SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

Swisscom AG

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, 2003: 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 heading “Item 4: Information on the Company — debitel” and “Item 4: Information on the Company — Participations” 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:

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, 1999, 2000, 2001, 2002 and 2003 and for each of the years in the five-year period ended December 31, 2003, have been extracted or derived from, and are qualified by reference to, the Financial Statements of Swisscom which have been audited by PricewaterhouseCoopers AG, independent auditors. The Financial Statements were prepared in accordance with IFRS, which differs 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.

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Notes to Selected Consolidated Financial and Statistical Data

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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 at April 30, 2004 was CHF 1.2984.

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

Swisscom may not be able to maintain its current level of profitability for traditional telecommunications services provided in Switzerland

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 full competition. The Telecommunications Act contains numerous provisions designed to facilitate competition, including provisions relating to interconnection, carrier pre-selection and number portability. These provisions primarily affect the traditional telecommunications services Swisscom offers, such as fixed-line voice and mobile telephony and data services. In these core business areas, which continue to account for the majority of Swisscom’s revenues, margins have come under pressure and profitability has declined. Moreover, recent amendments to the Telecommunications Ordinance and proposed amendments to the Telecommunication Act are likely to further increase competition in these areas and put additional pressure on margins.

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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 April 29, 2004, Swisscom entered into an agreement to sell its 95% stake in debitel AG, including 2% it acquired from ElectronicPartner in connection with this transaction, 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 will be 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, to be assumed by debitel Konzernfinanzierungs GmbH, an indirect 100% owned subsidiary of the entity to be acquired by Permira Funds in the transaction. Consideration from the sale including the vendor loan notes will be recorded at fair value at closing of the transaction. Swisscom expects the fair value of the vendor loan notes to be lower than their face value. After deduction of the deferred portion of the purchase price, Swisscom expects to receive EUR 430 million in cash at closing. Pending the closing of the transaction, Swisscom’s debitel shares will be held in a blocked account to prevent Swisscom from selling these shares otherwise than to the Permira Funds pursuant to the purchase agreement.

A portion of the purchase price is also being 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.

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 under certain conditions with the right to take control over this subsidiary in order to minimize its liability under this indemnity.

If the level of demand for ADSL services is lower than expected or if Swisscom were forced to significantly reduce its access tariffs for ADSL services due to strong competition, the revenues and profitability of its Fixnet business would be adversely affected

Swisscom believes that the provision of broadband access based on ADSL technology will be a future source of growth. However, Swisscom faces strong competition in the market for broadband access, particularly from cable network operators, including Cablecom. If Cablecom and other cable operators are successful in promoting broadband access over their networks in Switzerland, Swisscom may not be able to grow its broadband business as quickly as it currently anticipates and its fixed-line business would suffer. In addition, future wireless services using broadband technologies may, when they become commercially available, partially substitute ADSL services.

In order to compete with other broadband access operators more effectively, Swisscom has had to reduce its ADSL access tariffs significantly. Further price reductions due to the increasing competition from Cablecom or other broadband access providers would adversly affect the revenues and profitability of Swisscom’s fixed-line business.

The level of 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 upgrade its existing network

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 UMTS. 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.

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Swisscom has begun to build out its UMTS network and to develop related products and services and expects to incur substantial capital expenditures in connection with this process. However, the development of UMTS technology is taking longer than anticipated and deficiencies continue to exist both with respect to handsets and network components, which may further delay the introduction of commercial UMTS services. For instance, network operators are currently experiencing difficulty in “handing over” calls between the UMTS network and the GSM network due to technical problems which have to be resolved before commercial UMTS services can be introduced on a wide scale. Once commercial services based on UMTS technology are introduced, there is also a risk that they will not 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, the breadth and quality of available content and the geographical availability of UMTS. Furthermore, the level of demand for UMTS services could be lower than expected as a result of increased use of alternative mobile broadband technologies, such as public wireless LAN. If the introduction of UMTS services is further delayed or UMTS fails to achieve the expected advantages over existing technologies, Swisscom’s mobile business will suffer and Swisscom may be unable to recoup its investment in UMTS technology.

The level of demand for integrated communication solutions and IT services, which Swisscom has identified as a source of future growth, may not increase as quickly as anticipated

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 lies in the provision of enhanced business solutions. Accordingly, it has invested in upgrading its data networks, enabling the provision of integrated data and voice services with greater flexibility, scalability and performance. However, demand for such integrated communications solutions may not develop as quickly as Swisscom had anticipated. The slowdown of the global economy has led to a decline in corporate spending which has been particularly pronounced in the IT area. While Swisscom expects corporate spending in this area to pick up as the economy improves, the timing of any such improvement in the level of demand cannot be predicted with assurance. 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 the market.

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 and switching, routing and data collection systems and 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 support next generation technologies, such as ADSL and UMTS. While Swisscom seeks to diversify its suppliers, it currently has only one supplier of ADSL and one supplier of UMTS equipment. In the case of UMTS, Swisscom expects that there will be intense demand for UMTS equipment as UMTS licensees compete to build out their UMTS networks. Because Swisscom is relatively small in comparison with other UMTS licensees in Europe, it may be more strongly affected in case there are supply shortages or delays. Swisscom would be adversely affected if its UMTS supplier were to delay shipment of network components as this could enable its competitors to rollout services before Swisscom is able to do so. Swisscom also depends on the timely supply of mobile handsets which can be used in the UMTS network.

