The problems facing the Bern-Switzerland based carrier are clear and well known. It reported an 11/% fall in net profit for the first quarter to CHF460 million ($377 million), from CHF520 million ($427 million) in the year-ago quarter. Sales likewise declined 2.9% to CHF2.37 billion ($1.95 billion) from CHF2.44 billion ($2 billion) in the year-ago period. The results were hurt by one-off charges as well as continuing declines in its fixed-line business that offset growth at its internet unit.
Swisscom is facing a saturated domestic market and needs to make foreign takeovers if it is to have any realistic growth prospects. However, in January, Swisscom’s CEO Jens Alder was left with little choice but to resign after the carrier’s much-needed expansion strategy was effectively torpedoed by the Swiss government when in November last year it banned any overseas acquisitions.
In a humiliating move, the carrier 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. Swisscom had previously tried and failed to acquire neighboring carriers Telekom Austria and Cesky Telecom.
Swisscom is a cash-rich operation and is Switzerland’s largest telecoms operator, with more than 15,000 staff. It has both fixed-line and mobile assets, with more than four million mobile phone subscribers. Unlike many of its European competitors that embarked on expensive expansion policies during the late 90s, it 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 very little debt compared to larger European rivals. But this policy means Swisscom now 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.
All this made the M&A veto by the Swiss government, which holds a 66.1% stake in the carrier, 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 is 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.
Now any hopes that Swisscom can escape government clutches via a privatization are also looking slim. The Swiss parliament is soon expected to begin debating the government’s sell-off of its stake. Yet it seems that the pro-privatization lobby made up of the Swiss people’s party, the largest party in parliament, along with the business-friendly free democratic party, is going to run into intense opposition from the social democrats (the second largest Swiss party) and the Christian democratic people’s party who reject the need for a government sell-off of the Swisscom stake, fearing it would lead to poor public services and even a possible acquisition by a larger foreign competitor.
Yet the rationale behind this argument looks increasing implausible considering that Swisscom is reiterating its full-year outlook, where it expects its core profit to continue to drop over the next three years. It also expects revenue to fall to around CHF9.5 billion ($7.79 billion) from CHF9.73 billion ($7.98 billion).
