Swisscom’s financial position, results of operations and cash flows are primarily influenced by macroeconomic factors, notably economic trends, interest rates, exchange rates and the capital markets.
Switzerland enjoyed robust economic growth in 2014, thanks in large measure to strong domestic demand. Gross domestic product (GDP) rose by 1.8%. In Europe, inflation rates are low and economic development has plateaued. The risk of a phase of consistently low growth is still present. Following the steep rise in the value of the Swiss franc in January 2015, the risk of a pronounced economic downturn or even a recession has increased.
The bulk of Swisscom’s revenue stems from telephony, broadband services and digital TV – services based on fixed monthly fees and subject to low cyclical fluctuations in demand. By contrast, project business with business customers and international roaming are affected by cyclical factors.
For many years, the general level of interest rates in Switzerland has been lower than in most other industrialised countries. In 2014, the main national banks adhered to their low-interest policy and, after edging up slightly in 2013, interest rates dropped relatively strongly during the reporting year. Consequently, the yield on ten-year Confederation bonds had fallen to only 0.36% by the end of 2014. In January 2015, the downward movement in interest rates resumed, and yields on ten-year Confederation bonds turned negative.
In the year under review, Swisscom capitalised once more on the continuing low-interest phase by entering into two financing transactions: Swisscom took out loans of EUR 500 million and CHF 360 on, with terms between 7.5 and 15 years, at advantageous interest rate conditions. Average interest rate expense on all financial liabilities in 2014 was 2.5%. Market-based interest rates influence the measurement of various items in the Swisscom consolidated financial statements, such as the weighted average cost of capital (WACC) used to measure goodwill impairment for the Italian subsidiary Fastweb, the discount rates for defined benefit obligations, and non-current provisions for dismantlement and restoration costs. In addition, Swisscom has concluded in the past interest rate swaps with long terms to maturity which are not classified under hedge accounting. Changes in market interest rates can result in high fluctuations in fair values charged to income.
There was only a minimal change in the value of the Swiss franc against currencies of key relevance for Swisscom’s operations in 2014. On 15 January 2015, the Swiss National Bank (SNB) announced it would no longer defend the minimum CHF/EUR exchange rate of 1.20. As a consequence, the Swiss franc appreciated substantially against all major currencies.
Swisscom’s business activities in Switzerland are not materially influenced by currency movements. Only a small share of revenue is generated in foreign currencies. Handset and technical equipment procurement as well as roaming charges incurred for the use of fixed and mobile networks abroad by Swisscom customers give rise to transaction risks in foreign currencies (notably EUR and USD). These risks are partly hedged by forward foreign exchange transactions.
Swisscom finances itself primarily in Swiss francs. At the end of 2014, financial liabilities amounted to CHF 8.6 billion, of which 80% was in CHF, 18% in EUR and 2% in USD. Currency translations in respect of foreign Group companies, in particular Fastweb in Italy, affect the presentation of the financial position and results of operations in the consolidated financial statements. Cumulative currency translation adjustments in respect of foreign subsidiaries recognised in consolidated equity amounted before deduction of tax effects to CHF 2.0 billion in 2014 (prior year: CHF 1.9 billion). In 2015, there is a risk that with the abandonment of the minimum EUR exchange rate, cumulative currency translation adjustments not affecting income may increase and that the EBITDA contribution of Fastweb will be reduced by the currency conversion.
International equity markets performed positively in 2014. The SMI rose by 9.5%. Swisscom holds surplus liquidity in the form of cash and cash equivalents and short-term money-market investments. There are only insignificant direct financial investments in equities or other non-current financial assets. comPlan, Swisscom’s legally independent pension fund in Switzerland, has total assets of around CHF 9.0 billion invested in equities, bonds and other investment categories. These assets are exposed to capital market risks. This indirectly affects the financial position presented in Swisscom’s consolidated financial statements. The prices of Swiss shares plummeted following the SNB’s abandonment of the minimum EUR exchange rate in January 2015.
Legal and regulatory environment
Swisscom’s legal framework
Swisscom is a public limited company with special status under Swiss law. It is organised in compliance with the Telecommunications Enterprise Act (TEA), company law and the company’s Articles of Incorporation. Its business operations are governed primarily by telecommunications and broadcasting legislation. Swisscom is also subject to rules governing business as a whole, namely competition law. As a stock-exchange-listed company, Swisscom is also required to comply with capital market legislation as well as with the Federal Ordinance against Excessive Compensation in Listed Stock Companies.
