Swisscom AG
Annual Report 2014

Plain-text annual report

Annual Report2014  Welcome to the country of possibilities Swisscom is connecting Switzerland: Thanks to our network, products and services, our customers have a sense of independence and are able to use these in any way they please, regardless of the location and time. Swisscom assumes responsibility: Together with the Swiss population, we are committed to our company. Swisscom promotes skilled employees, i. e. people who want to work together to make things happen for the Switzerland of the future. Shareholders’ letter Dear Shareholders Swisscom can look back on a successful year with strong customer growth and stable core business. Targeted capital expenditure in network and IT infrastructure is resulting in higher bandwidths and coverage. Swisscom is tapping into new business areas through innovation and the development of its core business, enabling it to guide its customers into a future where the real and virtual worlds are blending into one. The launch of Swisscom TV 2.0 and the ongoing trend towards bundled offers and flat-rate fees are important success drivers. Despite continuing competition and price pressure, characterised by general price erosion and further price reductions for roaming services, operating income increased compared with the previous year. Fastweb is also developing nicely, with more than two million broadband customers. Increase in Group revenue and operating income In 2014, Swisscom’s net revenue rose by CHF 269 million or 2.4% to CHF 11,703 million, and oper- ating income before depreciation and amortisation (EBITDA) grew by CHF 111 million or 2.6% to CHF 4,413 million. Excluding one-off items, and at constant exchange rates, net revenue and EBITDA increased by 1.9% and 0.9%, respectively. Net income increased by CHF  11  million or 0.6% to CHF 1,706 million. The increase in EBITDA was offset in part by higher depreciation and amorti- sation and higher income tax expense. Capital expenditure increased by CHF 40 million or 1.7% to CHF 2,436 million due to the expansion of network infrastructure. Solid business performance in Switzerland In its Swiss business, Swisscom generated net revenue of CHF 9,586 million (+2.4%) and EBITDA of CHF 3,788 million (+2.8%). Adjusted for one-off items, revenue and EBITDA were up 1.4% and 0.6%, respectively, year-on-year. Price erosion of CHF 360 million (of which CHF 170 million resulted from reductions in roaming fees) in the Swiss core business was outweighed by customer and vol- ume growth. Capital expenditure in Switzerland rose by CHF 65 million or 3.9% to CHF 1,751 mil- lion. The higher capital expenditure is primarily due to the expansion and upgrading of mobile and fixed network infrastructure with the latest technologies. At the end of 2014, Swisscom had con- nected more than 1.4 million homes and offices to ultra-fast broadband. In Switzerland, headcount increased by 910 full-time equivalents or 5.2% to 18,272 as a result of company acquisitions, the hiring of new staff and the strengthening of customer service operations. Fastweb developing nicely As a result of the difficult economic situation, the Italian market is very challenging, but Italian subsidiary Fastweb is developing nicely. The high capital expenditure of previous years is pay- ing off in 2014. Excluding hubbing, Fastweb’s net revenue was EUR 63 million or 3.9% higher at EUR  1,660  million. In 2014, Fastweb had more than two million broadband customers (+6.7%), gained market share and improved its market position among both residential customers and business customers. EBITDA increased by EUR 10 million or 2.0% year-on-year to EUR 515 million. Capital expenditure remained on a par with the previous year at EUR 562 million (–0.5%). Fastweb is continuing its expansion of the ultra-fast broadband network and by the end of 2016 aims to have covered around 7.5 million homes and offices in Italy, i.e. 30% of the population. Swisscom share performance in 2014 The Swisscom share price rose by 11% in 2014, which is 1.5 percentage points higher than the average price gain of 9.5% posted by the 20 leading Swiss companies on the Swiss Exchange (SMI). In terms of total shareholder return (share price movement and dividend payout), Swisscom out- performed the SMI due to the high dividend yield. Payment of an unchanged ordinary dividend of CHF 22 per share will be proposed to the Annual General Meeting of Shareholders. This is equiv- alent to a total dividend payout of CHF 1,140 million. Swisscom is thus upholding the principle of continuity in its dividend policy. Always and everywhere online – in the country of possibilities The digital world is increasingly becoming a part of all aspects of the economy and society. The three trends “always online”, “Internet-based” and “global competition” grew stronger over the year. Always online: in a few years, we will be accessing all personal and professional applications and data in real time, irrespective of the end device. And it’s not just people, but also intelligent applica- tions and devices that are increasingly connected with one another and they will grow to be even more integrated in future. Digitisation and mobility are changing business models and allowing for better customer experiences. Internet-based: in future, all products and services will be operated on the basis of Internet protocol. Storage space, processing power and software will increasingly be sourced from a secure cloud. Global competition: digitisation and the spread of Internet-based communication services are creating international markets. Worldwide competitors benefit from global economies of scale and are changing business models in the telecoms market. Technical feasibility and changes in user behaviour are driving mobility. At the same time, the demands placed on our infrastructure with respect to availability, performance and security continue to rise. In order to prepare for the merg- ing of the virtual and real world, Swisscom has enhanced its customer promise: Swisscom is the best companion in today’s networked world. Trusted, simple, inspiring – Swisscom puts people and their relationships at the heart of all it does. Targeted capital expenditure for high bandwidth – the best infrastructure The importance of the Internet for both personal and professional use continues to grow, which entails greater user demand for high-performance, secure and area-wide network access. In the high-investment competitive environment for the provision of networks among cable network operators, power utility companies and mobile network operators, Swisscom offers its customers the best network. For this reason, Swisscom invested CHF 1.75 billion in its network and IT infra- structure in Switzerland, most of which was used to expand the mobile network with 4G/LTE and the ultra-fast broadband fixed network. Swisscom offers its customers mobile network access with a wide variety of service attributes at a fixed price, providing them with unlimited use of many communication services. The funda- mental difference among Swisscom offerings is the access speed. The infinity mobile subscriptions launched in 2012 are popular: 2.1 million customers have already switched to one of them. Similarly, in fixed-line services the focus is increasingly being placed on package offers that differ primarily in the bandwidth and range of services they offer. Swisscom has consistently focused on meeting customer needs with its Vivo packages. The Vivo packages, ranging from light to XL, com- bine TV, Internet and fixed-line access and offer the ideal subscription for individual needs. Broader mix of the state-of-the-art ultra-fast broadband technologies By the end of 2014, Swisscom had connected more than 1.4 million homes and offices with ultra- fast broadband – from Fibre-to-the-Home (FTTH) to the latest fibre-optic technology such as Fibre- to-the-Street (FTTS), Fibre-to-the-Building (FTTB) and vectoring technology. Thanks to vectoring and the use of G.fast, a new transmission standard on FTTS and FTTB, bandwidths of up to 500 Mbps will soon be possible on traditional copper connections. Swisscom will be supplying 2.3  million homes and offices with ultra-fast broadband by the end of 2015. Its goal is to provide the entire country with the highest possible bandwidth in the coming years. More bandwidth in the mobile network Swisscom has expanded and upgraded its entire mobile network in recent years. As the first mobile network operator in Switzerland, Swisscom commenced the commercial operation of 4G/LTE, the fourth-generation mobile network, in 2012. By the end of 2014, Swisscom had already provided 4G/LTE coverage to 97% of the Swiss population, and nearly a million Swisscom customers are reg- ularly using the new high-speed LTE network. Around 99% of the Swiss population will benefit from mobile bandwidths of up to 150 Mbps by the end of 2016. Since summer 2014, Swisscom has intro- duced LTE-Advanced with speeds of up to 300 Mbps in major Swiss cities, and is already testing the next step of 450 Mbps in the laboratory. In 2015, it will also introduce WiFi Calling and Voice over LTE (VoLTE), which will improve the mobile communication experience and make customers easier to contact at home. Since April 2014 customers have enjoyed an additional reduction in prices for data roaming. New data packages for EU countries offer customers considerably cheaper surfing rates compared to EU regulated prices. All IP – Internet protocol as a uniform language Internet protocol (IP) is the most successful technology for data transmission in the world. The transition from traditional fixed-network technology to the new IP-based system environment is a global development. Swisscom, too, is gradually converting its infrastructure and driving the tran- sition to All IP. This will create the basis for a more flexible and cost-effective market entry with the latest products and services, as well as for new customer experiences thanks to the ability to access data (images, voice, music, etc.) irrespective of time, device used and location. For Swisscom, operation and processes will also be simpler and more cost-effective. Swisscom will thus secure its own competitiveness as well as the competitiveness of its business customers and Switzerland as a business location. More than 588,000 customers already use the comprehensive IP technology. The aim is to migrate the entire Swisscom network to IP by the end of 2017. Further development of core business and innovations – best experience In a dynamic market environment, Swisscom continues to develop the traditional product portfolio in the private and business customer market. The marketing of bundled products and cloud-based Swisscom TV 2.0, which is already used by more than 300,000 customers, are important drivers. Swisscom’s Teleclub Play video flat-rate service offers customers unlimited access to TV series, films, children’s programmes, documentaries and a large sports archive at a fixed price. Swisscom also uses innovations to tap into new business areas. It inspires its customers, provides them with support in the digitised world and has successfully introduced new products to the market, e.g. Docsafe, a platform for digital file exchange. The iO communication app has been enhanced and now includes iO@home, which renders the fixed network mobile and ensures that users can be contacted free of charge on their fixed-network number anywhere in the world. New opportunities for growth for Swisscom The cloud is becoming increasingly important for both residential and business customers, which is why Swisscom opened a data centre in Berne Wankdorf in September 2014. It is one of the most modern data centres in Europe and sets a new standard in terms of its energy efficiency, reliabil- ity and availability. Any and all data stored in this data centre is and will remain in Switzerland. The new data centre is part of Swisscom’s response to the growing demand for data protection and security among its customers arising in connection with increasing connectivity. New techni- cal capabilities also offer vertical growth potential, for example through industry solutions in the banking, energy and healthcare sectors. Internet-based services, such as search services and the marketing of advertising, are growing. In September 2014, Swisscom assumed control of PubliGroupe SA. The main goal of this takeover was to fully acquire and further develop the local group and thus to confront global competitors with a strong Swiss provider. Swisscom and Tamedia have agreed to a partnership in the directories business and are merging local.ch and search.ch into a joint subsidiary, of which Swisscom will hold 69% and Tamedia 31%. The merger is subject to the approval of the competition authority. Bundling in the business customer market – ICT from a single source The boundaries between our private and working lives are disappearing. The smartphone is a con- stant companion, and telecommunication and IT are coalescing into one information and commu- nication technology (ICT). To boost the level of effectiveness in the business customer area, as well as to actively push ahead with convergence and single-source cloud-based solutions, Swisscom bundled the telecoms and IT corporate business into Enterprise Customers at the start of the year. This made Swisscom one of the largest integrated ICT providers in Switzerland. Since the beginning of 2014, corporate customers have received the full range of ICT portfolio services from a single source – Enterprise Customers. Christian Petit took over as head of the division Enterprise Custom- ers as of 1 April 2014. The best in the networked world – always and everywhere The Board of Directors and management of Swisscom looked closely at the company’s strategy and mission statement in 2014. This resulted in the new Swisscom mission statement. As the best companion in today’s networked world, Swisscom wants its customers to feel secure and at ease, allowing them to concentrate on what is essential to them and discover new possibilities. In doing so, the focus is on people and their relationships. Customer focus, passion, sustainability, curiosity and reliability are the values that guide us in offering our customers the best in the networked world – always and everywhere. Sustainability as an integral component of the corporate strategy Swisscom’s commitment to the environment, society and the economy is an integral component of its business strategy. The sustainability strategy is based on six core areas: climate protection, working and living, media skills, attractive employer, fair supply chain and networked Switzerland. Derived from these areas, Swisscom has set itself specific targets it aims to reach by 2020, such as saving twice as much CO2 emissions as it produces throughout the company including the entire supply chain through the use of ICT services. As a leading company in the area of data security, Swisscom aims to provide a million people with support in using media in a safe and responsible manner. Another goal is to enable 99% of the Swiss population to benefit from ultra-fast mobile broadband connections and to provide 85% of homes and offices with ultra-fast internet access by 2020. Swisscom therefore indirectly contributes around CHF 30 billion to the country’s Gross Domestic Product and helps to create and maintain some 100,000 jobs. Financial outlook for 2015 Swisscom expects to close 2015 with net revenue in excess of CHF 11.4 billion and EBITDA of around CHF 4.2 billion. This outlook is based on an assumed euro exchange rate of CHF 1.00. It does not take account of the possible negative implications of the currency situation for the economy. The negative effects of the lower euro exchange rate will amount to almost CHF 400 million on net revenue and around CHF 100 million on EBITDA. In the case of EBITDA, the All IP transformation, higher pension costs and lower gains from the sale of real estate, will result in a reduction of more than CHF 100 million. At CHF 2.3 billion, capital expenditure is expected to be some CHF 100 mil- lion lower than in 2014, due to the lower euro exchange rate and a slight reduction in investment in Fastweb. Capital expenditure in Switzerland will remain unchanged at CHF 1.75 billion. Subject to achieving its targets, Swisscom will again propose a dividend of CHF 22 per share for the 2015 financial year at the 2016 Annual General Meeting. Thank you We can look back on a successful year. We owe our achievements in 2014 to the trust of our customers and the loyalty of our shareholders. A huge thank you to all of you. Special thanks also go to our employees again this year: it is thanks to your creative ideas, wholehearted dedication and commit- ment that Swisscom is able to offer its customers the very best every day of the year. Yours sincerely Hansueli Loosli Chairman of the Board of Directors Swisscom Ltd Urs Schaeppi CEO Swisscom Ltd Triple bottom line Swisscom reports about the ecological, economic and social aspects and factors that shape its business activities and its role as a corporate citizen. Table of contents Introduction Management Commentary Corporate Governance and Remuneration Report Financial Statements Further Information 8–19 20–87 88–127 128–211 212–224 “Confidential data is being transmitted more frequently via the smartphone. Our new app encrypts the data being trans- ferred via public WLANs and blocks access to dangerous websites.” Carolin Latze Team Lead Security IT, Network & Innovation Introduction The best in today’s net- worked world – everywhere and anytime. 11,703 million CHF net revenue in 2014, which represents an increase of 2.4%. 21,125 employees were employed by Swisscom as at the end of 2014. Swisscom’s workforce includes 97 different nationalities. 26.4 % Swisscom has been increasing its energy efficiency in Switzerland since 1 January 2010. Topics Introduction 14 KPIs of Swisscom Group 16 Key events 2014 18 Business overview KPIs of Swisscom Group In CHF million, except where indicated  Net revenue and results  Net revenue  Operating income before depreciation and amortisation (EBITDA)  EBITDA as % of net revenue  Operating income (EBIT)  Net income  Earnings per share  Balance sheet and cash flows  Equity at end of year  Equity ratio at end of year  Operating free cash flow  Capital expenditure in property, plant and equipment  and other intangible assets  Net debt at end of period  Operational data at end of period  Fixed access lines in Switzerland  Broadband access lines retail in Switzerland  Swisscom TV access lines in Switzerland  Mobile access lines in Switzerland  Revenue generating units (RGU) Switzerland  Unbundled fixed access lines in Switzerland  Broadband access lines wholesale in Switzerland  Broadband access lines in Italy  Swisscom share  Number of issued shares  Closing price at end of period  Market capitalisation at end of year  Dividend per share  Environmental key figures in Switzerland  Energy consumption  Energy efficiency increase since 1 January 2010  Direct CO2-emissions  Reduction of direct CO2-emissions since 1 January 2010  Employees  Full-time equivalent employees at end of year  Full-time equivalent employees in Switzerland at end of year  % CHF % in thousand in thousand in thousand in thousand in thousand in thousand in thousand in thousand in thousand CHF CHF GWh % tons % number number 2014 2013 Change 11,703 11,434 4,413 37.7 2,322 1,706 32.70 5,457 26.1 1,860 2,436 8,120 2,778 1,890 1,165 6,540 4,302 37.6 2,258 1,695 32.53 6,002 29.3 1,978 2,396 7,812 2,879 1,811 1,000 6,407 12,373 12,097 180 262 2,072 51,802 522.50 27,067 22.00 1 497 26.4 21,380 17.0 21,125 18,272 256 215 1,942 51,802 470.90 24,394 22.00 498 21.1 23,835 3.9 20,108 17,362 2.4% 2.6% 2.8% 0.6% 0.5% –9.1% –6.0% 1.7% 3.9% –3.5% 4.4% 16.5% 2.1% 2.3% –29.7% 21.9% 6.7% – 11.0% 11.0% – –0.2% –10.3% 5.1% 5.2% 1  In accordance with the proposal of the Board of Directors to the Annual General Meeting. 14 n o i t c u d o r t n I p u o r G m o c s s i w S f o s I P K               Net revenue  in CHF million   EBITDA  in CHF million   11,384  2,116  9,268  11,434  2,076  9,358  11,703  2,117  9,586    14,000      10,500      7,000      3,500    0      6,000      4,500      3,000      1,500    0    Other countries    Switzerland    4,477  613  3,864  4,302  617  3,685  4,413  625  3,788  2012  2013  2014  2012  2013  2014  Net income  in CHF million   Capital expenditure  in CHF million   1,815  1,695  1,706    3,000      2,250      1,500    750    0    2,529  535  1,994  2,396  710  1,686  2,436  685  1,751    3,000      2,250      1,500    750    0    2012  2013  2014  2012  2013  2014  Number of employees  in full-time equivalent (FTE)  Energy efficiency increase in Switzerland     since 1 January 2010  in %   19,514  3,245  16,269  20,108  2,746  17,362  21,125 2,853 18,272   30,000      22,500      15,000     7,500   0   40    30    20    10    0    Other countries   Switzerland   26.4%  21.1%  15.1%  2012  2013  2014 2012  2013  2014  Other countries    Switzerland    Other countries    Switzerland    15 n o i t c u d o r t n I p u o r G m o c s s i w S f o s I P K                                             Key events 2014 Market > More than 1.4 million homes and businesses in Switzerland are already connected to ultra-fast broadband. Thanks to a mixture of fibre-optic technologies, customers are benefiting from more bandwidth – even outside the major conurbations. > Fastweb expands its ultra-fast broadband network in Italy even further and has more than 2 million broadband customers. > Swisscom is the first mobile provider in Switzerland to introduce LTE Advanced. > Swisscom wins Connect magazine’s network test for the sixth year in a row. > Swisscom reduces mobile phone rates for calls in Europe. Mobile surfing rates in Europe and in many other countries are once again reduced for Swisscom customers. > Swisscom customers use data packages with increasing frequency for mobile surfing abroad. Attractive roaming tariffs contribute to a doubling of data volumes transmitted abroad. > The Swiss Federal Office of Energy includes Swisscom Energy Solutions’ smart storage network in the list of its flagship projects. The solution, which now carries the name “tiko”, is thus a forward- looking and important component for the implementation of the Swiss Confederation’s 2050 energy strategy. Products and services > The completely new Swisscom TV 2.0 offers seven-day replay on over 250 channels. Thanks to a cloud-based solution, customers can record any number of programmes in parallel. > Thanks to the flat-rate video service Teleclub Play, Swisscom TV 2.0 customers have access to several thousand hours of TV series, classic films, children’s programmes, documentaries and sports content. > The communications app iO makes fixed network numbers mobile. The new iO@home feature allows fixed network customers with a Vivo package to make calls at no charge via their fixed-line number to all Swiss networks, no matter whether they are phoning from Switzerland or abroad. > Swisscom simplifies its prepaid products and offers phone service, SMS and mobile surfing at a single prepaid tariff. > Tapit is the first smartphone app on the Swiss market that allows users to make payments, collect loyalty points and open doors in a single, neutral ecosystem. > Swisscom launches Docsafe, the Swiss cloud storage solution for residential customers that enables them to store their documents simply and securely online. > Business users can use Vidia, the cloud-based videoconferencing solution for companies, to attend meetings without being physically present. > The Safe Connect app allows users to surf securely and easily, even when using other WLAN networks. It does so by encrypting the data traffic sent via the mobile phone network. 16 n o i t c u d o r t n I 4 1 0 2 s t n e v e y e K Sustainability > The newly opened business park in Ittigen offers space for 2,000 employees. Its environmentally sustainable construction makes it one of the largest Minergie-P-Eco office buildings in Switzerland. > Swisscom opens one of Europe’s most advanced and efficient data centres in Berne Wankdorf. As one of very few data centres in Europe, it receives Tier-IV certification. > Swisscom expands its course offering to promote media competency by more than 30%. More than 25,000 parents, teachers and students take advantage of the course offering in 2014. > As the third issue of the JAMES study shows, smartphones are becoming more and more important for young people. This is because young people use their mobile phone to surf more than to make phone calls. > Swisscom builds three new photovoltaic plants in Les Ordons, Haute Nendaz and La Chaux-de-Fonds: thus, Swisscom now operates seven photovoltaic plants in its transmitter locations and meets its entire energy consumption needs through renewable energies. > Swisscom opens a Swisscom Shop in Düdingen that has an innovative new concept: the company’s first Junior Shop is run independently by trainees. Business review > Frank Esser, a member of the Vivendi Group Board of Directors until 2012, is now a member of the Swisscom Board of Directors. He succeeds Richard Roy, who stepped down from the Board of Directors after 11 years. > Theophil Schlatter takes over as Vice-Chairman of the Board of Directors. > Christian Petit takes over as head of Enterprise Customers and thus becomes a member of the Swisscom Group Executive Board. Andreas König decided to resign his position and to leave the company for personal reasons. > Swisscom takes over PubliGroupe SA. Its primary aim is to further develop the directories business of local.ch. > Swisscom expands its ICT competence with the acquisition of Veltigroup. > Swisscom bundles all workplace and collaboration competences in Enterprise Customers. It merges subsidiary Axept Webcall with the Solution Center Workspace & Collaboration. 17 n o i t c u d o r t n I 4 1 0 2 s t n e v e y e K Business overview Swisscom provides financial reporting for the three operating divisions Swisscom Switzerland, Fastweb and Other operating segments as well as Group Headquarters. Swisscom Switzerland Swisscom Switzerland comprises the customer segments Residential Customers, Small and Medium- Sized Enterprises, Enterprise Customers and Wholesale as well as the IT, Network & Innovation division. Residential Customers The Residential Customers segment is the contact partner for mobile and fixed-line retail customers. It provides Switzerland with broadband access lines, serves a growing number of Swisscom TV customers and operates www.bluewin.ch, one of Switzerland’s most frequently visited Internet portals. The Residential Customers segment offers all telephone, Internet and TV services, pay TV, transmissions of sporting events and video on demand from a single source, as well as the sale of end devices. In addition, Cinetrade operates one of the leading cinema chains in Switzerland. Small and Medium-Sized Enterprises The Small and Medium-Sized Enterprises segment offers a comprehensive range of products and services – from fixed-line and mobile telephony to Internet and data services to IT infrastructure maintenance and operation. Small and medium-sized enterprises receive integrated solutions tailored to their needs: suitable connections, secure access, professional services and intelligent networks. It also includes the directories business. Enterprise Customers Whether voice or data, mobile or fixed network, individual products or integrated solutions, as a leading provider in the field of business communications, the Enterprise Customers segment supports customers with the planning, implementation and operation of their IT and communications infrastructure, including the provision of cost-efficient solutions and reliable services. Enterprise Customers ranks as one of the leading providers specialising in the integration and operation of complex IT systems. In addition, its core competencies are in the fields of IT outsourcing services, workplace services, SAP services and services for the financial industry. Wholesale The Wholesale segment provides various services for other telecommunications providers, such as regulated access to the “last mile” as well as commercial voice, data and broadband products. The Wholesale segment also covers roaming with foreign providers. IT, Network & Innovation The IT, Network & Innovation (INI) segment builds, operates and maintains Swisscom’s nationwide fixed network and mobile communications infrastructure in Switzerland. It is also responsible for the development and production of standardised IT and network services for the entire Group and for the operation of all IT systems. INI is also driving forward the migration of the networks to an integrated IT- and IP-based platform (All IP). The segment also includes the support functions for Swisscom Switzerland and Swisscom Real Estate Ltd. The expenses that are incurred are not charged to the individual segments. The IT, Network & Innovation segment therefore only reports expenses but no revenue. 18 n o i t c u d o r t n I w e i v r e v o s s e n i s u B Fastweb Fastweb is one of Italy’s largest broadband telecoms companies. The Italian subsidiary is a leader in the development of multimedia and broadband communication services. It operates the second-largest network in Italy and offers voice, data, Internet and IP TV services. In addition, its offer includes comprehensive VPN and mobile services. Fastweb offers its services in all large towns and cities in Italy and in all market segments. The services are provided directly via the company’s own fibre-optic network or via unbundled fixed access lines and whole- sale products of Telecom Italia. Other operating segments Other operating segments includes, in particular, the Participations unit. Other operating segments comprises the Participations, Health, Connected Living and Swisscom Hospitality Services units. Participations manages a portfolio of small and medium-sized enter- prises whose activities are mainly related to or help support Swisscom’s core business. Swisscom Health offers innovative ICT solutions for physicians, hospitals and insurers. Connected Living develops and operates intelligent solutions for energy management. Swisscom Hospitality Services supports the hotel industry worldwide with innovative network and communication solutions. Group Headquarters Group Headquarters chiefly comprises the Group divisions Group Business Steering, Group Strategy & Board Services, Group Communications & Responsibility and Group Human Resources as well as employment company Worklink AG. 19 n o i t c u d o r t n I w e i v r e v o s s e n i s u B “We install, splice and repair fibre-optic cables. We are constantly expanding the fibre-optic network in order to ensure that the whole of Switzerland can count on being able to use the best network.” Adrian von Jenner Network construction technician cablex Management Commentary Helping customers find their way and enjoy the best experiences in the networked world. Every 16 months the volume of data used in the fixed network increases by 100%. Every 12 months the volume of data used in the mobile network increases by 100%. Topics Strategy, organisation and environment Business model and customer relations Employees Innovation and development Financial review Capital market Risks 24 Group structure and organisation 26 Corporate strategy and objectives 30 Value-oriented business management 31 General conditions 43 Business activities 48 Products, services, sales channels 49 Customer satisfaction 50 Headcount 51 Employment law in Switzerland 53 Staff development 54 Staff recruitment 54 Employee satisfaction 55 Employment law in Italy 56 Open innovation: a success factor 57 Specific areas of innovation 58 Current innovation projects 59 Key financial figures 60 Introduction 60 Summary 61 Results of operations 64 Segment revenue and results 70 Quarterly review 2013 and 2014 73 Cash flows 74 Net asset position 76 Net debt 77 Capital expenditure 78 Statement of added value 79 Energy efficiency and CO2 emissions 80 Financial outlook 81 Swisscom share 83 Payout policy 83 Indebtedness 85 Risk management system 86 General statement on the risk situation 86 Risk factors Strategy, organisation and environment The corporate strategy “Swisscom 2020” is aimed at maintaining Swisscom’s position in the ICT market and offering customers only the best. Trusted, simple, inspiring. Group structure and organisation Management structure Swisscom has merged the corporate customer activities of its Corporate Business, Network & IT and Swisscom IT Services divisions so it is able to provide business customers with one-stop offerings and speed up the delivery of cloud-based solutions. Since 1 January 2014, all corporate customers have been served by the new Enterprise Customers division, making it one of the biggest integrated ICT providers for large companies in Switzerland. The IT, Network & Innovation division is now responsible for the operation of all IT systems, including the IT platforms previously managed by Swisscom IT Services, and for the development and production of standardised IT and network ser- vices for the entire Swisscom Group. Swisscom IT Services will be integrated into Swisscom Switzer- land, which will result in a simplified Group structure and shorter decision-making paths. The Group organisation is based on the following management structure: the Board of Directors of Swisscom Ltd is responsible for overall management and for determining the Group’s strategic, organisational and budgetary principles. It delegates day-to-day business management to the CEO of Swisscom Ltd, Urs Schaeppi. The heads of the business divisions Residential Customers, Small and Medium-Sized Enterprises, Enterprise Customers and IT, Network & Innovation, along with the heads of the Group divisions, report directly to the CEO of Swisscom Ltd. Swisscom’s Italian subsidiary, Fastweb, is managed via the Board of Directors chaired by Swisscom’s CEO. Board of Directors CEO Swisscom Ltd Group Communications & Responsibility Group Strategy & Board Services Group Security Residential Customers Small and Medium-Sized Enterprises Enterprise Customers IT, Network & Innovation Group Business Steering Group Human Resources Member of the Group Excecutive Board Group Functions Group Companies 24 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S Group structure The holding company Swisscom Ltd is responsible for overall management as well as the strategic and financial management of the Swisscom Group. By law, the Swiss Confederation must hold the majority of shares in Swisscom Ltd. At 31 December 2014, the Confederation held 51.0% of the shares in Swisscom Ltd. At 31 December 2014, 28 Swiss subsidiaries (prior year: 27) and 32 foreign subsidiaries (prior year: 33) were fully consolidated in Swisscom’s consolidated financial statements, while 7 associates (prior year: 7) were accounted for according to the equity method. Swisscom also holds various non- controlling interests in growth companies active in the IT, communications and entertainment markets. Swisscom Ltd mainly holds direct shareholdings in Swisscom (Switzerland) Ltd, Swisscom Broadcast Ltd and Swisscom Directories Ltd. Fastweb S.p.A. (Fastweb) is held indirectly via Swisscom (Switzerland) Ltd and intermediate companies in Belgium and Italy. Swisscom Re Ltd in Liechten- stein is the Group’s own reinsurance company. In September 2014, Swisscom acquired PubliGroupe Ltd for a purchase price of CHF 474 million. PubliGroupe Ltd mainly operates in the Swiss directory market. Prior to the takeover, it held half of the Local Group (Swisscom Directories Ltd, LTV Yellow Pages Ltd and local.ch Ltd), with Swisscom holding the other half. The main objective behind the acquisition of PubliGroupe is to gain full con- trol over the Local Group and to develop it further. Following the takeover, LTV Yellow Pages Ltd and local.ch Ltd were merged with Swisscom Directories Ltd. Swisscom and Tamedia now intend to merge their directories business. The planned partnership between Swisscom and Tamedia is sub- ject to the approval of the Competition Commission. Swisscom will hold 69% of the joint subsidiary and fully consolidate the company. PubliGroupe holds other interests in media companies and pro- viders of media services. Swisscom is planning to sell the interests in the media companies and will evaluate all options for the other interests. In January 2015, Swisscom acquired Veltigroup, thus expanding its ICT portfolio for business customers and its presence in western Switzerland. Veltigroup is domiciled in Lausanne and is a leading ICT service provider in western Switzerland. Veltigroup has around 480 employees in Switzerland and offers companies a comprehensive ICT range, from infrastructure to end-client services and solutions. Segment reporting For financial reporting purposes, the business divisions of Swisscom are allocated to individual seg- ments based on the management structure. For practical reasons, segment reporting has not been changed for the 2014 financial year. Consequently, as in the past, the 2014 consolidated financial statements refer to the segments “Residential Customers”, “Small and Medium-Sized Enterprises”, “Corporate Business”, “Wholesale” and “Network & IT”, which are grouped together as “Swisscom Switzerland”. Swisscom IT Services is accounted for under “Other Operating Segments”. Segment reporting will be adjusted in line with the management structure from 2015. It will comprise the following: Swisscom Switzerland, Fastweb and Other Operating Segments. Swisscom Switzerland covers the segments Residential Customers, Small and Medium-Sized Enterprises, Enterprise Cus- tomers, Wholesale and IT, Network & Innovation. Group Headquarters, which primarily includes the Group divisions as well as the employment company Worklink AG, will continue to be reported separately. 25 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S Structure of 2015 segment reporting Swisscom Switzerland1 Fastweb Other operating segments2 Group Headquarters i s e i r a d i s b u S > Swisscom (Switzerland) Ltd3 > CT Cinetrade Ltd4 > DL-Groupe GMG AG > Swisscom Banking Provider Ltd > Swisscom Directories Ltd > Swisscom ITS Custom Solutions Ltd > Swisscom Immobilien Ltd > Veltigroup > Wingo Ltd > Fastweb S.p.A. > Alphapay Ltd > BFM Business Fleet Management Ltd > Billag Ltd > Cablex Ltd > Datasport Ltd > Swisscom Broadcast Ltd > Swisscom Energy Solutions Ltd > Swisscom Event & Media Solutions Ltd > Hospitality Services5 > PubliGroupe Ltd6 > Mona Lisa Capital Ltd7 > Swisscom Ltd > Swisscom Belgium N.V. > Swisscom Italia S.r.l. > Swisscom Re Ltd > Worklink AG s e t a i c o s s A > Belgacom International Carrier SA > Metroweb S.p.A. > Medgate Holding Ltd > Zanox Ltd > Venturing Participations 26 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S 1 Swisscom Switzerland comprises the operating segments Residential Customers, Small and Medium-Sized Enterprises, Enterprise Customers, Wholesale and IT, Network & Innovation. 2 Other operating Segments comprises the operating segments Participations, Health, Connected Living and Hospitality Services. 3 Swisscom (Switzerland) Ltd has operating subsidiaries in Austria, the Netherlands, Singapore, Switzerland and the USA. 4 CT Cinetrade Ltd has subsidiaries in Switzerland: kitag kino-theater Ltd, PlazaVista Entertainment AG and Teleclub AG. 5 Hospitality Services has subsidiaries in Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, the Netherlands, in Norway, Portugal, Romania, Spain, the UK and the USA. 6 PubliGroupe Ltd has subsidiaries in France, Germany, the Netherlands, Sweden and Switzerland. 7 Mona Lisa Capital Ltd is a venturing participation. Corporate strategy and objectives Corporate strategy Swisscom commands a leading position in the mobile, fixed, broadband and digital TV submarkets. It is also one of the leading providers in the IT services market. Technological change coupled with intensive local and global competition and changing customer requirements are steadily eroding prices and volumes in the classical usage-based business. The resulting lower revenue and income need to be offset in order to ensure that sufficient financial resources are available for major invest- ments in new technologies. Three key trends are changing the ICT sector and exerting a significant influence on Swisscom’s strategy: > Always online: A few years from now, Swisscom customers will be able to access all their private and work-related applications and data in real time from any digital device. Technical innovations are fundamentally changing the way in which customers interact and communicate with each other and with devices. As a result of digitalisation, not only people but also smart applications and devices are becoming increasingly interconnected. Networking and digitalisation are revolu- tionising value chains, production processes and customer contacts in all sectors of the economy. > Internet-based: In future, all products and services will be operated on the basis of Internet pro- tocol. Storage space, processing power and software will increasingly be sourced from the Inter- net. This trend is driving new business models and generating better customer experiences. > Global competition: Digitalisation and the spread of Internet-based services are creating inter- national markets. Worldwide competitors are benefiting from global economies of scale and are transforming business models through enhanced use of customer data. In the telecommunica- tions industry, too, the trend towards consolidation looks set to continue. Many telecommuni- cations providers are expanding their business to include offerings in the IT, media and enter- tainment fields. Swisscom firmly believes that a competent and trustworthy partner is needed in this increasingly interconnected and digitalised world. In this capacity Swisscom aims to inspire people and play a key role in turning Switzerland into a leading ICT centre. It wants to play an active part in shaping connectivity for the community at large, and to position itself successfully as an exemplary com- pany in a digital world. This objective is reflected in Swisscom’s vision and corporate strategy. The best in the networked world – always and everywhere fair + sustainable Building the best infrastructure Creating the best experiences Realising the best growth opportunities The vision of Swisscom: The best in the networked world – always and everywhere At Swisscom, people and their relationships are at the heart of all our activities. Customer focus, sustainability, passion, curiosity and reliability are the values that guide our employees’ actions. As the best partner in the networked world, Swisscom strives to ensure simplicity and is a trusted and inspiring partner for its customers. Swisscom helps customers feel secure and at ease, and enables them to find what they are looking for quickly and simply, and to experience and achieve extraordi- nary things. Swisscom also helps business customers to create a flexible ICT infrastructure, adjust their business processes to meet the new challenges of the digital world, and to optimise commu- nication and collaboration among their employees. Due to the value that Swisscom creates and, indirectly, its high level of investment from which other companies in Switzerland benefit, Swisscom plays a major role in Switzerland’s competitiveness and contributes significantly to the country’s GDP and employment. To be the best partner, Swisscom must meet the highest expectations in terms of infrastructure, customer experience and growth. Building the best infrastructure Infrastructure is the foundation that allows Swisscom to deliver its products and services and pro- vide a consistently positive customer experience. Swisscom wants to offer its customers in Switzer- land and Italy the leading IT and communications infrastructure: one that will generate the best experiences, enable Swisscom to differentiate itself from the competition, and enhance efficiency. Swisscom fulfils the ever-growing requirements of its customers with networks that are second to none in terms of security, availability and performance. In the fixed network area, Swisscom’s focus is on driving forward the continuous expansion of the ultra-fast broadband network – both in Swit- zerland and in Italy – with Fibre to the Home (FTTH) and Fibre to the Street (FTTS). In the mobile area, Swisscom aims to further expand the LTE fourth-generation mobile network and deploy addi- tional technologies (for example, Voice over LTE) in order to meet the demand for higher capacity and to further improve the mobile communication experience. Swisscom intends to increase its efficiency through a scalable infrastructure, increasingly virtual- ised infrastructure and services, and continual improvement processes. The new cloud infrastruc- ture offers high-level quality and security and will also be used for Swisscom systems. In addition, Swisscom wants to accelerate technological transformation and for this reason is switching from proprietary to open, more powerful technology systems and infrastructures. In the first place, Swisscom plans to build an open cloud, provide simple programming interfaces to functions and 27 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S drive forward both the technological transformation from traditional offerings to IP-based solu- tions and the related organisational transformation, so as to take full advantage of the available technological resources. Creating the best experiences To differentiate itself clearly in its core business, Swisscom is committed to delivering professional advice and first-class service to its customers, right along the entire experience chain. Swisscom aims to provide highly personalised and flexible customer care and offer an outstanding service experience to its customers. By building full-service solutions and rolling out innovative digital services, Swisscom wants to inspire its customers and drive forward digitalisation and networking both for the business world and private individuals. Current examples include cloud products such as the successful, fur- ther-developed TV service (Swisscom TV 2.0), the storage solution Docsafe, the digital wallet Tapit, and the cross-platform communication application iO. From the customer’s standpoint, the key to contact with Swisscom should be simplicity. This is why, when creating new offerings, Swisscom focuses on customer needs right from the development stage. A streamlined product structure and new self-service options simplify customer interaction and enhance efficiency. Realising the best growth opportunities The telecoms markets in Switzerland and Italy are expected to see moderate growth over the next few years, driven primarily by a slight increase in population and the number of households, the growing number of networked devices per individual, and a rise in the use of ICT in many sectors of the economy. Added to this, there is still pent-up demand in Italy due to the relatively low level of broadband penetration. Against this backdrop, Swisscom aims to ensure existing revenues in its core business through the further development of its product portfolio. One key factor in this context is the development of national and international offerings based on a modern, high-speed cloud infrastructure. Vertical solutions offer growth opportunities for Swisscom in the banking, healthcare and energy sectors. New related business fields also harbour promising revenue potential for Swisscom. Examples include the development of new services and business fields in the area of Internet services (for example Big Data) and the “Internet of Things” (for example Smart Home), and the further devel- opment of Swisscom Energy Solutions. Swisscom intends to cater to the changed framework con- ditions resulting from increasingly global competition by developing business models and by fur- ther developing its Natel infinity pricing plans, in order to ensure a sustained source of revenue. Fastweb in Italy is focusing on new customer acquisition by extending its coverage of the optical fibre network, enlarging partnerships and offering new convergent products. Forerunner in corporate responsibility Swisscom’s corporate responsibility activities focus on issues which have high relevance for stake- holder groups and at the same time are closely linked to the company’s core business and thus entail market opportunities. Swisscom’s vision is of a modern, forward-looking Switzerland: a coun- try of great opportunities, particularly in the field of sustainability. Specifically, Swisscom focuses on the following six areas as strategic priorities. For each of these it has formulated a long-term target for 2020: > Climate protection: With the help of its customers, Swisscom wants to save twice as much CO2 as it emits throughout the entire Group and along the entire supply chain; for example, by avoid- ing commuting thanks to Home Office solutions, or by promoting the use of TV set-top boxes that consume less energy than older boxes. > Work-life balance: Swisscom is aiming to support one million customers with its offerings in the healthcare sector; for example with the Swisscom health platform with fitness sensors included, electronic patient dossiers and products from its subsidiary Datasport. > Media expertise: Swisscom aims to be the market leader in data security, helping one million people to use media safely and responsibly; for example, with a router that allows customers to set age-appropriate browsing times and protects minors against inappropriate use. > Attractive employer: Swisscom wants to be one of the most attractive employers in Switzer- land, offering employees the opportunity to develop their knowledge and skills and promoting work-life balance. Fair terms and conditions of employment are as important to Swisscom as an active social partnership and an above-average commitment to vocational training. 28 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S > Fair supply chain: In the interests of a fair supply chain, Swisscom is committed to improving employment conditions for more than two million people. To this end, Swisscom has forged international partnerships that will ensure the implementation of relevant measures in close collaboration with suppliers. > Networked Switzerland: Swisscom will extend ultra-fast broadband coverage to 85% of all homes and offices and bring mobile ultra-fast broadband to 99% of the population. Swisscom’s targets Based on the strategy, Swisscom has set itself various short- and long-term targets that take eco- nomic, ecological and social factors into consideration. Objectives Effective 2014 Financial targets  Net revenue  Group revenue for 2014 of around CHF 11.5 billion. Operating income before depreciation  and amortisation (EBITDA)  Capital expenditure in property,  plant and equipment and other intangible assets  EBITDA for 2014 of more than CHF 4,4 billion Capital expenditure for 2014 of around CHF 2.4 billion Other targets  Ultra–fast–broadband homes and offices Switzerland  Coverage of 85% by the end of 2020 Ultra–fast–broadband homes and offices Italy  Mobile ultra–fast–broadband Switzerland  Energy efficiency Switzerland  CO2–emissions Switzerland  Coverage of 30% or of around 7.5 million of homes and offices by the end of 2016 Coverage of 99% with 4G/LTE by the end of 2016 +25% by the end of 2015 to the efficiency of energy Switzerland 1 January 2010 –12% by the end of 2015 to 1 January 2010 CHF 11,703 million CHF 4,413 million CHF 2,436 million 41% or more than 1.4 million of homes and offices 20% or 5.5 million of homes and offices 97% +26% –17% The following sections describe the targets and key performance indicators. 29 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S                 Value-oriented business management Key performance indicators for planning and managing the operating cash flows are operating income before depreciation and amortisation (EBITDA) and capital expenditure on property, plant and equipment and intangible assets. The enterprise value / EBITDA ratio is also used to compare Swisscom with other companies in the sector. The ratio is primarily driven by revenue and margins as well as the growth expectations of equity investors. The remuneration system for Group Executive Board members contains a variable per- formance-related component, of which 25% is paid out in Swisscom shares subject to a three-year blocking period. Group Executive Board members may opt to receive up to 50% of the perfor- mance-related component in the form of shares. The variable performance-related component is based on factors including financial targets such as net revenue, EBITDA margin and operating free cash flow. The financial targets that determine the variable performance-related salary component and the Management Incentive Plan ensure that the interests of management are kept aligned with those of the shareholders. Enterprise value In CHF million, except where indicated  31.12.2014 31.12.2013 Enterprise value  Market capitalisation  Net debt  Non-controlling interests in subsidiary companies  Enterprise value (EV)  Operating income before depreciation and amortisation (EBITDA)  Ratio enterprise value/EBITDA  27,067 8,120 3 35,190 4,413 8.0 24,394 7,812 29 32,235 4,302 7.5 The sum of market capitalisation, net debt and non-controlling interests in subsidiaries is the enter- prise value (EV) derived from the share price. Non-controlling interests are stated at carrying amount. For the sake of simplicity, other non-operating assets and liabilities are not included. Swisscom’s enterprise value increased year-on-year by CHF 3.0 billion or 9.2% to CHF 35.2 billion. Market capitalisation grew by CHF 2.7 billion, while net debt was CHF 0.3 billion higher. The ratio of enterprise value to EBITDA rose to 8.0 (prior year: 7.5). The increase is largely attributable to the higher relative share price valuation and only to a lesser extent to the higher EBITDA. With a ratio of 8.0, Swisscom is well above the average for comparable companies in Europe’s telecoms sector. The higher ratio is supported by the solid market position Swisscom has achieved thanks to high- level investment, an attractive dividend policy and the Confederation’s majority share of capital, as well as the general business conditions in Switzerland such as lower interest rates and lower corpo- rate income tax rates. 30 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S   General conditions Macroeconomic environment Swisscom’s financial position, results of operations and cash flows are primarily influenced by macro- economic factors, notably economic trends, interest rates, exchange rates and the capital markets. Economy Switzerland enjoyed robust economic growth in 2014, thanks in large measure to strong domestic demand. Gross domestic product (GDP) rose by 1.8%. In Europe, inflation rates are low and eco- nomic development has plateaued. The risk of a phase of consistently low growth is still present. Following the steep rise in the value of the Swiss franc in January 2015, the risk of a pronounced economic downturn or even a recession has increased. Gross domestic product Switzerland, rolling  in CHF billion     650     625     600     575     550     647  636  587  592  574  2010  2011  2012  2013  2014  The bulk of Swisscom’s revenue stems from telephony, broadband services and digital TV – services based on fixed monthly fees and subject to low cyclical fluctuations in demand. By contrast, project business with business customers and international roaming are affected by cyclical factors. Interest rates For many years, the general level of interest rates in Switzerland has been lower than in most other industrialised countries. In 2014, the main national banks adhered to their low-interest policy and, after edging up slightly in 2013, interest rates dropped relatively strongly during the reporting year. Consequently, the yield on ten-year Confederation bonds had fallen to only 0.36% by the end of 2014. In January 2015, the downward movement in interest rates resumed, and yields on ten-year Confederation bonds turned negative. Development of interest rates in Switzerland  Yield on government bonds for 10 years in %     4.00     3.00     2.00     1.00     0.00     1.67  1.25  0.74  0.56  0.36  2010  2011  2012  2013  2014  In the year under review, Swisscom capitalised once more on the continuing low-interest phase by entering into two financing transactions: Swisscom took out loans of EUR 500 million and CHF 360 on, with terms between 7.5 and 15 years, at advantageous interest rate conditions. Aver- age interest rate expense on all financial liabilities in 2014 was 2.5%. Market-based interest rates influence the measurement of various items in the Swisscom consolidated financial statements, such as the weighted average cost of capital (WACC) used to measure goodwill impairment for the 31 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S                     Italian subsidiary Fastweb, the discount rates for defined benefit obligations, and non-current pro- visions for dismantlement and restoration costs. In addition, Swisscom has concluded in the past interest rate swaps with long terms to maturity which are not classified under hedge accounting. Changes in market interest rates can result in high fluctuations in fair values charged to income. Exchange rates There was only a minimal change in the value of the Swiss franc against currencies of key relevance for Swisscom’s operations in 2014. On 15 January 2015, the Swiss National Bank (SNB) announced it would no longer defend the minimum CHF/EUR exchange rate of 1.20. As a consequence, the Swiss franc appreciated substantially against all major currencies. Development of exchange rate at the end of period CHF/EUR      1.75     1.50     1.25     1.00     0.75     1.25  1.22  1.21  1.23  1.20  2010  2011  2012  2013  2014  Swisscom’s business activities in Switzerland are not materially influenced by currency move- ments. Only a small share of revenue is generated in foreign currencies. Handset and technical equipment procurement as well as roaming charges incurred for the use of fixed and mobile net- works abroad by Swisscom customers give rise to transaction risks in foreign currencies (notably EUR and USD). These risks are partly hedged by forward foreign exchange transactions. Swisscom finances itself primarily in Swiss francs. At the end of 2014, financial liabilities amounted to CHF 8.6 billion, of which 80% was in CHF, 18% in EUR and 2% in USD. Currency translations in respect of foreign Group companies, in particular Fastweb in Italy, affect the presentation of the financial position and results of operations in the consolidated financial statements. Cumulative currency translation adjustments in respect of foreign subsidiaries recognised in consolidated equity amounted before deduction of tax effects to CHF 2.0 billion in 2014 (prior year: CHF 1.9 bil- lion). In 2015, there is a risk that with the abandonment of the minimum EUR exchange rate, cumu- lative currency translation adjustments not affecting income may increase and that the EBITDA contribution of Fastweb will be reduced by the currency conversion. Capital market International equity markets performed positively in 2014. The SMI rose by 9.5%. Swisscom holds surplus liquidity in the form of cash and cash equivalents and short-term money-market invest- ments. There are only insignificant direct financial investments in equities or other non-current financial assets. comPlan, Swisscom’s legally independent pension fund in Switzerland, has total assets of around CHF 9.0 billion invested in equities, bonds and other investment categories. These assets are exposed to capital market risks. This indirectly affects the financial position presented in Swisscom’s consolidated financial statements. The prices of Swiss shares plummeted following the SNB’s abandonment of the minimum EUR exchange rate in January 2015. 32 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S See www.swisscom.ch/ investor           Legal and regulatory environment Swisscom’s legal framework Swisscom is a public limited company with special status under Swiss law. It is organised in compli- ance with the Telecommunications Enterprise Act (TEA), company law and the company’s Articles of Incorporation. Its business operations are governed primarily by telecommunications and broad- casting legislation. Swisscom is also subject to rules governing business as a whole, namely compe- tition law. As a stock-exchange-listed company, Swisscom is also required to comply with capital market legislation as well as with the Federal Ordinance against Excessive Compensation in Listed Stock Companies. Telecommunications Enterprise Act (TEA) and relationship with the Swiss Confederation As of 1 January 1998, the former operations of Swiss Telecom PTT were legally transformed into “Swiss Post” and “Swisscom Ltd” (hence the term “public limited company with special status”). Under the terms of the TEA and the company’s Articles of Incorporation, Swisscom is responsible for the provision of domestic and international telecommunications and broadcast services as well as related products and services. The TEA requires the Swiss Confederation to hold a majority of the capital and voting rights in Swisscom. For the Swiss Confederation to give up its majority share- holding, the TEA would need to be amended. Swisscom is also obliged to draw up a collective employment agreement in consultation with the employee associations. Every four years the Fed- eral Council defines the goals which the Confederation as principal shareholder aims to achieve. These include strategic, financial and personnel policy goals as well as goals relating to partner- ships and investments. To guarantee transparency, the goals are made public to other investors. The aims of the Confederation are incorporated in the strategic and operating targets set by the Swisscom Board of Directors. For the year under review, the goals for the period 2014 to 2017 are relevant. The Federal Council has set the following financial goals for Swisscom: > Increase enterprise value over the long term. Deliver a total shareholder return (dividend payout and share performance) on a par with that of comparable telecoms companies in Europe. > Pursue a dividend policy that follows the principle of consistency and guarantees an attractive dividend yield commensurate with other stock-exchange-listed companies in Switzerland. It should reflect the requirements of a sustainable investment policy, a risk-appropriate, indus- try-standard equity ratio and easy access to capital markets at all times. > Aim for a maximum net debt of 2.1 times EBITDA (operating income before depreciation and amortisation). This ratio may be temporarily exceeded. The Federal Council also expects Swisscom to enter into partnerships (participations, alliances, foundation of companies and other forms of cooperation) only if they promote a sustained increase in enterprise value, can be managed according to good practices and take sufficient account of the risk aspect. No interests may be held in foreign telecoms companies with a universal service obliga- tion. Other interests in foreign companies may be acquired if they support the core business in Switzerland or are otherwise a strategic fit. See www.admin.ch Telecommunications Act (TCA) The Telecommunications Act governs the conditions under which market-dominant providers of telecoms services are required to make their network available to other providers. The Act covers a comprehensive catalogue of access types and in the connection area is restricted to copper cables. The access services cited in the Act must be offered at regulated conditions and above all at cost- based prices. In addition to network access, the Act governs universal service provision, laying down the framework for the reliable and affordable provision of basic telecommunications to all sections of the population in all regions of the country. The scope of services as well as the related quality and pricing requirements are determined periodically by the Federal Council. Among other things, universal service provision covers guaranteed nationwide access to a broadband connec- tion with a download speed of at least 1 Mbps (2 Mbps as of 1 January 2015). The universal service provision licence granted to Swisscom in 2007 by the Federal Communications Commission (Com- Com) runs until 2017. To date, Swisscom has fulfilled the requirements of the universal service provision licence according to the quality criteria laid down by the TCA without complaints and without financial compensation. The Telecommunications Act also governs conditions for use of the radio frequency spectrum. See www.admin.ch 33 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S Competition law/Federal Cartel Act The Cartel Act prohibits anti-competitive agreements between companies, provides for sanctions in the event of abuse by companies of their market-dominant position, and prohibits business com- binations that result in the elimination of competition. Discrimination of trading partners with respect to prices or other business conditions is considered to be an example of abuse. See www.admin.ch Capital market law The shares of Swisscom Ltd are listed on the SIX Swiss Exchange in Zurich. In addition, Swisscom has issued debenture bonds which are traded on the SIX Swiss Exchange. Swisscom is therefore required to comply with Swiss stock market legislation and regulations. Among other things, it is subject to regulations governing accounting and financial reporting as well as rules relating to ad-hoc publicity and the disclosure of transactions in Swisscom securities by members of the Board of Directors and the Group Executive Board. Shareholdings in Swisscom must also be disclosed if they exceed, fall below or meet a certain limit. Ordinance Against Excessive Compensation in Listed Stock Companies (OaEC) The OaEC entered into force on 1 January 2014. Members of the Board of Directors (including the Chairman) as well as members of the Compensation Committee and the independent proxy must be elected on an annual basis by the Annual General Meeting. For members of the Board of Direc- tors and the Group Executive Board it is prohibited to award severance payments, advance com- pensation and bonus payments for company acquisitions and disposals. The Board of Directors is required to prepare a written compensation report as of the 2014 financial year. Shareholders must vote on total compensation for the Board of Directors and the Group Executive Board starting from the 2015 Annual General Meeting. The Articles of Incorporation and regulations must be revised in line with the provisions of the Ordinance by no later than the 2015 Annual General Meeting. Swisscom amended the relevant Articles of Incorporation and regulations in the course of 2014. The OaEC stipulates certain types of abuse that constitute an offence punishable by law. Regulatory developments in Switzerland in 2014 Ongoing proceedings relating to telecommunications and competition legislation In recent years, a number of proceedings relating to telecommunications and competition law have been initiated against Swisscom. Ongoing proceedings are described in Notes 28 and 29 to the consolidated financial statements. See report pages 180–181 “Pro Service Public” initiative The people’s initiative “Pro Service Public”, submitted in June 2013 by a Swiss consumer magazine, calls for the Swiss Confederation to desist from seeking profit, cross-subsidising or pursuing fiscal interests and to bring the wages of employees in government-associated companies in line with those of federal employees. The Federal Council rejected the initiative in its message of May 2014, without counterproposal. The Council of States followed suit in the autumn of 2014. 2014 Telecommunications Report – revision of the Telecommunications Act (TCA) In November 2014, the Federal Council published its third Telecommunications Report, the conclu- sions of which supported a revision of the Telecommunications Act. The Federal Council seeks to approach the revision in two stages. The first stage will be confined to the most pressing problems. The second stage will involve a system change in relation to the access regime and fundamental amendments regarding universal service. The 2014 Telecommunications Report underscores the good market conditions. Switzerland is regularly ranked among the leading countries in terms of investment, broadband penetration and effective transmission speeds. The report describes infra- structure competition (i. e. competition between the various networks) as the primary driver of market development. The Federal Office of Communications (OFCOM) is aiming to formulate the priority areas for the first stage of the revision and will prepare a draft bill by the end of 2015. The subject of this bill will be the introduction of an official (ex officio) option to regulate. This would constitute a deviation from the established primacy of negotiation, according to which regulation is resorted to only if the parties are unable to agree on the aspects of regulated access (ex post). In addition, roaming is to be billed by the second rather than by the minute. In terms of net neutrality, the Federal Council is aiming to introduce certain regulations governing the transparency of the bandwidth to which customers subscribe. With this in mind, at the beginning of November 2014, the main telecoms providers Swisscom, Orange, Sunrise, upc cablecom and the Swisscable Associ- ation signed a voluntary open Internet code of conduct under which all users are ensured the free- dom to use the content, services, applications, hardware and software of their choice. No services 34 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S or applications shall be blocked as a matter of principle. Moreover, the telecoms providers con- firmed their support of unrestricted freedom of information and the free expression of opinion. The code of conduct also states that providers may continue network management for the pur- pose of quality assurance and provision of services tailored to end users’ needs, and that users can ask their provider whether and to what extent the capacity available through their Internet con- nection is shared with services other than Internet services. Revision of the Ordinance on Telecommunications Services (OTS) The revised Ordinance on Telecommunications Services (OTS) came into force on 1 July 2014. It requires an amendment to the cost calculation models for regulated access services, resulting in a price reduction of around 10% for these services. In addition, as of 1 January 2015, the download speed for basic-service broadband provision was raised from a minimum of 1 Mbps to 2 Mbps. Roaming There are two pending motions in Parliament which aim to regulate roaming along the same lines as in the EU. They call for the Federal Council to fix binding maximum tariffs to be adopted by all telecoms providers for incoming and outgoing calls, SMS messages and data transfers via mobile devices when used abroad. The Council of States suspended both motions, which are similarly worded. After the 2014 Telecommunications Report was published, the debate on the two motions was resumed. Net neutrality In June 2014, the National Council voted in favour of a motion calling for net neutrality. The Advi- sory Commission of the Council of States suspended the motion in August 2014 in order to enable the findings of the Federal Council’s Telecommunications Report to be included in the consultation. The motion calls for the Federal Council to enshrine net neutrality in law, in order to ensure the transparent and non-discriminatory transfer of data over the Internet. Copyright protection – tariff proceedings Joint tariff 12 for the recording of TV programmes and replay TV has been in force since mid-Sep- tember 2014. The Federal Administrative Court rejected the objection to the tariff lodged by Pro7/ Sat1, as a result of which catchup TV may continue to be offered in Switzerland without agree- ments with the channels, simply by paying a charge to the copyright collecting agencies. Since 2009, the copyright collecting agencies had been negotiating with the user associations on Joint tariff 4e concerning a tariff as compensation for copyright-protected works stored on mobile phones. Despite the various proceedings pending before the Federal Administrative Court in this context, the parties came to an agreement in 2014. The agreement retrospectively covers the tariff for the period between July 2010 and the end of 2014 as well as the tariff valid from 1 January 2015. The pending proceedings have been settled. Revision of the Federal Law on the Monitoring of Postal and Telecommunications Traffic (BÜPF) In February 2013, the Federal Council submitted to Parliament its message proposing a revision of the BÜPF. The aim of the revision is to ensure that the required monitoring cannot be prevented through the use of modern technologies. The current fee and payment model for telecommunica- tions services would be retained. The bill is still under discussion in Parliament. Regulatory differences between Switzerland and the European Union In the European Union (EU), the regulatory authorities have extensive powers to analyse markets and impose on market-dominant companies obligations relating to non-discrimination, transpar- ency and forms of access (“ex-ante regulation”). The Swiss regulator has rejected this type of prac- tice, opting instead for ex-post regulation (primacy of negotiation and appeal principle) on the grounds that market conditions in Switzerland differ from those in most EU member states. The Swiss market is characterised by virtually nationwide competition between Swisscom and the cable network operators. Municipal and regional power utility companies have also now entered the market. The market situation prevailing in Switzerland therefore necessitates a different set of regulations from those in place in countries such as France and Italy, where no platform competi- tion has evolved due largely to the existence of a single network provider. 