KPN, the Netherlands’ largest fiber broadband provider, today announced an agreement with APG, the manager for Dutch pension fund ABP, to form a joint venture for the roll-out of fiber in the Netherlands. The joint venture will begin operations in Q2 2021.

KPN – Fiber Broadband Market Positioning

At year-end 2020, KPN had an existing footprint of 2.8 million fiber household passings. Of these total passings, the company had 1.4 million fiber broadband subscribers, equating to a penetration rate of 50%.

KPN Fiber Households Passed and Subscribers

Indeed, KPN’s elevated fiber penetration rate shows its dominant market position and the lack of competition from other fiber providers in the Netherlands.

Prior to forming the joint venture with APG, KPN was already pursuing an existing fiber roll-out plan to add 2.5 million fiber household passings by 2025, in larger Netherlands municipalities. This existing fiber-to-the-home (FTTH) roll-out was based on an annual pacing of 500k fiber household passings.

Joint Venture Targets – KPN and APG

KPN’s joint venture with APG will cumulatively roll-out 910k incremental fiber connections in underserved areas of the Netherlands.

KPN APG ABP Joint Venture Structure

Specifically, this plan consists of 685k households in almost 1,000 villages and small residential centers, as well as 225k businesses. In turn, this will increase KPN’s overall fiber roll-out pacing by 150k fiber household passings annually, to 650k fiber household passings annually.

KPN Standalone and APG Joint Venture – Netherlands Coverage Goals

KPN APG Joint Venture Netherlands Coverage Goals

As a result, the fiber-to-the-home (FTTH) network owned by KPN and the joint venture will cover 80% of Dutch households by 2026. This represents an increase from only 34% fiber coverage of Dutch households at year-end 2020. In addition, the joint venture will extensively expand KPN’s fiber footprint in business areas.

Transaction Overview – KPN and APG

APG will pay KPN €440m for a 50% equity ownership interest in the fiber joint venture. Specifically, APG will make an initial payment of €220m and subsequent payments of €220m, in aggregate, through annual installments, based on the fiber roll-out progress.

Cumulatively, over the roll-out period, capital expenditures of the joint venture will total €1.2bn. Indeed, these capital expenditures will be financed with €840m of debt (i.e., 70% loan-to-cost).

Overall, the total equity value of €880m for the joint venture implies a value of €970 for each of the 910k fiber households passed through the joint venture. Including the debt portion of the capital expenditures, the enterprise value rises to €1.8m to €2.0m per fiber household passed.

Joint Venture Rationale – KPN

KPN’s joint venture with APG, supports the company’s strategy to grow its broadband service revenues and increase its fiber footprint for customers in less densely populated areas. Furthermore, by utilizing fiber infrastructure, this investment will result in operating expense savings. Specifically, these savings come from phasing-out of services on KPN’s legacy copper network.

Open Access Wholesale Fiber Network

The joint venture is structured as an open access wholesale fiber network, with KPN as the operator and anchor tenant. Therefore, the network will be open for any third-party operator to use on a wholesale basis, through long-term contracts.

In turn, this wholesale strategy will promote competition in fiber offerings for the Netherlands. At the same time, the joint venture will also increase the utilization of its fiber network, while being compensated through a wholesale income stream.

APG and ABP – Overview

Stichting Pensioenfonds ABP (ABP) is the pension fund for employers and employees of public and educational institutions in the Netherlands. Overall, ABP has 3 million participants and total net assets of €491bn. ABP provides APG with the financial resources to invest in projects such as the KPN fiber joint venture.

APG is the internal investment manager for ABP, with €575bn of assets under management. Indeed, APG is a significant infrastructure investor, with capital of €16.5bn in its infrastructure fund.

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