• Total revenues grows 137% to €105.7 million
  • Communications services revenue grow 113% to €95.0 million
  • Total quarterly sequential revenues grows by 34%
  • IP- value added services & new data service revenue grow by 400%
  • Met or exceeded all components of analysts' consensus
  • 20,000 km/50 city network build and CyberCenter construction on schedule and on budget

Hoofddorp, The Netherlands, July 18, 2000 - KPNQwest, the leading pan-European Internet and data communications company, today reported strong revenue growth for the quarter ended June 30, 2000. Revenues for this quarter increased by more than 137% compared to second quarter 1999 and by more than 34% compared to first quarter 2000. The company's results met or exceeded the consensus of analysts' estimates for revenue, earnings before interest, taxes, depreciation and amortisation (Ebitda) and EPS for the third consecutive period.

"Our second quarter 2000 results demonstrate that we are continuing to execute on our business plan, expanding our network footprint, and adding customers and revenues in the exploding European market for data and internet communications services", said Jack McMaster, KPNQwest President and Chief Executive Officer. "We are well positioned to continue to exploit our first mover status in this growth market as we head into the second half of the year".

Willem Ackermans, KPNQwest Executive Vice President and Chief Financial Officer said: "We met or exceeded the analysts' consensus estimates for the third consecutive period. This quarter is an important milestone for us, surpassing the €100 million revenue mark for the first time. As our growth continues to accelerate, our gross margins will continue to improve as we continue to migrate our customers from leased facilities onto our own infrastructure".

For the second quarter ended June 30, 2000, total revenue grew to €105.7 million, increasing by 137%, or €61.2 million, compared to €44.5 million revenue in the second quarter ended June 30, 1999.

Communication services revenues grew to €95.0 million in the second quarter of 2000, an increase of 113% or €50.5 million compared to €44.5 million revenue in the second quarter 1999. The company continues to experience dramatic growth across its product lines.

Revenues driven by Internet Protocol-based Value Added Services (IP-VAS) and other new data services grew in excess of 400% compared to second quarter 1999 and revenues from IP connectivity and other bandwidth services grew by more than 90%.

KPNQwest concluded many major contracts in the second quarter of 2000 for IP, bandwidth and other data services, including major contracts with Microsoft Corp, Nokia, Lufthansa, BASF, BMW, Hoechst, Stonehenge, ETT, Teleglobe and Rapid Link. It ended the quarter with over 90,000 business Internet accounts, a 50% increase over second quarter 1999, and increased its average revenue per account.

Infrastructure revenues driven by the sales of conduit and dark fibre were €10.7 million in second quarter 2000, with no corresponding revenues in second quarter 1999.

The company closed an additional three infrastructure contracts in the second quarter 2000 valued at more than €130 million, with cumulative closed infrastructure contracts to date approximating €340 million, of which more than 90% will be recognised as revenue in subsequent periods.

Costs of sales were €72.3 million yielding a gross margin of 32% in second quarter 2000, compared to 20% gross margin for the second quarter 1999 and compared to the 25% gross margin for the first quarter 2000. The improvement in the gross margin percentage for the second quarter 2000 reflects significant investments to efficiently support the company's growth and the effect of decreasing our reliance on leased line facilities as the company constructs its own network.

The company still substantially relies on leased lines while it completes the construction of its own EuroRings™ network. The company expects to increase the gross margin for the rest of 2000 and in the ensuing years as it completes its 20,000 km macro-capacity fibre-optic network and migrates traffic off leased facilities onto its own asset.

Selling, general and administrative (SG&A) expenses in second quarter 2000 were €60.0 million or 57% of total revenues compared to €21.4 million or 48% in second quarter 1999 and compared to €51.9 million or 66% in first quarter 2000. The company continues to aggressively invest in new product development, marketing and sales, branding, and other infrastructure expenses to fuel long-term revenue growth.