35 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S Legal and regulatory environment in Italy Fastweb’s legal framework As a member of the European Union, Italy is required to bring national legislation into line with the European legislative framework. The Italian telecoms regulator Autorità per le Garanzie nelle Comunicazioni (AGCOM) has the task, based on an analysis of the markets defined by the European Commission, of imposing regulatory requirements on companies. Drafts of such requirements and corresponding regulations must be submitted to the European Commission and the regulatory authorities of the other member states, who have the right to comment on or veto the draft. The business operations of Swisscom’s Italian subsidiary Fastweb are therefore heavily influenced by Italian and European telecommunications legislation and its application. Regulatory developments in Italy in 2014 In 2014, AGCOM continued its work on the market analysis for wholesale markets, which will deter- mine the regulatory guidelines for the next three years. A new consultation document is to be adopted in early 2015. The final decision will be taken in mid-2015. AGCOM confirmed that the glide path would be applied for fixed network termination prices for 2013 to 2015. This glide path is based on the assumption of a migration to efficient, IP-based archi- tectures. Since July 2013, the applicable price for all fixed network operators has been EUR/ cent 0.104 per minute. From 1 July 2015, this will gradually decrease to EUR/cent 0.043 per minute. In 2014, the Italian Federal Administrative Court (Consiglio di Stato) partially annulled AGCOM’s decision on applicable prices between May 2009 and December 2012. In response, AGCOM started consultations on a revision of wholesale prices. The Consiglio di Stato also questioned AGCOM’s decision to impose no cost basis on WLR and bitstream services and found that some cost ele- ments used for pricing unbundled subscriber connections (LLU) had been overestimated. A final decision is expected in 2015. AGCOM also launched a new market analysis of mobile termination prices, which is scheduled for completion in 2015. Swisscom stakeholder groups Swisscom fosters dialogue with its most important stakeholder groups through various channels: via electronic media, over the phone, through surveys, information events, business meetings, road shows and conferences, as well as in customers’ homes and in the Swisscom Shops. Customers Swisscom systematically consults residential customers in order to identify their needs and deter- mine their satisfaction. Customer relationship managers, for example, gather information on cus- tomer needs in the course of direct contact with customers. Representative customer satisfaction surveys are also regularly conducted, among other things to determine the extent to which cus- tomers perceive Swisscom as an environmentally responsible, socially aware company. Quarterly surveys are conducted among business customers that include questions about sustainability. Swisscom also maintains regular contact with consumer organisations in all language regions of Switzerland and runs blogs as well as online discussion platforms. The overall findings show that Swisscom customers expect attractive pricing, good service, market transparency, responsible marketing, comprehensive network coverage, network stability, low-radiation communication technologies and sustainable products and services. Shareholders and external investors Swisscom pursues an open and ongoing information policy vis-à-vis the general public and the capital markets. It publishes comprehensive financial information on a quarterly basis. Swisscom also meets investors regularly throughout the year, presents its financial results at analysts’ meet- ings and road shows, attends expert conferences for financial analysts and investors, and keeps its shareholders regularly informed about its business through press releases. Swisscom also fosters contacts with numerous external investors and rating agencies. Shareholders and external inves- tors expect above all profitability and innovation from Swisscom. 36 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S See www.swisscom.ch/ crblog Authorities Swisscom maintains regular, close contact with various public authorities. A key issue in its dealings with this stakeholder group concerns mobile network expansion. Mobile communications and mobile applications are growing in popularity, but acceptance of the expansion of the infrastruc- ture that is required to provide them is sometimes lacking. Because of the different interests at stake, network expansion can give rise to tensions. For many years, Swisscom has therefore engaged in dialogue with residents and municipalities on network planning, which in the case of construc- tion projects gives the parties affected an opportunity to suggest suitable alternative locations. Swisscom also liaises regularly with public authorities in other areas and on other occasions: for example, it invites ICT heads of the cantonal education authorities to an annual two-day seminar on the subject of “Internet for Schools”. As a stakeholder group, public authorities expect Swisscom to act decisively in the way it honours its responsibility towards the public at large and towards young people in particular. Legislators Swisscom is required to deal with political and regulatory issues, advocating the company’s inter- ests vis-à-vis political parties, public authorities and associations. Legislators expect compliance, comprehensive network coverage and technology leadership from Swisscom. Suppliers Swisscom’s procurement organisations regularly deal with suppliers and supplier relationships, analysing the results of evaluations, formulating target agreements and reviewing performance. Once a year, they invite their main suppliers to a Key Supplier Day. The focus of the event is on risk mitigation and responsibility in the supply chain. In the interests of maintaining dialogue with global suppliers, Swisscom also relies on international cooperation within the relevant sectors. Media Swisscom maintains close contact with the media, seven days a week. Its relationship with the media is informed by professional journalistic principles. In addition to the Media Office, represent- atives of management maintain a regular dialogue with journalists and make themselves available for interviews and more in-depth background discussions. Employees and employee representation In order to meet its mandate and live up to its customer promise, Swisscom relies on fully commit- ted, responsibly-minded employees who think and act proactively. It is our employees who trans- form Swisscom into a tangible experience for customers. Swisscom gains valuable information from dialogue between employees and customers. The information gathered at the customer interfaces flows back to the company and allows Swisscom to continually improve its products and services. Using a wide range of communications platforms and activities, Swisscom promotes a corporate culture that encourages dialogue and cross-collaboration within the company. Every two years, Swisscom conducts an employee survey, the results of which provide ideas for new projects and measures. Helping to shape Swisscom’s future is one of the most important tasks of the Employee Representation Committee. Twice a year, Swisscom organises a round-table meeting with the employee representatives. Employee concerns mainly relate to social partnership, training and development, diversity, and health and safety at work. Swisscom engages in dialogue with teams from all organisational units on sustainability issues, under the motto “Hello Future”. Through this dialogue, Swisscom keeps its employees up to date on its commitments in the area of sustainability and motivates them to implement sustainability measures in their daily work and life. Partners and NGOs Swisscom believes in the importance of sharing insights and information with partners and NGOs within the framework of projects; for example, with WWF Climate Savers, myclimate, the Swiss Child Protection Foundation and organisations that address the specific needs of affected groups. Active partnerships and Swisscom’s social and ecological commitment are especially relevant for this stakeholder group. See www.swisscom.ch/ cr-partnerships 37 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S Market trends in telecoms and IT services Swiss telecoms market Switzerland has three mobile networks and several transport and access networks in the fixed network area. TV signals in Switzerland are transmitted terrestrially via antenna as well as satellite. The Swiss telecoms market is highly developed by international standards. It is characterised by innovation, a wide range of voice and data services and television signal broadcasting. Total reve- nue generated by the telecoms market in Switzerland is estimated at around CHF 13 billion. The market is in a state of transition, driven by the growing convergence of telecommunications, infor- mation technology, media and entertainment. More and more new global competitors are enter- ing the Swiss telecoms market, offering free and paying Internet-based services including tele- phony, SMS messaging and TV. Cloud solutions are also playing an ever more important role, with storage capacity, processing power, software and services all relocating to an increasing degree to the Internet. Customers’ needs also continue to change as more and more switch to flat-rate monthly subscriptions. Increasingly, they are accessing data and applications from just about any- where and at any time using a whole range of different Internet-enabled devices. The result is a rapid growth in demand for high bandwidths that enable fast, high-quality access. To address this trend, Swisscom is building the network infrastructure of the future. Swisscom is tackling the relentless growth in data traffic by continuously expanding fixed broadband access and further expanding new technologies in the mobile network such as 4G/LTE (Long Term Evolution). In addi- tion, Swisscom’s bundled offerings combine different technologies such as fixed-line access with telephony, Internet and TV, plus the option of a mobile line. The Swiss telecoms market can thus be broken down into the following submarkets of relevance to Swisscom: mobile, fixed-line, broad- band and TV. Swisscom Switzerland access lines  in thousand     6,540  505  6,035    8,000       6,000       4,000       2,000     0     Fixed-line     2,778  938  1,840  2,152  262    1,209  681  1,165  947   218   Mobile  subscribers  Telephone  Broadband  Wholesale    Bundle subscriptions  Single subscriptions  180  Swisscom TV  subscribers  Unbundled  access  lines  38 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S                  Mobile communications market Three companies operate their own wide-area mobile networks in Switzerland: Swisscom, Orange Switzerland and Sunrise. In December 2014, Apax Partners announced that it would consent to the sale of Orange Switzerland to NJJ Capital, the private holding company of Xavier Niel, subject to the approval of the responsible authorities. In early 2015, Sunrise announced that it plans to list the company on the Swiss stock exchange (SIX Swiss Exchange). Another major market player, upc cable- com, has been offering its own mobile services (MVNO, mobile virtual network operator) via Orange Switzerland’s networks since the spring of 2014. However, these offerings are currently limited to existing and new upc cablecom customers with at least one additional digital product. While GSM network coverage is close to 100% of the population, the demands on mobile networks continue to grow. To continue offering customers optimum data connectivity, Swisscom is invest- ing in new mobile technologies such as 4G/LTE. At the end of 2014, 97% of the Swiss population had access to the latest-generation mobile network. At 0.8%, growth in mobile lines (SIM cards) in Switzerland was once again slow in 2014 due to the already high market penetration. Together, the three network operators have a combined total of more than 11 million mobile lines; penetration in Switzerland is around 136%. The technical possibilities offered by mobile communications are increasing due to the rapid spread of smartphones. Swisscom’s infinity tariffs reflect customers’ changing needs. These subscriptions allow Swisscom customers to make unlimited phone calls and send unlimited SMS messages to all Swiss networks, as well as unlimited Internet surfing at flat rates. The individual subscriptions mainly differ in terms of mobile data speeds. At the end of 2014, 2.1 million customers were using the new infinity offerings. For occasional mobile network users, Swisscom provides prepaid offerings with no monthly subscription fee, so that they are charged only as and when they access the network. Swisscom makes its mobile network available to third- party providers (MVNO, mobile virtual network operators) so that they can offer their customers proprietary products and services via the Swisscom network. Market shares mobile subscribers in Switzerland*  in %   Swisscom mobile access lines  in thousand   19%    Orange    22%    Sunrise      8,000     6,000   6,217  2,199  6,407  2,176  6,540  2,163  59%    Swisscom      4,000   4,018  4,231  4,377  * Estimate Swisscom    2012  2013  2014    2,000   0   Prepaid    Postpaid    In 2014, Swisscom’s market share remained relatively stable at 59% (postpaid 64%, prepaid 50%). The 60% market share reported by Swisscom for 2013 is not comparable with the 2014 figure due to the application of different measurement methods. The percentage of postpaid customers in Switzerland is around 61%. As in previous years, prices for mobile services continued to be squeezed by competition. Fixed-line market Fixed-line telephony is mainly based on lines running over the telephone network and cable net- works. The number of Swisscom fixed lines is steadily declining. This trend continued in 2014, with the number of fixed lines falling by around 4% to 2.8 million mainly due to the substitution of fixed lines by mobile communications and the slight reduction in market share. At the end of 2014, the number of unbundled fixed lines totalled 180,000. As a result of rapid technological developments and the changeover to IP telephony, fixed-line telephony will in future more often be offered on the basis of a broadband access line. 39 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S   Broadband market The most widespread access technologies for fixed broadband in Switzerland are telephone- network-based infrastructures and cable networks. Like in the mobile communications market, the broadband market’s demands on networks are also increasing. To meet these expectations, Swisscom is upgrading its network infrastructure with state-of-the-art fibre-optic technology. At the regional level, this important technological change is attracting new market players such as municipal utilities. At the end of 2014, the number of retail broadband lines in Switzerland totalled 3.5 million or around 73% of all Swiss homes and offices. Switzerland therefore leads the way inter- nationally in terms of broadband access market penetration. Swisscom’s offerings reach more than 98% of the Swiss population. Market shares broadband access lines in Switzerland*  in %   Swisscom Broadband access lines  in thousand   13%    Other    33%    Cable    operators    54%    Swisscom      3,000     2,250     1,500   750   0   1,913  186  788  939  2,026  215  1,001  2,152  262  1,209  810  681  Wholesale    Bundle subscriptions    Single subscriptions    * Estimate Swisscom    2012  2013  2014  The number of broadband lines increased by around 4% in 2014 (prior year: around 4%). As in the previous year, growth in broadband access lines provided by cable network operators outpaced that of the telephone-based broadband access lines of telecoms providers. Telecoms providers accounted for more than a quarter of new broadband access lines in 2014, corresponding to a mar- ket share of all broadband lines of around 67%. Of these, 54% (prior year: 54%) were for Swisscom end customers and 13% (prior year: 15%) for Swisscom wholesale offerings and fully unbundled lines. Broadband is increasingly becoming the basic Internet access for households, through which customers can access additional services or bundled offerings. Digital TV market In Switzerland, TV signals are transmitted via cable, broadband, satellite, antenna (terrestrial) and mobile. The importance of digital television continues to grow, as does its market penetration. At the same time, other national and international operators are penetrating the Swiss TV market, offering TV as well as Video on Demand services which can be accessed over an existing broadband connection regardless of the Internet provider. Market shares digital TV in Switzerland*  in %   Swisscom TV subscribers  in thousand   13%    Satellite    24%    Other cable    3%    Antenna    * Estimate Swisscom    26%    Swisscom    2%    Sunrise    32%    upc Cablecom      2,000     1,500     1,000   500   0   791  521  270  1,165  947  1,000  724  276  218  Bundle subscriptions    Single subscriptions    2012  2013  2014  More than 80% of all digital TV connections are provided over the cable or broadband network, with cable TV and Swisscom TV commanding the largest market shares. Swisscom has been stead- ily growing its market share over the last few years thanks to its own digital TV offering, Swisscom TV, which at the end of 2014 had a market share of 26% (prior year: 23%). In 2014, the number of Swisscom TV subscribers rose by 165,000 to 1.2 million. Of this number, around 306,000 have signed up to the Swisscom TV 2.0 service launched in the spring of 2014, which offers extended 40 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S         functionality compared to the previous version. The cloud-based recording function allows users to record an unlimited number of programmes simultaneously and play them back on different devices. Swisscom also extended the Replay TV function from 30 hours to seven days, and inte- grated around 50 of the most popular apps such as YouTube and Facebook in Swisscom TV 2.0. The new Teleclub Play video flat rate service launched in December 2014 offers Swisscom TV 2.0 cus- tomers unlimited access to a broad range of TV series, classic films, children’s programmes, docu- mentaries and sports content. Swisscom TV remains available in a range of packages to meet all customer needs. IT services market in Switzerland In 2014, the IT services market generated a revenue volume of CHF 8.6 billion. Swisscom expects the market volume in 2017 to total CHF 9.4 billion. Cloud services, business process outsourcing (BPO) and application-based services are expected to show the most significant growth. Custom- ers often demand services customised to their individual sector and processes. Even the classical infrastructure services business has the potential for moderate growth over the next few years. Market shares IT services in Switzerland*  in %   Swisscom net revenue IT services  in CHF million   62%    Others    8%    Swisscom    11%    IBM    7%    HP    5%    Accenture    4%    Infosys    3%    T-Systems      1,000   750   500   521  612  650  250   0   * Estimate Swisscom    2012  2013  2014  Thanks to a market share of around 8%, Swisscom remains one of the leading providers of IT services on the Swiss market. In 2014, Swisscom reported growth in all areas. In the vertical business for the banking sector, for example, it continued to substantially increase its share of the BPO market and rolled out innovative solutions such as a crowdfunding platform. Crowdfunding is a new way of con- necting companies with each other and with their end customers. By bringing Swisscom IT Services and the Corporate Business division of Swisscom Switzerland under one roof at the beginning of 2014, Swisscom laid the foundations for further growth in the Swiss enterprise customers market. 41 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S         Italian broadband market Italy’s fixed broadband market is Europe’s fourth largest, with a revenue volume of around EUR 13 bil- lion. In contrast to most other European countries, in Italy there are no cable network operators who offer broadband services. Half of the homes and offices in Italy have access to the broadband net- work; the penetration of broadband is thus well below the European average. The total number of broadband lines in Italy grew to around 14 million in 2014. Fastweb increased the number of broad- band lines by 6.7% or 130,000 to more than 2 million, repeating its positive 2013 results. The Italian market continues to be dominated by double-play bundles that combine voice and broadband services, and is subject to significant pressure on prices due to the highly competitive environment. In 2014, the number of fixed broadband customers in Italy reached a penetration rate for fixed lines of around 70%, with ultra-fast broadband services gaining acceptance. The mar- ket leaders for fibre-optic/VDSL offerings are Telecom Italia and Fastweb. Market shares broadband access lines in Italy*  in %   Fastweb broadband access lines  in thousand   6%    Others    13%    Vodafone    16%    Wind    15%    Fastweb    50%    Telecom Italia      3,000     2,250     1,500   750   0   1,942  2,072  1,767  * Estimate Swisscom    2012  2013  2014  With a share of 50% (prior year: 51%), Telecom Italia commands a leading position on the Italian broadband market. Fastweb increased its market share year-on-year from 14% to 15%. For service providers, a permanent countrywide presence is becoming increasingly important in view of the growing complexity of products and services. With this in mind, Fastweb is further expanding the ultra-fast broadband network and by the end of 2016 aims to cover around 7.5 mil- lion homes and offices, or 30% of the population. Fastweb has also decided to expand its own sales network, improve the efficiency of its dealer structure and step up investment in its own sales outlets in major Italian cities. 42 y r a t n e m m o C t n e m e g a n a M t n e m n o r i v n e d n a n o i t a s i n a g r o , y g e t a r t S     Business model and customer relations Swisscom is Switzerland’s leading telecom provider and its subsidiary Fastweb has built up a strong position in the Italian market. Swisscom is an aggressive player, operating in a dynamic marketplace and competing against an ever-increasing number of global service providers. It is totally committed to meeting customer needs and delivering service and quality, and is also investing heavily in the networks of the future. Business activities Company profile Swisscom is the Swiss market leader in the field of telecommunications. Since acquiring Fastweb in 2007, Swisscom’s international activities have been concentrated mainly in Italy. Fastweb is one of Italy’s largest broadband telecoms companies. Swisscom’s corporate strategy is focused on strengthening the company’s core business, which relies on a high-performance, secure and always-available infrastructure. Swisscom is also looking to grow by offering differentiated prod- ucts and services and increasing the deployment of ICT. Major investments in network infrastruc- ture ensure that Swisscom will continue to satisfy all its customers’ needs well into the future. Sustainable management and long-term responsibility are firmly enshrined in the company’s cor- porate culture. Swisscom owes its business success to the dedication and commitment of a 20,000-strong workforce which continually strives to develop new solutions for customers and the information society. Swisscom consistently invests in staff training and development, and is train- ing more than 900 apprentices in Switzerland. Swisscom generates over 80% of its net revenue and operating income before depreciation and amortisation (EBITDA) from business operations in Switzerland. The company offers a full portfolio of products and services for fixed-line telephony, broadband, mobile communications and digital TV throughout Switzerland, and is mandated by the federal government to provide basic telecoms services to all sections of the population throughout Switzerland. Swisscom offers corporate cus- tomers a comprehensive range of communications solutions as well as individually tailored solu- tions. Swisscom is also a leading provider specialising in the integration and operation of IT systems in the fields of outsourcing, workplaces, SAP and finance services. Customers can purchase their products and services via a range of sales channels. They can check out products and services first hand and receive comprehensive advice in Swisscom’s own shops as well as in numerous partner outlets. They can also obtain product information and order products and services at any time online via the Swisscom website. In the digital customer centre, which is also accessible via the Internet, customers can manage their personal details, subscriptions and bills on their own. Swisscom fosters close ties with all stake- holder groups: shareholders, investors, employees, suppliers, the general public, public authorities and, above all, its customers. It has long been committed to its Swiss roots and endeavours to ensure that all citizens benefit from leading-edge technologies. This is reflected in Swisscom’s solu- tion-oriented approach, which is geared to serving the common good as well as the interests of the company. 43 y r a t n e m m o C t n e m e g a n a M s n o i t a l e r r e m o t s u c d n a l e d o m s s e n i s u B See www.swisscom.ch Swisscom brand The Swisscom brand is a strategic intangible asset for Swisscom in general, and for reputation management in particular. One of the main purposes of the brand is to optimally support Swisscom’s wide variety of business activities. The brand must consistently accompany the core business while at the same time remaining sufficiently elastic for new business opportunities. The Swisscom Group offers core-business products and services under the Swisscom brand. Out- side Switzerland, notably in Italy, Swisscom operates under the Fastweb brand. Swisscom also operates under a range of other brands in related business fields. The strategic management of the entire brand portfolio comes under the remit of Corporate Communications. 44 y r a t n e m m o C t n e m e g a n a M s n o i t a l e r r e m o t s u c d n a l e d o m s s e n i s u B By merging Swisscom IT Services and the Corporate Business division of Swisscom Switzerland to create Enterprise Customers, Swisscom is consistently pursuing its strategy of positioning its brand in the core business of telecommunications and ICT. Thanks to the success of Swisscom TV, the Swisscom brand has confirmed and enhanced its credibility in the field of digital entertainment. Other key brands belonging to Swisscom are the Teleclub, Kitag and Cinetrade brands in the enter- tainment sector. A number of other state-of-the-art products such as iO and Docsafe help to strengthen the Swisscom brand and promote the “Best in the networked world – always and every- where” vision, and to position Swisscom as a straightforward, inspiring and trustworthy companion in a rapidly-changing digital world. In 2014 Swisscom was once more selected by consumers as the Most Trusted Brand in three catego- ries in the Reader’s Digest annual survey, reflecting the brand’s awareness level in Switzerland. The brand thus remains well ahead of the competition in terms of “top-of-mind awareness” and is firmly anchored among consumers as a trustworthy, reliable and high-quality brand. Trust and service are among the most important factors that motivate potential customers to switch to Swisscom. The Swisscom brand also symbolises Swisscom’s close ties with and commitment to Switzerland. Swisscom is part of the modern Switzerland. It takes seriously its responsibility of fostering the com- mon denominators that characterise Switzerland. Swisscom’s consistent and manifold commit- ment to sustainability rounds off the brand’s positive image and enriches customer relations in a variety of ways. This is one reason why the reputation values achieved by the brand are exception- ally high for the telecommunications industry. This is confirmed by the Interbrand “Best Swiss Brands 2014” Study, in which the Swisscom brand was once again ranked as Switzerland’s sixth most valuable brand with a monetary brand value of CHF 5 billion. Swisscom’s network and IT infrastructure Network infrastructure in Switzerland Demand for broadband in the Swiss fixed network is doubling every 16 months, and every 12 months in the case of mobile customers, who want to use applications such as HD television, video conferencing and cloud services at any time, anywhere and on different devices. The key enabling element of the network of the future is Internet protocol (IP) technology. Swisscom decided to switch over all of its products and services to this forward-looking technology by the end of 2017. All IP will make processes and operations faster and more flexible, which will make not only Swisscom more competitive but also its business customers, and increase Switzerland’s attractiveness as a business hub. This will also fulfil the needs of Swisscom’s residential customers to have constant access to their data from anywhere and any device. Switzerland already has one of the best IT and telecoms infrastructures in the world. According to OECD findings, Switzerland leads the world in terms of broadband penetration (44.9%), ahead of the Netherlands and Denmark (source: OECD Broadband Portal, December 2013). This result is fur- ther supported by the “State of the Internet report” issued by technology service provider Akamai, which ranked Switzerland in first place in Europe for ultra-broadband availability, and in third place worldwide. In mobile communications, broadband LTE coverage now extends to 97% of the popu- lation, making Swisscom the largest network operator in Switzerland by far, both in the fixed and mobile network. The fixed network comprises two levels: an access network and a transport network. The access network consists of over 1,500 local exchanges and around 3.4 million subscriber access lines to end customers. Swisscom started to upgrade the fixed network a number of years ago. To drive forward ultra broadband provision in Switzerland, Swisscom has opted for a broad, innovative mix of technologies. In addition to Fibre to the Home (FTTH), Swisscom operates Fibre to the Street (FTTS) and Fibre to the Building (FTTB) since 2013, laying fibre-optic cables to within a short dis- tance of individual homes and offices or in basements so as to achieve a significant further increase in bandwidth. Copper cables are also evolving, doubling their capacity thanks to vectoring. Moreover, thanks to G.fast, the successor to VDSL, copper cables will soon be able to provide bandwidths of up to 500  Mbps. Through this mix of technologies, Swisscom had already installed over 1.4 million ultra-broadband connections by the end of 2014. Swisscom wants to have installed 2.3 million ultra-fast broadband connections in homes and offices by the end of 2015, and by the year 2020 have equipped 85% of all homes and offices with ultra-fast broadband. In 2014 Swisscom invested CHF 1.75 billion in the IT and network infrastruc- ture with this objective in mind. Swisscom honours its universal service provision mandate in remote-lying regions of Switzerland. It is also seeking new solutions to deliver higher bandwidth to remote regions. For example, Swisscom is looking at DSL-LTE bonding, a technology, which, thanks to high bandwidths, can supplement or in some cases replace the fixed network in areas which are less well connected. Swisscom completed the modernisation of the mobile network in mid-2014, creating the basis for a rapid rollout of 4G/LTE technology across all mobile sites alongside second- and third-generation mobile technology. Thanks to the new frequency bands acquired by auction in 2012, Swisscom will be able to deploy all mobile technologies over the long term and in a needs-appropriate manner. To 45 y r a t n e m m o C t n e m e g a n a M s n o i t a l e r r e m o t s u c d n a l e d o m s s e n i s u B See www.swisscom.ch/ networkcoverage 46 y r a t n e m m o C t n e m e g a n a M s n o i t a l e r r e m o t s u c d n a l e d o m s s e n i s u B use the acquired frequency spectrum, Swisscom needs to switch frequencies. The first part of this switchover was carried out in 2014 as part of a coordinated project covering all Swiss mobile oper- ators, and the second part is scheduled to take place in 2015. In 2012 Swisscom was the first mobile provider in Switzerland to launch 4G/LTE commercially. Today Swisscom is already providing extended 4G/LTE coverage to 97% of the Swiss population, In regions with particularly high mobile traffic, along the streets and in busy public places 4G/LTE microcells ensure the required network capacity. Swisscom is increasingly installing dedicated antenna systems in large business premises and public interiors. 4G+ (LTE Advanced) installed in urban areas already provides for bandwidth speeds of up to 300 Mbps in the mobile Internet, and bandwidth speeds are set to increase to 450 Mbps by the end of 2015. Swisscom’s offerings are therefore leading the way, both in Switzerland and by international standards. Mobile telephony is also keeping up with the times. Today the LTE network is a dedicated data network, while voice telephony is implemented on its forerunners 3G and 2G. By introducing Voice over LTE (VoLTE) and WLAN Interworking, Swisscom is consistently driving forward IP transformation in the mobile net- work. Mobile voice telephony takes place via the digital Internet Protocol (IP), offering advantages in terms of voice quality and call setup. Swisscom is continually expanding its broadband network, extending the product range and increasing the number of antenna sites. Swisscom is committed to deploying modern, needs- appropriate technologies in order to ensure efficiency and compliance with contemporary zoning requirements while also minimising emissions. It coordinates site expansions with other mobile providers wherever feasible and already shares around 22% of its nearly 6,800 antenna sites with other providers. And with over 2,000 hotspots in Switzerland, Swisscom is also the country’s lead- ing provider of public wireless local area networks. In a bid to improve efficiency, Swisscom is not only investing in latest-generation networks but also systematically decommissioning the earlier-generation networks. Network infrastructure in Italy Fastweb’s network infrastructure consists of a fibre-optic network spanning a total distance of over 37,500 kilometres. Fastweb thus reaches more than half of the Italian population, with 5.5 mil- lion homes and offices equipped with ultra-broadband at speeds of up to 100 Mbps, based on Fibre to the Home (FTTH) and Fibre to the Street (FTTS). Fastweb is continuing its expansion of the ultra-broadband network and by the end of 2016 aims to have covered around 7.5 million homes and offices, or around 30% of the population. In addition, thanks to wholesale services provided by well-established Italian operators, Fastweb reaches cus- tomers who are not directly connected to its own network. While Fastweb does not have a mobile network of its own, it offers proprietary mobile services based on an agreement with another mobile operator (MVNO). Swiss IT infrastructure Swisscom operates 24 data centres around Switzerland, which currently store around 20 petabytes of data online. This volume more than doubles when taking into consideration the necessary data backups. In the Storage Area Network (SAN), more than 25,000 ports or active operating systems are provided for around 15,000 servers. Through its on-demand contracts with innovative partner companies, Swisscom is also able to ensure sufficient capacity and the deployment of efficient technologies at all times. Mobile data traffic is increasing every year. Compared with the previous year, data volume grew by 96 % Investments in performance enhancement and security in the Swiss infrastructure and in ultra-broadband expansion totalled 1.75 billion CHF In the interest of sustainable resource management, Swisscom maximises energy-efficient opera- tion of its data centres. The average annual power usage effectiveness (PUE) of Swisscom’s data centre in Zollikofen (Berne) is 1.3. This value, representing the ratio of total power consumed by the data centre to the power consumed by the IT systems, means that power consumption in Zollikofen is around 33% lower than that of conventionally built data centres. With a PUE of 1.2, the data centre in Wankdorf (Berne), which was inaugurated in September 2014, is even more energy-efficient. Cloud technology further increases the efficiency of the data centres by enabling the distributed use of the underlying infrastructure platforms for customers. Customers can choose to store or process their data and applications in the private cloud, in dedicated zones within the public cloud, or in shared clouds. Swisscom is planning to move up to 70% of its own work and production processes to the cloud in the coming years. In this way it will further enhance the knowledge advantage it needs to fulfil its role as a trustworthy partner for business customers in the digital world. Fastweb’s IT infrastructure Fastweb operates four main data centres in Italy with a total surface area of 8,000 square meters. The IT infrastructure consists of around 5,000 servers (virtual and physical servers in equal parts), 700 databases and 2.9 petabytes of storage capacity. One of the data centres is managed by Ericsson on the basis of a multi-year contract which covers the setup and design of the data centre as well as the operational aspects of Fastweb’s IT infra- structure. Two other data centres are used by Fastweb mainly for corporate customer services, i.e. for housing, hosting or other cloud-based services. Fastweb is currently investing EUR 25 million in the construction of two new data centres in Milan and Rome respectively, which will be used to host ICT and cloud services for corporate customers. Construction of the new data centre in Milan has been completed. It is the first data centre in Italy to attain Tier IV certification, which is synonymous with the highest levels of reliability, security and performance. Data protection Data are one of the most valuable production factors in the information society. Swisscom is there- fore committed to storing and transmitting information as securely and reliably as possible. Around 150 specialists work to ensure information security, data privacy and reliable network and Internet operations. Swisscom also makes every effort to protect its customers’ data during telephone calls. All calls made over the mobile network are transmitted in encrypted form. Banks, insurance companies, hospitals and public services such as the police and fire services also need their communication infrastructure to operate as reliably and securely as possible. Many companies, institutions and ser- vices working in these sensitive areas rely on Swisscom services. Swisscom also provides secure cloud-based solutions to small and medium-sized enterprises. Customer data are subject to the Data Protection Act and the Telecommunications Act and may only be processed by individuals for whom such data are essential for the purposes of performing their tasks. Moreover, the purpose for which a customer’s data is viewed or processed must be apparent to the customer at all times. In accordance with the Data Protection Act, customer data also have to be protected against unauthorised use through appropriate technical and organisa- tional measures. Swisscom therefore ensures that only a limited number of individuals are permit- ted to access customer data. As a rule, customer data is hosted in Switzerland. If a service is pro- vided by Swisscom with the involvement of third parties, Swisscom may pass on data to third parties insofar as it is necessary for the provision of the services in question. Swisscom ensures that such third parties are bound by the same data protection provisions and that they may only process such data to the same extent as Swisscom itself is entitled. In addition, only such data as are required for the provision of services, the handling and maintenance of the customer relationship, and for the security of the company and its infrastructure, may be collected from Swisscom cus- tomers, processed and stored. Swisscom also processes the data for marketing purposes aimed at the customer-driven design and development of its services and offerings tailored to end users. Customers are able to keep their data from being used in this way by opting out. The Data Protec- tion Act also requires customer data to be protected against unauthorised use through appropriate technical and organisational measures. 47 y r a t n e m m o C t n e m e g a n a M s n o i t a l e r r e m o t s u c d n a l e d o m s s e n i s u B Products, services, sales channels Swisscom in Switzerland Swisscom is committed to service and quality, and to interacting with its customers in a personal- ised and value-adding manner. Six million customer visits to Swisscom Shops, 3,500 customer advi- sors, twelve million calls and more than four million e-mails and letters per year are the basis for staying in touch with customers and providing personal service. For years now, excellence in service has been a top priority for Swisscom. Residential Customers: In only six years Swisscom has become the most successful provider of digital TV. More than a million customers now watch Swisscom TV. Swisscom TV 2.0, launched in April 2014, offers additional functions. The cloud-based recording function allows users to record an unlimited number of programmes simultaneously and play them back on different devices. And thanks to the replay function, customers can catch up with programmes broadcast over the past seven days. Swisscom also gives customers access to other applications such as the iO communica- tion app and Tapit. iO allows users to make calls, chat and share pictures with other iO users over the Internet free of charge, Tapit makes it possible for users to pay for purchases securely using their smartphone and in future collect loyalty points. Tapit will in future also offer a building access function. The Natel infinity and Vivo packages demonstrate Swisscom’s consistent commitment to addressing changing customer needs. Natel infinity enables unlimited surfing, telephoning and SMS/MMS messaging across Switzerland and to all networks. The bundled offerings, ranging from Vivo light to XL, combine TV, Internet and fixed-line access and offer the right subscription for indi- vidual needs. Subscribers who combine Vivo and Natel infinity also benefit from a price reduction. Swisscom customers are becoming increasingly accustomed to using modern communication technology. Consequently, product presentation and expert customer advice are becoming more and more important. Swisscom’s new Campus Shop concept was created with this in mind. Now the Shops provide more individual advice and allow customers to try out products on site. Between 2012 and 2014 the new concept and design was implemented in all Swisscom Shops. Small and Medium-Sized Enterprises: Swisscom’s SME, Office and Natel business infinity packages offer products tailored to the needs of small and medium-sized enterprises. Business Connect and Full Service Solution are innovative communication solutions that can be customised to meet the individual needs of SME customers. Enterprise Customers: The digital transformation is substantially changing business processes, the working world and the way companies operate on the market. As an ICT provider with comprehen- sive experience in digitalisation, Swisscom drives this digital transformation forward and helps companies to find their way in the new networked world. Swisscom’s range of offerings comprises comprehensive services such as cloud computing, outsourcing, workplace solutions, mobility solu- tions such as Natel go, networking solutions, business process optimisation, SAP solutions and a full range of services tailored to the financial industry. Every year the service desk fields 1.2 million calls and responds to 300,000 call-outs. Healthcare market: Swisscom now delivers a full range of solutions for linking service providers and for managing the health of private individuals. These offerings range from the Evita online health dossier to networking solutions for service providers, billing services and mobile health files for hospitals, making Swisscom a leading provider of networked healthcare solutions in the Swiss market. Today more than 1,600 doctors and 100 hospitals, insurances and other service providers are already using the healthcare solutions of Swisscom to exchange over two million documents. Net revenue Switzerland accounts for Operating income before depreciation and amortisation (EBITDA) Switzerland accounts for 82 % of net revenue 86 % of EBITDA 48 y r a t n e m m o C t n e m e g a n a M s n o i t a l e r r e m o t s u c d n a l e d o m s s e n i s u B Networked home: SmartLife is a range of products designed to make the home safer and more secure. The SmartLife app allows movement detectors, HD cameras, fire and water alarms and other home security technology to be controlled via smartphones, computers and tablets. Like- wise, tiko, the smart electricity storage network from Swisscom Energy Solutions, allows users to optimally manage the energy consumption of their heat pumps, electrical heating systems or boil- ers remotely over the Internet. Sustainability: Green ICT technologies support companies in their efforts to save energy in intelli- gent ways so as to boost their long-term efficiency while also reducing CO2 emissions. This includes teleworking and virtual meetings, which save on travel costs and time, and telehousing or hosting solutions, which reduce the amount of energy consumed by data centres. Green ICT will therefore grow further in importance in the future not only for efficiency reasons but also as an image factor. Fastweb in Italy Fastweb offers residential and business customers voice and broadband services provided through its own broadband and ultra-fast broadband network as well as via unbundled access lines and wholesale products of Telecom Italia. A successful partnership exists with pay-TV provider Sky Ita- lia, offering bundled products that combine voice and broadband services as well as satellite TV. Based on an agreement with a mobile operator, Fastweb offers mobile services primarily to resi- dential customers. Furthermore, it offers a comprehensive range of ICT, cloud and security services for business customers. Customer satisfaction Swisscom Switzerland conducts segment-specific surveys and studies in order to measure general customer satisfaction. It measures customer satisfaction twice a year, in the second and fourth quarters of the year. The Wholesale segment measures customer satisfaction once a year. For all segments, the most important metrics are the extent to which customers are willing to recom- mend Swisscom to others and the related Net Promoter Score (NPS), which depicts the emotional aspects of customer loyalty as well as revealing customers’ attitudes towards Swisscom. The NPA is calculated from the difference between promoters (customers who would strongly recommend Swisscom) and critics (customers who would only recommend Swisscom with reservations or would not recommend the company). Swisscom also conducts the following segment-specific sur- veys and studies: > The Residential Customers segment conducts representative surveys to determine customer satisfaction and the extent to which customers are willing to recommend Swisscom to others. Callers to the Swisscom hotline and visitors to the Swisscom Shops are questioned regularly about waiting times and staff friendliness. Product studies also regularly survey buyers and users to determine product satisfaction, service and quality. > The Small and Medium-Sized Enterprises segment conducts random interviews to gauge cus- tomers’ satisfaction with Swisscom as well as dealers’ satisfaction with Swisscom products and support. > The Enterprise Customers segment conducts surveys among customers to measure satisfac- tion along the customer experience chain. Feedback instruments are also used at key customer touch points in order to determine customer satisfaction. After each interaction with the ser- vice desk or after placing orders, IT users can submit feedback to the service desk or enter their comments in the order system; customers can assess the quality and success of their projects on completion. > The Wholesale segment measures customer satisfaction along the entire customer experience chain. The results of these studies and surveys help Swisscom to improve its services and products and they influence the variable performance-related component of employees’ pay. 49 y r a t n e m m o C t n e m e g a n a M s n o i t a l e r r e m o t s u c d n a l e d o m s s e n i s u B Employees Overall headcount at Swisscom increased by 1,017 FTEs year-on-year. In Switzerland Swisscom has 18,272 employees and is training 922 apprentices. Headcount At the end of 2014 Swisscom had 21,125 full-time equivalent employees, of which 18,272 or 86.5% of the total workforce were employed in Switzerland (prior year: 86.3%). Swisscom is also training 922 apprentices in Switzerland. The following chart shows a breakdown of full-time equivalent positions by segment: Full-time equivalent employees at end of year  Residential Customers  Small and Medium-Sized Enterprises  Corporate Business  Wholesale  Network & IT  Swisscom Switzerland  Fastweb  Swisscom IT Services  Other  Other operating segments  Group Headquarters  Total Group  Thereof employees in Switzerland  31.12.2012 31.12.2013 31.12.2014 4,316 681 2,360 116 4,389 4,754 757 2,441 107 4,404 5,313 775 2,487 111 4,599 11,862 12,463 13,285 2,893 2,684 1,735 4,419 340 19,514 16,269 2,363 3,162 1,802 4,964 318 20,108 17,362 2,391 3,164 1,968 5,132 317 21,125 18,272 Headcount increased year-on-year by 1,017 full-time equivalents or 5.1% to 21,125. The higher headcount resulted from corporate acquisitions, the hiring of external staff and the strengthening of customer service operations. Excluding acquisitions, the increase was 282 FTEs, or 1.4%, and 375 FTEs in Switzerland, or 2.2%. In the year under review, employees in Switzerland on open-ended contracts accounted for 99.6% of the workforce (prior year: 99.6%). Part-time employees made up 14.2% (prior year: 13.5%)- Termi- nations of employment by employees in Switzerland amounted to 5.8% of the workforce (prior year: 6.4%). Development of headcount  in full-time equivalent       28,000       21,000       14,000       7,000     0     19,547  350  3,133  16,064  20,061  340  3,093  16,628  19,514  339  2,906  16,269  20,108  371  2,375  17,362  21,125  441  2,412  18,272  2010  2011  2012  2013  2014  Other countries     Italy     Switzerland     s e e y o p m E l 50 y r a t n e m m o C t n e m e g a n a M       Employment law in Switzerland Introduction Swisscom is one of the largest employers in Switzerland, with 18,272 full-time equivalent positions. The legal terms and conditions of employment in Switzerland are based on the Swiss Code of Obli- gations. The collective employment agreement (CEA) sets out the key terms and conditions of employment between Swisscom and its employees. It also contains provisions governing relations between Swisscom and its social partners. Prior to their merger, Swisscom IT Services Ltd and Swisscom (Switzerland) Ltd had their own collective employment agreements (CEA) commensu- rate with the respective market environments. The terms and conditions in these agreements had to be adjusted accordingly, and the new CEA negotiated between Swisscom and the social partners enters into force on 1 April 2015. The CEA of cablex AG entered into force on 1 January 2013. At the end of December 2014, 14,596 FTEs or 84.1% of the workforce were covered by the collective employment agreement. General terms and conditions of employment which exceed the minimum standard defined by the Code of Obligations govern the employment law provisions applicable to Swisscom management staff in Switzerland. Employee representation and union relations Swisscom is committed to fostering constructive dialogue with its social partners (the syndicom union and the transfair staff association) as well as the employee associations (employee repre- sentatives). The collective employment agreement (CEA) and the social plan constitute fair and consensual solutions. In the event of significant operational changes, Swisscom involves the social partners and employee associations at an early stage. The CEA grants the social partners and the employee associations rights of co-determination in various areas. In general and free elections in autumn 2013, Swisscom employees elected the new members of the employee associations charged with exercising these rights. Two employee representatives from the unions also sit on the Board of Directors of Swisscom Ltd. Collective employment agreement (CEA) The harmonised CEA which enters into force on 1 April 2015 retains the very good employment conditions under the old CEAs and standardises the regulations governing working hours and annual leave as well as the pay system. The working week for employees covered by the CEA is 40 hours. Among the most progressive fringe benefits defined by the CEA are five weeks’ annual leave, or 27 days from age 45 (applicable from 1 January 2015) and six weeks’ annual leave from age 60, 17 weeks’ maternity leave and ten days’ paternity leave. Employees also enjoy an additional week of paid leave after five years of service. Swisscom pays a child and education allowance which in most cases is above the statutory cantonal allowance, and grants leave on special family-related grounds such as adoption leave. In the event of incapacity to work due to illness or accident, Swisscom continues to pay the employee’s full salary for up to 730 days. The CEA places special emphasis on staff development while also improving the rights of part-time employees. s e e y o p m E l 51 y r a t n e m m o C t n e m e g a n a M Working-hour models Swisscom promotes work-life balance by offering working conditions that enable both full- and part-time employees to balance their professional and private lives: flexible working hours (the standard model used by a majority of employees) and variable working-hour models such as annual working hours, a long-term working-time account and part-time working from the age of 58. The “Holiday Purchasing” model also allows employees to purchase additional leave. Employees may also work from home with the consent of their line manager. This option is used by many employees and is becoming increasingly easier thanks to tools such as Unified Communications & Collabora- tion (UCC). Swisscom is a “home office friendly” employer. Combining work with the care of relatives at home presents a major challenge to those affected. Swisscom provides special support for employees who care for a relative or closely-related individ- ual in addition to their work duties. As part of a “Work & Care” pilot project, two new flexible work- ing-hour models have been added to the existing models to promote the work-life balance. Social plan Swisscom’s social plan sets out the benefits provided to employees covered by the CEA who are affected by redundancy, and offers resources aimed at improving employability. It also provides for retraining measures in the event of long-term job cuts. Responsibility for implementing the social plan lies with Worklink AG, a wholly owned subsidiary of Swisscom. Worklink AG opens up new prospects for Swisscom employees affected by job cuts, providing them with advice and support in their search for new employment outside the company or arranging temporary internal or external placements. The success rate is high, with 69% of those affected finding a new job in 2014 prior to the end of the social plan programme. Worklink is also committed to promoting and enhancing the employability of Swisscom employees by reviewing employees’ current status and providing career advice and coaching. Swisscom also operates special employment schemes (phased partial retirement, temporary place- ments in similar areas of expertise) in line with its commitment to providing fair solutions for older employees affected by changes in skill set requirements or redundancy. Employee remuneration Salary system Competitive pay packages help to attract and retain highly-skilled and motivated specialists and managerial staff. Swisscom’s salary system comprises a basic salary, a variable performance-related component and bonuses. The basic salary is determined by function, individual performance and the job market, while the variable component is contingent on business performance as well as individual performance in the case of executive functions. Business performance is measured based on achievement of the Swisscom Group’s overarching targets and the targets of the respec- tive business segment or division. The targets primarily relate to key financial indicators and cus- tomer loyalty. Individual performance is measured according to the achievement of results- and conduct-related goals. Details on remuneration paid to members of the Group Executive Board are provided in the Remuneration Report. See report page 115 Minimum wage There is no legally defined minimum wage in Switzerland. Instead, this is negotiated by the social partners in the context of collective employment agreements. The new CEA which entered into force on 1 January 2013 included an increase in minimum salary to CHF 52,000, or CHF 50,000 in the case of cablex. Swisscom’s operations are spread throughout Switzerland, and when it comes to determining salaries there is very little difference between regions. A study of starting salaries for the youngest employees (up to age 21) at the widely-applied starting-function level found that the average basic annual salary in this category is CHF 57,400 or CHF 55,770 at cablex: in other words, 10% above the minimum salary defined by the relevant CEA. Pay round In January 2014 Swisscom and its social partners signed a two-year pay round agreement for 2014 and 2015. In the year under review Swisscom increased its total salary payout in Switzerland by 1.2%. This increase was used to make adjustments in salaries based on individual performance and the ratio of the salary to the benchmark. For 2015 Swisscom has earmarked 1.8% of the total salary payout for salary adjustments. Equal pay Swisscom takes great care to ensure equal pay for men and women. The company’s salary system is structured in such a way as to award equal pay for equivalent duties, responsibilities and perfor- mance. To this end, individual functions are assigned to functional levels according to their require- ments and a salary band is defined for each function level, stipulating the remuneration range for equivalent duties and responsibility. Pay is determined within this range based on the individual employee’s performance. As part of its salary review, Swisscom grants employees who have per- s e e y o p m E l 52 y r a t n e m m o C t n e m e g a n a M formed better and are lower within the respective salary band an above-average pay rise. In this way, any wage disparities are evened out on an ongoing basis. When conducting the salary review, Swisscom also checks whether there are any pay inequalities between men and women within individual organisational units and corrects them in a targeted manner. Swisscom also uses the federal government’s equal pay tool (Logib) to conduct periodic reviews of its salary structures to ascertain whether disparities exist between men’s and women’s pay. Previous reviews have revealed only minor pay discrepancies, well under the tolerance threshold of 5%. In 2011, Swisscom joined the Equal Pay Dialogue, an initiative set up by the employer and employee umbrella organisations in association with the federal government to review the status of equal pay and which ran until February 2014. The positive outcome of the Equal Pay Dialogue confirms that Swisscom salaries conform to the principle of equal pay. Staff development Swisscom’s market environment is constantly changing. the company invests in targeted profes- sional training for employees and managers in order to retain and improve their employability and the company’s competitiveness in the long term. Employees are supported in their development by a wide range of on-, near- and off-the-job training options as well as internal programmes and courses. In 2014 the various training options were brought together under the Group-wide Learn- ing Centre and made available to all employees via their own dedicated learning space. Nearly half of all internal learning and training courses take the form of e-learning programmes which can be carried out any time and from anywhere. The courses cover technical, management and project management topics. As part of talent management, around 10% of the top performers from the target groups have completed a corresponding internal programme. On-the-job training options, including job moves and stages, are becoming increasingly important. Even now Swisscom fills almost 43% of advertised vacancies internally. It also welcomes opportunities for employees to attend external further training courses, providing financial support and granting time off for such studies. In the year under review, every Swisscom employee spent 3.8 days on training and devel- opment in Switzerland. Swisscom management sees staff development as a crucial element of its management responsi- bility. Regular dialogue between employees and management is used as an orientation tool to heighten the general commitment to training and development in the digital world It also makes it easier to agree on and realise medium-term development measures. To assess and promote employee performance and development, Swisscom will continue to develop its Performance Management System in line with requirements. Performance appraisals are carried out according to fair principles and cover a wide range of criteria based on binding agreements on objectives. The ongoing dialogue between employee and management about the agreed objectives ensures they are met over the course of a year. Broad-based support for the performance and development eval- uations is provided within the framework of twice-yearly calibration rounds among groups of man- agers, at which performance is systematically assessed and further development steps are defined. These rounds are also used to draw up succession plans for key functions and to place talents in specially-designed talent programmes and offer promising employees challenging positions beyond their individual departments so as to promote their development. In 2014 Swisscom launched the Leadership Academy, which offers members of management the opportunity to get to grips with individual and collective management issues in a changing envi- ronment and enhance their expertise in dialogue with other managers. s e e y o p m E l 53 y r a t n e m m o C t n e m e g a n a M Staff recruitment As a Swiss company, Swisscom is committed to the Swiss labour market. In order to meet customer needs and remain competitive, Swisscom is prepared to work together with both domestic and international partners, on condition that they satisfy Swisscom’s requirements as regards labour legislation and sustainability. Swisscom seeks individuals who are motivated and passionate about helping customers and who want to help shape the future of the networked world. At all company locations in Switzerland, Swisscom endeavours to give priority to people from the surrounding regions. This is the reason behind the high percentage of local employees in all areas and at all hierarchical levels. In order to attract talented and highly motivated graduates, Swisscom cultivates close contact with universities and schools of applied sciences. Attending recruitment fairs and engaging in more advanced forms of cooperation such as guest lectures and workshops is very important to Swisscom. Many students gain initial professional experience at Swisscom during their studies either by working as interns or during the practical part of their Bachelor’s or Master’s course. In August 2014, 256 young people started their apprenticeship at Swisscom. Swisscom is thus Swit- zerland’s largest trainer of ICT professionals. In 2014, Swisscom trained a total of 922 apprentices in technical and commercial apprenticeships. The Swisscom training model is designed to promote independence and personal accountability so as to support the apprentice’s personal development. Apprentices take an active role in devising their training so that it fits their individual priorities, and they apply within the company for different practical placements and learn from experienced employees during such placements. Employee satisfaction In 2014, 83% of Swisscom employees in Switzerland took part in the job satisfaction survey. The results again revealed an above-average level of job satisfaction and a high level of employee com- mitment at Swisscom. The employees gave all of the areas under review a significantly better aver- age score than in the 2012 survey, and some of the scores were above average compared to other companies in the sector. The results are all the more notable given the fact that Swisscom has undergone a major change process since the last survey, with the merger of Swisscom IT Services Ltd and Swisscom (Switzerland) Ltd as well as other organisational changes and process adjustments. s e e y o p m E l 54 y r a t n e m m o C t n e m e g a n a M Employment law in Italy Employment agreement for the telecoms sector in Italy Statutory terms and conditions of employment in Italy are based on the Contratto collettivo nazionale di lavoro (CCNL), a state collective employment agreement. The CCNL defines the terms and conditions of employment between Swisscom’s Italian subsidiary Fastweb and its employees. It also contains provisions governing relations between Fastweb and the unions. In February 2013 the telecoms companies and unions negotiated a new CCNL, setting out better terms and conditions compared with the previous agreement. Employee representation and relations with the unions Fastweb engages in dialogue with the unions and the employee representatives and, in the event of major operational changes, involves them at an early stage. Industry-wide collective agreement for employees The working week for employees covered by the CCNL is 40 hours. Benefits include five weeks’ annual leave, 20 weeks’ maternity leave and one day of paternity leave. In the event of incapacity for work due to illness or accident, Fastweb guarantees full payment of the employee’s salary for 180 days and half the salary for a further 185 days. Working time model Fastweb supports work-life balance. The company’s terms and conditions of employment enable employees to achieve a healthy balance between their working and private lives. These include in particular the following measures agreed with the unions in the Conciliazione famiglia e lavoro in 2001: flexible office working hours, choice of shifts for mothers, and temporary part-time work for mothers. Employee remuneration Fastweb offers competitive salary packages aimed at attracting and retaining highly qualified spe- cialists and managers. The company’s salary system comprises a basic salary, a collective variable profit-sharing bonus for non-managerial staff, and a variable performance-related component for managerial staff which is contingent on meeting individual goals and company targets. The basic salary is determined according to function, individual performance and the situation in the labour market. The variable profit-sharing bonus is based on the Premio di risultato agreed separately with the unions. Fastweb respects the legal minimum salary defined by the CCNL. s e e y o p m E l 55 y r a t n e m m o C t n e m e g a n a M Innovation and development In a dynamic environment in which the market situation and general conditions are constantly changing, a company must be innovative to ensure long-term success. With this in mind, Swisscom consistently addresses changing customer needs, and identifies growth areas in which it can sustainably defend and strengthen its position. Innovation is an important driver in the bid to enter new markets and develop up-and-coming technologies. Due to the rapidly changing nature of Swisscom’s business environment, research and development are becoming increasingly important. Swisscom wants to anticipate the strate- gic challenges, new growth areas and future customer needs early on, so as to help actively shape the future of telecommunications and the Internet. At Swisscom, innovation takes place in all areas of the company as well as beyond. Open innovation: a success factor Swisscom recognises the importance of maintaining a dialogue with customers, employees, sup- pliers and other partners, as it enables a permanent, open process of innovation with the focus on customers and their needs. When developing new products and services, Swisscom consistently adopts human-centred design methods to create simple, inspiring experiences which optimally help customers find their way in the networked world. Within the company, Swisscom practices and promotes decentralised product development. As a result, new ideas are generated throughout the company. Various events and platforms provide employees with the opportunity to exchange innovative ideas and familiarise themselves with best practice examples. One example is the Innovation Week held twice a year, during which teams of employees from different divisions realise a new idea that addresses a specific customer need, is of business relevance and has potential on the market. To identify customer needs in good time, it is essential to involve future users in the development process at the earliest stage possible. Swisscom operates its own open innovation platform called Swisscom Labs, where registered users are able to contribute their own ideas, give their own opin- ions on trials and take part in beta tests. Outside the company, Swisscom promotes innovation throughout the industry. In particular, Swisscom is committed to supporting young companies that offer forward-looking new solutions in the field of IT, communications and entertainment. Swisscom participates in start-ups as a pro- ject partner and investor, and supports them by providing tailored products and services. Since 2013 Swisscom has held the StartUp Challenge competition, where winners are sent on a one- week mentoring programme in Silicon Valley. 