Telecommunications Enterprise Act (TEA) and relationship with the Swiss Confederation
As of 1 January 1998, the former operations of Swiss Telecom PTT were legally transformed into “Swiss Post” and “Swisscom Ltd” (hence the term “public limited company with special status”). Under the terms of the TEA and the company’s Articles of Incorporation, Swisscom is responsible for the provision of domestic and international telecommunications and broadcast services as well as related products and services. The TEA requires the Swiss Confederation to hold a majority of the capital and voting rights in Swisscom. For the Swiss Confederation to give up its majority shareholding, the TEA would need to be amended. Swisscom is also obliged to draw up a collective employment agreement in consultation with the employee associations. Every four years the Federal Council defines the goals which the Confederation as principal shareholder aims to achieve. These include strategic, financial and personnel policy goals as well as goals relating to partnerships and investments. To guarantee transparency, the goals are made public to other investors. The aims of the Confederation are incorporated in the strategic and operating targets set by the Swisscom Board of Directors. For the year under review, the goals for the period 2014 to 2017 are relevant. The Federal Council has set the following financial goals for Swisscom:
- Increase enterprise value over the long term. Deliver a total shareholder return (dividend payout and share performance) on a par with that of comparable telecoms companies in Europe.
- Pursue a dividend policy that follows the principle of consistency and guarantees an attractive dividend yield commensurate with other stock-exchange-listed companies in Switzerland. It should reflect the requirements of a sustainable investment policy, a risk-appropriate, industry-standard equity ratio and easy access to capital markets at all times.
- Aim for a maximum net debt of 2.1 times EBITDA (operating income before depreciation and amortisation). This ratio may be temporarily exceeded.
The Federal Council also expects Swisscom to enter into partnerships (participations, alliances, foundation of companies and other forms of cooperation) only if they promote a sustained increase in enterprise value, can be managed according to good practices and take sufficient account of the risk aspect. No interests may be held in foreign telecoms companies with a universal service obligation. Other interests in foreign companies may be acquired if they support the core business in Switzerland or are otherwise a strategic fit.
Telecommunications Act (TCA)
The Telecommunications Act governs the conditions under which market-dominant providers of telecoms services are required to make their network available to other providers. The Act covers a comprehensive catalogue of access types and in the connection area is restricted to copper cables. The access services cited in the Act must be offered at regulated conditions and above all at cost-based prices. In addition to network access, the Act governs universal service provision, laying down the framework for the reliable and affordable provision of basic telecommunications to all sections of the population in all regions of the country. The scope of services as well as the related quality and pricing requirements are determined periodically by the Federal Council. Among other things, universal service provision covers guaranteed nationwide access to a broadband connection with a download speed of at least 1 Mbps (2 Mbps as of 1 January 2015). The universal service provision licence granted to Swisscom in 2007 by the Federal Communications Commission (ComCom) runs until 2017. To date, Swisscom has fulfilled the requirements of the universal service provision licence according to the quality criteria laid down by the TCA without complaints and without financial compensation. The Telecommunications Act also governs conditions for use of the radio frequency spectrum.
Competition law/Federal Cartel Act
The Cartel Act prohibits anti-competitive agreements between companies, provides for sanctions in the event of abuse by companies of their market-dominant position, and prohibits business combinations that result in the elimination of competition. Discrimination of trading partners with respect to prices or other business conditions is considered to be an example of abuse.
Capital market law
The shares of Swisscom Ltd are listed on the SIX Swiss Exchange in Zurich. In addition, Swisscom has issued debenture bonds which are traded on the SIX Swiss Exchange. Swisscom is therefore required to comply with Swiss stock market legislation and regulations. Among other things, it is subject to regulations governing accounting and financial reporting as well as rules relating to ad-hoc publicity and the disclosure of transactions in Swisscom securities by members of the Board of Directors and the Group Executive Board. Shareholdings in Swisscom must also be disclosed if they exceed, fall below or meet a certain limit.
