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Segment revenue and results

Swisscom’s financial reporting focuses on the three operating divisions Swisscom Switzerland, Fastweb and Other Operating Segments, and Group Headquarters. Swisscom Switzerland is the Swiss market leader in the field of telecommunications. Fastweb is one of the largest broadband telecom companies in Italy. Other Operating Segments mainly comprises Participations, Health and Connected Living. Group Headquarters largely comprises the Group divisions. Swisscom Switzerland consists of the customer segments Residential Customers, Small & Medium-Sized Enterprises, Enterprise Customers and Wholesale as well as IT, Network & Innovation.

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Swisscom Switzerland

In CHF million, except where indicated   2016   2015   Change
             
Net revenue and results
Residential Customers   5,160   5,224   –1.2%
Small and Medium-Sized Enterprises   1,367   1,370   –0.2%
Enterprise Customers   2,611   2,654   –1.6%
Wholesale   989   956   3.5%
IT, Network & Innovation   129   130   –0.8%
Elimination   (816)   (789)   3.4%
Net revenue   9,440   9,545   –1.1%
             
Residential Customers   2,870   2,933   –2.1%
Small and Medium-Sized Enterprises   892   907   –1.7%
Enterprise Customers   839   910   –7.8%
Wholesale   388   198   96.0%
IT, Network & Innovation   (1,304)   (1,347)   –3.2%
Elimination   1     100.0%
Segment result before depreciation and amortisation (EBITDA)   3,686   3,601   2.4%
Margin as % of net revenue   39.0   37.7    
Depreciation, amortisation and impairment losses   (1,489)   (1,383)   7.7%
Segment result   2,197   2,218   –0.9%
             
Capital expenditure and headcount
Capital expenditure in property, plant and equipment and other intangible assets   1,743   1,799   –3.1%
Full-time equivalent employees at end of year   16,573   17,199   –3.6%

Net revenue of Swisscom Switzerland declined by CHF 105 million or 1.1% year-on-year to CHF 9,440 million. While revenue from telecommunications services for end customers declined by CHF 124 million or 1.8% as a result of greater competitive pressure and falling roaming prices, revenue in the solutions business with business customers increased by CHF 31 million or 2.9%. The number of revenue generating units (RGU) in Swiss core business fell by 96,000 or 0.8% to 12.4 million as a result of market saturation. Nevertheless, the company maintained or, as in the case of Swisscom TV, even increased its market shares. Swisscom TV is market leader, with a market share of 32% (prior year: 29%). In the fixed-line business the number of RGUs fell by 83,000. The increase in the TV and broadband business was more than offset by a drop in fixed-line telephony connections. In the mobile communications business, the number of connections was down by 13,000.

Operating income before depreciation and amortisation (EBITDA) was CHF 85 million or 2.4% higher at CHF 3,686 million. Operating income in 2015 was heavily impacted by one-off expenses, such as an addition to provisions for the ongoing Competition Commission proceedings on broadband services. Adjusted for these provisions and other non-recurring items such as provisions for headcount reduction and regulatory risks and gains from the sale of real estate,EBITDA decreased by CHF 125 million or 3.2%. At CHF 1,743 million, capital expenditure was CHF 56 million or 3.1% lower year-on-year. A rise in capital expenditure for the expansion of broadband networks was offset in other areas. Headcount fell year-on-year by 626 FTEs or 3.6% to 16,573 FTEs. Excluding company acquisitions, the number of FTEs decreased by 687 or 4.0%.

Swisscom Switzerland / net revenue
In CHF million, except where indicated   2016   2015   Change
             
Revenue by services
Revenue mobile single subscriptions   2,614   2,729   –4.2%
Revenue fixed-line single subscriptions   1,466   1,731   –15.3%
Revenue bundles   2,502   2,234   12.0%
Other net revenue   2,792   2,781   0.4%
Revenue from external customers   9,374   9,475   –1.1%
Intersegment revenue   66   70   –5.7%
Net revenue   9,440   9,545   –1.1%
             
Operational data at end of period in thousand
Fixed telephony access lines   2,367   2,629   –10.0%
Broadband access lines retail   1,992   1,958   1.7%
Swisscom TV access lines   1,476   1,331   10.9%
Mobile access lines   6,612   6,625   –0.2%
Revenue generating units (RGU)   12,447   12,543   –0.8%
Bundles   1,672   1,416   18.1%
Unbundled fixed access lines   128   128   0.0%
Broadband access lines wholesale   364   315   15.6%

Revenue from external customers at Swisscom Switzerland contracted by CHF 101 million or 1.1% to CHF 9,374 million. In the Residential Customers unit, revenue fell by CHF 64 million or 1.2% to CHF 5,160 million, mainly as a result of lower roaming prices. In the Small and Medium-Sized Enterprises unit, revenue remained fairly stable (–0.2%). The effect of lower roaming prices was offset by additional revenue generated from the takeover of search.ch with effect from mid-2015. Revenue in the Enterprise Customers unit decreased by CHF 43 million or 1.6% to CHF 2,611 million. While revenue from telecommunications services fell due to price pressure, revenue in the solutions business increased, albeit with a lower margin. Incoming orders in the Enterprise Customers unit fell by 5.1% to CHF 2,515 million as a result of strong competition.

