SECURITIES AND EXCHANGE COMMISSION

FORM 20-F
 

OR

OR

Switzerland
(Jurisdiction of incorporation or organization)

Alte Tiefenaustrasse 6,
3050 Bern, Switzerland
(Address of principal executive offices)

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

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, 2004: 66,203,261 Registered Shares, Nominal Value CHF 1 per share.

     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.

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

TABLE OF CONTENTS

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 are prepared in accordance with International Financial Reporting Standards (“IFRS”), which differ in certain respects from U.S. GAAP. For a reconciliation of the material differences between IFRS and U.S. GAAP as they relate to Swisscom, see Note 42 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 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:

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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.

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PART I

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

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ITEM 3: KEY INFORMATION

Selected Financial Data

Selected Consolidated Financial and Statistical Data

The selected consolidated financial data below should be read in conjunction with Swisscom’s financial statements included elsewhere in this annual report. The selected financial data as of December 31, 2000, 2001, 2002, 2003 and 2004 for each of the years in the five-year period ended December 31, 2004, have been extracted or derived from, and are qualified by reference to, the audited financial statements of Swisscom. The financial statements were prepared in accordance with IFRS, which differ in certain respects from U.S. GAAP. For a reconciliation of the material differences between IFRS and U.S. GAAP as they relate to Swisscom, see Note 42 to the consolidated financial statements. As a result of the sale of debitel in June 2004, Swisscom treats debitel in its consolidated financial statements as a discontinued operation. Prior years have been restated accordingly.

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Notes to Selected Consolidated Financial and Statistical Data

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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.

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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 19, 2005 was CHF 1.1843.

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.

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Risk Factors

Risks Related to Swisscom’s Business

Proposed amendments to the Telecommunications Act would require Swisscom to offer unbundled access to its local loop and other related services, which would 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. Although competition has resulted in loss of market share and margin pressure for such calling services, Swisscom’s access business has been a source of revenue growth and has also served to support Swisscom’s retail traffic business.

Under proposed amendments to the Telecommunications Act currently being considered by the Second Chamber of the Swiss Parliament, Swisscom would be required to offer, among other things, unbundled access to its local loop in the form of full access and bitstream access on a cost-oriented basis as well as access rebilling. Unbundling of the local loop in the form of full access would allow competitors to offer access services to customers in Switzerland without having to build local loops of their own, although they would still have to make significant investments in their own network infrastructure in order to connect to the local loop. Moreover, with access rebilling, competitors would be able to bill customers directly for the access services provided by Swisscom. As a result, Swisscom’s competitors would 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, adoption of the proposed amendments would increase competition in the access market and could cause Swisscom to lose additional market share in the national and international calling markets.

Unbundling of the local loop would, as currently proposed, also require market-dominant providers to offer bitstream access for two 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. While competitors would have to make upfront investments in their own network infrastructure in order to reach the transfer points for bitstream data traffic, the extent of these investments will depend on the regulations that are ultimately adopted. As currently proposed, the amendments would require Swisscom’s competitors to make significant investments in their own network infrastructure. However, it cannot be excluded that the amendments ultimately adopted would require less investment by Swisscom’s competitors, which would intensify competition in the broadband market. With increased competition, Swisscom’s share of the ADSL market would be likely to decline and Swisscom could be required to lower its ADSL tariffs to remain competitive. While the loss in retail access revenue would be partially compensated by wholesale revenue for access services provided to its competitors, those services would 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.

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

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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.

In recent years, the European Union has been analyzing the markets for various mobile telephony services, including mobile access and call origination, mobile termination and mobile roaming with a view to determining whether additional regulation is required to ensure effective competition and prevent market abuse. These initiatives could ultimately lead to European-wide regulation of mobile access and call origination and/or a significant reduction in mobile termination fees for individual companies determined to have significant market power in their local markets. They could also lead to a significant reduction in international roaming charges. 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.

Although not part of the current proposed amendments to the Telecommunications Act, earlier proposals would have provided the legal basis in Switzerland for requiring market-dominant providers to provide access to any relevant infrastructure or service, including new technologies such as mobile technology or wireless broadband networks, on a cost-oriented basis. There can be no assurance that such measures will not be reintroduced in the future. Regulation of mobile access could result in Swisscom being required to give access to its network to mobile virtual network operators or to sell to its competitors mobile telephony minutes for resale on a cost-oriented basis. Pressure on the Swiss regulatory authorities to regulate mobile access has increased as a result of the award of new mobile licenses to two service providers that require national roaming in areas where they do not have their own network.

With regard to mobile termination tariffs, the Competition Commission has initiated proceedings against Swisscom, Orange and TDC Switzerland (Sunrise), alleging that each operator has a dominant position with respect to terminating traffic on its own mobile network. If Swisscom were found to have a dominant position in this market, it could be required to reduce its mobile termination fees.

Concerns regarding mobile roaming charges have also been raised in Switzerland and it is possible that Swisscom may become subject to regulation in this area as well.

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.

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 mobile penetration rates having reached 87% in Switzerland, 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 operators. However, with direct mobile interconnection now available, 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.

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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 operators, in particular Cablecom, the largest cable network operator in Switzerland. Having made significant investments in its cable network to allow for bidirectional data transfer, Cablecom has been able to leverage its existing network into a platform 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. Since mid-2004, Cablecom has been able to add subscribers to its 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 IP (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 to some of these services, 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 the 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 allows a higher bandwidth offering than ADSL and has certain other advantages over ADSL. Moreover, as a cable 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.

Furthermore, the proposed amendments to the Telecommunications Act described above, under which Swisscom would be required to offer bitstream access on a cost-oriented basis for two years, would put additional pressure on prices.

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) and Enhanced Data Rates for GSM Evolution (EDGE) technology. 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

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considerably higher transmission speeds. Swisscom launched its commercial UMTS services in November 2004 and has recently activated EDGE technology.