56 y r a t n e m m o C t n e m e g a n a M t n e m p o l e v e d d n a n o i t a v o n n I See www.swisscom.ch/ innovation Specific areas of innovation End-to-end connectivity A high-quality, reliable network infrastructure is one of the key success factors for Swisscom. Over the past few years, the standard of quality that customers expect the network to deliver has risen dramatically. Swisscom is therefore working on the next-generation network and developing solu- tions to give users in Switzerland even faster, more reliable networks. The main challenge here is the growing volume of data in the mobile area. Swisscom is seeking and developing innovative network solutions that allow high volumes of data to be handled efficiently and guarantee seam- less mobile network provision at busy locations. One promising solution is the installation of low- power microcells that provide high capacity locally. Swisscom is working on the development of new types of antenna that will allow such microcells to be operated efficiently and integrated seamlessly in the existing architecture. Mobile services and apps The trend towards greater mobility is proceeding apace. Mobile devices such as smartphones and tablets are commonplace, and it is hard to imagine life nowadays without mobile Internet. Swisscom’s vision is therefore to use smartphones as a bridge between the real and the digital worlds. One important step in this direction was the launch of Swisscom Tapit, the Swiss wallet of the future. Tapit is an open, non-exclusive platform for all service providers in various industries who are seeking to mobilise their business processes. For end customers, Tapit is a safe place in which to manage their bank and credit cards. Tapit is based on Near Field Communication (NFC) technology, which is already incorporated in the majority of smartphones. Swisscom also contin- ues to operate and continually develop the iO app, which allows users to send SMS messages and make calls to Switzerland and abroad free of charge. With iO@home they can also be reached on their fixed-line number wherever they are in the world. Security and intelligence As data volumes continue to grow, so too do the requirements placed on products that process this data in a secure and anonymised way and analyse it according to the latest methodology. “Big data technologies” have already made inroads in various sectors and are used, for example, to measure and control traffic flows. At the same time, the number of customers who use their smartphone for mobile Internet browsing and leave behind customer data is also growing. Hackers and other par- ties are therefore becoming increasingly interested in customer data. Given this situation, Swisscom aims to offer its customers various applications that ensure greater transparency and control. CheckAp, for example, checks the security of programmes installed on a smartphone. In 2014, Swisscom launched DocSafe, a cloud-based solution that enables users to easily and securely store important documents, and that users can access at any time and from anywhere. 57 y r a t n e m m o C t n e m e g a n a M t n e m p o l e v e d d n a n o i t a v o n n I See www.swisscom.ch/m2m Current innovation projects Swisscom invests in progressive solutions in a number of areas in order to continuously tap into new growth opportunities and offer its customers the best services and products: > Identity Access Management: In a world full of virtual products and services, a digital identity can be a useful tool. It makes life simpler by replacing a large number of passwords with a single, simple user ID. Swisscom is currently drawing up the foundations for such a digital identity and for concrete applications. > Voice over LTE (VoLTE)/WLAN interworking: The 4G/LTE network is currently a dedicated data network, with customers being transferred to the 3G network for calls. With VoLTE, Swisscom is aiming to enable the use of voice telephony via 4G, with a technical adjustment to the mobile infrastructure also allowing voice telephony via WLAN. Customers will be able to enjoy faster connection times and improved voice quality. > Clean Pipe: Under the working title “Clean Pipe” Swisscom is trialling new ways of making digital life simpler for customers and protecting them against dangers and bad experiences, such as phishing. In the year under review, Swisscom launched the first product, Safe Connect: an app based on VPN technology that blocks access to websites considered to be dangerous, and to malware.  > Cloud: Swisscom is developing a 360-degree Cloud with a unified architecture that offers com- panies and private individuals a wide range of services. Thanks to state-of-the-art technologies, open source, the latest security concepts and data storage in Switzerland, Swisscom is leading the way in cloud computing. 58 y r a t n e m m o C t n e m e g a n a M t n e m p o l e v e d d n a n o i t a v o n n I Financial review Swisscom grows revenue (+2.4%) and operating income before depre- ciation and amortisation EBITDA (+2.6%). 2.1 million mobile customers benefit from unlimited usage (Natel infinity). 1.2 million customers (+16.5%) use Swisscom TV. Fastweb increases revenue and EBITDA and grows the number of broadband customers to 2.1 million. Key financial figures In CHF million, except where indicated  Net revenue  Operating income before depreciation and amortisation (EBITDA)  EBITDA as % of net revenue  Operating income (EBIT)  Net income  Share of net income attributable to equity holders of Swisscom Ltd  Earnings per share (in CHF)  Operating free cash flow  Capital expenditure in property, plant and equipment and other intangible assets  Net debt at end of period  2014 11,703 4,413 37.7 2,322 1,706 1,694 32.70 1,860 2,436 8,120 2013 11,434 4,302 37.6 2,258 1,695 1,685 32.53 1,978 2,396 7,812 Full-time equivalent employees at end of year  21,125 20,108 Change 2.4% 2.6% 2.8% 0.6% 0.5% 0.5% –6.0% 1.7% 3.9% 5.1% Development of net revenue  in CHF million   Development of EBITDA  in CHF million   11,434  1,032  2,013  8,389  11,703  1,089  2,043  8,571    16,000     12,000   11,384  937  2,040    8,000   8,407    4,000   0     6,000     4,500     3,000     1,500   0   Others    Fastweb    Swisscom Switzerland    4,477  318  602  3,557  4,302  135  620  3,547  4,413  212  625  3,576  2012  2013  2014  2012  2013  2014  Others    Fastweb    Swisscom Switzerland    Development of capital expenditure  in CHF million   Development of net income  in CHF million   2,529 * 146  531  1,852  2,396  185  695  1,516  2,436  183  682  1,571    3,000     2,250     1,500   750   0     2,000     1,500     1,000   500   0   Others    Fastweb    Swisscom Switzerland    1,815  1,695  1,706  2012  2013  2014  2012  2013  2014  * Including expenses of CHF 360 million for mobile frequency.  59 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F             Introduction As in the prior year, the 2014 consolidated financial statements report the segments “Residential Customers”, “Small and Medium-Sized Enterprises”, “Corporate Business”, “Wholesale” and “Net- work & IT”, which are grouped together as “Swisscom Switzerland”. Swisscom IT Services is accounted for under “Other Operating Segments”. Segment reporting will be adjusted in line with the management structure from 2015. Swisscom Switzerland covers the segments Residential Customers, Small and Medium-Sized Enterprises, Enterprise Customers, Wholesale and IT, Network & Innovation. Group Headquarters, which primarily includes the Group divisions as well as the employment company Worklink AG, will continue to be reported separately. Summary Swisscom’s net revenue rose by CHF 269 million or 2.4% to CHF 11,703 million, while operating income before depreciation and amortisation (EBITDA) was CHF 111 million or 2.6% higher at CHF 4,413 million. Net income increased by CHF 11 million or 0.6% to CHF 1,706 million. At constant exchange rates, excluding company acquisitions and Fastweb’s wholesale revenue from interconnection (hubbing), net revenue rose by 1.9% or CHF 218 million, of which Swiss busi- ness accounted for CHF 128 million. Price erosion of CHF 360 million in Swiss core business (CHF 170 million of which resulted from reduced roaming fees) was more than offset by customer and volume growth of CHF 488 million. Excluding hubbing, Fastweb’s net revenue was EUR 63 mil- lion or 3.9% higher at EUR 1,660 million. On a like-for-like basis, Swisscom’s EBITDA increased by 0.9% or CHF 39 million, of which Swiss busi- ness accounted for CHF 22 million. Fastweb’s EBITDA rose year-on-year by EUR 10 million or 2.0% to EUR 515 million. Net income increased year-on-year by CHF 11 million or 0.6% to CHF 1,706 million. The increase in EBITDA was offset in part by higher depreciation and amortisation and higher income tax expense. Capital expenditure increased by CHF 40 million or 1.7% to CHF 2,436 million, and in Switzerland by CHF 65 million or 3.9% to CHF 1,751 million. The higher figures are primarily due to the expansion and upgrading of mobile and fixed network infrastructure with the latest technologies. At the end of 2014, Swisscom had connected more than 1.4 million homes and offices to ultra-fast broadband. Despite ending the year EUR 3 million or 0.5% lower at EUR 562 million, capital expenditure at Fast- web remains high due to progressive expansion and upgrading of the broadband network in Italy. Operating free cash flow declined by CHF 118 million or 6.0% to CHF 1,860 million. Net debt increased by CHF 308 million or 3.9% over the end of 2013 to CHF 8,120 million, chiefly due to the acquisition of PubliGroupe. The ratio of net debt to EBITDA remained unchanged year-on-year at 1.8. Headcount increased year-on-year by 1,017 FTEs or 5.1% to 21,125 FTEs. The higher headcount resulted from corporate acquisitions, the hiring of external staff and the strengthening of cus- tomer service operations. In Switzerland the number of employees increased by 910 FTEs or 5.2% to 18,272. Excluding corporate acquisitions, the number of FTEs rose by 282 or 1.4%, in Switzerland by 375 FTEs or 2.2%. Swisscom expects to close 2015 with net revenue in excess of CHF 11.4 billion and EBITDA of around CHF 4.2 billion. This outlook is based on an assumed euro exchange rate of CHF 1.00. It does not take account of the possible negative implications of the currency situation for the economy. The negative effects of the lower euro exchange rate will amount to almost CHF 400 million on net revenue and around CHF 100 million on EBITDA. In the case of EBITDA, the All IP transformation, higher pension costs and lower gains from the sale of real estate, will result in a reduction of more than CHF 100 million. At CHF 2.3 billion, capital expenditure is expected to be some CHF 100 million lower than in 2014, due to the lower euro exchange rate and a slight reduction in investment in Fastweb. Capital expenditure in Switzerland will remain unchanged at CHF 1.75 billion. Subject to achieving its targets, Swisscom will again propose a dividend of CHF 22 per share for the 2015 financial year at the 2016 Annual General Meeting. 60 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Results of operations Income statement In CHF million, except where indicated  Swisscom Switzerland  Fastweb  Other operating segments  Group Headquarters  Revenue from external customers  Swisscom Switzerland  Fastweb  Other operating segments  Group Headquarters  Reconciliation pension cost 1 Intersegment elimination  2014 8,571 2,043 1,088 1 11,703 3,576 625 361 (121) – (28) 2013 8,389 2,013 1,032 – 11,434 3,547 620 303 (127) (17) (24) Operating income before depreciation and amortisation (EBITDA)  4,413 4,302 Net revenue  Goods and services purchased  Personnel expense  Other operating expense  Capitalised self-constructed assets and other income  Operating expenses  Operating income before depreciation and amortisation (EBITDA)  Depreciation, amortisation and impairment losses  Operating income (EBIT)  Net interest expense  Other financial result  Share of results of associates  Income before income taxes  Income tax expense  Net income  Share of net income attributable to equity holders of Swisscom Ltd  Share of net income attributable to non-controlling interests  Average number of shares outstanding (in millions of shares)  Earnings per share (in CHF)  11,703 11,434 (2,369) (2,751) (2,540) 370 (7,290) 4,413 (2,091) 2,322 (218) (42) 26 2,088 (382) 1,706 1,694 12 51.801 32.70 (2,338) (2,706) (2,476) 388 (7,132) 4,302 (2,044) 2,258 (251) (8) 30 2,029 (334) 1,695 1,685 10 51.801 32.53 Change 2.2% 1.5% 5.4% – 2.4% 0.8% 0.8% 19.1% –4.7% – 16.7% 2.6% 2.4% 1.3% 1.7% 2.6% –4.6% 2.2% 2.6% 2.3% 2.8% –13.1% 425.0% –13.3% 2.9% 14.4% 0.6% 0.5% 20.0% – 0.5% 1 The operating income of segments consists of pension cost especially employer contributions. The difference to the pension cost by IAS 19 will therefore be recognised as a reconciliation item. Share of operating segments in net revenue  in %  Share of operating segments in EBITDA  in %  9%   Others   18%   Fastweb   5%   Others   14%   Fastweb   73%   Swisscom   Switzerland   81%   Swisscom   Switzerland   61 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F       Net revenue Swisscom’s net revenue rose by CHF 269 million or 2.4% to CHF 11,703 million. On a like-for-like basis, net revenue increased by 1.9%. At Swisscom Switzerland, revenue from external customers was CHF 182 million or 2.2% higher at CHF 8,571 million, resulting in a like-for-like growth in net revenue of 1.4%. Price erosion and reductions in roaming fees totalling CHF 360 million (of which roaming fee reductions accounted for CHF 170 million) were outweighed by customer and volume growth. Fastweb’s net revenue increased by EUR 46 million or 2.8% to EUR 1,688 million, or by 1.5% in Swiss francs. Excluding wholesale revenue from interconnection services (hubbing business), net revenue at Fastweb was EUR 63 million or 3.9% higher at EUR 1,660 million. Fastweb’s broadband customer base grew year-on-year by 130,000 or 6.7% to 2.07 million. Primarily as a result of corpo- rate acquisitions, revenue from external customers generated by other operating segments increased by CHF 56 million or 5.4% to CHF 1,088 million. Goods and services purchased Goods and services purchased rose year-on-year by CHF 31 million or 1.3% to CHF 2,369 million. The lower expenditure at Fastweb is attributable to the shrinking hubbing business and lower termina- tion rates. Expenditure at Swisscom Switzerland rose due to higher costs for subscriber acquisition and retention. Personnel expense Personnel expense increased by CHF 45 million or 1.7% year-on-year to CHF 2,751 million, largely as a result of corporate acquisitions. Headcount rose year-on-year by 1,017 FTEs or 5.1% to 21,125 FTEs. Adjusted for corporate acquisitions, the increase amounts to 1.4%, which is largely attributable to measures to strengthen customer service operations and the insourcing of external staff. Other operating expense Other operating expense increased by CHF 64 million or 2.6% year-on-year to CHF 2,540 million. The increase is mainly attributable to corporate acquisitions, the purchase of services for call centre operations and higher spending on advertising. Capitalised costs of self-constructed assets and other income Capitalised self-constructed assets and other income fell by CHF 18 million or 4.6% year-on-year to CHF 370 million, and includes gains on the sale of real estate of CHF 59 million (prior year: CHF 9 mil- lion). Capitalised self-constructed assets were CHF 11 million or 4.3% higher year-on-year at CHF 267 million. Operating income before depreciation and amortisation (EBITDA) Operating income before depreciation and amortisation (EBITDA) rose by CHF 111 million or 2.6% to CHF 4,413 million. The figure was positively influenced by higher gains on the sale of real estate, lower pension costs and corporate acquisitions. Adjusted EBITDA rose by 0.9% due to the higher revenue and as a result of cost management. 62 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Depreciation and amortisation Depreciation and amortisation rose by CHF 47 million or 2.3% year-on-year to CHF 2,091 million, due to higher depreciation and amortisation related to the increase in capital expenditure. Intangi- ble assets resulting from business combinations were capitalised for purchase price allocation pur- poses. Depreciation and amortisation includes scheduled amortisation related to intangible assets from business combinations (for example, brands and customer relationships) totalling CHF 140 mil- lion (prior year: CHF 156 million). Net interest expense and other financial result Net financial expense in 2014 amounted to CHF 260 million (prior year: CHF 259 million). Net inter- est expense declined by CHF 33 million to CHF 218 million as a result of lower average interest costs. The other financial result declined by CHF 34 million year-on-year, chiefly as a result of nega- tive effects of CHF 76 million arising from the fair value adjustment of interest rate derivatives. Associates The share of results of associates fell year-on-year by CHF 4 million to CHF 26 million, primarily due to the acquisition of majority stakes in LTV Yellow Pages and Cinetrade in the prior year. Dividends received, amounting to CHF 30 million (prior year: CHF 43 million), largely concern dividends paid by LTV Yellow Pages, Belgacom International Carrier Services and Cinetrade. Income tax expense Income tax expense amounted to CHF 382 million (prior year: CHF 334 million), corresponding to an effective income tax rate of 18.3% (prior year: 16.5%). The higher income tax expense is largely a result of using and recognising tax loss carry-forwards in the prior year that had previously not been capitalised. Excluding non-recurring items, Swisscom anticipates an income tax rate of around 21% in the long term. Income taxes paid were CHF 108 million higher than a year earlier at CHF 386 million. Net income and earnings per share Net income rose by 0.6% or CHF 11 million to CHF 1,706 million. The increase in EBITDA was offset in part by higher depreciation and amortisation and higher income tax expense. Earnings per share increased by 0.5% from CHF 32.53 to CHF 32.70. 63 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Excluding non-recurring items, revenue increased by 1.9% year-on-year. Revenue in 2014 totalled Excluding non-recurring items, EBITDA increased by 0.9% year-on-year. EBITDA in 2014 totalled 11.7 billion CHF 4.4 billion CHF Segment revenue and results Reporting is broken down into the segments Swisscom Switzerland, Fastweb and Other operating segments. Group Headquarters is disclosed separately. Development of revenue from external customers      Swisscom Switzerland  in CHF million    Development of revenue generating units (RGU)      Swisscom Switzerland  in thousand    8,407  8,389  8,571     10,000      7,500      5,000      2,500    0    11,748  12,097  12,373     14,000      10,500      7,000      3,500    0    Revenue mobile  single subscriptions  Revenue fixed-line  single subscriptions  Revenue bundle  subscriptions  Revenue others  Total  2012  2013  2014   2,932  2,782  2,776  2,470  2,215  1,967  1,172  1,833  8,407  1,553  1,839  8,389  1,921  1,907  8,571  Fixed access lines  2012  3,013  Broadband access lines retail  1,727  Swisscom TV access lines  791  Mobile access lines  6,217  2013  2014   2,879  1,811  1,000  6,407  2,778  1,890  1,165  6,540  Total revenue generating  units (RGU)  11,748  12,097  12,373  Development of revenue from external customers      Fastweb  in EUR million    Development of broadband access lines      Fastweb  in thousand    1,694  1,638  1,685     2,000      1,500      1,000    500    0      3,000      2,250      1,500    750    0  1,942  2,072   1,767  2012  2013  2014   2012  2013  2014   Residential Customers  Small and Medium-Sized  Enterprises  Wholesale hubbing  Wholesale others  724  791  87  92  744  771  45  78  753  789  28  115  External revenue  1,694  1,638  1,685  64 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F                                           Swisscom Switzerland In CHF million, except where indicated  Net revenue and results  Residential Customers  Small and Medium-Sized Enterprises  Corporate Business  Wholesale  Elimination  Net revenue  Residential Customers  Small and Medium-Sized Enterprises  Corporate Business  Wholesale  Network & IT  Segment result before depreciation and amortisation (EBITDA)  Margin as % of net revenue  Depreciation, amortisation and impairment losses  Segment result  Capital expenditure and headcount  2014 2013 Change 5,326 1,159 1,788 929 (571) 8,631 2,951 856 900 381 (1,512) 3,576 41.4 (1,173) 2,403 5,145 1,151 1,787 966 (600) 8,449 2,898 864 907 384 (1,506) 3,547 42.0 (1,104) 2,443 3.5% 0.7% 0.1% –3.8% –4.8% 2.2% 1.8% –0.9% –0.8% –0.8% 0.4% 0.8% 6.3% –1.6% 3.6% 6.6% Capital expenditure in property, plant and equipment and other intangible assets  Full-time equivalent employees at end of year  1,571 13,285 1,516 12,463 Swisscom Switzerland’s net revenue grew year-on-year by CHF 182 million or 2.2% to CHF 8,631 mil- lion, while operating income before depreciation and amortisation (EBITDA) was CHF 29 million or 0.8% higher at CHF 3,576 million. Adjusted for corporate acquisitions and non-recurring costs for restructuring, revenue increased by 1.4% and EBITDA by 0.3%. Price erosion of some CHF 360 mil- lion (of which CHF 170 million resulted from reductions in roaming fees) was more than offset by customer and volume growth. At CHF 1,571 million, capital expenditure was CHF 55 million or 3.6% higher than in the previous year due to higher spending on network infrastructure. Headcount increased by 822 FTEs or 6.6% year-on-year to 13,285 FTEs. Adjusted for company acquisitions, the increase amounted to 336 FTEs, mainly as a consequence of measures to strengthen customer service operations and the insourcing of external staff. The trend towards bundled offerings and new pricing models such as flat-rate tariffs continues unabated. Natel infinity mobile subscriptions, which offer customers unlimited calls and SMS mes- sages to all Swiss networks as well as unlimited web browsing, remain very popular. The customer base grew year-on-year by 0.4 million to around 2.1 million. By the end of 2014, 1.2 million customers were subscribing to packages such as the Vivo range of offerings which combine fixed-line access with telephony, Internet and TV or also include a mobile line. This corresponds to an increase of 208,000 customers or 20.8% versus the prior year. Revenue from contracts for bundled offerings rose by CHF 368 million or 23.7% to CHF 1,921 million. 65 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F       Swisscom Switzerland/net revenue In CHF million, except where indicated  2014 2013 Change Revenue by services  Revenue mobile single subscriptions  Revenue fixed-line single subscriptions  Revenue bundles  Revenue wholesale  Other net revenue  Revenue from external customers  Operational data at end of period in thousand  Fixed access lines  Broadband access lines retail  Swisscom TV access lines  Mobile access lines  Bundles  Unbundled fixed access lines  Broadband access lines wholesale  Revenue generating units (RGU)  2,776 1,967 1,921 570 1,337 8,571 2,778 1,890 1,165 6,540 1,209 180 262 2,782 2,215 1,553 588 1,251 8,389 2,879 1,811 1,000 6,407 1,001 256 215 12,373 12,097 –0.2% –11.2% 23.7% –3.1% 6.9% 2.2% –3.5% 4.4% 16.5% 2.1% 20.8% –29.7% 21.9% 2.3% Revenue from external customers increased year-on-year by CHF 182 million or 2.2% to CHF 8,571 million. The decrease of CHF 190 million due to price erosion and the price reductions for roaming amounting to CHF 170 million were more than offset by customer and volume growth. Swisscom Switzerland’s revenue also increased thanks to the acquisition of LTV Yellow Pages Ltd in September 2014, and to the majority stake in Cinetrade acquired in the prior year. The number of revenue generating units (RGU) with end customers grew by 276,000 or 2.3% to 12.4 million. Natel infinity mobile subscriptions, which offer customers unlimited phone calls and SMS messages to all Swiss networks as well as surfing, continue to grow in popularity. At the end of 2014, 2.1 million customers, or 63% of the customer base (excluding corporate customers), were using the Natel infinity offerings. Figures from recent quarters show that customers switching to Natel infinity continue to generate higher revenues (ARPU). The number of postpaid mobile customers grew by 146,000, while the number of prepaid customers dropped by 13,000. In 2014, Swisscom sold a total of 1.5 million mobile handsets (–3.6%). The number of smartphone users has further increased, with the share of postpaid subscribers rising from 69% to 74% within the space of a year. Demand remains high for bundled offerings such as the Vivo range, which combines fixed-line access with telephony, Internet and TV or also includes a mobile line. The number of customers using bundled offerings rose year-on year by 208,000 or 20.8% to 1.21 million. Revenue from con- tracts for bundled offerings rose by CHF 368 million or 23.7% to CHF 1,921 million. The number of Swisscom TV connections increased by 165,000 or 16.5% to 1.17 million, of which 1.06 million sub- scribed to the basic packages. Swisscom TV 2.0, which offers additional functions, was launched at the beginning of April 2014 and by the end of 2014 had already attracted 306,000 customers, most of whom had upgraded from a previous Swisscom offering to a higher-quality bundled offering. 2014 saw a decline of the number of fixed lines for voice telephony by 101,000 or 3.5% to 2.78 mil- lion, due primarily to the number of customers migrating to cable network providers or switching from fixed to other forms of connectivity such as mobile. Retail broadband access lines grew year- on-year by 79,000 or 4.4% to 1.89 million, while the number of unbundled subscriber access lines fell by 76,000 or 29.7% to 180,000. The number of wholesale broadband access lines rose by 47,000 or 21.9% year-on-year to 262,000. 66 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F     Swisscom Switzerland/operating expenses and segment result In CHF million, except where indicated  2014 2013 Change Segment expenses by nature of cost  Traffic fees  Subscriber acquisition and retention costs  Other direct costs  Direct costs  Personnel expense  Other indirect costs  Capitalised self-constructed assets and other income  Indirect costs  Segment expenses  Segment result  Segment result before depreciation and amortisation (EBITDA)  Margin as % of net revenue  Depreciation, amortisation and impairment losses  Segment result  Capital expenditure and headcount  (424) (520) (925) (1,869) (1,765) (1,590) 169 (3,186) (5,055) 3,576 41.4 (1,173) 2,403 (449) (463) (892) (1,804) (1,691) (1,581) 174 (3,098) (4,902) 3,547 42.0 (1,104) 2,443 Capital expenditure in property, plant and equipment and other intangible assets  Full-time equivalent employees at end of year  1,571 13,285 1,516 12,463 –5.6% 12.3% 3.7% 3.6% 4.4% 0.6% –2.9% 2.8% 3.1% 0.8% 6.3% –1.6% 3.6% 6.6% Segment expense rose by CHF 153 million or 3.1% to CHF 5,055 million. At CHF 1,869 million, direct costs were CHF 65 million or 3.6% higher year-on-year. The higher subscriber acquisition and reten- tion costs as well as additional costs related to corporate acquisitions were partly offset by the reduction in mobile termination rates and outbound roaming fees. Indirect costs increased by CHF 88 million or 2.8% to CHF 3,186 million. Adjusted for company acquisitions and restructuring costs, indirect costs rose by 1.2%. The higher personnel expense as a result of the increase in head- count was partly offset by savings on other operating costs. Personnel expense increased by CHF 74 million or 4.4% to CHF 1,765 million, adjusted personnel expense was 2.4% higher. Head- count rose by 822 FTEs or 6.6% to 13,285 FTEs as a result of acquisitions, the insourcing of external personnel and an increase in customer service staff. Adjusted for corporate acquisitions, headcount was 2.7% higher year-on-year. The segment result before depreciation and amortisation was CHF 29 million or 0.8% higher at CHF 3,576 million, resulting in like-for-like growth in EBITDA of 0.3%. The profit margin was down 0.6 percentage points at 41.4%. Depreciation and amortisation increased year-on-year by CHF 69 million or 6.3% to CHF 1,173 million, largely due to the high level of capital expenditure. The segment result ended the year CHF 40 million or 1.6% lower at CHF 2,403 million. Capital expenditure rose year-on-year by CHF 55 million or 3.6% to CHF 1,571 mil- lion due to increased investment in the expansion and upgrading of mobile and fixed network infra- structure with the latest technologies. 67 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Number of infinity subscribers at the end of 2014 was Revenue from bundle contracts increased year-on-year by 2.1 million 23.7 %       Fastweb In EUR million, except where indicated  Residential Customers  Corporate Business  Wholesale hubbing  Wholesale other  Revenue from external customers  Intersegment revenue  Net revenue  Segment expenses  Segment result before depreciation and amortisation  Margin as % of net revenue  Capital expenditure in property, plant and equipment and other intangible assets  Full-time equivalent employees at end of year  Broadband access lines at end of year in thousand  2014 753 789 28 115 1,685 3 1,688 (1,173) 515 30.5 562 2,391 2,072 2013 744 771 45 78 1,638 4 1,642 (1,137) 505 30.8 565 2,363 1,942 Change 1.2% 2.3% –37.8% 47.4% 2.9% –25.0% 2.8% 3.2% 2.0% –0.5% 1.2% 6.7% Development of revenue     from external customers  in EUR million   Development of EBITDA  in EUR million   1,694  1,638  1,685    2,000     1,500     1,000   500   0     1,000   750   500   250   0   500  505  515  68 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F 2012  2013  2014  2012  2013  2014  Fastweb’s net revenue grew by EUR 46 million or 2.8% to EUR 1,688 million compared to the previous year. Wholesale revenue from low-margin interconnection services (hubbing) dropped as expected. Excluding hubbing, Fastweb’s revenue was EUR 63 million or 3.9% higher at EUR 1,660 million. Despite difficult market conditions, Fastweb’s broadband customer base grew year-on-year by 130,000 or 6.7% to 2.07 million. In the residential customer segment, fierce competition drove down average revenue per broadband customer by around 6% versus the previous year. This decline was offset by customer growth, with revenue from residential customers rising by EUR 9 million or 1.2% to EUR 753 million. Revenue from business customers increased by EUR 18 million or 2.3% to EUR 789 mil- lion, while other wholesale business revenue was EUR 37 million or 47.4% higher at EUR 115 million. The segment result before depreciation and amortisation totalled EUR 515 million. This corre- sponds to a year-on-year rise of EUR 10 million or 2.0%, mainly as a result of higher revenues. The profit margin fell year-on-year by 0.3 percentage points to 30.5%. Headcount at the end of 2014 totalled 2,391 FTEs, representing an increase of 28 FTEs or 1.2% com- pared to a year earlier. Capital expenditure dropped by EUR 3 million or 0.5% to EUR 562 million due to lower spending on the network infrastructure. The ratio of capital expenditure to net revenue was 33.3% (prior year: 34.4%).               Other operating segments In CHF million, except where indicated  Revenue from external customers  Intersegment revenue  Net revenue  Segment expenses  Segment result before depreciation and amortisation  Margin as % of net revenue  Capital expenditure in property, plant and equipment and other intangible assets  Full-time equivalent employees at end of year  2014 1,088 801 1,889 (1,528) 361 19.1 211 5,132 2013 1,032 787 1,819 (1,516) 303 16.7 195 4,964 Change 5.4% 1.8% 3.8% 0.8% 19.1% 8.2% 3.4% Development of revenue     from external customers  in CHF million   Development of EBITDA  in CHF million     2,000     1,500     1,000   500   0   936  1,032  1,088    1,000   750   500   250   274  303  361  2012  2013  2014  2012  2013  2014  0   At CHF 1,088 million, revenue from external customers was CHF 56 million or 5.4% higher year-on- year, largely due to acquisitions. Swisscom’s takeover of the PubliGroupe was completed in Septem- ber 2014, following which LTV Yellow Pages Ltd was assigned to the Swisscom Switzerland seg- ment, while other interests were assigned to Other operating segments. In 2013 Swisscom IT Services took over the business platform of Entris Banking and Entris Operations, which is used primarily for processing payment transactions and securities trading for banks. Revenue from external customers generated by Swisscom IT Services grew by CHF 38 million or 6.2% to CHF  650  million, largely as a result of acquisitions. Intersegment revenue grew year-on-year by CHF 14 million or 1.8% to CHF 801 million, chiefly due to the higher volume of construction services performed for Swisscom Switzerland. Segment expense rose by CHF 12 million or 0.8% to CHF 1,528 million. The increase is a result of higher costs related to acquisitions and revenue growth and was partially offset by higher gains on the sale of real estate, which in 2014 rose by CHF 50 million year-on-year. The segment result before depreciation and amortisation rose accordingly by CHF 58 million or 19.1% to CHF 361 million. At 5,132 FTEs, headcount at the end of 2014 was 168 FTEs or 3.4% higher than the previous year, due primarily to acquisitions. Capital expenditure rose by CHF 16 million or 8.2% to CHF 211 million as a result of the higher volume of investment by Swisscom IT Services in IT infrastructure. Group Headquarters and reconciliation of pension cost The segment result before depreciation and amortisation improved by CHF 6 million or 4.7% to CHF –121 million, largely on account of the lower cost of restructuring measures compared to the prior year. At 317 FTEs, headcount was on a par with the prior year. No expenses are disclosed as a pension cost reconciliation item (prior year: CHF 17 million). 69 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F               Quarterly review 2013 and 2014 In CHF million, except where indicated  Income statement  Net revenue  1. 4. quarter quarter quarter quarter 2. 3. 4. 2013 quarter quarter quarter quarter 1. 2. 3. 2014 2,734 2,862 2,867 2,971 11,434 2,821 2,879 2,929 3,074 11,703 Goods and services purchased  Personnel expense  Other operating expenses  Capitalised costs and other income  (552) (671) (557) 77 (604) (691) (599) 103 (561) (638) (596) (621) (2,338) (706) (2,706) (724) (2,476) 74 134 388 (552) (692) (597) 81 (558) (684) (599) 83 (583) (655) (620) 119 (676) (2,369) (720) (2,751) (724) (2,540) 87 370 Operating income (EBITDA)  1,031 1,071 1,146 1,054 4,302 1,061 1,121 1,190 1,041 4,413 Depreciation and amortisation  Operating income (EBIT)  Net interest expense  Other financial result  Result of associates  Income before income taxes  Income tax expense  Net income  Share attributable to equity holders  of Swisscom Ltd  Share attributable to  non-controlling interests  (491) 540 (63) (2) 6 481 (91) 390 (501) (509) (543) (2,044) 570 (63) 5 6 518 (89) 429 637 511 2,258 (59) (14) 6 570 (116) 454 (66) (251) 3 12 (8) 30 460 2,029 (38) (334) 422 1,695 (510) 551 (61) (23) 3 470 (97) 373 (512) 609 (53) (11) 10 555 (122) 433 (511) 679 (51) 25 8 661 (118) 543 (558) (2,091) 483 2,322 (53) (33) 5 (218) (42) 26 402 2,088 (45) (382) 357 1,706 388 427 450 420 1,685 369 430 540 355 1,694 2 2 4 2 10 4 3 3 2 12 Earnings per share (in CHF)  7.49 8.24 8.69 8.11 32.53 7.12 8.30 10.43 6.85 32.70 Net revenue  Swisscom Switzerland  2,041 2,109 2,122 2,177 8,449 2,089 2,114 2,167 2,261 8,631 Fastweb  Other operating segments  Group Headquarters  487 412 – 509 454 1 494 460 – 528 2,018 493 1,819 – 1 483 450 – 499 476 1 513 474 – 552 2,047 489 1,889 1 2 Intersegment elimination  (206) (211) (209) (227) (853) (201) (211) (225) (229) (866) Total net revenue  2,734 2,862 2,867 2,971 11,434 2,821 2,879 2,929 3,074 11,703 Segment result before depreciation and amortisation  Swisscom Switzerland  Fastweb  Other operating segments  Group Headquarters  Reconciliation pension cost  Intersegment elimination  877 119 73 (29) (5) (4) 888 139 86 (30) (7) (5) 948 155 78 (27) (4) (4) 834 3,547 207 66 (41) (1) (11) 620 303 (127) (17) (24) 894 132 68 (25) (2) (6) 902 155 98 (31) 2 (5) 941 163 126 (27) (4) (9) 839 3,576 175 69 (38) 4 (8) 625 361 (121) – (28) Total segment result (EBITDA)  1,031 1,071 1,146 1,054 4,302 1,061 1,121 1,190 1,041 4,413 Capital expenditure in property, plant and equipment and other intangible assets  Swisscom Switzerland  Fastweb  Other operating segments  Intersegment elimination  Total capital expenditure  284 155 38 (3) 354 160 38 (5) 361 168 56 (6) 517 1,516 212 63 4 695 195 (10) 299 173 52 (5) 378 173 54 (7) 422 148 49 (9) 472 1,571 188 56 (7) 682 211 (28) 474 547 579 796 2,396 519 598 610 709 2,436 Full-time equivalent employees at end of year      Swisscom Switzerland  12,018 12,344 12,513 12,463 12,463 12,522 12,622 13,215 13,285 13,285 Fastweb  2,389 2,379 2,370 2,363 2,363 2,362 2,373 2,378 2,391 2,391 Other operating segments  4,505 4,802 4,991 4,964 4,964 4,883 4,917 5,164 5,132 5,132 Group Headquarters  Total headcount  335 334 320 318 318 314 316 318 317 317 19,247 19,859 20,194 20,108 20,108 20,081 20,228 21,075 21,125 21,125 Operating free cash flow  245 615 528 590 1,978 334 496 640 390 1,860 Net debt  7,931 8,622 8,263 7,812 7,812 7,676 8,502 8,398 8,120 8,120 70 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F                                                                                             In CHF million, except where indicated  Swisscom Switzerland  Net revenue and results  Residential Customers  Small and Medium-Sized Enterprises  Corporate Business  Revenue mobile single subscriptions  Residential Customers  Small and Medium-Sized Enterprises  Corporate Business  Revenue fixed-line single subscriptions  Residential Customers  Small and Medium-Sized Enterprises  Revenue bundles  Total revenue single subscriptions  and bundles  Solution business  Hardware sales  Wholesale  Revenue other  1. 4. quarter quarter quarter quarter 2. 3. 4. 2013 quarter quarter quarter quarter 1. 2. 3. 2014 428 104 141 673 304 124 146 574 309 40 349 442 109 145 696 289 121 146 556 330 46 376 469 109 142 720 284 119 143 546 352 52 404 444 1,783 107 142 429 570 693 2,782 280 1,157 117 142 481 577 539 2,215 369 1,360 55 193 424 1,553 435 103 135 673 257 115 143 515 381 58 439 448 107 141 696 245 111 141 497 408 62 470 465 104 142 711 233 109 139 481 430 66 496 447 1,795 105 144 419 562 696 2,776 226 107 141 961 442 564 474 1,967 449 1,668 67 253 516 1,921 1,596 1,628 1,670 1,656 6,550 1,627 1,663 1,688 1,686 6,664 84 128 149 68 87 143 146 90 90 143 148 56 99 181 145 82 360 595 588 296 85 153 145 65 92 153 139 53 88 172 144 59 103 208 142 106 368 686 570 283 Total revenue from external customers  2,025 2,094 2,107 2,163 8,389 2,075 2,100 2,151 2,245 8,571 Residential Customers  1,190 1,247 1,254 1,294 4,985 1,234 1,258 1,299 1,377 5,168 Small and Medium-Sized Enterprises  Corporate Business  Wholesale  274 412 149 282 419 146 286 419 148 286 1,128 438 1,688 145 588 282 414 145 286 417 139 284 424 144 287 1,139 439 1,694 142 570 Revenue from external customers  2,025 2,094 2,107 2,163 8,389 2,075 2,100 2,151 2,245 8,571 Segment result before depreciation and amortisation  Residential Customers  Small and Medium-Sized Enterprises  Corporate Business  Wholesale  Network & IT  Intersegment elimination  Total segment result (EBITDA)  Margin as % of net revenue  710 213 220 96 731 216 226 96 759 222 231 97 698 2,898 213 230 95 864 907 384 730 215 217 95 742 220 223 92 762 215 227 98 717 2,951 206 233 96 856 900 381 (362) (380) (363) (401) (1,506) (364) (374) (361) (413) (1,512) – 877 43.0 (1) 888 42.1 2 948 44.7 (1) – 834 3,547 38.3 42.0 1 894 42.8 (1) 902 42.7 – 941 43.4 – – 839 3,576 37.1 41.4 Fastweb, in EUR million  Residential Customers  Corporate Business  Wholesale hubbing  Wholesale other  Revenue from external customers  Segment result (EBITDA)  Margin as % of net revenue  186 178 14 19 397 97 24.4 186 193 11 21 411 113 27.4 186 188 9 19 402 126 31.3 186 212 11 19 744 771 45 78 428 1,638 169 39.4 505 30.8 188 177 7 23 395 108 27.3 188 188 7 26 409 128 187 202 7 28 424 134 31.3 31.6 190 222 7 38 753 789 28 115 457 1,685 145 31.7 515 30.5 Capital expenditure  126 130 137 172 565 142 142 122 156 562 Broadband access lines in thousand  1,861 1,887 1,911 1,942 1,942 1,984 1,994 2,016 2,072 2,072 71 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F                                                 In thousand, except where indicated  Swisscom Switzerland  Operational data  Access lines  Single subscriptions  Bundles  Fixed access lines  Single subscriptions  Bundles  1. 4. quarter quarter quarter quarter 2. 3. 4. 2013 quarter quarter quarter quarter 1. 2. 3. 2014 2,272 2,207 2,142 2,073 2,073 2,007 1,948 1,902 1,840 1,840 698 729 763 806 806 849 882 909 938 938 2,970 2,936 2,905 2,879 2,879 2,856 2,830 2,811 2,778 2,778 909 842 878 889 843 810 810 773 745 718 681 681 938 1,001 1,001 1,060 1,110 1,154 1,209 1,209 Broadband access lines retail  1,751 1,767 1,781 1,811 1,811 1,833 1,855 1,872 1,890 1,890 Single subscriptions  Bundles  Swisscom TV access lines  291 569 860 289 613 902 281 662 276 724 276 724 271 781 259 832 246 879 218 947 218 947 943 1,000 1,000 1,052 1,091 1,125 1,165 1,165 Prepaid single subscriptions  2,196 2,180 2,173 2,176 2,176 2,173 2,165 2,165 2,163 2,163 Postpaid single subscriptions  3,741 3,763 3,783 3,812 3,812 3,812 3,828 3,850 3,872 3,872 Mobile access lines single subscriptions  5,937 5,943 5,956 5,988 5,988 5,985 5,993 6,015 6,035 6,035 Bundles  Mobile access lines  333 364 390 419 419 444 467 484 505 505 6,270 6,307 6,346 6,407 6,407 6,429 6,460 6,499 6,540 6,540 Revenue generating units (RGU)  11,851 11,912 11,975 12,097 12,097 12,170 12,236 12,307 12,373 12,373 Broadband access lines wholesale  Unbundled fixed access lines  196 290 201 280 208 268 215 256 215 256 221 241 224 228 241 204 262 180 262 180 Bundles  2play bundles  3play bundles  4play bundles  nplay bundles  Total bundles  Data traffic in million  257 428 157 – 264 451 174 – 270 479 189 – 279 517 205 – 279 517 205 – 287 555 218 – 294 584 231 1 302 609 242 1 304 646 255 4 304 646 255 4 842 889 938 1,001 1,001 1,060 1,110 1,154 1,209 1,209 Fixed-line traffic in minutes  1,918 1,889 1,728 1,830 7,365 1,716 1,482 1,498 1,535 6,231 Mobile traffic in minutes  1,728 1,817 1,770 1,831 7,146 1,894 2,026 2,065 2,133 8,118 Data SMS mobile  628 607 598 552 2,385 509 510 517 483 2,019 Swisscom Group  Information by geographical regions  Net revenue in Switzerland  2,235 2,337 2,358 2,428 9,358 2,323 2,361 2,401 2,501 9,586 Net revenue in other countries  499 525 509 543 2,076 498 518 528 573 2,117 Total net revenue  2,734 2,862 2,867 2,971 11,434 2,821 2,879 2,929 3,074 11,703 EBITDA Switzerland  EBITDA in other countries  Total EBITDA  910 121 933 138 993 153 849 3,685 205 617 924 137 966 1,028 870 3,788 155 162 171 625 1,031 1,071 1,146 1,054 4,302 1,061 1,121 1,190 1,041 4,413 Capital expenditure in Switzerland  Capital expenditure in other countries  Total capital expenditure  319 155 474 387 160 547 409 170 579 571 1,686 225 710 796 2,396 345 174 519 424 174 598 463 147 610 519 1,751 190 685 709 2,436 Full-time equivalent employees  in Switzerland  Full-time equivalent employees  in other countries  16,483 17,099 17,449 17,362 17,362 17,395 17,545 18,220 18,272 18,272 2,764 2,760 2,745 2,746 2,746 2,686 2,683 2,855 2,853 2,853 Total headcount  19,247 19,859 20,194 20,108 20,108 20,081 20,228 21,075 21,125 21,125 72 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F                                                                                                                     Cash flows In CHF million  Operating income before depreciation and amortisation (EBITDA)  Capital expenditure in property, plant and equipment and other intangible assets  Change in net working capital and other cash flows from operating activities  Operating free cash flow  Net interest paid  Income taxes paid  Free cash flow  Net cash outflow from acquisition of PubliGroupe 1 Other cash flows from investing activities, net  Issuance and repayment of financial liabilities, net  Dividends paid to equity holders of Swisscom Ltd  Other cash flows  (Net decrease) Net increase in cash and cash equivalents  2014 4,413 (2,436) (117) 1,860 (235) (386) 1,239 (385) 147 (265) (1,140) (19) (423) 2013 4,302 (2,396) 72 1,978 (243) (278) 1,457 – (152) 37 (1,140) (18) 184 Change 111 (40) (189) (118) 8 (108) (218) (385) 299 (302) – (1) (607) 1 Acquisition cost of CHF 474 million less remaining minority interests of CHF 8 million, acquired cash and cash equivalents of CHF 16 million and proceeds of CHF 65 million from sale of securities and media participations. Free cash flow  in CHF million                  4,413  –2,436  88  –22  –167  –16  1,860  –235  –386  1,239  EBITDA Capital expenditure Proceeds  from sale  of assets  Change in  defined  benefit  obligations  Change in  net working  capital  Dividends  to non-  controlling  interests  Operating  free cash  flow  Net interest  paid  Taxes  paid  Free  cash flow  Free cash flow dropped by CHF 218 million or 15.0% to CHF 1,239 million as a result of the lower operating free cash flow and higher income tax payments, which increased by CHF 108 million year-on-year to CHF 386 million. The reduction of CHF 118 million or 6.0% in operating free cash flow to CHF 1,860 million is chiefly a result of the increase in net working capital, which could not be offset by the improvement in EBITDA and higher income from the sale of property, plant and equipment. After deducting pay- ments already received, proceeds from the sale of real estate in 2014 amounted to CHF 85 million (prior year: 25 million). Net working capital grew by CHF 167 million compared to the end of 2013 (prior year: reduction of CHF 78 million), chiefly due to lower trade payables. Capital expenditure was CHF 40 million or 1.7% higher at CHF 2,436 million, mainly as a result of the expansion of net- work infrastructure in Switzerland. In September 2014, Swisscom acquired PubliGroupe Ltd for a purchase price of CHF 474 million. Less the acquired cash and cash equivalents, the deferred payment of the purchase price for out- standing shares and the sale of securities and media interests, the net outflow for this transaction amounted to CHF 385 million. Total dividends paid by Swisscom to its shareholders in 2014 remained unchanged from the prior year at CHF 1,140 million. 73 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F                                                                            Net asset position Balance sheet In CHF million  Assets  Cash and cash equivalents and current financial assets  Trade and other receivables  Property, plant and equipment  Goodwill  Other intangible assets  Associates and non-current financial assets  Income tax assets  Other current and non-current assets  Total assets  Liabilities and equity  Financial liabilities  Trade and other payables  Defined benefit obligations  Provisions  Income tax liabilities  Other current and non-current liabilities  Total liabilities  Share of equity attributable to equity holders of Swisscom Ltd  Share of equity attributable to non-controlling interests  Total equity  Total liabilities and equity  Equity ratio at end of year  31.12.2014 31.12.2013 Change 342 2,586 9,720 4,987 1,921 404 434 538 883 2,516 9,156 4,809 2,053 346 301 432 20,932 20,496 8,604 1,876 2,441 932 529 1,093 15,475 5,454 3 5,457 20,932 26.1% 8,823 1,870 1,293 799 640 1,069 14,494 5,973 29 6,002 20,496 29.3% –61.3% 2.8% 6.2% 3.7% –6.4% 16.8% 44.2% 24.5% 2.1% –2.5% 0.3% 88.8% 16.6% –17.3% 2.2% 6.8% –8.7% –89.7% –9.1% 2.1% 74 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Total assets rose by CHF 0.4 billion or 2.1% to CHF 20.9 billion, mainly due to the higher investment activity and acquisitions of subsidiaries. In CHF million  Property, plant and equipment  Goodwill  Other intangible assets  Receivables  Liabilities  Other net operating assets  Cash and cash equivalents and financial assets  Financial liabilities  Defined benefit obligations  Income tax assets and liabilities, net  Investments in associates  Other assets, net  Equity  31.12.2012 31.12.2013 31.12.2014 Change 8,549 4,662 2,121 3,081 (3,763) 14,650 712 (8,783) (2,108) (85) 268 63 4,717 9,156 4,809 2,053 2,948 (3,738) 15,228 883 (8,823) (1,293) (339) 153 193 6,002 9,720 4,987 1,921 3,124 (3,901) 15,851 342 (8,604) (2,441) (95) 171 233 5,457 564 178 (132) 176 (163) 623 (541) 219 (1,148) 244 18 40 (545)       Fastweb As at 31 December 2014, the book value of Fastweb in Swisscom’s consolidated financial state- ments amounted to EUR 2.8 billion (CHF 3.4 billion; CHF/EUR end-of-period exchange rate of 1.202). This includes goodwill with a net carrying amount of EUR 0.5 billion. In 2013 and 2014 Swisscom raised financing totalling EUR 1.3 billion, which was intended as an instrument for hedging Fast- web’s net assets. Fastweb’s cumulative currency translation losses of CHF 1.6 billion (after tax) as at 31 December 2014 are recognised in equity in Swisscom’s consolidated financial statements. Goodwill The net carrying amount of goodwill is CHF 4,987 million, the bulk of which relates to Swisscom Switzerland (CHF 4,223 million). This goodwill arose primarily in 2007 in connection with the repur- chase of the 25% stake in Swisscom Mobile Ltd sold to Vodafone in 2001. Following the repurchase, the mobile, fixed-network and solutions businesses were organisationally combined and merged to create the new company Swisscom (Switzerland) Ltd. The valuation risk of this goodwill item is extremely low. The net carrying amount of Fastweb’s goodwill is EUR 492 million (CHF 592 million). Goodwill in respect of Other operating segments amounts to CHF 172 million. Post-employment benefits Defined benefit obligations presented in the consolidated financial statements are measured in accordance with International Financial Reporting Standards (IFRS). Net obligations recognised in the balance sheet amounted to CHF 2,441 million, corresponding to an increase of CHF 1,148 mil- lion compared to the prior year. This is largely due to a lower discount rate, which was only partly offset by plan asset performance. In accordance with Swiss accounting standards (Swiss GAAP ARR), the surplus amounts to CHF 1.0 billion corresponding to a coverage ratio of 111%. The main reasons for the differences in accordance with IFRS of CHF 3.4 billion are the application of differing actuarial assumptions with regard to the discount rate (CHF 2.7 billion) and life expectancy (CHF 0.4 billion), and a different actuarial measurement method (CHF 0.3 billion). IFRS measure- ment takes into account future salary, contribution and pension increases and early retirements. By contrast, the equal distribution of risk prescribed by law and in the regulations in the event of a funding deficit is not taken into account. Equity Equity declined by CHF 545 million or 9.1% to CHF 5,457 million, bringing the ratio of consolidated equity to total assets down from 29.3% to 26.1%. The dividend payments of CHF 1,140 million to the equity holders of Swisscom Ltd and net losses of CHF 938 million recognised directly in equity were not offset by the CHF 1,706 million in net income. Net losses recognised directly in equity include non-cash actuarial losses from pension plans totalling CHF 1,161 million as well as unreal- ised losses of CHF 46 million resulting from currency translation of foreign Group companies. The CHF/EUR exchange rate fell from 1.228 at the end of 2013 to 1.202 at the end of 2014. At 31 Decem- ber 2014, cumulative currency translation losses recognised in equity amounted to CHF 1,590 mil- lion (after tax). Distributable reserves are calculated on the basis of equity reported in the separate financial state- ments of Swisscom Ltd in accordance with statutory accounting provisions, rather than on the basis of equity as disclosed in the consolidated balance sheet prepared in accordance with Interna- tional Financial Reporting Standards (IFRS). At 31 December 2014, the equity of Swisscom Ltd amounted to CHF 5,575 million. The difference between this amount and equity disclosed in the consolidated balance sheet is essentially due to earnings retained by subsidiaries as well as differ- ent accounting and valuation methods. Under Swiss company law, share capital and that part of the general reserves representing 20% of the share capital may not be distributed. At 31 December 2014, Swisscom Ltd had distributable reserves of CHF 5,513 million. 75 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Net debt Net debt comprises financial liabilities less cash and cash equivalents, current financial assets and non-current, fixed-interest-bearing deposits. Swisscom’s goal is to achieve a maximum net debt/ EBITDA ratio of 2.1. This value may be exceeded temporarily. Financial leeway exists if the target is not reached. In CHF million, except where indicated  Net debt  Ratio total liabilities/total assets  Ratio net debt/equity  Ratio net debt/EBITDA  Development of net debt  in CHF million            31.12.2012 31.12.2013 31.12.2014 8,071 76.2% 1.7 1.8 7,812 70.7% 1.3 1.8 8,120 73.9% 1.5 1.8 7,812  –1,860  1,140  218  386  424  8,120  Net debt 31.12.2013 Operating free cash flow Dividends  Net interest  expense  Taxes paid  Other  effects  Net debt  31.12.2014  The ratio of net debt to EBITDA remained unchanged year-on-year at 1.8. In recent years, Swisscom has taken advantage of favourable capital market conditions with a view to optimising the interest and maturity structure of the Group’s financial obligations. The share of the Group’s variable-rate financial liabilities amounts to 29%. 76 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Maturity profile of financial liabilities Swisscom aims for a broadly diversified debt portfolio. This involves paying particular attention to balancing maturities and a diversification of financing instruments and markets. The following table shows the maturity profile of interest-bearing financial liabilities at nominal value as at 31 December 2014: In CHF million  Bank loans  Debenture bonds  Private placements  Finance lease liabilities  Other financial liabilities  Total  Due within Due within Due within Due within 1 year 1 to 2 years 3 to 5 years 6 to 10 years Due after 10 years 998 500 – 14 2 300 130 361 – 2,025 2,202 350 14 – 600 24 1 – 30 2 96 360 – 479 – Total 1,885 5,087 950 561 5 1,514 664 2,780 2,595 935 8,488                                               Capital expenditure See report pages 45–47 Swisscom remains committed to maintaining the high quality and availability of its network infra- structures. In Switzerland this involves making targeted investments in ultra-fast broadband net- work expansion, migrating to an all-IP-based infrastructure, and ensuring a state-of-the-art mobile network. In Italy, Fastweb operates a network comprising a proprietary fibre-optic network and a cop- per-based broadband access infrastructure. Fastweb is also systematically expanding this network infrastructure. In CHF million, except where indicated  Fixed access & Infrastructure  Mobile access  Expansion of the fibre-optic network  Customer driven  Projects and others 1 Mobile frequencies  Swisscom Switzerland  Fastweb  Other operating segments  Group Headquarters and elimination  Total capital expenditure  Thereof Switzerland  Thereof foreign country  Total capital expenditure as % of net revenue  2012 425 226 317 162 362 360 2013 410 271 292 159 384 – 2014 406 235 440 186 304 – 1,852 1,516 1,571 531 167 (21) 2,529 1,994 535 22.2 695 195 (10) 2,396 2 1,686 710 21.0 682 211 (28) 2,436 2 1,751 685 20.8 Change –1.0% –13.3% 50.7% 17.0% –20.8% – 3.6% –1.9% 8.2% 180.0% 1.7% 3.9% –3.5% 1 Including All IP migration. 2 Excluding capital expenditure of CHF 24 million (2013: CHF 49 million; 2012: CHF 32 million) in real estate projects, for which sales contracts were concluded and the purchasers made payments in the same amount. Capital expenditure incurred by Swisscom rose year-on-year by CHF  40  million or 1.7% to CHF 2,436 million, corresponding to 20.8% of net revenue (prior year: 21.0%). Swisscom Switzerland accounted for 64% of 2014 capital expenditure, while Fastweb accounted for 28% and other oper- ating segments 8%. Capital expenditure incurred by Swisscom Switzerland rose year-on-year by CHF 55 million or 3.6% to CHF 1,571 million, corresponding to 18.2% of net revenue (prior year: 17.9%). The increase is due to the expansion and upgrading of mobile and fixed network infrastructure with the latest tech- nologies. By the end of 2014, Swisscom had connected more than 1.4 million homes and offices with ultra-fast broadband – from fibre-to-the-home (FTTH) to the latest fibre-optic technology such as fibre-to-the-street (FTTS), fibre-to-the-building (FTTB) and vectoring technology – and extended 4G/LTE coverage to 97% of the Swiss population. By contrast, Fastweb reduced its capital expenditure year-on-year by CHF  13  million or 1.9% to CHF 682 million. This corresponds to a reduction of EUR 3 million or 0.5% to EUR 562 million in local currency terms and is mainly due to lower investment in the network infrastructure resulting in a ratio of capital expenditure to revenue of 33.3% (prior year: 34.4%). Around 33% of total capital expenditure is directly related to customer growth. At CHF 211 million, capital expenditure incurred by other operating segments was CHF 16 million or 8.2% higher year-on-year, largely as a result of higher investment in the IT infrastructure of Swisscom IT Services. 77 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Statement of added value Operating added value is equivalent to net revenue less goods and services purchased, other operating expenses, and depreciation and amortisation. Personnel expense is treated as use of added value rather than as an intermediate input. Swisscom generates the bulk of its added value in Switzerland, with activities abroad accounting for 4% of the Group’s added value from operations in the year under review (prior year: 5%). In CHF million  Added value  Net revenue  Capitalised self-constructed assets and other income  Goods and services purchased  Other operating expenses 1 Depreciation 2 Intermediate inputs  Operating added value  Other non-operating result 3 Total added value  Allocation of added value  Employees 4 Public sector 5 Shareholders (dividends)  External investors (net interest expense)  Company (retained earnings) 6 Total added value  Switzerland Abroad Total Switzerland Abroad 2014 2013 Total 9,586 (290) 1,789 1,783 1,322 4,604 4,982 2,520 390 2,117 11,703 9,358 2,076 11,434 (80) 580 738 646 1,884 233 (229) 1,712 1,736 1,281 4,500 4,858 (370) 2,369 2,521 1,968 6,488 5,215 (139) 5,076 253 2,773 2,460 322 8 398 1,156 218 531 5,076 (159) 626 723 607 1,797 279 266 (3) (388) 2,338 2,459 1,888 6,297 5,137 (83) 5,054 2,726 319 1,154 251 604 5,054 1 Other operating expense: excluding taxes on capital and other taxes not based on income. 2 Depreciation and amortisation: excluding depreciation and amortisation of acquisition-related assets such as brands or customer relations. 3 Other non-operating result: financial result excluding net interest expense, share of profits of investments in associates, and depreciation and amortisation of acquisition-related intangible assets. 4 Employees: employer contributions are reported as pension cost, rather than as expenses according to IFRS. 5 Public sector: current income taxes, taxes on capital and other taxes not based on income. 6 Company: including changes in deferred income taxes and defined benefit obligations. Operating added value amounted to CHF 5,076 million in 2014, an increase of 0.4% compared with the previous year. As in the prior year, some 95% of operating added value was generated in Swit- zerland. Added value from international operations declined by CHF 46 million to CHF 233 million on account of higher depreciation and amortisation costs. Although operating added value in Switzerland was virtually unchanged year-on-year at CHF 4,982 million, added value from operations per FTE was 1.4% lower at CHF 283,000 (prior year: CHF 287,000). Swisscom development of added     value per employee in Switzerland  in CHF thousand   Allocation of added value  in %   400   300   200   100   0   296  287  283  2012  2013  2014  10%  Company  8%    Public sector    23%    Shareholders    4%    External investors  55%    Employees    78 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F                     Energy efficiency and CO2 emissions In % except where indicated  Energy consumption (in GWh)  Increase of the efficiency of energy to 1 January 2010  Direct CO2-emissions (in tons)  Reduction of direct CO2-emissions to 1 January 2010  2014 497 26.4 21,380 17.0 2013 498 21.1 23,835 3.9 Change –0.2% –10.3% Swisscom is striving to boost energy efficiency and rely more on renewable energies in order to minimise the environmental impact of its business activities. In Switzerland Swisscom is aiming, by the end of 2015, to increase its energy efficiency by 25% from the levels of 1 January 2010 and then by a further 35% between 1 January 2016 and 2020. The increase will be achieved primarily by measures in the network infrastructure area. Swisscom is also aiming for a 12% reduction in direct CO2 emissions in Switzerland by the end of 2015. This reduction is to be achieved primarily through measures related to employee mobility and the infrastructure. In 2014 total energy consumption in Switzerland fell by 1 GWh or 0.2% to 497 GWh, while energy efficiency increased versus 1 January 2010 to 26.4% (prior year: 21.1%). This improvement was achieved by efficiency enhancements in computer centres and the Mistral energy saving project (the use of fresh air to cool telephone exchanges). In 2014, direct CO2 emissions in Switzerland fell by 2,455 tonnes or 10.3% to 21,380 tonnes, chiefly due to reduced consumption of heating oil. This results in a reduction of 17% in direct CO2 emissions versus 1 January 2010. 79 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F Outlook for net revenue Expectation for 2015 of more than Outlook for EBITDA Expectation for 2015 of around 11.4 billion CHF 4.2 billion CHF Financial outlook 2014 reported CHF/EUR 1.212 in CHF mio. Effect revaluation CHF in CHF bn. 2014 pro-forma CHF/EUR 1.00 in CHF mio. Net revenue  11,703 (0.4) 11,331 2015 Change Swisscom without Fastweb in CHF bn. 0.1 2015 Change Fastweb in CHF bn. 2015 outlook (CHF/EUR 1.00) in CHF bn. 0 > 11.4 Operating income before  depreciation and amortisation  (EBITDA)  Capital expenditure  4,413 2,436 (0.1) (0.1) 4,315 2,313 (0.1) 0 > 0 < 0 ~ 4.2 2.3 The financial outlook for 2015 is influenced to a substantial degree by the CHF/EUR exchange rate. The Swiss National Bank’s decision to abandon the euro currency peg in January 2015 has increased the volatility of the exchange rate. The forecast of the future currency development and the effects on the economy is subject to uncertainty. The following outlook is predicated on a parity CHF/EUR exchange rate of 1.00 for 2015, corresponding to an exchange rate reduction in the euro of 17% versus 2014 (average 2014 EUR exchange rate: CHF 1.21). It does not take account of the possible negative implications of the currency situation for the economy. On the basis of the assumed parity with the euro, Swisscom expects for 2015 net revenue of more than CHF 11.4 billion, EBITDA of around CHF 4.2 billion and capital expenditure of CHF 2.3 billion. Calculated at the same exchange rate as 2014, net revenue is expected to end 2015 CHF 100 million higher as compared to 2014. Excluding Fastweb, Swisscom expects net revenue to grow by CHF 100 million. In local currency terms (euro), Fastweb’s net revenue for 2015 is expected to be on a par with the prior year, which corresponds, however, to a decline of almost CHF 400 million in the reporting currency. EBITDA is expected to end 2015 at around CHF 4.2 billion, or some CHF 200 million below the 2014 figure. CHF 100 million of this decline is attributable to the appreciation of the Swiss franc, and the other CHF 100 million is due to the following effects: The change in network infrastructure and services to Internet protocol (All IP) will result in higher costs in 2015. In addition, gains from the sale of real estate will be lower and, due to lower interest rates, pension costs in accordance with IFRS will be higher. These effects cannot be offset by additional contributions to results from recent acquisitions and the related synergies. In local currency terms, Fastweb’s EBITDA is expected to be higher, primarily as a result of lower usage fees for regulated services from other network operators. Regulated prices are expected to drop further and the volume of services purchased will decline due to customers migrating to their own ultra-fast broadband network. Swisscom expects capital expenditure for 2015 to be CHF 2.3 billion. In Switzerland capital expend- iture will remain the same as last year at CHF 1.75 billion due to further expansion of the ultra-fast broadband network and investments in the IT platform for banking. At Fastweb the volume of capital expenditure reached its peak in 2014, and in local currency terms will decline slightly in 2015, corresponding to a currency-related reduction of CHF 100 million. If all targets are met, Swisscom will again propose to the Annual General Meeting of Shareholders an unchanged ordinary dividend of CHF 22 per share for the 2015 financial year. 80 y r a t n e m m o C t n e m e g a n a M w e i v e r l a i c n a n i F             Capital market Swisscom’s shares are listed on the SIX Swiss Exchange. The credit- worthiness of Swisscom is regularly assessed by international rating agencies. Swisscom share Swisscom’s market capitalisation as at 31 December 2014 amounted to CHF 27.1 billion (previous year: 24.4 billion). The number of shares outstanding remained the same at 51.8 million. Par value per registered share is CHF 1. Each share entitles the holder to one vote. Voting rights can only be exercised if the shareholder is entered in the share register of Swisscom Ltd with voting rights. The Board of Directors may refuse to enter a shareholder with voting rights if such voting rights exceed 5% of the company’s share capital. Ownership structure Confederation  Natural person  Institution  Total  Number of Shareholders Number of Shares 1 26,394,000 62,359 4,260,624 2,699 21,147,319 31.12.2014 Share in % 51.0% 8.2% 40.8% Number of Shareholders Number of Shares 1 26,535,500 63,531 4,453,496 2,614 20,812,947 31.12.2013 Share in % 51.2% 8.6% 40.2% 65,059 51,801,943 100.0% 66,146 51,801,943 100.0% The majority shareholder as at 31 December 2014 was the Swiss Confederation, with 51.0% of the voting rights and capital. The Confederation is obligated by current law to hold the majority of the capital and voting rights. As at 31 December 2014, around 95% of the registered shareholders were from Switzerland. Stock exchanges Swisscom shares are listed on the SIX Swiss Exchange under the symbol SCMN (Securities No.  874251). In the United States they are traded in the form of American Depositary Receipts (ADR) at a ratio of 1:10 (Over The Counter, Level 1) under the symbol SCMWY (Pink Sheet No. 69769). 81 y r a t n e m m o C t n e m e g a n a M t e k r a m l a t i p a C       Share performance Share performance 2014  in CHF  600  475  350  225  100  . 3 1 2 1 1 3 . . 4 1 1 0 1 3 . . 4 1 2 0 8 2 . . 4 1 3 0 1 3 . . 4 1 4 0 0 3 . . 4 1 5 0 1 3 . . 4 1 6 0 0 3 . . 4 1 7 0 1 3 . . 4 1 8 0 1 3 . . 4 1 9 0 0 3 . . 4 1 0 1 1 3 . . 4 1 1 1 0 3 . . 