Ordinance Against Excessive Compensation in Listed Stock Companies (OaEC)
The OaEC entered into force on 1 January 2014. Members of the Board of Directors (including the Chairman) as well as members of the Compensation Committee and the independent proxy must be elected on an annual basis by the Annual General Meeting. For members of the Board of Directors and the Group Executive Board it is prohibited to award severance payments, advance compensation and bonus payments for company acquisitions and disposals. The Board of Directors is required to prepare a written compensation report as of the 2014 financial year. Shareholders must vote on total compensation for the Board of Directors and the Group Executive Board starting from the 2015 Annual General Meeting. The Articles of Incorporation and regulations must be revised in line with the provisions of the Ordinance by no later than the 2015 Annual General Meeting. Swisscom amended the relevant Articles of Incorporation and regulations in the course of 2014. The OaEC stipulates certain types of abuse that constitute an offence punishable by law.
Regulatory developments in Switzerland in 2014
Ongoing proceedings relating to telecommunications and competition legislation
In recent years, a number of proceedings relating to telecommunications and competition law have been initiated against Swisscom. Ongoing proceedings are described in Notes 28 and 29 to the consolidated financial statements.
“Pro Service Public” initiative
The people’s initiative “Pro Service Public”, submitted in June 2013 by a Swiss consumer magazine, calls for the Swiss Confederation to desist from seeking profit, cross-subsidising or pursuing fiscal interests and to bring the wages of employees in government-associated companies in line with those of federal employees. The Federal Council rejected the initiative in its message of May 2014, without counterproposal. The Council of States followed suit in the autumn of 2014.
2014 Telecommunications Report – revision of the Telecommunications Act (TCA)
In November 2014, the Federal Council published its third Telecommunications Report, the conclusions of which supported a revision of the Telecommunications Act. The Federal Council seeks to approach the revision in two stages. The first stage will be confined to the most pressing problems. The second stage will involve a system change in relation to the access regime and fundamental amendments regarding universal service. The 2014 Telecommunications Report underscores the good market conditions. Switzerland is regularly ranked among the leading countries in terms of investment, broadband penetration and effective transmission speeds. The report describes infrastructure competition (i. e. competition between the various networks) as the primary driver of market development. The Federal Office of Communications (OFCOM) is aiming to formulate the priority areas for the first stage of the revision and will prepare a draft bill by the end of 2015. The subject of this bill will be the introduction of an official (ex officio) option to regulate. This would constitute a deviation from the established primacy of negotiation, according to which regulation is resorted to only if the parties are unable to agree on the aspects of regulated access (ex post). In addition, roaming is to be billed by the second rather than by the minute. In terms of net neutrality, the Federal Council is aiming to introduce certain regulations governing the transparency of the bandwidth to which customers subscribe. With this in mind, at the beginning of November 2014, the main telecoms providers Swisscom, Orange, Sunrise, upc cablecom and the Swisscable Association signed a voluntary open Internet code of conduct under which all users are ensured the freedom to use the content, services, applications, hardware and software of their choice. No services or applications shall be blocked as a matter of principle. Moreover, the telecoms providers confirmed their support of unrestricted freedom of information and the free expression of opinion. The code of conduct also states that providers may continue network management for the purpose of quality assurance and provision of services tailored to end users’ needs, and that users can ask their provider whether and to what extent the capacity available through their Internet connection is shared with services other than Internet services.
Revision of the Ordinance on Telecommunications Services (OTS)
The revised Ordinance on Telecommunications Services (OTS) came into force on 1 July 2014. It requires an amendment to the cost calculation models for regulated access services, resulting in a price reduction of around 10% for these services. In addition, as of 1 January 2015, the download speed for basic-service broadband provision was raised from a minimum of 1 Mbps to 2 Mbps.
There are two pending motions in Parliament which aim to regulate roaming along the same lines as in the EU. They call for the Federal Council to fix binding maximum tariffs to be adopted by all telecoms providers for incoming and outgoing calls, SMS messages and data transfers via mobile devices when used abroad. The Council of States suspended both motions, which are similarly worded. After the 2014 Telecommunications Report was published, the debate on the two motions was resumed.
In June 2014, the National Council voted in favour of a motion calling for net neutrality. The Advisory Commission of the Council of States suspended the motion in August 2014 in order to enable the findings of the Federal Council’s Telecommunications Report to be included in the consultation. The motion calls for the Federal Council to enshrine net neutrality in law, in order to ensure the transparent and non-discriminatory transfer of data over the Internet.
