Swisscom adjusts earnings forecast downward following Vodafone Italia acquisition

Swisscom, Switzerland’s leading telecommunications provider, has revised its earnings outlook for 2024 downwards following the completion of its €8 billion acquisition of Vodafone Italia. The acquisition, which will see Vodafone Italia merged with Swisscom’s existing Italian subsidiary Fastweb, brings significant strategic advantages but also incurs substantial integration costs that have prompted the earnings adjustment.

Strategic Rationale Behind the Acquisition

The acquisition of Vodafone Italia is a major strategic move for Swisscom, aimed at strengthening its position in the competitive Italian telecommunications market. The merger with Fastweb will create a significantly larger and more integrated player, offering a full range of fixed and mobile services to both consumer and business customers.

Key benefits of the acquisition for Swisscom include:

Increased scale and market share: The combined entity will have a significantly larger customer base and market share, allowing for greater economies of scale and improved competitiveness.

Enhanced network infrastructure: The merger will combine the network assets of Vodafone Italia and Fastweb, creating a more robust and extensive infrastructure capable of delivering enhanced services and coverage.

Synergies and cost savings: Swisscom expects to realize significant synergies and cost savings through the integration of the two businesses, including streamlining operations, optimizing network utilization, and reducing administrative overhead.

Strengthened competitive position: The combined entity will be better positioned to compete with other major players in the Italian market, offering a more compelling value proposition to customers.

Impact on Earnings Outlook

While the acquisition offers significant long-term benefits, it also entails substantial integration costs that have led Swisscom to revise its earnings outlook for 2024. The company now expects its earnings before interest, taxes, depreciation, and amortization (EBITDA) to be in the range of CHF 4.3 billion to CHF 4.4 billion, down from the previous guidance of CHF 4.5 billion to CHF 4.6 billion.

The downward revision is primarily due to the recognition of up to €200 million in integration costs in the 2024 financial results. These costs are associated with the planned exit from existing mobile virtual network operator (MVNO) and mobile network-sharing agreements related to the migration of Fastweb mobile customers to Vodafone Italia’s network.

Long-Term Outlook Remains Positive

Despite the short-term impact on earnings, Swisscom remains confident in the long-term prospects of the acquisition. The company believes that the merger will create a stronger and more competitive business in Italy, generating significant value for shareholders over time.

Swisscom has reiterated its guidance for revenue, capital expenditure, and dividend, which remain unchanged. The company also emphasized that the revised EBITDA outlook does not impact its free cash flow.

Integration Process and Future Plans

Swisscom has already begun the integration process of Vodafone Italia and Fastweb, with a focus on ensuring a smooth transition for customers and employees. The company plans to invest in network upgrades and service enhancements to deliver an improved customer experience.

The successful integration of Vodafone Italia is a key priority for Swisscom, and the company is committed to realizing the full potential of this strategic acquisition. While the short-term earnings outlook has been adjusted to reflect integration costs, Swisscom believes that the long-term benefits of the merger will outweigh these costs and drive future growth and profitability.