SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                                         

	Commission file number:		1-14860

Swisscom AG

(Exact name of Registrant as specified in its charter)

(Jurisdiction of incorporation or organization)

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

		Name of each exchange
Title of each class		on which registered
American Depositary Shares, each representing one-tenth of one Registered Share, Nominal Value CHF 1 per share		New York Stock Exchange
Registered Shares, Nominal Value CHF 1 per share*		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

     The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2006: 51,801,943 Registered Shares, Nominal Value CHF 1 per share.

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

		Yes þ		No o

     If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934.

		Yes o		No þ

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

		Yes þ		No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

     Indicate by check mark which financial statement item the registrant has elected to follow.

		Item 17 o		Item 18 þ

     If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

		Yes o		No þ

 

 

TABLE OF CONTENTS

		Page
INTRODUCTION			1
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			3
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE			3
ITEM 3: KEY INFORMATION			3
Selected Financial Data			3
Risk Factors			8
ITEM 4: INFORMATION ON THE COMPANY			17
Overview			17
Fixnet			22
Mobile			32
Solutions			37
Other			42
Corporate			44
Other Participations			44
Divestments/Discontinued Operations			45
Networks and Technology			45
Property, Plant and Equipment			49
Research and Development			50
Regulation			51
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS			61
Introduction			61
Summary of Results			63
Critical Accounting Policies			63
Accounting developments			65
results of group operations			66
Fixnet			71
Mobile			78
Solutions			83
Other			88
Corporate			92
Liquidity and Capital Resources			94
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			100
Directors and Senior Management			100
Compensation			105
Employees			106
Share Ownership			109
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			110
Major Shareholders			110
Relationship and Transactions with the Swiss Confederation			110
ITEM 8: FINANCIAL INFORMATION			113
Financial Statements			113
Legal Proceedings			113
Dividend Policy			117
ITEM 9: THE OFFER AND LISTING			119
Markets			119
Price History			120
ITEM 10: ADDITIONAL INFORMATION			121
Memorandum and Articles of Association			121
Corporate Governance			124
Exchange Controls			126
Taxation			127
Documents on Display			129
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			130
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			131
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			132
ITEM 14: MATERIAL MODIFICATIONS			132
ITEM 15: CONTROLS AND PROCEDURES			132
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT			134

ITEM 16B: CODE OF ETHICS			134
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES			134
ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			135
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			135
ITEM 17: FINANCIAL STATEMENTS			136
ITEM 18: FINANCIAL STATEMENTS			136
ITEM 19: EXHIBITS			137
SIGNATURE			138
EX-1
EX-12
EX-13

INTRODUCTION

Presentation of financial and other information

Swisscom publishes its financial statements in Swiss francs (“CHF”). Unless otherwise indicated, all amounts in this annual report are expressed in Swiss francs. Solely for the convenience of the reader, certain amounts denominated in foreign currencies appearing primarily under the headings “Item 4: Information on the Company – Divestments/Discontinued Operations” and “Item 5: Operating and Financial Review and Prospects” have been translated into Swiss francs. These translations should not be construed as representations that the amounts referred to actually represent such translated amounts or could be converted into the translated currency at the rate indicated.

Swisscom’s annual audited consolidated financial statements for the years ended December 31, 2006, December 31, 2005 and December 31, 2004, included in this annual report, are prepared in accordance with International Financial Reporting Standards (“IFRS”), which differ in certain significant respects from Generally Accepted Accounting Principles in the United States of America (US GAAP). For a reconciliation of such differences between IFRS and U.S. GAAP as they relate to Swisscom, see Note 43 to the consolidated financial statements.

As used in this annual report, the term “Swisscom”, unless the context otherwise requires, refers to Swisscom AG and its consolidated subsidiaries. The term “Confederation” refers to the Swiss Confederation.

Cautionary statement regarding forward-looking statements

This annual report contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. In addition, other written or oral statements, which constitute forward-looking statements have been made and may in the future be made by or on behalf of Swisscom. In this annual report, such forward-looking statements may be found, in particular, in “Item 4: Information on the Company” and “Item 5: Operating and Financial Review and Prospects” and include, without limitation, statements relating to:

	•		the implementation of strategic initiatives;
	•		the development of revenue overall and within specific business areas;
	•		the development of operating expenses;
	•		the anticipated level of capital expenditures and associated depreciation expense; and
	•		other statements relating to Swisscom’s future business development and economic performance.

The words “anticipate”, “believe”, “expect”, “estimate”, “intend”, “plan” and similar expressions identify certain of these forward-looking statements. Readers are cautioned not to put undue reliance on forward-looking statements because actual events and results may differ materially from the expected results described by such forward-looking statements.

Many factors may influence Swisscom’s actual results and cause them to differ materially from expected results as described in forward-looking statements. Such factors include:

	•		general market trends affecting demand for telecommunications services;
	•		developments in the interpretation and application of existing telecommunication regulations in Switzerland and the possibility that additional regulations may be imposed in the future;
	•		developments in technology, particularly the timely rollout of equipment;
	•		the evolution of Swisscom’s strategic partnerships and acquisitions, including costs associated with possible future acquisitions and dispositions;

	•		the effects of tariff reductions and other marketing initiatives;
	•		the outcome of litigation in which Swisscom is involved; and
	•		macroeconomic trends, governmental decisions and regulatory policies affecting businesses in Switzerland generally, including changes in the level of interest or tax rates.

Swisscom disclaims any intention or obligation to update and revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3: KEY INFORMATION

Selected Financial Data

Selected Consolidated Financial and Statistical Data

The selected consolidated financial data below have been extracted or derived from, and are qualified by reference to, the audited consolidated financial statements of Swisscom. The consolidated financial statements were prepared in accordance with IFRS, which differ in certain significant respects from U.S. GAAP. For a reconciliation of the significant differences between IFRS and U.S. GAAP as they relate to Swisscom, see Note 43 to the consolidated financial statements.

CHF in millions		Year Ended December 31,
		2006				2005				2004				2003				2002
Consolidated Income Statement Data:
Amounts in accordance with IFRS:
Net revenue			9,653				9,732				10,057				10,026				10,415
Capitalized costs and other income			296				260				195				231				228
Total			9,949				9,992				10,252				10,257				10,643
Goods and services purchased			1,840				1,831				1,847				1,706				2,073
Personnel expenses			2,278				2,173				2,194				2,266				2,329
Other operating expenses			2,044				1,817				1,823				1,798				2,004
Depreciation			1,280				1,286				1,542				1,537				1,546
Amortization			155				108				151				142				114
Total operating expenses			7,597				7,215				7,557				7,449				8,066
Earnings before interest and taxes			2,352				2,777				2,695				2,808				2,577
Financial expense			(240	)			(160	)			(272	)			(226	)			(495	)
Financial income			189				242				138				213				197
Share of profit (loss) of affiliated companies			30				13				22				(9	)			94
Income before income taxes			2,331				2,872				2,583				2,786				2,373
Income tax expense (1)			(462	)			(535	)			(392	)			(467	)			(313	)
Net income from continuing operations			1,869				2,337				2,191				2,319				2,060
Discontinued operations(2) (3)			36				9				(243	)			(408	)			(933	)
Net income			1,905				2,346				1,948				1,911				1,127
Net income attributable to equity holders of Swisscom AG			1,599				2,022				1,596				1,571				826
Net income attributable to minority interest			306				324				352				340				301

CHF in millions except per Share and
ADS amounts		Year Ended December 31,
		2006				2005				2004				2003				2002
Basic earnings (loss) per share(4)
-from continuing operations			28.27				33.64				28.42				29.89				26.00
-from discontinued operations(3)			0.65				0.15				(3.76	)			(6.16	)			(13.79	)
-net income			28.92				33.79				24.66				23.73				12.21
Diluted earnings (loss) per share(4)
-from continuing operations			28.27				33.64				28.42				29.88				25.98
-from discontinued operations(3)			0.65				0.15				(3.76	)			(6.16	)			(13.78	)
-net income			28.92				33.79				24.66				23.72				12.20
Basic and diluted earnings per ADS(4)			2.89				3.38				2.47				2.37				1.22
Amounts in accordance with U.S. GAAP:
Net revenue			9,671				9,767				10,113				10,057				10,424
Net income from continuing operations			1,553				2,066				1,968				2,066				1,780
Net income (loss) from discontinued operations(3)			36				263				145				(8	)			(994	)
Cumulative effect of a change in accounting policy			0				—				—				38				(1,649	)
Net income (loss)			1,589				2,329				2,113				2,096				(863	)
Basic earnings (loss) per share
-from continuing operations			28.08				34.52				30.41				31.21				26.31
-from discontinued operations(3)			0.65				4.40				2.24				(0.12	)			(14.69	)
Cumulative effect of a change in accounting policy			—				—				—				0.57				(24.38	)
-net income			28.73				38.92				32.65				31.66				(12.76	)
Diluted earnings (loss) per share
-from continuing operations			28.08				34.52				30.41				31.19				26.29
-from discontinued operations(3)			0.65				4.40				2.24				(0.12	)			(14.68	)
Cumulative effect of a change in accounting policy			—				—				—				0.57				(24.35	)
-net income			28.73				38.92				32.65				31.64				(12.74	)
Basic earnings per ADS(4)			2.87				3.89				3.27				3.17				(1.28	)
Diluted earnings per ADS(4)			2.87				3.89				3.27				3.16				(1.27	)

CHF in millions		Year Ended December 31,
		2006				2005				2004				2003				2002
Consolidated Balance Sheet Data:
(end of period)
Amounts in accordance with IFRS:
Cash and cash equivalents			673				1,023				2,387				3,104				1,512
Other current assets			2,883				4,180				3,790				2,805				2,857
Property, plant and equipment			5,795				6,000				6,190				6,760				7,274
Investments in affiliated companies			221				191				58				41				682
Other non-current assets			6,025				2,015				1,807				1,923				2,270
Assets from discontinued operations(3)			—				—				—				1,685				2,135
Total assets			15,597				13,409				14,232				16,318				16,730
Short-term debt			1,568				137	(5)			158				319				827
Trade accounts payable and other current liabilities			2,616				2,461				2,287				2,204				2,170
Long-term debt and finance lease obligations			5,015				2,299				2,212				2,433				2,626
Accrued pension cost			719				805				1,118				1,113				1,101
Accrued liabilities and other long-term liabilities			1,176				1,083				1,004				948				935
Liabilities from discontinued operations(3)			—				—				—				794				886
Total liabilities			11,094				6,785				6,779				7,811				8,545
Minority interest			67				623				663				731				781
Shareholders’ equity			4,436				6,001				6,790				7,776				7,404
Total equity			4,503				6,624				7,453				8,507				8,185
Amounts in accordance with U.S. GAAP:
Assets continuing operations			19,867				17,549				17,734				18,360				18,654
Assets discontinued operations(3)			0				—				—				1,012				1,165
Total assets			19,867				17,549				17,734				19,372				19,819
Long-term debt and finance lease obligations continuing operations			8,785				6,259				5,665				6,102				6,590
Long-term debt and finance lease obligations discontinued operations(3)			—				—				—				36				23
Total long-term debt and finance lease obligations			8,785				6,259				5,665				6,138				6,613
Shareholders’ equity			3,413				5,191				5,863				6,523				5,587
Consolidated Cash Flow Data:
Amounts in accordance with IFRS:
Cash provided by operating activities			3,264				3,432				4,066				4,708				3,698
Capital expenditures:
Fixed-line networks			457				353				360				497				479
Mobile networks			199				238				434				381				295
Other intangibles			229				189				103				98				70
Buildings			154				104				13				6				2
Other			285				203				226				183				281
Total capital expenditures			1,324				1,087				1,136				1,165				1,127

		Year Ended December 31,
		2006				2005				2004				2003				2002
Statistical Data:
Fixed-line access lines
(end of period, in thousands)
PSTN lines			2,891				2,922				3,007				3,086				3,163
ISDN lines			856				900				924				924				911
Total fixed-line access lines			3,747				3,822				3,931				4,010				4,074
Traffic (in millions of minutes):
National fixed-line telephony(6)			9,024				9,483				10,211				10,957				12,316
Outgoing international fixed-line telephony(7)			1,245				1,282				1,316				1,341				1,394
Mobile telephony(8)			4,432				3,688				3,404				3,335				3,331
Total xDSL lines (end of period, in thousands)			1,368				1,098				802				487				195
Swisscom Mobile subscribers(9) (end of period, in thousands)			4,632				4,281				3,908				3,796				3,605
Number of full-time equivalent employees (end of period)			17,068				16,088				15,477				16,079				17,171

Notes to Selected Consolidated Financial and Statistical Data

Dividend Information

The following table shows, in respect of each of the years indicated, information concerning the dividends per share paid in Swiss francs and in U.S. dollars. Dividends were declared in Swiss francs and converted into U.S. dollars using the noon buying rate for Swiss francs per U.S. dollar on the date of the shareholders’ meeting at which the relevant dividend was approved. As used in this annual report, the term “noon buying rate” refers to the exchange rate for Swiss francs per U.S. dollar, as announced by the Federal Reserve Bank of New York for customs purposes as the rate in The City of New York for cable transfers in foreign currencies.

		Dividend per Share
Year Ended December 31,		(CHF)				(USD)
2002(1)			12				9.15
2003(1)			13				10.01
2004			14				11.77
2005			16				12.61
2006(2)			17				n/a

Exchange Rate Information

The following table shows, for the years indicated, information concerning the noon buying rate, expressed in Swiss francs per U.S. dollar. The noon buying rate on April 20, 2007 was CHF 1.2081.

		Average
Year Ended December 31,		Rate(1)
2002			1.5497
2003			1.3374
2004			1.2393
2005			1.2507
2006			1.2456

The following table shows, for the periods indicated, information concerning the high and low noon buying rates for the Swiss franc, expressed in Swiss francs per U.S. dollar.

Month		High				Low
October 2006			1.2752				1.2424
November 2006			1.2566				1.1966
December 2006			1.2253				1.1911
January 2007			1.2470				1.2125
February 2007			1.2532				1.2189
March 2007			1.2332				1.2079

Risk Factors

Risks Related to Swisscom’s Business

Amendments to the Telecommunications Act require Swisscom to offer unbundled access to its local loop and other related services, which could negatively affect its fixed-line business and overall operating results

The Swiss telecommunications market has been open to competition since the Swiss Telecommunications Act (Fernmeldegesetz) (the “Telecommunications Act”) entered into force on January 1, 1998. While the Telecommunications Act contained provisions designed to facilitate competition in the fixed-line telephony market, Swisscom was not required, prior to 2007, to unbundle its local loop. Although Swisscom provides access services to the vast majority of Swiss fixed-line telephony customers, many of whom continue to use Swisscom as their default provider of national and international calling services, competition has resulted in a loss of market share and margin pressure for such calling services.

