Century

The history of KPN may be traced through the history of Dutch communications, a system which until the 1990s was controlled by the government. Although postal services had long been in place in the collection of city-states that later became the Netherlands, it was not until the end of the 18th century that the Dutch postal services were reformed into a single, national system, modeling its organization after the system developed by the French. This system, officially established in 1799, provided the foundation of what would soon become known as the PTT Post.

The Dutch postal service inherited a variety of postal tariffs, and collection and delivery methods. In 1807, however, the Post was placed under the administration of the Ministry of Finance. This body passed the country's first Postal Act, a series of regulations providing for a more standardized collection, carrying, and delivery system, while also establishing a single rate system--based on distance and weight--for the entire country. Yet the Post was still not conceived of as a public service; instead, it was expected to operate more along the lines of a tax collection service, providing funds for the national treasury.

A shift in the vision of the Netherlands' postal services came in the mid-19th century. The passage of the Postal Act of 1850 established the postal service as a service in the public interest. While remaining under the finance ministry, the Post shed its role as tax collector to become a public service. The Postal Act of 1850 further codified the postal service's domestic monopoly and created a simplified postal rate structure. Two years later, the postal service began the implementation of a nationally organized network of postal service facilities; every town would receive its own post office and a system was established for the collection and delivery of letters. By the 1870s, the Post's network of post offices covered most of the country.

In the meantime, the Netherlands had begun to install its first telegraph transmission networks. In 1852, the country formally organized its telegraph utility, the Rijkstelegraaf, under the Ministry of the Interior, which assumed responsibility for installing a roadside network of telegraph poles and cables. Use of the telegraph as a communication means remained relatively limited, however.

The postal system and the telegraph service, which was soon to add the newly invented telephone, operated as separate government agencies until the 1880s. Given the limited growth of the telegraph in the Netherlands, it was decided that the two services should be joined into one agency, under a single ministry in 1886. Combining the two services offered the pragmatic benefit of allowing both to operate from the postal services' national network of post offices. With the addition of telephone services, this agency would become known as the PTT (for Post, Telegraph, and Telephone) and would remain a state-run monopoly for more than 100 years.

Growth of the Telephone System in the 20th Century

The combination of postal services with the country's telegraph and telephone systems was never wholeheartedly performed. Even though the two services were available through the same offices--the network of post offices created by the postal service--operations remained more or less separate, with each branch retaining its own personnel and culture. For the most part, the two services operated in parallel, each with its own personnel, budget and finances, and infrastructure.

The Depression era forced the PTT to modernize. The introduction of more efficient sorting systems enabled the PTT to cut back on the number of its delivery rounds; instead of the three deliveries per day, PTT postmen now performed only two. The growth of the telephone network, and the rising number of telephone users, was also slowly changing the communication habits of the Dutch commercial and private user, who would soon reach for the telephone, rather than the pen.

The difficult economic climate presented an opportunity for the PTT, in that government allowed the agency to operate more and more as a commercial enterprise. Unlike other government agencies, which were provided for in the national budget, the PTT was given a more corporate status, enabling the company to make the necessary capital investments and take writeoffs on its balance sheet, rather than depend on government approval for each investment. The PTT was also given its own press and publicity departments, enabling the agency to compete for consumer attention. While most of Europe's postal services and telephone companies remained under government control, the PTT's relative independence allowed it to present a more modern appearance to consumers, who were treated also with original postal stamp designs.

The Nazi takeover of the Netherlands during World War II would interrupt the PTT's independent activities, as the Germans seized control of the country's communications systems. With the Liberation, the PTT was faced with rebuilding its telephone infrastructure. By the end of the 1940s, the agency was reporting heavy losses, especially from its postal services. In this way, the PTT was no different from most of its government-run counterparts in other countries. Telephone services, nevertheless, would provide a means to maintain a positive balance sheet for PTT, as the telephone quickly imposed itself as a mainstay in the postwar home. The PTT's telephone monopoly allowed the government-run service to maintain relatively high rates. As in most of its European counterparts, the telephone service charged by the minute for all calls, including local ones.

Expanding Services and Privatization in Mid- and Late 20th Century

Through the 1960s and 1970s, the PTT continued to improve the quality of its phone lines and telephone transmissions. The telephone industry was by then preparing to enter a new era of innovation. The use of telex equipment and facsimile machines, joined later by electronic messaging systems, and Internet-based voice and video communication technology, as well as portable telephone systems freed of dependence on a physical telephone wiring system, threatened a drastic transformation of traditional communication systems. While the telephone industry was facing a time of great change, the postal world was also changing; the arrival of dedicated express mail and other courier services, led by such companies as Federal Express and United Parcel Service in the United States, and Australia's TNT, presented new challenges to traditional postal services.

By the 1980s, the era of government-run, monopoly services had reached the beginning of the end. Restructuring was quickly becoming a necessity, not only to enable the PTT to compete in a rapidly transforming marketplace, but also to give the consumer more options--and potentially lower rates. During the 1980s, the PTT focused on expansion activities, buying up interests in domestic cable and television networks and moving toward international expansion of its telecommunications services. In 1989 the PTT was finally privatized.

