Swisscom AG - Company Profile, Information, Business Description, History, Background Information on Swisscom AG

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History of Swisscom AG

Swisscom AG is the leading telecommunications company in Switzerland. Formed from the breakup of the country's PTT post and telephone monopoly, Swisscom remains that country's leading provider of fixed and mobile telephone services, broadband Internet access, and wireless telecommunications services. Swisscom is also the country's leading Internet services provider through subsidiary Bluwin. Swisscom operates through six major business units. Swisscom Fixnet oversees the company's fixed-network telephony operations, including more than three million analog and more than two million digital (IDSN) lines, and includes subsidiaries Bluwin, Cablex (construction and maintenance of cable networks), Telecom FL (telecom services to Liechtenstein), and Swisscom Directories. Swisscom Mobile, in which Vodaphone holds 25 percent, leads Switzerland's mobile telephony market, with more than three million customers. Swisscom Enterprise Solutions markets network solutions and IP telephony services to businesses. Swisscom IT Services is the leading IT Services provider in Switzerland. Swisscom Systems is a full-service provider of private branch exchange (PBX) systems. Lastly, Swisscom holds 93 percent of Debitel AG, the third-largest mobile telephone services operator in Germany, with operations in France, the Netherlands, Denmark, and Slovenia, making it Europe's leading network-independent telecommunications provider. Debitel boasts more than ten million subscribers, three-fourths of which are in Germany. Listed on the Swiss Stock Exchange, Swisscom remains controlled by the Swiss government, which holds 63 percent of its shares. The government is expected to reduce its holdings in the company as early as 2003, in order to allow Swisscom more flexibility to compete within the quickly consolidating global telecom market--even at the cost of allowing itself to be absorbed into a larger telecommunications group.

Swiss Telecommunications Industry in the 19th Century

Switzerland's entry into the telecommunications era came in 1851, with the passage of legislation giving the Swiss government control over development of a telegraph network throughout the country. The government's initial plans called for the creation of three primary telegraph lines, as well as a number of secondary networks. In order to build equipment for the system, the government established the Atleier Fédéral de Construction des Télégraphs (Federal Workshop for the Construction of Telegraphs).

In July 1852, the first leg of the country's telegraph system--between St. Gallen and Zurich--was operational. By the end of that year, most of the country's main cities had been connected to the telegraph system. In 1855, the network was extended with the first underwater cable, connecting Winkel-Stansstad and Bauen-Flüelen. Night service was also launched that year, starting in Basle, St. Gallen, and Bellizone.

Telegraph traffic took off in the late 1860s after the government reduced the cost of a 20-word message in 1867. While telegraph traffic continued to rise in the following decade, that technology was soon to be replaced by the telephone.

Switzerland's entry into the telephone age came in 1877, when the first experimental phone lines appeared, starting with a line linking the post office building with the Federal Palace and then with a link, using the existing telegraph line, between Bern and Thoune. The following year, the government passed legislation establishing a monopoly on the country's telephone network. Nonetheless, private operators were allowed to bid for licenses in order to develop their local concessions. By 1880, Switzerland's first private network had been created in Zurich. This was a central system with the capacity for 200 lines. The first directory was also published that year and listed 140 subscribers.

Basle, Bern, and Geneva all debuted their own local networks between 1881 and 1882. One year later, the first inter-city telephone line was established, linking Zurich's private exchange with Winterthur's public system. Yet the Zurich company ran into difficulties by the mid-1880s. With its development falling behind the telephone concessions elsewhere in the country, the federal government bought out the private operator, paying just over CHF 300,000 in 1886.

The national telephone network continued to expand. Telephone numbers were introduced in 1890, replacing the initial system whereby callers had been able to ask for their party by name. The number of Switzerland's telephone subscribers steadily grew, particularly after the inauguration of a new telephone central capable of handling nearly 4,000 lines.

PTT Monopoly in the 1920s

By 1896, Switzerland's telephone network had been extended to include all of Switzerland's cantons. By 1900, the country had also established its first international connection, between Basle and Stuttgart, Germany. Switzerland began testing its first public phone booths in 1904. Initially restricted to local calls, the public telephones allowed national calling for the first time in 1907.

