Swisscom AG
Annual Report 2015

Plain-text annual report

Annual Report2015 5 1 0 2 t r o p e R l a u n n A m o c s s i w S Annual Report2015 Sustainability Report2015 2015 at a glance Annual report publications The Annual Report, Sustainability Report and Swisscom at a glance are part of Swisscom’s 2015 Annual Report. The three publications are available online at: swisscom.ch/report2015 “Special moments“ image concept Life is a series of special moments that we hope never to forget. Perhaps this is why we like to let our loved ones experience these moments, too. Happiness shared is happiness doubled, after all. Swisscom helps people to share their special moments via their smartphones or an app – as a personal message or text, a short fi lm or photo. We’d like to say a big thank you to Swisscom employees Elke Lanzoni, Andri Rüesch and Martin Fisch, as well as their families, who shared their own special moments with us on the publications’ title pages. Welcome to the country of possibilities Swisscom is connecting Switzerland: we accompany and support our customers in today’s networked world with our network, products and services, and offer them only the  best – everywhere and anytime. Swisscom assumes responsibility: together with the Swiss population, we are committed to our country. Swisscom promotes skilled employees: people who want to help shape Switzerland’s digital future. [Beispielbild] Shareholders’ letter Dear Shareholders Swisscom is holding its ground. Despite a more challenging environment, Swisscom increases its adjusted operating income. High capital expenditure in its network infrastructure ensures that Swisscom has a leading position in the market of ultra-fast broadband. Fastweb develops nicely: the company boosts its revenue, operating income and customer numbers. Swisscom is holding its ground in a challenging environment Swisscom’s net revenue declined by CHF 25 million (–0.2%) to CHF 11,678 million in 2015 compared with the prior year. At constant exchange rates and excluding company acquisitions and disposals, revenue increased by CHF  83  million (+0.7%), of which the Swiss core business accounted for CHF  57  million. Swisscom increased its adjusted operating income (EBITDA) by CHF 103 million (+2.3%). However, due to non-recurring items such as provisions for ongoing proceedings, restruc- turing costs and currency effects, reported EBITDA fell by CHF 315 million (–7.1%) to CHF 4,098 mil- lion. Net income declined to CHF  1,362  million (–20.2%), largely due to non-recurring items. Swisscom’s capital expenditure dropped slightly by CHF 27 million (–1.1%) to CHF 2,409 million. Solid business performance in Switzerland Revenue of the Swiss business rose CHF 178 million (+1.9%) to CHF 9,764 million; on a like-for-like basis, revenue grew CHF 27 million (+0.3%). The higher number of customers was partially offset by lower roaming prices. Swisscom cut its roaming prices even further during the year under review, meaning that Swisscom not only has the most attractive roaming prices on the Swiss market but also has actually included roaming in a majority of its subscriptions: Over 90% of Natel infinity plus cus- tomers use their mobile phones within the EU without incurring any additional costs as a result. The number of revenue generating units (RGUs) in the Swiss business increased year-on-year by 170,000 (+1.4%) to 12.5 million. EBITDA in the Swiss business decreased by CHF 327 million (–8.6%) to CHF 3,461 million due to the aforementioned non-recurring items; on a like-for-like basis, EBITDA increased by CHF 21 million (+0.6%). Capital expenditure in Switzerland increased by CHF 71 million (+4.1%) to CHF 1,822 million. Swisscom continued to expand and upgrade its fixed network infra- structure and had connected around 2.9 million Swiss households and businesses with ultra-fast broadband (speeds in excess of 50 Mbps) by the end of 2015. Of these, some 2 million are fitted with the latest fibre-optic technology. In Switzerland, the number of employees increased by 693 FTEs (+3.8%) to 18,965. Adjusted for company acquisitions and disposals, headcount increased by 258 FTEs (+1.4%). Fastweb developing nicely As a result of customer growth, revenue of Fastweb in Italy was EUR 48 million (+2.8%) higher at EUR 1,736 million. Despite difficult market conditions, Fastweb’s broadband customer base grew by 129,000 (+6.2%) to 2.2 million in 2015. Revenue from residential customers increased year-on- year by EUR 36 million (+4.8%) to EUR 789 million, while revenue from business customers rose EUR 11 million (+1.4%) to EUR 800 million. The segment result before depreciation and amortisation (EBITDA) amounted to EUR 576 million, an increase of EUR 61 million (+11.8%) over the prior year. At EUR 541 million, capital expenditure was EUR 21 million lower than the prior-year level. Fastweb achieved a free cash flow of EUR 77 million in 2015. Swisscom share performance in 2015 The Swisscom share price fell by 3.7% in 2015. In terms of total shareholder return (share price movement and dividend payout), Swisscom achieved 0.12% thanks 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 equivalent to a total dividend payout of CHF 1,140 million. Swisscom is thus upholding the principle of continuity in its dividend policy. The best in today’s networked world – everywhere and any time The world is in the midst of the fourth industrial revolution: people, machines and applications are being networked, controlling themselves and improving continuously through applications in the cloud and smart data. The Internet of Things continues its triumphant march: in 2015, there were 4.9 billion machines communicating around the globe – and in 2020 they will number 25 billion. People, too, are networking in an entirely different manner: the “Wisdom of Crowds” has given rise to a completely new type of collaboration, thus allowing companies to share their most valuable Swiss commodity – knowledge – at the touch of a button. Products in a store begin to speak. They know their own size, make-up and origin. Any information distributed until then, such as availability, technical specifications or accessories, is combined directly in a single application. Plus the collaborative economy enables people to procure things of all kinds from one another effectively and efficiently. This unlocks new opportunities and new markets while also giving rise to new value chains. Successful “digitisation” depends on establishing networks and on high-performance, secure data transmission: Swisscom is transforming into an integrated technology provider that develops high-quality commu- nication and IT solutions. In an increasingly networked and digitised world, Swisscom always offers its customers the best – regardless of their location. This is because Swisscom wants people and busi- nesses in Switzerland to be able to fully exploit the opportunities of the networked world. Swisscom is leading the way as a pioneer in the networked world, serving as a companion to its customers by providing them with networked, end-to-end solutions in many areas of the economy and life in gen- eral. In doing so, Swisscom boosts the competitiveness of its customers, strengthens Switzerland as a business hub through its top-notch network infrastructure and thus plays an active role in success- fully shaping Switzerland’s future. Capital expenditure for high bandwidth – building the best infrastructure High-performance IT and communications infrastructures lay the foundation for success in the networked world. Swisscom meets this goal and fulfils the ever-growing requirements with a net- work infrastructure that is second to none in terms of security, availability and performance. In 2015, Swisscom invested CHF 1.8 billion in Switzerland’s infrastructure, the majority of which was devoted to expanding the ultra-fast broadband network for mobile and fixed-line telephony. Expansion with broad technology mix in the fixed network Nationwide, an intelligent technology mix ensures that cities, agglomerations and rural areas benefit from ultra-fast broadband. Swisscom is committed to expanding its fibre-optic technology with fibre-to-the-building (FTTB), fibre-to-the-home (FTTH), fibre-to-the-street (FTTS) and fibre-to-the- curb (FTTC), combined with the latest technologies such as vectoring and G.fast, which is planned for 2016. This will enable speeds of up to 500 Mbps to be reached on traditional copper telephone cables. By end-2015, Swisscom had already connected some 2.9 million households and businesses in Switzerland with ultra-fast broadband exceeding 50 Mbps. Swisscom will push ahead with expansion in the coming years so that, by the end of 2020, 85% of all households and businesses have ultra-fast broadband with at least 100 Mbps and every Swiss municipality is provided with almost 100% ultra-fast broadband coverage in the long term. These investment projects are sub- ject to general legal conditions that protect capital expenditure in network expansion and the company’s ability to generate the funds it needs for the investments. More bandwidth in the mobile network Data traffic growth on the mobile network continues unabated and the volume of data carried by the network doubles each year. Swisscom is expanding its position as a leading mobile service provider through the right capital expenditure, a strategic partnership with Ericsson and innovative solutions like proprietary microcells in fixed network conduits. The 4G network also received an additional boost: Swisscom now offers LTE Advanced in 28 cities featuring speeds of up to 300 Mbps, to be increased up to 450 Mbps in the first locations beginning 2016. The new 5G mobile commu- nication standard, set to launch in 2020, will pave the way for even higher bandwidths and shorter response times. The rollout of 5G will mark the end of support for 2G (GSM) technology, which will have been around for 27 years by that time. All IP – Internet protocol as a uniform language The phase-out of traditional fixed-network technology and its replacement with All IP (“everything via the Internet protocol”) is continuing. By end-2015, 40% or over one million customers were already benefiting from the possibilities offered by the new technology – such as access to your own data irrespective of device and location. All customers should have been converted to AII IP by the end of 2017. Further development of core business and innovations – best experience So good, so simple and so unmistakable that you would never want to be without it again: Swisscom creates unforgettable customer experiences with its products and offers. Through these, it seeks to differentiate itself in its core business, for example with the enhanced television offering Swisscom TV 2.0, which now recommends programmes based on individual preferences and groups them for replay; or with numerous Smart Enterprise Services, which facilitate companies achieving digital transformation. A superior customer experience was also the primary motivation behind new offers such as MyService, the all-round carefree service package for customers, or Swisscom Friends, the neighbourly help for technical matters. New opportunities for growth for Swisscom In its core business activities, Swisscom continues to focus on the successful priorities of bundled offerings, Swisscom TV and ultra-fast broadband connections. It will increase its added value depth around its own network infrastructure in sectors such as banking, energy or healthcare through targeted ICT solutions. The cloud is becoming a foundation for future business like the Internet of Things or decentralised working. Swisscom is leading the pack in cloud development thanks to its reputation for high qual- ity and security. It will also launch new digital services in selected areas. Swisscom strengthened its position in the directory business by integrating local/search, collaborated with Coop to create the “Siroop” marketplace and joined up with Ringier and SRG to launch an innovative advertising opportunity, which is open to all market players. Additionally, Swisscom is continuing to actively develop the Italian subsidiary Fastweb. The ongoing expansion of ultra-fast broadband and improvements to service quality have strengthened the company for the long term in the aim of covering approximately 30% of the Italian population by end-2016. Sustainability as an integral component of the corporate strategy Sustainable trading is part of Swisscom’s DNA. This includes topics such as climate protection, working and living, media skills, attractive employer, fair supply chain and networked Switzerland. Since autumn 2015, for example, the operation building in Zurich-Herdern has been heated solely by the waste heat emitted by servers: that not only supports climate protection, but in the long term will also have a positive impact in the form of lower operating costs. Thanks to its over 900 apprentices in seven vocational areas, Swisscom also has an attractive pool of junior staff it can draw upon to fill future qualified positions, while at the same time offering promising career pros- pects for young people. Finally, Swisscom fosters a corporate culture that gives every individual the room they need to develop and, through their personal ideas, commitment and passion, contribute to Swisscom’s long-term success. Strengthening of customer-facing areas and focus on cost management Swisscom streamlined its organisational structure effective from 1 January 2016, strengthened customer- facing areas and created more scope for innovation. Distribution and Service for Residential Customers and SME merged to form a single business unit each. In addition, the new “Digital Business” area has commenced operations, with a targeted focus on growth options that arise through digitisation. The Swiss market is becoming more challenging and competition is persisting. Swisscom wants to reaffirm its position as market leader going forward and seize the opportunities presented to it by digitisation. This requires the willingness and the ability to make investments, among other things. Swisscom is stepping up its cost management in order to free up funds to develop new business opportunities: It has set a goal of reducing the cost base by more than CHF 300 million by 2020. This is to be achieved through the organisational changes, headcount reductions, optimised processes and transformation to All-IP technology which were implemented at the start of 2016. Currently distributed across 14 locations, Swisscom will reduce the number of call centers for cus- tomers to eight by the end of 2016. All in all in 2016, Swisscom will create up to 500 jobs in growth areas in Switzerland while simultaneously reducing the workforce by several hundred positions in other areas, primarily in supporting units. A well-developed social plan is in place for those employees affected by these changes. Swisscom anticipates that the reductions will prompt around 700 employees, particularly from supporting units, to make use of the social plan in the current year. The associated costs have a one-off negative impact of CHF 70 million on Swisscom’s income statement in the 2015 Annual Report. By the end of 2016, Swisscom expects the overall workforce in Switzerland to be slightly smaller than in the prior year. Ensuring general business conditions In 2015, Swisscom was threatened with penalties of around CHF 350 million in connection with antitrust proceedings. A consultation began on the revision of the Telecommunications Act which, among other things, calls for a departure from the proven ex-post regulation. Both the ruling of the Competition Commission as well as the subject matter of the consultation are based on the shared assumption that Switzerland does not have effective competition. This is not the case, however. For years we have been seeing extremely intense infrastructure competition in Switzerland between three providers in the mobile telecommunications market as well as between Swisscom and the cable network operators in the area of fixed networks. With the fibre-optic projects undertaken by the electrical utilities since the last revision of the Telecommunications Act (TCA), another provider has entered the fixed network market. Some 90% of all Swiss households now have a cable net- work connection and can therefore choose between at least two infrastructure providers and a wide variety of different services. The fact that this competition is effective is evidenced by the top rankings Switzerland repeatedly earns in all infrastructure comparisons or the innovative products offered in the television business which Swisscom has rolled out in competition with cable network operators. Switzerland depends on high-performance infrastructures. These require corresponding investing activity on the part of the operators of those infra structures. This should be ensured both in the regulation as well as in the ruling. Swisscom is vehemently committed to promoting invest- ment security and an entrepreneurial Switzerland. Financial outlook for 2016 For 2016, Swisscom expects net revenue in excess of CHF 11.6 billion, EBITDA of around CHF 4.2 bil- lion and capital expenditure of more than CHF 2.3 billion. For Swisscom (excluding Fastweb), a slight decline in revenue is expected due to heightened competition and price pressure. A slight increase in revenue is expected for Fastweb. Adjusted for the provisions recognised in 2015 for the legal proceedings on broadband services and for headcount reduction, EBITDA is expected to be around CHF 200 million lower for Swisscom (excluding Fastweb) year-on-year. In addition to the price-based decline in revenue, the costs for roaming are expected to increase in particular. EBITDA will be positively affected by approximately CHF 50 million in cost savings and growth at Fastweb. A slight reduction in capital expenditure in Switzerland of over CHF 1.7 billion will result in a reduc- tion in overall capital expenditure of over CHF 2.3 billion. Subject to achieving its targets, Swisscom will propose an unchanged dividend of CHF 22 per share for the 2016 financial year at the 2017 Annual General Meeting. Thank you We can look back on a successful year in a challenging market environment. We owe our achieve- ments in 2015 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 their creative ideas, wholehearted dedication and commitment 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 20–93 94–135 136–223 224–236 Over 18,000 participants have in the year under review already taken part in courses at Swisscom Academy – Swisscom’s educational programme. The recommendation rate was 99%. “It makes me proud when my customers get more enjoyment out of their Smartphones and I can help them access the digital world. In the two-hour Swisscom Academy courses, I learn about our customers and come to appreciate that their compliments are sincere.” Malik Hashim Instructor Swisscom Academy Introduction The best in today’s net- worked world – everywhere and anytime. Introduction 14 KPIs of Swisscom Group 16 Key events 2015 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 2015 2014 Change 11,678 11,703 4,098 35.1 2,012 1,362 26.27 5,242 24.8 1,844 2,409 8,042 2,629 1,958 1,331 6,625 4,413 37.7 2,322 1,706 32.70 5,486 26.2 1,860 2,436 8,120 2,778 1,890 1,165 6,540 12,543 12,373 128 315 2,201 51,802 503.00 26,056 22.00 1 521 29.6 20,115 23.5 21,637 18,965 180 262 2,072 51,802 522.50 27,067 22.00 497 26.4 21,380 17.0 21,125 18,272 –0.2% –7.1% –13.4% –20.2% –19.7% –4.4% –0.9% –1.1% –1.0% –5.4% 3.6% 14.2% 1.3% 1.4% –28.9% 20.2% 6.2% 0.0% –3.7% –3.7% 0.0% 4.8% –5.9% 2.4% 3.8% 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   11,434  2,076  9,358  11,703  2,117  9,586  11,678  1,914  9,764    14,000      10,500      7,000      3,500    0      6,000      4,500      3,000      1,500    0    Other countries    Switzerland    4,302  617  3,685  4,413  625  3,788  4,098  637  3,461  2013  2014  2015  2013  2014  2015  Net income  in CHF million   Capital expenditure  in CHF million     3,000      2,250      1,500    1,695  1,706  1,362  750    0    2,436  685  1,751  2,409  587  1,822    3,000      2,250    2,396  710    1,500    1,686  750    0    2013  2014  2015  2013  2014  2015  Number of employees  in full-time equivalent (FTE)   Energy efficiency increase in Switzerland     since 1 January 2010  in %     30,000      22,500      15,000      7,500    0    20,108  2,746  17,362  21,125  2,853  18,272  21,637  2,672  18,965  40    30    20    21.1%  26.4%  29.6%  2013  2014  2015  2013  2014  2015  Other countries    Switzerland    10    0    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 2015 16 n o i t c u d o r t n I 5 1 0 2 s t n e v e y e K Market > The Swisscom mobile network is named the best mobile network in Switzerland by Connect magazine for the seventh year in a row and, for the second time, tops the rankings in a comparison with Germany and Austria. > Advanced Calling lets Swisscom customers make calls over the 4G/LTE (VoLTE) and WLAN networks with even better voice and telephone quality. > Swisscom tests the new G.fast data transmission standard and connects the first test customers. G.fast and a combination of fibre-optic and copper lines permit bandwidths of up to 500 Mbps. > Swisscom reveals the first driverless car on Swiss roads and aims to gain insights into how mobility might look in the future. > With the new “All-in Signing Service”, users can simply and securely sign with their mobile phones. > Printing out and mailing of paper documents is no longer necessary. In line with the “smart cities” concept, Swisscom helps cities and towns to plan their infrastructures in a more targeted manner and manage them more simply: in Pully, canton of Vaud, a new method is helping to improve traffic flows in the town and thus relieve the burden on the town centre. The method relies on anonymised and aggregated mobile phone data. Products and services > Roaming becomes massive cheaper for all Swisscom customers. All Natel infinity plus subscriptions include unlimited calls, SMS and 1 GB of data transmission in the EU; standard prices for using mobile phones abroad become even cheaper. This means that Swisscom has the most cost- effective range of roaming offerings in the Swiss market. > Swisscom increases Internet speeds for Vivo packages. Vivo customers can now also answer calls made to their fixed-network number directly on their mobile phone, regardless of their location. > Swisscom increases the data volume included in Natel easy smart packages and cuts the price of the largest regular package. > Swisscom TV 2.0 brings HbbTV to SRG channels. The multimedia successor to teletext lets users enhance programmes according to their needs and offers many interesting features. > Swisscom introduces innovative cloud services on the market in the application and Enterprise Cloud, and has won well-known customers for them already. > With SmartLife, Swisscom launches a new, flexible control and security system for use in the home. The Internet of Things thus becomes a reality in homes: SmartLife activates an alarm in the event of a break-in or fire, for instance, and allows you to remotely control your home’s electrical equipment. > Symmetrical bandwidths enable Swisscom fibre-optic customers to upload and download data at the same speeds. For the same price, Swisscom doubles the capacity of Vivo M for all customers, enabling them to surf the web at speeds of up to 100 Mbps. > Customers can use the MySwisscom app in more than 100 Swisscom Shops to scan purchases of up to CHF 100 in value, pay for them and take them home without having to queue at the checkout. > myCloud, the online storage service for photos, videos and other files, lets customers easily store personal data and access or share it from any location and at any time. Sustainability > Swisscom strengthens its commitment to the successful dual training model by expanding its diversified ICT training programme even further. It now also gives high school graduates an attractive path to learning and working in the digitised world. > Heating in Swisscom’s building in Zurich-Herdern is now CO2-neutral and uses only waste heat from cooling its operations rooms. > Of the world’s 500 largest companies, Swisscom ranks sixth in US magazine Newsweek’s global “Green Ranking”. > Swisscom signs the Work Smart Initiative and holds its first Work Smart Week. In doing so, it supports flexible, location-independent working models for its employees. > The “medienstark” Internet platform reports a steady rise in user numbers for the second year. It offers practical tips on how to get the most out of digital media in everyday family life with topic areas including privacy, cyberbullying, video game addiction and becoming media savvy. > Over 400 school classes conducted their own projects on climate protection and energy efficiency in 2015. Energy and Climate Pioneers is an initiative undertaken by Swisscom and its partners Solar Impulse, SwissEnergy and myclimate. 17 n o i t c u d o r t n I 5 1 0 2 s t n e v e y e K Business review > Swisscom Health and the i-engineers launch a strategic partnership to provide patient-record and networking solutions for hospitals. The cooperation will create new cloud-based solutions for hospitals that will also be beneficial to doctors and patients. With the acquisition of H-Net AG, Swisscom strengthens its portfolio and customer base. > The merger of local.ch and search.ch creates a comprehensive Swiss directories and information platform that competes with international providers. > Swisscom sold the Swisscom Hospitality Services division to HoistLocatel. The EOS Group acquires Swisscom subsidiary Alphapay Ltd. > Swisscom launches Wingo, a brand for digitally savvy customers. Wingo offers individualised products stripped down to meet the target group’s basic needs, with the best service at an affordable price. > Swisscom and Coop launch Siroop, an online marketplace, where they each contribute their > expertise in digitisation, e-commerce, marketing and retailing to the new start-up. In Swisscom Friends, Swisscom, together with the start-up Mila, offers its customers an additional, flexible and fast on-site customer support service. Swisscom takes over a majority stake in the start-up Mila. > The joint marketing company comprised of Ringier, SRG and Swisscom gets the green light from the Competition Commission. > > Swisscom and École Polytechnique Fédérale de Lausanne (EPFL) enter into a strategic partnership and establish a competence centre for digitisation on the EPFL campus, Swisscom’s Digital Lab. In order to improve the customer experience from a single source, boost the company’s effectiveness in the ICT market and create greater scope for innovation, Swisscom increases the level of digitisation within its organisational structure from 1 January 2016 onwards. Sales and Service for Residential Customers and SME and the Digital business are merged together to form a single business unit each. To exploit synergies, product development and provisioning for Residential Customers and SME are combined into one. 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 online directories and phone book 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 infra- structure, 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 a leading, alternative service provider in the Italian fixed-network market for both resi- dential and business customers. Fastweb supplies its services both directly via its own fibre-optic network and also via the unbundled fixed-access lines and wholesale products offered by Telecom Italia. In addition to fixed-network services, its portfolio also includes mobile services for residential customers on networks of other service providers. Fastweb provides its services in all large towns and cities in Italy. Other Operating Segments Other Operating Segments includes Swisscom Health, Connected Living and a portfolio of small and medium-sized enterprises 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. 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 Human Centered Design represents the conscious creation of attractive, memorable experiences for all Swisscom customers. “I share the responsibility of design- ing the customer experience as a whole and always act in the interests of our customers. Our team takes the time to involve customers and employees who come into contact with cus- tomers in the development activi- ties. It gives me great pleasure to see the added value that our day- to-day work creates.” Mathias Schmocker Expert Experience Validation, Human Centered Design Management Commentary Helping customers fi nd their way and enjoy the best experiences in the networked world. Strategy, organisation and environment Business model and customer relations Employees Innovation and development Financial review Capital market Risks 24 Group structure and organisation 28 Corporate strategy and objectives 32 Value-oriented business management 33 General conditions 46 Business activities 52 Products, services, sales channels 54 Customer satisfaction 55 Headcount 56 Employment law in Switzerland 58 New job architecture 58 Staff development 59 Staff recruitment 59 Employee satisfaction 60 Employment law in Italy 61 Environment, objectives and management approach 61 Open innovation: a success factor 62 Current innovation projects 64 Key fi nancial fi gures 65 Summary 66 Results of operations 69 Segment revenue and results 75 Quarterly review 2014 and 2015 78 Cash fl ows 79 Capital expenditure 80 Net asset position 82 Net debt 83 Statement of added value 84 Energy effi ciency and CO2 emissions 85 Financial outlook 86 Swisscom share 88 Payout policy 88 Indebtedness 90 Risk management system 91 General statement on the risk situation 91 Risk factors Strategy, organisation and environment Swisscom’s corporate strategy is aimed at maintaining its leading position in the ICT market and offering customers only the best. Trusted, simple, inspiring. Group structure and organisation Management structure in the 2015 financial year 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. Together with the CEO, the heads of the Group divisions Group Business Steering (CFO) and Group Human Resources (CPO) plus the heads of the business divisions Residential Customers, Small and Medium-Sized Enterprises, Enterprise Customers and IT, Network & Innovation of Swisscom Switzerland form the Group Executive Board. Swisscom’s Italian subsidi- ary, Fastweb, is managed by the Board of Directors chaired by Swisscom’s CEO. Board of Directors CEO Swisscom Ltd Internal Audit 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 Group Executive Board 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 2015, the Confederation continued to hold 51.0% of the shares in Swisscom Ltd. At 31 December 2015, 33 Swiss subsidiaries (prior year: 28) and 15 foreign subsidiaries (prior year: 32) were fully consolidated in Swisscom’s consolidated financial statements, while 15 associated com- panies (prior year: 12) were included 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 Broad- cast 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. Acquisitions At the beginning of July 2015, Swisscom and Tamedia merged their companies Swisscom Directories Ltd (local.ch) and search.ch AG into a joint subsidiary. Swisscom holds 69% of the joint subsidiary and will fully consolidate the company. Swisscom Directories Ltd, with its online directories plat- form local.ch and its Local Guide phone directories business, is a leading advertiser and provider of directories in Switzerland. search.ch AG (search.ch) is a leading search and information service in Switzerland. The merger of Swisscom Directories Ltd (local.ch) and search.ch AG will result in a comprehensive Swiss directory and information platform for individuals, companies and govern- ment as well as an important advertising partner for Swiss SMEs. In January and March 2015 Swisscom also acquired 100% stakes in two companies in Switzerland – Veltigroup and H-Net AG. In addition, Swisscom acquired a 51% stake in Mila AG in 2015. The acquisition of Veltigroup enabled Swisscom to expand its ICT portfolio for business customers as well as its presence in French-speaking Switzerland. Veltigroup is a leading ICT service provider in Switzerland and offers companies a comprehensive ICT range, from infrastructure to end-client services and solutions. Swisscom strengthened its portfolio in healthcare with the acquisition of H-Net AG. H-Net AG is a leader in the area of administrative and medical data exchange in the healthcare sector in Switzerland. The company merged with Swisscom Health AG at the end of 2015. The acquisition of Mila AG is intended to strengthen Swisscom in all three of its main strategic areas (customer focus, innovation, operational excellence). Disposals Swisscom sold Alphapay Ltd and the Swisscom Hospitality Services division in 2015. Alphapay Ltd is a collection service provider specialising in receivables management for third parties. Swisscom Hospitality Services offers guests and customers in the hotel and conference sector in Europe and North America Internet-based services. Other major shareholdings Swisscom took a 50% stake in Siroop Ltd in 2015, a company founded by Coop that is set to launch a new online marketplace in 2016. Together with Ringier and SRG, Swisscom established a new joint marketing enterprise in 2015 for the purpose of marketing the three companies’ media offerings and web platforms. Together with Sixt Leasing, Swisscom also set up Managed Mobility Ltd in 2015, which is involved in fleet management and optimisation. In addition, Swisscom took a minority stake in finnova AG Bankware (finnova) in 2015. finnova is a leading provider of banking software for the Swiss financial centre. 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   Segment reporting For financial reporting purposes, the business divisions of Swisscom are allocated to individual seg- ments based on the management structure. Segment reporting in 2015 comprises the following: Swisscom Switzerland, Fastweb and Other Operating Segments. 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, is reported separately. 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 AG4 > Mila AG > Swisscom Banking Provider Ltd > Swisscom Directories Ltd > Swisscom ITS Custom Solutions Ltd > Swisscom Real Estate Ltd > Veltigroup5 > Wingo Ltd > Fastweb S.p.A. > BFM Business Fleet Management Ltd > Billag Ltd > Cablex Ltd > Datasport Ltd > Improve Digital BV > Mona Lisa Capital AG3 > Swisscom Broadcast Ltd > Swisscom Energy Solutions Ltd > Swisscom Event & Media Solutions Ltd > Swisscom Health AG > 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 Ltd > Metroweb S.p.A. > Managed Mobility Ltd > finnova ltd bankware > Ringier Publishing Ltd > Siroop Ltd > Medgate Holding Ltd > Venturing Participations > Zanox AG 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 and Connected Living. 3 Swisscom (Switzerland) Ltd has operating subsidiaries in Austria, France, Germany, the Netherlands, Singapore, Sweden, Switzerland and the USA. 4 CT Cinetrade Ltd has subsidiaries in Switzerland: kitag kino-theater Ltd, PlazaVista Entertainment AG and Teleclub AG. 5 Veltigroup comprises the operating subsidiaries insentia SA, ITS Information Technologie Services SA, LANexpert SA, Veltigroup Consulting Ltd and Veltigroup Ltd. 6 Mona Lisa Capital AG is a venturing participation. 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   Change in management structure from 1 January 2016 In order to boost the company’s effectiveness in the highly competitive ICT market, Swisscom is strengthening areas with close customer proximity and increasing the level of digitisation within its organisational structure from 1 January 2016 onwards. Distribution and service for Residential Customers and Small and Medium-Sized Enterprises together with the digital business will be com- bined in the Sales & Services and Digital Business segments. To exploit synergies and accommo- date the increasing level of convergence, Swisscom is also combining product development and provision for Residential Customers and SME into one. The focus placed on corporate business will remain of central importance for Swisscom, and the organisational structure of corporate business will be further simplified. Through these adjustments Swisscom wants to improve the customer experience from a single source, simplify processes and increase efficiency in order to create greater scope for innovation. The restructuring will result in changes in the Group Executive Board. The new Products & Marketing unit will be headed by Dirk Wierzbitzki, who now has a seat on the Group Executive Board. The Head of the former Residential Customers unit, Marc Werner, will take over as Head of the new Sales & Services unit. Roger Wüthrich-Hasenböhler, who was responsible for the former Small and Medium-Sized Enterprises unit, will head the new Digital Business unit. He stepped down from the Group Executive Board at the end of 2015 and will subsequently report directly to the CEO of Swisscom Ltd. As of 1 January 2016, the Group Executive Board will comprise the following people: Urs Schaeppi, CEO; Mario Rossi, CFO (Group Business Steering); Hans Werner, CPO (Group Human Resources); Christian Petit, Head of Enterprise Customers; Heinz Herren, Head of IT, Network & Infrastructure; Marc Werner, Head of Sales & Services and Dirk Wierzbitzki, Head of Products & Marketing. Swisscom’s Italian subsidiary, Fastweb, will continue to be managed via the Board of Directors chaired by Swisscom’s CEO. Board of Directors CEO Swisscom Ltd Internal Audit Group Communications & Responsibility Group Strategy & Board Services Group Security Sales & Services Products & Marketing Enterprise Customers IT, Network & Infrastructure Group Business Steering Group Human Resources Digital Business Group Executive Board 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   Corporate strategy and objectives Corporate strategy Swisscom commands a leading position in the mobile, fixed and broadband submarkets. It is also one of the leading providers in the IT services and TV markets. Fastweb is the leading alternative provider for both retail and business customers in the Italian fixed-line market. In recent years, the advance of technology and changing customer requirements have steadily eroded prices and vol- umes in the classical usage-based business. The battle with globally active competitors for market share has also intensified. The resulting lower revenue and income need to be offset in order to ensure that sufficient financial resources are available for major investments in new technologies. Society and the economy will change fundamentally in the coming years. Megatrends such as demographic change, globalisation and robotics will reshape society and the economy and thus impact Swisscom’s business in the long term. Furthermore, a number of specific developments will affect Swisscom’s business in the next few years – for example the spread of mobile payment systems and the trend towards crowdsourcing. The market environment in which Swisscom operates has already changed radically in recent years. Connectivity is ever-present and will increase further. Countless people, applications and devices will be in permanent communication with each other in future. The digitalisation of society will lead to a fourth industrial revolution (“Industry 4.0”), and production processes and contact with customers will be revolutionised in all sectors. In addition competition between global and local providers will intensify and new competitors – often with disruptive business models – will attempt to gain a foothold in the ICT markets. In response to the far-reaching developments in the market environment and heightened market dynamics, Swisscom periodically re-evaluates its strategy and sets priorities and formulates concrete objectives accordingly. The best in the networked world – everywhere and all the time. Building the best infrastructure Creating the best experiences Realising the best growth opportunities Welcome to the country of possibilities. 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   The vision of Swisscom: the best in the networked world – always and everywhere In an increasingly interconnected and digitalised world Swisscom offers its customers the best – always and everywhere. Because Swisscom wants people and businesses in Switzerland to be able to fully exploit the opportunities of the interconnected world. Thus, Swisscom is a pioneer and actively drives digitalisation forward and is innovative and courageous in everything it does. As an optimal companion in the networked world, Swisscom strives to ensure simplicity and is a trusted, inspiring partner for its customers. Swisscom helps business customers to create flexible ICT infra- structures, adjust their business processes to meet the new challenges of the digital world and optimise communication and teamwork among their employees. In this formative role, Swisscom is helping to shape this new world and make Switzerland into a leading ICT centre. Through the value that Swisscom creates and, indirectly, its high level of investment, from which other compa- nies also benefit, Swisscom is a key factor in Switzerland’s competitiveness and contributes signifi- cantly to the country’s GDP and employment. 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. To always offer the best in the networked world, Swisscom must consistently meet the highest expec- tations in terms of infrastructure, customer experience and growth. Building the best infrastructure A high-quality infrastructure allows Swisscom to deliver its products and services, provide a consis- tently positive customer experience and differentiate itself from its competitors. Swisscom wants to offer its customers in Switzerland and Italy the leading IT and communications infrastructure. Reliance on high-performance networks that are always available will continue to increase in future. Swisscom is fulfilling 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 net- work through deployment of various fibre-optic technologies – both in Switzerland and in Italy. Swisscom is also continuously expanding the mobile ultra-fast broadband network (for example, through LTE advanced), in order to constantly improve network capacity and capacity utilisation. Swisscom will increase its efficiency through a scalable infrastructure, increasingly virtualised ser- vices and infrastructure, and continual improvement processes. The Swisscom Cloud infrastruc- ture offers a high level of quality and security and is the basis for new scalable offerings that are produced in Switzerland. The transfer of internal platforms to the Swisscom Cloud increases scal- ability, flexibility and cost efficiency. By providing simple programming interfaces the open cloud gives partners flexible access to infrastructure and provides the basis of an ecosystem for develop- ers. Swisscom is continuing to drive forward the technological transformation from traditional to IP-based solutions. This enables Swisscom to bring new services to market faster, operations and processes become more flexible, and residential customers can access their data from any location and on any device. Creating the best experiences To clearly distinguish itself in its core business, Swisscom is committed to delivering first-class ser- vice to its customers and inspiring them with unique experiences across the board. Swisscom cus- tomers can count on us as a competent, reliable partner and enjoy service that is individual, flexible and personal at all points of contact. From the customer’s perspective, contact with Swisscom should always be simple and convenient. Swisscom wants to meet the growing expectations of customers regarding availability of data and applications – primarily the demand for real-time access from all locations – with more integrated experiences in future. These experiences go beyond what traditional communication services offer. When optimising processes and creating new digital services and experiences, Swisscom always takes a customer-centric approach and aims to improve customer perception. In doing so Swisscom aims to further boost customer loyalty and strengthen its brand. Current examples of new services and improved experiences are the personalisation options in Swisscom TV 2.0; the launch of Voice over LTE and WiFi Calling, which further improve the telephony experience; “Smart Enterprise Ser- vices”, which assist companies in achieving digital transformation; and the newly launched express delivery service for online purchases. 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   Realising the best growth opportunities Although the economic outlook in Switzerland and Italy will remain uncertain, the markets rele- vant to Swisscom are on the whole likely to continue growing steadily. The main drivers of growth are modest increases in population and the number of households, the rising number of connected devices (as a result of the “Internet of Things”) and the ever-growing use of ICT in a wide variety of industries. Added to this, there is still pent-up demand in Italy due to the relatively low level of broadband penetration. Swisscom wants to realise growth opportunities by expanding its core business – for example by means of the bundling strategy and growth in TV services and fibre-optic connections. There are also opportunities in other sectors such as banking, healthcare and energy, where Swisscom pro- vides vertical ICT services. New, related business activities, which Swisscom wants to enter selec- tively, offer further revenue growth potential. Key decision criteria for entering a market include the existence of synergies, potential for differentiation and whether or not it strengthens the core busi- ness based on the own network infrastructure. Swisscom is aiming to launch new digital services in selected areas. These services will be offered via the Internet and will in some cases rely on new business models. Examples include the advertising and e-commerce activities that the company has already announced. Other examples of new business areas are the “Internet of Things” and the development of Swisscom Energy Solutions. Another focus for Swisscom lies in the further development of Fastweb in Italy. Swisscom is aiming to further strengthen Fastweb’s strong market position and generate growth by continuously expanding the ultra-fast broadband network, building partnerships and improving service quality. In addition to pursuing these strategic goals, Swisscom is also implementing measures that will have a transversal impact on the Group. This is designed to transform the company and create structures fit for the future. Careful use of resources, lean structures and a clear strategy will ensure that Swisscom remains competitive in future on both the product and cost side. 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: Energy efficiency and climate protection Together with its customers, Swisscom is aiming to save twice as much CO2 as it emits through its operations and supply chain by 2020. Green ICT enables companies to massively reduce energy consumption and CO2 emissions. Video conferencing and home office solutions generate savings in travel time and costs, and ICT services from the cloud allow business customers to operate their IT operations more efficiently than if they were to use a server of their own. Buildings, vehicles and networks can be managed in an energy-efficient manner thanks to ICT solutions. Swisscom also offers residential customers numerous ways to reduce their carbon footprint, from online billing to a recycling service for mobile phones. Swisscom is committed to reducing its own CO2 emissions from its operations and supply chain and also requires its suppliers to reduce their carbon footprint. Work-life balance By 2020, Swisscom wants to be serving one million customers with its offerings in the healthcare sector, such as the Swisscom health platform and fitness sensors, electronic patient dossiers and products from its subsidiary Datasport. Swisscom also wants to give one million customers the opportunity to take advantage of mobile working models by 2020. To this end, it has included Work Smart services in its portfolio and supports mobile working methods through activities such as the Home Office Day. Media skills and security Swisscom aims to be the market leader in data security by 2020, helping one million people to use the media safely and responsibly. To date, Swisscom has provided free Internet access to schools and introduced first-time users to the digital world through media training courses. In doing so, Swisscom aims to protect young people in the use of online media by means of technical solutions and offerings that promote media skills. 