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

Modern telecommunication networks are vulnerable to damage or interruption caused by system failures, hardware or software failures, computer viruses or by external events such as storms, floods, avalanches, fires, power loss or intentional wrongdoing. In July 2001, Swisscom’s mobile network was disrupted for several hours due to a string of contingencies and a software failure, and in August 2001, a part of Swisscom’s fixed-line network was disrupted due to a hardware failure. In response to these events, Swisscom initiated a series of internal and external audits to carefully analyze its networks in order to reduce the probability of network failures in the future as well as to limit the damage in case a network failure does occur. While there were no major network failures in 2003, the risk of

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network failures can never be entirely eliminated and should such failures occur in the future, this may harm Swisscom’s reputation and could result in customer dissatisfaction and reduced traffic and revenues.

Actual or perceived health risks or other problems relating to mobile devices or transmission masts could lead to 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. For example, a recent study showed that the impact of UMTS radiation on humans is higher than previously assumed. Actual or perceived health risks of mobile handsets or base stations and related publicity, regulation or litigation could have a material adversely affect on Swisscom’s mobile communications business and cause its customer base and average usage per customer to decline. 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 infrastructure, including primarily the mobile and data networks.

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 introduced. As a result, there is a lack of harmonization and flexibility, which may limit Swisscom’s ability to provide flexible and cost-effective services to its customers and harm its competitive position. In addition, further adaptation and extension of its IT systems, in particular the billing, order management and customer relationship management systems, can be complex and time-consuming and, therefore, hamper Swisscom’s business development.

Swisscom may not be able to attract and retain highly skilled and qualified employees

Competition for highly qualified personnel is intense in the telecommunications industry generally, and in Switzerland in particular. This is particularly true with respect to employees with expertise in the areas Swisscom has identified as strategic, such as IP expertise. These difficulties are exacerbated by relatively low levels of unemployment and high wages generally in Switzerland.

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 labour 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 also could negatively affect Swisscom’s profitability and competitiveness.

A deterioration of 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.

The determination of the liability and expense for pension benefits in Swisscom’s consolidated financial statements is based on guidelines established by the International Financial Reporting Standards 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. Under IFRS, the total underfunding at December 31, 2003 was CHF 2,010

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million, of which CHF 1,113 million is recognized in the balance sheet. The unrecognized loss of CHF 897 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 9 million in 2004. In 2003, Swisscom had an additional expense of CHF 25 million, after an unrecognized loss of CHF 1,066 million at December 31, 2002. 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. Audits by the Swiss tax authorities of other Swiss companies in the past have in some cases resulted in substantial additional payments being required of the affected companies. If Swisscom were audited by the Swiss tax authorities and any deficiencies were uncovered, Swisscom may have to make substantial payments for which it has not made any 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 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 market in which it operates. Although Swisscom believes that most of these proceedings would individually not have a material adverse effect on its results of operations and financial condition, in aggregate these proceedings could have such an effect.

Swisscom’s strategy of entering into acquisitions, strategic partnerships and joint ventures entails inherent uncertainty

Swisscom actively considers investment opportunities, which may include significant acquisitions, both in Switzerland and abroad. There can be no assurance, however, that Swisscom will be able to identify investment opportunities that meet its investment criteria or that it will be able to successfully enter into any transactions in respect of opportunities it does identify. Moreover, acquisitions are inherently risky because of the difficulties in integrating people, operations, technologies and products that may arise. For example, the internal controls over financial reporting of acquired companies may not meet the standards Swisscom applies to its internal control over financial reporting and may need to be adapted accordingly. If Swisscom does enter into an acquisition transaction, these difficulties may result in unanticipated additional costs or failure to achieve anticipated benefits, including synergies, from the transaction. If Swisscom were to find in the future that its expectations concerning future cash flows from an investment are not likely to be met, the carrying value of that investment would be adversely affected. In particular, Swisscom has made small acquisitions in the field of public wireless LAN services, an area which may not grow as fast as Swisscom currently anticipates.

Swisscom will also consider entering into strategic partnerships or joint ventures, particularly at the level of its individual operating subsidiaries, as it did in 2001, when Vodafone acquired a 25% stake in Swisscom Mobile AG. Such transactions are also risky because they require ongoing cooperation between the partners, which may have or may come to have divergent views as to how the business should be managed and which business development objectives to pursue.

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Risks Related to Regulatory Matters

Recent amendments to the Telecommunications Ordinance and proposed amendments to the Telecommunications Act could substantially affect the overall profitability of Swisscom’s business in the future

In March 2003, the Federal Council adopted significant amendments to the Telecommunications Ordinance (Verordnung über Fernmeldedienste), which is the principal ordinance on telecommunications services. In addition, in November 2003, the Federal Council submitted a bill to the Swiss Parliament with significant amendments to the Telecommunications Act that would, among other things, implement the recent amendments to the Telecommunications Ordinance into law. Swisscom does not expect that any amendments would become effective in the course of 2004. Important features of the amendments to the Telecommunications Ordinance and the proposed amendments to the Telecommunications Act include:

Regulation of mobile termination and mobile roaming may have a significant impact on Swisscom’s mobile revenues and lead to additional pressure on margins and reduced profitability

Swisscom’s mobile termination tariffs and roaming surcharges may become subject to regulation in the future due to a number of developments, including regulatory initiatives in the European Union and ongoing proceedings in which Swisscom is involved.

