Annual Report 2003 (PDF)

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TeliaSonera Annual Report 2003 It is now some 15 months since the new TeliaSonera Group was formed. The merger created a new set of opportunities – TeliaSonera was now the leading telecommunications company in the Nordic and Baltic region. Needless to say, expectations on the new Group were high. Could we live up to them? The first fiscal year as a new Group would show. We have now closed the books for 2003. Much has been accomplished. And we have a lot to tell. This is our story.

2004 Annual General Meeting Questions regarding content: For Information about the 2004 Annual General Meeting and how TeliaSonera AB Tel. +46 (0)8 504 550 00 to apply to attend, see page 45. Investor Relations Fax +46 (0)8 611 46 42 SE–106 63 Stockholm www.teliasonera.com/ir Financial Information Sweden

Annual General Meeting April 28, 2004 Ordering of individual printed reports: Interim Report January–March 2004 April 28, 2004 Interim Report January–June 2004 July 28, 2004 Tel. +46 (0)372 851 42 Interim Report January–September 2004 October 27, 2004 Fax +46 (0)372 843 56 Annual Report 2003 www.teliasonera.com/ir Shareholders with questions regarding the distribution of financial reports or for change of address: Tel. +46 (0)8 449 88 16 Fax +46 (0)8 449 88 10 TeliaSonera AB (publ), SE–106 63 Stockholm, Sweden, Corporate Reg. No. 556103-4249, Registered office: Stockholm E-mail [email protected] TeliaSoneraSweden Sverige TeliaSoneraNorway Sverige TeliaSoneraBaltic Countries Sverige

This is TeliaSonera Shareholding: 100% Shareholding: 100% Shareholding: 90% Net sales: SEK 2,032 million Net sales: SEK 42,364 million Net sales: SEK 6,081 million Shareholding: 60% TeliaSonera is the leading telecommunications com- Net sales: SEK 2,136 million Number of Market Number of Market Shareholding: 60.3% How to Reach TeliaSonera pany in the Nordic and Baltic region. We also hold customers positions customers positions Mobile 3,838,000 1 Mobile 1,195,000 2 Net sales: SEK 1,855 million Shareholding: 49% strong positions within mobile communications in Fixed voice 6,256,000 1 TeliaSonera AB TeliaSonera Finland Net sales: SEK 1,890 million Internet access, incl. Mailing address: TeliaSonera AB, Anni Vepsäläinen, President Russia, Eurasia and Turkey. dial-up and broadband 1,222,000 1 TeliaSonera Sverige Shareholding: 49% Denmark SE-106 63 Stockholm, Sweden Mailing address: TeliaSonera Finland Oyj, P.O. Box 220, Net sales: SEK 1,583 million Visiting address: Sturegatan 1, Stockholm FIN-00051 Sonera, Finland Shareholding: 100% Shareholding: 49% TeliaSonera offers reliable, innovative and easy-to-use TeliaSonera Sverige Telephone: +46 (0)8 504 550 00 Telephone: +358 (0)20401 Finland Net sales: SEK 1,494 million Fax: +46 (0)8 504 550 01 Fax: +358 (0)2040 63260 services for transferring and packaging voice, images, Net sales: SEK 3,278 million E-mail: [email protected] E-mail: [email protected] Shareholding: 100% Number of Market data, information, transactions and entertainment. Number of Market customers positions Net sales: SEK 17,697 million customers positions Mobile 2,064,000 1 President and Chief Executive Officer (CEO) TeliaSonera Norway, Denmark and Baltic Countries We also offer wholesale international carrier services Mobile 525,000 4 Fixed voice 1,928,000 1 Anders Igel Kenneth Karlberg, President in Europe and across the Atlantic. Number of Market Fixed voice 172,000 3 Internet access, incl. Mailing address: TeliaSonera AB, Mailing address: TeliaSonera Norway, Denmark and customers positions Internet access, incl. dial-up and broadband 128,000 1 SE-106 63 Stockholm, Sweden Baltic Countries, SE-131 86 Nacka Strand, Sweden Mobile 2,428,000 1 dial-up and broadband 132,000 3 Telephone: +46 (0)8 504 550 00 Telephone: +46 (0)8 504 550 00 Fixed voice 804,000 Among At year-end 2003, TeliaSonera had 22 million cus- Fax: +46 (0)8 504 550 01 Fax: +46 (0)8 601 97 58 top three TeliaSoneraRussia Sverige E-mail: [email protected] E-mail: [email protected] tomers and an additional 27 million customers in Internet access, incl. dial-up and broadband 305,000 1 Shareholding: 43.8% associated companies. Deputy Chief Executive Officer (Deputy CEO) Corporate Communications and President, TeliaSonera International Michael Kongstad, Group Vice President Net sales: SEK 5,900 million Sales totaled SEK 81,772 million and operating income Harri Koponen Mailing address: TeliaSonera AB, Number of Market Mailing address: TeliaSonera International, SE-106 63 Stockholm, Sweden totaled SEK 13,140 million in 2003. customers positions P.O. Box 100, FIN-00051 Sonera, Finland Telephone: +46 (0)8 504 550 00 Mobile 6,175,000 3 Telephone: +358 (0)20401 Fax: +46 (0)8 611 46 42 Fax: +358 (0)2040 54112 E-mail: [email protected] We see simplicity and service as the most important E-mail: [email protected] tools for creating long-term growth and value for our TeliaSoneraTurkey Sverige Investor Relations Corporate Networks and Technology Tobias Lennér, Senior Vice President customers and our shareholders. Shareholding: 37.3% Lars-Gunnar Johansson, Group Vice President Mailing address: TeliaSonera AB, Mailing address: TeliaSonera AB, SE-106 63 Stockholm, Sweden Net sales (from the SE-106 63 Stockholm, Sweden Telephone: +46 (0)8 504 550 00 The TeliaSonera share is listed on Stockholmsbörsen, period of Q402-Q303): SEK 16,868 million Telephone: +46 (0)8 504 550 00 Fax: +46 (0)8 611 46 42 Helsinki Exchanges and Nasdaq. Fax: +46 (0)8 94 76 83 E-mail: [email protected] Number of Market customers positions E-mail: [email protected] Mobile 19,000,000 1 TeliaSonera Sweden Marie Ehrling, President TeliaSoneraEurasia Sverige Mailing address: TeliaSonera Sweden, SE-123 86 Farsta, Sweden Shareholding: 74% Telephone: +46 (0)8 713 1000 Fax: +46 (0)8 713 6585 Net sales: SEK 2,742 million E-mail: [email protected]

Number of Market customers positions Mobile 2,385,000 1

International Carrier

TeliaSonera offers wholesale international carrier services in Europe and across the Atlantic. Production: TeliaSonera AB, Investor Relations and Intellecta Communication AB. Photos: Page 6: Bertil Ericson/Pressens Bild. Shareholding: 100% Page 9: Fredrik Persson/Pressens Bild. Page 10: Stock Image/Ina Agency. Page 12-25: Jan Chlebik. Page 26: Picture Press/Ina Agency. Net sales: SEK 4,892 million Page 32: Matton, Bruno Ehrs/Bildhuset and S. Blåvarg/Johnér Bildbyrå. Paper: cover Arctic Silk 250 g and insert Galerie One Silk 115 g. Printing: Tryckindustri Information AB. Printed on environmentally approved paper.

So far Looking forward Corporate Governance Financials

AGM, Board, Committees and AuditorsManagement and Control Management Human Resources 35 and CompensationCorporate Social ResponsibilityBoard of DirectorsExecutive Management and 36 39 38 40 SwedenFinlandNorwayDenmarkBaltic CountriesEurasiaRussiaTurkey 12 15 20 18 19 22 23 24 2010Vision Position 2005Wanted Business ConceptShared Values 29 28 30 30 Strategic Focus in Brief 31 PresidentsGroup Vice 41 International Carrier 25 Annual General Meeting 2004Report of the DirectorsFinancial OverviewConsolidated Statement incl. notes – IFRS/IASConsolidated Statement incl. notes – ÅRL 58 Parent Company Statement incl. notesProposed Appropriation of Earnings 45 101 Auditors’ Report SummaryNine-Year 116 46 128 49 130 129 Corporate Governance 32 ShareTeliaSonera 42 The Year in BriefThe Year from the CEOComments and MarketsCustomers 6 10 2 Goals and StrategyVision, 26

Financials Corporate Governance

Looking forward: Our storyso far: The Year in Brief

Record-high earnings and stronger market position.

TeliaSonera focused on strengthening the Group’s profitability and cash flow during the year. Efforts were primarily concentrated on areas that were communicated before the merger between Telia and Sonera; home markets development, growth opportunities in the international mobile operations, improved profitability in underperforming units, synergies and streamlining as well as divestitures of companies outside the core business.

Operating income excluding non-recurring items increased by SEK 8,839 million to SEK 14,831 million. Net income increased to SEK 7,671 million (–32,890) and earnings per share climbed to SEK 1.64 (–7.03). Group earnings showed The robust earnings improvement is attributable to cost savings as well as in- substantial improvement creased revenues. Stronger revenues are primarily from the mobile operations in compared with 2002. the Nordic and Baltic countries, Russia, Eurasia and Turkey and from Internet and broadband in the Nordic and Baltic countries, which all grew with a positive earnings trend. Cost savings were achieved through the restructuring of underperforming businesses and through streamlining, particularly in Sweden.

Together with a lower level of investment (capital expenditure), the strong earn- Cash flow reached record ings generated record-high free cash flow of SEK 17,499 million (9,534). level and the financial posi- The strong cash flow enabled TeliaSonera to further improve its financial position was further improved. tion by reducing reported net borrowings by SEK 19,868 million to SEK 18,207 million, increasing the equity/assets ratio, including dividend, from 52.1 percent to 56.7 percent during 2003.

An increased dividend For 2003, the Board of Directors and the CEO are proposing an increased dividend to SEK 1.00 per share, of which an ordinary dividend of SEK 0.80 (0.40) and an to SEK 1.00 per share is extra dividend of SEK 0.20 due to the exceptionally strong cash flow. The proposed proposed. dividend totals SEK 4,675 million.

