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, 2005

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, 2005: 61,482,761 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			4
Selected Financial Data			4
Risk Factors			10
ITEM 4: INFORMATION ON THE COMPANY			21
Overview			21
Fixnet			25
Mobile			37
Solutions			43
Other			48
Corporate			51
Other Participations			51
Divestments/Discontinued Operations			52
Networks and Technology			53
Property, Plant and Equipment			57
Research and Development			58
Regulation			59
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS			70
Introduction			70
Summary of Results			72
Critical Accounting Policies			72
Results of Group Operations			75
Fixnet			80
Mobile			87
Solutions			92
Other			98
Corporate			102
Liquidity and Capital Resources			104
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			111
Directors and Senior Management			111
Compensation			116
Employees			116
Share Ownership			119
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			121
Major Shareholders			121
Relationship and Transactions with the Swiss Confederation			121
ITEM 8: FINANCIAL INFORMATION			125
Financial Statements			125
Legal Proceedings			125
Dividend Policy			130
ITEM 9: THE OFFER AND LISTING			131
Markets			131
Price History			132
ITEM 10: ADDITIONAL INFORMATION			133
Memorandum and Articles of Association			133
Corporate Governance			136
Exchange Controls			138
Taxation			139
Documents on Display			142
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			143
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			144
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			145
ITEM 14: MATERIAL MODIFICATIONS			145
ITEM 15: CONTROLS AND PROCEDURES			145
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT			145
ITEM 16B: CODE OF ETHICS			145
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES			146

		Page
ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			147
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			147
ITEM 17: FINANCIAL STATEMENTS			148
ITEM 18: FINANCIAL STATEMENTS			148
ITEM 19: EXHIBITS			149
SIGNATURE			150
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, 2005, December 31, 2004 and December 31, 2003, included in this annual report, are prepared in accordance with International Financial Reporting Standards (“IFRS”), which differ in certain respects from U.S. generally accepted accounting principles (US GAAP). For a reconciliation of the material differences between IFRS and U.S. GAAP as they relate to Swisscom, see Note 44 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 44 to the consolidated financial statements.

CHF in millions		Year Ended December 31,
		2001				2002				2003				2004				2005
Consolidated Income Statement Data:
Amounts in accordance with IFRS:
Net revenue			10,366				10,415				10,026				10,057				9,732
Other income			193				228				231				195				260
Total			10,559				10,643				10,257				10,252				9,992
Goods and services purchased			2,056				2,073				1,706				1,847				1,831
Personnel expenses			2,224				2,329				2,266				2,194				2,173
Other operating expenses			2,070				2,004				1,798				1,823				1,817
Depreciation			1,669				1,546				1,537				1,542				1,286
Amortization			62				114				142				151				108
Total operating expenses			8,081				8,066				7,449				7,557				7,215
Gain on sale of real estate			675	(1)			—				—				—				—
Gain on partial sale of Swisscom Mobile AG			3,837	(2)			—				—				—				—
Operating income			6,990				2,577				2,808				2,695				2,777
Financial expense			(760	)			(495	)			(226	)			(272	)			(160	)
Financial income			416				197				213				138				242
Equity in net income (loss) of affiliated companies			32				94				(9	)			22				13
Income before income taxes, equity in net income of affiliated companies and minority interest			6,678				2,373				2,786				2,583				2,872
Income tax (expense) benefit(3)			48				(313	)			(467	)			(392	)			(535	)
Net income from continuing operations			6,726				2,060				2,319				2,191				2,337
Discontinued operations(4) (5)			(1,433	)			(933	)			(408	)			(243	)			9
Net income			5,293				1,127				1,911				1,948				2,346
Net income attributable to equity holders of Swisscom AG			5,067				826				1,571				1,596				2,022
Net income attributable to minority interest			226				301				340				352				324

CHF in millions except per Share and
ADS amounts		Year Ended December 31,
		2001				2002				2003				2004				2005
Basic earnings per share(6)
-from continuing operations			88.38				26.00				29.89				28.42				33.64
-from discontinued operations(5)			(19.48	)			(13.79	)			(6.16	)			(3.76	)			0.15
-net income			68.90				12.21				23.73				24.66				33.79
Diluted earnings per share(6)
-from continuing operations			88.33				25.98				29.88				28.42				33.64
-from discontinued operations(5)			(19.47	)			(13.78	)			(6.16	)			(3.76	)			0.15
-net income			68.86				12.20				23.72				24.66				33.79
Basic and diluted earnings per ADS(6)			6.89				1.22				2.37				2.47				3.38
Amounts in accordance with U.S. GAAP:
Net revenue			10,384				10,424				10,057				10,113				9,767
Net income from continuing operations			6,070				1,780				2,066				1,968				2,066
Net income (loss) from discontinued operations(5)			(368	)			(994	)			(8	)			145				263
Cumulative effect of a change in accounting policy			—				(1,649	)			38				—				—
Net income (loss)			5,702				(863	)			2,096				2,113				2,329
Basic earnings (loss) per share
-from continuing operations			82.53				26.31				31.21				30.41				34.52
-from discontinued operations(5)			(5.00	)			(14.69	)			(0.12	)			2.24				4.40
Cumulative effect of a change in accounting policy			—				(24.38	)			0.57				—				—
-net income			77.53				(12.76	)			31.66				32.65				38.92
Diluted earnings (loss) per share
-from continuing operations			82.49				26.29				31.19				30.41				34.52
-from discontinued operations(5)			(5.00	)			(14.68	)			(0.12	)			2.24				4.40
Cumulative effect of a change in accounting policy			—				(24.35	)			0.57				—				—
-net income			77.49				(12.74	)			31.64				32.65				38.92
Basic earnings per ADS(6)			7.75				(1.28	)			3.17				3.27				3.89
Diluted earnings per ADS(6)			7.75				(1.27	)			3.16				3.27				3.89

CHF in millions		Year Ended December 31,
		2001				2002				2003				2004				2005
Consolidated Balance Sheet Data:
(end of period)
Amounts in accordance with IFRS:
Cash and cash equivalents			3,565				1,512				3,104				2,387				1,023
Other current assets			5,807				2,871				2,815				3,818				4,226
Property, plant and equipment			7,837				7,274				6,760				6,190				6,000
Investments in affiliated companies			589				682				41				58				191
Other non-current assets			3,017				2,256				1,913				1,779				1,969
Assets from discontinued operations(5)			3,300				2,135				1,685				—				—
Total assets			24,115				16,730				16,318				14,232				13,409
Short-term debt			1,694				958	(7)			514	(7)			373				173
Trade accounts payable and other current liabilities			2,569				2,170				2,219				2,314				2,562
Long-term debt and finance lease obligations			3,490				2,451	(7)			2,187				1,941				2,130
Accrued pension cost			1,218				1,101				1,113				1,118				805
Accrued liabilities and other long-term liabilities			1,148				979				984				1,033				1,115
Liabilities from discontinued operations(5)			1,055				886				794				—				—
Total liabilities			11,174				8,545				7,811				6,779				6,785
Minority interest			769				781				731				663				623
Shareholders’equity			12,172				7,404				7’776				6,790				6,001
Total equity			12,941				8,185				8,507				7,453				6,624
Amounts in accordance with U.S. GAAP:
Assets continuing operations			24,049				18,654				18,360				17,734				17,549
Assets discontinued operations(5)			4,049				1,165				1,012				—				—
Total assets			28,098				19,819				19,372				17,734				17,549
Long-term debt and finance lease obligations continuing operations			7,255				6,415				5,856				5,394				6,090
Long-term debt and finance lease obligations discontinued operations(5)			28				23				36				—				—
Total long-term debt and finance lease obligations			7,283				6,438				5,892				5,394				6,090
Shareholders’ equity			12,294				5,587				6,523				5,863				5,191
Consolidated Cash Flow Data:
Amounts in accordance with IFRS:
Net cash provided by operating activities			3,208				3,698				4,708				4,066				3,432
Capital expenditures:
Fixed-line networks			470				479				497				360				353
Mobile networks			258				295				381				434				238
Other intangibles			125				70				98				103				189
Buildings			28				2				6				13				104
Other			287				281				183				226				203
Total capital expenditures			1,168				1,127				1,165				1,136				1,087
Investments in affiliated companies			2				37				11				—				101

		Year Ended December 31,
		2001				2002				2003				2004				2005
Statistical Data:
Fixed-line access lines(8)
(end of period, in thousands)
PSTN lines			3,240				3,163				3,086				3,007				2,922
ISDN lines			857				911				924				924				900
Total fixed-line access lines			4,097				4,074				4,010				3,931				3,822
Traffic (in millions of minutes):
National fixed-line telephony(9)			14,317				12,316				10,957				10,211				9,483
Outgoing international fixed-line telephony(10)			1,399				1,394				1,341				1,316				1,282
Mobile telephony(11)			3,296				3,331				3,335				3,404				3,688
Retail Internet subscribers (end of period, in thousands)(12)			734				860				944				1,013				1,118
Swisscom Mobile subscribers(13)
(end of period, in thousands)			3,373				3,605				3,796				3,908				4,281
Number of full-time equivalent employees
(end of period)			17,784				17,171				16,079				15,477				16,088

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)
2001(1)			11				6.78
2002(1)			12				9.15
2003(1)			13				10.01
2004			14				11.77
2005(2)			16				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 21, 2006 was CHF 1.2776.

