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Dear Shareholders

Swisscom holds its ground in a challenging environment

At CHF 11,643 million (–0.3%), Swisscom’s net revenue was practically on a par with the previous year. This is a remarkable achievement given current price pressure and the market environment. Compared with the prior year, Swisscom increased its operating income before depreciation and amortisation (EBITDA) by CHF 195 million or 4.8% to CHF 4,293 million primarily as a result of non-recurring items in the prior year. On a like-for-like basis, EBITDA fell slightly by 1.2%. Cost cutting and growth at Fastweb were unable to compensate for declining returns in the Swiss core business. Net income rose by 17.8% to CHF 1,604 million, largely due to non-recurring items. At CHF 2,416 million, Group-wide capital expenditure was roughly on a par with last year (+0.3%).

Swisscom maintains its strong market position in Switzerland

Net revenue in the Swiss core business declined by CHF 105 million or 1.1% year-on-year to CHF 9,440 million. While revenue from telecommunications services fell as a result of increasing competitive pressure and lower roaming prices, revenue in the solutions business with corporate customers increased. The number of revenue generating units (RGU) dropped by 96,000 or 0.8% to 12.4 million as a result of market saturation. Nevertheless, the Company maintained or, as in the case of Swisscom TV, even increased its market shares. Operating income before depreciation and amortisation (EBITDA) rose by CHF 85 million or 2.4% to CHF 3,686 million. After adjustments for non-recurring items, EBITDA fell by CHF 125 million or 3.2% due to pressure on pricing, higher costs for roaming and subscriber acquisition as well as low subscription growth. Capital expenditure in Switzerland remained high at CHF 1,774 million (–2.6%).

Successful business year at Fastweb in 2016

Fastweb acquired many new customers in the broadband business (+7.0% to 2.36 million) and boosted its revenue by EUR 59 million to EUR 1,795 million (+3.4%) as a result. Operating income before depreciation and amortisation (EBITDA) rose by EUR 85 million or 14.8% to EUR 661 million. Excluding non-recurring items, the increase amounted to EUR 45 million or 8.0%. Fastweb continues to make progress on the expansion of its network. 810,000 customers were connected to the company’s own ultrafast broadband network at the end of 2016 (+25% year-on-year), which represents around one-third of all Fastweb broadband customers. The Fastweb network now extends to around 100 towns and cities in Italy, thus covering 30% of the population or 7.5 million households. Capital expenditure at Fastweb grew by 7.4% to EUR 581 million due to accelerated broadband expansion.

Swisscom share performance in 2016

The Swisscom share price fell by 9.3% in 2016. In terms of total shareholder return (share price movement and dividend payout), Swisscom achieved –5.4% thanks to the high dividend yield. The Swisscom share outperformed the Stoxx Europe 600 Telecommunications Index (–16.9% in CHF; –15.8% in EUR). Payment of an unchanged ordinary dividend of CHF 22 per share will be proposed to the Annual General Meeting of Shareholders. This is equivalent to a total dividend payout of CHF 1,140 million. Swisscom is thus upholding the principle of continuity in its dividend policy.

Digitisation as an opportunity and challenge

Digitisation is changing both our economy and our society. Networking between people, applications and devices is intensifying with each passing year and bil­lions of devices are already interconnected.

Processes previously involving tedious manual work are being digitised. We are producing new services more quickly and cost-effectively in the cloud. Not only are our infrastructures being controlled from the cloud, but physical devices themselves are being migrated to the cloud (virtualisation) as well. This digital environment is giving rise to new business models and behaviours. Instead of buying, people rent and share (sharing economy) and new platforms emerge. In this way, digitisation is permeating our everyday lives and the world we work in. Swisscom views digitisation as both an opportunity and a challenge. Constantly available high-performance networks and infrastructures form the backbone of all digitisation projects. Swisscom’s infrastructure and ICT expertise are opening up excellent opportunities for the company to sustain this success in nearly every area of business and daily life. Yet at the same time, we see the economic and social changes that accompany digitisation. We therefore make an effort to embrace our responsibility as a company through a variety of different initiatives and commitments.