2 TELIASONERA ANNUAL REPORT 2003 The Year in Brief So far

We continued developing the home market.

Major initiatives were taken in Sweden aimed at increasing customer loyalty and regaining market shares. We also further simplified our services and developed Sweden customer service. Our efforts have yielded results and we strengthened our market position within mobile communications, and towards the end of the year, we successfully turned the negative trend within consumer fixed voice.

Mobile number portability was introduced in Finland mid-year, intensifying competition. Despite tougher competition and substantial price erosion, we were able to maintain our good profitability. New attractive offerings and improved cus- Finland tomer service enabled us to report a positive net inflow of mobile customers at year-end. Within fixed communications, the acquisition of the fixed network operator Auria fortified our position in Finland during the year.

We further strengthened our position in the Norwegian mobile market. Norway is the Group’s forerunner in terms of clear market messages and simplified serv- Norway ices, which are important factors behind the market success.

In Denmark, we launched creative subscriptions within both fixed and mobile. Combined with the restructuring of the fixed network operations, this led to substantial improvements in all our businesses. Despite tough competition and price Denmark erosion, we successfully increased both our customer base and earnings within mobile communications.

In 2003, we began developing our pan-Nordic offerings, primarily for business customers, and we developed a pan-Nordic data communications solution that Pan-Nordic offerings handles not only data but also voice and video. We also reinforced our competency within managed IT services, which means that we are able to take on customers’ entire communications platforms.

In the Baltic countries, we further developed the mobile business and initiated a restructuring of the fixed network operations. The mobile operators showed positive growth and a good earnings trend and we strengthened our market positions. The fixed network operations are facing stiff competition from the mobile sector. Baltic Countries Restructuring efforts were initiated on these operations in order to reduce cost levels and fortify the Internet and data communications businesses where we see good growth opportunities. During the year, we increased TeliaSonera’s shareholding in the Lithuanian mobile operator Omnitel to 90 percent.

TELIASONERA ANNUAL REPORT 2003 3 The Year in Brief

Our international mobile operations showed strong positive development and further improved profitability. The mobile operator Turkcell, in which TeliaSonera holds – Fintur, in which TeliaSonera owns – directly and indirectly – directly and indirectly – 37.3 percent, grew its customer base 74 percent, operates mobile businesses in four Eurasian coun- by 3.3 million to 19 million customers, making Turkcell one tries: Kazakhstan, Azerbaijan, Georgia and Moldova. During of the largest mobile operators in Europe. the year, the customer base grew by 771,000 new customers, The Russian mobile operator MegaFon, in which Telia- bringing the total number of customers to nearly 2.4 million Sonera holds 43.8 percent, more than doubled its customer at year-end. base, with 6.2 million customers at year-end. MegaFon The markets in the international mobile operations are extended its operations into the eastern parts of Russia in the characterized by low penetrations within both mobile and beginning of 2004 and the company now offers services in fixed communications, which is why we expect customer all seven regions in Russia. growth to continue to climb in 2004.

Efforts to win synergies from the merger are succeeding faster than planned. We expect to reach the synergy goals set for the merger operators. One example of reduced capacity leasing is the between Telia and Sonera. The initiatives taken thus far are integration of Telia’s and Sonera’s carrier operations, where expected at the end of 2005 to yield annual cost savings of traffic previously carried on leased lines can now be carried SEK 1,751 million and annual capital expenditure savings of in TeliaSonera’s own network. SEK 374 million. Costs for the implementation of these ini- Synergies were also identified within IT systems and infra- tiatives are estimated at approximately SEK 952 million. structure. Parallel development projects in different countries Within product and service development, cost savings were halted and we redirected our development focus to- were achieved through the coordination of our resources for wards Group-wide systems. research, development and product management. We also The merger has made us a stronger negotiating partner in phased out overlapping operations, which yields substantial terms of purchasing services and products. We have already cost savings. begun to win synergies by renegotiating supplier contracts For existing products and services, we utilize best practice for purchases including network equipment, service platforms by introducing existing services and service platforms from and IT consulting services. one market on other markets. During 2003, cost savings totaled SEK 882 million and The introduction of shared service platforms cuts costs capital expenditure savings totaled SEK 481 million, while for network operations and production. The merger reduces implementation costs were SEK 685 million. roaming prices and the need to lease capacity from other

Synergy savings from decisions to date

Full run rate annual Effect in Full run rate annual Effect in SEK million effect (by 2005) 2003 SEK million effect (by 2005) 2003 Operating expenditure Capital expenditure Product and service development 529 205 Product and service IT systems and infrastructure 276 100 development 13 46 Purchasing 303 254 IT systems and infrastructure 22 53 Network operations 490 178 Purchasing 324 348 Corporate functions 153 145 Network operations 15 34 Total 1,751 882 Total 374 481

4 TELIASONERA ANNUAL REPORT 2003 The Year in Brief

Great efforts were made to improve profitability in underperforming businesses. So far International Carrier and the Danish fixed network operations In the Danish fixed network operations, we have concentrated have struggled with problems in recent years and posted our offering to areas where we can compete successfully and large deficits, but after a successful restructuring, we were able greatly reduced our costs. These measures paid off and profit- to turn this trend around and the businesses are now begin- ability in the Danish fixed network operations showed sub- ning to report positive figures. stantial improvement in 2003. Telia’s previous carrier operations underwent extensive The company Sonera Zed, which offers operator-inde- restructuring and we integrated Telia’s and Sonera’s carrier pendent mobile services within entertainment, communica- operations. These measures form a solid foundation for Telia- tions and information, also improved sales and profitability. Sonera International Carrier to begin renewed growth and Zed does not belong to the core business, which is why our to further improve profitability. intention is to divest the company.

We continued to free up capital by divesting companies outside the core business. Some 30 divestitures were completed during the year. The were signed for the divestiture of INGROUP and KI Consulting. largest capital gains stemmed from the divestiture of the In the beginning of 2004, an agreement was signed for the holdings in the mobile operator Bharti Mobile in India, the divestiture of the leasing company Telia Finans. This deal fixed network operator Netia in Poland, the satellite company frees up capital totaling SEK 6.2 billion. Inmarsat, and Respons within Telefos. At year-end, agreements

The merger is now successfully completed and TeliaSonera is managed as an integrated company. The implemented division of responsibilities and control develop the Group’s vision and shared values. The goal is for model enable us to utilize synergies and economies of scale TeliaSonera to become a genuine service company with its while working close to our customers in the local markets. foundation in simplicity and service. The vision is anchored in We already see the benefits of the new control model in the TeliaSonera’s customers, services and employees and growth, form of lower costs, lower capital expenditure and acceler- with 2010 as the target. This focus and these values are now ated service development. being implemented in the organization. During the year, we completed a far-reaching project to

TeliaSonera Group Profit Center performance Operating income excl. In millions, except 2003 2003 2002 Net sales non-recurring items per share data SEK EUR*) SEK SEK million 2003 2002 2003 2002 Net sales 81,772 9,010 80,979 Sweden 42,364 43,562 11,150 8,970 EBITDA excl. Finland 17,697 17,515 2,051 2,056 non-recurring items 30,690 3,382 25,457 Norway 6,081 5,537 452 –42 Margin (%) 37.5 37.5 31.4 Denmark 3,278 2,783 –561 –2,234 Income from associated Baltic countries 5,881 6,063 1,164 1,214 companies 382 42 –33,039 Eurasia 2,742 847 889 –76 Operating income 13,140 1,448 –45,958 Russia*) 0 2 509 –43 Operating income excl. Turkey*) – – 618 –333 non-recurring items 14,831 1,634 5,992 International Income after financial Carrier 4,892 6,861 –298 –1,992 items 12,346 1,360 –46,791 Holding 1,982 2,180 –243 –943 Net income 7,671 845 –32,890 Earnings/loss per share 1.64 0.18 –7.03 Corporate and Capital expenditure 8,960 987 11,710 elimination –3,145 –4,371 –900 –585 Free cash flow 17,499 1,928 9,534 The Group 81,772 80,979 14,831 5,992 *) Convenience translation only, conversion rate SEK 1 = EUR 0.110183. *) MegaFon and Turkcell not consolidated. Total sales MegaFon SEK 5,900 million (2,914) and Turkcell SEK 16,868 million (13,236), following convenience translation into SEK, conversion rate SEK 1 = USD 0.139.

TELIASONERA ANNUAL REPORT 2003 5 Comments from the CEO

Ready for the next step.

2003 was a year of action, characterized by dedicated work to fulfill our promises preceding the merger. We became more aggressive on the market – and it paid off. And we finalized a Common Direction for the entire company. With the merger now being completed, we are ready for new challenges and a next step.

6 TELIASONERA ANNUAL REPORT 2003 Comments from the CEO So far

Last year I wrote in my comments to the annual report that 2003 would be a year of action. It is gratifying to note that this was most definitely realized. I would therefore like to thank all our employees and colleagues for their brilliant work during 2003. I would also like to thank all the families who have supported us through long workdays and tough situations. For 2003, we reported record highs in terms of both TeliaSonera’s profit and cash flow. We fulfilled the promises we made in the prospectus for the merger between Telia and Sonera. We are ahead of our forecasted figures in winning synergies. We have turned problem areas around in our International Carrier and Danish businesses. And maybe more importantly, we have taken aggressive action on our two largest markets – Sweden and Finland – and our efforts have paid off. After the merger between Telia and Sonera at year-end 2002, one of the immediate issues was how to avoid the post-merger decline that many companies have suffered. And we wanted to increase our marketing activities. The merger between the companies has, however, substantially exceeded expectations. I believe that our success lies in the fact that we were able to start the year with a clear strategic focus and division of responsibilities, with appointed managers in place. This also means that we created the conditions necessary for avoiding a post-merger decline. Contrary to what one might expect, TeliaSonera’s first fiscal year was not significantly marked by the merger. It was characterized more by intense efforts to improve and strengthen the joint company. Extensive changes in our work methods were implemented throughout the company, not least within the former Telia. The transition from product-oriented work methods, with business areas for mobile, fixed and Internet, to a customer-oriented approach based on the segments consumers, small and medium-size companies and large corporate customers, led to greater focus on our customers and also enabled total customer offerings that were previously stalled by shortcomings in internal cooperation. Already in our merger efforts in 2002, we made an important decision about our home markets, and that was that “enough is enough”. Being the largest player on deregulating markets does not mean that we have to lose market shares year after year. This is why we launched many new offerings in all our markets during the year, as well as intensified our marketing efforts. Our aggressive marketing has paid off. At year-end 2003, we had taken market shares in mobile communica- We fulfilled the promises we made tions in Sweden across all segments and we had even broken the negative trend in the prospectus for the merger in consumer fixed voice that had been prevalent since the preselect reform in 1999. between Telia and Sonera. In Finland, we won new customers at the end of the year in a market that took ” TELIASONERA ANNUAL REPORT 2003 7 Comments from the CEO

