C29. Contingencies, other contractual obligations and litigation

Contingent assets and financial guarantees, continuing operations

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

SEK in millions

Dec 31, 2016

Dec 31, 2015

Credit and performance guarantees, etc.

112

15

Subtotal (see Liquidity risk – Note C26)

112

15

Guarantees for pension obligations

287

283

Total financial guarantees

398

298

As of December 31, 2016, credit and performance guarantees represented the following expected maturities.

Expected maturity
SEK in millions

Jan–Mar 2017

Apr–Jun 2017

Jul–Sep 2017

Oct–Dec 2017

2018

2019

2020

2021

Later years

Total

Credit and performance guarantees

96

16

112

Some loan covenants agreed limit the scope for divesting or pledging certain assets. Some of Telia Company 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 Telia Company AB, as such also resulting in a lowering of Telia Company 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 Telia Company could be required to make under the respective guarantee.

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 Telia Company group including both continuing and discontinued operations.

SEK in millions

Dec 31, 2016

Dec 31, 2015

For cash: Investment bond pledge under repurchase agreements

559

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

137

226

For pension obligations: Real estate mortgages

2

For other provisions: Bonds and short-term investments

9

80

For operating leases: Blocked funds in bank accounts

47

45

Total collateral pledged

752

353

Other unrecognized contractual obligations, continuing operations

As of December 31, 2016, 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 2017

Apr–Jun 2017

Jul–Sep 2017

Oct–Dec 2017

2018

2019

2020

2021

Later years

Total

Intangible assets

171

31

5

3

211

Property, plant and equipment

1,146

398

99

195

842

1

1

2,681

Other holdings

1

1

1

1

1

5

Total (see Liquidity risk – Note C26)

1,319

430

105

199

843

1

1

2,897

Most of the obligations with respect to property, plant and equipment refer to contracted build-out of Telia Company’s fixed networks in Sweden and a lease agreement relating to future data center i Finland.

Legal and administrative proceedings

In its normal course of business, Telia Company 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, Telia Company is involved in some proceedings related to interconnect fees, which could affect revenues. In addition, there are still ongoing investigations in Sweden, the Netherlands and the USA regarding Telia Company’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” and Note C34 “Discontinued operations and assets classified as held for sales”. Except for the proceedings described below, Telia Company or its subsidiaries are not involved in any legal, arbitration or regulatory proceedings which management believes could have a material adverse effect on Telia Company’s business, financial condition or results of operations.

During the second half of 2001, a number of operators filed complaints against Telia Company with the Swedish Competition Authority and the Authority initiated an investigation regarding Telia Company’s pricing of ADSL services. In December 2011, it was finally decided that Telia Company had abused its dominant position and Telia Company has paid a fine of SEK 35 million. The two operators Tele2 and Spray Network sued Telia Company for damages they alleged had been caused by the abuse in 2005 and 2006 respectively. The court of first instance ruled against Telia Company and awarded the plaintiffs damages amounting to SEK 305 million plus interest in total. Telia Company has appealed and the law suits for damages are still ongoing.

In 2005, Telia Company and Çukurova signed an agreement regarding Telia Company’s purchase of shares in Turkcell Holding A.S. from Çukurova. As Çukurova subsequently did not honor the agreement, Telia Company brought legal action. On September 1, 2011, an International Chamber of Commerce (ICC) Arbitral Tribunal awarded Telia Company 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, Telia Company conducts legal action to pursue enforcement of the award. In parallel, Çukurova pursues legal actions against Telia Company with the aim to revert the ICC award or to refute its enforceability. Telia Company continues to vigorously pursue collection of the ICC award. Telia Company 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.

In 2012, Telia Company made an investment and acquired a minority stake in Kaztranscom (through the holding company Rodnik), a company that operates a fibrenetwork and provides ITC services for the corporate segment in Kazakhstan. There is now a dispute with another owner in Rodnik regarding, inter alia, the interpretation of agreements between the owners and of the management responsibilities of the company. During 2016, the other owner initiated arbitration proceedings in London against Telia Company and requested damages for alleged breach of contract and mismanagement. Telia Company will vigorously defend itself in the proceedings that are expected to continue during 2017.