Notes to the consolidated financial statements - Swisscom

Effective October 1, 1999, Swisscom acquired for cash 74.2% of the voting and outstanding
shares of debitel Aktiengesellschaft (“debitel”). debitel is a network independent
telecommunications company that provides mobile communications, fixed line and internet
services. The primary operations are in Germany with subsidiaries in the Netherlands,
France, Denmark and Slovenia. Swisscom paid CHF 51 (EUR 32) per share and the total purchase
price, including CHF 13 million of direct acquisition costs, was CHF 3,394 million. The
combination was accounted for as an acquisition and Swisscom recognized CHF 3,360 million
in goodwill that will be amortized over ten years using the straight-line method.
In connection with the acquisition of debitel, two of the selling shareholders were granted
an option to put a total of 20% of the shares to Swisscom. One shareholder exercised
its option in January 2001 for CHF 468 million and the other shareholder exercised its option
in July 2001 for CHF 460 million. The transactions resulted in goodwill of CHF 906 million,
which is being amortized over ten years. The remaining 5.8% of the shares are publicly
traded.
As a result of significant changes in the telecommunications sector, including the expected
delay in the implementation of the third generation system, UMTS, Swisscom concluded
that it was necessary to review the carrying value of the assets of debitel. Substantially
all of Swisscom’s investment in debitel consists of goodwill.
Swisscom recognized an impairment loss for the difference between the carrying value
of its investment in debitel and the value in use amount. The value in use amount was
determined based on projections of future profitability. The total projected cash flow was
discounted by debitel’s weighted average cost of capital of 10.26% that was determined
using the Capital Asset Pricing Model. This methodology indicated that the value ascribed
to Swisscom’s share of debitel was CHF 2,232 million compared to a carrying value of
CHF 3,362 million. The difference of CHF 1,130 million was recorded as an impairment
charge in 2001.
Swisscom concluded that the methodology described above was a better indicator of value
to determine impairment than the quoted stock price because only 5.8% of the shares
trade. The quoted market price of debitel at December 31, 2001 was CHF 28.2 (EUR 19.1) a
share, which has decreased to CHF 25.5 (EUR 17.3) at the end of February 2002. The per
share value of the revised carrying amount at December 31, 2001 is CHF 26.6 (EUR 18).
In September 2001, Swisscom acquired AGI IT Services AG and recorded goodwill of CHF
102 million. See Note 15.
In October 2000, the Federal Communications Commission (ComCom) agreed to offer additional
frequencies for the provision of mobile telephony services based on the GSM standard
to Swisscom and it’s competitors, diAx and Orange. Swisscom paid CHF 70 million in
connection with the application for this license which takes effect on January 1, 2001 and
is valid for 7 years. In December 2000, Swisscom acquired a UMTS (Universal Mobile
Telecommunication System) license for CHF 50 million. The license takes effect on January
1, 2002 and will be valid for 15 years. UMTS is the third-generation mobile radio system
that creates additional mobile radio capacity and enables broadband multimedia applications
while also providing high-speed internet access.
43 Swisscom Consolidated financial statements