4 1 2 1 1 3 . Swisscom  SMI (indexed)  Stoxx Europe 600 Telcos (in CHF, indexed)  See www.swisscom.ch/ shareprice The Swiss Market Index (SMI) gained 9.5% compared with the previous year. The Swisscom share price increased by 11.0% to CHF 522.50, performing better than the European Stoxx Europe 600 Telecommunications Index (5.6% in CHF; 7.5% in EUR). Average daily trading volume fell by 5.8% to 97,881 units. Total trading volume of Swisscom shares in 2014 amounted to CHF 12.9 billion. Shareholder return On 14 April 2014 Swisscom paid out an ordinary dividend of CHF 22 per share. Based on the closing price at the end of 2013, this equates to a return of 4.7%. Taking into account the rise in share price, Swisscom achieved a total shareholder return (TSR) of 15.7% in 2014. The TSR for the SMI was 12.0% and for the Stoxx Europe 600 Telecommunications Index 10.6% in CHF and 12.7% in EUR. 82 y r a t n e m m o C t n e m e g a n a M t e k r a m l a t i p a C Swisscom share performance indicators Par value per share at end of year  2010 1.00 2011 1.00 2012 1.00 2013 1.00 2014 1.00 CHF Number of issued shares at end of period  in thousand 51,802 51,802 51,802 51,802 51,802 Market capitalisation at end of year  in CHF million 21,296 18,436 20,400 24,394 27,067 Closing price at end of period  Closing price highest  Closing price lowest  Earnings per share  Ordinary dividend per share  Ratio payout/earnings per share  Equity per share at end of year  CHF CHF CHF CHF CHF % 411.10 355.90 393.80 470.90 522.50 420.80 433.50 400.00 474.00 358.00 323.10 334.40 390.20 35.00 21.00 13.19 22.00 60.00 166.79 34.90 22.00 63.04 32.53 22.00 67.63 587.50 467.50 32.70 22.00 1 67.27 CHF 102.89 82.47 79.77 115.30 105.29 1 In accordance with the proposal of the Board of Directors to the Annual General Meeting.               Analysts’ recommendations Investment specialists analyse Swisscom’s business performance, results and market situation on an ongoing basis. Their findings and recommendations offer valuable indicators for investors. 29 analysts regularly publish studies on Swisscom. At the end of 2014, 31% of the analysts recom- mended a buy rating for the Swisscom share, 48% a hold rating and 21% a sell rating. The average price target at 31 December 2014, according to the analysts’ estimates, was CHF 559 per share. Payout policy Swisscom seeks to achieve a steady dividend payout per share. Subject to meeting its financial targets, Swisscom plans to pay a dividend per share at least on a par with the previous year. At the forthcoming Annual General Meeting on 8 April 2015, the Board of Directors will propose an ordinary dividend of CHF 22 per share (prior year: CHF 22 per share). This is equivalent to a total dividend payout of CHF 1,140 million. Since going public in 1998 Swisscom has distributed a total of CHF 27.3 billion to its shareholders: CHF 15.3 billion in dividend payments, CHF 1.6 billion in capital reductions and CHF 10.4 billion in share buybacks. Swisscom has paid out a total of CHF 301 per share since the initial public offering. Together with the overall increase in share price of CHF 182.50 per share, this amounts to an aver- age annual total return of 5.6%. Indebtedness Level of indebtedness Swisscom pursues a finance policy which limits the net debt / EBITDA ratio to a maximum of around 2.1. Net debt comprises financial liabilities less cash and cash equivalents, current financial assets and non-current, fixed-interest-bearing deposits. As at 31 December 2014, net debt amounted to CHF 8.1 billion (prior year: CHF 7.8 billion), corre- sponding versus the prior year to an unchanged net debt / EBITDA ratio of 1.8. 83 y r a t n e m m o C t n e m e g a n a M t e k r a m l a t i p a C Dividend per share in the 2014 financial year Total shareholder return in the 2014 financial year 22 CHF 15.7 % Credit ratings and financing With an A (stable) and A2 (stable) respectively, Swisscom enjoys good ratings with the Standard & Poor’s and Moody’s rating agencies. To avoid structural downgrading, Swisscom endeavours to raise financing at the level of Swisscom Ltd. Swisscom aims to have a broadly diversified debt port- folio. This involves paying particular attention to balancing maturities and a diversification of financing instruments, markets and currencies. Swisscom’s solid financial standing enabled unre- stricted access to money and capital markets also in 2014. As at 31 December 2014, Swisscom’s financial liabilities amounted to CHF 8.6 billion. Around 80% of financial liabilities have a term to maturity of more than one year. As at 31 December 2014, finan- cial liabilities with a term of one year or less amounted to CHF 1.6 billion. 2014 average interest expense on all financial liabilities were 2.5%, and average term to maturity four years. A large share of the financial liabilities will fall due for repayment if a shareholder other than the Swiss Confeder- ation can exercise control over Swisscom. Listed debenture bonds Swisscom has issued debenture bonds which are listed on the SIX Swiss Exchange (SIX) or the Irish stock exchange (ISE). Bonds listed on the Six Swiss Exchange In CHF million  Par value  600  500  1,425  500  500  200  160  In EUR million  Par value  500  500  84 y r a t n e m m o C t n e m e g a n a M t e k r a m l a t i p a C Coupon Payment Expiring Security number 3.75% 4.00% 3.25% 2.63% 1.75% 1.50% 1.50% 19.07.2007 22.10.2007 1 19.07.2007 17.09.2008 17.09.2015 3,225,473 4,515,633 14.09.2009 14.09.2018 10,469,162 31.08.2010 31.08.2022 11,469,537 10.07.2012 10.07.2024 188,335,365 14.07.2014 14.07.2026 24,777,613 30.09.2014 28.09.2029 2,514,750 Coupon Payment Expiring ISIN–no. 1 2.00% 1.88% 30.09.2013 1 30.09.2020 XS0972165848 08.04.2014 08.09.2021 XS1051076922 1 Reopening. Bonds listed on the Irish Stock Exchange (ISE) 1 The bonds have been issued through Lunar Funding V, an independent Irish repackaging-vehicle, and are secured by loan notes granted from Lunar V to Swisscom.   Risks Swisscom’s risk management is aimed at safeguarding the company’s enterprise value. Risk management system Swisscom’s enterprise risk management (ERM) applies Group-wide and takes both internal and external events into account. Swisscom complies with the established COSO II and ISO 31000 risk management standards and thus has a risk management system in place that meets the require- ments of its own corporate governance policy as well as those of Swiss law. Objectives Swisscom’s risk management is aimed at safeguarding the company’s enterprise value. This is assured by having in place a recognised and appropriate Group-wide risk management system as well as comprehensive, meaningful, level-appropriate reporting, suitable documentation and a risk-aware corporate culture. Risks are events or situations which, should they occur, could poten- tially jeopardise the company’s ability to achieve its objectives. Organisation The Board of Directors delegates responsibility for implementing the risk management system to the CEO Swisscom Ltd. A central Risk Management unit reports to the CFO Swisscom Ltd, coordi- nates all organisational units charged with risk management and oversees these insofar as this is required for reporting purposes. This ensures comprehensive, Group-wide coordinated risk man- agement and reporting. As part of their remit, employees entrusted with risk management tasks have an unrestricted right to information and are authorised to access and view all relevant docu- ments and records. Swisscom employs special instruments in individual risk areas. In financial risk management, for example, quantitative tools (sensitivity analyses) are used to assess interest rate and currency risks. Specialised central organisational units monitor the legal compliance risks and financial reporting risks (internal control system, ICS). Process The main risks to which Swisscom is exposed are identified in a comprehensive risk analysis. Each risk is assigned a risk owner. To enable the early identification, assessment and management of risks and their inclusion in strategic planning, the central Risk Management unit works closely with the Controlling and Strategy departments and other relevant departments. Risk management cov- ers risks in the areas of strategy (including market risks), operations (including finance risks), com- pliance and financial reporting. The risks are assessed according to their probability of occurrence and their qualitative and quantitative effects in the event of occurrence, and are managed on the basis of a risk strategy. The risks are evaluated in terms of their impact on key performance indica- tors reported by Swisscom. The risk profile is reviewed and updated on a quarterly basis. The Board of Directors’ Audit Committee and the Swisscom Group Executive Board are informed about signif- icant risks, their potential effects and the status of measures on a quarterly basis, and the Board of Directors on an annual basis. The effectiveness of the risk strategies and measures taken is assessed quarterly. Information on the internal control system, compliance management and internal audit- ing is provided in the Corporate Governance Report, Section 3.8, Controlling instruments of the Board of Directors vis-à-vis the Group Executive Board. See report page 105 s k s i R 85 y r a t n e m m o C t n e m e g a n a M General statement on the risk situation Risks are driven by changes in technology, the regulatory environment, markets, competition and customer behaviour. The importance of established telecoms services is continuing to decline, and the associated loss of revenue from traditional core business has to be compensated by promoting customer and volume growth and offering new services. Over the long term the trend in the ICT market will necessitate fundamental changes in the approach to risks related to human capital, technology and the business model. Pending regulatory decisions pose a latent risk which could impact Swisscom’s financial development, as illustrated by the following selected key risk factors. The main risk factors in the supply chain are reported separately in the Sustainability Report. Risk factors Telecommunications market Changes within the telecoms market, structural adjustments and competition from service provid- ers who do not maintain their own telecoms infrastructure (e.g. OTTs) are exerting transformation pressure on the business. It remains to be seen which technologies and services will emerge the winners. There is a risk that revenue from classical telecoms business will not be secured sustaina- bly during the transformation process. Current trends are increasingly necessitating the integration of a growing number of technologies and devices in order to win new customers and deliver multi- media services. The integration and operation of new infrastructures entails risks in terms of inter- faces to existing infrastructure. The occurrence of such risks could delay implementation of the strategy or have a detrimental effect on customer satisfaction. Swisscom has initiated measures in various areas to manage these risks. Politics and regulation Telecommunications and antitrust legislation entail risks which could have a negative impact on the company’s financial position and results of operations. The main risks concern the possibility of stricter price regulations on mobile communications (mobile termination) which would further reduce Swisscom’s income and restrict the company’s room for manoeuvre; or sanctions by the Competition Commission, which could reduce Swisscom’s operating results and damage the com- pany’s good reputation. The forthcoming revision of the Telecommunications Act also heightens regulatory risk. Finally, excessively high demands imposed on universal service provision by political groups, for instance supporters of the “Public Service” initiative, threaten to fundamentally under- mine the current competitive system. Increased bandwidth in the access network Customer demand for broadband access is growing rapidly, as is the popularity of mobile devices and IP-based services (smartphones, IP TV, OTTs, etc.). Swisscom faces tough competition from cable compa- nies and other network operators as it strives to meet current and future customer needs and defend its own market shares. The necessary network expansion calls for major investments. To mitigate financial risks and ensure optimum network coverage, expansion is determined by population density and cus- tomer demand. Substantial risks would arise if Swisscom were forced to spend more on network expan- sion than planned, or if projected long-term earnings were to fall. Swisscom aims to minimise such risks by adapting broadband expansion of the access network to changing framework conditions. Human capital Constant changes in framework conditions and markets necessitate a change in corporate culture. The key challenges in this context lie in maintaining employee motivation and high staff loyalty s k s i R 86 y r a t n e m m o C t n e m e g a n a M despite cost pressure, while managing growth and efficiency, increasing employees’ ability to adapt their skills and ensuring that Swisscom remains an attractive employer. Economic climate, market consolidation in Italy, regulation and recoverability of Fastweb’s assets A potential consolidation of the Italian market could have significant ramifications for Swisscom’s subsidiary Fastweb. In addition, Italy’s economic development and competitive dynamics carry risks which could have a detrimental impact on Fastweb’s strategy and jeopardise projected reve- nue growth. The impairment test performed in 2014 confirmed the recoverable value of Fastweb’s assets. The recoverability of Fastweb’s net assets recognised in the consolidated financial state- ments is contingent above all on achieving the financial targets set out in the business plan (reve- nue growth, improvement in EBITDA margin and reduction in capital expenditure ratio). If future growth is lower than projected, there is a risk that this will result in a further impairment loss. Major uncertainty also surrounds the future interest rate trend and the country risk premium. An increase in interest rates or the country risk premium could lead to an impairment loss. Fastweb’s business operations are also influenced by the European and Italian telecommunications legisla- tion. Regulatory risks can jeopardise the achievement of targets and reduce the enterprise value. Business interruption Usage of Swisscom’s services is heavily dependent on technical infrastructure such as communica- tions networks and IT platforms. Any major disruption to business operations poses a high financial risk as well as a substantial reputation risk. Force majeure, human error, hardware or software fail- ure, criminal acts by third parties (for example, computer viruses or hacking) and the ever-growing complexity and interdependence of modern technologies can cause damage or interruption to operations. Built-in redundancy, contingency plans, deputising arrangements, alternative locations, careful selection of suppliers and other measures are designed to ensure that Swisscom can deliver the level of service that customers expect at all times. Information technologies Swisscom is in the midst of a transformation from line-switched TDM technology to IP technology. This transformation should enable Swisscom to roll out new products more flexibly and efficiently than before. The experience acquired with IP technology to date has been positive. Swisscom’s complex IT architecture entails risks during both the implementation and operating phases. These risks have the potential to delay the rollout of new services, increase costs and impact competitive- ness. The transformation is being monitored by the Group Executive Board. Environment and health Electromagnetic radiation (for example from mobile antennas or mobile handsets) has repeatedly been claimed to be potentially harmful to the environment and to health. Under the terms of the Ordinance on Non-Ionising Radiation (ONIR), Switzerland has adopted a so-called precautionary principle and introduced limits for base stations that are ten times higher than those imposed by the EU. The public’s wary attitude to mobile antenna sites in particular is impeding Swisscom’s network expansion. There is a future risk that regulations governing electromagnetic emissions and legal requirements for the construction of mobile base stations may be further tightened. This would result in additional costs for network expansion and operation. Even without stricter legis- lation, public concerns about the effects of electromagnetic radiation on the environment and health could further hamper the construction of wireless networks in the future and drive up costs. Climate change poses risks for Swisscom in the form of increased levels of precipitation as well as higher average or extreme temperatures. These trends could impact the operability of Swisscom’s telecoms infrastructure, particularly in view of the potential risk to base stations and local exchanges. The analysis of the risks posed by climate change is based on the official report of the Federal Office for the Environment (FOEN) on climate change, published in October 2011. s k s i R 87 y r a t n e m m o C t n e m e g a n a M See www.cdproject.net/en-us “We have set up an independent mobile network in the laboratory, which we use for development, testing and making optimisations with the aim of providing our customers with the best network well into the future.” Christian Rüger ICT system engineer IT, Network & Innovation Corporate Governance and Remuneration Report Taking advantage of new opportunities to generate sustainable growth.  +15.7 % total shareholder return on Swisscom shares in 2014. Return up 5.1 percentage points on the telecom index (+10.6%). Topics Corporate Governance Remuneration Report 92 Principles 93 1 Group structure and shareholders 95 2 Capital structure 97 3 Board of Directors 107 4 Group Executive Board 111 5 Remuneration, shareholdings and loans 111 6 Shareholders’ participation rights 113 7 Change of control and defensive measures 113 8 Auditor 114 9 Information policy 115 1 Principles 116 2 Decision-making powers 118 3 Remuneration paid to the Board of Directors 121 4 Remuneration paid to the Group Executive Board 126 5 Other remuneration 127 Report of the Statutory Auditor +15.7 % Corporate Governance Corporate governance is a fundamental component of Swisscom’s corporate policy. Swisscom is committed to practising effective and transparent corporate governance as part of its aim to deliver long-term value. In particular, Swisscom complies with the recommendations of the Swiss Code of Best Practice for Corporate Governance 2014 issued by economiesuisse and meets the requirements of the Ordinance Against Excessive Compensation in Listed Stock Companies. Principles In performing their activities, the Board of Directors and Group Executive Board of Swisscom are guided by the objective of long-term and sustainable corporate governance. They incorporate in their decisions the legitimate interests of Swisscom shareholders, customers, employees and other interest groups. To this end, the Board of Directors practices effective and transparent corporate governance, which is characterised by clearly assigned responsibilities and based on recognised standards. In particular, Swisscom complies with > the recommendations of the Swiss Code of Best Practice for Corporate Governance 2014 issued by economiesuisse, the umbrella organisation representing Swiss business. > the Corporate Governance Directive issued by the SIX Swiss Exchange of 1 September 2014, which also forms the basis of this report. > the requirements of the Ordinance Against Excessive Compensation in Listed Stock Companies (OaEC) of 20 November 2013, which entered into force on 1 January 2014. > legal requirements pursuant to the Swiss Code of Obligations. The exchange of insights and information with investors, proxy advisors and other stakeholder groups by the respective specialist divisions allows the Board of Directors to identify new standards at an early stage and to adjust its corporate governance activities to new requirements. Swisscom’s principles and rules on corporate governance are set out primarily in the company’s Articles of Incor- poration, Organisational Rules and the Rules of Procedure of the Board of Directors’ committees. Of particular importance is the Code of Conduct approved by the Board of Directors. It contains a dec- laration by Swisscom of its commitment to absolute integrity as well as compliance with the law and all other external and internal rules and regulations. Swisscom expects its employees to take responsibility for their actions, show consideration for people, society and the environment, com- ply with applicable rules, demonstrate integrity and report any violations of the Code of Conduct. The latest version of these documents as well as revised or superseded versions can be viewed online on the Swisscom website under “Basic principles”. e c n a n r e v o G e t a r o p r o C 92 t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C See www.swisscom.ch/ basicprinciples 1 Group structure and shareholders 1.1 Group structure 1.1.1 Group operating structure Swisscom Ltd is the holding company responsible for overall management of the Swisscom Group. It comprises the five Group divisions Group Business Steering, Group Strategy & Board Services, Group Communications & Responsibility, Group Human Resources and Group Security. Day-to-day business management is delegated by the Board of Directors to the CEO of Swisscom Ltd, who together with the heads of the Group divisions Group Business Steering (CFO) and Group Human Resources (CPO) as well as the heads of all business divisions (Residential Customers, Small and Medium-Sized Enterprises, Enterprise Customers and IT, Network & Innovation) forms the Group Executive Board. Strategic and financial management of the Group companies is assured through the assignment of powers and responsibilities by the Board of Directors of Swisscom Ltd. The Group companies are divided into three categories: strategic, important and other. Swisscom (Switzer- land) Ltd and the Italian subsidiary Fastweb S.p.A. are classified as strategic Group companies. The operations of Swisscom (Switzerland) Ltd are managed by the Group Executive Board. The Board of Directors of Swisscom (Switzerland) Ltd comprises the CEO of Swisscom Ltd as Chairman, the CFO of Swisscom Ltd and a further member of the Group Executive Board. Seats on the Board of Directors of the “strategic” company Fastweb S.p.A. are held by the CEO of Swisscom Ltd as Chair- man together with the CFO of Swisscom Ltd and other representatives of Swisscom. The Board of Directors of Fastweb S.p.A. is supplemented by an external member. In the “important” Group companies, the responsibilities of the Chairman of the Board of Directors are fulfilled by the CEO of Swisscom Ltd, the CEO of a “strategic” Group company, the head of a Group or business division or another person appointed by the CEO. Other representatives of Swisscom are also members of the Board of Directors. The Group structure is shown in the Management Commentary in the section on Group structure and organisation. A list of Group companies, including company name, registered office, percent- age of shares held and share capital, is given in Note 41 to the consolidated financial statements. As of 1 January 2014, the activities of Swisscom IT Services Ltd were integrated into the operations of Swisscom (Switzerland) Ltd. The reporting, which is based on the management structure, was not adjusted, however. It is, as in 2013, divided into the segments “Residential Customers”, “Small and Medium-Sized Enterprises”, “Corporate Business”, “Wholesale” and “Network & IT”, which are grouped together as “Swisscom Switzerland”, as well as “Fastweb”, “Other Operating Segments” and “Group Headquarters”. “Other Operating Segments” mainly comprises Swisscom IT Services and Group Related Businesses, while “Group Headquarters” primarily covers the Group divisions and the employ- ment company Worklink AG. Changes as of 2015 The absorption merger of Swisscom IT Services Ltd with Swisscom (Switzerland) Ltd will take place at the beginning of 2015 and mark the legal completion of the integration. From 2015, segment reporting will be adjusted to the management structure and Swisscom IT Services – as well as Swisscom Real Estate Ltd – will then be reported in the “Swisscom Switzerland” segment. See report page 24 See report pages 200–201 e c n a n r e v o G e t a r o p r o C 93 t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 1.1.2 Listed companies The Swisscom Group comprises the following listed companies: Swisscom Ltd Swisscom Ltd, a company governed by Swiss law and headquartered in Ittigen (canton of Berne, Swit- zerland), is listed in the Main Standard of the SIX Swiss Exchange (Securities No. 874251; ISIN Code: CH0008742519; Ticker Symbol: SCMN). Trading in the United States is conducted over-the-counter (OTC) as a level 1programme (Symbol: SCMWY; ISIN No.: CH008742519; CUSIP for ADR: 871013108). At 31 December 2014, Swisscom Ltd had a stock market capitalisation of CHF 27,067 million. PubliGroupe Ltd Swisscom Ltd acquired PubliGroupe Ltd in 2014 within the framework of a public takeover. The takeover price was CHF 474 million. PubliGroupe Ltd, a company governed by Swiss law and head- quartered in Lausanne (Switzerland), is listed in the Main Standard of the SIX Swiss Exchange (Securities No.: 462630; ISIN Code: CH0004626302; Ticker Symbol: PUBN). At 31 December 2014, PubliGroupe Ltd had a stock market capitalisation of CHF 493 million. Swisscom Ltd currently holds 98% of the shares in PubliGroupe Ltd. On 18 September 2014, PubliGroupe Ltd requested the cancellation of the untendered shares (squeeze-out). On 1 October 2014, it submitted an applica- tion for the delisting of the registered shares to the SIX Exchange Regulation. SIX Swiss Exchange approved the application on 22 October 2014. The delisting is scheduled to take place in the first quarter of 2015. 1.2 Disclosure notifications of significant shareholders Pursuant to Article 20 of the Federal Act on Stock Exchanges and Securities Trading, there is a duty to disclose shareholdings where a person or group subject to the disclosure obligation reaches, exceeds or falls below 3, 5, 10, 15, 20, 25, 331/3, 50 or 662/3 per cent of the voting rights of Swisscom Ltd. In the year under review, no participations subject to the disclosure obligation were reported to Swisscom Ltd. No disclosure notifications were therefore published on the disclosure and publication platform of the Disclosure Office of SIX Swiss Exchange. Information on significant shareholders can be found in Note 8 to the financial statements of Swisscom Ltd. See report page 207 1.3 Cross-shareholdings No cross-shareholdings exist between Swisscom Ltd and other public limited companies. e c n a n r e v o G e t a r o p r o C 94 t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 2 Capital structure 2.1 Capital At 31 December 2014, the share capital of Swisscom Ltd amounted to CHF 51,801,943, divided into registered shares with a nominal value of CHF 1 per share. The shares are fully paid up. 2.2 Authorised and conditional capital There is no authorised or conditional share capital. 2.3 Changes in capital The share capital was unchanged in the years 2012 to 2014. During this period, changes in share- holders’ equity of Swisscom Ltd in the individual financial statements drawn up under Swiss com- mercial law were as follows: In CHF million  Balance at 1 January 2012  Net income  Dividends paid  Balance at 31 December 2012  Net income  Dividends paid  Balance at 31 December 2013  Net income  Dividends paid  Balance at 31 December 2014  Share capital Capital surplus reserves Retained earnings 52 – – 52 – – 52 – – 52 21 – – 21 – – 21 – – 21 4,462 1,749 (1,140) 5,071 239 (1,140) 4,170 2,472 (1,140) 5,502 Total equity 4,535 1,749 (1,140) 5,144 239 (1,140) 4,243 2,472 (1,140) 5,575 The Annual General Meetings held on 4 April 2012, 4 April 2013 and 7 April 2014 approved an ordi- nary dividend of CHF 22 per share respectively. 2.4 Shares and participation certificates Each registered share of Swisscom Ltd has a par value of CHF 1. Each share entitles the holder to one vote. Shareholders may only exercise their voting right, however, if they have been entered with voting rights in the share register of Swisscom Ltd. All registered shares with the exception of treasury shares held by Swisscom are eligible for a dividend. There are no preferential rights. For further details, see section 6 “Shareholders’ participation rights”. Registered shares of Swisscom Ltd are not issued in certificate form, but are held as book-entry securities in the depositary holdings of SIX SIS AG, up to a maximum limit determined by the Swiss Confederation. Shareholders may at any time request confirmation of the registered shares they hold. However, they have no right to request the printing and delivery of certificates for their shares (registered shares with no right to printed certificates). Swisscom Ltd has issued no participation certificates. e c n a n r e v o G e t a r o p r o C 95 t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C   2.5 Profit-sharing certificates Swisscom Ltd has issued no profit-sharing certificates. 2.6 Limitations on transferability and nominee registrations Swisscom shares are freely transferable, and the voting rights of the shares registered in the share register in accordance with the Articles of Incorporation are not subject to any special restrictions. The statutory provisions on restricted transferability are described in section 6.1 “Voting right restrictions and proxies”. Swisscom has issued special regulations governing the registration of trustees and nominees in the share register. To facilitate tradability of the company’s shares on the stock exchange, the Articles of Incorporation allow the Board of Directors, by means of regulations or agreements, to permit the fiduciary entry of registered shares with voting rights by trustees and nominees exceeding the threshold of 5%, provided they disclose their trustee capacity. In addition, they must be sub- ject to supervision by a banking or financial market supervisory authority or otherwise provide the necessary assurance of acting for the account of one or more unrelated parties. They must also be able to provide evidence of the names, addresses and holdings of the beneficial owners of the shares. In accordance with this provision in the Articles of Incorporation, which can be revised with an absolute majority of the voting shares cast, the Board of Directors has issued regulations gov- erning the entry of trustees and nominees in the Swisscom Ltd share register. The entry of trustees and nominees as shareholders with voting rights is subject to application and the conclusion of an agreement specifying the entry restrictions and disclosure obligations of the trustee or nominee. In particular, each trustee or nominee undertakes, within the limit of 5%, to request entry as a share- holder with voting rights for the account of an individual beneficial owner for no more than 0.5% of the registered share capital of Swisscom Ltd entered in the commercial register. No exceptions for the fiduciary entry of registered shares with voting rights above the aforemen- tioned percentage restriction were granted in the 2014 financial year. 2.7 Convertible bonds, debenture bonds and options See report page 177 See report page 162 Swisscom has no convertible bonds outstanding. Details of the debenture bonds are given in Note 26 to the consolidated financial statements. Swisscom does not issue options on registered shares of Swisscom Ltd to its employees. The Swisscom Ltd equity-share-based payments are described in Note 11 to the consolidated financial statements. e c n a n r e v o G e t a r o p r o C 96 t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 3 Board of Directors 3.1 Members of the Board of Directors The Board of Directors of Swisscom Ltd currently comprises nine members, none of whom holds or has held an executive role within the Swisscom Group in any of the three business years prior to the period under review. The Board members have no significant commercial links with Swisscom Ltd or the Swisscom Group. The Swiss Confederation, represented on the Board by Hans Werder, is the majority shareholder. Customer and supplier relationships exist between the Swiss Confederation and Swisscom. Details of these are given in Note 37 to the consolidated financial statements. See report page 197 Members of the Board of Directors at 31 December 2014 are as follows: Name  Year of birth Function  Taking office at the Appointed until Annual General Meeting Annual General Meeting Hansueli Loosli 1, 2, 3, 4, 5 Frank Esser 1 Barbara Frei 7 Hugo Gerber 2 Michel Gobet 1 Torsten G. Kreindl 3, 6 Catherine Mühlemann 1 Theophil Schlatter 3, 8 Hans Werder 2, 3, 9 1955 1958 1970 1955 1954 1963 1966 1951 1946 Chairman  Member  Member  Member, representative of the employees  Member, representative of the employees  Member  Member  Deputy Chairman  Member, representative of the Confederation  2009 2014 2012 2006 2003 2003 2006 2011 2011 2015 2015 2015 2015 2015 2015 2015 2015 2015 1 Member of the Finance Committee. 2 Member of the Audit Committee. 3 Member of the Remuneration Committee (Hansueli Loosli without voting rights). 4 Since 21 April 2009 Member of the Board of Directors, since 1 September 2011 Chairman. 5 Chairman of Nomination Committee (ad hoc). 6 Chairman of Finance Committee. 7 Chairwoman of Remuneration Committee. 8 Chairman of Audit Committee. 9 Designated by the Swiss Confederation. e c n a n r e v o G e t a r o p r o C 97 t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C     3.2 Education, professional activities and affiliations Details on the qualifications and career of each member of the Board of Directors are provided below. This section also discloses the mandates of each Board member outside the Group as well as other significant activities such as permanent functions in important interest groups. Pursuant to the Articles of Incorporation, the Board members may perform no more than three additional mandates in listed companies and no more than ten additional mandates in non-listed companies, with a total of no more than ten such additional mandates being permitted. These numerical restrictions shall not apply to mandates performed by a Board member by order of Swisscom or to mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations. The number of these mandates is, however, limited to seven or ten. Prior to accepting new mandates outside the Swisscom Group, the Board members are obligated to consult the Chairman of the Board of Directors. Details on the regulation of exter- nal mandates, in particular the definition of the term “mandate” and information on other man- dates that do not fall under the aforementioned numerical restrictions for listed and non-listed companies, are set out in the Articles of Incorporation (Article 8.3 of the Articles of Incorporation), which can be accessed on the Swisscom website under “Basic principles”. No member of the Board of Directors exceeds the set limits for mandates. See www.swisscom.ch/ basicprinciples Hansueli Loosli Swiss citizen Education: Commercial apprenticeship; Swiss Certified Expert in Financial Accounting and Controlling Career history: 1982–1985 Mövenpick Produktions AG, Adliswil, Controller and Deputy Director; 1985–1992 Waro AG, Volketswil, latterly as Managing Director; 1992–1996 Coop Switzerland, Wangen, Director of Non-Food Product Procurement; 1992–1997 Coop Zurich, Zurich, Managing Director; 1997–2000 Coop Switzerland, Basel, Chairman of the Executive Committee and Coop Group Executive Committee; January 2001–August 2011 Coop Genossenschaft, Basel, Chairman of the Executive Committee Mandates in listed companies: Chairman of the Board of Directors, Bell AG, Basel Mandates in non-listed companies: Chairman of the Board of Directors, Coop- Gruppe Genossenschaft, Basel; Chairman of the Board of Directors, Transgour- met Holding AG, Basel; Chairman of the Board of Directors, Coop Mineraloel AG, Allschwil; member of the Advisory Board, Deichmann SE, Essen; member of the Board of Directors, Heinrich Benz AG, Weiach Mandates by order of Swisscom: Member of the Board of Directors and Executive Committee of economiesuisse Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – Frank Esser German citizen Education: PhD in business administration, Dr. rer. pol. Career history: 1988–2000 Mannesmann Deutschland, latterly from 1996 as a mem- ber of the Executive Board, Mannesmann Eurokom; 2000-2005 Société Française Radiotéléphonie (SFR), Chief Operating Officer (COO), from 2002 CEO; 2005–2012 Vivendi Group, member of the Group Executive Board Mandates in listed companies: Member of the Board of Directors, AVG Technolo- gies N.V., Amsterdam; member of the Supervisory Board, Rentabiliweb Group S.A.S., Brussels; member of the Board of Directors, InterXion Holding N.V., Amsterdam, since June 2014 Mandates in non-listed companies: – Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – e c n a n r e v o G e t a r o p r o C 98 t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Barbara Frei Swiss citizen Education: Degree in mechanical engineering, ETH; doctorate (Dr. sc. techn.), ETH; Master of Business Administration, IMD Lausanne Career history: Since 1998 various managerial positions in the ABB Group, in particular 2008–2010 ABB s.r.o., Prague, Country Manager; 2010–2013 ABB S.p.A., Sesto San Giovanni, Country Manager and Regional Manager Mediterranean; since November 2013 Drives and Control Unit, Managing Director Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors, ABB Beijing Drive Systems Co. Ltd., Beijing Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – Hugo Gerber Swiss citizen Education: Diploma in postal services; IMAKA management programme; diploma in personnel and organisational development, Solothurn University of Applied Sciences, Northwestern Switzerland Career history: 1986–1990 Swiss Association of Christian Postal Workers (ChPTT), Central Secretary; 1991–1999 Association of the unions of the Christian transport and government personnel (VGCV), General Secretary; 2000–2003 Transfair Union, General Secretary; 2003–2008 Transfair Union, Chairman; since 2009 independent consultant; July to December 2014 Federal Administrative Court, St. Gallen, Deputy Head of Human Resources on an ad interim basis Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors, POSCOM Ferien Holding AG, Berne Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: Member of the Board of Trustees, RUAG Pension Fund, Berne Other significant activities: Member of the Board of Directors, Worklink AG, Berne Michel Gobet Swiss citizen Education: Degree in history Career history: PTT Union, General Secretary and Deputy General Secretary; since 1999 syndicom Trade Union, Central Secretary Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors, Swiss Post Ltd, Berne; member of the Board of Directors, GDZ AG, Zurich; member of the Board of Directors, Swiss Travel Fund (Reka) Cooperative, Berne Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: Member of the World Executive Committee, the Euro- pean Executive Committee and the European ICTS Steering Committee, UNI Global Union, Nyon e c n a n r e v o G e t a r o p r o C 99 t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Torsten G. Kreindl Austrian citizen Education: Doctorate in industrial engineering (Dr. techn.) Career history: Chemie Holding AG; W. L. Gore & Associates Inc.; Booz Allen & Hamilton, member of the Management Board, Germany; 1996–1999 Deutsche Telekom AG CEO, Broadband Cable Business, and CEO, MSG Media Services; 1999–2005 Copan Inc., Partner; since 2005, Grazia Group Equity GmbH, Stuttgart, Germany, Partner Mandates in listed companies: Independent Director of Hays plc, London Mandates in non-listed companies: Member of the Supervisory Board, Pictet Digital Communications/Pictet Fund Management, Geneva; member of the Board of Directors, Starboard Storage Systems Inc., Boulder, Colorado, USA Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – Catherine Mühlemann Swiss citizen Education: Lic. phil I; Swiss Certified PR Consultant Career history: 1994–1997 Swiss Television DRS, Head of Media Research; 1997– 1999 SF1 and SF2, programme researcher; 1999–2001 TV3, programme director; 2001–2003 MTV Central, Managing Director; 2003–2005 MTV Central & Emerging Markets, Managing Director; 2005–2008 MTV Central & Emerging Markets and Viva Media AG (Viacom), Managing Director; since 2008 Andmann Media Holding GmbH, Baar, partner, until December 2012 owner Mandates in listed companies: – Mandates in non-listed companies: Member of the Supervisory Board, Messe Berlin GmbH, until June 2014; member of the Board of Directors of Switzerland Tourism; member of the Supervisory Board, Tele Columbus AG, Berlin, since September 2014 Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – Theophil Schlatter Swiss citizen Education: Degree in business administration (lic. oec. HSG); Swiss Certified Public Accountant Career history: 1979–1985 STG Coopers & Lybrand, public accountant; 1985–1991 Holcim Management und Beratung AG, controller; 1991–1995 Sihl Papier AG, CFO and member of the Executive Committee; 1995–1997 Holcim (Switzerland) Ltd, Head of Finance/Administration and member of the Executive Committee; 1997– March 2011 Holcim Ltd., CFO and member of the Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: Chairman of the Board of Directors, PEKAM AG, Mägenwil; member of the Board of Directors, Schweizerische Cement-Industrie- Aktiengesellschaft, Rapperswil-Jona Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – 100 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Hans Werder Swiss citizen Education: Dr. rer. soc.; lic. iur. Career history: 1987–1996 Berne Directorate of Public Works, Transport and Energy (BVE), General Secretary; 1996–2010 Federal Department of the Environment, Transport, Energy and Communications (DETEC), General Secretary Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors, BLS AG, Berne Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – 3.3 Composition, election and term of office With the exception of the representative of the Swiss Confederation, the Board of Directors of Swisscom Ltd is elected by shareholders at the Annual General Meeting. Under the terms of the Articles of Incorporation it may comprise between seven and nine members, and, if necessary, the number can be increased temporarily. It currently comprises nine members. The Annual General Meeting elects the members and the Chairman of the Board of Directors and the members of the Compensation Committee individually for a term of one year. The term of office runs until the con- clusion of the following Annual General Meeting. It is possible to be re-elected. If the office of the Chairman is vacant or the number of members of the Compensation Committee falls below the minimum number of three members, the Board of Directors nominates a chairman from among its members or appoints the missing member(s) of the Compensation Committee to serve until the conclusion of the next Annual General Meeting. Otherwise, the Board of Directors constitutes itself. The maximum term of office for members elected by the Annual General Meeting is generally a total of twelve years. Members who reach the age of 70 retire from the Board as of the date of the next Annual General Meeting. Under the Articles of Incorporation of Swisscom Ltd, the Swiss Confederation is entitled to appoint two representatives to the Board of Directors of Swisscom Ltd. Hans Werder is currently the sole representative. The maximum term of office or age limit for the federal representative is deter- mined by the Federal Council. Under the terms of the Telecommunications Enterprise Act (TEA), employees must be granted appropriate representation on the Board of Directors of Swisscom Ltd. The Articles of Incorporation also stipulate that the Board of Directors must include two employee representatives. These are currently Hugo Gerber and Michel Gobet. 101 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 3.4 Internal organisation The Board of Directors is convened by the Chairman and meets as often as business requires. If the Chairman is unavailable, the meeting is convened by the Vice Chairman. The CEO and CFO Swisscom Ltd are regularly invited to the meetings of the Board of Directors. The Chairman sets the agenda. Any Board member may request the inclusion of further items on the agenda. Board mem- bers receive documents prior to the meeting to allow them to prepare for the items on the agenda. The Board of Directors may invite members of the Group Executive Board, senior employees of Swisscom, auditors or other internal and external experts to attend its meetings on specific issues in order to ensure appropriate reporting to members of the Board. Furthermore, the Chairman of the Board of Directors and the CEO report to each meeting of the Board of Directors on particular events, on the general course of business and major business transactions, as well as on any measures that have been implemented. The Board of Directors has three standing committees and one ad hoc committee tasked with carrying out detailed examinations of matters of importance. The committees usually consist of three to six members. Each member of the Board of Directors also sits on at least one of the stand- ing committees. Subject to being appointed to the Compensation Committee (without voting rights), the Chairman is a member of all standing committees; they all are chaired by other Board members, however. The latter brief the Board of Directors on the committee meetings held. All members of the Board of Directors also receive copies of all Finance and Audit Committee meeting minutes. The duties and responsibilities of the Board of Directors are defined in the Organisational Regulations, those of the standing committees in the relevant committee regulations, which can be accessed on the Swisscom website under “Basic principles”. The Board of Directors and the committees conduct self-assessments, usually once a year. New members are given a task-specific introduction to their new activity. The Board of Directors sup- ports ongoing education for Board members. A one-day mandatory training course was held at the beginning of 2014. Each quarter, the members of the Board of Directors also had the oppor- tunity to explore in-depth the upcoming challenges facing the Group and business divisions as part of so-called company experience days. In addition, various members of the Board of Directors attended selected presentations and seminars during the year. Wherever possible, the Board of Directors attends the Swisscom Group’s annual management meeting. The following table gives an overview of the Board of Directors’ meetings, conference calls and circular resolutions taken in 2014. Meetings Conference calls Circular resolutions See www.swisscom.ch/ basicprinciples Total  Average duration (in hours)  Participation:  Hansueli Loosli, Chairman  Frank Esser 1 Barbara Frei  Hugo Gerber  Michel Gobet  Torsten G. Kreindl  Catherine Mühlemann  Richard Roy 2 Theophil Schlatter  Hans Werder  1 Elected as of 7 April 2014. 2  Resigned as of 7 April 2014. 10 8:10 10 7 10 10 10 10 9 3 10 10 3 0:50 3 2 3 3 3 3 3 1 3 3 1 – 1 1 1 1 1 1 1 – 1 1 102 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C   3.5 Committees of the Board of Directors Finance Committee Torsten G. Kreindl is Chairman of the Finance Committee; the other members are Frank Esser, Michel Gobet, Hansueli Loosli and Catherine Mühlemann. The CEO, CFO and the Head of Group Strategy & Board Services usually attend meetings of the Finance Committee. Depending on the agenda, other members of the Group Executive Board, the Management Boards of the strategic Group companies or project managers are also called upon to attend the meetings. The Committee prepares materials for the attention of the Board of Directors on transaction-related matters, for example, in connection with establishing or dissolving significant Group companies, acquiring or disposing of significant shareholdings, or entering into or terminating strategic alliances. The Com- mittee also acts in an advisory capacity on matters relating to major investments and divestments. The Finance Committee has the ultimate decision-making authority when it comes to approving rules of procedure and directives in the areas of Mergers & Acquisitions and Corporate Ventur- ing. Details of the Committee’s activities are set out in the Finance Committee Rules of Procedure, which can be accessed on the Swisscom website under “Basic principles”. The following table gives an overview of the Finance Committee’s meetings, conference calls and circular resolutions taken in 2014. Meetings Conference calls Circular resolutions See www.swisscom.ch/ basicprinciples Total  Average duration (in hours)  Participation:  Torsten G. Kreindl, Chairman  Frank Esser 1 Michel Gobet  Hansueli Loosli  Catherine Mühlemann  1  Elected as of 7 April 2014. 3 2:50 3 2 3 3 3 – – – – – – – – – – – – – – Audit Committee The Audit Committee is chaired by Theophil Schlatter, who is a financial expert; other members are Hugo Gerber, Hansueli Loosli and Hans Werder, representative of the Swiss Confederation. The CEO, CFO, Head of Accounting, Head of Internal Audit and the external auditors also attend the Audit Committee meetings. Depending on the agenda, other management members are called upon to attend. The Audit Committee is also authorised to involve independent third parties such as lawyers, public accountants and tax consultants. The members of the Audit Committee neither work nor have worked for Swisscom in an executive capacity, nor do they maintain any significant commercial links with Swisscom Ltd or the Swisscom Group. Customer and supplier relationships exist between the Swiss Confederation and Swisscom. Details of these are given in Note 37 to the consolidated financial statements. The majority of members are experienced in the fields of finance and accounting. The Audit Committee handles all financial management business (for example, accounting, finan- cial controlling, financial planning and financing), assurance (risk management, the internal control system, compliance and the internal audit) and the external audit. It also handles matters dealt with by the Board of Directors that call for specific financial expertise (the dividend policy, for example). The Committee is therefore the Board of Directors’ most important controlling instru- ment and is responsible for monitoring the Group-wide assurance functions. It formulates posi- tions on business matters which lie within the decision-making authority of the Board of Directors and has the final say on those business matters for which it has the corresponding competence. Details of the Committee’s activities are set out in the Audit Committee Rules of Procedure, which can be accessed on the Swisscom website under “Basic principles”. See report page 197 See www.swisscom.ch/ basicprinciples 103 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C   The following table gives an overview of the Audit Committee’s meetings, conference calls and circular resolutions taken in 2014. Meetings Conference calls Circular resolutions Total  Average duration (in hours)  Participation:  Theophil Schlatter, Chairman  Hugo Gerber  Hansueli Loosli  Richard Roy 1 Hans Werder  1 Resigned as of 7 April 2014. 5 5:20 5 5 5 1 5 – – – – – – – – – – – – – – See report page 115 Compensation Committee For information on the Compensation Committee, refer to the section “Remuneration Report”. Nomination Committee The Nomination Committee is formed on an ad hoc basis for the purpose of preparing the ground- work for electing new members to the Board of Directors and the Group Executive Board. The Committee is presided over by the Chairman and the composition is determined on a case-by-case basis. The Committee carries out its work based on a specific requirements profile defined by the Board of Directors and presents suitable candidates to the Board of Directors. The Board of Direc- tors elects the members of the Group Executive Board or submits the proposal for presentation to the Annual General Meeting for the election and approval of members of the Board of Directors. No Nomination Committee meetings were held in the 2014 financial year. 3.6 Assignment of powers of authority The Telecommunications Enterprise Act (TEA) makes reference to the Swiss Code of Obligations in respect of the non-transferable and irrevocable duties of the Board of Directors of Swisscom Ltd. Pursuant to Article 716a of the Code of Obligations, the Board of Directors is responsible first and foremost for the overall management and supervision of persons entrusted with managing the company’s operations. It decides on the appointment and removal of members of the Group Executive Board of Swisscom Ltd. The Board of Directors also determines the strategic, organisational, financial planning and accounting guidelines, taking into account the four-year targets set by the Federal Council in accordance with the provisions of the Telecommunications Enterprise Act (TEA) and the will of the Swiss Confederation in its role as principal shareholder. The Board of Directors has delegated day-to-day business management to the CEO in accordance with the TEA, the Articles of Incorporation and the Organisational Regulations. In addition to its statutory duties, the Board of Directors decides on business transactions of major importance to the Group, such as the acquisition or disposal of companies with a financial exposure in excess of CHF 20 million, or investments or divestments with a financial exposure in excess of CHF 50 million. The division of powers between the Board of Directors and the CEO is set out in annex 2 to the Organisational Regulations (see function table in the Rules of Procedure and Accountability), which can be accessed on the Swisscom website under “Basic principles”. 104 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C See www.swisscom.ch/ targets_2014-2017 See www.swisscom.ch/ basicprinciples   3.7 Information instruments of the Board of Directors vis-à-vis the Group Executive Board The Chairman of the Board of Directors and the CEO meet once or twice a month to discuss fun- damental issues concerning Swisscom Ltd and its Group companies. The CEO also reports in detail at each ordinary meeting of the Board of Directors on the general course of business, major events and any measures taken. The Board of Directors also receives a monthly report on all key perfor- mance indicators relating to the Group and all segments containing important Group companies. In addition, the Board of Directors receives quarterly detailed information on the course of busi- ness and on the financial position, results of operations, cash flows and risk position of the Group and the segments. It also receives projections for the income statement, cash flow statement and balance sheet for the current financial year. Internal financial reporting is carried out in accordance with the same accounting principles and standards as external reporting. Reporting also includes key non-financial information for controlling and steering purposes. Each member of the Board of Directors is entitled to request information on any matters relating to the Group at any time, pro- vided this does not conflict with any abstention provisions or confidentiality obligations. The Board of Directors is informed immediately of any events of an exceptional nature. The Board of Directors deals with the oral and written reports of the assurance functions of risk management, the financial reporting internal control system (ICS) and compliance management once a year. The Audit Committee examines the reports of the Risk Management unit, the ICS and Internal Audit on a quarterly basis. In urgent cases the Chairman of the Audit Committee is informed without delay about any significant new risks. He is also informed in a timely manner if there is a significant change in assessed compliance or ICS risks or if serious breaches in compliance (including violation of rules that are designed to ensure reliable financial reporting) are detected or currently being investigated. 3.8 Controlling instruments of the Board of Directors vis-à-vis the Group Executive Board The Board of Directors is responsible for establishing and monitoring the Group-wide assurance functions of risk management, the internal control system, compliance and internal audit. 3.8.1 Risk management The Board of Directors aims to safeguard the company’s enterprise value through the implemen- tation of Group-wide risk management. A risk-aware corporate culture is designed to support the achievement of this objective. Swisscom has therefore implemented a Group-wide and central risk management system based on COSO II and ISO 31000. It maintains level-appropriate and compre- hensive reporting and appropriate documentation. The objective is to identify, assess and address significant risks in good time. To this end, the central Risk Management unit collaborates closely with the Controlling department, the Strategy department, other assurance functions and line functions. Swisscom assesses its risks according to their probability of occurrence and their quan- titative effects in the event of occurrence. It manages these risks on the basis of a risk strategy and evaluates the risks in terms of their impact on key performance indicators reported by Swisscom. Swisscom reviews and updates its risk profile on a quarterly basis. The Audit Committee and the Group Executive Board are informed about significant risks, their potential effects and the status of remedial measures on a quarterly basis, and the Board of Directors on an annual basis. Significant risk factors are described in the Risks section of the Management Commentary. 3.8.2 Financial reporting internal control system The internal control system (ICS) ensures the reliability of financial reporting with an appropriate degree of assurance. It acts to prevent, uncover and correct substantial errors in the consolidated financial statements, the financial statements of the Group companies and the Remuneration Report. The ICS encompasses the following internal control components: control environment, assessment of financial statement accounting risks, control activities, monitoring activities, infor- mation and communication. A central ICS team assigned to Group Business Steering and Internal Audit periodically monitors the existence and effectiveness of the ICS. Significant shortcomings in the ICS identified during the monitoring activities are reported together with the corrective meas- ures in a status report to the Audit Committee on a quarterly basis and to the Board of Directors on an annual basis. Corrective measures to remedy shortcomings are monitored centrally. The Audit Committee assesses the performance and reliability of the ICS on the basis of the periodic reporting. See report pages 86–87 105 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 3.8.3 Compliance management The Board of Directors has set the objective of protecting the Swisscom Group, its executive bod- ies and employees against legal sanctions, financial losses and reputational damage by ensuring Group-wide compliance. A corporate culture which promotes the willingness to behave in a way that complies with the relevant regulations should support the achievement of this objective. Swisscom has therefore implemented a Group-wide and central compliance system based on COSO II and IDW PS 980 (principles for the proper auditing of compliance management systems, 2011). Within the framework of the system, Group Compliance each year identifies areas of legal compliance using a risk-based approach which require monitoring by the central system. Within these areas of legal compliance, the business activities of the Group companies are reviewed in a periodic and proactive manner in order to identify risks in good time and determine the required measures. The employees affected are informed of these measures and their implementation is monitored. The suitability and effectiveness of the system is reviewed annually by Group Compli- ance. Within the Health business division (Curabill) of Swisscom Switzerland Ltd and in the area of billing for added-value services, an audit of the implemented measures is also performed by exter- nal auditors (financial intermediation). Group Compliance informs the Risk Management unit of identified significant risks on a quarterly basis and reports to the Audit Committee and the Board of Directors each year on its activities and risk assessments. Should there be significant changes in the risk assessment or if serious breaches are identified, the Chairman of the Audit Committee is informed in a timely manner. 3.8.4 Internal auditing Internal auditing is carried out by the Internal Audit unit. Internal Audit supports the Swisscom Ltd Board of Directors and its Audit Committee in fulfilling their statutory and regulatory super- visory and controlling obligations. Internal Audit also supports management by highlighting areas of potential for improving business processes. It documents the audit findings and monitors the implementation of measures. Internal Audit is responsible for planning and performing audits throughout the Group in compli- ance with professional auditing standards. It conducts an objective evaluation and audit of the appropriateness, efficiency and effectiveness of, in particular, the governance and control systems of the operational processes as well as the assurance functions of risk management, the internal control system and compliance management in all organisational units of the Swisscom Group. Internal Audit possesses maximum independence. Organisationally it is under the control of the Chairman of the Board of Directors and reports to the Audit Committee. At its meetings, and at least on a quarterly basis, the Audit Committee is briefed on audit findings and the status of any corrective measures implemented. In addition to ordinary reporting, Internal Audit also informs the Audit Committee of any irregularities which come to its attention. Internal Audit liaises closely and exchanges information with the external auditors. The external auditors have unrestricted access to the audit reports and audit documents of Internal Audit. Inter- nal Audit closely coordinates audit planning with the external auditors. The integrated strategic audit, which includes the coordinated annual plan of both the internal and external auditors, is pre- pared annually on the basis of a risk analysis and presented to the Audit Committee for approval. Independently of this audit, the Audit Committee can commission special audits based on informa- tion received on the whistle-blowing platform operated by Internal Audit. This reporting procedure approved by the Audit Committee ensures the anonymous and confidential receipt and handling of objections raised relating to external reporting, financial reporting and assurance function issues. The Chairman of the Board of Directors and the Chairman of the Audit Committee are informed of notifications received and a report is drawn up at least once a year for the Audit Committee. 106 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 4 Group Executive Board 4.1 Members of the Group Executive Board In accordance with the Articles of Incorporation, the Group Executive Board must comprise one or more members who may not simultaneously be members of the Board of Directors of Swisscom Ltd. Temporary exceptions are only permitted in exceptional cases. Accordingly, the Board of Directors has delegated responsibility for overall executive management of Swisscom Ltd to the CEO. The CEO is entitled to delegate his powers to subordinates, in the first instance to other members of the Group Executive Board. The members of the Group Executive Board are appointed by the Board of Directors. The Group Executive Board is composed of the CEO Swisscom Ltd, the heads of the Group divisions Group Business Steering and Group Human Resources, and the heads of the divisions Residential Cus- tomers, Small and Medium-Sized Enterprises, Enterprise Customers and IT, Network & Innovation. See report page 24 An overview of the composition of the Group Executive Board at 31 December 2014 is given below. Andreas König, the former Head of Enterprise Customers, left the Group Executive Board at the end of March 2014. Name  Urs Schaeppi 1 Mario Rossi 2 Hans C. Werner  Marc Werner  Year of birth Function  1960 CEO Swisscom Ltd  1960 CFO Swisscom Ltd  1960 CPO Swisscom Ltd  1967 Head of the division Residential Customers  Roger Wüthrich-Hasenböhler 3 1961 Head of the division Small and Medium-Sized Enterprises  Christian Petit 4 Heinz Herren 4 1963 Head of the division Enterprise Customer  1962 Head of the division IT, Network & Innovation  1 Since 2006 member of the Group Executive Board, from July to November 2013 CEO ad interim.  2 From March 2006 to December 2007 CFO Swisscom Ltd and member of the Group Executive Board.  3 From January 2011 to December 2012 member of the Group Executive Board.  4 From August 2007 to December 2012 member of the Group Executive Board. Appointed as of November 2013 January 2013 September 2011 January 2014 January 2014 April 2014 January 2014  107 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C   4.2 Education, professional activities and affiliations Details of career and qualifications are provided below for each member of the Group Executive Board. This section also discloses the mandates of each Group Executive Board member outside the Group as well as other significant activities such as permanent functions in important inter- est groups. Pursuant to the Articles of Incorporation, the members of the Group Executive Board may perform no more than one additional mandate at a listed company and no more than two additional mandates at non-listed companies, with a total of no more than two such additional mandates being permitted. Mandates performed by a member of the Group Executive Board by order of Swisscom or mandates in interest groups, charitable associations, institutions and founda- tions as well as employee benefit foundations are not subject to these numerical restrictions. The number of these mandates is, however, limited to ten or seven respectively. Prior to accepting new mandates outside the Swisscom Group, the members of the Group Executive Board are obligated to obtain the approval of the Chairman of the Board of Directors. Details on the regulation of exter- nal mandates, in particular the definition of the term “mandate” and information on other man- dates that do not fall under the aforementioned numerical restrictions for listed and non-listed companies, are set out in the Articles of Incorporation (Article 8.3 of the Articles of Incorporation), which can be accessed on the Swisscom website under “Basic principles”. No member of the Group Executive Board exceeds the set limits for mandates. See www.swisscom.ch/ basicprinciples Urs Schaeppi Swiss citizen Education: Degree in engineering (Dipl. Ing. ETH) and business administration (lic. oec. HSG) Career history: 1994–1998 Papierfabrik Biberist, plant manager; 1998–2006 Swisscom Mobile, Head of Commercial Business and member of the Executive Board; 2006–2007 Swisscom Solutions Ltd, CEO; 2007–August 2013 Swisscom (Swit- zerland) Ltd, Head of Corporate Business division; January–December 2013 Swisscom (Switzerland) Ltd, Head; 23 July–6 November 2013 Swisscom Ltd, CEO ad interim; since 7 November 2013 CEO Since March 2006 member of the Swisscom Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: – Mandates by order of Swisscom: Member of the Executive Board, Association Suisse des Télécommunications (asut), Berne; member of the Advisory Board, Ven- ture Foundation, Windisch, since May 2014; member of the Foundation Board, IMD International Institute for Management Development, Lausanne, from January 2015 Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: Member of the Board of Directors, Swiss-American Chamber of Commerce, Zurich, since June 2014; member of the Executive Board, Glasfasernetz Schweiz, Berne, since June 2014 Mario Rossi Swiss citizen Education: Commercial apprenticeship; dipl. Certified Public Accountant Career history: 1998–2002 Swisscom Ltd, Head of Group Controlling; 2002–2006 Swisscom Fixnet Ltd, Chief Financial Officer (CFO); 2006–2007 Swisscom Ltd, CFO and member of the Group Executive Board; 2007–2009 Fastweb S.p.A., CFO; 2009– 2012 Swisscom (Switzerland) Ltd, CFO; since January 2013 Swisscom Ltd, CFO Since January 2013 member of the Swisscom Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: – Mandates by order of Swisscom: Vice President of the Board of Trustees, comPlan, Baden, until December 2014; President of the Board of Trustees, comPlan, from Jan- uary 2015 Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: Member of the Sanctions Committee, SIX Swiss Exchange Ltd, Zurich 108 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Hans C. Werner Swiss citizen Education: PhD in business administration, Dr oec. Career history: 1997–1999 Kantonsschule Büelrain, Winterthur, Rector; 1999–2000 Swiss Re, Head of Technical Training and Business Training; 2001 Swiss Re, Divi- sional Operation Officer, Reinsurance & Risk Division; 2002–2003 Swiss Re, Head of HR Corporate Centre and HR Shared Services; 2003–2007 Swiss Re, Head of Global Human Resources; 2007–2009 Schindler Aufzüge AG, Head of HR and Training; 2010–2011 Europe North and East Schindler, HR Vice President; since September 2011 Swisscom Ltd, Chief Personnel Officer (CPO) Since September 2011 member of the Swisscom Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: – Mandates by order of Swisscom: Member of the Board, Swiss Employer’s Association, Zurich; member of the Board of Trustees, comPlan, Basel Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: Member of the Advisory Board of the International Institute of Management in Technology (iimt) at the University of Fribourg Marc Werner Swiss and French citizen Education: Technical apprenticeship with Maturity Certificate, Swiss Certified Mar- keting Executive; Senior Management Programme (University of St. Gallen), Senior Executive Programme (London Business School) Career history: 1997–2000 Minolta (Schweiz) AG, Head of Marketing and Sales and member of the Board of Directors; 2000–2004 Bluewin AG, Head of Marketing & Sales, member of the Executive Board; 2005–2007 Swisscom Fixnet Ltd, Head of Marketing & Sales Residential Customers; 2008–2011 Swisscom (Switzerland) Ltd, Head of Mar- keting & Sales Residential Customers and Deputy Head of Residential Customers; 2012–2013 Swisscom (Switzerland) Ltd, Head of Customer Service Residential Cus- tomers and Deputy Head of Residential Customers; since September 2013 Swisscom, Head of Residential Customers division Since January 2014 member of the Swisscom Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors, Net-Metrix AG, Zurich; Member of the Executive Board, simsa – Swiss Internet Industry Association, Zurich Mandates by order of Swisscom: – Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: Member of the Executive Board, IAA (International Advertising Association) Swiss Chapter, Zurich, until April 2014; member of the Executive Board, Swiss Advertising Association (SW), Zurich, since May 2014 109 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Roger Wüthrich-Hasenböhler Swiss citizen Education: Degree in electronic engineering (HTL), Executive MBA HSG Career history: 1997–1999 Swisscom Ltd, Network Services, Head of Zurich branch; 1999–2000 Swisscom Ltd, Marketing & Sales, Sales Director Zurich SME; 2000–2005 Swisscom Mobile Ltd, Head of Business Customer Sales; 2006–2007 Swisscom Solutions Ltd, Head of Marketing and Sales; 2008–2010 Swisscom (Switzerland) Ltd, Head of Marketing and Sales, Swisscom Corporate Business, and CEO, Webcall GmbH; 2011–2013 Swisscom (Switzerland) Ltd, Head of Small and Medium-Sized Enterprises division; 2011-2012 Swisscom, member of the Group Executive Board; since January 2014 Swisscom, Head of Small and Medium-Sized Enterprises division Since January 2014 member of the Swisscom Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors, Raiffeisen- bank am Ricken Genossenschaft, Eschenbach Mandates by order of Swisscom: Member of the Board of Directors, basecamp- 4hightech (bc4ht) cooperative, Berne Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – Christian Petit French citizen Education: MBA ESSEC, Cergy-Pontoise Career history: 1993–1999 debitel France; 2000–2003 Swisscom Mobile Ltd, Head of Operations; 2003–2006 Swisscom Mobile, Head of Product Marketing; 2006–June 2007 Hospitality Services Plus SA, CEO; August 2007–December 2012 Swisscom, member of the Group Executive Board; August 2007–August 2013 Swisscom (Swit- zerland) Ltd, Head of Residential Customers division; September 2013–December 2013 Swisscom (Switzerland) Ltd, Head of Corporate Business division; January– March 2014 Swisscom (Switzerland) Ltd, Head of the Enterprise Solution Center; since April 2014 Swisscom, Head of Enterprise Customers division Since April 2014 member of the Swisscom Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: – Mandates by order of Swisscom: Member of the Board of Trustees, Stiftung IT Berufsbildung Schweiz, Berne Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – Heinz Herren Swiss citizen Education: Degree in electronic engineering (HTL) Career history: 1994–2000 3Com Corporation; 2000 Inalp Networks Inc.; 2001– 2005 Swisscom Fixnet Ltd, Head of Marketing Wholesale; 2005–2007 Swisscom Fixnet Ltd, Head of Small and Medium-Sized Enterprises; 2007–2010 Swisscom (Switzerland) Ltd, Head of Small and Medium-Sized Enterprises division; 2011–2013 Swisscom (Switzerland) Ltd, Head of Network & IT; August 2007–December 2012 Swisscom, member of the Group Executive Board; since January 2014 Swisscom, Head of IT, Network & Innovation division Since January 2014 member of the Swisscom Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: – Mandates by order of Swisscom: Member of the Board of Directors, Belgacom Inter- national Carrier Services S.A., Brussels Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – 110 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 4.3 Management agreements Neither Swisscom Ltd nor any of the Group companies included in the scope of consolidation have entered into management agreements with third parties. 