In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which entered into effect on April 1, 2007. Swisscom is now required to offer, among other things, unbundled access to its local loop in the form of full access on a cost-oriented basis as well as access rebilling. Unbundling of the local loop in the form of full access allows competitors to offer access services to customers in Switzerland without having to build local loops of their own, although they still have to make significant investments in their own network infrastructure in order to connect to the local loop. By doing so, competitors would be able to offer broadband access without using Swisscom’s wholesale broadband access services. Moreover, with access rebilling, competitors are able to bill customers directly for the access services provided by Swisscom. As a result, Swisscom’s competitors are able to offer their customers a full range of fixed-line services, including access, and their customers will receive a single bill covering all these services. Accordingly, competition in the access market is expected to increase and Swisscom may lose market share in the national and international calling markets.

Unbundling of the local loop requires market-dominant providers to also offer bitstream access to other providers for four years on a cost-oriented basis. Swisscom’s competitors have historically provided ADSL services to its customers based on a wholesale contract with Swisscom on commercial terms. Regulated bitstream access would therefore enable Swisscom’s competitors to offer ADSL services at lower rates than they have in the past. Market-dominant providers must make bitstream access available at the main distributor frame and over their copper network in the local loop. Accordingly, if Swisscom is deemed to be market-dominant and is required to provide bitstream access, its competitors will be required to make significant upfront investments in their own network infrastructure in order to reach Swisscom’s main distributor frame for bitstream data traffic and will have to build their own access lines within four years or switch to full access. In addition, competitors will not be entitled to use Swisscom’s fiber optic lines, even if Swisscom is deemed to be market-dominant. Nonetheless, the Telecommunications Act amendments are expected to cause competition to increase. With increased competition, Swisscom’s share of the broadband access (xDSL) market is likely to decline and Swisscom could be required to lower its broadband access tariffs to remain competitive. While a portion of any lost retail access revenue will be compensated for by additional wholesale revenue for access services provided to Swisscom’s competitors, those services must be provided on a cost-oriented basis. Accordingly, the introduction of bitstream access could have a significant and adverse effect on the growth and profitability of Swisscom’s access business.

Swisscom does not believe that it is market-dominant in the market for bitstream access, and it therefore does not intend to offer competitors bitstream access on a cost-oriented basis. Swisscom expects competitors to challenge its position in court. Such proceedings may be costly to defend and may result in Swisscom being deemed to be market dominant.

The impact of the amendments to the Telecommunications Act on Swisscom will depend on certain details, including the type of products to be unbundled, the manner in which unbundling will occur and the applicable prices, which remain to be determined.

Overall, the amendments to the Telecommunications Act could negatively affect Swisscom’s fixed-line business by reducing revenues and causing margins to decline. Because fixed-line services continue to account for a significant part of Swisscom’s overall revenues, the amendments could adversely affect Swisscom’s consolidated results as well.

Regulation of mobile access or call origination, mobile termination or mobile roaming may negatively affect Swisscom’s mobile revenues and overall profitability

While the Telecommunications Act opened the Swiss mobile telephony market to competition, mobile telephony in Switzerland has not yet been the subject of extensive regulation. However, developments in the EU and Switzerland could result in additional regulation in the future, especially with regard to mobile access and call origination, mobile termination and mobile roaming.

On July 12, 2006, the European Commission submitted a proposal for a regulation on public mobile network roaming within the Community that would impose price caps on roaming charges that would cause roaming prices to decline by up to 60%. The European Parliament and the Council of Ministers will vote on roaming price limits in the spring of 2007. If approved, such limits would enter into effect in the summer of 2007.

While Switzerland is not a member state of the EU and therefore is not subject to EU legislation, EU directives and implementing legislation in various EU countries have served as points of reference for the development of the Swiss regulatory regime. Because the majority of Swisscom’s roaming traffic is with the EU member states, EU-wide regulation would likely increase market pressure on mobile network operators in Switzerland, including Swisscom Mobile. With respect to roaming charges, which have been the subject of numerous Swiss media reports, EU legislation could also lead to intervention by the Swiss Competition Authority or the Swiss Pricing Monitoring Authority (Preisüberwacher).

In October 2002 the Competition Commission launched an investigation into the termination fees charged by three mobile phone operators, including Swisscom. On February 5, 2007, the Competition Commission imposed a fine of CHF 333 million against Swisscom Mobile. Although Swisscom intends to appeal, it may be required to pay large fines or recognize a provision. For more information, see “–The Swiss Competition Commission may require Swisscom Mobile to pay large fines and reduce its mobile termination prices”.

Regulation of mobile termination fees or roaming charges would have a material and adverse effect on Swisscom’s mobile revenues and lead to additional pressure on margins and reduced profitability. Since the mobile business has been a major source of Swisscom’s profitability in recent years, these regulatory changes would adversely affect Swisscom’s business as a whole.

The Swiss Competition Commission may require Swisscom Mobile to pay large fines and reduce its mobile termination prices

In October 2002, the Competition Commission initiated proceedings against Swisscom Mobile in connection with mobile termination fees. These are the fees mobile network operators charge each other for connecting incoming calls to their network. On April 7, 2006, the Secretariat of the Competition Commission proposed to the Competition Commission that it impose a fine of at least CHF 489 million. On February 5, 2007, the Competition Commission issued a decision in which it determined that Swisscom Mobile has a market-dominant position which it has abused by demanding disproportionately high termination fees. As a result, the Competition Commission imposed a fine of CHF 333 million. The fine relates to the period from April 1, 2004 (when a new amendment to the Swiss Antitrust Law entered into effect) to May 31, 2005 (when Swisscom Mobile lowered its mobile termination fee from CHF 0.335 to CHF 0.20). Investigations into the mobile termination fees charged by Swisscom Mobile after May 31, 2005 will continue. For more information, see “Item 8: Financial Information – Legal Proceedings – Other Regulatory Proceedings”.

The CHF 333 million fine is based on the maximum legal fine amount (equal to 10% of the revenue realized in Switzerland during the previous three years), the severity of Swisscom Mobile’s alleged anti-trust violations, the relevant timeframe, the amount of Swisscom Mobile’s supposedly excess profits and the lack of mitigating factors. It is based on the assumption that prior to June 1, 2005, Swisscom Mobile’s mobile termination fees of CHF 0.335 were too high. The Competition Commission’s includes indications that CHF 0.10 is deemed appropriate as a cost-oriented and non-abusive price.

Should Swisscom Mobile be legally found to be market-dominant with regard to the termination of calls on its network, other mobile and fixed-network service providers could demand that Swisscom Mobile set its mobile termination fees on a cost-oriented basis. If this were to occur, the Federal Communications Commission (“ComCom”) would be responsible for determining the relevant prices. For more information, see “Item 8: Financial Information – Legal Proceedings – Proceedings Relating to Mobile Termination Interconnection”.

The Competition Commission’s decision indicates that the competition authorities are willing to strictly enforce the Antitrust Law and impose large fines and that they may consider cost-oriented pricing as a reference under circumstances where it is difficult to determine an appropriate non-abusive price. The approach indicated by the competition authorities’ actions may require Swisscom to reduce prices for mobile termination and other services and impact other competition proceedings against Swisscom. It could also give rise to civil actions brought by competitors or consumers. Reducing prices, particularly to cost-oriented levels, may have a significant negative impact on Swisscom’s profitability.

Swisscom intends to appeal and, based on a legal assessment of the current situation, it has not recorded any related reserves in its financial statements as of December 31, 2006. If Swisscom’s assessment proves to be inaccurate, it may result in large fines, the recognition of a provision and a cash outflow.

Service providers are increasingly able to offer Swisscom’s core telecommunications services using alternative technologies

The availability of alternative technologies capable of supporting telecommunications services is increasingly enabling competitors to provide services which fully substitute for Swisscom’s core services (fixed-line voice and data services and mobile telephony).

With market penetration rates for mobile having reached 98% in Switzerland by the end of 2006 (based on data published by mobile network operators), mobile telephony is increasingly used as a substitute for fixed-line telephony, resulting in a decline in access lines and fixed-line traffic revenues. To the extent a Swisscom Fixnet customer opts to use Swisscom’s mobile services, Swisscom Mobile benefits from this trend. Where a customer switches to another mobile service provider, however, Swisscom may no longer earn any revenue from this customer. Some of this loss is compensated for by wholesale revenue which Swisscom Fixnet and Swisscom Mobile derive from collecting fees for terminating calls on their networks and for routing calls between the mobile networks of other mobile network operators. However, with direct mobile interconnection mobile network operators are able to terminate their traffic directly on each other’s networks instead of routing traffic through Swisscom Fixnet, bypassing Swisscom entirely.

While the continuing substitution of mobile for fixed-line telephony has negatively affected Swisscom’s fixed-line business, Swisscom faces an even greater threat from cable network operators, in particular Cablecom, the largest cable network operator in Switzerland, as well as from electrical power providers and local municipalities offering telecommunication services via their own high-capacity fiber networks. Having made significant investments in their cable networks to allow for bidirectional data transfer, Cablecom and other cable network operators have been able to leverage their existing networks into platforms for competing directly with Swisscom in its core competencies by offering voice and data services, as well as high speed Internet access services, to customers throughout Switzerland. In such cases, Swisscom not only loses revenue derived from such customers, it may also cease to have a direct relationship with such customers. Since mid-2004, Cablecom and other cable network operators have been adding subscribers to their voice telephony services at a rapid rate and Swisscom expects this trend to continue.

There are also numerous service providers with minimum network infrastructure who take advantage of interconnection rates and leverage the public Internet to provide low cost national and international calling services using Voice over Internet Protocol (VoIP). The increasing popularity of peer-to-peer communication also means that international calls may be placed at minimal cost. As the quality and convenience of using these IP-based services has improved in recent years, they have become a viable alternative to traditional fixed-line services for many users, a trend Swisscom expects to continue and accelerate in the future. As in the fixed-line business, the popularity of IP-based peer to peer communication is having an increasingly disruptive effect on Swisscom’s mobile business due to substitution of instant messaging for SMS and of VoIP-services for mobile voice telephony services. While Swisscom continues to derive revenue from providing its infrastructure for some of these services, and has itself introduced a mobile instant messaging service, revenue is likely to decline overall as a result of the increased use of these services.

Increased competition may have a significant impact on the revenues and profitability of Swisscom’s fixed-line broadband business, which may not allow Swisscom to recoup its investment in fixed-line broadband infrastructure and multimedia services

The provision of broadband access has been a fast-growing business for Swisscom over the last several years, partially offsetting declines in its traditional fixed-line business. In order to continue to grow this business, Swisscom is making significant capital expenditures to increase download capacity by upgrading its network.

However, there is a risk that increased competition may negatively impact this growth and prevent Swisscom from realizing a return on its investment.

Swisscom faces strong competition particularly from cable network operators, including Cablecom, who are able to offer broadband Internet access via cable. Cable network operators are particularly well positioned to combine voice, data and Internet access services with multimedia content. In response to this increased competition, Swisscom is making capital expenditures to enhance its broadband and IP networks to be able to combine its core activities in voice and Internet services with multimedia services such as TV and video on demand. However, Cablecom has already been offering multimedia services for some time, and Swisscom may not be successful in acquiring significant market share. Swisscom’s television services, which were introduced in late 2006 ultimately may not be competitive with services offered by cable network operators.

If Swisscom is unable to acquire significant market share in the multimedia services market, it may further lose customers to cable network operators and experience higher customer churn. If Swisscom were forced to significantly reduce its retail prices as a result of increased competition and price pressure, this would have a significant impact on the revenues and profitability of Swisscom’s fixed-line broadband business.

High penetration and increasing competition in the mobile telecommunications market have caused per minute prices to decline and could cause customer retention costs to increase substantially such that Swisscom may not be able to maintain its current market share

With mobile penetration having reached 98% in Switzerland at the end of 2006 (based on data published by mobile network operators), prices have declined, it has become more difficult to acquire new customers and Swisscom has been driven to increase its focus on customer retention. Swisscom already faces substantial competition from the other two mobile licensees in Switzerland, Orange and TDC (Sunrise). Competition for business customers is particularly intense, as Orange and TDC (Sunrise) have been increasing their efforts to win market share in this segment. In December 2003, ComCom awarded GSM licenses to Tele2 and In&Phone, which further intensified competition in the mobile business market. In response to competition, Swisscom has introduced budget service plans and service plans where calls are billed on a per-call or per-hour, rather than per-minute, basis. As a result, the average price per minute of mobile traffic has declined. Furthermore, given the high rate of mobile penetration and increasing competition, customer retention costs could increase substantially. If Swisscom is unable to attract new or retain existing customers in the mobile market, its mobile revenues would suffer and it would lose market share. At the same time, further declines in average minute prices and an increase in the cost of customer retention would put additional pressure on margins and could lead to a substantial decline in profitability.

Actual or perceived health risks and other problems relating to mobile devices or transmission masts could lead to decreased mobile communications usage, stricter regulation of radiation emissions from mobile base stations and antennae and additional compliance expenditures

Concern has been expressed that the electromagnetic signals from mobile devices and base stations may pose health risks or interfere with the operation of electronic equipment, including automobile braking and steering systems.

At least one study has indicated that UMTS radiation has an impact on the well-being of humans. While the impact of UMTS radiation on the well-being of humans is supposedly small, the results of the study are statistically significant. Additional studies, which attempt to replicate this study while correcting certain of its scientific shortcomings, have been concluded and did not confirm the results of the above-mentioned study. Since these replication studies only examined the short-term effects of UMTS radiation, however, a risk remains that such radiation could be found to have adverse long-term effects on the well-being of humans. Studies of long term effects started recently. In addition, new research on the impact of electromagnetic fields (50Hz) on DNA structures is currenctly being conducted. The results of these studies are not yet available, but they may have a negative impact, depending on the outcome. If these studies confirm that UMTS radiation may have adverse health effects, the use of mobile devices based on UMTS technology is likely to decline. Media coverage of any actual or perceived health risks could even lead to a decline in the use of mobile devices generally, causing Swisscom’s customer base and average usage per customer to decline, which would have a material adverse effect on Swisscom’s mobile communications business. Similar risks exist if mobile devices are found to interfere with vital electronic equipment, which could cause consumers to sharply curtail their use of such devices, or lead public authorities to restrict use in certain areas or during certain activities.