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   Attractive employer Swisscom wants to be one of the most attractive employers in Switzerland by 2020. It offers employees opportunities for personal development and promotes 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. Swisscom employees also have the chance to get involved in social and community projects, for example, by participating in the Corporate Volunteering Programme. Fair supply chain In the interests of a fair supply chain, Swisscom is committed to improving employment conditions for more than two million people by 2020. To this end, Swisscom has forged international partner- ships that will ensure the implementation of relevant measures in close collaboration with suppliers. The company also commissions annual audits to review whether working conditions at its suppliers are improving. Networked Switzerland Swisscom is aiming to supply 85% of all households and businesses with ultra-fast broadband (speeds in excess of 100 Mbps) by the end of 2020. Furthermore, by the end of 2016, 99% of the population will be able to benefit from the fourth- generation mobile network incorporating 4G/ LTE technology. As a result, Swisscom is indirectly contributing around CHF 30 billion to the coun- try’s GDP and helping to create and maintain some 100,000 jobs. Swisscom’s targets Based on its strategy, Swisscom has set itself various short- and long-term targets that take economic, ecological and social factors into consideration. Financial targets 1 Net revenue  Operating income before depreciation  and amortisation (EBITDA)  Capital expenditure in property, plant  and equipment and other intangible assets  Other targets  Ultra–fast broadband in Switzerland 2 Ultra–fast broadband in Italy  Mobile network in Switzerland  Energy efficiency in Switzerland  CO2–emissions in Switzerland  Objectives Effective 2015 Group revenue for 2015 of more than CHF 11.4 billion EBITDA for 2015 of around CHF 4.2 billion Capital expenditure for 2015 of CHF 2.3 billion Coverage of 85% by the end of 2020 Coverage of 30% by the end of 2016 Coverage of 99% with 4G/LTE by the end of 2016 +25% by the end of 2015 compared to 1 January 2010 –12% by the end of 2015 compared to 1 January 2010 CHF 11,678 million CHF 4,098 million CHF 2,409 million 67% or around 2.9 million in excess of 50 Mbps 25% or 6.3 million 98% +29.6% –23.5% 1 As communicated over the course of the year, the financial targets for 2015 were adjusted as a result of the change in the assumed CHF/EUR exchange rate and the creation of a provision for legal proceedings as follows: Group revenue of more than CHF 11.5 billion, EBITDA in excess of CHF 4.0 billion and capital expenditure of more than CHF 2.3 billion. 2 Basis: 3.6 million households and 0.7 million businesses (Swiss Federal Statistical Office – SFSO). 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                 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 the share price valuation of Swisscom with that of other telecoms companies. 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  31.12.2015 31.12.2014 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  26,056 8,042 5 34,103 4,098 8.3 27,067 8,120 3 35,190 4,413 8.0 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 decreased year-on-year by CHF 1.1 billion or 3.1% to CHF 34.1 billion, mainly as a result of lower market capitalisation. The ratio of enterprise value to EBITDA rose to 8.3 (prior year: 8.0). The increase reflects the fact that EBITDA fell more sharply than the enterprise value compared with the previous year. EBITDA for 2015 was very adversely affected by provisions of CHF 186 million for legal costs. Excluding this exceptional item in EBITDA, the ratio was 8.0. With a ratio of 8.3 or 8.0, respectively, Swisscom’s relative market valuation is well above the aver- age for comparable companies in Europe’s telecoms sector. The higher ratio is supported by the solid market position Swisscom has achieved thanks to a high level of investment and an attractive dividend policy, as well as the general business conditions in Switzerland such as lower interest rates and lower corporate income tax rates as compared to other European countries. 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     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 The performance of the Swiss economy in 2015 was influenced by monetary policy decisions of the Swiss National Bank (SNB) and an economic recovery in the euro area. Economic growth is subdued and is being driven primarily by consumer spending. The unemployment rate has risen slightly, while inflation, as measured by the national consumer price index, is negative. The bulk of Swisscom’s revenue from telephony and broadband services comes from fixed monthly fees and is subject to low cyclical fluctuations in demand. Project business with corporate customers, on the other hand, is more sensitive to cyclical factors. Interest rates The general level of interest rates in Switzerland has historically been lower than in most other industrialised countries. In 2015, the level of and movements in interest rates were determined to a large extent by the monetary policy of the SNB and the European and US central banks. The SNB lifted the cap of CHF 1.20 against the euro on 15 January 2015 and at the same time introduced negative interest rates for sight deposits. As a result, the yields on 10-year Confederation bonds also fell into negative territory. At the end of 2015 they stood at minus 0.05%. Development of interest rates in Switzerland  Yield on government bonds for 10 years in %     3.00     2.00     1.00     0.00       –1.00     0.74  0.56  1.25  0.36  –0.05  2011  2012  2013  2014  2015  The level of interest rates has a direct impact on funding costs and also affects the valuation of various items in the balance sheet such as assets, long-term provisions and pension liabilities. Swisscom again took advantage of the ongoing period of low interest rates in 2015 for various financing transactions. It issued bonds for CHF 400 million and EUR 500 million with maturities of between 8 and 20 years and also took out a 5-year fixed-rate bank loan of EUR 200 million, all at favourable terms of interest. The proportion of variable interest-bearing financial liabilities stands at 24%. The interest expense on all financial liabilities averaged 2.3% in 2015 (prior year: 2.6%). In addition, Swisscom has in the past concluded 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. 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           Exchange rates On 15 January 2015, the Swiss National Bank (SNB) announced it would no longer defend the min- imum CHF/EUR exchange rate of 1.20. As a consequence, the Swiss franc appreciated substantially, particularly against the euro. At the end of 2015, the exchange rate of the euro to the Swiss franc was 9.8% below the level at year-end 2014. Development of exchange rate at the end of period CHF/EUR      1.75     1.50     1.25     1.00     0.75     1.22  1.21  1.23  1.20  1.08  2011  2012  2013  2014  2015  These exchange rate movements have not had a direct material impact on Swisscom’s business. Only a small share of Swisscom’s revenue in Switzerland is generated in foreign currencies. Handset and technical equipment procurement as well as roaming charges incurred for the use of fixed and mobile networks 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 mostly funds itself in Swiss francs, although the proportion of financial liabilities in euros has gradually increased in the last three years, particularly as a result of bond issuance activity. This has led to a better diversification of funding sources. At the end of 2015, financial liabilities amounted to CHF 8.6 billion, of which 66.8% was in CHF, 31.5% in EUR and 1.7% in USD. Currency translations in respect of foreign Group companies, in particular Fastweb in Italy, affect the presen- tation of the financial position and results of operations in the consolidated financial statements. Cumulative currency translation adjustments in respect of foreign subsidiaries recognised in con- solidated equity before deduction of tax effects amounted to CHF 2.2 billion in 2015 (prior year: CHF 2.0 billion). A portion of the liabilities in EUR has been designated as a currency hedge of the net investment in Fastweb. Capital market International equity markets had a slightly positive year in 2015, while the Swiss leading index, SMI, fell by 1.8%. Swisscom holds surplus liquidity in the form of cash and cash equivalents and short- term money-market investments. There are only insignificant direct financial investments in equi- ties or other non-current financial assets. comPlan, Swisscom’s legally independent pension fund in Switzerland, has total assets of around CHF 9.3 billion invested in equities, bonds and other invest- ment categories. These assets are thus exposed to capital market risks. This indirectly affects the financial position presented in Swisscom’s consolidated financial statements. See www.swisscom.ch/ investor 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             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 well and take sufficient account of potential risks. No interests may be held in foreign telecoms companies with a universal service obligation. Other interests in foreign companies may be acquired if they support the core business in Switzerland or are other- wise 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 2 Mbps. The universal service provision licence granted to Swisscom in 2007 by the Federal Communications Commission (ComCom) 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 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   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. It is subject, for example, to the regulations governing accounting and financial reporting as well as the rules relating to ad-hoc publicity and it is required to disclose 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. Regulatory developments in Switzerland in 2015 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. In October 2015 the Federal Administrative Court partly upheld Swisscom’s appeal against the sanction imposed by the Competition Commission for alleged mar- ket abuse of broadband services in the period up to the end of 2007 and reduced the fine from CHF  220  million to CHF 186 million. Swisscom does not consider the sanction justified and has lodged an appeal with the Federal Supreme Court. Further information on ongoing proceedings is contained in Notes 28 and 29 to the consolidated financial statements. “Pro Service Public” initiative The popular 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 in the public services and to bring the wages of employees in government-associated companies in line with those of federal employees. The Federal Council and Parliament rejected the initiative without a counterproposal. The referendum on the initiative will be held in June 2016. Revision of the Telecommunications Act (TCA) The Federal Council opened the consultation on the revision of the TCA on 11 December 2015. It seeks to tackle the legislation in two stages. The first stage will be confined to the most pressing problems. The second stage will focus on a system change in the access regime and fundamental amendments regarding universal service provision. Swisscom welcomes the Federal Council’s deci- sion to exclude the delicate, politically contentious issues of extending price regulation to broad- band networks and state-financed broadband expansion from the forthcoming revision of the TCA. Along with mainly formal and technical amendments, the revision of the TCA will focus on intensifying certain market interventions. For example, the system of access regulation is to be adapted to EU mechanisms and the negotiating principle effectively abolished. In addition, regula- tion of roaming prices and bundled offerings is to be made possible. Swisscom is of the opinion that such legal tightening would negatively affect competition and thus interfere with the positive mar- ket results. Legal regulation is also to be extended to justified concerns regarding the protection of consumers and minors and the issues of network expansion and net neutrality. However, as shown in recent years, these issues can be addressed more easily and more effectively through other means, for example, industry solutions (self-regulation) such as the round table for coordinating the expansion of the fibre-optic network, the code of conduct on net neutrality and the asut indus- try initiative for improved youth media protection. Revision of the Ordinance on Telecommunications Services (OTS) The Federal Council opened the consultation on the 2018 revision of the universal service provision on 29 September 2015 and Swisscom made a submission while the consultation was open. Swisscom’s submission is critical of the planned adjustment of price limits, as it sees this as unjus- tified interference in market mechanisms, and of the increase in the minimum bandwidth for broadband internet access, as an increase in bandwidth by 1 Mbps would lead to considerable costs without bringing customers any significant benefit. However, Swisscom praises the fact that the need for a technological switch to IP technology has been recognised. See report pages 190–192 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   Roaming There were two pending motions in Parliament which aimed to regulate roaming along the same lines as in the EU. These would have required 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 were similarly worded, to give the industry time to respond. On 9 March 2015, a majority in the Council of States supported the view that the telecoms companies had cut excessive prices in the intervening period and there were now sufficient alternatives in the form of WiFi, Skype and other products. The motions were then rejected. Net neutrality On 17 June 2014 the National Council approved a motion to force the Federal Council to enshrine net neutrality in law. The Council of States rejected the motion on 16 March 2015. Its Advisory Commission took the view that there was no urgent need for action. In doing so it followed the lead of the Federal Council, which, according to Federal Councillor Leuthard, for the time being is putting its faith in the code of conduct agreed by the sector at the end of 2014. As part of the revision of the Telecommunications Act started at the end of 2015, the Federal Council wants to obligate the telecommunications service providers to inform the public if data is treated differently during transmission. Copyright protection – consultation for a revision of the Copyright Act In December 2015 the Federal Council opened the consultation for a revision of the Copyright Act. The Copyright Act is to be modernised and piracy better combated. The planned provisions largely follow the recommendations of the Copyright Act working group. Swisscom has an interest in the proper function of copyright law and is of the opinion that the submission largely reflects the con- cerns of the various interest groups on a balanced basis. 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 obligations on market-dominant companies relating to non-discrimination, transpar- ency and forms of access (“ex-ante regulation”). The Swiss government has rejected such all-en- compassing regulation, as the market situation in Switzerland is different from 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 differ- ent form of regulation than in countries such as France and Italy, where there is largely a single network provider and no platform competition has evolved. 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 of imposing regulatory requirements on companies, based on an analysis of the markets defined by the European Commission. 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 2015 AGCOM continued its work on the market analysis for wholesale markets in 2015, which will deter- mine the regulatory guidelines for the next three years. It published a new consultation paper in February 2015, and in July 2015 it issued the draft of the final decision which was communicated to the European Commission. AGCOM is proposing to cut the wholesale prices which were last approved in 2013 for the period 2015 to 2017. It is also recommends permitting the outsourcing of 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   activation and maintenance services for wholesale connections to qualified external technicians. AGCOM also supports improvements in the service agreements and incentives and sanctions to increase the penetration with unbundled subscriber lines. AGCOM issued a decree in April 2015 putting into effect a decision of the Italian Supreme Adminis- trative Court. Under this decree, the increase in wholesale prices for the years 2009 and 2010 to 2012 were annulled; the prices for unbundled subscriber lines were also cut retrospectively for the years 2010 to 2012. A second decision on the revision of prices for WLR (Wholesale Line Rental) and bitstream services is still pending. AGCOM completed a new market analysis of mobile termination fees in 2015. In it AGCOM pro- poses that mobile termination fees for all mobile network operators in the period 2015 to 2017 should be based on a wholesale price of 0.98 cents per minute. AGCOM sent the draft of the final decree to the European Commission in July 2015. The final decree is expected to be ratified by the end of 2015. AGCOM also proposes giving mobile network operators the opportunity to determine termination fees for countries outside the EU on the principle of mutuality. Full-service MVNOs will in future also be subject to the regulated termination fees. AGCOM has commissioned a new market analysis on fixed network termination fees. A public con- sultation is expected at the beginning of 2016. Swisscom stakeholder groups Swisscom engages in dialogue with stakeholder groups depending on how close the relationship is and on the individual stakeholder group’s interests. The size of the stakeholder group is a key factor in determining what kind of dialogue is possible. The Swisscom website provides an overview of our stakeholder groups. 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. Periodic surveys are conducted among business customers in which sustainability is among the issues addressed. Swisscom also maintains regular contact with consumer organisations in all lan- guage regions of Switzerland and runs blogs as well as online discussion platforms. The overall findings show that customers expect attractive pricing, good service, market transparency, respon- sible marketing, comprehensive network coverage, network stability, low-radiation communica- tion technologies and sustainable products and services. Shareholders and external investors Besides the Annual General Meeting, Swisscom fosters dialogue with shareholders at analysts’ pre- sentations and road shows and in regular teleconferences. As the principal shareholder, the Con- federation holds a position on Swisscom’s Board of Directors and stipulates goals for Swisscom on a four-year horizon. Swisscom is also in regular contact with numerous external investors and rat- ing agencies. Shareholders and external investors expect above all growth, profitability and inno- vation from Swisscom. Authorities/residents Swisscom maintains regular, close contact with various public authorities. A key issue in its dealings with this stakeholder group concerns mobile network expansion. Mobile data applications are becoming increasingly popular with customers. But while mobile communications are clearly appreciated and widely used, the expansion of the infrastructure required to provide these services does not always meet with the same level of support. Network expansion gives rise to tension because of the different interests at stake. Swisscom has been engaged in dialogue with residents and municipalities on network planning for many years. In the case of construction projects, it 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 the 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. 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   Legislators Swisscom is required to deal with political and regulatory issues. It represents 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, represen- tatives of management maintain a regular dialogue with journalists and make themselves avail- able 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 the dialogue with customers. The information gathered at the customer interfaces flows back to the company and permits Swisscom to continually improve its products and services. Using a wide range of communication 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 Represen- tation 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 organ- isational units on sustainability issues, under the motto “Hello Future”. Through this dialogue, Swisscom keeps its employees up to date on its work in the area of sustainability and encourages 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 within the framework of projects; for example, with WWF Climate Savers, myclimate, the Swiss Child Protec- tion Foundation and organisations that address the specific needs of affected groups. Active part- nerships and Swisscom’s social and ecological commitment are especially relevant for the partners and NGOs stakeholder group. 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   Market trends in telecoms and IT services Swiss telecoms market Switzerland has three mobile networks and several fixed-line networks. 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 revenue generated by the telecoms market in Switzerland is estimated at around CHF 13 billion. The market is in a phase of transition, driven by the growing convergence of telecommunications, information technology, media and entertain- ment. The constant advancement of digitisation and connectivity is a further key trend. More and more new global competitors are entering the Swiss telecoms market, offering both free and pay- ing Internet-based services including telephony, SMS messaging and TV. Cloud solutions are also playing an ever more important role, with storage capacity, processing power, software and ser- vices all relocating to an increasing degree to the Internet. Customers’ needs are also continuing to change. Increasingly, customers are accessing data and applications from just about anywhere 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. It 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 addition, 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 sub- markets of relevance to Swisscom: mobile, broadband, TV and fixed-line telephony. Swisscom Switzerland access lines  in thousand     6,625  596  6,029    8,000       6,000       4,000       2,000     0     Fixed-line     2,629  1,056  1,573  2,273  315    1,416  542  1,331  1,183   148   Mobile  subscribers  Telephone  Broadband  Wholesale    Bundle subscriptions  Single subscriptions  128  Swisscom TV  subscribers  Unbundled  access  lines  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                    Mobile communications market Three companies operate their own wide-area mobile networks in Switzerland: Swisscom, Salt and Sunrise. The Swiss mobile communications market is continuing to change rapidly. This is demon- strated, for example, by the sale of Orange and subsequent change of name from Orange to Salt and the initial public offering of Sunrise at the beginning of 2015. Another major market player, upc cable- com, offers its own mobile services via Salt’s network (as an MVNO, mobile virtual network operator). Swisscom also makes its mobile communications network available to third-party providers so that they can offer their customers proprietary products and services over the Swisscom network. The demands being placed by users on the mobile networks are constantly rising. In order to offer customers optimum data connectivity, Swisscom is constantly investing in the latest technologies for its mobile network. Growth in mobile lines (SIM cards) in Switzerland was once again slow in 2015 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 135%. The technical possibilities offered by mobile communications are continuing to increase due to the rapid spread of smartphones. The newly launched mobile offerings such as Natel infinity plus reflect customers’ changing needs. These subscriptions allow Swisscom customers to make unlim- ited phone calls and send unlimited SMS messages to all Swiss networks, as well as unlimited Inter- net surfing at flat rates. The individual offerings mainly differ in terms of mobile data speeds and the number of days of inclusive usage abroad. Swisscom offers occasional users of the mobile net- work prepaid services with no monthly subscription fee. Market shares mobile subscribers in Switzerland*  in %   Swisscom mobile access lines  in thousand   19%    Salt.    22%    Sunrise      8,000     6,000   6,407  2,176  6,540  2,163  6,625  2,124  59%    Swisscom      4,000   4,231  4,377  4,501  * Estimate Swisscom    2013  2014  2015    2,000   0   Prepaid    Postpaid    In 2015, Swisscom’s market share remained stable at 59% (postpaid 64%, prepaid 50%). The per- centage of postpaid customers in Switzerland is around 62%. As in previous years, prices for mobile services continued to be squeezed by competition in 2015. 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     Fixed-line network Switzerland has almost 100% coverage of fixed broadband networks. Alongside the fixed-line net- works of the telecoms companies such as Swisscom and Sunrise there are also the cable networks of upc cablecom and other small and medium-sized cable network operators. Moreover, new market players such as utilities operating in particular cities and municipalities are building and operating fibre-optic networks on their own initiative at a regional level. In order to meet the rising demands on the networks, Swisscom is investing heavily in its existing fixed network to create a high-perfor- mance ultra-fast broadband network based on the latest fibre-optic technology. The digital internet protocol (IP) used on this network will replace the traditional communications technology in the medium term. IP technology makes it possible to combine different services quickly and flexibly over the same network and launch them on the market more quickly than in the past. The fixed broad- band connection is therefore increasingly developing into the key access point for customers. It is the basis for a wide-ranging product offering from both national and global competitors. Alongside indi- vidual products, Swisscom offers various bundled products tailored to customer needs in the fixed- line area with a choice of TV and/or fixed telephony on top of the broadband connection. To better meet the needs of mostly younger, urban, digitally savvy customers, Swisscom launched the indepen- dent brand Wingo in 2015. Wingo features a slimmed-down offering for this young target group and is only available in areas where customers have already been supplied with Fibre-to-the-Home (FTTH). Broadband market The most widespread access technologies for broadband in Switzerland are infrastructures based on the networks of telecoms providers and cable network operators. At the end of 2015, the number of retail broadband lines in Switzerland totalled 3.6 million or 84% of all Swiss households and busi- nesses. Switzerland therefore leads the way internationally in terms of broadband access market pen- etration. Market shares broadband access lines in Switzerland*  in %   Swisscom Broadband access lines  in thousand   12%    Other    34%    Cable    operators    54%    Swisscom      3,000     2,250     1,500   750   0   2,026  215  1,001  2,152  262  1,209  2,273  315  1,416  810  681  542  Wholesale    Bundle subscriptions    Single subscriptions    * Estimate Swisscom    2013  2014  2015  The number of broadband lines increased by around 4% in 2015, the same rate of growth as in the previous year. As in 2014, growth in broadband access lines provided by cable network operators outpaced that of the broadband access lines of telecom service providers. Telecom service providers accounted for more than a third of new broadband access lines in 2015, corresponding to a market share of all broadband lines of 66% (prior year 67%). Of these, 54% (prior year: 54%) were for Swisscom end customers and 12% (prior year: 13%) for Swisscom wholesale offerings and fully unbundled lines. 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       TV market In Switzerland, TV signals are transmitted via cable, broadband, satellite, antenna (terrestrial) and mobile. The importance of high-definition digital TV and its market penetration are constantly increasing. Upc cablecom ceased transmitting analogue TV signals in 2015. Other national and international companies have also entered 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   12%    Satellite & Antenna    27%    Other cable    * Estimate Swisscom    29%    Swisscom    3%    Sunrise    29%    upc Cablecom      2,000     1,500     1,000   500   0   1,000  724  276  1,331  1,183  1,165  947  218  148  Bundle subscriptions    Single subscriptions    2013  2014  2015  More than 85% of all TV connections are provided over the cable or broadband network, with cable TV and Swisscom TV commanding the largest market shares. Swisscom has been steadily growing its market share over the last few years thanks to its own digital TV offering, Swisscom TV, which had a market share of 29% at the end of 2015 (prior year: 26%). Fixed-line telephony market Fixed-line telephony is mainly based on lines running over the fixed networks of the telecom service providers and the cable networks. The number of Swisscom fixed lines is steadily declining. This trend continued in 2015, with the number of Swisscom fixed lines falling by around 5% to 2.6 million. The main reason for the decline was the substitution of mobile phones for fixed-line telephones together with a small fall in market share. 43 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       IT services market in Switzerland In 2015, the IT services market generated a revenue volume of CHF 8.7 billion. Market volume is expected to total CHF 9.4 billion by 2019. Swisscom expects the strongest growth in business process outsourcing (BPO) and in application-based and infrastructure project-based services. This growth is a result of the increasing number of business-driven ICT projects. Customers usually expect services customised to their individual sector and business processes with related consul- tancy. However, the prospects for growth must be assessed taking into consideration the effects of the strong franc and increasing global competition resulting from digitalisation. Consequently, Swiss companies as well as their competitors are under cost pressure. While ICT providers are look- ing for new roles and some are building up their own cloud offering, customers are increasingly postponing ICT investments. Market shares IT services in Switzerland*  in %   Swisscom net revenue IT services  in CHF million   61%    Others    9%    Swisscom      1,000   11%    IBM    7%    HP    5%    Accenture    4%    Infosys    3%    T-Systems    750   500   250   0   612  650  761  * Estimate Swisscom    2013  2014  2015  The shifts in the market and IT innovations are creating new opportunities for Swisscom. As one of the few providers of integrated digitalisation solutions, Swisscom helps companies to simplify and automate processes and integrate existing solutions. Swisscom also co-creates new IT services with its customers. As a result, Swisscom is seen as a driver of digitalisation in the Swiss economy. With a market share of around 9%, it remains one of the leading providers of IT services on the Swiss market. 44 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 billion. In contrast to most other European countries, in Italy there are no cable network operators who offer broadband services. Only slightly over half of the households and businesses in Italy have access to the broadband network; the penetration of broadband is thus well below the European average. The Italian market continues to be dominated by bundled products which com- bine voice and broadband services. Due to the intensely competitive environment, the market is under considerable pricing pressure. Ultra-fast broadband services have become more popular. The market 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    16%    Fastweb    49%    Telecom Italia      3,000     2,250     1,500   750   0   1,942  2,072  2,201  * Estimate Swisscom    2013  2014  2015  Thanks to its market share of 49% (prior-year 50%), Telecom Italia has a leading position on the Italian broadband market. Fastweb raised its market share from 15% to 16% compared with the previous year and caught up to Wind, in second place behind Telecom Italia. A permanent nationwide presence is becoming increasingly important for service providers given the growing complexity of products and services. With this in mind, Fastweb is further expanding the ultra-fast broadband network and aims to cover around 7.5 million households and businesses, or 30% of the population, by the end of 2016. 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. 45 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 21,000-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 banking. Customers can purchase their products and services via a wide 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. 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 See www.swisscom.ch   Swisscom brand The Swisscom brand is managed strategically as an intangible asset and an important element of the group’s reputation management. The brand’s main role is to provide optimum support for Swisscom’s multi-faceted business activities and act to attract and motivate current and potential staff. To achieve this the brand must have a coherent and high-quality image, while also being suf- ficiently flexible for new themes and new business opportunities as they arise. It must be able to develop and redefine itself continually in an increasingly digital and fast-moving world. The Swisscom Group offers core-business products and services under the Swisscom brand. It also has other brands in its portfolio which are associated with other themes and business areas. Out- side Switzerland, Swisscom’s main market is Italy, where it operates under the Fastweb brand. The strategic management and development of the entire brand portfolio is an integral part of corpo- rate communications. 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   Swisscom has consolidated its business activities in healthcare under Swisscom Health AG and is continuing the strategy of positioning its brand in the core Information & Communication Technology (ICT) business. The Swisscom brand also creates significant added value in banking. In healthcare as in banking it is critical that customer data is managed responsibly. The Swisscom brand stands for trustworthiness and security in this regard. The ongoing success of Swisscom TV has enhanced Swisscom’s credibility in the entertainment business. The Teleclub, Kitag and Cinetrade brands, also operated by Swisscom, make a further contribution to positioning the Group in the digital entertainment market. Other progressive prod- ucts with a market presence under the Swisscom brand or – for example in the energy sector – under the tiko brand, reinforce Swisscom’s image as a simple, inspiring and trustworthy companion in the rapidly changing digital world. In 2015 Swisscom was once again crowned by consumers as the Most Trusted Brand in three differ- ent categories in the Reader’s Digest annual survey, confirming that awareness of the Swisscom brand remains high among consumers in Switzerland. The attributes of “trustworthiness”, “reliabil- ity” and “high quality standards” represent a strong competitive advantage and spur the company on to offer the best always and everywhere. Trustworthiness and service remain important factors in affirming the trust of existing customers and winning new customers for Swisscom, while also helping to underscore the importance of Swisscom for Switzerland: Swisscom is part of a modern Switzerland, is always recognisable as a Swiss company and positions itself clearly and credibly through its stance on sustainability. All this rounds off the positive image of the Swisscom brand and enriches the group’s multi-faceted customer relationships. This is one reason why the reputation values achieved by Swisscom are exceptionally high for the telecommunications industry worldwide. From the corporate perspective, this picture is confirmed. According to the survey “Best Swiss Brands 2015” conducted by Interbrand, the Swisscom brand remained in sixth place in the report- ing year, putting it among the most valuable Swiss brands, with a monetary brand value of over CHF 5 billion. 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 Net revenue Switzerland accounts for Operating income before depreciation and amortisation (EBITDA) Switzerland accounts for 84 % of Swisscom’s revenue 85 % of Swisscom’s  EBITDA   Swisscom’s network and IT infrastructure Network infrastructure in Switzerland Bandwidth requirements in the Swiss fixed telephone network double every 16 months – and once a year in the case of mobile telecommunications. This is because customers today want to use applications such as HD television, video conferencing and cloud services at anytime, anywhere and on different devices. At the heart of the network of the future is Internet Protocol (IP) technology, which makes such a wide range of uses possible. The technology is the same regardless of the selected transmission method. It works both for copper and fibre-optic connections. Swisscom will switch over all of its products and services to this forward-looking technology by the end of 2017. By enabling faster and more flexible processes and operations, Swisscom itself will become more competitive along with its business customers as well as Switzerland as a business hub. Swisscom will also be able to fulfil the demands of its residential customers to have constant access to their data from anywhere and on any device. All IP offers the basis for the digitalisation of the Swiss economy. 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 (48.9%), ahead of the Netherlands and Denmark (source: OECD Broadband Portal June 2015, data from December 2014). This is also confirmed by the “State of the Internet Report” published by the technology ser- vice company Akamai in October 2015. According to this report, Switzerland ranks first in Europe and fourth globally in respect of the availability of ultra-fast broadband. In mobile communica- tions, broadband LTE coverage now extends to 98% of the population, making Swisscom the largest network operator in Switzerland by far, both in the fixed and mobile network. To drive forward ultra-fast broadband provision in Switzerland, Swisscom has opted for a broad, innovative mix of technologies. Alongside Fibre to the Home (FTTH), technology such as Fibre to the Street (FTTS) and Fibre to the Building (FTTB) will play a key role here; in other words, optical fibre is getting ever closer to the client. Fibre-to-the-Curb (FTTC) > VDSL since 2006, Vectoring since 2014 > Up to 100 Mbit/s, since 2017 up to 300 Mbit/s Fibre-to-the-Street (FTTS) > Since 2013, up to 100 Mbit/s > Since 2016: 500 Mbit/s (G fast) Fibre-to-the-Building (FTTB) > Since 2013, up to 100 Mbit/s > Since 2016: 500 Mbit/s (G fast) Fibre-to-the-Home (and Business, FTTH) > Since 2008 > 1 Gbit/s since 2013 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 Fiberglass Copper Yet, it is not only network expansion which is subject to constant change but also the way in which data is transported across the remaining copper cables. Vectoring doubles the capacity of copper cables, while G.fast, the successor to VDSL, will soon permit bandwidths of up to 500 Mbps on copper cables. As at the end of 2015, Swisscom had established more than 2.9 million connections to its ultra-fast broadband service (speeds in excess of 50 Mbps) through a technology mix. Of this number, around 2.0 million lines were equipped with the latest fibre-optic technology. Swisscom is an international leader in this regard.   Swisscom is aiming to supply 85% of households and businesses in Switzerland with ultra-fast broadband (speeds in excess of 100 Mbps) by the end of 2020. Its long-term plans for network con- struction are founded on the vision of every Swiss municipality enjoying almost 100% ultra-fast broadband coverage. In remote regions of Switzerland Swisscom will honour its universal service provision mandate and is seeking new technical solutions to deliver higher bandwidths to these regions. For example, it is testing DSL-LTE bonding, a technology that combines the bandwidths of the fixed-line and mobile phone networks and thus enables a far superior customer experience. In 2012, Swisscom was the first mobile provider in Switzerland to launch 4G/LTE commercially. Today, it is already providing 4G/LTE coverage to 98% of the Swiss population. In urban regions with particularly high traffic along streets and in busy public places, 4G/LTE microcells ensure the required network capacity. In this context, Swisscom has developed its own microcell for installa- tion in a manhole, which will be improving coverage from 2016. Swisscom is increasingly installing dedicated antenna systems in large business premises and indoor public areas. 4G+ (LTE advanced) installed in urban areas already provides mobile Internet bandwidth speeds of up to 300 Mbps, with speeds of up to 425 Mbps having been achieved in the autumn of 2015. Swisscom’s offering is therefore leading the way, both in Switzerland and by international standards. Mobile telephony is also keeping up with the times. While until recently voice telephony was only carried over the 2G and 3G technologies, following the introduction of VoLTE (Voice Over LTE) in June 2015 and WiFi Calling in August 2015, an IP-based voice service is now also available. To ensure that it will still be able to satisfy the rising demand from customers for data volumes in future, Swisscom is continu- ously expanding its mobile phone network and investing in new technologies. As the 22-year-old 2G mobile phone generation needs 30% of antenna capacity but can only handle 0.5% of data traffic, Swisscom has decided only to support 2G until the end of 2020. 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-ap- propriate 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 7,400 antenna sites with other providers. At the end of 2015, Swisscom had a good 5,200 exterior units and 2,200 mobile commu- nication masts in buildings. And with over 2,200 hotspots in Switzerland, Swisscom is also the country’s leading provider of public wireless local area networks. Network infrastructure in Italy Fastweb’s network infrastructure consists of a fibre-optic network spanning a total distance of around 40,000 kilometres, reaching over 50% of the Italian population. In this way, it supplies more than six million households and businesses with ultra-fast broadband at speeds of up to 100 Mbps, based on Fibre to the Home (FTTH) and Fibre to the Street (FTTS). Fastweb is continuing to expand the ultra-fast broadband network and by the end of 2016 aims to cover around 7.5 million house- holds and businesses, or around 30% of the population. It also signed an agreement with its technology partners in the first quarter of 2015 to further strengthen the fibre-optic network with technologies such as vectoring, VDSL enhanced and G.  fast. These technologies will provide Fastweb customers with connection speeds of over 100 Mbps and up to 500 Mbps from 2016. In addition, thanks to wholesale services provided by well-established Italian operators, Fastweb reaches customers who are not directly connected to its own network. While Fastweb does not have its own mobile network, it offers proprietary mobile services based on an agreement with another mobile operator (MVNO model). Swiss IT infrastructure Swisscom operates 24 data centres in Switzerland. The capacity utilisation of these data centres is increasing year after year, which is why Swisscom is continuously adding to capacity. The newly constructed data centre in Berne Wankdorf opened in the autumn of 2014. Swisscom is also expanding existing data centres in the Olten-Zurich region in order to allow for further growth. In addition to cloud services in all their forms, classic IT services continue to play an important role for Swisscom. The volume of data stored has almost doubled to a current figure of 36 petabytes. Through its on-demand contracts with innovative partner companies, Swisscom is able to ensure sufficient capacity and the deployment of efficient technologies at all times. The growing virtualisation of classic telecommunications functions – for example the growing con- vergence of conventional telephony and modern information technology – is also increasing the demands made of IT services. As a result, Swisscom needs to expand its capacity throughout Swit- zerland and irrespective of its existing locations. In accordance with its commitment to sustainabil- See www.swisscom.ch/ networkcoverage 50 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   ity, Green IT and climate protection, Swisscom maximises the energy-efficient operation of its data centres. The average annual power usage effectiveness (PUE) of Swisscom’s data centre in Zollikofen (Berne) is 1.3. This value represents the ratio of total power consumed by the data centre to the power consumed by the IT systems. The 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) is even more energy-efficient. In order to maximise the energy efficiency of the IT equipment in the data centres, Swisscom also works with manufacturers to reduce the power consumption of the IT equipment. In this context Swisscom is currently participating in a research group looking into disruptive cooling technology. Swisscom is testing a procedure involving immersion cooling. Cloud technology has reached an advanced stage of development and the areas in which it can be used to optimum effect are becoming ever clearer. Many applications are not yet able to use the benefits of cloud technology and first have to be adapted. Swisscom has gained valuable experi- ence from its applications and its own production processes in the cloud. It uses its experience to continuously develop its IT infrastructure, further increase its technological lead as a trusted com- panion in the digital world and deploy its expertise in a way that benefits its business customers. Fastweb’s IT infrastructure Fastweb operates four main data centres in Italy with a total surface area of 8,000 square metres. 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 a technology partner who is responsible for the setup, design and adaptation of the data centre together with operational aspects of Fastweb’s IT infra- structure. Fastweb also uses two other data centres, mainly for corporate business services, i.e. for housing, hosting and other cloud-based services. Fastweb is investing in the construction of two new data centres in Milan and central Italy, which will be used by Fastweb to host ICT and cloud services for business customers. The new data centre in Milan is the first data centre in Italy to be awarded Tier IV certification – representing the highest level of reliability, security and perfor- mance. It is fully operational and hosts services for business customers. 