Why Swisscom is looking like a class act

Swisscom, the incumbent operator in Switzerland, released its full year results today. Revenues were up 14.9% year-on-year to €7,020 million (CHF 11,089 million) and EBITDA increased 18.9% to €2,850 million (CHF 4,501 million). Net income increased 29.4% to €1,309 million (CHF 2,068 million).

Comment: Swisscom has had a busy year, with the acquisition of Fastweb (Italian altnet) and the repurchase of a stake in its mobile unit - Swisscom Mobile. With these acquisitions having taken place during 2007, it is not surprising to see revenues increase year-on-year. What is more surprising is that Swisscom has managed to stay focused during this time and implement organisational changes at the company, which have led to improved profitability.

This in itself is some achievement, but Swisscom has managed something even more remarkable for a Western European incumbent and that is to generate positive customer growth across its fixed business. Swisscom has gained more broadband customers than it has lost fixed voice customers, recording 3.4% year-on-year growth in customer lines. Unfortunately, this was still not enough to stem the decline in fixed revenues, which fell 4.5% to €2,832m (CHF 4,474m), proving what a difficult task incumbent operators face in trying to keep their fixed business growth positive.

In other areas of the business, mobile revenues increased by 1% to €2,542 million  (CHF 4,015 million), and Solutions (Swisscom's ICT business unit) revenues remained flat at €775 million (CHF 1,224 million). What is interesting with the Solutions unit is that despite the lack of revenue growth, EBITDA improved by 60% from €44 million to €71 million due to cost savings and an improved focus on higher-margin products and services. Like BT, Swisscom has placed high emphasis on ICT and is investing heavily in updating its network and providing better services for customers.

As for its outlook for 2008, Swisscom expects to see revenue growth of around 11% to €7.8 billion (CHF 12.3 billion) and EBITDA growth of around 6.5% to €3 billion (CHF 4.8 billion), which seems realistic allowing for the impact of Fastweb for a full year. In terms of strategy, Swisscom is focusing on improving customer service by opening more shops, developing its Bluewin TV proposition and scaling back in areas such as directory enquiries where demand is declining. All this seems sensible in an industry where price is becoming less of a differentiator and quality of service is key.

Sally Banks, Senior Analyst

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