In connection with the build-out of its UMTS and EDGE 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 these new services will meet with market acceptance. Market acceptance will depend 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 UMTS and EDGE services could be lower than expected as a result of increased use of alternative mobile broadband technologies, such as public wireless LAN. If UMTS and EDGE services fail to achieve the expected advantages over other technologies, Swisscom’s mobile business will suffer and Swisscom may be unable to recoup its investment in UMTS and EDGE technology and could be required to write down the value of some or all of the related assets.

High penetration and increasing competition in the mobile telecommunications market could cause customer retention costs to increase substantially and Swisscom may not be able to maintain its current market share

With mobile penetration having reached almost 87% in Switzerland at the end of 2004, it has become more difficult to acquire new customers and Swisscom is therefore increasing its focus on customer retention. In this market, Swisscom already faces substantial competition from the other two mobile licensees in Switzerland, Orange and TDC Switzerland (Sunrise). Competition for business customers is particularly intense, as Orange and TDC have been increasing their efforts to win market share in this segment. In December 2003, the Federal Communications Commission (“ComCom”) awarded GSM licenses to Tele2 and In&Phone, which will further intensify competition in the mobile business market. For example, Tele2 is expected to launch a city network in Zurich in June 2005 at significantly lower rates than Swisscom currently offers for comparable services. Given the high rate of mobile penetration and increasing competition, customer retention costs, which are already on the rise, 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 will lose market share. At the same time, the increasing cost of customer retention could put additional pressure on margins and 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 2002, the Swiss Agency for the Environment, Forests and Landscape (“BUWAL”) issued final recommendations which provide guidance for enforcement authorities on the appropriate methods for measuring electromagnetic emissions from base stations and masts in the GSM network, but which do not address emission standards for UMTS networks. Draft recommendations relating to emission standards for UMTS networks were published in 2004, which currently apply. Final recommendations are expected to be adopted in the course of 2005. Depending on the enforcement recommendations ultimately adopted, it is possible that additional capital expenditures will be required in connection with the build-out of Swisscom’s UMTS network.

A recent study showed 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 recent 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.

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Even if no stricter regulatory measures were 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 objections may also make it more difficult to find attractive 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 beginning in 2001 led to a decline in corporate spending which was particularly pronounced in the IT area. Despite modest improvement of the economy since the beginning of 2004, demand for integrated communication solutions and IT services has remained sluggish and may potentially 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 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 2003 and 2004, Swisscom 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. If Swisscom is not able to realize anticipated efficiencies, 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.

Swisscom may consider entering into 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 2004, Swisscom was in advanced discussions with the Austrian privatization authority (ÖIAG) regarding a possible merger with Telekom Austria, but talks were called off by both parties. More recently, Swisscom submitted a bid to acquire a 51% interest in Cesky Telecom a.s., which the Czech government had put up for auction. However, on April 6, 2005, the Czech government approved the sale to another bidder. Swisscom expects to continue to consider international investment opportunities in the future.

Entry into any such 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, particularly if it involves a local incumbent, 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 could entail higher than anticipated costs, that the target could have additional liabilities for which Swisscom may not be entitled to indemnification or that write downs may be required, including of any goodwill arising out of the transaction. Moreover, should Swisscom enter into a large acquisition, Swisscom would likely incur substantial debt, which could negatively affect earnings as well as potentially increase its cost of capital and reduce its future flexibility.

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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) and UMTS. While Swisscom seeks to diversify its suppliers, it currently has only one supplier of ADSL, who will also be the supplier of VDSL, and one supplier of UMTS equipment. Swisscom also depends on the timely supply of mobile handsets which can be used in the UMTS network.

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. 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 which have been developed over a long period of time may hamper 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 may not be able to implement necessary restructuring measures, and its relations with the trade unions could deteriorate

While Swisscom was able to reach an agreement with the trade unions on the extension of the collective bargaining agreement in 2003, new negotiations are scheduled for 2005. In the course of these negotiations, Swisscom expects to face considerable disagreement with the trade unions, particularly with regard to the applicability of a new collective bargaining agreement to all Swisscom group companies and Swisscom’s aim to introduce more flexible labor and termination conditions. If Swisscom is not able to achieve its aims, this could restrict its operating subsidiaries in their ability to adapt to changing market conditions, which could negatively affect their profitability. In addition, the negotiations as well as further staff reductions could damage industrial relations or even lead to work disruptions, which in turn could also negatively affect Swisscom’s profitability and competitiveness.

A decline in the capital markets or the revision of previously made assumptions may result in increased pension expense and could affect Swisscom’s profit

Swisscom contributes to comPlan, a defined benefit plan, which provides retirement benefits for the majority of its employees in Switzerland. comPlan covers the risks of old age, death and disability in accordance with Swiss pension legislation.

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The determination of the liability and expense for pension benefits in Swisscom’s consolidated financial statements is based on the guidelines of the International Financial Reporting Standards (IFRS) and is dependent on the selection of assumptions which attempt to anticipate future events, including the discount rate, expected long-term rate of return on plan assets and rates of increase in future compensation levels. These assumptions are regularly reviewed and revised when appropriate, and changes in one or more of them could affect the amount of Swisscom’s recorded expenses for these benefits. For 2005, Swisscom expects to make contributions to the comPlan in the amount of CHF 196 million. However, Swisscom plans to review the benefits and contributions under the comPlan and expects to amend the plan in the course of 2005. These amendments may require Swisscom to pay a higher amount than currently planned, which could have a significant negative effect on Swisscom’s cashflows from operating activities in 2005.

Under IFRS, the total underfunding as of December 31, 2004 was CHF 2,050 million, of which CHF 1,118 million is recognized in the balance sheet. The difference, consisting of an unrecognized actuarial loss and unrecognized prior service cost totalling CHF 932 million, is subject to future recognition as described in Note 2.15 to the consolidated financial statements and will result in an additional expense of CHF 10 million in 2005, after an additional expense of CHF 9 million in 2004. For more information on Swisscom’s pension plan, see Note 9 to the consolidated financial statements. If actual experience differs from expectations, Swisscom’s results of operations and cash outflows in future periods could be affected. A deterioration of the capital markets would affect Swisscom’s future pension expense and could lead Swisscom to increase its contributions, which would result in higher cash outflows.

