Regulation and Corporate Governance Dr. J ürg Rötheli Head of Group Operations and Related Businesses 1 -2 April 2004 S wisscom Capital Markets E vent Interlaken, S witzerland 1
Regulation Current Status • Legal framework Switzerland • Legislation procedure Switzerland • Sector specific regulation • Relevant authorities Manage Transition The Future 2
Legal framework Switzerland S wisscom has to comply with a variety of laws and ordinances General legislation Specific legislation for example: • Environmental • Telecommunications legislation legislation • Finance legislation • Contract legislation • Radio and TV legislation • Employment and social insurance legislation • Competition • Intellectual property legislation and price legislation surveillance law • Privacy and data protection 3
Legislation procedure Switzerland Process to change laws is lengthy and complex Final Initiative Drafting Verification Entry into Optional: decision phase phase phase Referendum force phase The initiative First The new law The law enters First draft for legislation Chamber adopted by into force and can come from parliament enters is published in Consultation into force if the register of Second Chamber • Popular federal laws initiative - there is no Administration optional Conciliation • Cantonal referendum initiative Federal Council within 100 days Conciliation (Government) conference • Administrative - there is no public activity vote Final vote in • Parliamentary both chambers motion Entire process from initiative to implemented law can take up to 5 years 4
Sector specific regulation Most (but not all) rules are in line with EU practice Universal service Interconnection provision Non-discrimination Reference 2003-2008 licence interconnection Cost orientation offer Transparency � Carrier selection � Access � Voice � Number portability � Directories � No ULL � Payphones � Ex-post IC Regulation � in line with EU practice � different from EU practice 5
Relevant authorities S wisscom interacts with several authorities appoints Federal Council supervises members for 4 year terms Government UVEK appoints senior ComCom officials Federal ministry for Independent regulatory gives directions transport, energy, and agency communication OfCom Responsible for day-to-day submits for decision Administrative control supervision of the on key regulatory telecommunication sector questions 6
Regulation Current Status Manage Transition • Review of the telecommunication law currently undertaken: what is new and what is Swisscom’s position • Regulatory goals largely achieved without extensive access regulation • Manage ongoing procedures/complaints The Future 7
Review of the law: what is new? Access regulation to be extended New: New: ULL New: Access to fixed R esale and mobile networks Current law : Interconnection New: New: Access to software Leased lines systems New: Access to physical infrastructure 8
Review of the law: main changes and Swisscom’s position Main changes Explanation Swisscom’s position - New anti-fraud regulations on 090x numbers Consumer - Establishment of an ombudsman Supportive protection - New regulations aimed at combating SPAM - requiring operators with SMP (significant Against as: - market • competition works Access power) to grant cost-oriented access • competition law sufficient • reduces incentives - Extension of interconnection legislation to invest - Extension of the requirement for all operators Against as: to offer interconnection to all Inter- • constitutes obligation telecommunications operability to contract services “that are publicly accessible and meet • extends interoperability a broad public need” - Replacement of the ex-post regulation Against: (regulation Ex-ante • proposal no longer for the prevention of abuse and disputes) by an on the table ex-ante regulation 9
Review of the law: main changes and Swisscom’s position The proposed access regulation will affect ... ... infrastructure providers ... the Swiss economy � Restricts the scope of action � Reduces the incentive to invest for infrastructure providers � Delays the construction of broadband infrastructures � Reduces the incentive to � Has a negative impact on development in invest outlying regions � Generates uncertainty among � Does not offer customers any enterprises advantages 10
Review of the law: main changes and Swisscom’s position ... and UL L would adversely affect the development of outlying regions 11
