Segment revenue and results

Swisscom Switzerland

In CHF million, except where indicated   2013   2012   Change
             
Net revenue and results            
Residential Customers   5,145   5,113   0.6%
Small and Medium-Sized Enterprises   1,151   1,161   –0.9%
Corporate Business   1,787   1,835   –2.6%
Wholesale   966   966  
Elimination   (600)   (614)   –2.3%
Net revenue   8,449   8,461   –0.1%
             
Residential Customers   2,898   2,886   0.4%
Small and Medium-Sized Enterprises   864   882   –2.0%
Corporate Business   907   945   –4.0%
Wholesale   384   367   4.6%
Network & IT   (1,506)   (1,523)   –1.1%
Segment result before depreciation and amortisation (EBITDA)   3,547   3,557   –0.3%
Margin as % of net revenue   42.0   42.0    
Depreciation, amortisation and impairment losses   (1,104)   (1,053)   4.8%
Segment result   2,443   2,504   –2.4%
             
Capital expenditure and headcount            
Capital expenditure in property, plant and equipment and other intangible assets   1,516   1,852   –18.1%
Full-time equivalent employees at end of year   12,463   11,862   5.1%

Swisscom Switzerland’s net revenue fell by CHF 12 million or 0.1% to CHF 8,449 million, while operating income before depreciation and amortisation (EBITDA) was CHF 10 million or 0.3% lower at CHF 3,547 million. Adjusted for acquisitions and non-recurring costs for restructuring in the prior year, revenue decreased by 0.9% and EBITDA by 2.2%. Decline in revenue as a result of the general price erosion of around CHF 350 million and the price reductions for roaming of around CHF 210 million were largely offset by customer and volume growth of around CHF 480 million. Capital expenditure was CHF 336 million or 18.1% lower at CHF 1,516 million. Excluding expenses of CHF 360 million for the mobile frequencies auctioned in the previous year, capital expenditure increased by 1.6% as a result of the expansion and modernisation of the broadband and mobile networks. Headcount rose by 601 FTEs or 5.1% to 12,463 FTEs as a result of acquisitions, the insourcing of external personnel and an increase in customer service and sales staff.

The trend towards bundled offerings and new pricing models such as flat-rate tariffs continued unabated. The Natel infinity mobile subscriptions launched in 2012, which offer customers unlimited calls and SMS messages to all Swiss networks as well as unlimited surfing, remain highly popular. The customer base grew by 0.8 million to around 1.7 million. By the end of 2013, 1 million 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. This corresponds to an increase of 213,000 customers or 27.0% versus the prior year. Revenue from contracts for bundled offerings rose accordingly by CHF 381 million or 32.5% to CHF 1,553 million in comparison with the previous year.

Swisscom Switzerland/net revenue
In CHF million or in thousand   2013   2012   Change
             
Revenue by services            
Revenue mobile single subscriptions   2,782   2,932   –5.1%
Revenue fixed-line single subscriptions   2,215   2,470   –10.3%
Revenue bundles   1,553   1,172   32.5%
Revenue wholesale   588   594   –1.0%
Other net revenue   1,251   1,239   1.0%
Revenue from external customers   8,389   8,407   –0.2%
             
Operational data at end of period in thousand            
Fixed access lines   2,879   3,013   –4.4%
Broadband access lines retail   1,811   1,727   4.9%
Swisscom TV access lines   1,000   791   26.4%
Mobile access lines   6,407   6,217   3.1%
Bundles   1,001   788   27.0%
Unbundled fixed access lines   256   300   –14.7%
Broadband access lines wholesale   215   186   15.6%
Revenue generating units (RGU)   12,097   11,748   3.0%

Revenue from external customers increased year-on-year by CHF 18 million or 0.2% to CHF 8,389 million. The decrease of around CHF 350 million due to general price erosion and the price reductions for roaming totalling around CHF 210 million were largely offset by customer and volume growth of around CHF 480 million. Swisscom Switzerland’s revenue also increased thanks to the acquisition of a majority stake in Cinetrade, Switzerland’s leading film rights and content trading company for the purchase and commercialisation of programme and sports broadcasting rights. On 1 July 2013, Swisscom further reduced its roaming charges for mobile surfing by up to 70%. The number of revenue generating units (RGU) with end customers grew by 349,000 or 3.0% to 12.1 million. The Natel infinity mobile subscriptions launched in June 2012, which offer customers unlimited calls, SMS messages and surfing, remain highly popular. Within the year, the number of infinity subscriptions rose by 0.8 million to around 1.7 million. Figures from recent quarters shows that customers switching to Natel infinity are generating higher revenues (ARPU). The number of postpaid mobile customers rose by 213,000 while the number of prepaid customers dropped by 23,000. In 2013, Swisscom sold a total of 1.6 million mobile handsets (+2.6%), of which 65% were smartphones.