Second quarter 2000 EBITDA was negative €26.6 million. It compares to a negative €12.4 million in the second quarter 1999, when the company was not engaged in investing in its SG&A for revenue growth. EBITDA has improved by €5.2 million from the first quarter 2000.

Net loss for second quarter 2000 was €30.2 million, which compares to €15.7 million net loss for second quarter 1999.

Loss per share for second quarter 2000 was €0.07 as compared to €0.04 for second quarter 1999.

KPNQwest has made significant progress in the construction of its pan-European fibre-optic network in the first half of 2000. It is operating three rings that span 6,200 km connecting 23 cities, nearly half the total number of cities linked in its planned seven Ring network. The lighting of the German Ring was announced in June on time and on budget. The German Ring connects 16 cities in a 2,700 km route with 120 fibres. The Southern ring, which adds 11 cities in Southern France, Switzerland and Northern Italy is under construction and scheduled to be completed in Q3 2000. The Nordic and Eastern rings are scheduled to be completed by Q2 2001. The company announced in January that it intends to invest up to €300 million to construct an Iberian ring, which is scheduled for completion in Q3 2001. The company announced in June 2000 that it intends to increase the network investment in France, adding four additional French cities along the western Atlantic coast. When complete, the entire network will reach 50 cities and cover almost 20,000 km, representing the largest fibre optic network operating in Europe.

In April, the company announced a 10-year initiative with IBM Global Services to deliver next generation e-business services and applications throughout Europe. At the core of the initiative is the creation and deployment of the most extensive and sophisticated network of Web hosting centres, called KPNQwest CyberCenters™.

KPNQwest has selected IBM Global Services to build, manage and provide operational support for up to 18 new KPNQwest CyberCenters™ connected to KPNQwest's high capacity fibre-optic EuroRings™ network. IBM will lease 25% of the available space in the centres to host their customers' e-business and business-to-business initiatives.

The first six KPNQwest CyberCenters™, each of about 10,000 m2, will be in Frankfurt, Paris, Munich, Stockholm, Milan, and London. These centres will be completed by the end of 2000.

In April 2000, the company announced an agreement to acquire one of the top independent business-to-business Italian ISPs, COMM2000. The integration of COMM2000 into KPNQwest's existing network of 14 business ISPs across Europe represents a key development in KPNQwest Internet assets – and a significant new presence for KPNQwest in the dynamic Italian market.

The acquisition anticipates the completion of two major network construction milestones: the construction of the Southern Ring of KPNQwest's macro-capacity fibre-optic EuroRings™ network linking Milan and Turin into a 20,000 km pan-European high-speed backbone; and the building of a 10,000 m2 KPNQwest CyberCenter™ in Milan, which will deliver massive hosting and e-commerce service opportunities for Italian businesses. The Southern Ring is due for completion by the end of the third quarter 2000 and the Milan CyberCenter by the end of the year.

About KPNQwest
KPNQwest (NASDAQ & ASE: KQIP) is a leading facilities-based, pan-European provider of data-centric services based on Internet Protocol (IP). It is deploying a technologically advanced 20,000 km fibre-optic network connecting 50 cities throughout Europe and provides a full portfolio of data-centric IP-based services and other advanced telecommunications services, including a pan-European Digital Subscriber Line service. KPNQwest is one of the largest business ISPs in Europe with operations in 15 countries. KPNQwest has twelve CyberCenters and has announced plans to build an additional eighteen 10,000m2 CyberCenters across Europe, on its high-capacity fibre-optic network to provide web-hosting, application sharing and telehousing services. Website: www.kpnqwest.com

Click here to view KPNQwest N.V. Condensed Consolidated Statements of Operations

This release may contain forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the written prospectus relating to the initial public offering and the related registration statement filed by KPNQwest with the SEC, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including failure to complete our network as planned and on time, failure of European Internet use to increase as expected, significant competition, rapid technological change, and adverse changes in the regulatory environment. This release may include analysts' estimates and other information prepared by third parties, for which KPNQwest assumes no responsibility KPNQwest undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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