In March 2002, the European Union has published the final part of its new regulatory framework for the telecommunications industry. Among other things, these recommendations, which were to be implemented by the member states of the European Union by July 2003, result in the regulation of mobile call termination fees. In addition, the European Union is currently investigating whether operators have been engaged in excessive pricing when entering into roaming agreements. While Switzerland is not a member state of the EU and therefore is not subject to EU legislation, the deregulation of the Swiss telecommunications market has moved in parallel with deregulation in the EU, and EU directives and implementing legislation in various EU countries have served as

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points of reference for the development of the Swiss regulatory regime. In addition, the awarding of new mobile licenses to two mobile service providers that require interconnection to the networks of other mobile network operators in areas where they do not have their own network may increase the pressure on the Swiss regulatory authorities to regulate mobile termination tariffs.

Swisscom was involved in a legal dispute and is currently subject to a regulatory proceeding, both relating to mobile termination. On November 12, 2002, Tele2 initiated proceedings against Swisscom relating to interconnection pricing with ComCom, alleging that Swisscom’s wholesale prices for termination of transit traffic on the Swisscom mobile network should be reduced retroactively, on the grounds that Swisscom has a dominant position in the mobile termination market. In early 2003, Tele2 withdrew its complaint on procedural grounds, but reserved the right to refile the previous or an amended complaint. In October 2002, the Competition Commission initiated proceedings against Swisscom, Orange and TDC Switzerland (Sunrise) in connection with mobile termination costs, alleging that each operator has a dominant position with respect to terminating traffic on its own mobile network. In addition, the new “access” concept, described above, may also facilitate the regulator’s authority to impose regulation on mobile termination tariffs as it is intended to provide the legal basis for requiring market-dominant service providers to provide access to any relevant installation or service on a cost-oriented basis.

Regulation of mobile termination fees or roaming surcharges would have a significant impact on Swisscom’s mobile revenues and lead to additional pressure on margins and reduced profitability.

Regulation of radiation emissions from mobile base stations and antennae may result in additional capital expenditures in order to maintain current quality of GSM service and in a delay of the build out of new technologies such as UMTS

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. The NIS Ordinance is implemented by the cantons, which until recently have used different methods of measuring radiation emissions to determine compliance with the NIS Ordinance, resulting in significant regional variations in effective emission standards. In order to address this issue, the Swiss Agency for the Environment, Forests and Landscape (“BUWAL”) issued final recommendations in July 2002 which provide guidance for enforcement authorities on the appropriate method for measuring electromagnetic emissions from base stations and masts in the GSM network. These recommendations are generally binding on the cantons, but deviations are permitted under certain circumstances. In order to comply with the applicable emission standards and maintain current quality of service Swisscom will be required to put up additional antennae. However, Swisscom does not expect the associated costs in 2004 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. Recommendations relating to emission standards for UMTS networks are expected in the course of 2004. 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. Furthermore, recent scientific findings showed that UMTS radiation has a higher impact on humans than previously assumed, which could cause regulatory authorities to set higher emission standards than currently expected.

Risks Related to the 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 therefore could be constrained. In addition, Swisscom is also 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 is an important element of its strategy.

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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 62.7% stake in Swisscom. 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 December 2003, the Swiss government issued bonds convertible into Swisscom shares in the aggregate amount of CHF 1.5 billion and with a maturity of four years. If fully exercised, the bond issuance could result in a decline of the Confederation’s stake in Swisscom down to 58.2%. 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.

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. dollar, fluctuation 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. At December 31, 2003, Swisscom provided, in Switzerland, 4.0 million fixed-line telephone access lines, of which 0.9 million were digital or ISDN lines and 0.5 million were being used for ADSL access. In 2003, Swisscom billed an aggregate of 18.1 billion minutes of national transit and interconnection traffic and terminated over 1.6 billion minutes of incoming international traffic on behalf of other telecommunication service providers. Through Swisscom Mobile AG, in which Vodafone holds a 25% stake, Swisscom is the leading mobile telecommunications service provider in Switzerland, with 3.8 million subscribers to its mobile service at December 31, 2003. Swisscom also offers a full range of state-of-the-art data services, from leased lines to integrated solutions for its corporate customers. Swisscom holds a 95% stake in debitel, the largest network-independent telecommunications provider in Europe, which had over 10 million customers at the end of 2003. In 2003, Swisscom had consolidated net revenue of CHF 14.6 billion, including revenue of CHF 4.6 billion attributable to debitel.