		Average
Year Ended December 31,		Rate(1)
2001			1.6944
2002			1.5497
2003			1.3374
2004			1.2393
2005			1.2507

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 2005			1.3022				1.2731
November 2005			1.3255				1.2780
December 2005			1.3210				1.2788
January 2006			1.2938				1.2595
February 2006			1.3201				1.2841
March 2006			1.3201				1.2893

Risk Factors

Risks Related to Swisscom’s Business

Amendments to the Telecommunications Act will 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

Since the entry into force of the Swiss Telecommunications Act on January 1, 1998 (Fernmeldegesetz) (the “Telecommunications Act”), the Swiss telecommunications market has been open to competition. While the Telecommunications Act contains provisions designed to facilitate competition in the fixed-line telephony market, Swisscom has not yet been required to unbundle its local loop, which means that Swisscom provides access services to the vast majority of customers who use fixed-line telephony services in Switzerland, many of whom continue to use Swisscom as their default provider of national and international calling services. Nonetheless, competition has resulted in loss of market share and margin pressure for such calling services.

In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which are not expected to enter into force prior to January 1, 2007. Swisscom will be 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 will allow competitors to offer access services to customers in Switzerland without having to build local loops of their own, although they will still have to make significant investments in their own network infrastructure in order to connect to the local loop. Moreover, with access rebilling, competitors will be able to bill customers directly for the access services provided by Swisscom. As a result, Swisscom’s competitors will be able to offer their customers a full range of fixed-line services, including access, and their customers would receive a single bill covering all these services. Accordingly, the amendments will increase competition in the access market and could cause Swisscom to lose additional market share in the national and international calling markets.

In the form passed by the Swiss Parliament, unbundling of the local loop will also require market-dominant providers to offer bitstream access to other providers on demand for four years on a cost-oriented basis. Currently, Swisscom’s competitors provide ADSL services to its customers based on a wholesale contract with Swisscom on commercial terms. Regulated bitstream access may therefore enable Swisscom’s competitors to offer ADSL services at lower rates than currently offered. Market-dominant providers will have to make bitstream access available at the main distributor frame and over their copper net in the local loop. This will require Swisscom’s competitors to make significant upfront investments in their own network infrastructure in order to reach Swisscom’s main distributor frame for bitstream data traffic and 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 investments in fiber optic lines. With increased competition, Swisscom’s share of the ADSL market is likely to decline and Swisscom could be required to lower its ADSL tariffs to remain competitive. While a loss in retail access revenue would be partially compensated for by additional wholesale revenue for access services provided to Swisscom’s competitors, those services will have to be provided on a cost-oriented basis. Accordingly, introduction of bitstream access could have a significant and adverse effect on the growth and profitability of Swisscom’s access business.

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 method used to determine 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.

In March 2006, the European Commission and the European Regulators Group (ERG) held a press conference regarding the Commission’s initiative to regulate international mobile roaming charges to prevent mobile service providers from charging higher roaming fees for using the networks of competitors in the European Union than the actual underlying costs. In order to ensure that the benefits of this wholesale regulation are actually passed on to the end-users, the Commission anticipates a need for regulation at the retail level. In particular, the regulation would abolish all roaming charges for receiving a call when traveling abroad and introduce a “home pricing principle” for calls made abroad. Such a regulation would not be expected to enter into force before summer 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. With respect to roaming charges, which have been the subject of numerous Swiss media reports, EU legislation could lead to intervention by the Swiss Competition Authority or the Swiss Pricing Monitoring Authority (Preisüberwacher). EU-wide regulation would likely increase market pressure on mobile network operators in Switzerland, including Swisscom Mobile, even if no additional regulation or regulatory intervention is undertaken in Switzerland.

Swisscom’s GSM telephony license expires on May 31, 2008. To renew its GSM license, Swisscom Mobile was required to submit its renewal application at least two years in advance of the license expiration date. Swisscom Mobile submitted its renewal request to ComCom on December 21, 2005. ComCom has yet to issue a decision on Swisscom Mobile’s application, and may impose certain conditions on the renewal, such as requiring Swisscom Mobile to pay higher fees or give access to its network to mobile virtual network operators or to sell to its competitors mobile telephony minutes on a cost-oriented basis for resale.

With regard to mobile termination tariffs, the Competition Commission has initiated proceedings against Swisscom alleging that it has a dominant position with respect to terminating traffic on its own mobile network. If Swisscom is found to have a dominant position in this market, it could be required to reduce its mobile termination fees and/or pay large fines.

Regulation of mobile access or call origination, 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 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 provided Swisscom Mobile with its draft decision, according to which it believes that Swisscom Mobile has a market-dominant position which it has supposedly abused by demanding disproportionately high termination fees. The Secretariat has indicated that it intends to propose to the Competition Commission that it impose a fine of at least CHF 489 million and has asked Swisscom Mobile to comment on the draft decision by May 22, 2006. The proposed fines relate 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 proposed minimum fine is based on the maximum legal fine amount (equal to 10% of the revenue realized in Switzerland during the previous three years) and the Secretariat’s opinion of: 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. The minimum fine is based on the assumption that prior to June 1, 2005, Swisscom Mobile’s mobile termination fees of CHF 0.335 were CHF 0.135 too high. The Secretariat of the Competition Commission has indicated that the fine amount may increase if it determines that Swisscom Mobile’s new mobile termination fee of CHF 0.20 is also excessive. The Secretariat’s draft decision includes indications that the Competition Commission may consider CHF 0.10 appropriate as a cost-oriented, non-discriminatory price.

The Secretariat’s draft decision may be an indication that the competition authorities are willing to strictly enforce the Antitrust Law and to 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-discriminatory price. In addition, the approach indicated by the Secretariat’s actions may impact other competition proceedings against Swisscom and require Swisscom to reduce prices for various services. Reducing prices, particularly to cost-oriented levels, may have a significant negative impact on Swisscom’s profitability.

Should the Competition Commission issue its decision in the form proposed by its Secretariat, Swisscom Mobile would appeal to the Appeals Commission for Competition Matters and, if necessary, in the final event to the Federal Court. Swisscom is currently in the process of evaluating the impact that this draft decision and the proposed fines will have on the consolidated financial statements, which may result in the recognition of a provision in 2006 and a cash outflow in a later period.

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 almost 92% in Switzerland by the end of 2005 (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 can be compensated 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. 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 basic 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 between personal computers 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 based on ADSL technology 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 high-speed Internet access via cable. Cable currently offers higher bandwidth than ADSL and has certain other advantages over ADSL. Moreover, as a cable network operator, Cablecom is particularly well positioned to combine voice, data and Internet access services with a multimedia content offering. In response to this increased competition, Swisscom is making capital expenditures to upgrade its network 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 these multimedia services for some time, and Swisscom may not be successful in entering this market. Swisscom has experienced delays in introducing its television services, and once Swisscom has introduced these services, they may not be competitive with services offered by cable network operators.

If Swisscom is unable to introduce a competitive television and/or video service in a timely fashion, it may 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.

Demand for broadband mobile services, which Swisscom has identified as a source of future growth in its mobile business, may be lower than expected and Swisscom may not be able to recoup the substantial investment required to build out its networks

The future success of Swisscom’s mobile business, which in recent years has been Swisscom’s most profitable operating segment, depends on, among other things, the capabilities and widespread market acceptance of broadband mobile technologies such as universal mobile telecommunication system (UMTS), Enhanced Data Rates for GSM Evolution (EDGE) technology and high-speed downlink packet access (HSDPA). UMTS is a third generation mobile radio system that creates additional mobile radio capacity and enables broadband media applications while also providing high speed Internet access. EDGE is a further development of the general packet radio service (GPRS) standard that allows considerably higher transmission speeds. Swisscom launched its commercial UMTS services in November 2004 and activated EDGE technology in early 2005. HSDPA is an UMTS enhancement that allows transmission speeds of up to 1.8 Mbit/s, the same speed as customers experience at WLAN hotspots. Swisscom plans to launch HSDPA in 2006.