51 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 Mobile data traffic is increasing every year. Compared with the previous year, data volume grew by Investments in performance enhancement and security in the Swiss infrastructure and in ultra-fast broadband expansion totalled in 2015 97 % 1.8 billion Swiss francs   Data protection The customer data that Swisscom works with is subject to the Swiss Data Protection Act and Tele- communications Act. The protection of privacy, compliance with data protection laws and the observance of telecommunications secrecy are key tasks and concerns for Swisscom. The Data Pro- tection Declaration explains how Swisscom handles personal data. Swisscom adheres strictly to the law in all matters relating to data protection. It collects, stores and processes only such data as is required for the following purposes: the provision of services, the handling and maintenance of the customer relationship, i.e. ensuring high service quality, the security of the company and its infrastructure, and billing. Customers also consent to Swisscom processing their data for marketing purposes and to their data being processed for the same purposes within the Swisscom Group. Customers have the option of stating what types of advertising material they do or do not wish to receive (“opt-out”). Swisscom has set itself the goal of providing all employees who have access to customer data as part of their job with thorough instruction on compliance within their work. In addition, it raises awareness among its employees through data protection training and equips them to implement the requirements of data protection rigorously. Swisscom has also implemented technical measures designed to further improve data protection. It has reviewed and specified all access rights to critical customer data. It has also set up a system to determine whether access to critical customer data is legitimate. Moving forward, Swisscom will continue to do everything in its power to protect its customers’ data by optimising its technology, organisation, processes and employee training. Swisscom is aware of its responsibility for data pro- tection. In bringing in new technologies and in meeting new needs, Swisscom will continue to exercise the required sensitivity and assume its social responsibility as a companion in the net- worked world. Products, services, sales channels Swisscom in Switzerland Swisscom is committed to service and quality and to interacting with its customers in a person- alised and value-adding manner. Six million customer visits to Swisscom Shops, 3,500 customer advisors, twelve million calls and more than four million e-mails and letters per year are the basis for Swisscom staying in touch with its customers and providing personal service. For years now, excellence in service has been a top priority for Swisscom. Residential customers Additional functionality and new content were added to Swisscom TV 2.0 in 2015. 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 function from 30 hours to seven days, and integrated around 50 of the most popular apps such as YouTube and Facebook in Swisscom TV 2.0. Moreover, Swisscom TV will soon be offering TV images in ultra-sharp 4K/Ultra HD (ultra-high definition) quality. The Natel infinity mobile phone offering has also been expanded: the new Natel infinity plus not only allows unlimited surfing, calls and SMS/MMS messaging in Switzerland, but also includes worry-free roaming within the EU and Western Europe. Natel infinity (plus) customers can also now enjoy Swisscom TV Air with 30 hours of replay and 60 hours of per- sonal recordings free of charge for one year. The bundled offerings, ranging from Vivo XS to XL, combine TV, Internet and fixed-line access and offer the right subscription for individual needs. Subscribers who combine Vivo and Natel infinity (plus) also benefit from a bundle discount. Swisscom also provides its customers with applications such as the communications app iO or the cloud app myCloud. iO users can telephone over the Internet for free, chat and share photos with other iO users. The newly integrated video chat enables live video communication during chatting. In myCloud Swisscom offers its customers a Swiss solution for the secure management and shar- ing of their personal data, such as photos, videos and documents. Swisscom has also added a fur- ther customer service offering in the form of My Service, a personal technical support service, avail- able as a subscription or on a one-off basis. My Service can be accessed at home, in a Swisscom shop or via the Internet. 52 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   Small and Medium-Sized Enterprises Swisscom’s My 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 Digitalisation is substantially changing business processes, the customer experience and the work- ing world in companies. As a telecommunications and IT company, Swisscom has extensive experi- ence in digitisation and innovative solutions. It is driving the digitisation of Switzerland and sup- porting companies in their digital transformation. In this context, it has one of the largest ICT portfolios, comprising cloud, outsourcing and workplace solutions, UCC solutions, mobile phone solutions such as Natel go, networking solutions, offices networking, business process optimisa- tion, SAP solutions, security and authentication solutions (mobile ID) and a full range of services tailored to the financial industry. Swisscom also offers new solutions for the Internet of Things such as machine-to-machine networks, new interaction options thanks to the Service Interactor and solutions for digitised business processes. 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 network- ing 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. 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. Likewise, tiko, the smart electricity storage network from Swisscom Energy Solutions, allows users to manage and control the energy consump- tion of their heat pumps, electrical heating systems or boilers remotely via the Internet. Sustainability Sustainable ICT technologies support companies in their efforts to save energy and cut costs in intelligent ways while also offering their staff an attractive working environment. These technolo- gies include teleworking and virtual meetings, which save on travel costs and time, and telehousing and hosting solutions, which reduce the amount of energy consumed by data centres. The Internet of Things creates further opportunities to manage vehicles, buildings and machines more intelli- gently and efficiently than in the past. Fastweb in Italy Fastweb offers its 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. It has forged a successful partnership with pay-TV pro- vider Sky Italia, allowing it to offer bundled products which combine voice and broadband services as well as TV services. Under an agreement with a mobile operator, Fastweb offers its mobile ser- vices primarily to residential customers. However, it also offers a comprehensive range of ICT, cloud and security services for business customers. Fastweb has confirmed its leading position as an innovative service provider. It has launched a comprehensive WiFi solution onto the market, thanks to which each customer’s home router can potentially form a WiFi access point available to the entire Fastweb community. This solution, which is unique in Italy, is based on Fastweb’s fibre-optic network and a simple but secure registra- tion process. Fastweb thus offers its customers the possibility of using the mobile Internet through this solution without any additional expense. 53 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   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 surveys 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 contact 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. 54 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 512 FTEs year-on-year. In Switzerland Swisscom has 18,965 employees and is training 903 apprentices. Headcount At the end of 2015, Swisscom had 21,637 full-time equivalent employees, of whom 18,965 or 87.7% of the total workforce were employed in Switzerland (prior year: 86.5%). Swisscom is also training 903 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  Enterprise Customers  Wholesale  IT, Network & Innovation  Swisscom Switzerland  Fastweb  Other Operating Segments  Group Headquarters  Total Group  Thereof employees in Switzerland  31.12.2015 31.12.2014 Change 4,870 1,601 5,378 105 5,245 17,199 2,401 1,723 314 21,637 18,965 4,898 1,530 4,834 111 5,072 16,445 2,391 1,962 327 21,125 18,272 –0.6% 4.6% 11.3% –5.4% 3.4% 4.6% 0.4% –12.2% –4.0% 2.4% 3.8% Headcount increased year-on-year by 512 FTEs or 2.4% to 21,637 FTEs. In January 2015, Swisscom acquired Veltigroup; in May 2015, it sold its subsidiary Alphapay; and in June 2015, it disposed of Swisscom Hospitality Services. In July 2015, Tamedia integrated search.ch AG in Swisscom subsidiary Swisscom Directories. Excluding these acquisitions and sales, the headcount rose by 277 FTEs or 1.3% due to additions made to after-sales service as well as network expansion. In Switzerland, the number of employees increased by 693 FTEs or 3.8% to 18,965; this increase amounted to 258 FTEs or 1.4% on an adjusted basis. In the year under review, employees in Switzerland on open-ended contracts accounted for 99.7% of the workforce (prior year: 99.6%). Part-time employees made up 14.5% (prior year: 14.2%). As in the previous year, terminations of employment by employees in Switzerland amounted to 5.8% of the workforce. Development of headcount  in full-time equivalent       28,000       21,000       14,000       7,000     0     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  21,637  271  2,401  18,965  2011  2012  2013  2014  2015  Other countries     Italy     Switzerland     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       Employment law in Switzerland Introduction Swisscom has 18,965 full-time equivalent employees in Switzerland. It is therefore one of the coun- try’s largest employers. The legal terms and conditions of employment in Switzerland are based on the Swiss Code of Obligations. The collective employment agreement (CEA) was revised as a result of the merger of Swisscom IT Services Ltd and Swisscom (Switzerland) Ltd and the new job architec- ture, and it entered into force on 1 April 2015. It sets out the key terms and conditions of employ- ment between Swisscom and its employees. It also contains provisions governing relations between Swisscom and its social partners. The CEA of cablex Ltd, revised to reflect the new job architecture, also entered into force on 1 April 2015. At the end of December 2015, 14,812 FTEs or 83.2% of the Swisscom 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 represen- tatives). The collective employment agreement (CEA) and the social plan constitute fair and con- sensual 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 working week for employees covered by the Swisscom CEA is 40 hours. Among the progressive benefits defined by the CEA are five weeks’ annual leave, or 27 days from age 45 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. In November 2015, Swisscom negotiated the necessary CEA with the social partners on the basis of the revised Ordinance 1 to the Swiss Labour Law. This agreement provides for a waiver of time registration and will be implemented as of 1 January 2016, the date on which the amended ordi- nance takes effect. Working-hour models Swisscom encourages its full-time and part-time employees to adopt an appropriate life domain balance by means of the following measures: Flexible working hours are the standard model used by a majority of employees. Other flexible working-hour models include annual working hours, a long-term working-time account and reduced hours for employees who have reached the age of 58. The “holiday purchasing” model 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 employ- ees and is becoming increasingly easier thanks to tools such as Unified Communications & Collab- oration (UCC). Swisscom is a sponsor of the Work Smart initiative. s e e y o p m E l 56 y r a t n e m m o C t n e m e g a n a M 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. Two new flexible working-hour models named “Work & Care” have been added to the existing models to promote work-life balance, particularly where an employee is caring for a relative. Social plan Swisscom’s social plan sets out the benefits provided to employees covered by the CEA who are affected by redundancy. It utilises funds to improve employees’ prospects in the labour market. It also provides for retraining measures in the event of long-term job cuts. Responsibility for imple- menting 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 2015 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 based on function, individual performance and the job market. The performance-related salary component is contingent on business perfor- mance 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 respective business segment or division. The targets primarily relate to key financial indicators and customer 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 122 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 current CEA provides for a minimum salary of CHF 52,000, or CHF 50,000 in the case of the cablex CEA. 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) found that the average basic annual salary in the function levels used for most job starters in this category was CHF 55,800 or CHF 55,500 at cablex, in other words, 7% and 11% respectively 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 1.8%. This increase was used to make adjustments to salaries based on individual performance and a comparison between the salary and the market level. 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, the individual functions are assigned to job levels according to their require- ments. A salary band is assigned to each job depending on the market salary. The salary band stip- ulates 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 s e e y o p m E l 57 y r a t n e m m o C t n e m e g a n a M grants employees who have performed 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. Previ- ous reviews have revealed only minor pay discrepancies, well under the tolerance threshold of 5%. New job architecture Swisscom introduced a new job architecture with effect from 1 April 2015. This consists of a simpli- fied structure with nine job levels (six for employees in the CEA, three for executive functions) which replaces the previous system of 18 functional and management levels. The conditions of employ- ment were harmonised and the salary bands updated on the basis of the new job architecture. All the functions were re-evaluated on the basis of a recognised job evaluation process and employees clas- sified in one of the nine job levels depending on their role. All employees received new contracts of employment based on the amended classification. With one exception, these changes did not neces- sitate any redundancies. As a result of the new job architecture Swisscom now has transparent and up-to-date structures. This will ensure continued fair remuneration in line with market levels in future and also offers employees more opportunities to manage their professional development. Staff development Swisscom’s market environment is constantly changing. The company invests in targeted profes- sional training for its employees and managers in order to maintain and improve their employabil- ity and the company’s competitiveness in the long term. Employees are supported in their develop- ment by a wide range of both on-the-job and off-the-job development options as well as internal programmes and courses. The various training options have been brought together under the Group-wide Learning Centre, where they can be accessed by 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 at any time and at any location. 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 opportu- nities 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 development 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 learning and development in a networked world. It also makes it easier to agree on and implement medium-term development measures. To assess and promote employee performance and development, Swisscom will continue to develop its Perfor- mance 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 objec- tives ensures they are met over the course of a year. Semi-annual calibration meetings attended by groups of managers support the performance and development reviews on a broad basis, allowing performance to be assessed systematically and further development steps defined. These rounds are also used to draw up succession plans for key functions as well as to place talents in special- ly-designed talent programmes and to offer promising employees challenging positions beyond their individual departments so as to promote their development. s e e y o p m E l 58 y r a t n e m m o C t n e m e g a n a M The Leadership Academy offers managers in personnel and technical leadership roles the opportu- nity to get to grips with the key skills of management in a changing environment. Individual offer- ings and platforms which deepen management capabilities in a particular group or a specific con- text also help to build the skills of Swisscom’s managers in a systematic and sustained way. Staff recruitment As a Swiss company, Swisscom is committed to the Swiss employment market. In order to meet customer needs and remain competitive, Swisscom is prepared to work together with both domes- tic 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 2015, 254 young people started their apprenticeship at Swisscom. Swisscom is thus Swit- zerland’s largest trainer of ICT professionals. In 2015, Swisscom trained a total of 903 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 Swisscom conducts a large-scale survey of its staff every two years. The last survey was held in 2014, with 83% of the employees in Switzerland taking part. The results once again revealed an above-average level of job satisfaction and a high level of employee commitment at Swisscom. The employees rated all of the areas under review significantly higher on average than in the previous 2012 survey, and some of the scores were above average compared to other companies in the sector. The next employee survey is scheduled for 2016. s e e y o p m E l 59 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 nazio- nale 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. 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 the work-life balance of its staff. The company’s terms and conditions of employ- ment 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 60 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. This is why Swisscom consistently focuses on meeting changing customer needs, and identifies growth areas in which it can sustainably defend and strengthen its position. Environment, objectives and management approach 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 dialogue with customers, employees, suppliers and other partners, as it enables a continuous, 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, i.e. the user-oriented design of simple, inspiring experiences that 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 of this is the Innovation Week held twice a year, during which teams of employees from different divisions implement a new idea that addresses a specific customer need, is of business relevance and has potential on the market. Outside the company, Swisscom promotes innovation throughout the industry. In particular, Swisscom is committed to supporting young companies that offer progressive new solutions in the fields of IT, communications and entertainment. Swisscom participates in start-ups as a project 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. 61 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 Innovation platforms Swisscom plays an active role in shaping Switzerland’s future. Its commitment to fostering an inno- vative and competitive Switzerland is reflected in the backing it gives to a whole variety of projects. Swisscom supports Switzerland’s role as a research centre in the form of investments and partner- ships with universities and institutions. For example, it funds the chair of Professor Adrian Perrig, head of the network security group at the Federal Institute of Technology in Zurich, thereby making an important contribution to information security in Switzerland. As a partner of Ecole Polytech- nique Fédérale de Lausanne (EPFL), Swisscom enables research work to be performed in the areas of human activity and the smart home (“intelligent living”). The partnership involves the provision of financial support for selected projects, the establishment of the “Digital Lab”, a competence centre for digitisation at the EPFL Innovation Park, and various other activities on the campus such as events dealing with digitisation. Swisscom is also a partner of the Swiss Innovation Park and is closely involved in guiding this long-term project as a member of the Board of Trustees. Through its participation in the regional innovAARE Park, Swisscom is supporting research in the field of energy. Finally, Swisscom is a founding member of the Digital Zurich 2025 initiative, which aims to make the greater Zurich area into a hub for start-ups. Current innovation projects Swisscom invests in progressive solutions in a wide variety of technology segments. The aim is to provide the best infrastructure for a digital Switzerland, tap new growth markets and offer its cus- tomers 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. > Microcells: Over the past few years, the standard of quality that customers expect the network to deliver has risen dramatically. The growing volume of data in mobile communications in par- ticular is a major challenge. Swisscom is seeking and developing innovative network solutions that allow high volumes of data to be handled efficiently and guarantee seamless mobile net- work provision at busy locations. One promising solution is the installation of low-power micro- cells that provide high capacity locally. Swisscom is working on the development of new types of antennae that will allow such microcells to be operated efficiently and integrated seamlessly in the existing architecture. > Cloud: Swisscom is developing a cloud that has a uniform architecture and offers companies and private individuals a wide range of services. Thanks to state-of-the-art technologies, open source, the latest security concepts and data storage on servers in Switzerland, Swisscom is leading the way in cloud computing. > Application Cloud – turbocharge for apps: Agile and fast to market with new apps: this is the benefit of the new Swisscom Application Cloud in a nutshell. Developers automatically have access to the infrastructure and the services they need in the public cloud. In the Application Cloud, Swisscom offers a powerful tool for continuous innovation. The results of the close coop- eration with start-ups and Cloud Foundry flow directly into the development of the Application Cloud. This means that Swisscom is always at the forefront technologically and is able to further drive the transformation of Swiss business towards the digital future. > Low-power network to connect everyday objects: To enable devices to communicate more effi- ciently with each other in future, Swisscom is testing a network for the Internet of Things. This Low Power Network is the first of its kind in Switzerland. It connects objects that exchange only small amounts of data with each other and require only a minimal supply of power. Objects such as bicycles, letter boxes, bins or even shoes can communicate in this way over the network. The pilot project for this complementary new network started in the Zurich and Geneva regions in the summer. 62 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 > Smart City: In Pully, canton of Vaud, anonymised and aggregated mobile phone data will in future help to improve traffic flows in the city and relieve pressure on the city centre. The project is intended to act as a pilot: Swisscom is helping towns and cities to plan their infrastructure in a more systematic manner and find easier ways to manage it. > A new TV box for a new era of picture quality – ultra-high definition: In May 2015 Swisscom TV 2.0 received the respected TV Connect Award, which is awarded every year for outstanding inno- vations in digital television and networked entertainment. Swisscom is planning other innova- tions in its TV services in 2016. In spring 2015, it launched a new TV box which enables Swisscom TV 2.0 customers to enjoy ultra-HD content on their TV sets. The new TV box supports High Dynamic Range (HDR), offering stunning image display. It will be complemented by a new remote control system which will allow customers to use voice control to search for content. > My Digital Life: My Digital Life brings together Swisscom’s efforts to combine the digital data of its customers – for example data from their mobile applications – and to use this to create new customer experiences. One of the components of My Digital Life is myCloud, the recently launched cloud solution for photos, videos and other files for residential customers. > Clean Pipe: Under the working title “Clean Pipe”, Swisscom is trialling new ways of making digi- tal 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.  > Interactor digitises customer experiences: One of the main components of the Swisscom Inter- actor are small radio transmitters known as beacons which create a personalised shopping experience based on targeted offers such as digital vouchers or opportunities to collect cus- tomer loyalty points. They are already in use in the Loeb department store in Berne, for example. After making a purchase the purchaser can rate their buying experience via the app. This enables vendors to get to know their customers’ preferences better and continuously improve their cus- tomer service. The beacons represent the start of this development: In future, the Swisscom Interactor will use further technologies such as augmented reality, GPS, 4G and WiFi and will bridge the gap between offline and online channels. > Siroop: With the acquisition of a stake in Siroop, a start-up company established by Coop, and the launch of the Siroop online marketplace, Swisscom is driving digitisation, offering customers and Swiss retailers a secure and attractive platform and leveraging the trend in favour of online retailing, which is increasingly growing in importance for Swisscom as well. Coop and Swisscom are contributing their expertise in digitisation, e-commerce, marketing and retailing to the start-up company. 63 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 A decline occurred in revenue (–0.2%), EBITDA (–7.1%) and net income (–20.2%). However, on a like-for-like basis, revenue and EBITDA increased by 0.7% and 2.3% respectively. The customer base grew by 1.4% in Switzerland and 6.2% in Italy. An unchanged ordinary dividend of CHF 22 per share will be proposed for the 2015 financial year. 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  2015 11,678 4,098 35.1 2,012 1,362 1,361 26.27 1,844 2,409 8,042 2014 11,703 4,413 37.7 2,322 1,706 1,694 32.70 1,860 2,436 8,120 Full-time equivalent employees at end of year  21,637 21,125 Change –0.2% –7.1% –13.4% –20.2% –19.7% –19.7% –0.9% –1.1% –1.0% 2.4% Development of net revenue  in CHF million   Development of EBITDA  in CHF million     16,000     12,000     8,000     4,000   0   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 11,434  2,013  9,421  11,703  2,043  9,660  11,678  1,862  9,816  4,302  620  3,682  4,413  625  3,788  4,098  619  3,479    6,000     4,500     3,000     1,500   0   Fastweb    Swisscom w/o Fastweb    Fastweb    Swisscom w/o Fastweb    2013  2014  2015  2013  2014  2015  Development of capital expenditure  in CHF million   Development of net income  in CHF million   2,436  682  1,754  2,409  581  1,828    3,000     2,250   2,396  695    1,500   1,701  750   0     2,000     1,500     1,000   500   0   Fastweb    Swisscom w/o Fastweb    1,695  1,706  1,362  2013  2014  2015  2013  2014  2015                Summary Swisscom’s net revenue declined by CHF 25 million or 0.2% year-on-year to CHF 11,678 million. At constant exchange rates and excluding company acquisitions and disposals, Swisscom’s net reve- nue rose by CHF 83 million or 0.7%, largely due to the increased number of customers in the Swiss business (+1.4%) and at Italian subsidiary Fastweb (+6.2%). Adjusted revenue in the Swiss core busi- ness increased by CHF 57 million or 0.6%, while at Fastweb it rose by EUR 48 million or 2.8% in local currency terms. Compared with the prior year, Swisscom increased its operating income before depreciation and amortisation (EBITDA), but its recognised EBITDA fell by CHF 315 million or 7.1% to CHF 4,098 million as a result of one-off items. The main reason for this decline was the provision of CHF 186 million recognised for the Competition Commission proceedings on broadband services. Swisscom does not consider the penalty justified and has lodged an appeal with the Federal Supreme Court. Adjusted for this provision and other non-recurring items such as company acquisitions and disposals, provi- sions for headcount reduction, gains from the sale of real estate, non-cash pension expenses in accor- dance with IAS 19 and compensation from legal proceedings and on the basis of constant exchange rates, EBITDA increased by CHF 103 million or 2.3%. On a like-for-like basis, EBITDA in the Swiss busi- ness increased by CHF 21 million or 0.6%, while at Fastweb it rose by EUR 46 million or 8.9%. Net income declined by CHF 344 million or 20.2% to CHF 1,362 million, largely due to the above-men- tioned non-recurring items in EBITDA. Earnings per share declined accordingly from CHF 32.70 to CHF 26.27. Payment of an unchanged dividend of CHF 22 per share for the 2015 financial year will be proposed to the Annual General Meeting. Capital expenditure fell by CHF 27 million or 1.1% to CHF 2,409 million; however, if exchange rates had remained constant, an increase of CHF 47 million or 1.9% would have resulted. Capital expen- diture in Switzerland increased by CHF 71 million or 4.1% year-on-year to CHF 1,822 million, largely due to broadband network expansion. As at the end of 2015, Swisscom had connected around 2.9 million households and businesses to its ultra-fast broadband service (speeds in excess of 50 Mbps). Of this number, around 2.0 million lines were equipped with the latest fibre-optic technology. Despite ending the year EUR 21 million or 3.7% lower at EUR 541 million, capital expenditure at Fastweb remained high due to progressive expansion and upgrading of the broadband network in Italy. Operating free cash flow declined by CHF 16 million or 0.9% to CHF 1,844 million. Compared to the end of 2014, net debt fell by CHF 78 million or 1.0% to CHF 8,042 million. Headcount increased year-on-year by 512 FTEs or 2.4% to 21,637 FTEs as a result of company acqui- sitions, new offerings such as cloud services and healthcare solutions. In addition, Swisscom insourced external staff in order to secure key knowledge in-house. In Switzerland headcount increased by 693 FTEs or 3.8% to 18,965. Excluding company acquisitions and disposals, the number of FTEs rose by 277 or 1.3%, in Switzerland by 258 FTEs or 1.4%. For 2016, Swisscom expects net revenue in excess of CHF 11.6 billion, EBITDA of around CHF 4.2 bil- lion and capital expenditure of more than CHF 2.3 billion. For Swisscom (excluding Fastweb), a slight decline in revenue is expected due to heightened competition and price pressure. A slight increase in revenue is expected for Fastweb. Adjusted for the provisions recognised in 2015 for the legal proceedings on broadband services and for headcount reduction, EBITDA is expected to be around CHF  200  million lower for Swisscom (excluding Fastweb) year-on-year. In addition to the price- based decline in revenue, the costs for roaming are expected to increase in particular. EBITDA will be positively affected by approximately CHF  50  million in cost savings and growth at Fastweb. A slight reduction in capital expenditure in Switzerland of over CHF 1.7 billion will result in a reduc- tion in overall capital expenditure of over CHF 2.3 billion. Subject to achieving its targets, Swisscom will propose an unchanged dividend of CHF 22 per share for the 2016 financial year at the 2017 Annual General Meeting. 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 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  2015 9,475 1,862 340 1 11,678 3,601 619 69 (117) (60) (14) 2014 9,253 2,043 406 1 11,703 3,835 625 103 (123) – (27) Operating income before depreciation and amortisation (EBITDA)  4,098 4,413 Net revenue  Goods and services purchased  Personnel expense  Other operating expense  Capitalised costs of 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)  11,678 11,703 (2,342) (3,019) (2,697) 478 (7,580) 4,098 (2,086) 2,012 (189) (83) 23 1,763 (401) 1,362 1,361 1 51.802 26.27 (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 Change 2.4% –8.9% –16.3% 0.0% –0.2% –6.1% –1.0% –33.0% –4.9% –100.0% –48.1% –7.1% –0.2% –1.1% 9.7% 6.2% 29.2% 4.0% –7.1% –0.2% –13.4% –13.3% 97.6% –11.5% –15.6% 5.0% –20.2% –19.7% –91.7% 0.0% –19.7% 1 Operating income of segments includes ordinary employer contributions as pension fund expense. The difference to the pension cost according to IAS 19 is recognised as a reconciliation item. Share in net revenue  in %  Share in EBITDA  in %  16%   Fastweb   15%   Fastweb   84%   Swisscom   w/o Fastweb   85%   Swisscom   w/o Fastweb   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       Operating results Net revenue Revenue performance in 2015 was heavily affected by the weaker EUR exchange rate as well as company acquisitions and disposals. The average CHF/EUR exchange rate, at 1.075, was 11.4% lower than in the previous year. At constant exchange rates and excluding company acquisitions and disposals, Swisscom’s net revenue increased by CHF 83 million or 0.7%. At Swisscom Switzerland, revenue increased by CHF 57 million, or 0.6% on a like-for-like basis. The higher number of customers was partially offset by the lower roaming prices. The number of revenue generating units (RGU) grew at Swisscom Switzerland by 170,000 or 1.4% to 12.5 million. Revenue of the Italian subsidiary Fastweb was EUR 48 million or 2.8% higher at EUR 1,736 million. All customer segments contributed to this increase. Compared with the end of 2014, the number of Fastweb broadband customers rose by 129,000 or 6.2% to 2.2 million. Revenue of Other Operating Segments was lower by CHF 38 mil- lion on an adjusted basis, due to a decline in construction services performed by cablex. Operating expense Operating expense of Swisscom rose by CHF 290 million or 4.0% year-on-year to CHF 7,580 million. This includes non-recurring items resulting from provisions recognised for the Competition Com- mission proceedings on broadband services (CHF 186 million) and headcount reduction (CHF 70 mil- lion), gains from the sale of real estate (CHF 26 million; prior year: CHF 66 million), non-cash pension expenses in accordance with IAS 19 (CHF 60 million) and compensation from legal proceedings (CHF 17 million). At the beginning of October 2015, the Federal Administrative Court confirmed in principle the ruling issued by the Competition Commission for the alleged improper pricing of broadband services in the period up until the end of 2007; however, it reduced the penalty to CHF 186 million. Swisscom therefore recognised a provision for this amount in the income state- ment. Swisscom does not consider the penalty justified and has lodged an appeal with the Federal Supreme Court. At constant exchange rates and excluding non-recurring items, operating expense decreased by CHF 20 million or 0.2%, largely due to lower costs for subscriber acquisition and reten- tion at Swisscom Switzerland, which declined by CHF 31 million as compared to the prior year. The higher personnel expense on a like-for-like basis was compensated for by an increase in capitalised costs of self-constructed assets. The rise in personnel expense was due to higher headcount and a general increase in salary. Operating income before depreciation and amortisation (EBITDA) The reported operating income before depreciation and amortisation (EBITDA) was CHF 315 mil- lion or 7.1% lower at CHF 4,098 million as a result of non-recurring items. EBITDA on a like-for-like basis rose by CHF 103 million or 2.3%, of which Swisscom Switzerland accounted for CHF 54 million and Fastweb CHF 56 million. The rise in EBITDA for Swisscom Switzerland and Fastweb was largely due to the higher revenue from growth in the customer base. On an adjusted basis, Swisscom’s profit margin increased 0.8 percentage points to 37.9%. 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 Revenue excluding non-recurring items increased by 0.7% year-on-year. Revenue in 2015 amounted to EBITDA excluding non-recurring items increased by 2.7% year-on-year. EBITDA in 2015 amounted to 11.7 billion Swiss francs 4.1 billion Swiss francs Depreciation and amortisation, non-operating results Depreciation, amortisation and impairment losses Depreciation, amortisation and impairment losses decreased by CHF 5 million or 0.2% in 2015 to CHF 2,086 million. Higher depreciation related to the increase in capital expenditure was more than offset by the weaker EUR exchange rate. Intangible assets resulting from business combinations were capitalised for purchase price allocation purposes. Depreciation and amortisation includes amortisation of intangible assets deriving from business combinations (e.g. brands and customer relationships) totalling CHF 125 million (prior year: CHF 123 million). Net interest expense and other financial result Net interest expense declined by CHF 29 million to CHF 189 million as a result of lower average interest costs. Other financial expense rose year-on-year by CHF 41 million to CHF 83 million. This increase is largely attributable to the foreign exchange result, which was down by CHF 41 million from the prior year. Associates The share of results of associates fell by CHF 3 million to CHF 23 million in 2015. Dividends received, amounting to CHF 22 million (prior year: CHF 30 million), largely concern dividends paid by LTV Yellow Pages and Belgacom International Carrier Services. Income tax expense Income tax expense was CHF 401 million (prior year: CHF 382 million), corresponding to an effective income tax rate of 22.7% (prior year: 18.3%). The increase is mainly attributable to the fact that no income tax effects were recognised on the provision created in 2015 for the Competition Commission proceedings regarding broadband services. Without this exceptional item, the effective income tax rate would have been 20.5%. Excluding non-recurring items, Swisscom expects the income tax rate to remain around 21% in the long term. Net income Net income fell by CHF 344 million or 20.2% to CHF 1,362 million. Earnings per share fell accordingly from CHF 32.70 to CHF 26.27. The drop in profit was mainly attributable to the decrease in operating income before depreciation and amortisation (EBITDA), which was CHF 315 million lower as a result of non-recurring items and weaker exchange rates. In addition, the lower net interest expense was more than offset by the rise in other financial expense and higher income tax expense. EBIT dropped 13.4% year-on-year. EBIT in 2015 amounted to Net income fell 20.2% year-on-year. Net income in 2015 amounted to 2.01billion Swiss francs 1.36 billion Swiss francs 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 Segment revenue and results Reporting is divided into three operating divisions: Swisscom Switzerland, Fastweb and Other Operating Segments, and Group Headquarters. Swisscom Switzerland is the Swiss market leader in the field of telecommunications. Fastweb is one of the largest broadband telecoms companies in Italy. Other Operating Segments mainly comprises Participations, Health and Connected Living. Group Headquarters largely comprises the Group divisions. Swisscom Switzerland consists of the customer segments Residential Customers, Small & Medium-Sized Enterprises, Enterprise Customers and Wholesale as well as IT, Network & Innovation. Development of revenue from external customers      Swisscom Switzerland  in CHF million    Development of revenue generating units (RGU)      Swisscom Switzerland  in thousand    9,035  9,253  9,475     10,000      7,500      5,000      2,500    0      14,000      10,500      7,000      3,500    0    12,097  12,373  12,543   Revenue mobile  single subscriptions  Revenue fixed-line  single subscriptions  Revenue bundled  subscriptions  Revenue others  Total  2013  2014  2015   2,782  2,776  2,729  2,215  1,967  1,731  1,553  2,485  9,035  1,921  2,589  9,253  2,234  2,781  9,475  Fixed access lines  2013  2,879  Broadband access lines retail  1,811  Swisscom TV access lines  1,000  Mobile access lines  6,407  2014  2015   2,778  1,890  1,165  6,540  2,629  1,958  1,331  6,625  Total revenue generating  units (RGU)  12,097  12,373  12,543  Development of revenue from external customers      Fastweb  in EUR million    Development of broadband access lines      Fastweb  in thousand    1,638  1,685  1,732     2,000      1,500      1,000    500    0    1,942  2,072  2,201     3,000      2,250      1,500    750    0  2013  2014  2015   2013  2014  2015   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 Residential Customers  Small and Medium-Sized  Enterprises  Wholesale hubbing  Wholesale others  744  771  45  78  753  789  28  115  789  800  26  117  External revenue  1,638  1,685  1,732                                            Swisscom Switzerland In CHF million, except where indicated  Net revenue and results  Residential Customers  Small and Medium-Sized Enterprises  Enterprise Customers  Wholesale  IT, Network & Innovation  Elimination  Net revenue  Residential Customers  Small and Medium-Sized Enterprises  Enterprise Customers  Wholesale  IT, Network & Innovation  Elimination  Segment result before depreciation and amortisation (EBITDA)  Margin as % of net revenue  Depreciation, amortisation and impairment losses  Segment result  Capital expenditure and headcount  2015 2014 Change 5,224 1,370 2,654 956 130 (789) 9,545 2,933 907 910 198 (1,347) – 3,601 37.7 (1,383) 2,218 5,162 1,331 2,569 929 126 (788) 9,329 2,845 915 942 381 (1,247) (1) 3,835 41.1 (1,286) 2,549 1.2% 2.9% 3.3% 2.9% 3.2% 0.1% 2.3% 3.1% –0.9% –3.4% –48.0% 8.0% 100.0% –6.1% 7.5% –13.0% 3.2% 4.6% Capital expenditure in property, plant and equipment and other intangible assets  Full-time equivalent employees at end of year  1,799 17,199 1,744 16,445 Net revenue for Swisscom Switzerland rose by CHF 216 million or 2.3% year-on-year to CHF 9,545 mil- lion. Adjusted for company acquisitions, net revenue rose by 0.6% or CHF 57 million, mainly due to customer growth. Operating income before depreciation and amortisation (EBITDA) fell by CHF 234 million or 6.1% to CHF 3,601 million. Adjusted for non-recurring items, EBITDA increased by CHF 54 million or 1.4%. At CHF 1,799 million, capital expenditure was CHF 55 million or 3.2% higher, due to the expansion and upgrading of the broadband network with the latest technologies. As at the end of 2015, Swisscom had connected around 2.9 million households and businesses to its ultra-fast broadband service (speeds in excess of 50 Mbps). Of this number, around 2.0 million lines were equipped with the latest fibre-optic technology. Headcount rose year-on-year by 754 FTEs or 4.6% to 17,199 FTEs. Adjusted for company acquisitions, headcount increased by 241 FTEs or 1.5%, mainly as a result of new offerings such as cloud services and healthcare solutions. In addition, Swisscom insourced external staff in order to secure key knowledge in-house. 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 Natel infinity subscriber numbers at the end of 2015 stood at Revenue from bundled contracts increased year-on-year by 2.3 million 16.3%       Swisscom Switzerland/net revenue In CHF million, except where indicated  2015 2014 Change Revenue by services  Revenue mobile single subscriptions  Revenue fixed-line single subscriptions  Revenue bundles  Other net revenue  Revenue from external customers  Intersegment revenue  Net revenue  Operational data at end of period in thousand  Fixed access lines  Broadband access lines retail  Swisscom TV access lines  Mobile access lines  Revenue generating units (RGU)  Bundles  Unbundled fixed access lines  Broadband access lines wholesale  2,729 1,731 2,234 2,781 9,475 70 9,545 2,629 1,958 1,331 6,625 12,543 1,416 128 315 2,776 1,967 1,921 2,589 9,253 76 9,329 2,778 1,890 1,165 6,540 12,373 1,209 180 262 –1.7% –12.0% 16.3% 7.4% 2.4% –7.9% 2.3% –5.4% 3.6% 14.2% 1.3% 1.4% 17.1% –28.9% 20.2% At CHF 9,475 million, revenue from external customers of Swisscom Switzerland was CHF 222 mil- lion or 2.4% higher year-on-year, largely due to customer growth and company acquisitions. The number of revenue generating units (RGU) grew by 170,000 or 1.4% to 12.5 million. On a like-for-like basis, revenue from external customers increased by CHF 63 million, or 0.7%. In the Enterprise Customers area, revenue from external customers was CHF 105  million or 4.5% higher at CHF 2,449 million. Adjusted for company acquisitions, revenue dropped by 0.7% due to lower reve- nue from project business coupled with intense pressure on prices. Swisscom gained well-known business customers for the implementation of cloud and digitisation strategies. Incoming orders in the Enterprise Customers unit rose by 11.5% on a like-for-like basis. The number of mobile lines grew year-on-year by 85,000 or 1.3% to 6.6 million. Customers with the Natel infinity plus package can also enjoy carefree use of their phones within the EU, with unlimited calls and SMS as well as 1 GB of mobile data for 30 days per year included in all infinity plus offer- ings. By the end of 2015, Natel infinity plus had already attracted 909,000 customers. At the end of 2015, the number of Natel infinity customers totalled 2.3 million, which represents 69% of the customer base (excluding corporate customers). The number of postpaid lines, including bundled offerings, rose by 124,000, while the number of prepaid access lines declined by 39,000. The number of smartphone users increased further, with the proportion of postpaid subscribers holding smart- phones rising from 73% to 76% during 2015. Despite the tough competition with cable network operators, the number of Swisscom TV connections increased by 166,000 or 14.2% to 1.33 million, with fixed-fee subscriptions accounting for 1.13 mil- lion. Over 60% of Swisscom TV customers use the cloud-based Swisscom TV 2.0 service. Broadband lines with end customers grew by 68,000 or 3.6% to 1.96 million in 2015. The growth of TV and broadband connections more than offset the lower number of fixed network phone connections, which declined by 149,000 or 5.4% to 2.6 million, due primarily to customers migrating to cable network providers or switching from fixed to other forms of connectivity such as mobile. The number of unbundled subscriber lines fell year-on-year by 52,000 or 28.9% to 128,000, while the number of wholesale broadband access lines rose by 53,000 or 20.2% year-on-year to 315,000. Demand for bundled offerings with flat-rate tariffs remains strong. By the end of 2015, the number of customers using a bundled package had increased year-on-year by 207,000 or 17.1% to 1.42 mil- lion. Revenue from bundled contracts increased year-on-year by CHF 313 million or 16.3% to CHF 2,234 million. 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     Swisscom Switzerland/operating expenses and segment result In CHF million, except where indicated  2015 2014 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 costs of 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  Capital expenditure in property, plant and equipment and other intangible assets  Full-time equivalent employees at end of year  (440) (459) (1,114) (2,013) (2,502) (1,744) 315 (3,931) (5,944) 3,601 37.7 (1,383) 2,218 1,799 17,199 (424) (520) (1,069) (2,013) (2,267) (1,497) 283 (3,481) (5,494) 3,835 41.1 (1,286) 2,549 1,744 16,445 3.8% –11.7% 4.2% 0.0% 10.4% 16.5% 11.3% 12.9% 8.2% –6.1% 7.5% –13.0% 3.2% 4.6% Segment expense rose by CHF 450 million or 8.2% to CHF 5,944 million, while direct costs remained steady compared with the previous year at CHF 2,013 million. The higher costs for outbound roaming as well as additional costs relating to company acquisitions were offset by lower expenses for sub- scriber acquisition and retention. Indirect costs ended the year CHF 450 million or 12.9% higher at CHF 3,931 million. Adjusted for company acquisitions, gains from the sale of real estate and the provisions recognised for the Competition Commission proceedings on broadband services and for headcount reduction, indirect costs increased by 0.8%. The higher personnel expense as a result of the increase in headcount was partly offset by savings on other operating costs. Personnel expense rose by CHF 235 million or 10.4% to CHF 2,502 million. In the year under review, headcount grew by 754 FTEs or 4.6% to 17,199 as a result of company acquisitions, measures to build up resources for new services such as cloud services and All-IP projects, and the insourcing of external staff. Adjusted headcount was 1.5% higher year-on-year. The segment result before depreciation and amortisation (EBITDA) was CHF 234 million or 6.1% lower at CHF 3,601 million; on a like-for-like basis EBITDA was 1.4% higher. The profit margin was down 3.4 percentage points to 37.7%. Depreciation and amortisation increased by CHF 97 million or 7.5% from the previous year to CHF 1,383 million, primarily due to high investment activity. The segment result declined by CHF 331 million or 13.0% to CHF  2,218  million. Capital expenditure was CHF 55 million or 3.2% higher year-on-year at CHF 1,799 million, due to increased investment in the expansion and upgrading of the broadband network with the latest technologies. 