On April 29, 2004, Swisscom entered into an agreement to sell its 95% stake in debitel AG, including 2% it acquired from ElectronicPartner in connection with this transaction, 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). The purchase price will be 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, to be assumed by debitel Konzernfinanzierungs GmbH, an indirect 100% owned subsidiary of the entity to be acquired by Permira Funds in the transaction. Consideration from the sale including the vendor loan notes will be recorded at fair value at closing of the transaction. In determining the expected net selling price for purposes of calculating the impairment charge at December 31, 2003, management estimated the fair value of the vendor loan at an amount lower than its nominal value. After deduction of the deferred portion of the purchase price, Swisscom expects to receive EUR 430 million in cash at closing. Pending the closing of the transaction, Swisscom’s debitel shares will be held in a blocked account to prevent Swisscom from selling these shares otherwise than to the Permira Funds pursuant to the purchase agreement.

Swisscom’s state-of-the-art telecommunications networks enable quick and cost-effective introduction of new generation services. Swisscom’s fixed-line network features fully digitalized transmission and local switching and fully integrated ISDN. Swisscom’s digital mobile network also utilizes specific technologies supporting a variety of value-added services. Swisscom’s strategy focuses on the development of broadband services both in fixed-line and mobile communications. To this end, Swisscom continues to invest in capacity enhancement, geographical roll-out and functional upgrades of its fixed-line broadband platform. Swisscom is currently capable of offering ADSL access services to over 98% of the population of Switzerland. With respect to its mobile networks, Swisscom continues to build out its “third generation” UMTS network, while also investing in capacity enhancements and functional upgrades of its existing GSM network, for example to further improve its mobile data services by using general packet radio service, commonly referred to as GPRS, technology. See “ — Networks and Technology”.

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

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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 full competition with the implementation of the Telecommunications Act. Since then, a large number of competitors have entered the Swiss market, with intense competition in both fixed-line and mobile telephony and in services provided to business customers. Although Switzerland is not a member of the EU, the Swiss market has been liberalized on the schedule and in the manner set forth in the EU directives mandating the liberalization of telecommunications services in member states, and Swisscom anticipates that recent amendments to EU regulations and future EU initiatives will influence the development of the Swiss telecommunications regulatory regime. In March 2003, the Federal Council adopted amendments to the Telecommunications Ordinance that require Swisscom to offer unbundled access to its local loop, as well as interconnection to leased lines, on a cost-oriented basis, with effect of April 1, 2003. Further, in November 2003, the Federal Council submitted a bill to the Swiss Parliament with significant amendments to the Telecommunications Act that would, among other things, implement the recent amendments to the Telecommunications Ordinance into law. See “ — Regulation — Unbundling of the Local Loop and Interconnection to Leased Lines”.

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.

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 December 2003, the Swiss government issued bonds convertible into Swisscom shares in the aggregate amount of CHF 1.5 billion and with a maturity of four years. If fully exercised, the bond issuance could result in a decline of the Confederation’s stake in Swisscom from currently 62.7% down to 58.2%.

In 2002, Swisscom completed the process of spinning off individual businesses into subsidiaries under a holding company which has responsibility for overall strategy and financial management of the group. The operating subsidiaries are managed independently in order to increase competitiveness, transparency and flexibility in their specific markets. The new organization allows for separate strategic partnerships with the possibility of equity stakes being taken by third parties in Swisscom’s individual businesses, as occurred in 2001, when Vodafone acquired its 25% stake in Swisscom Mobile AG.

Swisscom’s objective is to remain a leading and innovative multi-service provider of telecommunication services in Switzerland. In its home market, Swisscom believes that the mobile business has growth potential, while the fixed-line business is, in spite of increasing broadband penetration, likely to erode over time. Accordingly, Swisscom seeks to optimize its free cash flow from its existing businesses, while exploring other opportunities to create value by acquisition. In this regard, Swisscom continues to actively consider investment opportunities both in Switzerland and abroad. Over the course of 2003, Swisscom has made small acquisitions in the field of public wireless LAN services and, in December 2003, one acquisition in the field of billing process outsourcing. Swisscom may also consider other investments, including potentially large acquisitions, in the future. However, Swisscom’s investment criteria are strict and, therefore, should no suitable investment opportunity arise, Swisscom will return capital it does not require to its shareholders in line with its return policy. See “Item 8: Financial Information — Dividend Policy”.

In the course of 2004, Swisscom intends, in accordance with its return policy, to return to its shareholders approximately CHF 2 billion in the form of a share repurchase. See “Item 8: Financial Information — Dividend Policy”.

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.

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Overview of Revenue by Business Segment

In 2003, Swisscom operated in the following business segments:

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

Effective January 1, 2003, the product ownership of Business Numbers was transferred from Fixnet to Enterprise Solutions. See “ — Fixnet — Wholesale Traffic” and “ — Enterprise Solutions — Business Numbers”. In addition, in February 2003, direct mobile interconnection was introduced and Swisscom Mobile 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. As a result, the associated revenues and costs, 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 2003. See “ — Fixnet — Wholesale Traffic” and “ — Mobile — Connectivity Voice”. Prior years 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 2003, Fixnet generated total revenue of CHF 5.8 billion, including sales of CHF 1.3 billion to other Swisscom business segments. With external revenues of CHF 4.5 billion, Fixnet accounted for 31% of Swisscom’s consolidated net revenue in 2003.

Services provided by Fixnet include:

Effective January 1, 2003, there were some intra-segment changes in the Fixnet segment. For example, Fixnet’s Internet access services, previously included in “Other”, are now included in “Access”. Intra-segment information relating to prior years has been restated accordingly.