Any findings of adverse health effects may cause regulatory authorities to set stricter emission standards for the UMTS network than currently apply. As a result, Swisscom could be required to install additional antennae or take other precautionary measures. These regulatory measures could have a severe and adverse effect on Swisscom’s mobile business. Swisscom may be unable to recoup its investment in its UMTS network and may be required to take significant write downs.

Even if stricter regulatory measures are not adopted, environmental and health concerns are making it more difficult, and more costly, to find acceptable sites for base stations. This could impair the build-out of Swisscom’s wireless infrastructure, primarily the mobile network.

If Swisscom is not able to benefit from a potential increase in market demand for integrated communication solutions and IT services, its solutions business and other businesses catering to business customers would suffer

Providing basic telecommunications services to business customers has become a commodity business characterized by low margins. Swisscom believes that to grow in this market in the future, it will have to provide enhanced business solutions. Accordingly, it has upgraded its data networks to enable it to provide integrated data and voice services with greater flexibility, scalability and performance. If demand for integrated communications solutions does not develop as currently anticipated, however, Swisscom may not be able to recoup the cost of these investments and its future growth prospects will be diminished. Moreover, Swisscom faces intense competition from other players in the market for integrated communication solutions and IT services, some of which have more experience than Swisscom and who are able to offer services on a global basis. As a result of these factors, and due to Swisscom’s primarily domestic focus, there can be no assurance that Swisscom will benefit proportionately from any upturn in market demand.

The expansion of Swisscom’s outsourcing business exposes it to the risk that it may not achieve expected cost savings, the risk of project failure and the risk of fines

In recent years, Swisscom has expanded its business in the outsourcing market. Outsourcing contracts are typically multi-year engagements under which Swisscom takes over management of a client’s technology operations, business processes, network and/or IT infrastructure. Generally, Swisscom also takes over the clients’ employees associated with the outsourced operations and may become responsible for the related employee obligations, such as pension and severance commitments. The successful implementation of certain outsourcing projects depends, among other things, on Swisscom’s ability to rapidly optimize the outsourced operations by reducing costs and on Swisscom’s ability to accurately forecast the rate at which it will be able to reduce such costs. If Swisscom is not able to realize anticipated efficiencies, or if it fails to implement such efficiencies on the schedule predicted, it may not be able to perform these contracts on a profitable basis. In addition, some of these contracts may permit termination fees or impose other penalties if Swisscom does not meet performance levels specified in the contracts. Because these contracts extend over multiple years, a considerable amount of time may pass before Swisscom recognizes that its forecasts are inaccurate and that it is unable to implement anticipated cost reductions. In the mean time, Swisscom may enter into additional contracts based on the same or similar assumptions and forecasts, compounding its losses.

Other outsourcing contracts require Swisscom to implement complex systems and solutions for clients. As clients’ needs develop and become more complex, the risk increase that Swisscom will fail to meet a client’s needs or that a project will fail entirely. The failure to implement a successful solution could lead to termination of a contract after Swisscom has already invested significant resources in the respective project, expose Swisscom to contractual fines and/or result in significant damage to Swisscom’s reputation and credibility in the outsourcing market.

Swisscom may make investments and acquisitions, including potentially large acquisitions outside its home market, which would entail a variety of important risks

Swisscom continues to actively consider investment opportunities, including large acquisitions outside its home market. Although the strategic goals for 2006 to 2009 announced by the Swiss Federal Council, as Swisscom’s majority shareholder, have limited Swisscom’s flexibility in this regard, acquisitions that fulfill specified criteria may still be undertaken and Swisscom expects to continue to consider international investment opportunities.

On April 10, 2007, Swisscom launched an all-cash friendly public tender offer for 98.26% of the shares of FASTWEB S.p.A. (“Fastweb”), Italy’s second largest fixed-network operator and leading provider of IP-based services. Swisscom already acquired 1.74% of Fastweb’s shares in March 2007. Swisscom is offering all

Fastweb shareholders EUR 47.00 per share for a maximum total consideration of EUR 3.7 billion. The Federal Council has indicated that it considers the proposed Fastweb transaction to be consistent with the strategic goals. The offer period will end on May 15, 2007.

Swisscom will fund the transaction (which will potentially involve refinancing Fastweb’s existing debt in the amount of EUR 1.1 billion) via financial debt and, depending on the final acceptance level of the offer, by selling the 4.9 million treasury shares it acquired for CHF 2.2 billion in 2006 through its share buyback program. These shares represent 8% of Swisscom’s share capital.

Swisscom faces various risks related to the Fastweb tender offer, including the risk that, due to adverse market conditions, it will not be able to generate the expected level of proceeds by selling its treasury shares. This would require Swisscom to increase the amount of debt assumed to finance the transaction. Because the consideration offered in the tender offer is denominated in euros, Swisscom will also be exposed to risks related to the exchange rate between Swiss francs and euros until the Fastweb transaction closes. Moreover, if the tender offer is successful, Swisscom will continue to be exposed to foreign exchange risks which may reduce the value (in Swiss francs) of dividend payments received in euros from Fastweb.

The Fastweb transaction and other significant acquisitions would entail a variety of other important risks as well. There can be no assurance that Swisscom will be able to successfully execute the business plan pursued in connection with any specific acquisition, such as leveraging the target’s expertise in certain areas, or realizing other anticipated benefits, including synergies, from the transaction. This risk may be compounded in the case of cross-border transactions, such as the proposed Fastweb transaction, as political and cultural factors may make it more difficult to implement management and other changes. Although Swisscom will seek to conduct due diligence on potential targets, the opportunity to do so may be limited and it is possible that a transaction will entail costs that are higher than anticipated, that a target will have liabilities for which Swisscom is not entitled to indemnification or that write downs will be required, including of any goodwill arising out of such a transaction. Moreover, should Swisscom enter into a large acquisition, such as the proposed Fastweb transaction, Swisscom could incur substantial debt, which could negatively affect earnings and lead to an increase in leverage ratios, thereby reducing Swisscom’s future financial flexibility. Such debt may also increase Swisscom’s exposure to interest rate risks.

Additional risks are associated with smaller Swisscom investments at home or abroad. Swisscom may realize a loss on investments it makes in start-up companies, in uncertain technologies or in companies targeted for growth with potentially risky business plans, if such companies are unable to implement their business plans or pursue an unsuccessful strategy. For example, a risk exists that Hospitality Services (formerly Swisscom Eurospot) will be unable to repay loans received from Swisscom, that Swisscom will have to record an impairment charge in connection with its investment in Antenna Hungária, and/or that Swisscom will incur losses in connection with its recently started business based on an interactive TV remote control marketed under the “Betty” brand name.

Swisscom depends upon a limited number of suppliers, particularly for the supply of next generation fixed and mobile network components

Swisscom’s ability to provide and roll out reliable, high quality and secure products and services depends upon, among other things, the adequate and timely supply of transmission, switching, routing and data collection systems, related software and other network equipment. If Swisscom were unable to obtain adequate supplies of equipment in a timely manner, or if there were significant increases in the costs of such supplies, Swisscom’s operations would be adversely affected. This is particularly true with respect to network equipment and services that Swisscom requires to upgrade its existing fixed and mobile networks to enable new broadband and multimedia services based on new technologies, such as ADSL, very high bit-rate digital subscriber line (VDSL), symmetric digital subscriber line (SDSL), EDGE, UMTS and HSDPA. While Swisscom seeks to diversify its suppliers, it currently has only one supplier of ADSL equipment, who is also the supplier of VDSL and SDSL equipment, and one supplier of UMTS and EDGE equipment, who will also be the supplier of HSDPA equipment. Swisscom also depends on the timely supply of mobile handsets which can be used in the UMTS, EDGE and HSDPA networks.

Network failures may result in the loss of traffic, reduced revenue and harm to Swisscom’s reputation

Modern telecommunication networks are vulnerable to damage or interruption caused by system failures, hardware or software failures, computer viruses or external events such as storms, floods, avalanches, fires, power loss or intentional wrongdoing. Swisscom has experienced network failures in the past. In June 2004,

Swisscom’s IP network for business customers was disrupted for several hours due to a software failure. If the disruption had continued for a longer period, it would have had significant adverse consequences, in particular for the banking sector. In 2005, flooding disrupted both Swisscom’s mobile and fixed-line networks. While mobile coverage was quickly restored, thousands of customers remained without broadband access (xDSL) and other fixed-line services for weeks. The flooding caused Swisscom to incur additional repair costs and reduced revenue from affected customers. The risk of network failures can never be entirely eliminated. Any such failure may harm Swisscom’s reputation and could result in customer dissatisfaction and reduced traffic and revenues.

Complex IT systems may fail to operate properly, hampering Swisscom’s business development

Swisscom relies for many of its most important data processing functions on complex IT systems which have been developed over a long period of time. Older systems have been upgraded and adapted on an ongoing basis and new systems have been introduced. As a result, there is a lack of harmonization in Swisscom’s IT systems which may affect Swisscom’s ability to compete with newer service providers. Swisscom may be required to make further investments in its equipment and systems in order to facilitate the provision of flexible and cost-effective services to customers. Any failure to do so may harm Swisscom’s competitive position. Further adaptation and extension of Swisscom’s IT systems, in particular its billing, order management and customer relationship management systems, would be complex and time-consuming and could therefore hamper Swisscom’s business development.

Swisscom’s triple-play strategy for future growth and the continuing convergence among telecommunications technologies and devices will require it to integrate a variety of media and technologies. Swisscom may experience difficulties integrating existing systems and new equipment designed to facilitate the delivery of multimedia services as such equipment may not operate properly in connection with Swisscom’s existing equipment and networks. Technical difficulties may delay the implementation of Swisscom’s growth strategy and may lead to customer dissatisfaction, both of which could harm Swisscom’s reputation and result in reduced revenues and profitability.

Swisscom’s relations with the trade unions could deteriorate

In 2005, Swisscom entered into a new collective bargain agreement with the trade unions. The agreement, which entered into effect in January 2006, is of unlimited duration unless terminated by either party on six months’ notice to the end of a calendar year. The agreement will first become terminable on December 31, 2007. Termination of the collective bargaining agreement, the initiation of new negotiations and staff reductions could damage labor relations or even lead to work disruptions, which in turn could negatively affect Swisscom’s profitability and competitiveness.

Swisscom is involved in a number of legal proceedings which, if decided against Swisscom, could in the aggregate have a material adverse effect on its results

Swisscom is involved in several legal proceedings that are described in more detail under “Item 8: Financial Information – Legal Proceedings”. Swisscom’s position as the principal telecommunications provider in Switzerland has attracted the attention of its competitors in Switzerland and of the Swiss regulatory authorities. In addition, Swisscom is regularly involved in legal disputes with competitors as a result of its leading position in the fixed-line and mobile communications markets in which it operates. For example, Swisscom was recently involved in a legal proceeding with respect to fixed-fixed interconnection fees. In April 2006, the Federal Court issued a ruling requiring Swisscom to retroactively reduce its interconnection prices. Following the Federal Court’s ruling, Swisscom paid an amount of CHF 101 million in 2006 and it expects to be required to make further payments in future years. As of December 31, 2006, Swisscom’s provisions for potential future payments amounted to CHF 484 million.

Although Swisscom believes that most of the proceedings it is involved in would not individually have a material adverse effect on its results of operations and financial condition, in the aggregate these proceedings could have such an effect. This risk has been heightened by the latest approach indicated by the Swiss Competition Commission in its investigation of Swisscom Mobile’s mobile termination fees. While the results of those proceedings are not directly applicable to other cases, they may signal greater scrutiny by the Competition Commission in enforcing the Antitrust Law coupled with higher potential fines.

Risks Related to Ownership by the Swiss Confederation

The interests of the Swiss Confederation, which owns a majority stake in Swisscom, may differ from those of Swisscom and could hamper Swisscom’s development

The Swiss Confederation holds a majority of Swisscom shares. Any reduction of the Confederation’s holding below a majority would require a change in law. Swisscom may not undertake a capital increase that would otherwise have the effect of decreasing the Confederation’s shareholding to less than a majority, unless the Confederation agrees to participate in the capital increase. Swisscom’s ability to raise additional equity capital could therefore be constrained.

In addition, for as long as the Swiss Confederation maintains a controlling interest in Swisscom, it will be able to influence Swisscom’s strategy. In December 2005, the Swiss Federal Council, as Swisscom’s majority shareholder, announced its new strategic goals for 2006 to 2009 which limit Swisscom’s flexibility for corporate acquisitions. The strategic goals permit holdings abroad only if they support Swisscom’s core business within Switzerland or can be shown to further other strategic-industrial logic. The Federal Council expects that Swisscom will not enter into any investments in foreign telecommunications companies with a universal service obligation mandate. Finally, the Federal Council has indicated that net debt should be restricted to no more than one and a half times earnings before interest, taxes, depreciation and amortization (EBITDA), although with regard to Swisscom’s recent repurchase of a 25% interest in Swisscom Mobile from Vodafone International Holdings B.V., the Federal Council decided that debt incurred in connection with the purchase would not be taken into account in determining Swisscom’s compliance with the net debt limitations. The Federal Council has also indicated that it considers the proposed Fastweb transaction to be consistent with the strategic goals. Nonetheless, as a result of the Federal Council’s position, Swisscom could be limited in its ability to undertake other major corporate actions, such as acquisitions or entry into strategic partnerships, either at the parent company level or through subsidiaries, which are important elements of its strategy. Swisscom may also be limited in its ability to incur debt to finance such an acquisition and may be prevented from optimizing its balance sheet structure.

The sale of a substantial stake in Swisscom by the Swiss Confederation could negatively affect Swisscom’s share price and reputation

As of January 31, 2007, the Swiss Confederation held a 54.8% stake in Swisscom.

On April 5, 2006, the Swiss Federal Council adopted a dispatch on the Confederation’s holdings in Swisscom for submission to the Federal Assembly. The proposal recommended that the Telecommunications Enterprise Act of 1997 (the “TUG”) be amended to transfer power to the Federal Council to sell the government’s controlling interest in Swisscom. In May and June of 2006, this proposal was narrowly rejected by both chambers of the Federal Assembly. In response to several parliamentary requests, the Federal Council has reaffirmed its intention to reexamine legislative proposals that would permit the sale of the Confederation’s holdings in Swisscom, given that the reasons in favor of privatizing Swisscom were not denied by the Federal Assembly. Such a reexamination is not expected to take place before 2008. Future sales by the Swiss Confederation may occur, whether as a result of similar, new initiatives or as part of a reduction the Swiss Confederation’s stake to the current legal minimum shareholding of 50%-plus-one-share. Swisscom will have only a very limited ability to influence the structure or details of such sales. The sale or distribution of a significant number of Swisscom’s shares by the Swiss Confederation may cause the market price of Swisscom’s shares and ADSs to decline.