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       Fastweb In EUR million, except where indicated  Residential Customers  Corporate Business  Wholesale  Revenue from external customers  Intersegment revenue  Net revenue  Segment expenses  Segment result before depreciation and amortisation (EBITDA)  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  2015 789 800 143 1,732 4 1,736 (1,160) 576 33.2 541 2,401 2,201 2014 753 789 143 1,685 3 1,688 (1,173) 515 30.5 562 2,391 2,072 Change 4.8% 1.4% 0.0% 2.8% 33.3% 2.8% –1.1% 11.8% –3.7% 0.4% 6.2% Development of revenue     from external customers  in EUR million     2,000     1,500   1,638  1,685  1,732    1,000   500   0   Development of EBITDA  in EUR million     1,000   750   500   250   0   505  515  576  2013  2014  2015  2013  2014  2015  Compared to the previous year, Fastweb’s net revenue rose by EUR 48 million or 2.8% to EUR 1,736 million. Despite difficult market conditions, Fastweb’s broadband customer base grew by 129,000 or 6.2% to 2.2 million in 2015. Fierce competition reduced average revenue per residen- tial broadband customer by around 3% versus the prior year. This decline was offset by customer growth, with revenue from residential customers rising by EUR 36 million or 4.8% to EUR 789 million. Revenue from corporate business was up by EUR 11 million or 1.4% at EUR 800 million in 2015, while wholesale business revenue remained on a par with the prior year at EUR 143 million. The segment result before depreciation and amortisation (EBITDA) totalled EUR 576 million, corre- sponding to a year-on-year rise of EUR 61 million or 11.8%. In the fourth quarter of 2015, Fastweb received compensation of EUR 15 million from legal proceedings. Adjusted for this exceptional item, EBITDA increased by EUR 46 million or 8.9%, mainly as a result of higher revenue. The profit margin rose by 2.7 percentage points to 33.2%, adjusted by 1.8 percentage points to 32.3%. Fastweb achieved a positive free cash flow of EUR 77 million in 2015. Fastweb’s headcount was practically unchanged from 2014 at 2,401 FTEs. Capital expenditure dropped by EUR 21 million or 3.7% to EUR 541 million due to lower spending on the network infra- structure. The ratio of capital expenditure to net revenue was 31.2% (prior year: 33.3%). 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               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 (EBITDA)  Margin as % of net revenue  Capital expenditure in property, plant and equipment and other intangible assets  Full-time equivalent employees at end of year  2015 340 263 603 (534) 69 11.4 48 1,723 2014 406 259 665 (562) 103 15.5 38 1,962 Change –16.3% 1.5% –9.3% –5.0% –33.0% 26.3% –12.2% Development of revenue     from external customers  in CHF million   500   375   393  406  340  250   125   0   Development of EBITDA  in CHF million   200   150   100   50   0   103  81  69  2013  2014  2015  2013  2014  2015  The net revenue generated by Other Operating Segments fell by CHF 62 million or 9.3% compared with the prior year to CHF 603 million, primarily as a result of company disposals and lower revenue from construction services performed by cablex. Additional revenue from company acquisitions was unable to offset this decline. Due to company disposals, segment expense declined by CHF  28  million or 5.0% in 2015 to CHF  534  million. The segment result before depreciation and amortisation (EBITDA) fell by CHF 34 million or 33.0% to CHF 69 million, due principally to lower revenue. The profit margin fell accordingly from 15.5% to 11.4%. At 1,723 FTEs, headcount at the end of 2015 was 239 FTEs or 12.2% lower than the previous year, due primarily to company disposals. Group Headquarters and reconciliation of pension cost Operating income before depreciation and amortisation improved by CHF 6 million or 4.9% compared with the previous year to CHF –117 million. Headcount declined by 4.0% to 314 FTEs. In 2015 an expense of CHF 60 million was recognised as a pension cost reconciliation item under IAS 19. No such expense was recognised in the prior year. 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                       Quarterly review 2014 and 2015 In CHF million, except where indicated  Income statement  Net revenue  1. 4. quarter quarter quarter quarter 2. 3. 4. 2014 quarter quarter quarter quarter 1. 2. 3. 2015 2,821 2,879 2,929 3,074 11,703 2,893 2,865 2,893 3,027 11,678 Goods and services purchased  Personnel expense  Other operating expenses  Capitalised costs and other income  (552) (692) (597) 81 (558) (684) (599) 83 (583) (655) (620) 119 (676) (2,369) (720) (2,751) (724) (2,540) 87 370 (568) (756) (609) 91 (553) (757) (577) 104 (533) (703) (785) (688) (2,342) (803) (3,019) (726) (2,697) 94 189 478 Operating income (EBITDA)  1,061 1,121 1,190 1,041 4,413 1,051 1,082 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  (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 (507) 544 (47) (57) 5 445 (94) 351 (521) 561 (49) 16 8 536 (103) 433 966 (517) 449 (51) (6) 5 397 (123) 274 999 4,098 (541) (2,086) 458 2,012 (42) (36) 5 (189) (83) 23 385 1,763 (81) (401) 304 1,362 369 430 540 355 1,694 351 433 274 303 1,361 4 3 3 2 12 – – – 1 1 Earnings per share (in CHF)  7.12 8.30 10.43 6.85 32.70 6.78 8.35 5.29 5.85 26.27 Net revenue  Swisscom Switzerland  2,264 2,297 2,332 2,436 9,329 2,355 2,342 2,375 2,473 9,545 Fastweb  Other Operating Segments  Group Headquarters  Intersegment elimination  Total net revenue  483 144 – (70) 499 168 1 (86) 513 172 – (88) 552 2,047 181 665 1 2 (96) (340) 468 144 – (74) 453 156 1 (87) 457 149 – (88) 489 1,867 154 603 1 2 (90) (339) 2,821 2,879 2,929 3,074 11,703 2,893 2,865 2,893 3,027 11,678 Segment result before depreciation and amortisation (EBITDA)  Swisscom Switzerland  Fastweb  Other Operating Segments  Group Headquarters  Reconciliation pension cost  Intersegment elimination  940 132 22 (25) (2) (6) 968 1,036 891 3,835 155 33 (31) 2 (6) 163 31 (28) (4) (8) 175 17 (39) 4 (7) 625 103 (123) – (27) 955 130 16 (29) (17) (4) 969 148 19 (29) (19) (6) 833 156 24 (22) (18) (7) 844 3,601 185 10 (37) (6) 3 619 69 (117) (60) (14) Total segment result (EBITDA)  1,061 1,121 1,190 1,041 4,413 1,051 1,082 966 999 4,098 Capital expenditure in property, plant and equipment and other intangible assets  Swisscom Switzerland  Fastweb  Other Operating Segments  Intersegment elimination  Total capital expenditure  346 173 5 (5) 423 173 9 (7) 470 148 1 (9) 505 1,744 188 682 23 (7) 38 (28) 388 160 6 (5) 453 138 6 (4) 459 133 8 (5) 499 1,799 150 28 (5) 581 48 (19) 519 598 610 709 2,436 549 593 595 672 2,409 Full-time equivalent employees at end of year      Swisscom Switzerland  15,662 15,761 16,375 16,445 16,445 16,964 17,062 17,176 17,199 17,199 Fastweb  2,362 2,373 2,378 2,391 2,391 2,373 2,377 2,381 2,401 2,401 Other Operating Segments  1,731 1,768 1,994 1,962 1,962 1,940 1,722 1,725 1,723 1,723 Group Headquarters  Total headcount  326 326 328 327 327 322 325 321 314 314 20,081 20,228 21,075 21,125 21,125 21,599 21,486 21,603 21,637 21,637 Operating free cash flow  334 496 640 390 1,860 344 401 684 415 1,844 Net debt  7,676 8,502 8,398 8,120 8,120 7,895 8,760 8,320 8,042 8,042 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                                                                                             In CHF million, except where indicated  Swisscom Switzerland  Net revenue and results  Residential Customers  Small and Medium-Sized Enterprises  Enterprise Customers  Revenue mobile single subscriptions  Residential Customers  Small and Medium-Sized Enterprises  Enterprise Customers  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. 2014 quarter quarter quarter quarter 1. 2. 3. 2015 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 1,921 438 101 132 671 207 106 139 452 461 69 530 449 102 140 691 191 103 141 435 476 71 547 460 102 140 702 185 103 140 428 496 73 569 433 1,780 98 134 403 546 665 2,729 178 101 137 761 413 557 416 1,731 513 1,946 75 288 588 2,234 1,627 1,663 1,688 1,686 6,664 1,653 1,673 1,699 1,669 6,694 249 138 145 87 261 121 139 93 245 132 144 105 263 1,018 198 142 127 589 570 412 261 148 148 126 260 128 140 124 253 124 145 137 294 1,068 202 146 145 602 579 532 Total revenue from external customers  2,246 2,277 2,314 2,416 9,253 2,336 2,325 2,358 2,456 9,475 Residential Customers  1,202 1,225 1,256 1,323 5,006 1,252 1,247 1,267 1,309 5,075 Small and Medium-Sized Enterprises  Enterprise Customers  Wholesale  IT, Network & Innovation  314 578 145 7 319 586 139 8 327 580 144 7 341 1,301 600 2,344 142 10 570 32 320 607 148 9 332 598 140 8 344 594 145 8 343 1,339 650 2,449 146 8 579 33 Revenue from external customers  2,246 2,277 2,314 2,416 9,253 2,336 2,325 2,358 2,456 9,475 Segment result before depreciation and amortisation (EBITDA)  Residential Customers  Small and Medium-Sized Enterprises  Enterprise Customers  Wholesale  IT, Network & Innovation  Intersegment elimination  Segment result (EBITDA)  Margin as % of net revenue  Fastweb, in EUR million  Residential Customers  Corporate Business  Wholesale hubbing  Wholesale other  Revenue from external customers  Segment result (EBITDA)  Margin as % of net revenue  710 226 223 95 716 233 233 92 731 233 243 98 688 2,845 223 243 96 915 942 381 730 217 219 101 742 232 226 92 756 239 237 (86) 705 2,933 219 228 91 907 910 198 (314) (306) (270) (357) (1,247) (312) (323) (312) (400) (1,347) – 940 41.5 188 177 7 23 395 108 27.3 – 1 (2) (1) 968 1,036 891 3,835 42.1 44.4 36.6 41.1 – 955 40.6 – 969 41.4 (1) 833 35.1 1 – 844 3,601 34.1 37.7 188 188 7 26 409 128 31.3 187 202 7 28 424 134 31.6 190 222 7 38 753 789 28 115 457 1,685 145 31.7 515 30.5 193 191 7 37 428 120 196 200 7 29 432 140 196 193 6 28 423 145 28.0 32.4 34.2 204 216 6 23 789 800 26 117 449 1,732 171 38.0 576 33.2 Capital expenditure  142 142 122 156 562 147 132 124 138 541 Broadband access lines in thousand  1,984 1,994 2,016 2,072 2,072 2,124 2,157 2,172 2,201 2,201 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                                                 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. 2014 quarter quarter quarter quarter 1. 2. 3. 2015 2,007 1,948 1,902 1,840 1,840 1,763 1,695 1,632 1,573 1,573 849 882 909 938 938 972 1,002 1,027 1,056 1,056 2,856 2,830 2,811 2,778 2,778 2,735 2,697 2,659 2,629 2,629 773 745 718 681 681 650 615 581 542 542 1,060 1,110 1,154 1,209 1,209 1,258 1,307 1,356 1,416 1,416 Broadband access lines retail  1,833 1,855 1,872 1,890 1,890 1,908 1,922 1,937 1,958 1,958 Single subscriptions  Bundles  271 781 259 832 246 879 218 947 218 200 182 165 148 148 947 1,001 1,056 1,110 1,183 1,183 Swisscom TV access lines  1,052 1,091 1,125 1,165 1,165 1,201 1,238 1,275 1,331 1,331 Prepaid single subscriptions  2,173 2,165 2,165 2,163 2,163 2,149 2,131 2,125 2,124 2,124 Postpaid single subscriptions  3,812 3,828 3,850 3,872 3,872 3,888 3,910 3,920 3,905 3,905 Mobile access lines single subscriptions  5,985 5,993 6,015 6,035 6,035 6,037 6,041 6,045 6,029 6,029 Bundles  Mobile access lines  444 467 484 505 505 531 551 573 596 596 6,429 6,460 6,499 6,540 6,540 6,568 6,592 6,618 6,625 6,625 Revenue generating units (RGU)  12,170 12,236 12,307 12,373 12,373 12,412 12,449 12,489 12,543 12,543 Broadband access lines wholesale  Unbundled fixed access lines  221 241 224 228 241 204 262 180 262 180 278 162 291 150 301 139 315 128 315 128 Bundles  2play bundles  3play bundles  4play bundles  nplay bundles  Total bundles  Swisscom Group  Information by geographical regions  287 555 218 – 294 584 231 1 302 609 242 1 304 646 255 4 304 646 255 4 302 680 266 10 301 712 278 16 301 741 291 23 287 790 304 35 287 790 304 35 1,060 1,110 1,154 1,209 1,209 1,258 1,307 1,356 1,416 1,416 Net revenue in Switzerland  2,323 2,361 2,401 2,501 9,586 2,407 2,395 2,431 2,531 9,764 Net revenue in other countries  498 518 528 573 2,117 486 470 462 496 1,914 Total net revenue  2,821 2,879 2,929 3,074 11,703 2,893 2,865 2,893 3,027 11,678 EBITDA Switzerland  EBITDA in other countries  Total EBITDA  924 137 966 1,028 870 3,788 155 162 171 625 914 137 932 150 1,061 1,121 1,190 1,041 4,413 1,051 1,082 Capital expenditure in Switzerland  Capital expenditure in other countries  Total capital expenditure  345 174 519 424 174 598 463 147 610 519 1,751 190 685 709 2,436 388 161 549 454 139 593 804 162 966 460 135 595 811 3,461 188 637 999 4,098 520 1,822 152 587 672 2,409 Full-time equivalent employees  in Switzerland  Full-time equivalent employees  in other countries  17,395 17,545 18,220 18,272 18,272 18,776 18,828 18,936 18,965 18,965 2,686 2,683 2,855 2,853 2,853 2,823 2,658 2,667 2,672 2,672 Total headcount  20,081 20,228 21,075 21,125 21,125 21,599 21,486 21,603 21,637 21,637 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                                                                                                 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 flow from acquisition of PubliGroupe 1 Net expenditures for others companies purchase and sales  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 increase (Net decrease) in cash and cash equivalents  2015 4,098 (2,409) 155 1,844 (188) (350) 1,306 101 (66) (36) (132) (1,140) (5) 28 2014 4,413 (2,436) (117) 1,860 (235) (386) 1,239 (385) (20) 167 (265) (1,140) (19) (423) Change (315) 27 272 (16) 47 36 67 486 (46) (203) 133 – 14 451 1 2015: Proceeds from sale of real estate and participations of CHF 109 million less remaining non-controlling interests of CHF 8 million. 2014: Acquisition cost of CHF 474 million less remaining non-controlling 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                  4,098  –2,409  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 61  56  45  –7  1,844  –188  –350  1,306  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 increased by CHF 67 million or 5.4% compared with the previous year to CHF 1,306 mil- lion. The lower net interest paid as well as lower income taxes paid more than offset the decline in operating free cash flow. The decrease in operating free cash flow by CHF 16 million or 0.9% to CHF 1,844 million stems primarily from lower gains on the sale of real estate. Operating income before depreciation and amortisation (EBITDA) and the change in net working capital include the recognition of a provision of CHF 186 million for the Competition Commission proceedings on broadband services and the recognition of provisions of CHF 70 million for headcount reduction. At CHF 2,409 million, capital expenditure was down slightly on the 2014 level. Capital expenditure at Fastweb fell, driven by the lower EUR exchange rate, while capital expenditure in Switzerland was higher, due to the expansion and upgrading of the broadband network. In September 2014, Swisscom acquired PubliGroupe Ltd for CHF 474 million. The price paid was CHF 458 million less the acquired cash and cash equivalents. By the end of 2015, sales of Publi- Groupe real estate and investments in the amount of CHF 174 million had been realised. In 2015, Swisscom issued two debenture bonds with a total nominal amount of CHF 400 million: CHF 250 mil- lion with a coupon of 0.25% and maturity date in 2023, and CHF 150 million with a coupon of 1.00%, maturing in 2035. In addition, in 2015 Swisscom took out a fixed-rate bank loan for EUR 200 million with a term of five years and issued a debenture bond on the Eurobond market for EUR 500 million with a coupon of 1.75% and maturity date in 2025. Swisscom paid an ordinary dividend of CHF 22 per share in 2015, which corresponds to an overall payout of CHF 1,140 million.                                                                            Capital expenditure See report pages 49-51 Swisscom remains committed to maintaining the high quality and availability of its network infrastructures. In Switzerland this involves making targeted investments in ultra-fast broadband network 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 copper- based broadband access infrastructure. Fastweb is also systematically expanding this network infrastructure. In CHF million, except where indicated  Fixed access & Infrastructure  Expansion of the fibre-optic network  Mobile access  Customer driven  Projects and others 1 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  2015 509 435 210 251 394 2014 464 440 235 218 387 1,799 1,744 581 48 (19) 2,409 2 1,822 587 20.6 682 38 (28) 2,436 2 1,751 685 20.8 Change 9.7% –1.1% –10.6% 15.1% 1.8% 3.2% –14.8% 26.3% –32.1% –1.1% 4.1% –14.3% 1 Including All IP migration. 2 Excluding capital expenditure of CHF 18 million (2014: CHF 24 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 decreased year-on-year by CHF 27 million or 1.1% to CHF 2,409 million, corresponding to 20.6% of net revenue (prior year: 20.8%). Swisscom Switzerland accounted for 75% of 2015 capital expenditure, while Fastweb accounted for 24% and Other Oper- ating Segments 1%. Capital expenditure incurred by Swisscom Switzerland rose year-on-year by CHF 55 million or 3.2% to CHF 1,799 million, corresponding to 18.8% of net revenue (prior year: 18.7%). The increase was due to the expansion and upgrading of the broadband network with the latest technologies. At the end of 2015, Swisscom had connected around 2.9 million households and businesses to ultra-fast broadband (speeds in excess of 50 Mbps). Of these, some 2.0 million were equipped with state-of- the-art technologies – from fibre-to-the-home (FTTH) to the latest fibre-optic technologies such as fibre-to-the-street (FTTS), fibre-to-the-building (FTTB) and vectoring technology. Swisscom is lead- ing the way internationally. By the end of 2015, Swisscom had extended 4G/LTE coverage to 98% of the Swiss population. By contrast, Fastweb reduced its capital expenditure by CHF 101 million or 14.8% to CHF 581 million in 2015, largely as a result of the lower EUR exchange rate. This corresponds to a reduction of EUR  21  million or 3.7% to EUR 541 million in local currency terms, and was mainly due to lower investment in network infrastructure resulting in a ratio of capital expenditure to revenue of 31.2% (prior year: 33.3%). Around 34% of total capital expenditure was directly related to customer growth. 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 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  31.12.2015 31.12.2014 Change 409 2,535 9,855 5,161 1,861 461 375 492 342 2,586 9,720 4,983 1,921 408 434 567 21,149 20,961 8,593 1,768 2,919 1,139 436 1,052 15,907 5,237 5 5,242 21,149 24.8% 8,604 1,876 2,432 927 543 1,093 15,475 5,483 3 5,486 20,961 26.2% 19.6% –2.0% 1.4% 3.6% –3.1% 13.0% –13.6% –13.2% 0.9% –0.1% –5.8% 20.0% 22.9% –19.7% –3.8% 2.8% –4.5% 66.7% –4.4% 0.9% 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 Total assets rose by CHF 0.2 billion or 0.9% to CHF 21.1 billion in 2015, primarily due to higher invest- ment activity and company acquisitions. In CHF million  Property, plant and equipment  Goodwill  Other intangible assets  Other operating assets  Provisions  Other operating liabilities  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  31.12.2015 31.12.2014 Change 9,855 5,161 1,861 3,027 (1,139) (2,820) 15,945 409 (8,593) (2,919) (61) 223 238 5,242 9,720 4,983 1,921 3,153 (927) (2,969) 15,881 342 (8,604) (2,432) (109) 182 226 5,486 135 178 (60) (126) (212) 149 64 67 11 (487) 48 41 12 (244)       Fastweb As at 31 December 2015, the carrying amount of Fastweb in Swisscom’s consolidated financial statements amounted to EUR 2.8 billion (CHF 3.0 billion; CHF/EUR year-end exchange rate of 1.084). 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 designated as an instrument for hedging Fastweb’s net assets. Fastweb’s cumulative currency translation losses of CHF 1.7 billion (after tax) at the end of 2015 are recognised in equity in Swisscom’s consolidated financial statements. Goodwill The net carrying value of goodwill is CHF 5,161 million, the bulk of which relates to Swisscom Switzerland (CHF 4,582 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 533 million). Goodwill in respect of Other Operating Segments amounts to CHF 46 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 amount to CHF 2,919 million, corresponding to an increase of CHF 487 million versus the previous year. This is largely due to a lower discount rate. In accordance with the Swiss accounting standards applicable to the pension fund (Swiss GAAP ARR), the surplus amounts to CHF 0.7 billion, corresponding to a coverage ratio of 108%. The main reasons for the difference compared with IFRS of CHF 3.6 billion are the application of differing actuarial assumptions with regard to the discount rate (CHF 2.9 billion) and life expectancy (CHF 0.3 billion), as well as a differ- ent actuarial measurement method (CHF 0.4 billion). Unlike Swiss GAAP, IFRS measurement takes into account future salary, contribution and pension increases and early retirements. By contrast, the equal distribution of risk prescribed by Swiss law (BVG) and the fund regulations in the event of a funding deficit is not taken into account. Equity Equity declined by CHF 244 million or 4.4% to CHF 5,242 million, bringing the ratio of equity to total assets down from 26.2% to 24.8%. The dividend payments of CHF 1,140 million to the shareholders of Swisscom Ltd and net losses of CHF 457 million recognised directly in equity were not offset by the CHF 1,362 million in net income. Net losses recognised directly in equity include non-cash actu- arial losses from pension plans totalling CHF 393 million as well as unrealised losses of CHF 194 mil- lion resulting from currency translation of foreign Group companies. The CHF/EUR exchange rate fell from 1.202 at the end of 2014 to 1.084 at the end of 2015. On 31 December 2015, cumulative currency translation losses recognised in equity amounted to CHF 1,733 million (after tax). Distributable reserves are calculated on the basis of equity reported in the separate financial state- ments of Swisscom Ltd in accordance with Swiss company-law financial-reporting standards, rather than on the basis of equity as disclosed in the consolidated balance sheet prepared in accordance with International Financial Reporting Standards (IFRS). On 31 December 2015, the equity of Swisscom Ltd amounted to CHF 4,714 million. The difference between this amount and equity disclosed in the con- solidated balance sheet is essentially due to earnings retained by subsidiaries as well as different 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. On 31 December 2015, Swisscom Ltd had distributable reserves of CHF 4,652 million. 81 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 financial assets. 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 ratio is below this level. 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            31.12.2013 31.12.2014 31.12.2015 7,812 70.7% 1.3 1.8 8,120 73.8% 1.5 1.8 8,042 75.2% 1.5 2.0 8,120  –1,844  1,140  189  350  87  8,042  Net debt 31.12.2014 Operating free cash flow Dividends  Net interest  expense  Taxes paid  Other  effects  Net debt  31.12.2015  82 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 Other effects amounted to CHF 87 million and included purchases and sales of investments (nota- bly the put option from the acquisition of search.ch) as well as positive currency effects on financial liabilities in EUR. The ratio of net debt to EBITDA was 2.0 at the end of 2015 (prior year: 1.8). In recent years, Swisscom has taken advantage of favourable capital market conditions with a view to opti- mising the interest and maturity structure of the Group’s financial obligations. The share of the Group’s variable interest-bearing financial liabilities amounts to 24%. 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 table below shows the maturity profile of interest-bearing financial liabilities at nominal value as at 31 Decem- ber 2015: In CHF million  Bank loans  Debenture bonds  Private placements  Finance lease liabilities  Other financial liabilities  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 737 – 350 16 2 65 600 250 11 7 412 – 1,967 2,334 350 23 – – 36 6 98 510 – 440 – Total 1,312 5,411 950 526 15 Total interest-bearing financial liabilities  1,105 933 2,752 2,376 1,048 8,214                                               Statement of added value Operating added value is equivalent to net revenue less goods and services purchased, other oper- ating 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 Swit- zerland, with activities abroad accounting for 6% of the Group’s added value from operations in the year under review (prior year: 4%). In CHF million  Added value  Net revenue  Capitalised self-constructed assets and other income  Goods and services purchased  Other operating expenses 1 Depreciation and amortisation 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 capital providers (net interest expense)  Company (retained earnings) 6 Total added value  Switzerland Abroad Total Switzerland Abroad 2015 2014 Total 9,764 1,914 11,678 9,586 2,117 11,703 339 (1,829) (1,800) (1,404) 139 (513) (697) (540) 478 (2,342) (2,497) (1,944) 290 (1,789) (1,783) (1,322) 80 (580) (738) (646) 370 (2,369) (2,521) (1,968) (4,694) (1,611) (6,305) (4,604) (1,884) (6,488) 5,070 303 5,373 4,982 233 5,215 (388) 4,985 2,748 513 253 8 216 2,964 2,520 390 5 518 1,147 189 167 4,985 (139) 5,076 2,773 398 1,156 218 531 5,076 1 Other operating expense: excluding taxes on capital and other taxes not based on income. 2 Depreciation and amortisation: excluding amortisation of acquisition-related intangible 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, as well as ComCo sanctions. 6 Company: including changes in deferred income taxes and defined benefit obligations. Operating added value amounted to CHF 5,373 million in 2015, corresponding to an increase of 3.0% compared to the prior year. As in the prior year, some 95% of operating added value was generated in Switzerland. Added value from international operations increased by CHF 70 million to CHF 303 million. Although operating added value in Switzerland was virtually unchanged year-on-year at CHF 5,070 million, added value from operations per FTE was 3.9% lower at CHF 272,000 (prior year: CHF 283,000). Swisscom development of added     value per employee in Switzerland  in CHF thousand   Allocation of added value  in %   400   300   200   100   0   287  283  272  2013  2014  2015  4%    External investors  23%    Shareholders    3%  Company  10%    Public sector    60%    Employees    83 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  2015 521 29.6 20,115 23.5 2014 497 26.4 21,380 17.0 Change 4.8% –5.9% 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 targeted a 25% rise in its energy efficiency as compared to 1 January 2010 by the end of 2015, and then a fur- ther increase of 35% between 1 January 2016 and 2020. The increase will be achieved primarily by measures in the network infrastructure area. Swisscom also targeted 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 2015, total energy consumption in Switzerland rose by 22 GWh or 4.8% to 521 GWh. The rise in energy consumption due to the greater number of data centres was not fully offset by energy savings in other areas. However, energy efficiency increased versus 1 January 2010 to 29.6% (prior year: 26.4%). This improvement was largely achieved by efficiency enhancements in data centres and the Mistral energy saving project (the use of fresh air to cool telephone exchanges). In 2015, direct CO2 emissions in Switzerland fell by 1,265 tonnes or 5.9% to 20,115, chiefly due to reduced consumption of heating oil. This resulted in a reduction of 23.5% in direct CO2 emissions versus 1 January 2010. 84 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 2016 of more than Outlook for EBITDA Expectation for 2016 of around 11.6 billion Swiss francs 4.2 billion Swiss francs Financial outlook 2015 reported CHF/EUR 1.075 in CHF mio. Adjustment 1 2015 pro-forma 2016 Change Swisscom CHF/EUR 1.075 without Fastweb in CHF bn. in CHF mio. Net revenue  11,678 – 11,678 Operating income before depreciation  and amortisation (EBITDA)  4,098 Capital expenditure  2,409 256 – 4,354 2,409 < 0 (0.2) < 0 2016 Change Fastweb in CHF bn. > 0 > 0 0 2016 outlook (CHF/EUR 1.10) in CHF bn. > 11,6 ~ 4.2 > 2.3 1 Provisions for the ComCo process regarding the broadband services (CHF 186 million) and headcount reduction (CHF 70 million). The following financial outlook for 2016 is predicated on a CHF/EUR exchange rate of 1.10. For 2016, Swisscom expects revenue in excess of CHF 11.6 billion, EBITDA of around CHF 4.2 billion and capital expenditure of more than CHF 2.3 billion. Excluding Fastweb, a slight decline in Swisscom revenue is expected. Growing competition and price pressure in both the residential and corporate customer segments for conventional commu- nication services will provoke the expected decline in revenue. Growth in the number of subscrib- ers to broadband connections, TV and mobile services will not be able to offset this decline due to growing market saturation. A slight increase in revenue is expected for Fastweb, based on growth in the customer base. EBITDA in 2015 was around CHF 4.1 billion and was negatively affected by a number of non-recur- ring items, in particular provisions of CHF 186 million for legal proceedings on broadband services and CHF 70 million for headcount reduction. EBITDA in 2016 for Swisscom without Fastweb is expected to be CHF 200 million lower than EBITDA in 2015 adjusted for these two non-recurring items. In addition to the price-based decline in revenue, the costs for roaming are also expected to increase. Organisational changes, efficiency gains and lower headcount will result in cost savings of around CHF 50 million in 2016. Fastweb’s EBITDA, on the other hand, is expected to be higher. Swisscom expects capital expenditure for 2016 to exceed CHF 2.3 billion. In Switzerland capital expenditure will be slightly reduced at over CHF 1.7 billion. Capital expenditure at Fastweb will remain stable. If the 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 2016 financial year. 85 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 capital expenditure Expectation for 2016 of more than Dividend per share If targets are met 2,3 billion Swiss francs 22 Swiss francs           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 2015 amounted to CHF 26.1 billion (previous year: CHF 27.1 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 69,929 4,929,030 3,094 20,478,913 31.12.2015 Share in % 51.0% 9.5% 39.5% 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% 73,024 51,801,943 100.0% 65,059 51,801,943 100.0% 86 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 The majority shareholder as at 31 December 2015 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 2015, 21% of the shares were held in unregistered shareholdings. 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).       Share performance Share performance 2015  in CHF  750  600  450  300  150  . 4 1 2 1 1 3 . . 5 1 1 0 1 3 . . 5 1 2 0 8 2 . . 5 1 3 0 1 3 . . 5 1 4 0 0 3 . . 5 1 5 0 1 3 . . 5 1 6 0 0 3 . . 5 1 7 0 1 3 . . 5 1 8 0 1 3 . . 5 1 9 0 0 3 . . 5 1 0 1 1 3 . . 5 1 1 1 0 3 . . 5 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) declined by 1.8% compared with the previous year. The Swisscom share price fell by 3.7% to CHF 503, underperforming the Stoxx Europe 600 Telecommunications Index (–2.2% in CHF; 9.0% in EUR). Average daily trading volume increased by 40% to 137,589 shares. Total trading volume of Swisscom shares in 2015 amounted to CHF 18.2 billion. Shareholder return On 15 April 2015 Swisscom paid out an ordinary dividend of CHF 22 per share. Based on the closing price at the end of 2014, this equates to a return of 4.2%. Taking into account the fall in share price, the total shareholder return (TSR) of the Swisscom share was 0.12% in 2015. The TSR for the SMI was 1.1% and for the Stoxx Europe 600 Telecommunications Index 2.1% in CHF and 13.6% in EUR. Swisscom share performance indicators Par value per share at end of year  2011 1.00 2012 1.00 2013 1.00 2014 1.00 2015 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 18,436 20,400 24,394 27,067 26,056 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 355.90 393.80 470.90 522.50 503.00 433.50 400.00 474.00 587.50 580.50 323.10 334.40 390.20 467.50 471.10 13.19 22.00 % 166.79 34.90 22.00 63.04 32.53 22.00 67.63 32.70 22.00 67.27 26.27 22.00 1 83.75 CHF 82.47 79.77 115.30 105.29 101.10 1 In accordance with the proposal of the Board of Directors to the Annual General Meeting. 87 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               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. 25 analysts regularly publish studies on Swisscom. At the end of 2015, 20% of the analysts recom- mended a buy rating for the Swisscom share, 56% a hold rating and 24% a sell rating. The average price target at 31 December 2015, according to the analysts’ estimates, was CHF 537 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 6 April 2016, 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 28.4 billion to its shareholders: CHF 16.4 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 323 per share since the initial public offering. Together with the overall increase in share price of CHF 163 per share, this amounts to an average annual total return of 5.3%. Indebtedness Level of indebtedness Swisscom pursues a finance policy which limits the net debt/EBITDA ratio to a maximum of 2.1. Net debt comprises financial liabilities less cash and cash equivalents, current financial assets and non-current, fixed-interest-bearing financial assets. As at 31 December 2015, net debt amounted to CHF 8.0 billion (prior year: CHF 8.1 billion), corresponding to a net debt/EBITDA ratio of 2.0 (prior year: 1.8). Dividend per share in the 2015 reporting year Dividend yield Swisscom share based on share price at end of 2014 22 CHF 4.2 % 88 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 Credit ratings and financing With a rating of A (stable) and A2 (stable) respectively, Swisscom enjoys good ratings from 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 portfolio. This involves paying particular attention to balancing maturities and a diversification of financing instruments, markets and currencies. Swisscom’s solid financial standing enabled unrestricted access to money and capital markets again in 2015. As at 31 December 2015, Swisscom’s financial liabilities amounted to CHF 8.6 billion. Around 86% of the financial liabilities have a term to maturity of more than one year. Financial liabilities with a term of one year or less amounted to CHF 1.2 billion at 31 December 2015. In 2015 the average interest expense on all financial liabilities was 2.3% (prior year: 2.6%), and the average term to maturity was four years. A large proportion of the financial liabilities will fall due for repayment if a shareholder other than the Swiss Confederation gains majority 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  1,425  500  250  500  200  160  150  In EUR million  Par value  500  500  500  Coupon Payment Expiring Security number 3.75% 3.25% 2.63% 0.25% 1.75% 1.50% 1.50% 1.00% 19.07.2007 22.10.2007 1 19.07.2017 3,225,473 14.09.2009 14.09.2018 10,469,162 31.08.2010 31.08.2022 11,469,537 17.04.2015 17.04.2023 26,898,817 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 17.04.2015 17.04.2035 26,898,818 Coupon Payment Expiring ISIN–no. 2.00% 1.88% 1.75% 30.09.2013 1 30.09.2020 XS0972165848 08.04.2014 1 08.09.2021 XS1051076922 15.09.2015 1 15.09.2025 XS1288894691 89 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 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, fit-for-purpose reporting at each level of management, suitable documen- tation and a risk-aware corporate culture. Risks are defined as events or situations which, should they occur, could potentially 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. It coordi- nates all organisational units charged with risk management tasks and oversees these insofar as this is required for reporting purposes. This ensures comprehensive, Group-wide coordinated risk management 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 documents 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 covers risks in the areas of strategy (including market risks), operations (including finance risks), compliance and financial reporting. The risks are assessed according to their probability of occur- rence 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 indicators 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 significant risks, their potential effects and the status of measures on a quarterly basis, and the Board of Directors on a semi-annual basis. The effectiveness of the risk strategies and measures taken is assessed quarterly. Information on the internal control system, compliance management and internal auditing is provided in the Corporate Governance Report, Section 4.8, Controlling instruments of the Board of Directors vis-à-vis the Group Executive Board. See report page 111 s k s i R 90 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 markets, competition, customer behaviour, technology, the regulatory environment and government policy. The importance of established telecoms services is continuing to decline, and the associated loss of revenue from the traditional core business must be compen- sated by growth in customers and volume as well as new services. Over the long term the trend in the ICT market will necessitate fundamental changes in the approach to risks related to the business model, technology and human capital. Forthcoming regulatory decisions pose a latent risk which could impact Swisscom’s financial development, as illustrated by the following selected key risk fac- tors. The main risk factors in the supply chain are reported separately in the Sustainability Report. Risk factors Telecommunications market Increasing competition driven by national infrastructure providers and service providers who do not have their own telecoms infrastructure (e.g. OTTs) is exerting transformation pressure on the business. During this transformation, the complexity resulting from the parallel operation of old and new technologies has to be reduced so as to enable new, attractive services. Here there is a risk that the revenue from the classic telecoms business will not be secured sustainably during the transformation process, while at the same time technical complexity remains undiminished. Moreover, a trend can currently be observed towards national and international cooperation among telecommunications providers, the purpose of which is to provide low-cost services inter- nationally and exploit major synergies. There is thus a risk that Swisscom will not be able to align its cost structures with its current and future competitors, which would narrow the scope for invest- ment, innovation and price reductions. If such risks materialise, this 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 The manner in which regulations are implemented (e.g. telecommunications and antitrust legis- lation) entails risks for Swisscom which could have an adverse impact on the company’s financial position and results of operations. The main risks concern the possibility of price regulation being extended to mobile communications (mobile termination) and broadband (optical fibre) which would further reduce Swisscom’s income and restrict the company’s room for manoeuvre, as well as sanctions by the Competition Commission which could reduce Swisscom’s operating results and cause reputational damage to the ‘company. 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 undermine the current competitive system. See report page 36 s k s i R 91 y r a t n e m m o C t n e m e g a n a M 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 companies and other network operators as it strives to meet current and future customer needs and defend its own market share. The network expansion that this necessitates calls for major investments. To mitigate financial risks and ensure optimum network coverage, expansion is determined by population density and customer demand. Substantial risks would arise if Swisscom were forced to spend more on network expansion than planned, or if projected long-term earnings were to fall. Swisscom minimises the risks by adapting the broadband expansion of the access net- work to changing conditions on an ongoing basis. Human capital Constant changes in background conditions and markets mean that corporate culture needs to adapt. The key challenges in this context lie in maintaining employee motivation and high staff loyalty despite cost pressure, while managing growth and efficiency, increasing employees’ ability to adapt and renew their skills and ensuring that Swisscom remains an attractive employer. Market consolidation in Italy, economic situation, regulation and the recoverability of Fastweb’s assets In the Italian market, the merger of H3G and Wind could have significant ramifications for Swisscom’s subsidiary Fastweb. In addition, Italy’s economic performance and competitive dynamics carry risks which could have a detrimental impact on Fastweb’s strategy and jeopardise projected revenue growth. The impairment test performed in 2015 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 (revenue 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 uncer- tainty 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 legislation. Regula- tory 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 reputational risk. Force majeure, human error, hardware or software failure, criminal acts by third parties (e.g. computer viruses or hacking) and the ever-growing com- plexity and interdependence of modern technologies can cause damage or interruption to opera- tions. Built-in redundancy, contingency plans, deputising arrangements, alternative locations, care- ful 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 and security 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. The area of Internet security has developed and changed with immense speed with respect to technology, economics and society and their interdependencies. These new innovations and capa- bilities go hand in hand with new opportunities as well as new risks. The wider the variety of opportunities for attack, the more difficult prevention becomes. This means it is even more important for potential threats to be recognised at an early stage, systemat- ically understood and quickly averted.  s k s i R 92 y r a t n e m m o C t n e m e g a n a M Environment and health Electromagnetic radiation (e.g. 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 Ordi- nance on Non-Ionising Radiation (ONIR) Switzerland has adopted the precautionary principle and introduced limits for base stations which are ten times stricter than the EU’s limits. The public’s wary attitude to mobile antenna sites in particular is impeding Swisscom’s network expansion. Even without stricter legislation, 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. See www.cdproject.net/en-us s k s i R 93 y r a t n e m m o C t n e m e g a n a M The data volume transmitted on the mobile network doubles every year, placing great demands on network operators. Swisscom has off ered its customers the best mobile network in Switzerland for many years. “Innovation and expertise are prerequisites if we are to continually improve our customers› telephony and surfi ng experiences. I react immediately when there are incidents in the network and play my part to ensure the best possible mobile phone network.” Helene Nünlist ICT System Manager Corporate Governance and Remuneration Report Taking advantage of new opportunities to generate sustainable growth. Corporate Governance Remuneration Report 98 1 Principles 99 2 Group structure and shareholders 101 3 Capital structure 103 4 Board of Directors 113 5 Group Executive Board 117 6 Remuneration, shareholdings and loans 118 7 Shareholders’ participation rights 120 8 Change of control and defensive measures 120 9 Auditor 121 10 Information policy 122 1 Principles 123 2 Decision-making powers 125 3 Remuneration paid to the Board of Directors 128 4 Remuneration paid to the Group Executive Board 134 5 Other remuneration 135 Report of the Statutory Auditor 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. 1 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 > 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 Incorporation, Organisational Rules and the Rules of Procedure of the Board of Directors’ commit- tees. Of particular importance is the Code of Conduct approved by the Board of Directors. It con- tains a declaration 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, comply with applicable rules, demonstrate integrity and report any violations of the Code of Con- duct. 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 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 See www.swisscom.ch/ basicprinciples 2 Group structure and shareholders 2.1 Group structure 2.1.1 Operational Group 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 Human Resources, Group Strategy & Board Services, Group Communications & Responsibility and Group Security. It delegates day-to-day business management to the CEO of Swisscom Ltd, who together with the heads of the Group divi- sions Group Business Steering (CFO) and Group Human Resources (CPO) as well as the heads of the business divisions Residential Customers, Small and Medium-Sized Enterprises, Enterprise Custom- ers and IT, Network & Innovation forms the Group Executive Board. Strategic and financial manage- ment 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 (Switzerland) Ltd and the Italian subsidiary Fastweb S.p.A. are classified as strategic Group companies. The operations of Swisscom (Switzerland) Ltd are man- aged by the CEO. The Board of Directors of Swisscom (Switzerland) Ltd comprises the CEO of Swisscom Ltd as Chairman, the CFO of Swisscom Ltd and the Head of IT, Network & Innovation. Seats on the Board of Directors of Fastweb S.p.A. are held by the CEO of Swisscom Ltd as Chairman together with the CFO of Swisscom Ltd and other representatives of Swisscom. The Board of Direc- tors of Fastweb S.p.A. is supplemented by an external member. In the “important” Group compa- nies, 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 and in some cases exter- nal parties are also members of the Board of Directors. Further information on the Group structure can be found in the Management Commentary in the section on Group structure and organisation. A list of Group companies, including company name, registered office, percentage of shares held and share capital, is given in Note 40 to the consolidated financial statements. For financial reporting purposes, the business divisions of Swisscom are allocated to individual seg- ments based on the management structure. The 2015 financial reporting is broken down into the segments Swisscom Switzerland, Fastweb and Other Operating Segments. Swisscom Switzerland covers the segments Residential Customers, Small and Medium-Sized Enterprises, Enterprise Customers, Wholesale and IT, Network & Innovation. Other Operating Segments mainly comprises Participations and Health. Group Headquarters, which primarily includes the Group divisions as well as the employment company Worklink, continues to be reported separately. Further informa- tion on segment reporting can be found in the Management Commentary. Changes as of 2016 As of 1 January 2016, Swisscom has strengthen its areas with close customer proximity and gear itself even more greatly towards digitalisation. Distribution and Service for Residential Customers and SME will be combined in the new Sales & Marketing division. The digital business will be bun- dled in the new Digital Business division. To exploit synergies and accommodate the increasing level of convergence, Product Development and Product Provision for Residential Customers and SME will now be combined in the Products & Marketing division. The organisational structure in business with corporate customers will continue to be simplified. As of 2016, the CEO, together with the heads of the Group divisions Group Business Steering (CFO) and Group Human Resources (CPO) as well as the heads of the business divisions Sales & Services, Products & Marketing, Enter- prise Customers and IT, Network & Infrastructure, form the Group Executive Board. Further infor- mation on the new Group structure can be found in the Management Commentary. See report Page 24 See report Pages 210–211 See report Page 26 See report Page 27 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 2.1.2 Listed company The Swisscom Group only comprises one listed company, Swisscom Ltd. It is a company governed by Swiss law and headquartered in Ittigen (canton of Berne, Switzerland) and is listed in the stan- dard for equity securities, the Sub-Standard International Reporting of the SIX Swiss Exchange (Securities No: 874251; ISIN: CH0008742519; Ticker Symbol: SCMN). Trading in the United States is conducted over-the-counter (OTC) as a Level 1 programme (Symbol: SCMWY; ISIN: CH008742519; CUSIP for ADR: 871013108). Within the framework of the programme, Bank of New York Mellon Corporation issues the American Depository Shares (ADS). ADS are American securities which represent Swisscom shares. Ten ADS correspond to one share. The ADS are evidenced by American Depositary Receipts (ADR). At 31 December 2015, Swisscom Ltd had a stock market capitalisation of CHF 26,056 million. 