By Archibald Preuschat AMSTERDAM -(Dow Jones)- Ailing telecommunications operator Royal KPN NV (KPN.AE) Tuesday posted a significant drop in profit and slashed its dividend, saying it continues to be squeezed by tough market conditions in its Dutch home market. Net profit fell to EUR315 million ($382 million) in the three months to June, from EUR414 million a year earlier, hurt by weak margins, especially in its Dutch mobile consumer business. KPN's sales were down 3% to EUR3.19 billion. With smartphone penetration in the Netherlands higher than in most other European countries, at more than 50%, KPN's traditional revenue from voice calls and text messages is being eroded by Internet services like WhatsApp, a smartphone messaging service, or Microsoft Corp.'s (MSFT) Skype, which offers free Internet phone calls. As some investors already feared, KPN will drastically lower its dividend for 2012 to EUR0.35 per share. It previously intended to pay EUR0.90 a share for 2012, more than the EUR0.85 a share for 2011. "We don't take this preemptive step lightly," Chief Executive Eelco Blok said in a statement. "The economic prospects in the Netherlands continue to be difficult. Today, it is even more important to strike the right balance between a prudent financial framework, continued investments and sustainable shareholder remuneration. This will support our credit ratings and enhance our financial flexibility," he added. To counteract falling revenue and profit Mr. Blok is slashing costs and plans to cut 4,000 to 5,000 jobs by the end of next year. KPN competes with Vodafone Group Plc (VOD) and Deutsche Telekom AG's T-Mobile in the Netherlands, but it also has a lucrative mobile operation E-Plus in Germany and another in Belgium. Last month, Mexican telecommunications giant America Movil raised its stake in KPN to 27.7% from 4.8%, investing invested more than EUR2 billion in the company. The Mexican company said last month it will also raise its stake in Telekom Austria AG (TKA.VI) for an estimated EUR747 million. "We will continue a constructive dialogue with our new large shareholder, America Movil. We will explore diligently any potential areas of cooperation that are viable, value accretive, in line with our strategy and in the interests of all shareholders and other stakeholders," Mr. Blok said. KPN's mobile operations abroad, Base in Belgium and E-Plus in Germany, did well, with E-Plus revenue up 4.9%, while Base posted a 6.7% increase in sales. Still, KPN intends to sell Base and also tried to sell E-Plus to Telefonica SA (TEF) in an unsuccessful attempt to thwart America Movil's bid which management said under-valued the company. America Movil has 246 million mobile subscribers in 18 countries. Tuesday, KPN, said it is on track to hit its targets for 2012 for a free cash-flow between EUR1.6 billion and EUR1.8 billion and earnings before interest, taxes, depreciation and amortization, or Ebitda, in a EUR4.7 billion to EUR4.9 billion range, excluding the cost of shedding 4,000 to 5,000 jobs. Write to Archibald Preuschat; archibald.preuschat@dowjones.com Subscribe to WSJ: http://online.wsj.com?mod=djnwires