In connection with the build-out of its UMTS, EDGE and HSDPA networks and the development of related products and services, Swisscom has incurred, and expects to incur in the future, substantial capital expenditures. It is still unclear whether certain of these new services will meet with market acceptance. Market acceptance depends on a number of factors, including the availability of applications which exploit the potential of the technology, as well as on the breadth and quality of available content. Furthermore, the level of demand for mobile broadband services could be lower than expected as a result of increased use of alternative mobile broadband technologies, such as public wireless LAN. If mobile broadband services fail to achieve the expected advantages over other technologies, Swisscom’s mobile business will suffer and Swisscom may be unable to recoup a portion of its investment in UMTS, EDGE and HSDPA technology and could be required to write down the value of some of the related assets.

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 almost 92% in Switzerland at the end of 2005 (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, 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 stricter regulation of radiation emissions from mobile base stations and antennae, additional compliance expenditures and decreased mobile communications usage

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.

In December 1999, the Federal Council adopted an ordinance, known as the NIS Ordinance, which establishes emission standards to protect the population of Switzerland from non-ionizing radiation emitted by various sources, including mobile antennae and base stations. In July 2002, the Swiss Agency for the Environment, Forests and Landscape (“BUWAL”) issued final guidelines for enforcement authorities on the appropriate methods by which to measure electromagnetic emissions from base stations and masts in the GSM network, but which did not address emission standards for UMTS networks. Final guidelines relating to emission standards for UMTS networks were adopted in 2005. In order to comply with the applicable emission standards and to maintain its current level of service, Swisscom could be required to install additional antennae. However, Swisscom does not expect the associated costs to be materially different in 2006 from those incurred in previous years. See “Item 4: Information on the Company – Regulation – Mobile Telecommunications”.

A 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, are currently being conducted. If these further studies confirm that UMTS radiation may have adverse health effects, regulatory authorities may set stricter emission standards for the UMTS network than currently apply. Any of these regulatory measures would have a severe and adverse effect on Swisscom’s mobile business and Swisscom may be unable to recoup its investment in the UMTS network and required to take significant write downs.

Even if stricter regulatory measures are not adopted, perceived health risks of mobile handsets or base stations and related publicity could cause Swisscom’s customer base and average usage per customer to decline, which would have a material adverse effect on Swisscom’s mobile communications business. Environmental and health concerns are also making it more difficult, and more costly, to find acceptable sites for base stations and could thereby 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 business customers and solutions business would suffer

As the provision of basic telecommunication services to business customers has become a commodity business characterized by low margins, Swisscom believes that future growth in this market will lie in the provision of enhanced business solutions. Accordingly, it has invested in upgrading its data networks, thereby enabling the provision of integrated data and voice services with greater flexibility, scalability and performance. However, demand for such integrated communications solutions has not developed as Swisscom anticipated. The slowdown of the global economy that began in 2001 led to a decline in corporate spending which was particularly pronounced in the IT area. Despite modest improvements in the economy since the beginning of 2004, demand for integrated communication solutions and IT services may decline if the economy slows down again. 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 its outsourcing business exposes Swisscom to the risk that it may not be able to achieve expected cost savings and could be required to perform long term contracts at a loss

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 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, it may be years until 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.

Swisscom may consider making 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, which could potentially include large acquisitions outside its home market. In the last two years, Swisscom has been involved in advanced acquisition discussions and proceedings relating to Telekom Austria, Cesky Telecom a.s. and Eircom Group plc. Although these discussions and proceedings ultimately did not result in an acquisition, and 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 in the future.

Entry into a significant acquisition would entail a variety of important risks. There can be no assurance that Swisscom would be able to successfully execute the business plan it pursued with a specific acquisition, such as leveraging the target’s expertise in certain areas, or to realize other anticipated benefits, including synergies, from the transaction. This risk may be compounded in the case of a cross-border transaction, as political and cultural factors may make it more difficult to implement management and other changes. Although Swisscom would seek to conduct due diligence on any potential target, the opportunity to do so may be limited and it is possible that the transaction would entail higher than anticipated costs, that the target would have additional liabilities for which Swisscom would not be entitled to indemnification or that write downs would be required, including of any goodwill arising out of the transaction. Moreover, should Swisscom enter into a large acquisition, 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.

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 Swisscom Eurospot will be unable to repay loans received from Swisscom, or that Swisscom will have to record an impairment charge in connection with its investment in Antenna Hungária.

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 significantly 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 ADSL and 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 and therefore require that Swisscom make further investments to facilitate the provision of flexible and cost-effective services to its customers and may harm its competitive position. In addition, 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 in 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 also negatively affect Swisscom’s profitability and competitiveness. Labor relations could also be negatively impacted in the event of a sale of the Swiss Confederation’s controlling interest in Swisscom as part of the Federal Council’s current efforts to privatize Swisscom.

Swisscom may be audited by the Swiss tax authorities and, if any deficiencies are uncovered, may be required to make substantial payments

Since Swisscom’s incorporation as a Swiss stock corporation, only some of Swisscom’s group companies have been subject to a detailed review by the Swiss tax authorities. Based on the experience of other Swiss companies, Swisscom believes that a review of the direct and indirect taxes of other Swisscom group companies or of the whole group may occur in the near future. Past audits by the Swiss tax authorities of other Swiss companies have in some cases resulted in substantial additional payments being required of the affected companies. While Swisscom was not required to pay any substantial additional payments as a result of past tax reviews of its group companies, it cannot be excluded that, if Swisscom is audited by the Swiss tax authorities in the future and any deficiencies are uncovered, Swisscom may have to make substantial payments for which it has not made provisions.

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 is currently involved in a legal proceeding with respect to fixed-fixed interconnection fees, in which it may be required to lower interconnection prices by approximately 30%. Swisscom has recorded a provision relating to these proceedings based on management’s best estimate of the outcome. When these proceedings conclude in the second half of 2006 or in 2007, Swisscom will be required to settle the disputed amounts, which could result in a significant cash outflow. If the Federal Court’s decision differs from Swisscom’s estimate, e.g., by requiring Swisscom to retroactively offer discounted prices to all of its customers rather than just to the parties to the proceedings, such settlement may exceed the amount provided for in the financial statements as of December 31, 2005, thereby affecting Swisscom’s income.

Although Swisscom believes that most of these proceedings 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.

The inclusion of new services in the Universal Service Obligation could require Swisscom to make investments that are disproportionate to anticipated revenues.

In fall 2006, the Federal Communications Commission (“ComCom”) will open a tender for the new Universal Service license, which will apply after Swisscom’s current Universal Service license expires at the end of 2007. The Federal Council recently published a proposal to amend the Telecommunications Ordinance to extend the Universal Service Obligation in line with technological developments and current social and economic requirements.

If Swisscom is the winning bidder in the tender and the Universal Service Obligation is expanded to include the provision of broadband services (as currently proposed by the Federal Council), Swisscom could be required to make investments that it will not be able to recoup due to price ceilings for products included in the Universal Service Obligation.

If Swisscom fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in Swisscom’s financial reporting, which would harm its business and the trading price of its shares and ADSs.

Effective internal controls are necessary for Swisscom to provide reliable financial reports and effectively prevent fraud. If Swisscom cannot provide reliable financial reports or prevent fraud, its financial results could be harmed.

Swisscom devotes significant attention to establishing and maintaining effective internal controls. Swisscom is in the process of documenting, reviewing and, if appropriate, improving its internal controls and procedures in connection with Section 404 of the Sarbanes Oxley Act of 2002, which requires annual management assessments of the effectiveness of Swisscom’s internal controls over financial reporting and a report by Swisscom’s independent auditors addressing these assessments. Both Swisscom and its independent auditors are in the process of testing Swisscom’s internal controls in connection with the Section 404 requirements. As part of this documentation and testing process, Swisscom and its independent auditors have identified problematic areas for further attention or remediation. Implementing appropriate changes to Swisscom’s internal controls may require specific compliance training of Swisscom’s directors, officers and employees, entail substantial costs in order to modify the deficient elements of Swisscom’s existing accounting systems, and take a significant period of time to complete.