2.2 Major 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 September 2015, BlackRock, Inc., New York, reported a shareholding of 3% in Swisscom Ltd. A few days later, BlackRock, Inc. provided notification that its shareholding had fallen below 3%. The shareholding disclosures can be viewed on the website of the SIX Exchange Regulation at https://www.six-exchange-regulation.com/de/home/publications/significant-shareholders.html. On 31 December 2015, the Swiss Confederation (Confederation), as majority shareholder, still held compared to the previous year 50.95% of the issued share capital of Swisscom Ltd. The Federal Telecommunication Enterprises Act (TUG) stipulates that the Confederation must hold the major- ity of the capital and voting rights of Swisscom Ltd. 2.3 Cross-participations No cross-shareholdings exist between Swisscom Ltd and other public limited companies. 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 3 Capital structure 3.1 Capital At 31 December 2015, 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. 3.2 Authorised and conditional capital There is no authorised or conditional share capital. 3.3 Changes in capital The share capital was unchanged in the years 2013 to 2015. 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 2013  Net income  Dividends paid  Balance at 31 December 2013  Net income  Dividends paid  Balance at 31 December 2014  Net income  Dividends paid  Balance at 31 December 2015  Share capital Legal capital reserves Retained earnings 52 – – 52 – – 52 – – 52 21 – – 21 – – 21 – – 21 5,071 239 (1,140) 4,170 2,472 (1,140) 5,502 279 (1,140) 4,641 Total equity 5,144 239 (1,140) 4,243 2,472 (1,140) 5,575 279 (1,140) 4,714 The Annual General Meetings held on 4 April 2013, 7 April 2014 and 8 April 2015 approved an ordi- nary dividend of CHF 22 per share respectively. 3.4 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. 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). The holder of an ADR possesses the rights listed in the Deposit Agreement (e.g. the right to issue instructions for the execution of voting rights and the right to dividends). Bank of New York Mellon Corporation, which acts as the ADR depository, is listed as the shareholder in the share register. ADS holders are therefore unable to directly enforce and exercise shareholder rights. Bank of New York Mellon Corporation exercises the voting rights in accordance with the instructions it receives from the ADR holders. For further details on the shares, see section 7 “Shareholders’ participation rights” and the Management Commentary. Swisscom Ltd has issued no participation certificates. See report Page 118 101 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   See www.swisscom.ch/ basicprinciples 3.5 Profit-sharing certificates Swisscom Ltd has issued no profit-sharing certificates. 3.6 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. In accordance with Article 3.5.1 of the Articles of Incorporation, the Board of Directors 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 registered in its name, then exceeds the limit of 5% of all registered shares entered in the commercial register. The acquirer is entered in the register as a shareholder or beneficial holder without voting rights for the remaining shares. The other statutory provisions on restricted transferability are described in section 7.1 “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 subject to supervision by a banking or financial market supervisory authority or otherwise provide the neces- sary 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 abso- lute majority of the voting shares cast, the Board of Directors has issued regulations governing the entry of trustees and nominees in the Swisscom Ltd share register. The entry of trustees and nom- inees as shareholders with voting rights is subject to application and the conclusion of an agree- ment specifying the entry restrictions and disclosure obligations of the trustee or nominee. In par- ticular, each trustee or nominee undertakes, within the limit of 5%, to request entry as a shareholder 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. 3.7 Convertible bonds, debenture bonds and options See report Page 187 See report Page 171 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. 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 4 Board of Directors 4.1 Members of the Board of Directors The Board of Directors of Swisscom Ltd 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, holds the majority of the capital and voting rights in Swisscom. Customer and supplier relationships exist between the Swiss Confederation and Swisscom. Details of these are given in Note 37 to the con- solidated financial statements. See report Page 208 Members of the Board of Directors at 31 December 2015 are as follows: Name  Nationality  Year of birth Function  Taking office at the Appointed until Annual General Meeting Annual General Meeting Hansueli Loosli 1 Switzerland  Frank Esser  Barbara Frei  Hugo Gerber 2 Michel Gobet 2 Germany  Switzerland  Switzerland  Switzerland  Torsten Kreindl 2 Austria  Catherine Mühlemann  Switzerland  Theophil Schlatter  Switzerland  Hans Werder 3 Switzerland  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  2009 2014 2012 2006 2003 2003 2006 2011 Member, representative of the Confederation  2011 1 Since 21 April 2009 Member of the Board of Directors, since 1 September 2011 Chairman. 2 Resignation from the Board of Directors at the Annual General Meeting 2016. 3 Designated by the Swiss Confederation. 2016 2016 2016 2016 2016 2016 2016 2016 2016 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       4.2 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. In total, they may not perform more than ten such additional mandates. These numer- ical 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 retirement-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 Education: Commercial apprenticeship; Swiss Certified Expert in Financial Accounting and Controlling Career history: 1982–1985 Mövenpick Produktions AG, Adliswil, Controller and Dep- uty 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, Transgourmet 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 Direc- tors, 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 Education: PhD in business administration, Dr. rer. pol. Career history: 1988–2000 Mannesmann Deutschland, latterly from 1996 as a member of the Executive Board, Mannesmann Eurokom; 2000–2012 Société Française Radiotéléphonie (SFR), 2000–2002 Chief Operating Officer (COO), from 2002–2012 CEO, in this function from 2005–2012 at the same time Vivendi Group, member of the Group Executive Board Mandates in listed companies: Member of the Board of Directors, AVG Technologies N.V., Amsterdam; member of the Supervisory Board, Dalenys Group S.A (formerly named Rentabiliweb Group S.A.S.), Brussels; member of the Board of Directors, InterXion Holding N.V., Amsterdam 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: – 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 Barbara Frei Education: Degree in mechanical engineering, ETH; doctorate (Dr. sc. techn.), ETH; Master of Business Administration, IMD Lausanne Career history: Since 1998 various managerial positions at the ABB Group, in particular 2008–2010 ABB s.r.o., Prague, Country Manager; 2010–2013 ABB S.p.A., Sesto San Giovanni (Italy), Country Manager and Regional Manager Mediterranean; November 2013–December 2015 Drives and Control Unit, Managing Director; since 2016 Head of Strategic Portfolio Reviews for the Power Grids division Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors, ABB Beijing Drive Systems Co. Ltd., Beijing, up to December 2015 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 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; July–December 2014 Federal Administrative Court, St. Gallen, Deputy Head of Human Resources on an ad interim basis; since 2009 independent consultant Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors, POSCOM Ferien Holding AG, Berne; member of the Board of Directors, Hôtel Vallesia & Sports Montana-Vermala SA, Montana-Vermala, since January 2015 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 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; Managing Director, Le Toccan Sàrl, Chamoson 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 European Executive Committee and the European ICTS Steering Committee, UNI Global Union, Nyon 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 Torsten Kreindl 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, 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, until May 2015 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 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: Member of the Supervisory Board, Tele Columbus AG, Berlin Mandates in non-listed companies: Member of the Board of Directors, Switzerland Tourism 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 Education: Degree in business administration (lic. oec. HSG); qualified 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: – 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 Hans Werder 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: – 4.3 Election and term of office Under the terms of the Articles of Incorporation, the Board of Directors comprises between seven and nine members and, if necessary, the number can be increased temporarily. It currently com- prises nine members. 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. Under the terms of the Telecommunications Enterprise Act (TEA), employees must also 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. 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. The Annual General Meeting elects the members and the Chairman of the Board of Directors and the members of the Compensation Com- mittee individually for a term of one year. The term of office runs until the conclusion of the follow- ing Annual General Meeting. Re-election is permitted. 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. The maximum term of office or age limit for the Federal representa- tive is determined by the Federal Council. 4.4 Internal organisation The Board of Directors and the standing committees of the Board of Directors of Swisscom Ltd are organised as follows as at 31 December 2015: Board of Directors Finance Committee Audit Committee Compensation Committee Torsten Kreindl* Frank Esser Michel Gobet Catherine Mühlemann Hansueli Loosli Theophil Schlatter* Hugo Gerber Hans Werder Hansueli Loosli * Chairman of the Board of Directors’ committees Barbara Frei* Torsten Kreindl Theophil Schlatter Hans Werder Hansueli Loosli 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 See www.swisscom.ch/ basicprinciples 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, the CFO and the Head of Group Strategy & Board Services regularly attend 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 members 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 meet- ings on specific issues in order to ensure appropriate reporting to members of the Board. Further- more, 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 duties, responsibilities and modus operandi of the Board of Directors as well as its conduct with respect to conflicts of interest are defined in the Organisational Rules, those of the standing committees in the relevant committee regulations. The aforementioned rules and regulations can be accessed on the Swisscom website under “Basic principles”. The Board of Directors supports the further development and ongoing education of Board members. The Board of Directors and the committees conduct self-assessments, usually once a year and most recently in January 2015. A one-day mandatory training course was held at the beginning of 2015. Each quarter, the members of the Board of Directors also have the opportunity to explore in-depth the upcoming challenges facing the Group and business divisions as part of so-called com- pany experience days. The majority of members of the Board of Directors regularly take advantage of these opportunities. In addition, various members of the Board of Directors attended selected presentations and seminars during the year. New members are given a task-specific introduction to their new activity. 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 held in 2015. Meetings 1 Conference calls Circular resolutions Total  Average duration (in hours)  Participation:  Hansueli Loosli, Chairman  Frank Esser  Barbara Frei  Hugo Gerber  Michel Gobet  Torsten Kreindl  Catherine Mühlemann  Theophil Schlatter  Hans Werder  10 9:00 10 10 10 10 9 9 10 10 10 1 0:50 1 1 1 1 1 1 1 1 1 2 – 2 2 2 2 2 2 2 2 2 1 Four meetings were held over two days. 4.5 Committees of the Board of Directors The Board of Directors has three standing committees (Audit, Finance and Compensation) and one ad-hoc committee (Nomination) 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 standing committees. Subject to being appointed to the Compensation Committee (without voting rights), the Chairman of the Board of Directors 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. 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   See www.swisscom.ch/ basicprinciples Finance Committee On behalf of the Board of Directors, the Finance Committee prepares information on transaction business, for example, in connection with establishing or dissolving significant Group companies, acquiring or disposing of significant shareholdings, or entering into or terminating strategic alli- ances. The Committee 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 Venturing. 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 Finance Committee is convened by the Chairman or at the request of a Committee member as often as business requires. The CEO, the CFO and the Head of Group Strategy and 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 following table gives an overview of the Finance Committee’s composition, meetings, conference calls and circular resolutions held or taken in 2015. Meetings Conference calls Circular resolutions Total  Average duration (in hours)  Participation:  Torsten Kreindl, Chariman  Frank Esser  Michel Gobet  Hansueli Loosli  Catherine Mühlemann  2 3:20 2 2 2 2 2 – – – – – – – – – – – – – – Audit Committee 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”. The Chairman of the Audit Committee, Theophil Schlatter, is a financial expert. The majority of members are experienced in the fields of finance and accounting. The members of the 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 Audit Committee is convened by the Chairman or at the request of a Committee member as often as business requires, but at least four times a year. The CEO, CFO, Head of Strategy & Board Services, Head of Accounting, Head of Internal Audit and the external auditors attend the Audit Committee meetings. Depending on the agenda, other Swisscom 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 experts. 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 See www.swisscom.ch/ basicprinciples See report Page 208   The following table gives an overview of the Audit Committee’s composition, meetings, conference calls and circular resolutions held or taken in 2015. Total  Average duration (in hours)  Participation:  Theophil Schlatter, Chairman  Hugo Gerber  Hansueli Loosli  Hans Werder  Meetings Conference calls Circular resolutions 5 4:40 5 5 5 5 1 0:35 1 1 1 – – – – – – – See report Page 122 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, where necessary, pre- paring the groundwork 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 Directors elects the members of the Group Executive Board or decides upon the motion to be submitted 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 2015 financial year. 4.6 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 Rules. 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 mil- lion, 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 Rules (see function table in Rules of Procedure and Accountability). Annex 2 can be accessed on the Swisscom website under “Basic principles”. 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 See www.swisscom.ch/ targets_2014-2017 See www.swisscom.ch/ basicprinciples   4.7 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 funda- mental issues concerning Swisscom Ltd and its Group companies. At each ordinary meeting of the Board of Directors, the CEO also provides the Board of Directors with detailed information on the course of business, major projects and events, and any measures taken. Every month, the Board of Directors receives a report including all key performance indicators relating to the Group and the segments. In addition, the Board of Directors receives a report on the course of business as well as on the financial position, results of operations, cash flows and risk position of the Group and the segments. It also receives projections for operational and financial developments for the current financial year. The management reporting is carried out in accordance with the same accounting principles and standards as external reporting. It also includes key non-financial information which is important for controlling and steering purposes. Each member of the Board of Directors is enti- tled to request information on any matters relating to the Group at any time, provided this does not conflict with any abstention provisions or confidentiality obligations. The Board of Directors is also 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 estimated compliance or ICS risks or if serious breaches in compliance (includ- ing violation of rules that are designed to ensure reliable financial reporting) are detected or cur- rently being investigated. 4.8 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, internal control system, compliance and internal audit. 4.8.1 Risk management The Board of Directors has set the objective of protecting the company’s enterprise value through the implementation 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. This takes account of external and internal events and is based on the established standards COSO II and ISO 31000. Swisscom maintains level-appropriate and comprehensive 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 collabo- rates closely with the Controlling department, to which it also reports, as well as the Strategy department, other assurance functions and line functions. Swisscom assesses its risks according to their probability of occurrence and their quantitative effects in the event of occurrence. The risks are managed on the basis of a risk strategy. The risks are evaluated in terms of their impact on key performance indicators. 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 poten- tial 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. 4.8.2 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, informa- tion 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 measures 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 the shortcomings are monitored centrally. The Audit Commit- tee assesses the performance and reliability of the ICS on the basis of the periodic reporting. See report Pages 90–93 111 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 4.8.3 Compliance management The Board of Directors has set the objective of protecting the Swisscom Group, its executive bodies 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. Within the framework of the system, Group Compliance, a specialist unit of the Group legal department, uses a risk-based approach to each year identify those areas of legal compliance which require monitor- ing 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 mea- sures and their implementation is monitored. The suitability and effectiveness of the system is reviewed annually by Group Compliance. Within the Swisscom Health AG business division and in the area of billing for added-value services of Swisscom Switzerland Ltd, an annual audit of the implemented measures is also performed by external auditors (financial intermediation) in accor- dance with the Money Laundering Act. 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. 4.8.4 Internal audit 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 supervisory 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. It is under the control of the Chairman of the Board of Directors and reports to the Audit Committee. At its meetings, which are held 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 informs the Audit Com- mittee of any irregularities which come to its attention. At an administrative level, Internal Audit reports to the Head of Group Strategy & Board Services. 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 the Internal Audit unit. Internal Audit closely coordinates audit planning with the external auditors. The integrated strategic audit plan, which includes the coordinated annual plan of both the internal and external auditors, is prepared 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 information 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 on a quarterly basis for the Audit Committee. 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 5 Group Executive Board 5.1 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. As at 31 December 2015, the Group Executive Board is composed of the CEO of Swisscom Ltd, the heads of the Group divisions Group Business Steering and Group Human Resources, and the heads of the divisions Residential Customers, Small and Medium-Sized Enterprises, Enterprise Customers and IT, Network & Innovation. From 2016, in addition to the CEO of Swisscom Ltd and the heads of the Group divisions Group Business Steering and Group Human Resources, the Group Executive Board will also include the heads of the new business divisions Sales & Services and Products & Marketing as well as the heads of the existing business division Enterprise Customers and the renamed business division IT, Network & Infrastructure. See report Pages 24–27 Group Executive Board as from 2016 An overview of the composition of the Group Executive Board as at 31 December 2015 is given in the table below. Dirk Wierzbitzki, who has joined the Group Executive Board on 1 January 2016, is also listed. Roger Wüthrich-Hasenböhler has left the Group Executive Board at this time. Name  Urs Schaeppi 1 Mario Rossi  Hans C. Werner  Marc Werner  Nationality  Year of birth Function  Switzerland  1960 CEO Swisscom Ltd  Switzerland  1960 CFO Swisscom Ltd  Switzerland  1960 CPO Swisscom Ltd  Switzerland  and France  1967 Head of the division Residential Customers  since 2016 head of the division Sales & Services  Appointed as of November 2013 January 2013 September 2011 January 2014 Roger Wüthrich-Hasenböhler 2 Switzerland  1961 Head of the division Small and Medium-Sized Enterprises  January 2014 Christian Petit  Heinz Herren  France  1963 Head of the division Enterprise Customers  Switzerland  1962 Head of the division IT, Network & Innovation  April 2014 January 2014  since 2016 head of the division IT, Network & Infrastructure  Dirk Wierzbitzki  Germany  1965 Since 2016 head of the division Products & Marketing  January 2016 1 Since 2006 member of the Group Executive Board, from July to November 2013 CEO ad interim.  2 Leaving Group Executive Board as of 31 December 2015.  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           5.2 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 interest 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 addi- tional mandates at non-listed companies, with a total of no more than two such additional man- dates 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 foundations as well as employee retirement-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 obli- gated to obtain the approval of the Chairman of the Board of Directors. Details on the regulation of external mandates, in particular the definition of the term “mandate” and information on other mandates 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 Incorpo- ration), 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 Education: Degree in engineering (Dipl. Ing. ETH) and business administration (lic. oec. HSG) Career history: 1994–1998 plant manager at Biberist paper factory; 1998–2006 Head of Commercial Business, Swisscom Mobile Ltd; 2006–2007 CEO, Swisscom Solutions Ltd; 2007–August 2013 Head of Enterprise Customers, Swisscom (Switzer- land) Ltd; since January 2013 Head of Swisscom (Switzerland) Ltd; 23 July–6 Novem- ber 2013, acting CEO, Swisscom Ltd, 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, Venture Foundation, Windisch; member of the Foundation Board, IMD International Institute for Management Development, Lausanne; member of the Foundation Council, Swiss Innovation Park Foundation, Berne, since October 2015; member of the Steering Committee, Digital Zurich 2025, Zurich, since September 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 Cham- ber of Commerce, Zurich; member of the Executive Board, Glasfasernetz Schweiz, Berne Mario Rossi Education: Commercial apprenticeship; Swiss 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 again Mandates in listed companies: – Mandates in non-listed companies: – Mandates by order of Swisscom: President of the Board of Trustees, comPlan, Baden 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 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 Hans C. Werner 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, Divisional 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 Insti- tute of Management in Technology (iimt) at the University of Fribourg up to December 2015; President of the Institute Council and Advisory Board of iimt since January 2016 Marc Werner Education: Technical apprenticeship with Maturity Certificate, Swiss Certified Marketing Executive; Senior Management Programme (University of St. Gallen); Senior Executive Programme at 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 Mar- keting & Sales Residential Customers; 2008–2011 Swisscom (Switzerland) Ltd, Head of Marketing & Sales Residential Customers and Deputy Head of Residential Customers; 2012–2013 Swisscom (Switzerland) Ltd, Head of Customer Service Residential Customers and Deputy Head of Residential Customers; September 2013–December 2015 Swisscom, Head of Residential Customers division; since 1 January 2016 Swisscom, Head of Sales & Services 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: Chairman of the Board of Directors of siroop AG, Zurich, since October 2015 Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: Member of the Executive Board, Swiss Advertising Association (SW), Zurich 115 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 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 Solu- tions Ltd, Head of Marketing & 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 Enter- prises division; 2011–2012 Swisscom, member of the Group Executive Board; Janu- ary 2014–December 2015 Swisscom, Head of Small and Medium-Sized Enterprises division; since 2016 Swisscom, Head of Digital Business January 2014–December 2015 member of the Swisscom Group Executive Board Mandates in listed companies: – Mandates in non-listed companies: Member of the Board of Directors of Raiffeisen- bank am Ricken Genossenschaft, Eschenbach Mandates by order of Swisscom: Member of the Board of Directors of the co- operative basecamp4hightech (bc4ht), Berne; member of the Board of Directors of InnovAARE AG, Villigen, since May 2015; member of the Executive Board of Digital Zurich 2025, Zurich, since September 2015; member of the Board of Directors of siroop AG, Zurich, since October 2015 Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – Christian Petit Education: MBA ESSEC, Cergy-Pontoise Career history: 1993–1999 debitel France; 2000–2003 Head of Operations, Swisscom Mobile AG; 2003–2006 Head of Product Marketing, Swisscom Mobile AG; 2006–June 2007 CEO, Hospitality Services Plus SA; August 2007–December 2012 member of the Group Executive Board, Swisscom; August 2007–August 2013 Head of Residential Customers, Swisscom (Switzerland) Ltd; September 2013–December 2013 Head of Corporate Business, Swisscom (Switzerland) Ltd; January–March 2014 Head of Enterprise Solution Center, Swisscom (Switzerland) Ltd; since April 2014 Head of Enterprise Customers Since April 2014 member of the Swisscom Group Executive Board again 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 Education: Degree in electronic engineering (HTL) Career history: 1994–2000 3Com Corporation; 2000 Inalp Networks Inc.; 2001– 2005 Head of Marketing Wholesale, Swisscom Fixnet Ltd; 2005–2007 Head of Small and Medium-Sized Enterprises, Swisscom Fixnet Ltd; 2007–2010 Head of Small and Medium-Sized Enterprises, Swisscom (Switzerland) Ltd; 2011–2013 Head of Net- work & IT, Swisscom (Switzerland) Ltd; August 2007–December 2012 Member of the Group Executive Board, Swisscom; since January 2014 Head of IT, Network & Innova- tion (named IT, Network & Innovation since 2016) Swisscom Since January 2014 member of the Swisscom Group Executive Board again 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: – 116 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 Dirk Wierzbitzki Education: Degree in Electrical Engineering (Dipl. Ing.) Career history: 1994–2001 Mannesmann (now Vodafone Germany): various man- agement roles in the area of product management; 2001–2010 Vodafone Group, 2001–2003 Vodafone Global Products and Services, Director for Innovation Man- agement, 2003–2006 Director for Commercial Terminals, 2006–2008 Director for Consumer Internet Services and Platforms, 2008–2010 Director for Communications Services; 2010–2012 Swisscom (Switzerland) Ltd, Head of Customer Experience Design for Residential Customers; 2013–2015 Swisscom (Switzerland) Ltd, Head of Fixed-network Business & TV for Residential Customers; since January 2016 Swisscom, Head of Products & Marketing Since January 2016 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, SoftAtHome, Paris Mandates in interest groups, charitable associations, institutions and foundations as well as employee benefit foundations: – Other significant activities: – 5.3 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. 6 Remuneration, shareholdings and loans See report Page 122 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. 117 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 Shareholders’ participation rights 7.1 Voting 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 registered in its name, then exceeds the limit of 5% of all registered shares entered in the commer- cial 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 regis- tered 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 rec- ognise 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. Where an entry has been made on the basis of false statements by the acquirer, the Board of Direc- tors 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 Meet- ing, 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. 7.2 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 7.3 Convocation of the Annual General Meeting The Board of Directors must convene the Annual General Meeting at least 20 calendar 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. One or more shareholders who together represent at least 10% of the share capital can demand in writing that an extraordinary general meeting be convened, stating the agenda item and the pro- posal and, in the case of elections, the names of the proposed candidates. 118 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 7.4 Agenda items The Board of Directors is responsible for defining the agenda. 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. 7.5 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. Authorisation may be granted in writing or via the Sherpany Internet platform once a shareholder has opened a share- holder account on this platform. Shareholders who are represented by a proxy may issue instruc- tions 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 Ordinance against Excessive compensation in Stock Exchange Listed Companies (OaEC) as regards the appoint- ment 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. 7.6 Registrations in the share register Shareholders entered in the share register with voting rights are entitled to vote at the Annual General Meeting. To ensure due procedure, the Board of Directors defines a cut-off date for voting entitlements, which lies a few days before the respective Annual General Meeting. The cut-off date is published with the invitation to the Annual General Meeting in the Swiss Commercial Gazette and on the Swisscom website. The share register is not closed prior to the Annual General Meeting. Entries can still be made. Shareholders entered in the share register with voting rights on 2 April 2015 at 4 p.m. were entitled to vote at the Annual General Meeting of 8 April 2015. 119 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 8 Change of control and defensive measures 8.1 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. 8.2 Clause on change of control See report Page 122 Details on clauses on change of control are given in the section “Remuneration Report”. 9 Auditor 9.1 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 excep- tion of Fastweb S.p.A, which is audited by PriceWaterhouseCoopers S.p.A.) since 1 January 2004. Hans-peter Stocker of KPMG AG has been responsible for the mandate as Auditor-in-charge since 2015. 9.2 Audit fees Fees for auditing services provided by KPMG AG in 2015 amounted to CHF 3,413 thousand (prior year: CHF 3,149 thousand). PricewaterhouseCoopers S.p.A. as auditors for Fastweb received remu- neration of CHF 678 thousand in 2015 (prior year: CHF 785 thousand). 9.3 Supplementary fees Fees of KPMG AG for additional -audit-related services amounted to CHF 201 thousand (prior year: CHF 548 thousand) and for other services to CHF 1,533 thousand (prior year: CHF 635 thousand). The supplementary fees primarily comprise advisory services in connection with company takeovers, the sale of real estate and taxes. Fees of PricewaterhouseCoopers S.p.A. for additional audit-related services for Fastweb amounted to CHF 155 thousand (prior year: CHF 133 thousand). 9.4 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 the independence of the auditors, 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 is reported to quarterly by the CFO and annually by the auditors 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 dep- 120 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 uty, usually attend all Audit Committee meetings. They report 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. 10 Information policy Swisscom pursues an open, active information policy vis-à-vis the general public and the capital 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 inves- tors, and keeps its shareholders regularly informed about its business through press releases. See www.swisscom.ch/ financialreports 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. See www.swisscom.ch/adhoc 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 8 April 2015 are available on the Swisscom website. See report Page 237 Those responsible 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. 10.1 Publication of results for the 2016 financial year > Interim report: 3 May 2016 > Interim report: 18 August 2016 > Interim report: 3 November 2016 > Annual report: February 2017 10.2 Annual General Meeting for the 2015 financial year > 6 April 2016 at Forum Fribourg, Granges-Paccot 121 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 and therefore creates 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 infor- mation 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. Swisscom also complies with the recom- mendations of the Swiss Code of Best Practice for Corporate Governance 2014 issued by economie- suisse, the umbrella organisation representing Swiss business. Swisscom’s internal principles are primarily set out in the Articles of Incorporation, the Organisa- tional Rules and the Regulations of the Compensation Committee. The latest version of these doc- uments 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 Gen- eral Meeting on 6 April 2016. The compensation payable in 2015 was accrued in accordance with the International Financial Reporting Standards (IFRS). See www.swisscom.ch/ basicprinciples 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 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 upon the motion proposed by 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 (Arti- cles 5.7.7 and 5.7.8). The Articles of Incorporation also define the requirements for and the maxi- mum 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 remuneration. 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 Exec- utive Board. It sets the remuneration of the Board of Directors and decides on the remuneration of the CEO as well as the total remuneration for the Group Executive Board. From the 2016 financial year, the Board of Directors will have to comply with the maximum amounts approved by the Annual General Meeting for the remuneration to be paid to the Board of Directors and the Group Executive Board for the financial year in question. 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 conduct of the members of the Board of Directors with respect to conflicts of interest is defined in section 2.6 of the Organisational Rules. The decision-making powers are governed by the Articles of Incorporation, the Organisational Rules and the Regulations of the Compensation Committee. The Articles of Incorporation and the relevant rules and regulations can be accessed 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. Remuneration Committee Board of Directors Annual General Meeting See www.swisscom.ch/ basicprinciples Subject  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 – – – – – – – – – – 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     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, CPO, Head of Strategy & Board Services and Head of Compensation & Benefits 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 meetings of the Compensation Commit- tee are generally held in February, June and December. Further meetings can be convened if required. The Chairman reports orally on the activities of the Compensation Committee at the next meeting of the Board of Directors. The details are governed by the Articles of Incorporation (Article 6.5), the Organisational Rules of the Board of Directors and the Regulations of the Compensation Committee. The Articles of Incor- poration and the relevant rules and regulations can be accessed on the Swisscom website under “Basic principles”. The members of the Compensation 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 following table gives an overview of the composition of the Committee, the Committee meetings, conference calls and circular resolutions held or taken in 2015. Meetings Conference calls Circular resolutions See www.swisscom.ch/ basicprinciples See report Page 208 Total  Average duration (in hours)  Participation:  Barbara Frei, Chairwoman  Torsten Kreindl  Theophil Schlatter  Hans Werder 1 Hansueli Loosli 2 1 Representative of the Confederation. 2 Participation without voting rights. 3 1:15 3 3 3 3 3 – – – – – – – – – – – – – – 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   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 individuals 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 atten- dance fees as well as pension fund and any fringe benefits. No variable performance-related emol- uments 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 ensuring they directly participate financially in the performance of Swisscom’s shares. The remu- neration is reviewed every December for the following year for ongoing appropriateness. In Decem- ber 2014, the Board of Directors opted not to adjust its remuneration for the 2015 financial year. The Board of Directors judged the appropriateness of the remuneration as part of a discretionary decision based on the publicly accessible study published in 2014 by ethos, the Swiss Foundation for Sustainable Development. This study provides information for the 2013 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 amount to 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 committee. 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 reporting year in respect of the reporting 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 differ- ence 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 2015, 1,302 shares were allocated to the members of the Board of Directors (prior year: 1,374 shares) with a tax value of CHF 473 per share (prior year: CHF 449). Their market value was CHF 563 (prior year: CHF 534.50) 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 See report Page 171 125 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 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 remuner- ation paid 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, non-cash benefits and expenses a tax based point of view is taken. 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 2015 is presented in the tables below, broken down into individual components. The increase in total remuneration in 2015 was due to a higher number of meetings held over two days. 2015, in CHF thousand  Hansueli Loosli  Frank Esser  Barbara Frei  Hugo Gerber 1 Michel Gobet  Torsten Kreindl  Catherine Mühlemann  Theophil Schlatter  Hans Werder  Total remuneration to members  of the Board of Directors  Base salary and functional allowances Cash remuneration Share-based payment Meeting attendance fees Employer contributions to social security Total 2015 330 104 120 111 104 127 104 167 142 196 62 71 62 62 75 62 99 84 34 23 23 28 22 24 23 28 28 31 11 12 12 11 13 11 17 12 591 200 226 213 199 239 200 311 266 1,309 773 233 130 2,445 1  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. 2014, in CHF thousand  Hansueli Loosli  Frank Esser 1 Barbara Frei  Hugo Gerber 2 Michel Gobet  Torsten 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  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. 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                     3.4 Director’s fee and meeting attendance fees from 2016 The Board of Directors will set an example within the framework of the measures aimed at increas- ing efficiency and reduce its remuneration from 1 January 2016. The basic emolument for all mem- bers of the Board of Directors (excluding employee social insurance contributions) will now be CHF 110,000 net (previously CHF 120,000). The functional allowance for the Chairman will now be CHF 255,000 net (previously CHF 265,000). For meetings, attendance fees of CHF 1,100 net (previ- ously CHF 1,250) will now be paid for each full day and CHF 650 net (previously CHF 750) for each half-day. 3.5 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. 3.6 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 2015 are listed in the table below: Number  Hansueli Loosli  Frank Esser 1 Barbara Frei  Hugo Gerber  Michel Gobet  Torsten Kreindl  Catherine Mühlemann  Theophil Schlatter  Hans Werder  Total shares of the members of the Group Executive Board  1  Elected as of 7 April 2014. 31.12.2015 31.12.2014 2,012 205 528 1,233 1,600 1,322 1,223 1,054 982 10,159 1,682 101 409 1,129 1,496 1,195 1,119 887 839 8,857 No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital. 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   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 hold a minimum shareholding, 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 compliance 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 participa- tion 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 128 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 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, employee retention and risk protection Focus on annual objectives and long-term business success Alignment with shareholders interests 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 comparisons 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 workforce 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 compa- nies, 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 the performance of these members in partially extended functions and to ensure a salary that is in line with the market. The second stage in a salary increase granted to one member in the prior year as of 1 April 2014 and 1 April 2015 was also implemented. 4.2 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. Performance-related salary component The members of the Group Executive Board are entitled to a variable, performance-related salary component which represents 70% of the base salary if objectives are achieved (target bonus). The amount of the performance-related component paid out depends on the extent to which the tar- gets are achieved, as 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 performance-related salary component is thus limited to 91% of the base salary. 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. 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 targets relevant to the reporting year remained largely unchanged. The targets are based on the Swisscom Group’s budget figures for 2015. All members of the Group Executive Board are measured against targets at the levels “Group”, “Customers” and “Segments”. Group targets consist of financial targets. 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 mem- ber is responsible. Further information on customer satisfaction can be found in the Management Commentary. Segment targets are tailored to the relevant function of each Group Executive Board member and consist of financial and non-financial targets. These also include financial targets for the Italian subsidiary Fastweb S.p.A., on which the Group Board members delegated to Fastweb’s Boards of Directors are measured since the financial year under review. 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. See report Page 54 129 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 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  Objectives  Group  Net revenue  EBITDA margin  Operating free cash flow  Customers  Net promoter score  Segments  Segment targets  Total  Weighting of targets level CEO Weighting of targets level of other members of the Group Executive Board 18% 18% 24% 30% 10% 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 quantita- tive assessment of the extent to which targets have been met using a scale for the overachieve- ment and underachievement of each target. In determining the level of target achievement, the Compensation Committee also has a degree of discretion in assessing the effective management performance, 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 pro- posal for approval to the Board of Directors for the amount of the performance-related salary com- ponent to be paid to the Group Executive Board and the CEO. In the year under review, the financial Group targets were met. Depending on the segment, the customer objectives were in some cases not fully achieved and in some cases exceeded. The other targets of the segments were largely achieved and partially exceeded. The resulting payment of the performance-related component is 99% for the CEO and between 95% and 104% of the target bonus for the other members of the Group Executive Board. 130 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 171 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 have an option to increase this share up to a maximum of 50%. The remaining portion of the performance-related component is settled in cash. In the event of a departure during the course of the year, the payment of the performance-related component for the current year is generally made in full 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 communi- cated prior to the end of the reporting year, but no later than in November following publication of the third-quarter results. In the year under review, two members of the Group Executive Board opted for a higher share component. The shares are allocated on the basis of their 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 determined as of the date of allocation. Shares in respect of the current year are allocated in April 2016. Further information on the Management Incentive Plan can be found in Note 11 to the consolidated financial statements. In April 2015, a total of 1,268 shares (2013: 1,599 shares) with a tax value of CHF 473 (prior year: CHF 449) per share and a market value of CHF 563 (prior year: CHF 534.50) per share were allocated for the 2014 financial year to the members of the Group Executive Board. Restricted share plan The restricted share plan serves to support the recruitment and retention of employees in key posi- tions. It can also be utilised as a remuneration component for members of the Group Executive Board. Under this plan, the Board of Directors can, where necessary, pay part of the remuneration in the form of restricted share units. These shares must be earned over a three year vesting period. Swisscom has so far not allocated any restricted share units to members of the Group Executive Board. 