Contingent assets and guarantees
As of the balance sheet date, TeliaSonera had no contingent assets, while guarantees reported as contingent liabilities were distributed as follows.
|
|
December 31, | |
|---|---|---|
| SEK millions | 2008 | 2007 |
| Credit guarantee on behalf of Svenska UMTS-nät AB | 2,021 | 1,838 |
| Credit guarantees on behalf of other associated companies | – | 13 |
| Other credit and performance guarantees, etc. | 39 | 61 |
| Guarantees for pension obligations | 243 | 234 |
| Total guarantees | 2,303 | 2,146 |
As of December 31, 2008, total guarantees represented the following expected maturities.
|
Expected maturity SEK in millions |
2009 | 2010 | 2011 | 2012–2013 | Later years | Total |
|---|---|---|---|---|---|---|
| Guarantees | 39 | 496 | 1,525 | – | 243 | 2,303 |
Some loan covenants agreed limit the scope for divesting or pledging certain assets. Some of TeliaSonera AB's more recent financing arrangements include change-of-control provisions which under certain conditions allow the lenders to call back the arrangement before scheduled maturity. Conditions required include a new owner taking control of TeliaSonera AB, inter alia also resulting in a lowering of TeliaSonera AB's official credit rating to a “non-investment grade” level.
For all guarantees, except the credit guarantee on behalf of Svenska UMTS-nät AB, stated amounts equal the maximum potential amount of future payments that TeliaSonera could be required to make under the respective guarantee.
As security for certain amounts borrowed by TeliaSonera's 50 percent owned joint venture Svenska UMTS-nät AB under a third-party credit facility totaling SEK 4,800 million, TeliaSonera and Tele2, the other shareholder of Svenska UMTS-nät, have each severally but not jointly issued guarantees of a maximum of SEK 2,400 million to the lenders and granted pledges of their shares in Svenska UMTS-nät. The indebtedness under the credit facility may become due on an accelerated basis, under certain circumstances, including if either TeliaSonera or Tele2 ceases to hold, directly or indirectly, 50 percent of the company, unless the lenders provide their advance consent. TeliaSonera is not contractually required to provide any further capital contributions to or guarantees in favor of Svenska UMTS-nät. As of December 31, 2008, Svenska UMTS-nät had, under the credit facility, borrowed SEK 4,041 million, of which TeliaSonera guarantees 50 percent, or SEK 2,021 million.
TeliaSonera has entered into a cross-border finance lease-leaseback agreement for mobile network equipment in Finland, with a zero carrying value as of December 31, 2008. The arrangement was entered into in 1998 by TeliaSonera Finland Oyj (formerly Sonera Oyj) and is valid for 15 years, with an early termination option after 11 years. TeliaSonera has determined that in substance the transactions are not leases as defined in IAS 17, and the amounts are shown net on the balance sheet. Both the lease receivables and the lease obligations were settled at the inception of the agreement and TeliaSonera received a net cash consideration of USD 11 million (EUR 9 million) which was recorded in the balance sheet as an advance payment received and is recognized in financial income over the lease term. In 2008, some amendments to the structure were initiated whereby TeliaSonera provided additional security to certain stakeholders under the lease agreements. TeliaSonera has defeased all obligations under the agreement but retains the ownership of the equipment. However, during the agreement period, TeliaSonera can not dispose of the equipment but may make replacements.
Collateral held
OAO Telecominvest (TCI), 26.1 percent owned by TeliaSonera, owns 31.3 percent of the shares in TeliaSonera's associated company OAO MegaFon. TeliaSonera has signed agreements with TCI and a TCI shareholder in order to secure TeliaSonera's ownership in MegaFon, including an agreement under which TCI has pledged 8.2 percent of the shares in MegaFon to TeliaSonera. TCI has pledged its remaining shares in MegaFon, corresponding to a 23.1 percent ownership in MegaFon, in order to guarantee a loan in favor of AF Telecom Holding which is one of the shareholders of TCI.
Collateral pledged
As of the balance sheet date, collateral pledged was distributed as follows.
|
|
December 31, | |
|---|---|---|
| SEK millions | 2008 | 2007 |
| For long-term borrowings: Shares in Svenska UMTS-nät AB | 84 | 204 |
| For pension obligations: Real estate mortgages | 23 | 18 |
| For pension obligations: Current receivables | 46 | 40 |
| For warranty provisions: Blocked funds in bank accounts | 1,158 | 960 |
| For other provisions: Bonds and short-term investments | 140 | 132 |
| For bank overdraft facilities: Chattel mortgages | 18 | 16 |
| For operating leases: Real estate mortgages | 3 | 4 |
| For operating leases: Blocked funds in bank accounts | 1 | 1 |
| For deposits from customers: Blocked funds in bank accounts | 119 | 109 |
| For investments in associated companies: Blocked funds in bank accounts | 37 | – |
| For court proceedings: Blocked funds in bank accounts | 225 | – |
| Total collateral pledged | 1,854 | 1,484 |
As of December 31, 2008, TeliaSonera had recognized all of its commitments on behalf of Ipse 2000 S.p.A. in the balance sheet as warranty provisions. Ipse's UMTS license payments to the Italian government have been secured by bank guarantees. According to an agreement with the bank, Ipse and its shareholders, including TeliaSonera, have given cash collateral for the remaining license payments from 2006 to 2010. TeliaSonera's part of the cash collateral amounts to SEK 1,147 million (EUR 105 million). Of that, EUR 62 million was paid in January 2009 (see Note 24 “Other Provisions” for additional information).
