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January 22, 2006

Swisscom CEO quits after government interference

Swisscom's widely-respected CEO Jens Alder has announced his immediate resignation. Alder's move comes after the Swiss carrier's expansion strategy was effectively torpedoed by its majority shareholder, the Swiss government, when it banned any overseas acquisitions in late November. Indeed, given the problems this has caused the company, Alder's departure is understandable.

By CBR Staff Writer

In a statement Swisscom said that, in standing down, Alder was drawing personal conclusions from the change in international expansion plans prompted by the Federal Council.

Although the Federal Council later retreated on its M&A veto just before Christmas, and opted to allow the purchase of foreign firms providing they were not providers of basic telecoms services, the damage had already been done and Swisscom’s acquisition strategy was in tatters.

The Switzerland-based carrier had had to withdraw from the race to acquire Irish carrier Eircom Group. It had also been in the frame to acquire the former Danish incumbent TDC, which since accepted a takeover offer from a group of private equity firms.

At the time of the compromise deal, Swiss transportation and communications minister Moritz Leuenberger boasted that the agreement was still a tight corset for Swisscom, although it was clear to most observers that it desperately needed to expand beyond its domestic market. Swisscom has previously tried and failed to acquire neighboring carriers Telekom Austria and Cesky Telecom.

Swisscom is facing a saturated domestic market and needs foreign takeovers if it is to have any realistic growth prospects. It has repeatedly made it clear that foreign acquisitions are crucial to its future, and the carrier has set aside approximately CHF1 billion ($757 million) for just such a purpose.

Unlike many of its European competitors that embarked on expensive expansion policies during the late 1990s, Swisscom opted instead for a conservative route and concentrated on its core Swiss market, after withdrawing from Germany and Asia.

This meant it rode the downturn better than most and emerged with little debt compared to larger European rivals. But this policy did have its downside in that Swisscom has limited expansion opportunities in Europe. Domestically, it is facing declining fixed-line sales, while almost 90% of Switzerland’s 7.4 million people are already mobile phone users.

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All this made the M&A veto by the Swiss government, which holds a 66.1% stake in the carrier, even more bizarre, and the move stunned industry watchers at the time. It is generally believed that Swisscom was the victim of political infighting in the country with its coalition government.

It is also thought that the Swiss government remains terrified of another high-profile collapse following the failure of the former national airline Swissair Group, which collapsed in 2001 after amassing CHF17 billion ($13.25 billion) in debt following a foreign takeover spree.

Ironically for Alder, the M&A veto had come just days after the Swiss government had announced that it would be reducing its stake in the carrier to give the carrier greater operating flexibility. It is little wonder then that Alder opted to leave the carrier after six years in charge, rather than continue in a position that had been seriously undermined by the state.

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