Swisscom cannot be certain that these measures will ensure that it implements and maintains adequate controls over its financial reporting processes and related Section 404 reporting requirements. Any failure to implement

required new or improved controls, or difficulties encountered in their implementation, could harm Swisscom’s financial results or cause it to fail to meet its reporting obligations. Any such failure could also adversely affect Swisscom’s assessment of the effectiveness of its ‘internal control over financial reporting’ that will be required when the Section 404 requirements become applicable to it. Inferior internal controls could also cause investors to lose confidence in Swisscom’s reported financial information, which could have a negative effect on the market price of Swisscom’s shares and ADSs.

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 continue to be able to influence Swisscom’s strategy. For example, in 2005 Swisscom was involved in advanced negotiations to acquire Eircom Group plc of Ireland. At the end of November, after the Swiss Federal Council instructed its representative on the Swisscom Board of Directors to vote against such an acquisition and, instead, to support the distribution of free capital to shareholders, talks on a takeover of Eircom were broken off. 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). As a result of the Federal Council’s position, Swisscom could be limited in its ability to undertake 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 December 31, 2005, the Swiss Confederation held a 62.45% stake in Swisscom. The stake will increase after the planned share capital reduction following the share buyback completed in December 2005. 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 subject of the proposal is an amendment to the Telecommunications Enterprise Act of 1997 (the “TUG”), which would transfer power to the Federal Council to sell the government’s controlling interest in Swisscom. Future sales by the Swiss Confederation may occur, whether as a result of this initative or as part of a reduction 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 Swisscom’s 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.

If another party acquires control of Swisscom as a result of the Swiss Confederation reducing its stake in Swisscom below 50%, Vodafone plc may exercise its conditional pre-emption rights to sell its 25% stake in Swisscom Mobile to Swisscom, and Swisscom’s counterparties in significant contracts may be able to terminate such contracts or demand additional security.

Swisscom is a party to several significant contracts, including a Shareholder’s Agreement with Vodafone plc and various cross-border lease agreements, which contain provisions related to a potential change of control of Swisscom.

Vodafone plc holds conditional pre-emption rights which would permit it to sell its 25% stake in Swisscom Mobile to Swisscom at fair market value if a party other than the Swiss Confederation is able to exert a controlling influence over Swisscom. Under current law, the Swiss Confederation may not sell its controlling interest in Swisscom, and therefore Vodafone’s right to sell its shares in Swisscom Mobile cannot be exercised. In accordance with International Financial Reporting Standards (IFRS), Swisscom therefore has not recorded a liability related to such rights. On January 25, 2006, however, the Swiss Federal Council published a consultation document containing a proposal for a change in law that would permit the Swiss Confederation to sell its controlling interest. If the law is changed, it would be possible for the government to dispose of its shares in Swisscom and a new shareholder could potentially obtain control of Swisscom. If such a change in the law occurs, Vodafone’s conditional sale right would have to be recorded at fair value as a financial liability.

If Vodafone’s conditional sale right becomes exercisable, the existence of such rights may reduce Swisscom’s attractiveness to potential acquirors. In addition, if a change of law occurred, a new shareholder obtained control of Swisscom and Vodafone were to exercise its conditional pre-emption rights, Swisscom would have to use a significant amount of cash, or incur a significant amount of debt, to pay the purchase price, which is defined as the fair market value of Vodafone’s 25% interest in Swisscom Mobile. This could negatively affect Swisscom’s liquidity, credit rating and financial flexibility.

In addition, Swisscom Mobile is a party to a related Service Agreement with Vodafone plc. Under this agreement, each of Swisscom Mobile and Vodafone has agreed to provide the other with access to its products and services, global best practice guidelines, as well as to provide certain consultancy and supporting services. In addition, the parties have agreed upon reciprocal roaming arrangements. The Service Agreement is terminable if an entity other than Swisscom AG acquires more than half of the voting rights and equity capital of Swisscom Mobile or the above-mentioned Shareholders’ Agreement is terminated. If the Service Agreement were to be terminated, Swisscom Mobile could face higher costs for certain products and services, lose access to services and content that Vodafone makes available to Swisscom customers, lose access to the newest mobile handset models and/or be required to pay higher prices for mobile handsets in general.

Between 1996 and 2002, Swisscom entered into cross-border tax lease arrangements under the terms of which parts of its fixed and mobile networks were sold or leased long-term to US American Trusts and leased back with terms of up to 30 years. In the transaction concluded in 2002, Swisscom was required to provide a letter-of-credit to secure a part of its obligations to the equity investors. Swisscom is obliged to issue further letters-of-credit if the Swiss Confederation gives up its majority shareholding in Swisscom. Issuing additional letters-of-credit may limit Swisscom’s financial flexibility.

In addition, a change of control of Swisscom may induce certain of Swisscom’s contractual counterparties to attempt to renegotiate contracts, even where they do not directly benefit from a contract termination right.

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

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 using a technology commonly referred to as ADSL. As of December 31, 2005, Swisscom provided 3.8 million fixed-line telephone access lines in Switzerland, of which 0.9 million were digital or ISDN lines and 1.1 million were being used for ADSL access. In 2005, Swisscom billed an aggregate of 15.9 billion minutes of national transit and interconnection traffic and terminated over 1.6 billion minutes of incoming international traffic on behalf of other telecommunication service providers. Through Swisscom Mobile AG, in which Vodafone holds a 25% stake, Swisscom is the leading mobile telecommunications service provider in Switzerland, with over 4.3 million subscribers to its mobile service as of December 31, 2005. Swisscom also offers a full range of state-of-the-art data services, from leased lines to integrated solutions for its business customers. In 2005, Swisscom’s net revenue amounted to CHF 9.7 billion.

On June 8, 2004, Swisscom sold its 95% stake in debitel AG, the largest network independent telecommunications provider in Europe, in a leveraged buyout by funds advised by the private equity firm Permira (Permira Funds), for a purchase price of EUR 640 million (equity value). As a result of the sale, debitel is treated in the consolidated financial statements as a discontinued operation. Prior years have been restated accordingly. See “— Divestments/Discontinued Operations — debitel”.

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 via ADSL technology in the local loop. ADSL technologies operate, like ISDN, over existing copper lines, but offer higher speed and volume for data transmission. Swisscom’s ADSL service is available to approximately 98% of the population of Switzerland, and its fastest offering provides download speeds of up to 6 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. 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 following table sets forth Swisscom’s capital expenditures for the periods indicated.

CHF in millions		Year Ended December 31,
		2005				2004				2003
Fixed-line network			353				360				497
Mobile network			238				434				381
Other			496				342				287
Total			1,087				1,136				1,165

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 are not expected to enter into force prior to January 1, 2007. Swisscom will be 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 bitstream access for a limited period of four years. See “ — Regulation — Unbundling of the Local Loop and Other Access Regulation”.

Under the Telecommunications Act, Swisscom was required to continue 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 another five-year term and ISDN access became part of Universal Service subject to a price ceiling.

On December 19, 2005, Swisscom completed a share repurchase program in which it repurchased shares in an aggregate amount of CHF 2 billion, representing 7.75% of its share capital. The Annual General Meeting to be held on April 25, 2006 will vote on a resolution to reduce Swisscom’s share capital accordingly. See “Item 8: Financial Information — Dividend Policy”.

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 December 31, 2005, the Swiss Confederation held a 62.45% stake in Swisscom. This stake will increase following effectiveness of the planned share capital reduction mentioned above.

On January 25, 2006, the Swiss Federal Council published a consultation document containing a proposal to change the law that prohibits the Swiss Confederation from selling its controlling interest in Swisscom. As long as the Swiss Confederation maintains a controlling interest in Swisscom, it will continue to be able to influence Swisscom’s business and strategy. For example, in 2005 Swisscom was involved in advanced negotiations to acquire Eircom Group plc of Ireland. At the end of November, after the Swiss Federal Council instructed its representative on the Swisscom Board of Directors to vote against such an acquisition and, instead, to support the distribution of free capital to shareholders, talks on a takeover of Eircom were broken off. Swisscom views the Swiss Federal Council’s proposal to implement a change of law and sell the government’s controlling interest in Swisscom as positive overall. The sale of the government’s controlling interest will increase Swisscom’s corporate strategic flexibility in a rapidly evolving international environment.