That year, the PTT was reorganized as a private business, PTT Nederland N.V., under the direction of CEO Wim Dik. Under the new structure, the postal service, renamed PTT Post, joined the larger telecommunications industry sister company, PTT Telecom, as an independently operating subsidiary. Despite no longer being a government agency, the new PTT remained nonetheless wholly owned by the Dutch government. The change, however, allowed the company to pursue its own growth strategy into the 1990s, unhampered by the slower governmental decision-making process. Privatization also enabled the company to seek new international partners, some of which had balked at the prospect of pursuing projects with a government agency.

Partnering would prove essential if PTT Telecom--with its relatively small Netherlands market--was to be able to compete on an international scale. The coming of telephone deregulation in the European market--scheduled for the late 1990s--would also present PTT Telecom with new opportunities. In 1992, PTT Telecom joined with Sweden's telecommunications monopoly Telia to form the Unisource alliance. This partnership quickly gained more weight with the addition of Swiss Telecom in 1993. By the following year, Unisource had reached an international cooperation agreement with AT&T to form the joint venture Uniworld. Launched in 1996, Uniworld targeted commercial customers with integrated data-voice telephone packages. Uniworld also gave PTT Telecom a position in the Far East, as a member of WorldPartners with AT&T, Japan's KDD, and Singapore Telecom.

In 1994 PTT Nederland went to the stock market, as the Dutch government sold off some 30 percent of its shares on the Amsterdam exchange. The public listing of the postal-telecommunications business marked the largest offering ever in the Netherlands, and also the world's first public listing of a post office. Interest in the new shares was high; with most investor attention going to PTT Telecom, nearly twice as large as the NLG 5 billion-per-year PTT Post. Two years later, PTT Nederland offered another 25 percent of its shares, effectively ending the Dutch government's control of the country's post and telecommunications services. At that time, PTT Nederland took listings on the New York, London, and Frankfurt stock exchanges as well.

The public offering not only enhanced PTT Telecom's profile in the telecommunications industry, it also gave the company maneuvering room in the rapidly changing telecommunications landscape. This would prove especially necessary, as PTT Telecom faced the end of its domestic telephone monopoly, as well as competition for the Netherlands' mobile telephone customers. With the increase in capital, PTT Telecom began an international expansion drive. In 1994, the company bought a 30 percent interest in Bakrie Electronics Company (BEC) of Indonesia, partnering with that country's telephone monopoly to build and operate new telephone networks.

The Eastern European market would also be targeted by PTT Telecom as part of its international expansion. In partnership with Swiss Telecom and AT&T, PTT Telecom bought up a 27 percent share in SPT, the Czech telecommunications provider. Moreover, PTT Telecom's partnership in the Pannon GSM digital mobile telephone network brought the company to Hungary. PTT Telecom also began building a fixed line and mobile telephone infrastructure in Ukraine, in partnership with other providers.

In 1995 PTT Post stepped out of the shadows of its larger sister company when it reached an agreement to acquire the struggling TNT for some NLG 2.7 billion. The purchase, which placed PTT Post roughly on the same revenue footing as PTT Telecom, set the stage for the next evolution of the former state-run monopoly. In 1998, PTT Nederland announced that it was splitting into two entirely independent, publicly listed companies, Royal KPN, which contained the company's telecommunications activities, and TNT Post Group (TPG), which took over the company's postal, logistics, and express mail services wing, including both companies' shares of the GDEW partnership. Both KPN and TPG retained listings on the Amsterdam, New York, London, and Frankfurt stock exchanges.

After boosting its role as an Internet service provider in the Netherlands, with the acquisitions of XS4all and Capital Online, making it the country's largest ISP, KPN continued its international and domestic expansion in 1999. In June of that year, KPN agreed to acquire Telecommunications Services & Networks (TS&N) from Origin Nederland, strengthening KPN's telephone and telecommunications services, including voice, data, and PCX management services for such large corporate clients as Philips, among others. One month later, KPN paid $510 million for the purchase of a 51 percent stake in the former Bulgarian state-owned telecommunications provider BTC. The purchase, made in partnership with Greek telecommunications provider OTE, also gave KPN ownership of a national GSM mobile telephone license in Bulgaria. Despite its expansion efforts, KPN remained a relatively small player in the highly competitive global telecommunications business. The retirement announcement of KPN chief Wim Dik in 1999 fueled industry opinion that KPN itself would become a takeover candidate early in the new century.

Principal Operating Units: Fixed Line Telephony; Mobile Telephony; Telecommerce; Corporate Networks; Carrier Services; Business Communications.

Further Reading:

• Dickey, Allan, "Public Services at Private Prices," Eurobusiness, March 1994, p. 57.
• Hastings, Phillip, "Rush to Repackage," Financial Times, June 17, 1999.
• "Hitting the Mail on the Head," Economist, April 30, 1994, p. 69.
• Resener, Madeleine, "How the Dutch Did It," Institutional Investor, April 1995, p. 66.
• "TNT Sale May Signal Industry Trend," Logistics Management, January 1997, p. 26.
• Woodford, Julian, "KPN," Utility Week, January 23, 1998, p. 24.

Source: International Directory of Company Histories, Vol. 30. St. James Press, 2000.