KPN Strategy Enters Latest Phase With BellSouth Deal

The American-German-Dutch joint venture will have the economies of scale to invest for serious growth.
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Editor's Note: This story originally appeared Dec. 9. It has been updated and rewritten to include details of the agreement struck by KPN, BellSouth and E-Plus.

AMSTERDAM -- Divide and be conquered.

Dutch telco

KPN

(KPN)

has never made a secret of its ambition to become part of a larger, preferably international, telecommunications conglomerate. The problem was that KPN was too complex for most potential acquirers to consider buying or setting up a partnership with.

So CEO Wim Dik came up with an idea that would make his company a little easier to swallow. KPN, he announced, will be divided into a number of smaller publicly traded entities that he hopes will be the right size for international telecom operators.

The divide-and-be-conquered strategy, which entered its latest phase Friday, kicked off this autumn when shares of

KPNQwest

(KQIP)

, a venture with Denver-based

Qwest

, were floated on

Nasdaq

and Amsterdam's

AEX

.

On Friday, German mobile operator

E-Plus

(owned in part by American communications company

BellSouth

(BLS)

) signed a partnership agreement with KPN, which also owns

KPN Mobile

. Under the deal, KPN will take a 77.5% share in E-Plus. The rest of the company will remain in ownership by BellSouth.

Furthermore, KPN and BellSouth have agreed that the American company has the option to purchase a 19% share in KPN or KPN Mobile during the next year.

KPN Mobile

was legally separated from KPN proper last month. The company announced Friday it will be floated on the Amsterdam exchange in the spring of 2000.

BellSouth's interest in KPN Mobile is partly motivated by KPN's reputation as a market leader in the Netherlands and a great innovator. It was the first to launch the "one mailbox" concept in the Netherlands last month, whereby fixed-line and mobile communications use a single voice mail system. Innovations like this will mean KPN, formerly the much-despised state-run telco, will retain market share in an increasingly competitive Dutch market.

But perhaps the most attractive aspect of KPN Mobile is its investments in Central Europe. KPN Mobile has inherited the joint ventures KPN made with local mobile-communications companies in the Czech Republic, Hungary and Bulgaria. It is this presence in European emerging markets that makes it a better partner than other small European telcos. Altogether, KPN, its Central European allies and E-plus will have an almost uninterrupted mobile network from the Black Sea to the Atlantic.

The American-German-Dutch joint venture will have the economies of scale to invest for serious growth. A publicly traded German-Dutch telecommunications conglomerate, with shares as currency, can start scooping up many of the smaller mobile operators that dot the European landscape. This way it could extend its coverage into southern Europe and the Balkans.

Perhaps divide and unify is a more telling description of KPN's strategy.

Philip Droege is a freelance writer based in Amsterdam. At the time of publication, he had no positions in any of the companies mentioned in this story.