Share Square: Switzerland

Switzerland had a population of 8.3mn at the end of 2016 and 10.9mn mobile subscribers. Mobile penetration therefore stood at 131%, slightly above average for Western Europe (121%) but somewhat behind the leaders of Austria (161%) and Luxembourg (153%), with Germany (137%) also being slightly ahead. Mobile penetration has been slowly falling in recent years, from a high of 135% in mid-2014, as the number of smartphones increases (currently 73% of subscribers) and the number of SIMs per unique subscriber falls (currently 1.4, down from a high of 1.5 in 2014). The majority of subscribers now use 3G or 4G technologies (53% and 33%, respectively) with 2G in decline (currently accounting for 14% of subscribers). As with most markets ARPU has been falling however, at €47.90 in Q4 2016, it remains one of the highest in Western Europe and the world. This is not reflected in operator margins though, partly due to the investment required to achieve the network coverage and quality levels described below.

The mobile market has three Mobile Network Operators (MNOs) (see figure 1): Swisscom; Sunrise; and Salt. Swisscom dominates the market with a subscriber base of 6.6mn (61% market share) – one of the highest market shares for any previous incumbent in Europe. Sunrise has 2.4mn subscribers (22% of the market) and Salt has 1.8mn (17% of the market).

At an individual technology subscription level, Swisscom holds a similar dominant position; having 65% of 3G subscriptions and 55% of 4G. However, whilst Salt has fallen behind Sunrise in 3G subscriptions (10% versus 25%), it has been somewhat more successful at capturing 4G subscriptions (27% vs 18%).

2G services were first launched in Switzerland back in 1992, with 3G being launched in 2004 and 4G in 2012. Swisscom is one of several MNOs globally that has stated that it intends to cease provision of 2G services – during 2020 in the case of Swisscom – as it focusses on growing data traffic and deployment of 5G. Sunrise and Salt have not made any similar public statements.

Swisscom was the first to launch 3G, in late 2004, with Sunrise and Salt (as Orange, at the time) both following in late 2005. 3G coverage is now extensive, with all three operators having population coverage in excess of 99%. 4G experienced a similar deployment schedule, with Swisscom launching first, in late 2012, and Sunrise and Salt both launching later, in mid-2013. 4G network coverage is also extensive for all three operators, in excess of 95% of the population. Sunrise recently stated that its focus has switched from population to geographic coverage, which it is aiming to be above 92% for 4G by end-2017.

In 2012 the Swiss telecoms regulator – the Federal Communications Commission (ComCom) – auctioned a host of spectrum bands, comprising unused spectrum as well as spectrum associated with licences about to expire. This resulted in all three operators holding spectrum across all mobile bands from 800MHz to 2600MHz, with the exception of the 2.6GHz TDD band which Swisscom holds exclusively. Swisscom also holds a larger overall spectrum holding than the other two operators; 2x105MHz plus 1x45MHz, compared to 2x80MHz for each of Sunrise and Salt. All bands were allocated on a technology neutral basis.

With extensive 4G coverage, all the operators have now also deployed LTE-A, a stepping stone towards 5G. Only Swisscom has made any public announcements about its 5G plans though stating that it intends to launch by 2020. To that end, Swisscom has formed a strategic programme with Ericsson and the Federal Institute of Technology Lausanne (EPFL) to research and progress 5G development. Neither Sunrise nor Salt have stated any intentions around 5G deployment.

In 2015 and working with Ericsson, Swisscom successfully completed a trial in Berne which saw microcells being installed in telecommunications pits (i.e. under telecommunications manholes). Existing power and fibre connections within the pits are used and the associated antennas are also located at ground level. Swisscom has plans to deploy hundreds of these microcells in cities across Switzerland to sit alongside the hundreds of more traditional microcell and DAS antennas that it has already installed. Similarly, since 2015, Sunrise has installed hundreds of microcells at key locations in large Swiss cities in partnership with Swiss Fibre Net.

Swisscom was split out from the former Swiss PTT (Postes, Telephones et Telegraphes) incumbent in 1997 as the market was liberalised and competition was introduced. It therefore offers a broad range of telecoms solutions, with mobile being one element of that. Following an initial public offering in 1998, Swisscom is currently 51% state-owned with the remaining 49% owned by various institutions and individuals. Following its 4G/ LTE launch in 2012, in 2014 Swisscom was the first operator to launch LTE-Advanced in Switzerland – which is now available across urban areas. Swisscom trialled LTE-Advanced Pro in 2016, achieving a peak connection speed of over 1Gbps, and anticipates commercial launch in 2017. To support its stated aim to launch 5G by 2020, Swisscom formed a strategic programme with Ericsson in 2016 to research and progress 5G development.

Sunrise merged with DiAx (one of the original GSM licence holders) in 2000 retaining the brand Sunrise. In 2010, CVC Capital Partners purchased Sunrise and then launched an IPO on the Swiss stock exchange in early 2015. Following this and a share transaction between CVC and freenet (the German communications provider), freenet are currently the largest shareholder in Sunrise holding around 25%. As well as mobile services, Sunrise provides fixed voice and internet and IPTV services. In 2015, shortly after Swisscom’s LTE-A launch, Sunrise launched LTE-A and now provides this across Switzerland’s largest cities. In 2016, Sunrise overtook Swisscom to be rated as the highest quality network in Switzerland – rated as ‘outstanding’ in independent test by P3 and connect magazine. Sunrise has made no public announcements about its 5G launch strategy and is instead currently focussed on expanding its 4G network coverage to 99% of the population.

