by Fredy Künzler
Reading time: 10 minutes
The economics of the telecommunications industry
«An internet provider only needs to dimension its network well enough that no customer ever calls support.» This quote is attributed to the well-known German blogger Felix von Leitner (alias FeFe), who regularly commented on internet topics until spring 2025 and did not hold back with his criticism of the telecommunications industry.
Cost optimisation
In fact, there are some economic principles for cost optimisation for internet providers, but these often come at the expense of their own customers. We have already written about bandwidth overbooking in the backbone as well as access-level connections in our blog. e have also discussed the abuse of market position and the efforts of former monopolists to make the content industry pay for fibre optic expansion. Ultimately, it always comes down to the same thing: increasing returns and skimming off as much profit as possible.
All legal and even some illegal methods are used in this process. The latter reached their sad climax in the so-called fibre optic dispute. But as regular readers of this blog, you must already well aware of this.
Of course, we do not want to fundamentally disparage economic principles here. A functioning market requires greater effort from all providers, which results in lower prices and better products. Legislators have recognised this and therefore want maximum competition among telecommunications providers. The liberal doctrine of «the market regulates everything» applies quite well, at least to broadband connections for private customers in urban areas of Switzerland.
Free market and regulation in the wholesale market
Another issue concerns the wholesale market, which we have already examined in detail. This market inevitably requires regulation. If competition in the retail market is to be maximised, all competitors need to have equal and fair conditions. However, for historical reasons, these fair conditions do not exist: the former monopoly Swisscom emerged from the former PTT (post, telephone and telegraph companies), Until 1998, it was solely responsible for telecommunications services. It was only possible to make phone calls via PTT, and the internet was still in its infancy at the time. For this reason, the legislation created a telecommunications regulation and imposed corresponding requirements on the former monopolist so that new competitors entering the market, who could not «inherit» a comprehensive PTT network and had to start from scratch, would have any chance of survival at all. People still remember the enormous lead enjoyed by the former monopolist, however: they also remember the turn of the millennium, when Diax (now Sunrise) erected its first mobile phone masts, and yet the main topic of conversation was Diax’s dead spots. This was because the legislation had failed to oblige the former monopoly operator, with its already relatively well-developed mobile network, to provide national roaming.
You can’t have it both ways: «The market regulates everything» when it comes to upstream services and maximum competition for end customers. Unfortunately, not all members of our legislature in Bern have grasped this principle, as was all too evident during the debate on the Telecommunications Act between 2017 and 2019. Irrelevant arguments were almost considered «good form» – even going so far as to claim that «Swisscom is a good company because it sponsors many sporting events».
The federal government: shareholder and regulator at the same time
Added to this is the latent conflict of interest between Switzerland’s legislative and executive branches. The federal government holds 51% of the shares and is therefore the majority owner of Swisscom. The Federal Council, which is actually supposed to supervise Swisscom, elects the regulatory authority ComCom and controls the Federal Office of Communications (OFCOM). Finally, the Federal Council and Parliament have a vital interest in ensuring that Swisscom’s annual dividends flow reliably into the federal cash box. In 2025, this amounted to no less than CHF 581 million, or CHF 22 per share. It goes without saying that any attempt to reduce this revenue for the federal treasury would be political suicide. The federal government in Bern is therefore behaving exactly like any other Swisscom shareholder: it is concerned with recurring returns and not with the overall economic interests that would benefit from fair competition in the telecommunications sector.
This is not to say, of course, that alternative telecommunications service providers did not seize their opportunities. On the contrary: imagine if the PTT monopoly still existed today! We would still be struggling with ADSL speeds. The few who had fibre optics would be spending a fortune on it every month, and every text message would cost 20 Rappen – WhatsApp & Co. would be blocked and banned. In fact, you can now buy internet subscriptions with a nominal speed of 10 Gbit/s for less than CHF 40 per month. At least in urban areas. That’s significantly more speed for significantly less money.
