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Segment results

In CHF million   31.3.2016   31.3.2015   Change
             
Net revenue
Residential Customers   1,287   1,291   –0.3%
Small and Medium-Sized Enterprises   336   327   2.8%
Enterprise Customers   656   657   –0.2%
Wholesale   220   230   –4.3%
IT, Network & Innovation   30   34   –11.8%
Intersegment elimination   (184)   (184)  
Swisscom Switzerland   2,345   2,355   –0.4%
Fastweb   482   468   3.0%
Other Operating segments   129   144   –10.4%
Intersegment elimination   (71)   (74)   –4.1%
Net revenue   2,885   2,893   –0.3%
             
Operating income before depreciation and amortisation (EBITDA)
Residential Customers   755   730   3.4%
Small and Medium-Sized Enterprises   224   217   3.2%
Enterprise Customers   212   219   –3.2%
Wholesale   93   101   –7.9%
IT, Network & Innovation   (318)   (312)   1.9%
Swisscom Switzerland   966   955   1.2%
Fastweb   144   130   10.8%
Other Operating segments   22   16   37.5%
Group Headquarters   (30)   (29)   3.4%
Intersegment elimination   (3)   (4)   –25.0%
Reconciliation to pension cost 1   (18)   (17)   5.9%
Operating income before depreciation and amortisation (EBITDA)   1,081   1,051   2.9%
1 Ordinary employer contributions as pension cost are included in segment results. The difference to the pension cost under IAS 19 is disclosed as a reconciliation item.

Reporting is divided into 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.

The IT, Network & Innovation segment does not charge any network costs to other segments, nor does Group Headquarters charge any management fees to other segments. Other intersegment services are charged at market rates. Network costs in Switzerland are budgeted, monitored and controlled by the IT, Network & Innovation division, which is managed as a cost centre. For this reason, no revenue is credited to the IT, Network & Innovation segment within the segment repor­ting, with the exception of the rental and administration of buildings. The results of the segments Residential Customers, Small & Medium-Sized Enterprises, Enterprise Customers and Wholesale are reported as a contribution margin before network costs.

Segment expense includes the costs of goods and services purchased, personnel expense and other operating costs less capitalised self-constructed assets and other income. Segment expense includes the ordinary employer contributions as a pension cost. Under IAS 19, the difference between the ordinary employer contributions and the pension cost is reported as a reconciliation item between the operating incomes of the segments and Group operating income.

Swisscom Switzerland

In CHF million, except where indicated   31.3.2016   31.3.2015   Change
             
Net revenue and results
Mobile single subscriptions   649   671   –3.3%
Fixed-line single subscriptions   397   452   –12.2%
Bundles   603   530   13.8%
Wholesale   139   148   –6.1%
Other   541   535   1.1%
Revenue from external customers   2,329   2,336   –0.3%
Intersegment revenue   16   19   –15.8%
Net revenue   2,345   2,355   –0.4%
Direct costs   (469)   (483)   –2.9%
Indirect costs   (910)   (917)   –0.8%
Segment expenses   (1,379)   (1,400)   –1.5%
Segment result before depreciation and amortisation (EBITDA)   966   955   1.2%
Margin as % of net revenue   41.2   40.6    
Depreciation, amortisation and impairment losses   (367)   (331)   10.9%
Segment result   599   624   –4.0%
             
Operational data at end of period in thousand
Fixed access lines   2,582   2,735   –5.6%
Broadband access lines retail   1,968   1,908   3.1%
Swisscom TV access lines   1,367   1,201   13.8%
Mobile access lines   6,615   6,568   0.7%
Revenue generating units (RGU)   12,532   12,412   1.0%
Bundles   1,465   1,258   16.5%
Unbundled fixed access lines   120   162   –25.9%
Broadband access lines wholesale   329   278   18.3%
             
Capital expenditure and headcount
Capital expenditure   425   388   9.5%
Full-time equivalent employees at end of period   17,155   16,964   1.1%