on heavy competition since the introduction of mobile number portability during the summer. It is easy to celebrate the record earnings, but it is even more rewarding for the future to show that we can achieve market success. Our figures show our success. We increased our customer base during the year by 7 percent in our consolidated companies, from 20.5 million to 22 million customers. In our associated companies, the number of customers climbed from 20 million to nearly 27 million, an increase of 32 percent. We have taken aggressive action on Last year, TeliaSonera launched key efforts to remold the company into a gen- our two largest markets – Sweden uine service company focused on simplicity and service. This work was aimed at and Finland – and our efforts have staking out a common direction for TeliaSonera with a vision for 2010, a revised paid off. ” business concept, shared values and incremental targets for achieving the company’s vision. More than 700 managers and employees participated in seminars and workshops. An additional 3,000 participated via the intranet. Each Profit Center is now working to implement the results of these efforts. The results have enjoyed very positive reception, particularly our values that guide our day-to-day work. These Shared Values are “Add value”, “Show respect” and “Make it happen”. This is important to me. Adding value through our work for profitable growth. Making it really happen. It’s a matter of respect. For all of our shareholders and for all of our employees. Nothing beats working in a successful and profitable company. For the future, we will continue our efforts to generate profitable growth in our existing markets. We believe that our home market in particular will remain very competitive and we will continue to adapt our cost structure to reflect the market conditions in different segments. Following the successful merger, we are now ready to take the next step if and when the right opportunity occurs. Our ambition is to achieve majority control in all operations by increasing our shareholding in the associated companies. This concerns our companies in the Baltic countries as well as Turkcell and MegaFon. Our strong financial position, together with our experiences from the merger, allow us now also to look ahead to take an active role in the consolidation of the European telecom market. To this respect, I have great confidence that the Telia- Sonera we are creating will be a valuable asset. Our starting point is to build on

8 TELIASONERA ANNUAL REPORT 2003 So far 9 TELIASONERA ANNUAL REPORT 2003 Comments from the CEO from Comments Following the successful merger, we Following the successful merger, are now ready to take the next step if and when the right opportunity occurs. ” This year will be tough, with greater competition, new technologies within both This year will be tough, with greater competition, will reach the same levels as in 2000. I am often asked when the share price Anders Igel President and CEO Stockholm, April 2004 fixed and mobile communications and greater demands from customers. The fixed and mobile communications and good growth in mobile, decline in fixed market is expected to show continued services.voice and strong growth in Internet based Based on continued market growth will develop in line with or efforts, our ambition is that organic revenue better than our markets. share prices before the market correc- Comparisons are then made to historical see many exciting business opportunities that we tion during the last years. We can create and exploit by unlocking our full strength. This is just the beginning. are convinced that by working actively And there are no shortcuts to success. We with simplicity and improved service levels, we will be able to achieve even greater at TeliaSonera success on all our markets to the benefit of our shareholders. We are dedicated to developing the company into a genuine service company with profitable growth. This is what matters and this is what will determine the future value of TeliaSonera. or augment our strength in the Nordic and Baltic home market, if and when the or augment our strength in the Nordic right opportunity occurs. Customers and Markets

Tightening our customer relations

So far

During 2003, we intensified our efforts to launch new

important markets. we managed to strengthen our position on several customer care. Customer response has been great, and attractive offers, to simplify services and to improve that add real value. always pay off – customer loyalty comes with services We believe that being a TeliaSonera customer should believe that being a TeliaSonera We Sweden

We worked hard to reinforce our market position. And we succeeded.

Aggressive market initiatives with attractive new offerings enabled Telia to strengthen its position on the Swedish market during 2003. Earnings improved significantly as the streamlining and sharp focus on costs continued.

Sweden TeliaSonera has a wide range of services for selected phone numbers in Sweden. businesses, consumers and organizations in The year-end loyalty campaign “Vi bjuder” Net sales: SEK 42,364 million Sweden and also offers wholesale services to used customer benefits for customers who (43,562) operators and service providers. We do busi- bought more than one service from Telia. EBITDA margin, excl. 41.6% ness on the retail market under the brands Telia Aggressive marketing initiatives continued in non-recurring items: (36.5) and Halebop and market wholesale products early 2004 and within mobile communications,

Operating income, excl. SEK 11,150 million under the brand Skanova. We are the leader the “Mobil 25” subscription was launched, non-recurring items: (8,970) within all our product areas. The Swedish mar- giving consumers 25 free call minutes and sub- ket represents half of TeliaSonera’s consolidated stantially reduced SMS prices for a monthly Capital expenditure in 7.3% sales. fee of SEK 50. To strengthen our fixed voice relation to net sales: (10.8) Sweden has nearly 9 million inhabitants. offering, “Telia Fritid” was launched, enabling Number of employees: 10,712 Swedish trade and industry is characterized by customers to make calls without per-minute (11,261) a large number of multinational companies and, charges during evenings and weekends for a

Previous year in parentheses. like most developed western economies, the monthly fee of SEK 30. service sector makes up a large part of the GDP, “Telia Go” was launched in 2003 to simplify approximately 60 percent in Sweden. Growth the use of mobile Internet services. for 2003 is estimated at 1.3 percent. To strengthen the broadband offer, Telia also Competition on the telecom market is well- launched two additional broadband services developed and penetration is high: mobile with speeds of 8 Mbps and 10 Mbps. communications 98 percent, fixed voice 72 The support function “Telia Kom Igång” was percent, Internet access 36 percent, of which created to help customers install broadband broadband 11 percent. It is easy to switch oper- connections. During the year, the geographic ators, making private consumers and smaller broadband (ADSL) coverage was extended and companies very adaptable. ADSL can now be offered to 78 percent of the Price pressure has long been very tough households and to 86 percent of the business within fixed voice and there has also been a customers in Sweden. marked increase in recent years within mobile communications and broadband. Closer relationship with business Telia made great strides during the year to customers strengthen customer loyalty by developing Strong initiatives were successfully completed attractive offers, simplifying services and im- within the business segment. proving customer service. Streamlining meas- To increase local presence and get closer to ures continued to further sharpen the compet- small and medium-sized business customers, itive edge. we have created a regional sales organization and customers are being segmented based on New attractive offers to private their communications needs to enable more consumers targeted offers. Being a Telia customer should pay off, and this Other initiatives include new ideas within is why new attractive offers were aimed at pri- mobile communications, where Telia helped Telia made great strides during the vate consumers during the year. At year-end, customers to get started with different mobile year to strengthen customer loyalty nearly one million private consumers had reg- functions during the year, including MMS, SMS by developing attractive offers, istered for the customer loyalty and retention and voice mail. This service enjoyed great suc- simplifying services and improving program “Telia Fördel”. cess and Telia has strengthened its position ”customer service. The “Telia Favorit” service gives customers within mobile communications among small a 30 percent lower per-minute rate to five pre- and medium-size business customers.

12 TELIASONERA ANNUAL REPORT 2003 Sweden So far

Telia has a strong position within the Large ness customers voted Telia as the No. 1 provider which half use Telia’s network. Competition Corporate Customers segment, which includes of mobile communications and the readers of intensified in 2003 with the establishment of the 1,000 largest businesses and organizations the industry magazine “Mobil” awarded "Telia the 3G operator 3. in Sweden. During the year, we developed Go" as the best mobile service of the year. For Four operators have been awarded UMTS pan-Nordic data communications solutions that the third consecutive year, the magazine ranked licenses in Sweden. Telia is building its UMTS can handle not only data but also voice and Telia as the best GSM network in Sweden and network in collaboration with Tele2 through video, and reinforced our competency within also awarded Telia as the best GPRS network the jointly owned company Svenska UMTS-nät managed IT services. Several major deals were for the second consecutive year. AB. In order to secure future capacity for 3G secured during the year, including a joint com- services for the long term, Svenska UMTS-nät mission with IBM to modernize Posten’s system Number one within mobile intends to buy Orange’s license in Sweden. for voice and data communications. communications Telia expects to launch 3G services commer- We have developed powerful customer rela- Telia has the most extensive network infrastruc- cially in March 2004. Telia’s UMTS network tionship management solutions (CRM) that ture in Sweden. covers more than 70 percent of the Swedish enable us to anticipate and meet the needs of The GSM network maintains a high standard population, which is the highest in Europe. Net- large corporate customers. Each customer has and is very reliable. The network covers nearly work testing is under way together with 500 its own key account manager, who in turn leads 100 percent of the population and 75 percent selected GSM customers. All of Telia’s GSM cus- an expert team in total solution development. of the country geographically. Alongside the tomers will have access to the UMTS network Telia offers wholesale services and products GSM network, we also run an analog network at no extra cost. to operators and service providers, services with good coverage in the sparsely populated that these companies in turn can develop as mountains and archipelagos of Sweden. Leader within fixed voice, Internet and their own end-user offerings. During the year, In 2003, we increased the number of mobile broadband additional agreements were signed with several customers by 234,000 to 3,838,000 and the Telia’s main competitors within fixed voice are municipalities for building broadband networks. number of customers via service providers by Tele2, ACN, Glocalnet, MCI, Song Networks 43,000 to 131,000. We strengthened our lead- and Telenor/Utfors. We have gradually lost market Market efforts paid off ing position on the Swedish mobile market and shares within fixed voice in recent years, but Telia The aggressive market initiatives during the estimate our market share at 52 percent. is still the market leader. The market share with- year paid off and Telia received several prizes Telia’s main competitors are Tele2 and Voda- in fixed voice, including subscriptions, was esti- and awards. In the Swedish Quality Index, busi- fone along with some 15 service providers, of mated at approximately 70 percent at year-end.