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 25-35%. 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.

In connection with the sale of debitel, Swisscom may not be able to recover the full amount of the vendor loan notes and may be required to make additional payments under the representations and warranties made and indemnities provided in the purchase agreement

On June 8, 2004, Swisscom sold its 95% stake in debitel AG in a leveraged buy out by funds advised by the private equity firm Permira (Permira Funds), for a purchase price of EUR 640 million (equity value). The purchase price was partially financed by Swisscom through the conversion of existing intercompany loans in the amount of EUR 210 million into two vendor loan notes of EUR 105 million each, assumed by debitel Konzernfinanzierungs GmbH, an indirect 100% owned subsidiary of the entity acquired by Permira Funds in the transaction. Swisscom received a first repayment of EUR 20 million on this obligation in early 2005.

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A portion of the purchase price was also financed on a senior secured basis by a consortium of banks. Repayment of Swisscom’s vendor loan notes, which have a term of 7 and 8 years, respectively, is subordinated to the full repayment of the senior facilities provided by these banks. Upon repayment of the senior facilities, the vendor loan notes will be secured by assets of debitel Konzernfinanzierungs GmbH, which consist primarily of the debitel shares acquired in the transaction. As a result, Swisscom faces the risk that it may not recover the full amount of the vendor loan notes in the event debitel Konzernfinanzierungs GmbH were to default on its obligations and the assets securing the vendor loans notes were insufficient to satisfy both the senior banks and Swisscom. Should this be the case, Swisscom would need to write off these loans.

As is common in this type of transaction, Swisscom has agreed to indemnify the purchaser for any breach of the representations and warranties made by it in the purchase agreement and for certain liabilities, including tax liabilities, of debitel. In addition, Swisscom has agreed to bear the risk of, and to indemnify the purchaser for, any losses which may arise in the future at one of debitel’s international subsidiaries. However, the purchase agreement provides Swisscom with the right to assume control of this subsidiary under certain conditions in order to minimize its liability under this indemnity.

Based on current estimates, the maximum amount that could become due relating to the representations and warranties (excluding the indemnification given for one of debitel’s international subsidiaries) was approximately EUR 110 million at December 31, 2004. No accrual has been recorded for this potential indemnification as management believes that the criteria for the recognition of a liability had not been met.

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, Swisscom could also 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.

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

The Swiss Confederation currently holds a 61.4% stake in Swisscom. The stake will increase again to 66.1% after effectiveness of the planned share capital reduction following the share buyback completed in December 2004. While any reduction of the Confederation’s holding below a majority would require a change in law, future sales by the Swiss Confederation down to the required majority may occur. In 2003 and 2004, the Swiss government issued bonds exchangeable into Swisscom shares in the aggregate amount of CHF 3.9 billion. The exchangeable bonds that are currently outstanding have remaining maturities ranging from one year to two and a half years. Full exercise of these bonds would cause the Confederation’s stake in Swisscom to decline to 57.2% (assuming effectiveness of the share capital reduction). The Federal Council has also reaffirmed its intention to further reduce its stake to the legal minimum. The sale or potential sale 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 significantly.

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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.

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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, 2004, Swisscom provided 3.9 million fixed-line telephone access lines in Switzerland, of which 0.9 million were digital or ISDN lines and 0.8 million were being used for ADSL access. In 2004, Swisscom billed an aggregate of 17.1 billion minutes of national transit and interconnection traffic and terminated over 1.5 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 3.9 million subscribers to its mobile service as of December 31, 2004. Swisscom also offers a full range of state-of-the-art data services, from leased lines to integrated solutions for its corporate customers. In 2004, Swisscom’s net revenue amounted to CHF 10.1 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 next-generation 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 current ADSL offering provides download speeds of up to 2.4 Mbit/s and is available to more than 98% of the population of Switzerland. 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. Swisscom has also built out a separate “third generation” UMTS network. UMTS is 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 almost 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 to enhance capacity and upgrade functionality. See “– Networks and Technology”.

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

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.

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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 October 2004, the First Chamber of the Swiss Parliament passed a bill with significant amendments to the Telecommunications Act, which is currently under consideration by the Second Chamber of the Swiss Parliament. These amendments would, if adopted into law, require Swisscom to offer unbundled access to its local loop, as well as access to leased lines, on a cost-oriented basis. 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. In June 2002, ComCom renewed Swisscom’s Universal Service license for another five-year term. Under the terms of this license, ISDN access is part of Universal Service and is subject to a price ceiling.

On December 22, 2004, Swisscom completed a share repurchase program in which it repurchased shares in an aggregate amount of CHF 2 billion representing 7.13% of its share capital. The Annual General Meeting to be held on April 26, 2005 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 Telecommunications Enterprise Act of 1997 (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. Any reduction of the Confederation’s holding below a majority would require a change in law. In 2003 and 2004, the Swiss government issued several bonds exchangeable into Swisscom shares in the aggregate amount of CHF 3.9 billion. The exchangeable bonds that are currently outstanding have remaining maturities ranging from one year to two and a half years. Full exercise of these bonds would cause the Confederation’s stake in Swisscom to decline to 57.2% (assuming effectiveness of the share capital reduction described above).

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 40 to the consolidated financial statements.

Strategy

Swisscom’s primary strategy is to remain a leading and innovative multi-service provider of telecommunication services in Switzerland. In addition to focusing on its home market, Swisscom actively considers investments abroad.

In its home market, Swisscom believes that the mobile business continues to have growth potential, while the fixed-line business is likely, in spite of increasing broadband penetration, to erode over time. Accordingly, Swisscom seeks to optimize its free cash flow from existing businesses, while exploring any opportunities to develop new businesses in Switzerland.

