The telecommunications environment is faced by continuous changes in technology, regulations, competition and customer behaviour. The achievement of business objectives can be adversely affected by changes in the risk categories "strategy, credit, market, business and operational risks". Risk factors which could significantly affect Swisscom's future business objectives are described below.
Regulation and proceedings
For Swisscom, the provisions of the Telecommunications Act and the Competition Act entail certain risks which may impact the company's future financial position and results of operations. At the forefront of these is the regulation governing access service prices, as well as decisions by official authorities or courts of appeal which may result in short-term cash outflows. Regulation can also impact the range of products and services as well as investment decisions.
The effect of the financial crisis and the economic downturn on Swisscom has so far been minimal. Despite a slight improvement in the economy, there remains a high degree of uncertainty about the future. Swisscom monitors this risk factor using an "economic indicator cockpit". Rising unemployment and a renewed fall in output pose a significant risk.
Telecommunications market in Switzerland
Consolidation between market players in Switzerland could have a lasting impact on the structure of competition and on market behaviour. In particular, the announced merger between Orange Communications Ltd and Sunrise Communications Ltd is set to change the Swiss telecommunications market. Swisscom minimises this risk factor by ensuring that it remains efficient and competitive. Transformation in the telecommunications market in the direction of the TIME industry and growing competition by OTT providers (over the top: Apple, Google etc.) are giving rise to a transformation risk. This risk is minimised by a range of different measures - such as, for example, restructuring, new business models and efficiency measures.
Expansion of the fibre-optic network (FTTH)
The fibre-optic network expansion project requires high levels of investment over a period of several years. The inherent risks associated with the project are commensurately high, as are the uncertainties surrounding the investment and risks related to the implementation strategy. What is more, the project carries high regulatory and political risks. Swisscom engages in active risk management in the area of FTTH by following a multi-fibre strategy and offering cooperation models.
Swisscom's business is heavily dependent on technical infrastructures such as communications networks and information technology. In these areas, force majeure, human error, hardware and software crashes and criminal activity by third parties (e.g. computer viruses), can result in damage or interrupted operations. This in turn can have a negative impact on Swisscom's image and revenues. Another risk concerns the increasingly rapid obsolescence of the infrastructure, driven by the pace of technological change. The lack of harmonisation between older and new systems, for instance, could prevent Swisscom from enhancing its competitive capability and exploiting further potential for cost savings.
Environment and health
In recent years electromagnetic radiation - for example from mobile antennae or mobile devices - has repeatedly been claimed to be harmful to the environment and health. Even now, the public's wary approach to mobile antenna sites is impeding Swisscom's network expansion. In future there is a risk that the regulations governing electromagnetic emissions will be tightened, or new regulations will be enacted. For Swisscom this would entail extra costs for additional antennae or other measures to comply with such regulations.
Fastweb valuation and market consolidation in Italy
The Italian market may undergo consolidation in the foreseeable future which could have a negative impact on Fastweb's achievement of its objectives. In May 2007 Swisscom acquired the Italian firm Fastweb for a purchase price of CHF 5.1 billion. At the time of acquisition, Fastweb had net debts of CHF 1.8 billion. By taking over Fastweb, Swisscom was able to significantly enhance its growth potential. If future growth is lower than projected, there is a risk that this will result in goodwill impairment.