Swisscom profit hit by charge

The telecommunications sector is becoming increasingly competitive swissinfo.ch

The leading telecoms group, Swisscom, has posted a 32 per cent drop in first-half profits which it says is mainly due to a one-off charge related to a fine.

The state-controlled company reported a SFr759 million ($617.2 million) net profit and a slight drop in revenues.

Core profit – earnings before interest, tax, depreciation and amortisation – fell by 17.5 per cent to SFr1.8 billion, a company statement said on Wednesday.

Analysts say the result is mainly due to a SFr180 million fine for overcharging other telecoms providers for interconnection services between 2000 and 2003.

“The one-off SFr180 million charge was expected, but what was not expected was the low profitability of IT services and the poor results in fixed net and mobile which took a lot of people by surprise,” Bank Vontobel analyst Panagiotis Spiliopoulos told swissinfo.

The Swiss telecoms giant faces increased competition from cable operator Cablecom, which offers telephony services, while fierce competition has led to falling charges in mobile telephony.

Swisscom has been at the centre of a political controversy over the past eight months.

Last November the government announced plans to sell its 62 per cent stake in Swisscom, and imposed a ban on major acquisitions abroad. Subsequently chief executive Jens Alder left the company and was replaced by Carsten Schloter.

But parliament in June stopped the unconditional privatisation project amid concerns that possible foreign owners would neglect the Swiss network.

Change

“The problems Swisscom had at the end of last year and the beginning of this year had absolutely no effect on these results,” said Spiliopoulos.

The analyst added that the regulatory environment had become less benign for Swisscom as evidenced by the SFr180 million charge. The risk profile always used to be very low for Swisscom, but this has now changed, he explained.

“This increased pressure from a regulatory perspective has come in addition to more price pressure from the competition and this has led to this underperformance in the market in the last 18 months. It is a new kind of reality,” added Spiliopoulos.

For his part, Swisscom CEO Schloter told reporters in a conference call that the results showed “more shade than light”.

Swisscom said it would launch a SFr2.25 billion share buyback programme in the next few weeks.

The company said it still expected sales of SFr9.5 billion for 2006 but anticipates a lower operating result of SFr3.7 billion.

swissinfo with agencies

Key facts

Swisscom figures for the first half of 2006:
Net profit: SFr759 million ($617.2 million) (-32%).
Earnings before interest, tax, depreciation and amortisation (Ebita): SFr1.8 billion (-17.5%).
Sales revenue: SFr4,773 million (-2,8%).

In brief

Swisscom is the dominant player in the Swiss telecommunications market.

It had a monopoly until 1998.

In November 2005 the government announced it wanted to sell its 62% stake. It also banned Swisscom from buying foreign companies, pulling the rug out from under a proposed takeover of Ireland’s Eircom.

But it later clarified its ban on foreign acquisitions, saying it only related to fixed-line operators.

In June 2006 parliament threw out privatisation plans amid concerns that foreign owners might neglect the Swiss network.