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 213,000 or 27.0% to 1 million. Revenue from contracts for bundled offerings rose accordingly by CHF 381 million or 32.5% to CHF 1,553 million in comparison with the previous year. The number of Swisscom TV connections increased by 209,000 or 26.4% to 1 million, of which 939,000 subscribed to the basic packages. 2013 saw the number of fixed lines for voice telephony decline by 134,000 or 4.4% to 2.88 million, due primarily to the number of customers migrating to cable network providers or switching from fixed to other forms of connectivity such as mobile. Retail broadband access lines grew year-on-year by 84,000 or 4.9% to 1.81 million, while the number of unbundled subscriber access lines fell by 44,000 or 14.7% to 256,000. The number of wholesale broadband access lines rose by 29,000 or 15.6% year-on-year to 215,000.

Swisscom Switzerland/operating expenses and segment result
In CHF million, except where indicated   2013   2012   Change
             
Segment expenses by nature of cost            
Traffic fees   (449)   (457)   –1.8%
Subscriber acquisition and retention costs   (463)   (474)   –2.3%
Other direct costs   (892)   (889)   0.3%
Direct costs   (1,804)   (1,820)   –0.9%
Personnel expense   (1,691)   (1,714)   –1.3%
Other indirect costs   (1,581)   (1,539)   2.7%
Capitalised self-constructed assets and other income   174   169   3.0%
Indirect costs   (3,098)   (3,084)   0.5%
Segment expenses   (4,902)   (4,904)  
             
Segment result            
Segment result before depreciation and amortisation (EBITDA)   3,547   3,557   –0.3%
Margin as % of net revenue   42.0   42.0    
Depreciation, amortisation and impairment losses   (1,104)   (1,053)   4.8%
Segment result   2,443   2,504   –2.4%
             
Capital expenditure and headcount            
Capital expenditure in property, plant and equipment and other intangible assets   1,516   1,852   –18.1%
Full-time equivalent employees at end of year   12,463   11,862   5.1%

Segment expense was CHF 2 million lower at CHF 4,902 million. At CHF 1,804 million, direct costs were CHF 16 million or 0.9% lower year-on-year due chiefly to the lower volume of mobile handsets purchased. Indirect costs increased by CHF 14 million or 0.5% to CHF 3,098 million. Excluding restructuring costs in the previous year and company acquisitions, indirect costs rose by CHF 55 million or 1.0%, largely as a result of increased weather-related expenditure for network maintenance as well as an increase in IT costs. Personnel expense declined by CHF 23 million or 1.3% to CHF 1,691 million while the adjusted result was 0.6% higher. Headcount rose by 601 FTEs or 5.1% to 12,463 FTEs as a result of company acquisitions, the insourcing of external personnel and an increase in customer service and sales staff. The segment result before depreciation and amortisation fell by CHF 10 million or 0.3% to CHF 3,547 million; EBITDA dropped by 2.2% on a like-for-like basis. The profit margin remained unchanged at 42.0%. Depreciation and amortisation increased year-on-year by CHF 51 million or 4.8% to CHF 1,104 million. The increase is primarily attributable to high levels of investment and expenditure in connection with the mobile frequency auction in 2012. The segment result ended the year CHF 61 million or 2.4% lower at CHF 2,443 million. At CHF 1,516 million, capital expenditure was CHF 336 million or 18.1% lower year-on-year. Excluding expenses for the mobile frequencies acquired in 2012 amounting to CHF 360 million, capital expenditure increased by CHF 24 million or 1.6%, mainly due to the expansion of the broadband network and the modernisation of the mobile network.

