Shareholders' Letter

As of 31 December 2010, other intangible assets included advance payments and assets under
construction of CHF 186 million (prior year: CHF 154 million). As of 31 December 2010, accumulated
impairment losses on goodwill of CHF 11 million were recorded. Goodwill arising on the
acquisition of associated companies is reflected under the shareholdings in associated companies.
Impairment test on goodwill
Goodwill is allocated to the cash-generating units of Swisscom according to their business activities.
Goodwill acquired in a business combination is allocated to each cash-generating unit
expected to benefit from the synergies of the business combination.
The allocation of the goodwill to the cash-generating units is as follows:
In CHF million 31.12.2010 31.12.2009
Residential Customers 2,496 2,501
Small & Medium-Sized Enterprises 656 656
Corporate Business 734 728
Wholesale 45 45
Cash-generating units of Swisscom Switzerland 3,931 3,930
Fastweb 2,210 2,623
Other cash-generating units 120 111
Total goodwill 6,261 6,664
Apart from goodwill, there are no recorded intangible assets with indefinite useful lives. Goodwill
was tested for impairment in the fourth quarter 2010 after the business planning had been completed.
The recoverable amount of a cash-generating unit is determined based on its value in use,
using the discounted cash flow (DCF) method. The projected cash flows are put together on the
basis of the business plans approved by management covering a three-year period in general. A
planning horizon of five years is used for the impairment tests in Fastweb. For the free cash flows
extending beyond the detailed planning period, a terminal value was computed by capitalising
the normalised cash flows using a constant growth rate. The growth rates applied are the growth
rates customarily assumed for the country or market. The key assumptions underlying the calculations
are as follows:
WACC WACC Long-term
Disclosures in % pre-tax post-tax growth rate
Cash-generating units of Swisscom Switzerland 5.6 to 6.2 4.1 to 4.8 –1.2 to 0
Fastweb 9.91 7.58 1.0
Other cash-generating units 7.3 to 11.9 5.8 to 9.4 1 to 1.5
The application of pre- or post-tax discount rates (WACC pre-tax and WACC post-tax) both results
in the same value in use. The discount rates used take into consideration the specific risks relating
to the cash-generating unit being considered. The projected cash flows and management assumptions
are corroborated by external sources of information. The approach taken and assumptions
made for the impairment test at Swisscom Switzerland and Fastweb are presented below.
Swisscom Switzerland
The cash-generating units of Swisscom Switzerland are the operating segments “Residential Customers”,
“Small and Medium-Sized Enterprises”, “Corporate Business” and “Wholesale”. The
impairment test of goodwill is conducted on these cash-generating units. The recoverable amount
was determined based on the value in use using the discounted cash flow (DCF) method. The forecast
of future cash flows was based upon the three-year business plan approved by management.
Free cash flows extending beyond the detailed planning period were extrapolated using a negative
long-term growth rate of –1.2% to 0%. As of the measurement date, the recoverable amount at
all cash-generating units, based on their value in use, was higher than the carrying amount relevant
for the impairment test. Swisscom is of the opinion that no reasonably expected changes in
Consolidated financial statements 180 | 181
Notes to the consolidated financial statements