Copyright protection – tariff proceedings
Joint tariff 12 for the recording of TV programmes and replay TV has been in force since mid-September 2014. The Federal Administrative Court rejected the objection to the tariff lodged by Pro7/Sat1, as a result of which catchup TV may continue to be offered in Switzerland without agreements with the channels, simply by paying a charge to the copyright collecting agencies.
Since 2009, the copyright collecting agencies had been negotiating with the user associations on Joint tariff 4e concerning a tariff as compensation for copyright-protected works stored on mobile phones. Despite the various proceedings pending before the Federal Administrative Court in this context, the parties came to an agreement in 2014. The agreement retrospectively covers the tariff for the period between July 2010 and the end of 2014 as well as the tariff valid from 1 January 2015. The pending proceedings have been settled.
Revision of the Federal Law on the Monitoring of Postal and Telecommunications Traffic (BÜPF)
In February 2013, the Federal Council submitted to Parliament its message proposing a revision of the BÜPF. The aim of the revision is to ensure that the required monitoring cannot be prevented through the use of modern technologies. The current fee and payment model for telecommunications services would be retained. The bill is still under discussion in Parliament.
Regulatory differences between Switzerland and the European Union
In the European Union (EU), the regulatory authorities have extensive powers to analyse markets and impose on market-dominant companies obligations relating to non-discrimination, transparency and forms of access (“ex-ante regulation”). The Swiss regulator has rejected this type of practice, opting instead for ex-post regulation (primacy of negotiation and appeal principle) on the grounds that market conditions in Switzerland differ from those in most EU member states. The Swiss market is characterised by virtually nationwide competition between Swisscom and the cable network operators. Municipal and regional power utility companies have also now entered the market. The market situation prevailing in Switzerland therefore necessitates a different set of regulations from those in place in countries such as France and Italy, where no platform competition has evolved due largely to the existence of a single network provider.
Legal and regulatory environment in Italy
Fastweb’s legal framework
As a member of the European Union, Italy is required to bring national legislation into line with the European legislative framework. The Italian telecoms regulator Autorità per le Garanzie nelle Comunicazioni (AGCOM) has the task, based on an analysis of the markets defined by the European Commission, of imposing regulatory requirements on companies. Drafts of such requirements and corresponding regulations must be submitted to the European Commission and the regulatory authorities of the other member states, who have the right to comment on or veto the draft. The business operations of Swisscom’s Italian subsidiary Fastweb are therefore heavily influenced by Italian and European telecommunications legislation and its application.
Regulatory developments in Italy in 2014
In 2014, AGCOM continued its work on the market analysis for wholesale markets, which will determine the regulatory guidelines for the next three years. A new consultation document is to be adopted in early 2015. The final decision will be taken in mid-2015.
AGCOM confirmed that the glide path would be applied for fixed network termination prices for 2013 to 2015. This glide path is based on the assumption of a migration to efficient, IP-based architectures. Since July 2013, the applicable price for all fixed network operators has been EUR/cent 0.104 per minute. From 1 July 2015, this will gradually decrease to EUR/cent 0.043 per minute.
In 2014, the Italian Federal Administrative Court (Consiglio di Stato) partially annulled AGCOM’s decision on applicable prices between May 2009 and December 2012. In response, AGCOM started consultations on a revision of wholesale prices. The Consiglio di Stato also questioned AGCOM’s decision to impose no cost basis on WLR and bitstream services and found that some cost elements used for pricing unbundled subscriber connections (LLU) had been overestimated. A final decision is expected in 2015.
AGCOM also launched a new market analysis of mobile termination prices, which is scheduled for completion in 2015.
Swisscom stakeholder groups
Swisscom fosters dialogue with its most important stakeholder groups through various channels: via electronic media, over the phone, through surveys, information events, business meetings, road shows and conferences, as well as in customers’ homes and in the Swisscom Shops.
Swisscom systematically consults residential customers in order to identify their needs and determine their satisfaction. Customer relationship managers, for example, gather information on customer needs in the course of direct contact with customers. Representative customer satisfaction surveys are also regularly conducted, among other things to determine the extent to which customers perceive Swisscom as an environmentally responsible, socially aware company. Quarterly surveys are conducted among business customers that include questions about sustainability. Swisscom also maintains regular contact with consumer organisations in all language regions of Switzerland and runs blogs as well as online discussion platforms. The overall findings show that Swisscom customers expect attractive pricing, good service, market transparency, responsible marketing, comprehensive network coverage, network stability, low-radiation communication technologies and sustainable products and services.