5 Remuneration, shareholdings and loans See report page 115 All information on the remuneration of the Board of Directors and the Group Executive Board of Swisscom Ltd is provided in the separate Remuneration Report. 6 Shareholders’ participation rights 6.1 Voting right restrictions and proxies Each registered share entitles the holder to one vote. Voting rights can only be exercised if the shareholder is entered in the share register of Swisscom Ltd with voting rights. The Board of Direc- tors may refuse to recognise an acquirer of shares as a shareholder or beneficial holder with voting rights if the latter’s total holding, when the new shares are added to any voting shares already reg- istered in its name, would then exceed the limit of 5% of all registered shares entered in the com- mercial register. The acquirer is entered in the register as a shareholder or beneficial holder without voting rights for the remaining shares. This restriction on voting rights also applies to registered shares acquired through the exercise of subscription, option or conversion rights. A Group clause applies to the calculation of the percentage restriction. The 5% voting right restriction does not apply to the Swiss Confederation which, under the terms of the Telecommunications Enterprise Act (TEA), holds the capital and voting majority of Swisscom Ltd. The Board of Directors may also recognise an acquirer of shares with more than 5% of all reg- istered shares as a shareholder or beneficial holder with voting rights, in particular in the following exceptional cases: > Where shares are acquired as a result of a merger or business combination > Where shares are acquired as a result of a non-cash contribution or an exchange of shares > Where shares are acquired with a view to establishing a long-term partnership or strategic alliance In addition to the percentage restriction on voting rights, the Board of Directors may refuse to recognise and enter as a shareholder or beneficial holder with voting rights any person acquiring shares who fails to expressly declare upon request that he/she has acquired the shares in his/her own name and for his/her own account or as beneficial holder. Should an acquirer of shares refuse to make such a declaration, he/she will be entered as a shareholder without voting rights. In addition, where an entry has been made on the basis of false statements by the acquirer, the Board of Directors may, after consulting the party concerned, delete their share register entry as a shareholder with voting rights and enter him/her as a shareholder without voting rights. The acquirer must be notified of the deletion immediately. The statutory restrictions on voting rights may be lifted by resolution by the Annual General Meeting, for which an absolute majority of valid votes cast would be required. During the year under review, the Board of Directors did not recognise any acquirers of shares with more than 5% of all registered shares as a shareholder or beneficial holder with voting rights, did not reject any requests for recognition or registration and did not remove any shareholders with voting rights from the share register due to the provision of false data. 111 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 6.2 Statutory quorum requirements The Annual General Meeting of Shareholders of Swisscom Ltd adopts its resolutions and holds its elections by the absolute majority of valid votes cast. Abstentions are not deemed to be votes cast. In addition to the specific quorum requirements under the Swiss Code of Obligations, the Articles of Incorporation require a two-thirds majority of the voting shares represented in the following cases: > Introduction of restrictions on voting rights > Conversion of registered shares to bearer shares and vice versa > Change in the Articles of Incorporation concerning special quorums for resolutions 6.3 Convocation of the Annual General Meeting The Board of Directors must convene the Annual General Meeting at least 20 days prior to the date of the meeting by means of an announcement in the Swiss Commercial Gazette. The meeting can also be convened by registered or unregistered letter to all registered shareholders. 6.4 Agenda items Shareholders representing shares with a par value of at least CHF 40,000 may request that an item be placed on the agenda. This request must be submitted in writing to the Board of Directors at least 45 days prior to the Annual General Meeting, stating the agenda item and the proposal. 6.5 Representation at the Annual General Meeting Shareholders may be represented at the Annual General Meeting by another shareholder with vot- ing rights or by the independent proxy elected by the Annual General Meeting. Partnerships and legal entities may also be represented by authorised signatories, while minors and wards may be represented by their legal representative even if the latter is not a shareholder. The authorisation must be issued in writing. Once a shareholder has opened a shareholder account on the Sherpany Internet platform, the shareholder involved also authorise the independent proxy via this platform and issue instructions to him. Shareholders who are represented by a proxy may issue instructions for each agenda item and also for all unannounced agenda items and motions, stating whether they wish to vote for or against a motion or abstain. The independent proxy must cast the votes entrusted to him by shareholders according to their instructions. If it receives no instructions, it shall abstain. Abstentions are not deemed to be cast votes (Article 5.7.4 of the Articles of Incorporation). The Articles of Incorporation do not include any regulations which differ from the OaEC as regards the appointment of the independent proxy, any statutory regulations on the issuing of instructions to the independent proxy or any statutory regulations with regard to electronic participation in the Annual General Meeting. 6.6 Registrations in the share register Shareholders entered in the share register with voting rights are entitled to vote at the Annual Gen- eral Meeting. The Board of Directors determines the relevant date, which shall lie a few days before the respective Annual General Meeting. As in previous years, the share register was not closed before the Annual General Meeting for the 2013 financial year that was held on 7 April 2014. Shareholders registered in the share register with voting rights by 4 p.m. on 2 April 2014 were entitled to vote. 112 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 7 Change of control and defensive measures 7.1 Duty to make an offer Under the terms of the Telecommunications Enterprise Act (TEA), the Swiss Confederation must hold the majority of the capital and voting rights in Swisscom Ltd. This requirement is also set out in the Articles of Incorporation. There is thus no duty to submit a takeover bid as defined in the Federal Act on Stock Exchanges and Securities Trading, since this would contradict the TEA. 7.2 Clause on change of control See report page 115 Details on clauses on change of control are given in the section “Remuneration Report”. 8 Auditor 8.1 Duration and term of office of the Auditor-in-charge The statutory auditors are appointed annually by the Annual General Meeting. KPMG AG, Muri bei Bern, has acted as the statutory auditor of Swisscom Ltd and its Group companies (with the exception of Fastweb, which is audited by PriceWaterhouseCoopers S.p.A.) since 1 January 2004. Rolf Hauenstein of KPMG AG is responsible for the mandate as Auditor-in-charge (since 2011). 8.2 Audit fees Fees for auditing services provided by KPMG AG in 2014 amounted to CHF 3,149 thousand (prior year: CHF 3,315 thousand). Fees for additional audit-related services amounted to CHF 548 thou- sand (prior year: CHF 675 thousand). PricewaterhouseCoopers S.p.A. as auditors for Fastweb received remuneration of CHF 785 thousand in 2014 (prior year: CHF 881 thousand) and fees for additional audit-related services provided to Fastweb in the amount of CHF 133 thousand (prior year: CHF 228 thousand). 8.3 Supplementary fees Supplementary fees of KPMG AG for non-audit services (other services) amounted to CHF 635 thou- sand (prior year: CHF 583 thousand). The supplementary fees primarily comprise advisory services in connection with company takeover projects and tax consulting. 8.4 Supervision and controlling instruments vis-à-vis the auditors The Audit Committee verifies the qualifications, independence and performance of the statutory auditors as a licensed, state-supervised auditing firm on behalf of the Board of Directors and sub- mits proposals to the Board of Directors concerning auditors to be appointed or discharged by the Annual General Meeting. It is also responsible for observing the statutory rotation principle for the auditor-in-charge. The Audit Committee approves the integrated strategic audit plan, which includes the annual audit plan of both the internal and external auditors, and the annual fee for the auditing services provided to the Group and Group companies. The Audit Committee has drawn up guidelines for additional service mandates (including a list of prohibited services). In order to ensure independence, the Audit Committee (where the fee exceeds CHF 300,000) or the CFO of the local Group company must also approve additional assignments. The Audit Committee reports quarterly and the auditors annually on current mandates being performed by the auditors, broken down into audit services, audit-related services and non-audit services. The statutory auditors, represented by the Auditor-in-charge and his deputy, usually attend all Audit Committee meetings. They report 113 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C to the Committee in detail on the conduct and results of their work, in particular regarding the annual financial statement audit. They submit a written report to the Board of Directors and the Audit Committee on the conduct and results of the audit of the annual financial statements, as well as on their findings with regard to accounting and the internal control system. The Chairman of the Audit Committee liaises closely with the Auditor-in-charge outside the meetings of the Audit Committee and regularly reports to the Board of Directors. 9 Information policy Swisscom pursues an open, active information policy vis-à-vis the general public and the financial markets. It publishes comprehensive, consistent and transparent financial information on a quar- terly basis. Swisscom meets investors regularly throughout the year, presents its financial results at analysts’ meetings and road shows, attends selected conferences for financial analysts and investors and keeps its shareholders regularly informed about its business through press releases. Those respon- sible for investor relations can be contacted via the website, e-mail, telephone or by post. Contact details are provided in the legal notice on the site. See report page 225 9.1 The results for the 2015 financial year will be published on the following dates: > Interim report: 6 May 2015 > Interim report: 19 August 2015 > Interim report: 5 November 2015 > Annual report: February 2016 9.2 The Annual General Meeting will be held on: > 8 April 2015 in the Hallenstadion in Zurich-Oerlikon See www.swisscom.ch/ financialreports See www.swisscom.ch/adhoc The interim reports and annual report are available on the Swisscom website under Investor Rela- tions or may be ordered directly from Swisscom. All press releases, presentations and the latest financial calendar are also available on the Swisscom website under Investor Relations. Push and pull links for the distribution of ad hoc communications can also be found on the Swisscom website. See www.swisscom.ch/ generalmeeting The minutes of the Annual General Meeting of 7 April 2014 and the webcast are available on the Swisscom website. 114 e c n a n r e v o G e t a r o p r o C t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Remuneration Report Remuneration paid to the Board of Directors and the Group Executive Board is tied to the generation of sustainable returns, thus creating an incentive to achieve long-term corporate success as well as added value for shareholders. 1 Principles This Remuneration Report outlines the principles behind, and the elements of, the remuneration paid to the Board of Directors and Group Executive Board (Executive Board as defined in Article 4 of the Articles of Incorporation) of Swisscom Ltd, and the decision-making powers. It discloses information about the amount of remuneration paid to the Board of Directors and Group Executive Board and the shares they hold in Swisscom Ltd. The Remuneration Report is based on sections 3.5 and 5 of the annex to the Corporate Governance Directive issued by SIX Swiss Exchange and Art. 13 to 16 of the Ordinance Against Excessive Compensation in Listed Stock Companies (OaEC). Swisscom is implementing the requirements of the OaEC. The Annual General Meeting resolved to make the necessary changes to the Articles of Incorporation on 7 April 2014. Swisscom also com- plies with the recommendations of the Swiss Code of Best Practice for Corporate Governance 2014 issued by economiesuisse, the umbrella organisation representing Swiss business. Swisscom’s internal principles are primarily set out in the Articles of Incorporation, the Organi- sational Regulations and the Regulations of the Compensation Committee. The latest version of these documents as well as revised or superseded versions can be viewed online on the Swisscom website under “Basic principles”. As in previous years, the Remuneration Report will be put to a consultative vote at the Annual General Meeting on 8 April 2015. The compensation paid in 2014 was accrued in accordance with the International Financial Reporting Standards (IFRS). See www.swisscom.ch/ basicprinciples 115 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C 2 Decision-making powers 2.1 Division of tasks between the Annual General Meeting, the Board of Directors and the Compensation Committee The Annual General Meeting approves the maximum total remuneration amounts payable to the Board of Directors and the Group Executive Boards for the following financial year at the request of the Board of Directors. Details of the relevant regulation and the consequences of a negative decision by the Annual General Meeting are set out in the Articles of Incorporation (Articles 5.7.7 and 5.8.8). The Articles of Incorporation also define the requirements for and the maximum level of the additional amount that can be paid to a member of the Group Executive Board who is newly appointed during a period for which the Annual General Meeting has already approved the remu- neration. The Board of Directors approves, inter alia, the personnel and remuneration policy for the entire Group, as well as the general terms and conditions of employment for members of the Group Executive Board. It defines the remuneration for each member of the Board of Directors and the CEO as well as the total remuneration for the Group Executive Board. For the remuneration in the 2016 financial year, the Board of Directors will for the first time have to comply with the maximum amounts approved by the 2015 Annual General Meeting for the remuneration to be paid to the Board of Directors and the Group Executive Board. The Compensation Committee handles all business matters of the Board of Directors concerning remuneration, submits proposals to the Board of Directors in this context, and, within the frame- work of the approved total remuneration, is empowered to decide upon the remuneration of the individual Group Executive Board members (with the exception of the CEO). Neither the CEO nor the other members of the Group Executive Board are entitled to participate in meetings at which their remuneration is discussed or decided. The decision-making powers are defined in the Articles of Incorporation, the Organisational Regu- lations of the Board of Directors and the Regulations of the Compensation Committee, which can be found on the Swisscom website under “Basic principles”. The table below shows the division of responsibilities between the Annual General Meeting, the Board of Directors and the Compensation Committee. See www.swisscom.ch/ basicprinciples 116 Subject  Remuneration Committee Board of Directors Annual General Meeting t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Maximum total amounts for remuneration of the Board of Directors  and Group Executive Board  Additional amount for remuneration of newly appointed  members of the Group Executive Board  Principles for performance-related and participation schemes  Personnel and remuneration policy  Principles for benefit plans and social security services  Concept of remuneration to members of the Board of Directors  Equity success and participation plans of the Group  General terms and conditions of the Group Executive Board  Determination of the targets for the variable performance-related salary component  Remuneration of the Board of Directors  Remuneration of the CEO Swisscom Ltd  Total remuneration of the Group Executive Board  V 1 V V V V V V V V V V V Remuneration of the members of the Group Executive Board (excl. CEO)  G 5, 6 1  V stands for preparation and proposal to the Board of Directors. 2  A stands for proposal to the Annual General Meeting. 3  G stands for approval. 4  In the framework of the Articles of Incorporation. 5  In the framework of the maximum total remuneration defined by the Annual General Meeting. 6  In the framework of the total remuneration defined by the Board of Directors. A 2 A A G 4 G G 4 G 4 G 4 G 4 G 5 G 5 G 5 – G 3 G G – – – – – – – – – –     2.2 Election, composition and modus operandi of the Compensation Committee The Compensation Committee consists of three to six members. They are elected individually each year by the Annual General Meeting. If the number of members falls below three, the Board of Directors appoints the missing member(s) from its midst until the conclusion of the next Annual General Meeting. The Board of Directors appoints the Chairman of the Compensation Committee, which constitutes itself. If the Annual General Meeting elects the Chairman of the Board of Direc- tors to the Compensation Committee, he has no voting rights. He does not participate in meetings in which discussions take place or decisions are made with regard to his own remuneration. The CEO and CPO attend the meetings in an advisory capacity, unless agenda items exclusively concern the Board of Directors or the CEO and CPO themselves, in which case the CEO and CPO are not present. Other members of the Board of Directors, auditors or experts may also be called upon to attend the meetings in an advisory capacity. Minutes are kept of the meetings. The Chairman reports orally on the activities of the Compensation Committee at the next meeting of the Board of Directors. The details are defined in the Articles of Incorporation (Article 6.5), the Organisational Regulations of the Board of Directors and the Regulations of the Compensation Committee, which can be found on the Swisscom website under “Basic principles”. The following table gives an overview of the composition of the Committee, the Committee meet- ings, conference calls and circular resolutions taken in 2014. The members of the Compensation Committee neither work nor have worked for Swisscom in an executive capacity, nor do they main- tain any significant commercial links with Swisscom Ltd or the Swisscom Group. Customer and supplier relationships exist between the Swiss Confederation and Swisscom. Details of these are given in Note 37 to the consolidated financial statements. Meetings Conference calls Circular resolutions See www.swisscom.ch/ basicprinciples See report page 197 Total  Average duration (in hours)  Participation:  Richard Roy, Chairman 1 Barbara Frei, Chairwoman 2 Torsten G. Kreindl  Theophil Schlatter  Hans Werder 3 Hansueli Loosli 4 3 1:50 1 3 3 3 3 3 – – – – – – – – – – – – – – – – 1 Resigned as of 7 April 2014. 2 Since 1 January 2014 Member of the Remuneration Committee, since 7 April 2014 Chairwoman. 3 Representative of the Confederation. 4 Participation without voting rights. 117 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C   3 Remuneration paid to the Board of Directors 3.1 Principles The remuneration system for the members of the Board of Directors is designed to attract and retain experienced and motivated people for the Board of Directors’ function. It also seeks to align the interests of the members of the Board of Directors with those of the shareholders. The remuneration is commensurate with the activities and level of responsibility of each member and reflects the normal market remuneration for comparable functions. The basic principles regarding the remuneration of the Board of Directors and the allocation of equity shares are set out in the Articles of Incorporation (Articles 6.4 and 8.1), which can be accessed on the Swisscom website under “Basic principles”. The remuneration is made up of a Director’s fee related to the member’s function, meeting attend- ance fees as well as pension fund and any fringe benefits. No variable profit-related emoluments are paid. The members of the Board of Directors are obligated to draw a portion of their fee in the form of equity shares and to comply with the requirements on minimum shareholdings, thus ensur- ing they directly participate financially in the performance of Swisscom’s shares. The remuneration is reviewed every December for the following year for ongoing appropriateness. In December 2013, the Board of Directors opted not to adjust its remuneration for the 2014 financial year. The Board of Directors judged the appropriateness of the remuneration as part of a discretionary decision based on the publicly accessible ethos study published in 2012. This study provides information for the 2011 financial year on the remuneration of the management of Switzerland’s 100 largest listed companies. 3.2 Remuneration components Director’s fee The Director’s fee is made up of a basic emolument and functional allowances as compensation for the individual functions. The basic emolument for all members of the Board of Directors excluding employee social insurance contributions is CHF 120,000 (net). The functional allowances total CHF 265,000 net for the Chairman, CHF 20,000 net each for the Vice Chairman and the Chairmen of the Finance and Compensation Committees, CHF 50,000 net for the Chairman of the Audit Committee and CHF 40,000 net for the representative of the Swiss Confederation. Remuneration of CHF 10,000 net is awarded for membership in a standing com- mittee. No functional allowance is paid for participation in ad-hoc committees appointed on a case-by-case basis. Under the Management Incentive Plan, the members of the Board of Directors are obligated to draw 25% of their Director’s fee in the form of shares, with Swisscom adding a 50% top-up to the amount invested in shares. In this manner, the compensation (excluding meeting attendance fees, pension fund benefits and fringe benefits) is made up of a two-thirds’ cash portion and a one-third equity share portion. The amount of the share purchase obligation can vary in the case of members who join, leave, assume or give up a function during the year. Shares are allocated on the basis of their value accepted for tax purposes, rounded up to the next whole number of shares, and are subject to a blocking period of three years. The shares which are allocated in April of each report- ing year are recorded at market value on the date of allocation. The share-based compensation is augmented by a factor of 1.19 in order to take account of the difference between the tax value and the market value. Further information on the Management Incentive Plan can be found in Note 11 to the consolidated financial statements. In April 2014, a total of 1,374 shares were allocated to the members of the Board of Directors (prior year: 1,667 shares) for a tax value of CHF 449 per share (prior year: CHF 371). Their market value was CHF 534.50 (prior year: CHF 442) per share. Meeting attendance fees For meetings, attendance fees of CHF 1,250 net are paid for each full day and CHF 750 net for each half-day. See www.swisscom.ch/ basicprinciples 118 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C See Report page 162 Pension fund and fringe benefits Swisscom assumes the full costs of social insurance, in particular old-age and survivors’ insurance and unemployment insurance, for the members of the Board of Directors. The disclosed compensation to the Members of the Board of Directors includes the employee’s share of social security contributions. The employer’s share of contributions is disclosed separately but included in total remuneration. With regards to the disclosure of services rendered and non-cash benefits and expenses, these are dealt with from a tax point of view. No significant non-cash benefits are paid nor services rendered. Out-of-pocket expenses are reimbursed on the basis of actual costs incurred. Accordingly, neither services rendered and non-cash benefits nor expenses are included in the reported remuneration. 3.3 Total remuneration Total remuneration paid to the individual members of the Board of Directors for the financial years 2014 and 2013 is presented in the tables below, broken down into individual components. Hugo Ger- ber’s remuneration for his mandate as a member of the Board of Directors of Worklink AG, previously reported in a footnote, is included in total remuneration for the first time 2014. The lower amount of total remuneration for 2014 is attributable to the fact that there were fewer meetings in 2014. 2014, in CHF thousand  Hansueli Loosli  Frank Esser 1 Barbara Frei  Hugo Gerber 2 Michel Gobet  Torsten G. Kreindl  Catherine Mühlemann  Richard Roy 3 Theophil Schlatter  Hans Werder  Base salary and functional allowances Cash remuneration Share-based payment Meeting attendance fees Employer contributions to social security Total 2014 330 69 114 111 104 127 104 48 162 142 195 57 71 61 61 75 61 7 99 84 35 15 22 26 22 26 21 8 26 25 31 8 12 11 11 13 11 4 16 11 591 149 219 209 198 241 197 67 303 262 Total remuneration to members  of the Board of Directors  1,311 771 226 128 2,436 1  Elected as of 7 April 2014. 2  Since 2014 the cash remuneration (including meeting attendance fees) of CHF 8,500 for the mandate as member of the Board of Directors   of Worklink AG has been included. 3  Resigned as of 7 April 2014. 2013, in CHF thousand  Hansueli Loosli  Barbara Frei  Hugo Gerber 1 Michel Gobet  Torsten G. Kreindl  Catherine Mühlemann  Richard Roy  Theophil Schlatter  Hans Werder  Base salary and functional allowances Cash remuneration Share-based payment Meeting attendance fees Employer contributions to social security Total 2013 330 104 104 104 127 104 144 152 142 195 61 61 61 75 61 85 90 84 43 28 30 28 33 27 33 31 34 30 11 11 11 13 11 15 16 12 598 204 206 204 248 203 277 289 272 Total remuneration to members  of the Board of Directors  1,311 773 287 130 2,501 1 In addition, a cash remuneration (including meeting attendance fees) of CHF 9,000 was paid as member of the Board of Directors of Worklink AG. 119 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C                     3.4 Minimum shareholding requirement Since 2013, the members of the Board of Directors have been required to maintain a minimum shareholding equivalent to one annual emolument (basic emolument plus functional allowance). The members of the Board of Directors have four years to build up the required minimum share- holding, in the form of the blocked shares paid as part of remuneration and, if necessary, through share purchases on the open market. Compliance with the shareholding requirement is reviewed annually by the Compensation Committee. If a member’s shareholding falls below the minimum requirement due to a drop in the share price, the difference must be made up by no later than the time of the next review. In justified cases such as personal hardship or legal obligations, the Chair- man of the Board of Directors can approve individual exceptions at his discretion. 3.5 Shareholdings of the members of the Board of Directors Blocked and non-blocked shares held by members of the Board of Directors and/or related parties as at 31 December 2014 and 2013 are listed in the table below: Number  Hansueli Loosli  Frank Esser 1 Barbara Frei  Hugo Gerber  Michel Gobet  Torsten G. Kreindl  Catherine Mühlemann  Richard Roy 2 Theophil Schlatter  Hans Werder  Total shares of the members of the Group Executive Board  1  Elected as of 7 April 2014. 2  Resigned as of 7 April 2014. 31.12.2014 31.12.2013 1,682 101 409 1,129 1,496 1,195 1,119 – 887 839 8,857 1,335 – 283 1,020 1,387 1,061 1,010 1,269 711 688 8,764 No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital. 120 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C   4 Remuneration paid to the Group Executive Board 4.1 Principles The remuneration policy of Swisscom applicable to the Group Executive Board is designed to attract and retain highly skilled and motivated specialists and executive staff over the long term and provide an incentive to achieve a lasting increase in the enterprise value. It is systematic, trans- parent and long-term oriented and is predicated on the following principles: > Total remuneration is competitive and is in an appropriate relation to the market as well as the internal salary structure. > Remuneration is based on performance in line with the results achieved by Swisscom and the contribution made to results by the area for which the member of the Group Executive Board is responsible. > Through direct financial participation in the performance of Swisscom’s shares, the interests of management are aligned with the interests of shareholders. The remuneration of the Group Executive Board is a balanced combination of fixed and variable salary components. The fixed component is made up of a base salary, fringe benefits (primarily use of a company car) and pension benefits. The variable remuneration includes a performance-related component settled in cash and shares. The members of the Group Executive Board are required to maintain a minimum sharehold- ing, which strengthens their direct financial participation in the medium-term performance of Swisscom’s share and thus aligns their interests with those of shareholders. To facilitate compli- ance with the minimum shareholding requirement, Group Executive Board members have the opportunity to draw up to 50% of the variable performance-related component of their salary in shares. The basic principles regarding the performance-related remuneration and the profit and partici- pation plans of the Group Executive Board are set out in the Articles of Incorporation (Article 8.1), which can be accessed on the Swisscom website under “Basic principles”. Remuneration Assets See www.swisscom.ch/ basicprinciples Instruments Fixed remuneration Base salary Pension benefits Fringe benefits Variable remuneration Performance-related component in cash and shares Shareholding requirement Requirement to hold a minimum amount of Swisscom shares Determining factors Function, experience and qualifications, Market Achievement of annual performance objectives Long-term growth of enterprise value Purpose Employee attraction & retention and risk protection Focus on annual objectives and long-term business success Alignment with shareholders interests 121 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C As a rule, the Compensation Committee reviews individual remuneration paid to members of the Group Executive Board every three years of employment. The Compensation Committee decides at its discretion on the level of remuneration, taking into consideration the external market value of the function in question, the internal salary structure and individual performance. For the purpose of assessing market values, Swisscom regularly takes part in market compari- sons carried out by renowned consultancy firms. In the year under review, Swisscom referred to two comparative studies: The “Swiss Headquarters Executive Total Compensation Measurement Study” by Aon Hewitt covers 78 Swiss companies and international groups in all sectors with global or regional headquarters in Switzerland, average revenues of CHF 2.4 billion and an average work- force of 6,500. The international “European Executive Survey”, also produced by Aon Hewitt, covers 37 European groups, mainly telecommunications companies, with average revenues of around CHF 30 billion and an average workforce of 73,000 (FTEs). Due to their numerous reference com- panies, both studies provide the basis for a representative comparison. In the evaluation of these studies, Swisscom takes into account the sector as well as the extent of responsibility in terms of revenue, number of employees and international scope. During the reporting year, Swisscom adjusted the remuneration of two Group Executive Board members to reflect these benchmarks, to take account of their additional functions and to ensure a salary that is in line with the market. For one of these members, the increase will be made in two steps in April 2014 and April 2015. 4.2 Changes to the remuneration system from 2014 With effect from 1 January 2014, Swisscom adjusted the remuneration system for the Group Exec- utive Board so that the variable component of total remuneration in the event that targets are exceeded may not exceed one year’s base salary. This adjustment did not change the total remu- neration of each individual Group Executive Board member. The performance-related bonus for Group Executive Board members now amounts to up to 70% of the adjusted annual base salary, depending on the function. The Board of Directors has also introduced a restricted share plan which will serve to support the recruitment and retention of employees in key positions. Under this plan, the Board of Directors can, where necessary, pay part of the remuneration of individ- ual Group Executive Board members in the form of restricted share units. These shares must be earned over a three year vesting period. During the reporting year, Swisscom did not allocate any restricted share units to members of the Group Executive Board. As part of the implementation of the OaEC, the Board of Directors added a provision to the employment contracts of the members of the Group Executive Board in 2014 according to which Swisscom may allow wrongfully awarded or paid remuneration to expire or reclaim such remuneration. 4.3 Remuneration components Base salary The base salary is the remuneration paid according to the function, qualifications and performance of the individual member of the Group Executive Board. It is determined based on a discretionary decision taking into account the external market value for the function and the salary structure for the Group’s executive management. The base salary is paid in cash. Variable performance-related salary component The members of the Group Executive Board are entitled to a variable, performance-related salary component which depending on individual function represents 50–70% of the base salary if objec- tives are achieved (target bonus). The amount of the performance-related component paid out depends on the extent to which the targets are achieved. The extent of the target achievement is set by the Compensation Committee, taking into account the performance evaluation by the CEO. If targets are exceeded, up to 130% of the target bonus may be paid. The maximum perfor- mance-related salary component is thus limited to 65%–91% of the base salary, depending on the function. This ensures that the maximum performance-related salary component does not exceed the annual base salary, even taking account of the market value of the component paid in shares. The variable performance-related salary component was paid to the member of the Group Execu- tive Board who left in the first quarter of the reporting year on the basis of the rules applicable in 2013 (target bonus of 117% of the base salary). 122 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Targets for the variable performance-related component The targets underlying the variable performance-related component are adopted annually in December for the following year by the Board of Directors following a proposal submitted by the Compensation Committee. The relevant targets set for the reporting year are based on the Swisscom Group’s budget figures for 2014, and are assigned to three target levels: “Group”, “Customers” and “Segments”. All Group Executive Board members are measured against Group and customer tar- gets. Group targets consist of financial targets. The customer targets for the reporting year are measured using the Net Promoter Score – a recognised indicator of customer loyalty – taking into consideration the customer group for which the Group Executive Board member is responsible. The segment targets are tailored to the relevant function of each Group Executive Board member and consist of financial and non-financial targets. Swisscom’s target structure aims to strike a balance between financial performance and market performance, taking into account the specific area of responsibility of the individual Group Executive Board member. The following table illustrates the target structure valid for the CEO and other Group Executive Board members in the year under review, showing the three target levels, individual targets and the respective weighting. Target levels Group Customers Segments Total Objectives Net revenue EBITDA margin Operating free cash flow Net Promoter Score Targets of segments Weighting of targets level CEO Weighting of targets level other members of the Group 21% 21% 28% 30% 100% 12–18% 12–18% 16–24% 25% 15–35% 100% Achievement of targets The Compensation Committee determines the level of target achievement in the following year once the consolidated financial statements become available. Its decision is based on a quantitative assessment of the extent to which targets have been met using a scale for the overachievement and underachievement of each target. In determining the level of target achievement, the Com- pensation Committee also has a degree of discretion in assessing the effective management per- formance, allowing special factors such as fluctuations in exchange rates to be taken into account. Based on the level of target achievement, the Compensation Committee submits a proposal for approval to the Board of Directors for the amount of the performance-related salary component to be paid to the Group Executive Board and the CEO. Most of the financial Group targets were met and some exceeded in the year under review. Cus- tomer targets were not all fully met. The other targets of the segments were largely achieved and partially exceeded. Payment of the variable performance-related component The variable performance-related component is paid in April of the following year, with 25% being paid in the form of Swisscom shares, in accordance with the Management Incentive Plan. Group Executive Board members may increase this share up to a maximum of 50%. The remaining por- tion of the performance-related component is settled in cash. The decision of what percentage of the variable performance-related salary component is to be drawn in the form of shares must be communicated prior to the end of the reporting year, but no later than in November following pub- lication of the third-quarter results. The shares are allocated on the basis of the tax value, rounded up to whole numbers of shares, and are subject to a three-year blocking period. The share-based remuneration disclosed in the year under review is augmented by a factor of 1.19 in order to take account of the difference between the market value and the tax value. The market value is deter- mined as of the date of allocation. Shares in respect of the current year are allocated in April 2015. Further information on the Management Incentive Plan can be found in Note 11 to the consoli- dated financial statements. In April 2014, a total of 1,599 shares (2012: 2,707 shares) with a tax value of CHF 449 (2012: CHF 371) per share and a market value of CHF 534.50 (2012: CHF 442) per share were allocated for the 2013 financial year to the members of the Group Executive Board. See Report page 162 123 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Pension fund and fringe benefits The members of the Group Executive Board, like all eligible employees in Switzerland, are insured against the risks of old age, death and disability through the comPlan pension plan (see pension fund regulations at www.pk-complan.ch). The disclosed pension benefits (amounts which give rise to or increase pension entitlements) encompass all savings, guarantee and risk contributions paid by the employer to the pension plan. It also includes the pro rata costs of the AHV bridging pension paid by comPlan in the event of early retirement and the premium for the supplementary life insur- ance concluded for Swisscom management staff in Switzerland. With regards to the disclosure of services rendered and non-cash benefits and expenses, these are dealt with from a tax point of view. The members of the Group Executive Board are entitled to the use of a company car. The disclosed services rendered and non-cash benefits therefore include an amount for private use of the company car. Out-of-pocket expenses are reimbursed on a lump-sum basis in accordance with expense reimbursement rules approved by the tax authorities, and other expenses are reimbursed on an actual cost basis. They are not included in the reported remuneration. 4.4 Total remuneration The following table shows total remuneration paid to the members of the Group Executive Board for the 2014 and 2013 financial years, broken down into individual components and including the highest amount paid to one member. Any remuneration paid to those stepping down from the Group Executive Board includes the respective maximum remuneration up to the end of the notice period of those members of the Group Executive Board who stepped down in the relevant report- ing year. During the reporting period, one member left the Group Executive Board. Members of the Group Executive Board stepping down receive the full variable performance-related component in cash. The increase in the base salary relative to the previous year and the associated reduction in the variable performance-related component is attributable to the change to the remuneration system from 2014. In the year under review, the variable performance-related salary component (CHF 2,681 million in total) was 74% of the base salary (CHF 3,622 million in total). The total remu- neration paid to the highest-earning member of the Group Executive Board (CEO, Urs Schaeppi) increased by 3.5% compared to the prior year. The reason for this is that the remuneration of the CEO, which was adjusted upon his assumption of the position in November 2013, affects the entire year in 2014. The reduction in total remuneration paid to the Group Executive Board (excluding remuneration paid to those stepping down from the Group Executive Board) is mainly attributable to the changed composition of the body as of 1 January 2014. In CHF thousand  Fixed base salary paid in cash  Variable earnings-related remuneration paid in cash  Variable earnings-related remuneration paid in shares 1 Service-related and non-cash benefits  Employer contributions to social security 2 Retirement benefits  Total remuneration to members of the Group Executive Board  Benefits paid following retirement from Group Executive Board 4 Total remuneration to members of the Group Executive Board  including benefits paid following retirement  from Group Executive Board  Total Group Executive Board 2014 Total Group Executive Board 2013 Thereof Urs Schaeppi 2014 Thereof Urs Schaeppi 2013 3,622 1,969 712 60 481 696 7,540 252 3,183 2,640 853 45 488 738 3 7,947 1,481 5 882 463 184 18 116 110 1,773 – 622 566 298 16 105 106 1,713 – 7,792 9,428 1,773 1,713 1  The shares are reported at market value and are blocked from sale for three years. 2  Employer contributions to social security (AHV, IV, EO and FAK, incl. administration costs, and daily sickness benefits and accident insurance)   are included in the total remuneration. 3  As compensation for deferred entitlement to shares/option plans, which expired as a result of the switch to Swisscom, an additional CHF 165,000   was deposited into the retirement provision of a member of the Group Executive Board in 2013.   (A total of CHF 500,000 gross was awarded to him over the reporting years 2012-2014). 4  This amount includes the employer social security contributions as well as retirement benefits. 5  This amount also includes 2014 retirement benefits as compensation for deferred entitlement to shares/option plans. 124 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C         4.5 Minimum shareholding requirement Since 2013, the members of the Group Executive Board have been required to hold a minimum amount of Swisscom shares. The minimum shareholding to be held by the CEO shall be equiva- lent to two years’ base salary. The remaining members shall maintain a shareholding equivalent to one year’s base salary. The members of the Group Executive Board have four years to build up the required minimum shareholding in the form of the blocked shares paid as part of remuneration and, if necessary, through share purchases on the open market. Compliance with the shareholding requirement is reviewed annually by the Compensation Committee. If a member’s shareholding falls below the minimum requirement due to a drop in the share price or a salary adjustment, the difference must be made up by no later than the time of the next review. In justified cases such as personal hardship or legal obligations, the Chairman of the Board of Directors can approve individual exceptions. 4.6 Shareholdings of the members of the Group Executive Board Blocked and non-blocked shares held by current members of the Group Executive Board or related parties as at 31 December 2014 and 2013 are listed in the table below: Number  Urs Schaeppi (CEO) 1 Mario Rossi  Hans C. Werner  Marc Werner 2 Christian Petit 3 Roger Wüthrich-Hasenböhler 2 Heinz Herren 2 Andreas König 4 Total shares of the members of the Board of Directors  1  From 23 July to 6 November 2013 CEO ad interim and from 7 November 2013 CEO. 2  Joined the Group Executive Board as of 1 January 2014. 3  Joined the Group Executive Board as of 1 April 2014. 4  Resigned from the Group Executive Board as of 31 March 2014. 31.12.2014 31.12.2013 2,275 634 421 106 1,332 879 1,122 – 6,769 1,716 383 257 – – – – 170 2,526 No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital. 4.7 Employment contracts The employment contracts of the members of the Group Executive Board are subject to a twelve- month notice period. No termination benefits are payable in addition to the salary payable for a maximum of twelve months. The employment contracts stipulate that Swisscom may allow wrongfully awarded or paid remuneration to expire or reclaim such remuneration. They do not contain a clause on change of control. 125 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C   5 Other remuneration 5.1 Additional remuneration Swisscom may pay remuneration to members of the Board of Directors for mandates in group companies and for mandates performed by order of Swisscom (Article 6.4 of the Articles of Incor- poration). In 2014, Hugo Gerber was the only member to receive remuneration for an additional mandate for his mandate as a member of the Board of Directors of the Swisscom Group company Worklink AG. The director’s fee amounts to CHF 7,500 gross per year. For meetings, attendance fees of CHF 1,000 gross are paid for each full day and CHF 500 gross for each half-day. Out-of-pocket expenses are reimbursed on the basis of actual costs incurred. The remuneration reflects the level of responsibility and scope of activities. It is determined by the Board of Directors of Work link AG based on a discretionary decision and reviewed every two years for ongoing appropriateness. The members of the Group Executive Board are not entitled to separate remuneration for any directorships they hold either within or outside the Swisscom Group. 5.2 Remuneration for former members of the Board of Directors or Group Executive Board and related parties In the year under review, no compensation was paid to former members of the Board of Directors or the Group Executive Board in connection with their earlier activities as a member of a governing body of the company and/or which are not at arm’s length. There were also no payments made to individuals who are closely related to any member of the Board of Directors or the Group Executive Board which are not at arm’s length. Related parties are spouses and common-law spouses, close relatives who are financially dependent on the member of the governing body or live in the same household, other persons who are finan- cially dependent on such individuals as well as partnerships or corporate entities that are controlled by the member of the governing body or over which the member of the governing body exercises a significant influence. Close relatives include parents, siblings and children. 5.3 Loans and credits granted Swisscom Ltd has no statutory basis for the granting of loans, credit facilities and pension benefits apart from the retirement benefits paid to the members of the Board of Directors and Group Executive Board. In the 2014 financial year, Swisscom provided no guarantees, loans, advances or credit facilities of any kind either to former or current members of the Board of Directors or related parties, or to former or current members of the Group Executive Board or related parties. Nor are there any receivables of any kind outstanding. 126 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C Report of the Statutory Auditor Report of the Statutory Auditor on the remuneration report to the General Meeting of Shareholders of Swisscom Ltd, Ittigen (Berne) Report of the Statutory Auditor on the remuneration We have audited the accompanying remuneration report dated 31 December 2014 of Swisscom Ltd for the year ended 31 December 2014. The audit was limited to the information according to articles 14–16 of the Ordinance against Excessive compensation in Stock Exchange Listed Companies con- tained in the sections 3.2 to 3.3, 4.4 and 5.2 to 5.3 on pages 115 to 126 of the remuneration report. Responsibility of the Board of Directors The Board of Directors is responsible for the preparation and overall fair presentation of the remu- neration report in accordance with Swiss law and the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages. Auditor’s Responsibility Our responsibility is to express an opinion on the accompanying remuneration report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14–16 of the Ordinance. An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value com- ponents of remuneration, as well as assessing the overall presentation of the remuneration report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the remuneration report for the year ended 31 December 2014 of Swisscom Ltd complies with Swiss law and articles 14–16 of the Ordinance. KPMG AG Rolf Hauenstein Licensed Audit Expert Auditor in Charge Gümligen-Berne, 4. February 2015 Daniel Haas Licensed Audit Expert 127 t r o p e R n o i t a r e n u m e R t r o p e R n o i t a r e n u m e R d n a e c n a n r e v o G e t a r o p r o C “No one wants to wait for their new Internet connection. I take care of the IT systems that make it possible for the connection to be functioning on the date promised.” Jana Niederöst Senior ICT Architect IT, Network & Innovation Financial Statements Through targeted investments we are providing the very best infrastructure for our customers. 1.75 billion CHF was invested by Swisscom in 2014 in Switzerland’s network and IT infrastructure. 1.75 billion CHF Topics Consolidated financial statements 132 Consolidated income statement 133 Consolidated statement of comprehensive income 134 Consolidated balance sheet 135 Consolidated statement of cash flows 136 Consolidated statement of changes in equity 137 Notes to the consolidated financial statements 1 General information 2 Basis of preparation 3 Summary of significant accounting policies 4 Significant accounting judgments, estimates and assumptions in applying accounting policies 5 Business combinations 6 Segment information 7 Net revenue 8 Goods and services purchased 9 Personnel expense 10 Post-employment benefits 11 Share-based payments 12 Other operating expense 13 Capitalised costs of self-constructed assets and other income 14 Financial income and financial expense 15 Income taxes 16 Earnings per share 17 Cash and cash equivalents 18 Trade and other receivables 19 Other financial assets 20 Inventories 21 Other non-financial assets 22 Non-current assets held for sale 23 Property, plant and equipment 24 Goodwill and other intangible assets 25 Investments in associates 26 Financial liabilities 27 Trade and other payables 28 Provisions 29 Contingent liabilities 30 Other non-financial liabilities 31 Additional information concerning equity 32 Dividends 33 Financial risk management and supplementary disclosures regarding financial instruments 34 Supplementary information on the statement of cash flows 35 Future commitments 36 Research and development 37 Related parties 38 Service concession agreements 39 Risk assessment process 40 Events after the balance sheet date 41 List of Group companies 202 Report of the Statutory Auditor Financial statements of  Swisscom Ltd 204 Income statement 205 Balance sheet 206 Notes to the financial statements 1 General information 2 Contingent liabilities 3 Fire insurance values of property, plant and equipment 4 Amounts payable to pension funds 5 Debenture bonds issued 6 Treasury shares 7 Equity 8 Significant shareholders 9 Participations and recording of dividends from subsidiaries 10 Assets subject to restriction 11 Information on risk assessment process 12 Shareholdings of the members of the Board of Directors and the Group Executive Board 209 Proposed appropriation of retained earnings 210 Report of the Statutory Auditor Consolidated financial statements Consolidated income statement In CHF million, except for per share amounts  Net revenue  Goods and services purchased  Personnel expense  Other operating expense  Capitalised self-constructed assets and other income  Note 6, 7 8 9, 10, 11 12 13 Operating income before depreciation, amortisation and impairment losses (EBITDA)  Depreciation, amortisation and impairment losses on tangible and intangible assets  23, 24 Operating income (EBIT)  Financial income  Financial expense  Share of results of associates  Income before income taxes  Income tax expense  Net income  Share of net income attributable to equity holders of Swisscom Ltd  Share of net income attributable to non-controlling interests  Basic and diluted earnings per share (in CHF)  14 14 25 15 16 2014 2013 11,703 11,434 (2,369) (2,751) (2,540) 370 4,413 (2,091) 2,322 112 (372) 26 2,088 (382) 1,706 1,694 12 32.70 (2,338) (2,706) (2,476) 388 4,302 (2,044) 2,258 81 (340) 30 2,029 (334) 1,695 1,685 10 32.53 132 t n e m e t a t s e m o c n i d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C     Consolidated statement of comprehensive income In CHF million  Net income  Other comprehensive income  Actuarial gains and losses from defined benefit pension plans  Income tax expense  Items that will not be reclassified to income statement, net of tax  Foreign currency translation adjustments of foreign subsidiaries  Change in fair value of available-for-sale financial assets  Change in fair value of cash flow hedges  Gains and losses from cash flow hedges transferred to income statement  Income tax expense  Items that are or may be reclassified subsequently to income statement, net of tax  Other comprehensive income  Comprehensive income  Share of comprehensive income attributable to equity holders of Swisscom Ltd  Share of comprehensive income attributable to non-controlling interests  Note 10, 31 15, 31 31 31 31 31 15, 31 2014 1,706 (1,161) 242 (919) (46) – 10 5 12 (19) (938) 768 757 11 2013 1,695 847 (169) 678 63 1 7 6 (15) 62 740 2,435 2,423 12 133 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C e m o c n i e v i s n e h e r p m o c f o t n e m e t a t s d e t a d i l o s n o C         Consolidated balance sheet In CHF million  Assets  Cash and cash equivalents  Trade and other receivables  Other financial assets  Inventories  Current income tax assets  Other non-financial assets  Non-current assets held for sale  Total current assets  Property, plant and equipment  Goodwill  Other intangible assets  Investments in associates  Other financial assets  Deferred tax assets  Other non-financial assets  Total non-current assets  Total assets  Liabilities and equity  Financial liabilities  Trade and other payables  Current income tax liabilities  Provisions  Other non-financial liabilities  Total current liabilities  Financial liabilities  Defined benefit obligations  Provisions  Deferred tax liabilities  Other non-financial liabilities  Total non-current liabilities  Total liabilities  Share capital  Capital reserves  Retained earnings  Other reserves  134 t e e h s e c n a a b d e t a d l i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C Share of equity attributable to equity holders of Swisscom Ltd  Share of equity attributable to non-controlling interests  Total equity  Total liabilities and equity  Note 31.12.2014 31.12.2013 17 18 19 20 15 21 22 23 24 24 25 19 15 21 26 27 15 28 30 26 10 28 15 30 31 31 302 2,586 40 149 17 252 80 3,426 9,720 4,987 1,921 171 233 417 57 723 2,516 160 152 22 210 13 3,796 9,156 4,809 2,053 153 193 279 57 17,506 20,932 16,700 20,496 1,580 1,876 172 112 718 4,458 7,024 2,441 820 357 375 11,017 15,475 52 136 6,856 (1,590) 5,454 3 5,457 20,932 1,656 1,870 184 132 759 4,601 7,167 1,293 667 456 310 9,893 14,494 52 136 7,356 (1,571) 5,973 29 6,002 20,496       Consolidated statement of cash flows In CHF million  Net income  Share of results of associates  Income tax expense  Depreciation, amortisation and impairment losses  Expense for share-based payments  Gain on sale of property, plant and equipment  Loss on disposal of property, plant and equipment  Financial income  Financial expense  Change in net operating assets and liabilities  Income taxes paid  Cash flow provided by operating activities  Note 25 15 23, 24 11 13 12 14 14 34 15 Capital expenditure for tangible and other intangible assets  23, 24, 34 Proceeds from sale of tangible and other intangible assets  Proceeds from sale of non-current assets held for sale  Acquisition of subsidiaries, net of cash and cash equivalents acquired  Investments in associates  Purchase of other financial assets  Proceeds from other financial assets  Interest received  Dividends received  Cash flow used in investing activities  Issuance of financial liabilities  Repayment of financial liabilities  Interest paid  Dividends paid to equity holders of Swisscom Ltd  Dividends paid to non-controlling interests  Acquisition of non–controlling interests  Purchase of treasury shares for share-based payments  Other cash flows from financing activities  Cash flow used in financing activities  (Net decrease) Net increase in cash and cash equivalents  Cash and cash equivalents at 1 January  Foreign currency translation adjustments in respect of cash and cash equivalents  Cash and cash equivalents at 31 December  22 5 25 25 26 26 32 31 11, 31 34 2014 1,706 (26) 382 2,091 5 (60) 11 (112) 372 (213) (386) 3,770 (2,460) 35 205 (305) (3) (25) 167 10 30 (2,346) 1,500 (1,765) (245) (1,140) (16) (162) (5) (14) 2013 1,695 (30) 334 2,044 6 (16) 13 (81) 340 104 (278) 4,131 (2,445) 23 5 (60) (1) (158) 24 10 43 (2,559) 993 (956) (253) (1,140) (14) – (6) (12) (1,847) (1,388) (423) 723 2 302 184 538 1 723 135 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s w o fl h s a c f o t n e m e t a t s d e t a d i l o s n o C     Consolidated statement of changes in equity In CHF million  Share capital Capital reserves Retained earnings Treasury shares Equity attributable to equity holders of Swisscom Other reserves Non- controlling interests Balance at 31 December 2012  52 136 Net income  Other comprehensive income  Comprehensive income  Dividends paid 32 Purchase of treasury shares  for share-based payments 31 Allocation of treasury shares  for share-based payments 11,31 – – – – – – Additions from acquisition of subsidiaries 5 – Transactions with  non-controlling interests  Balance at 31 December 2013  Net income  Other comprehensive income  Comprehensive income  Dividends paid 32 Purchase of treasury shares  for share-based payments 31 Allocation of treasury shares  for share-based payments 11,31 Transactions with  non-controlling interests 31 Balance at 31 December 2014  – 52 – – – – – – – 52 6,135 1,685 676 2,361 (1,140) – – – – 7,356 1,694 (918) 776 (1,140) – – (136) – – – – – – – – 136 – – – – – – – – – – – – (6) 6 – – – – – – – (5) 5 – – (1,633) – 62 62 – – – – – (1,571) – (19) (19) – – – – 4,690 1,685 738 2,423 (1,140) (6) 6 – – 5,973 1,694 (937) 757 (1,140) (5) 5 (136) (1,590) 5,454 Reference numbers relate to the notes to the consolidated financial statements. 136 6,856 Total equity 4,717 1,695 740 2,435 (1,154) (6) 6 19 (15) 6,002 1,706 (938) 768 27 10 2 12 (14) – – 19 (15) 29 12 (1) 11 (16) (1,156) – – (5) 5 (21) 3 (157) 5,457 136 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o C                 Notes to the consolidated financial statements This financial report is a translation from the original German version. In case of any inconsistency the German version shall prevail. 1 General information The Swisscom Group (hereinafter referred to as “ Swisscom”) provides telecommunication services and is active primarily in Switzerland and Italy. A more detailed description of Swisscom’s business activities is to be found in Notes 3.16 and 6. The consolidated financial statements as of and for the year ended 31 December 2014 comprise Swisscom Ltd, the parent company, and its subsidiaries. A table of the Group subsidiaries is set out in Note 41. Swisscom Ltd is a limited-liability company incorporated in Switzerland under a private statute and has its registered office in Ittigen (Berne). Its address is: Swisscom Ltd, Alte Tiefenaustrasse 6, 3048 Worblaufen. Swisscom Ltd is listed on the SIX Swiss Exchange. As of 31 December 2014, the Swiss Confederation (“Confederation”), as major- ity shareholder, held 51.0% of the voting rights and issued capital of Swisscom Ltd. The Confeder- ation is obligated by current law to hold the majority of the capital and voting rights. The Board of Directors of Swisscom has approved the issuance of these consolidated financial statements on 4 February 2015. The consolidated financial statements must be approved at the Annual General Meeting of Shareholders of Swisscom Ltd to be held on 8 April 2015. 2 Basis of preparation The consolidated financial statements of Swisscom have been prepared in accordance with International Financial Reporting Standards (IFRS) and in compliance with the provisions of Swiss law. The reporting period covers twelve months. The consolidated financial state- ments are presented in Swiss francs (CHF). Unless otherwise indicated, all amounts are stated in millions of Swiss francs. The balance sheet is classified according to maturities. Assets and liabilities due within one year are classified as current. The income statement is classi- fied based upon the nature of the income/expense. The consolidated financial statements have been prepared on the historical cost basis, unless a Standard or Interpretation prescribes another measurement basis for a particular caption in the consolidated financial statements. Certain financial-statement captions are measured at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined on the basis of stock exchange quotations or by using recognised valuation models, such as the discounting of anticipated future cash flows. Unless otherwise indicated in the notes to the consolidated financial statements, fair values correspond approximately to the carrying values reported in the balance sheet at the time of drawing up the financial statements. 137 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   3 Summary of significant accounting policies 3.1 Consolidation Subsidiaries Subsidiaries are all companies over which Swisscom Ltd has the effective ability of controlling their financial and business policies. Control is generally assumed where Swisscom Ltd directly or indi- rectly holds the majority of the voting rights or potential voting rights of the company. Subsidi- aries are included in consolidation from the date on which they are acquired and deconsolidated from the date they are disposed of. Intercompany balances and transactions, income and expenses, shareholdings and dividends as well as unrealised gains and losses are fully eliminated. Unrealised losses on an asset which has been transferred within the Group may be an indication of an impair- ment in value and trigger an impairment test. Non-controlling interests in subsidiary companies are reported within equity separately from that attributable to the shareholders of Swisscom Ltd. The non-controlling interests in net income or loss are shown in the consolidated income state- ment as a component of the consolidated net income or loss. Movements in shareholdings of sub- sidiary companies are reported as transactions within equity insofar as control existed previously and continues to exist. Written put options to owners of non-controlling interests are disclosed as financial liabilities. The balance sheet date for all consolidated subsidiaries is 31 December. There are no material restrictions on the transfer of funds from the subsidiaries to the parent company. Investments in associates Shareholdings in associates over which Swisscom exercises significant influence but does not have control are accounted for using the equity method. A significant influence is generally assumed to exist whenever between 20% and 50% of the voting rights are held. Under the equity method, investments in associates are initially recognised at their purchase cost at the date of acquisition. Purchase cost comprises the share of net assets acquired and any applicable goodwill arising. In subsequent accounting periods, the carrying amount of the investment is adjusted by the share of current profits and losses together with the share of movements in other equity captions, less the share of dividends distributed. Unrealised gains and losses from transactions with associates are eliminated on a pro-rata basis. 3.2 Foreign currency translation Foreign currency transactions which are not denominated in the functional currency are trans- lated into the functional currency using the exchange rates prevailing at the dates of the trans- actions. Monetary items as of the balance sheet date are translated into the functional currency at the exchange rate prevailing at the balance sheet date and non-monetary items are translated using the exchange rate on the date of the transaction. Translation differences are recognised in the income statement. The consolidated financial statements are presented in Swiss francs. Assets and liabilities of subsidiaries and associates reporting in a different functional currency are trans- lated at the exchange rates prevailing on the balance sheet date whereas the income statement and the cash flow statement are translated at average exchange rates. Translation differences aris- ing from the translation of net assets and income statements are not taken to income but recorded directly in equity as part of other comprehensive income. Upon sale of a foreign Group company, the cumulative foreign exchange differences previously included in the foreign currency translation reserve under equity are taken to income as part of the gain or loss on disposal. For the consolidated financial statements, the most significant foreign currencies during the reporting years were translated at the following exchange rates: Currency  1 EUR  1 USD  Closing rate Average rate 31.12.2014 31.12.2013 31.12.2012 1.202 0.990 1.228 0.890 1.207 0.915 2014 1.213 0.920 2013 1.229 0.924 138 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N     3.3 Cash and cash equivalents Cash and cash equivalents include cash on hand, sight balances and time deposits with financial insti- tutions with a maximum term of three months from the acquisition date. This definition is equally applied for the cash flow statement. Cash and cash equivalents are accounted for at amortised cost. 3.4 Trade and other receivables Trade and other receivables are measured at amortised cost less impairment losses. Any impair- ment losses are recorded through the use of valuation allowance accounts. All realised losses lead to the de-recognition of the related receivable. Receivables and payables are netted whenever Swisscom has a legal right of set-off as of the bal- ance sheet date and intends to either settle on a net basis or realise the asset and settle the liability simultaneously. The right of set-off must exist as of the balance sheet date and it shall be legally enforceable both in the ordinary course of business as well as in the case of the insolvency of the contracting party. 