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Segment results


In CHF million
  3rd quarter
2016
  3rd quarter
2015
 
Change
  1.1.–
30.9.2016
  1.1.–
30.9.2015
 
Change
                 
Net revenue
Residential Customers   1,287   1,303   –1.2%   3,846   3,877   –0.8%
Small and Medium-Sized Enterprises   341   353   –3.4%   1,020   1,020  
Enterprise Customers   627   643   –2.5%   1,935   1,950   –0.8%
Wholesale   269   250   7.6%   738   714   3.4%
IT, Network & Innovation   37   32   15.6%   98   97   1.0%
Intersegment elimination   (221)   (206)   7.3%   (615)   (586)   4.9%
Swisscom Switzerland   2,340   2,375   –1.5%   7,022   7,072   –0.7%
Fastweb   476   457   4.2%   1,441   1,378   4.6%
Other Operating Segments   149   149     424   449   –5.6%
Group Headquarters         1   1  
Intersegment elimination   (91)   (88)   3.4%   (245)   (249)   –1.6%
Net revenue   2,874   2,893   –0.7%   8,643   8,651   –0.1%
                 
Operating income before depreciation and amortisation (EBITDA)
Residential Customers   710   756   –6.1%   2,194   2,228   –1.5%
Small and Medium-Sized Enterprises   225   239   –5.9%   677   688   –1.6%
Enterprise Customers   209   237   –11.8%   626   682   –8.2%
Wholesale   105   (86)       298   107   178.5%
IT, Network & Innovation   (313)   (312)   0.3%   (947)   (947)  
Intersegment elimination     (1)   –100.0%     (1)   –100.0%
Swisscom Switzerland   936   833   12.4%   2,848   2,757   3.3%
Fastweb   169   156   8.3%   536   434   23.5%
Other Operating Segments   27   24   12.5%   76   59   28.8%
Group Headquarters   (27)   (22)   22.7%   (84)   (80)   5.0%
Intersegment elimination   (5)   (7)   –28.6%   (14)   (17)   –17.6%
Reconciliation to pension cost 1   (20)   (18)   11.1%   (55)   (54)   1.9%
Operating income before depreciation and amortisation (EBITDA)   1,080   966   11.8%   3,307   3,099   6.7%
1 Operating income of segments includes ordinary employer contributions as pension fund expense. The difference to the pension cost according to IAS 19 is recognised as a reconciliation item.

Swisscom’s financial reporting focuses on three operating divisions: Swisscom Switzerland, Fastweb and Other Operating Segments as well as 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 intersegmental services are cross-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 correspond to a contribution margin before network costs.

Segment expense includes the costs of goods and services purchased, personnel expense and other operating costs less capitalised costs and other income. Segment expense contains the ordinary employer contributions as pension costs. 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
  3rd quarter
2016
  3rd quarter
2015
 
Change
  1.1.–
30.9.2016
  1.1.–
30.9.2015
 
Change
                 
Net revenue and results
Mobile single subscriptions   661   702   –5.8%   1,959   2,064   –5.1%
Fixed-line single subscriptions   356   428   –16.8%   1,135   1,315   –13.7%
Bundles   633   569   11.2%   1,846   1,646   12.2%
Solution business   262   253   3.6%   812   774   4.9%
Wholesale   149   145   2.8%   436   433   0.7%
Other   262   261   0.4%   785   787   –0.3%
Revenue from external customers   2,323   2,358   –1.5%   6,973   7,019   –0.7%
Intersegment revenue   17   17     49   53   –7.5%
Net revenue   2,340   2,375   –1.5%   7,022   7,072   –0.7%
Direct costs   (508)   (462)   10.0%   (1,460)   (1,406)   3.8%
Indirect costs   (896)   (1,080)   –17.0%   (2,714)   (2,909)   –6.7%
Segment expenses   (1,404)   (1,542)   –8.9%   (4,174)   (4,315)   –3.3%
Segment result before depreciation and amortisation (EBITDA)   936   833   12.4%   2,848   2,757   3.3%
Margin as % of net revenue   40.0   35.1       40.6   39.0    
Depreciation, amortisation and impairment losses   (368)   (344)   7.0%   (1,112)   (1,018)   9.2%
Segment result   568   489   16.2%   1,736   1,739   –0.2%
                   
Operational data at the balance sheet date in thousand
Fixed access lines               2,458   2,659   –7.6%
Broadband access lines retail               1,985   1,937   2.5%
Swisscom TV access lines               1,440   1,275   12.9%
Mobile access lines               6,613   6,618   –0.1%
Revenue generating units (RGU)               12,496   12,489   0.1%
Bundles               1,588   1,356   17.1%
Unbundled fixed access lines               128   139   –7.9%
Broadband access lines wholesale               351   301   16.6%
                 
Capital expenditure and headcount
Capital expenditure in property, plant and equipment and other intangible assets   409   459   –10.9%   1,281   1,300   –1.5%
Full-time equivalent employees at end of year               16,767   17,176   –2.4%