Despite the higher number of subscribers, net revenue for Swisscom Switzerland fell by CHF 10 million or 0.4% to CHF 2,345 million as a result of increasing competitive pressure. The number of revenue­-generating units (RGUs) increased year-on-year by 120,000 or 1.0% to 12.5 million, although this figure fell by 11,000 in the first quarter of 2016 as a result of increasing market saturation. In the Residential Customers and Small and Medium-Sized Enterprises (SME) units, third-party revenue increased by a total of CHF 8 million or 0.5%. In the Enterprise Customers unit, third-party revenue remained almost the same compared with the previous year at CHF 605 million (–0.3%). The decline in the mobile market, which is mainly price-related, was offset by higher revenue in the solutions business. Incoming orders in the corporate business increased by 7.1% to CHF 454 million. As a result of price reductions in the roaming business, revenue for Wholesale fell by CHF 9 million.

The huge demand for bundled offerings with flat-rate tariffs continues. By the end of March 2016, 1.47 million customers were using a bundled offering, which corresponds to an increase year-on-year of 207,000 or 16.5% (+49,000 in the first quarter). Revenue from bundled contracts increased year-on-year by CHF 73 million or 13.8% to CHF 603 million.

The increasingly saturated market is reflected in the increase in the number of subscribers in the mobile market. Year-on-year, the number of mobile lines increased by 47,000 or 0.7% to 6.6 million; however, this figure fell by 10,000 in the first quarter of 2016 as a result of market saturation. The number of postpaid lines including bundled offerings rose by 73,000 (–9,000 in the first quarter), while the number of prepaid lines declined by 26,000 (–1,000 in the first quarter). In the roaming business, a drop in roaming fees and the inclusion of roaming in the Natel infinity subscription packages has driven roaming volumes up at an even faster pace. The associated reduction in fees for 2016 amounts to around CHF 100 million. In the first quarter of 2016, data traffic rose by a factor of 2.9 year-on-year, and voice traffic rose by 18%. With the introduction of Natel infinity 2.0 in March 2016, customers benefit from much higher speeds, more roaming and unlimited online storage. The number of Natel infinity subscribers at the end of March 2016 was 2.32 million. This corresponds to 69% of postpaid lines (excluding corporate customers).

Despite stiffer competition, the number of Swisscom TV connections increased year-on-year by 166,000 or 13.8% to 1.37 million (+36,000 in the first quarter), of which basic package subscriptions accounted for 1.12 million. Two-thirds of customers use the cloud-based Swisscom TV 2.0 service. Retail broadband access lines grew year-on-year by 60,000 or 3.1% to 1.97 million (+10,000 in the first quarter). In the fixed network business, the growth in TV and broadband connections (stable in the first quarter) more than offset the reduction in the number of fixed-line phone connections of 153,000 (–47,000 in the first quarter). The decrease in the number of fixed-line phone connections is mainly the result of customers switching from fixed to mobile telephony and the migration to other providers.

Segment expense fell by CHF 21 million or 1.5% to CHF 1,379 million, with both direct and indirect costs decreasing versus the prior year. The decrease of CHF 14 million or 2.9% in direct costs to CHF 469 million is mainly due to the lower costs to purchase smartphones. In addition, the costs for subscriber acquisition and retention fell. The CHF 7 million or 0.8% drop in indirect costs to CHF 910 million is mainly attributable to lower expenses for maintenance. Headcount grew year-on-year by 191 FTEs or 1.1% to 17,155. This increase was the result of company acquisitions and new services, such as cloud services and solutions for the healthcare sector. Positions will continue to be created in growth areas while jobs in support areas will be further reduced. As a result, headcount fell by 105 FTEs compared to the end of 2015. The segment result before depreciation and amortisation rose by CHF 11 million or 1.2% to CHF 966 million as a result of cost savings. The profit margin rose 0.6 percentage points to 41.2%.