In particular, Swisscom’s strategy in its home market is:

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While being primarily focused on its home market, Swisscom continues to actively consider investment opportunities outside of Switzerland with a focus on Europe. Swisscom has defined strict criteria which are applied to any larger investment opportunity: sustainability of the business, strategic fit, quality of management, reasonability of price and overall impact on Swisscom’s business and risk profile. In 2004, Swisscom was in advanced discussions with the Austrian privatization authority (ÖIAG) regarding a possible merger with Telekom Austria. While talks were called off by both parties, Swisscom continues to believe that Telekom Austria would be a promising investment. More recently, Swisscom submitted a bid to acquire a 51% interest in Cesky Telecom a.s., which the Czech government had put up for auction. However, on April 6, 2005, the Czech government approved the sale to another bidder. In addition to considering such larger investments, Swisscom may also make venture capital type investments in companies at various stages of development in promising sectors of the telecommunications industry. Should no suitable investment opportunity 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”.

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Overview of Revenue by Business Segment

In 2004, Swisscom operated in the following business segments:

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

In 2004, the following effects had an impact on the structure of Swisscom’s reporting segments. The previous years’ figures have been restated to reflect these changes:

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Fixnet

Through Fixnet, Swisscom is the leading provider of fixed network telecommunication services in Switzerland, which it provides to residential, business and wholesale customers. In 2004, Fixnet generated total revenue of CHF 5.7 billion, including sales of CHF 1.2 billion to other Swisscom business segments. With external revenues of CHF 4.6 billion, Fixnet accounted for 45% of Swisscom’s consolidated net revenue in 2004.

Services provided by Fixnet include:

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

Effective January 2004, Enterprise Solutions increased its focus on large business customers with complex, solution-oriented telecommunication needs, while Fixnet continues to deliver standardized telecommunication products for the residential and small business customer markets. As a result, the revenues and costs generated by 46,000 customers with primarily standard traffic needs were transferred from Enterprise Solutions to Fixnet. Prior years have been restated accordingly.

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 continues to increase and will remain a future source of growth. Swisscom is actively marketing broadband connectivity in the retail market under the brand name Bluewin. 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 plans to introduce the

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new multimedia services on a commercial basis during the second half of 2005. 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 2004, external revenue from access services amounted to CHF 1,876 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 call forwarding, call waiting, engaged line callback, three-party conference calling and caller identification suppression services. In 2004, PSTN services comprised 48% 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.

ISDN growth has slowed in recent years and stagnated in 2004 because of high ISDN penetration and the increasing use of ADSL services, which are also offered over PSTN line. In addition, the total number of access lines declined primarily due to the market entry of Cablecom, Switzerland’s major cable network operator, which offers telephony and Internet services 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 available supplementary services are included in the monthly subscription.

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The following table sets forth information relating to Swisscom’s charges in effect in 2004 for the provision of access services.

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 October 2004, the First Chamber of the Swiss Parliament passed a bill with significant amendments to the Telecommunications Act, which is currently under consideration by the Second Chamber of the Swiss Parliament. These amendments would, if adopted into law, require Swisscom to offer unbundled access to its local loop on a cost-oriented basis. Swisscom does not expect the amendments to the Telecommunications Act to become effective before mid-2006. See “ – Regulation – Unbundling of the Local Loop and Other Access Regulation” and “Item 8: Financial Information – Legal Proceedings”.

Internet Access

Under the brand name Bluewin, 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 recent years, growth in the access area has come from ADSL technology, which Swisscom believes will also be the source for future growth. ADSL offers significantly higher transmission speeds compared to ISDN. Because ADSL may be offered over a traditional PSTN line, ADSL growth may lead to a decline in the number of ISDN lines.

Through Bluewin, 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, depending on the size of bandwidth.

Bluewin’s strategy is to focus on its core competencies within Switzerland. In particular, Bluewin seeks to increase the number of subscribers to ADSL access services by offering new ADSL services and increasing significantly the capacity of its ADSL lines. Following the so-called triple play strategy of combining its core activities with

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multimedia services, Bluewin plans to offer television and video on demand during the second half of 2005. In order to evaluate the technological feasibility and market appeal of offering television over its broadband infrastructure, Swisscom carried out a 3-month field trial ending February 2005 of providing television to 600 of its broadband subscribers. In preparing the market for Swisscom’s entry into the TV business, in March 2005 Swisscom launched a first product offering related to TV services which can be used over the cable network.

In March 2002, two of Swisscom’s competitors filed a petition with the Competition Commission, alleging that Swisscom is illegally subsidizing Bluewin and abusing its dominant position in both the retail and wholesale market for ADSL services. On May 6, 2002, the Competition Commission issued a provisional order requesting Swisscom to offer its competitors the same discounts as it gives to Bluewin and launched an investigation. On December 15, 2003, the Competition Commission issued a decision, in which it determined abusive behavior by Swisscom of its market-dominant position and enjoined Swisscom from giving any discounts exclusively to Bluewin. In February 2004, Swisscom lodged an appeal against this decision. On January 13, 2005, Swisscom filed a petition to reconsider the provisional order on the grounds that market conditions have changed. See “Item 8: Financial Information – Legal Proceedings – Other Regulatory Proceedings".

Retail Traffic

Swisscom provides comprehensive national and international calling services to residential and business customers. Fixnet considers small and medium sized enterprises, depending on the complexity of their telecommunications needs, to be residential customers. External revenue attributable to national traffic and outgoing international traffic originating on the fixed-line network generated by Fixnet customers amounted to CHF 1,240 million in 2004.

Retail traffic has declined in recent years, mainly due to a significant decline in local area traffic and Internet traffic. Local area traffic declined in 2002 and 2003 mainly as a result of the numbering plan introduced in 2002, which allows subscribers who have pre-selected an alternative carrier to have their local calls automatically routed over that carrier’s network. 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. The migration to ADSL lines is also the reason for the decline in Internet 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 call 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 2004, 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 generated by residential customers.

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In 2004, 48% of the outgoing international traffic generated by residential customers (excluding outgoing mobile traffic) was directed toward three countries: Germany, France and Italy.

Tariffs. Swisscom’s national traffic charges are calculated on the basis of call duration, time of day and day of the week, and whether the call is fixed-to-fixed or fixed-to-mobile. Recently, Swisscom launched new pricing models, under which customers can opt to pay a monthly subscription fee, allowing them to make both national as well as international calls at reduced rates or even for free at certain off-peak times.

