Switzerland remains one of the most lucrative telecoms markets in Western Europe and globally, with high penetration of advanced services, underpinned by high incomes. The incumbent is investing in fibre, while it also launched LTE in 2012, with a competitive LTE market in place from June 2013. We believe it has subscription growth potential exceeding many of its developed market peers, while high incomes and technological literacy creates strong foundations for higher capacity service growth ie, fibre and LTE. The outlook is bright for the wireless and wireline markets, despite the squeeze from market saturation and threats to traditional revenues from IP alternatives. One downside is that in the mobile market ARPU declined sharply as price competition has intensified in a market with already high penetration.
- The OECD released data for dedicated mobile subscription penetration at the end of 2012, showing growth was slightly below our forecast. We believe this is likely the result of customers deferring subscriptions as they wait for LTE services to become more widely available.
- New ITU data for the fixed-line market show subscriptions declined by 4.9% in 2012, an acceleration from 2011, as the total fell to 4.382mn and a penetration rate of 54.8%.
- Following a more aggressive pricing strategy by Orange after investment by Apax, market leader Swisscom's Infinity tariffs have added to the competitive dynamic. These developments resulted in a minor downgrade to our forecast, and we now expect monthly blended ARPU will decline to CHF39.2 in 2013.
Key Trends And Developments
The broadband market is evolving rapidly with investments in both high-speed fixed and wireless broadband technologies. The incumbent operator Swisscom announced in September 2013 that it plans to upgrade its fixed broadband infrastructure to make high-speed services available to 2.3mn households and businesses by 2015, with download speeds of up to 1Gbps available to 700,000 customers by the end of 2013. Swisscom plans to use a combination of fibre deployment models, as well as VDSL, as a means of expanding services across different parts of the country. By 2020 it expects 80% of households and businesses to have access to 100Mbps broadband.
The investment in fixed broadband comes as services are under increasing pressure from wireless alternatives based on LTE. Swisscom was the first operator to launch commercial services in November 2012, with Orange and Sunrise launching in June 2013 to create a competitive market. That said, LTE coverage is not yet nationwide, with Swisscom achieving 35% coverage by April 2013, and Orange targeting 71% population coverage by the end of 2013, while Sunrise is aiming for 50% population coverage by the end of October 2013. As LTE coverage expands, BMI expects greater pressure on fixed broadband services, particularly in rural areas where LTE provision can be cheaper than fibre deployments.