First-quarter net profits at Dutch operator KPN slumped by 54 per cent, to €140 million, on revenues of €2.9 billion, a drop of nearly 9 per cent.

The decline in revenue, says KPN, was primarily down to “competitive mobile markets” and the sale of Getronics, a systems integrator company.

Underlying revenue, when one-off items are stripped out, was down a more modest 4.3 per cent.

One bright spot for KPN, partly owned by Mexican tycoon Carlos Slim, is the growth of fixed-line broadband and TV services in its domestic market. That helped to boost revenue for its consumer residential unit, by 9.4 per cent, to €501 million.

KPN launched its first quad-play proposition (mobile bundled into triple – play) in January. Using mobile to bolster its fixed-line proposition is now a key strategy for the Dutch operator.

Increased competition and regulatory pressures, however, saw KPN’s domestic mobile unit suffer an 8 per cent fall in turnover, to €393 million. KPN says it expects its operations in the Netherlands to “stabilise” in 2013.

Sales from KPN’s international unit, which accounts for around a third of group turnover, fell by 6.6 per cent, to €953 million.

In Germany, margins at E-Plus were squeezed, largely because of growing customer acquisition and marketing costs.

Although KPN expects service revenue growth in Germany this year – underlying revenue at the German business unit fell 0.1 per cent, to €760 million – thinner cash profit margins are also forecast to cover costs.

KPN’s mobile operations in Belgium (BASE) were negatively affected by a declining postpaid subscriber base and falling ARPU among contract customers

Against this difficult backdrop, KPN has scrapped dividend payments for 2013 and 2014, and re-stated its intention to sell equity to existing investors to help fund operations and reduce debt.

“We have taken important steps to strengthen our financial position,” said chief executive Eelco Blok in a statement accompanying the operator’s Q1 results.

“Scrapping the dividend is bad news for shareholders, [but] on the other hand the company is doing what they need to do,” said Jos Versteeg, an Amsterdam-based analyst at Theodoor Gilissen Bankiers, speaking to Bloomberg. “They need to invest in the business to survive in the longer term.”

KPN had net debt totalling €12.5 billion as of 31 March, an increase of €444 million from the end of 2012. The increase was largely due to higher-than-expected payments in the Dutch 4G auction, which topped €1.35 billion.

To try and whittle down debt and maintain its investment credit ratings, KPN recently completed a €2 billion hybrid-bond programme (split evenly between debt and equity), and announced a €3 billion rights issue for existing shareholders. “We expect to launch the rights issue shortly,” said Blok.

However, a Reuters report says hybrid bondholders are getting edgy, as scrapping the dividend puts a question mark on whether KPN will make the interest payments.

In early morning trading, KPN shares were down more than 2 per cent at one stage, to €2.61.

According to Bloomberg, KPN stock has fallen 28 per cent this year, the worst performance by a telecoms company in the Stoxx 600 index.