More challenging market environment

Competition is extremely fierce in the Swiss ICT sector. The number of telephone lines connected through the fixed telephone network is dropping by more than 200,000 lines per year. 2016 marked the first year in which we were unable to offset this decline and the trend is set to continue in the years ahead. In the business customer market, too, cost pressure and falling margins triggered by an intense price war with our competitors have not gone unnoticed.

Global, web-based foreign providers have stepped up their activities in our markets as well. While these competitors have mainly been gearing their products toward private users up until now, they are increasingly extending their offers to business customers and forming partnerships to launch efficient, scalable products and services.

Demands for data security on the rise

Increasing connectivity and digitisation are producing ever-increasing volumes of data. Accordingly, the public spotlight is not only shifting to the careful use of data, but also security. At Swisscom, the responsible, secure handling of information takes centre stage. We want industry and society to be able to leverage the opportunities offered by smart data to their advantage.

Swisscom has the right product portfolio and capabilities needed to continue growing in the information security market. We already fend off 99% of all hacker, phishing or spam attacks with our current resources.

What we stand for

As a partner, pioneer and shaper, Swisscom aspires to offer its customers the very best in today’s networked world. As an exemplary company offering digitisation solutions, we let people choose flexibly how to interact, work and live. As a technology partner, Swisscom helps companies improve their products, processes and marketing and, in doing so, remain competitive. We thereby strengthen and promote all of Switzerland as a business location.

Building the best infrastructure – the basis for the networked world

A networked world is only as strong as its infrastructure. In keeping with that maxim, Swisscom has been investing in a future-oriented mix of network technologies for several years. In 2016, Swisscom invested nearly CHF 1.8 bil­lion in Switzerland alone and further investments of the same magnitude are planned for 2017 as well. Switzerland boasts one of the best telecommunications infrastructures in the world. With 99% of coverage boasting speeds in excess of 30 Mbps, it is already close to achieving the broadband objective of 100% coverage with 30 Mbps as set forth in the EU’s Digital Agenda 2020.

By the end of 2016, Swisscom had already provided more than 3.5 million ultrafast broadband connections (>50 Mbps). Swift expansion has made it possible for more than 94% of all homes and businesses to use Swisscom TV. In 2016, Swisscom defined new strategic objectives for its expansion of the broadband infrastructure via the fixed telephone network: the majority of people living in any given Swiss municipality should have access to higher bandwidths by the end of 2021. To this end, some 90% of all homes and businesses will have a minimum bandwidth of 80 Mbps by the end of 2021 – with around 85% of those achieving speeds of 100 Mbps or higher.

At the heart of the Swisscom network is IP technology (Internet Protocol). This not only forms the basis for Internet services, but also for Swisscom TV and voice telephony, to name a few examples. Swisscom is planning to switch all of its products and services over to IP by the end of 2017, so that its All IP customers can take advantage of the many opportunities offered by the digital world. All IP customers can block annoying advertising calls, for instance, by activating the free filter for unwanted advertising calls on their fixed-line connection. 1.5 million customers had already migrated to IP as at the end of 2016. The changeover is proceeding as planned.

We doubled revenue from cloud-based infrastructure (Dynamic Computing Services) in 2016 and more than 270 customers and partners are now using dynamic infrastructures. Given the cloud and ICT infrastructures’ ability to help us simplify processes and facilitate innovative business models, they are a key competitive advantage in this digitised world. Customers can focus more on their business and outsource ICT services, and we are able to meet the IT needs of our customers more quickly and effectively than in the past through increased standardisation and virtualisation.

In 2016, Swisscom became the first provider in Switzerland to set up an additional network dedicated to the Internet of Things. This Low Power Network is operated separately from the mobile phone network and forms the basis for the Internet of Things which will interconnect millions of sensors in future. Through all of these investments and innovations, Swisscom plays a pivotal role in shaping the markets where it does business.