Number of Internet access customers, Number of mobile incl. dial-up and Number of fixed customers broadband voice customers thousands thousands thousands 4,000 1,500 7,000

3,500 1,250 6,000 3,000 5,000 1,000 2,500 4,000 2,000 750 3,000 1,500 500 2,000 1,000 250 500 1,000

0 0 0 2001 2002 2003 2001 2002 2003 2001 2002 2003

TELIASONERA ANNUAL REPORT 2003 13 Sweden

We have over 50 percent of the domestic traf- Telia has by far the most extensive and sophis- fic and approximately 40 percent of interna- ticated networks for fixed voice, datacom, Inter- tional traffic. We believe that our market ini- net and broadband and is the leading network tiatives stabilized the situation within fixed voice wholesaler in Sweden. at year-end. Telia’s fixed local access network reaches all The number of voice subscriptions fell by households and businesses in Sweden and we 126,000 to 5,432,000 and the number of ISDN can offer digital accesses to most of our custo- channels dropped by 59,000 to 824,000 during mers. Telia has fiber-optic networks in all major the year. Early in 2004, Telia took over Fortum’s cities and a well-developed regional structure approximately 37,000 voice and Internet cus- largely comprised of fiber-optics. All municipal- tomers. ities in Sweden have access to fiber-optic con- All sectors of the telecom market entail full nections. competition except for fixed voice subscriptions. At the end of 2003, TeliaSonera submit- Extensive distribution channels ted a proposal to the National Post and Telecom Telia has extensive distribution channels with Agency (PTS) regarding opening up the market its own customer service and 75 retail shops, for fixed voice subscriptions in Sweden. Fixed growing web-based sales and a far-reaching voice traffic is already sold in a competitive mar- network of resellers, from chain electronics ket today. stores to specialized retailers. Telia is the market leader within both dial-up Internet access and broadband access, and we Strong earnings improvement estimate our market share at 44 percent. The New control forms, continued streamlining with number of broadband customers increased dur- sharp focus on costs, synergies from the merger ing the year by 78,000 to 399,000 and the total with Sonera and the full impact of streamlin- number of Internet access customers is now ing efforts implemented in 2002 resulted in a 1,222,000. Besides telecom operators, our com- robust improvement in earnings in 2003. petitors also include several players specialized Telia shall be a strong player in the Swedish in broadband connections that primarily oper- market. Measures will continue in 2004 to ate in larger cities. Such players include Bred- adapt costs to reflect the market conditions in bandsbolaget and Bostream. different segments. We believe that service, Datacom is developing with integrated data simplicity and quality are sharpening our com- network solutions based on Internet (IP) tech- petitive edge as competition and price pressure nology winning ground over services based on intensify. We will continue to develop Telia as traditional technologies. The datacom market a genuine service company with an ambition is dominated by a few major telecom operators to create Sweden’s best customer service and such as Telia, Telenor/Utfors, Song Networks retail chain. and MCI, along with a growing number of IT companies such as IBM, TietoEnator and WM- data. Telia’s market share was estimated at year-end at just under 60 percent, indicating that we have maintained our leading position. Telia is the market leader within In addition to Telia’s network, there are five mobile communications, fixed voice, other domestic fixed networks in Sweden, as and Internet access. well as several regional networks owned prima- ” rily by energy companies and municipalities. 14 TELIASONERA ANNUAL REPORT 2003 Finland

We maintained our profitability So far despite escalating competition.

In Finland, Sonera managed to sustain its performance despite the introduction of mobile number portability. Net sales and earnings were positively affected by strong broadband growth and growth in mobile usage.

TeliaSonera offers an extensive product port- crease the ability to offer solutions comprising Finland folio in Finland under the Sonera brand. managed IT services. Several major customer Sonera is the leading provider on the Finnish agreements were signed during the year, in- Net sales: SEK 17,697 million (17,515) telecom market. Sonera is the leader in mobile, cluding agreements with Stora Enso, Metso, broadband and corporate data services and one TietoEnator, Kesko, Sponda, Rautaruukki, EBITDA margin, excl. 38.1% of the three largest operators in fixed voice Lindström and Sanoma WSOY. non-recurring items: (39.2) services. The main competitors are Elisa Sonera is a driving force within voice over IP. Operating income, excl. SEK 2,051 million Communications and the Finnet Group, along Broadband consumer customers are already non-recurring items: (2,056) with a number of smaller operators and IT able to use the Internet for voice communica- Capital expenditure in 13.3% providers. tions. In 2003, a new type of VoIP service, relation to net sales: (12.3) Finland has an advanced telecommunica- which does not require customers to invest in tions market with high penetration rates and equipment, was launched for large corporate Number of employees: 6,661 usage of telecommunications services. Penetra- customers. (6,235) tion within mobile communications is around Within the Business segment, we worked to Previous year in parentheses. 90 percent, 64 percent within consumer fixed demonstrate the advantages of using one sin- voice, 47 percent within consumer Internet gle provider for telecom services. The number access and 8 percent within consumer broad- of package offers was increased and service to band access. The Finnish mobile market is dis- business customers was improved by imple- tinguished by its relatively low proportion of menting a regional sales organization and one prepaid cards and the fact that as many as 35 single point of contact to get closer to custom- percent of households use only mobile com- ers. munications. For consumers, we implemented a single Finland has well-developed trade and indus- telephone number for all types of inquiries. try based on its traditional forestry, engineering Customer service staff was reinforced and the and metal industries. The rapid-growth domes- personnel received training in handling the tic telecom and electronics industries have taken entire product range. Easy to use mobile Inter- a more prominent role in the last decade, how- net services were launched within the Sonera ever, and have expanded to employ an increas- Colour concept. One of the services, The Finnish ing share of the country’s 5 million inhabitants. Ice Hockey League result service, was awarded GNP growth for 2003 is expected at 1.9 per- as the best mobile service in Finland’s largest cent.

Driven customer initiatives During the year, Sonera concentrated on improving its customer service and building up its offering. The company’s position within fixed communications gained added strength through the acquisition of the local operator Auria. The implementation of EDGE in the GSM network was initiated in order to quickly offer Sonera is the leader in mobile, high-speed mobile data services. broadband and corporate data Pan-Nordic offers were developed in order services and one of the three to sharpen our competitive edge especially in largest operators in fixed voice the Large Corporate Customer segment. Co- ”services. operation with partners was intensified to in-

TELIASONERA ANNUAL REPORT 2003 15 Finland

digital media contest. During the year, transfer on July 25 led to intense activity on the market, speeds in existing broadband Internet access leading operators to launch a wide range of services were increased while prices remained special offers to tie in customers, including fee- unchanged or, in certain cases, were reduced. free airtime and giveaways. During the year, For the youth segment, we introduced Zero- approximately 313,000 of Finland’s 4.5 million Forty, a service that offers 1,000 SMSs includ- mobile customers switched operator. ed in a monthly fee and single-rate domestic Sonera’s mobile subscriptions decreased by calling. 62,000 to 2,428,000 during 2003, mainly within the consumer segment and Sonera’s market Intense activity due to number portability share is estimated at more than 50 percent. A nationwide, high-quality GSM network, a On the other hand, the number of subscrip- broad range of mobile services and a promi- tions via service providers increased by nent role within service development have 142,000 to 177,000 and Sonera’s service pro- enabled Sonera to carve out a leading position viders strengthened their market position dur- on the Finnish mobile market. The GSM net- ing 2003. work covers 99 percent of the population and To increase our competitive strength, we 97 percent of the geographic area and mobile launched Sonera One on October 1, a service communications represent over 60 percent of with single-rate domestic calling and SMS. In Sonera’s sales. order to accelerate offering high-speed mobile There were 13 providers of mobile services data services, a decision was taken to introduce in Finland in 2003. Sonera, Radiolinja (Elisa) EDGE in the Finnish GSM network starting in and DNA (Finnet) are the largest providers with the Helsinki area. EDGE will improve the trans- own networks, while others are service pro- mission rate up to two or three times compared viders. Four of the mobile service providers, in- to current high-speed mobile data services cluding the largest provider Saunalahti, buy (GPRS). Efforts to build and test the UMTS net- capacity in Sonera’s network. Sonera, Radiolinja work continue and the network will be opened and DNA have UMTS licenses. for commercial use as soon as the technology The implementation of number portability is sufficiently mature.

Number of Internet access customers, Number of mobile incl. dial-up and Number of fixed customers broadband voice customers