Shareholders and external investors
Swisscom pursues an open and ongoing information policy vis-à-vis the general public and the capital markets. It publishes comprehensive financial information on a quarterly basis. Swisscom also meets investors regularly throughout the year, presents its financial results at analysts’ meetings and road shows, attends expert conferences for financial analysts and investors, and keeps its shareholders regularly informed about its business through press releases. Swisscom also fosters contacts with numerous external investors and rating agencies. Shareholders and external investors expect above all profitability and innovation from Swisscom.
Swisscom maintains regular, close contact with various public authorities. A key issue in its dealings with this stakeholder group concerns mobile network expansion. Mobile communications and mobile applications are growing in popularity, but acceptance of the expansion of the infrastructure that is required to provide them is sometimes lacking. Because of the different interests at stake, network expansion can give rise to tensions. For many years, Swisscom has therefore engaged in dialogue with residents and municipalities on network planning, which in the case of construction projects gives the parties affected an opportunity to suggest suitable alternative locations. Swisscom also liaises regularly with public authorities in other areas and on other occasions: for example, it invites ICT heads of the cantonal education authorities to an annual two-day seminar on the subject of “Internet for Schools”. As a stakeholder group, public authorities expect Swisscom to act decisively in the way it honours its responsibility towards the public at large and towards young people in particular.
Swisscom is required to deal with political and regulatory issues, advocating the company’s interests vis-à-vis political parties, public authorities and associations. Legislators expect compliance, comprehensive network coverage and technology leadership from Swisscom.
Swisscom’s procurement organisations regularly deal with suppliers and supplier relationships, analysing the results of evaluations, formulating target agreements and reviewing performance. Once a year, they invite their main suppliers to a Key Supplier Day. The focus of the event is on risk mitigation and responsibility in the supply chain. In the interests of maintaining dialogue with global suppliers, Swisscom also relies on international cooperation within the relevant sectors.
Swisscom maintains close contact with the media, seven days a week. Its relationship with the media is informed by professional journalistic principles. In addition to the Media Office, representatives of management maintain a regular dialogue with journalists and make themselves available for interviews and more in-depth background discussions.
Employees and employee representation
In order to meet its mandate and live up to its customer promise, Swisscom relies on fully committed, responsibly-minded employees who think and act proactively. It is our employees who transform Swisscom into a tangible experience for customers. Swisscom gains valuable information from dialogue between employees and customers. The information gathered at the customer interfaces flows back to the company and allows Swisscom to continually improve its products and services. Using a wide range of communications platforms and activities, Swisscom promotes a corporate culture that encourages dialogue and cross-collaboration within the company. Every two years, Swisscom conducts an employee survey, the results of which provide ideas for new projects and measures. Helping to shape Swisscom’s future is one of the most important tasks of the Employee Representation Committee. Twice a year, Swisscom organises a round-table meeting with the employee representatives. Employee concerns mainly relate to social partnership, training and development, diversity, and health and safety at work. Swisscom engages in dialogue with teams from all organisational units on sustainability issues, under the motto “Hello Future”. Through this dialogue, Swisscom keeps its employees up to date on its commitments in the area of sustainability and motivates them to implement sustainability measures in their daily work and life.
Partners and NGOs
Swisscom believes in the importance of sharing insights and information with partners and NGOs within the framework of projects; for example, with WWF Climate Savers, myclimate, the Swiss Child Protection Foundation and organisations that address the specific needs of affected groups. Active partnerships and Swisscom’s social and ecological commitment are especially relevant for this stakeholder group.