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

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. In line with this strategy, 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. In the wholesale market, Swisscom believes that the increasing demand for broadband connectivity services will be a future source of growth and an effective means to compete with cable operators. Swisscom is also actively marketing broadband connectivity to its Internet subscribers through Bluewin.

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In connection with Enterprise Solutions’ increased focus on large business customers with complex communication needs, effective January 2004, approximately 46,000 business customers with primarily standard traffic needs have been transferred to the Fixnet segment.

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 customers as well as broadband Internet access services to other Internet service providers on a wholesale basis. In 2003, external revenue from access services amounted to CHF 1,715 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 2003, PSTN services comprised 53% 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. Because ISDN penetration in Switzerland is high by international comparison, ISDN growth has slowed in recent years. Also contributing to this trend is the increasing use of ADSL services, which are also offered over an analog line. Swisscom expects this trend to continue.

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

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 2003 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 March 2003, the Federal Council adopted amendments to the Telecommunications Ordinance that require Swisscom to offer unbundled access to its local loop on a cost-oriented basis, with effect from April 1, 2003. Further, in November 2003, the Federal Council submitted a bill to the Swiss Parliament with significant amendments to the Telecommunications Act that would, among other things, implement the recent amendments to the Telecommunications Ordinance into law. See “ — Regulation — Unbundling of the Local Loop and Interconnection to Leased Lines”. In July 2003, TDC Switzerland (Sunrise) filed a petition with ComCom requesting that Swisscom be required to offer unbundled access to its local loop. In February 2004, ComCom issued a decision in favor of TDC, against which Swisscom lodged an appeal. See “Item 8: Financial Information — Legal Proceedings”.

Internet Access

Swisscom’s wholly-owned subsidiary Bluewin 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:

Swisscom believes that future growth in the access area will come from ADSL technology. 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 further decline in the rate of ISDN growth.

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.

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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. In order to evaluate the technological feasibility and market attractiveness of offering television over its broadband infrastructure, Swisscom will launch a trial offer during summer 2004. For this purpose, Swisscom has entered into a partnership with Microsoft, an important provider of mediastreaming technology.

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. See “Item 8: Financial Information — Legal Proceedings — Other Regulatory Proceedings”.

Retail Traffic

Swisscom provides comprehensive national and international calling services to residential customers. Fixnet considers certain 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 1,169 million in 2003.

At the end of March 2002, a new numbering plan was introduced in Switzerland. Under the new numbering plan, all phone numbers in Switzerland are to consist of ten digits, with the former area code having become an integral part of a subscriber’s phone number. Whereas in the past most local phone calls were routed automatically over the Swisscom network, under the new numbering plan subscribers who have pre-selected an alternative carrier have their local calls routed automatically over that carrier’s network. As a result, local area traffic declined in 2002 and continued to decline slightly in 2003. Also contributing to this trend is the fact that Internet access is increasingly being offered via so-called ISP numbers and ADSL lines, with the result that the associated traffic is no longer included in Swisscom’s local area traffic statistics.

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 2003, Swisscom intensified its efforts to win back customers through direct marketing campaigns.

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 2003, 52% of 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. Effective May 1, 2002, Swisscom combined the local area and national long distance zones into a single national tariff zone. Under this plan, all calls in Switzerland, whether local or long distance, 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 as effect at the end of December 2003 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 comprehensive local and national long distance calling service throughout Switzerland until December 31, 2007. In order to ensure that Universal Service is affordable, ceilings have been placed on the rates Swisscom can charge for local and national long distance calls. Since the introduction of the new numbering plan in March 2002, a single price ceiling has been applicable to all national traffic. Swisscom’s peak national 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.

In February 2003, Swisscom Mobile contracted with another mobile network operator to set up direct interconnection between their networks. As a result, traffic between these networks is now routed directly between their respective networks and is no longer terminated via the national and international network of Fixnet Wholesale.

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 2003, external revenue from national wholesales services amounted to CHF 378 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. Until January 1, 2000, interconnection rates could include a proportional charge for the provider’s historical cost base. Since January 1, 2000, interconnection rates have been based on long run incremental costs (“LRIC”) of an efficient operator and may no longer include historical costs. See “ — Regulation — Interconnection by a Market Dominant Provider”. Since the introduction of LRIC pricing in January 2000, Swisscom has substantially reduced its standard interconnection rates.

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

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In 2003, Swisscom reduced its standard interconnection rates by up to 9%. For 2004, Swisscom announced reductions of interconnection rates by up to 13%. 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 obligation. 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. 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 inbound international traffic. In 2003, external revenue from incoming international traffic amounted to CHF 208 million.

Swisscom has jointly invested in over 57,900 circuits which it shares with about 100 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 2003, 71% of incoming international traffic originated from five countries: Germany, United States, France, United Kingdom and Italy.

The volume decrease in 2003 reflects enhanced competition as a result of the build out of alternative international networks and the direct interconnection between other mobile network operators.

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 practically all global destinations. As an outgrowth of market liberalization, Swisscom also provides termination of outgoing international traffic to other national network operators and service providers. In 2003, external revenue from international termination traffic amounted to CHF 169 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”.

