UPDATE: Swisscom Promises Flat 2012 Dividend As Capital Spending Soars

Swisscom AG (SCMN.VX) Wednesday dashed shareholders' hopes for a higher dividend this year, saying its priorities are investing heavily to meet growing demand for broadband services as well as paying for the renewal of Swiss mobile licenses and new spectrum later in the year.

The telecoms operator, 54% owned by the Swiss government, said it would pay a dividend of 22 Swiss francs ($24) in 2012, unchanged from 2011, as it reported a worse-than-expected fourth-quarter net loss of CHF835 million after taking a CHF1.2-billion charge for its investment in Italian unit Fastweb.

Swisscom said it will spend CHF2.2 billion in 2012, up from CHF2.10 billion last year, to upgrade base stations for mobile telephones and faster broad-band connections. Capital expenditure should remain high for the next two to three years, the operator said. The Swiss government is due to auction licenses covering existing and new mobile radio frequencies with a minimum price of CHF600 million later this year. The licenses will expire in 2028.

"If we [are] increasing the dividend at same time as bidding for the frequencies, we could have to take on debt to pay our dividend. That's insane," Chief Executive Carsten Schloter said.

The group reported a 0.3% decline in fourth-quarter Ebidta to CHF4.60 billion as a strong Swiss franc and falling prices in its domestic market pinched margins despite a rise in customers and mobile data traffic. Swisscom forecasts earnings before interest, tax, depreciation and amortization of CHF11.4 billion in 2012.

"If we meet our guidance, we will pay out 22 Swiss francs again, which compared with other Swiss equities is an extraordinary return," Chief Financial Officer Ueli Dietiker said.

Analysts' reaction to Swisscom's dividend plans were mixed.

"There is not much room for the stock to improve and the dividend is a bit disappointing," said Serge Rotz, an analyst at Bank Vontobel.

"[Swisscom's] business remains stable and a probable dividend of least CHF22 is still attractive," said an analyst at Swiss broking house Zuercher Kantonalbank.

Swisscom's dividend yield of around 6% is below that of other former European monopoly providers such as Deutsche Telekom AG, 8%, France Telecom SA, 12%, and Telecom Italia SpA, 8% but above the average 3.5% yield of companies that make up Switzerland's benchmark SMI stock index.

Swisscom's shares closed 1.9% lower CHF360.60 compared with a 0.6% rise in Zurich's SMI.

-By John Revill, Dow Jones Newswires; [phone] ; [e-mail]

(Neil MacLucas contributed to this article)