The huge demand for bundled offerings with flat-rate tariffs continues. By the end of 2016, the number of customers using bundled packages had increased year-on-year by 256,000 or 18.1% to 1.67 million. Revenue from bundled contracts increased year-on-year by CHF 268 million or 12.0% to CHF 2,502 million. The number of revenue generating units (RGU) fell by 96,000 or 0.8% to 12.4 million. Despite the tough competition, the number of Swisscom TV connections increased in 2016 by 145,000 or 10.9% to 1.48 million, with fixed-fee subscriptions accounting for 1.18 million. Over 80% of customers use the cloud-based Swisscom TV 2.0 service. Broadband lines with end customers grew by 34,000 or 1.7% to 1.99 million in 2016. The number of fixed-line telephony connections fell by 262,000 or 10.0% to 2.37 million, mainly due to a shift to mobile telephony.

In the area of mobile telecommunications, the increasingly saturated market is impacting the development of customer numbers. The number of mobile communications connections remained stable year-on-year at 6.6 million (–0.2%). The number of postpaid lines including bundled offerings rose by 51,000, while the number of prepaid access lines declined by 64,000. In the roaming business, a drop in roaming fees and the inclusion of roaming in the Natel infinity 2.0 subscription packages has driven roaming volumes up at an even faster pace. The associated price reduction in 2016 was around CHF 100 million. Mobile data traffic increased by 78% year-on-year and voice traffic by 11%. With the introduction of Natel infinity 2.0 in March 2016, customers benefit from much higher speeds, more roaming options and unlimited online storage. By the end of 2016, 1.0 million customers had opted for the new infinity subscriptions. The number of customers for all Natel infinity subscriptions is 2.4 million, which equates to 70% of postpaid lines (excluding corporate customers).

Swisscom Switzerland / operating expenses and segment result
In CHF million, except where indicated   2016   2015   Change
             
Segment expenses by nature of cost
Traffic fees   (459)   (440)   4.3%
Subscriber acquisition and retention costs   (504)   (459)   9.8%
Other direct costs   (1,074)   (1,114)   –3.6%
Direct costs   (2,037)   (2,013)   1.2%
Personnel expense   (2,413)   (2,502)   –3.6%
Other indirect costs   (1,601)   (1,744)   –8.2%
Capitalised costs of self-constructed assets and other income   297   315   –5.7%
Indirect costs   (3,717)   (3,931)   –5.4%
Segment expenses   (5,754)   (5,944)   –3.2%
             
Segment result
Segment result before depreciation and amortisation (EBITDA)   3,686   3,601   2.4%
Margin as % of net revenue   39.0   37.7    
Depreciation, amortisation and impairment losses   (1,489)   (1,383)   7.7%
Segment result   2,197   2,218   –0.9%
             
Capital expenditure and headcount
Capital expenditure in property, plant and equipment and other intangible assets   1,743   1,799   –3.1%
Full-time equivalent employees at end of year   16,573   17,199   –3.6%

Segment expense fell by CHF 190 million or 3.2% to CHF 5,754 million. At CHF 2,037 million, direct costs were CHF 24 million or 1.2% higher than a year earlier. The costs for subscriber acquisition and retention rose by CHF 45 million or 9.8% to CHF 504 million, partly as a result of the TV box for high-definition television being offered to customers at a preferential rate and thus no longer remaining the property of Swisscom. Traffic fees increased due to higher roaming traffic volumes. Indirect costs fell by CHF 214 million or 5.4% to CHF 3,717 million. Adjusted for the recognition of provisions in the prior year for the ongoing Competition Commission proceedings on broadband services and for other non-recurring items such as the recognition of provisions for headcount reduction and regulatory risks, gains from the sale of properties and company acquisitions, indirect costs fell by 0.7%. Higher costs in the solutions business for corporate customers and in relation to the parallel operation of networks were more than offset by cost savings as a result of efficiency gains. Swisscom Switzerland achieved cost savings totalling CHF 50 million in 2016. Personnel expense declined by CHF 89 million or 3.6% to CHF 2,413 million, and by 2.1% on a like-for-like basis. Headcount decreased year-on-year by 626 FTEs or 3.6% to 16,573 FTEs. Excluding company acquisitions, the number of staff fell by 687 FTEs or 4.0% due to efficiency measures. The segment result before depreciation and amortisation (EBITDA) rose by CHF 85 million or 2.4% to CHF 3,686 million. On a like-for-like basis, EBITDA dropped by CHF 125 million or 3.2% due to lower roaming prices, price pressure in the corporate customer business and higher costs for subscriber acquisition and retention. Depreciation and amortisation increased year-on-year by CHF 106 million or 7.7% to CHF 1,489 million. This increase is mainly due to higher investing activity. The segment result ended the year CHF21million or 0.9% lower at CHF 2,197 million.