Revenue generated by Swisscom Switzerland with external customers fell by CHF 46 million or 0.7% to CHF 6,973 million (–1.5% in the third quarter). Compared to the previous year, revenue from telecommunications services fell by CHF 99 million or 1.9% to CHF 4,986 million, while the solutions business grew by CHF 38 million or 4.9% to CHF 812 million. The decline in revenue for telecommunications services was due to high pressure on prices and increasing market saturation. Unlike in the previous year, this trend could not be offset through new services and customer growth. As a result of market saturation, the number of revenue-generating units (RGU) in the Swiss core business remained more or less at the previous year’s level at 12.5 million (+0.1%). However, a fall of 47,000 RGUs was recorded compared to the end of 2015, 23,000 of which were in the third quarter of 2016. In the Residential Customers and Small and Medium-Sized Enterprises (SME) units, third-party revenue fell by 0.5% to CHF 4,738 million (–1.4% in the third quarter). The CHF 48 million decline in telecommunications services as a result of lower roaming prices and an increasing number of people choosing not to have fixed line phone connections was partially offset by higher revenues from the takeover of search.ch in July 2015. In the Enterprise Customers unit, third-party revenue fell by 1.3% to CHF 1,776 million (–3.4% in the third quarter). The price-related decline in revenue for telecommunications services was partially offset by higher revenue in the solutions business, albeit it with a lower margin. Incoming orders in the corporate business fell by 10.9% to CHF 1,531 million as a result of strong competition.

The huge demand for bundled offerings with flat-rate tariffs continues. By the end of September 2016, 1.59 million customers were using a bundled offering, which corresponds to an increase year-on-year of 232,000 or 17.1% (+73,000 in the third quarter). Revenue from bundled contracts rose year-on-year by CHF 200 million or 12.2% to CHF 1,846 million (+11.2% in the third quarter).

In the saturated Swiss mobile communications market, Swisscom is holding its ground with stable market shares. The number of mobile access lines totalled 6.6 million, remaining more or less at the previous year’s level (–10,000 in the third quarter). However, the number of postpaid lines including bundled offerings rose by 35,000 (+17,000 in the third quarter), while the number of prepaid lines declined by 40,000 (–27,000 in the third quarter). In the roaming business, a reduction in roaming fees and the inclusion of roaming in the Natel infinity 2.0 subscription packages has driven roaming volumes up at a faster pace. The associated price reduction in 2016 is around CHF 100 million. In the first nine months of 2016, data traffic rose by a factor of 2.2 year-on-year, while voice traffic rose by 12%. 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 September 2016, 842,000 customers had opted for the new infinity subscriptions. The number of customers for all Natel infinity subscriptions is 2.35 million, which equates to 70% of postpaid lines (excluding corporate customers).

Despite stiffer competition, the number of Swisscom TV connections increased year-on-year by 165,000 or 12.9% to 1.44 million (+40,000 in the third quarter), of which basic package subscriptions accounted for 1.16 million. Four fifths of customers use the cloud-based Swisscom TV 2.0 service. Broadband lines with end customers grew year-on-year by 48,000 or 2.5% to 1.99 million (+7,000 in the third quarter). As a result, the growth in TV and broadband connections in the fixed network business was no longer able to offset the reduction in the number of fixed-line access lines of 201,000 (–60,000 in the third quarter). The decrease in the number of fixed-line access lines is mainly the result of customers switching from fixed to mobile telephony.

Segment expense fell by CHF 141 million or 3.3% to CHF 4,174 million (–8.9% in the third quarter). Adjusted for the provision in the Competition Commission proceedings, company acquisitions and gains from the sale of real estate, segment expense increased by CHF 33 million or 0.8%, with direct costs increasing and indirect costs decreasing versus the prior year. The CHF 54 million or 3.8% increase in direct costs to CHF 1,460 million (+10.0% in the third quarter) mainly reflects higher expenditures for roaming and international traffic as well as higher costs for subscriber acquisition and retention. The adjusted decrease in indirect costs of CHF 19 million or 0.7% is primarily the result of active cost management. Headcount fell year-on-year by 409 FTEs or 2.4% to 16,767. On a like-for-like basis, the decrease corresponded to 470 FTEs or 2.7% (–493 or –2,9% at the end of the year 2015), which came about as a result of efficiency measures. The segment result before depreciation and amortisation (EBITDA) increased by CHF 91 million or 3.3% to CHF 2,848 million. Adjusted EBITDA reduced by CHF 102 million or 3.5%. The cost savings with indirect costs partially offset the lower revenues for telecommunications services and the higher direct costs.

Compared to the previous year, depreciation and amortisation rose by CHF 94 million or 9.2% to CHF 1,112 million (+7.0% in the third quarter) as a result of the high capital expenditure. The segment result declined accordingly by CHF 3 million or 0.2% to CHF 1,736 million. Capital expenditure of CHF 1,281 million remained at a high level as a result of the expansion of broadband networks.

