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August 10, 2005

Swisscom sales fall as it looks to escape domestic market

Sales at Swisscom AG have fallen as the Swiss telecoms carrier battles intense local competition, while strategically it remains landlocked in a declining domestic market.

By CBR Staff Writer

For the six months ending June 30, net income rose 39.2% to CHF 1.297bn ($1.02bn) from CHF 932m ($739m) in the year-ago quarter. Revenue however declined 1.7% to CHF 4.912bn ($3.89bn) from CHF 4.999bn ($3.96bn) in the year-ago quarter.

The half-year results topped market forecasts, despite fierce domestic competition but the carrier once again warned that its domestic market is saturated, with growing competitive pressure on prices, as well as regulatory changes. It admitted it is still seeking purchases abroad for fresh growth opportunities.

Unlike many of its European competitors that embarked on expensive expansion policies during the late 1990s, Swisscom decided to opt for the conservative route and concentrate on its core Swiss market. This meant it rode the downturn better than most and emerged with very little debt and is consequentially cash rich. However, this conservative policy did have its downside in that Swisscom now has limited expansion opportunities.

Last year it looked like it was finally going to be able to bag a long-mooted acquisition of neighboring national carrier Telekom Austria AG for 7.7bn euros ($9.5bn). However, that deal was scrapped due to political pressure from the Austrian government as well as trade unions. It also failed in its attempt to acquire the Czech carrier Cesky Telecom for $3.3bn in April.

Swisscom did expand from its domestic market in July when it took a majority stake in Hungarian broadcaster Antenna Hungaria. However, in the absence of any serious acquisitions, Alder said Swisscom would consider accelerating its share buyback program.

That news, along with the fact that its results were better than market expectations and the confirmation of its full-year targets of CHF 9.6bn ($7.61bn) in sales, meant the market viewed the results in a positive light. Its American Depositary Shares on the New York Stock Exchange rose 2.54% to $33.88, as of 5.15pm BST Wednesday.

Yet this doesn’t escape the fact that Swisscom remains in a tricky situation. At home, it is facing a hugely competitive market, and earlier this year it cut the fees it charges for calls from its landline network to other landline and mobile networks. Competition from smaller operators such as Cablecom, the biggest Swiss cable operator which launched a phone service last year, is especially hurting the carrier.

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