KPN: Acquires Primevest’s Fiber Network as Consolidation in the Dutch Market Continues

Dutch telecom operator KPN KPN announced on June 19 the acquisition of regional fiber operator Primevest in the Netherlands. The acquisition will add 127,000 fiber-to-the-home premises in Rotterdam, the Hague, and Eindhoven to KPN’s footprint. This will add to KPN’s existing FTTH footprint of 3.8 million premises, bringing the company’s total to nearly 4 million. We maintain our narrow moat and EUR 3.00 fair value estimate for KPN.

Although the acquisition is relatively small for KPN, it is not surprising since consolidation among fiber operators in the Netherlands has been happening for a while. The country has more than 20 fiber operators (most of them regional) and they try to avoid network duplication, although this is not always possible as several thousand homes in the country already have two fiber connections, according to Telecompaper. Regulators are allowing consolidation as network duplication is not economically optimal. In February, Open Dutch Fiber acquired E-Fiber and in March Delta Fiber also acquired two local networks. We expect more consolidation, which we believe is healthy for KPN and the market as a whole.

Although financial details of the transaction were not disclosed, the raw average cost to deploy FTTH to a property in Europe is around EUR 800 to EUR 1,200, with variations depending on household density (urban areas are cheaper than rural areas) and regulations (amount of aerial cable that can be laid). Considering Primevest’s premises are already up and running and the premium that the sellers require, the price could well be in the range of EUR 1,500 to EUR 2,000 per premises, which would imply an enterprise value of around EUR 190 million to EUR 250 million.