The first automatic telephone exchanges were installed by private networks in 1912. By 1917, a semi-automatic exchange had been installed, in Zurich-Hottingen. The following year, in order to extend the country's phone system into rural parts of Switzerland, the government began promoting the establishment of party-line systems.

In 1920, the Swiss government created the Swiss PTT, combining the country's postal services and telegraph and telephone systems into a single, government-controlled entity. Development of the country's telephone system now came entirely under the purview of the government. In 1921, the PTT launched its own directory inquiries service. The following year, the PTT debuted the first fully automatic public telephone exchange, in Zurich-Hottingen.

The PTT began telex services in 1934, and by 1936 had linked up the cities of Zurich, Basle, and Bern, which were then linked via Zurich to the international market. In the meantime, the PTT also became responsible for developing the company's radio broadcasting, and, later, television broadcasting services.

Switzerland's telephone system took off in the years following World War II. By 1948, the country boasted 500,000 telephone subscribers. Over the following decade, that number doubled. In 1957, the PTT added computer capacity in order to handle billing for its fast-growing network. Through this period, the state-owned organization had continued to invest in automating its telephone network, and in 1959 Switzerland became the first country to feature a fully automated telephone exchange system.

Moving toward Mobile in the 1980s

Automation enabled the PTT to introduce pulse-metering for local calls in 1963, priced at 10 centimes per pulse. In 1966, the PTT introduced automated international dialing services, initially from Montreux. International direct dialing was rolled out to the rest of the country over the following decade, achieving full coverage in 1982.

As the PTT's subscriber base topped two million at the beginning of the 1970s, the country introduced a new, seven-digit phone numbering system. By then, the PTT was also becoming interested in a number of new technologies. In 1970, the PTT led a workgroup, including a number of prominent Swiss telecommunications players, in an effort to create an integrated digital telecommunications network (IFS). Originally intended to be rolled out by the middle that decade, the first IFS exchange did not become operational until 1986.

Other technologies proved more accessible to the PTT. In 1976, the company debuted facsimile transmission services from its customer service centers. Two years later, the PTT established its first mobile telephone network, called NATEL (for Nationales Autotelefonnetz). Although rudimentary--with calls limited to just three minutes, coverage restricted to five, unlinked local networks, and often difficult-to-establish connections--the NATEL network marked one of the earliest and most successful attempts at making telephony mobile.

In 1980, the PTT enabled facsimile transmission for the home and office market. By then, its subscriber base had risen to nearly three million fixed-line users. In 1983, the PTT launched its next-generation mobile network, NATEL B, which, among other enhancements, reduced the size of mobile telephone equipment to a 25-pound unit that fit in its own carrying case.

Other new technologies appeared in the mid-1980s, including the Telepac data transmission network, rolled out in 1983, and the first videoconferencing services, launched in 1985. In 1987, the PTT upgraded the NATEL network again. The NATEL C network provided more extensive coverage, digitally transmitted sound, and smaller telephone sizes. The new network permitted mobile telephony to take off in Switzerland, and by 1992 the country had some 200,000 subscribers on the NATEL network.

In the 1990s, the PTT faced the loss of its telecommunications monopoly. As a run-up to the coming deregulation of the telecommunications market, the PTT put into place a new corporate strategy, separating its postal and telecommunications operations into two focused units. The telecommunications business became known as Swiss Telecom PTT. New telecommunications legislation was passed in 1992 that stripped away the government's monopoly status, starting with the equipment sector and digital data communications services, although maintaining the company's de facto hold on the local telephone market for most of the remainder of the decade.

As part of its repositioning, Telecom PTT invested more heavily in mobile telephony business, launching the new GSM-based NATEL D network in 1992. That network, which also provided customers with compatibility throughout most of Europe, marked the start of a new era for the telephone market as callers adopted the new technology. By then end of the 1990s, nearly two million customers had connected to the NATEL D network.