Fastweb

In EUR million, except where indicated   2013   2012   Change
Residential Customers   744   724   2.8%
Corporate Business   771   791   –2.5%
Wholesale hubbing   45   87   –48.3%
Wholesale other   78   92   –15.2%
Revenue from external customers   1,638   1,694   –3.3%
Intersegment revenue   4   6  
Net revenue   1,642   1,700   –3.4%
Segment expenses   (1,137)   (1,200)   –5.3%
Segment result before depreciation and amortisation   505   500   1.0%
Margin as % of net revenue   30.8   29.4    
             
Capital expenditure in property, plant and equipment and other intangible assets   565   441   28.1%
Full-time equivalent employees at end of year   2,363   2,893   –18.3%
Broadband access lines at end of year in thousand   1,942   1,767   9.9%

Fastweb’s net revenue fell by EUR 58 million or 3.4% to end the year at EUR 1,642 million. The drop in revenue is mainly due to the planned reduction in wholesale revenue from interconnection services (hubbing) with low margins, which fell by EUR 42 million year-on-year. Excluding hubbing, revenue was, in comparison with the previous year, EUR 16 million or 1.0% lower at EUR 1,597 million. Fastweb’s broadband customer base grew by 175,000 or 9.9% year-on-year to 1.94 million, thanks in part to the bundled TV and broadband package offered in partnership with Sky Italia. This means that Fastweb is growing faster than the Italian broadband market. In parallel to this, intensive competition reduced average revenue per residential broadband customer by around 6.5%; however, this decline was outweighed by customer growth. At EUR 744 million, revenue from residential customers was up by EUR 20 million or 2.8% in comparison with the previous year. By contrast, revenue from business customers fell by EUR 20 million or 2.5% to EUR 771 million, while revenue from other wholesale business dropped by EUR 14 million or 15.2% to EUR 78 million.

The segment result before depreciation and amortisation totalled EUR 505 million, corresponding to a year-on-year rise of EUR 5 million or 1.0%. The reduction in costs for the network access service had a positive impact on the result. By contrast, customer acquisition costs increased as a result of customer growth. The profit margin improved by 1.4 percentage points to end the year at 30.8%.

Headcount at the end of 2013 totalled 2,363 FTEs, down by 530 FTEs or 18.3% due to outsourcing. Capital expenditure was EUR 124 million or 28.1% higher at EUR 565 million as a result of the expansion of the fibre-optic network in Italy. The capital expenditure to net revenue ratio was 34.4% (prior year: 25.9%). Around 40% of investment spending was directly related to customer growth.

Other operating segments

In CHF million, except where indicated   2013   2012   Change
Revenue from external customers   1,032   936   10.3%
Intersegment revenue   787   792   –0.6%
Net revenue   1,819   1,728   5.3%
Segment expenses   (1,516)   (1,454)   4.3%
Segment result before depreciation and amortisation   303   274   10.6%
Margin as % of net revenue   16.7   15.9    
             
Capital expenditure in property, plant and equipment and other intangible assets   195   167   16.8%
Full-time equivalent employees at end of year   4,964   4,419   12.3%

Revenue from external customers increased year-on-year by CHF 96 million or 10.3% to CHF 1,032 million. At CHF 612 million, revenue from external customers at Swisscom IT Services was CHF 91 million or 17.5% higher, largely due to acquisitions. In 2013, Swisscom IT Services took over the business platform of Entris Banking and Entris Operations, which is used primarily for processing payment transactions and securities trading for banks. Swisscom IT Services saw incoming orders grow by CHF 273 million or 53.2% to CHF 786 million in comparison with the previous year. Intersegment revenue was CHF 5 million or 0.6% lower year-on-year at CHF 787 million, chiefly due to the lower volume of construction services performed by Group Related Businesses for Swisscom Switzerland.

At CHF 1,516 million, segment expense was CHF 62 million or 4.3% higher than the previous year, mainly as a result of increased costs related to corporate acquisitions made by Swisscom IT Services. The segment result before depreciation and amortisation was CHF 29 million or 10.6% higher at CHF 303 million. At 4,964 FTEs, headcount at the end of 2013 was 545 FTEs or 12.3% higher than the previous year, due primarily to corporate acquisitions. Capital expenditure rose by CHF 28 million or 16.8% to CHF 195 million, chiefly as a result of an increase in investment in IT infrastructure by Swisscom IT Services and in ongoing construction projects by Swisscom Real Estate.

Group Headquarters and reconciliation to pension cost

Operating income before depreciation and amortisation decreased by CHF 17 million or 15.5% year-on-year to CHF –127 million, mainly due to the reversal in the prior year of provisions no longer required. Headcount dropped by 22 FTEs or 6.5% to 318 FTEs.

An expense of CHF 17 million is disclosed as a pension cost reconciliation item (prior year: income of CHF 179 million). The prior-year figure of CHF 179 million includes income of CHF 157 million arising from a one-off, non-cash pension plan amendment.