thousands thousands thousands 2,500 350 1,000

300 2,000 800 250

1,500 600 200

150 1,000 400

100 500 200 50

0 0 0 2001 2002 2003 2001 2002 2003 2001 2002 2003

16 TELIASONERA ANNUAL REPORT 2003 Finland So far

Stronger position within fixed tance and international calling, market shares In 2004, initiatives will continue aimed at sim- communications remained stable at approximately 38 and 50 plifying and developing services and improv- The local market within fixed communications percent, respectively. Sonera is also a major ing customer service. Greater initiatives will be is extremely fragmented. Besides Sonera, some provider of traffic and network capacity on the taken within the growth areas pan-Nordic and additional 50 operators offer local voice on local Finnish wholesale market, with an estimated global services as well as within mobile data- networks within their own geographic areas. market share of approximately 25 percent. com services, fixed broadband services and Most of these operators belong to Finnet or Sonera is the leader on the Internet access managed IT services. Elisa. Some 10 players offer domestic and inter- market. The number of broadband customers national services, of which the three largest – increased by 68,000 to 150,000 during the Sonera, Finnet and Elisa – have their own year and the market share is expected to have domestic transport networks. climbed to 31 percent. Sonera’s local networks were previously concentrated in the northern and eastern parts Extensive distribution channels of Finland. In the beginning of the year, the Sonera distributes its services through its own local networks covered 74 percent of the sales force and customer service as well as country geographically, but only 26 percent of through external resellers specialized in elec- the population. During the year, Sonera’s local tronics and telecommunications. The external presence was strengthened by the acquisition resellers represent more than 1,000 outlets of Auria, a fixed network operator with a strong throughout Finland. Sonera has participating presence in southwestern Finland. The acqui- interests in some of these chains. Certain serv- sition gave us 126,000 new fixed line equiva- ices are distributed in collaboration with IT lent subscriptions in Finland and the local net- companies and system integrators. works now cover 31 percent of the population. Our strategy is to offer a complete range of Sustained profitability despite fierce fixed line services for all customers within our competition own local network areas. Within other local Sonera completed extensive streamlining areas, Sonera acts selectively and focuses pri- measures in 2001 and 2002, which resulted in marily on major customers with services where substantially higher cost efficiency. Additional we have a competitive edge. This means that in rationalizations were implemented in 2003. In competitors’ areas, Sonera offers a full range 2003, Sonera managed to sustain its perform- of fixed services for large corporate customers ance, despite escalated competition and price and for the majority of business customers erosion following the introduction of number while offering all private consumers long dis- portability. Net sales increased slightly and tance voice and international voice, and dial- earnings remained at almost the same level as up Internet. Local voice is only offered in in 2002. Sonera’s own local network areas. Broadband Internet is offered only in certain areas, includ- Future initiatives ing the Helsinki area. On the Finnish telecommunications market, In Finland, as in many other countries, the the growth in mobile subscription penetration During the year, Sonera’s local pres- number of fixed voice subscriptions is falling as is saturating, but there is a continuous growth ence within fixed communications customers migrate to mobile communications. trend in mobile services usage, both in voice was strengthened by the acquisition The acquisition of Auria, however, increased and data. Broadband Internet access is in a of Auria, a fixed network operator Sonera’s number of voice subscriptions and the strong growth phase. Traditional fixed voice with a strong presence in south- market share is expected to have increased to services are a slowly declining market, due to ”western Finland. 32 percent in 2003. Within domestic long dis- migration to mobile and broadband services.

TELIASONERA ANNUAL REPORT 2003 17 Norway

Our dedicated efforts to simplify for customers paid off.

NetCom showed continued strong growth in both net sales and earnings despite much tougher competition during 2003. NetCom’s dedicated efforts to simplify for customers are an important factor behind the company’s success on the market.

Norway TeliaSonera offers a broad spectrum of mobile prices promoted greater usage of mobile serv- services in Norway through NetCom, which ices. Other factors behind the positive devel- Net sales: SEK 6,081 million was acquired in 2000. Norway has a popula- opment include an increased share of business (5,537) tion of approximately 4.5 million. The share of customers and postpaid customers. The num- EBITDA margin, excl. 41.1% exports and imports is high, with gas and oil ber of mobile communications customers non-recurring items: (38.5) as the major export products. The GNP growth increased by 107,000 to 1,195,000 while the

Operating income, excl. SEK 452 million is expected to reach 0.7 percent for 2003. number of customers via service providers non-recurring items: (–42) Competition is well developed on the mobile remained unchanged at 90,000. market, but weak within fixed communications. Capital expenditure in 14.2% Penetration is high, approximately 89 per- SMS and MMS a great success relation to net sales: (19.8) cent for mobile and 73 percent for fixed. The NetCom’s customers are high-volume users of Number of employees: 722 four mobile operators with own networks are SMS and MMS. The success of SMS is partly (734) Telenor, NetCom, Teletopia and 3, and the attributable to attractive prices, but also to

Previous year in parentheses. most prominent service providers are Tele2, NetCom’s valuable cooperation with content Chess, Ventelo and Sense. NetCom’s GSM net- providers. work covers nearly 100 percent of the population. Telenor, NetCom and 3 each have a 3G Challenging the fixed line market license. The time for the 3G launch has not TeliaSonera expects continued growth within been determined. mobile communications. NetCom’s ambition is to further strengthen its position on the market, Simplifying prices and services for example by challenging the fixed line busi- NetCom is number two on the Norwegian ness. During 2003, NetCom and TDC Norway mobile market after Telenor. NetCom’s efforts began collaborating in a joint effort where Net- are focused on simplicity for its customers, for Com will develop mobile solutions and TDC example by creating a clear pricing structure. will focus on fixed line services. Earlier in the As early as 2001, a single per-minute rate was year, NetCom also signed an agreement with introduced for calls within Norway regardless COOP in Norway, offering an attractive mobile of the network operator used by the person price plan to COOP’s 900,000 members. called, around the clock. In 2004, a single per- NetCom reaches the market through coop- minute rate for calls within the Nordic coun- eration with all major external distribution tries was introduced. channels in Norway. Number of mobile NetCom’s dedicated efforts to simplify for customers customers are an important factor behind the thousands company’s success on the market. In 2003, the 1,250 company was honored with two prizes at the Stella awards, one for its successful gain of 1,000 market shares and one for combining easy to use services with a clear market message. 750 NetCom showed continued strong growth in both net sales and earnings despite much 500 tougher competition during 2003 and the company expects to have further strengthened 250 its market position. Despite reduced prices, sales per customer 0 2001 2002 2003 showed positive development since lower

18 TELIASONERA ANNUAL REPORT 2003 Denmark

Successful restructuring and new So far competitive offers.

During the year, we focused on transforming our operations into a profitable business. The fixed line operations were successfully restructured and we launched new creative offers for both fixed and mobile communications. All our operations showed significant improvements in 2003.

TeliaSonera offers both fixed and mobile serv- we also offer a limited selection of data com- Denmark ices, cable TV services and broadband Internet munications services, including IP-VPN. access in Denmark. Fixed and mobile services Since we have a nationwide backbone net- Net sales: SEK 3,278 million (2,783) are offered under the Telia brand, while cable work in Denmark, we also offer wholesale net- TV and broadband are offered by Telia Stofa. work services to operators and service providers. EBITDA margin, excl. 2.1% Denmark has 5.4 million inhabitants. The Telia was the first operator in Denmark to non-recurring items: (–47.0) export sector is dominated by industry and introduce a flat rate for fixed line services. The Operating income, excl. SEK –561 million agricultural products, as well as energy, oil and subscription Telia Fritid offers a flat rate for calls non-recurring items: (–2,234) gas. GNP growth is expected to reach 1.6 per- between 6:00 pm and 8:00 am on weekdays Capital expenditure in 11.9% cent in 2003. Penetration is high – approxi- and during weekends. We also launched a relation to net sales: (34.2) mately 85 percent for fixed and 89 percent for similar service for business customers. mobile and the broadband penetration is Profitability increased significantly. At year- Number of employees: 1,030 among the highest in Europe, estimated at 12 end, we had approximately 172,000 fixed line (1,105) percent. customers. Telia is the third largest provider of Previous year in parentheses. fixed voice to end users and the second largest Increased mobile growth and increased provider of wholesale products. profitability The mobile market is highly competitive. Telia, Second largest broadband access TDC, Sonofon, Orange and 3 offer mobile serv- provider ices based on their own networks alongside a Telia Stofa is Denmark’s second largest cable unwanted advertisements, i.e. spam.The num- number of service providers, including Debitel TV operator with 195,000 cable TV customers ber of broadband customers increased by and Telmore. and a market share of approximately 12 per- 23,000 to 104,000 in 2003, making Telia Stofa Despite tough competition and increased cent. The company also offers broadband Inter- the second largest broadband provider with price pressure, Telia succeeded in growing its net access. an estimated market share of 17 percent. mobile customer base and improving profitabil- Telia Stofa is the first Internet provider in ity. The number of mobile customers increased Denmark to offer a mail scanning service that by 59,000 to 525,000 and the market share is keeps customers’ mailboxes free of viruses and estimated at approximately 10 percent. The rewarding launch of the Telia Express subscription, with attractive pricing for voice services Number of Internet and free SMS usage, is an important factor access customers, behind the success. Number of mobile incl. dial-up and Number of fixed Telia’s GSM network covers approximately customers broadband voice customers 98 percent of the population and we have a thousands thousands thousands license for 3G, alongside three other operators. 600 150 250 The commercial launch is not yet decided. 500 125 200

Successful restructuring of the fixed line 400 100 operations 150 75 To improve profitability in our fixed line oper- 300 100 ations, we restructured and concentrated the 200 50 business. Today’s offerings comprise fixed voice 50 subscriptions, pre-selection subscriptions and 100 25 Internet access subscriptions to consumers and 0 0 0 business customers. For business customers, 2001 2002 2003 2002 2003 2002 2003

TELIASONERA ANNUAL REPORT 2003 19 Baltic Countries

Strong mobile growth and turnaround programs in the fixed line business.

In the Baltic countries,TeliaSonera offers a full range of telecommunications services through majority-owned and minority-owned companies. During 2003, we strengthened our position within mobile communications. We also started refocusing the fixed line business.