3.5 Other financial assets Other financial assets are classified either as “at fair value through profit or loss”, “loans and receivables”, “held-to-maturity” or “available-for-sale”. The classification depends on the purpose for which the financial asset was acquired. Management determines the classification of finan- cial assets at the time of acquisition and reviews the classification as of each balance sheet date. Trade date accounting is applied for routine purchases and sales of financial assets. Financial assets are initially recognised at their fair values, including directly related transaction costs. Transaction costs relating to financial assets at fair value through profit or loss are not capitalised on acqui- sition but expensed immediately as incurred. Financial assets are partially or fully derecognised if Swisscom’s rights to the cash flows arising therefrom have either elapsed or were transferred and Swisscom is neither exposed to any risks arising from these assets nor has any entitlement to income from them. Financial assets at fair value through profit or loss Financial assets valued at fair value through profit or loss are either held for trading purposes or are classified as such upon initial recognition. They are measured at their fair value. Any gains or losses resulting from subsequent remeasurement are taken to income. Swisscom classifies only derivative financial instruments in this category. Loans and receivables After their initial recognition at amortised cost, loans and receivables are measured using the effec- tive interest method. Foreign exchange gains and losses are taken to income. The caption loans and receivables primarily reflects term deposits with original maturities exceeding three months which Swisscom places directly, or through an agent, with the borrower. Financial assets held to maturity Held-to-maturity financial assets are fixed-term financial assets for which Swisscom has the ability and intention to hold to maturity. After their initial recognition at amortised cost, financial assets are accounted for using the effective interest method less provisions for impairment. Foreign exchange gains and losses are taken to income. Swisscom has not classified any financial assets in this category. Available-for-sale financial assets All other financial assets are classified as available-for-sale. Available-for-sale financial assets are accounted for at fair value and all unrealised changes in fair value are recorded in equity. Foreign exchange gains and losses on available-for-sale debt instruments are recognised in the income statement. When available-for-sale financial assets are sold, impaired or otherwise disposed of, the cumulative gains and losses since acquisition that had been recognised in equity are reclassified from equity and recorded as financial income or expense. If the fair value of an unlisted equity instrument cannot be reliably determined, the instrument is accounted for at cost less provisions for impairment. 139 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   3.6 Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories includes all costs of acquisition and manufacture as well as other costs incurred in order to bring the inventories to their present location and condition as intended by management. The cost of inventories is determined using the weighted average cost method. Write-downs are raised for inventories that are difficult to sell. Unsaleable inventories are fully written off. 3.7 Property, plant and equipment Property, plant and equipment is recorded at cost less accumulated depreciation/amortisa- tion and impairment losses. In addition to the purchase cost and the costs directly attribut- able to bringing the asset to the location and condition necessary for it to be capable of oper- ating in the manner intended by management, purchase or manufacturing cost also includes the estimated costs for dismantling and restoration of the site. The construction costs of self- constructed assets include directly attributable costs as well as indirect costs of material, man- ufacture and administration. Borrowing costs are capitalised insofar as they can be allocated directly to the acquisition or production of a qualifying asset. Costs of replacement, renewal or renovation of property, plant and equipment are capitalised as replacement investments if a future inflow of economic benefits is probable and the purchase or manufacturing costs can be measured reliably. The carrying amount of the parts replaced is de-recognised. Maintenance costs and repairs which are not capable of being capitalised are expensed. Systematic depreciation is calculated using the straight-line method with the exception of land, which is not depreciated. The estimated useful lives for the main categories of property, plant and equipment are: Category  Buildings and leasehold improvements  Cables 1 Ducts 1 Transmission and switching equipment 1 Other technical installations 1 Other installations  1 Technical installations. Years 10 to 40 30 40 4 to 15 3 to 15 3 to 15 Whenever significant parts of an item of property, plant and equipment comprise individual com- ponents with differing useful lives, each component is depreciated/amortised separately. The esti- mated useful lives and residual values are reviewed at least annually as of the balance sheet date and, if necessary, adjusted. Leasehold improvements and installations in leased premises are amor- tised on a straight-line basis over the shorter of their estimated useful lives and the remaining min- imum lease term. The carrying amount of an item of property, plant and equipment is written off on disposal or whenever no future economic benefits are expected from its use. Gains and losses arising on the disposal of property, plant and equipment are calculated as the difference between the disposal proceeds and the carrying amount of the item of property, plant and equipment. They are taken to income and recorded as other income or other operating expenses. 3.8 Business combinations and goodwill Business combinations are accounted for using the acquisition method. As of the date of the business combination, acquisition costs are recognised at fair value. The purchase consideration includes the amount of cash paid as well as the fair value of the assets ceded, liabilities incurred or assumed as well as own equity instruments ceded. Liabilities depending on future events based upon contractual agreements are recognised at fair value. At the time of acquisition, all identifiable assets and liabilities that satisfy the recognition criteria are recognised at their fair values. The dif- ference between the cost of acquisition and the fair value of the identifiable assets and liabilities acquired or assumed is accounted for as goodwill after taking into account any non-controlling interests. Any negative difference, after further review, is expensed directly. Goodwill acquired in 140 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N     connection with a business combination is recognised under intangible assets. The goodwill is not amortised on a systematic basis but reviewed for impairment at least annually. When an entity is disposed of, the carrying amount of the goodwill is derecognised and recorded as a component of the gain or loss on disposal. 3.9 Other intangible assets Research and development costs Research costs are not capitalised but expensed as incurred. Development costs are capitalised as intangible assets only if they can be identified as an intangible asset which will generate future economic benefits and the costs of this asset can be determined reliably. Other intangible assets Mobile phone licenses, self-developed software as well as other intangible assets are recorded at purchase or manufacturing cost less accumulated amortisation. Intangible assets resulting from business combinations, such as brands and customer relationships, are recorded at acquisition cost corresponding to fair value as of the date of acquisition, less accumulated amortisation. Systematic amortisation of mobile phone licenses is based on the term of the contract. It begins as soon as the related network is operational, unless other information is at hand which would suggest the need to modify the useful life. Useful lives of other intangible assets Systematic amortisation is computed using the straight-line method based on the following estimated useful lives: Category  Software internally generated and purchased  Customer relationships  Brands  Other intangible assets  Years 3 to 7 7 to 11 5 to 10 3 to 16 The estimated useful lives are reviewed at least once per year as of the balance sheet date and, where necessary, adjusted. 3.10 Non-current assets held for sale A non-current asset or a disposal group is classified as being held for sale if its carrying amount will be recovered mainly as a result of a sales transaction and not through continued use. This condition is only considered as being met if the non-current asset or disposal group is immediately available for sale in its present condition and disposal is highly likely. In this respect, it must be assumed that the disposal process to which management has committed itself will be completed within one year from the date of such reclassification. Non-current assets or disposal groups that are held for sale are reported in the balance sheet separately under current assets and liabilities. The assets or dis- posal groups are valued at the lower of their carrying amount and fair value less costs of disposal. Impairment losses resulting from the initial classification are recognised in the income statement. Assets classified as held for sale and disposal groups are no longer depreciated or amortised. 3.11 Impairment losses Impairment of financial assets As of each balance sheet date, the carrying amounts of those financial assets for which changes in fair value are not recognised in the income statement are reviewed for any objective indica- tions of impairment in value. An impairment loss is recognised where there is objective evidence of impairment, such as where the borrower is in bankruptcy, in default or other significant financial difficulties. The impairment of a financial asset which is recorded at amortised cost is calculated as the difference between its carrying amount and the present value of estimated future cash 141 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   flows, discounted at the asset’s original effective interest rate. Available-for-sale financial assets whose fair value is less than their acquisition cost for a prolonged period or to a significant degree are considered to be value impaired. In the event of impairment, the losses are reclassified out of equity and recognised as financial expense. As of each balance sheet date, significant financial assets are individually reviewed for impairment. The recording of impairment losses on trade and other receivables varies as a function of the nature of the underlying transaction either in the form of specific valuation allowances or as portfolio-based lump-sum valuation allowances which cover the anticipated default risk. As regards portfolio-based lump-sum valuation allowances, financial assets are regrouped on the basis of similar credit risk characteristics and reviewed on a collective basis for impairment in value; where applicable, an allowance is raised. In determining the antici- pated future cash flows of the portfolio, historic default rates are taken into account in addition to the contractually agreed payment conditions. Impairment losses on trade and other receivables are recognised as other operating expenses. Impairment losses on other financial assets are recorded as financial expense. Impairment of goodwill For the purposes of the impairment test, goodwill is allocated to cash-generating units. The impair- ment test is performed in the fourth quarter after completion of business planning. If there is any indication during the year that goodwill may be impaired, the cash-generating unit is tested for impairment at that time. An impairment loss is recognised if the recoverable amount of a cash- generating unit is lower than its carrying amount. The recoverable amount is the greater of the fair value less costs to sell and the value in use. The method used to test impairment is described in Note 24. Any impairment loss on goodwill recognised in prior periods may not be reversed in subsequent periods. Impairment of property, plant and equipment and other intangible assets If indications exist that the value of an asset may be impaired, the recoverable amount of the asset is determined. If the recoverable amount of the asset, which is the greater of the fair value less cost to sell and the value in use, is less than its carrying amount, the carrying amount is reduced to the recoverable amount. 3.12 Leases Finance leases A lease is recorded as a finance lease when substantially all of the risks and rewards incidental to ownership of an asset are transferred. The asset is initially recorded at the lower of its fair value and the present value of the minimum lease payments and is amortised over the lesser of the asset’s useful life and the lease term. The interest component of the lease payments is recognised as inter- est expense over the lease term using the effective interest method. Leases for land and buildings are recorded separately if the lease payments can be reliably allocated. Gains on sale-and-leaseback transactions are deferred and released on a straight-line basis over the lease term as other income. Losses on sale-and-leaseback transactions are recognised immediately. Operating leases Lease arrangements which do not transfer all the significant risks and rewards of ownership are classified as operating leases. Payments are recorded as other operating expense using the straight-line method over the lease period. Gains and losses on sale-and-leaseback transactions are recorded directly in the income statement. 3.13 Financial liabilities Financial liabilities are initially measured at fair value less direct transaction costs. In subsequent accounting periods, they are re-measured at amortised cost using the effective interest method. 3.14 Trade and other payables Trade and other payables are recorded at amortised cost. 142 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   3.15 Provisions Provisions for termination benefits Costs relating to the implementation of personnel downsizing programmes are expensed in the period when management commits itself to a downsizing plan, it is probable that a liability has been incurred, the amount thereof can be reliably estimated and the implementation of the pro- gramme has started or the individuals involved have been advised in sufficient detail as to the main terms of the downsizing programme. A public announcement and/or communication to personnel organisations are deemed to be equivalent to commencing the implementation of the programme. Provisions for dismantling and restoration costs Swisscom is legally obligated to dismantle transmitter stations and telecommunication instal- lations located on land belonging to third parties following decommissioning and to restore the property owned by third parties in the locations where these installations are located to its original state. The costs of dismantling are capitalised as part of the acquisition costs of the installations and are amortised over the useful lives of the installations. The provisions are recorded at the pres- ent value of the aggregate future costs and are reported under long-term provisions. Whenever the provision is remeasured, the present value of the changes in the liability are either added to or deducted from the cost of the related capitalised asset. The amount deducted from the cost of the related capitalised asset shall not exceed its carrying amount. Any excess is taken directly to the income statement. Other provisions Provisions are raised whenever a legal or de facto liability exists as a result of an occurrence in the past, an outflow of resources to settle the liability is probable and the amount of the liability can be estimated reliably. Provisions are discounted if the effect is material. 3.16 Segmentation and revenue recognition General Net revenue is measured at the fair value of the consideration received less value-added taxes, price reductions, volume rebates and other reductions in sales proceeds. Revenues are recognised when it is probable that a future benefit from the transaction will accrue to Swisscom and the amount can be reliably estimated. When Swisscom acts as principal, revenues are recorded gross. However, when, from an economic point of view, Swisscom acts only as a broker or agent, reve- nues are reported net of related costs. In multi-component contracts, revenue is determined and reported separately for each identifiable component part. Total consideration for a multi-compo- nent contract is distributed over the various component parts at fair value on a pro-rata basis. Services by segments Residential Customers The segment Residential Customers comprises mainly connection fees for broadband services, fixed-network and mobile phone subscriptions as well as national and international telephone and data traffic for residential customers. The segment also includes value-added services, TV offerings, the sale of terminal equipment and the operation of a directories database. Small and Medium-Sized Enterprises The segment Small and Medium-Sized Enterprises primarily comprises connection fees for broad- band services, fixed-network and mobile phone subscriptions as well as national and international telephone and data traffic for small and medium-sized enterprises. Corporate Business The Corporate Business segment focuses on complete communication solutions for large business customers. The product offerings in the field of business ICT infrastructure cover everything from individual products to complete solutions. Wholesale Wholesale comprises mainly the use of Swisscom fixed and mobile networks by other telecom- munication service providers and the use of third-party networks by Swisscom. It also consists of roaming with foreign operators whose customers use Swisscom’s mobile networks, as well as 143 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   broadband services and regulated products as a result of the unbundling of the “last mile” for other telecommunication service providers. Network & IT Network & IT encompasses primarily the planning, operation and maintenance of Swisscom’s network infrastructure and related IT systems, both for fixed and mobile phone networks. Net- work & IT also includes support functions for Swisscom Switzerland in the fields of finance, human resources and strategy. Fastweb Fastweb is one of the largest providers of broadband services in Italy. Its product portfolio com- prises voice, data, Internet and IP-TV services as well as video-on-demand for residential and cor- porate customers. In addition, Fastweb offers mobile phone services on the basis of an MVNO contract (as a virtual network operator). It also provides comprehensive network services and cus- tomised solutions. Other Operating Segments Other Operating Segments mainly comprises Swisscom IT Services, Swisscom Real Estate and Par- ticipations. It also comprises the areas Health, Connected Living and Swisscom Hospitality Services. Swisscom IT Services is a provider of information technology services. Its core business consists of the integration and operation of complex IT infrastructures. In addition, Swisscom IT Services provides comprehensive services to the financial industry in the area of system integration and business process outsourcing. Furthermore, Swisscom IT Services offers a full range of SAP ser- vices. Participations comprise mainly the subsidiaries Alphapay Ltd, Billag Ltd, Business Fleet Man- agement Ltd, cablex Ltd and Swisscom Broadcast Ltd. Alphapay Ltd is active as a debt collection agent and is specialised in receivables management for third parties. Billag Ltd collects radio and TV license fees on behalf of the Swiss Confederation. Business Fleet Management Ltd offers mobility services. cablex Ltd operates in the field of construction and maintenance of wired and wireless networks in Switzerland, primarily in the field of telecommunication. Swisscom Broadcast Ltd is the leading provider in Switzerland of radio services, of cross-platform services for customers in the media field and of securitised radio transmissions. Revenue generated from services Fixed networks Fixed network services encompass primarily connection fees to residential and corporate custom- ers, national and international telephony traffic for residential and business customers, leased lines, the use of Swisscom’s fixed network by other telecommunication service providers, payphone ser- vices, operator services as well as prepaid calling cards and the sale of terminal equipment. Instal- lation and connection fees are deferred and released to income over the minimum term of the contract on a straight-line basis. If no minimum contract term has been agreed, the revenue is recorded on the date of installation or connection. Revenue from telephony services is recorded at the time the calls are made. Revenue from the sale of prepaid call cards is deferred and released to income as and when actual minutes are used or when the cards expire. Revenue from leased lines is recorded on a straight-line basis over the duration of the contract. Revenue arising from the sale of equipment is recorded at the time of delivery. Mobile Mobile-phone services encompass mainly basic subscription charges, domestic and international mobile phone traffic for calls made by Swisscom customers in Switzerland or abroad and roaming by foreign operators whose customers use Swisscom’s networks. Mobile services also include val- ue-added services, data traffic as well as the sale of mobile handsets. Revenue from mobile teleph- ony is recorded on the basis of the actual minutes used. In part, subscriptions with a fixed monthly flat-rate fee are offered, the revenue from which is recognised on a straight-line basis over the term of the contract. Connection fees are deferred and released to income over the minimum term of the contract on a straight-line basis. If no minimum contract term has been agreed, revenue is recognised on the date of connection. Roaming services are recorded as revenue on the basis of the minutes used or the agreed contractual rates at the time the service is provided. Revenue from roaming services with other telecommunication service providers is recorded gross. Value-added services as well as text or multimedia news and the sale of mobile handsets are recognised as rev- enue at the time the service is provided. 144 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   Broadband Internet services include the range of broadband access lines offered to residential and corporate customers as well as broadband access lines for wholesale customers. Revenues in connection with the provision of these services are deferred and released to income over the minimum contract term on a straight-line basis. If no minimum contract term has been agreed, the revenue is recog- nised on the date of installation or connection. Digital TV In the TV sector, revenue is generated from the range of digital TV services and video-on-demand offered for residential and corporate customers. Revenue from TV services contains non-recur- ring installation and connection charges and recurring subscription fees. Installation and connec- tion fees related to installations are deferred and released to income over the minimum contract term on a straight-line basis. If no minimum contract term has been agreed upon, the revenue is recorded on the date of installation or connection. Communication and IT solutions Services in the field of communication and IT solutions primarily include consultancy services as well as the implementation and maintenance and operation of communication infrastructures. Furthermore, they include applications and services as well as the integration, operation and main- tenance of data networks and outsourcing services. Revenues from customer-specific construc- tion contracts are accounted for using the percentage-of-completion method which is based on the ratio of costs incurred to-date to the estimated total costs. Revenue for long-term outsourcing contracts is recorded based on the volume of services provided to the customer. Start-up costs and integration of new outsourcing transactions are capitalised as other assets and amortised on a straight-line basis over the duration of the contract. Revenue from maintenance is recorded evenly over the term of the maintenance contracts. 3.17 Subscriber acquisition and loyalty-programme costs Swisscom pays commissions to dealers for the acquisition and retention of Swisscom customers. The commission payable is dependent on the type of subscription. Subscriber acquisition and loy- alty-programme costs are expensed immediately, since these costs do not meet the criteria for the recognition of an intangible asset. 3.18 Post-employment benefits Defined benefit obligations and the related pension expense are determined on an actuarial basis using the projected unit credit method. This reflects the number of years of service completed by employees through the date of measurement and the assumptions made concerning future salary growth. The latest actuarial valuation was undertaken as at 31 December 2014. Current pension entitlements are charged to income in the period in which they arise. Actuarial gains and losses are recorded under other comprehensive income in the reporting period in which they arise. 3.19 Share-based payments The cost of shares issued to employees, members of the Group Executive Board and of the Board of Directors is equal to the fair value of the shares at the date of issuance. The related costs are recorded as personnel expense in the period in which the entitlement arose. 3.20 Income taxes Income taxes include all current and deferred taxes which are based on income. Taxes which are not based on income, such as taxes on real estate and on capital are recorded as other operating expenses. Deferred taxes are computed using the balance sheet liability method whereby deferred tax is recognised in principle on all temporary differences. Temporary differences arise between the value of an asset or liability reported for tax purposes and its carrying amount in the financial state- ments and which will reverse in future periods. Deferred tax assets and liabilities are determined 145 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   using the tax rates that are expected to apply when the temporary difference reverses and based on the tax rates which are in force or announced as of the balance sheet date. Deferred tax assets are only recognised as assets to the extent that it is probable that they can be offset against future taxable income. Income tax liabilities on undistributed profits of Group companies are only recorded if the distribution of profits is to be made in the foreseeable future. Current and deferred tax assets and liabilities are netted when they relate to the same taxing authority and taxable entity. 3.21 Derivative financial instruments Derivative financial instruments are initially recorded at fair value and subsequently remeasured at fair value. The method of recording the fluctuations in fair value is dependent on the underlying transaction and the intention with regards thereto upon purchase or issuance of this underlying transaction. On the date a derivative contract is entered, management designates the purpose of the hedging relationship: hedge of the fair value of an asset or liability (“fair value hedge”) or a hedge of future cash flows in the case of future transactions (“cash flow hedge”). Changes in the fair value of derivative financial instruments that were designated as hedging instruments for “fair value hedges” are recognised in the income statement. Changes in the fair value of derivative financial instruments that were designated as “cash flow hedges” are recognised in the hedging reserve as part of equity. If the recognition of a non-financial asset or non-financial liability results from an anticipated future transaction, the cumulative revaluation gains and losses are reclassified from equity and included in the acquisition cost of the asset or liability. If a hedge of a future trans- action later results in the recording of a financial asset or financial liability, the amount included in equity is transferred to the income statement in the same period in which the financial asset or financial liability impacts the result. Otherwise, the amounts recorded in equity are recognised in the income statement as income or expense in the same period the cash flows of the intended or agreed future transaction occur. Changes in the fair value of derivative financial instruments that are not designated as hedging instruments are taken immediately to income. 3.22 New and amended Standards and Interpretations Amended International Financial Reporting Standards and Interpretations which will have to be applied for the first time in the accounting period As from 1 January 2014 onwards, Swisscom adopted various amendments to existing International Financial Reporting Standards (IFRS) and Interpretations, which have no material impact on the results or financial position of the Group. Standard  Name  Amendments to IFRS 10,  IFRS 12 and IAS 27  Definition of Investment entities  Amendments to IAS 39  Novation of OTC derivatives and continuing designation for hedge accounting  IFRIC 21  Levies  146 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N     Amended International Financial Reporting Standards and Interpretations, whose application is not yet mandatory The following Standards and Interpretations published up to the end of 2014 are mandatory for accounting periods beginning on or after 1 January 2015: Standard  IFRS 9  Name  Financial instruments  Amendments to IFRS 10  and IAS 28  Sale or contribution of assets between an investor  and its associate or joint venture  Amendments to IFRS 11  Accounting for acquisitions of interests in a joint operation  IFRS 14  IFRS 15  Regulatory accrual item  Revenue from contracts with customers  Amendments to IAS 1  Disclosure initiative  Amendments to IAS 16  and IAS 38  Amendments to IAS 16  and IAS 41  Clarification acceptable methods of depreciation and amortisation  Agriculture: Bearer plants  Amendments to IAS 19  Defined benefit plans: employee contributions  Amendments to IAS 27  Equity method in separate financial statements  Various  Various  Various  Improvements to IFRS 2010–2012  Improvements to IFRS 2011–2013  Improvements to IFRS 2012–2014  Effective from 1 January 2018 1 January 2016 1 January 2016 1 January 2016 1 January 2017 1 January 2016 1 January 2016 1 January 2016 1 January 2015 1 January 2016 1 January 2015 1 January 2015 1 January 2016 Swisscom will review its financial reporting for the impact of the new and amended Standards which take effect on or following 1 January 2015 and for which Swisscom did not make voluntary early application. At present, Swisscom anticipates no material impact on consolidated financial reporting with the exception of the amendment described in the following paragraph. IFRS 15 “Revenue from Contracts with Customers”: in contrast to the revenue recognition stand- ards currently in force, the new Standard provides for a single, principles-based, five-step model which is to be applied to all contracts with customers. In accordance with IFRS 15, the amount which is expected to be received from customers as consideration for the transfer of goods and services is to be recognised as revenue. As regards determining the time or period, it is no longer a question of the transfer of risks and opportunities but of the transfer of control over the goods and services to the customers. As regards multi-component contracts, IFRS 15 explicitly rules that the transaction price is to be allocated to each distinct performance obligation in relation to the relative stand-alone selling prices. Furthermore, the new Standard contains new rules regarding the costs of fulfilment and obtaining a contract as well as guidelines as to the question when such costs are to be capitalised. In addition, the new Standard requires new, more detailed note disclo- sure information. Swisscom anticipates that the wide-ranging amendments, in particular in the area of accounting for multi-component contracts and the prescribed capitalisation of customer acquisition costs, will impact consolidated financial reporting. However, a reliable estimate of the impact of IFRS 15 can only be made once a detailed analysis has been performed in a conclusive manner. 147 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N       4 Significant accounting judgments, estimates and assumptions in applying accounting policies The preparation of consolidated financial statements is dependent upon estimates and assump- tions being made in applying the accounting policies for which management can exercise a cer- tain degree of judgment. In applying the relevant accounting policies to the consolidated financial statements, certain assumptions and estimates have to be made about the future that may have a material influence on the amount and presentation of assets and liabilities, revenues and expenses as well as the disclosures in the notes. The estimates used in drawing up the consolidated finan- cial statements and valuations are based on empirical values and other factors which are deemed appropriate in the given circumstances. The following estimates used and assumptions made in applying the accounting policies have a critical influence on the consolidated financial statements. Goodwill As of 31 December 2014, the carrying amount of goodwill from acquisitions totalled CHF 4,987 mil- lion. The recoverability of goodwill is tested for impairment annually during the fourth quarter. In addition, an extraordinary review is undertaken whenever there are indications that impairment has occurred. The value of goodwill is primarily dependent upon projected cash flows, the discount rate (WACC) and long-term growth rate. The significant assumptions are disclosed in Note 24. Changes to these assumptions may result in an impairment loss in the following year. Post-employment benefits Defined-benefit obligations are calculated on the basis of various financial and demographic assumptions. The key assumptions for valuing the retirement-benefit obligations are the discount rate, future salary and pension increases, interest on pension plan savings as well as life expec- tancy. As of 31 December 2014, the funding deficit of CHF 2,441 million was recognised as a liabil- ity in the consolidated balance sheet. Changes in estimates can impact recorded defined-benefit obligations. The equal distribution of risk prescribed by law and in the regulations in the event of a funding deficit is not taken into account when measuring the obligation. See Note 10. Provisions for dismantling and restoration costs Provisions are raised for costs incurred in connection with dismantling and restoring telecommu- nication installations and transmitter stations. As of 31 December 2014, the carrying amount of these provisions totalled CHF 646 million. The level of the provisions is primarily determined by estimates of future costs for dismantling and restoration and the timing of the dismantling. An increase in the estimated costs by 10% would result in an increase in the provision of CHF 60 mil- lion. A postponement of the date of dismantling by ten years would lead to a decrease in the provi- sions of CHF 29 million. See Note 28. Provisions for regulatory proceedings Various proceedings are in course in connection with the setting of prices for regulated access services. Swisscom has set up provisions on the basis of its own estimate of the expected financial outcome thereof. As of 31 December 2014, the provisions for regulatory proceedings aggregated CHF 106 million. Further developments in the proceedings or a decision by the competent court may result in a revised assessment of the financial outcome in subsequent years, thereby leading to an increase or decrease of the recorded provisions. See Note 28. 148 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   Proceedings conducted by the Competition Commission The Competition Commission (ComCo) is conducting an investigation into ADSL prices against Swisscom. The proceedings are described in Note 29. In the event that Swisscom is deemed to have violated Antitrust Law, ComCo is entitled to impose sanctions. On the basis of a legal opinion, Swisscom considers it unlikely that ComCo will impose direct sanctions. Accordingly, no provisions were recognised in the 2014 consolidated financial statements in connection with these proceed- ings. Further developments in the proceedings may result in a revised assessment of the financial outcome in subsequent years and lead to the need to record provisions. Allowances for doubtful receivables Allowances for doubtful receivables are recorded in order to cover foreseeable losses arising from a customer’s inability to pay. As of 31 December 2014, the carrying value of allowances for trade and other receivables totalled CHF 210 million. In determining the appropriateness of the allowance, several factors are considered. These include the ageing structure of receivables, the current finan- cial solvency of the customer and the historical experience with receivable losses. The actual level of receivable losses may be higher than the amount recognised if the actual financial situation of the customers is worse than originally expected. See Note 18. Deferred income tax assets The recognition of deferred tax assets and liabilities is based on the judgment of management. Deferred tax assets on tax loss carry-forwards are only recognised if it is probable that they can be used. Whether or not they can be used depends on whether taxable profits can be achieved in the future which can be offset against the available tax loss carry-forwards. In order to assess the probability of their future use, estimates must be made of various factors such as future profita- bility. If the actual results differ from the estimates, this can lead to a change in the assessment of recoverability of the deferred tax assets. On 31 December 2014, recognised deferred tax assets amounted to CHF 950 million. See Note 15. Useful lives of property, plant and equipment As of 31 December 2014, the carrying amount of property, plant and equipment totalled CHF  9,720  million. In assessing the useful life of an item of property, plant and equipment, the expected use of the asset by the company, expected physical wear and tear, technological develop- ments as well as past experience with comparable assets are considered. The assessment of useful lives is based upon the judgment of management. A change in the useful lives may impact the future level of depreciation and amortisation recorded. See Notes 3.7 and 23. 149 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   5 Business combinations Business combinations in 2014 In 2014, Swisscom made payments totalling CHF 305 million for the acquisition of Group companies. Of this amount, CHF 288 million relates to the takeover of PubliGroupe in September 2014. Public takeover of PubliGroupe SA In June 2014, Swisscom launched a public takeover bid for PubliGroupe SA (PubliGroupe). Swisscom offered the shareholders of PubliGroupe a price of CHF 214 per share, which corresponds to a total purchase consideration of CHF 474 million. Upon expiration of the offer period on 25 August 2014, Swisscom held 98.37% of the share capital of PubliGroupe and the takeover was consummated on 5 September 2014. The purchase consideration for the 98.37% of the share capital was CHF 466 mil- lion. Because the threshold of 98% within the framework of public takeover bid was exceeded, Swisscom may initiate a procedure to have the remaining non-controlling interests cancelled in consideration for the payment of the offer price of CHF 214 per share. The purchase consideration of CHF 8 million for the remaining 1.63% of the share capital was recognised as a liability in the third quarter of 2014. The takeover of PubliGroupe was primarily to achieve full control over and further develop the Local Group. PubliGroupe is active primarily in the Swiss directories market and owns a 51% shareholding in LTV Yellow Pages Ltd and a 49% shareholding in Swisscom Directories Ltd and local.ch Ltd (Local Group). Prior to the acquisition, Swisscom had held a 49% interest in LTV Yellow Pages Ltd and a 51% shareholding in Swisscom Directories Ltd and local.ch Ltd. Until then, Swisscom Directories Ltd and local.ch Ltd were treated as fully consolidated subsidiaries in the consolidated financial statements of Swisscom and LTV Yellow Pages Ltd was accounted for as an associated company. Of the purchase consideration, an amount of CHF 162 million represents the acquisition of the out- standing non-controlling interests in Swisscom Directories Ltd and local.ch Ltd. As Swisscom held a controlling interest in Swisscom Directories Ltd and local.ch Ltd prior to the takeover, the trans- action is dealt with in shareholders’ equity. The carrying value in Swisscom’s consolidated financial statements of its 49% shareholding in LTV Yellow Pages Ltd at the time of the takeover amounted to CHF 26 million. In accordance with IFRS, the difference of CHF 82 million between the carrying value and the fair value was recognised as other financial income in the third quarter of 2014. Fol- lowing the takeover, LTV Yellow Pages Ltd and local.ch Ltd were merged into Swisscom Directories Ltd. PubliGroupe holds, in addition, further shareholdings in media companies and media service providers as well as being the owner of real estate properties. Swisscom plans to sell the sharehold- ings as well as the real-estate properties to the media companies. For further information see Note 22. Swisscom will examine all options regarding the further shareholdings. By the end of 2014, various investments were sold to media companies for a price of CHF 57 million. 150 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   In accordance with IFRS, the acquisition costs for the acquisition of PubliGroupe amounted to CHF 420 million. This is comprised of the purchase price for PubliGroupe shares of CHF 474 million and the fair value of the previous 49% participation in LTV Yellow Pages Ltd of CHF 108 million, less the fair value of the non-controlling shares of Swisscom Directories Ltd and local.ch Ltd of CHF  162  million. The business combination was accounted for provisionally in the consolidated financial statements as at 31 December 2014, since not all the necessary information concerning the acquired foreign operations was available at the time of preparing these year-end financial statements. The provisional allocation of acquisition costs to the net assets of PubliGroupe may be analysed as follows: In CHF million  Cash and cash equivalents  Other financial assets  Non-current assets held for sale. See Note 22.  Investments in associates. See Note 25.  Property, plant and equipment  Other intangible assets  Receivables from pension plans  Other current and non-current assets  Deferred tax liabilities  Financial liabilities  Other current and non-current liabilities  Identifiable assets and liabilities  Goodwill  Purchase consideration  Cash and cash equivalents acquired  Investments in associates. See Note 25.  Deferred payment of purchase price  Total cash outflow  2014 16 42 137 48 4 63 15 48 (11) (20) (114) 228 192 420 (16) (108) (8) 288 The gross value of the trade receivables acquired amounts to CHF 47 million. At the time of the takeover, it was anticipated that, of this amount, CHF 7 million was irrecoverable. The main reasons for the recognition of goodwill are the future anticipated synergies and additional market shares as well as the qualified employees. Transaction costs of CHF 1 million were recorded as other oper- ating expenses in connection with the takeover of PubliGroupe. Swisscom’s consolidated finan- cial statements as of and for the year ended 31 December 2014 reflect additional net revenues of CHF  41  million as well as net income of CHF 6 million since the takeover of PubliGroupe on 5 September 2014. On the assumption that PubliGroupe had been included in the consolidated financial statements as from 1 January 2014, there would have resulted consolidated pro-forma net revenues of CHF 11,753 million and a consolidated pro-forma net income of CHF 1,712 million. Business combinations in 2013 Payments totalling CHF 60 million were made in 2013 for the acquisition of Group companies. Of this amount, CHF 3 million relates to deferred consideration for business combinations in prior years and CHF 57 million for businesses acquired in 2013. The newly acquired companies in 2013 are viewed individually as non-significant business combinations and are thus reported on an aggregate basis. In February 2013, Hospitality Services acquired the operating business of Deuromedia. Deuromedia provides IP-based infotainment solutions for the hospitality market. At the end of March 2013, Datasport Ltd acquired the entire share capital of Abavent GmbH. Abav- ent GmbH is a German provider of sporting events. In April 2013, Swisscom IT Services acquired the business platform from Entris Banking and in doing so, the entire capital of Entris Integrator AG. Using the business platform of Entris Integrator AG, banks execute their banking activities such as the processing of payment transactions, credit and security settlements or e-banking. Following acquisition, the investee changed its name to Swisscom 151 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   Banking Provider Ltd. In addition, in June 2013, Swisscom IT Services Ltd acquired the entire share capital of Entris Operations AG. Entris Operations AG processes primarily the cash and securities settlement operations for some 50 banks. Following acquisition, Entris Operations AG was merged into Swisscom Banking Provider Ltd. Furthermore, Swisscom increased its shareholding in CT Cinetrade Ltd (Cinetrade) from 49% to 75% in April 2013. Cinetrade offers TV-related services, Pay-TV, transmissions of sporting events and video-on-demand. Cinetrade additionally operates one of the leading cinema chains in Switzerland. In December, Swisscom Switzerland acquired a 67% equity holding in DL-Groupe GMG Ltd, which provides services in the field of IP-based managed unified communication and collaboration services. The aggregate allocation of acquisition costs to the net assets may be analysed as follows: In CHF million  Cash and cash equivalents  Property, plant and equipment  Other intangible assets  Other current and non-current assets  Deferred tax liabilities  Other current and non-current liabilities  Identifiable assets and liabilities  Share of identifiable net assets attributable to non-controlling interests  Goodwill  Purchase costs  Cash and cash equivalents acquired  Investments in associates. See Note 25.  Option from business combinations. See Note 33.  Cash outflow from business combinations of the current year  Cash outflow from business combinations of prior years  Total cash outflow from business combinations  2013 55 32 66 43 (15) (84) 97 (19) 159 237 (55) (105) (20) 57 3 60 152 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N The main reasons for the recognition of goodwill are the future anticipated synergies and addi- tional market shares as well as the qualified employees. In the 2013 consolidated financial state- ments, additional net revenues of CHF 172 million and net income of CHF 17 million were gener- ated from these business combinations. Assuming that the subsidiary companies acquired in 2013 had been included in the consolidated financial statements as from 1 January 2013, there would have resulted consolidated pro-forma net revenues of CHF 11,529 million and a consolidated pro- forma net income of CHF 1,700 million. 6 Segment information Operating segments requiring to be reported are determined on the basis of the management approach. Accordingly, external segment reporting reflects the internal organisational and man- agement structure used within the Group as well as internal financial reporting to the Chief Operat- ing Decision Maker. The segment information disclosed is in line with that of the internal reporting systems. Reporting is divided into the segments “Residential Customers”, “Small and Medium-Sized Enterprises”, “Corporate Business”, “Wholesale” and “Network & IT” which are grouped under Swisscom Switzerland, “Fastweb” and “Other Operating Segments”. In addition, unallocated costs are reported separately under “Group Headquarters”. In segment reporting, the business divisions of Swisscom Switzerland are reported as individual segments. The support functions of finance, human resources and strategy of Swisscom Switzer- land are embedded in the division Network & IT. No network costs are recharged for the financial management of customer segments. The results of the customer segments Residential Customers, Small and Medium-Sized Enterprises, Corporate Business and the segment Wholesale thus report their contribution margins prior to network costs. Network costs are planned, monitored and con- trolled by the business division Network & IT which is managed as a cost centre. For this reason,   no revenue is credited to the Network & IT division within segment reporting. The segment results of Network & IT consist of operating expenses and depreciation and amortisation less capitalised self-constructed assets and other income. The sum of the segment results of Swisscom Switzer- land corresponds in aggregate to the operating results (EBIT) of Swisscom Switzerland. Fastweb is one of the largest fixed-network operators and a leading provider of IP-based services in Italy. It is reported in the consolidated financial statements as a separate segment. Other Operating Segments principally comprise Swisscom IT Services, Swisscom Real Estate and the area Participa- tions. Group Headquarters which includes unallocated costs, comprises mainly the Group central divisions of Swisscom, Swisscom Re Ltd and the employment company Worklink Ltd. The services offered by each operating segment are described in Note 3.16. The segment results of the segments Fastweb and Other Operating Segments correspond to the operating result (EBIT) of these units. The latter reflects the net revenues from external customers and other segments less segment expenses and depreciation, amortisation and impairment losses on property, plant and equipment and intangible assets. Segment expenses include the costs of materials and ser- vices, personnel costs and other operating costs less capitalised self-constructed assets and other income. The segment expense includes ordinary employer contributions as retirement-benefit expense. The difference between the ordinary employer contributions and the retirement-benefit expense as provided for under IAS 19 is reported in the column “Eliminations”. In 2014, no costs are included in the column “Eliminations” as a reconciling item to retirement-benefit expense in accordance with IAS 19 (prior year: gain of CHF 17 million). Group Headquarters charges no management fees to other segments for its financial management services; similarly, the segment Network & IT recharges no network costs to the other segments. Other inter-segment services are recharged at market prices. Unrealised gains and losses may arise as a result of recharging services and sales of assets between the segments. These are eliminated and are reported in the segment information in the column “Eliminations”. Capital expenditures by segment include additions to property, plant and equipment and other intangible assets. Segment information for 2014 of Swisscom may be analysed as follows: 2014, in CHF million  Swisscom Switzerland Fastweb Other operating segments Group Head- quarters Net revenue from external customers  8,571 2,043 1,088 Net revenue with other segments  Net revenue  Segment result  Financial income and financial expense, net  Share of results of associates  Income before income taxes  Income tax expense  Net income  Associates  Assets held for sale  Capital expenditure in property, plant and  equipment and other intangible assets  Depreciation, amortisation and impairment losses  Gain (loss) on disposal of property,  plant and equipment, net  Share of results of associates  60 8,631 2,403 68 – 1,571 1,173 (2) 26 4 801 2,047 1,889 1 1 2 (119) 186 (126) 47 – 682 744 – – 56 80 236 175 51 – – – – 5 – – Elimi- nation Total – 11,703 (866) (866) (22) – – (29) (6) – – – 11,703 2,322 (260) 26 2,088 (382) 1,706 171 80 2,460 2,091 49 26 153 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N         Segment information 2014 of Swisscom Switzerland is to be analysed as follows: 2014, in CHF million  Small and Medium- Sized Enterprises Residential Customers Corporate Business Whole- sale Network & IT Elimi- nation Total Swisscom Switzer- land Net revenue from external customers  5,168 1,139 1,694 Net revenue with other segments  Net revenue  Segment result  Associates  Capital expenditure in property, plant and  equipment and other intangible assets  158 5,326 2,823 3 172 Depreciation, amortisation and impairment losses  128 Gain (loss) on disposal of property,  plant and equipment, net  Share of results of associates  (1) 2 20 94 1,159 1,788 850 832 – 25 6 – – – 83 68 – – 570 359 929 381 64 – – – 24 – – – (2,483) 1 1,291 971 (1) – – 8,571 (571) (571) – – – – – – 60 8,631 2,403 68 1,571 1,173 (2) 26 Segment information 2013 of Swisscom is to be analysed as follows: 2013, in CHF million  Swisscom Switzerland Fastweb Other operating segments Group Head- quarters Net revenue from external customers  8,389 2,013 1,032 5 787 2,018 1,819 (120) 108 (135) – 1 1 Elimi- nation Total – 11,434 (853) (853) (38) – 11,434 2,258 (259) 30 2,029 (334) 1,695 153 13 2,445 2,044 3 30 49 – 695 740 – – 11 13 244 195 13 – – – – 8 – – – – (10) (3) – – Net revenue with other segments  Net revenue  Segment result  Financial income and financial expense, net  Share of results of associates  Income before income taxes  Income tax expense  Net income  Associates  Assets held for sale  Capital expenditure in property, plant and  equipment and other intangible assets  Depreciation, amortisation and impairment losses  Gain (loss) on disposal of property,  plant and equipment, net  Share of results of associates  60 8,449 2,443 93 – 1,516 1,104 (10) 30 154 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N                 Segment information 2013 of Swisscom Switzerland is to be analysed as follows: 2013, in CHF million  Small and Medium- Sized Enterprises Residential Customers Corporate Business Whole- sale Network & IT Elimi- nation Total Swisscom Switzer- land Net revenue from external customers  4,985 1,128 1,688 Net revenue with other segments  Net revenue  Segment result  Associates  Capital expenditure in property, plant and  equipment and other intangible assets  160 5,145 2,790 29 199 Depreciation, amortisation and impairment losses  108 Gain (loss) on disposal of property,  plant and equipment, net  Share of results of associates  – 9 23 99 1,151 1,787 859 832 – 17 5 – – – 92 75 (1) – 588 378 966 384 63 – – – 21 – – – (2,423) 1 1,208 917 (9) – – 8,389 (600) (600) 1 – – (1) – – 60 8,449 2,443 93 1,516 1,104 (10) 30 Disclosures by geographical regions Swisscom’s operations are conducted mainly in Switzerland where it provides a comprehensive range of telecommunication services. Business activities abroad mainly relate to Fastweb and Swisscom Hospitality Services. Fastweb primarily provides fixed-network and IP-based products in Italy. Swisscom Hospitality Services is a provider of broadband and Internet-based solutions for hotel guests in virtually all of Europe, the United States and Asia. Net revenues and assets are allo- cated to regions. Net revenues and assets are allocated according to the registered office of the related Group company. In CHF million  Switzerland  Italy  Other countries in Europe  Other countries outside Europe  Not allocated  Total  Disclosures by products and services In CHF million  Mobile access lines single subscriptions  Fixed access lines single subscriptions  Bundles  Other  Not allocated  Total net revenue  Net revenue 9,586 2,048 55 14 – 2014 Non-current assets 13,423 3,281 151 – 651 Net revenue 9,358 2,020 48 8 – 2013 Non-current assets 12,726 3,414 87 1 472 11,703 17,506 11,434 16,700 2014 2,852 3,832 1,938 3,080 1 2013 2,874 4,027 1,576 2,956 1 11,703 11,434 155 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N The products and services offered by each operating segment are described in Note 3.16. Significant customers Swisscom has a large number of customers. No individual customers accounted for more than 10% of segment revenue in 2013 and 2014.               7 Net revenue In CHF million  Net revenue from services  Net revenue from sale of merchandise  Net revenue from the right of use of intangible assets  Total net revenue  2014 10,874 828 1 2013 10,556 875 3 11,703 11,434 Further information on Swisscom’s business activities is set out in Notes 3.16 and 6. 8 Goods and services purchased In CHF million  Raw materials and supplies  Services purchased  Customer premises equipment and merchandise  National traffic fees  International traffic fees  Traffic fees of foreign subsidiaries  Total goods and services purchased  9 Personnel expense In CHF million  Salary and wage costs  Social security expenses  Expense of defined benefit plans. See Note 10.  Expense of defined contribution plans. See Note 10.  Expense of share-based payments. See Note 11.  Salary and wage costs of the employment company Worklink  Termination benefits  Other personnel expense  Total personnel expense  Termination benefit programmes 2014 42 503 1,103 176 246 299 2013 24 502 1,022 180 265 345 2,369 2,338 2014 2,194 232 244 10 5 5 (1) 62 2,751 2013 2,132 224 258 11 6 2 6 67 2,706 Swisscom supports employees affected by downsizing through a social plan. Depending on the relevant social plan as well as age and length of service, certain employees affected by downsizing may transfer to the employment company Worklink Ltd. The employment company Worklink Ltd hires out participating employees to third parties on a temporary basis. For further information see Note 28. 156 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   10 Post-employment benefits Defined-benefit plans Swisscom maintains several pension plans for employees in Switzerland and Italy. Expenses of defined benefit plans totalled CHF 268 million in 2014 (prior year: CHF 295 million). Of this amount, CHF 244 million (prior year: CHF 258 million) was recorded as personnel expense and CHF 24 million (prior year: CHF 37 million) as finance expense. comPlan The majority of Swisscom’s employees in Switzerland are insured for the risks of old age, death and disability by the independent pension plan, comPlan. The benefits of comPlan exceed the minimum laid down in the Federal Law on Occupational Retirement, Survivors’ and Disability Insurance (BVG). The ordinary employer contributions encompass risk contributions of 3.35% and contributions var- ying with age of 5-13% of the insured salary to be credited to the individual retirement savings’ accounts. The standard retirement age is 65. Employees qualify for early retirement at the earliest on their 58th birthday, whereby the rate of conversion is reduced in line with the longer expected duration of pension payments. Furthermore, employees may choose to take their entire pension or part thereof in the form of a capital payment. The amount of the pension paid results from the conversion rate which is applied to the accumulated savings of the individuals concerned in the case of retirement. For individuals retiring at the age of 65, the rate of conversion is 6.4% up to the end of 2013. From 2014 onwards, the conversion rate was reduced to 6.11%. The accumulated savings result from employee and employer contributions which are paid into the individual sav- ings account of each individual insured person as well as the interest accruing on the accumulated savings. The interest rate to be applied to the accumulated pension savings is defined annually by the Foundation Council of comPlan. comPlan has the legal form of a foundation. The Foundation Council, which is constituted by an equal number of representatives of the employer and employ- ees, is responsible for the management of the Foundation. The duties of the Foundation Council are laid down in the BVG and the Pension Fund Rules. In accordance with BVG, a temporary short- fall is permitted. The Foundation Council must take appropriate measures in order to solve the shortfall within a reasonable time. Pursuant to BVG, additional employer and employee contribu- tions may be incurred whenever a significant shortfall in accordance with BVG arises. In such cases, the risk is split between the employer and employees and the employer is not legally obligated to assume more than 50% of the additional contributions. As of 31 December 2014, the funding ratio as defined by BVG of comPlan was 111% (prior year: 106%). The Investment Commission is the central management, coordination and monitoring body for the management of the pension plan assets. The pension plan assets are administered using mandated, independent financial service providers. Monitoring is supported by an external investment controller. The Foundation Council determines the investment strategy within the framework of the legal provisions. Within its terms of reference, the Investment Commission may undertake the asset allocation. Other pension plans In addition to various smaller pension plans in Switzerland, other pension plans include the pen- sion plan for Fastweb employees and the pension plan of the PubliGroupe. Employees of the Ital- ian subsidiary Fastweb have acquired entitlements to future pension benefits up to the end of 2006. These benefits are recorded in the balance sheet as defined-benefit obligations. With the PubliGroupe pension fund, employees of PubliGroupe Group companies in Switzerland are insured against the risks of age, death and disability. The amount of the pension paid results from the con- version rate which is applied to the accumulated savings of the individuals concerned in the case of retirement. For individuals retiring at the age of 65, the rate of conversion is 6.4%. The accumulated savings result from employee and employer contributions which are paid into the individual sav- ings account of each individual insured person as well as the interest accruing on the accumulated savings. 157 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   Pension cost Defined-benefit pension plans In CHF million  Current service cost  Plan amendments  Administration expense  Employment termination benefits  Total recognised in personnel expense  Interest cost on net defined benefit obligations  Total recognised in financial expense  Total expense of defined benefit plans  recognised in income statement  comPlan Other plans 2014 comPlan Other plans 234 – 3 – 237 24 24 261 6 – 1 – 7 – – 7 240 244 – 4 – 244 24 24 – 3 6 253 37 37 268 290 7 (3) 1 – 5 – – 5 2013 251 (3) 4 6 258 37 37 295 In addition, other comprehensive income includes an actuarial loss of CHF 1,161 million (prior year: actuarial gain of CHF 847 million) which may be analysed as follows: In CHF million  comPlan Other plans 2014 comPlan Other plans 2013 Actuarial gains and losses from:  Change of the financial assumptions  Experience adjustments to defined benefit obligations  Return on plan assets excluding the  recognised part of financial result  Total expense (income) of defined benefit plans  recognised in other comprehensive income  1,536 (102) 52 – 1,588 (102) (384) (165) (24) 2 (408) (163) (315) (10) (325) (272) (4) (276) 1,119 42 1,161 (821) (26) (847) Defined-contribution pension plans Expenses in 2014 for defined-contribution plans aggregated CHF 10 million (prior year: CHF 11 million). 158 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   Status of pension plans In CHF million  comPlan Other plans 2014 comPlan Other plans 2013 Defined benefit obligations  Balance at 1 January  Current service cost  Interest cost on defined benefit obligations  Employee contributions  Benefits paid  Actuarial losses (gains)  Additions from acquisition of subsidiaries  Plan amendments  Employment termination benefits  Transfer of pension plans to comPlan  Balance at 31 December  Plan assets  Balance at 1 January  Interest income on plan assets  Employer contributions  Employee contributions  Benefits paid  Return on plan assets excluding the  recognised part of financial result  Additions from acquisition of subsidiaries  Plan amendments  Administration expense  Transfer of pension plans to comPlan  Balance at 31 December  Net defined benefit obligations  9,533 162 9,695 9,823 107 9,930 234 218 162 (259) 1,434 – – – 84 11,406 6 – – – 52 589 – – (84) 725 240 218 162 (259) 1,486 589 – – – 244 188 152 (331) (549) – – 6 – 7 2 2 (6) (22) 85 (13) – – 251 190 154 (337) (571) 85 (13) 6 – 12,131 9,533 162 9,695 8,286 116 8,402 7,772 50 7,822 194 259 162 (259) 315 – – (3) 72 9,026 – 7 – – 10 604 – (1) (72) 664 194 266 162 (259) 325 604 – (4) – 151 273 152 (331) 272 – – (3) – 2 3 2 (4) 4 70 (10) (1) – 153 276 154 (335) 276 70 (10) (4) – 9,690 8,286 116 8,402 Net defined benefit obligations recognised at 31 December  2,380 61 2,441 1,247 46 1,293 Movements in recognised defined-benefit obligations are to be analysed as follows: In CHF million  Balance at 1 January  Pension cost, net  Employer contributions and benefits paid  Additions from acquisition of subsidiaries  Expense (income) of defined benefit plans  recognised in other comprehensive income  Transfer of pension plans to comPlan  Balance at 31 December  comPlan Other plans 2014 comPlan Other plans 1,247 261 (259) – 1,119 12 2,380 46 7 (7) (15) 42 (12) 61 1,293 2,051 268 (266) (15) 1,161 – 290 (273) – (821) – 2,441 1,247 57 5 (5) 15 (26) – 46 2013 2,108 295 (278) 15 (847) – 1,293 The weighted average duration of the net present value of the recorded pension obligations is 18 years (prior year: 17 years). Breakdown of pension plan assets comPlan The breakdown of the comPlan’s pension assets by the various investment categories and invest- ment strategy is as follows: 159 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N             Category  Government bonds Switzerland  Corporate bonds Switzerland  Investment strategy 10.0% 8.0% Quoted 5.3% 8.7% Government bonds World-developed markets  11.0% 11.0% Corporate bonds World-developed markets  Government bonds World-emerging markets  Private Debt  Third-party debt instruments  Equity shares Switzerland  8.0% 6.0% 5.0% 7.9% 6.6% – 48.0% 39.5% 5.0% 6.2% Equity shares world developed markets  12.0% 12.7% Equity shares world emerging markets  Equity instruments  Real estate Switzerland  Real estate World  Real estate  Commodities  Private markets  Hedge Funds  8.0% 25.0% 11.0% 4.0% 8.1% 27.0% 8.1% 4.1% 15.0% 12.2% 4.0% 7.0% – 1.2% – – – – – – – 1.0% 8.7% – – – – 2.3% – 2.3% 2.6% 5.1% – 31.12.2014 31.12.2013 Not quoted Total Quoted 7.7% 13.0% 8.7% 11.0% 7.9% 6.6% 1.0% 10.8% 11.2% 10.2% 1.2% 5.5% – Not quoted 8.4% – – – – – Total 19.2% 11.2% 10.2% 1.2% 5.5% – 48.2% 38.9% 8.4% 47.3% 6.2% 7.7% 12.7% 14.4% 8.1% 27.0% 10.4% 4.1% 6.0% 28.1% 6.6% 3.8% – – – – 1.0% – 7.7% 14.4% 6.0% 28.1% 7.6% 3.8% 14.5% 10.4% 1.0% 11.4% 3.8% 5.1% – 3.0% 1.3% 0.7% – 3.6% – 3.0% 4.9% 0.7% 4.6% Cash and cash equivalents and other investments  1.0% 1.4% 1.4% – 4.6% Cash and cash equivalents and  alternative investments  12.0% 1.2% 9.1% 10.3% 5.0% 8.2% 13.2% Total plan assets  100.0% 79.9% 20.1% 100.0% 82.4% 17.6% 100.0% The investment strategy pursues the goal of achieving the highest possible return on assets within the framework of its risk tolerance and thus of generating income on a long-term basis in order to meet all financial obligations. This is achieved through a broad diversification of risks over var- ious investment categories, markets, currencies and industry segments in both developed and emerging markets. The interest-rate duration of interest-bearing investments is 5.71 years (prior year: 4.74 years) and the average rating of these investments is A. Within the overall portfolio, all foreign-currency positions are hedged against the Swiss franc following a currency strategy to the extent necessary to meet a pre-determined ratio. The unquoted and therefore rather illiquid investments make up 20% of total plan assets. Following this investment strategy, comPlan antici- pates a target value for the value fluctuation reserve of 16.0% (basis: 2015 financial year). Other pension plans The split of the assets of the other plans over the various investment categories and investment strat- egy is as follows: 31.12.2014 31.12.2013 Category  Switzerland  Abroad  Third-party debt instruments  Switzerland  Abroad  Equity instruments  Switzerland  Real estate  Private markets  Quoted Not quoted Total Quoted Not quoted Investment strategy 21.0% 18.0% 39.0% 16.5% 8.0% 16.8% 13.7% 30.5% 22.9% 9.4% 24.5% 32.3% 26.0% 14.1% 11.5% 26.0% 14.1% 11.5% 3.5% – – 2.8% 8.8% – – – – – – 16.8% 13.7% 30.5% 22.9% 9.4% 32.3% 25.6% 25.6% 2.8% 8.8% 6.7% – 6.7% 20.9% – 20.9% 5.1% 5.1% – – Total 6.7% – 6.7% 20.9% – 20.9% 5.1% 5.1% – – – – – – – – – – Cash and cash equivalents and other investments  7.0% 67.3% 67.3% Cash and cash equivalents and  alternative investments  10.5% – 11.6% 11.6% – 67.3% 67.3% Total plan assets  100.0% 76.9% 23.1% 100.0% 32.7% 67.3% 100.0% 160 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N           The investment strategy pursues the goal of achieving the highest possible return on assets within the framework of its risk tolerance and thus of generating income on a long-term basis in order to meet all financial obligations. This is achieved through a broad diversification of risks over various investment categories, markets, currencies and industry segments. Additional information on plan assets As of 31 December 2014, plan assets include Swisscom Ltd shares and bonds with a fair value of CHF 7 million (prior year: CHF 6 million). The effective return on plan assets in 2014 amounted to CHF 519 million (prior year: CHF 429 million). In 2015, Swisscom expects to make payments to the pension funds for ordinary employee contri- butions totalling CHF 239 million (excluding payments for early retirements and changes to the pension plan). Actuarial assumptions Assumptions  Discount rate at 31 December  Expected rate of salary increases  Expected rate of pension increases  Interest on old age savings accounts  Longevity at age of 65 – men (number of years)  Longevity at age of 65 – women (number of years)  2014 2013 comPlan Other plans comPlan Other plans 1.13% 1.75% 0.10% 1.13% 21.39 23.86 1.31% 1.81% 0.10% 1.13% 21.39 23.86 2.30% 2.24% 0.10% 2.30% 21.29 23.76 2.85% 2.19% 0.10% 2.30% 21.29 23.76 The discount rate is based upon CHF-denominated corporate bonds with an AA rating issued by domestic and foreign issuers and listed on the Swiss Exchange. Future growth factors for salaries correspond to a long-term historical average value which is specific to Swisscom. Growth in pen- sions reflects comPlan’s ability to meet future pension increases based on the assumptions made. Interest accruing on the retirement savings equates the discount rate. From 2012 on, Swisscom applies the BVG 2010 generation tables for life-expectancy assumptions. Sensitivity analysis comPlan In CHF million  Discount rate (change +/–0.5%)  Expected rate of salary increases (changes +/– 0.5%)  Expected rate of pension increases (change +0.5%; –0.1%)  Interest on old age savings accounts (change +/– 0.5%)  Longevity at age of 65 (change +/–1 year)  Defined benefit obligations Current service cost 1 Increase Assumption Decrease Assumption Increase Assumption Decrease Assumption (855) 78 749 117 156 990 (73) (141) (106) (158) (37) 8 27 8 4 45 (7) (5) (7) (4) 1 The sensitivity refers to the current service cost recorded in personnel expense. The sensitivity analysis takes into consideration the movement in pension-fund obligations as well as current service costs in adjusting the actuarial assumptions by half a percentage point and a year, respectively. In the process, only one of the assumptions is adjusted each time, the other param- eters remain unchanged. In the sensitivity analysis in view of a negative movement in pension increases, only a change of -0.1% was made as the reduction in pension benefits is not possible. 