Market trends in telecoms and IT services
Swiss telecoms market
Switzerland has three mobile networks and several transport and access networks in the fixed network area. TV signals in Switzerland are transmitted terrestrially via antenna as well as satellite. The Swiss telecoms market is highly developed by international standards. It is characterised by innovation, a wide range of voice and data services and television signal broadcasting. Total revenue generated by the telecoms market in Switzerland is estimated at around CHF 13 billion. The market is in a state of transition, driven by the growing convergence of telecommunications, information technology, media and entertainment. More and more new global competitors are entering the Swiss telecoms market, offering free and paying Internet-based services including telephony, SMS messaging and TV. Cloud solutions are also playing an ever more important role, with storage capacity, processing power, software and services all relocating to an increasing degree to the Internet. Customers’ needs also continue to change as more and more switch to flat-rate monthly subscriptions. Increasingly, they are accessing data and applications from just about anywhere and at any time using a whole range of different Internet-enabled devices. The result is a rapid growth in demand for high bandwidths that enable fast, high-quality access. To address this trend, Swisscom is building the network infrastructure of the future. Swisscom is tackling the relentless growth in data traffic by continuously expanding fixed broadband access and further expanding new technologies in the mobile network such as 4G/LTE (Long Term Evolution). In addition, Swisscom’s bundled offerings combine different technologies such as fixed-line access with telephony, Internet and TV, plus the option of a mobile line. The Swiss telecoms market can thus be broken down into the following submarkets of relevance to Swisscom: mobile, fixed-line, broadband and TV.
Mobile communications market
Three companies operate their own wide-area mobile networks in Switzerland: Swisscom, Orange Switzerland and Sunrise. In December 2014, Apax Partners announced that it would consent to the sale of Orange Switzerland to NJJ Capital, the private holding company of Xavier Niel, subject to the approval of the responsible authorities. In early 2015, Sunrise announced that it plans to list the company on the Swiss stock exchange (SIX Swiss Exchange). Another major market player, upc cablecom, has been offering its own mobile services (MVNO, mobile virtual network operator) via Orange Switzerland’s networks since the spring of 2014. However, these offerings are currently limited to existing and new upc cablecom customers with at least one additional digital product. While GSM network coverage is close to 100% of the population, the demands on mobile networks continue to grow. To continue offering customers optimum data connectivity, Swisscom is investing in new mobile technologies such as 4G/LTE. At the end of 2014, 97% of the Swiss population had access to the latest-generation mobile network. At 0.8%, growth in mobile lines (SIM cards) in Switzerland was once again slow in 2014 due to the already high market penetration. Together, the three network operators have a combined total of more than 11 million mobile lines; penetration in Switzerland is around 136%. The technical possibilities offered by mobile communications are increasing due to the rapid spread of smartphones. Swisscom’s infinity tariffs reflect customers’ changing needs. These subscriptions allow Swisscom customers to make unlimited phone calls and send unlimited SMS messages to all Swiss networks, as well as unlimited Internet surfing at flat rates. The individual subscriptions mainly differ in terms of mobile data speeds. At the end of 2014, 2.1 million customers were using the new infinity offerings. For occasional mobile network users, Swisscom provides prepaid offerings with no monthly subscription fee, so that they are charged only as and when they access the network. Swisscom makes its mobile network available to third-party providers (MVNO, mobile virtual network operators) so that they can offer their customers proprietary products and services via the Swisscom network.
In 2014, Swisscom’s market share remained relatively stable at 59% (postpaid 64%, prepaid 50%). The 60% market share reported by Swisscom for 2013 is not comparable with the 2014 figure due to the application of different measurement methods. The percentage of postpaid customers in Switzerland is around 61%. As in previous years, prices for mobile services continued to be squeezed by competition.
Fixed-line telephony is mainly based on lines running over the telephone network and cable networks. The number of Swisscom fixed lines is steadily declining. This trend continued in 2014, with the number of fixed lines falling by around 4% to 2.8 million mainly due to the substitution of fixed lines by mobile communications and the slight reduction in market share. At the end of 2014, the number of unbundled fixed lines totalled 180,000. As a result of rapid technological developments and the changeover to IP telephony, fixed-line telephony will in future more often be offered on the basis of a broadband access line.
The most widespread access technologies for fixed broadband in Switzerland are telephone-network-based infrastructures and cable networks. Like in the mobile communications market, the broadband market’s demands on networks are also increasing. To meet these expectations, Swisscom is upgrading its network infrastructure with state-of-the-art fibre-optic technology. At the regional level, this important technological change is attracting new market players such as municipal utilities. At the end of 2014, the number of retail broadband lines in Switzerland totalled 3.5 million or around 73% of all Swiss homes and offices. Switzerland therefore leads the way internationally in terms of broadband access market penetration. Swisscom’s offerings reach more than 98% of the Swiss population.
