Segment revenue and results

Swisscom Switzerland

Swisscom Switzerland’s net revenue increased by CHF 12 million or 0.1% to CHF 8,461 million. Operating income before depreciation and amortisation (EBITDA) fell by CHF 166 million or 4.4% to CHF 3,612 million. Adjusted for additional restructuring costs and pension costs not affecting cash flow, EBITDA declined by 2.0%. Capital expenditure was CHF 452 million or 32.3% higher at CHF 1,852 million. The increase was attributable to expenditure of CHF 360 million in connection with the mobile frequency auction in early 2012 and spending on broadband expansion. Efficiency improvements resulted in a fall in headcount year-on-year of 269 FTEs or 2.2% to 11,827.
The trend towards bundled offerings and new pricing models such as flat-rate tariffs continued unabated. By the end of 2012 788,000 customers were subscribing to packages such as Vivo Casa, which combines fixed-line access with telephony, Internet and TV, or Vivo Tutto, which also includes a mobile line. The year saw the customer base grow by 174,000 customers or 28.3%. The new NATEL infinity mobile subscriptions launched in June 2012, which offer unlimited phoning, texting and Internet surfing, proved highly popular and by the end of 2012 were being used by 889,000 customers.

Revenue from external customers increased year-on-year by CHF 11 million or 0.1% to CHF 8,407 million. Price erosion of around CHF 400 million was offset by customer and volume growth. On 25 June 2012 Swisscom launched new mobile subscriptions under the name infinity. These subscriptions allow Swisscom customers unlimited phoning and text messaging to any network in Switzerland as well as unlimited Internet browsing, all for a fixed monthly fee which varies depending on the data transmission rate. Frequent users in particular benefit from the much more attractive terms. By the end of 2012, 889,000 customers were taking advantage of the new infinity subscriptions, enjoying the freedom of no longer being billed by volume.Customers switching to a flat-rate subscription typically increase their call volume and data volume by more than 20% and 100% respectively. By the end of 2012 the average monthly revenue (ARPU) from customers who switched to these new subscriptions had dropped by CHF 9. The number of mobile access lines grew year-on-year by 168,000 or 2.8% to 6.2 million. In 2012 Swisscom sold a total of 1.55 million mobile handsets (+6.7%), of which around 68% were smartphones. Swisscom further reduced its roaming charges on1 July 2012. Calls within zone A (European Union and Western Europe) are now 6% cheaper at CHF 0.75 per minute.
Demand remains high for bundled offerings such as Vivo Casa (which combines fixed-line access with telephony, Internet and TV) and Vivo Tutto (which also includes a mobile line). The number of customers using bundled offerings rose year-on year by 174,000 or 28.3% to 788,000. Revenue from contracts for bundled offerings rose accordingly by CHF 380 million or 48.0% to CHF 1,172 million. The number of Swisscom TV connections increased by 183,000 or 30.1% to 791,000. 2012 saw the number of fixed lines decline by 107,000 or 3.4% to 3.0 million, due primarily to the number of customers migrating to cable network operators. Retail broadband access lines grew year-on-year by 66,000 or 4.0% to 1.73 million, while the number of unbundled subscriber access lines fell by 6,000 or 2.0% to 300,000.

Segment expense rose by CHF 178 million or 3.8% to CHF 4,849 million. The 4.5% rise in indirect costs to CHF 3,029 million was due to higher personnel expense and an increase in other operating expenses. Personnel expense increased by CHF 105 million or 6.7% to CHF 1,677 million due primarily to higher restructuring costs and pension costs of CHF 91 million. At CHF 1,820 million, direct costs were CHF 48 million or 2.7% higher year-on-year due to higher costs for goods and services purchased, while subscriber acquisition costs were CHF 14 million or 2.9% lower at CHF 474 million. The segment result before depreciation and amortisation fell by CHF 166 million or 4.4% to CHF 3,612 million, narrowing the profit margin accordingly by 2.0 percentage points to 42.7%. Adjusted for the additional restructuring costs and pension costs not affecting cash flow, EBITDA declined by 2.0%, resulting in an EBITDA margin of 43.8%. Depreciation and amortisation increased year-on-year by CHF 65 million or 6.6% to CHF 1,053 million. The increase was attributable to a change in useful lives due to the replacement of all mobile network installations and to increased investment activity. The segment result ended the year CHF 231 million or 8.3% lower at CHF 2,559 million. Capital expenditure was CHF 452 million or 32.3% higher year-on-year at CHF 1,852 million, and includes expenditure of CHF 360 million on mobile frequencies. Excluding these expenses, capital expenditure increased by CHF 92 million or 6.6% due to broadband network expansion. Efficiency improvements resulted in a fall in headcount year-on-year of 269 FTEs or 2.2% to 11,827 FTEs.