Fastweb


In EUR million, except where indicated
  3rd quarter
2016
  3rd quarter
2015
 
Change
  1.1.–
30.9.2016
  1.1.–
30.9.2015
 
Change
Residential Customers   225   218   3.2%   675   653   3.4%
Corporate Business   169   171   –1.2%   517   516   0.2%
Wholesale   40   34   17.6%   119   114   4.4%
Revenue from external customers   434   423   2.6%   1,311   1,283   2.2%
Intersegment revenue   3   1   200.0%   7   3   133.3%
Net revenue   437   424   3.1%   1,318   1,286   2.5%
Segment expenses   (282)   (279)   1.1%   (828)   (881)   –6.0%
Segment result before depreciation and amortisation (EBITDA)   155   145   6.9%   490   405   21.0%
Margin as % of net revenue   35.5   34.2       37.2   31.5    
   
Capital expenditure in property, plant and equipment and other intangible assets   144   124   16.1%   430   403   6.7%
Full-time equivalent employees at end of period               2,457   2,381   3.2%
Broadband access lines at end of year in thousand               2,295   2,172   5.7%

Fastweb performed very well in a difficult market environment. Fastweb’s net revenue increased by EUR 32 million or 2.5% to EUR 1,318 million (+3.1% in the third quarter) as a result of customer growth. Fastweb’s broadband customer base grew year-on-year by 123,000 or 5.7% to 2.3 million (+94,000 in the first nine months). Fierce competition reduced average revenue per residential broadband customer by around 3% versus the prior-year period. Nevertheless, this decline was outweighed by customer growth. Revenue from residential customers rose accordingly by EUR 22 million or 3.4% to EUR 675 million in comparison with the previous year (+3.2% in the third quarter). Revenue from business customers rose slightly by EUR 1 million or 0.2% to EUR 517 million (–1.2% in the third quarter). Revenue from the wholesale business increased by EUR 5 million or 4.4% to EUR 119 million (+17.6% in the third quarter).

The segment result before depreciation and amortisation (EBITDA) at Fastweb rose by EUR 85 million or 21.0% to EUR 490 million. This includes compensation to the amount of EUR 55 million as a result of an out-of-court settlement following a legal dispute. Adjusted for this one-off item, EBITDA rose by EUR 30 million or 7.4% (+6.9% in the third quarter) and the profit margin by 1.5 percentage points to 33.0%. Capital expenditure rose by EUR 27 million or 6.7% to EUR 430 million due to broadband network expansion. The expansion of Italy’s broadband network is continuing at full speed: Fastweb and Telecom Italia intend to cooperate on the rollout of Fibre to the Home (FTTH) The aim is for 13 million, i.e. half of homes and businesses in Italy to be connected to the ultra-fast broadband network by 2020. The headcount at Fastweb rose by 76 or 3.2% to 2,457 FTEs, driven primarily by the appointment of external employees in the technical areas.

Other Operating Segments


In CHF million, except where indicated
  3rd quarter
2016
  3rd quarter
2015
 
Change
  1.1.–
30.9.2016
  1.1.–
30.9.2015
 
Change
Revenue from external customers   78   80   –2.5%   235   257   –8.6%
Intersegment revenue   71   69   2.9%   189   192   –1.6%
Net revenue   149   149     424   449   –5.6%
Segment expenses   (122)   (125)   –2.4%   (348)   (390)   –10.8%
Segment result before depreciation and amortisation (EBITDA)   27   24   12.5%   76   59   28.8%
Margin as % of net revenue   18.1   16.1       17.9   13.1    
   
Capital expenditure in property, plant and equipment and other intangible assets               32   20   60.0%
Full-time equivalent employees at end of period               1,771   1,725   2.7%

The development of the 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 25 million or 5.6% to CHF 424 million (unchanged in the third quarter). Adjusted for the sale of companies, net revenue rose by CHF 4 million or 1.0%, mainly as a result of higher revenue for construction services at cablex. The segment result before depreciation and amortisation increased by CHF 17 million or 28.8% to CHF 76 million (+12.5% in the third quarter), mainly as a result of higher revenue as well as one-off charges at cablex in the prior year. The profit margin improved by 4.8 percentage points to 17.9%. The headcount of 1,771 FTEs represented an increase of 46 FTEs or 2.7% year-on-year, driven primarily by the appointment of external employees at cablex.

Group Headquarters and reconciliation of pension cost

Operating income before depreciation and amortisation declined year-on-year by CHF 4 million or 5.0% to CHF –84 million. Headcount fell year-on-year by 7.5% to 297 FTEs.

An expense of CHF 55 million (prior year: CHF 54 million) is recognised as a pension cost reconciliation item under IAS 19 for the first nine months of 2016.