In addition, part of Swisscom’s reputation for reliability and trustworthiness among its customers is due to its ownership by the Swiss Confederation. If the Swiss Confederation sells a significant portion of its stake in Swisscom, Swisscom’s reputation may be impaired, it may lose customers to competitors, and the market price of Swisscom’s shares and ADSs may decline.

Risks Related to Swisscom’s Shares

Currency fluctuations may adversely affect the trading prices of Swisscom’s ADSs and the value of any distributions Swisscom makes

Because Swisscom’s stock is traded in Swiss francs and the ADSs are traded in U.S. dollars, fluctuations in the exchange rate between the two currencies may affect the relative value of Swisscom’s ADSs. In addition, should Swisscom make any distribution on its common stock in Swiss francs, the depositary will convert such distributions to U.S. dollars. If exchange rates fluctuate before the depositary converts the currencies, U.S. shareholders may lose some of the value of the distribution.

Shareholders’ rights are governed by Swiss law and differ in some respects from the rights of shareholders under U.S. law

Swisscom is a stock corporation organized under the laws of Switzerland. The rights of holders of Swisscom’s shares, and therefore, many of the rights of its ADS holders, are governed by Swisscom’s articles of incorporation and by Swiss law. These rights differ in some respects from the rights of shareholders in typical U.S. corporations. In particular, Swiss law significantly limits the circumstances under which shareholders of Swiss corporations may bring derivative actions.

It may not be possible for shareholders to enforce judgments of U.S. courts against members of Swisscom’s Board of Directors or Group Executive Board

Swisscom is a Swiss stock corporation. The members of its Board of Directors and Group Executive Board are non-residents of the United States. In addition, Swisscom’s assets and the assets of members of its Board of Directors and Group Executive Board are located in whole or in substantial part outside the United States. As a result, it may not be possible for shareholders to enforce against Swisscom or members of its Board of Directors and Group Executive Board judgments obtained in the United States courts based on the civil liability provisions of the securities laws of the United States. In addition, awards of punitive damages and judgments rendered in the United States or elsewhere may be unenforceable in Switzerland.

ITEM 4: INFORMATION ON THE COMPANY

Overview

Business

Swisscom is the principal telecommunications provider in Switzerland, offering a comprehensive range of products and services to residential and business customers. As the leading provider of fixed-line services, Swisscom offers analog and digital access services. In addition, Swisscom offers broadband services over existing subscriber lines. As of December 31, 2006, Swisscom provided 3.7 million fixed-line telephone access lines in Switzerland, of which 0.9 million were digital or ISDN lines and 1.4 million were being used for broadband access. In 2006, Swisscom billed an aggregate of 9.0 billion national and 1.2 billion international retail voice traffic minutes. In addition, Swisscom billed an aggregate of 16.2 billion minutes of national transit and interconnection traffic on behalf of other telecommunication service providers. Swisscom is also the leading mobile telecommunications service provider in Switzerland, with over 4.6 million subscribers to its mobile service as of December 31, 2006. Swisscom also offers a full range of state-of-the-art data services, from leased lines to integrated solutions for its business customers. In 2006, Swisscom’s net revenues amounted to CHF 9.7 billion.

Swisscom operates a variety of state-of-the-art telecommunications networks which enable the quick and cost-effective introduction of innovative services. Swisscom’s PSTN/ISDN network features fully digitalized transmission and local switching and fully integrated ISDN. Swisscom has upgraded its access networks to provide broadband connectivity services in the local loop. Broadband technologies operate, like ISDN, over existing copper lines, but offer higher speed for data transmission. Swisscom’s broadband service is available to approximately 98% of the population of Switzerland, and its fastest offering provides download speeds of up to 6 Mbit/s. In 2006, Swisscom completed the first phase of its very high-bit rate digital subscriber line (VDSL) infrastructure deployment, and is able to offer VDSL to over 25% of households with speeds of up to 30 Mbit/s. Swisscom also operates several data networks used for the provision of packet switched, frame relay and asynchronous transfer mode (ATM) data services and, to an increasing extent, IP and Ethernet communication. Swisscom’s mobile telephony network is a digital mobile dual band network based on the international GSM standard. In order to respond to increasing demand for mobile data services, Swisscom introduced nationwide Enhanced Data Rates for GSM Evolution (EDGE) coverage. EDGE technology permits faster transmission of data via existing GSM installations. Swisscom has also built out a separate “third generation” UMTS network. UMTS is a mobile radio system that creates additional mobile radio capacity and enables broadband media applications while also providing high speed Internet access. Swisscom is currently capable of providing UMTS service to approximately 90% of the Swiss population. In addition, Swisscom enabled high-speed downlink packet access (HSDPA) in selected densely populated urban areas in 2006. HSDPA is a packet-based data service with a theoretical downlink data transmission rate of up to 8-10 Mbit/s over a 5MHz bandwidth. As described in more detail below, Swisscom is currently making targeted investments in both its fixed-line and mobile networks to increase coverage where needed, as well as to enhance capacity and upgrade functionality. See “– Networks and Technology”.

The expanded capacity provided by Swisscom’s upgraded networks and new technology (e.g., VDSL) have allowed Swisscom to introduce a variety of new services, such as Bluewin TV. This service, introduced in November 2006, provides subscribers with over 100 television channels and over 70 radio channels, hundreds of on-demand films and live sports coverage. Video is seamlessly streamed to subscribers’ televisions over their high-speed Internet connections. Swisscom intends to continue to expand its service offerings to take advantage of its evolving networks.

The following table sets forth Swisscom’s capital expenditures for the periods indicated.

CHF in millions		Year Ended December 31,
		2006				2005				2004
Fixed-line network			457				353				360
Mobile network			199				238				434
Other			668				496				342
Total			1,324				1,087				1,136

Recent Developments

On April 10, 2007, Swisscom launched an all-cash friendly public tender offer for 98.26% of the shares of FASTWEB S.p.A. (“Fastweb”), Italy’s second largest fixed-network operator and leading provider of IP-based services. Swisscom already acquired 1.74% of Fastweb’s shares in March 2007. Swisscom is offering all Fastweb shareholders EUR 47.00 per share for a maximum total consideration of EUR 3.7 billion. The offer is conditional on, among other things, Swisscom achieving a participation of greater than 50% of Fastweb’s share capital. Fastweb’s board of directors has ruled in favour (“espresso parere favorevole”) of the Swisscom tender offer, after taking into account the fairness opinions provided by its financial advisors. The offer period will end on May 15, 2007.

Fastweb is Italy’s leading alternative broadband telecommunications provider with more than one million customers, 2006 revenues and net loss of EUR 1.26 billion (CHF 2.04 billion) and EUR 124 million (CHF 200 million), respectively. Fastweb delivers innovative telephony, Internet and television services in more than 130 cities via state of the art broadband IP networks. Fastweb’s experience in operating its fully IP-based broadband network, expanding and commercialising optical networks, and developing and marketing broadband-based multimedia services is expected to be highly valuable to Swisscom. In return, Swisscom intends to support Fastweb’s plans to position itself in Italy as a mobile virtual network operator.

Swisscom will fund the transaction (which will potentially involve refinancing Fastweb’s existing debt in the amount of EUR 1.1 billion) via financial debt and, depending on the final acceptance level of the offer, by selling the 4.9 million treasury shares it acquired for CHF 2.2 billion in 2006 through its share buyback program. These shares, representing 8% of Swisscom’s share capital, were acquired by issuing tradable put options. Depending on the acceptance level of Swisscom’s tender offer and following the closing of the Fastweb transaction, Swisscom may review its future payout policy with a view to further increasing its attractiveness. See “Item 8: Financial Information – Dividend Policy”.

On February 5, 2007, the Competition Commission issued a decision in connection with the mobile termination proceedings in which Swisscom is involved. See “Item 8: Financial Information – Legal Proceedings – Other Regulatory Proceedings”. In this decision, the Competition Commission determined that Swisscom Mobile has a market-dominant position which it has abused by demanding disproportionately high termination fees and imposed a fine of CHF 333 million. Swisscom rejects both the charge that it misused its dominant market position and the sanction. Swisscom intends to appeal to the Swiss Federal Administrative Court and, if necessary, in the final event to the Swiss Federal Supreme Court. Based on a legal assessment of the current situation, Swisscom has concluded that the sanction is unlikely to ultimately be upheld. Accordingly, Swisscom did not record any related reserves in its financial statements as of December 31, 2006.

On December 20, 2006, Swisscom repurchased a 25% stake in Swisscom Mobile AG from Vodafone International Holdings B.V., which originally acquired its interest in April 2001. As a result of the transaction, Swisscom Mobile AG is now a wholly-owned Swisscom subsidiary. The purchase price of CHF 4.25 billion was fully financed by a group of four financing institutions who each provided equal loans. These bank loans were syndicated in a banking consortium in the first quarter of 2007. The loan is divided into two tranches. The first tranche of CHF 1.5 billion has a term of one year with an extension option for one further year. The second tranche of CHF 2.75 billion has a term of five years. The bank loans will become due for immediate repayment if the Confederation’s share of Swisscom’s share capital drops below 35% or if another shareholder can exercise control over Swisscom. The Federal Council has decided that these loans will not be taken into account in determining Swisscom’s compliance with the net debt limitations contained in the government’s strategic goals.

In conjunction with the transaction, Swisscom Mobile entered into comprehensive, exclusive cooperation and branding agreements with Vodafone Group Plc and certain affiliates thereof, respectively. The agreements set out the terms on which Swisscom Mobile and Vodafone will continue to cooperate in certain areas. In addition, Vodafone has agreed to pay Swisscom 25% of the amount of any fine imposed by the Competition Commission in connection with the pending mobile termination proceedings.

Background

Prior to January 1, 1998, Swisscom was the state monopoly service provider and was subject only to limited competition. On January 1, 1998, the Swiss telecommunications market was opened to competition with the implementation of the Telecommunications Act. Since then, a large number of competitors have entered the Swiss market, with intense competition in both fixed-line and mobile telephony and in services provided to business customers.

Although Switzerland is not a member of the EU, the Swiss market has been liberalized on the schedule and in the manner set forth in the EU directives mandating the liberalization of telecommunications services in member states. In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which entered into force on April 1, 2007. All market-dominant service providers are now required to offer, among other things, unbundled access to their local loop on a cost-oriented basis in the form of full access as well as bitstream access for a limited period of four years. See “ – Regulation – Unbundling of the Local Loop and Other Access Regulation”.

The Telecommunications Act initially required Swisscom to provide certain basic telecommunications services, comprising Universal Service, throughout Switzerland until December 31, 2002, with a number of such services subject to price ceilings. Swisscom’s Universal Service license was later renewed for a five-year term (2003-2007) and ISDN access became part of Universal Service subject to a price ceiling.

Swisscom is the sole applicant for the 2008-2017 Universal Service license. The new license will include the obligation to offer broadband internet access to every household in Switzerland. Swisscom, which is already capable of providing broadband access to more than 98% of the Swiss market, will be able to fully comply with the new obligation without significant new investment. The new obligation is technologically neutral and ISDN will no longer be explicitly required. The new license is expected to be awarded by the end of June 2007 at the latest.

Historically, Swisscom’s operations were a part of the Swiss PTT, a dependent agency of the Swiss Government. The TUG established Swisscom as a special statutory stock corporation. The TUG provides that the Swiss Confederation must hold a majority of the capital and voting rights of Swisscom. As of January 31, 2006, the Swiss Confederation held a 54.8% stake in Swisscom.

On April 5, 2006, the Swiss Federal Council adopted a dispatch regarding the Swiss Confederation’s holdings in Swisscom. The main proposal contained in the dispatch recommended that the TUG be amended to permit the Federal Council to sell the Confederation’s controlling interest in Swisscom. The proposal was later narrowly rejected by both chambers of the Federal Assembly. In response to several parliamentary requests, the Federal Council has reaffirmed its intention to reexamine legislative proposals that would permit the sale of the Confederation’s holdings in Swisscom, given that the reasons in favor of privatizing Swisscom were not denied by the Federal Assembly. Such reexamination is not expected to take place before 2008.

Swisscom’s principal executive offices are located at Alte Tiefenaustrasse 6, 3050 Bern, Switzerland. For a list of Swisscom’s subsidiaries and affiliated companies, see Note 41 to the consolidated financial statements.

Strategy

Swisscom is active in a highly dynamic market that is characterized by constant change. The continually changing requirements of Swisscom’s residential customers are one of the forces driving the pace of change in terms of demand and corresponding service offerings. The market is also being shaped by ongoing process optimization among Swisscom’s business customers and by rapid technological changes, both requiring Swisscom to constantly adapt to new needs in order to grasp associated opportunities.

To confront these challenges, Swisscom announced a new “TIME” strategy in spring 2006 that is based on three pillars:

•

Maximize performance in Swisscom’s home market. Swisscom aims to further expand its already high level of customer loyalty by building on its leading portfolio of products and services and excellent customer care. Residential customers want integrated access and increasingly convergent voice, data and multimedia products and services. They expect simplicity and support when dealing with the growing number of technological options available. In response to the developing needs of these residential customers, Swisscom is expanding its portfolio of

convergent products and services to include, among other things, services that can be easily and securely accessed using a variety of devices (e.g., phone, computer, TV). Similarly, Swisscom will meet the future needs of business customers by providing them with a portfolio of convergent Information and Communications Technology (ICT) products and services, improved international connectivity and excellent customer service.

		The push toward convergence will not only benefit Swisscom’s customers, it will also allow Swisscom to significantly reduce costs and complexity by eliminating cross-functional overlaps between its business activities. Swisscom believes it can achieve substantial cost reductions in the future by (1) combining its fixed and mobile infrastructure in a single “all-IP network”, (2) optimizing its IT infrastructure, (3) setting up shared service centers for IT and administrative applications as well as (4) eliminating redundancies in its sales infrastructure.
		These measures will allow Swisscom to prepare for future changes while continuing to provide its customers with the highest level of service.
•		Extend services to new markets and customers. Swisscom intends to offer a wider range of ICT solutions to existing and new customers, both domestically and abroad. This will allow Swisscom to exploit new sources of growth as it moves along the value chain. For example, in November 2006, Swisscom launched its TV over Internet protocol (IPTV) service “Bluewin TV”. Swisscom will follow its customers abroad, offering solutions beyond the borders of Switzerland through international expansion and cross-border alliances. It will gradually expand vertically, entering new markets where such expansion is supported by clear industrial logic. Finally, Swisscom will engage in selective acquisitions to secure its market position and accelerate growth (e.g., Swisscom Mobile’s acquisition of Minick helped Swisscom secure a leading position in European content delivery).