Salt was created following Xavier Niel’s purchase of Orange (via NJJ Capital) from Apax Partners in 2015. Orange was one of the original GSM licence holders. Salt is wholly owned by Xavier Niel. Unlike its two competitors, Salt is focussed on mobile services. In late-2014, Salt launched LTE-A and has continued to expand this network to cover other large cities in Switzerland. To date, Salt has not made any public announcements about its timetable for 2G switch-off or 5G launch.

In addition to the three network operators, there are over 20 active MVNOs in Switzerland. Each MNO has a number of MVNOs using its network, with Swisscom having considerably fewer than either Sunrise or Salt.

The Federal Communication Commission (ComCom) was formed in 1997 as the independent licensing and regulatory authority for telecommunications in Switzerland. The Swiss Telecommunications Act (TCA), also originally created in 1997, is the primary basis for regulation and covers, amongst other things: competition provisions; network access provisions for providers with market power; universal service provisions; and conditions for radio spectrum use.

Whilst not part of the EU, several facets of Swiss regulation align with EU, providing simplicity and ease of doing business. There are, however, some important differences between Swiss and EU regulations, with one of the most significant being the basis for regulation. The regulatory authorities in the EU have the right to analyse markets and place obligations in particular areas on providers with market power ahead of any issues (‘ex-ante’ regulation), however ‘ex-post’ regulation is employed in Switzerland whereby intervention occurs following evidence of issues caused by market power.

In 2016, the Swiss Government undertook a consultation into the potential revision of the TCA, citing the need to ensure that regulation reflected technology developments. In late 2016 this was concluded and the Government formally requested the Federal Department of Environment, Transport, Energy, and Communications (DETEC/UVEK) to prepare a draft revision by September 2017. This revision is expected to cover several areas including: consumer protection; roaming pricing; improved network access; increased flexibility in spectrum use; and improved access to buildings for infrastructure. Several organisations, including Swisscom, ICTswitzerland and Glasfasernetz Schweiz, have stated that they do not support many of the proposed revisions.

Another area of regulatory difference between Switzerland and many of the EU countries (and many countries globally) is the approach to non-ionizing radiation. Most countries base their non-ionizing regulations on guidelines developed by the International Commission on Non-Ionizing Radiation Protection (ICNIRP) which, in turn, are based on scientific evidence/ studies produced by various organisations around the world into the measured effects of electromagnetic radiation.

By contrast, Switzerland (similarly to Italy) has adopted a precautionary approach whereby levels are justified by the potential for long-term effects from exposure to electromagnetic radiation. Two sets of levels (based on field strength) are defined in Switzerland: levels for areas where people may have access and levels in areas of sensitive use (such as schools and hospitals). These levels can be exceeded but it must be demonstrated that alternatives are not practical or are economically unreasonable. As such the limits stated in Switzerland’s Ordinance on Non-Ionising Radiation (ONIR) are ten or more times stricter than ICNIRP levels. This has a direct impact on the levels of co-location and sharing of site infrastructure that can be achieved (particularly in urban areas) with the mobile industry noting that, as a result, more sites are often needed which, in itself, is challenging from both public and cost perspectives. The Swiss Government is considering revision of the ONIR which may ease these pressures, however there are various voices in Switzerland opposed to any relaxations.

The MNOs’ networks are quite extensive, given the population coverage and network quality figures discussed above, however they have been deployed in different fashions. Swisscom is understood to have the largest number of owned-sites, over 5,000, making relatively lower use of the other MNOs’ sites. Salt and Sunrise are understood to have lower levels of owned-sites, around 1,500 and 2,200 respectively, and therefore make much larger use of shared sites.

The amount of co-location at sites (particularly those in urban and suburban areas) can be limited by the current limits around non-ionizing radiation, however the government is considering a revision of this which may relax the limits.

There are no third-party towercos currently operating in Switzerland, although Sunrise is understood to be actively examining a tower transaction as part of its assessment of options around passive infrastructure.

Switzerland has a high penetration, with the majority of subscribers using 3G or 4G subscriptions, and is one of more advanced nations globally in terms of mobile technology. 4G has been deployed for a number of years, with LTE-A live and LTE-A Pro expected to be launched soon. All the networks perform well in independent trials and there is high population coverage by all technologies (2G, 3G and 4G).

The focus of growth going forward is therefore expected to be the continued rise of 4G and, in the medium term, the deployment of 5G. Both of these will require continued densification in urban areas, in particular, at a macro site level as well as through further implementation of small cells. One of the operators has also made a stated focus to shift from a focus on population coverage to geographic, which means that new locations will be required across rural areas.

Swisscom has the widest reaching network (in terms of site numbers) and so would be expected to benefit from a large part of any new co-locations in rural areas. Similar densities of sites in urban areas amongst the operators means that increased sharing is expected to occur there across all, however current limits on non-ionizing radiation will (and do) prevent challenges for high co-location ratios in these areas.

There is currently no third-party towerco in Switzerland, however this may change in the near future with Sunrise actively examining options for its portfolio (including disposal).