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Den Haag, 21-6-07

Following the operational problems surrounding VoIP, KPN has taken extensive measures in the first quarter of 2007 to restore quality of service and customer satisfaction. The issues around VoIP are now under control and customer satisfaction is increasing. KPN has the intention to gradually increase VoIP order intake from 5,000-6,000 per week currently to 8,000-9,000 per week after Summer. However the scaling up will not be allowed to affect quality of service and will therefore be a step by step process. Now that the operational problems are under control, calls to the contact centres will be priced at the regular tariff, as of July 1st.

In Q1, the issues around VoIP resulted in a financial impact of € 25-30 million as well as lower VoIP growth. The financial impact and lower growth are expected to continue in Q2, but to decrease in Q3. KPN does not expect any material impact to its 2007 guidance.

VoIP order intake in Q2 will be lower than in Q1 and is currently estimated at about 60,000.

Despite lower VoIP sales, net line loss is expected to decrease to 110,000 in Q2, and to stabilize afterwards. Following a clean-up of IT systems, KPN has applied a cumulative correction of 25,000 in the Q1 2007 net line loss, leading to a restated 165k net line loss in Q1. This was the result of double counts in PSTN/ISDN lines that were already migrated to VoIP.

Background information on Consumer VoIP in the Netherlands

Following the publication of the first quarter results on 8 May, KPN has noted significant interest in VoIP and considered it helpful to update the market on this matter. This document provides further detail on VoIP in the Netherlands, the impact of actions taken by KPN and implications going forward.

The Dutch consumer market has rapidly adopted VoIP since its introduction at the end of 2005. Already 1 in 3 households in the Netherlands have migrated to VoIP, with KPN firmly established as market leader since the third quarter of 2006. However, higher than expected demand in the fourth quarter for KPN VoIP led to operational problems and an overload at call centers. In order to solve these, KPN has taken extensive measures in the first quarter of 2007 to restore quality of service and customer satisfaction.

Recap KPN VoIP issues

It is well-documented that a combination of causes resulted in an overload at call centers and complex complaints with 5% of VoIP customers. The most important cause was an overwhelming demand of 247,000 net additions in Q4, beyond average demand in previous quarters and normal capacity. The acceptance of non-standard orders disrupted the supply chain and resulted in a large variance in delivery lead times and order cancellations. Furthermore, installation at customer’s homes was delayed by an insufficient number of engineers and a Do-It-Yourself package requiring too much helpdesk support. Finally, customers failed to make an activation call to migrate to the new service. In all, this led to an inefficient delivery process and an unacceptable number of customer complaints.

Actions taken and results so far

In Q1, KPN has taken extensive measures to address these operational issues. Order intake was reduced by putting advertising on hold. At the same time, alternative offers were launched to retain existing customers in PSTN/ISDN. Delivery time for VoIP is now guaranteed at 5 weeks following a full redesign of the delivery process. Customer care was expanded by doubling the number of call center agents from 500 to 1,000 and reducing helpdesk call rates to 1 cent per minute. This resulted in 90% first-time issue resolution, up from 60% in Q4. Waiting times at call centers are now back to normal. Finally, KPN put more emphasis on complaint management with a dedicated service team for complex cases, reimbursement for complaints and proactive follow-up service calls.

By now, the root causes have been addressed and the delivery process is approaching the desired standards, but at a lower VoIP order intake. The additional costs for VoIP in Q1 were € 25-30 mn, predominantly from temporary staffing, free calls to call centers, reimbursement for complaints and project costs.

VoIP and net line loss going forward

KPN considers VoIP as one of many offers to meet customer demand, as KPN offers a complete service portfolio, including ADSL-only, Mobile-only and combined offers, to address different segment needs. Its multibrand strategy and multiplay offers are key enablers to achieve a solid position in each segment.

Following the focus on quality, VoIP order intake in Q2 will be lower than in Q1, currently estimated at about 60,000. KPN has the intention to gradually increase VoIP order intake from 5,000-6,000 per week currently to 8,000-9,000 per week after Summer. Wholesale Line Rental (WLR) is expected to grow further from 47k in Q1 to more than 120k in Q2, but in the KPN definition this does not impact net line loss. The financial impact from WLR is limited for KPN, as a retail minus of 15% is applied.

Net line loss is expected to decrease to 110k in Q2, despite lower VoIP sales. KPN expects net line loss to stabilize after Q2. Following a clean-up of IT systems, KPN has applied a cumulative correction of 25k in the Q1 net line loss, leading to a restated 165k net line loss in Q1. This was the result of double counts in PSTN/ISDN lines that were already migrated to VoIP. The additional VoIP costs in Q2 are expected to be in line with Q1, and to decrease in Q3. KPN does not expect additional costs for VoIP in Q4 and no material impact on the 2007 guidance as issued in February.

Please note that KPN does not have the ambition to scale up again to the level of Q4 ’06, as the lower order intake allows KPN to reach its fair share in the Dutch voice market in a more controlled way.

Concluding remarks

With the actions taken in February, KPN underpins an uncompromising focus on quality and has clearly put its customers first. The issues around VoIP are now under control, and customer satisfaction is increasing. This has resulted in a financial impact of € 25-30 mn in Q1 and lower VoIP growth in Q1 and Q2. KPN has the intention to gradually increase VoIP order intake to 8,000-9,000 per week after the Summer. The financial impact is expected to continue in Q2, but to decrease in Q3, without material impact on KPN’s 2007 guidance.