Swisscom confident on future – whatever it is

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The head of Switzerland’s largest telecoms company says it will still be a market leader in ten years’ time – it’s just harder to say in which market.

In an interview with swissinfo, Jens Alder explains how Swisscom plans to develop the lucrative market for broadband television services and go head to head against its rival Cablecom.

The former state monopoly has just launched a “digital hard disc recorder” that relies on Cablecom’s cable TV network. The move comes as Swisscom resists plans to open the “last mile” on its own telephone network.

The last mile refers to the telecommunications technology that connects the customer’s home directly to the cable or telephone operator.

The company is also considering its options abroad. CEO Alder says Swisscom’s core domestic business is sustainable without foreign expansion – but expansion is still necessary to increase long-term corporate value.

The operator’s annual results published on Thursday showed net profit failing to increase significantly and operating profit falling.

However, Alder says that Swisscom – which is bidding for Czech telecoms operator Cesky Telecom – has learned the lessons of past expansion attempts, particularly the multi-billion loss resulting from the sale of German mobile operator debitel.

swissinfo: Swisscom’s past attempts at expansion abroad have not exactly been a great success. Why should Cesky Telecom be different?

Jens Alder: It would be the first time we acquire an incumbent company, and that is a business we perfectly understand. Debitel, for instance, was a completely different business model.

Second, an investment in the European Union is much more stable and predictable than one in, for instance, India or Malaysia.

Third, we learned from the past that [such an acquisition] is not an absolute strategic necessity to ensure our survival in Switzerland. Therefore, if an auction should go beyond what we believe is a reasonable price, we will simply not make a bid.

swissinfo: Domestically, you have just announced the first stage of your move into the television market – via cable. Why not a direct move into TV via ADSL?

J.A.: It is a tactical move, because our long-term goal is obviously to replace cable on the last mile and just have our network, including television services. But, because it will take a number of years to reach a significant number of households with our own physical infrastructure, we came up with this little innovation to show existing TV customers that there is a different way of watching TV.

[The message is that] this is provided not by your cable operator but by Bluewin [part of Swisscom] – which, by the way, will hopefully be your partner for TV services in the longer run. It’s tactical, it’s competitive, and it’s certainly innovative.

swissinfo: Is it not also somewhat unfair? You’ve always opposed opening up the last mile to competitors, but now you’re moving in on rival Cablecom’s “last mile”.

J.A.: What is unfair? This is competition on the last mile, as opposed to regulation on the last mile. What you see from this is that competition on the last mile apparently drives innovation, apparently brings better service levels to the customers – something that doesn’t happen in regulated countries around us.

When you look at the EU countries where there is [such] regulation, you see that the effect is worse than for Switzerland, where we have the highest penetration of broadband internet access. So, I would say this is proof we don’t need regulation – just let competition play.

swissinfo: What do you think is the biggest risk facing you at the moment?

J.A.: Regulation. Regulation is unpredictable. I see, for instance, from the current discussion on the last mile that the motivation is political, not economic. As soon as you get into a political game, [things] become unpredictable, and you have a risk factor.

swissinfo: Looking ahead, you forecast another slight drop in operating profit for 2005. Is what we’re seeing here a slow but steady erosion of competitive advantage?

J.A.: I would say the operating margin last year was probably exceptionally good. That is one reason why I would call last year a successful year for Swisscom. Swisscom Fixnet countered the overall industry trend by more or less staying flat on revenues and even being able to increase earnings before interest, tax, debt and amortisation – something that is actually not expected in this business.

So, going forward, in Swisscom Fixnet I would say that it will not be possible to keep the absolute level of earnings, but it should be our ambition to remain stable with the [operating] margin.

swissinfo: How do you see Swisscom’s future developing over the next decade?

J.A.: In ten years’ time, the world will look completely different. But, looking at what we are doing today, I think we have reason to believe that we will still be a strong, successful and very competitive company ten years from now, without knowing at all what exactly we will be doing and how we will be earning our money.

swissinfo-interview: Chris Lewis in Zurich

Key facts

2004 revenue: SFr10.057 billion (+0.3%)
EBITDA: SFr4.40 billion (-2.2%)
EBIT: SFr2.71 billion (-4.0%)
Net profit: SFr1.59 billion (1.6%).
Net profit per share: SFr24.63 (+3.9%).
Dividend: + SFr1 per share (7.7%)
ADSL accesses: 802,000 (+64.7%)
Mobile customers: 3.9 million (+3.0%).
Full-time employees at December 31, 2004: 15,477 (-3.7%).

In brief

Alder says Swisscom’s bid for Cesky Telecom is an attempt to add long-term value – but it will walk away if the price is not right.

He says he is confident about Swisscom’s future, although it is almost impossible to predict longer-term market developments.

Alder adds that the biggest risks come not from competition, but from regulation.