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 39 to the consolidated financial statements.

Strategy

The key challenge Swisscom faces is finding profitable new sources of revenue to offset the decline in traditional activities. Swisscom’s new strategy is based on three pillars:

•		Strengthening its core business with convergent offerings and maximizing efficiency by exploiting functional overlaps in technology. The most important pillar of the strategy is the strengthening of Swisscom’s core business by offering a comprehensive portfolio of multimedia services and first-class customer service. Swisscom aims to provide customers with highly attractive offerings from a comprehensive range of products, services and network access options. Individual products are increasingly expected to be bundled into all-round packages. Swisscom expects to win customers’ trust with improved, rapid and competent customer care with simplified access to customer contact points. Swisscom is looking to position itself as a Swiss role model in the field of customer service.
		By exploiting functional overlaps in technology, Swisscom also intends to simplify its technological infrastructure and to combine functions where sensible. Introducing a common architecture and design across platforms will reduce operating costs and improve performance. Moreover, Swisscom will seek to implement new organizational structures to establish shared services for support functions and eliminate what is not necessary to support its core business.
•		Promoting growth in business customers solutions. The second pillar of the strategy consists of extending Swisscom’s activities in the business customer market by offering a wider range of IT and communications solutions. Swisscom plans to offer international companies with a decision-making center located in Switzerland a one-stop shop for international services, e.g., with the help of cross-border alliances.

		Swisscom’s existing competence in providing solutions for the banking and healthcare industries is to be further expanded. In addition, Swisscom is looking to achieve substantial growth in the outsourcing market.
•		Expanding through targeted projects. The third pillar covers expansion projects in areas where Swisscom has proven core competences. Firstly, Swisscom has identified opportunities to add value by incorporating its specialized know-how into projects targeting specific customer segments in other countries. Swisscom expects additional opportunities to emerge in countries with pent-up demand for the technologies Swisscom can provide, e.g., broadband telecommunications and digital television. Within Switzerland there may also be expansion potential in areas where Swisscom is active, but not the market leader. Secondly, Swisscom plans to enter markets related to its current core business that are undergoing major changes under the influence of digitalization and broadband penetration (e.g., telemedicine).

Implementing this strategy may also involve the acquisition of companies, where appropriate. However, Swisscom will apply rigorous investment criteria and synergies or business logic must justify the price of any acquisition.

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 telecommuncations company with a universal service obligation (USO) mandate and to limit net debt 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 Coucil’s strategic goals for 2006 to 2009 and believes they provide sufficient leeway for the company’s further value-adding development. 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. See “Item 8: Financial Information — Dividend Policy”.

Overview of Revenue by Business Segment

In 2005, 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 sale of customer equipment, the provision of leased lines and the operation of a directories database.
	•		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.
			The Solutions business segment was formed on January 1, 2005, when Swisscom Enterprise Solutions was merged with Swisscom Systems, formerly accounted for in the segment “Other”, to form a new business segment named Swisscom Solutions.
	•		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 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,
		2005				2004				2003
Fixnet			4,319				4,555				4,601
Mobile			3,651				3,679				3,511
Solutions(1)			1,123				1,279				1,426
Other(1)			571				476				416
Corporate			68				68				72
Total			9,732				10,057				10,026

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 2005, Fixnet generated total revenue of CHF 5.3 billion, including sales of CHF 1.0 billion to other Swisscom business segments. With external revenues of CHF 4.3 billion, Fixnet accounted for 44% of Swisscom’s consolidated net revenue in 2005.

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, 2005, Fixnet provided 3.8 million fixed-line telephone access lines, including 0.9 million ISDN lines, and offered ADSL access to approximately 1.1 million subscriber lines.

• Retail Traffic. Fixnet provides national and international fixed-line voice telephony services to residential and business customers. In 2005, Fixnet carried an aggregate of 9.8 billion minutes of national telephony and dial-up Internet traffic and 0.9 billion minutes of outgoing international traffic generated by residential customers.

• 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 2005, Fixnet billed a total of 15.9 billion minutes of national interconnection and transit traffic, carried 0.8 billion minutes of outgoing international traffic and terminated 1.6 billion minutes of incoming international 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 sale of customer equipment, the provision of leased lines and the operation of a directories database.

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

CHF in millions		Year Ended December 31,
		2005				2004				2003
Access			1,992				1,876				1,715
Retail traffic			1,082				1,240				1,329
Wholesale traffic			483	(1)			691				677
Other traffic			130				158				247
Other			632				590				633
Total			4,319				4,555				4,601

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. Swisscom carried out a 3-month field trial ending February 2005 of providing television to 600 of its users and installed the technology for employees of the Swisscom Group and Microsoft at the end of 2005 as a second test launch. Swisscom plans to introduce the new multimedia services on a commercial basis during 2006. In addition, Swisscom seeks to optimize product distribution and to promote customer care through direct and indirect sales channels, such as Swisscom shops and specialized outlets. Swisscom also operates a direct marketing center.

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 2005, external revenue from access services amounted to CHF 1,992 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 2005, PSTN services comprised 41% 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(1)		As of December 31,
		2005				2004				2003
PSTN(2)			2,922				3,007				3,086
ISDN(3)			900				924				924
Total access lines			3,822				3,931				4,010
Total access channels			5,043				5,175				5,261

ISDN growth has stagnated in recent years and even declined in 2005 because of the increasing use of ADSL 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. In addition, the total number of access lines declined primarily due to the increase in market share of Cablecom, Switzerland’s major cable network operator, which offers voice and Internet access over its own infrastructure. 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 2005 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 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 are not expected to enter into force prior to January 1, 2007. Swisscom will be 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 bitstream access for a limited period of four years. 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 asynchronous digital subscriber lines (ADSL) 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,
		2005				2004				2003
Retail ADSL lines			708				490				274
Wholesale ADSL lines			390				312				213
Total ADSL lines			1,098				802				487
Retail narrowband subscribers(1)			410				523				670

In recent years, growth in the access area has come from ADSL technology, which offers significantly higher transmission speeds compared to ISDN. Because ADSL may be offered over a traditional PSTN line, ADSL 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 ADSL is offered on a flat-fee basis for high bandwidth users, and on a minutes-of-use basis for 150kbit/s low bandwidth users. In 2005, Swisscom strengthened its position in this market by acquiring Cybernet (Schweiz) AG from the Viatel Group. Cybernet focuses its activities on the small and medium-sized business market, where its core businesses include connectivity, data centers and e-business.

Swisscom seeks to increase the number of subscribers to ADSL access services by offering new ADSL services and significantly increasing the capacity of its ADSL lines and adding very high bit-rate digital subscriber lines (VDSL) that will allow downstream speeds well above 10 Mbit/s.

The following table sets forth information relating to Swisscom’s charges in effect in 2005 for the provision of ADSL services.

Downstream / upstream

CHF (including VAT)

bandwidth (kbit/s)(2)

Monthly Fee

Hourly rate

ADSL 150 PAYG(1)

150/50

9.00

2.40

ADSL 600

600/100

49.00

—

ADSL 1200

1200/200

69.00

—

ADSL 2400

2400/200

99.00

—

In a letter dated October 20, 2005, the Competition Commission announced that it was opening an 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 intends to investigate whether prices for certain of Swisscom’s ADSL services are excessive and unreasonable. See “Item 8: Financial Information — Legal Proceedings — Other Regulatory Proceedings”.

In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which are not expected to enter into force prior to January 1, 2007. Market-dominant providers will be 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”.

Television and Multimedia Entertainment

As Swisscom continues to upgrade the capacity of its networks, the increased bandwidth will allow Swisscom to pursue its so-called triple play strategy of combining its core activities with multimedia services. Swisscom plans to offer television and video on demand services during 2006. Rather than sending television and video signals by broadcasting or transmitting them via cable connections, consumers will be able to use their high-speed Internet connections to seamlessly stream video to their computers and televisions. In order to evaluate the technological feasibility and market appeal of offering television over its broadband infrastructure, Swisscom started a trial at the end of 2005 in which it installed the technology for employees of Swisscom Fixnet and Microsoft. In addition, to further this “triple play” strategy, Swisscom has acquired 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. In preparing the market for Swisscom’s entry into the TV business, in March 2005 Swisscom launched an interactive television product which can be used with cable, satellite and terrestrial broadcast systems in order to compete with cable network operators, which 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”.

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 1,082 million in 2005.

