Risk and uncertainty factors
Tele2’s operations are affected by a number of external factors. The most important risks are described below.
Operating risks
The risk factors considered to be most significant to Tele2’s future development are described below.
Availability of frequencies and telecom licences
The company is dependent on licences and frequencies to be able to operate its business. Tele2 needs to secure the extension of existing licenses and obtain new licenses that will be distributed. Tele2’s ability to retain customers by providing improved services or maintain its low cost structure may be hampered by not obtaining required licences or frequencies at all or to a reasonable price. Tele2 works in close contact with regulators and other industry associations to become aware of upcoming licence distributions or redistributions. Tele2 monitors current activities within this area.
Operations in Russia
Tele2’s operations in Russia have a significant influence on the group’s operational result and financial position. The political, economic, regulatory and legal environment as well as the tax system in Russia are still developing and are less predictable than in countries with more mature institutional structures. This also applies to prevailing corporate governance codes, business practices and the reporting and disclosure standards. The market and the operations in Russia therefore represent a different risk from those associated with Tele2’s investments in other countries and can affect Tele2’s abilities to operate and develop its operations in Russia.
Network sharing with other parties
Tele2 has in Sweden, Norway and Germany reached agreements with other telecom operators to build and operate common network infrastructure. Such agreements enable Tele2 to provide the Best Deal to our customers by sharing the risks of investing in new technologies and adjusting quicker to technological developments. At the same time, these agreements also impose new risks in the form of delays in roll out, limitations for customised development and limitations on operating profitability. Finally, such agreements inherently present the risk that Tele2´s partners are unable or unwilling to fulfil their commitments under these agreements.
Integration of new business models etc
Tele2’s business environment is experiencing continuous internal and external changes, which may affect our future operational result and financial position. Change may be in the form of new business models such as mobile VOIP, geographical expansion or new revenue models introduced by handset companies. There is also internal change in the form of information technology infrastructure makeovers, which if successful, improve our capability to provide enhanced service to our customers. Tele2’s executive management closely reviews the progress of internal and external change, to adjust its strategies and maximise returns for our shareholders.
Changes in regulatory legislation
Changes in legislation, regulations and decisions from authorities for telecommunications services can have a considerable effect on Tele2’s business operations and the competitive situation in its operating markets. Large scale deregulation has historically been advantageous for Tele2’s development, while a limited or slow deregulation process has restricted the company’s opportunities for development. These decisions also influence the prices which apply to interconnection agreements with the local incumbents in the various markets. Also, certain decisions such as the deployment of next generation fixed broadband technology may include conditions that exclude Tele2 from offering similar products to its customers. Tele2 works actively with telecom regulators and industry associations, in order to create fair competition in its operating markets.
Legal proceedings
Tele2 is a party to legal proceedings as a result of its normal business operations. As these proceedings can be complex, it is difficult to predict their outcome. An unfavourable result can have a significant negative effect on our business operations, operating profit or financial position. Tele2 uses both internal and external expertise to advice on strategies related to legal proceedings.
Economic climate
2009 proved to be a very difficult year for the global economy. However, signs of a general recovery in business and consumer activity were noticed in the final months of the period. Despite this demanding environment, Tele2 has had a strong operational performance in 2009, driven mainly by growth in its mobile assets and a turnaround in its Western European fixed line operations. Measures were taken throughout the year to offset the impact of economic weakness on the operational performance, such as scrutinizing capital investments and reviewing operational expenditures to obtain the maximum return on investment. Tele2 will continue to secure best in class cost structure by prolonging the efficiency measures into 2010 to tackle any potential back-lash in the general economic recovery.
Financial Risk Management
Through its operations, the Group is exposed to various financial risks such as currency risk, interest risk, liquidity risk and credit risk. Financial risk management is mainly centralized to group staff. The aim is to minimize the Group’s capital costs through appropriate financing and effective management and control of the Group’s financial risks. Further information on financial risk management can be found in Note 2.