Local area and national long distance calls in Switzerland are billed at the same rate as follows:

The following table sets forth information relating to the tariffs billed for fixed-to-mobile calls:

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 2004 for calls to the countries generating the most outgoing international traffic:

Swisscom offers a variety of promotions, such as discounts for evening and weekend calls and temporary discounts, 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 service throughout Switzerland until December 31, 2007. Swisscom’s current tariffs are well below the applicable ceiling. See “ – Regulation – Price Ceilings for Universal Service”.

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Wholesale Traffic

Swisscom provides various national and international 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”. Swisscom’s international wholesale business consists of terminating incoming international traffic and international termination traffic.

Since February 2003, direct mobile interconnection has been available, and Swisscom and other mobile network operators are now able to terminate their traffic directly on each other’s networks. As a result, traffic between the networks of contracting operators is now routed directly and is no longer terminated via the national and international network of Fixnet Wholesale. In 2004, Swisscom entered into an agreement with a further mobile operator. As a result, the revenues and costs associated with this counterparty, which in the past had been recorded as external revenues and costs in the Fixnet segment, were recorded as external revenues and costs in the Mobile segment in 2004. Prior years have been restated accordingly. Since the introduction of direct mobile interconnection, Swisscom’s competitors have been able to offer its customers direct mobile interconnection which resulted in a decrease in traffic over Swisscom’s network.

The international wholesale business is characterized by low margins due to overcapacity and strong competition. In February 2005, Swisscom and Belgacom, the leading telecommunications company in Belgium, signed an agreement to combine their international wholesale activities. Effective July 1, 2005, Swisscom will contribute its international wholesale business and international network in return for a 28% interest in the new business. Accordingly, beginning July 2005, Fixnet’s wholesale business will only consist of its current wholesale national business.

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 complements this standard offer with a portfolio of extended interconnection services and wholesale products. In 2004, external revenue from national wholesale services amounted to CHF 246 million.

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

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’ points of presence, originating, terminating and transit services, access to Swisscom’s emergency, national and international directory enquiry services as well as access to 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 long run incremental costs (“LRIC”) of an efficient operator and may not include historical costs. See “ – Regulation – Interconnection by a Market Dominant Provider”.

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

In 2004, Swisscom reduced its standard interconnection rates by up to 13%. For 2005, Swisscom announced further reductions of interconnection rates of up to 7%. 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 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. For further information on legal proceedings relating to interconnection, see “Item 8: Financial Information – Legal Proceedings”.

Incoming International Traffic

Swisscom receives payments from other carriers for its role in terminating inbound international traffic under a specific accounting rate system. With growing competition resulting from market liberalization, accounting rate levels have fallen significantly in liberalized markets. This has had the effect of reducing Swisscom’s revenue from the termination of incoming international traffic. In 2004, external revenue from incoming international traffic amounted to CHF 200 million.

Swisscom has jointly invested in over 60,000 circuits which it shares with about 150 other international operators and has a variety of traffic volume agreements with such operators. Under these agreements, the parties agree upon tailor-made volume deals to mutually secure the incoming traffic streams.

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

In 2004, 65% of incoming international traffic originated from five countries: Germany, United States, France, United Kingdom and Italy.

International Termination Traffic

In the area of international termination traffic, Swisscom offers two services: a standard service, which provides least cost routing to a wide range of destinations, and a more expensive premium service, which provides high quality transit services to substantially all global destinations. As an outgrowth of market liberalization, Swisscom

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also provides termination of outgoing international traffic to other national network operators and service providers. In 2004, external revenue from international termination traffic amounted to CHF 245 million.

Swisscom provides wholesale voice services through its European network (EOSNET), which links key European cities along routes with heavy international traffic. For a description of the European network, see “ – Networks and Technology – Fixed-Line Networks”.

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

International termination traffic increased in 2004 as a result of expanded marketing and sales activities. The substantial volume decrease in 2003 reflects the discontinuation of its local sales offices in Europe and the sale of its international point of presence in the United States in 2002.

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 2004, Swisscom realized external revenue of CHF 158 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 2004, sales of customer equipment generated external revenue of CHF 250 million.

The most important distribution channel for Swisscom’s customer equipment is the 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 70 wholesale customers in Switzerland. Business customers, the primary customer segment for leased lines, are targeted through Enterprise Solutions. See “ – Enterprise Solutions – Networking”. In October 2004, the First Chamber of the Swiss Parliament passed a bill with significant amendments to the Telecommunications Act, which is currently under consideration by the Second Chamber of the Swiss Parliament. These amendments would, if adopted into law, require Swisscom to offer 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 2004, the provision of leased lines generated external revenue of CHF 136 million.

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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. Additionally, Swisscom Directories has primary responsibility for the development and marketing of customized directories solutions for small and medium-sized enterprises and the directories industry. In 2004, Swisscom Directories generated external revenue of CHF 113 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 2004, external revenue from these services amounted to CHF 91 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 2004, price competition intensified due to increased competition from cable network operators, in particular the entry into the fixed-line market of Cablecom, the largest cable network operator in Switzerland. Swisscom expects price competition to intensify in 2005 due to increased competition from cable network operators and Internet service providers.

Access. Swisscom did not face significant competition in the residential access market until recently, 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 und is thereby directly competing with Swisscom’s PSTN and ISDN access services. In October 2004, the First Chamber of the Swiss Parliament passed a bill with significant amendments to the Telecommunications Act, which is currently under consideration by the Second Chamber of the Swiss Parliament. These amendments would, if adopted into law, require Swisscom to offer unbundled access to its local loop on a cost-oriented basis. 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 would 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 of the local loop is likely to lead to increased competition for national and international traffic as customers would for the first time be able to choose among competing full-service providers of fixed-line telephony.

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

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In the market for broadband access, Swisscom faces stiff competition from cable network operators offering cable modem applications. With the rollout of broadband mobile services based on UMTS technology, Swisscom could face competition in the future from providers of broadband mobile services.

