Swisscom AG (ADR) ((SCMWY)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Swisscom AG’s latest earnings call struck a cautiously upbeat tone as management balanced solid operational progress with visible revenue headwinds. Higher operating free cash flow, resilient profitability and strong synergy realization in Italy underpinned confidence, even as service revenues slipped, broadband churn rose and legal uncertainties in the tower business cloud the outlook.
Operating cash flow climbs despite revenue pressure
Group operating free cash flow reached CHF 494 million in the first quarter, up CHF 96 million year-on-year. The increase was driven by synergy realization in Italy, lower CapEx phasing and a CHF 34 million contribution from the Swiss operations, signaling better cash conversion even as top-line trends softened.
EBITDAaL holds steady across core markets
Group EBITDAaL remained roughly flat at about CHF 1.28 billion, illustrating stable underlying profitability. In Switzerland, EBITDAaL slipped only slightly, while Italy delivered a CHF 30 million gain thanks to realized synergies and disciplined cost control, offsetting revenue declines.
Italy integration delivers synergies ahead of plan
Integration in Italy is progressing smoothly, with CHF 77 million of synergies booked in the quarter and management on track for CHF 300 million this year. Integration costs came in slightly below plan, and key milestones such as merging into one legal entity and completing the SAP consolidation have been achieved.
Network expansion boosts fiber and 5G coverage
Swisscom continued to expand its infrastructure with notable gains in both fiber and 5G. FTTH coverage in Switzerland rose to 56%, and 5G now reaches 89% of the population, while in Italy FTTH coverage climbed to 58% and 5G to 89%, supported by the completion of a 5G Standalone dual-mode core.
Wholesale business strengthens on both sides of the Alps
Wholesale access revenues in Switzerland increased 8%, rising from CHF 49 million to CHF 53 million, and pushing wholesale market share to 18.6%. In Italy, wholesale momentum remained strong, with an additional 108,000 mobile and 68,000 broadband connections added during the quarter.
Energy and security services gain commercial traction
Swisscom’s diversification into energy and security services continued to build scale, especially in Italy where energy customers now exceed 119,000, helped by the Vodafone base acquisition. In Switzerland, the ‘beem’ platform has reached around 60,000 users across more than 1,000 locations, and the ‘myAI’ service counts 78,000 registered users.
IT margins improve despite muted demand
In Switzerland, IT EBITDAaL rose from CHF 25 million to CHF 32 million even though revenues were flat, showing better project selection and cost discipline. A multiyear contract with the Swiss Armed Forces supports the strategic focus on sovereign ICT, though management expects only modest IT revenue growth overall.
CapEx discipline supports shareholder returns
Group CapEx fell by CHF 86 million in the quarter, largely due to phasing, reflecting continued capital discipline without derailing network rollouts. With cash flow trending positively, management reaffirmed full-year guidance and signaled its intention to lift the dividend to CHF 27 in 2026, underlining confidence in medium-term cash generation.
Revenue contraction highlights top-line challenges
Group revenue declined by CHF 153 million year-on-year, including a CHF 44 million foreign-exchange impact, leaving an underlying drop of CHF 109 million. Switzerland’s revenue fell by around CHF 25 million, while Italy saw a reported decline of roughly CHF 81 million, underscoring the pressure from service and hardware lines.
Service revenue declines weigh on outlook
Management acknowledged structural pressure on telco service revenues, particularly in Italy and the Swiss consumer base. Current guidance implies a Swiss service revenue decline of around CHF 120 million by 2026 and an Italian drop of about CHF 150 million, with roughly CHF 100 million of that coming from the Italian B2C segment.
Swiss broadband price hikes trigger churn
Recent price increases in Switzerland have led to higher broadband churn and negative net adds, as some customers reacted to higher bills. Aggressive promotions from competitors, including long-term discounts from Sunrise, have further intensified competition and partially dampened the benefits of Swisscom’s price actions.
Italian hardware slump distorts revenue trends
In Italy, a sharp decline in hardware revenues was a major factor behind the quarter’s revenue drop and complicates year-on-year comparisons. Management expects only a partial recovery in future quarters, suggesting that hardware will remain a drag relative to prior peaks, even as core service and synergy trends improve.
PosteMobile contract loss to hit wholesale income
The planned migration of the PosteMobile MVNO contract starting in the second quarter will reduce wholesale revenues, with an estimated CHF 75 million hit in 2026 and about CHF 100 million on a rolling 12-month basis into 2027. An indemnity of roughly CHF 75 million from Vodafone will be booked in a single quarter this year, partially offsetting the loss.
Tower dispute injects execution risk in Italy
Swisscom’s termination of its master service agreement with INWIT and the planned exit by 2028 introduce a new layer of operational and regulatory risk. The multi-year process of migrating away from INWIT, alongside joint venture tower activity with TIM, could face legal delays and raises uncertainty over timing and costs.
Soft IT and B2B demand tempers growth ambitions
Demand for IT services and broader B2B solutions remained subdued, with Swiss IT revenues flat and Italian IT declining in the quarter. Swisscom is repositioning the segment toward profitability rather than aggressive expansion, indicating that IT will support margins more than top-line growth in the near term.
One-off financial items depress net income
Net income fell by CHF 35 million compared with the prior year, primarily due to a non-cash effect in the financial result rather than operational weakness. With EBITDAaL and EBITDA broadly stable, management emphasized that the profit drop is transitory and not indicative of a deterioration in day-to-day performance.
Guidance underscores stable cash and rising dividends
Swisscom reaffirmed its full-year 2026 guidance, pointing to stable free cash flow in Switzerland and growing free cash flow in Italy, supported by ongoing synergy capture of around CHF 300 million this year. While anticipating service revenue declines and the loss of PosteMobile wholesale income, the group still plans a higher dividend and has most of its 2026 energy needs hedged, suggesting visibility on costs and payout capacity.
Swisscom’s earnings call painted a picture of a telecom group navigating structural revenue pressure with disciplined execution and targeted growth initiatives. Investors will watch how the company manages Swiss broadband churn, Italian revenue softness and tower-related legal risks, but for now the combination of strong cash flow, robust infrastructure investment and a rising dividend keeps the investment case intact.