Provisions for dismantling and restoration, disclosure of discount rate and sensitivity, policy, judgements

Swisscom Ltd – Annual report – 31 December 2019

Industry: telecoms

3.5 Provisions and contingent liabilities (extract 1)
Provisions

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Provisions for dismantling and restoration costs
The provisions are computed by reference to estimates of future anticipated dismantling costs and are discounted using an average interest rate of 0.72% (prior year: 1.16%). The effect of using different interest rates amounted to CHF 64 million (prior year: CHF 3 million). The cost index used for computing the dismantling costs was amended, resulting in an impact of CHF 25 million. In 2019, as a result of reassessments, adjustments totalling CHF 47 million (prior year: CHF 3 million) were recognised under property, plant and equipment, with no impact on the income statement, and an expense of CHF 2 million (prior year CHF 1 million) recorded in the income statement. The non-current portion of the provisions is expected to be settled after 2021. An increase of estimated costs by 10% would result in an increase of CHF 65 million in the amount of the provision. A delay of another ten years in the timing of the dismantling would lead to a reduction of CHF 8 million in the provisions.

3.5 Provisions and contingent liabilities (extract 2)
Significant judgements or estimates
The provisions for dismantling and restoration costs relate to the dismantling of telecommunication installations and transmitter stations, as well as the restoration to its original state of land held by third party owners. The level of the provisions is determined to a significant degree by the estimation of future dismantling and restoration costs, as well as the timing of dismantlement. The provisions and contingent liabilities for regulatory and antitrust proceedings relate to proceedings in connection with regulated access services provided by Swisscom and proceedings initiated by the COMCO. The legal and accounting assessment of these proceedings is associated with significant uncertainties in estimation and scope for discretion with regard to the probability of occurrence and the amount of a possible cash outflow. The provisions established in this way constitute the best possible estimate of the liability. Possible liabilities whose occurrence as of the balance-sheet date cannot be assessed, or liabilities for which the level cannot be reliably estimated, are disclosed as contingent liabilities.

Accounting policies (extract)
Provisions are recognised whenever a legal or constructive obligation arising from past events, the outflow of resources to settle the liability is probable, and the amount of the liability can be estimated reliably. Provisions are discounted if the effect is material.

Provisions for dismantling and restoration costs
Swisscom is legally obligated to dismantle transmitter stations and telecommunication installations located on land belonging to third parties following decommissioning, and to restore to its original state the property owned by third parties in the locations where these installations are erected. The costs of dismantling are capitalised as part of the acquisition costs of the installations, and are amortised over their useful lives. The provisions are measured at the present value of the aggregate future costs, and are reported under non-current provisions. Whenever the provision is re-measured, the present value of the changes in the liability is either added to or deducted from the cost of the related capitalised item of property, plant and equipment. The amount deducted from the cost of the related asset may not exceed its carrying amount. Any excess is taken directly to income.