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

The substantial volume increase in 2002 reflects continued market growth and the roll-out of international sales offices in Europe in the course of 2001. However, as this is a low margin business, Swisscom closed the local sales offices in Europe and sold its international point of presence in the United States in 2002. As a result, international termination traffic declined remarkably in 2003.

OTHER TRAFFIC

As of December 31, 2003, Swisscom operated 8,600 public payphones, of which 4,960 payphones Swisscom is required to maintain as part of its Universal Service obligation. In the area of private payphones, Swisscom rented or sold approximately 26,000 private payphones in 2003 to private operators, such as hotels, restaurants and schools. In recent years, the demand for public payphone use has declined, primarily due to the fast growth of mobile telecommunications, and Swisscom expects this trend to continue. In 2003, Swisscom realized external revenue of CHF 71 million from the operation of payphones.

Swisscom provides around the clock operator services, principally directory information, operator assistance and a conference call service, directly to its subscribers. In 2003, external revenue from operator services was CHF 70 million.

Swisscom offers prepaid cards, which can be used from any payphone in Switzerland, any fixed-line phone in Switzerland and in over 100 other countries and from mobile phones. Swisscom’s card products are sold through retailers such as kiosks, gas stations, post offices, railway stations and restaurants. In 2003, external revenue from the use of card products was CHF 106 million, of which CHF 72 million related to a release of deferred revenue. See Note 29 to the consolidated financial statements.

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 2003, sales of customer equipment generated external revenue of CHF 252 million.

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

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Leased Lines

Swisscom offers a full portfolio of leased lines throughout Switzerland. The customers can choose among a wide range of bandwidths and a selection of different service levels. Swisscom has contracts with approximately 100 wholesale customers in Switzerland. The primary customer segment for leased lines is targeted through Enterprise Solutions. See “ — Enterprise Solutions — Networking”. In March 2003, the Federal Council adopted amendments to the Telecommunications Ordinance that require Swisscom to offer interconnection to leased lines on a cost-oriented basis, with effect of April 1, 2003. Further, in July 2003, TDC Switzerland (Sunrise) filed a petition with ComCom requesting that Swisscom be required to offer interconnection to leased lines on a cost-oriented basis. See “ — Regulation — Unbundling of the Local Loop and Interconnection to Leased Lines” and “Item 8: Financial Information — Legal Proceedings”. In 2003, the provision of leased lines generated external revenue of CHF 143 million.

Directories

Swisscom Directories operates, maintains and sells Switzerland’s most comprehensive directories database, the Elektronisches Telefonbuch ETV ® (“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 the printed Telephone Books, as well as for the operation, production and development of electronic directories and the Yellow Pages Online. Additionally, Swisscom Directories has primary responsibility for the development and marketing of customized directories solutions for SOHOs, SMEs and the directories industry. In 2003, Swisscom Directories had external revenue of CHF 107 million.

The directories’ business is regulated under the Telecommunications Act. In December 2001, the relevant ordinance was amended to the effect that 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. There is currently an investigation pending at the Competition Commission to determine whether Swisscom Directories is offering its directories database to third parties at prices and on conditions that prevent them from effectively using these data. See “Item 8: Financial Information — Legal Proceedings.”

Other

Other revenue comprises mainly the operation of Telecom FL AG and Internet narrowband traffic to third-party ISP numbers. In 2003, external revenue from these services amounted to CHF 110 million. In September 2003, Fixnet sold Telecom FL to Liechtenstein TeleNet AG.

Competition

In the area of fixed network telephony and related services, Swisscom faces intense competition, particularly in the national and international calling markets. In 2002 and 2003, price competition was less intense due to the general situation in the telecom market in Switzerland which has undergone some consolidation with several niche players closing their operations. However, Swisscom expects price competition to intensify in 2004 due to increased competition from cable TV operators and Internet service providers.

Access. Swisscom does not yet face significant competition in the residential access market mainly due to the fact that until recently Swisscom was not required to unbundle its local loop. However, competition has increased since February 2003, when Cablecom, the largest cable operator in Switzerland, started offering telephony services over cable on a trial basis und is thereby directly competing with Swisscom’s PSTN and ISDN access services. In March 2003, the Federal Council adopted amendments to the Telecommunications Ordinance that require Swisscom to offer unbundled access to its local loop on a cost-oriented basis. See “ — Regulation — Unbundling of the Local Loop and Interconnection to Leased Lines”. In addition, in February 2004, ComCom issued a decision requiring Swisscom to offer full unbundled access to its local loop, against which Swisscom lodged an appeal. See “Item 8: Financial Information — Legal Proceedings — Proceedings Relating to Unbundling of the Local Loop ”. Unbundling

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of the local loop gives competitors direct access to Swisscom’s customers and the ability to offer them a full range of services without the need to use Swisscom as an intermediary. In addition to 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.

In order to compete with other broadband access operators more effectively, Swisscom reduced its ADSL access tariffs significantly in February 2001 and March 2002 and is currently increasing the capacity of its ADSL lines significantly. 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. See “Item 8: Financial Information — Legal Proceedings — Other Regulatory Proceedings”.

In the wholesale ADSL market, Swisscom faces stiff competition from cable network operators offering cable modem applications. With the roll out of broadband mobile services based on UMTS technology, Swisscom also expects to face competition in the future from providers of broadband mobile services when they become commercially available.