Fastweb

In EUR million, except where indicated   2016   2015   Change
Residential Customers   906   878   3.2%
Corporate Business   706   711   –0.7%
Wholesale   175   143   22.4%
Revenue from external customers   1,787   1,732   3.2%
Intersegment revenue   8   4   100.0%
Net revenue   1,795   1,736   3.4%
Segment expenses   (1,134)   (1,160)   –2.2%
Segment result before depreciation and amortisation (EBITDA)   661   576   14.8%
Margin as % of net revenue   36.8   33.2    
             
Capital expenditure in property, plant and equipment and other intangible assets   581   541   7.4%
Full-time equivalent employees at end of year   2,468   2,401   2.8%
Broadband access lines at end of year in thousand   2,355   2,201   7.0%
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Fastweb’s net revenue rose by EUR 59 million or 3.4% year-on-year to EUR 1,795 million. Despite difficult market conditions, Fastweb’s broadband customer base grew by 154,000 or 7.0% to 2.36 million in 2016. Fierce competition reduced average revenue per residential broadband customer by around 3% over the prior year. Nevertheless, this decline was outweighed by customer growth. Revenue from residential customers rose accordingly by EUR 28 million or 3.2% to EUR 906 million. Fastweb held its strong position in the market for business customers, with revenue from business customers falling only slightly by EUR5million or 0.7% year-on-year to EUR 706 million. Revenue from wholesale business increased by EUR 32 million or 22.4% to EUR 175 million.

The segment result before depreciation and amortisation (EBITDA) rose by EUR 85 million or 14.8% to EUR 661 million. In 2016, Fastweb received compensation from Telecom Italia in the amount of EUR 55 million as a result of an out-of-court settlement following a legal dispute. In the previous year, compensation as a result of legal proceedings amounted to EUR 15 million. Excluding compensation from legal proceedings, EBITDA rose by EUR 45 million or 8.0% and the profit margin by 1.5 percentage points to 33.8%. The headcount at Fastweb rose by 67 FTEs or 2.8% to 2,468 FTEs, driven primarily by the appointment of external workforce in the technical areas and the reinforcement of resources in the mobile communications business. Fastweb continues to make progress on network expansion. 810,000 customers were connected to the company’s own ultrafast broadband network at the end of 2016 (+25% year-on-year), which represents around one-third of all Fastweb broadband customers. The Fastweb network now extends to around 100 towns and cities in Italy, thus covering 30% of the population or 7.5 million households. Capital expenditure at Fastweb increased by EUR 40 million or 7.4% to EUR 581 million due to accelerated broadband expansion.

Other Operating Segments

In CHF million, except where indicated   2016   2015   Change
Revenue from external customers   320   340   –5.9%
Intersegment revenue   274   263   4.2%
Net revenue   594   603   –1.5%
Segment expenses   (500)   (534)   –6.4%
Segment result before depreciation and amortisation (EBITDA)   94   69   36.2%
Margin as % of net revenue   15.8   11.4    
             
Capital expenditure in property, plant and equipment and other intangible assets   61   48   27.1%
Full-time equivalent employees at end of year   1,796   1,723   4.2%
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The development of Other Operating Segments is mainly affected by the sale of companies in the previous year. In the first half of 2015, Swisscom sold Alphapay Ltd and the Swisscom Hospitality division. This is the main reason for the decline in revenue and segment expense.

The net revenue of the Other Operating Segments fell year-on-year by CHF 9 million or 1.5% to CHF 594 million. Adjusted for the sale of companies, net revenue rose by CHF 20 million or 3.5%, mainly as a result of higher revenue for construction services at cablex. The segment result before depreciation and amortisation (EBITDA) increased by CHF 25 million or 36.2% to CHF 94 million, mainly as a result of higher revenue as well as one-off charges at cablex in the prior year. The profit margin improved by 4.4 percentage points to 15.8%. The headcount rose by 73 FTEs or 4.2% to 1,796 FTEs, driven primarily by the appointment of external workforce at cablex.

Group Headquarters and reconciliation of pension cost

Operating income before depreciation and amortisation improved by CHF 3 million or 2.6% year-on-year to CHF –114 million. Headcount declined by 7.6% year-on-year to 290 FTEs.

An expense of CHF 72 million (prior year: CHF 60 million) was recognised as a pension cost reconciliation item under IAS 19.