Retail traffic has declined in recent years, mainly due to a significant decline in local area traffic and Internet traffic. In 2004, the decline in local area traffic was a result of the fact that Internet is increasingly accessed via Internet dial-up numbers, offered by Internet service providers, and ADSL lines, with the result that the associated traffic is no longer included in Swisscom’s local area traffic statistics. In 2005, the continued

migration to ADSL lines contributed to the decline in Internet traffic, while increased competition reduced voice traffic. Swisscom expects retail traffic to 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. In 2005, Swisscom intensified its efforts to retain and win back customers through direct marketing campaigns and new pricing models.

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)(2)		Year Ended December 31,
		2005				2004				2003
Local and long distance traffic			6,628				7,205				7,732
Fixed-to-mobile traffic			925				949				950
Internet traffic			2,252				3,323				4,842
Total national retail traffic			9,805				11,477				13,524
International retail traffic(3)			926				955				968
Total retail traffic			10,731				12,432				14,492

In 2005, 55.2% 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 both national and international calls at reduced rates or even for free at certain off-peak times. These new pricing models have effectively resulted in an overall tariff reduction.

Local and long-distance fixed-fixed calls within Switzerland that are billed on a per-minute basis are billed 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)
Generally applicable tariff			0.55				0.45
New tariffs applicable to calls terminating on:
Swisscom Mobile (as of July 1, 2005)			0.41				0.31
TDC (Sunrise) Mobile
(as of October 1, 2005)			0.49				0.39

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 2005 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			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 national wholesale services to other telecommunications providers, including network operators, service providers and resellers. Swisscom’s portfolio of national 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”.

The international wholesale business is characterized by low margins due to overcapacity and strong competition.

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. As part of the transaction (the Belgacom transaction), Swisscom received a 28% interest in the joint venture in exchange for its international wholesale business and international network, valued at CHF 36 million. 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. The full-year effect of the transaction will be a significant decrease in revenues and expenses in 2006.

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 normally would no longer be recorded by Fixnet. For technical reasons, however, international incoming traffic to be routed through BICS in Switzerland to either domestic third party networks or to Swisscom’s Mobile network will continue to be routed through Fixnet’s network until 2007. Accordingly, associated revenues and costs are still being recognized by Fixnet. These revenues and costs, which were recorded under international incoming traffic until December 31, 2005, are now recorded under wholesale national traffic. After 2007, BICS traffic will no longer be routed through Fixnet under this arrangement.

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. Traffic between networks, which had previously been routed via Fixnet Wholesale’s networks, is now routed directly. Since the introduction of direct mobile interconnection, Swisscom’s competitors have been able to offer their customers direct mobile interconnection, which resulted in a decrease in traffic over Swisscom’s network.

Wholesale National

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 2005, external revenue from national wholesale services amounted to CHF 227 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,
		2005				2004				2003
Wholesale national traffic(1)			15,947				17,055				17,871

Until 2007, international incoming traffic routed through BICS in Switzerland will continue to be terminated by Fixnet for technical reasons. Until December 31, 2005, Fixnet recognized this traffic as incoming international traffic. Since January 1, 2006, Fixnet has been recognizing this traffic as wholesale national traffic.

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, but may include an appropriate return on capital. 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,
		2005				2004				2003
Regional termination			0.0112				0.0114				0.0130
National termination			0.0175				0.0186				0.0203
Regional carrier selection			0.0113				0.0115				0.0130
National carrier selection			0.0176				0.0187				0.0203

In 2005, Swisscom reduced its standard interconnection rates by up to 7%. For 2006, Swisscom has announced further interconnection rate reductions averaging 5%. Swisscom believes that its interconnection rates are in line with the European average and represent a fair, transparent and consistent implementation of the applicable regulatory requirements. 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.

Swisscom has regularly been involved in legal proceedings relating to its interconnection obligations. In November 2003, ComCom issued decisions requiring Swisscom to lower interconnection prices with retroactive effect for the years 2000 to 2003 by 25-35%. Swisscom lodged an appeal against this decision with the Federal Court. Swisscom’s competitors, TDC (Sunrise) and WorldCom also filed an appeal demanding further reductions than decided by ComCom. In October 2004, the Federal Court overturned the ComCom decision on procedural grounds and remanded the petitions for re-hearing before ComCom. On June 10, 2005, ComCom confirmed its November 2003 decision, requiring Swisscom and Fixnet to retroactively reduce the interconnection rates charged TDC (Sunrise) and WorldCom between 2000 and 2003 by approximately 30%. ComCom required TDC (Sunrise) and WorldCom to reduce their own prices on a reciprocal basis. On July 13, 2005, Fixnet and TDC (Sunrise) both lodged an appeal against this decision with the Federal Court. For further information on legal proceedings relating to interconnection, see “Item 8: Financial Information — Legal Proceedings”.

Incoming International Traffic

Swisscom’s agreement with Belgacom to combine their international wholesale activities by forming a new joint venture company included the transfer of Fixnet’s wholesale international incoming traffic business. Until 2007, however, international incoming traffic will continue to be routed through Fixnet for technical reasons. As a result, corresponding revenues and expenses are still being recorded by Fixnet. Until December 31, 2005, Fixnet recognized this traffic as incoming international traffic. Since January 1, 2006, Fixnet has been recognizing this traffic as wholesale national traffic. In 2005, external revenue from incoming international traffic amounted to CHF 146 million.

The following table sets forth information relating to Fixnet’s incoming international traffic in minutes for the periods indicated.

In millions of minutes		Year Ended December 31,
		2005				2004				2003
Incoming international traffic			1,577				1,521				1,607

International Termination Traffic

Swisscom’s agreement with Belgacom to combine their international wholesale activities by forming a new joint venture company included the transfer of Fixnet’s wholesale international termination traffic business. External revenue from international termination traffic amounted to CHF 245 million in 2004, and CHF 110 million in 2005 (prior to the July 2005 transfer to Belgacom).

The following table sets forth Swisscom’s international termination traffic in minutes for each of the periods indicated.

In million of minutes		Year Ended December 31,
		2005				2004				2003
International termination traffic(1)			755	(2)			1,508				1,188

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 2005, Swisscom realized external revenue of CHF 130 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 from third-party suppliers all of the telecommunications equipment that it sells or rents under the Swisscom brand name. In addition, Swisscom sells telecommunications equipment under third-party brand names. Swisscom offers residential customers primarily 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 2005, sales of customer equipment generated external revenue of CHF 253 million.

The most important distribution channel for Swisscom’s customer equipment is its Swisscom shops. In addition, Swisscom uses third-party distribution channels.

Leased Lines

Swisscom offers 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 80 wholesale customers in Switzerland. Business 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 are not expected to enter into force prior to January 1, 2007. Swisscom will be required to offer, among other things, access to leased lines on a cost-oriented basis. See “— Regulation — Unbundling of the Local Loop and Other Access Regulation” and “Item 8: Financial Information — Legal Proceedings”. In 2005, the provision of leased lines generated external revenue of CHF 158 million.

Directories

Swisscom Directories operates, maintains and sells Switzerland’s most comprehensive directories database, the electronic phonebook (Elektronisches Telefonbuch ETV ^® or “ETV”). ETV 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 and the online yellow pages. In 2005, Swisscom Directories generated external revenue of CHF 120 million.

The directories’ business is regulated under the Telecommunications Act. Since 2001, every telecommunication service provider is required to provide its regulated data, including daily data updates, not only to directories publishers, as was the case in the past, but to any interested party and for any use. 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. In connection with an investigation to determine whether Swisscom Directories offered its directories database to third parties at prices and on conditions that prevent them from effectively using the data, the Competition Commission determined that Swisscom Directories has a market-dominant position, but decided not to pursue the matter. Swisscom appealed the finding that it has a market-dominant position. The appeal is still pending. See “Item 8: Financial Information — Legal Proceedings”.

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 2005, external revenue from these services amounted to CHF 101 million.

Competition

In the area of fixed network telephony and related services, Swisscom faces intense competition, particularly in the national and international calling markets. In 2005, price competition 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 intensify in 2006.