Compared to the previous year, depreciation and amortisation rose by CHF 36 million or 10.9% to CHF 367 million, which is due to the high level of capital expenditure. The segment result declined accordingly by CHF 25 million or 4.0% to CHF 599 million. At CHF 425 million, capital expenditure was CHF 37 million or 9.5% higher, mainly on account of increased investments in broadband networks.

Fastweb

In EUR million, except where indicated   31.3.2016   31.3.2015   Change
Residential Customers   223   216   3.2%
Corporate Business   171   168   1.8%
Wholesale   44   44  
Revenue from external customers   438   428   2.3%
Intersegment revenue   2   1   100.0%
Net revenue   440   429   2.6%
Segment expenses   (309)   (309)  
Segment result before depreciation and amortisation (EBITDA)   131   120   9.2%
Margin as % of net revenue   29.8   28.0    
 
Capital expenditure   154   147   4.8%
Full-time equivalent employees at end of period   2,407   2,373   1.4%
Broadband access lines in thousand   2,241   2,124   5.5%

Compared to the previous year, Fastweb’s net revenue rose by EUR 11 million or 2.6% to EUR 440 million. Despite a difficult market environment, Fastweb’s broadband customer base grew year-on-year by 117,000 or 5.5% to 2.24 million (+40,000 in the first quarter). Fierce competition reduced average revenue per residential broadband customer by around 3% versus the prior-year period, though the decline was offset by customer growth. Revenue from residential customers rose accordingly by EUR 7 million or 3.2% to EUR 223 million. Thanks to a strong market position in the market for business customers, revenue from business customers grew by EUR 3 million or 1.8% to EUR 171 million. At EUR 44 million, revenue in the wholesale business remained at the previous-year level.

The segment result before depreciation and amortisation totalled EUR 131 million, corresponding to a year-on-year rise of EUR 11 million or 9.2%. This increase was mainly the result of higher revenue. The profit margin rose 1.8 percentage points to 29.8%. Capital expenditure rose by EUR 7 million or 4.8% to EUR 154 million due to customer growth. The ratio of capital expenditure to net revenue was 35.0% (prior year: 34.3%). Fastweb plans to provide half of all homes and businesses (around 13 million) with bandwidths of 200 Mbps by the end of 2020.

Other Operating Segments

In CHF million, except where indicated   31.3.2016   31.3.2015   Change
Revenue from external customers   76   90   –15.6%
Intersegment revenue   53   54   –1.9%
Net revenue   129   144   –10.4%
Segment expenses   (107)   (128)   –16.4%
Segment result before depreciation and amortisation (EBITDA)   22   16   37.5%
Margin as % of net revenue   17.1   11.1    
 
Capital expenditure   6   6  
Full-time equivalent employees at end of period   1,769   1,940   –8.8%

The development of the Other Operating Segments is mainly affected by the sale of business units in the previous year. In 2015, Swisscom sold Alphapay Ltd and the Swisscom Hospitality division. This is the main reason for the decline in revenue, segment expense and headcount.

The net revenue of the Other Operating Segments fell year-on-year by CHF 15 million or 10.4% to CHF 129 million. The decline as a result of the sale of business units was partly offset by higher revenue from cablex construction services. The segment result before depreciation and amorti­sation increased by CHF 6 million or 37.5% to CHF 22 million, which corresponds to a profit margin of 17.1%. Headcount decreased year-on-year by 171 FTEs or 8.8% to 1,769 FTEs.

Group Headquarters and pension cost reconciliations

Operating income before depreciation and amortisation fell year-on-year by CHF 1 million or 3.4% to CHF –30 million. Headcount fell year-on-year by 2.5% to 314 FTEs.

An expense of CHF 18 million (prior year: CHF 17 million) is recognised as a pension cost reconciliation item under IAS 19 for the first quarter of 2016.