TeliaSonera made its first investment in the between the Baltic mobile operators, includ- Baltic Countries Baltic countries in 1991, and today we are ing roaming prices and simplicity for customers SEK 5,881 million Net sales: market leaders in the region. We have opera- when using mobile services across the three (6,063) tions through majority and minority owned Baltic countries. EBITDA margin, excl. 48.4% companies, all of which are leading players in non-recurring items: (49.8) their markets, within both mobile and fixed Lithuania Income from associated SEK 379 million communications. With a population of 3.5 million, Lithuania is companies: (358) During the year, we continued to develop the largest of the Baltic countries. Economic the mobile business and started refocusing the growth is strong and the GDP is expected to Operating income, excl. SEK 1,164 million non-recurring items: (1,214) fixed line operations. As fixed voice offers lim- grow approximately 6.8 percent in 2003. The ited growth potential, possibly even stagnation fixed line penetration is estimated at some 25 Capital expenditure in 12.9% due to competition from the mobile business, percent, mobile penetration at approximately relation to net sales: (22.0) the traditional fixed line operators must increase 62 percent and penetration within broadband their focus on data communications, including at around 1 percent. Number of employees: 4,741 (5,691) Internet and broadband services. Costs must TeliaSonera offers telecommunications serv- be reduced in order to increase competitive- ices through the mobile operator Omnitel and Previous year in parentheses. ness and maintain profitability. the fixed line operator Lietuvos Telekomas, in which we own 90 and 60 percent, respectively. Continued growth within mobile and Omnitel is the best known Lithuanian brand broadband in all categories and its market share is esti- The penetration in fixed communications is mated at 50 percent. Its main competitors are lower than the European average, while the Bite and Tele2. Effective segmenting and penetration within mobile communications is sophisticated customer relationship manage- relatively high. The GDP growth in the Baltic ment programs (CRM) enabled Omnitel to countries is among the highest in Europe, increase its customer base by 202,000 to which has a positive impact on the develop- 1,052,000 customers during the year. Sales ment of the telecommunications sector. increased robustly and earnings showed further All telecommunications markets in the improvement. Baltic countries are deregulated and the future Omnitel further enhanced its already wide development is expected mainly within mobile product portfolio during the year. Examples of services, data communication, Internet and these new services are Business League, aimed broadband. The mobile business is character- at business customers and organizations that ized by great creativity and we have seen a exchange a large number of calls on a regular number of smart services launched on the mar- basis, and Eurozone, which reduces roaming kets in recent years. prices within Europe. Another new service enables customers to check and control elec- Extract synergies and economies of scale tricity and water and other household equip- An important part of TeliaSonera’s Baltic strat- ment remotely. During the year, Omnitel also egy is to increase the ownership in the Baltic launched a prepaid card product with attrac- companies in order to enhance opportunities tively priced basic mobile services combined TeliaSonera has operations through majority and minority owned for synergies and economies of scale. During with convenient account reloading. The serv- companies, all of which are leading 2003, TeliaSonera bought Motorola’s shares in ice enjoyed great market success. players in their markets, within both the Lithuanian mobile operator Omnitel and Strong competition from the mobile sector ”mobile and fixed communications. now holds 90 percent of the company. caused Lietuvos Telekomas to lose customers Already today we see some cooperation and the average traffic volume per customer

20 TELIASONERA ANNUAL REPORT 2003 Baltic Countries So far

dropped. The operations are being restructured is still very low, for example approximately 1 Eesti Telekom, of which TeliaSonera holds 49 in order to turn this negative trend around and percent for broadband. percent. EMT and Elion are both market lead- to adapt to the new market conditions. Prices Both LMT and Lattelekom are market leaders. To further strengthen their competitiveness, are also being reduced. The company appoint- ers with market shares of 48 and 99 percent, EMT and Elion have coordinated their distri- ed a new president in 2003. Looking ahead, respectively. LMT’s main competitors are Tele2 bution channels and put together a joint cus- one of Lietuvos Telekomas’ major competitive and Zetcom, while Lattelekom faces limited tomer offering. strengths is its sophisticated network, which competition from small Internet service provid- Estonia is the smallest country in the Baltic gives great opportunities to develop the Inter- ers, cable TV operators and energy companies. region with a population of 1.4 million. The net and data communications business. In 2003, LMT launched both high-speed GDP is estimated to increase 4.8 percent in During 2003, the company increased its mobile data services (GPRS) and MMS services. 2003. The penetration in mobile communica- number of broadband customers (ADSL) by The number of mobile customers jumped by tions is approximately 77 percent, 33 percent 14,000 to 25,000. The number of fixed voice 87,000 to 534,000 and both net sales and in fixed line communications and 15 percent customers fell by 107,000 to 829,000. Sales earnings were up compared with 2002. within Internet and broadband. and earnings declined during the year, but Commercial 3G activities are scheduled to EMT offers a broad range of mobile services. profitability remained good. start in 2004. Mobile services usage is widespread in Estonia In 2003, Lattelekom successfully carried out and EMT is a forerunner in creating new, inno- Latvia a cost reduction program and increased its vative mobile services. For example, EMT intro- In Latvia, TeliaSonera offers mobile communi- efforts to develop its Internet and data com- duced services that enable customers to pay for cations services through Latvijas Mobilais Tele- munications services. Lattelekom’s broadband local transportation, parking and other types fons (LMT) and fixed line services through Lat- customers (ADSL) increased by 9,000 to 19,000 of micro payments. During the year, EMT intro- telekom. TeliaSonera currently holds – directly during the year while the number of fixed duced MMS services on the market. and indirectly – 60.3 percent of LMT and 49 voice customers fell by 47,000 to 654,000. EMT’s customer base increased by 50,000 to percent of Lattelekom. Sales decreased but earnings improved com- 478,000 during the year. Net sales climbed and Latvia has a population of 2.4 million and pared with 2002. earnings improved. The market share is esti- GDP growth is estimated at approximately 4.8 mated at 47 percent. The main competitors are percent for 2003. Mobile penetration is esti- Estonia Tele2 Eesti and Radiolinja Eesti. mated at 52 percent and fixed line penetration In Estonia, TeliaSonera offers mobile services EMT holds one of three 3G licenses in at 31 percent. Demand for Internet and broad- through EMT and fixed line services through Estonia. The commercial launch is expected in band services is increasing, but the penetration Elion. The companies are wholly-owned by the second quarter of 2005. A fourth license will be auctioned during 2004. Number of Internet access customers, The fixed line operator Eesti Telefon suc- Number of mobile incl. dial-up and Number of fixed cessfully reprofiled itself and changed its name customers broadband voice customers to Elion during the year. The company’s goal thousands thousands thousands is to be the best telecommunications and IT 2,500 150 2,500 service provider in Estonia. Elion’s market share is estimated at over 80 percent. The main 125 2,000 2,000 competitors are Uninet and Tele2.

100 The broadband penetration is estimated at 1,500 1,500 5-6 percent in Estonia. Elion increased its num- 75 ber of broadband customers (ADSL) by 19,000 1,000 1,000 to 49,000 in 2003 while the number of fixed 50 The charts refer to the voice customers fell 20,000 to 445,000. Elion 500 500 25 aggregate customer base improved both its sales and earnings com- in the Baltic countries, pared with the preceding year. including associated 0 0 0 2001 2002 2003 2001 2002 2003 2001 2002 2003 companies.

TELIASONERA ANNUAL REPORT 2003 21 Eurasia

Continued strong mobile growth in Eurasia.

Majority owned mobile operator Fintur operates on markets with low penetrations, enabling strong customer growth – during 2003 the customer base increased by 48 percent. The Fintur operations are self-financed.

Eurasia Fintur, in which TeliaSonera owns – directly and the former Soviet republics. Azercell has a indirectly – 74 percent, operates on four markets strong position on the business market partly Shareholding: 74% in Eurasia: Kazakhstan, Azerbaijan, Georgia and due to the company’s development of various Moldova. The other major shareholder is Turk- data services aimed at the oil and gas industry, Net sales: SEK 2,742 million (847) cell with 41.45 percent. All four countries have which is a powerful driver behind the devel- low penetrations within telecommunications, opment of more advanced services. One major EBITDA margin, excl. 54.3% non-recurring items: (54.0) which entails good opportunities for growth, competitive advantage is the good network particularly within mobile services. The four coverage that enables Azercell to offer its serv- Operating income, excl. SEK 889 million countries, which were formerly Soviet republics, ices to 95 percent of the population in non-recurring items: (–76) have low GDP per capita, but the economic Azerbaijan. MMS and GPRS services will be Capital expenditure in 36.1% development is fast paced, especially in Kazakh- launched in 2004. relation to net sales: (27.6) stan and Azerbaijan. Fintur reported a positive earnings trend in 2003. At year-end, Fintur had Geocell Number of employees: 1,024 (879) 2.4 million mobile customers, which represents Fintur operates in Georgia through the mobile an increase of 48 percent. operator Geocell, in which it holds 83.2 per- Previous year in parentheses. cent. Currently Geocell is second on the market KCell after Magticom, and the company’s ambition Kazakhstan is Fintur’s largest market, repre- is to become the leading mobile operator in senting 49 percent of Fintur’s revenues during Georgia, which was the case until 2000. During 2003. In Kazakhstan, Fintur owns 51 percent the year, Geocell increased its customer base by of the country’s leading mobile operator, KCell, 55 percent to 307,000 thereby also increasing which holds a market share of more than 70 its market share from 40 to 44 percent. percent. Three mobile companies operate in Georgia has 4.9 million inhabitants. The the country. KCell has the most extensive net- economy is dominated by the agricultural sec- work coverage and a strong brand image. KCell tor, but the country is also involved in the oil KCell’s customer base grew signifi- was the first operator to introduce high-speed and gas industry, which is a major user of cantly in 2003. The number of mobile data services (GPRS) and MMS in mobile services. customers was 990,000 at year-end, representing a 61 percent increase Kazakhstan. In 2003, the number of customer compared to 2002. increased 61 percent to 990,000. Moldcell ” Kazakhstan has nearly 15 million inhabitants During 2003, Fintur increased its holdings in the and covers an area six times the size of Sweden. mobile operator Moldcell from 77 to 100 per- Fintur Number of Kazakhstan is an important exporter of oil cent. Moldcell was established on the market in mobile customers and the GDP per capita is the highest of the 2000 and quickly established a strong brand thousands countries in which Fintur operates. and a 50 percent market share in Moldova. 2,500 The other operator is Voxtel. Azercell Moldova has 3.5 million inhabitants (not 2,000 Fintur owns 51.3 percent of Azercell, one of the including Transnistria), and like Georgia, the two mobile operators in Azerbaijan. Azercell is agricultural sector is a major part of the econ- 1,500 the leading operator with a market share of omy. The country is poor, but the economic approximately 86 percent. The number of growth is relatively good. 1,000 customers increased 36 percent to 912,000 in Moldcell has a very good reputation, espe- 2003. cially among young people. 500 Azerbaijan is an oil-rich country with a pop- In 2003, the number of customers increased ulation of 8 million and has one of the highest by 33 percent to 176,000. Moldcell plans to 0 2001 2002 2003 mobile penetration rates (13 percent) among launch GPRS services and MMS in 2004.

22 TELIASONERA ANNUAL REPORT 2003 Russia

Rapid growth in the Russian economy So far continued to boost mobile sales.

MegaFon showed strong growth in sales and earnings during 2003. The customer base doubled to 6.2 million and the market share increased to 17.5 percent.