Goals achievable without extensive access regulation Without new access regulation, but through competition ... ... a high proportion of ... at affordable prices households has access to BB PPP-adjusted prices for 600 kbit/s ADSL and CATV penetration ( households x 1,000) (Euro per month) Total number of households in CH: 3.1 m 4'000 3'500 47 43 43 44 41 3'000 39 38 28 2'500 26 2'000 1'500 Bluewin Broadway 600/100 1'000 384/128, 2GB 512Kbs, 5 GB 3000/128, 10GB Planet Internet Economy FT Extense 512 Telia BB 500 500/400, Unl. TDC bb 512/128 512/128, Unl. TI Alice Flat 256/128, Unl. Belgacom ADSL Skynet Go T-Com+T-Online 768, Unl. BT Yahoo! 500Kbs, Unl. 500 0 Current deployment BB-enabled lines ADSL CATV 1) Introduced February 2004 12 Source: Incumbent‘s Web Sites, 17.02.2004; OECD PPP, Feb 2004
Goals achievable without extensive access regulation And through infrastructure competition ... ... penetration is already high ... and growing fast BB penetration Q3 2003 (% HH) ADSL penetration increase Q2 to Q3 (in pp of HH penetration) 28 26 22 Cable 11 9 19 18 10 7 10 11 11 11 1 2.1 8 17 17 5 ADSL 1 1.6 1.6 1.5 1.4 1.4 12 11 11 10 1 1 9 7 6 0.5 UK Italy France Belgium Denmark Sweden Germany Switzerland Nederland France Belgium Sweden Denmark UK Italy Germany Switzerland Nederland Source: Point Topic, World Broadband Statistics, Q3 2003, 2 January 2004 13
Goals achievable without extensive access regulation Various legal proceedings reflect significant regulatory pressure under the existing telco-law For example: � Interconnection requests for access (ULL) and leased lines Various forms of unbundling are at stake � LRIC proceedings on interconnection pricing Current dispute focuses on procedural matters � Investigation on fix to mobile termination Parallel behaviour or misuse by mobile network operators? � Investigation on product bundle „Talk & Surf“ Competition commission suspects unlawful behaviour based on refusal of access reselling 14
Regulation Current Status Manage Transition The Future • New time frame for telecommunications law amendment • Summary 15
New timeframe for Telco law change Outcome and timing remain uncertain Final Initiative Drafting Verification Optional: Entry into decision phase phase phase Referendum force phase 2000 –2002 Foreseen timetable 2002-Q1 03 Winter 03 - Spring 04: Q1 05 - Q2 05: Consultation in preparatory Approval of 1st From Q3 05 committee of 1st chamber, and 2nd chamber recommends not to enter into discussion From late If referendum 18 March 2004: 2006, if 1st chamber decides with marginal majority to approved discuss proposed law changes – against advice of preparatory committee Summer 04: Consultation in 1st chamber Summer 04 - Autumn 04: Consultation in preparatory committee of 2nd chamber Winter 04: Consultation in 2nd chamber Swisscom is lobbying throughout entire timeframe 16
Summary The key takeaways � Legislation procedures Switzerland are complex and lengthy � Broadband penetration, growth, services and prices are already among the best – without new access regulation � Swisscom takes influence through lobbying, and through legal proceedings where appropriate 17
Corporate Governance • Organisation • Guiding principles • Role of non-executive management • Risk management 18
Organisation The S wisscom Group structure: Group-wide thinking, company-specific actions Group Headquarters BoD Group companies with own P &L responsibility CEO Group Communications CFO: Group F inance & Controlling Group Human Resources CSO: S trategy & Group S teering Group Operations & Related Business S wisscom S wisscom S wisscom S wisscom Billag Broadcast Immobilien Innovations E urospot Swisscom Swisscom Swisscom Swisscom Swisscom Enterprise debitel* ) Fixnet* ) Mobile* ) IT Services* ) Systems* ) Solutions* ) Bluewin Cablex Directories S ICAP *) Each of the large group companies has a separate BoD in which the Group’s CEO, CFO and CSO take part 19
Guiding principles Corporate governance in practise Governance through ... – adherence to all relevant laws and codes (of best practice) – internal set of directives and policies that are applied by all group companies – internal code of ethics Good corporate citizenship through ... – “Swisscommons”: a framework of how we deal with others and among ourselves – corporate social responsibility program – extensive program for redundant workforce – societal closeness through sponsoring (e.g. “Schools on the internet”) 20
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