In addition, as of December 31, 2008, shares in Applifone Co. Ltd. and all non-current assets in Applifone were pledged as collateral for borrowings totaling SEK 136 million (USD 18 million) and future customer payments to Spice Nepal Pvt. Ltd. were pledged as collateral for borrowings totaling SEK 144 million (USD 19 million). All loans were repaid in February 2009 and the pledges have been discontinued.
Other unrecognized contractual obligations
As of December 31, 2008, unrecognized contractual obligations regarding future acquisitions (or equivalent) of non-current assets represented the following expected maturities.
|
Expected maturity SEK in millions |
2009 | 2010 | Later years | Total |
|---|---|---|---|---|
| Intangible assets | 112 | – | – | 112 |
| Property, plant and equipment | 1,695 | 28 | – | 1,723 |
| Other holdings of securities | 8 | – | – | 8 |
| Total | 1,815 | 28 | – | 1,843 |
Most of the obligations with respect to property, plant and equipment refer to contracted build-out of TeliaSonera's mobile networks in Sweden, Finland and Spain as well as fixed network in Sweden.
TeliaSonera's Spanish subsidiary Xfera also pays an annual spectrum fee during the term of its 3G license expiring in 2020. The fee is determined on an annual basis by the Spanish government authorities and for 2009 is set to SEK 297 million (EUR 27 million).
Legal and administrative proceedings
In its normal course of business, TeliaSonera is involved in a number of legal proceedings. These proceedings primarily involve claims arising out of commercial law issues and regulatory matters. TeliaSonera is also involved in administrative proceedings relating principally to telecommunications regulations and competition law. In particular, TeliaSonera is involved in numerous proceedings related to interconnect fees, which affects future revenues. Except for the proceedings described below, TeliaSonera or its subsidiaries are not involved in any legal, arbitration or regulatory proceedings which management believes could have a material adverse effect on TeliaSonera's business, financial condition or results of operations.
Regulatory proceedings
The administrative courts in Sweden have ruled that TeliaSonera shall reimburse Tele2 for all traffic transferred by TeliaSonera to Tele2's mobile network, while TeliaSonera is entitled to be reimbursed by the originating operators who have transferred traffic on TeliaSonera's network. In connection with the proceedings above, Tele2 brought an action in the Swedish civil courts against TeliaSonera claiming currently SEK 846 million and accrued interest for interconnect fees for the period September 1998–January 2004. TeliaSonera has paid parts of the sum claimed and has recognized provisions for the remaining exposure that management believes to be sufficient.
During the second half of 2001, a number of operators filed complaints against TeliaSonera with the Swedish Competition Authority and the Authority initiated an investigation regarding TeliaSonera's pricing of ADSL services. The complaints suggest that the difference between TeliaSonera's wholesale prices and retail prices is too low to effectively enable competition in the retail market. In December 2004, the Competition Authority sued TeliaSonera at the Stockholm District Court claiming that TeliaSonera has abused its dominant position. The Authority demands a fee of SEK 144 million. TeliaSonera's position is that it has not engaged in any prohibited pricing activities. Following the Competition Authority's lawsuit, Tele2 has on April 1, 2005 and Spray Network on June 29, 2006, respectively, claimed substantial damages from TeliaSonera due to the alleged abuse of dominant market position. TeliaSonera will vigorously contest Tele2's and Spray Network's claims. The actions for damages have been stayed pending the case between TeliaSonera and the Competition Authority.
Other legal proceedings
TeliaSonera is currently involved in court cases with Primav Construcoes e Comercio and Telmig, former shareholders of the Brazilian mobile operator Tess, relating to such shareholders' disposal of their investments in Tess as well as certain call options and subscription rights in Tess. Whilst TeliaSonera has sold its holding in Tess, it has entered into certain guarantees to compensate the buyer for certain losses in connection with the above-mentioned court cases. TeliaSonera will vigorously contest any claims in connection with the disputes. Even if TeliaSonera believes that losing the disputes is not probable, but given the anticipated duration of the court proceedings, TeliaSonera has recognized a provision for estimated future legal fees.