Offering the best experiences – to set Swisscom apart from the rest

The market environment is changing at an accelerating pace and offerings are easily copied. Companies are only successful if they design experiences to engender a strong emotional bond and create enthusiastic, loyal customers. In everything it does, Swisscom wants to make a trustworthy, simple and inspiring impression. We put people and their relationships at the centre of all of our thoughts and actions. We go up against global competition with the very best we have to offer: our employees. They are on site in municipalities both large and small, visit customers at their homes and provide advice over the phone or via online chats. Our customer experiences are designed so that they feel the same each time customers come into contact with Swisscom, whether this be during communication, while using our products or when interacting with our customer service. Uniform experiences offer a vital link between Swisscom and its customers, particularly in the age of digitisation.

By the end of 2016, Swisscom had attracted 1.48 million customers to sign up for Swisscom TV. It is continuously expanding the TV offering, including the addition of a new UHD box and the launch of services that make TV accessible for everyone, especially people with a visual or hearing impairment.

Quick mobile phone repair services have emerged as a major need. In response to this, we set up our own Repair Centers in some of the Swisscom Shops. And in keeping with our promise to customers, they are different than what consumers have come to know and expect elsewhere. Our Repair Centers guarantee repairs within 24 hours using original spare parts and even offer a coffee bar atmosphere for anybody waiting.

The new Natel infinity 2.0 subscriptions introduced in 2016 are proving extremely popular. Since the offer’s spring launch, over a million customers have opted in favour of more roaming, quicker surfing speeds and other included services like a device-independent cloud.

Seizing the best opportunities for growth – long-term competitiveness

Long-term competitiveness calls for companies to evolve and embrace the courage to change. Swisscom has been doing this for years. We share this experience with our business customers and offer our support as a trusted partner during their digital transformation. Swisscom has a broad portfolio of machine-to-machine applications, digitisation of business processes, use of the cloud, security solutions, use of artificial intelligence and much more. These solutions give Swisscom’s customers a chance to leverage opportunities for growth and guarantee their competitiveness.

Swisscom avails itself of the best opportunities for growth as well. It plans to continue expanding both in growth areas in the TIME market (telecommunications, IT, media and entertainment) and by developing its Internet business.

The information services local.ch and search.ch were merged under the “localsearch” brand in 2016. We also collaborated with Coop to launch siroop, an online marketplace that unites merchants both large and small, nationwide and local. Our cooperation with the start-up Mila will continue as well: Around 22,000 interventions by Swisscom Friends, namely customers who help other customers locally, have been registered on the platform.

Fastweb

Swisscom is continuing to develop its subsidiary Fastweb. By expanding the ultrafast broadband network and mobile communications market, building partnerships, and improving service quality, Fastweb aims to further strengthen its strong market position in Italy and generate growth. 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 or half of homes and businesses in Italy to be connected to the ultrafast broadband network by 2020.

Swisscom values

At Swisscom, people and their relationships are at the heart of everything we do: We want to shape the future (sustainability), achieve great things (passion), be open to new ideas (curiosity), keep our promises (reliability) and be close to customers (customer focus). Swisscom’s centre of excellence for Human Centred Design develops methods and approaches with a focus on people and their relationships. Our values and beliefs are then incorporated into the development of new products and services.

Multi-generational thinking as an integral component of the corporate strategy

Swisscom thinks and acts with a focus on sustainability. This responsibility towards the environment, society and the economyforms an integral part of our corporate strategy. Our vision is of a modern, forward-looking Switzerland.

