Royal KPN NV, the largest phone company in the Netherlands, reported an unexpected 1.7 percent drop in third-quarter profit on higher expenses, and said it will start a 1 billion-euro ($1.28 billion) stock buyback in November.

Net income fell to 349 million euros ($447 million) from 355 million euros a year earlier, KPN said in a statement today. Analysts predicted a 367 million-euro profit, the median of seven estimates in a Bloomberg News survey.

KPN is investing in television and Internet calls to make up for the loss of fixed-line phone customers. The Hague-based company bought Getronics NV, the largest Dutch computer-services provider, for 766 million euros last year. KPN today said it will ``comfortably'' achieve its 2008 forecast for earnings in the Netherlands.

``We believe investors should not set their hopes too high given current market turmoil,'' Rob Goyens, a Brussels-based analyst at Dexia, wrote in an investors' note dated Oct. 17.

On July 23, KPN raised its 2008 outlook for earnings before interest, tax, depreciation and amortization in the Netherlands to ``flat'' from an anticipated decrease.

Sales in the third quarter climbed 21 percent to 3.63 billion euros, matching analyst estimates, helped by the Getronics acquisition.

KPN shares have fallen 21 percent this year, compared with a 35 percent slide for the Bloomberg Europe Telecommunication Services Index.

Share Buyback

The share buyback will run through the end of 2009, ``assuming no material further deterioration of financial markets in the period.'' KPN said on Sept. 22 it completed the 1 billion- euro buyback it had started seven months earlier.

On Sept. 10, KPN said it plans to offer wireless services in France via the network of Bouygues SA, France's third-largest mobile-phone company. France will be the fifth European country where KPN sells such services, following the Netherlands, Belgium, Germany and Spain.

The company today confirmed its 2010 targets. It has said sales will exceed 15 billion euros in 2010, up from 12.6 billion euros last year. The dividend per share will rise to 80 cents from 54 cents in 2007. From 2008 through 2010, free cash flow will top 2.4 billion euros a year.

Source:Bloomberg