Swisscom feels the heat of competition

Swisscom's Carsten Schloter says prices will continue to fall Keystone

Switzerland’s largest telecommunications company, Swisscom, has admitted that competition-driven price cuts will continue to eat away revenues this year.

The group’s revenues dropped 1.6 per cent to SFr12 billion ($11.1 billion) in 2009 but profits rose nearly ten per cent to SFr1.9 billion thanks to a decrease in one-off charges from the previous year.

The former state monopoly, which is still majority owned by the government, is facing increasing competition across the cable television, fixed line and mobile phone sectors.

The Swiss Competition Commission is currently examining plans by France Telecom-backed Orange to buy Switzerland’s second largest mobile phone provider, Sunrise.

This follows the acquisition of cable television company Cablecom by American giant Liberty Global in 2005.

Across the board, France Telecom and Orange command more than six times the revenues of Swisscom, while Liberty Global has a massively higher international market penetration in the fields of broadband internet and cable television.

Both giants share a similar strategy to Swisscom but have far more resources to back up their plans.

Swisscom chief executive Carsten Schloter admitted that the advent of a new generation of smartphones, such as the iPhone 3G, had also increased the pressure as users shopped around for the best provider.

Price erosion to continue

“In such a market you must accept that prices are going down. At the end of the day it is a question of what speed they are going down and are you able to realise a premium compared to your competitors,” he told swissinfo.ch.

“We are convinced this is fundamentally dependent on your innovation capacity and even more on your service capability.”

Swisscom revealed at a presentation of its annual results in Zurich on Thursday that such price cuts could no longer be offset by growth within Switzerland. Increased revenues from new customers and products fell SFr282 million short of covering price cutting losses last year.

The group shed more than 450 jobs last year but Schloter would not say how operational expenses would be kept down in future.

“The price erosion in Switzerland will continue and we will not be able to offset the whole of this revenue decline on the cost side,” he said. “If we tried to do so we would manage our company in a very short-term way, endangering its competitive position in the future.”

On the positive side, revenues increased 3.2 per cent at Swisscom’s Italian subsidiary Fastweb, from SFr2.7 billion in 2008 to SFr2.78 billion last year. A further leap in income from the broadband operator this year is expected to stabilise the group’s financial situation.

Foreign acquisitions limited

Ironically, Swisscom was prevented from acquiring foreign targets by the Swiss government in 2005. This block on strategy led to the demise of Schloter’s predecessor, Jens Alder, the following year.

The government relaxed its standpoint in 2007 to allow the takeover of Fastweb, which has proved a successful generator of revenues.

Schloter said any future acquisitions would be confined to the Swiss and Italian markets.

“If there are options that would allow us to strengthen our position in Switzerland in new markets, for instance in IT, or in the fixed line business in Italy we would look at them, and if they were reasonable we might go for them,” he said.

“We have to focus our limited financial flexibility to developing these two markets. This is not a limitation imposed by the government.”

Swisscom said it would continue to develop niche areas, such as services for the hospitality and healthcare sectors. But the biggest growth is expected in the field of IT and TV services, where subscribers to its television services nearly doubled last year to 230,000.

But a further drag on finances might come in the shape of a SFr220 million fine imposed by the Competition Commission last year for alleged anti-competitive behaviour. The result of an appeal is expected this year.

Matthew Allen in Zurich, swissinfo.ch

Swisscom group 2009 results (including Fastweb)

Net revenues: SFr12 billion (down 1.6%)

Earnings before interest, taxes, depreciation and amortization (EBITDA): SFr4.7 billion (down 2.6%).

Profits: SFr1.9 billion (up 9.9%).

DSL broadband customers: 1.8 million (up 2.7%)
TV customers: 230,000 (up 94.9%)

Mobile phone subscribers: 5.6 million (up 4.5%)

Employees: 19,479 (down 2.3%)

Projected group revenues 2010: SFr12 billion (Swisscom SFr9.15 billion, Fastweb €1.95 or SFr2.85 billion at current exchange rate)

The competition

Swisscom, the dominant telecommunications provider in Switzerland, is 62% owned by the government.

It enjoys a roughly two-thirds market share in the fixed telephone and mobile phone sectors. It also has number one status in the field of high speed internet access.

However, competition has been heating up in recent years. In 2005, US broadband company Liberty Global bought out cable TV operator Cablecom.

Last year, mobile phone company Orange (owned by France Telecom) announced plans to buy out Switzerland’s second largest company in this field – Sunrise. The proposed acquisition has yet to be approved.

Swisscom was thwarted in its 2005 strategy to expand overseas with foreign acquisitions.

The government block on proposed deals led to chief executive Jens Alder departing the company, to be replaced by Carsten Schloter.

Two years later, Swisscom bought out Italian broadband operator Fastweb.