In terms of Corporate Responsibility, our activities focus on the main priorities of climate protection, work and life, media skills, attractive employer, fair supply chain and a networked Switzerland. In 2016, we strengthened efforts to compile evidence related to our activities in the areas of energy efficiency, media skills and fair supply chain even further. Nationwide, we have connected over 6,020 schools to the Internet through Schools on the Net, a programme that has been in place for over 15 years. This initiative benefits around 50,000 school classes, 120,000 teachers and more than 900,000 pupils. At the same time, our media skills courses have introduced more than 300,000 elderly people (since 2005) and 100,000 pupils, parents and teachers (since 2008) to the networked world and all of the opportunities and risks it entails. As one of Switzerland’s most attractive employers, it goes without saying that Swisscom fosters a corporate culture geared toward sustainability. This includes personal and professional development for each and every individual, active specialist training with more than 900 trainees at present (including 450 in ICT jobs) and a fair social partnership.

With regard to climate protection, we have cut our own CO2 emissions by more than half since 1990.Nowadays, customers using our services for mobile working, for instance, are reducing CO2 emissions by around 450,000 tonnes per year, which is equivalent to the emissions of around 110,000 cars. Newsweek magazine named Swisscom as the fourth most sustainable company in the world in 2016. And something of which we are very proud.

Challenging regulatory environment

A clear majority of voters and the all States rejected the “Pro Service Public” initiative in June 2016. In December 2016, ComCom decided to renew Swisscom’s licence for the Swiss universal service for another five-year period, beginning in 2018. The revised ordinance increases the minimum bandwidth from 2 to 3 Mbps, now includes IP technology and abolishes Swisscom’s obligation to operate one public payphone in each municipality. Several different topics are on the agenda in 2017: the complete revision of the Swiss Data Protection Act, revision of the Telecommunications Act, implementation of the Federal Law on the Monitoring of Postal and Telecommunications Traffic (BÜPF) and the Intelligence Service Act. With a view to the rollout of 5G, the telecommunications industry will continue to advocate for concessions for antenna construction.

Simplification and a focus on costs

Swisscom plans to reduce its cost base by over CHF 300 million between 2015 and 2020. We will achieve this through the organisational changes implemented in 2016, adjustments to our job vacancies, optimised processes and the transformation to All IP technology. These measures will free up funds, enabling Swisscom to continue investing in infrastructure and new business areas and to remain competitive over the long term. 

Financial outlook for 2017

Swisscom will propose payment of a dividend of CHF 22 per share for the 2016 financial year at the 2017 Annual General Meeting. For 2017, Swisscom expects net revenue of around CHF 11.6 bil­lion, EBITDA of around CHF 4.2 bil­lion and capital expenditure of some CHF 2.4 bil­lion. For Swisscom (excluding Fastweb), a slight decline in revenue is expected due to high competition and price pressure. A slight increase in revenue is expected for Fastweb. EBITDA for Swisscom, excluding Fastweb, is expected to be around CHF 100 million lower year-on-year. The reduction in EBITDA is attributable to price pressure and declines in the number of fixed-line telephony connections. In addition, the costs for roaming are expected to increase. EBITDA will be positively affected by cost savings. Fastweb’s EBITDA is expected to be slightly higher. Capital expenditure in Switzerland and at Fastweb is expected to be on a par with the prior year. Subject to achieving its targets, Swisscom will propose payment of an unchanged, attractive dividend of CHF 22 per share for the 2017 financial year at the 2018 Annual General Meeting.

A big thank you

2016 was a successful year, something that is not a given in light of today’s market environment. We owe this success to the trust placed in us by our customers. We owe it to the loyalty of our shareholders. And we owe it to our employees’ enthusiasm and eagerness to do their very best, every single day of the year. They deserve our most heartfelt gratitude. After all, they are the ones contributing their ideas, visions and innovations today in order to create the Swisscom of tomorrow and beyond. Their passion for Swisscom and the interest they show in our products fill us with confidence and pride as we look to the future.

Yours sincerely

WSGE_DP_Unterschrift_Loosli

Hansueli Loosli

Chairman of the Board of Directors

Swisscom Ltd

WSGE_DP_Unterschrift_Schaeppi

Urs Schaeppi

CEO Swisscom Ltd