In order to compete with other broadband access operators more effectively, Swisscom doubled the capacity of its ADSL services by March 2004. In order to promote ADSL on the wholesale market as well, Swisscom did not charge its wholesale customers a set-up fee for most of 2004. In connection with the tariff reduction introduced in March 2002, two of Swisscom’s competitors filed a petition with the Competition Commission, alleging that Swisscom is illegally subsidizing Bluewin and abusing its dominant position in both the retail and wholesale market for ADSL services. In December 2003, the Competition Commission determined that Swisscom has abused its market dominant position for ADSL services and enjoined Swisscom from giving any discounts exclusively to Bluewin. In February 2004, Swisscom lodged an appeal against this decision. On January 13, 2005, Swisscom filed a petition to reconsider the provisional order on the grounds that market conditions have changed. See “Item 8: Financial Information – Legal Proceedings – Other Regulatory Proceedings”.

National Retail Traffic. Swisscom faces increasing competition in the national retail traffic market mainly due to the market entry of Cablecom. In the local area traffic market, competition increased in particular in 2002 and 2003 as a result of the introduction of the new numbering plan in March 2002. Currently, Swisscom’s principal competitors in the national retail traffic market are TDC Switzerland (Sunrise), Tele2, EconoPhone and Cablecom. In 2005, prices are expected to remain under pressure, mainly due to increased competition from cable 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”.

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, 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, which will consider the pricing issue anew. 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 Switzerland (Sunrise), Tele2, EconoPhone and Cablecom, 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 that international rates will come under additional pressure as services based on such technologies begin to proliferate.

Wholesale Traffic. In 2004, Swisscom continued to face increasing competition in the national wholesale market from various network providers such as Colt and TDC Switzerland (Sunrise), currently offering services between major Swiss cities and international outgoing services to resellers. The increasing number of direct interconnection agreements between mobile operators has also led to a decrease in Swisscom’s share of the interconnection market.

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In the area of international voice termination, Swisscom competes with low-cost operators. These operators are equipped with advanced technology that allows easy and quick re-routing of calls to take advantage of least-cost routes shortly after they emerge. These trends have resulted in further price erosion, which could only partially be compensated for by increased traffic.

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 2004. Swisscom is allowed to use the well-known access number 111 until the end of 2006. Swisscom will thereafter have to switch to a new generic service number, which is expected to result in a significant reduction in traffic volumes 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 2004, 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, Sunrise and Colt. In October 2004, the First Chamber of the Swiss Parliament passed a bill with significant amendments to the Telecommunications Act that would, if adopted into law, require Swisscom to offer interconnection of 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 does not face significant competition in the directories market. However, barriers to entry are low, particularly in the online directory market. Swisscom Directories expects to face increased competition from other online directory operators, as well as from traditional direct marketing companies expanding into the directories market.

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Mobile

Overview

Swisscom Mobile is the leading provider of mobile telephony services in Switzerland, with 3.9 million mobile subscribers as of December 31, 2004. In 2004, Swisscom’s mobile activities generated total revenue of CHF 4.4 billion, including sales of CHF 0.7 billion to other Swisscom business segments. With external revenues of CHF 3.7 billion in 2004, Swisscom Mobile accounted for 37% of Swisscom’s consolidated net revenue.

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

Most of Swisscom’s mobile telephony revenue is generated from monthly subscription fees and traffic charges for mobile voice telephony, which accounted for 81% of its external revenues in the mobile segment in 2004.

With the commercial launch of services enabled by high speed GPRS, PWLAN 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 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 September 2004, Swisscom launched a new service enabling seamless data download/synchronization via a PC card integrating all three 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 and other mobile network operators are now able to terminate their traffic directly on each other’s networks rather than through Fixnet, which had been the intermediary for such traffic. In 2004, Swisscom entered into an agreement with a further mobile operator. As a result, the revenues and costs associated with this counterparty, which in the past had been recorded as external revenues and costs in the Fixnet segment, were recorded as external revenues and costs in the Mobile segment in 2004. Prior years have been restated accordingly.

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 service agreement, which set out the terms on which Swisscom Mobile and Vodafone would cooperate in certain areas. In November 2003, the original service agreement 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

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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 similar size as 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 2004, Swisscom generated service revenue from the co-operation with Vodafone in the amount of CHF 80 million and paid an amount of CHF 137 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, the dominant digital standard in Europe and much of the rest of the world.

Swisscom offers its mobile services using both the 900 MHz frequency band and, in urban areas where the 900 MHz band no longer has the capacity to carry peak traffic, the 1800 MHz frequency band.

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. Under the amended terms of the UMTS license, each licensee was required to build out its network to achieve 50% population coverage by the end of 2004. Swisscom reached this milestone in May 2003.

Swisscom continues to build out its broadband networks, such as UMTS. In September 2004, Swisscom launched its commercial UMTS services. 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 recently activated Enhanced Data Rates for GSM Evolution (EDGE) technology in all active GSM locations. Other projects include building additional base stations in tunnels and along train routes and extending the reach of the network’s dual-band capability. For further information on Swisscom’s mobile network, see “ – Networks and Technology – Mobile Telecommunications Network”.

In December 2002, Swisscom introduced a public wireless LAN (PWLAN) service. Swisscom Mobile is the leading PWLAN network operator in Switzerland, currently operating approximately 800 hotspots in Switzerland. In

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addition, Swisscom Mobile offers access to over 2,700 additional hotspots throughout Europe through roaming agreements. For more information on these networks and Swisscom’s PWLAN services, see “– Networks and Technology – Mobile Telecommunications Network” and “– Other – Swisscom Eurospot”.