•

Expand by leveraging core competences in closely related business areas. Swisscom will continue to apply its competencies in European markets with substantial growth prospects, but which have not reached the same maturity level as the Swiss market. Swisscom will also expand its presence in domestic market segments where it is not yet the market leader. To achieve these goals, Swisscom will establish and grow new businesses (as it did with Hospitality Services), and it will continue to consider larger transactions abroad (within the bounds of the Federal Council’s strategic goals), such as the proposed Fastweb transaction described above. Such transactions will be subject to a set of stringent tests concerning: industrial logic, growth and short term operating free cash flow accretion, business benefits for Swisscom and/or the target, quality of management and the existence of a favourable competition and regulatory environment.

While the first pillar is primarily aimed at optimizing Swisscom’s current core business, the second and third pillars are clearly focused on growth. The TIME strategy will open new business opportunities that will distinguish Swisscom from the competition, generate further growth and help offset the decline in Swisscom’s traditional core business (voice communications and access services).

The strategic goals of the Federal Council limit Swisscom’s ability to enter into acquisitions. The Federal Council expects Swisscom not to enter into any investments in any foreign telecommunications company with a universal service obligation (USO) mandate and to limit net debt (not including CHF 4.25 billion in bank loans used to finance Swisscom’s repurchase of a 25% stake in Swisscom Mobile AG from Vodafone International Holdings B.V.) to a maximum of one-and-a-half times EBITDA as reported on a consolidated basis. Nonetheless, the Board of Directors has analyzed the Federal Council’s strategic goals for 2006 to 2009 and believes they provide sufficient leeway for the company’s further value-adding development. Moreover, the Federal Council has indicated that it considers the proposed Fastweb transaction to be consistent with the strategic goals. For more information, see “Item 7: Major Shareholders and Related Party Transactions – Relationship and Transactions with the Swiss Confederation – The Confederation as Shareholder – Strategic Goals”.

Should no suitable investment opportunities arise, Swisscom intends, in accordance with its dividend policy, to return capital it does not require to its shareholders. Annual dividends are expected to continue to amount to approximately half of Swisscom’s net income. For information on Swisscom’s return policy, see “Item 8: Financial Information – Dividend Policy”.

Overview of Business Segments

In 2006, Swisscom operated in the following business segments:

	•		Fixnet provides access, fixed-line voice, Internet and a comprehensive range of other fixed network telecommunication services to residential and business customers. In addition, Fixnet provides wholesale services and also offers a variety of other services, including the provision of leased lines and the operation of a directories database. Until 2006, Fixnet also sold customer equipment through the Swisscom shops.
	•		Mobile provides mobile telephony, data and value-added services in Switzerland and sells mobile handsets.
	•		Solutions provides national and international fixed-line voice telephony services to business customers and offers leased lines, Intranet services and integrated communication technology solutions, including outsourcing services, to business customers.
	•		Other covers mainly the provision of IT services through Swisscom IT Services, the broadcasting businesses of Swisscom Broadcast and Antenna Hungária in Switzerland and Hungary, the billing services and customer cards business of Accarda and the operation of a pan-European network for broadband Internet connectivity through Hospitality Services (formerly Swisscom Eurospot).
	•		Corporate includes Swisscom’s headquarter functions, group-company shared services, property rentals through the real estate company, Swisscom Immobilien, and Swisscom’s programs under its social plan.

The following table sets forth external revenue generated by Swisscom’s segments for the periods indicated.

CHF in millions		Year Ended December 31,
		2006				2005				2004
Fixnet			4,130				4,319				4,555
Mobile			3,541				3,651				3,679
Solutions			1,072				1,123				1,279
Other			840				571				476
Corporate			70				68				68
Total			9,653				9,732				10,057

Fixnet

Overview

Through Fixnet, Swisscom is the leading provider of fixed network telecommunication services in Switzerland, which it provides to residential, business and wholesale customers. In 2006, Fixnet generated total revenue of CHF 5.0 billion, including sales of CHF 0.8 billion to other Swisscom business segments. With external revenues of CHF 4.1 billion, Fixnet accounted for 42.8% of Swisscom’s consolidated net revenue in 2006.

Services provided by Fixnet include:

	•		Access. Fixnet provides access services, including traditional analog, digital and broadband access services, to residential and business customers. As of December 31, 2006, Fixnet provided 3.7 million fixed-line telephone access lines, including 0.9 million ISDN lines, and offered xDSL access to approximately 1.4 million subscriber lines.
	•		Retail Traffic. Fixnet provides national and international fixed-line voice telephony services to residential and small and medium-sized business customers. In 2006, Fixnet carried an aggregate of 8.7 billion minutes of national telephony and dial-up Internet traffic and 0.9 billion minutes of outgoing international traffic.
	•		Wholesale Traffic. Fixnet provides a wide range of wholesale services to Swisscom’s other segments (which results in the recognition of intersegment revenue) and to other telecommunications providers. In 2006, Fixnet billed a total of 16.2 billion minutes of national interconnection and transit traffic.
	•		Other Traffic. Fixnet operates public payphones, provides operator services and offers prepaid calling cards.
	•		Other. Fixnet also offers a variety of other services, including the provision of leased lines and the operation of a directories database. Until 2006, Fixnet also sold customer equipment through the Swisscom shops.

Effective January 1, 2007, Swisscom reallocated certain responsibilities within the group in order to refine and enhance the customer focus of each segment. Fixnet and Mobile will continue to focus on residential customers. In addition, Fixnet will focus on meeting the needs of small and medium-sized enterprises. Solutions is now responsible for larger corporate accounts, and has assumed related functions which were transferred from Fixnet and Mobile. In addition, responsibility for Swisscom shops was transferred from Fixnet to Mobile, reflecting the fact that most of the products and services offered in Swisscom shops are related to mobile communications. See “ – Other – Customer Equipment”.

The following table sets forth external revenue generated by Fixnet for the periods indicated.

CHF in millions		Year Ended December 31,
		2006				2005				2004
Access			2,081				1,992				1,876
Retail traffic			974				1,082				1,240
Wholesale traffic			351				483	(1)			691
Other traffic			105				130				158
Other			619				632				590
Total			4,130				4,319				4,555

In order to strengthen its competitive position in the retail fixed-line market, Swisscom aims to increase usage of its broadband access services and to strengthen customer loyalty. Swisscom believes that demand for broadband connectivity services will continue to increase and is actively marketing broadband connectivity in the retail market. Swisscom believes that combining its core activities, voice and Internet, with multimedia services, such as TV and video on demand (a so-called “triple-play” strategy), will be an effective means of competing with cable network operators.

In line with this strategy, Fixnet launched its Bluewin TV service at the beginning of November 2006. Swisscom has incurred, and expects to incur, significant start-up costs in connection with the launch of this service. Bluewin TV provides subscribers with over 100 television channels and over 70 radio channels, hundreds of on-demand films and live sports coverage. Rather than sending television and video signals by broadcasting or transmitting them via cable connections, subscribers use their high-speed Internet connections to seamlessly stream video to their televisions. Swisscom’s triple play strategy is further supported by Swisscom’s 2005 acquisition of a 49% strategic stake in CT Cinetrade AG, a Swiss media company whose activities include a pay-TV channel, video and DVD film rights, as well as movie theaters. See “ – Other Participations – Cinetrade”.

By providing television and multimedia content over its network, Swisscom competes with cable network operators, who are particularly well positioned to combine voice, data and Internet access services with multimedia content. For more information, see “Item 3: Key Information – Risk Factors – Risks Related to Swisscom’s Business – Increased competition may have a significant impact on the revenues and profitability of Swisscom’s fixed-line broadband business, which may not allow Swisscom to recoup its investment in fixed-line broadband infrastructure and multimedia services”.

Access

Fixnet provides homes and businesses in Switzerland with analog and digital telephone access lines as well as a variety of supplementary services. In addition, Swisscom offers Internet access services to residential and business customers as well as broadband Internet access services to other Internet service providers on a wholesale basis. In 2006, external revenue from access services amounted to CHF 2,081 million.

Voice Access

Swisscom’s analog voice access service, provided over the public switched telephone network (PSTN), consists of providing connections between a customer’s premises and the PSTN for basic voice, facsimile and Internet services. Each PSTN access line provides a single telecommunications channel. Swisscom offers its PSTN customers a wide range of supplementary services including caller identification, call forwarding, call waiting, engaged line callback, three-party conference calling and caller identification suppression services. In 2006, PSTN services comprised 39% of total access revenue.

Swisscom’s digital voice access services are provided over the integrated services digital network (ISDN). ISDN allows a single access line to be used for a number of purposes simultaneously, including voice, Internet, data and facsimile transmission. ISDN provides higher quality connections with faster transmission of signals, and increases the bandwidth capacity of the access network. ISDN also supports a full range of supplementary services. Swisscom offers both basic ISDN access lines with two channels and primary ISDN access lines with thirty channels.

The following table sets forth, for the periods indicated, selected data relating to access lines provided by Fixnet to residential and business customers.

In thousands of lines		As of December 31,
		2006				2005				2004
PSTN(1)			2,891				2,922				3,007
ISDN(2)			856				900				924
Total access lines			3,747				3,822				3,931
Total access channels			4,929				5,043				5,175

The number of ISDN lines declined in 2005 and 2006 due to the increasing use of broadband access services, which are also offered over PSTN lines, and because of the introduction of caller identification on PSTN by mid-2005, which up to then had only been offered over ISDN. The total number of access lines also declined due to (i) the growing market share of Cablecom, Switzerland’s major cable network operator, which offers voice and Internet access over its own infrastructure and (ii) the effects of mobile substitution. Swisscom expects this trend to continue.

Swisscom does not receive revenue in connection with the initial in-house installation of access lines, which is generally performed by independent contractors. Most of the supplementary services available are included in the monthly subscription.

The following table sets forth information relating to Swisscom’s charges in effect in 2006 for the provision of voice access services.

CHF (including VAT)
		Activation Fee				Monthly Fee
PSTN			43.00				25.25
ISDN basic with up to 3 access numbers			43.00				43.00
ISDN basic with up to 7 access numbers			43.00				53.80
ISDN basic with up to 10 access numbers			43.00				63.90
ISDN basic with 1 access number and Direct Dial In(1)			170.20				53.80
ISDN primary			914.60				538.00

Under the terms of the Universal Service license, the provision of ISDN access is included within Swisscom’s Universal Service obligation and is subject to a price ceiling of CHF 40.00 (excluding VAT). PSTN access is subject to a price ceiling of CHF 23.45 (excluding VAT). Additional charges may be levied for the provision of supplementary services. See “– Regulation – Universal Service” and “– Regulation – Price Ceilings for Universal Service”.

In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which entered into force on April 1, 2007. Swisscom is required to offer, among other things, unbundled access to its local loop on a cost-oriented basis in the form of full access as well as access rebilling. Unbundling of the local loop will also require market-dominant providers to offer bitstream access for a limited period of four years on a cost oriented basis. See “– Regulation – Unbundling of the Local Loop and Other Access Regulation” and “Item 8: Financial Information – Legal Proceedings”.

Internet Access

Swisscom is the leading Internet service provider for retail customers in Switzerland, offering broadband Internet access over digital subscriber lines (xDSL) and narrowband Internet access as a dial-up service over ISDN and PSTN lines. In addition, Swisscom Fixnet provides broadband Internet access to other Internet service providers on a wholesale basis.

The following table provides information about the number of access subscribers for the periods indicated:

In thousands of lines/subscribers		Year Ended December 31,
		2006				2005				2004
Retail xDSL lines			936				708				490
Wholesale xDSL lines			432				390				312
Total xDSL lines			1,368				1,098				802
Retail narrowband subscribers(1)			282				410				523

In recent years, growth in the access area has come from xDSL technology, which offers significantly higher transmission speeds compared to ISDN. Because xDSL may be offered over a traditional PSTN line, xDSL growth has contributed to a decline in the number of ISDN lines.

Swisscom offers residential Internet users and small businesses Internet access service packages facilitating high-quality Internet access using both narrowband and broadband access technologies, IP-based communication services, personal information management services and shared hosting services. Internet access over xDSL is offered on a flat-fee basis for high bandwidth users, and on a minutes-of-use basis for 300kbit/s low bandwidth users. In March 2006, Swisscom completed the acquisition of Cybernet (Schweiz) AG from the Viatel Group, strengthening its position in this market. Cybernet focuses its activities on the small and

medium-sized business market, where its core businesses include connectivity, data centers and e-business. Effective January 1, 2007, Cybernet was merged into Fixnet.

Swisscom seeks to increase the number of subscribers to broadband access services by offering new broadband services and significantly increasing the bandwidth of its xDSL lines. Swisscom continues to complement its existing network with VDSL technology (very high bit-rate digital subscriber lines), which will allow Swisscom to offer downstream speeds of up to 30 Mbit/s.

The following table sets forth information relating to Swisscom’s charges in effect in 2006 for the provision of broadband access services.

Downstream / upstream

CHF (including VAT)

bandwidth (kbit/s)(2)

Monthly Fee

Hourly rate

ADSL 300(1)

300/100

9.00

2.40

ADSL 2000

2000/100

49.00

—

ADSL 3500

3500/300

69.00

—

ADSL 5000

5000/300

99.00

—

On October 20, 2005, the Competition Commission launched an investigation against Swisscom (Swisscom AG and Swisscom Fixnet) to determine whether its ADSL wholesale prices were abusively high and prevented other Internet service providers from realizing sufficient profits in the retail market (price-squeezing). This investigation is still pending. See “Item 8: Financial Information – Legal Proceedings – Other Regulatory Proceedings”.

In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which entered into force on April 1, 2007. Market-dominant providers are required to offer bitstream access to other providers on demand for four years on a cost oriented basis. See “– Regulation – Unbundling of the Local Loop and Other Access Regulation”.

Retail Traffic

Swisscom provides comprehensive national and international calling services to residential and business customers. Fixnet’s business customers are small and medium sized enterprises that do not require customized telecommunications solutions. External revenue attributable to national traffic and outgoing international traffic originating on the fixed-line network generated by Fixnet customers amounted to CHF 974 million in 2006.

Retail traffic has declined in recent years, mainly due to a significant decline in local area traffic and Internet traffic. In 2005 and 2006, the continued growth in the number of broadband access lines contributed to the decline in Internet traffic, while increased competition reduced voice traffic. Swisscom expects that retail traffic will continue to decline.

