Friday, May 13, 2005

More cracks in the facade

Swisscom's Q1 report yesterday gave us another indication of the state the fixed line sector is in: local and long distance voice traffic was down 11.5% YoY, traffic revenue was down 12% YoY, PSTN line loss was 3%, ISDN is now decisively ex-growth. Management, having for a long time downplayed the impact of Cablecom, admitted that their cable rival is by far their most serious competitor and is now visibily hurting Swisscom on the access side of the business. Management cut the revenue guidance for 2005 by 4%, and shaved EBITDA guidance by 2.4%. Choice quotes from the presentation:

"Organic and non-organic expansion of telco players leading to
increased competition in all markets and segments."

"Customer awareness forcing all players to make offers ever more
compelling and attractive. Customers expect to receive better services at
lower prices."

CEO Jens Alder also made a reference to perhaps EUR75bn in cumulative cash flow over the coming years from the European sector after buybacks and dividends - cash which will be looking for a home, and he seemed to be predicting a coming M&A wave. In fact, he cautioned of a return to "millenium hype" acquisition strategies. All this sounds comfortingly familiar, and it's refreshing to hear a company speak so frankly about the challenges facing EuroTelcoland and the dangers inherent in a desperate quest for growth backed by a mounting cash pile and access to cheap debt.

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