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 recommendations which provide guidance for enforcement authorities on the appropriate method for measuring electromagnetic emissions from base stations and masts in the GSM network. In order to comply with the applicable emission standards and maintain the current level of service, Swisscom has been and will be required to put up additional antennae. However, Swisscom does not expect the associated costs in 2005 to be materially different from those incurred in previous years. While the BUWAL recommendations establish uniform standards for measuring emissions in GSM networks, they do not address emission standards for UMTS networks. Draft recommendations relating to emission standards for UMTS networks were published in 2004 and are currently applied. Final recommendations are expected to be adopted in the course of 2005. Depending on the enforcement recommendations ultimately adopted, it is possible that additional capital expenditures will be required in connection with the build out of Swisscom’s UMTS network. See “– Regulation – Mobile Telecommunications”.

Base Fees

Swisscom’s base fees are generated from the monthly subscription fees paid by Swisscom’s mobile subscribers. The following table shows the total number of subscribers to Swisscom’s mobile services at the dates indicated.

Effective June 2004, all prepaid customers in Switzerland who activated their SIM card after November 1, 2002, were required by law to register with a mobile operator in order to avoid being deactivated. As a result, approximately 340,000 customers registered with Swisscom, while approximately 124,000 customers previously accounted for as prepaid subscribers by Swisscom were deactivated effective December 31, 2004.

Since 1995, the number of mobile customers in the Swiss marketplace has grown annually, with overall market penetration reaching almost 87% at the end of 2004. Swisscom expects growth in the mobile market to continue, although at a slower rate in light of high market penetration. With the growing market penetration, Swisscom focuses increasingly 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.

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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 386 mobile operators worldwide covering 173 countries and earns revenue from those operators when their subscribers make mobile phone calls in Switzerland. Swisscom also has distribution agreements with Tele2, a fixed-line and mobile service provider, which sells Swisscom Prepaid Cards under its own branding, marketing and pricing.

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

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 nine principal mobile products: Natel pro, Natel international, Natel swiss, Natel budget, Natel easy, Natel easy youth, Natel data basic, Natel corporate and Natel Corporate Mobile Network (CMN), the last two of which target the business segment.

All products provide Swisscom customers with the full range of available mobile services, allowing them to make and receive calls within Switzerland or internationally, using the same telephone number over GSM systems in countries where Swisscom has roaming agreements. The roaming features also apply to Natel easy, a prepaid service, which does not involve a subscription contract or a monthly basic charge. From the range of postpaid products, customers can choose the product which best suits their usage. Natel pro is aimed at customers with high usage throughout the day, whereas Natel budget is an economical product for low-usage subscribers. Natel CMN allows corporate customers to establish a virtual private network using special tariff models and short access numbers. Natel corporate is a postpaid service with monthly fees graduated according to the number of subscribers within a company. Natal data basic is a special tariff model for the use of PC cards enabling data traffic only.

The following table sets forth, at the dates indicated, subscriber numbers relating to each of Swisscom’s principal mobile products.

Tariffs. Swisscom offers a variety of tariff and service packages targeting different customer segments. While headline tariffs have remained stable since a significant tariff reduction for its principal products at the end of 1999, Swisscom has introduced lower-cost products for residential and business customers (Natel budget and Natel corporate), which have effectively resulted in an overall tariff reduction. Because Swisscom’s mobile customers can

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switch from one tariff to another, which Swisscom believes helps to prevent customer churn, the introduction of budget services has led to a decline in the number of subscribers to Swisscom’s higher priced services. Swisscom expects that pressure on mobile tariffs, especially in the highly competitive business segment, will remain fierce in the future. In addition, regulation of mobile access could result in Swisscom being required to sell to its competitors mobile telephony minutes for resale on a cost-oriented basis, which would put additional pressure on tariffs.

The following table sets forth information relating to Swisscom’s tariffs for its principal Natel products, as in effect at December 31, 2004. All tariffs include VAT.

For calls placed and received outside Switzerland, all Natel customers were given the option in 2004 to switch from the surcharge pricing model, under which a roaming surcharge is charged in addition to the tariffs imposed by the local mobile network operator, to a fixed tariff model, under which tariffs vary depending on the user’s geographic “zone”. This model provides the customer higher cost transparency and better cost control.

Connectivity Data and Value-Added Services

Connectivity data and value-added services comprise mainly short messaging services (SMS) and multimedia messaging services (MMS).

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. Swisscom MMS allows customers to compose, send and receive messages using all forms of media including text, pictures and audio. Swisscom MMS will enable customer to customer messaging from MMS mobile devices and personal computers. Swisscom also offers MMS as a wholesale service to third party content providers.

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

The new 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. In 2004, additional features were introduced such as video telephony and live television. These mobile entertainment and mobile data services are continually upgraded either globally through Vodafone or locally through Swisscom.

Swisscom aims to be active throughout the mobile data value chain. Swisscom is therefore opening standardized interfaces to enable platforms which can be 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 can be enriched with information based on the location of the subscriber, and 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 AG. SICAP AG, 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 via SMS.

Competition

In its mobile business, Swisscom faces competition primarily from the two other original mobile licensees in Switzerland, Orange and TDC Switzerland (Sunrise). In December 2003, ComCom awarded GSM licenses to two other competitors, Tele2 and In&Phone, which will further intensify competition in the mobile business. Tele2 is expected to launch 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.

Swisscom expects competition, especially for business customers, to remain strong in 2005 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, which Tele2 has announced in December 2004.

In the future, Swisscom expects to face competition in the provision of GPRS and UMTS services from 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.

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Enterprise Solutions

Overview

Enterprise Solutions is the leading provider of fixed network telecommunication services to business customers in Switzerland. In 2004, Enterprise Solutions generated total revenue of CHF 1.1 billion, including sales of CHF 0.1 billion to other Swisscom business segments. With external revenues of CHF 1 billion in 2004, Enterprise Solutions accounted for 10% of Swisscom’s consolidated net revenue in 2004.

Services provided by Enterprise Solutions include:

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

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

Depending on a customer’s size and the complexity of its communication needs, Enterprise Solutions addresses its business customers through a key-account management team, direct and indirect sales channels.

Effective January 2004, Enterprise Solutions increased its focus on large business customers with complex, solution-oriented telecommunication needs, while Fixnet continues to deliver standardized telecommunication products for the residential and small business customer markets. As a result, the revenues and costs generated by 46,000 customers with primarily standard traffic needs were transferred from Enterprise Solutions to Fixnet. Prior years have been restated accordingly.