MegaFon respectively. In 2003, MegaFon strengthened Russia TeliaSonera has through direct and indirect its position by boosting its customer base by SEK 5,900 million holdings a 43.8 percent ownership interest in over 3.1 million to approximately 6.2 million. Total net sales: (2,914) MegaFon, the third largest mobile operator in This means that MegaFon increased its market Russia. The mobile communications market in share by some 1.5 percentage points, to 17.5 Shareholding: 43.8% Russia continues to grow rapidly. In 2003, the percent. Areas where market shares were won Share of net income: SEK 709 million number of mobile customers in Russia doubled include Moscow and the Urals. (168) by 18 million to approximately 36 million. The company showed strong growth in both Year on year, nationwide penetration rose net sales and earnings during the year. The Operating income, excl. SEK 509 million non-recurring items: (–43) some 13 percentage points to about 25 per- expansion was successfully financed through cent at year-end. Penetration is highest in the the cash flow, vendor financing, bank loans and Previous year in parentheses. larger cities. For example, penetration in by issuing a ruble bond. Moscow jumped from 43 to 68 percent, while Following the launch of MMS and other penetration in St. Petersburg surged from 30 advanced services, including positioning serv- to 56 percent. Examples of high growth areas ices in Moscow and St. Petersburg last year, include Caucasus in the Southern Region and MegaFon in 2003 also introduced high-speed Volga. In 2004, the boom is expected to start mobile data services (GPRS) in these areas. in Siberia and Far East. MegaFon will continue to launch more As a whole, the telecommunications sector advanced services as the market matures. benefits from the rapid growth of the Russian In August 2003, Alfa-Eco Group announced economy. GNP is expected to be up 7.5 per- it had acquired a 25.1 percent stake in Mega- cent in 2003, and personal incomes are grow- Fon through CT Mobile. In autumn, IPOC Inter- ing. Inflation has decreased in recent years, but national Growth Fund Ltd., the owner of 6.5 remains high at some 14 percent. percent of shares in MegaFon, announced it MegaFon is a pan-Russian operator mainly had priority interest in the shares Alfa-Eco Group MegaFon’s nationwide GSM licenses concentrated in the St. Petersburg region, bought and raised claims to defend its right to are a competitive advantage giving MegaFon access to a total population Moscow, Caucasus in the Southern Region, the the shares. TeliaSonera is not a party in this dis- of about 145 million. Volga region, and the Urals. The company’s pute, which is not directly affecting the business strongest position is the northwestern part of operations of MegaFon. Nevertheless, until the ” Russia where its market share exceeds 50 per- ownership of CT Mobile shares in MegaFon is cent. After the successful launch in Siberia at settled, it is too early to consider a stock ex- the end of 2003, MegaFon had in 2003 com- change listing for MegaFon. MegaFon Number of mercial operations up and running in all major TeliaSonera’s ambition is to achieve majority mobile customers regions except Far East. control in MegaFon by increasing the share- thousands MegaFon’s strategy is to hold its leading holding in the company, should the opportu- 7,000 market position in the northwestern region, nity arise and be beneficial for TeliaSonera’s 6,000 strengthen its position in Moscow and in North shareholders. 5,000 Caucasus and to expand operations and market shares in other regions. MegaFon’s nationwide 4,000

GSM licenses, covering all of Russia’s 89 regions, 3,000 are a competitive advantage giving MegaFon access to a total population of about 145 million. 2,000

The main competitors, both pan-Russian, are 1,000 MTS and Vimpelcom, in which the largest for- 0 eign owners are Deutsche Telekom and Telenor, 2001 2002 2003

TELIASONERA ANNUAL REPORT 2003 23 Turkey

19 million customers make Turkcell one of Europe’s largest mobile operators.

Mobile penetration in Turkey rose from 35 to 40 percent during the year. Turkcell maintained its leading position in the mobile market in terms of both market share and new customer acquisitions.

Turkey Turkcell growth since 1998 when the company was TeliaSonera is established in Turkey through granted a full GSM operator license and showed SEK 16,868 million* Net sales: Turkcell, in which we hold – directly and indi- a continued positive trend in both net sales (13,236)** rectly – 37.3 percent. The other major share- and earnings during 2003. Although the price Shareholding: 37.3% holder is Çukurova Group (41.8 percent), a pressure intensified, Turkcell successfully leading industry conglomerate in Turkey. defended its leading position using loyalty pro- * Share of net income: SEK 600 million (70)** Turkey has 71 million inhabitants, rapid grams and volume-based offerings. The num- population growth and a very young popula- ber of customers increased by 3.3 million to * Operating income, excl. SEK 618 million tion. The economic development is strong, 19 million, making Turkcell one of the largest non-recurring items: (–333)** with a GNP estimated to increase 5 percent in mobile operators in Europe in terms of cus- * Q402–Q303 2003. The previous exceptionally high inflation tomer base. ** Q401–Q302 has abated and the Turkish lira gained strength. In 2003, TeliaSonera actively worked for a During the year, penetration within mobile proper corporate governance model in Turkcell communications climbed from about 35 to 40 and defended its interests by successfully percent. Penetration within fixed voice has opposing the convening of extraordinary share- been relatively stable in recent years at just holders’ meetings, which were called for by a under 30 percent. statutory auditor appointed by the other major Turkcell is by far the leading mobile opera- shareholder. tor in Turkey and has a quality profile. Turkcell TeliaSonera is willing to increase its share- offers a wide range of services, including high- holding in Turkcell to a controlling stake, should speed mobile data services (GPRS) and MMS. the opportunity arise and be regarded as bene- The GSM network covers practically all areas ficial for TeliaSonera’s shareholders. with populations over 5,000 nationwide. No decisions have been made regarding licenses for 3G in Turkey. There are three other operators on the Turkish market in addition to Turkcell. Two of these, Aria and Aycell, initiated a merger during the year. Turkcell has achieved very strong customer

Turkcell Number of mobile customers

thousands 20,000

17,500

15,000

12,500

10,000

7,500

5,000 Turkcell’s GSM network covers practically all areas with populations 2,500 Turkcell increased its over 5,000 nationwide. customer base from 15.7 0 to 19 million customers. 2001 2002 2003 ”

24 TELIASONERA ANNUAL REPORT 2003 International Carrier

Successful turnaround in the So far international carrier operations.

In the carrier business, 2003 was a year of restructuring and integration. To achieve synergies and reduce costs, Telia’s and Sonera’s carrier operations were integrated and Telia’s operations restructured and streamlined.

Today, TeliaSonera International Carrier success- Eastern Europe and over the Atlantic. International Carrier fully defends a position as one of the major The IP services include Global Transit, Euro wholesale players in the European market with a Connect and Content Connect. We were the Net sales: SEK 4,892 million (6,861) reputation for high quality and superior service. first non-U.S. IP provider to become transit The merger strengthened our position in the free on a global level, which means that we EBITDA margin, excl. 2.9% Nordic and Baltic region and in the European have direct connections to other IP providers. non-recurring items: (–17.9) part of Russia, where TeliaSonera International The voice services include premium voice, Operating income, excl. SEK –298 million Carrier is the undisputed market leader. We also bilateral and trading services. We offer direct non-recurring items: (–1,992) have a strong position in Central and Western international voice services to over one hun- Capital expenditure in 4.9% Europe and over the Atlantic. dred destinations and are a successful trader relation to net sales: (16.3) in international voice minutes. Our high-quality An advanced high-capacity network premium voice product was launched in 2003. Number of employees: 555 TeliaSonera International Carrier offers inter- (914) national IP, capacity and voice services on a Successful turnaround Previous year in parentheses. wholesale basis. We focus on larger operators, Telia’s carrier operations were successfully service providers and system integrators that restructured in 2003. The business has been demand international wholesale products. concentrated to sales of IP, voice and capacity The services are based on our international in the profitable part of the wholly-owned infrastructure, the Viking Network. The net- network in Europe and over the Atlantic. Grow profitability and sales work is adapted for sophisticated broadband The profitability of our carrier operations The carrier market was characterized by con- communications and offers connections to improved substantially in 2003 and in the tinued uncertainty during 2003. We expect selected international traffic aggregation points fourth quarter we reached positive cash flow current market conditions to prevail during in Europe. as well as positive operating income excluding 2004, with continued volume growth and sub- non-recurring items. Sales dropped, due to stantial price erosion due to surplus capacity Attractive product portfolio the close-down of the operations in Asia, the on the market. The objective for TeliaSonera We have an attractive product portfolio. The domestic capacity operations in the United International Carrier is to be the European capacity services include SDH services, wave- States and the domestic voice reseller opera- international carrier of choice and a profitable length services and Ethernet services. Capacity tions in the United Kingdom and Germany. player in the market. services are offered mainly in Western and

TeliaSonera International Carrier offers international IP, capacity and voice services on a wholesale basis. We focus on larger operators, service providers and system integrators ”that demand international wholesale products.

TELIASONERA ANNUAL REPORT 2003 25

Vision, Goals and Strategy

“Simplicity makes everything possible”

Looking forward, TeliaSonera is facing a variety of challenges. Competitive pressure will continue to build up. Technological progress will accelerate. Looking forward But most important of all; our customers will demand much more from us. And they will not ask for new technology – but for services that are easy to use and for solutions that add real value. This is a major shift that will require a lot from us. But we are determined to play a leading role in this transition. So we have set a vision for the Telia- Sonera Group. A vision that defines the way we look at our future. Vision, Goals and Strategy

We are to become a genuine service company with simplicity as our hallmark.

The merger of Telia and Sonera has resulted in a powerful combination. To take advantage of that and seize opportunities, we have set up a common direction that includes the vision, the wanted position, the business concept, and a set of shared values. To gain broad approval for the common direction, almost 4,000 employees and managers from different parts of the TeliaSonera Group were involved in the work to define it. The vision is our picture of what we want to achieve by 2010.

