Risks – Operations and strategic activities

Impairment losses and restructuring charges

Factors generally affecting the telecom markets as well as changes in the economic, regulatory, business or political environment impact TeliaSonera financially. Management also constantly reviews and refines the business plans, and may make exit decisions or take other actions in order to effectively execute on TeliaSonera’s strategy. Should such circumstances negatively change management’s expectation of future cash flows attributable to certain assets, TeliaSonera will be required to recognize asset impairment losses, including but not limited to goodwill and fair value adjustments recorded in connection with historical or future acquisitions.

TeliaSonera has undertaken a number of restructuring and streamlining initiatives, mainly affecting the Nordic operations, which have resulted in substantial restructuring and streamlining charges. Similar initiatives may be undertaken in the future. TeliaSonera also has significant deferred tax assets resulting from earlier recorded impairment losses and restructuring charges. Significant adverse changes in the economic, regulatory, business or political environment, as well as in TeliaSonera’s business plans, could also result in TeliaSonera not being able to use these tax assets in full to reduce its tax obligations in the future, and would consequently lead to an additional tax charge when such tax asset is derecognized.

In addition to affecting TeliaSonera’s financial position and results of operations, such impairment losses and restructuring charges may adversely affect TeliaSonera’s ability to pay dividends.

Investments in business transformation, new technology and future growth

TeliaSonera is currently investing in business transformation and future growth through, for example, initiatives to increase competitiveness and reduce cost as well as to improve capacity and access by accelerating the fiber roll-out in Sweden, new B2B offerings, as well as upgrading data networks in Eurasia. TeliaSonera is also constantly investing in sales and marketing efforts to retain and acquire customers in its markets. Further, TeliaSonera normally has to pay fees to acquire new telecom licenses and frequency permits or to renew or maintain existing ones. In order to attract new customers, TeliaSonera has previously also engaged in start-up operations and may decide to do so also in the future, which would require additional investments and expenditure in the build-up phase.

TeliaSonera believes that these investments and initiatives will improve market position and financial strength. However, success will depend on a variety of factors beyond TeliaSonera’s control, including the cost of acquiring, renewing or maintaining telecom licenses and frequency permits, the cost of new technology, availability of new and attractive services, the costs associated with providing these services, the timing of their introduction, the market demand and prices for such services, and competition. Should TeliaSonera fail to reach the targets set for its business transformation and customer attraction activities, the results of operations will be negatively impacted.

Business combinations and strategic alliances

TeliaSonera is constantly reviewing its asset portfolio in line with the strategy of increasing ownership in core holdings. Over the years, TeliaSonera has made a number of targeted acquisitions in accordance with its strategy. TeliaSonera may continue to expand and grow its business through business combinations, strategic alliances, etc. The efficient integration of these acquisitions and the realization of related cost and revenue synergies, as well as the positive development of the acquired operations, are significant for the results of operations both in the long and short term. If TeliaSonera fails to integrate or manage any acquired company or strategic alliance there is a risk that management’s attention would be diverted away from other business concerns. In addition, any potential acquisition could negatively affect TeliaSonera’s financial position and its credit ratings, or, if made using TeliaSonera shares, dilute the existing shareholders.

Shareholder matters in partly-owned subsidiaries

TeliaSonera conducts some of its activities, particularly outside of the Nordic region, through subsidiaries in which TeliaSonera does not have a 100 percent ownership. Under the governing documents for certain of these entities, the holders of non-controlling interests have protective rights in matters such as approval of dividends, changes in the ownership structure and other shareholder-related matters. One example where TeliaSonera is dependent on a minority owner is Fintur Holdings B.V. (Fintur’s minority shareholder is Turkcell) which owns the operations in Kazakhstan, Azerbaijan, Georgia and Moldova. As a result, actions outside TeliaSonera’s control and adverse to its interests may affect TeliaSonera’s position to act as planned in these partly owned subsidiaries.

Customer service and network quality

In addition to cost efficiency in all operations, TeliaSonera focuses on high-quality service to its customers and high-quality networks. TeliaSonera’s ambition to create a service company on the customers’ terms requires a major internal change of processes, attitude and focus in many parts of the company. Externally, extreme weather conditions and natural disasters, such as the spring 2015 two major earthquakes in Nepal, may cause serious problems to network quality and availability and need to be considered in the business continuity planning.

High-quality networks and services are fundamental to the customer perception of TeliaSonera and its success going forward. Whatever the reason, failure to reach or maintain high-quality levels would have an adverse impact on TeliaSonera’s business.

Supply chain

TeliaSonera is reliant upon a limited number of suppliers to manufacture and supply network equipment and related software as well as terminals, to allow TeliaSonera to develop its networks and to offer its services on a commercial basis. TeliaSonera cannot be certain that it will be able to obtain network equipment or terminals from alternative suppliers on a timely basis if the existing suppliers are unable to satisfy TeliaSonera’s requirements. In addition, like its competitors, TeliaSonera currently outsources many of its key support services, including network construction and maintenance in most of its operations. The limited number of suppliers of these services, and the terms of TeliaSonera’s arrangements with current and future suppliers, may adversely affect TeliaSonera, including by restricting its operational flexibility.

In connection with signing supplier contracts for delivery of terminals, TeliaSonera may also grant the supplier a guarantee to sell a certain number of each terminal model to its customers. Should the customer demand for a terminal model under such a guarantee turn out to be smaller than anticipated, TeliaSonera’s results of operations may be adversely affected.

Ability to recruit and retain skilled personnel

To remain competitive and implement its strategy, and to adapt to changing technologies, TeliaSonera will need to recruit, retain, and where necessary, retrain highly skilled employees with particular expertise. In particular, competition is intense for qualified telecommunications and information technology personnel. To a considerable extent, TeliaSonera’s ability to recruit and retain skilled personnel for growth business areas and new technologies will depend on its ability to offer competitive remuneration packages. In some of the countries in which TeliaSonera operates, regulations related to granting work permits for foreign citizens represent a complicating factor due to often bureaucratic and time-consuming procedures. If TeliaSonera fails to recruit or retrain necessary highly skilled employees, its ability to develop high growth business areas and new business areas or remain competitive in the traditional business areas may be limited.

© TeliaSonera 2015
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