Access. As recently as two years ago, Swisscom did not face significant competition in the residential access market, mainly due to the fact that Swisscom has 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 is thereby directly competing with Swisscom’s PSTN and ISDN access services. In March 2006, the Swiss Parliament adopted amendments to the Telecommunications Act which are not expected to enter into force prior to January 1, 2007. Swisscom will be 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 bistream access for a limited period of four years. See “ — Regulation — Unbundling of the Local Loop and Other Access Regulation” and “Item 8: Financial Information — Legal Proceedings — Proceedings Relating to Unbundling of the Local Loop”. Unbundling of the local loop will give 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 loss of 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 are able to offer high-speed Internet access via cable. Cable currently offers higher bandwidth than ADSL and has certain other advantages over ADSL. 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 upgrade its network to combine its core activities in voice and Internet services with multimedia services such as TV and video on demand. However, cable network operators have been offering these multimedia services for some time and Swisscom may not be successful in entering this market. With the rollout of broadband mobile services based on UMTS and other wireless broadband access technologies, Swisscom may face additional competition from broadband mobile service providers.

In order to compete with other broadband access operators more effectively, Swisscom has increased the capacity of its ADSL services by more than 400% since 2003. The most recent upgrade started in March 2006 and will double ADSL bandwidth for most service plans by mid-2006.

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 intends to investigate whether prices for certain of Swisscom’s ADSL services are excessive and unreasonable. 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 2006, 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 come under particular pressure due to regulatory initiatives in the European Union regarding mobile termination and two proceedings in which Swisscom is involved. See “ — Regulation — Mobile Telecommunications”. Effective June 1, 2005 Swisscom reduced its mobile termination rates by more than 40% from CHF 0.335 to CHF 0.200 per minute in order to compete more effectively with other mobile network operators. In response, TDC (Sunrise) reduced its mobile termination rates from CHF 0.3685 to CHF 0.2995, effective August 1, 2005, and Orange reduced its rates from CHF 0.3695 to CHF 0.3295, effective January 1, 2006. The reductions in mobile termination rates by TDC (Sunrise) and Orange were less than Swisscom had expected, based on ComCom’s decision to require reciprocal reductions from the two operators, and based on conditions prevailing in the European market and in the sector, i.e., CHF 0.200/minute.

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”. In November 2003, based on complaints by TDC (Sunrise) and WorldCom, ComCom issued decisions requiring Swisscom to lower interconnection prices with retroactive effect for the years 2000 to 2003 by 25-35%. Swisscom lodged an appeal against this decision with the Federal Court. In October 2004, the Federal Court issued a decision overturning the ComCom decisions on procedural grounds and remanding the petitions for re-hearing before ComCom. On June 10, 2005, the ComCom confirmed its November 2003 decision, requiring Swisscom and Fixnet to retroactively reduce the interconnection charges charged TDC (Sunrise) and WorldCom between 2000 and 2003 by approximately 30%. ComCom required TDC

(Sunrise) and WorldCom to reduce their own prices on a reciprocal basis. On July 13, 2005, Fixnet and TDC (Sunrise) both lodged an appeal against this decision with the Federal Court, which has yet to issue a decision. See “Item 8: Financial Information — Legal Proceedings”.

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 2005, Swisscom continued to face increasing competition in the national wholesale market from various network providers such as Colt and TDC (Sunrise), 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 2005. Swisscom is allowed to use the well-known access number 111 until the end of 2006. Thereafter, Swisscom will have to switch to the new service number 1811, which is expected to result in a significant reduction in traffic volume for its 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 2005, Swisscom continued to face intense competition in the market for national leased lines, in particular in areas with high data volume. 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 are not expected to enter into force prior to January 1, 2007. Swisscom will be 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. 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 4.3 million mobile subscribers as of December 31, 2005. In 2005, Swisscom’s mobile activities generated total revenue of CHF 4.2 billion, including sales of CHF 0.5 billion to other Swisscom business segments. With external revenues of CHF 3.7 billion in 2005, Swisscom Mobile accounted for 38% 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,
		2005				2004				2003
Base fees			677				691				685
Connectivity voice			2,203				2,286				2,221
Connectivity data and value-added services			604				521				454
Other mobile revenue(1)			167				181				151
Total Mobile			3,651				3,679				3,511

Most of Swisscom’s mobile telephony revenue is generated from monthly subscription fees and traffic charges for mobile voice telephony, which accounted for 79% of its external revenues in the mobile segment in 2005.

With the successful implementation of services enabled by high speed GPRS, PWLAN, EDGE and UMTS 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 live television and music downloads) to these services since then. Swisscom believes that these services will contribute in the future to the generation of m-commerce revenue and enhance customer retention. In July 2005, Swisscom upgraded its Mobile Unlimited service, which enables seamless data download/synchronization via a PC card, by adding EDGE to the existing list of supported mobile broadband technologies (GPRS, PWLAN, UMTS) which Swisscom believes will contribute in the future to the generation of data revenues.

Since February 2003, direct mobile interconnection has been available, and Swisscom Mobile and other mobile network operators are able to terminate their traffic directly on each other’s networks rather than through Swisscom Fixnet, which had been the intermediary for such traffic.

During 2005, Swisscom Mobile capitalized on efficiency efforts initiated in recent years and was able to show a modest reduction in the average number of employees (full time equivalents) from 2,491 at year-end 2004 to 2,412 at year-end 2005, in part by transferring employees to Swisscom’s social plan programs. By reducing its workforce, Swisscom Mobile reversed the trend of the last seven years while still showing strong subscriber growth.

On April 7, 2006, the Secretariat of the Competition Commission issued a draft decision in its proceedings against Swisscom Mobile in connection with mobile termination fees. The Secretariat believes that Swisscom Mobile has abused its market-dominant position and has indicated that it intends to impose a fine of at least CHF 489 million. 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”.

Alliance with Vodafone

In connection with the acquisition of a 25% shareholding in Swisscom Mobile AG by Vodafone Group Plc (“Vodafone”) effective April 1, 2001, Swisscom Mobile and Vodafone entered into a shareholders’ agreement and a service agreement, which set out the terms on which Swisscom Mobile and Vodafone would cooperate in certain areas.

Under the terms of the shareholders’ agreement, the Board of Directors of Swisscom Mobile consists of up to seven members, of which up to two may be Vodafone appointees, one may be an independent director, and up to four may be Swisscom appointees. Currently, the Swisscom Mobile Board of Directors consists of two Vodafone appointees and three Swisscom appointees. Resolutions of the Board, including approval of the annual budget, require the affirmative vote of the majority of the directors. Certain significant transactions are subject to unanimous Board approval, including decisions regarding specific investments, purchases or disposals of assets in excess of certain thresholds and material modification or termination of such agreements. The listing of Swisscom Mobile shares on any exchange is also subject to unanimous Board approval. Any change in share capital of Swisscom Mobile is subject to approval by both Swisscom and Vodafone.

Subject to certain exceptions, Swisscom and Vodafone have also agreed in the shareholders’ agreement that Vodafone is not to engage in the mobile business in Switzerland, or to have any controlling stake in a mobile business operating in Switzerland, other than pursuant to the terms of the shareholders’ agreement and the related service agreement. The shareholders’ agreement may be terminated without notice if Swisscom holds less than 41% or if Vodafone holds less than 10% of Swisscom Mobile. In addition, Vodafone holds a conditional pre-emption right that would permit it to sell its 25% stake in Swisscom Mobile to Swisscom at fair market value if a party other than the Swiss Confederation is able to exert a controlling influence over Swisscom. For more information, see “Item 3: Key Information — Risk Factors — Risks Related to Ownership by the Swiss Confederation — If another party acquires control of Swisscom as a result of the Swiss Confederation reducing its stake in Swisscom below 50%, Vodafone plc may exercise its conditional pre-emption rights to sell its 25% stake in Swisscom Mobile to Swisscom, and Swisscom’s counterparties in significant contracts may be able to terminate such contracts or demand additional security”.

In November 2003, the original service agreement entered into as part of the cooperation with Vodafone was replaced by a new service agreement between Swisscom Mobile, Vodafone and Vodafone Marketing Sarl, to reflect the continued and deepening co-operation between Swisscom Mobile and Vodafone and the development of new technologies in recent years.

Under the service agreement, each of Swisscom Mobile and Vodafone agreed to provide the other with access to its products and services, and to provide certain consultancy and supporting services in agreed circumstances. The service agreement also provides for a framework for co-managing international corporate accounts and co-operation in the area of product development, and gives Swisscom Mobile the right to use future upgrades of certain services and enabling platforms developed by the Vodafone group on normal commercial terms even if the service agreement is terminated. Swisscom Mobile pays an overall fee for all services and products provided by the Vodafone group companies.