National Retail Traffic. In the past, Swisscom faced limited competition in the business for local area calls. With the introduction of a new numbering plan in March 2002, this competition has increased significantly.

Under the new numbering plan, all phone numbers in Switzerland are to consist of ten digits, with the former area code having become an integral part of a subscriber’s phone number. Whereas in the past most local phone calls were routed automatically over the Swisscom network, under the new numbering plan subscribers who have pre-selected an alternative carrier will have their local calls routed automatically over that carrier’s network. As a result, local area traffic has declined in 2002 and is expected to decline further in the future. In 2003, local traffic continued to decline as a result of the new numbering plan as well as decreased Internet dial-up traffic.

Swisscom continues to face strong competition in the market for national long distance calls. Over the last several years, tariffs have come under significant pressure and margins have declined substantially. In 2001, the telecommunications market in Switzerland entered a period of consolidation. Currently, Swisscom’s principal competitor in the national long distance market is TDC Switzerland (Sunrise), which resulted from the merger of diAx and Sunrise. Swisscom also faces competition from Tele2, EconoPhone and other low-cost service providers. Despite a test launch of a voice-over-cable service by Cablecom, pricing pressure remained relatively low. However, margins are expected to come under renewed pressure in 2004 mainly due to increased competition from cable operators offering voice-over-cable services 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 originating and terminating 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

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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. 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) and Tele2, which focus their marketing on offering reduced rates for calls directed to countries of high traffic volume. In October 2002, responding to price reductions by competitors, Swisscom reduced tariffs for calls to more than 50 countries. In 2003, tariffs overall stabilized. The development of interconnection pricing will also impact competition in the area of outgoing international telephony.

In the longer 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 2003, 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 an erosion in Swisscom’s share in the interconnection market.

Competition in the international wholesale market remained fierce in 2003. In the area of terminating incoming international traffic, Swisscom faces increasing competition from a number of international operators which have completed their pan-European networks. As some of these operators have also installed switches in Switzerland, Swisscom’s revenue from terminating incoming international traffic has declined.

In the area of international voice termination, Swisscom competes with low-cost operators, which gain customers by offering discount prices that are below cost. In addition, 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 by increased traffic. In 2003, Swisscom completed the upgrade of its international gateways in order to deploy this technology as well. However, worldwide overcapacity and the introduction of voice-over-IP technology are likely to keep prices and margins under pressure.

Other Traffic. In the market of public and private payphones, 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 of other operators.

In the market for operator services, Swisscom faced only limited competition in 2003 since it is still allowed to use the well-known access number 111. There are currently discussions with the relevant regulatory agency when Swisscom will be required to switch to a generic service number. A change of the 111 access number to a generic service number would likely result in a major reduction in traffic volume for Swisscom’s operator services.

Customer Equipment. In the area of customer equipment, Swisscom competes directly with equipment manufacturers, suppliers 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 also active in other sectors of the telecommunications market, have led to falling prices.

Leased Lines. In 2003, Swisscom continued to face intense competition in the market for national leased lines, in particular from Worldcom. In March 2003, the Federal Council adopted amendments to the Telecommunications Ordinance that require Swisscom, with effect from April 1, 2003, to offer interconnection of leased lines on a cost-oriented basis which is expected to intensify competition.

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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 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 3.8 million mobile subscribers as of December 31, 2003. In 2003, Swisscom’s mobile activities generated total revenue of CHF 4.1 billion, including sales of CHF 0.7 billion to other Swisscom business segments. With external revenues of CHF 3.4 billion in 2003, Swisscom Mobile accounted for 24% of Swisscom’s consolidated net revenue.

The following table sets forth 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 82% of its external revenues in the mobile segment in 2003. Within this segment, however, mobile data and value-added services comprise the fastest growing business area, driven primarily by a significant increase in the number of text messages sent using Swisscom’s short messaging service (SMS), despite a decline in revenues in 2003 due to a change in the accounting method for value-added services numbers. See “Item 5: Operating and Financial Review and Prospectus — Mobile — Connectivity Data and value-added services”.

With the commercial launch of services enabled by high speed GPRS 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 has implemented the Vodafone live! portal, enabling mobile information, entertainment, community and lifestyle premium services, which Swisscom believes will contribute in the future to the generation of m-commerce revenue and enhance customers retention.

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 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.

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In general, all services provided by a party under the service agreement are to be offered to the other party on terms and conditions equivalent to those offered to other members of the Swisscom group in respect of Swisscom Mobile’s provision of services, and other members of the Vodafone Group of a similar size as Swisscom Mobile, in respect of Vodafone’s provision of services. 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 and services, to know-how of Vodafone and to other relevant global activities in mobile telecommunications. One recent example of this cooperation is the launch by Swisscom Mobile of the new Vodafone live! service in November 2003. 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 2003, Swisscom generated service revenue from the co-operation with Vodafone in the amount of CHF 66 million and paid an amount of CHF 111 million for services purchased from Vodafone. These payments primarily related to roaming charges each of Swisscom Mobile and Vodafone paid the other for the use of the other’s network by its customers.