Swisscom believes it is well-positioned to remain the leading provider of national traffic and outgoing international calling services in the Swiss market. To this end, Swisscom continues to implement new measures designed to maintain its market share in national and international telephony traffic and to increase customer loyalty.

Traffic. The following table sets forth, for the periods indicated, selected information relating to Fixnet’s national and outgoing international fixed voice telephony traffic.

In millions of minutes(1)		Year Ended December 31,
		2006				2005				2004
Local and long distance traffic			6,312				6,628				7,205
Fixed-to-mobile traffic			926				925				949
Internet traffic			1,487				2,252				3,323
Total national retail traffic			8,725				9,805				11,477
International retail traffic(2)			903				926				955
Total retail traffic			9,628				10,731				12,432

In 2006, 57% of the outgoing international traffic generated by Fixnet customers (excluding outgoing international mobile traffic) was directed toward three countries: Germany, France and Italy.

Tariffs. Swisscom offers a variety of tariff packages targeting different customer segments. Under some tariff packages, Swisscom’s national traffic charges are calculated on the basis of call duration, time of day, day of the week, and whether the call is fixed-to-fixed or fixed-to-mobile. Swisscom has also implemented pricing models under which customers pay a monthly subscription fee allowing them to make national and international calls at reduced per-minute rates, on a price-per-call basis or even for free during certain off-peak times or to other members of a closed user group. These new pricing models have effectively resulted in an overall tariff reduction.

Local and long-distance fixed-fixed calls within Switzerland are billed on a per-minute basis as follows:

CHF/minute(1)		Peak		(2)		Off-Peak		(3)
National fixed-fixed tariff			0.08				0.04

National fixed-to-mobile calls are billed as follows:

CHF/minute(1)		Peak		(2)		Off-Peak		(3)
Tariffs applicable to calls terminating on:
Swisscom Mobile			0.41				0.31
TDC (Sunrise) Mobile			0.49				0.39
Orange / Coop-Mobile
prior to September 1, 2006			0.55				0.45
as of September 1, 2006			0.49				0.39
Tariff applicable to other mobile network operators			0.55				0.45

Swisscom’s international calling charges are generally based on duration, destination and day of the week. In recent years, Swisscom has substantially reduced its international calling charges, both through tariff reductions and volume discounts. Swisscom has a weekday rate applicable from Monday to Friday and a weekend rate for Saturday and Sunday and five tariff groups.

The following table sets forth information relating to Swisscom’s international tariffs in effect at the end of December 2006 for calls to the countries generating the most outgoing international traffic.

In CHF/minute, including VAT(1)		Weekday				Weekend
Germany, Austria, France, Italy, United Kingdom, United States, Canada			0.12				0.10
Portugal, Spain, Netherlands			0.25				0.20
Serbia, Montenegro, Turkey			0.65				0.50

Swisscom offers a variety of promotions, such as discounts for evening and weekend calls, temporary discounts and new pricing models designed to improve price perception and reduce churn.

Under its Universal Service obligation, Swisscom is required to provide, subject to price ceilings, comprehensive local and national long distance calling services throughout Switzerland until December 31, 2007. Swisscom’s current tariffs are well below the applicable ceiling. See “ – Regulation – Price Ceilings for Universal Service”.

Wholesale Traffic

Swisscom provides various wholesale services to other telecommunications providers, including network operators, service providers and resellers. Swisscom’s portfolio of wholesale services includes basic interconnection services, which Swisscom offers to all licensed operators, registered service providers and others entitled to interconnection under the Telecommunications Act. See “ – Regulation – Interconnection by a Market-Dominant Provider”.

Effective July 1, 2005, Swisscom and Belgacom, the leading telecommunications company in Belgium, formed a new joint venture company, named Belgacom International Carrier Services (BICS), combining their international wholesale activities. See “ – Other Participations – Belgacom International Carrier Services”. Fixnet’s wholesale business now consists only of its wholesale national business. In 2004 and 2005, Fixnet’s international wholesale operations contributed CHF 445 million and CHF 256 million to Swisscom’s wholesale traffic revenues, respectively.

As of July 1, 2005, a large portion of Swisscom’s wholesale international traffic ceased to be routed through Fixnet, and is now routed directly through BICS. As Fixnet only has a minority stake in the joint venture, associated costs and revenues should not have been recorded by Fixnet following the Belgacom transaction. Nonetheless, international incoming traffic to be routed through BICS in Switzerland to Swisscom’s Mobile network continued to be routed through Fixnet’s network until June 2006. Traffic to domestic third party networks has been, and will continue to be, routed through Fixnet’s network in the future. The associated revenues and costs are recognized by Fixnet.

Since February 2003, direct mobile interconnection has been available, and mobile network operators have been able to terminate their traffic directly on each other’s networks. As a result, traffic between networks, which had previously been routed via Fixnet’s wholesale network, was initially routed directly, resulting in a decrease in traffic over Swisscom’s network in 2004 and 2005. In 2006, however, traffic between other telecommunication providers that was routed through Swisscom Fixnet rather than through a direct interconnection increased again.

Swisscom has a standard interconnection offer which it markets to all licensed operators, registered service providers and others eligible for interconnection under the Telecommunications Act, and it complements this standard offer with a portfolio of extended interconnection services and wholesale products. In 2006, external revenue from national wholesale services amounted to CHF 351 million.

The following table sets forth information relating to Fixnet’s national interconnection and transit traffic for the periods indicated.

In millions of minutes		Year Ended December 31,
		2006				2005				2004
Wholesale national traffic(1)			16,160				17,524				18,576

Swisscom’s standard interconnection offer encompasses a set of basic interconnection services which Swisscom is required to offer under the Telecommunications Act. The standard offer comprises interconnection between access points on the Swisscom network and competitors’ access points, originating, terminating and transit services, access to Swisscom’s emergency, national and international directory enquiry services, as well as access to the Business Numbers of Swisscom and other service providers.

Under the Telecommunication Act, the interconnection rates charged by a market dominant provider must be cost-oriented. Interconnection rates are based on the long run incremental costs (“LRIC”) of an efficient operator and may not include historical costs. See “ – Regulation – Interconnection by a Market-Dominant Provider”.

The following table sets forth information relating to Fixnet’s interconnection prices for the periods indicated.

CHF/minute(1)		As of December 31,
		2006				2005				2004
Regional termination			0.0107				0.0112				0.0114
National termination			0.0150				0.0175				0.0186
Regional carrier selection			0.0108				0.0113				0.0115
National carrier selection			0.0151				0.0176				0.0187

In 2006, Swisscom reduced its standard interconnection rates by up to 15%. Due to a Federal Court decision from April 2006 and its impact on the cost calculation according to LRIC, prices for 2007 will not be published until the middle of 2007 and will be applied retroactively to January 1, 2007. See “ – Regulation – Interconnection by a Market-Dominant Provider” and “Item 8: Legal Proceedings – Proceedings Relating to Fixed-Fixed Interconnection”. Swisscom expects to continue to adapt its interconnection charges from time to time as it realizes further cost savings through network optimization or improvements in efficiency.

Other Traffic

Swisscom generates other traffic revenue from the operation of private and public payphones (which Swisscom is required to maintain as part of its Universal Service obligation), operator services and from the sale of pre-paid cards. In 2006, Swisscom realized external revenue of CHF 105 million from these services.

Other

Other services comprise the sale of customer equipment, the provision of leased lines, the operation of a directories database and a variety of other services.

Customer Equipment

Swisscom is a leading provider of customer equipment to residential customers in the Swiss telecommunications market. Swisscom purchases all of the telecommunications equipment that it sells or rents under the Swisscom brand name from third-party suppliers. In addition, Swisscom sells telecommunications equipment under third-party brand names. Swisscom primarily offers residential customers PSTN and ISDN corded and cordless telephone handsets and facsimile machines. Swisscom also offers mobile handsets and a variety of other products through its Swisscom shops, including ADSL modems. In 2006, sales of customer equipment generated external revenue of CHF 238 million.

Swisscom uses both Swisscom shops and third-party distribution channels to distribute customer equipment. The approximately 100 Swisscom shops were transferred from Fixnet to Mobile effective January 1, 2007, reflecting the fact that most of the products and services offered in Swisscom shops are related to mobile communications. Nonetheless, the comprehensive range of fixed-network offerings in such shops will remain unchanged, and revenues from sales of fixed-network voice equipment will continue to be recognized by Fixnet.

Leased Lines

Fixnet offers small and mid-sized enterprises a full portfolio of leased lines throughout Switzerland. Customers can choose among a wide range of bandwidths and a selection of different service levels. Swisscom has contracts with approximately 62 wholesale customers in Switzerland. Corporate customers, the primary customer segment for leased lines, are targeted through Solutions. See “ – Solutions – Leased Lines National”. In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which entered into force on April 1, 2007. Swisscom is required to offer, among other things, access to leased lines on a cost-oriented basis in areas where it is deemed market dominant. See “ – Regulation – Unbundling of the Local Loop and Other Access Regulation”. In 2006, the provision of leased lines generated external revenue of CHF 144 million.

Directories

Swisscom Directories operates, maintains and sells Switzerland’s most comprehensive telephone directory database. This database includes over 6 million residential and business entries and is updated daily with subscriber information from Switzerland’s major telecommunications service providers. Swisscom Directories is also responsible for the production, marketing and distribution of printed telephone books, as well as the operation, production and development of electronic directories that are also accessible on the Internet. In 2006, Swisscom Directories generated external revenue of CHF 122 million.

The directories’ business is regulated under the Telecommunications Act. Every telecommunication service provider is required to provide its regulated data, including daily data updates. In 2002, Swisscom Directories was appointed by all major telecommunication providers as their data agent and is now responsible for centrally handling the provision of regulated data.

Other

Other revenue comprises mainly Internet narrowband traffic to third-party ISP numbers. In addition, it provides a range of value added services and data services to residential customers. In 2006, external revenue from these services amounted to CHF 115 million.

Competition

In the area of fixed network telephony and related services, Swisscom faces intense competition, particularly in the national and international calling markets. Since 2004, price competition has intensified due to increased competition from cable network operators, especially Cablecom, the largest cable network operator in Switzerland, and from Internet service providers. Swisscom expects price competition to further intensify in 2007.

Access. As recently as three years ago, Swisscom did not face significant competition in the residential access market, mainly due to the fact that Swisscom had not yet been required to unbundle its local loop. However, competition has increased since mid-2004, when Cablecom started offering telephony services over cable on a commercial basis and thereby began to compete directly with Swisscom’s PSTN and ISDN access services. In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which entered into force on April 1, 2007. Swisscom is required to offer, among other things, unbundled access to its local loop on a cost-oriented basis in the form of full access as well as access rebilling. Unbundling of the local loop will require market-dominant providers to also offer bistream access on a cost-oriented basis for a limited period of four years. See “ – Regulation – Unbundling of the Local Loop and Other Access Regulation”. Unbundling the local loop gives competitors direct access to Swisscom’s customers and the ability to offer them a full range of services without the need to use Swisscom as an intermediary. In addition to losing access revenues, unbundling the local loop is likely to lead to increased competition for national and international traffic as, for the first time, customers will be able to choose among competing full-service providers of fixed-line telephony.

Swisscom’s principal competitors in the Internet access market are Cablecom and TDC (Sunrise). TDC (Sunrise) offers narrowband dial-up access through its own network as well as ADSL broadband access through a reselling agreement with Swisscom Fixnet.

In the market for broadband access, Swisscom faces stiff competition from cable network operators, including Cablecom, who offer broadband Internet access via cable. Cable network operators are particularly well positioned to combine voice, data and Internet access services with multimedia content. In response to this increased competition, Swisscom is making capital expenditures to enhance its broadband and IP network and it is working to complement its existing network with VDSL technology to provide downstream speeds of up to 30 Mbit/s. These efforts enable Swisscom to combine its core activities in voice and Internet services with multimedia services such as TV and video on demand. At the beginning of November 2006, Swisscom launched its Bluewin TV service based on its broadband network. However, cable network operators have been offering multimedia services for some time and Swisscom may not be successful in acquiring substantial market share. With the rollout of broadband mobile services based on UMTS, DVB-H and other wireless broadband access technologies, Swisscom may face additional competition from broadband mobile service providers.

In order to compete with cable operators more effectively, Swisscom has successively increased the capacity of its broadband access services since 2003. The most recent upgrades occurred in March 2006 and March 2007 and more than doubled the bandwidth for most service plans.

After revoking, on October 17, 2005, a provisional order from May 6, 2002 relating to a petition filed by two of Swisscom’s competitors, the Competition Commission announced, in a letter dated October 20, 2005, that it was opening a new investigation of Swisscom and Swisscom Fixnet, based primarily on allegations made by one of Swisscom’s competitors, TDC (Sunrise). The Competition Commission believes facts exist which indicate Swisscom may be abusing its dominant position. In addition, the Competition Commission wants to examine whether its ADSL wholesale prices were abusively high and prevented other Internet service providers from realizing sufficient profits in the retail market (price-squeezing). This investigation is still pending. See “Item 8: Financial Information – Legal Proceedings – Other Regulatory Proceedings”.

National Retail Traffic. Swisscom faces increasing competition in the national retail traffic market, especially from Cablecom. Currently, Swisscom’s principal competitors in the national retail traffic market are TDC (Sunrise), Cablecom and Tele2. In 2007, prices are expected to remain under pressure, mainly due to increased competition from cable network operators, mobile network operators and Internet service providers offering Internet telephony (known as Voice over IP) services.

Tariffs for fixed to mobile calls, which are accounted for in national traffic, are expected to remain under continuous pressure due to regulatory framework in which Swisscom operates. See “ – Regulation – Mobile Telecommunications”.

Swisscom’s competitors for national long distance service depend on Swisscom for the provision of wholesale origination and termination access and transit services. As a result, the pricing of these services has had an important impact on the development of retail competition. Since January 1, 2000, Swisscom has been required to calculate its interconnection costs in any market in which it is market-dominant on the basis of the long-run incremental cost of an efficient operator and may no longer include historical costs. As a result, interconnection prices have steadily declined. Because interconnection rates calculated on the basis of long-run incremental costs only cover the additional cost to Swisscom of giving other providers access to its network and do not include the historical costs incurred by Swisscom in building out its network, Swisscom’s competitors may be able to offer retail services at lower prices than Swisscom while still covering their costs. See “ – Regulation – Interconnection by a Market-Dominant Provider”.