In general, all services provided by Swisscom Mobile under the service agreement are to be offered to Vodafone on terms and conditions equivalent to those offered to other members of the Swisscom group, while Vodafone is required to offer its services to Swisscom Mobile on terms and conditions equivalent to those offered to other members of the Vodafone Group of a size similar to Swisscom Mobile. Furthermore, each of Swisscom Mobile and Vodafone has agreed, subject to certain exceptions, not to offer the services provided under the service agreement to any other mobile telecommunications business in any of the Vodafone territories, in respect of Swisscom Mobile, and any of Switzerland and Liechtenstein, in the case of Vodafone.

Swisscom Mobile and Vodafone have also entered into a branding agreement, which sets forth the terms for mutual use of their trade names and marks.

Swisscom believes this strategic alliance enhances its competitive position in the mobile market. Through this alliance, Swisscom Mobile has access to Vodafone products, services and know-how and to other relevant global activities in mobile telecommunications. 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 2005, Swisscom generated service revenue from the co-operation with Vodafone in the amount of CHF 88 million and paid an amount of CHF 103 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.

GSM and the Introduction of Next Generation Mobile Services

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.

In 2001, Swisscom completed the implementation of general packet radio service (GPRS) technology in the network. GPRS is a standard for data transfer on GSM mobile phone networks and utilizes “packet switching” technology. In February 2002, Swisscom launched its first commercial GPRS service with a transmission rate of up to 50 kbit/s.

In December 2000, Swisscom was awarded one of four UMTS licenses auctioned in Switzerland, for which it paid CHF 50 million. Universal mobile telecommunication system (UMTS) is a third generation mobile radio system that creates additional mobile radio capacity and enables broadband media applications while also providing high speed Internet access. Swisscom has achieved all milestones stipulated in the UMTS licence and successfully launched its commercial UMTS services in September 2004.

In December 2002, Swisscom introduced a public wireless LAN (PWLAN) service. Swisscom Mobile is the leading PWLAN network operator in Switzerland, currently operating approximately 900 hotspots in Switzerland. In addition, Swisscom Mobile offers access to additional hotspots through roaming agreements mainly with Swisscom Eurospot. For more information on these networks and Swisscom’s PWLAN services, see “—Networks and Technology — Mobile Telecommunications Network” and “— Other — Swisscom Eurospot”.

Swisscom continues to build out its broadband networks, such as UMTS. At the same time, Swisscom also invests in capacity enhancements and functional upgrades of its existing GSM network. For example, in order to further improve its GPRS services, Swisscom has activated Enhanced Data Rates for GSM Evolution (EDGE) technology in all active GSM locations in early 2005. Other projects include building additional base stations in tunnels and along train routes and extending the reach of the network’s dual-band capability. To further enhance the customer experience, Swisscom will enable high-speed downlink packet access (HSDPA) in selected dense urban areas in the course of 2006. 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 and WLAN. For further information on Swisscom’s mobile network, see “ — Networks and Technology — Mobile Telecommunications Network”.

In December 1999, the Federal Council adopted an ordinance, known as the NIS Ordinance, which establishes emission standards to protect the population of Switzerland from non-ionizing radiation emitted by various sources, including mobile antennae and base stations.

In July 2002, the Swiss Agency for the Environment, Forests and Landscape (“BUWAL”) issued final guidelines for enforcement authorities on the appropriate methods by which to measure electromagnetic emissions from base stations and masts in the GSM network, but which did not address emission standards for UMTS networks. Final guidelines relating to emission standards for UMTS networks were adopted in 2005. In order to comply with the applicable emission standards and to maintain its current level of service, Swisscom could be required to, install additional antennae. However, Swisscom does not expect the associated costs in 2006 to be materially different from those incurred in previous years. See “— Regulation — Mobile Telecommunications”.

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 service in Switzerland as well as abroad. Swisscom has roaming agreements with 425 mobile network operators worldwide covering 179 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,
		2005				2004				2003
Connectivity Voice (1)			3,688				3,404				3,335

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 either a per minute 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 June 2005, Swisscom launched a new range of products designated as “liberty” products. Subscribers to these products are charged on a per call basis, rather than on a per-minute basis, when calling numbers in the national fixed-line network or when calling other subscribers within Swisscom’s mobile network. All other calls are charged per minute. Swisscom also introduced its M-Budget mobile product in September 2005, which addresses the no frills, low cost segment. The offer only includes voice, roaming and SMS services, with all other services (e.g. MMS, GPRS, etc.) disabled.

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,
		2005				2004				2003
Postpaid			2,640				2,518				2,387
Of which subscribers to liberty products			570				—				—
Prepaid(2)			1,641				1,390				1,409
Of which subscribers to liberty products			65				—				—
Total Subscribers			4,281				3,908				3,796

Since 1995, the number of mobile customers in the Swiss marketplace has grown annually, with overall market penetration reaching almost 92% at the end of 2005, 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 has implemented customer loyalty and win-back programs, including incentives for twelve and twenty-four month contract commitments, handset subsidies and handset renewal possibilities, which resulted in a further decline of customer churn. 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, 2005, 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				15-75				0.18-0.70				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 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. Additional price reductions occurred as a result of Swisscom Mobile’s reduction of its termination rate from CHF 0.335 to CHF 0.20 in June 2005. 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. Certain 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,
		2005				2004				2003
Number of SMS messages (in millions)(1)			1,991				1,986				1,847

The mobile data service Vodafone live! allows customers to take and send picture messages, download games and polyphonic ringtones and to access information and entertainment services, such as live television, which now includes 22 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.

In addition to Vodafone live!, Swisscom Mobile opened standardized interfaces to enable platforms which are 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. Revenue from sales of mobile handsets through Swisscom shops is accounted for in Swisscom’s Fixnet segment. All other revenue from the sale of mobile handsets is allocated to Mobile.

SICAP. SICAP, a wholly owned subsidiary of Swisscom Mobile AG provides prepaid billing services to mobile network operators worldwide, including so-called over-the-air solutions, through which prepaid GSM SIM-card settings can be modified.

Competition

In its mobile business, Swisscom faces competition primarily from the two other original mobile licensees in Switzerland, Orange and TDC (Sunrise). 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 either by building out its own network or by entering into national roaming agreements with the other mobile network operators. In&Phone has launched campus networks throughout Switzerland and is expected to enter into a national roaming agreement with TDC (Sunrise) in early 2006.

Swisscom expects competition, especially for business customers, to remain strong in 2006 due to increased tariff pressure and competing enhanced data solutions. Competition in the residential segment is expected to be driven by handset subsidies as well as by new competitive price plans.

In the future, Swisscom expects to face competition in the provision of GPRS, EDGE and UMTS services from TDC (Sunrise) and Orange, both of which hold Swiss UMTS licenses.

As in the case of fixed-line voice telephony, competition in the mobile market has been facilitated by provisions of the Telecommunication Act and related ordinances requiring that Swisscom offer easy access and number portability. Although equal access is also mandated under the applicable regulations, ComCom has provisionally suspended the implementation of equal access in the mobile network until technical developments and international standards allow its implementation.

Solutions

Overview

Effective January 1, 2005, Enterprise Solutions merged with Swisscom Systems, formerly accounted for under the segment “Other”, to form a new business segment named Swisscom Solutions.

Solutions is the leading provider of telecommunication services to business customers in Switzerland with complex needs. In 2005, Solutions generated total revenue of CHF 1.3 billion. With external revenues of CHF 1.1 billion in 2005, Solutions accounted for 11 % of Swisscom’s consolidated net revenue in 2005.

	•		National and International Traffic. Solutions offers national and international fixed-line voice telephony services to business customers. In 2005, Solutions carried an aggregate of 1.9 billion minutes of national telephony traffic and 0.4 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, such as 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 ICT outsourcing.

•

Other. Solutions offers rental agreements or 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,
		2005				2004				2003
National and International Traffic			239				297				344
Leased Lines National			147				184				216
Intranet Services			152				173				179
Other Service Business			247				272				299
Solution Business			283				277				291
Other			55				76				96
Total Solutions external revenue			1,123				1,279				1,426

Solutions has increased its focus on large business customers with complex, solution-oriented telecommunication needs. 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 general overcapacity in the telecommunications market, Solutions has experienced a general decrease in revenues in most of its customer segments. 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)(1):		Year Ended
		December 31,
		2005				2004				2003
Local and long-distance traffic			1,672				1,779				1,972
Fixed-to-mobile traffic			258				278				303
Total national traffic			1,930				2,057				2,275
International traffic(2)			356				361				373
Total traffic			2,286				2,418				2,648