Public Company in the 21st Century

One of the smallest of the European telecommunications companies, Telecom PTT began to seek international growth, forming the short-lived Unisource partnership with the Netherland's KPN and Sweden's Telia. Unisource attempted to enter a number of markets around the world, including Malaysia and India, but finally collapsed after years of losses.

A more successful expansion effort came with Telecom PTT's entry into the Internet, as the company set up service provider Blue Window (later Bluewin), which became the country's leading Internet service provider (ISP). The company had also introduced digital ISDN subscriber services, building up its subscriber base from 250,000 in 1996 to more than two million by 2003.

In 1997, the Swiss government passed new legislation fully deregulating the Swiss telecommunications market. As part of that move, Telecom PTT was spun off as a special public limited company. Telecom PTT then changed its name to Swisscom and prepared a full public offering for 1998. However, even though it was listed on the Swiss Stock Exchange, Swisscom remained majority controlled by the Swiss government. Also in 1998, Swisscom faced competition at home for the first time, as a new player, Diax (which changed its name to Sunrise) entered the mobile telephone market. Competition for the Swiss mobile market heated up in 2000 with the arrival of France Telecom-dominated Orange. Nonetheless, Swisscom held onto it leading position among mobile users.

By then, Swisscom had also made its own international moves. In 1999, the company acquired Germany's publicly listed Debitel, the third-largest mobile services provider in that country, which also had operations in France, the Netherlands, Slovenia, and Denmark. Debitel quickly became the leading network-independent mobile services provider in Europe, with a base of more than ten million subscribers. Swisscom rapidly built up its holding in Debitel, which stood at 93 percent in 2003.

Swisscom had restructured its own operations in advance of planned public offerings of both Bluewin and Swisscom Mobile. The company now split up into six primary business units, then sold a 25 percent stake in Swisscom Mobile to England's Vodaphone in 2001. The linkup with Vodaphone, a major investor in so-called 3G (third-generation) mobile telephone technology, coincided with Swisscom's winning of a UMTS (Universal Mobile Telecommunications Systems) license in 2000. While others, including Vodaphone, paid billions for their UMTS licenses, Swisscom paid just CHF 50 million, which softened the blow on the company when the bottom dropped out of the UMTS market soon after.

Swisscom began rolling out new DSL (digital subscriber line) broadband technology in the early 2000s, rapidly building up a base of some 200,000 subscribers by the beginning of 2003. With respect to its heavily indebted and unprofitable European competitors, the company now found itself in the enviable position of holding a war chest of between CHF 5 billion and CHF 10 billion for possible acquisitions.

These funds enabled the company to target the growing wireless "hotspot" market--that is, areas providing wireless network access. The company, which formed its WLAN operations under a new subsidiary, Swisscom Eurospot, began further expansion in May 2003 when it acquired the Netherland's Aervik, which operated some ten hotspots and had access to another 45 sites. By the end of that month, Swisscom took a giant step forward on the European WiFi scene by acquiring England's Megabeam and Germany's WLAN AG. Those purchases gave the company 206 hotspots in Germany and Switzerland as well as the third-largest hotspot network in the United Kingdom.

Despite its successful expansion into the wireless sector, Swisscom remained a minor player in the rapidly consolidating global telecommunications industry. As the moratorium on a reduction in the Swiss government's holding ended in 2003, Swisscom's executives and others began urging the government to reduce its share to a minority holding in order to make the company more flexible. The government promised to launch a referendum on that issue during 2003. Yet a more "flexible" Swisscom was seen as likely to seek a larger partner, potentially ending the Swisscom's existence as an independent company.

Principal Subsidiaries: Bluewin AG; Cablex AG; Debitel AG (93%); Directories AG (51%); SiCAP AG; Swisscom Enterprise Solutions AG; Swisscom Fixnet AG; Swisscom IT Services AG; Swisscom Mobile AG; Swisscom Systems AG; Telecom FL AG.

Principal Competitors: Siemens AG; France Telecom S.A.; Telefonica S.A; Telecom Italia SpA; Centrica PLC; Bouygues S.A.; Orange; T-Mobile International AG; Cable and Wireless Ireland Ltd.


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