C29. Contingencies, other contractual obligations and litigation

Contingent assets and financial guarantees, continuing operations

As of the end of the reporting period, TeliaSonera had no contingent assets, while financial guarantees reported as contingent liabilities were distributed as follows.

SEK in millions

Dec 31, 2015

Dec 31, 2014

Credit and performance guarantees, etc.

15

33

Subtotal (see Liquidity risk – Note C26)

15

33

Guarantees for pension obligations

283

287

Total financial guarantees

298

320

As of December 31, 2015, credit and performance guarantees represented the following expected maturities.

Expected maturity
SEK in millions

Jan–Mar 2016

Apr–Jun 2016

Jul–Sep 2016

Oct–Dec 2016

2017

2018

2019

2020

Later years

Total

Credit and performance guarantees

15

15

Some loan covenants agreed limit the scope for divesting or pledging certain assets. Some of TeliaSonera AB’s more recent bond issuances include change-of-control provisions which under certain conditions allow the lenders to call back the bond before scheduled maturity. Conditions stipulated include a new owner taking control of TeliaSonera AB, as such also resulting in a lowering of TeliaSonera AB’s official credit rating to a “non-investment grade” level.

For all financial guarantees issued, stated amounts equal the maximum potential future payments that TeliaSonera could be required to make under the respective guarantee.

Collateral held, continuing operations

On December 29, 2015, TeliaSonera received payment of the last tranche of the deferred consideration from AF Telecom Holding (AFT) agreed in relation to the transaction regarding shares in MegaFon in 2012, in the amount of SEK 2,659 million. Subsequent to this payment, TeliaSonera has no outstanding receivables from AFT. The pledged shares and bank accounts were released in February 2016.

Collateral pledged, continuing and discontinued operations

As of the end of the reporting period, collateral pledged was distributed as follows and are based on the total TeliaSonera, group including both continuing and discontinued operations.

SEK in millions

Dec 31, 2015

Dec 31, 2014

For long-term borrowings: Real estate mortgages and chattel mortgages

226

255

For pension obligations: Real estate mortgages

2

3

For other provisions: Bonds and short-term investments

80

65

For operating leases: Blocked funds in bank accounts

45

46

For commitments under a shareholders’ agreement: Shares in Strex AS

11

For commitments under a shareholders’ agreement: Shares in 4T Sverige AB

46

Total collateral pledged

353

426

Other unrecognized contractual obligations, continuing operations

As of December 31, 2015, unrecognized contractual obligations regarding future acquisitions (or equivalent) of non-current assets represented the following expected maturities.

Expected investment period
SEK in millions

Jan–Mar 2016

Apr–Jun 2016

Jul–Sep 2016

Oct–Dec 2016

2017

2018

2019

2020

Later years

Total

Intangible assets

211

14

4

229

Property, plant and equipment

937

430

279

604

17

3

2,270

Other holdings

1

1

1

1

3

7

Total (see Liquidity risk – Note C26)

1,149

445

280

609

20

3

2,505

Most of the obligations with respect to property, plant and equipment refer to contracted build-out of TeliaSonera’s fixed networks in Sweden.

TeliaSonera’s Spanish subsidiary Xfera Móviles S.A. (Yoigo) 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 2015 is set to SEK 417 million (EUR 46 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 matters relating to telecommunications regulations and competition law. Further, TeliaSonera is involved in numerous proceedings related to interconnect fees, which affects future revenues.

In addition, there are ongoing investigations in Sweden, the Netherlands and the USA regarding TeliaSonera’s operations in Uzbekistan and suspected irregularities related to those and to the market entry into Uzbekistan. At this point in time, it is not possible to assess how or when the investigations will be resolved. For more information see Risks and uncertainties section “Review of Eurasian transactions.

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.

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 had abused its dominant position. The Authority demands a fine of SEK 144 million. In December 2011, the Stockholm District Court decided in accordance with the Competition Authority’s demands. After TeliaSonera’s appeal, the Market court decided in April 2013, to change the district court’s ruling and ordered TeliaSonera to pay a fine of SEK 35 million. Following the Competition Authority’s lawsuit, Tele2 has in April 2005, and Spray Network in June 2006, respectively, claimed substantial damages from TeliaSonera due to the alleged abuse of dominant market position. TeliaSonera has vigorously contested Tele2’s and Spray Network’s claims. The actions for damages are on-going.

TeliaSonera is currently involved in court cases with Primav Construcoes e Comercio, former shareholder of the Brazilian mobile operator Tess, relating to such shareholder’s disposal of its investment 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 has vigorously contested all claims in connection with the disputes. On September 13, 2013, the court of first instance in Sao Paolo-SP, decided to dismiss all the pleadings made in the law suit and related proceedings, terminating the case. On October 4, 2013, Primav filed an appeal to the State Appellate Court against this decision.

In 2005, TeliaSonera and Çukurova signed an agreement regarding TeliaSonera’s purchase of shares in Turkcell Holding A.S. from Çukurova. As Çukurova subsequently did not honor the agreement, TeliaSonera brought legal action. On September 1, 2011, an International Chamber of Commerce (ICC) Arbitral Tribunal awarded TeliaSonera USD 932 million in damages, plus interest and costs, for Çukurova’s failure to deliver the Turkcell Holding shares as required under the share purchase agreement. Due to the refusal of Çukurova to honor the ICC award, TeliaSonera has initiated a number of legal actions in multiple jurisdictions to pursue collection of the award. In parallel, Çukurova has initiated legal actions against TeliaSonera with the aim to revert the ICC award or to refute its enforceability, some of which proceedings are yet to be finalized. However, TeliaSonera continues to vigorously pursue collection of the ICC award. TeliaSonera has not recorded any award amount receivable in the financial statements. Following an agreement with Alfa Telecom (now LetterOne) signed in November 2009, LetterOne is under certain circumstances entitled to receive part of the damages amount set out in the ICC award, if such funds will be successfully collected.

© TeliaSonera 2015
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