International Retail Traffic. Swisscom also faces strong competition in the outgoing international calling market. Swisscom’s principal competitors in the outgoing international traffic market are TDC (Sunrise), Tele2, Cablecom and Solaris, which focus their marketing on offering reduced rates for calls directed to countries of high traffic volume. The development of interconnection pricing will also impact competition in the area of outgoing international telephony.

Over the long term, Swisscom expects that additional market share will be lost in the area of international fixed voice telephony due to the increasing use of Voice-over-IP technologies and increased low-price competition. The international rates are therefore expected to come under additional pressure.

Wholesale Traffic. In 2006, Swisscom continued to face increasing competition in the national wholesale market from various network providers such as TDC (Sunrise), Verizon, Cablecom and Colt, currently offering services between major Swiss cities and international outgoing services to resellers.

Other Traffic. In the public and private payphones market, Swisscom does not face significant competition. However, the overall market for public and private payphone use is expected to decline further due to increasing use of mobile phones and phone cards issued by other operators.

In the market for operator services, Swisscom faced only limited competition in 2006, as it was allowed to use the well-known 111 access number until the end of the year. Effective January 1, 2007, Swisscom switched to a new service number, 1811. Swisscom’s competitors received similar service numbers. The new competitive landscape will result in a significant reduction in traffic volume for Swisscom’s operator services.

Customer Equipment. In the area of customer equipment, Swisscom competes directly with equipment manufacturers and third-party vendors. A number of Swisscom’s principal suppliers of telephones and other customer equipment, including mobile handsets, also compete with Swisscom. Vigorous competition and rapid technological change in the sector, as well as increasing competition from companies that are also active in other sectors of the telecommunications market, have led to falling prices.

Leased Lines. In 2006, Swisscom continued to face intense competition in the market for national leased lines, particularly in metropolitan areas. Swisscom’s main competitors in this market are Cablecom, TDC (Sunrise) and Colt. In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which entered into force on April 1, 2007. Swisscom is required to offer, among other things, access to leased lines on a cost-oriented basis, which is expected to intensify competition. See “ – Regulation – Unbundling of the Local Loop and Other Access Regulation”.

Directories. Swisscom faces significant competition in the directories market from online directory operators, internet search engines and traditional direct marketing companies entering the market. Under the amended Telecommunications Act, which entered into effect on April 1, 2007, prices charged for regulated data must be cost-oriented. Swisscom therefore expects prices to continue to decrease. Barriers to entry remain low, particularly in the online directory market, and Swisscom Directories expects competition to increase further.

Mobile

Overview

Swisscom Mobile is the leading provider of mobile telephony services in Switzerland, with 4.6 million mobile subscribers as of December 31, 2006. In 2006, Swisscom’s mobile activities generated total revenue of CHF 4.0 billion, including sales of CHF 0.5 billion to other Swisscom business segments. With external revenues of CHF 3.5 billion in 2006, Swisscom Mobile accounted for 36.7% of Swisscom’s consolidated net revenue.

The following table sets forth the external revenue generated by Mobile for the periods indicated.

CHF in millions		Year Ended December 31,
		2006				2005				2004
Base fees			635				677				691
Connectivity voice			2,040				2,203				2,286
Connectivity data and value-added services			667				604				521
Other mobile revenue(1)			199				167				181
Total Mobile			3,541				3,651				3,679

Most of Swisscom’s mobile telephony revenue is generated from monthly subscription fees and traffic charges for mobile voice telephony, which accounted for 76% of its external revenues in the mobile segment in 2006.

With the successful implementation of services enabled by high speed GPRS, PWLAN, EDGE, UMTS and HSDPA technologies, Swisscom believes that an increasingly significant portion of its mobile revenue will be generated by mobile data services, value-added services, Internet access and e-commerce services. In November 2003, Swisscom implemented the Vodafone live! portal, providing mobile information, entertainment, community and lifestyle premium services, and Swisscom has added significant new features such as a short news broadcasts that can be viewed on mobile handsets. These services are attracting an increasing number of subscribers, making it the fastest growing content offering. Swisscom believes that such services will contribute to the generation of future m-commerce revenue and enhance customer retention. Consequently, Swisscom moved to acquire Minick Holding AG in December 2006. Minick develops and operates mobile Internet portals, multimedia services and news applications such as M-Voting, Teletext-Chats, SMS and MMS. The company is also active in mobile marketing and mobile video streaming. The acquisition will support Swisscom’s expansion into a business area closely related to its core competence and its triple play strategy.

In April 2006, Swisscom upgraded its Mobile Unlimited service, which enables seamless data download/synchronization via a PC card, by adding HSDPA to the existing list of supported mobile broadband technologies (GPRS, PWLAN, EDGE, UMTS) which Swisscom believes will contribute in the future to the generation of data revenues.

On February 5, 2007, the Competition Commission imposed a fine of CHF 333 million against Swisscom Mobile for alleged misuse of mobile termination fees. Swisscom rejects both the charge that it misused its dominant market position and the sanction. Swisscom intends to appeal to the Swiss Federal Administrative Court and, if necessary, in the final event to the Swiss Federal Supreme Court. Under the terms of Swisscom’s recent repurchase of a 25% interest in Swisscom Mobile from Vodafone, Swisscom is entitled to claim from Vodafone 25% of any sanction ultimately imposed in this matter. For more information, see “Item 3: Key Information – Risk Factors – Risks Related to Swisscom’s Business – The Swiss Competition Commission may require Swisscom Mobile to pay large fines and reduce its prices” and “Item 8: Financial Information – Legal Proceedings – Other Regulatory Proceedings”.

Cooperation with Vodafone

On December 18, 2006, Swisscom Mobile entered into comprehensive, exclusive cooperation and branding agreements (together, the “Agreements”) with Vodafone Group Plc and certain affiliates thereof (together, “Vodafone”), respectively. The Agreements were entered into in conjunction with Swisscom’s repurchase of a 25% interest in Swisscom Mobile that Vodafone had originally acquired in April 2001. The Agreements set out the terms on which Swisscom Mobile and Vodafone will continue to cooperate in certain areas, replacing a previous service agreement, which was terminated. The Agreements will run for five years and may be extended by two-year periods.

Under the Agreements, Swisscom Mobile and Vodafone agree to provide each other with access to their respective products and services and to provide consultancy and supporting services in agreed circumstances. The Agreements provide a framework for co-operation in the areas of roaming and product development and set forth the terms for mutual use of Swisscom Mobile’s and Vodafone’s trade names and marks. Under the Agreements, Swisscom Mobile pays a flat fee for licensing rights, services and products provided by the Vodafone group companies. In the event Swisscom Mobile provides products to Vodafone, it will receive certain royalties.

Swisscom Mobile believes its cooperation with Vodafone enhances its competitive position in the mobile market. Through this cooperation, Swisscom Mobile has access to Vodafone products, services and know-how. Swisscom Mobile may also participate in Vodafone’s worldwide arrangements for the procurement and/or supply chain management of infrastructure, handsets and other products, which enables Swisscom Mobile to realize cost savings.

In 2006, Swisscom generated revenues from the co-operation with Vodafone in the amount of CHF 96 million and paid an amount of CHF 180 million for services purchased from Vodafone. These payments primarily related to roaming charges that each of Swisscom Mobile and Vodafone paid the other for the use of the other’s network by its customers.

Network Service Offerings

Swisscom’s mobile services are provided using the global system for mobile communications (GSM) standard as well as the Universal Mobile Telecommunication System (UMTS), the dominant digital standards in Europe and much of the rest of the world. Swisscom’s GSM network covers 99% of the population of Switzerland, and its UMTS network covers 90% of the population. For more information on Swisscom’s mobile network, see “ – Networks and Technology – Mobile Telecommunications Network”.

Swisscom Mobile is the leading public wireless LAN (PWLAN) network operator in Switzerland, currently operating approximately 1,032 hotspots in Switzerland. In addition, Swisscom Mobile offers access to additional hotspots through roaming agreements, mainly with Swisscom’s Hospitality Services (formerly Eurospot). For more information on these networks and Swisscom’s PWLAN services, see “ – Networks and Technology – Mobile Telecommunications Network” and “– Other – Hospitality Services”.

Through recent capacity enhancements and functional upgrades of its network, such as the implementation of Enhanced Data Rates for GSM Evolution (EDGE) and high-speed downlink packet access (HSDPA) technology, Swisscom is able to provide customers a variety of enhanced services such as live-TV. Swisscom’s EDGE service is available to 99% of the population of Switzerland.

In cooperation with Swisscom Broadcast, Swisscom Mobile has also been testing the digital transmission standard DVB-H (Digital Video Broadcasting Handheld), which is based on radio broadcasting technology and provides mobile users TV reception on handheld devices. Swisscom believes that it can provide its customers with a true broadband experience by providing seamless connectivity through a variety of technologies, e.g. HSDPA, UMTS, EDGE, WLAN and DVB-H. For further information on Swisscom’s mobile network, see “ – Networks and Technology – Mobile Telecommunications Network”.

Base Fees

Swisscom’s base fees are generated from monthly subscription fees paid by Swisscom’s postpaid mobile subscribers and include revenue generated from the sale of SIM cards. For more information on Swisscom’s mobile subscribers, monthly base fees and SIM card fees, please see “– Connectivity Voice”, below.

Connectivity Voice

As the leading provider of mobile telephony services in Switzerland, Swisscom offers its customers mobile telephony services in Switzerland as well as abroad. Swisscom has roaming agreements with 453 mobile network operators worldwide covering 187 countries and earns revenue from those operators when their subscribers make mobile phone calls in Switzerland.

Traffic. The table below sets forth, for the periods indicated, the volume of traffic relating to Swisscom’s mobile telephony business.

In millions of minutes		Year Ended December 31,
		2006				2005				2004
Connectivity Voice (1)			4,432				3,688				3,404

For information on average monthly minutes of use and average monthly revenue per mobile customer, see “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment – Mobile”.

Principal Products. Swisscom currently offers a wide variety of mobile products, including pre- and post-paid products and products where calls are charged on a per minute, per hour or per call basis.

All of Swisscom’s mobile products except its data-only and prepaid, low-cost products provide Swisscom customers with the full range of mobile services, allowing them to make and receive calls within Switzerland or internationally, using the same telephone number over GSM and/or UMTS systems in countries where Swisscom has roaming agreements.

In 2005, Swisscom introduced new products designated as “liberty” products, for which subscribers are charged on a per-hour basis when calling numbers in Swisscom’s networks. By launching these products, Swisscom successfully stimulated customer usage, increasing average usage per month and the loyalty of its customers.

Subscribers. The following table shows the total number of subscribers to Swisscom’s mobile services as of the dates indicated.

In thousands(1)		As of December 31,
		2006				2005				2004
Postpaid			2,805				2,640				2,518
Of which subscribers to liberty products			1,142				570				—
Prepaid(2)			1,827				1,641				1,390
Of which subscribers to liberty products			466				65				—
Total Subscribers			4,632				4,281				3,908

Since 1995, the number of mobile customers in the Swiss marketplace has grown each year, with overall market penetration reaching 98% at the end of 2006, based on data published by mobile network operators. Swisscom expects growth in the mobile market to continue, although at a slower rate in light of high market penetration. With growing market penetration, Swisscom increasingly focuses on customer retention.

In order to promote customer retention, Swisscom pursues various customer loyalty and win-back activities, including incentives for 12 and 24-month contract commitments, handset subsidies and handset renewal possibilities, which enabled Swisscom to maintain a low customer churn rate. While Swisscom’s mobile business relies primarily on Swisscom shops for sales and marketing, it is also expanding its use of indirect and alternative sales channels.

Tariffs. The following table provides an overview of the range of tariffs applicable as of December 31, 2006, in Swisscom’s principal product categories. All tariffs include VAT.

		SIM				Monthly												Night and
(CHF)		Card Fee				Base Fees				Peak(1)				Off-Peak(2)				Weekend(3)
Charge per Min.
Postpaid products			40				10-75				0.19-0.70				0.15-0.70				0.15-0.70
Prepaid products			40				—	(4)			0.37-0.99				0.37-0.90				0.37-0.80
Charge per Hour/Call (liberty products)
Postpaid products			40				12/25				0.50 / 0.70				0.50 / 0.70				0.50 / 0.70
Prepaid products			40				—	(4)			0.80				0.80				0.80

Swisscom offers a variety of tariff and service packages targeting different customer segments. Swisscom has introduced lower-cost products for residential and business customers, which have effectively resulted in an overall tariff reduction. Because Swisscom’s mobile customers can switch from one tariff to another, which Swisscom believes helps to prevent customer churn, the introduction of these new tariffs has led to a decline in the number of subscribers to Swisscom’s higher priced services. Swisscom expects that pressure on tariffs in both the residential and business segments will remain fierce in the future. Regulation of mobile access could still result in Swisscom being required to sell its competitors mobile telephony minutes on a cost-oriented basis for resale, which would put additional pressure on turnover.

For calls placed and received outside Switzerland, customers are generally billed using a fixed tariff model under which tariffs vary depending on the user’s geographic “zone”. This model provides the customer high cost transparency and good cost control. However, customers also have the option of being billed using a surcharge model under which a roaming surcharge is added to the tariffs imposed by the local mobile network operator.

Connectivity Data and Value-Added Services

Connectivity data and value-added services comprise mainly short messaging services (SMS), data traffic and services.

Short messaging services (SMS), one of the most popular mobile data services, allows messages with up to 160 letters to be sent via a digital mobile phone. In 2002, Swisscom launched a multimedia messaging service (MMS), which is a further development of its SMS service.

The table below sets forth, for the periods indicated, the numbers of SMS messages sent.

		Year Ended December 31,
		2006				2005				2004
Number of SMS messages (in millions)(1)			2,107				1,991				1,986

The mobile data service Vodafone live! allows customers to take and send picture messages, download games and ringtones and to access information and entertainment services, such as live television, which now includes 29 television channels. These mobile entertainment and mobile data services are continually upgraded either globally through Vodafone or locally through Swisscom. E-mail synchronization services have been the primary growth driver for data services, and are expected to continue growing.

Swisscom Mobile utilizes standardized interfaces to enable platforms used by third parties to offer mobile data and other services to Swisscom mobile subscribers. Examples of such services include premium priced SMS and MMS, which allow point of sale payment through mobile handsets.

Other

Customer Equipment Sales. Swisscom uses both Swisscom shops and third-party distribution channels to distribute customer equipment. As of January 1, 2007 responsibility for overseeing the approximately 100 Swisscom shops was effectively transferred from Fixnet to Mobile, reflecting the fact that most of the products sold in such shops are related to mobile communications. Nonetheless, revenue from sales of fixed-network voice equipment through Swisscom shops will continue to be accounted for in Swisscom’s Fixnet segment. For more information on Swisscom shops, see “– Fixnet – Other – Customer Equipment”.