161 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N           11 Share-based payments In CHF million  Share-based payments Management Incentive Plan  Other share-based payments  Total expense of share-based payments  Management Incentive Plan 2014 2013 3 2 5 2 4 6 The Management Incentive Plan is an equity-share plan for members of the Group Executive Board and Board of Directors as well as for other members of management. The members of the Board of Directors are paid a portion of the management fee in Swisscom shares. Members of the Group Executive Board receive 25% of their variable performance-related salary component in Swisscom shares. Group Executive Board members may increase this share up to a maximum of 50%. The shares are allocated based on their tax values. The level of the earnings-related compensation and the number of shares allocated are determined in the subsequent business year once the financial statements are finalised. The shares allocated to the members of the Group Executive Board are based on the variable earnings-related compensation of the prior year as reported. The tax value per share amounts to CHF 449 (prior year: CHF 371). The shares are subject to a retention period of three years from the grant date. The shares are vested immediately upon delivery. In 2014, the allocation and cost of share-based payments to the members of the Board of Directors and of the Group Executive Board may be analysed as follows: Allocation 2014  Members of the Board of Directors  Members of the Group Executive Board 1 Other Management Members  Total 2014  1 Allocation for the financial year 2013. Number of allocated shares Market price in CHF Expense in CHF million 1,374 1,599 1,760 4,733 535 535 535 535 0.7 0.9 0.9 2.5 In 2013, the allocation and cost of share-based payments to the members of the Board of Directors and of the Group Executive Board may be analysed as follows: Allocation 2013  Members of the Board of Directors  Members of the Group Executive Board 1 Total 2013  1 Allocation for the financial year 2012. Number of allocated shares Market price in CHF Expense in CHF million 1,667 2,707 4,374 442 442 442 0.7 1.2 1.9 Other share-based payments plans As recognition for exceptional services rendered during the financial year, equity share premiums may be awarded to a maximum of 10% of employees. In 2014, 4,520 shares with a market price of CHF 535 per share were issued gratuitously and an expense of CHF 2 million was recorded. In the prior year, 10,270 shares with a market price of CHF 442 were issued gratuitously for exceptional services rendered and an expense of CHF 4 million was recorded. 162 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N           12 Other operating expense In CHF million  Rental expense  Maintenance expense  Loss on disposal of property, plant and equipment  Energy costs  Information technology cost  Advertising and selling expenses  Dealer commissions  Consultancy expenses and freelance employees  Allowances for receivables  Administration expense  Miscellaneous operating expenses  Total other operating expense  2014 346 322 11 83 239 221 349 199 87 145 538 2013 334 312 13 102 221 215 364 201 83 161 470 2,540 2,476 13 Capitalised costs of self-constructed assets and other income In CHF million  Capitalised self-constructed assets  Gain on sale of property, plant and equipment. See Note 22.  Income from employment company Worklink (personnel hire)  Miscellaneous income  Total capitalised self-constructed assets and other income  2014 267 60 6 37 370 2013 256 16 4 112 388 Capitalised costs of self-constructed assets include personnel costs for the production of technical installations, the construction of network infrastructures and the development of software for internal use. 14 Financial income and financial expense In CHF million  Interest income on financial assets  Change in fair value of interest rate swaps  Capitalised borrowing costs  Gain on successive company acquisitions. See Note 5.  Adjustment to dismantlement and restoration costs. See Note 28.  Foreign exchange gains  Other financial income  Total financial income  Interest expense on financial liabilities  Change in fair value of interest rate swaps  Interest expense on defined benefit obligations. See Note 10.  Present-value adjustments on provisions  Expense of early repayment of financial liabilities. See Note 26.  Other financial expense  Total financial expense  Financial income and financial expense, net  2014 2013 10 – 12 82 – 1 7 112 (228) (46) (24) (16) (41) (17) (372) (260) 8 30 15 – 21 5 2 81 (259) – (37) (15) – (29) (340) (259) 163 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   The net interest expense on financial assets and financial liabilities is to be analysed as follows: In CHF million  Interest income on cash and cash equivalents  Interest income on other financial assets  Total interest income on financial assets  Interest expense on bank loans, debenture bonds and private placements  Interest expense on finance lease liabilities  Interest expense on other financial liabilities  Total interest expense on financial liabilities  Total financial income and financial expense, net  15 Income taxes Income tax expense In CHF million  Current income tax expense  Adjustments recognised for current tax of prior periods  Deferred tax expense  Total income tax expense recognised in income statement  Thereof Switzerland  Thereof foreign countries  2014 1 9 10 (189) (36) (3) (228) (218) 2014 373 5 4 382 412 (30) 2013 1 7 8 (214) (41) (4) (259) (251) 2013 322 (20) 32 334 354 (20) Additionally the other comprehensive income includes positive income taxes of CHF 254 million (prior year: expense of CHF 184 million) which may be analysed as follows: In CHF million  Foreign currency translation adjustments of foreign subsidiaries  Actuarial gains and losses from defined benefit pension plans  Change in fair value of cash flow hedges  Gains and losses from cash flow hedges transferred to income statement  Total income tax expense recognised in other comprehensive income  2014 15 242 (2) (1) 254 2013 (14) (169) – (1) (184) 164 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   Analysis of income taxes The applicable income tax rate which serves to prepare the following analysis of income tax expense is the weighted average income tax rate calculated on the basis of the Group operating subsidiaries in Switzerland. The applicable income tax rate is 20.9% (prior year: 20.6%). The increase of the applicable income tax rate is the result of higher tax rates in various Swiss cantons. In CHF million  Income before income taxes in Switzerland  Income before income taxes foreign countries  lncome before income taxes  Applicable income tax rate  Income tax expense at the applicable income tax rate  Reconciliation to reported income tax expense  Effect of share of results of associates  Effect of tax rate changes on deferred taxes  Effect of use of different income tax rates in Switzerland  Effect of use of different income tax rates in foreign countries  Effect of non-recognition of tax loss carry-forwards  Effect of recognition and offset of tax loss carry-forwards not recognised in prior years  Effect of deferred tax assets written off  Effect of impairment losses on goodwill  Effect of exclusively tax-deductible expenses and income  Effect of non-taxable income and non-deductible expenses  Effect of income tax of prior periods  Total income tax expense  Effective income tax rate  2014 2,206 (118) 2,088 20.9% 436 (5) (21) (2) (10) 9 (2) – – (16) (12) 5 382 2013 2,149 (120) 2,029 20.6% 418 (6) (2) (7) (12) 9 (47) 4 5 (20) 8 (16) 334 18.3% 16.5% In 2013, previously unrecognised tax loss carry-forwards arising from mergers of Group companies were claimed for tax purposes. The positive impact on income tax expense in 2013 amounted to CHF 21 million. Deferred tax assets and liabilities Movements in current tax assets and liabilities are to be analysed as follows: In CHF million  Current income tax liabilities at 1 January, net  Recognised in income statement  Recognised in other comprehensive income  Income taxes paid in Switzerland  Income taxes paid in foreign countries  Additions from acquisition of subsidiaries  Current income tax liabilities at 31 December, net  Thereof current income tax assets  Thereof current income tax liabilities  Thereof Switzerland  Thereof foreign countries  2014 162 378 1 (377) (9) – 155 (17) 172 159 (4) 2013 134 302 3 (307) 29 1 162 (22) 184 168 (6) 165 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N         Recognised deferred tax assets and liabilities are to be analysed as follows: In CHF million  Property, plant and equipment  Intangible assets  Provisions  Defined benefit obligations  Tax loss carry-forwards  Other  Total tax assets (tax liabilities)  Thereof deferred tax assets  Thereof deferred tax liabilities  Thereof Switzerland  Thereof foreign countries  Assets Liabilities 31.12.2014 Net amount Assets Liabilities 31.12.2013 Net amount 47 – 79 509 216 97 948 (467) (341) (4) – – (76) (888) (420) (341) 75 509 216 21 60 417 (357) (91) 151 41 – 24 268 203 83 619 (342) (364) (14) – – (76) (796) (301) (364) 10 268 203 7 (177) 279 (456) (328) 151 In 2014, deferred tax assets and liabilities have changed as follows: In CHF million  Property, plant and equipment  Intangible assets  Provisions  Defined benefit obligations  Tax loss carry-forwards  Other  Total  Balance at 31.12.2013 Recognised in income statement Recognised in other compre- hensive income Change in scope of consoli- Foreign currency translation Balance at dation adjustments 31.12.2014 (301) (364) 10 268 203 7 (177) (119) 35 65 – 16 (1) (4) – – – 242 – 13 255 – (12) – (1) – 2 (11) – – – – (3) – (3) (420) (341) 75 509 216 21 60 In 2013, deferred tax assets and liabilities have changed as follows: In CHF million  Property, plant and equipment  Intangible assets  Provisions  Defined benefit obligations  Tax loss carry-forwards  Other  Total  Balance at 31.12.2012 Recognised in income statement Recognised in other compre- hensive income Change in scope of consoli- Foreign currency translation Balance at dation adjustments 31.12.2013 (243) (380) 41 419 165 47 49 (57) 32 (31) 16 36 (28) (32) – – – (169) – (12) (181) (4) (13) – 2 – – (15) 3 (3) – – 2 – 2 (301) (364) 10 268 203 7 (177) Deferred tax assets relating to unused tax loss carry-forwards and to deductible temporary differ- ences are recognised if it is probable that they can be offset against future taxable profits or exist- ing temporary differences. At as 31 December 2014, various subsidiaries recognised deferred tax assets on tax loss carry-forwards and other temporary differences totalling CHF 950 million (prior year: CHF 619 million) since it was foreseeable that tax loss carry-forwards could be offset against future taxable profits. Of this amount, tax loss carry-forwards and other temporary differences of CHF 237 million (prior year: CHF 247 million) were recognised by subsidiaries reporting a loss in 2013 or 2014. On the basis of the approved business plans of these subsidiaries, Swisscom consid- ers it probable that the tax loss carry-forwards and temporary differences can be offset against future taxable profits. 166 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N                       Tax loss carry-forwards and other temporary differences for which no deferred tax assets were recorded, expire as follows: In CHF million  Expiring within 1 year  Expiring within 1 to 2 years  Expiring within 2 to 3 years  Expiring within 3 to 4 years  Expiring within 4 to 5 years  Expiring within 5 to 6 years  Expiring within 6 to 7 years  No expiration  Total unrecognised tax loss carry-forwards  Thereof Switzerland  Thereof foreign countries  31.12.2014 31.12.2013 1 2 2 8 14 29 23 115 194 62 132 1 1 – – 8 8 23 134 175 23 152 No deferred tax liabilities (prior year: CHF 6 million) were recognised on the undistributed earn- ings of subsidiaries as of 31  December 2014. Temporary differences of subsidiaries and associ- ates, on which no deferred income taxes were recognised as of 31 December 2014, amounted to CHF 779 million (prior year: CHF 1,264 million). 16 Earnings per share Undiluted earnings per share are calculated by dividing net income attributable to shareholders of Swisscom Ltd by the weighted average number of shares outstanding. Treasury shares are not counted in the number of outstanding shares. In CHF million, except where indicated  Share of net income attributable to equity holders of Swisscom Ltd  Weighted average number of shares outstanding (number)  Basic and diluted earnings per share (in CHF)  2014 1,694 2013 1,685 51,801,267 51,800,666 32.70 32.53 Swisscom has no share options and share subscription rights outstanding which could lead to a dilution of earnings per share. 17 Cash and cash equivalents In CHF million  Cash and sight balances  Total cash and cash equivalents  31.12.2014 31.12.2013 302 302 723 723 As in the prior year, Swisscom had no term deposits outstanding in 2014. 167 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   18 Trade and other receivables In CHF million  Billed revenue  Accrued revenue  Allowances  Total trade receivables, net  Accruals from international roaming traffic  Receivables from debt-collection activities  Receivables from construction contracts  Other receivables  Allowances  Total other receivables, net  Total trade and other payables  31.12.2014 31.12.2013 2,413 236 (195) 2,454 60 26 33 28 (15) 132 2,586 2,321 206 (164) 2,363 91 26 30 22 (16) 153 2,516 All trade and other receivables are due within one year. Trade receivables are the object of active credit risk management which focuses on the assessment of country risks, on-going review of credit risks and the monitoring of the receivables. Credit-risk concentrations in Swisscom are mini- mised due to the large number of customers. Risks are monitored by country. The geographical distribution of trade receivables is as follows: In CHF million  Switzerland  Italy  Other countries  Total billed and accrued revenue  Switzerland  Italy  Other countries  168 Total allowance for receivables  Total trade receivables, net  31.12.2014 31.12.2013 1,759 854 36 2,649 (51) (140) (4) (195) 2,454 1,701 809 17 2,527 (45) (118) (1) (164) 2,363 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N Analysis of maturity and allowances The due dates of trade receivables as well as the related allowances are to be analysed as follows: In CHF million  Not overdue  Past due up to 3 months  Past due 4 to 6 months  Past due 7 to 12 months  Past due over 1 year  Total  Gross amount 1,858 421 78 93 199 2,649 31.12.2014 Allowance (8) (6) (6) (31) (144) (195) Gross amount 1,733 400 80 92 222 2,527 31.12.2013 Allowance (8) (6) (4) (15) (131) (164)       The table below presents the changes in allowances for trade and other receivables. In CHF million  Balance at 31 December 2012  Additions to allowances  Write-off of irrecoverable receivables subject to allowance  Release of unused allowances  Foreign currency translation adjustments  Balance at 31 December 2013  Additions to allowances  Write-off of irrecoverable receivables subject to allowance  Release of unused allowances  Additions from acquisition of subsidiaries  Foreign currency translation adjustments  Balance at 31 December 2014  Construction contracts Trade receivables Other receivables 209 88 (131) (5) 3 164 93 (60) (6) 7 (3) 195 15 1 – – – 16 1 – (2) – – 15 Information on uncompleted construction contracts as of the balance sheet date is as follows: In CHF million  Contract costs of current projects  Recognised gains less losses  Contract costs including share of gains and losses, net  Less progress billings  Total net receivables from construction contracts  Thereof receivables from construction contracts  Thereof liabilities from construction contracts  Advance payments received  2014 104 6 110 (79) 31 33 (2) 72 2013 108 3 111 (84) 27 29 (2) 61 In 2014, construction contracts generated net revenues of CHF 293 million (prior year: CHF 295 mil- lion). 169 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N       19 Other financial assets In CHF million  Balance at 31 December 2012  Additions  Disposals  Change in fair value recognised in income statement  Change in fair value recognised in equity  173 161 (25) – – Foreign currency translation adjustments recognised in income statement  (4) Balance at 31 December 2013  Additions  Disposals  Additions from acquisition of subsidiaries  Change in fair value recognised in income statement  305 24 (159) 24 – Foreign currency translation adjustments recognised in income statement  15 Balance at 31 December 2014  Thereof other current financial assets  Thereof other non-current financial assets  209 20 189 Loans and receivables Available- for-sale Derivative financial instruments 41 4 (3) – 1 (1) 42 8 (15) 18 – – 53 9 44 23 – (20) 3 – – 6 – – – 5 – 11 11 – Total 237 165 (48) 3 1 (5) 353 32 (174) 42 5 15 273 40 233 Loans and receivables As of 31 December 2014, term deposits totalled CHF 11 million (prior year: CHF 156 million). As of 31 December 2014, financial assets in the amount of CHF 149 million were not freely available. These assets serve as security for bank loans. Available-for-sale financial assets Available-for-sale financial assets primarily include financial investments in equity instruments. As a general rule, shares not quoted on stock exchanges are recorded at cost since their fair value can- not be reliably determined. As of 31 December 2014, the carrying amount of investments in shares recorded at cost totalled CHF 30 million (prior year: CHF 21 million). Derivative financial instruments As at 31 December 2014, derivative financial instruments with a positive market value of CHF 11 million were recognised (prior year: CHF 6 million). Derivative financial instruments include foreign-currency swaps and interest-rate swaps. See Note 33. 170 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N       20 Inventories In CHF million  Raw material and supplies  Customer premises equipment and merchandise  Advance payments made  Finished and semi-finished goods  Total inventories, gross  Allowances on inventories  Total inventories, net  31.12.2014 31.12.2013 6 141 5 5 157 (8) 149 6 147 – 6 159 (7) 152 In 2014, inventory-related costs amounting to CHF 1,145 million (prior year: CHF 1,046 million) were recorded under the cost of goods and services purchased. 21 Other non-financial assets In CHF million  Prepaid expenses  Value-added taxes receivable  Advance payments made  Other assets  Total other current non-financial assets  Prepaid expenses  Other assets  Total other non-current non-financial assets  31.12.2014 31.12.2013 164 7 55 26 252 10 47 57 148 14 29 19 210 12 45 57 22 Non-current assets held for sale On 31 December 2014, the carrying value of non-current assets held for sale amounted to CHF 80 million (prior year: CHF 13 million). Included therein are real-estate properties and invest- ments in associates of the business segment Other Operating Segments with a carrying value of CHF 70 million and CHF 10 million, respectively. As of 31 December 2013, the long-term assets held for resale comprised exclusively real-estate properties of the segment Other Operating Segments. As part of the takeover of PubliGroupe, one real-estate property and investments in associates were acquired which are intended to be disposed of in the next twelve months. The associates relate to various shareholdings in media companies in Switzerland. In the provisional takeover bal- ance sheet of PubliGroupe, the fair values of the real-estate property and the investments in asso- ciates amount to CHF 137 million. By the end of 2014, investments in associates of CHF 57 million were sold. See Note 5 for further information. In 2014, real-estate properties and investments in associates were sold for a purchase price of CHF 205 million (prior year: CHF 5 million) resulting in a gain on disposal of CHF 33 million (prior year: CHF 4 million) which was recognised as other income. 171 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N     23 Property, plant and equipment In CHF million  Acquisition costs  Land, buildings and leasehold improvements Technical installations Other assets Advances made and assets under construction Balance at 31 December 2012  2,872 Additions  Disposals  Additions from acquisition of subsidiaries  Adjustment to dismantlement and restoration costs  Reclassifications to non-current assets held for sale  Other reclassifications  Foreign currency translation adjustments  Balance at 31 December 2013  Additions  Disposals  Additions from acquisition of subsidiaries  Adjustment to dismantlement and restoration costs  Reclassifications to non-current assets held for sale  Other reclassifications  Foreign currency translation adjustments  11 (26) 2 – (39) 12 – 2,832 9 (68) 2 – (102) 114 (2) 24,572 1,318 (816) – (32) – 135 58 25,235 1,453 (656) – 123 – 175 (82) 3,320 219 (288) 30 13 – 109 – 3,403 237 (225) 2 34 – 170 – Balance at 31 December 2014  2,785 26,248 3,621 Accumulated depreciation/amortisation and impairment losses  Balance at 31 December 2012  Depreciation and amortisation  Disposals  Reclassifications to non-current assets held for sale  Foreign currency translation adjustments  Balance at 31 December 2013  Depreciation and amortisation  Disposals  Other reclassifications  Foreign currency translation adjustments  2,046 29 (21) (26) – 2,028 31 (41) 1 – 18,521 1,047 (815) – 25 18,778 1,072 (656) (1) (40) 2,297 263 (281) – – 2,279 287 (212) (2) – Balance at 31 December 2014  2,019 19,153 2,352 649 379 – – – – (257) – 771 290 – – – – (471) – 590 – – – – – – – – – – – Net carrying amount  Net carrying amount at 31 December 2014  Net carrying amount at 31 December 2013  Net carrying amount at 31 December 2012  766 804 826 7,095 6,457 6,051 1,269 1,124 1,023 590 771 649 Total 31,413 1,927 (1,130) 32 (19) (39) (1) 58 32,241 1,989 (949) 4 157 (102) (12) (84) 33,244 22,864 1,339 (1,117) (26) 25 23,085 1,390 (909) (2) (40) 23,524 9,720 9,156 8,549 In 2014, borrowing costs amounting to CHF 12 million were capitalised (prior year: CHF 15 million). The average interest rate used for the capitalisation of borrowing costs was 2.2% (prior year: 2.5%). As of 31 December 2014, the carrying amount of property, plant and equipment acquired under finance leases amounted to CHF 438 million (prior year: CHF 524 million). See Note 28 for further information on the adjustments to the costs of dismantling and restoration. 172 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N               24 Goodwill and other intangible assets In CHF million  Acquisition costs  Internally generated software Goodwill Purchased Customer software relationships Brands Other intangible assets Total Balance at 31 December 2012  6,210 1,218 1,693 1,089 266 Additions  Disposals  Reclassifications  Additions from acquisition of subsidiaries  Foreign-currency translation adjustments  – – – 159 38 127 (349) 137 2 2 196 (143) 52 – 15 – (21) – 51 18 – – – 7 5 Balance at 31 December 2013  6,407 1,137 1,813 1,137 278 Additions  Disposals  Reclassifications  Additions from acquisition of subsidiaries  Foreign-currency translation adjustments  – (9) – 192 (46) 156 (80) 97 1 (4) 195 (68) 58 4 (22) – (3) – 21 (22) Balance at 31 December 2014  6,544 1,307 1,980 1,133 Accumulated amortisation and impairment losses  Balance at 31 December 2012  1,548 Amortisation  Impairment losses  Disposals  Foreign-currency translation adjustments  – 23 – 27 Balance at 31 December 2013  1,598 Amortisation  Impairment losses  Disposals  Reclassifications  Foreign-currency translation adjustments  Balance at 31 December 2014  Net carrying amount  Net carrying amount at 31 December 2014  Net carrying amount at 31 December 2013  Net carrying amount at 31 December 2012  – – (9) – (32) 1,557 4,987 4,809 4,662 838 202 1 (347) 2 696 223 – (79) – (2) 1,243 230 1 (142) 11 1,343 239 1 (68) – (16) 838 1,499 469 441 380 481 470 450 697 130 – (21) 11 817 109 – (3) – (18) 905 228 320 392 – – – – (6) 272 148 28 – – 3 179 27 – – – (3) 978 220 (55) (188) 6 1 962 156 (30) (143) 44 (3) 11,454 543 (568) 1 225 79 11,734 507 (190) 12 262 (103) 986 12,222 197 4,671 88 2 (49) 1 239 102 – (29) 2 (2) 678 27 (559) 55 4,872 700 1 (188) 2 (73) 203 312 5,314 69 99 118 674 723 781 6,908 6,862 6,783 As of 31 December 2014, other intangible assets included advance payments made and uncom- pleted development projects of CHF 128 million (prior year: CHF 190 million). Apart from goodwill, there are no intangible assets with indefinite useful lives. As of 31 December 2014, accumulated impairment losses on goodwill of CHF 1,557 million were recorded. The increase in goodwill of CHF 192 million in 2014 results from the takeover of PubliGroupe. See Note 5 for further informa- tion. Goodwill arising from investments in associates is classified as part of the investments in asso- ciates. 173 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N             Goodwill impairment testing Goodwill is allocated to the cash-generating units of Swisscom according to their business activ- ities. Goodwill acquired in a business combination is allocated to each cash-generating unit expected to benefit from the synergies of the business combination. The allocation of the goodwill to the cash-generating units is as follows: In CHF million  Residential Customers Swisscom Switzerland  Small and Medium-Sized Enterprises Swisscom Switzerland  Corporate Business Swisscom Switzerland  Fastweb  Other cash-generating units  Total goodwill  31.12.2014 31.12.2013 2,787 2,630 656 734 592 218 656 734 604 185 4,987 4,809 Goodwill was tested for impairment in the fourth quarter of 2014 after the business planning had been completed. The recoverable amount of a cash-generating unit is determined based on its value in use, using the discounted cash flow (DCF) method. The projected free cash flows are esti- mated on the basis of the business plans approved by management in general covering a three- year period. A planning horizon of five years is used for the impairment test of Fastweb. For the free cash flows extending beyond the detailed planning period, a terminal value was computed by capitalising the normalised cash flows using a constant growth rate. The growth rates applied are those customarily assumed for the country or market. The key assumptions underlying the calcu- lations are as follows: Cash-generating unit  Residential Customers Swisscom Switzerland  WACC pre-tax 6.51% Small and Medium-Sized Enterprises Swisscom Switzerland  6.54% Corporate Business Swisscom Switzerland  Fastweb  6.56% 10.60% 2014 WACC Long-term post-tax growth rate 5.13% 5.13% 5.13% 7.70% 0% 0% 0% 2013 WACC Long-term post-tax growth rate 5.09% 5.09% 5.09% 0% 0% 0% WACC pre-tax 6.43% 6.45% 6.46% 1.0% 10.90% 8.00% 1.0% Other cash-generating units  6.6–8.2% 5.1–6.4% 0–1.0% 6.4–11.9% 5.1–9.7% 0–1.5% The application of pre- or post-tax discount rates (WACC pre-tax and WACC post-tax) results in the same value in use. The discount rates used take into consideration the specific risks relating to the cash-generating unit being considered. The projected cash flows and management assumptions are corroborated by external sources of information. The approach taken and assumptions made for the impairment tests of Swisscom Switzerland and Fastweb are presented below. 174 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N       Residential Customers, Small- and Medium-Sized Enterprises and Corporate Business – Swisscom Switzerland The impairment test of goodwill is conducted on these cash-generating units. The recoverable amount was determined based on the value in use using the discounted cash flow (DCF) method. The forecast of future cash flows is based upon the three-year business plan approved by manage- ment. For the free cash flows extending beyond the detailed planning period, a long-term growth of zero was assumed, as in the prior year. The change from the prior year is a result of structural changes in the telecommunications sector leading to improved growth prospects. As of the meas- urement date, the recoverable amount at all cash-generating units, based on their value in use, was higher than the carrying amount relevant for the impairment test. Swisscom is of the opinion that none of the anticipated changes in key assumptions which can be reasonably expected would cause the carrying amount of the cash-generating units to exceed the recoverable amount. Fastweb The impairment test of Fastweb was undertaken in the fourth quarter of 2014. The recoverable amount was determined on the basis of the value in use using the discounted cash flow method. The basis for projecting future cash flows is the business plan prepared by management for the five years 2015 to 2019. This plan takes into consideration historical empirical values and manage- ment’s expectations regarding the future development of the relevant market. The impairment test took into account the following assumptions: Assumptions  Description  Average annual growth in revenue during  the detailed planning period  Projected EBITDA margin  (EBITDA as % of net revenue)  Projected capital expenditure rate  (capex as % of net revenue)  Post-tax discount rate  Long-term growth rate  In the business plan, an average annual growth in revenue of 3.3% is expected for  the detailed planning period up to 2019. In the prior year, an average annual growth  in revenue of 4.1% had been expected for the detailed planning period 2014–2018.  The projected EBITDA margin in 2019 is 41%. In the previous year, for the year 2018  also an EBITDA margin of 41%, was assumed.  In the period up to 2019, it is anticipated that capital expenditure in relation to net  revenue will be normalised to 18%. Last year a rate of investment of 17% was  anticipated for the year 2018.  The post-tax discount rate is 7.70% (prior year: 8.00%) and the related pre-tax  discount rate is 10.60% (prior year: 10.90%). The discount rate is calculated  using the Capital Asset Pricing Model (CAPM). This latter comprises the weighted  cost of own equity and of external borrowing costs. The risk free interest rate  on which the discount rate is based on, is derived from ten-year bonds issued  by the German government with a zero interest rate, but at least an interest  rate of 3%. A premium for the country risk of Italy is then added.  The normalised free cash flows in the terminal value were capitalised with a  constant growth rate of 1.0% as in the prior year. The growth rate employed  corresponds to that customarily used for the country and market based upon  experience values as well as future projections and which are corroborated  by external information sources. The growth rate employed does not exceed  the long-term average growth rate customarily used for the country and market.  As of the date of the impairment test, no impairment of goodwill resulted. The recov- erable amount exceeded the carrying amount by EUR 1,164 million (CHF 1,405 million). The following changes in material assumptions lead to a situation where the value in use equals the carrying amount: Average annual growth rate through 2019 with the same EBITDA margin as in the business plan  Projected EBITDA margin 2019  Capital expenditure rate 2019  Post-tax discount rate  Long-term growth rate  Assumptions Sensitivity 3.3% 41% 18% 7.70% 1.0% –0.4% 34% 25% 10.20% –2.4% 175 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N                               25 Investments in associates In CHF million  Balance at 1 January  Additions  Disposals  Additions from acquisition of subsidiaries. See Note 5.  Gain on successive company acquisitions  Dividends  Share of net results  Foreign currency translation adjustments  Balance at 31 December  2014 153 3 (108) 48 82 (30) 26 (3) 171 2013 268 1 (105) – – (43) 30 2 153 The participations which are reflected in the consolidated financial statements of Swisscom using the equity method of accounting are set out in Note 41. Dividends income of CHF 30 million (prior year: CHF 43 million) is attributable mainly to the dividends paid by LTV Yellow Pages and Belgacom International Carrier Services. In September 2014, Swisscom acquired PubliGroupe SA in a public takeover which, at the time of the transaction, owned 51% of the share capital of LTV Yellow Pages Ltd. The remaining 49% of LTV Yellow Pages Ltd was held by Swisscom. As a result of the takeover, Swisscom assumed full con- trol over LTV Yellow Pages Ltd which previously was reflected in Swisscom’s consolidated financial statements as an associate. At the time of the takeover, the carrying value of the 49% shareholding in LTV Yellow Pages Ltd in Swisscom’s consolidated financial statements amounted to CHF 26 mil- lion. The difference of CHF 82 million between the carrying value and the fair value of the 49% shareholding was recognised as other income in the fourth quarter of 2014. The fair value of the 49% shareholding of CHF 108 million was accounted for as a component of the acquisition costs of the PubliGroupe takeover. See Note 5 for further information. In addition, a 48% shareholding in Zanox Ltd (Zanox) was acquired as part of the takeover of PubliGroupe which is accounted for in accordance with the equity method in the consolidated financial statements of Swisscom. Zanox is the European market leader in performance advertising. In 2013, Swisscom increased its shareholding in Cinetrade from 49% to 75%. As of the acquisition date, there was a difference between the carrying value of Cinetrade and its fair value of CHF 2 mil- lion, which was recognised as other financial income. See Notes 5 and 14. The following table provides selected summarised key financial data of the associates: In CHF million  Income statement  Net revenue  Operating expense  Operating income  Net income  Balance sheet at 31 December  Current assets  Non-current assets  Current liabilities  Non-current liabilities  Equity  2014 2013 2,347 (2,223) 124 122 1,131 935 (1,087) (316) 663 2,328 (2,174) 154 119 972 988 (876) (352) 732 176 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N       26 Financial liabilities In CHF million  Bank loans  Debenture bonds  Private placements  Finance lease liabilities  Other interest-bearing financial liabilities  Derivative financial instruments. See Note 33.  Other non-interest-bearing financial liabilities  Total current financial liabilities  Bank loans  Debenture bonds  Private placements  Finance lease liabilities  Other interest-bearing financial liabilities  Derivative financial instruments. See Note 33.  Other non-interest-bearing financial liabilities  Total non-current financial liabilities  Total financial liabilities  Bank loans and credit limit In CHF million  Bank loans in CHF variable interest-bearing  Bank loans in CHF variable interest-bearing  Bank loans in CHF variable interest-bearing  Bank loans in EUR variable interest-bearing  Bank loans in EUR variable interest-bearing  Bank loans in USD fixed interest-bearing  Total  31.12.2014 31.12.2013 960 547 – 14 2 49 8 1,580 921 4,557 925 547 3 49 22 7,024 8,604 8 1,324 206 13 2 76 27 1,656 1,345 4,184 920 642 2 51 23 7,167 8,823 Due within Par value in CHF 31.12.2014 31.12.2013 Carrying amount 2015 2016 2017 2015 2020 2028 530 300 130 421 361 96 530 300 130 421 361 139 – 300 130 430 368 125 1,881 1,353 During 2014, Swisscom took up short-term bank loans on a weekly basis. As of the balance sheet date, there were, as a result, short-term Swiss-franc denominated bank loans totalling CHF 530 mil- lion outstanding (prior year: none). The effective interest rate of these bank loans was 0.17%. In the prior year, Swisscom had taken up bank loans in EUR. The bank loan of EUR 300 million (CHF  368  million) bears variable interest rate and has a seven-year term. The EUR 300 million financing was designated for hedge accounting of net investments in foreign investments. In the prior year, Swisscom repaid maturing bank loans amounting to CHF 150 million. As of 31 December 2014, no transaction costs were recognised in connection with the bank loans, as in the prior year. The effective interest rate of the CHF denominated bank loans is 0.62%. For the bank loans in USD and EUR, the rate is 4.62% and 0.55%, respectively. A portion of the EUR-denominated bank loans totalling EUR 350 million was transformed into variable-rate CHF financing through foreign-cur- rency swaps. The bank loans may become due for immediate repayment if the shareholding of the Swiss Confederation in the capital of Swisscom falls below one third or if another shareholder can exercise control over Swisscom. Swisscom has a confirmed bank line of credit amounting to CHF 100 million maturing in 2016 and a further confirmed line of credit of CHF 2,000 million from banks maturing in 2019. As of 31 Decem- ber 2014, these lines of credit had not been drawn down, as in the prior year. 177 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N         Debenture bonds In CHF million  Debenture bond in CHF  Debenture bond in CHF  Debenture bond in CHF  Debenture bond in CHF  Debenture bond in CHF  Debenture bond in CHF  Debenture bond in EUR  Debenture bond in EUR  Debenture bond in CHF  Debenture bond in CHF  Total  Maturity years 2007–2017 2008–2015 2009–2014 2009–2018 2010–2022 2012–2024 2013–2020 2014–2021 2014–2026 2014–2029 Par value in CHF Nominal interest rate 31.12.2014 31.12.2013 Carrying amount 600 500 1,250 1,425 500 500 601 601 200 160 3.75% 4.00% 3.50% 3.25% 2.63% 1.75% 2.00% 1.88% 1.50% 1.50% 609 506 – 1,430 498 503 597 597 202 162 610 505 1,282 1,502 497 503 609 – – – 5,104 5,508 In 2014, Swisscom took up a debenture bond in an amount of EUR 500 million (CHF 601 million). The coupon rate was 1.875% with a term of 7.5 years. The debenture bond was issued by Lunar Funding V, an independent Irish multi-purpose vehicle. It is secured by a loan note from Lunar Fund- ing V to Swisscom in the same amount. The amount taken up was applied to refinance existing financial loans. In addition, the EUR 500 million financing was designated for hedge accounting of net investments in foreign shareholdings. As in the prior year, Swisscom had issued a debenture bond of EUR 500 million (CHF 614 million) through the intermediary of Lunar Funding V and which was designated for hedge accounting of net investments in foreign shareholdings. During the cur- rent financial year, Swisscom took up two Swiss-franc denominated debenture bonds, one in the amount of CHF 200 million with a term of 12 years and a coupon rate of 1.50% and the other of CHF 160 million with a term of 15 years with a coupon rate of 1.50%. During the current financial year, Swisscom repaid upon maturity debenture bonds totalling CHF 1,250 million. In addition, of the debenture bond maturing in 2018, a premature partial redemption took place amounting to CHF 75 million (nominal value). The difference of CHF 8 million between the partial redemption amount of CHF 83 million and the carrying value of the redeemed debenture bond of CHF 75 mil- lion was recognised as other financial expense. In the prior year, Swisscom repaid a debenture bond of CHF 550 million upon maturity. The effective interest rate on the Swiss-franc denominated debenture bonds is 2.98% and 2.08% for those denominated in EUR. The investors are entitled to sell the debentures back to Swisscom and/or Lunar Funding V if a shareholder other than the Swiss Confederation gains a majority share in Swisscom and at the same time, the company’s rating falls below BBB–/Baa3. Private placements In CHF million  Private placements in CHF domestic  Private placements in CHF abroad  Private placements in CHF abroad  Private placements in CHF abroad  Private placements in EUR abroad  Total  Due within Par value in CHF 31.12.2014 31.12.2013 Carrying amount 2016 2017 2018 2019 2014 350 250 72 278 205 350 245 68 262 – 925 350 243 68 260 205 1,126 Swisscom repaid private placements amounting to EUR 167 million (CHF 201 million) in 2014 and, in the prior year, a private placement totalling EUR 108 million. The interest rate risk of private placements maturing in 2016 is hedged with interest-rate swaps and was designated as cash flow hedges for hedge accounting purposes. The duration of the hedges is identical to the duration of the hedged private placements. The total EUR-denominated private placement was transformed 178 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N           into variable CHF financing using foreign currency swaps for the whole period through to maturity. The swap of fixed interest-bearing EUR financing into variable CHF financing was designated as a fair value hedge. As in the prior year, no transaction costs were recorded as of 31 December 2014 in connection with the private placements. The effective interest rate on the private placements is 1.67%. The CHF private placements of CHF 600 million maturing in 2017 through 2019 may become due for immediate repayment if the shareholding of the Swiss Confederation in the capi- tal of Swisscom falls below 35% or if another shareholder can exercise control over Swisscom. The investors in the remaining private placements are entitled to resell their investments to Swisscom should the Swiss Confederation permanently give up its majority shareholding in Swisscom. Liabilities arising from finance leases Swisscom concluded two agreements in 2001 for the sale of real estate. At the same time, Swisscom entered into long-term agreements to lease back part of the real estate sold which, in part, qualify as finance leases. The gain realised on real estate classified as finance leases was deferred. As of 31 December 2014, the deferred gains totalled CHF 167 million (prior year: CHF 183 million). The deferred gains are released to other income over the term of the individual leases. The effective interest rate of the finance lease liabilities was 6.25%. In the third quarter of 2014, Swisscom repurchased, prior to contractual maturity, real estate used for operating purposes which was accounted for previously as a finance lease. The difference of CHF 33 million between the purchase price of CHF 98 million and the carrying value of the finance- lease liability of CHF 65 million was recognised as finance expense. The minimum lease payments and financial liabilities relating to these leaseback agreements are set out in the following table: In CHF million  Within 1 year  Within 1 to 2 years  Within 2 to 3 years  Within 3 to 4 years  Within 4 to 5 years  After 5 years  Total future minimum lease payments  Less future financing costs  Total finance lease liabilities  Thereof current finance lease liabilities  Thereof non-current finance lease liabilities  31.12.2014 31.12.2013 48 47 42 41 38 1,240 1,456 (895) 561 14 547 54 54 53 48 48 1,564 1,821 (1,166) 655 13 642 The future payments of the liabilities arising under finance leases, expressed in terms of their present value, as of 31 December 2013 and 2014 were as follows: In CHF million  Within 1 year  Within 1 to 2 years  Within 2 to 3 years  Within 3 to 4 years  Within 4 to 5 years  After 5 years  Total present value of finance lease liabilities  31.12.2014 31.12.2013 14 14 9 9 6 509 561 13 14 13 9 8 598 655 In addition, operating lease arrangements exist for miscellaneous real estate with terms of 1 to 25 years. See note 35. In 2014, conditional rental payments of CHF 3 million were recorded as rental expense (prior year: CHF 4 million). 179 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   27 Trade and other payables In CHF million  Supplier invoices received  Goods and services received not yet invoiced  Total trade payables  Accruals from international roaming traffic  Liabilities from debt-collection activities  Liabilities from construction contracts  Miscellaneous liabilities  Total other liabilities  Total trade and other payables  28 Provisions In CHF million  Balance at 31 December 2012  Additions to provisions  Present-value adjustments  Release of unused provisions  Use of provisions  Balance at 31 December 2013  Additions to provisions  Present-value adjustments  Release of unused provisions  Use of provisions  Additions from acquisition of subsidiaries  Foreign currency translation adjustments  Balance at 31 December 2014  Thereof current provisions  Thereof non-current provisions  31.12.2014 31.12.2013 1,102 449 1,551 48 28 2 247 325 1,082 503 1,585 33 23 2 227 285 1,876 1,870 Termination benefits Dismantlement and restoration costs Regulatory proceedings 66 31 – (31) (21) 45 8 – (9) (16) 6 – 34 32 2 512 57 13 (100) (1) 481 162 13 (6) (4) – – 646 – 646 104 13 2 – (1) 118 3 2 – (17) – – 106 16 90 Other 158 46 – (17) (32) 155 44 1 (30) (24) 1 (1) 146 64 82 Total 840 147 15 (148) (55) 799 217 16 (45) (61) 7 (1) 932 112 820 Provisions for termination benefits As of 31 December 2014, provisions of CHF 34 million for personnel reduction costs were recog- nised, the largest share of which relates to various downsizing programmes resulting from reorgan- isations within the operating segments of Swisscom Switzerland. Provisions for dismantling and restoration costs The provisions for dismantling and restoration costs relate to the dismantling of telecommuni- cation installations and transmitter stations and the restoration to its original state of the land owned by third parties on which they are located. The provisions are computed by reference to esti- mates of future anticipated dismantling costs and are discounted using an average interest rate of 1.69% (prior year: 2.79%). The effect of using different interest rates amounted to CHF 151 million (prior year: CHF 21 million). In 2013, as a result of new location and expansion strategies, Swisscom reassessed the costs of dismantling and restoration. As a result the provisions for dismantling and restoring telecommunication installations were increased by CHF 57 million. As regards trans- mitter stations, the reassessment resulted in a decrease of provisions by CHF 79 million. In 2014, adjustments in an aggregate amount of CHF 157 million (prior year: CHF 19 million) were recorded 180 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N       under property, plant and equipment and of CHF 1 million (prior year: CHF 23 million) was recog- nised in the income statement. The non-current portion of the provisions is expected to be settled after 2020. Provisions for regulatory proceedings In accordance with the revised Telecommunications Act, Swisscom provides interconnection services and other access services to other telecommunication service providers in Switzerland. In previous years, several telecommunication service providers demanded from the Federal Communications Commission (ComCom) a reduction in the prices charged to them by Swisscom. As a result of legal opinions, Swisscom set up provisions in prior years. The provisions recognised in 2013 consolidated financial statements have not changed materially during the current financial year. As of 31 December 2014, the provisions relating to the proceedings for interconnection and other access services of Swisscom (Switzerland) Ltd amounted to CHF 106 million. Settlements made in 2014 amounted to CHF 17 million. Any settlements are dependent upon the date on which legally binding rulings and decisions are issued. Other provisions Other provisions include provisions for environmental, contractual and tax risks. The non-current portion of the provisions will most likely be settled between 2015 and 2017. 29 Contingent liabilities Proceedings conducted by the Competition Commission The Competition Commission (ComCo) is currently investigating a number of companies in the Swisscom Group. The investigation into the relationship of ADSL wholesale prices to the ADSL retail prices is described below. If it is proven that Swisscom has infringed the rules of fair competition, ComCo is entitled to impose sanctions pursuant to the Anti-Trust Law. This sanction depends on the length, severity and nature of the violation and may amount to up to 10% of the revenue generated by the company in question in the relevant markets in Switzerland over the last three financial years. On 20 October 2005, ComCo launched an investigation into Swisscom Ltd and Swisscom (Switzer- land) Ltd into possible abuse of a dominant market position. The object of the investigation is the question whether Swisscom has set the prices for ADSL pre-services for Internet service provid- ers at such a high level that no scope remains for these providers for an adequate profit margin in relation to the end-customer prices demanded by Swisscom itself (price squeezing). Swisscom contests the allegation of market dominance and refutes the accusation of price squeezing. It is of the opinion that the prices for its ADSL pre-services leave its ADSL competitors enough room for a reasonable profit margin. With its decision of 5 November 2009, ComCo sanctioned Swisscom for abuse of a market-dominant position in the case of ADSL services and levied a fine of CHF 220 mil- lion. Swisscom appealed against the ruling at the Federal Administrative Court on 7 December 2009. On the basis of a legal opinion, Swisscom concludes that, from the present-day perspective, it is improbable that a court of final appeal will levy sanctions. It thus has raised no provisions in the consolidated financial statements as of 31 December 2013 and 2014. In the event of a legally binding decision on abuse, claims could be asserted against Swisscom under civil law. Swisscom considers it unlikely that such civil claims can be enforced. Regulatory proceedings Swisscom provides interconnection and other access services for other telecommunication service providers in Switzerland in accordance with the revised Swiss Federal Telecommunications Act (TCA). Other access proceedings in accordance with the revised TCA are pending with the Federal Communications Commission (ComCom) and the Federal Administrative Court. 181 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   30 Other non-financial liabilities In CHF million  Deferred revenue  Value-added taxes payable  Advance payments received  Other current non-financial liabilities  Total other current non-financial liabilities  Deferred gain on sale and leaseback of real estate  Other non-current non-financial liabilities  Total other non-current non-financial liabilities  31.12.2014 31.12.2013 407 120 54 137 718 167 208 375 375 128 126 130 759 183 127 310 Deferred revenues mainly comprise deferred payments for prepaid cards and prepaid subscription fees. The deferred gain from the sale and leaseback of real estate is released to the income state- ment under other income over the lease term. See Notes 13 and 26. 31 Additional information concerning equity Share capital and treasury shares As of 31 December 2014, the total number of shares issued remained unchanged from the prior year at 51,801,943 shares. All shares have a par value of CHF 1 and are fully paid up. Each share entitles the holder to one vote. Shares with an aggregate market value of CHF 5 million (prior year: CHF 6 million) were allocated for share-based compensation plans. See Note 11. The holdings of treasury shares have changed as follows: Balance at 31 December 2012  Purchases on the market  Allocated for share-based compensation  Balance at 31 December 2013  Purchases on the market  Allocated for share-based compensation  Balance at 31 December 2014  Number 446 15,000 (14,644) 802 8,600 (9,253) 149 Average price in CHF In CHF million 361 435 442 435 525 535 525 – 6 (6) – 5 (5) – After deducting 149 treasury shares (prior year: 802 shares), the balance of shares outstanding as at 31 December 2014 totalled 51,801,794 (prior year: 51,801,141 shares). 182 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N         Other reserves In CHF million  Balance at 31 December 2012  Foreign currency translation adjustments of foreign subsidiaries  Change in fair value of available-for-sale financial assets  Change in fair value of cash flow hedges  Fair value losses of cash flow hedges transferred to income statement  Income tax expense  Balance at 31 December 2013  Foreign currency translation adjustments of foreign subsidiaries  Change in fair value of cash flow hedges  Fair value losses of cash flow hedges transferred to income statement  Income tax expense  Balance at 31 December 2014  Hedging reserve (31) – – 7 6 (1) (19) – 10 5 (3) (7) Fair value reserve 6 – 1 – – – 7 – – – – 7 Foreign currency translation adjustments (1,608) 63 – – – (14) (1,559) (46) – – 15 Total other reserves (1,633) 63 1 7 6 (15) (1,571) (46) 10 5 12 (1,590) (1,590) The hedging reserves comprise the changes in the fair value of hedging instruments which were designated as cash flow hedges. Changes in the fair value of available-for-sale financial assets are recognised in the fair value reserves. Reserves arising from foreign currency translation adjust- ments comprise the differences from the foreign currency translation of the financial statements of subsidiaries and associates from the functional currency into Swiss francs. On 31 Decem- ber 2014, cumulative foreign currency translation losses before taxes at Fastweb amounted to CHF 1,960 million (prior year: CHF 1,917 million). Other comprehensive income Other comprehensive income in 2014 may be analysed as follows: 2014, in CHF million  Actuarial gains and losses from  defined benefit pension plans  Income tax expense  Items that will not be reclassified to  income statement, net of tax  Foreign currency translation adjustments  of foreign subsidiaries  Change in fair value of cash flow hedges  Fair value losses of cash flow hedges  transferred to income statement  Income tax expense  Items that are or may be reclassified subsequently  to income statement, net of tax  Total other comprehensive income  (918) Retained earnings Hedging reserve Foreign currency translation reserve adjustments Fair value Equity holders of Swisscom Non- controlling interests (1,160) 242 (918) – – – – – – – – – 10 5 (3) 12 12 – – – – – – – – – – – – (46) – – 15 (31) (31) (1,160) 242 (918) (46) 10 5 12 (19) (937) (1) – (1) – – – – – (1) Total other compre- hensive income (1,161) 242 (919) (46) 10 5 12 (19) (938) 183 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N                 Other comprehensive income in 2013 may be analysed as follows: Retained earnings Hedging reserve Foreign currency translation reserve adjustments Fair value Equity holders of Swisscom Non- controlling interests Total other compre- hensive income 2013, in CHF million  Actuarial gains and losses from  defined benefit pension plans  Income tax expense  Items that will not be reclassified to  income statement, net of tax  Foreign currency translation adjustments  of foreign subsidiaries  Gains and losses from available-for-sale  financial assets transferred to income statement  Change in fair value of cash flow hedges  Fair value losses of cash flow hedges  transferred to income statement  Income tax expense  Items that are or may be reclassified subsequently  to income statement, net of tax  845 (169) 676 – – – – – – Total other comprehensive income  676 – – – – – 7 6 (1) 12 12 – – – – 1 – – – 1 1 – – – 845 (169) 676 63 63 – – – (14) 49 49 1 7 6 (15) 62 738 2 – 2 – – – – – – 2 847 (169) 678 63 1 7 6 (15) 62 740 Share of equity attributable to non-controlling interests In 2014, transactions with non-controlling shares worth CHF 157 million were recognised. As part of the takeover of PubliGroupe, the outstanding 49% of the non-controlling shares in Swisscom Directories Ltd and local.ch Ltd were acquired for CHF 162 million. The difference between the pur- chase price of CHF 162 million and the book value of the minority interest of CHF 26 million was recognised as an equity transaction with no effect on income. For further information see Note 5. 184 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N 32 Dividends Distributable reserves are determined on the basis of equity as reported in the statutory financial statements of the parent company, Swisscom Ltd, and not on the equity as reported in the consoli- dated financial statements. At 31 December 2014, Swisscom Ltd’s distributable reserves amounted to CHF 5,513 million. The dividend is proposed by the Board of Directors and must be approved by the Annual General Meeting of Shareholders. The dividend proposed for the 2014 financial year is not recorded as a liability in these consolidated financial statements. Treasury shares are not enti- tled to a dividend. Swisscom paid the following dividends in 2013 and 2014: In CHF million, except where indicated  Number of registered shares eligible for dividend (in millions of shares)  Ordinary dividend per share (in CHF)  Dividends paid  2014 51.802 22.00 1,140 2013 51.801 22.00 1,140 The dividend payments for the 2012 and 2013 financial years were funded entirely from retained earnings. The Board of Directors proposes to the Annual Shareholders’ Meeting of Swisscom Ltd to be held on 8 April 2015 the payment of an ordinary dividend of CHF 22 per share in respect of the 2014 financial year. This equates to a total dividend distribution of CHF 1,140 million. The dividend payment is foreseen on 15 April 2015.         33 Financial risk management and supplementary disclosures regarding financial instruments Swisscom is exposed to various financial risks resulting from its operating and financial activities. The most significant financial risks arise from changes in foreign exchange rates, interest rates as well as creditworthiness and the ability of counterparties to meet their payment obligations. A fur- ther risk arises from the ability to ensure adequate liquidity. Swisscom’s financial risk management is conducted in accordance with established guidelines with the aim of limiting potential adverse effects on the financial situation of Swisscom. In particular, these guidelines contain risk limits for approved financial instruments and specify risk monitoring processes. Financial risk management, with the exception of the management of credit risks arising from business operations, is handled by the central Treasury Department. It identifies, evaluates and hedges financial risks in close coop- eration with the Group’s operating units. The implemented risk management process also calls for routine reports on the development of financial risks. Market price risks Foreign exchange risks Swisscom is exposed to foreign exchange risks; these can impact the Group’s financial results and consolidated equity. Foreign exchange risks which have an impact on cash flows (transaction risks) are partially hedged by financial instruments and designated for hedge accounting. In addition, for- eign exchange risks with an impact on equity (translation risks) are partially hedged through finan- cial instruments and designated for hedge accounting. The aim of Swisscom’s foreign exchange risk management policy is to limit the volatility of planned cash flows. Forward currency contracts, currency options and currency swaps may be employed to hedge transaction risks. These hedging measures concern principally the USD and EUR. EUR-denominated financing is employed in order to hedge the translation risk of positions in EUR. As of the balance sheet date, Swisscom contracted financial liabilities totalling EUR 1,300 million (CHF 1,563 million) which were designated for hedge accounting for net investments in foreign shareholdings. The currency risks and hedging contracts for foreign currencies as of 31 December 2014 are to be analysed as follows: In CHF million  At 31 December 2014  Cash and cash equivalents  Trade and other receivables  Other financial assets  Financial liabilities  Trade and other payables  Net exposure at carrying amounts  Net forecasted cash flows exposure in the next 12 months  Net exposure before hedges  Forward currency contracts  Foreign currency swaps  Currency swaps  Hedges  Net exposure  EUR USD Other 35 4 21 (2,019) (67) (2,026) (362) (2,388) 336 – 421 757 (1,631) 4 – 173 (144) (74) (41) (455) (496) – 446 – 446 (50) 2 7 – – (15) (6) – (6) – – – – (6) 185 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N     The currency risks and hedging contracts for foreign currencies as of 31 December 2013 are to be analysed as follows: In CHF million  At 31 December 2013  Cash and cash equivalents  Trade and other receivables  Other financial assets  Financial liabilities  Trade and other payables  Net exposure at carrying amounts  Net forecasted cash flows exposure in the next 12 months  Net exposure before hedges  Forward currency contracts  Foreign currency swaps  Currency swaps  Hedges  Net exposure  EUR USD Other 60 8 3 (1,721) (59) (1,709) (367) (2,076) 211 46 635 892 (1,184) 3 8 142 (130) (54) (31) (343) (374) 209 – – 209 (165) – 11 – – (13) (2) – (2) – – – – (2) Foreign-currency sensitivity analysis The following sensitivity analysis shows the impact on the income statement should the EUR/ CHF and USD/CHF exchange rates change in line with their implicit volatility over the next twelve months. This analysis assumes that all other variables, in particular the interest rate level, remain constant. In CHF million  31.12.2014 31.12.2013 Income impact on balance sheet items  EUR volatility of 4.29% (previous year: 4.93%)  USD volatility of 9.72% (previous year: 9.58%)  Hedges for balance sheet items  EUR volatility of 4.29% (previous year: 4.93%)  USD volatility of 9.72% (previous year: 9.58%)  Planned cash flows  EUR volatility of 4.29% (previous year: 4.93%)  USD volatility of 9.72% (previous year: 9.58%)  Hedges for planned cash flows  EUR volatility of 4.29% (previous year: 4.93%)  USD volatility of 9.72% (previous year: 9.58%)  87 4 (18) – 16 44 (14) (43) 84 3 (31) – 18 33 (13) (20) The volatility of the balance sheet positions and planned cash flows is partially offset by the volatility of the related hedging contracts. Interest rate risks Interest rate risks arise from fluctuations in interest rates which could have a negative impact on the financial position of Swisscom. Fluctuations in interest rates lead to changes in interest income and expense. Furthermore, they may impact the market value of certain financial assets, liabilities and hedging instruments. Swisscom actively manages interest rate risks. The main aim thereof is to limit the volatility of planned cash flows. Swisscom employs interest rate swaps and options to hedge its interest rate risk. 186 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N                   The structure of interest-bearing financial instruments at nominal values is as follows: In CHF million  Fixed interest-bearing financial liabilities  Variable interest-bearing financial liabilities  Total interest-bearing financial liabilities  Fixed interest-bearing financial assets  Variable interest-bearing financial assets  Total interest-bearing financial assets  Total interest-bearing financial assets and liabilities, net  Variable interest-bearing  Fixed through interest rate swaps  Variable through interest rate swaps  Variable interest-bearing, net  Fixed interest-bearing  Fixed through interest rate swaps  Variable through interest rate swaps  Fixed interest-bearing, net  Total interest-bearing financial assets and liabilities, net  31.12.2014 31.12.2013 5,997 2,444 8,441 (115) (348) (463) 7,978 2,096 (350) – 1,746 5,882 350 – 6,232 7,978 6,498 2,094 8,592 (231) (753) (984) 7,608 1,341 (350) 42 1,033 6,267 350 (42) 6,575 7,608 Interest-rate sensitivity analysis The following sensitivity analysis shows the effects on the income statement and equity if CHF interest rates move by 100 basis points. In computing sensitivity in equity, negative interest rates are excluded. In CHF million  At 31 December 2014  Variable financing  Interest rate swaps  Cash flow sensitivity, net  At 31 December 2013  Variable financing  Interest rate swaps  Cash flow sensitivity, net  Credit risks Income statement Equity Increase 100 base points Decrease 100 base points Increase 100 base points Decrease 100 base points (21) 4 (17) (13) 3 (10) 21 (4) 17 13 (3) 10 – 5 5 – 9 9 – (6) (6) – (2) (2) Credit risks from operating activities Swisscom is exposed to credit risks arising from its operating activities. Swisscom has no significant concentrations of credit risk. The Group has policies in place to ensure that products and ser vices are only sold to creditworthy customers. Furthermore, outstanding receivables are continually monitored as part of its operating activities. Swisscom recognises credit risks through individual and general lump-sum allowances. In addition, the danger of risk concentrations is minimised by the large number of customers. Given that the financial assets as of the balance sheet date are neither impaired nor in default, there are no indications that the debtors will not be capable of meeting their payment obligations. Further information on financial assets is set out in Notes 17, 18 and 19. 187 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N             Credit risks from financial transactions Swisscom is exposed to the risk of counterparty default through the use of derivative financial instruments and financial investments. Requirements to be met by counterparties are defined in guidelines governing derivative financial instruments and financial investments. Furthermore, indi- vidual limits by counterparty have been set. These limits and counterparty credit assessments are reviewed regularly. Swisscom signs netting agreements as issued by ISDA (International Swaps and Derivatives Association) with the respective counterparties in order to control the risk inherent in derivative transactions. The carrying amount of financial assets corresponds to the credit risk and is to be analysed as follows: In CHF million  Cash and cash equivalents  Trade and other receivables  Loans and receivables  Derivative financial instruments  Total carrying amount of financial assets  Note 31.12.2014 31.12.2013 17 18 19 19 302 2,586 209 11 3,108 723 2,516 305 6 3,550 The carrying amounts of cash and cash equivalents and other financial assets and the related Standard & Poor’s ratings of the counterparties are to be summarised as follows: In CHF million  31.12.2014 31.12.2013 13 129 15 149 1 123 3 7 – 10 72 522 422 149 – 135 136 151 3 – 16 – 22 1,034 Liquidity risk Prudent liquidity management includes the holding of adequate reserves of cash and cash equiva- lents and marketable securities as well as the provision of adequate financing. Swisscom has pro- cesses and policies in place that guarantee sufficient liquidity in order to settle current and future obligations. Swisscom has a confirmed line of credit of CHF 100 million maturing in 2016 from banks and a further confirmed line of credit of CHF 2,000 million from banks maturing in 2019. As of 31 December 2014, these lines of credit had not been drawn down, as in the prior year. AAA  AA+  AA  AA–  A+  A  A–  BBB+  BBB  BBB-  Without rating  Total  188 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   The contractual maturities of financial liabilities including estimated interest payments as of 31 December 2014 are as follows: In CHF million  At 31 December 2014  Non-derivative financial liabilities  Bank loans  Debenture bonds  Private placements  Finance lease liabilities  Other interest-bearing financial liabilities  Other non-interest-bearing financial liabilities  Trade and other payables  Derivative financial liabilities  Derivative financial instruments  Total  Carrying Contractual Due within Due within Due within 1 year 1 to 2 years 3 to 5 years amount payments Due after 5 years 1,881 5,104 925 561 5 30 1,975 5,778 970 1,456 5 30 963 640 6 48 2 8 1,876 1,876 1,853 98 157 58 383 120 356 47 – 6 7 8 370 2,293 608 121 1 – 16 11 259 2,725 – 1,240 2 16 – 80 10,480 12,247 3,578 927 3,420 4,322 The contractual maturities of financial liabilities including estimated interest payments as of 31 December 2013 are as follows: In CHF million  At 31 December 2013  Non-derivative financial liabilities  Bank loans  Debenture bonds  Private placements  Finance lease liabilities  Other interest-bearing financial liabilities  Other non-interest-bearing financial liabilities  Trade and other payables  Derivative financial liabilities  Derivative financial instruments  Total  Estimation of fair values Carrying Contractual Due within Due within Due within 1 year 1 to 2 years 3 to 5 years amount payments Due after 5 years 1,353 5,508 1,126 655 4 50 1,455 6,184 1,192 1,821 3 50 14 1,419 217 54 1 27 1,870 1,870 1,870 442 626 7 54 1 8 – 677 2,395 687 149 1 – – 127 180 81 44 10 322 1,744 281 1,564 – 15 – 45 10,693 12,755 3,683 1,182 3,919 3,971 The carrying amounts of trade receivables and payables as well as other receivables and payables are a reasonable estimate of their fair value because of their short-term maturities. The carrying amounts of cash and cash equivalents and current loans receivable correspond to the fair values. The fair value of available-for-sale financial investments is based on quoted stock exchange prices or equates to their purchase cost. The fair values of other non-current financial assets are computed on the basis of the maturing future payments, discounted at market interest rates. The fair value of non-publicly traded interest-bearing financial liabilities is estimated on the basis of the matur- ing future payments discounted at market interest rates. The fair value of publicly traded inter- est-bearing financial liabilities is based upon stock-exchange quotations as at the balance-sheet date. The fair value of finance lease obligations is estimated on the basis of the maturing future payments, discounted at market interest rates. The fair value of publicly traded derivative financial instruments as well as investments held for trading or for sale is based on quoted stock exchange prices as of the balance sheet date. Interest rate swaps and currency swaps are discounted at mar- ket interest rates. Foreign-currency forward contracts and foreign-currency swaps are valued by reference to foreign-exchange forward rates as of the balance sheet date. 189 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N           Fair value hierarchy The fair value hierarchy encompasses the following three levels: > Level 1: stock-exchange quoted prices in active markets for identical assets or liabilities; > Level 2: other factors which are observable on markets for assets and liabilities, either directly or indirectly; > Level 3: factors that are not based on observable market data. Asset/liability valuation categories and fair value of financial instruments The carrying values and fair values of financial assets and financial liabilities with their correspond- ing valuation categories are summarised in the following table. Not reflected therein are cash and cash equivalents, trade receivables and payables as well as miscellaneous receivables and payables whose carrying value corresponds to a reasonable estimation of their fair value. In CHF million  At 31 December 2014  Derivative financial instruments  Available-for-sale financial assets  Financial assets measured at fair value  Other loans and receivables  Financial assets not measured at fair value  Derivative financial instruments  Financial liabilities measured at fair value  Bank loans  Debenture bonds  Private placements  Finance lease liabilities  Other interest-bearing financial liabilities  Other non-interest-bearing financial liabilities  Financial liabilities not measured at fair value  Carrying amount Fair Value Loans and receivables Available- At fair value through for-sale profit or loss Financial liabilities Level 1 Level 2 Level 3 – – – 209 209 – – – – – – – – – – 23 23 – – – – – – – – – – – 11 – 11 – – 98 98 – – – – – – – – – – – – – – 1,881 5,104 925 561 5 30 – 5 5 – – – – – 5,610 – – – – 11 11 240 240 98 98 1,922 – 957 1,173 5 30 8,506 5,610 4,087 – 18 18 – – – – – – – – – – – 190 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N             In CHF million  At 31 December 2013  Derivative financial instruments  Available-for-sale financial assets  Financial assets measured at fair value  Other loans and receivables  Financial assets not measured at fair value  Derivative financial instruments  Financial liabilities measured at fair value  Bank loans  Debenture bonds  Private placements  Finance lease liabilities  Other interest-bearing financial liabilities  Other non-interest-bearing financial liabilities  Financial liabilities not measured at fair value  Carrying amount Fair Value Loans and receivables Available- At fair value through for-sale profit or loss Financial liabilities Level 1 Level 2 Level 3 – – – 305 305 – – – – – – – – – – 21 21 – – – – – – – – – – – 6 – 6 – – 127 127 – – – – – – – – – – – – – – 1,353 5,508 1,126 655 4 50 – 1 1 – – – – – 5,836 – – – – 6 – 6 308 308 127 127 1,383 – 1,147 1,194 4 50 8,696 5,836 3,778 – 20 20 – – – – – – – – – – – In addition, as of 31 December 2014, there were available-for-sale financial assets with a carrying value of CHF 30 million (prior year: CHF 21 million) which are valued at acquisition cost. Level 3 financial instruments developed as follows in 2013 and 2014: In CHF million  Balance at 31 December 2012  Additions  Disposals  Change in fair value recognised in equity  Change in fair value recognised in income statement  Balance at 31 December 2013  Additions  Disposals  Balance at 31 December 2014  Available-for-sale financial assets 20 1 (1) 1 (1) 20 1 (3) 18 The level-3 assets consist of investments in various investment funds and individual companies. The fair value was calculated by using a valuation model. In 2013 and 2014, there were no reclassifi- cations between the various levels. 