Fastweb's net revenue contracted year-on-year by EUR 46 million or 2.6% to EUR 1,700 million as a consequence of the planned reduction in wholesale revenue from low-margin interconnection services (hubbing), which fell by EUR 54 million year-on-year. Excluding hubbing, revenue grew by EUR 8 million or 0.5% to EUR 1,613 million. Broadband customers grew by 172,000 or 10.8% to 1.77 million year-on-year. In 2012, 87,000 customers signed up for Fastweb’s bundled TV and broadband offering in partnership with Sky Italia, bringing the total number of customers to 151,000 since the service was launched in 2011. Intense competition reduced average revenue per residential broadband customer by around 11%, lowering revenue from residential customers by EUR 34 million or 4.5% to EUR 724 million. By contrast, revenue from corporate business increased by EUR 31 million or 4.1% to EUR 791 million, while wholesale revenue (excluding hubbing) grew by EUR 13 million or 16.5% to EUR 92 million year-on-year.
The segment result before depreciation and amortisation totalled EUR 500 million, corresponding to a year-on-year fall of EUR 6 million or 1.2%. The segment result of the previous year contains non-recurring income of EUR 56 million relating to a legal settlement with another telecoms provider. Adjusted for this one-off item, the segment result before depreciation and amortisation improved by EUR 50 million or 11.1% to EUR 500 million. The improvement was largely attributable to lower bad debt losses. Adjusted for the aforementioned non-recurring income, the profit margin increased by 3.6 percentage points to 29.4%.
Headcount at the end of 2012 totalled 2,893 FTEs, a year-on-year reduction of 188 FTEs or 6.1%. The fall was mainly due to the outsourcing of network maintenance jobs. Capital expenditure declined by EUR 7 million or 1.6% to EUR 441 million, resulting in a ratio of capital expenditure to net revenue of 25.9% (prior year: 25.7%). Around 39% of investment spending was directly related to customer growth.
In the third quarter of 2012 Fastweb reached an agreement with the Italian authorities concerning a VAT lawsuit and tax investigations. Following payment of EUR 74 million, all claims have been settled. Provisions and liabilities recognised in the past for income taxes cover the settlement costs. Following closure of the case, VAT and income tax assets of EUR 117 million blocked by the Italian authorities were released for repayment to Fastweb. By the end of 2012 Fastweb had received EUR 57 million in tax credit repayments.
In the consolidated financial statements of Swisscom, the weaker euro negatively impacted revenue and the segment result before depreciation and amortisation. The average CHF/EUR exchange rate fell by 2.2% year-on-year. In Swiss franc terms, net revenue declined by 4.7%, versus 2.6% in local currency. The segment result before depreciation and amortisation was 3.4% lower in Swiss francs and 1.2% lower in local currency.

Revenue from external customers increased year-on-year by CHF 7 million or 0.8% to CHF 936 million, driven mainly by higher revenues generated by cablex from construction services, as well as from the acquisition of subsidiaries. Revenue from external customers generated by Swisscom IT Services dropped by CHF 10 million or 1.9% to CHF 521 million, mainly due to lower revenue from project business as a result of the difficult market environment. Intersegment revenue was CHF 13 million or 1.7% higher year-on-year at CHF 792 million. The increase was mainly attributable to the higher volume of services procured from Swisscom IT Services by other segments.
Segment expense rose by CHF 77 million or 5.6% year-on-year to CHF 1,451 million, mainly due to higher restructuring and pension costs as well as higher costs incurred by Swisscom Real Estate, and higher costs at cablex in connection with revenue growth as well as higher costs resulting from acquisition of subsidiaries. The segment result before depreciation and amortisation was CHF 57 million or 17.1% lower at CHF 277 million. Adjusted for non-recurring costs, the segment result before depreciation and amortisation declined by 5.7%. Headcount at the end of 2012 was 61 FTEs or 1.4% lower than a year earlier, at 4,454 FTEs. The reduction was primarily due to the lower headcount at Swisscom IT Services as a result of efficiency improvements, and was partly offset by additional resource requirements at cablex and acquisition of subsidiaries. At CHF 167 million, capital expenditure was CHF 2 million or 1.2% lower year-on-year. Reduced investments by Swisscom IT Services in IT infrastructure were almost fully offset by higher investment activities at Swisscom Real Estate due to ongoing construction projects.

Group Headquarters

The segment result before depreciation and amortisation improved by CHF 44 million or 34.1% to CHF –85 million, largely on account of a one-off adjustment in pension cost of CHF 38 million due to amendments to the pension plan in December 2012.