SICAP. SICAP, a wholly owned subsidiary of Swisscom Mobile AG provides prepaid billing services to mobile network operators worldwide and so-called over-the-air (OTA) solutions, through which prepaid GSM SIM-card settings can be modified. In 2006, SICAP acquired a 100% interest in Swapcom. Swapcom, a French company founded in 1999, provides software solutions for remotely managed devices and messaging platform services as part of a customized mobile multimedia service portfolio. Future revenues from multimedia services and applications largely depend on real-time device setting and control, for which OTA is key.

Competition

In its mobile business, Swisscom faces competition primarily from the two other original mobile licensees in Switzerland, Orange and TDC (Sunrise), which also hold Swiss UMTS licenses. In December 2003, ComCom awarded GSM licenses to two other competitors, Tele2 and In&Phone. Tele2 launched a city network in Zurich in June 2005 and plans to expand its services to other cities by building out its own network and through a national roaming agreement it entered into with TDC (Sunrise). In&Phone has launched campus networks throughout Switzerland and entered into a national roaming agreement with TDC (Sunrise) in early 2006. Swisscom expects competition, especially for business customers, to remain strong in 2007 due to increased tariff pressure and competing enhanced data solutions. Competition in the residential segment is expected to be driven by handset subsidies, with enhanced customer service quality growing in importance as a basis for competition.

Solutions

Overview

Solutions is the leading provider of telecommunication services to corporate customers in Switzerland with complex needs. In 2006, Solutions generated total revenue of CHF 1.2 billion. With external revenues of CHF 1.1 billion in 2006, Solutions accounted for 11.1% of Swisscom’s consolidated net revenue in 2006.

Effective January 1, 2007, Swisscom reallocated certain responsibilities within the group in order to refine and enhance the customer focus of each segment. Whereas Fixnet and Mobile will continue to focus on residential customers and the needs of small and medium-sized enterprises, Solutions is now responsible for larger corporate accounts, including approximately 6,000 of the largest corporate accounts. Accordingly, Solutions has extended its business-to-business (B2B) portfolio and now resells Swisscom Mobile’s products for corporate customers. For this purpose, Swisscom Mobile’s employees catering to corporate customers were transferred to Solutions, although revenues generated from sales of these products continue to be recognized by Swisscom Mobile.

Services provided by Solutions include:

	•		National and International Traffic. Solutions offers national and international fixed-line voice telephony services to business customers. In 2006, Solutions carried an aggregate of 1.8 billion minutes of national telephony traffic and 0.3 billion minutes of outgoing international traffic generated by business customers.
	•		Leased Lines National. Solutions offers national leased lines services to business customers.
	•		Intranet Services. Solutions offers Intranet services, consisting primarily of managed VPN (Virtual Private Networks) services to business customers.
	•		Other Service Business. Solutions offers private network services, business internet access and business numbers, which business customers use to provide their customers with access to information services. In addition, Solutions offers international VPN and leased line services to its customers through partnerships.
	•		Solution Business. Solutions offers business customers custom-made modular solutions to plan, build and run customers’ business communication needs.

			System Integration. Solutions provides a comprehensive portfolio of products and services related to data and telecommunications infrastructure, complimented by customer interaction management, consulting services, security solutions and live event support.
			Customer Services. Solutions offers a full range of operations and maintenance services in the field of private branch exchanges (PBXs) and in-house local area networks (LANs).
			Outsourcing. Solutions’ outsourcing services range from telecommunication outsourcing up to complete Information and Communications Technology (ICT) outsourcing.

•

Other. Solutions offers rental agreements and various other financing models through third parties to its business customers as financing alternatives for PBXs.

The following table sets forth external revenue generated by Solutions for the periods indicated.

CHF in millions		Year Ended
		December 31,
		2006				2005				2004
National and International Traffic			200				239				297
Leased Lines National			122				147				184
Intranet Services			140				152				173
Other Service Business			230				247				272
Solution Business			338				283				277
Other			42				55				76
Total Solutions external revenue			1,072				1,123				1,279

Depending on each customer’s size and the complexity of its communication needs, Solutions markets its services through a key-account management team and through direct and indirect sales channels.

Due to generally high market penetration, implementation of IP-based services, overcapacity and, as a result, high price pressure in the telecommunications market, Solutions has experienced a general decrease in revenues from traditional telecommunications services in most of its customer segments. Nonetheless, Solutions’ revenues derived from complex telecommunications solutions have been rising. Solutions continues to focus its resources on meeting customers’ needs for complex telecommunications services to ensure its long-term growth and, where necessary, will complement its portfolio through new developments, partnerships or acquisitions.

National and International Traffic

Solutions provides national and international fixed-line voice telephony services to business customers. For a description of these voice telephony services, which Swisscom also provides to residential customers, and of developments impacting the provision of fixed-line telephony services, see “– Fixnet – Access” and “ – Fixnet – Retail Traffic”.

The following table sets forth, for the periods indicated, selected information relating to Solutions’ national and international fixed voice telephony traffic generated by business customers.

Traffic (in millions of minutes):		Year Ended
		December 31,
		2006				2005				2004
Local and long-distance traffic			1,540				1,672				1,779
Fixed-to-mobile traffic			246				258				278
Total national traffic			1,786				1,930				2,057
International traffic(1)			342				356				361
Total traffic(2)			2,128				2,286				2,418

For information on tariffs for national and international traffic, see “ – Fixnet – Retail Traffic – Tariffs”.

As the quality and convenience of using IP-based services has improved in recent years, they have become a viable alternative to traditional fixed-line services for many users, a trend Swisscom expects to continue and accelerate in the future. Solutions introduced its Voice over Internet Protocol (VoIP) service in the business market in 2006 and expects active migration from traditional voice traffic to VoIP services to continue.

Leased Lines National

Solutions is the leading provider of national leased lines in Switzerland. Leased lines are fixed point-to-point connections between separate locations, which may be used by the customer for voice and high volume data or video transmission. Leased lines are used by business customers to assemble their own private networks and by resellers to establish networks in order to offer information services. Swisscom also offers leased line services on a wholesale basis. See “ – Fixnet – Other”.

Solutions also offers managed leased line services to its national leased line customers. Through active fault management and automatic rerouting in case of network failure, Solutions’ managed leased line services guarantee up to 99.97% end-to-end availability.

The number of national leased lines has declined in recent years, as customers increasingly migrate to high capacity services based on Internet Protocol (IP) due to customer applications requiring higher flexibility.

Solutions’ leased line subscribers pay an initial installation charge based on the type and capacity of the line and, thereafter, pay a monthly fee based on the type, length and capacity of the leased line. In recent years, leased line tariffs have declined due to regulatory pressures and increased competition from other infrastructure-based operators such as electrical power and cable network operators with their own telecommunication infrastructure and services, whose high bandwidth offerings have become more widely available and have declined in price.

Intranet Services

Solutions’ Intranet services consist primarily of managed VPN (Virtual Private Networks) services, based on multiprotocol label switching (MPLS) technology. As of December 31, 2006, Solutions managed slightly more than 25,000 routers, mainly on behalf of banking and insurance clients, as well as on behalf of large retailers. Other services within the Intranet services portfolio include remote access services, which enable access to a company’s Intranet through all commercially available access technologies and encryption services for customers with strict security requirements.

Other Service Business

In the past couple of years, the increased substitution among large business customers of IP services for frame relay and ATM services has resulted in decreased sales of such services. Solutions completed the process of phasing out services based on frame relay and ATM technologies at the end of February 2007.

Solutions’ business Internet service portfolio includes a full range of Internet access services for customers with high bandwidth requirements (up to several Gbits/s). Solutions also offers services and applications for business customers and national Internet service providers (ISPs). These services include managed firewall services and spam filtering IP transit services over a dedicated backbone. In 2007, Solutions expects to broaden its Internet access services by offering VDSL technology.

In 2006, Solutions launched a VoIP service, providing customers with access to a replacement for traditional voice services. Solutions also launched an IP Centrex solution in 2006, whereby customers are offered a network-based “PBX Solution” (Public Branch Exchange) instead of a traditional in-house PBX switch.

Solutions also offers customers “business numbers” – toll-free, cost-shared and premium rate numbers for both national and international use, which business customers use to provide their own customers with access to information services. Solutions also offers premium rate services that, among other things, allow for flat rate charging on a per call or product basis. These numbers are mainly used by business customers as retail sales channels and/or as an additional form of payment. Demand for business numbers has declined over the past few years, primarily as a result of companies using the Internet and informational company websites to distribute information instead of toll-free or other numbers.

Solutions plans to launch a variety of convergence solutions in 2007 that are expected to be important sources of future growth. Examples of these offerings include: (1) bundled LAN, WAN and VoIP services; (2) an integrated workplace solution, consisting of a pre-configured computer and a PDA as well as all necessary software and data and voice services; or (3) a single telephone terminal offering mobile and fixed network telephone connections.

Swisscom Solutions AG has concluded a commercial partnership agreement with UK-based Vanco plc, with a view towards offering multinational and international customers services outside of its home market in Switzerland. Solutions and Vanco plc have been cooperating as part of the process of migrating former Vanco plc customers to Solutions.

Solutions offers international leased lines to its business customers through Belgacom (BICS) and other partners. For more information, see “ – Other Participations – Belgacom International Carrier Services”.

Despite the sale of its stake in Infonet Services Corporation in 2005, Swisscom remains the exclusive distributor of Infonet services in Switzerland through Infonet Switzerland AG, in which Swisscom has a 90% interest, and which is accounted for in the Solutions segment.

In the area of international services, Solutions faces stiff price competition due to over-capacity in the international market.

Solution Business

The Solution Business provides customers with customized modular solutions, designing, installing and operating customers’ business communication infrastructure. Together with other Swisscom companies or external partners, Solutions is able to offer complete communication solutions.

System Integration – Solutions provides a comprehensive portfolio of professional services, including consulting services, customer interaction management, security solutions and live event support. In addition, Solutions offers product integration services, including the design, provision, implementation and support of PBXs, LANs and other data and telecommunication infrastructure.

Solutions has expanded its security services, including Public Key Infrastructure certification, which allows customers to digitally sign and transmit documents with a digital signature recognized by Swiss law.

Effective February 28, 2006, Swisscom Solutions AG took over 300 mid- to large-sized customers, the related assets and 120 employees from Siemens Schweiz AG, extending its know-how in planning, installing, operating and maintaining company-internal voice and data networks. Furthermore, the parties agreed that Siemens will provide Swisscom Solutions with support, including technical support for its technicians and engineers, and current and future PBX-related products. Solutions also agreed to collaborate with Siemens Schweiz AG on a commercial basis.

Customer Service – Solutions offers a full range of operations and maintenance services relating to private branch exchanges (PBXs) and in-house LANs. Solutions operates and maintains the customer’s PBX or LAN remotely and/or via Solutions’ nationwide technical force, or via partners. For in-house LANs, Solutions has also introduced a variety of services designed to prevent system failures and to ensure that systems are quickly repaired and made operational if a failure does occur.

Outsourcing – Solutions’ outsourcing services consist primarily of providing telecommunications network services. In 2006, Solutions continued to expand its outsourcing activities by winning further major national and international contracts. Solutions believes that its outsourcing business will grow further as demand for combined IT and telecommunications solutions (provided by Solutions in cooperation with Swisscom IT Services) increases and as an increasing number of companies decide to focus on their core activities. See also “Item 3: Key Information – Risk Factors – The expansion of Swisscom’s outsourcing business exposes it to the risk that it may not achieve expected cost savings, the risk of project failure and the risk of fines”.

Other

Solutions offers its business customers rental agreements and, through third parties, other financing models for PBXs.

Competition

Cablecom – Cablecom, a cable network operator in Switzerland, operates its own infrastructure and has invested heavily to upgrade it. This network allows Cablecom to compete with Solutions in the following areas: traffic, VoIP, leased lines, intranet services, and PBX related services. In addition, Cablecom is aiming to enhance its product and service offerings throughout Switzerland by entering into partnerships. Cablecom offers interregional connections throughout Switzerland.

TDC (Sunrise) – TDC (Sunrise) is one of Solutions’ most significant competitors in traffic, VoIP, leased lines, intranet services, PBX related services and the operation and maintenance of in-house LANs. TDC (Sunrise) is positioning itself as a full-service provider and offers interregional connections throughout Switzerland.

NextiraOne – NextiraOne competes with Swisscom in the following areas: PBX related services, telecommunication infrastructure services, consultancy services and the operation and maintenance of in-house LANs.

Getronics – Getronics is one of Solutions’ primary competitors in telecommunication infrastructure services and the operation and maintenance of in-house LANs.

Utilities and Municipalities – Electrical power providers and local municipalities compete with Solutions’ leased line business by offering telecommunication services to customers via their own high-capacity fiber networks. Competition in the national leased line market may also increase as a result of amendments to the Telecommunications Act. See “ – Regulation – Unbundling of the Local Loop and Other Access Regulation”.

International telecommunication companies – Solutions faces intense competition from Colt (a prime competitor in the national leased line market), Orange Business Services, Verizon Business, British Telecom (BT) and Deutsche Telecom in its international business. This has lead to stiff price competition and a decline in market share. Overcapacity in international networks continues to place market prices under high pressure. With regard to outsourcing services, BT Global Services, Orange Business Services and T-Systems are Solutions’ main competitors. BT competes on the basis of its wide service offering and existing consulting know-how as well as its world-wide outsourcing experience within the telecommunications industry.

Consultants – BearingPoint, Capgemini and Accenture compete with Swisscom in the operation and maintenance of in-house LANs, consulting services and security solutions.

Local and niche players – Many local IT providers with long-established customer relationships play an important role in the market for telecommunication infrastructure services. With regards to consulting services and security solutions, specialized niche players are also significant competitors.

International ICT providers – Solutions expects additional competition in the mid-term primarily from IT providers, such as IBM and EDS, as well as from traditional software providers, e.g., Microsoft and Skype, with regard to telecommunication solutions for business customers.

Other

Swisscom is also active in a variety of other businesses, including the provision of IT, broadcasting and billing services as well as the provision of high-speed Internet access to business travelers across Europe.

The following table sets forth external revenue for the periods indicated.

CHF in millions		Year Ended December 31,
		2006				2005				2004
Swisscom IT Services Group(1)			346				249				207
Swisscom Broadcast			152				150				148
Antenna Hungária Group(2)			162				26				—
Accarda Group			118				115				112
Hospitality Services Group(3)			58				31				9
Other(4)			4				—				—
Total Other			840				571				476