The number of broadband lines increased by around 4% in 2014 (prior year: around 4%). As in the previous year, growth in broadband access lines provided by cable network operators outpaced that of the telephone-based broadband access lines of telecoms providers. Telecoms providers accounted for more than a quarter of new broadband access lines in 2014, corresponding to a market share of all broadband lines of around 67%. Of these, 54% (prior year: 54%) were for Swisscom end customers and 13% (prior year: 15%) for Swisscom wholesale offerings and fully unbundled lines. Broadband is increasingly becoming the basic Internet access for households, through which customers can access additional services or bundled offerings.
Digital TV market
In Switzerland, TV signals are transmitted via cable, broadband, satellite, antenna (terrestrial) and mobile. The importance of digital television continues to grow, as does its market penetration. At the same time, other national and international operators are penetrating the Swiss TV market, offering TV as well as Video on Demand services which can be accessed over an existing broadband connection regardless of the Internet provider.
More than 80% of all digital TV connections are provided over the cable or broadband network, with cable TV and Swisscom TV commanding the largest market shares. Swisscom has been steadily growing its market share over the last few years thanks to its own digital TV offering, Swisscom TV, which at the end of 2014 had a market share of 26% (prior year: 23%). In 2014, the number of Swisscom TV subscribers rose by 165,000 to 1.2 million. Of this number, around 306,000 have signed up to the Swisscom TV 2.0 service launched in the spring of 2014, which offers extended functionality compared to the previous version. The cloud-based recording function allows users to record an unlimited number of programmes simultaneously and play them back on different devices. Swisscom also extended the Replay TV function from 30 hours to seven days, and integrated around 50 of the most popular apps such as YouTube and Facebook in Swisscom TV 2.0. The new Teleclub Play video flat rate service launched in December 2014 offers Swisscom TV 2.0 customers unlimited access to a broad range of TV series, classic films, children’s programmes, documentaries and sports content. Swisscom TV remains available in a range of packages to meet all customer needs.
IT services market in Switzerland
In 2014, the IT services market generated a revenue volume of CHF 8.6 billion. Swisscom expects the market volume in 2017 to total CHF 9.4 billion. Cloud services, business process outsourcing (BPO) and application-based services are expected to show the most significant growth. Customers often demand services customised to their individual sector and processes. Even the classical infrastructure services business has the potential for moderate growth over the next few years.
Thanks to a market share of around 8%, Swisscom remains one of the leading providers of IT services on the Swiss market. In 2014, Swisscom reported growth in all areas. In the vertical business for the banking sector, for example, it continued to substantially increase its share of the BPO market and rolled out innovative solutions such as a crowdfunding platform. Crowdfunding is a new way of connecting companies with each other and with their end customers. By bringing Swisscom IT Services and the Corporate Business division of Swisscom Switzerland under one roof at the beginning of 2014, Swisscom laid the foundations for further growth in the Swiss enterprise customers market.
Italian broadband market
Italy’s fixed broadband market is Europe’s fourth largest, with a revenue volume of around EUR 13 billion. In contrast to most other European countries, in Italy there are no cable network operators who offer broadband services. Half of the homes and offices in Italy have access to the broadband network; the penetration of broadband is thus well below the European average. The total number of broadband lines in Italy grew to around 14 million in 2014. Fastweb increased the number of broadband lines by 6.7% or 130,000 to more than 2 million, repeating its positive 2013 results.
The Italian market continues to be dominated by double-play bundles that combine voice and broadband services, and is subject to significant pressure on prices due to the highly competitive environment. In 2014, the number of fixed broadband customers in Italy reached a penetration rate for fixed lines of around 70%, with ultra-fast broadband services gaining acceptance. The market leaders for fibre-optic/VDSL offerings are Telecom Italia and Fastweb.
With a share of 50% (prior year: 51%), Telecom Italia commands a leading position on the Italian broadband market. Fastweb increased its market share year-on-year from 14% to 15%.
For service providers, a permanent countrywide presence is becoming increasingly important in view of the growing complexity of products and services. With this in mind, Fastweb is further expanding the ultra-fast broadband network and by the end of 2016 aims to cover around 7.5 million homes and offices, or 30% of the population. Fastweb has also decided to expand its own sales network, improve the efficiency of its dealer structure and step up investment in its own sales outlets in major Italian cities.