Higher dividends despite declining revenues
Against this backdrop, it comes as little surprise that both Swisscom and the country’s number two, Sunrise, reported declining revenues for the past financial year. Swisscom reported a decline of 2.3% in its Swiss business, while Sunrise reported a decline of 1.1%. In other words, the golden years of the telecoms industry are over, and those who can maintain their revenues and profits can count themselves lucky.
Nevertheless, Swisscom’s management announced to shareholders a year ago that it would pay a higher dividend of CHF 26 for this year. The promise for 2027 is CHF 27. There is no promise yet for 2028 – but if the series is not continued, it would be a disappointment. It is difficult to understand why Swisscom’s management is putting itself in such a predicament. Presumably, one assumes a short half-life as a CxO, and in the short term, the bonus is indeed correct.
Cutting back on service
Consequently, savings must be made, because return equals income minus expenditure. The former can hardly be increased any further, so the latter must be reduced. This means laying people off, preferably those expensive over-55s – at the expense of the working atmosphere and morale. Suppliers’ prices are being squeezed. Necessary upgrades and redundancies are being dispensed with, even though emergency networks could fail at any time due to a single point of failure. The reduction in services is happening gradually. Most of the time, it «works»’.
The few customers who dare to call the hotline and complain are worn down by endless waiting loops and eventually transferred to a call centre agent in a low-wage country. In the past, this was the canton of Thurgau, with an underpaid 19-year-old named Samantha Bünzli working in a call centre at the German border. Today, however, Samantha lives in Turkey or Kosovo, earns less than €1,000 per month and is barely proficient in the local language, let alone the local dialect. And tomorrow, we will only be talking to AI call centre software – because real people will have been rationalised away.
Customers who have had enough are discouraged from cancelling their contracts by every means possible, including no longer accepting cancellations by registered letter. If you want to cancel, you have to endure endless telephone queues, only to be lulled into staying by a call centre agent offering you a special deal. The technical term for this is «customer retention». The reputation of the telecommunications industry in Switzerland, and indeed worldwide, has been in tatters for years.
It’s all about returns now. Shareholders and management have dividend or bonus expectations that must be met. As a customer, you are no longer a customer, but a net payer. The only things that matter are ARPU, average revenue per user, and the CEO’s salary.
In return, one occasionally has to put up with a storm of criticism when national television does not work during prime time or a parliamentary inquiry when the emergency networks fail. Or highly questionable sales practices, such as those recently uncovered by SRF Kassensturz in connection with the Salt Flagship Store in Bern.
Telekom’s business model
It would be so simple. The telecommunications industry is based on a subscription model. A customer subscribes to a service until further notice and pays a fixed amount each month. As a provider, you can forecast future revenues in the long term with an accuracy of a few percent. Expenses are also very easy to plan. Internet providers are also quite resilient to short-term trends – it doesn’t matter whether customers prefer to watch Reels on TikTok or Instagram. A reliable internet connection is essential these days. Then there is scalability: doubling the number of customers and thus revenue does not automatically lead to a doubling of costs.
These facts fuel investors’ expectations. They are never satisfied with the returns. And to achieve this, any tricks are «okay». Lure offers in the first year, followed by significant price increases in the second. «Subscribe now and we’ll give you a television (from last year’s remaining stock) for free!» «Lifetime discount!» – but for new customers only. Sometimes it’s really embarrassing to see the tricks that product managers in the industry come up with.
The calculation: CHF 1.90
In the first quarter of 2026, the pursuit of profit reached new heights. Swisscom announced that all mobile phone and broadband subscriptions would increase by CHF 1.90 per month. Most customers probably think, «Oh well, life is getting more expensive and CHF 90 isn’t the end of the world.» If you do the maths however, you can see the scenarios that Swisscom’s management has considered. CHF 1.90 corresponds to CHF 22.80. Assuming that 7 million subscriptions are affected by the increase (conservative estimate), the additional revenue amounts to CHF 159.6 million per year. Of course, some “churn” (customer losses due to cancellations) has been factored in.
