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Swisscom, the Swiss state-controlled telecommunications company, saw net profits fall 32 per cent in the first half of 2006 as the group was fined for overcharging rivals to connect with its service between 2000 and 2003.
Even without the SFr180m ($146.7m) fine, earnings before tax, depreciation and amortization fell 5.4 per cent as the former monopoly cut mobile termination charges and faced intense competition from rivals such as Cablecom and Liberty Media Group in the mature mobile and fixed line markets.
The group said on Wednesday that it was lowering its operating profit expectations for the year from SFr4bn to SFr3.7bn to reflect the effect of the charge and the weak operating performance at its corporate customer businesses as a result of competition, price pressure and a SFr49m charge for contract risks. However, the group maintained its revenue target of about SFr9.5bn, even though Carsten Schloter, chief executive, said on a conference call that the results showed “more shade than light”.
In its third consecutive quarterly fall in profits, Swisscom said that net income fell to SFr759m on revenues that also fell 2.8 per cent to SFr4.77bn.
Despite the decline in both analogue and digital fixed lines by 2.1 per cent to 3.79m because of the popularity of mobile technology, Swisscom said that growth in broadband access lines remained strong with customers up 32.2 per cent to 1.25m.
The group also said it planned to launch a buy back of shares worth up to SFr2.25bn, but reassured investors that returning cash would not hurt its financial flexibility.
One analyst said that the share buy back should support the share price as the fine was well-flagged and the fixed line decline was not as bad as feared.
Swisscom has suffered more than other incumbent telecoms companies such as Telefónica or Deutsche Telekom because of the small size of its domestic market, but has made a name for itself by developing clever ideas to boost revenue.
However, Bear Stearns said in a note that the regulatory threat was increasing, while profitable growth remained elusive.
Swisscom shares were down 3.3 per cent at SFr398 in early trade.