Broadband services

Swisscom Touts Multi-Play Gains

Swisscom has flagged a slight improvement in earnings for the second quarter, excluding the impact of takeover activity and foreign-exchange movements, despite strong competition and falling prices.

The Swiss incumbent said that sales of "bundled" services were offsetting the decline in revenues from single-play products and also noted a strong performance at its Italian Fastweb SpA (Milan: FWB) subsidiary.

At 2.87 billion Swiss francs (US$2.94 billion), reported revenues were about the same as in the second quarter of 2014, while net income came in at CHF433 million ($444 million) -- also unchanged from the figure in the year-earlier quarter.

Swisscom AG (NYSE: SCM) claimed that underlying revenues were up by CHF22 million ($22.6 million) on a year-on-year basis, with underlying EBITDA growing by CHF15 million ($15.4 million).

Speaking to analysts on an earnings call, CEO Urs Schaeppi highlighted the success of the operator's multi-play strategy, which involves selling fixed voice, broadband, mobile and TV services in one package.

He also drew attention to gains in Italy, where Fastweb appears to have picked up more broadband customers in the second quarter than any other Italian operator.

Despite this, Swisscom's share price had fallen by about 1.7% during mid-morning trading in Switzerland on Wednesday, reflecting some concern about the operator's longer-term prospects.

During the earnings call, analysts sounded worried about the impact that Iliad's entry into the Swiss mobile market could have on Swisscom in coming months.

The French company, which has already been blamed for a price war in its domestic mobile market, agreed in late 2014 to pay CHF2.8 billion ($2.9 billion) for number-three mobile player Orange Switzerland and has subsequently rebranded the business as Salt.

"We have low churn figures in mobile and we are happy with figures for net porting and so we don't feel too much competition from Salt today but it will certainly be a dynamic company," said Schaeppi in response to analyst questions.

There is also concern that Fastweb may struggle to compete against market leader Telecom Italia (TIM) following content deals the incumbent has recently struck with Mediaset S.p.A. , a broadcaster controlled by former Italian prime minister Silvio Berlusconi, and satellite company Sky . (See Telecom Italia Makes Quad-Play Move With Sky.)

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Schaeppi noted that Swisscom's own agreement with Sky already allows it to provide broadband and TV services to Italian customers while emphasizing the need for such partnerships in future.

"Long term, to have a bundling business in Italy with a provider like Sky or Mediaset is getting more important," he said.

Swisscom also made slight revisions to its full-year financial outlook to reflect the impact of foreign-currency movements.

It now expects to make CHF11.5 billion ($11.8 billion) in revenues, compared with a previous forecast of CHF11.4 billion ($11.7 billion), along with EBITDA of more than CHF4.2 billion ($4.3 billion), having formerly indicated that EBITDA in 2015 would be around this level.

Last year, the operator reported revenues of CHF11.7 billion ($12 billion) and EBITDA of CHF4.4 billion ($4.5 billion).

Besides updating guidance on sales and earnings, Swisscom said it would invest more than CHF2.3 billion ($2.4 billion) this year in capital expenditure, down from CHF2.4 billion ($2.5 billion) last year but marginally higher than an earlier forecast of just CHF2.3 billion ($2.4 billion).

Swisscom has already spent about CHF1.14 billion ($1.17 billion) on capex over the first six months of the year, compared with CHF1.12 billion ($1.15 billion) in the same period of 2014, with the additional funding going mainly towards the rollout of high-speed fiber networks in Switzerland.

Schaeppi told analysts that 1.6 million households in Switzerland could receive fiber connections from Swisscom at the end of the second quarter, with a million of those served through fiber-to-the-home technology and the rest able to enjoy a fiber-to-the-street service. (See Swisscom's Fiber Feast and Swisscom Boasts FTTX Milestone.)

"The footprint for ultra-broadband -- meaning speeds of more than 50 Mbit/s -- is now 2.5 million and we've been able to increase broadband penetration and market share in those areas," he said.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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