GSM and 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 new 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 original terms of the UMTS license, each licensee was required to build out its network to achieve population coverage of 20% by the end of 2002 and 50% by the end of 2004, unless it is unable to fulfill this obligation for reasons beyond its control and can prove that it has made every effort to do so. In June 2002, ComCom amended the terms of the license to eliminate the requirement that 20% population coverage be achieved by the end of 2002. Licensees will still be required to achieve 50% population coverage by the end of 2004. Swisscom achieved this threshold in May 2003. In addition, each licensee is now required to report to OfCom every three months on the progress of its network build-out until it has achieved 20% population coverage.

Swisscom continues to build out its broadband networks such as UMTS. Swisscom has opened its UMTS network to a limited user group in order to test new data services. Timing of the launch of commercial UMTS services will depend primarily on the availability of appropriate dual mode (GPRS/UMTS) handsets. 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 intends to activate Enhanced Data Rates for GSM Evolution (EDGE) technology in selected areas in Spring 2004 and plans to provide EDGE access throughout its GSM network by the beginning of 2005. Other projects include building additional base stations and extending the reach of the network’s

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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 over 400 hotspots in Switzerland. In addition, Swisscom Mobile offers through roaming agreements access to over 800 additional hotspots throughout Europe. In November 2003, Swisscom Mobile entered into a cooperation agreement with Microsoft to offer its business customers easy-to-use, secure PWLAN access service. In addition, Swisscom intends to introduce a PC card based integrated service offering access to GPRS, UMTS and PWLAN. 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. These recommendations are generally binding, but deviations are permitted under certain circumstances. In order to comply with the applicable emission standards and maintain current quality of service Swisscom will be required to put up additional antennae. However, Swisscom does not expect the associated costs in 2004 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. Recommendations relating to emission standards for UMTS networks are expected in the course of 2004. 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.

Since 1995, the number of mobile customers in the Swiss marketplace has grown annually, with overall market penetration reaching almost 82% at the end of 2003. 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 entered into roaming agreements with 357 mobile operators worldwide covering 163 countries and earns revenue from those operators when their subscribers make mobile phone calls in Switzerland. Swisscom has also entered into 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”.

In February 2003, Swisscom Mobile contracted with another mobile network operator in Switzerland to set up direct interconnection between their networks. Swisscom Mobile intends to enter into similar agreements with other network operators in the future.

Principal Products. Swisscom currently offers seven principal mobile products: Natel business, Natel international, Natel swiss, Natel budget, Natel easy, 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 apply also 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 business 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.

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

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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 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.

The following table sets forth information relating to Swisscom’s tariffs for its principal Natel products, as in effect at December 31, 2003. All tariffs include VAT.

For calls placed and received outside Switzerland, all Natel customers pay a roaming surcharge in addition to the tariffs imposed by the local mobile network operator. Natel easy customers pay a higher surcharge than customers of other Natel services.

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 June 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 offers MMS also 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 entertainment services. 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 business value chain. Swisscom is therefore opening standardized interfaces to enabling 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, 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-cards can be recharged 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 of Swisscom, Tele2 and In&Phone, which will further intensify competition in the mobile business.

Swisscom expects competition, especially for business customers, to remain fierce in 2004 due to increased tariff pressure and competing enhanced data solutions. Competition in the residential segment is expected to be driven also by handset subsidies.

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 suspended provisionally the requirement to implement equal access in the mobile network until technical development and international standards allow its implementation.

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

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ENTERPRISE SOLUTIONS

Overview

Enterprise Solutions is the leading provider of fixed network telecommunication services to business customers in Switzerland. In 2003, Enterprise Solutions generated total revenue of CHF 1.4 billion, including sales of CHF 0.1 billion to other Swisscom business segments. With external revenues of CHF 1.3 billion in 2003, Enterprise Solutions accounted for 9% of Swisscom’s consolidated net revenue in 2003.

Services provided by Enterprise Solutions include:

Effective January 1, 2003, there were some minor intra-segment changes in the Enterprise Solutions segment. For example, revenue generated from the provision of business numbers has previously been reported under “Value-added Services” and is now included in “Inhouse and Processes”. Intra-segment information relating to prior years has been restated accordingly.

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 designated key account management team, direct and indirect sales channels or via telephone.

Since January 2004, Enterprise Solutions has increased its focus on large business customers with complex communication needs. To this end, approximately 46,000 business customers with primarily standard traffic needs have been transferred to the Fixnet segment.

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Due to continued slowdown and overcapacity in the telecommunications market, Enterprise Solutions has experienced a general decrease in market demand among all customer segments. Although large business customers have postponed planned investments in telecommunication solutions in the last two years, the market seems to have slightly recovered in the fourth quarter of 2003 as inquiries for Enterprise Solutions’ services have increased. 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.

In August 2002, Enterprise Solutions acquired a 49.9% stake in Unit.Net, a provider of specialized online communication services based on streaming technology. Since Unit.Net did not meet its sales targets, it was partly sold to Virtue Broadcasting Switzerland Ltd. Unit.Net ceased operations in September 2003 and liquidation is expected to be completed in the course of 2004.

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 for 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”.

In order to capitalize on the trend toward managed network services, 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

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availability. In addition, Enterprise Solutions’ city services product is an optimal solution for business customers with high-volume data traffic between their office locations within a given city. The benefits of city services include high bandwidth and around the clock end-to-end management.

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