KPN sues Dutch government

KPN, the Dutch incumbent telecommunications company, has launched a legal challenge to change telecoms regulation, which it said is hampering its ability to compete with increasingly aggressive cable rivals.

KPN is seeking a preliminary injunction against the Dutch government - which owns a 6 per cent stake in the company - in addition to making complaints to the competition and communications authorities.

“As the largest telecoms provider, KPN is subject to a complex web of rules and regulations, is under an obligation to provide access to competitors and is closely scrutinised,” it said. “The cable sector, by contrast, has never been regulated.”

The move is the strongest indication yet of KPN’s frustration with regulators. It has tussled several times with the telecoms watchdog in recent years, and has gone through a series of legal spats with competitors over branding and marketing.

The Dutch telecoms market is one of Europe’s most competitive. In contrast to most countries, where cable coverage is limited, the vast majority of Dutch households access TV via one of five cable operators, providing a platform for those companies to offer additional services such as voice telephony.

The cable operators have rolled out voice over IP (VoIP), or internet-based voice telephony services, accompanied by aggressive pricing in the past two years, undercutting KPN’s prices and contributing to to a rapid increase in customer churn at the telecoms company. In 2005, Dresdner Kleinwort Benson estimated the cable operators’ share of the voice telephony market could increase from 4 per cent to 20 per cent by 2008.

“It is common knowledge that turnover and profit margins in KPN’s fixed networks are steadily declining,” the company said on Thursday. “KPN is losing thousands of traditional phone line customers to cable companies every month.”

KPN said the cable operators were also using cross-subsidies and price-dumping to prevent telecoms companies from entering the digital TV market.

KPN has also lodged complaints against the cable operators with the NMa, the competition authority, and OPTA, the communications authority, over the same matter, but said it had resorted to court action because a speedy result would not be possible under the fragmented regulatory framework.

The company has been the subject of takeover speculation during the past year amid increasing consolidation in the European telecoms industry, although there is little expectation of an imminent move.

KPN in May reported a 10 per cent rise in first quarter profits and in early June acquired Demon Netherlands, the broadband provider, for €69m.

In early trade, KPN shares were up less than 1 per cent at €8.65.