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. They also include the pro rata costs of the AHV bridging pen- sion paid by comPlan in the event of early retirement and the premium for the supplementary life insurance 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. 131 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 4.3 Total remuneration The following table shows total remuneration paid to the members of the Group Executive Board for the 2015 and 2014 financial years, broken down into individual components and including the highest amount paid to one member. In the year under review, the variable performance-related salary component (CHF 2,810 thousand in total) was 74.4% of the base salary (CHF 3,775 thousand in total). The total remuneration paid to the highest-earning member of the Group Executive Board (CEO, Urs Schaeppi) increased by 3.3% compared to the prior year. This is primarily attributable to higher age-related occupational pension plan contributions as well as the choice of a higher pro- portion of shares in the performance-related component. The increase in total remuneration paid to the Group Executive Board is primarily attributable to the salary increases granted for three members of the Group Executive Board in the year under review as well as the age-related increase in the level of retirement provision contributions for three members of the Group Executive Board. 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 3 Total remuneration to members of the Group Executive Board  including benefits paid following retirement  from Group Executive Board  Total Group Executive Board 2015 Total Group Executive Board 2014 Thereof Urs Schaeppi 2015 Thereof Urs Schaeppi 2014 3,775 1,792 1,018 85 538 816 8,024 – 3,622 1,969 712 60 481 696 7,540 252 882 336 327 17 126 144 1,832 – 882 463 184 18 116 110 1,773 – 8,024 7,792 1,832 1,773 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  “Benefits paid following departure from the Group Executive Board” indicates the contractually stipulated remuneration   paid to those stepping down from the Group Executive Board in the respective year under review that were paid during   the notice period up to the date of departure This amount includes the social security contributions made by the employer   as well as retirement benefits. 4.4 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 equivalent to two years’ basic salary. The remaining members shall maintain a shareholding equivalent to one year’s basic 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 applicable, 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 individ- ual exceptions at his discretion. 132 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 Shareholdings of the members of the Group Executive Board Blocked and non-blocked shares held by members of the Group Executive Board or related parties as at 31 December 2015 and 2014 are listed in the table below: Number  Urs Schaeppi (CEO)  Mario Rossi  Hans C. Werner  Marc Werner 1 Christian Petit 2 Roger Wüthrich-Hasenböhler 3 Heinz Herren 3 Total shares of the members of the Board of Directors  1  Joined the Group Executive Board as of 1 January 2014. 2  Rejoined the Group Executive Board as of 1 April 2014. 3  Rejoined the Group Executive Board as of 1 January 2014. 31.12.2015 31.12.2014 2,602 821 571 211 1,525 1,032 1,098 7,860 2,275 634 421 106 1,332 879 1,122 6,769 No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital. 4.6 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. 133 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 Remuneration for additional services Swisscom may pay remuneration to members of the Board of Directors for assignments in Group companies and for those performed by order of Swisscom (Article 6.4 of the Articles of Incorpora- tion). In 2015, Hugo Gerber was the only member to receive remuneration for an additional man- date for his mandate as a member of the Board of Directors of the Swisscom Group company Work- link 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. The full remunera- tion is paid in cash. Out-of-pocket expenses are reimbursed on the basis of actual costs incurred. The remuneration takes into account the activities and level of responsibility. It is determined by the Board of Directors of Worklink 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. 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 2015 financial year, Swisscom has granted 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. 134 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 2015 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 contained in the sections 3.3, 4.3 and 5.1 to 5.3 on pages 122 to 134 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 judgement, 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 components of remuneration, as well as assessing the overall presentation of the Remunera- tion 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 2015 of Swisscom Ltd complies with Swiss law and articles 14–16 of the Ordinance. KPMG AG Hanspeter Stocker Certified Auditor Auditor in Charge Berne, 3 February 2016 Daniel Haas Certified Auditor 135 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 Over 2,000 Swisscom Friends help their neighbours with technical issues. The service’s recommendation rate is 98%. “Together with my colleagues, I am pleased to have been able to bring the idea of a new type of customer service platform to fruition at Swisscom. Swisscom Friends off ers quick neighbourly help for carefree interaction in the digital world. With over 1,000 interventions per month, it is clear that Swisscom Friends has developed into a successful service. “ Lukas Peter Initiator Swisscom Friends Financial Statements Through targeted investments we are providing the very best infrastructure for our customers. Consolidated fi nancial statements 140 Consolidated income statement 141 Consolidated statement of comprehensive income 142 Consolidated balance sheet 143 Consolidated statement of cash fl ows 144 Consolidated statement of changes in equity 145 Notes to the consolidated fi nancial statements 1 General information 2 Basis of preparation 3 Summary of signifi cant accounting policies 4 Signifi cant accounting judgments, estimates and assumptions in applying accounting policies 5 Business combinations and disposal of subsidiaries 6 Segment information 7 Net revenue 8 Goods and services purchased 9 Personnel expense 10 Post-employment benefi ts 11 Share-based payments 12 Other operating expense 13 Capitalised costs of self-constructed assets and other income 14 Financial income and fi nancial expense 15 Income taxes 16 Earnings per share 17 Cash and cash equivalents 18 Trade and other receivables 19 Other fi nancial assets 20 Inventories 21 Other non-fi nancial 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 and contingent assets 30 Other non-fi nancial liabilities 31 Additional information concerning equity 32 Dividends 33 Financial risk management and supplementary disclosures regarding fi nancial instruments 34 Supplementary information on the statement of cash fl ows 35 Future commitments 36 Research and development 37 Related parties 38 Service concession agreements 39 Events after the balance sheet date 40 List of Group companies 212 Report of the Statutory Auditor Financial statements of  Swisscom Ltd 214 Income statement 215 Balance sheet 216 Notes to the fi nancial statements 1 General information 2 Summary of signifi cant accounting policies 3 Disclosures on balance sheet and income statement positions 221 Proposed appropriation of retained earnings 222 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 cost of 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 2015 2014 11,678 11,703 (2,342) (3,019) (2,697) 478 4,098 (2,086) 2,012 43 (315) 23 1,763 (401) 1,362 1,361 1 26.27 (2,369) (2,751) (2,540) 370 4,413 (2,091) 2,322 112 (372) 26 2,088 (382) 1,706 1,694 12 32.70 140 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  Note 2015 2014 1 1,362 1,706 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  Gains and losses from available-for-sale financial assets transferred to income statement  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  10, 31 15, 31 31 31 31 31 31 15, 31 (393) 80 (313) (194) 4 (6) (12) 11 53 (144) (457) 905 904 1 (1,128) 238 (890) (46) – – 10 5 12 (19) (909) 797 786 11 1 The comprehensive income 2014 has been adjusted retroactively after completion of the definitive purchase price allocation of PubliGroupe SA acquired in September 2014. See Note 5. 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 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  142 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 31.12.2015 31.12.2014 1 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 31 324 2,535 85 174 21 238 – 3,377 9,855 5,161 1,861 223 238 354 80 302 2,586 40 149 17 252 109 3,455 9,720 4,983 1,921 182 226 417 57 17,772 21,149 17,506 20,961 1,195 1,768 146 351 693 4,153 7,398 2,919 788 290 359 11,754 15,907 52 136 6,783 (1,734) 5,237 5 5,242 21,149 1,580 1,876 172 107 718 4,453 7,024 2,432 820 371 375 11,022 15,475 52 136 6,885 (1,590) 5,483 3 5,486 20,961 1 The balance sheet at 31 December 2014 has been adjusted retroactively after completion of the definitive purchase price allocation of PubliGroupe SA acquired in September 2014. See Note 5.       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 operating assets and liabilities  Income taxes paid  Cash flow from 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  Proceeds from sale subsidiaries, net of cash and cash equivalents sold  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 increase (net decrease) 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 5 25 25 26 26 32 31 11, 31 34 2015 1,362 (23) 401 2,086 2 (27) 10 (43) 315 134 (350) 3,867 (2,427) 61 109 (64) 33 (43) (93) 34 12 23 (2,355) 1,287 (1,419) (200) (1,140) (7) (5) (2) 2 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) (1,484) (1,847) 28 302 (6) 324 (423) 723 2 302 143 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 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  Note Share capital Capital reserves Retained earnings Treasury shares Balance at 31 December 2013  52 136 Net income  Other comprehensive income  Comprehensive income 1 Dividends paid  Purchase of treasury shares  for share-based payments  Allocation of treasury shares  for share-based payments  Transactions with  non-controlling interests  Balance at 31 December 2014 1 Net income  Other comprehensive income  Comprehensive income  Dividends paid  Purchase of treasury shares  for share-based payments  Allocation of treasury shares  for share-based payments  Transactions with  non-controlling interests  Balance at 31 December 2015  32 31 11, 31 31 32 31 11, 31 – – – – – – – 52 – – – – – – – 52 7,356 1,694 (889) 805 (1,140) – – (136) – – – – – – – 136 6,885 – – – – – – – 1,361 (313) 1,048 (1,140) – – (10) 136 6,783 Equity attributable to equity Non- Other holders of controlling interests Swisscom reserves (1,571) – (19) (19) 5,973 1,694 (908) 786 29 12 (1) 11 Total equity 6,002 1,706 (909) 797 – (1,140) (16) (1,156) – – – (5) 5 – – (5) 5 (136) (21) (157) (1,590) 5,483 – 1,361 (144) (144) (457) 904 3 1 – 1 5,486 1,362 (457) 905 – (1,140) (7) (1,147) – – – (2) 2 (10) (1,734) 5,237 – – 8 5 (2) 2 (2) 5,242 – – – – – (5) 5 – – – – – – (2) 2 – – 1 The comprehensive income 2014 has been adjusted retroactively after completion of the definitive purchase price allocation of PubliGroupe SA acquired in September 2014. See Note 5. 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 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 2015 comprise Swisscom Ltd, the parent company, and its subsidiaries. A table of the Group subsidiaries is set out in Note 40. 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 2015, the Swiss Confederation (“Confederation”), as major- ity shareholder, held 51.0% of the voting rights and issued capital of Swisscom Ltd. The Confedera- tion 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 3 February 2016. The consolidated financial statements must be approved at the Annual General Meeting of Shareholders of Swisscom Ltd to be held on 6 April 2016. 2 Basis of preparation The consolidated financial statements of Swisscom have been prepared in accordance with Inter- national Financial Reporting Standards (IFRS) and in compliance with the provisions of Swiss law. The reporting period covers twelve months. The consolidated financial statements 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 classified 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 amounts reported in the balance sheet at the time of preparing the financial statements. 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   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. Companies acquired and sold are included in consolidation from the date on which they are acquired and deconsolidated from the date they are disposed of, respectively. Intercompany balances and trans- actions, 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 impairment 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 statement as a component of the consolidated net income or loss. Move- ments in shareholdings of subsidiary companies are reported as transactions within equity insofar as control existed previously and continues to exist. Written put options to owners of non-con- trolling 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 translated into the functional currency using the exchange rates prevailing at the dates of the transactions. 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 translated 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 arising 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 cumu- lative 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 31.12.2015 31.12.2014 31.12.2013 1.084 0.995 1.202 0.990 1.228 0.890 2015 1.075 0.966 2014 1.213 0.920 146 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     3.3 Cash and cash equivalents Cash and cash equivalents include cash on hand, sight balances and time deposits with financial institutions 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 amor- tised 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 into the following categories: “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 classifica- tion of financial 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. Upon acquisition, financial assets are recognised at their fair values, including directly related trans- action costs. Transaction costs relating to financial assets at fair value through profit or loss are not capitalised on acquisition 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 re-measurement are taken to income. 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, in addition to trade receivables, term deposits with original matur- ities exceeding three months which Swisscom places directly, or through an agent, with the bor- rower. 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 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. 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   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. Valuation allowances are rec- ognised 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 acquisition or manufacturing cost less accumulated depreciation/amortisation and impairment losses. In addition to the purchase cost and the costs directly attributable to bringing the asset to the location and condition necessary for it to be capa- ble of operating in the manner intended by management, purchase or manufacturing cost also includes the estimated costs for dismantling and restoration of the site. The manufacturing costs of self- constructed assets include directly attributable costs as well as indirect costs of material, manufacture 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/amortisation 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 pro- cess for determining useful estimated lives takes into account the anticipated use by the company, the expected wear and tear, technological developments as well as empirical values with compara- ble assets. The estimated useful lives and residual values are reviewed at least annually as of the balance sheet date and, where necessary, adjusted. Leasehold improvements and installations in leased premises are amortised on a straight-line basis over the shorter of their estimated useful lives and the remaining minimum 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 calcu- lated 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 busi- ness 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- 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     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 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 the 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 In determining useful estimated lives, the anticipated use by the company, the expected wear and tear, technological developments as well as empirical values with comparable assets are taken into account. Systematic amortisation is computed using the straight-line method based on the follow- ing 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 continuing use. This condi- tion is only considered as being met if the non-current asset or disposal group is immediately avail- able 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 disposal groups are valued at the lower of their carrying amount and fair value less costs of dis- posal. Impairment losses resulting from the initial classification are recognised in the income state- ment. Assets classified as held for sale and disposal groups are no longer depreciated or amortised. 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   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 indications of impairment in value. An impairment loss is recognised where there is objective evidence of impair- ment, such as where the borrower is in bankruptcy, in default or other significant financial difficul- ties. 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 flows, tak- ing into consideration 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 sub- sequent 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 costs to sell and the value in use, is less than its carrying amount, the carrying amount is written down 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. 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   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. 3.15 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. 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 installa- tions 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 re-measured, 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 net carrying amount. Any excess is taken directly to the income statement. 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, revenues 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 and TV ser- vices, fixed-network and mobile phone subscriptions as well as national and international tele- phone and data traffic for residential customers. The segment also includes value-added services and the sale of terminal equipment. 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   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. Furthermore, the segment includes the business with on-line directories and telephone directories. Enterprise Customers The segment Enterprise Customers focuses on complete communication solutions for large busi- ness 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 telecommu- nication service providers and the use of third-party networks by Swisscom. It also includes roam- ing with foreign operators whose customers use Swisscom’s mobile networks, as well as broad- band services and regulated products as a result of the unbundling of the “last mile” for other telecommunication service providers. IT, Network & Innovation IT, Network & Innovation is responsible primarily for the planning, operation and maintenance of Swisscom’s network infrastructure and all IT systems. It is responsible for the development and production of standardised IT and network services for the entire Group. In addition, IT, Network & Innovation also includes the support functions Finances, Human Resources and Strategy for Swisscom Switzerland as well as the management of real estate in Switzerland. Fastweb Fastweb is one of the largest providers of broadband services in Italy. Its product portfolio com- prises voice, data, broadband and 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 the business area Participations. In addition, the seg- ment includes the areas of Health and Connected Living. Participations consist principally of the subsidiaries Billag Ltd, cablex Ltd, and Swisscom Broadcast Ltd. Billag Ltd collects radio and TV license fees on behalf of the Swiss Confederation. cablex Ltd operates in the field of construction and maintenance of wired and wireless networks in Switzerland, primarily in the field of telecom- munication. 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 Combined offerings Swisscom provides bundled service offerings which include internet and TV as well as an optional fixed-line connection with telephony services. They are all offered on the basis of fixed monthly subscription charges (flat rate). Revenue is recognised on a straight-line basis over the contractual term. Mobile Mobile phone services encompass basic subscription charges and in addition, domestic and inter- national mobile phone traffic generated by Swisscom customers in Switzerland or abroad as well as roaming by foreign operators whose customers use Swisscom’s networks. Mobile services also include value-added services, data traffic as well as the sale of mobile handsets. Revenue from mobile telephony is recorded on the basis of the actual minutes used. Swisscom offers subscrip- tions with a fixed monthly flat-rate fee, 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. 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   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 rec- ognised as revenue at the time the service is provided. If a mobile handset is sold as a part of a bundled offering with a subscription, it is treated as a multi-component transaction. The price of the entire multi-component transaction is spread on a pro-rata basis over the various component parts on the basis of the respective individual sales prices thereof. In this respect, the revenue to be recognised for each individual component is lim- ited by that part of the total consideration for the multi-component transaction whose payment is not dependent on the provision of additional services. Fixed networks Fixed-network services encompass primarily connection fees as well as 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 services, operator services as well as the business with prepaid calling cards and the sale of terminal equipment. Installation 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 terminal equipment is recorded at the time of delivery. Broadband Broadband services include the range of broadband access lines offered to residential and corpo- rate 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 con- tract term on a straight-line basis. If no minimum contract term has been agreed, the revenue is recognised on the date of installation or connection. TV In the TV sector, revenue is generated from the range of digital TV services and video-on-demand. Revenue from TV services contains non-recurring installation and connection charges and recur- ring subscription fees. Installation and connection fees related to installations are deferred and released to income over the minimum contract term on a straight-line basis. If no minimum con- tract 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, maintenance and operation of communication infrastructures. Fur- thermore, they include applications and services as well as the integration, operation and mainte- nance of data networks and outsourcing services. Revenues from customer-specific construction 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 relating to and the 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. 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   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, inter alia, the number of years of service com- pleted 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 2015. Cur- rent pension entitlements are charged to income in the period in which they arise. Actuarial gains and losses are recorded in full 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 encompass 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 taxes are recognised in principle on all temporary differences. Temporary differences arise from dif- ferences between the carrying amount of a balance sheet position in the consolidated financial statements and its value as reported for tax purposes and which will reverse in future periods. The tax rate used to determine the amount of deferred taxes is that which is expected to apply when the temporary difference reverses based on the tax rates which are in force or announced as of the bal- ance 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 recognised 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 re-measured at fair value. The method of recording the fluctuations in fair value varies according to the underly- ing transaction and the intention with regards thereto upon purchase or issuance of this underly- ing transaction. On the date a derivative contract is entered into, management designates the pur- pose 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 results. 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. 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   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 2015 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 IAS 19  Defined benefit plans: employee contributions  Various  Various  Improvements to IFRS 2010–2012  Improvements to IFRS 2011–2013  Amended International Financial Reporting Standards and Interpretations, whose application is not yet mandatory The following Standards and Interpretations published up to the end of 2015 are mandatory for accounting periods beginning on or after 1 January 2016: Standard  IFRS 9  Name  Financial instruments  Amendments to IFRS 10,  IFRS 12 and IAS 28  Investment entities: Exception to consolidation  Amendments to IFRS 11  Accounting for acquisitions of interests in a joint operation  IFRS 15  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 of acceptable methods of depreciation and amortisation  Agriculture: Bearer plants  Amendments to IAS 27  Equity method in separate financial statements  Various  Improvements to IFRS 2012–2014  Effective from 1 January 2018 1 January 2016 1 January 2016 1 January 2018 1 January 2016 1 January 2016 1 January 2016 1 January 2016 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 2016 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 stan- dards 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 to the customer 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 regard- ing the costs of fulfilment and winning 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 disclosure information. Swisscom anticipates that the wide-ranging amendments, in particular in the area of accounting for multi-component contracts and the prescribed capitalisation of cus- tomer 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 conclu- sive manner. 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         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 certain 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 preparing the consolidated financial 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. Description  Arbitrary decisions and estimation insecurity  Further information Recoverability of Goodwill  Key assumptions such as projected cash flows, the discount rate (WACC)  and long-term growth rate for determination of recoverable amount  Defined benefit obligations  Key assumptions such as discount rate, future salary and pension increases,  interest on pension plan savings as well as life expectancy for valuing  the retirement-benefit obligations  Future costs for dismantlement and restoration  as well as the date of the dismantlement  Note 24 Note 10 Note 28 Probability of occurring event and value of the expected cash outflow  Note 28 Measurement of allowances taking into account historical experience  with receivable losses  Possibility of achieving future taxable profits which can be offset  against the available tax loss-carry forwards  Estimate of useful lives taking into account the expected use,  expected physical wear, technology developments as well as  past experience with comparable assets  Note 18 Note 15 Notes 3.7 and 23 Provisions for  dismantlement and  restoration costs  Provision for regulatory  and competition  law procedures  Allowances for  doubtful receivables  Recognition of  deferred tax assets  Useful lives of property,  plant and equipment  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                 5 Business combinations and disposal of subsidiaries Business combinations in 2015 In 2015, Swisscom made payments, net of cash and cash equivalents acquired, totalling CHF 64 mil- lion for the acquisition of subsidiaries. Of this amount, CHF 8 million relates to deferred consideration arising on business combinations in prior years and CHF 56 million for subsidiaries acquired in 2015. Business combination search.ch Ltd In May 2014, Swisscom and Tamedia agreed to contribute their companies Swisscom Directories Ltd (local.ch) and search.ch Ltd to a jointly-held subsidiary company. Swisscom holds 69% of the capital of the joint company, with Tamedia holding the remaining 31%. With the on-line directory platform local.ch and the Local Guide telephone directories, Swisscom Directories Ltd is a leading company in Switzerland in the field of advertising and the operation of directories. Search.ch Ltd (search.ch) is a leading Swiss search and information service. With the merger of Swisscom Direc- tories Ltd (local.ch) and search.ch Ltd, there is born a comprehensive Swiss directory and informa- tion platform for private individuals, companies and public administrations as well as an important advertising partner for small and medium-size companies. The transaction was consummated at the beginning of July 2015 following consent to the transac- tion given by the Federal Competition Commission (Weko). Swisscom granted Tamedia a put option and Tamedia granted Swisscom a call option for the 31% share of Tamedia which both can be exer- cised as from the third year following the consummation of the transaction. The fair value of the put option amounts to CHF 222 million. This amount was recognised as a financial liability in the third quarter of 2015. The fair value of the put option corresponds to the purchase cost for the acquisition of search.ch Ltd. The allocation of the acquisition costs over the net assets of search.ch may be analysed as follows: In CHF million  Purchase price allocation of search.ch AG  Cash and cash equivalents  Other intangible assets  Other current and non-current assets  Defined benefit obligations  Deferred tax liabilities  Other current and non-current liabilities  Identifiable assets and liabilities  Goodwill  Purchase consideration  Cash and cash equivalents acquired  Issuance of equity instruments  Total cash inflow  2015 12 42 10 (5) (4) (20) 35 187 222 (12) (222) (12) The gross amount of the trade receivables acquired amounts to CHF 7 million. At the time of the acquisition, it was anticipated that of this amount, CHF 1 million was non-collectible. No transac- tion costs arose in connection with the acquisition of search.ch. The principal reasons for the recog- nition of goodwill are the anticipated synergies from distribution as well as additional market share. In 2015, there resulted additional net revenues of CHF 18 million and a profit of CHF 4 million from this business combination. On the assumption that the subsidiary acquired in 2015 had been included in the consolidated financial statements as from the date of 1 January 2015, there would have resulted consolidated pro-forma net revenues of CHF 11,693 million and a consolidated pro- forma net income of CHF 1,363 million. 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     Other business combinations in 2015 In 2015, Swisscom acquired the entire share capital of two companies, the Veltigroup group and H-Net Ltd. Furthermore, Swisscom acquired in 2015 51% of the share capital of Mila Ltd. With the acquisition of Veltigroup, Swisscom consolidates its ICT portfolio for business clients and its pres- ence in Western Switzerland. Veltigroup is a leading ICT service provider and offers companies a complete ICT service offering from infrastructure through to end-customer services and solutions. Through the purchase of H-Net Ltd, Swisscom strengthens its portfolio in the field of healthcare. H-Net Ltd is one of the leading companies in the fields of administrative and medical data exchange in healthcare. H-Net Ltd was merged with Swisscom Health Ltd following acquisition. The purchase of Mila Ltd is designed to make a contribution to all three strategic market thrusts of Swisscom (client orientation, innovation, operational excellence). In addition, Swisscom acquired the Avanti business from HP Switzerland. Avanti is an operations control system and back-office for emergency response organisations. Furthermore, Swisscom acquired the Swiss business of World Television (Switzerland) Limited. Through this, Swisscom Event & Media Solutions could further expand its existing offering in the field of video and stream- ing services thereby becoming the Swiss market leader in the field of on-line video communications and live-streaming for corporate customers. The other subsidiaries and business areas acquired in 2015 are regarded as immaterial business combinations and are thus presented on an aggregate basis. The aggregate allocation of acquisi- tion costs over the net assets acquired may be analysed as follows: In CHF million  Purchase price allocation of other business combinations  Cash and cash equivalents  Other intangible assets  Other current and non-current assets  Defined benefit obligations  Deferred tax liabilities  Other current and non-current liabilities  Identifiable assets and liabilities  Share of identifiable net assets attributable to non-controlling interests  Goodwill  Acquisition costs  Cash and cash equivalents acquired  Deferred payment of purchase price  Total cash outflow  2015 21 60 52 (25) (7) (58) 43 (8) 68 103 (21) (14) 68 The gross amount of trade receivables acquired totals CHF 34 million. At the time of the acquisition, it was anticipated that all of these receivables were considered collectible. No transaction costs arose in connection with the acquisition of the remaining subsidiaries acquired in 2015. The princi- pal reasons for the recognition of goodwill are the anticipated synergies, the additional market shares and the qualified workforce. In 2015, there resulted additional net revenues of CHF 139 mil- lion and a net income of CHF 3 million from these business combinations. On the assumption that the subsidiaries acquired in 2015 had been included in the consolidated financial statements as from the date of 1 January 2015, there would have resulted consolidated pro-forma net revenues of CHF 11,679 million and a consolidated pro-forma net income of CHF 1,361 million. 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 SA in September 2014. 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     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 equates to a total pur- chase 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% was CHF 466 million. Because the threshold of 98% within the framework of public takeover bid was exceeded, Swisscom was able to 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. Settlement of the deferred portion of the purchase price took place in the second quarter of 2015. The takeover of PubliGroupe was primarily designed 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 outstanding 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 take- over, the transaction is dealt with in shareholders’ equity. The carrying amount in Swisscom’s con- solidated financial statements of its 49% shareholding in LTV Yellow Pages Ltd at the time of the takeover was CHF 26 million. In accordance with IFRS, the difference of CHF 82 million between the carrying amount and the fair value was recognised as other financial income in the third quarter of 2014. Following the takeover, LTV Yellow Pages Ltd and local.ch Ltd were merged into Swisscom Directories Ltd. PubliGroupe holds, in addition, shareholdings in media companies and media ser- vice providers as well as being the owner of real-estate properties. Swisscom plans to sell the share- holdings and 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. In accordance with IFRS, the acquisition costs for the takeover 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 acquired 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 the consolidated financial statements. Swisscom’s consolidated financial 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. 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   The definitive purchase price allocation for the PubliGroupe takeover was completed in the third quarter of 2015 and the prior year’s figures were restated accordingly. The reconciliation of the provisional and definitive price allocation is set out below: In CHF million  Purchase price allocation PubliGroupe SA  Cash and cash equivalents  Other financial assets  Non-current assets held for sale  Investments in associates  Property, plant and equipment  Other intangible assets  Receivables from pension plans (defined benefit obligations)  Other current and non-current assets  Deferred tax liabilities  Financial liabilities  Other current and non-current liabilities  Identifiable assets and liabilities  Goodwill  Acquisition costs  Cash and cash equivalents acquired  Investments in associates  Deferred payment of purchase price  Cash outflow  Reported provisionally Adjustment Definitive 16 42 137 48 4 63 15 48 (11) (20) (114) 228 192 420 (16) (108) (8) 288 – (7) 29 11 – – (24) – (10) – 5 4 (4) – – – – – 16 35 166 59 4 63 (9) 48 (21) (20) (109) 232 188 420 (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 CHF 7 million was irrecoverable. The main reasons for the recogni- tion of goodwill are the anticipated synergies and additional market share as well as the qualified workforce. Transaction costs of CHF 1 million were recorded as other operating expenses in con- nection with the takeover of PubliGroupe. The following retroactive adjustments to the consolidated balance sheet of Swisscom as of 31 December 2014 resulted from the definitive purchase price allocation: In CHF million  Reported Adjustment Restated Consolidated balance sheet at 31 December 2014  Other financial assets  Non-current assets held for sale  Goodwill  Investments in associates  Defined benefit obligations  Provisions  Deferred tax liabilities  Equity  Share of equity attributable to equity holders of Swisscom Ltd  Share of equity attributable to non-controlling interests  273 80 4,987 171 2,441 932 357 5,457 5,454 3 (7) 29 (4) 11 (9) (5) 14 29 29 – 266 109 4,983 182 2,432 927 371 5,486 5,483 3 160 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 following retroactive adjustments to the consolidated statement of comprehensive income for the year ended 31 December 2014 resulted from the definitive purchase price allocation: In CHF million  Reported Adjustment Restated Consolidated statement of comprehensive income 2014  Net income  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  1,706 (938) 768 757 11 – 29 1 29 29 – 1,706 (909) 797 786 11 1  Actuarial gains from defined benefit pension plans of CHF 32 million less income taxes of CHF 3 million. Disposal of subsidiaries in 2015 In 2015, Swisscom disposed of Alphapay Ltd and its entire shareholdings in the Swisscom Hospital- ity Services Group. Alphapay Ltd is active as a debt-collection service provider and is specialised in the receivables management of third parties. Swisscom Hospitality Services offers broadband ser- vices to guests and clients in the fields of hotel and conference services in Europe and North Amer- ica. In addition, iWare SA and Spree7 GmbH, both active in the media sector, were sold in 2015, The sale of these subsidiaries gave rise to a profit of CHF 19 million which was recognised as other financial income. The aggregate carrying amounts of the net assets disposed of as well as the aggregate cash inflows from the sales of subsidiaries in 2015 may be analysed as follows: In CHF million  Cash and cash equivalents  Trade and other receivables  Property, plant and equipment  Goodwill  Deferred tax assets  Other current and non-current assets  Trade and other payables  Other current and non-current liabilities  Total net assets sold  Purchase consideration  Cash and cash equivalents sold  Deferred payment of purchase price  Total cash inflow from sale of subsidiaries  2015 11 21 2 13 3 11 (14) (21) 26 45 (11) (1) 33 161 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         6 Segment information Changes in segment reporting Swisscom conducts its activities for large corporate clients from the business areas Corporate Busi- ness, Network & IT and Swisscom IT Services, bundled together in order to react to the needs of corporate clients from a single source and to offer rapid cloud-based solutions. The new business segment Enterprise Customers services all large corporate clients, thereby advancing to become one of the largest ICT service providers in Switzerland for large corporations. From now on, the business area IT, Network & Innovation is responsible for the operation of all IT systems thereby taking over the operation of the IT platforms previously managed by Swisscom IT Services. It is responsible for the development and production of standardised IT and network services for the entire Group. In addition, it now manages the real estate located in Switzerland. As a result of these modifications, Swisscom IT Services and Swisscom Real Estate Ltd are integrated into segment reporting for the segments Enterprise Customers as well as IT, Network & Innovation. Previously, these business units were reported under Other Operating Segments. The prior year’s figures have been restated as follows: In CHF million  Net revenue for  financial year 2014  Residential Customers  Small and Medium-Sized Enterprises  Enterprise Customers  Wholesale  IT, Network & Innovation  Elimination  Swisscom Switzerland  Fastweb  Other Operating Segments  Group Headquarters  Elimination  Total net revenue  Segment result  Financial year 2014  Residential Customers  Small and Medium-Sized Enterprises  Enterprise Customers  Wholesale  IT, Network & Innovation  Elimination  Swisscom Switzerland  Fastweb  Other Operating Segments  Group Headquarters  Elimination  Total segment result  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 Reported Adjustment Restated 5,326 1,159 1,788 929 – (571) 8,631 2,047 1,889 2 (866) 11,703 2,823 850 832 381 (2,483) – 2,403 (119) 186 (126) (22) 2,322 (164) 172 781 – 126 (217) 698 – (1,224) – 526 – (92) 44 22 – 173 (1) 146 – (144) (2) – – 5,162 1,331 2,569 929 126 (788) 9,329 2,047 665 2 (340) 11,703 2,731 894 854 381 (2,310) (1) 2,549 (119) 42 (128) (22) 2,322       General disclosures 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 Oper- ating Decision Maker. The segment information disclosed is in line with that reported in the inter- nal reporting system. Reporting is divided into the segments “Residential Customers”, “Small and Medium-Sized Enterprises”, “Enterprise Customers”, “Wholesale” and “IT, Network & Innovation” which are regrouped under Swisscom Switzerland, as well as “Fastweb” and “Other Operating Seg- ments”. In addition, “Group Headquarters”, which includes unallocated costs, are reported sepa- rately in segment reporting. Further segment disclosures are set out in Note 3.16. Group Headquarters charges no management fees for its financial management and the segment IT, Network & Innovation charges no network costs to other segments. Other services between the segments are recharged between the segments at market prices. The results of the segments Res- idential Customers, Small and Medium-Sized Enterprises, Enterprise Customers and Wholesale equate to a contribution margin prior to network costs. The segment results of IT, Network & Inno- vation reports, as its segment result, operating expenses and depreciation and amortisation, less revenues from the rental and management of real estate, the capitalised costs of self-constructed assets and other income. The segment results of Swisscom Switzerland correspond in aggregate to the operating results (EBIT) of Swisscom Switzerland. The services offered by the individual operat- ing segments are described in Note 3.16. The segment results of Fastweb and Other Operating Segments correspond to the operating results (EBIT) of these units. This latter encompasses net revenues from external customers and other segments, less segment expenses, depreciation and amortisation and impairment losses on property, plant & equipment and intangible assets. Seg- ment expenses comprise the costs of materials and services, personnel expenses and other oper- ating costs less capitalised costs of self-constructed assets and other income. 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 2015, an amount of CHF 60 mil- lion is included in the column “Eliminations” as a reconciling item to retirement-benefit expense in accordance with IAS 19 (prior year: no expense). Services provided to or sales of assets recharged between the individual segments may include unrealised gains or losses. These are eliminated and are reported in the segment information in the column “Eliminations”. Segment information 2014 and 2015 Segment information for 2015 of Swisscom may be analysed as follows: 2015, in CHF million  Net revenue from external customers  Net revenue from 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  Swisscom Switzerland Fastweb 9,475 1,862 70 9,545 2,218 5 1,867 (16) Other Operating Segments Group Head- quarters 340 263 603 (5) 1 1 2 (117) Elimi- nation Total – 11,678 (339) (339) (68) – 11,678 2,012 (272) 23 1,763 (401) 1,362 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  105 42 1,817 1,383 20 16 581 635 – – 76 48 74 (3) 7 – – – – – – 223 (19) (6) – – 2,427 2,086 17 23 163 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         Segment information 2015 of Swisscom Switzerland may be analysed as follows: 2015, in CHF million  Small and Medium- Sized Enterprises Residential Customers Enterprise Customers IT, Whole- Network & Innovation sale Elimi- nation Total Swisscom Switzer- land Net revenue from external customers  5,075 1,339 2,449 Net revenue from other segments  Net revenue  Segment result  Associates  149 5,224 2,797 31 205 1,370 2,654 859 818 31 2 15 Capital expenditure in property, plant and  equipment and other intangible assets  180 Depreciation, amortisation and impairment losses  136 Gain (loss) on disposal of property,  plant and equipment, net  Share of results of associates  (3) 50 48 – – 171 92 (5) – 579 377 956 198 56 – – – 19 33 97 130 (2,454) 1 1,416 1,107 25 – – 9,475 (789) (789) – – – – – – 70 9,545 2,218 105 1,817 1,383 20 16 Segment information 2014 of Swisscom is to be analysed as follows: 2014, in million CHF,  restated  Net revenue from external customers  Net revenue from 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  Swisscom Switzerland Fastweb 9,253 2,043 76 9,329 2,549 4 2,047 (119) Other Operating Segments Group Head- quarters 406 259 665 42 1 1 2 (128) 68 – 1,768 1,286 52 26 47 – 682 744 – – 67 109 38 61 (3) – – – – 5 – – Elimi- nation Total – 11,703 (340) (340) (22) – – (28) (5) – – – 11,703 2,322 (260) 26 2,088 (382) 1,706 182 109 2,460 2,091 49 26 164 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               Segment information 2014 of Swisscom Switzerland is to be analysed as follows: 2014, in million CHF,  restated  Small and Medium- Sized Enterprises Residential Customers Enterprise Customers IT, Whole- Network & Innovation sale Elimi- nation Total Swisscom Switzer- land Net revenue from external customers  5,006 1,301 2,344 Net revenue from other segments  Net revenue  Segment result  Associates  156 5,162 2,731 – Capital expenditure in property, plant and equipment  and other intangible assets  161 Depreciation, amortisation and impairment losses  114 Gain (loss) on disposal of property,  plant and equipment, net  Share of results of associates  (1) – 30 225 1,331 2,569 894 854 3 37 21 – 2 – 152 88 (1) – 570 359 929 381 64 – – – 24 32 94 126 (2,310) 1 1,418 1,063 54 – – 9,253 (788) (788) (1) – – – – – 76 9,329 2,549 68 1,768 1,286 52 26 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 which primarily provides fixed-network and IP-based products in Italy. Net revenue and assets are allo- cated to regions. Net revenue 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  2015 2014 Net revenue Non-current assets Net revenue Non-current assets 9,764 1,864 43 7 – 14,151 2,904 125 – 592 9,586 2,048 55 14 – 13,423 3,281 151 – 651 11,678 17,772 11,703 17,506 2015 2,804 3,439 2,248 3,186 1 2014 2,852 3,832 1,938 3,080 1 11,678 11,703 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 customer accounted for more than 10% of segment revenue in 2014 and 2015. 