Swiss government’s push for LLU takes gloss off Swisscom’s ‘stable’ year

26 Mar 2003

Switzerland’s national PTO the Swisscom Group [NYSE: SCM] said it managed to plot a steady and moderately successful course in 2002 in an otherwise difficult trading climate, but its ardour has been dampened by the announcement of a new government directive on local loop unbundling – expected to come into force from 1 April this year – which is set to pave the way for the removal of its de facto monopoly on the provision of fixed line services. Swisscom said it increased revenues by 2.5% to CHF14.5 billion in 2002, kept its operating income stable at CHF4.4 billion and improved EBIT (before exceptional items) by 7.7% to CHF2.4 billion. On the downside, Switzerland’s largest telecoms service provider reported that its net income was adversely affected by a CHF702 million impairment charge booked against the goodwill of its German mobile reseller debitel; it said the charge reflected a further decline in anticipated future growth in the mobile communications market. Net income for the full year amounted to CHF824 million, compared with CHF4.96 billion the previous year.

In the fixed line segment Swisscom reported slightly lower revenues of CHF4.88 billion, although this was offset by an increase in sales from ISDN access services. The company also reported a dramatic increase in the number of ADSL connections made during 2002, ending the year with 195,220 customers compared with 33,379 previously. Meanwhile, the company’s mobile division Swisscom Mobile continued to help drive growth, reporting a 6.9% rise in subscribers to 3.6 million as the country’s mobile penetration level reached 77.6%. Revenues from wireless data communications services rose by 24.5% largely due to the continued popularity of SMS, while mobile voice revenues were also up by 3.7%. Swisscom said that increased data usage from such technologies as GPRS is expected to buoy further growth in 2003. Elsewhere, revenues from the group’s Enterprise Solutions division dipped by 8.1% to CHF1.37 billion, which the company attributed to the loss of some larger customers, tariff reductions, the national numbering plan, and price erosion in the managed network services segment. Internationally, Swisscom’s German mobile reseller debitel increased turnover by 8% but saw a 1.4 million reduction in its pre-paid customer base following an initiative to eliminate inactive users.

Despite Swisscom’s relatively solid if uninspiring performance, the results have been somewhat overshadowed by the Swiss government’s announcement that it now plans to open the ‘last mile’ and effectively end Swisscom’s de facto monopoly on the provision of local fixed line services, as soon as possible. Switzerland claims one of the world’s highest rates of fixed line penetration, at 72.45% at the end of September 2002 and, despite market liberalisation at the start of 1998, the sector remains in thrall to Swisscom, which has retained its stranglehold largely thanks to the reluctance of the regulators to impose local loop unbundling (LLU). However, in a surprise move the seven-member cabinet has said it now plans to pursue two options to enforce liberalisation for all participants without delay. As a result, a new LLU directive is set to come into effect on 1 April 2003 with the government saying it has commissioned the Ministry of Transport, Environment and Telecommunications to incorporate liberalisation into the ongoing revision of the telecoms law. The move is likely to be challenged by Swisscom in the courts.

CIT's Datafile of European Telecommunications