Assuming that the 7 million subscriptions cost an average of CHF 50 per month, the total revenue amounts to CHF 4.2 billion per year. If the price now increases by CHF 1.90 per month, the total revenue increases to CHF 4.359 billion. Of course, there are empirical values for customer loss – so if we assume that 2% of customers cancel, it is still worthwhile. The remaining 6.86 million customers would contribute CHF 4.272 million to their cash bos. However, 2% fewer customers also means 2% fewer support staff, but CHF 72 million more profit.
For price-conscious customers, all major providers offer second and third brands, known as flanking brands. Swisscom has Wingo, Sunrise has Yallo, CHmobile and Lebara, and SALT has GoMo. Of course, this list is by no means exhaustive. This makes it possible to keep the prices of the «premium brand» high. If a customer is no longer satisfied, they can be transferred to the secondary brand. That’s still better than losing them to the competition.
Another popular option is old subscription models. If a customer stays on an old mobile phone tariff for years that is no longer available to buy because it would no longer be competitive, they end up overpaying month after month. With the price increase of CHF 1.90 per month announced by Swisscom, a list of the subscription types affected has been published. In mobile telephony, no fewer than 62 different subscription tariffs are subject to a flat-rate increase. This includes, for example, the subscription called «NATEL® infinity 2.0 XL» for a whopping CHF 199.00 per month, which now costs CHF 200.90 (source: Swisscom).
The economics are somewhat different in the broadband sector. As already mentioned, the revenue model scales relatively well. On one hand, the ongoing basic costs per fibre optic PoP remain similarly high, regardless of whether 50 or 200 customers are connected. On the other hand, the production costs per connection are identical, regardless of whether the broadband offering includes 10 Mbit/s or 10 Gbit/s bandwidth. There is therefore no objective reason to charge CHf 39 for the former and CHF 89 for the latter. The gradation according to bandwidth and price serves solely to exploit the willingness of certain customer segments to pay.
Init7 does things differently
Init7 already put an end to bandwidth limitations in 2014 and sold Fiber7 for CHF 777 per year or CHF 64.75 per month at the time. 1 gigabit symmetrical bandwidth was the technical limit back then. The price remains unchanged even after twelve years, while the upgraded infrastructure enables 10 and 25 Gbit/s bandwidth, which Fiber7 customers benefit from. We were often asked why we didn’t charge more for 25 Gbit/s, as customers would be happy to pay for it.
The reason is simple: we have never been solely focused on returns. ARPU is secondary. We are convinced that it is possible to offer an alternative to the practices of the «big players». «Internet without disruption» is our professional pride. And that includes many aspects, not just the highest nominal bandwidth. We consciously refrain from short-term promotional offers such as Black Friday discounts, which feel like a slap in the face to every long-standing customer. All of our employees work in Winterthur or from home within commuting distance, not in a low-wage country. We are committed to not leaving our customers on hold for hours on the hotline. We only sell products and services that we ourselves believe in. We operate our own nationwide infrastructure with over 400 fibre optic PoPs because we are convinced that simply reselling off-the-shelf products does not meet our quality standards. For years, we have reinvested all of our profits. Our shareholders are passionate about what they do and have not received a penny in dividends for well over a decade, as our profits are continuously reinvested. We have taken the fibre optic dispute through the courts so that the competitive conditions in the telecommunications industry allow everyone in Switzerland to have a real choice, rather than just the same product in different packaging for a few Francs more or less.
We are not perfect either and are only human too. Sometimes things go wrong. In Google reviews, we almost always receive a 5 or sometimes a 1. There is no grey area in between, and yes, of course we try our best to avoid the 1s. We also do not claim to have the perfect product for everyone. Some people are better off with a regional provider offering on-site support. That’s fine. Everyone chooses their provider voluntarily. But the fact that almost everyone now has a choice is also thanks to us.
A customer once said that Init7 offers «organic internet». Whether this is actually true remains to be seen. But one thing is certain: Init7 Internet: Made with love in Winti ❤️