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           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  2015 10,887 788 3 2014 10,874 828 1 11,678 11,703 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 2015 19 484 1,124 174 263 278 2,342 2015 2,295 257 320 9 2 4 67 65 2014 42 503 1,103 176 246 299 2,369 2014 2,194 232 244 10 5 5 (1) 62 3,019 2,751 Swisscom supports employees involved in 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. 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   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 346 million in 2015 (prior year: CHF 268 million). Of this amount, CHF 320 million (prior year: CHF 244 million) was recorded as personnel expense and CHF 26 million (prior year: CHF 24 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 mini- mum 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 contribu- tions varying with age of 5–13% of the insured salary which are credited to the individual retire- ment 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 6.11%. The accumulated savings result from employee and employer contributions which are paid into the individual savings account of each 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 founda- tion. The Foundation Council, which is constituted by an equal number of representatives of the employer and employees, 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 funding shortfall is permitted. The Foundation Council must take appropriate mea- sures in order to solve the shortfall within a reasonable timeframe. Pursuant to BVG, additional employer and employee contributions may be incurred whenever a significant shortfall in accor- dance 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 2015, the funding ratio as defined by BVG of comPlan was approx. 108% (prior year: 111%). 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 invest- ment controller. The Foundation Council determines the investment strategy and tactical band- widths 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 the plans of various subsidiary companies in Switzerland which did not join comPlan, other pension plans include the pension plan for Fastweb employees. Employees of the Italian sub- sidiary 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. 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   Pension cost Defined-benefit pension plans In CHF million  Current service cost  Plan amendments  Administration expense  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 305 – 4 309 25 25 Other plans 13 (3) 1 11 1 1 2015 comPlan 318 234 (3) 5 320 26 26 – 3 237 24 24 334 12 346 261 Other plans 6 – 1 7 – – 7 2014 240 – 4 244 24 24 268 In addition, other comprehensive income includes an actuarial loss of CHF 393 million (prior year: CHF 1,128 million) which may be analysed as follows: In CHF million  Actuarial gains and losses from:  Change of the demographical assumptions  Change of the financial assumptions  Experience adjustments to defined benefit obligations  Return on plan assets excluding the  recognised part of financial result  Expense (income) of defined benefit plans  recognised in other comprehensive income  comPlan Other plans 2015 comPlan Other plans 2014 restated (3) 171 85 146 399 – 2 (8) – (6) (3) 173 77 – 1,536 (102) – 12 – – 1,548 (102) 146 (315) (3) (318) 393 1,119 9 1,128 Defined-contribution pension plans Expenses in 2015 for defined-contribution plans aggregated CHF 9 million (prior year: CHF 10 million). 168 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  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 business combinations  Disposals from sales of subsidiaries  Plan amendments  Foreign currency translation adjustments  comPlan Other plans 2015 comPlan Other plans 2014 restated 11,406 294 11,700 9,533 162 9,695 305 127 169 (288) 253 – (37) – – 13 3 6 (19) (6) 89 (1) (12) (2) 318 130 175 (307) 247 89 (38) (12) (2) – 234 218 162 (259) 1,434 – – – – 84 6 – 1 (2) 12 199 – – – (84) 294 240 218 163 (261) 1,446 199 – – – – 11,700 Transfer of pension plans to comPlan  248 (248) Balance at 31 December  12,183 117 12,300 11,406 Plan assets  Balance at 1 January  Interest income on plan assets  Employer contributions  Employee contributions  Benefits paid  Return on plan assets excluding the part  recognised in financial result  Additions from business combinations  Disposals from sales of subsidiaries  Plan amendments  Administration expense  Transfer of pension plans to comPlan  Balance at 31 December  Net defined benefit obligations  9,026 242 9,268 8,286 116 8,402 102 256 169 (288) (146) – (23) – (4) 215 9,307 2 9 6 (19) – 59 – (9) (1) (215) 104 265 175 (307) (146) 59 (23) (9) (5) – 194 259 162 (259) 315 – – – (3) 72 74 9,381 9,026 – 7 1 (2) 3 190 – – (1) (72) 242 194 266 163 (261) 318 190 – – (4) – 9,268 Net defined benefit obligations recognised at 31 December  2,876 43 2,919 2,380 52 2,432 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  Disposals from sales of subsidiaries  Additions from business combinations  Expense (income) of defined benefit plans  recognised in other comprehensive income  Foreign currency translation adjustments  Transfer of pension plans to comPlan  Balance at 31 December  comPlan 2,380 334 (256) (14) – 399 – 33 2,876 Other plans 2015 comPlan Other plans 2014 restated 52 12 (9) (1) 30 (6) (2) (33) 43 2,432 1,247 46 1,293 346 (265) (15) 30 261 (259) – – 393 1,119 (2) – – 12 2,919 2,380 7 (7) – 9 9 – (12) 52 268 (266) – 9 1,128 – – 2,432 The weighted average duration of the net present value of the recorded pension obligations is 18 years (prior year: 18 years). 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                 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: 31.12.2015 31.12.2014 Category  Government bonds Switzerland  Corporate bonds Switzerland  Investment strategy 8.0% 6.0% Quoted 2.2% 7.8% Government bonds developed markets, World  10.0% 10.1% Corporate bonds developed markets, World  Government bonds emerging markets, World  Private debt  9.0% 7.0% 6.0% 9.0% 6.5% 0.0% Not quoted 7.4% 0.0% 0.0% 0.0% 0.0% 4.9% Total Quoted 9.6% 7.8% 5.3% 8.7% 10.1% 11.0% 9.0% 6.5% 4.9% 7.9% 6.6% 0.0% Third-party debt instruments  46.0% 35.6% 12.3% 47.9% 39.5% Equity shares Switzerland  5.0% 4.9% Equity shares developed markets, World  12.0% 11.0% Equity shares emerging markets, World  Equity instruments  Real estate Switzerland  Real estate World  Real estate  Commodities  Private markets  8.0% 25.0% 11.0% 6.0% 7.4% 23.3% 8.2% 3.7% 17.0% 11.9% 4.0% 7.0% 1.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.6% 0.0% 3.6% 1.9% 6.1% 3.6% 4.9% 6.2% 11.0% 12.7% 7.4% 23.3% 11.8% 3.7% 8.1% 27.0% 8.1% 4.1% 15.5% 12.2% 3.6% 6.1% 3.6% 1.2% 0.0% 0.0% Not quoted 7.7% 0.0% 0.0% 0.0% 0.0% 1.0% 8.7% 0.0% 0.0% 0.0% 0.0% 2.3% 0.0% 2.3% 2.6% 5.1% 1.4% Total 13.0% 8.7% 11.0% 7.9% 6.6% 1.0% 48.2% 6.2% 12.7% 8.1% 27.0% 10.4% 4.1% 14.5% 3.8% 5.1% 1.4% Cash and cash equivalents and other investments  1.0% 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 Cash and cash equivalents and  alternative investments  12.0% 1.7% 11.6% 13.3% 1.2% 9.1% 10.3% Total plan assets  100.0% 72.5% 27.5% 100.0% 79.9% 20.1% 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 various investment categories, markets, currencies and industry segments in both developed and emerg- ing markets. The interest rate duration of interest-bearing assets is 5.77 years (prior year: 5.71 years) and the average rating of these assets is A–. Within the overall portfolio, all foreign currency posi- tions are hedged against the Swiss franc following a currency strategy to the extent necessary to meet a pre-determined ratio of 94% (CHF or CHF-hedged). The unquoted and therefore rather illiq- uid investments make up 27.5% of total plan assets. Following this investment strategy, comPlan anticipates a target value for the value fluctuation reserve of 18.1% (basis: 2016 financial year). Other pension plans The other plans pursue the goal of achieving the highest possible return on assets within the frame- work 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 invest- ment categories, markets, currencies and industry segments. Additional information on plan assets As of 31 December 2015, plan assets include Swisscom Ltd shares and bonds with a fair value of CHF 5 million (prior year: CHF 7 million). The effective return on plan assets in 2015 amounted to CHF –42 million (prior year: CHF 519 million). In 2016, Swisscom expects to make payments to the pension funds for ordinary employee contri- butions totalling CHF 250 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)  2015 2014 comPlan Other plans comPlan Other plans 0.94% 1.75% – 0.94% 21.49 23.96 1.46% 1.64% – 1.34% 21.49 23.96 1.13% 1.75% 0.10% 1.13% 21.39 23.86 1.31% 1.81% 0.10% 1.13% 21.39 23.86 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. Zero growth in pensions reflects comPlan’s lack of potential. Interest accruing on the retirement savings equates to the discount rate. From 2012 on, Swisscom applies the BVG 2010 generation tables for life-ex- pectancy 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%; –0.0%)  Interest on old age savings accounts (change +/– 0.5%)  Longevity at age of 65 (change +/–0.5 year)  Defined benefit obligations Current service cost 1 Increase Assumption Decrease Assumption Increase Assumption Decrease Assumption (899) 79 792 118 166 1,040 (74) – (108) (168) (39) 8 29 8 5 47 (8) – (8) (5) 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 half a year, respectively. In the process, only one of the assumptions is adjusted each time, the other parameters remain unchanged. In the sensitivity analysis in view of a negative movement in pen- sion increases, no change was made as the reduction in pension benefits is not possible. 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 2015 2014 2 – 2 3 2 5 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 their emoluments in Swisscom shares. Members of the Group Exec- utive Board receive 25% of their variable performance-related salary component in the form of Swisscom shares. Group Executive Board members may increase this share up to a maximum of 50% at their discretion. The shares are allocated based on their tax values. The level of the earn- ings-related compensation and the number of shares allocated are determined in the subsequent 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           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 473 (prior year: CHF 449). The shares are subject to a retention period of three years from the grant date. The shares are vested immediately upon delivery. In 2015, 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 2015  Members of the Board of Directors  Members of the Group Executive Board 1 Other Management members  Total 2015  1 Allocation for the financial year 2014. Number of allocated shares Market price in CHF Expense in CHF million 1,302 1,268 1,309 3,879 563 563 563 563 0.7 0.7 0.7 2.1 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 Other share-based payments plans As recognition for exceptional services rendered in the prior year, equity share premiums and 4,520 shares with a market price of CHF 535 were granted to employees gratuitously for excep- tional services rendered and an expense of CHF 2 million was recorded. 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  2015 345 285 10 104 261 227 300 200 81 143 741 2014 346 322 11 83 239 221 349 199 87 145 538 2,697 2,540 Other operating expense includes provisions established and released relating to regulatory and competition-law-related proceedings. See Note 28. 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           13 Capitalised costs of self-constructed assets and other income In CHF million  Capitalised costs of 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 costs of self-constructed assets and other income  2015 337 27 5 109 478 2014 267 60 6 37 370 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  Capitalised borrowing costs  Gain on sale of subsidiaries. See Note 5.  Gain on successive company acquisitions. See Note 5.  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.  Foreign exchange losses  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  2015 2014 10 8 19 – – 6 43 (199) (13) (26) (40) (13) – (24) (315) (272) 10 12 – 82 1 7 112 (228) (46) (24) – (16) (41) (17) (372) (260) 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  2015 – 10 10 (162) (32) (5) (199) (189) 2014 1 9 10 (189) (36) (3) (228) (218) 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   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  2015 296 (1) 106 401 387 14 2014 373 5 4 382 412 (30) In addition, the other comprehensive income includes positive income taxes of CHF 133 million (prior year: CHF 250 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  Analysis of income taxes 2015 51 80 (1) 3 133 2014 restated 15 238 (2) (1) 250 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’s operating subsidiaries in Switzerland. The applicable income tax rate remains unchanged from the prior year at 20.9%. 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 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 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  2015 1,692 71 1,763 20.9% 368 (5) 19 2 (7) 7 – (23) 36 4 401 2014 2,206 (118) 2,088 20.9% 436 (5) (21) (2) (10) 9 (2) (16) (12) 5 382 22.7% 18.3%           Income tax assets and liabilities Current income 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 business combinations  Current income tax liabilities at 31 December, net  Thereof current income tax assets  Thereof current income tax liabilities  Thereof Switzerland  Thereof foreign countries  2015 155 295 23 (345) (5) 2 125 (21) 146 129 (4) 2014 162 378 1 (377) (9) – 155 (17) 172 159 (4) Deferred tax assets and liabilities 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 31.12.2015 Net amount Assets Liabilities 31.12.2014 restated Net amount 41 – 86 582 171 192 (523) (335) (59) – – (91) 1,072 (1,008) (482) (335) 27 582 171 101 64 354 (290) (121) 185 47 – 79 508 218 98 950 (467) (341) (4) – – (92) (904) (420) (341) 75 508 218 6 46 417 (371) (91) 137 In 2015, 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 Recognised in income statement 31.12.2014, restated Recognised in other compre- hensive income Change in scope of consoli- Foreign currency translation Balance at dation adjustments 31.12.2015 (420) (341) 75 508 218 6 46 (59) 17 (45) (9) (31) 21 – – – 80 – 76 – (20) (2) 4 3 1 (106) 156 (14) (3) 9 (1) (1) (19) (3) (18) (482) (335) 27 582 171 101 64 175 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                 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 Balance at translation 31.12.2014, restated dation adjustments (301) (364) 10 268 203 7 (177) (119) 35 65 – 16 (1) (4) – – – 239 – 12 251 – (12) – 1 2 (12) (21) – – – – (3) – (3) (420) (341) 75 508 218 6 46 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 2015, various subsidiaries recognised deferred tax assets on tax loss carry-forwards and other temporary differences totalling CHF 1,072 million (prior year: CHF 950 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 202 million (prior year: CHF 237 million) were recognised by subsidiaries reporting a loss in 2014 or 2015. 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. Tax loss carry-forwards for which no deferred tax assets were recognised, 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  31.12.2015 31.12.2014 – 1 8 12 15 22 26 32 116 84 32 1 2 2 8 14 29 23 115 194 62 132 Deferred tax liabilities of CHF 6 million (prior year: none) were recognised on the undistributed earnings of subsidiaries as of 31 December 2015. Temporary differences of subsidiaries and associ- ates, on which no deferred income taxes were recognised as of 31 December 2015, amounted to CHF 931 million (prior year: CHF 779 million). 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           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)  2015 1,361 2014 1,694 51,801,558 51,801,267 26.27 32.70 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 deposits  Total cash and cash equivalents  31.12.2015 31.12.2014 324 324 302 302 As in the prior year, Swisscom had no current term deposits outstanding in 2015. 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 receivables  31.12.2015 31.12.2014 2,334 246 (184) 2,396 89 9 25 21 (5) 139 2,535 2,413 236 (195) 2,454 60 26 33 28 (15) 132 2,586 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 minimised due to the large number of customers. Risks are moni- tored by country. The adequacy of valuation allowances is assessed on the basis of numerous fac- tors. Amongst these are ageing analyses of receivables, the current solvency of customers and experience from the past. 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   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  Total allowance for receivables  Total trade receivables, net  31.12.2015 31.12.2014 1,836 715 29 2,580 (58) (125) (1) (184) 2,396 1,759 854 36 2,649 (51) (140) (4) (195) 2,454 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 31.12.2015 Allowance Gross amount 31.12.2014 Allowance 1,855 364 73 94 194 2,580 (7) (5) (5) (28) (139) (184) 1,858 421 78 93 199 2,649 (8) (6) (6) (31) (144) (195) The table below presents the changes in allowances for trade and other receivables. 178 In CHF million  Balance at 31 December 2013  Additions to allowances  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 Write-off of irrecoverable receivables subject to allowance  Release of unused allowances  Additions from business combinations  Foreign currency translation adjustments  Balance at 31 December 2014  Additions to allowances  Write-off of irrecoverable receivables subject to allowance  Release of unused allowances  Additions from business combinations  Disposals from sales of subsidiaries  Foreign currency translation adjustments  Balance at 31 December 2015  Trade receivables Other receivables 164 93 (60) (6) 7 (3) 195 84 (78) (1) 1 (3) (14) 184 16 1 – (2) – – 15 1 – (1) – (10) – 5         Construction contracts 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  2015 88 (10) 78 (62) 16 25 (9) 52 2014 104 6 110 (79) 31 33 (2) 72 In 2015, construction contracts generated net revenues of CHF 262 million (prior year: CHF 293 million). 19 Other financial assets In CHF million  Balance at 31 December 2013  Additions  Disposals  Additions from business combinations  Change in fair value  Foreign currency translation adjustments  Balance at 31 December 2014, restated  Additions  Disposals  Additions from business combinations  Change in fair value  Foreign currency translation adjustments  Balance at 31 December 2015  Thereof other current financial assets  Thereof other non-current financial assets  Loans and receivables Loans and receivables Available- for-sale Valued at fair value 305 24 (159) 20 – 15 205 21 (33) 4 – (1) 196 20 176 42 8 (15) 15 – – 50 17 (19) – 4 – 52 2 50 6 – – – 5 – 11 61 – – 3 – 75 63 12 Total 353 32 (174) 35 5 15 266 99 (52) 4 7 (1) 323 85 238 As of 31 December 2015, term deposits totalled CHF 8 million (prior year: CHF 11 million). Financial assets as of 31 December 2015 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. Shares not quoted on stock exchanges are recorded at cost if their fair value cannot be reliably determined. As of 31 December 2015, the carrying amount of investments in shares recorded at cost totalled CHF 37 million (prior year: CHF 27 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       Financial assets measured at fair value Financial assets measured at fair value through profit and loss include quoted debt securities with a carrying amount of CHF 61 million (prior year: none) and a remaining term of less than one year. These financial assets were not freely available since the assets serve as collateral to secure off-bal- ance liabilities arising from cross-border lease agreements. See Note 33. As at 31 December 2015, derivative financial instruments with a positive market value of CHF 14 million were recognised (prior year: CHF 11 million). Derivative financial instruments include forward foreign currency trans- actions, foreign currency swaps and interest rate swaps. See Note 33. 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  31.12.2015 31.12.2014 5 170 3 – 178 (4) 174 6 141 5 5 157 (8) 149 In 2015, inventory-related costs amounting to CHF 1,143 million (prior year: CHF 1,145 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  31.12.2015 31.12.2014 159 6 47 26 238 10 70 80 164 7 55 26 252 10 47 57 180 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     22 Non-current assets held for sale On 31 December 2015, there were no non-current assets held for sale. As of 31 December 2014, the carrying amount of non-current assets held for sale amounted to CHF 109 million. Included therein are real-estate properties and investments in associates of the segment Other Operating Seg- ments with a carrying amount of CHF 99 million and CHF 10 million, respectively. As part of the takeover of PubliGroupe in 2014, one real-estate property and investments in associates were acquired which were due to be disposed of within the following twelve months. The associates relate to various shareholdings in media companies in Switzerland. For further information – see Note 5. In 2015, real-estate property and investments in associates with a carrying amount of CHF 109 mil- lion were disposed of. In the prior year, real-estate property and investments in associates were sold for a price of CHF 205 million. In 2014, a gain on sale of real-estate property of CHF 33 million arose which was recognised in the income statement as other income. 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   23 Property, plant and equipment Land, buildings and leasehold improvements Technical installations Advances made Other and assets assets under construction In CHF million  Acquisition costs  Balance at 31 December 2013  Additions  Disposals  Additions from business combinations  Adjustment to dismantlement and restoration costs  Reclassifications to non-current assets held for sale  Other reclassifications  Foreign currency translation adjustments  Balance at 31 December 2014  Additions  Disposals  Additions from business combinations  Disposals from sales of subsidiaries  Adjustment to dismantlement and restoration costs  Other reclassifications  Foreign currency translation adjustments  2,832 9 (68) 2 – (102) 114 (2) 2,785 4 (110) – – – 92 (9) 25,235 1,453 (656) – 123 – 175 (82) 26,248 1,495 (1,266) – (35) (51) 124 (386) 2,028 31 (41) 1 – 2,019 38 (59) – – (2) 18,778 1,072 (656) (1) (40) 19,153 1,061 (1,266) (34) (7) (191) 3,403 237 (225) 2 34 – 170 – 3,621 252 (144) 1 (4) (4) 116 – 3,838 2,279 287 (212) (2) – 2,352 310 (136) (3) – 1 771 290 – – – – (471) – 590 146 – – – – (372) (2) 362 – – – – – – – – – – – – Total 32,241 1,989 (949) 4 157 (102) (12) (84) 33,244 1,897 (1,520) 1 (39) (55) (40) (397) 33,091 23,085 1,390 (909) (2) (40) 23,524 1,409 (1,461) (37) (7) (192) 23,236 9,855 9,720 9,156 Balance at 31 December 2015  2,762 26,129 Accumulated depreciation/amortisation and impairment losses  Balance at 31 December 2013  Depreciation and amortisation  Disposals  Other reclassifications  Foreign currency translation adjustments  182 Balance at 31 December 2014  Depreciation and amortisation  Disposals  Disposals from sales of subsidiaries  Other reclassifications  Foreign currency translation adjustments  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 Balance at 31 December 2015  1,996 18,716 2,524 Net carrying amount  Net carrying amount at 31 December 2015  Net carrying amount at 31 December 2014  Net carrying amount at 31 December 2013  766 766 804 7,413 7,095 6,457 1,314 1,269 1,124 362 590 771 In 2015, borrowing costs amounting to CHF 8 million were capitalised (prior year: CHF 12 million). The average interest rate used for the capitalisation of borrowing costs was 1.9% (prior year: 2.2%). As of 31 December 2015, the carrying amount of property, plant and equipment acquired under finance leases amounted to CHF 406 million (prior year: CHF 438 million). See Note 28 for further information on the adjustments to the costs of dismantling and restoration.             24 Goodwill and other intangible assets In CHF million  Acquisition costs  Internally generated software Goodwill Purchased Customer software relationships Brands Other intangible assets Balance at 31 December 2013  6,407 1,137 1,813 1,137 278 Additions  Disposals  Reclassifications  Additions from business combinations  Foreign currency translation adjustments  – (9) – 188 (46) 156 (80) 97 1 (4) 195 (68) 58 4 (22) – (3) – 21 (22) – – – – (6) Balance at 31  December 2014,  restated  Additions  Disposals  Reclassifications  Additions from business combinations  Disposals from sales of subsidiaries  Foreign currency translation adjustments  6,540 1,307 1,980 1,133 272 – – – 255 (13) (217) 176 (75) 95 – (18) (14) 166 (53) 21 32 (2) – – – 50 (1) (109) (100) Balance at 31 December 2015  6,565 1,471 2,035 1,082 Accumulated amortisation and impairment losses  Balance at 31 December 2013  1,598 Amortisation  Impairment losses  Disposals  Reclassifications  Foreign currency translation adjustments  Balance at 31 December 2014  Amortisation  Impairment losses  Disposals  Disposals from sales of subsidiaries  Reclassifications  Foreign currency translation adjustments  Balance at 31 December 2015  Net carrying amount  Net carrying amount at 31 December 2015  Net carrying amount at 31 December 2014  Net carrying amount at 31 December 2013  – – (9) – (32) 1,557 – – – – – (153) 1,404 5,161 4,983 4,809 696 223 – (79) – (2) 838 217 2 (75) (18) 16 (10) 1,343 239 1 (68) – (16) 1,499 228 – (47) (2) (9) (83) 970 1,586 501 469 441 449 481 470 817 109 – (3) – (18) 905 93 – – (1) – (85) 912 170 228 320 Total 11,734 507 (190) 12 258 (103) 12,218 547 (163) 40 357 (49) (481) 962 156 (30) (143) 44 (3) 986 205 (35) (76) 16 (15) (15) 1,066 12,469 239 102 – (29) 2 (2) 312 111 1 (34) (14) – (9) 4,872 700 1 (188) 2 (73) 5,314 674 3 (156) (35) 7 (360) 367 5,447 699 674 723 7,022 6,904 6,862 – – – 4 – (26) 250 179 27 – – – (3) 203 25 – – – – (20) 208 42 69 99 As of 31 December 2015, other intangible assets included advance payments made and uncom- pleted development projects of CHF 154 million (prior year: CHF 128 million). Apart from goodwill, there are no intangible assets with indefinite useful lives. As of 31 December 2015, accumulated impairment losses on goodwill of CHF 1,404 million were recognised. The increase in goodwill of CHF 255 million in 2015 results primarily from the takeover of search.ch. See Note 5 for further infor- mation. Goodwill arising from investments in associates is classified as part of the investments in associates. 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             Goodwill impairment testing Goodwill is allocated to the cash-generating units of Swisscom according to their business activi- ties. 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  Enterprise Customers Swisscom Switzerland  Fastweb  Other cash-generating units  Total goodwill  31.12.2015 2,620 31.12.2014 restated 2,629 662 907 533 439 655 734 592 373 5,161 4,983 Goodwill was tested for impairment in the fourth quarter of 2015 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 cap- italising 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 calcula- tions are as follows: Cash-generating unit  Residential Customers Swisscom Switzerland  WACC pre-tax 6.57% Small and Medium-Sized Enterprises Swisscom Switzerland  6.61% Enterprise Customers Swisscom Switzerland  184 Fastweb  6.61% 10.30% 5.20% 5.20% 5.20% 7.50% WACC pre-tax 6.51% 6.54% 6.56% 0% 0% 0% 1.0% 10.60% 2015 WACC Long-term post-tax growth rate 2014 WACC Long-term post-tax growth rate 5.13% 5.13% 5.13% 7.70% 0% 0% 0% 1.0% 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 cash-generating units  7,1–12,1% 6,3–9,5% 0–1.0% 6.6–8.2% 5.1–6.4% 0–1.0% 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. Residential Customers, Small- and Medium-Sized Enterprises and Enterprise Customers – 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. As of the measurement 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-gen- erating units to exceed the recoverable amount.         Fastweb The impairment test of Fastweb was undertaken in the fourth quarter of 2015. 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 2016 to 2020. 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 4.2% is expected for  the detailed planning period up to 2020. In the prior year, an average annual growth  in revenue of 3.3% had been expected for the detailed planning period 2015–2019.  The projected EBITDA margin in 2020 is 40%. In the previous year, for the year 2019  an EBITDA margin of 41% was assumed.  In the period up to 2020, it is anticipated that capital expenditure in relation to net  revenue will be normalised to 23%. Last year, a rate of investment of 18% was  anticipated for the year 2019.  The post-tax discount rate is 7.50% (prior year: 7.70%) and the related pre-tax  discount rate is 10.30% (prior year: 10.60%). 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 recoverable amount exceeded the net carrying amount by EUR 750 million (CHF 818 million). The following changes in material assumptions lead to a situation where the value in use equates to the carrying amount: Average annual growth rate through 2020 with  the same EBITDA margin as in the business plan  Projected EBITDA margin 2020  Capital expenditure rate 2020  Post-tax discount rate  Long-term growth rate  Assumptions Sensitivity 4.2% 40% 23% 7.50% 1.0% 2.0% 36% 27% 9.20% –1.2% 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                               25 Investments in associates In CHF million  Balance at 1 January  Additions  Disposals  Additions from business combinations. See Note 5.  Gain on successive company acquisitions  Dividends  Share of net results  Foreign currency translation adjustments  Balance at 31 December  2015 182 50 – – – (22) 23 (10) 223 2014 restated 153 3 (108) 59 82 (30) 26 (3) 182 The participations which are reflected in the consolidated financial statements of Swisscom using the equity method of accounting are set out in Note 40. Dividend income of CHF 22 million (prior year: CHF 30 million) is attributable mainly to the dividends distributed by LTV Yellow Pages and Belgacom International Carrier Services. Additions in 2015 include investments by Swisscom in finnova Bankware Ltd (banking software), Siroop Ltd (online marketplace), Ringier Publishing Ltd (advertisement marketing) and Managed Mobility Ltd (fleet management and fleet optimisation). 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 were held by Swisscom. As a result of the takeover, Swisscom assumed full control 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 amount of the 49% sharehold- ing in LTV Yellow Pages Ltd in Swisscom’s consolidated financial statements amounted to CHF 26 million. The difference of CHF 82 million between the carrying amount and the fair value of the 49% shareholding was recognised as other financial income in the fourth quarter of 2014. The fair value of the 49% shareholding amounted to CHF 108 million and is recognised as a part of the acquisition costs of the PubliGroupe takeover. See Notes 5 and 14 for further information. In addi- tion, a 47.5% 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 state- ments of Swisscom. Zanox is the European market leader in performance advertising. 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  2015 2014 2,575 (2,418) 157 104 1,073 933 (964) (429) 613 2,347 (2,223) 124 122 1,131 935 (1,087) (316) 663 186 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         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 EUR 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 CHF variable interest-bearing  Bank loans in EUR variable interest-bearing  Bank loans in EUR fixed interest-bearing  Bank loans in USD fixed interest-bearing  Total bank loans  31.12.2015 31.12.2014 746 45 350 16 2 6 30 1,195 610 5,385 581 510 13 55 244 7,398 8,593 960 547 – 14 2 49 8 1,580 921 4,557 925 547 3 49 22 7,024 8,604 Due within Par value in CHF 31.12.2015 31.12.2014 Carrying amount 2015 2015 2016 2016 2016 2017 2020 2020 2028 530 421 300 130 542 130 325 217 98 – – – 130 542 – 326 219 139 530 421 300 – – 130 361 – 139 1,356 1,881 During 2015, Swisscom took up short-term bank loans in CHF and EUR on a weekly and monthly basis. As of 31 December 2015, there were short-term bank loans totalling CHF 130 million and EUR 500 mil- lion outstanding (prior year: CHF 530 million). In 2015, Swisscom had a bank loan of EUR 200 million (CHF 217 million) with a term of 5 years. This interest-bearing bank loan was transformed into variable-rate CHF financing through a foreign cur- rency swap and was designated as a fair value hedge for hedge accounting. In 2015, Swisscom repaid bank loans amounting to CHF 960 million and EUR 350 million. As of 31 December 2015, no transaction costs were recognised in connection with the bank loans, as in the prior year. The effec- tive interest rate of the CHF denominated bank loans –0.2%, in EUR –0.3% and in USD 4.62%. A bank loan of EUR 300 million was designated for hedge accounting for net investments in foreign share- holdings. 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 2020. As of 31 Decem- ber 2015, these lines of credit had not been drawn down, as in the prior year. 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         Debenture bonds In CHF million  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  Debenture bond in CHF  Debenture bond in EUR  Debenture bond in CHF  Debenture bond in CHF  Debenture bond in CHF  Total debenture bonds  Maturity years 2008–2015 2007–2017 2009–2018 2013–2020 2014–2021 2010–2022 2015–2023 2012–2024 2015–2025 2014–2026 2014–2029 2015–2035 Par value in CHF Nominal interest rate 31.12.2015 31.12.2014 Carrying amount 500 600 1,425 542 542 500 250 500 542 200 160 150 4.00% 3.75% 3.25% 2.00% 1.88% 2.63% 0.25% 1.75% 1.75% 1.50% 1.50% 1.00% – 610 1,432 539 540 499 251 504 540 202 161 152 506 609 1,430 597 597 498 – 503 – 202 162 – 5,430 5,104 In April 2015, Swisscom issued two debenture bonds with an aggregate nominal value of CHF 400 million: one issue for CHF 250 million with a coupon rate of 0.25% and maturing in 2023 and a second issue for CHF 150 million bearing interest of 1.0% maturing in 2035. These issues were taken up to repay outstanding debts. In addition, interest rate swaps were entered into for a nom- inal amount of CHF 225 million to hedge the interest rate risk on financing received which were designated as fair value hedges for hedge-accounting purposes. In September 2015, Swisscom took up a debenture bond for EUR 500 (CHF 542 million) with a coupon rate of 1.75% and with final maturities in 2025. The debenture bond was issued by Lunar Funding V, an independent Irish multi-purpose vehicle. It is secured by a loan note from Lunar Funding V to Swisscom in the same amount. The bond so taken up was used to refinance existing finance debts. In addition, the EUR 500 million interest-bearing financing was swapped into variable-rate financing in CHF and designated as a fair value hedge for hedge-accounting purposes. Already in the prior year, Swisscom had taken up a debenture bond totalling EUR 500 million (CHF 601 million) through the intermedi- ary of Lunar Funding V which was designated for hedge accounting of net investments in foreign shareholdings. In 2015, Swisscom repaid a debenture bond of CHF 500 million upon maturity. In the prior year, Swisscom repaid a debenture bond of CHF 1,250 million upon maturity. In addition, in the prior year, a premature partial redemption of the debenture bond maturing in 2018 and total- ling CHF 75 million (nominal value) was made. The difference of CHF 8 million between the redemp- tion amount of CHF 83 million and the carrying amount of the redeemed bonds of CHF 75 million was recognised as other financial expense. 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  Total private placements  Due within Par value in CHF 31.12.2015 31.12.2014 Carrying amount 2016 2017 2018 2019 350 250 72 278 350 247 69 265 931 350 245 68 262 925 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. As in the prior year, no trans- action costs were recorded as of 31 December 2015 in connection with the private placements. The 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           effective interest rate on the private placements is 1.7%. The Swiss-franc-denominated private placements of CHF 581 million maturing in 2017 through 2019 may become due for immediate repayment if the shareholding of the Swiss Confederation in the capital 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 Confeder- ation 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 2015, the deferred gains totalled CHF 163 million (prior year: CHF 167 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 5.84%. 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  31.12.2015 31.12.2014 46 40 39 36 35 1,060 1,256 (730) 526 16 510 48 47 42 41 38 1,240 1,456 (895) 561 14 547 The future payments of the liabilities arising under finance leases, expressed in terms of their present value, as of 31 December 2014 and 2015 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  31.12.2015 31.12.2014 16 11 10 7 6 476 526 14 14 9 9 6 509 561 In addition, operating lease arrangements exist for miscellaneous real estate with terms of 1 to 25 years. See Note 35. In 2015, conditional rental payments of CHF 3 million were recorded as rental expense (prior year: CHF 3 million). 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   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 payables  Total other payables  Total trade and other payables  28 Provisions In CHF million  Balance at 31 December 2013  Additions to provisions  Present-value adjustments  Release of unused provisions  Use of provisions  Additions from business combinations  Foreign currency translation adjustments  Balance at 31 December 2014  Additions to provisions  Present-value adjustments  Release of unused provisions  Use of provisions  Additions from business combinations  Disposals from sales of subsidiaries  Foreign currency translation adjustments  Balance at 31 December 2015  Thereof current provisions  Thereof non-current provisions  31.12.2015 31.12.2014 1,058 428 1,486 23 23 9 227 282 1,102 449 1,551 48 28 2 247 325 1,768 1,876 Termination benefits Dismantlement and restoration costs Regulatory and competition law procedures 45 8 – (9) (16) 1 – 29 70 – (3) (8) – – – 88 86 2 481 162 13 (6) (4) – – 646 – 11 (62) (2) – – – 593 – 593 118 3 2 – (17) – – 106 208 – – (4) – – – 310 186 124 Other 155 44 1 (30) (24) 1 (1) 146 23 2 (7) (14) 2 (2) (2) 148 79 69 Total 799 217 16 (45) (61) 2 (1) 927 301 13 (72) (28) 2 (2) (2) 1,139 351 788 Provisions for employee reduction programme In the fourth quarter of 2015, Swisscom recognised a provision for personnel reduction costs of CHF 70 million. Swisscom operates in a market characterized by intense competition and fierce pricing dynamics. For this reason, Swisscom has set itself the goal of reducing its cost basis. This is to be achieved through organisational changes, job reductions, optimization of processes and the migration to All-IP technology. In addition, business change will impact the pattern of employment opportunities of Swisscom: job positions in traditional businesses will in part be lost and will be replaced by positions created in new, innovative areas. Swisscom assumes that some 700 employ- ees in Switzerland will participate in the social plan as a result of the reductions primarily in support areas. The associated costs are estimated at CHF 70 million. 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       Provisions for dismantling and restoration costs The provisions for dismantling and restoration costs relate to the dismantling of telecommunica- tion 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 estimates of future anticipated dismantling costs and are discounted using an average interest rate of 1.48% (prior year: 1.69%). The effect of using different interest rates amounted to CHF 24 million (prior year: CHF 151 million). In 2015, as a result of reassessments, adjustments totalling CHF 55 mil- lion (prior year: CHF 157 million) were recorded under property, plant and equipment and CHF 7 mil- lion (prior year: CHF 1 million) which was recognised in the income statement. The non-current portion of the provisions is expected to be settled after 2020. The level of provisions is determined to a substantial degree by the level of estimated future dis- mantling and restoration costs as well as the timing of the dismantling. An increase of estimated costs by 10% would result in an increase of CHF 56 million in the amount of the provision. A shift in the timing of dismantling by a further ten years would lead to a reduction in the provision by CHF 60 million. Provisions for regulatory and competition-law 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. In addition, the Federal Competition Commission (Weko) is conducting various proceedings against Swisscom. In accordance with the Federal Anti-Trust Law, Weko may impose penalties against Swisscom in the event that the competition law has been violated. The level of the penalty is dependent on the duration and severity as well as the nature of the violation. It may be as much as 10% of the revenues which have been generated by the company in question in the last three busi- ness years on the relevant markets in Switzerland. In the event that a legally enforceable finding as to market abuse is reached, claims under civil law may be asserted against Swisscom. Any applica- ble payments will depend upon the date on which legally-binding decrees and decisions are issued. With its decision of 5 November 2009, Weko levied a penalty totalling CHF 220 million on Swisscom for abuse of a market-dominant position in the case of ADSL services during the period through to the end of 2007. Swisscom appealed on 7 December 2009 against the ruling to the Federal Admin- istrative Court. On 6 October 2015, the Federal Administrative Court in principle upheld the Weko decision and reduced the penalty imposed on Swisscom by Weko from CHF 220 million to CHF 186 million. Following the decision, Swisscom recognised provision of CHF 186 million in the third quarter of 2015. Swisscom does not consider the penalty to be justified and has lodged an appeal to the Federal Court. At the beginning of 2016, Swisscom paid the penalty of CHF 186 mil- lion imposed by Weko. On the basis of legal opinions, provisions for regulatory and anti-trust-law proceedings were rec- ognised and released in the third and fourth quarters of 2015, whereby these are presented on a net basis on procedural grounds. 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 2016 and 2018. 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   29 Contingent liabilities and contingent assets Regulatory and competition-law 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. In addition, the Federal Competition Commission (Weko) is conducting various proceedings against Swisscom. In accordance with the Federal Anti-Trust Law, Weko may impose penalties against Swisscom in the event that the competition law has been violated. The amount of the penalty is dependent on the duration and severity as well as the nature of the violation. It may be as much as 10% of the revenues which have been generated by the company in question in the last three busi- ness years on the relevant markets in Switzerland. In the event of a legally enforceable finding as to market abuse, claims under civil law may be asserted against Swisscom. In April 2013, Weko initiated an investigation against Swisscom in the area of live-sport transmissions on pay TV. On 23 July 2015, the Secretariat of Weko delivered to Swisscom a proposed ruling. It pro- poses therein to the Federal Competition Commission to impose a penalty against Swisscom of CHF 143 million for unlawful behaviour in the marketing of sport contents over pay TV. In the opinion of the Weko Secretariat, Swisscom and Teleclub have a market-dominant position in particular in the provision of national football and ice hockey transmissions and must therefore offer all TV platforms in Switzerland – insofar as technically possible – an equivalent Teleclub sports portfolio on non-dis- criminatory conditions. Swisscom rejects the accusations and is of the opinion that it has conducted itself in a lawful manner in the marketing of sports contents. From a current perspective, Swisscom considers the levying of sanctions in the court of last appeal as not probable and thus has established no provision in the consolidated financial statements as of and for the year ended 31 December 2015. On 19 November 2015, in its investigation as to the invitation to tender for the corporate network of the Swiss Post in 2008, Weko came to the conclusion that Swisscom has a market-dominant posi- tion on the market for broadband access for large corporate clients. In this tender, Swisscom is accused of having set the wholesale prices charged to competitors at such a high level that the latter could not compete with the end-customer offer made by Swisscom. As a result of this unlawful conduct, Weko ruled a direct penalty of CHF 8 million. Swisscom has challenged the ruling in the Federal Administrative Court. From a current perspective, Swisscom considers the levying of sanc- tions in the court of last appeal as not probable and thus has established no provision in the consol- idated financial statements as of and for the year ended 31 December 2015. Contingent assets from litigation The Italian competition authorities (AGCOM) condemned Telecom Italia for unlawful conduct as a market-dominant company and imposed a penalty of EUR 104 million. Related to the same matter, Fastweb has claimed damages from Telecom Italia and initiated legal action in connection there- with. In the fourth quarter of 2015, Fastweb and Telecom Italia concluded an out-of-court settle- ment. The latter also encompasses additional contested receivables of both parties from each other. In the fourth quarter of 2015, Telecom Italia made a payment of EUR 15 million. As at 31 December 2015, there resulted from the settlement for Fastweb an uncertain receivable to which conditions are attached. Disclosure of the amount of the receivable is waived for contractual and procedural reasons. 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   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  31.12.2015 31.12.2014 436 97 32 128 693 163 196 359 407 120 54 137 718 167 208 375 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 2015, 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 2 million (prior year: CHF 5 million) were allocated for share-based compensation plans. See Note 11. The holdings of treasury shares have changed as follows: Balance at 31 December 2013  Purchases on the market  Allocated for share-based compensation  Balance at 31 December 2014  Purchases on the market  Allocated for share-based compensation  Balance at 31 December 2015  Number 802 8,600 (9,253) 149 3,730 (3,879) – Average price in CHF In CHF million 435 525 535 525 567 563 – – 5 (5) – 2 (2) – As of 31 December 2015, Swisscom had no treasury shares in its portfolio (prior year: 149 shares). As a result, the balance of shares outstanding as at 31 December 2015 totalled 51,801,943 (prior year: 51,801,794 shares). 