Due to continued slowdown and overcapacity in the telecommunications market, Enterprise Solutions has experienced a general decrease in market demand in all customer segments. Large business customers have postponed planned investments in telecommunications solutions during the last couple of years. Enterprise Solutions continues to focus resources on meeting customers’ needs for complex telecommunication services to ensure its long-term growth and, where necessary, will complement its portfolio through partnerships.

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National and International Traffic

Enterprise 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 Enterprise Solutions’ national and international fixed voice telephony traffic generated by business customers.

For information on tariffs for national and international traffic, see “– Fixnet – Retail Traffic – Tariffs”. Enterprise Solutions offers a variety of volume-based discounts to its largest business customers.

Networking

In the area of networking, Enterprise Solutions offers national and international leased lines and Intranet services. As an alternative to leased lines, Enterprise Solutions provides solutions to complex data communication demands by offering national and, through Infonet Switzerland, international private networks.

National Leased Line Services

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

Enterprise Solutions also offers managed leased line services to its national leased line customers. Through active fault management and automatic rerouting in case of network failure, Enterprise Solutions’ managed leased line services guarantee up to 99.99% end-to-end availability.

In addition, Enterprise Solutions offers its city services product and color line metro service. The city services product is an optimal solution for business customers with high-volume data traffic between their office locations within a given city or between cities. The benefits of city services include high bandwidth and around the clock end-to-end management. Enterprise Solutions’ color line metro service provides digital transmission based on dense wavelength division multiplex (DWDM) technology. DWDM is an optical technology used to increase bandwidth over existing fiber optic backbones, which permits transparent data transfer for all network protocols and application data types in ring and end-to-end connections. This service is primarily aimed at customers who need to transfer large amounts of data in gigabits between two or more locations in or around business centers.

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The following table sets forth information relating to Enterprise Solutions’ national leased lines.

The number of national leased lines has declined over the recent years, as customers increasingly migrate to high capacity services based on IP due to more customer applications requiring higher bandwidths.

Enterprise Solutions’ leased line subscribers pay an initial installation charge based on the type and capacity of the line and, thereafter, pay a monthly fee, which is also based on the type and capacity of the leased line and, in addition, varies with the length of the line. In recent years, leased line tariffs have declined due to regulatory pressures and increased competition from other infrastructure-based operators, with charges for the high bandwidth offerings declining most dramatically in price.

Under the Telecommunications Act, a licensed telecommunications service provider may be required to provide leased lines in accordance with international standards at cost-related prices in a particular region if it is determined that demand for such services is not being met.

International Leased Line Services

Enterprise Solutions offers international leased lines to its business customers with cross-border requirements. Through its own European network or in cooperation with other international carriers, Enterprise Solutions offers its European customers the convenience of single-end ordering and billing for half- and full-circuits. For a description of Swisscom’s European network, see “– Networks and Technology – Fixed-Line Networks”.

The following table sets forth information relating to Enterprise Solutions’ international leased lines.

Through its partnerships, Swisscom provides end-to-end managed leased line services for international corporate networks in a number of European countries. However, in recent years, the number of international leased lines has been falling mainly due to increased competition particularly from global players, as Enterprise Solutions has only a limited reach in the international market for fully managed circuits. Swisscom also offers such services on a wholesale basis via its EOSNET network.

Intranet Services

Enterprise Solutions’ Intranet services consist primarily of router management services. Since mid-2000, this service has been deployed on a multiservice platform based on multiprotocol label switching (MPLS) technology, which gives network operators high flexibility to divert and route traffic around link failures and congestions. As of December 31, 2004, Enterprise Solutions managed approximately 22,000 routers, mainly on behalf of banking and insurance clients, as well as large retailers. Other services within the Intranet services portfolio include remote access services, which enable access to a company’s Intranet through all commercially available access technologies, and encryption services for customers with strict security requirements.

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National Private Networks

Enterprise Solutions offers private networks for data transmission based on a variety of technological platforms. The services comprise frame relay and asynchronous transfer mode (ATM) services.

Enterprise Solutions’ frame relay service is a fully-managed networking solution which is a cost-effective alternative to leased lines. Frame relay refers to a data transmission technology that is used for middle to high bandwidth networking. It is ideal for LAN-to-LAN applications, particularly for business customers with highly variable data traffic. Enterprise Solutions offers frame relay at a variety of access rates, ranging from 64 kbit/s to 34 Mbit/s.

Enterprise Solutions’ ATM services permit flexible and tailored broadband data transmission of up to 155 Mbit/s. Applications include LAN speed interconnections, multi-computer network links, real-time video, electronic publishing, and other multimedia applications. Enterprise Solutions also offers ATM services featuring variable bit rate transmission.

In the past couple of years, the increased substitution of Internet Protocol (IP) services for frame relay and ATM services among large business customers has resulted in decreased sales of frame relay and ATM services.

International Private Networks

Swisscom holds a 90% share of Infonet Switzerland AG. Infonet Switzerland’s main areas of focus are internationally managed Intranet services and remote access services over public networks for smaller subsidiaries and mobile users. In addition, Infonet markets extranet services to its customers, both on a closed user-group basis and through public network access, including the Internet. After the sale of its stake in Infonet Services Corporation (“Infonet”), the prior minority shareholder of Infonet Switzerland, to British Telecommunications plc (“BT”), Swisscom remains the majority shareholder in Infonet Switzerland, with the remaining 10% stake now held by BT. Swisscom is currently not aware of any significant effects this change in ownership may have on its business with Infonet Switzerland. For more information on the sale of Infonet, see “– Divestments/Discontinued Operations”.

Inhouse and Processes

Inhouse and processes services comprise the provision of Business Numbers and system integration services, which include various local area network services and a customer relationship management service.

Business Numbers

Enterprise Solutions’ Business Numbers consist primarily of toll-free, cost-shared and premium rate numbers for both national and international use, which Swisscom’s business customers use to provide their customers with access to information services.