Shareholders' Letter

Tax risks Fastweb
On 23 February 2010, the Italian investigatory authorities, based upon an inquiry report concerning
VAT fraud and criminal organisation, initiated penal proceedings against Fastweb and other
individuals and companies. In addition, tax audits by the Italian Tax Police took place in respect of
the years 2003 through 2009. The object of the investigations was, inter alia, the purchase and
resale of telephone cards by Fastweb in 2003 as well as interconnection services of Fastweb in
2005 through the beginning of 2007. The outcome of the investigation is difficult to predict and
involves uncertainties. On the basis of a legal opinion, Swisscom estimates that an outflow of
funds for the aggrieved Fastweb is probable and has therefore set up a provision of EUR 70 million
(CHF 102 million) in the first quarter of 2010. The establishment of the provision, however, does
not constitute a recognition of guilt. The amount of the provision was arrived at on the basis of a
computation which takes into account the possible financial risks and uncertainties arising from
the proceedings and was the best estimate which could be made on the basis of the information
then available. In the fourth quarter of 2010, an accord was reached with the public prosecutor’s
office for part of the VAT proceedings and provisions in an amount of EUR 46 million (CHF 61 million)
were settled. As of 31 December 2010, the provisions relating to the VAT proceedings
amounted to EUR 28 million (CHF 35 million).
The further development of the proceedings or a decision of the competent authorities in subsequent
years may lead to a differing assessment of the financial outcome and thus to an increase
or decrease of the recorded provision. Furthermore, it is possible that, as a result of the tax audit,
further matters may be contested by the tax authorities which are unrelated to the alleged VAT
fraud and which could have a financial impact on income taxes and value-added taxes.
29 Contingent liabilities
Proceedings conducted by the Competition Commission
The Competition Commission (ComCo) is currently investigating a number of companies in the
Swisscom Group which are described below. If it is proven that Swisscom has violated Antitrust
Law, ComCo is entitled to impose sanctions. The latter depends on the length and severity and
nature of the violation and may amount to up to 10% of the revenue generated by the company
in question in the relevant markets in Switzerland over the last three financial years.
Investigation concerning mobile phone termination fees
In October 2002, the Competition Commission (ComCo) initiated an investigation in accordance
with Antitrust Law against Swisscom in connection with termination fees in the mobile phone
market. In several proposed rulings issued to Swisscom, the Secretariat of ComCo was of the opinion
that Swisscom has a dominant market position for the termination of mobile phone traffic in
its network and has violated Swiss Antitrust Law by demanding disproportionately high termination
fees compared with its competitors. It has therefore proposed to the Competition Commission
that sanctions of CHF 489 million be imposed on Swisscom. The proposed sanctions relate to the
period from 1 April 2004 (date on which the revised Swiss Antitrust Law entered into effect)
through 31 May 2005 (when Swisscom lowered its mobile termination prices from CHF 0.335 to
CHF 0.20). Swisscom contests the view that it holds a dominant market position and is of the opinion
that its tariffs are not abusive. Prior to lowering its termination fees on 1 June 2005, Swisscom’s
fees were approximately 10% lower than those charged by its competitors. In addition, as
Swisscom has a higher volume of outgoing calls than the other mobile phone providers, Swisscom
makes net payments to its competitors.
On 5 February 2007, ComCo issued a ruling. It came to the conclusion that Swisscom is dominant
in the market and has abused this position in violation of Swiss Antitrust Law by demanding unreasonably
high termination fees from other mobile phone providers and particularly end consumers
during the period from 1 April 2004 to 31 May 2005. The reasoning was in essence identical to
that of the previous proposed rulings of the Secretariat. As a result of this allegedly unlawful behaviour,
ComCo has imposed a sanction of CHF 333 million. The development in prices subsequent
to 1 June 2005 is the object of a further investigation. In connection with the repurchase of the
25%-share in Swisscom Mobile Ltd from Vodafone, it was agreed that, in the event of a sanction,
25% of the sanction may be claimed back from Vodafone. Swisscom refutes the accusation that
it has abused its dominant market position as well as the sanction and has challenged the ruling