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         Other reserves In CHF million  Balance at 31 December 2013  Foreign currency translation adjustments of foreign subsidiaries  Change in fair value  Gains and losses transferred to income statement  Income tax expense  Balance at 31 December 2014  Foreign currency translation adjustments of foreign subsidiaries  Change in fair value  Gains and losses transferred to income statement  Income tax expense  Balance at 31 December 2015  Hedging reserve Fair value reserve (19) – 10 5 (3) (7) – (12) 11 2 (6) 7 – – – – 7 – 4 (6) – 5 Foreign currency translation adjustments (1,559) (46) – – 15 (1,590) (194) – – 51 Total other reserves (1,571) (46) 10 5 12 (1,590) (194) (8) 5 53 (1,733) (1,734) 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 December 2015, cumulative foreign currency translation losses before taxes at Fastweb amounted to CHF 2,143 million (prior year: CHF 1,960 million). Other comprehensive income Other comprehensive income in 2015 may be analysed as follows: 2015, 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  Gains and losses 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  (313) Retained earnings Hedging reserve Foreign currency translation reserve adjustments Fair value Equity holders of Swisscom Non- controlling interests (393) 80 (313) – – – – – – – – – (12) 11 2 1 1 – – – – 4 (6) – (2) (2) – – – (393) 80 (313) (194) (194) – – 51 (8) 5 53 (143) (143) (144) (457) – – – – – – – – Total other compre- hensive income (393) 80 (313) (194) (8) 5 53 (144) (457) 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                 Other comprehensive income in 2014 may be analysed as follows: 2014, in million CHF, restated  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  Gains and losses 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  (889) Retained earnings Hedging reserve Foreign currency translation reserve adjustments Fair value Equity holders of Swisscom Non- controlling interests Total other compre- hensive income (1,127) 238 (889) – – – – – – – – – 10 5 (3) 12 12 – – – – – – – – – – – – (46) – – 15 (31) (31) (1,127) 238 (889) (46) 10 5 12 (19) (908) (1) – (1) – – – – – (1) (1,128) 238 (890) (46) 10 5 12 (19) (909) Share of equity attributable to non-controlling interests In 2015, transactions with non-controlling interests totalling CHF 2 million (prior year: CHF 157 mil- lion) were recognised. As part of the takeover of PubliGroupe SA in September 2014, the outstand- ing 49% of the non-controlling shareholdings in Swisscom Directories Ltd and local.ch Ltd were acquired for CHF 162 million. The difference between the purchase price of CHF 162 million and the carrying amount of the non-controlling interests of CHF 26 million was recognised as an equity transaction with no effect on income. For further information see Note 5. 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 consol- idated financial statements. At 31 December 2015, Swisscom Ltd’s distributable reserves amounted to CHF 4,652 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 2015 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 2014 and 2015: 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  2015 51.802 22.00 1,140 2014 51.802 22.00 1,140 The dividend payments for the 2013 and 2014 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 6 April 2016 the payment of an ordinary dividend of CHF 22 per share in respect of the 2015 financial year. This equates to a total dividend distribution of CHF 1,140 million. The dividend payment is foreseen on 12 April 2016. 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         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 further risk arises from the ability to ensure adequate liquidity. Financial risk management is con- ducted in accordance with established guidelines with the aim of limiting potential adverse effects on the financial situation of Swisscom. These guidelines contain, in particular, 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, foreign exchange risks with an impact on equity (translation risks) are partially hedged through financial 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 1,409 million) which were desig- nated for hedge accounting for net investments in foreign shareholdings. The currency risks and hedging contracts for foreign currencies as of 31 December 2015 are to be analysed as follows: 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 In CHF million  At 31 December 2015  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 50 9 17 (2,706) (48) (2,678) 50 (2,628) – 567 759 1,326 (1,302) 3 3 229 (143) (59) 33 (412) (379) (3) 351 – 348 (31) 1 4 1 – (26) (20) – (20) – – – – (20)     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) 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  31.12.2015 31.12.2014 Income impact on balance sheet items  EUR volatility of 7.67% (previous year: 4.29%)  USD volatility of 10.41% (previous year: 9.72%)  Hedges for balance sheet items  EUR volatility of 7.67% (previous year: 4.29%)  USD volatility of 10.41% (previous year: 9.72%)  Planned cash flows  EUR volatility of 7.67% (previous year: 4.29%)  USD volatility of 10.41% (previous year: 9.72%)  Hedges for planned cash flows  EUR volatility of 7.67% (previous year: 4.29%)  USD volatility of 10.41% (previous year: 9.72%)  205 (3) (101) 6 (4) 43 – (43) 87 4 (18) – 16 44 (14) (43) 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 swaps to hedge its interest rate risk. 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                   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  31.12.2015 31.12.2014 6,509 1,705 8,214 (138) (412) (550) 7,664 1,293 (350) 984 1,927 6,371 350 (984) 5,737 7,664 5,997 2,444 8,441 (115) (348) (463) 7,978 2,096 (350) – 1,746 5,882 350 – 6,232 7,978 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 2015  Variable financing  Interest rate swaps  Cash flow sensitivity, net  At 31 December 2014  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 (13) (6) (19) (21) 4 (17) 13 6 19 21 (4) 17 – 2 2 – 5 5 – (2) (2) – (6) (6) 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. 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             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 exposed to credit risk is to be ana- lysed as follows: In CHF million  Cash and cash equivalents  Trade and other receivables  Loans and receivables  Derivative financial instruments  Other assets valued at fair value  Note 31.12.2015 31.12.2014 17 18 19 19 19 324 2,535 196 14 61 302 2,586 209 11 – Total carrying amount of financial assets  3,130 3,108 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  31.12.2015 31.12.2014 AAA  AA+  AA  AA–  A+  A  A–  BBB+  BBB  BBB–  Without rating  Total  12 163 7 149 11 148 1 43 2 9 50 595 13 129 15 149 1 123 3 7 – 10 72 522 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 2016. As of 31 December 2015, these lines of credit had not been drawn down, as in the prior year. 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   The contractual maturities of financial liabilities including estimated interest payments as of 31 December 2015 are as follows: In CHF million  At 31 December 2015  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 1,356 5,430 931 526 15 274 1,439 6,080 954 1,256 15 319 747 129 352 46 2 30 1,768 1,768 1,742 74 729 252 40 7 24 10 437 2,194 350 110 – 248 16 181 3,028 – 1,060 6 17 – 61 240 22 16 47 155 10,361 12,071 3,070 1,152 3,402 4,447 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  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 1,881 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 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 com- puted 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 maturing future payments discounted at market interest rates. The fair value of publicly traded interest-bearing financial assets and 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 investments held for sale is based on quoted stock exchange prices as of the balance sheet date. Interest rate swaps and currency swaps are discounted at market 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. 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           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 amounts and fair values of financial assets and financial liabilities with their corre- sponding 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 pay- ables whose carrying amount corresponds to a reasonable estimation of their fair value. In CHF million  At 31 December 2015  Derivative financial instruments  Other assets valued at fair value  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 – – – – 196 196 – – – – – – – – – – – 15 15 – – – – – – – – – – – 14 61 – 75 – – 61 61 – – – – – – – – – – – – – – – 1,356 5,430 931 526 15 274 – 61 – 61 – – – – – 5,867 – – – – 14 – – 14 239 239 61 61 1,391 – 957 1,037 15 274 8,532 5,867 3,674 – – 15 15 – – – – – – – – – – – 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             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 – – – 205 205 – – – – – – – – – – 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 – – – – – – – – – – – In addition, as of 31 December 2015, there were available-for-sale financial assets with a carrying amount of CHF 37 million (prior year: CHF 27 million) which are valued at acquisition cost. Level 3 financial instruments developed as follows in 2014 and 2015: In CHF million  Balance at 31 December 2013  Additions  Disposals  202 Balance at 31 December 2014  Disposals  Balance at 31 December 2015  Available-for-sale financial assets 20 1 (3) 18 (3) 15 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 2014 and 2015, there were no reclassifi- cations between the various levels. 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: In CHF million  2015  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  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  Loans and receivables At fair value Available- through profit or loss for-sale Hedging Financial liabilities transactions 10 – (20) – (10) – – – (10) – – – – – 4 (6) (2) (2) (4) (13) (39) – (56) – – – (194) – 19 – (175) – – – (56) (175) (1) – – (10) (11) (12) 11 (1) (12) Loans and receivables At fair value Available- through profit or loss for-sale Financial Hedging liabilities transactions 10 – 1 – 11 – – – 11 – – – – – – – – – (2) (46) 3 – (223) – – – (45) (223) – – – – – – (45) (223) (3) – – (2) (5) 10 5 15 10 In addition, in 2015, valuation allowances for trade and other receivables amounting to CHF 81 mil- lion (prior year: CHF 87 million) were recorded under other operating expenses. Derivative financial instruments At 31 December 2014 and 2015, 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  31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 984 617 996 – 824 929 2,597 1,753 12 1 1 14 2 12 – 6 5 11 11 – (3) (5) (53) (61) (6) (55) – (10) (88) (98) (49) (49) 203 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 hedges In CHF million  Interest rate swaps in CHF  Currency swaps in EUR  Total fair value hedges  Contract value  Positive fair value  Negative fair value  31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 225 759 984 – – – 1 11 12 – – – – (3) (3) – – – In 2015, Swisscom entered into interest rate swaps to hedge the interest rate risk of interest-bear- ing financing amounting to CHF 225 million. These interest rate swaps had positive fair values of CHF 1 million as at 31 December 2015. Furthermore, in 2015, Swisscom had concluded currency swaps totalling EUR 700 million to hedge the foreign currency and interest rate risks of inter- est-bearing financing in EUR. As at 31 December 2015, these currency swaps had positive fair val- ues of CHF 11 million and negative fair values of CHF 3 million. In the prior year, 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 EUR  Total cash flow hedges  Contract value  Positive fair value  Negative fair value  31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 267 350 – 617 235 350 239 824 1 – – 1 6 – – 6 – (5) – (5) – (9) (1) (10) 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 December 2015, these interest rate swaps were recorded with a negative fair value of CHF 5 million (prior year: CHF 9 million). CHF 6 million was recognised in the hedging reserve within consolidated equity for these hedging instruments (prior year: CHF 10 million). In 2009, interest rate swaps designated for hedge accounting for the premature hedging of the interest rate risk for the intended issuance of debenture loans totalling CHF 300 million were closed out. The effective share of CHF 7 million was left in the other reserves as part of equity. It is being released to interest expense over the hedged duration of debenture bonds issued in 2009. As of 31 December 2015, a negative amount of CHF 1 mil- lion (prior year: CHF 2 million) is recognised in the hedging reserve as part of consolidated equity. As of 31 December 2015, derivative financial instruments included currency swaps of USD 268 mil- lion which serve to hedge future purchases of goods and services in the respective currencies. Prior year, currency swaps of USD 237 and forward currency contracts of EUR 199, were recorded for this purpose. The hedges were designated for hedge-accounting purposes. The hedges disclose a posi- tive fair value of CHF 1 million (prior year: positive market value of CHF 6 million). A zero amount was recognised in the hedging reserve within consolidated equity for these designated hedging instruments (prior year: positive amount of CHF 5 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 31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014 – 200 226 567 3 – 996 421 200 211 – – 97 929 – – 1 – – – 1 – – 5 – – – 5 – (53) – – – – (47) (40) – – (1) – (53) (88) 204 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 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 matured in 2015. They were not designated for hedge accounting. Further- more, derivative financial instruments as at 31 December 2015 include interest rate swaps cover- ing CHF 200 million with maturities ending in 2040 with a negative market value of CHF 53 million (prior year: negative market value of CHF 40 million) which were not designated for hedge account- ing. In addition, included in derivative financial instruments are foreign currency forward contracts and currency swaps for EUR and USD which serve to hedge future transactions in connection with Swisscom’s operating activities and which were not designated for hedge-accounting purposes. 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 2015, the financial liabilities and assets, including accrued interest, arising from cross-border lease agreements amounted to USD 69 million or CHF 69 million, respectively, which, in compliance with SIC 27, were not recognised in the balance sheet (prior year: USD 66 million or CHF 65 million). Netting of financial instruments In CHF million  At 31 December 2015  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 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  Gross amount Netted in the balance sheet Net amount 22 149 171 42 83 125 26 164 190 34 152 186 (16) (60) (76) (16) (60) (76) (19) (104) (123) (19) (104) (123) 6 89 95 26 23 49 7 60 67 15 48 63 205 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 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 or the other. The ISDA agreements do not meet the criteria for balance sheet netting as Swisscom has presently no legally enforceable right to offset the recognised amounts and such a right may only be applied to future occurrences such as a credit default or other credit events. In 2015, Swisscom recorded an amount of CHF 3 mil- lion for which such netting agreements existed. In the event of netting, derivative assets of           CHF 14 million and derivative liabilities of CHF 61 million would be reduced to CHF 11 million and CHF 58 million, respectively. In the prior year, Swisscom recognised an amount of CHF 2 million for which such netting agreements existed. In the event of netting, the derivative assets in the prior year of CHF 11 million would be reduced to CHF 9 million and the derivative liabilities would be reduced from CHF 98 million to CHF 96 million. 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 %  31.12.2015 31.12.2014 5,237 5 5,242 21,149 24.8 5,483 3 5,486 20,961 26.2 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  31.12.2015 31.12.2014 5,430 1,356 931 526 350 8,593 (324) (85) (142) 8,042 4,098 2.0 5,104 1,881 925 561 133 8,604 (302) (40) (142) 8,120 4,413 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. 206 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 2015 (3) (30) (9) (77) 248 (51) 56 134 2014 4 (7) (41) (85) (40) (22) (22) (213) In 2015, other cash inflows from financing activities amount to CHF 2 million (prior year: cash out- flows of CHF 14 million). 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 9 million (prior year: CHF 13 million). As a result of changes in the assumptions made in esti- mating the provisions for dismantling and restoration costs, a decrease of CHF 55 million net was recognised in property, plant and equipment (prior year: increase of CHF 157 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 2015 aggregated CHF 886 million (prior year: CHF 1,004 million). Operating leases Operating leases relate primarily to the rental of real estate for business purposes. See Note 26. In 2015, payments for operating leases amounted to CHF 314 million (prior year: CHF 316 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  31.12.2015 31.12.2014 150 140 117 101 89 372 969 153 136 120 104 91 455 1,059 207 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 2015 (prior year: CHF 18 million). 37 Related parties Majority shareholder, associates and non-controlling interests Transactions and balances outstanding at year end with related entities and individuals for 2015 are as follows: In CHF million  Confederation  Associates  Non-controlling interests  Total 2015/Balance at 31 December 2015  Income Expense Receivables Liabilities 359 23 – 382 145 109 2 256 150 5 – 155 377 7 – 384 Transactions and balances outstanding at year end with related entities and individuals for 2014 are as follows: In CHF million  Confederation  Associates  Non-controlling interests  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 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 2015, the Confedera- tion as majority shareholder held 51% of the issued shares of Swisscom Ltd. Any reduction of the Confederation’s holding below a majority shareholding would require a change in law which would need to be voted upon by the Swiss Parliament, which would also be subject to a facultative refer- endum by Swiss voters. As the majority shareholder, the Swiss Confederation has the power to con- trol the decisions of the general meetings of shareholders which are taken by the absolute majority of validly 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 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/by associates and non-controlling interests are based upon market prices. The associates are listed in Note 40. Post-employment benefits funds Transactions between Swisscom and the various pension funds are detailed in Note 10. 208 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  2015 2014 1.5 0.8 0.1 2.4 5.7 1.0 – 0.8 0.5 8.0 1.5 0.8 0.1 2.4 5.6 0.7 0.3 0.7 0.5 7.8 Total compensation to members of the Board of Directors and of the Group Executive Board  10.4 10.2 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 the form of shares. Compensation paid to the members of the Group Executive Board consists of a fixed basic salary 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), the Federal Communications Committee (ComCom) granted Swisscom a basic-service license for 2008 to 2017. As licensee, Swisscom (Switzerland) Ltd is required to offer the entire range of the basic service to all sections of the Swiss population 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 municipality (Publifon). The Federal Council periodically sets price ceilings for basic services. 39 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 3 February 2016. 209 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   40 List of Group companies Registered office  Part of capital and voting right in % Currency  Share capital in millions Registered name  Switzerland  Akenes Ltd 2 BFM Business Fleet Management Ltd 1 Billag Ltd 1 cablex Ltd 2 CT Cinetrade AG 1 Datasport Ltd 2 finnova ltd bankware 2,3 Global IP Action Ltd 2 insentia SA 2 ITS Information Techlogie Services SA 2 kitag kino-theater Ltd 2 LANexpert SA 2 Managed Mobility Ltd 2 Medgate Ltd 2 Medgate Holding Ltd 2 Medgate Technologies Ltd 2 Mila AG 2 Mona Lisa Capital AG 2 myKompass Ltd 2, 3 MyStrom Ltd 2 Plazavista Entertainment AG 2 Ringier Publishing Ltd 1 SEC consult (Switzerland) Ltd 2 Siroop Ltd 2 Skwich Holding SA 1 Société Immobilière Dos-Vie S.A. 2 Swisscom Banking Provider Ltd 2 Swisscom Broadcast Ltd 1 Swisscom Directories Ltd 1 Swisscom eHealth Invest GmbH 2 Swisscom Energy Solutions Ltd 2 Swisscom Event & Media Solutions Ltd 2 Swisscom Health AG 2 Swisscom Real Estate Ltd 1 Lausanne  Ittigen  Fribourg  Berne  Zurich  Gerlafingen  Lenzburg  Pfäffikon  Lausanne  Lausanne  Zurich  Lausanne  Urdorf  Basel  Zug  Zug  Zurich  Ittigen  Lucerne  Ittigen  Zurich  Zurich  Zurich  Zurich  Lausanne  Delémont  Muri bei Bern  Berne  Zurich  Ittigen  Ittigen  Ittigen  Zurich  Ittigen  Swisscom IT Services Finance Custom Solutions Ltd 2 Olten  Swisscom (Switzerland) Ltd 1 Swisscom Ventures Ltd 2 Teleclub AG 2 Teleclub Programm AG 2 Veltigroup Consulting Ltd 2 Veltigroup Ltd 2 VirtualAds AG 2 Wingo Ltd 2 Worklink AG 1 Ittigen  Berne  Zurich  Zurich  Lausanne  Lausanne  Basel  Fribourg  Berne  210 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 27.3 100 100 100 75 100 9 70 100 100 75 100 50 40 40 40 51 99.5 13.8 100 75 33.3 45.5 50 100 100 100 100 69 100 54 100 100 100 100 100 100 75 25 100 100 100 100 100 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  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  CHF  0.1 1.0 0.1 5.0 0.5 0.2 0.5 0.2 1.3 0.3 1.0 0.1 0.1 0.7 2.8 0.1 0.4 5.0 0.1 0.1 0.1 0.3 0.1 0.1 0.1 0.7 5.0 25.0 2.2 1.4 13.3 0.1 0.1 100.0 0.1 1,000.0 2.0 1.2 0.6 0.1 0.1 1.0 3.0 0.5 1 Participation directly held by Swisscom Ltd.  2 Participation indirectly held by Swisscom Ltd.  3 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.                          Registered name  Belgium  Belgacom International  Carrier Services Ltd 2 Swisscom Belgium N.V. 2 Germany  Abavent GmbH 2 Mila Europe GmbH 2 Swisscom Telco GmbH 2 Zanox AG 2 Finland  Vilant Systems Oy 2 France  local.fr SA 2 Italy  Fastweb S.p.A. 2 Metroweb S.p.A. 2,3 Swisscom Italia S.r.l. 2 Liechtenstein  Swisscom Re Ltd 1 Netherlands  Improve Digital B.V. 2 NGT International B.V. 2 RLVNT B.V. 2 Austria  Registered office  Part of capital and voting right in % Currency  Share capital in millions Brussels  Brussels  Kempten  Berlin  Eschborn  Berlin  Espoo  22.4 100 100 51 100 47.5 EUR  EUR  EUR  EUR  EUR  EUR  20 EUR  Bourg-en-Bresse  67 EUR  1.5 4,330.2 0.3 – – 0.2 – 0.5 Milan  Milan  Milan  Vaduz  Amsterdam  Capelle a/d IJssel  Rotterdam  100 10.6 100 EUR  EUR  EUR  41.3 29.2 2,502.6 100 CHF  100 100 100 EUR  EUR  EUR  Swisscom IT Servics Finance SE 2 Vienna  100 EUR  Sweden  Sellbranch AB 2 Singapore  Stockholm  50.1 SEK  Swisscom IT Services Finance Pte Ltd 2 Singapore  100 SGD  USA  Swisscom Cloud Lab Ltd 2 Delaware  100 USD  1 Participation directly held by Swisscom Ltd.  2 Participation indirectly held by Swisscom Ltd.  3 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. 5.0 – – 2.5 0.1 0.1 0.1 – 211 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 140 to 211 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 2015. 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 evaluat- ing 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 2015 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. 212 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 Hanspeter Stocker Licensed Audit Expert Auditor in Charge Gümligen-Berne, 3 February 2016 Daniel Haas Licensed Audit Expert 213 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  Revenue from the sale of goods and services  Other income  Total operating income  Personnel expense  Other operating expense  Total operating expenses  Operating income  Financial expense  Financial income  Income from participations  Income before taxes  Income tax expense  Net income  2015 237 32 269 (82) (110) (192) 77 (181) 201 189 286 (7) 279 2014 238 30 268 (84) (107) (191) 77 (263) 220 2,447 2,481 (9) 2,472 214 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  Trade receivables  Other current receivables  Dividends receivable from subsidiaries  Accrued income and deferred expense  Total current assets  Financial assets  Participations  Total non-current assets  Total assets  Liabilities and equity  Current interest-bearing liabilities  Trade payables  Other current liabilities  Accrued expense and deferred income  Current provisions  Total current liabilities  Non-current interest-bearing liabilities  Other non-current liabilities  Non-current provisions  Total non-current liabilities  Total liabilities  Share capital  Legal capital reserves/capital surplus reserves  Legal retained earnings  Voluntary retained earnings  Total equity  Total liabilities and equity  Note 31.12.2015 31.12.2014 1 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.5 3.7 176 21 10 73 89 369 5,911 7,872 13,783 14,152 156 25 105 2,400 10 2,696 5,257 7,767 13,024 15,720 1,718 3,170 8 52 81 8 1,867 7,449 66 56 7,571 9,438 52 21 10 4,631 4,714 14,152 11 85 81 6 3,353 6,690 47 55 6,792 10,145 52 21 10 5,492 5,575 15,720 1 The balance sheet as at 31 December 2014 has been amended to meet the new classification provisions of the new Law on Accounting and Financial Reporting. See Note 2. 215 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 Name, legal form and domicile > Swisscom Ltd, Ittigen (canton of Berne) > Parent company of the Swisscom Group > Swisscom Ltd is a limited-liability company established under a special statute pursuant to the Telecommunication Enterprises Act (TA) (German: “Telekommunikations unternehmungsgesetz”) of 30 April 1997. > Company identification number (UID) CHF-102.753.938 Share capital As of 31 December 2015, the share capital comprised 51,801,943 registered shares of a par value of CHF 1 per share. This remains unchanged from the previous year. Significant shareholders As at 31 December 2015, the Swiss Confederation (Confederation), as majority shareholder, held 51% of the issued shares of Swisscom Ltd which is unchanged from the prior year. The Telecommu- nications Enterprises Act (TEA) (German: “Telekommunikationsunternehmungsgesetz”) provides that the Confederation shall hold the majority of the share capital and voting rights of Swisscom Ltd. Number of full-time employees The average number of employees of Swisscom Ltd during the financial year, expressed as full-time equivalents, exceeded 250, as in the prior year. Approval of Annual Financial Statements The Board of Directors of Swisscom Ltd approved the present Annual Financial Statements on 3 February 2016 for release. The Annual Financial Statements are subject to approval by the share- holders of Swisscom Ltd in its Annual General Meeting to be held on 6 April 2016. 2 Summary of significant accounting policies Initial application of the new Law on Financial Statement Reporting The annual financial statements for 2015 were prepared for the first time pursuant to the provi- sions of the Federal Law on Financial Statement Reporting (32nd section of the Federal Code of Obligations; German: Obligationenrecht). In order to ensure comparability, the prior year’s amounts were restated to conform to the new classification standards. 216 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     This concerns in particular the following captions: > Receivables were divided into trade accounts receivables and other short-term receivables. Receiv- ables from third parties and those due from Group companies are included in these positions. > Accrued income and deferred expense were previously included in other assets. They are now disclosed separately. > Loans to third parties and to Group companies are disclosed jointly in the caption financial assets. > Trade payables now include also trade payables to Group companies. > Current financial liabilities are now reported under short-term interest-bearing liabilities. Deriv- atives were reclassified from financial liabilities to other short-term liabilities. > Other liabilities were reclassified to the captions other short-term liabilities, accrued expenses and deferred income and short-term provisions. > Accrued expense and deferred income were previously not reported separately, but included in other liabilities. > Non-current financial liabilities are now shown under long-term interest-bearing liabilities. Derivatives were reclassified from financial liabilities to other long-term liabilities. > Legal reserves were previously included in the caption retained earnings and are now disclosed separately. Financial statement reporting policies General Significant financial statement reporting policies which are not prescribed by law are described below. The ability to create and release hidden reserves for the purpose of ensuring the sustainable development of the company should be taken into account in this respect. Shareholdings and recording of dividend distributions by subsidiary companies Investments are accounted for at acquisition cost less valuation allowances, as required. Dividend distributions from subsidiary companies are accrued in the financial statements of Swisscom Ltd provided that the annual general meetings of the subsidiary companies approve the payment of a dividend prior to the approval of the Annual Financial Statements of Swisscom Ltd by the Board of Directors. Treasury shares At the time of acquisition, treasury shares are recorded at purchase cost as a reduction of share- holders’ equity. In the event of a subsequent disposal, the resultant gain or loss is taken to income as financial income or financial loss, respectively. The balance of and transactions in treasury shares are disclosed in Note 31 to the Consolidated Financial Statements. Share-based payments Should treasury shares be used for share-based payments to members of the Board of Directors and employees, the difference between the acquisition cost and any respective payment to the employees represents personnel expense as at the time the shares are allocated. Share-based pay- ments of Swisscom Ltd are detailed in Note 11 to the Consolidated Financial Statements. Derivative financial instruments and hedge accounting Derivative financial instruments which are deployed to hedge foreign currencies and interest rates, are measured at market price. Movements in market prices are recorded in the income statement. Derivatives which meet the conditions of a hedging transaction, are measured using the same valuation principles as those which apply to the underlying transaction. Gains and losses arising from the underlying and hedging transactions are dealt with on a joint basis (combined valuation perspective with regard to valuation units). 217 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     3 Disclosures on balance sheet and income statement positions 3.1 Trade accounts receivables Trade accounts receivables consist exclusively of receivables from third parties. 3.2 Other current receivables In CHF million  Receivables from third parties  Receivables from participations  Derivative financial instruments  Total current receivables  3.3 Financial assets In CHF million  Loans and receivables from third parties  Loans and receivables from participations  Derivative financial instruments  Disagio debenture bonds  Total financial assets  3.4 Investments 31.12.2015 31.12.2014 1 6 3 10 3 102 – 105 31.12.2015 31.12.2014 105 5,793 10 3 104 5,153 – – 5,911 5,257 A list of directly and indirectly held shareholdings of Swisscom Ltd is set out in Note 40 to the Con- solidated Financial Statements. 218 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 3.5 Interest-bearing liabilities In CHF million  Payables from third parties  Payables from participations  Total current interest-bearing liabilities  In CHF million  Bank loans  Debenture bonds  Private placements  Loans from participations  Other interest-bearing liabilities from third parties  Total non-current interest-bearing liabilities  31.12.2015 31.12.2014 1,087 631 1,718 1,451 1,719 3,170 31.12.2015 31.12.2014 590 5,413 600 840 6 7,449 910 4,606 950 224 – 6,690     The amounts, interest rates and maturities of the debenture bonds issued by Swisscom Ltd were as follows: In CHF million or EUR  Debenture bond in CHF 2008–2015  Debenture bond in CHF 2007–2017  Debenture bond in CHF 2009–2018  Debenture bond in EUR 2013–2020  Debenture bond in EUR 2014–2021  Debenture bond in CHF 2010–2022  Debenture bond in CHF 2015–2023  Debenture bond in CHF 2012–2024  Debenture bond in EUR 2015–2025  Debenture bond in CHF 2014–2026  Debenture bond in CHF 2014–2029  Debenture bond in CHF 2015–2035  3.6 Trade payables In CHF million  Payables from third parties  Payables from participations  Total trade payables  3.7 Other liabilities In CHF million  Payables from third parties  Payables from participations  Derivative financial instruments  Total other current liabilities  In CHF million  Payables from third parties  Derivative financial instruments  Total other non-current liabilities  Par value in CHF – 600 1,425 542 542 500 250 500 542 200 160 150 31.12.2015 Nominal interest rate – 3.75 3.25 2.00 1.88 2.63 0.25 1.75 1.75 1.50 1.50 1.00 Par value in CHF 500 600 1,425 542 542 500 – 500 – 200 160 – 31.12.2014 Nominal interest rate 4.00 3.75 3.25 2.00 1.88 2.63 – 1.75 – 1.50 1.50 – 31.12.2015 31.12.2014 6 2 8 6 5 11 31.12.2015 31.12.2014 38 6 8 52 23 7 55 85 31.12.2015 31.12.2014 7 59 66 – 47 47 3.8 Residual leasing commitments Leasing commitments which do not mature or cannot be terminated within twelve months pres- ent the following maturity structure: In CHF million  Within 1 year  1 to 5 years  Total remaining amount of lease obligation  31.12.2015 31.12.2014 2 1 3 2 – 2 The amounts encompass the payments arising under rental and leasing contracts which are to be settled up to the end of the contract or the end of the notice period for cancellation. 219 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         3.9 Shareholdings of the members of the Board of Directors and Group Executive Board The following table discloses the number of unrestricted and restricted shares held by the mem- bers of the Board of Directors and Group Executive Board as well as parties related to them, as of 31 December 2014 and 2015: Number  Hansueli Loosli  Frank Esser 1 Barbara Frei  Hugo Gerber  Michel Gobet  Torsten Kreindl  Catherine Mühlemann  Theophil Schlatter  Hans Werder  Total shares of the members of the Group Executive Board  1  Elected as of 7 April 2014. Number  Urs Schaeppi (CEO)  Mario Rossi  Hans C. Werner  Marc Werner 1 Christian Petit 2 Roger Wüthrich-Hasenböhler 3 Heinz Herren 3 Total shares of the members of the Board of Directors  1  Joined the Group Executive Board as of 1 January 2014. 2  Rejoined the Group Executive Board as of 1 April 2014. 3  Rejoined the Group Executive Board as of 1 January 2014. 31.12.2015 31.12.2014 2,012 205 528 1,233 1,600 1,322 1,223 1,054 982 10,159 1,682 101 409 1,129 1,496 1,195 1,119 887 839 8,857 31.12.2015 31.12.2014 2,602 821 571 211 1,525 1,032 1,098 7,860 2,275 634 421 106 1,332 879 1,122 6,769 220 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 In 2015, 1,302 shares (CHF 0.7 million) were issued to members of the Board of Directors, 1,268 shares (CHF 0.7 million) were issued to members of the Group Executive Board and 1,309 shares (CHF 0.7 mil- lion) were issued to other Swisscom employees. See Note 11 to the consolidated financial statements. 3.10 Collateral given to secure third-party liabilities As of 31 December 2015, guarantee obligations exist for Group companies in favour of third parties totalling CHF 111 million (prior year: CHF 260 million). 3.11 Assets used to secure own commitments as well as assets subject to retention of title As of 31 December 2015, financial assets totalling CHF 105 million (prior year: CHF 103 million) were not freely available. These assets serve to secure commitments arising from bank loans. 3.12 Material events after the balance sheet date No material events subsequent to the balance sheet date occurred in the period ending 3 February 2016, the date on which the Board of Directors of Swisscom Ltd approved the release of the Annual Financial Statements.         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 6 April 2016 that the available retained earnings of CHF 4,641 million as of 31 December 2015 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 51,801,943 shares 1 Balance to be carried forward  1 Excluding treasury shares. 31.12.2015 4,362 279 4,641 (1,140) 3,501 In the event that the proposal is approved, a dividend per share will be paid to shareholders on 12 April 2016 as follows: Per registered share  Ordinary dividend, gross  Less 35% withholding tax  Net dividend paid  CHF 22.00 (7.70) 14.30 221 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 214 to 220 of Swisscom Ltd, which comprise the income statement, balance sheet and notes for the year ended 31 December 2015. 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 responsibility 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 2015 comply with Swiss law and the company’s articles of incorporation. 222 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 confirm 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 the available retained 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 Hanspeter Stocker Licensed Audit Expert Auditor in Charge Gümligen-Berne, 3 February 2016 Daniel Haas Licensed Audit Expert 223 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     Of the more than 10,000 myCloud users 60% use the app several times a month. myCloud is the Swiss Cloud solution for photos, videos and other data. “I am trusted and given the opportunity to employ my programming knowledge to simplify complex processes for our customers.” Christian Blättler Informatics apprentice EFZ, third year of apprenticeship Further information Focusing on our customers with a great deal of passion and reliability. Glossary 228228 Technical terms 232 Networks 233 Other terms Index of keywords 235 Swisscom Group fi ve-year review 236 Glossary Technical terms 4G/LTE (Long Term Evolution): 4G/LTE is the successor technology to HSPA and is the fourth genera- tion 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. 5G: 5G is the next generation of mobile network technology. There is currently no international 5G standard. But more and more tests are taking place worldwide. Swisscom expects to launch 5G in Switzerland in 2020. 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 cus- tomer end and in the network prevent mutual interference, allowing traditional analogue tele- phony 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 (copper and optical fibre) based on the Internet Protocol (IP). All-IP means that all services such as television, the Inter- net or fixed-line 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 services. 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 switch all existing communications networks to IP to enable all telecommu- nications services (telephony, data traffic, TV, mobile communications, etc.) to be offered over IP. This would mean that all IP services within Switzerland are provided via Swisscom’s own network, ensuring a higher level of security and better availability than other online voice service providers. 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 businesses using fibre-optic cables instead of traditional copper cables. 228 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 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 “gee 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. 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 ser- vices 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 was 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 tech- nology (information and data processing and the related hardware) and communication technology (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), host- ing (registration and operation of Internet addresses, websites and web servers) and content pro- vision. LAN (Local Area Network): A LAN is a local network for interconnecting computers, usually based on Ethernet. 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. 229 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 2,200 hotspots in Switzerland and over 65,000 worldwide. A PWLAN typically offers data transmis- sion 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 1800 MHz net- works (which are most commonly used in Europe) as well as 850 MHz and 1900 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 used to integrate the wide variety of modern communi- cation technologies. Different telecommunication services such as e-mail, unified messaging ser- vice, telephony, mobile phones, PDAs, instant messaging and presence functions are coordinated to improve the reachability 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 inter- ference (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 (video) films and to watch the selected film at any time. The film is delivered to the subscriber either over the broadband 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. VoLTE (Voice over LTE): LTE is, in effect, a pure data network. VoLTE enables phone calls via the LTE data network. 230 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 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). WiFi Calling: WiFi Calling enables users to make calls via their mobile phone and the WLAN/WiFi network. This technology significantly improves mobile phone reception in houses. WLAN (Wireless Local Area Network): WLAN stands for wireless local area network. A WLAN con- nects several computers wirelessly to a central information system, printer or scanner. 231 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 con- vergent solutions in the future, Swisscom is investing in a network infrastructure that is based exclu- sively 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 ser- vices 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 supplemented 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 propor- tion of business customers in Switzerland. Four-fold redundancy in the core network and two-fold redundancy in the switching layer ensure excellent voice quality and optimum security and avail- ability. 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 fibre-to-the-home (FTTH) in 2008 (end-2015: more than 1 million households and businesses connected with fibre-to-the-basement). It started rolling out broadband technology in 2000, first based on ADSL (coverage at end-2015: 97%). ADSL was followed in 2006 by VDSL2 (coverage at end- 2015: over 93%) and from 2013 by FTTS/B (fibre-to-the-street or basement) and vectoring (end-2015: more than 2 million of households and businesses fitted with the latest fibre-optic technology). To fulfil its mandate for basic broadband provision, Swisscom also uses wireless technologies such as UMTS and satellite. At present, 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 90% 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 4G, 3G and 2G, the dominant digital standards across Europe and much of the world. Swisscom has implemented different technologies that enable transmission between handsets and base stations. In 2005, it enhanced all active GSM antennas with EDGE tech- nology, 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 98% of Swiss households. At pres- ent, LTE enables bandwidths of up to 150 Mbps. However, it is continuously being developed, and since end-2015, customers can now enjoy 4G+/LTE Advanced in 28 Swiss cities. Swisscom thus possesses the most efficient mobile network in Switzerland and will continue to expand its technological lead. Bandwidths of up to 450 Mbps are already being tested in laboratory conditions. 232 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 Enterprise Risk Management (ERM) Framework is an extension of COSO’s Internal Control Frame- work. 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 regime, 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 regu- lated 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). Federal Office of Communications (OFCOM): OFCOM deals with issues related to telecommuni- cations 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). 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 telecommu- nications service providers with access to subscriber lines for the purpose of using the entire fre- quency spectrum of metallic pair cables. Hubbing: Hubbing relates to the trading of telephone traffic with other telecommunication oper- ators. 233 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). 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 regulated prices. It is future-oriented and therefore creates economically efficient investment incentives. 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 types 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. Termination charges: Termination charges are levied by a network operator for forwarding calls to another third-party network (e.g., calls from Salt to Swisscom or from Sunrise to Salt). 234 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 103–112 79 122–134 88 55–60; 166–172 81, 144 49–51; 232 183–185 113–117 24–27 174–176 35–38 33–34 40–45 82, 206 85 81, 167–172 190–191 90, 111, 196–206 90–93 69–77 86–88 28–31 49–51 235 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  2011 2012 1 2013 2014 2015 Net revenue and results  Net revenue  11,467 11,384 11,434 11,703 11,678 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  4,584 40.0 2,681 1,126 694 683 Earnings per share  CHF 13.19 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  % 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 5,486 26.2 3,770 2,436 8,120 4,098 35.1 2,012 2,012 1,362 1,361 26.27 5,242 24.8 3,867 2,409 8,042 Full-time equivalent employees at end of year  Average number of full-time equivalent employees  number number 20,061 19,832 19,514 19,771 20,108 21,125 19,746 20,433 21,637 21,546 Operational data at end of period  Fixed access lines in Switzerland  236 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 3,120 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 2,629 1,958 6,625 1,331 Revenue generating units (RGU) Switzerland  in thousand 11,438 11,748 12,097 12,373 12,543 Unbundled fixed access lines in Switzerland  Broadband access lines wholesale in Switzerland  Broadband access lines in Italy  in thousand in thousand in thousand 306 181 300 186 256 215 180 262 128 315 1,595 1,767 1,942 2,072 2,201 Swisscom share  Par value per share at end of year  CHF 1.00 1.00 Number of issued shares at end of period  in million of shares 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  CHF CHF CHF CHF % 1.00 51.802 24,394 470.90 474.00 18,436 20,400 355.90 393.80 433.50 400.00 323.10 334.40 390.20 22.00 166.79 22.00 63.04 22.00 67.63 1.00 51.802 27,067 522.50 587.50 467.50 22.00 67.27 1.00 51.802 26,056 503.00 580.50 471.10 22.00 3 83.75 9,243 3,945 9,268 3,864 9,358 3,685 9,586 3,788 9,764 3,461 1,537 1,994 2 1,686 1,751 1,822 Full-time equivalent employees at end of year  number 16,628 16,269 17,362 18,272 18,965 1 Amendments to IAS 19 revised, restated from 2012. 2 Including expenses of CHF 360 million for mobile frequencies. 3 In accordance with the proposal of the Board of Directors to the Annual General Meeting. 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 > 4 February 2016 Publication of 2015 Annual Results and Annual Report > 6 April 2016 Annual General Meeting in Fribourg > 8 April 2016 Ex dividend date > 12 April 2016 Dividend payment > 3 May 2016 2016 First-Quarter Results > 18 August 2016 2016 Second-Quarter Results > 3 November 2016 2016 Third-Quarter Results > February 2017 Publication of 2016 Annual Results and Annual Report Publication and production Swisscom Ltd, Berne Translation CLS Communication AG, Basel Production MDD Management Digital Data AG, Lenzburg Printing Stämpfli Publikationen AG, Berne Photographer Stefan Walter, Zurich 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 from E-mail: annual.report@swisscom.com A Swisscom company brochure is also available in English, French, German and Italian. www.swisscom.ch/ataglance2015 The Corporate Responsibility Report 2015 is published as an online version at www.swisscom.ch/cr-report2015. General information Swisscom Ltd Head office CH-3050 Berne Phone: +41 58 221 99 11 E-mail: swisscom@swisscom.com Financial information Swisscom Ltd Investor Relations CH-3050 Berne Phone: +41 58 221 99 11 E-mail: Internet: www.swisscom.ch/investor 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.com/en/ghq/responsibility.html For the latest information, visit our website www.swisscom.ch The online version of the Swisscom Annual Report is available in German: www.swisscom.ch/bericht2015 English: www.swisscom.ch/report2015 French: www.swisscom.ch/rapport2015 P E R F O R M A N C E neutral Printed Matter No. 01-16-552736 – www.myclimate.org © myclimate – The Climate Protection Partnership 3 9 5 2 0 0 0 4 

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