191 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N           Asset/liability valuation categories and results of financial instruments The results for each asset/liability valuation category are to be analysed as follows: Loans and receivables Available- for-sale At fair value through profit or loss Financial liabilities Hedging transactions In CHF million  2014  Interest income (interest expense)  Change in fair value  Foreign currency translation adjustments  Gains and losses transferred from equity  Net result recognised in income statement  Change in fair value  Gains and losses transferred to income statement  Net result recognised in other comprehensive income  Total net result by asset/liability category  10 – 1 – 11 – – – 11 – – – – – – – – – (2) (46) 3 – (45) – – – (45) (223) – – – (223) – – – (223) (3) – – (2) (5) 10 5 15 10 In CHF million  2013  Loans and receivables Available- for-sale At fair value through profit or loss Financial liabilities Hedging transactions Interest income (interest expense)  Change in fair value  Foreign currency translation adjustments  Gains and losses transferred from equity  Net result recognised in income statement  Change in fair value  Gains and losses transferred to income statement  Net result recognised in other comprehensive income  Total net result by asset/liability category  8 – 8 – 16 – – – 16 – – (1) – (1) 1 – 1 – (4) 30 4 – 30 – – – 30 (250) – (8) – (258) – – – (258) (5) – – (1) (6) 7 6 13 7 In addition, in 2014, allowances for trade and other receivables amounting to CHF 87 million (prior year: CHF 83 million) were recorded under other operating expenses. Derivative financial instruments At 31 December 2013 and 2014, the following derivative financial instruments were recorded: In CHF million  Fair value hedges  Cash flow hedges  Other derivative financial instruments  Total derivative financial instruments  Thereof current derivative financial instruments  Thereof non-current derivative financial instruments  Contract value  Positive fair value  Negative fair value  31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 – 824 929 42 728 911 1,753 1,681 – 6 5 11 11 – – – 6 6 – 6 – (10) (88) (98) (49) (49) (13) (16) (98) (127) (76) (51) Fair Value Hedges In CHF million  Currency swaps in EUR  Total fair value hedges  Contract value  Positive fair value  Negative fair value  31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 – – 42 42 – – – – – – (13) (13) 192 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N                   In 2007, for the purpose of hedging the foreign currency and interest rate risks of financing in EUR, cross-currency swaps for EUR 48 million were entered into which were designated as fair value hedges for hedge accounting. Of this amount, EUR 35 million matured in 2014, which were reported as negative fair values of CHF 13 million in the prior year. As of the balance-sheet date, Swisscom reported no instruments designated as fair value hedges for hedge accounting purposes. Cash Flow Hedges In CHF million  Currency swaps in USD  Interest rate swaps in CHF  Forward currency contracts in USD  Forward currency contracts in EUR  Total cash flow hedges  Contract value  Positive fair value  Negative fair value  31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 235 350 – 239 824 – 350 167 211 728 6 – – – 6 – – – – – – (9) – (1) (10) – (13) (2) (1) (16) Swisscom entered into interest rate swaps with final maturities in 2016 in order to hedge interest rate risks of CHF 350 million of the variable CHF-denominated interest-bearing private placements. These hedges were designated as cash flow hedges for hedge accounting purposes. As of 31 Decem- ber 2014, these interest rate swaps were recorded with a negative fair value of CHF 9 million (prior year:CHF 13 million). CHF 10 million was recognised in the hedging reserve within consolidated equity for these hedging instruments (prior year:CHF 13 million). In 2009, interest rate swaps des- ignated for hedge accounting for the premature hedging of the interest rate risk for the intended issuance of debenture loans totalling CHF 500 million were closed out. The effective share of CHF 24 million was left in the other reserves. It is being released to interest expense over the hedged dura- tion of debenture bonds issued in 2009. As of 31 December 2014, a negative amount of CHF 2 mil- lion (prior year: CHF 5 million) is recognised in the hedging reserve as part of consolidated equity. As of 31 December 2014, derivative financial instruments include currency swaps of USD 237 mil- lion and forward currency contracts of EUR 199 million, which serve to hedge future purchases of goods and services in the respective currencies. The hedges were designated for hedge accounting purposes. The hedges disclose a positive fair value of CHF 6 million (prior year: negative market value of CHF 3 million). A positive amount of CHF 5 million was recognised in the hedging reserve within consolidated equity for these designated hedging instruments (prior year: negative amount of CHF 4 million). Other derivative financial instruments In CHF million  Currency swaps in EUR  Interest rate swaps in CHF  Currency swaps in USD  Currency swaps in EUR  Forward currency contracts in USD  Forward currency contracts in EUR  Total other derivative financial instruments  Contract value  Positive fair value  Negative fair value 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 421 200 211 – – 97 929 592 200 2 75 42 – 911 – – 5 – – – 5 – 6 – – – – 6 (47) (40) – – (1) – (96) (1) – – (1) – (88) (98) In 2010 in order to hedge currency and interest rate risks arising in connection with EUR-denomi- nated financing, interest rate swaps were entered into covering EUR 350 million with a duration of five years. These hedges were not designated for hedge accounting. Already in 2007, interest rate swaps for EUR 228 million had been entered to hedge currency and interest rate risks arising in con- nection with EUR-denominated financing and which had not been designated for hedge account- ing. Of this amount, EUR 167 million matured in 2014. Furthermore, derivative financial instruments as at 31 December 2014 include interest rate swaps covering CHF 200 million with maturities ending in 2040 with a negative market value of CHF 40 million (prior year: positive value of CHF 6 million and a negative market value of CHF 1 mil- lion) which were not designated for hedge accounting. 193 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N       In addition, foreign currency forward contracts and currency swaps for EUR and USD which serve to hedge future transactions in connection with Swisscom’s operating activities were not designated for hedge accounting purposes are included in derivative financial instruments. Cross-border lease agreements Between 1996 until 2002, Swisscom entered into various cross-border lease agreements, under the terms of which parts of its fixed line and mobile phone networks were sold or leased on a long- term basis and leased back. Swisscom defeased a significant part of the lease obligations through the acquisition of investment-grade financial investments. The financial assets were irrevocably deposited with a trust. In accordance with Interpretation SIC 27 “Evaluating the Substance of Transactions involving the Legal Form of a Lease”, these financial assets and liabilities in the same amount are netted and not recorded in the balance sheet. As of 31 December 2014, the financial liabilities and assets, including accrued interest, which arose from cross-border lease agreements amounted to USD 66 million or CHF 65 million, which, in compliance with SIC 27, were not recog- nised in the balance sheet (prior year: USD 63 million or CHF 56 million). Netting of financial instruments In CHF million  At 31 December 2014  Receivables from international roaming  Billed revenue  Accruals  Total receivables from international roaming  Liabilities from international roaming  Supplier invoices received  Accruals  Total liabilities from international roaming  At 31 December 2013  Receivables from international roaming  Billed revenue  Accruals  Total receivables from international roaming  Liabilities from international roaming  Supplier invoices received  Accruals  Total liabilities from international roaming  Gross amount Settlement Net amount 26 164 190 34 152 186 37 238 275 41 180 221 (19) (104) (123) (19) (104) (123) (26) (147) (173) (26) (147) (173) 7 60 67 15 48 63 11 91 102 15 33 48 Swisscom enters into derivative transactions under International Swaps and Derivatives Associa- tion (ISDA) master netting agreements. Under such agreements the amounts owed by each coun- terparty on a single day in respect of all transactions outstanding in the same currency are aggre- gated into a single net amount that is payable by one party to the other. The ISDA agreements do not meet the criteria for balance-sheet netting as Swisscom has presently no legally enforce- able right to offset the recognised amounts and such a right may only be applied to future occur- rences such as a credit default or other credit events. In 2014, Swisscom recorded an amount of CHF 2 million for which such netting agreements existed. In the event of netting, derivative assets of CHF 11 million and derivative liabilities of CHF 98 million would be reduced to CHF 9 million and CHF 96 million, respectively. In the prior year, Swisscom recognised an amount of CHF 6 million for which such netting agreements existed. In the event of netting, the derivative assets in the prior year of CHF 6 million would be reduced to CHF zero and the derivative liabilities would be reduced from CHF 127 million to CHF 121 million. 194 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N         Charges for international roaming between telecom enterprises are settled over a clearing centre. Receivables and payables arising from roaming charges between the contracting parties are netted and settled on a net basis. Those receivables and payables for which Swisscom has a legal right of offset are netted in Swisscom’s consolidated financial statements. Management of equity resources Managed capital is defined as equity including non-controlling interests. Swisscom seeks to main- tain a robust equity basis. This basis enables it to guarantee the continuing existence of the com- pany as a going concern and to offer investors an appropriate return in relation to the risks entered into. Furthermore, Swisscom maintains funds to enable investments to be made which will bring future benefits to customers as well as generate further returns for investors. The managed capital is monitored through the equity ratio which is the ratio of consolidated equity to total assets. The following table illustrates the calculation of the equity ratio: In CHF million  Share of equity attributable to equity holders of Swisscom Ltd  Share of equity attributable to non-controlling interests  Total capital  Total assets  Equity ratio in %  31.12.2014 31.12.2013 5,454 3 5,457 20,932 26.1 5,973 29 6,002 20,496 29.3 In its strategic targets, the Federal Council has ruled that Swisscom’s net indebtedness shall not exceed approximately 2.1 times the operating result before taxes, interest and depreciation and amortisation (EBITDA). Exceeding this limit temporarily is permitted. The net-debt-to-EBITDA ratio is as follows: In CHF million  Debenture bonds  Bank loans  Private placements  Finance lease liabilities  Other financial liabilities  Total financial liabilities  Cash and cash equivalents  Current financial assets  Non-current fixed interest-bearing deposits  Net debt  Operating income before depreciation and amortisation (EBITDA)  Ratio net debt/EBITDA  31.12.2014 31.12.2013 5,104 1,881 925 561 133 8,604 (302) (40) (142) 8,120 4,413 1.8 5,508 1,353 1,126 655 181 8,823 (723) (160) (128) 7,812 4,302 1.8 Net debt consists of total financial liabilities less cash and cash equivalents, current financial assets as well as non-current fixed interest-bearing financial investments. 195 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N       34 Supplementary information on the statement of cash flows Changes in operating assets and liabilities In CHF million  Trade and other receivables  Inventories  Other non-financial assets  Trade and other payables  Provisions  Other non-financial liabilities  Defined benefit obligations  Total changes in operating assets and liabilities  Other cash flows from financing activities 2014 4 (7) (41) (85) (40) (22) (22) (213) 2013 178 8 7 (172) (16) 119 (20) 104 In 2014, other cash flows from financing activities aggregated CHF 14 million (prior year: CHF 12 mil- lion). This relates mainly to payments in connection with hedging contracts and the commitment fee for the guaranteed credit limit. Non-cash investing and financing transactions Additions to property, plant and equipment include additions from finance leases amounting to CHF 13 million (prior year: CHF 10 million). As a result of changes in the assumptions made in esti- mating the provisions for dismantling and restoration costs, an increase of CHF 157 million net was recognised in property, plant and equipment (prior year: reduction of CHF 19 million). See Note 23. 35 Future commitments Commitments for future capital expenditures Firm contractual commitments for future investments in property, plant and equipment and other intangible assets as of 31 December 2014 aggregated CHF 1,004 million (prior year: CHF 862 million). Operating leases Operating leases relate primarily to the rental of real estate for business purposes. See Note 26. In 2014, payments for operating leases amounted to CHF 316 million (prior year: CHF 301 million). Future minimum lease payments in respect of operating lease contracts are as follows: In CHF million  Within 1 year  Within 1 to 2 years  Within 2 to 3 years  Within 3 to 4 years  Within 4 to 5 years  After 5 years  Total future minimum lease payments  31.12.2014 31.12.2013 153 136 120 104 91 455 1,059 104 95 76 62 50 240 627 196 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   36 Research and development Costs aggregating CHF 18 million for research and development were expensed in 2014 (prior year: CHF 20 million). 37 Related parties Majority shareholder, associates and non-controlling interests Transactions and balances outstanding at year end with related entities and individuals for 2014 are as follows: In CHF million  Confederation  Associates  Other minority shareholders  Total 2014/Balance at 31 December 2014  Income Expense Receivables Liabilities 397 100 – 497 160 145 1 306 178 9 – 187 668 6 2 676 Transactions and balances outstanding at year end with related entities and individuals for 2013 are as follows: In CHF million  Confederation  Associates  Other minority shareholders  Total 2013/Balance at 31 December 2013  Income Expense Receivables Liabilities 372 131 8 511 170 206 – 376 186 14 1 201 382 10 – 392 Majority shareholder Pursuant to the Swiss Federal Telecommunication Enterprises Act (“Telekommunikations unter- nehmungsgesetz, TUG”), the Swiss Confederation (“the Confederation”) is obligated to hold a majority of the share capital and voting rights of Swisscom. On 31 December 2014, the Confeder- ation as majority shareholder held 51.0% (prior year: 51.2%) of the issued shares of Swisscom Ltd. Any reduction of the Confederation’s holding below a majority would require a change in law which would need to be voted upon the Federal Assembly, which would also be subject to a facultative referendum by Swiss voters. As the majority shareholder, the Swiss Confederation has the power to control the decisions of the general meetings of shareholders which are taken by the absolute majority of effectively cast votes. This relates primarily to the approval of dividend distributions and the election of the members of the Board of Directors. Swisscom supplies telecommunication services to and in addition, procures services from the Confederation, the majority shareholder in Swisscom. The Confederation comprises the various departments and administrative bodies of the Confederation and the other companies controlled by the Confederation (primarily the Post, Swiss Federal Railways, RUAG as well as Skyguide). All transactions are conducted on the basis of normal relationships with customers and suppliers and on conditions applicable to unrelated third parties. In addition, financing trans actions are entered into with the Swiss Post on normal commercial terms. Associates and non-controlling interests Services provided to/from associates and non-controlling interests are based upon market prices. The associates are listed in Note 41. Post-employment benefits funds Transactions between Swisscom and the various pension funds are detailed in Note 10. 197 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   Key management compensation In CHF million  Current compensation  Share-based payments  Social security contributions  Total compensation to members  of the Board of Directors  Current compensation  Share-based payments  Benefits paid following retirement  from Group Executive Board  Pension contributions  Social security contributions  Total compensation to members of the Group Executive Board  2014 1.5 0.8 0.1 2.4 5.6 0.7 0.3 0.7 0.5 7.8 2013 1.6 0.8 0.1 2.5 5.8 0.9 1.5 0.7 0.5 9.4 Total compensation to members of the Board of Directors and of the Group Executive Board  10.2 11.9 Individuals in key positions of Swisscom are the members of the Board of Directors and the Group Executive Board of Swisscom Ltd. Compensation paid to members of the Board of Directors con- sists of basic emoluments plus functional allowances and meeting attendance fees. One third of the entire compensation of the Board of Directors (excluding meeting allowances) is paid in shares. Compensation paid to the members of the Group Executive Board consists of a fixed basic sal- ary component settled in cash, a variable performance-related portion settled in cash and shares, services provided and non-cash benefits as well as pension and social-insurance benefits. 25% of the variable performance-related share of the members of the Group Executive Board is paid out in shares. The Group Executive Board members may increase this share to 50% at their discretion. See Note 11. The disclosures required by the Swiss Ordinance against Excessive Compensation in Listed Companies (OaEC) are set out in the chapter containing the Remuneration Report. Shares in Swisscom Ltd held by the members of the Board of Directors and Group Executive Board are set out in the Notes to the Consolidated Financial Statements of Swisscom Ltd. 38 Service concession agreements On 21 June 2007 and in accordance with the Swiss Federal Telecommunications Act (TCA), ComCom granted Swisscom a basic-service license for 2008 to 2017. As licensee, Swisscom (Swit- zerland) Ltd is required to offer the entire range of the basic service to all sections of the Swiss pop- ulation throughout the whole territory of Switzerland during the ten-year duration of the license. The license covers the whole territory of Switzerland. The basic service is to guarantee access to a minimum offering of telecommunication services. Within the framework of the basic service, everyone has the right to a connection which allows national and international telephone calls in real time, the transmission and reception of fax messages and access to the Internet. The basic service also provides for the maintenance of a prescribed number of public telephones per munici- pality (Publifon). The Federal Council periodically sets price ceilings for basic services. 198 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   39 Risk assessment process Swisscom has a centralised risk management system in place that distinguishes between strategic and operative risks. All identified risks are quantified as a function of the probability of occurrence and possible impact and are set forth in a risk report. The risk report is discussed periodically by the Audit Committee of Swisscom. Management aims to monitor and control risks on an ongo- ing basis. A risk assessment is undertaken to identify the risks arising from the application of the accounting principles or from financial reporting. Control mechanisms are defined within the scope of the internal control system to minimise the risks connected with financial reporting. Residual risks are classified according to their possible impact and monitored accordingly. See Notes 4 and 33. 40 Events after the balance sheet date Approval of the consolidated financial statements The Board of Directors of Swisscom approved the release of these consolidated financial state- ments on 4 February 2015. Discontinuation of the minimum exchange rate CHF/EUR by the Swiss National Bank On 15 January 2015, the Swiss National Bank announced it would no longer defend the CHF/EUR minimum exchange rate. Subsequently, the value of the Swiss franc rose sharply against the euro and other currencies that are relevant for Swisscom. The translation effect at subsidiaries and associates that use a different functional currency results in lower amounts in the consolidated financial statements and an increase in the cumulative exchange differences recognised in equity. Nevertheless, the exchange rate at the time of the release of the consolidated financial statements had no material impact on the total cash flow from operating activities and investing activities or on net income for 2015. 199 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N   41 List of Group companies Registered office  Shareholding in % Currency  Share capital in millions Registered name  Switzerland  Alphapay Ltd  Axept Webcall AG  BFM Business Fleet Management Ltd  Billag Ltd  cablex Ltd  CT Cinetrade Ltd  Curabill Treuhand GmbH  Datasport Ltd  DL-Groupe GMG AG  iware SA  kitag kino-theater Ltd  Medgate Holding Ltd  Mona Lisa Capital Ltd  myKompass Ltd.  MyStrom Ltd  PG Lab SA  Plazavista Entertainment AG  PubliGroupe Ltd  Société Immobilière Dos-Vie S.A.  Swisscom Banking Provider Ltd  Swisscom Broadcast Ltd  Swisscom Directories Ltd  Swisscom Energy Solutions Ltd  Swisscom Event & Media Solutions Ltd  Swisscom Real Estate Ltd  Swisscom IT Services Ltd  Zurich  Opfikon  Ittigen  Fribourg  Berne  Zurich  St. Gallen  Gerlafingen  Geneva  Morges  Zurich  Zug  Ittigen  Luzern  Ittigen  Lausanne  Zurich  Lausanne  Delémont  Muri bei Bern  Berne  Zurich  Ittigen  Ittigen  Ittigen  Berne  Swisscom IT Services Finance Custom Solutions Ltd  Olten  Swisscom Switzerland Ltd  Teleclub AG  Teleclub Programm AG  Transmedia Communications Ltd  Wingo Ltd  Worklink AG  Belgium  Belgacom International Carrier Services SA  Hospitality Services Belgium SA  Swisscom Belgium N.V.  Denmark  Ittigen  Zurich  Zurich  Geneva  Fribourg  Berne  Brussels  Brussels  Brussels  200 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N 100 100 100 100 100 75 100 100 66.7 100 75 40 99.5 20 100 100 75 98.4 1 100 100 100 100 50.1 100 100 100 100 100 75 25 21.8 100 100 22.4 100 100 CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  EUR  EUR  EUR  0.5 0.2 1.0 0.1 5.0 0.5 – 0.2 0.1 0.1 1.0 6.2 5.0 0.1 0.1 0.1 0.1 2.3 0.7 5.0 25.0 1.5 13.3 0.1 100.0 150.0 0.1 1,000.0 1.2 0.6 1.9 3.0 0.5 1.5 0.6 4,330.2 0.6 0.3 0.1 – – 0.2 0.1 – Swisscom Hospitality Denmark A/S  Hellerup  100 DKK  Germany  Abavent GmbH  Hospitality Services Germany GmbH  Spree7 GmbH  Swisscom Telco GmbH  Zanox Ltd  Finland  Swisscom Hospitality Finland Oy  Vilant Systems Oy  Kempten  Munich  Berlin  Eschborn  Berlin  Helsinki  Espoo  100 100 80 100 47.5 100 20 EUR  EUR  EUR  EUR  EUR  EUR  EUR  1 Share of Swisscom after expiry of offer period. A procedure for the cancellation of the remaining minority shareholdings was initiated. See Note 5.                                                           Hospitality Networks and Services UK Ltd  London  100 GBP  Registered name  France  Hospitality Services France SA  local.fr SA  Great Britain  Italy  Fastweb S.p.A.  Hospitality Services Italia S.r.l.  Metroweb S.p.A. 1 Swisscom Italia S.r.l.  Liechtenstein  Swisscom Re Ltd  Luxembourg  Milan  Milan  Milan  Milan  Vaduz  Registered office  Shareholding in % Currency  Share capital in millions Paris  Bourg-en-Bresse  96 67 EUR  EUR  5.6 0.5 1.6 41.3 0.1 29.2 2,502.6 100 100 10.6 100 EUR  EUR  EUR  EUR  100 CHF  5.0 Hospitality Services Luxembourg SA  Luxembourg  100 EUR  Netherlands  Bone B.V.  Improve Digital B.V.  NGT International B.V.  SVBmedia Group B.V.  Swisscom Hospitality Benelux B.V.  Norway  Utrecht  Amsterdam  Capelle a/d IJssel  Rotterdam  The Hague  100 85 100 100 100 EUR  EUR  EUR  EUR  EUR  Swisscom Hospitality Norway A/S  Oslo  100 NOK  Austria  Hospitality Services GmbH  Swisscom IT Servics Finance SE  Portugal  Vienna  Vienna  100 100 EUR  EUR  HSIA Hospitality Services Portugal  Lisbon  100 EUR  Romania  Swisscom Hospitality s.r.l.  Brasov  100 RON  Sweden  Sellbranch AB  Spain  Stockholm  50.1 SEK  Hospitality Networks and Services España SA  Barcelona  100 EUR  Singapore  Swisscom IT Services Finance Pte Ltd  Singapore  100 SGD  USA  Hospitality Services North America Corp.  Swisscom Cloud Lab Ltd  Dulles  Delaware  98 100 USD  USD  1 Investment is accounted for using the equity method. Through its representation on the Board of Directors of the company, Swisscom can exercise a significant influence. – – – – 2.5 – 0.3 0.3 0.1 1.1 1.9 0.1 0.1 0.1 1.6 – 201 s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e h t o t s e t o N                                                                                                                                                     Report of the Statutory Auditor Report of the Statutory Auditor on the Consolidated Financial Statements to the General Meeting of Shareholders of Swisscom Ltd, Ittigen (Berne) Report of the Statutory Auditor on the Consolidated Financial Statements As statutory auditor, we have audited the accompanying consolidated financial statements on pages 132 to 201 of Swisscom Ltd, which comprise the income statement, statement of compre- hensive income, balance sheet, statement of cash flows, statement of changes in equity and notes for the year ended 31 December 2014. Board of Directors’ Responsibility The board of directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated finan- cial statements that are free from material misstatement, whether due to fraud or error. The board of directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclo- sures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evalu- ating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2014 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. 202 r o t i d u A y r o t u t a t S e h t f o t r o p e R s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C Report on Other Legal Requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circum- stances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we con- firm that an internal control system exists, which has been designed for the preparation of consol- idated financial statements according to the instructions of the board of directors. We recommend that the consolidated financial statements submitted to you be approved. KPMG AG Rolf Hauenstein Licensed Audit Expert Auditor in Charge Gümligen-Berne, 4 February 2015 Daniel Haas Licensed Audit Expert 203 r o t i d u A y r o t u t a t S e h t f o t r o p e R s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o C Financial statements of  Swisscom Ltd Income statement In CHF million  Net revenue from sale of goods and services  Other income  Total net revenue and other income  Personnel expense  Other operating expense  Total operating expenses  Operating income  Financial expense  Financial income  Income from participations  Income tax expense  Net income  2014 238 30 268 (84) (107) (191) 77 (263) 220 2,447 (9) 2,472 2013 235 40 275 (89) (108) (197) 78 (220) 256 135 (10) 239 204 t n e m e t a t s e m o c n I d t L m o c s s i w S f o s t n e m e t a t s l a i c n a n i F     Balance sheet In CHF million  Assets  Cash and cash equivalents  Other financial assets  Receivables from Group companies  Dividends receivable from subsidiaries  Other receivables from third parties  Other assets  Total current assets  Participations  Loans to third parties  Loans to Group companies  Total non-current assets  Total assets  Liabilities and equity  Financial liabilities to third parties  Financial liabilities to Group companies  Trade payables due to third parties  Other payables to third parties  Other payables to Group companies  Total current liabilities  Financial liabilities to third parties  Financial liabilities to Group companies  Provisions  Total non-current liabilities  Total liabilities  Share capital  Capital surplus reserves  Retained earnings  Total equity  Total liabilities and equity  Note 31.12.2014 31.12.2013 156 – 127 9 2,400 3 10 2,696 7,767 104 5,153 13,024 15,720 1,506 1,719 6 106 15 3,352 6,514 224 55 6,793 10,145 52 21 5,502 5,575 15,720 9 10 5 4 5 7 571 135 166 89 2 8 971 7,148 92 7,573 14,813 15,784 1,535 2,996 6 139 17 4,693 6,552 239 57 6,848 11,541 52 21 4,170 4,243 15,784 205 t e e h s e c n a a B l d t L m o c s s i w S f o s t n e m e t a t s l a i c n a n i F           Notes to the financial statements 1 General information The financial statements of Swisscom Ltd, the parent company of the Swisscom Group, comply with Swiss law. 2 Contingent liabilities At 31 December 2014, guarantees in favour of third parties for the account of Group companies amount to CHF 260 million (prior year: CHF 142 million). 3 Fire insurance values of property, plant and equipment The fire insurance values of property, plant and equipment correspond generally to their replace- ment value or fair value. 4 Amounts payable to pension funds As of 31 December 2014, amounts payable to pension funds totalled CHF 1 million (prior year: none). 5 Debenture bonds issued The amounts, interest rates and maturities of debenture bonds issued by Swisscom Ltd are as follows: In CHF million or EUR  Debenture bond in CHF 2007–2017  Debenture bond in CHF 2008–2015  Debenture bond in CHF 2009–2014  Debenture bond in CHF 2009–2018  Debenture bond in CHF 2010–2022  Debenture bond in CHF 2012–2024  Debenture bond in EUR 2013–2020  Debenture bond in EUR 2014–2021  Debenture bond in CHF 2014–2026  Debenture bond in CHF 2014–2029  31.12.2014 Nominal interest rate 3.75 4.00 – 3.25 2.63 1.75 2.00 1.88 1.50 1.50 Par value 600 500 – 1,425 500 500 500 500 200 160 31.12.2013 Nominal interest rate 3.75 4.00 3.50 3.25 2.63 1.75 2.00 – – – Par value 600 500 1,250 1,500 500 500 500 – – – 206 s t n e m e t a t s l a i c n a n fi e h t o t s e t o N d t L m o c s s i w S f o s t n e m e t a t s l a i c n a n i F         6 Treasury shares Swisscom Ltd recognises treasury shares separately as assets and establishes a reserve for treasury shares in the same amount in equity. Treasury shares are measured at the lower of cost and market value. Details of the balance of and movements in treasury shares are set out in Note 31 to the consolidated financial statements. 7 Equity Movements in the number of shares in circulation as well as the equity of Swisscom Ltd are as follows: In CHF million  Balance at 1 January 2013  Net income  Dividends paid  Balance at 31 December 2013  Net income  Dividends paid  Balance at 31 December 2014  Number of shares Share capital 51,801,943 – – 51,801,943 – – 51,801,943 52 – – 52 – – 52 Capital surplus reserves Retained earnings 21 5,071 Total equity 5,144 239 – – 21 – – 239 (1,140) (1,140) 4,170 2,472 4,243 2,472 (1,140) (1,140) 21 5,502 5,575 Swisscom Ltd is a holding company established under Swiss law. According to the provisions of law governing the appropriation of retained earnings by holding companies, the share capital and appropriations to the general legal reserve to the extent of 20% of share capital as well as the reserve for treasury shares may not be distributed. As of 31 December 2014, distributable reserves aggregated CHF 5,513 million. Any dividend distribution must be proposed by the Board of Direc- tors and approved by the Annual General Meeting of Shareholders. 8 Significant shareholders On 31 December 2014, the Swiss Confederation (Confederation), as majority shareholder, held 51.0% (prior year: 51.2%) of the issued share capital of Swisscom Ltd. The Federal Telecommunication Enterprises Act (TUG) stipulates that the Confederation must hold the majority of the capital and voting rights of Swisscom Ltd. 9 Participations and recording of dividends from subsidiaries Participations are accounted for at acquisition cost less provisions for impairment, as required. Div- idend income from subsidiary companies is accrued provided that the annual general meetings of the subsidiaries approve the payment of a dividend prior to approval of the annual financial statements of Swisscom Ltd by the Board of Directors. A list of direct and indirect shareholdings of Swisscom Ltd is provided in Note 41 to the consolidated financial statements. 10 Assets subject to restriction As of 31 December 2014, financial assets totalling CHF 103 million were not freely available (prior year: CHF 92 million). These assets serve to secure commitments arising from bank loans. 207 s t n e m e t a t s l a i c n a n fi e h t o t s e t o N d t L m o c s s i w S f o s t n e m e t a t s l a i c n a n i F         11 Information on risk assessment process Swisscom Ltd is fully integrated into the risk assessment process of Swisscom Group. This Group- wide risk assessment process also takes into consideration the nature and scope of business activities and the specific risks to which Swisscom Ltd is exposed. See Note 39 to the consolidated financial statements. 12 Shareholdings of the members of the Board of Directors and the Group Executive Board The table below discloses the number of restricted and non-restricted shares held by the members of the Board of Directors and the Group Executive Board and as well as individuals related to them as of 31 December 2014 and 2013. Number  Hansueli Loosli  Frank Esser 1 Barbara Frei  Hugo Gerber  Michel Gobet  Torsten G. Kreindl  Catherine Mühlemann  Richard Roy 2 Theophil Schlatter  Hans Werder  208 s t n e m e t a t s l a i c n a n fi e h t o t s e t o N d t L m o c s s i w S f o s t n e m e t a t s l a i c n a n i F Total shares of the members of the Group Executive Board  1  Elected as of 7 April 2014. 2  Resigned as of 7 April 2014. Number  Urs Schaeppi (CEO) 1 Mario Rossi  Hans C. Werner  Marc Werner 2 Christian Petit 3 Roger Wüthrich-Hasenböhler 2 Heinz Herren 2 Andreas König 4 Total shares of the members of the Board of Directors  1  From 23 July to 6 November 2013 CEO ad interim and from 7 November 2013 CEO. 2  Joined the Group Executive Board as of 1 January 2014. 3  Joined the Group Executive Board as of 1 April 2014. 4  Resigned from the Group Executive Board as of 31 March 2014. 31.12.2014 31.12.2013 1,682 101 409 1,129 1,496 1,195 1,119 – 887 839 8,857 1,335 – 283 1,020 1,387 1,061 1,010 1,269 711 688 8,764 31.12.2014 31.12.2013 2,275 634 421 106 1,332 879 1,122 – 6,769 1,716 383 257 – – – – 170 2,526 No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital.         Proposed appropriation of retained earnings Proposal of the Board of Directors The Board of Directors proposes to the Annual General Meeting of Shareholders to be held on 8 April 2015 that the retained earnings of CHF 5,502 million as of 31 December 2014 shall be appropriated as follows: In CHF million  Appropriation of retained earnings  Balance carried forward from prior year  Net income for the year  Total retained earnings  Ordinary dividend of CHF 22.00 per share to 51,801,794 shares in total 1 Balance to be carried forward  1 Excluding treasury shares. 31.12.2014 3,030 2,472 5,502 (1,140) 4,362 In the event that the proposal is approved, a dividend per share will be paid to shareholders on 15 April 2015 as follows: Per registered share  Ordinary dividend, gross  Less 35% withholding tax  Net dividend paid  CHF 22.00 (7.70) 14.30 209 d t L m o c s s i w S f o s t n e m e t a t s l a i c n a n i F i s g n n r a e d e n a t e r i f o n o i t a i r p o r p p a d e s o p o r P             Report of the Statutory Auditor Report of the Statutory Auditor on the Financial Statements to the General Meeting of Shareholders of Swisscom Ltd, Ittigen (Berne) Report of the Statutory Auditor on the Financial Statements As statutory auditor, we have audited the accompanying financial statements on pages 204 to 208 of Swisscom Ltd, which comprise the income statement, balance sheet and notes for the year ended 31 December 2014. Board of Directors’ Responsibility The board of directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibil- ity includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The board of directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclo- sures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes eval- uating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended 31 December 2014 comply with Swiss law and the company’s articles of incorporation. 210 r o t i d u A y r o t u t a t S e h t f o t r o p e R d t L m o c s s i w S f o s t n e m e t a t s l a i c n a n i F     Report on Other Legal Requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circum- stances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we con- firm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the board of directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. KPMG AG Rolf Hauenstein Licensed Audit Expert Auditor in Charge Gümligen-Berne, 4 February 2015 Daniel Haas Licensed Audit Expert 211 r o t i d u A y r o t u t a t S e h t f o t r o p e R d t L m o c s s i w S f o s t n e m e t a t s l a i c n a n i F     “I help customers in their homes, rectify disruptions to the Internet, set up new computers and smart- phones, and get rid of viruses.” Christian Gebs My Service technician Residential Customers Further information Focusing on our customers with a great deal of passion and reliability. Over 1.4 million homes and offices are connected with ultra-fast broadband. Topics Glossary 216216 Technical terms 220 Networks 221 Other terms Index of keywords Swisscom Group five-year review 223 224 Over 1.4 million Glossary Technical terms ADSL (Asymmetric Digital Subscriber Line): A broadband data transmission technology that uses the existing copper telephone cable for broadband access to the data network. Filters at the customer end and in the network prevent mutual interference, allowing traditional analogue telephony and data transmission to exist in parallel. Depending on the line length and other factors, the transmission speed varies between 150/50 kbps and a maximum of 6,000/600 kbps. All-IP: All-IP is the technology behind the transition to a single unified network based on the Inter- net Protocol (IP). All-IP means that all services such as television, the Internet or telephony run over the same IT network based on the Internet Protocol. Phone calls are no longer transmitted using analogue signals but instead take the form of data packets, as is the case for existing Internet ser- vices. Thanks to the unified All-IP network infrastructure, devices and services can communicate with one another and exchange data. In the medium and long term, Swisscom intends to migrate all existing communications networks to IP to enable all telecommunications services (telephony, data traffic, TV, mobile communications, etc.) to be offered over IP. Bandwidth: Bandwidth refers to the transmission capacity of a medium, also known as the data transmission rate. The higher the bandwidth, the more information units (bits) can be transmitted per unit of time (second). It is defined in bps, kbps or Mbps. Cloud: Cloud computing is an approach in which IT infrastructure, such as computing capacity, data storage and even finished software and platforms can be modified according to need dynam- ically and accessed via the Internet. The data centres, along with the resources and databases, are distributed via the cloud. The cloud is also a synonym for hardware that does not have a precise location. Connectivity: Connectivity is the generic term used to denote IP services or the connection to the Internet and the ability to exchange data with any partner on the network. DSL (Digital Subscriber Line): DSL is the generic term for transmission technologies that use sub- scriber lines based entirely or partly on copper. Examples of DSL technologies: ADSL or VDSL. EDGE (Enhanced Data Rates for GSM Evolution): EDGE is part of the second generation of mobile telephony and is a radio modulation technology used to enhance data transmission speeds in GSM mobile networks. EDGE enables data transfer rates of up to 256 kbps. EDGE is currently available to over 99% of the Swiss population. FTTH (Fibre to the Home): FTTH refers to the end-to-end connection of homes and offices using fibre-optic cables instead of traditional copper cables. FTTS (Fibre to the Street)/FTTB (Fibre to the Building)/FTTC (Fibre to the Curb): FTTS, FTTB and FTTC with vectoring refer to innovative, hybrid broadband connection technologies (optical fibre and copper). With these technologies fibre-optic cables are laid as close as possible to the building, or up to the basement in the case of FTTB, while the existing copper cabling is used for the remain- ing section. VDSL’s subsequent evolution to G.fast will significantly increase bandwidths for FTTS and FTTB. G.fast (pronounced “G dot fast”): G.fast, the latest technology for copper lines, is capable of pro- viding far more bandwidth than VDSL2. The use of G.fast for FTTS and FTTB is part of Swisscom’s access strategy. GPRS (General Packet Radio Service): GPRS is part of the second generation of mobile telephony and increases the transfer rates of GSM mobile networks. GPRS enables speeds of 30 to 40 kbps. 216 y r a s s o G l n o i t a m r o f n i r e h t r u F GSM (Global System for Mobile communications) network: GSM is a global second-generation digital mobile telephony standard which, in addition to voice and data transmission, enables services such as SMS messages and phone calls to other countries (international roaming). HSPA (High Speed Packet Access): HSPA is an enhancement of the third generation of the UMTS mobile communications standard. Compared to UMTS, HSPA enables large volumes of data to be transmitted at faster speeds. HSPA enables far more customers to use the same radio cell simul- taneously and at a consistently high speed than would be possible with UMTS. At locations where mobile Internet use is particularly concentrated, HSPA is upgraded to HSPA+ (also referred to as HSPA Evolution). The maximum transmission speed currently delivered by this technology is 42 Mbps. ICT (Information and Communication Technology): A term coined in the 1980s, combining the terms information and communication technology. It denotes the convergence of information technology (information and data processing and the related hardware) and communication tech- nology (technically aided communications). IP (Internet Protocol): IP enables different types of services to be integrated on a single network. Typical applications are virtual private networks (VPN), telephony (Voice over IP) and fax (Fax over IP). IPTV (Internet Protocol Television): IPTV refers to the digital broadcasting of broadband applica- tions (for example, television programmes and films) over an IP network. ISP (Internet Service Provider): An ISP is a provider of Internet-based services, also commonly referred to as Internet Provider. Services include Internet connection (using DSL, for example), hosting (registration and operation of Internet addresses, websites and web servers) and content provision. LAN (Local Area Network): A LAN is a local network for interconnecting computers, usually based on Ethernet. 4G/LTE (Long Term Evolution): 4G/LTE is the successor technology to HSPA and is the fourth gen- eration of mobile technology. At present, LTE enables mobile broadband data speeds of up to 150 Mbps. 4G+LTE Advanced: 4G+/LTE Advanced enables a theoretical bandwidth of up to 300 Mbps using the mobile phone network. In doing so, it bundles 4G/LTE frequencies to achieve the necessary capacity. In the near future, theoretical bandwidths of up to 450 Mbps will be achieved through the further bundling of 4G/LTE frequencies. MVNO (Mobile Virtual Network Operator): MVNO denotes a business model for mobile communi- cations. In this case, the corresponding business (the MVNO) has little or no limited network infra- structure. It therefore accesses the infrastructure of other mobile communication providers. Net Promoter Score (NPS): NPS is a key figure that quantifies customer satisfaction directly and willingness to recommend the service to other customers indirectly. The NPS is thus an analysis to determine customer satisfaction. Optical fibre: Fibre-optic cables enable optical data transmission, unlike copper cables, which use electrical signals to transmit data. OTT (Over the Top): OTT refers to content distributed by service providers over an existing network infrastructure without operating the infrastructure themselves. OTT companies offer proprietary services on the basis of the infrastructures of other companies in order to reach a broad range of users quickly and cost-efficiently. 217 y r a s s o G l n o i t a m r o f n i r e h t r u F PWLAN (Public Wireless Local Area Network): PWLAN denotes a wireless, local public network based on the IEEE 802.11 WiFi standard family. Swisscom customers can use PWLAN at more than 1,200 hotspots in Switzerland and over 65,000 worldwide. A PWLAN typically offers data trans- mission speeds of 5-10 Mbps. Roaming: Roaming enables mobile network subscribers to use their mobile phones when travel- ling abroad. The mobile telephone of a subscriber outside Switzerland automatically selects the best-quality partner network. Information indicating the country and region where the mobile phone is located at any given time is sent to the exchange in Switzerland where the mobile phone is registered. On receipt of the calling signal, the exchange in Switzerland transmits it within a fraction of a second to the right region in the respective country, where the signal is forwarded to the base station in whose vicinity the mobile phone is located. The base station then forwards the signal to the mobile phone and the call can be taken. Roaming only works if all countries involved operate on the same frequency bands. In Europe all GSM networks use the same frequency bands. Other countries such as the USA or countries in South America use a different frequency range. Most mobile telephones today are triband or quadband and support 900 MHz and 1,800 MHz net- works (which are most commonly used in Europe) as well as 850 MHz and 1,900 MHz networks. Router: A router is a device for connecting or separating several computer networks. The router analyses incoming data packets according to their destination address, and either blocks them or forwards them accordingly (routing). Routers come in different forms, from large-scale network devices to small devices for the home. TDM (Time Division Multiplexing): Multiplexing is a method which allows the simultaneous trans- mission of multiple signals over a single communications medium (line, cable or radio link), for example, by means of classic telephony (using an ISDN or analogue line). Multiplexing methods are often combined to achieve even higher utilisation. The signals are multiplexed once the user data have been modulated on a carrier signal. At the receiver end the information signal is first demulti- plexed and then demodulated. Ultra-fast broadband: Ultra-fast broadband is broadband speeds of more than 50 Mbps – on both fixed and mobile networks. UMTS (Universal Mobile Telecommunications System): UMTS is an international third generation mobile communications standard that combines mobile multimedia and voice services. A further development of GSM, UMTS complements GSM and Public Wireless LAN in Switzerland. Today the UMTS network covers around 99% of the Swiss population. Unified Communications: An attempt to integrate the wide variety of modern communication technologies. Different telecommunication services such as e-mail, unified messaging, telephony, mobile, PDAs, instant messaging and presence functions are coordinated to improve the reacha- bility of communication partners working on distributed projects, thereby speeding up business processes. VDSL (Very High Speed Digital Subscriber Line): VDSL is currently the fastest DSL technology, allowing data transmission speeds of up to 100 Mbps. The current form of VDSL is called VDSL2. Vectoring: Vectoring is a technology that is used in conjunction with VDSL2. It eliminates interference (disruptions) between pairs of copper lines. This enables maximum a double increase in bandwidth. Video on Demand: A service that allows subscribers to choose from a selection of films and to watch the selected film at any time. The film is delivered to the subscriber either over the broad- band cable network, over the original telephone network (DSL transmission), or over the new fibre-optic network (optical transmission). VoIP (Voice over Internet Protocol): VoIP is used to set up telephone connections via the Internet. 218 y r a s s o G l n o i t a m r o f n i r e h t r u F VoLTE (Voice over LTE): LTE is, in effect, a pure data network. VoLTE enables phone calls via the LTE data network. VPN (Virtual Private Network): Colloquially, VPN is now used to refer to a virtual IP network (usually encrypted) that acts as a closed subnetwork within another IP network (often the public Internet). WLAN: WLAN stands for wireless local area network. A WLAN connects several computers wire- lessly to a central information system, printer or scanner. WLAN interworking / WiFi calling: WLAN interworking or WiFi calling enables users to make calls via their mobile phone and the WLAN/WiFi network. This technology has improved mobile phone reception in houses significantly. 219 y r a s s o G l n o i t a m r o f n i r e h t r u F Networks Leased lines: Swisscom operates various data networks. These data networks support leased lines based on a range of different technologies such as SDH (Synchronous Digital Hierarchy) and, of course, Ethernet. Business customers can take advantage of permanent, overload-free point-to- point connections using bandwidths of between 2 Mbps and 10 Gbps. Redundancies are tailored to customers’ individual requirements in terms of availability and security. Next-generation network: To enable more cost-effective use of new services such as VoIP and convergent solutions in the future, Swisscom is investing in a network infrastructure that is based exclusively on All-IP. This infrastructure allows Swisscom to offer services irrespective of the type of access technology selected (copper, wireless or fibre optic). Having migrated the data transport network to IP, commissioned an IP-based telephony and multimedia platform, and launched its first IP-based services such as Swisscom TV and VoIP, Swisscom has already gained experience in All-IP offerings. The first products based solely on IP were already rolled out in 2009 and supple- mented since then by a wide range of new services and bundled offerings. PSTN network: The PSTN network connects virtually all private households and a large proportion of business customers in Switzerland. Four-fold redundancy in the core network and two-fold redun- dancy in the switching layer ensure excellent voice quality and optimum security and availability. Transport network: The transport network is a wide area network that connects the regional parts of the fixed network as well as the regional parts of the mobile network with each other as well as with the respective central network core. It also provides the link to computer centres and the global Internet. The transport network is used for all services (voice, video and data) and all custom- ers (residential/business). Wired access network: Swisscom’s copper access network is comprised primarily of twisted copper wire pairs. It reaches practically every household in Switzerland. Swisscom began with the expan- sion of optical fibre to homes and offices (FTTH) in 2008. It started rolling out broadband tech- nology in 2000, first based on ADSL (coverage at end-2014: 98%). ADSL was followed in 2006 by VDSL2 (coverage at end-2014: over 91%) and in 2008 by optical transfer via optical fibre technology (coverage at end-2013: more than 1.4 million of homes and offices). To fulfil its mandate for basic broadband provision, Swisscom also uses wireless technologies such as UMTS and satellite. At pres- ent, ADSL is mainly used to provide Internet access. Internet access using very high bandwidths and more broadband-intensive services such as IPTV and video telephony are transmitted only over VDSL2 or optical fibre. A million customers are already using Swisscom’s IPTV, and more than 85% enjoy at least one channel in HD quality (high-definition TV). At the end of 2013 Swisscom launched a service on the fibre-optic network offering speeds of 1 Gbps. Wireless access network: Swisscom operates a nationwide mobile network in Switzerland. The mobile services it provides are based on GSM, UMTS and LTE, the dominant digital standards across Europe and much of the world. Swisscom has implemented different technologies that enable trans- mission between handsets and base stations. In 2005, it enhanced all active GSM antennas with EDGE technology, a further development of GPRS. EDGE enables bandwidths of between 150  and 200 kbps and currently covers 99% of the Swiss population. Swisscom launched UMTS in 2004, and has continuously expanded its mobile network to include the UMTS extension HSPA/HSPA+ since 2006. This ensures download speeds of up to 42 Mbps. By the end of 2014, UMTS/HSPA was available to around 99% of the Swiss population. Swisscom took another major step in 2011 when it became the first mobile provider in Switzerland to launch a field trial with LTE. Swisscom launched its 4G/LTE offerings on the Swiss market in December 2012 and has since extended coverage to 97% of Swiss households. At present, LTE enables bandwidths of up to 150 Mbps. Thus, Swisscom currently has the most powerful mobile network in Switzerland and will continue to expand its technological lead – it has already tested bandwidths of up to 450 Mbps in the laboratory. 220 y r a s s o G l n o i t a m r o f n i r e h t r u F Other terms Bit-stream access (BSA): Regulated bitstream access is a high-speed link that travels the last mile from the local exchange to the customer’s home connection via a metallic pair cable. The BSA is set up by Swisscom and is provided to other telecoms service providers (TSP) as an upstream service at a price regulated by the government. TSPs can use this link, for example, to offer their customers broadband services or fast Internet access. Collocation: Collocation is governed by the Ordinance on Telecommunications Services (Verord- nung über Fernmeldedienste, FDV). The market-dominant provider offers alternative providers non-discriminatory access to the required locations so that they can use the location and install and operate their own telecommunications systems at that location. ComCo (Competition Commission): ComCo enforces the Federal Cartel Act, the aim of which is to safeguard against the harmful economic or social impact of cartels and other constraints on competition in order to foster competition. ComCo combats harmful cartels and monitors mar- ket-dominant companies for signs of anti-competitive conduct. It is responsible for monitoring mergers. In addition, it provides comments on official decrees that affect competition. ComCom (Federal Communications Commission): ComCom is the decision-making authority for telecommunications. Its primary responsibilities include issuing concessions for use of the radio frequency spectrum as well as basic service licences. It also provides access (unbundling, intercon- nection, leased lines, etc.), approves national numbering plans and regulates the conditions govern- ing number portability and freedom of choice of service provider. COSO/COSO ERM (Committee of Sponsoring Organizations of the Treadway Commission): COSO is a voluntary, private-sector US organisation. Its goal is to improve the quality of financial reporting by promoting ethical conduct, effective internal controls and good corporate management. The Enter- prise Risk Management (ERM) Framework is an extension of COSO’s Internal Control Framework. ERM (Enterprise Risk Management): ERM is a Group-wide management system that ensures the assessment, handling and reporting of significant risks at Group level as well as Group-company level. Ex-ante: In an ex-ante regulation approach, the particulars of the regulated offerings (commercial, technical and operating conditions) must be approved by a government authority (authorisation obligation). The conditions approved by the authority (for example, price) are known to the parties using the regulated services. There is legal provision for the affected providers to establish that the price has been correctly determined. Ex-post: In an ex-post regulation approach, the parties must agree all possible aspects of the con- tractual content (primacy of negotiation). In the event of a dispute, the authorities decide only on the points on which the parties have been unable to agree (objection principle). FTE (full-time equivalent): Throughout this report, FTE is used to denote the number of full-time equivalent positions. Full access: Full access in connection with unbundling means providing alternative telecommunica- tions service providers with access to subscriber lines for the purpose of using the entire frequency spectrum of metallic pair cables. Hubbing: Hubbing relates to the trading of telephone traffic with other telecommunication operators. 221 y r a s s o G l n o i t a m r o f n i r e h t r u F Interconnection: Interconnection means linking up the systems and services of two TSPs so as to enable the logical interaction of the connected telecoms components and services and to provide access to third-party services. Interconnection allows the customer of one provider to communi- cate with the subscribers of another provider. Under the terms of the Federal Telecommunications Act, market-dominant TSPs are required to allow their competitors interconnection at cost-based prices (LRIC, see below). ISO (9001, 14001–14064, 15504, 27001, 31000): ISO is the International Organization for Stand- ardization. It draws up international standards in all fields, with the exception of electricity and elec- tronics, for which the International Electrotechnical Commission (IEC) is responsible, and telecom- munications, for which the International Telecommunication Union (ITU) is responsible. Together, these three organisations form the WSC (World Standards Cooperation). The relevant ISO standards are: ISO 9001 Quality Management System – Requirements; ISO 14001 to ISO 14064 Environmen- tal Management System; ISO 15504 Software Process Improvement and Capability Determination (SPICE); ISO 27001 Information Technology – IT Security Techniques – Information Security Man- agement Systems – Requirements; ISO 31000 Risk Management Principles and Guidelines. These standards govern the principles and general requirements for the risk management process. Last mile: Also referred to as the local loop, the last mile denotes the subscriber access line between the subscriber access point and the local exchange. In Switzerland, as in most other countries, access to the last mile is regulated. LRIC (Long-Run Incremental Costs): LRIC is the method defined by the Ordinance on Telecommu- nications Services (Verordnung über Fernmeldedienste, FDV) for calculating regulating prices. It is future-oriented and therefore creates economically efficient investment incentives. OFCOM (Federal Office of Communications): OFCOM deals with issues related to telecommunica- tions and broadcasting (radio and television), and performs official and regulatory tasks in these areas. It prepares the groundwork for decisions by the Federal Council, the Federal Department for Environment, Transport, Energy and Communications (DETEC) and the Federal Communications Commission (ComCom). Termination charges: Termination charges are levied by a network operator for forwarding calls to another third-party network (e.g. calls from Orange to Swisscom or from Sunrise to Orange). Unbundling: Unbundling of the last mile (Unbundling of the Local Loop, ULL) enables fixed-network competitors without their own access infrastructure to access customers directly at non-discrimi- natory conditions based on original cost. The prerequisite for ULL is the presence of a market-dom- inant provider. There are two forms of unbundling: unbundling at the exchange (unbundling of the local loop/ULL or LLU, referred to as TAL in Switzerland), currently available at around 600 unbun- dled locations, and unbundling at the neighbourhood distribution cabinet (sub-loop unbundling, referred to as T-TAL in Switzerland), in which Swisscom’s competitors have so far shown no interest. 222 y r a s s o G l n o i t a m r o f n i r e h t r u F Index of keywords Board of Directors Capital expenditure Compensation paid to members of the Board of Directors and the Group Executive Board Distribution to shareholders Employees Equity Fixed and mobile network Goodwill Group Executive Board Group structure and organisation Income taxes Legal and regulatory environment Macroeconomic environment Market shares Net debt and financing Outlook Pension Provisions Risk Management Risks Segment results Share Strategy Ultra-fast broadband expansion Pages 97–106 77 115–126 83 50–55; 156–162 75, 136 45–47; 220 173–175 107–111 24–26 164–167 33–36 31–32 38–42 76, 195 80 75, 157–161 180–181 85–86, 105–106, 185–195 85–87 64–72 81–83 26–29 45–46 223 s d r o w y e k f o x e d n I n o i t a m r o f n i r e h t r u F Swisscom Group five-year review In CHF million, except where indicated  2010 2011 2012 1 2013 2014 Net revenue and results  Net revenue  Operating income before depreciation and amortisation (EBITDA)  EBITDA as % of net revenue  % Operating income (EBIT) before impairment losses on goodwill  Operating income (EBIT)  Net income  Share of net income attributable to equity holders of Swisscom Ltd  Earnings per share  Balance sheet and cash flows  Equity at end of year  Equity ratio at end of year  Cash flow provided by operating activities  Capital expenditure in property, plant and equipment  and other intangible assets  Net debt at end of period  Employees  CHF % 11,988 11,467 11,384 11,434 11,703 4,599 38.4 2,627 2,627 1,788 1,813 35.00 5,350 25.4 4,024 1,903 8,848 4,584 40.0 2,681 1,126 694 683 13.19 4,296 22.1 3,951 2,095 8,309 4,477 39.3 2,527 2,527 1,815 1,808 34.90 4,717 23.8 4,245 2,529 2 8,071 4,302 37.6 2,258 2,258 1,695 1,685 32.53 6,002 29.3 4,131 2,396 7,812 4,413 37.7 2,322 2,322 1,706 1,694 32.70 5,457 26.1 3,770 2,436 8,120 Full-time equivalent employees at end of year  Average number of full-time equivalent employees  number number 19,547 20,061 19,464 19,832 19,514 19,771 20,108 19,746 21,125 20,433 Operational data at end of period  Fixed access lines in Switzerland  Broadband access lines retail in Switzerland  Mobile access lines in Switzerland  Swisscom TV access lines in Switzerland  in thousand in thousand in thousand in thousand 3,233 1,584 5,828 421 3,120 1,661 6,049 608 3,013 1,727 6,217 791 2,879 1,811 6,407 1,000 2,778 1,890 6,540 1,165 Revenue generating units (RGU) Switzerland  in thousand 11,066 11,438 11,748 12,097 12,373 Unbundled fixed access lines in Switzerland  Broadband access lines in Italy  in thousand in thousand 255 1,724 306 1,595 3 300 1,767 256 1,942 180 2,072 Swisscom share  Par value per share at end of year  CHF 1.00 1.00 1.00 Number of issued shares at end of period  in million of shares 51.802 51.802 51.802 Market capitalisation at end of year  Closing price at end of period  Closing price highest  Closing price lowest  Ordinary dividend per share  Ratio payout/earnings per share  Informations Switzerland  Net revenue  Operating income before depreciation and amortisation (EBITDA)  Capital expenditure in property, plant and equipment  and other intangible assets  21,296 18,436 20,400 355.90 393.80 433.50 400.00 CHF CHF CHF CHF % 411.10 420.80 358.00 21.00 60.00 323.10 334.40 390.20 22.00 166.79 22.00 63.04 22.00 67.63 22.00 4 67.27 1.00 51.802 24,394 470.90 474.00 1.00 51.802 27,067 522.50 587.50 467.50 9,340 3,922 9,243 3,945 9,268 3,864 9,358 3,685 9,586 3,788 1,311 1,537 1,994 2 1,686 1,751 Full-time equivalent employees at end of year  number 16,064 16,628 16,269 17,362 18,272 1 Amendments to IAS 19 revised, restated from 2012. 2 Including expenses of CHF 360 million for mobile frequencies. 3 As a result of the settlement of litigations Fastweb reduced the number of access lines by 197,000. 4 In accordance with the proposal of the Board of Directors to the Annual General Meeting. 224 n o i t a m r o f n i r e h t r u F w e i v e r r a e y - e v fi p u o r G m o c s s i w S                         Publishing details Key dates > 5 February 2015 Annual Press Conference 2014, Zurich > 8 April 2015 Annual General Meeting of Shareholders, Zurich > 10 April 2015 Ex-dividend date > 15 April 2015 Dividend payment > 6 May 2015 First-Quarter results 2015 > 19 August 2015 Second-Quarter results 2015 > 5 November 2015 Third-Quarter results 2015 > in February 2016 Annual Press Conference 2015, Zurich Publication and production Swisscom Ltd, Berne Translation CLS Communication AG, Basel Production MDD Management Digital Data AG, Lenzburg Printing Stämpfli Publikationen AG, Berne Photographers Elisabeth Real, Zurich Stefan Walter, Zürich Printed on chlorine-free paper © Swisscom Ltd, Berne The Annual Report is published in English, French and German. Further copies of the Annual Report can be ordered via E-mail: annual.report@swisscom.com A Swisscom company brochure is also available in English, French, German and Italian. The Corporate Responsibility Report 2014 is published as an online version at www.swisscom.ch/cr-report. General information Swisscom Ltd Head Office CH-3050 Berne Tel.: + 41 58 221 99 11 E-mail: swisscom@swisscom.com Financial information Swisscom Ltd Investor Relations CH-3050 Berne Tel.: E-mail: Internet: www.swisscom.ch/investor + 41 58 221 99 11 investor.relations@swisscom.com Social and environmental information Swisscom Ltd Group Communications & Responsibility CH-3050 Berne E-mail: corporate.responsibility@swisscom.com Internet: www.swisscom.ch/responsibility For the latest information, visit our website www.swisscom.ch The online version of the Swisscom Annual Report is available in English: www.swisscom.ch/report2014 German: www.swisscom.ch/bericht2014 French: www.swisscom.ch/rapport2014 P E R F O R M A N C E neutral Printed Matter No. 01-15-277548 – www.myclimate.org © myclimate – The Climate Protection Partnership 

Continue reading text version or see original annual report in PDF format above