Vision 2010: “Simplicity makes everything possible” In 2010, TeliaSonera is a genuine service company. We serve individuals and families, companies and organizations. We make it possible for our customers to connect and communicate over distance – everywhere, any time. We enable them to use systems, networks and services to their advantage. Safe, smart and fast. This is basic. We believe that the innermost trigger of our customers’ needs is to be able to fulfill everyday wishes and obligations with less of an effort, thereby making life and business easier, more efficient and more enjoyable. Simplicity has made it possible to get things done in a way and to an extent no one ever thought possible. The market for communications services was actu- ally never mature. It was our lack of imagination and the complexity that held us back. Today, we have realized that our market is just emerging. TeliaSonera has taken simplicity to a level where it makes a real difference. We have made it our strongest competitive advantage. It is about making all the communications services work together seamlessly and appear as one system, whether they are mobile, fixed, Internet or other solutions. It is about all the pieces of technology working together, enhancing simplicity and serving the usage with accuracy. Our services are intuitive to use – as easy as switching on the light, or even automatic. Technology is invisible. But it is there behind the Vision 2010 – in essence scene and it takes professionals like ours to manage it for our customers. Simplicity has become our lifestyle, making us cost efficient, enabling us to Customers offer services with good value for money. TeliaSonera is easy to deal with, to do Fulfill everyday wishes and obligations business with and to partner with. Our communications services are easy to find, ”with less effort. understand, buy, use and enjoy. We take pride and delight in our parts as enablers Services – making life a little easier and smoother for others. And it works. Simplicity has Simplicity makes a real difference. made a difference worth buying. And has built a company worth being proud of working for. Ourselves A genuine service company worth TeliaSonera simplicity has released customer needs and internal efficiency, being proud of working for. thereby creating growth and profitability beyond the rest of the industry. This has made us a major player in the European service industry. The unique position we Growth A major player in the European service hold is due to our unparalleled level of simplicity as perceived by customers when industry. benchmarked against the rest of the service industry. Simplicity makes everything possible.

28 TELIASONERA ANNUAL REPORT 2003 Vision, Goals and Strategy

Wanted Position 2005 We have set a check point in just two years’ time to ensure that we are heading towards our vision. In 2005, we want to be well on our way to becoming a gen- Looking forward uine service company, with simplicity as its hallmark. This means that customers, employees, partners, and owners will have noticed and appreciated our efforts. Specific wanted position targets are set within four areas:

Customers Ourselves Best served customers Devoted people Customers perceive TeliaSonera as the service compa- Employees perceive that they and their colleagues, ny that best fulfills main customer needs. Targets on subordinates and managers live our values and are market share development. committed to our vision.

Services Growth Easy to use services Profitable growth Customers perceive TeliaSonera as the service com- We have strong top line growth and profitability. pany with an unparalleled level of simplicity. The growth will be measured by benchmarking top Customer perception will be measured not only line growth against market average and profitability comparing with the telecom industry, but against telecom industry average. There will also be also the European service industry. targets set for revenues from new services, cost and process efficiency. All anticipated synergies from the merger have been realized.

TELIASONERA ANNUAL REPORT 2003 29 Vision, Goals and Strategy

Business Concept TeliaSonera provides reliable, innovative and easy-to-use telecommunications services for carrying and packaging of voice, images, data, information, transactions and entertainment in the Nordic and Baltic countries, Russia and selected Eurasian markets. TeliaSonera also provides wholesale carrier services between selected destinations in Europe and across the Atlantic. Depending on the market position, TeliaSonera offers a complete service portfolio or a focused range of services. TeliaSonera serves and meets each customer in a way that creates value for money. This ability is based on leveraging size and transforming comprehensive customer knowledge into actions.

Shared Values The purpose of our values is to guide our employees in their everyday work and decision-making as we are transforming from a technology-oriented company to a company focused on customers and their needs. The shared values are a mix of logic and intuition, as well as success formulas from the past and requirements based on the future challenges we face. The values fall into three groups: business, relations and drive.

Business Relations Drive Add value Show respect Make it happen

For business, we have decided that add We will show respect. As an individual Being positive, having a fighting spirit value is the cornerstone. Add value con- you must feel that you are heard and and creating opportunities is all about tains the essence of our desire to focus know that your achievements are impor- drive. We must have the drive to make on the customer and be business-minded. tant. We must be able to trust and rely it happen. We have to be innovative and It means a constant drive for simplicity on each other and commit to promises. act as forerunners, as we have always and working together to create value It is also about giving people tools and done in the past. – in teams and across borders. resources to solve the different tasks. Or in other words, simply treating others the way we want to be treated ourselves – both internally and externally.

30 TELIASONERA ANNUAL REPORT 2003 Vision, Goals and Strategy

Strategic Focus in Brief TeliaSonera is a top market player in the Nordic and Baltic region as well as in Eurasia, Turkey and Russia. The main focus is on further developing these markets. In 2004 and further on, these markets are expected to show continued good growth in mobile communications and strong growth in Internet based services while the market for fixed voice is expected to decline. TeliaSonera remains committed to pursuing profitable growth in its current footprint of operations. Based on continued market efforts, our ambition is that organ- Looking forward ic revenue growth during 2004 will develop in line with or better than our markets. An important part of TeliaSonera’s strategy is to achieve majority control in all operations by increasing our shareholdings in the associated companies, if possible. Obtaining a controlling interest is important, particularly in the Baltic region, for fully extracting synergies and economies of scale, both in the market dimension and in the infrastructure dimension, and to continue to develop these markets in parallel with the Nordic markets. TeliaSonera’s home market encompasses the Nordic and Baltic countries. In Sweden, Finland and in the three Baltic countries, we offer a full range of telecom services, while in Norway and Denmark, we offer a focused product portfolio. Our home market entails tough competition and high penetrations. Our intention is to fortify our position on the market by continuing to simplify our services and improving customer service. Our wide range of products and services, in combination with our broad customer base, lays the foundation for effective bundling and increased cross-selling. Our strong local presence enables us to offer pan-Nordic communications services. TeliaSonera will strive to develop innovative offers in order to satisfy customer needs for easy-to-use, practical services and to involve customers early on in the development process. All of TeliaSonera’s products and services must be easy to understand, easy to buy and easy to use. In order to hone our competitive edge without endangering profitability, we will continue to adapt our cost structures to market conditions in various customer segments. TeliaSonera’s strong financial position, together with our experience in making a successful cross-border merger, allows us to look further ahead and to take an active role in the consolidation of the European telecom services industry. Our starting point is to build on or increase our strength in the Nordic and Baltic home market, if and when the right opportunity occurs. Any acquisition must be value-enhancing by fulfilling our return requirements and allowing us to maintain a solid financial position.

TELIASONERA ANNUAL REPORT 2003 31 Corporate Governance

Solid foundation securing shareholder value

Sound principles for corporate governance are critical to TeliaSonera in our endeavor to build trust among our stakeholders. Owners, investors, customers, employees and other key parties should always feel certain that our way of doing business is characterized by accuracy, tight control, good transparency and high ethical standards. Corporate Governance Corporate Governance

Corporate Governance

TeliaSonera is a Swedish public company and of 869,967 shareholders. The Swedish and statement of cash flows for the Group together is governed by the Swedish Companies Act and Finnish states are the largest shareholders with with the business description and analysis. the company’s Articles of Association. Accord- holdings of 45.3 percent and 19.1 percent, Reports and press releases containing material ing to the Companies Act, the shareholders’ respectively. In the shareholders’ agreement information are published in Swedish, Finnish meetings are the highest decision-making between the Kingdom of Sweden and the and English. Reporting is in Swedish kronor, forum where the owners exercise their share- Republic of Finland, the parties have agreed to with certain key figures also reported in euros. holder power. At the shareholders’ meetings, use their respective voting power at general TeliaSonera’s financial reports and press one share is equal to one vote. The Annual meetings of TeliaSonera in a manner consistent releases are posted at www.teliasonera.com General Meeting determines, among other with the highest standards of corporate gover- upon publication. This service also provides matters, the appropriation of the Company’s nance principles. information about share price performance as profits and whether to discharge the Board of More information about shareholder struc- well as webcasting of press conferences con- Directors and President from liability. The ture is found on page 42. nected to the reports. Press releases and finan- Annual General Meeting also appoints the The TeliaSonera share is listed on the Stock- cial reports via e-mail can also be ordered from Board of Directors and auditors and makes holm and the Helsinki Stock Exchanges and on the web site. decisions regarding remuneration to the Board Nasdaq in the United States. The contracts that Keeping shareholders up to date on Telia- and auditors. These decisions are made through TeliaSonera has signed with these exchanges Sonera’s performance and development is of a simple majority vote. primarily concern how to ensure that impor- great importance. At the same time, it is impor- Shareholders also decide, through ordinary tant information about the company is made tant both financially and environmentally to or extraordinary meetings of shareholders, on public so that all investors receive material keep the production and distribution of printed share issues, option programs and share buy- information on equal terms. TeliaSonera also materials at a reasonable level, particularly con- backs, etc. complies with the special rules set forth by the sidering the large number of shareholders. This The Board of Directors is responsible for the financial supervisory authorities of each country. is why all new shareholders receive, together organization of the company and for the Share price development in 2003 is reported with the latest financial report, a feedback form administration of the company’s concerns, on page 42. about whether they would like to receive including adopting strategies for the company. printed financial information, free of charge. The Board also appoints the Chief Executive Financial reporting and information to TeliaSonera participates in the Swedish Officer, CEO. shareholders Shareholders’ Association’s (Aktiespararna) The CEO is responsible for the Group’s Disclosures in the periodic reports that Telia- local meetings throughout Sweden. An inde- strategic development and business control Sonera is required to file shall be in line with pendent shareholder association is also in place and manages and coordinates the day-to-day high professional standards and be full, fair, that looks after the interests of TeliaSonera’s operations as defined by the guidelines pro- accurate, timely and understandable. shareholders and company representatives par- vided by the Board of Directors. TeliaSonera’s written reports include quar- ticipate in these meetings as well. TeliaSonera Within TeliaSonera, decision-making rights terly reports, the Annual Report according to also supports the Swedish association Young are delegated from person to person, and the Swedish rules and also the Annual Report on Shareholders (Unga aktiesparare). There are also CEO delegates decision-making rights to his Form 20-F in order to satisfy the requirements interest groups in Finland that hold meetings subordinates. of the U.S. Securities and Exchange Commis- in which TeliaSonera participates, for example, TeliaSonera aspires to be a ”good corporate sion (SEC). Decisions and events of a material local investor organizations and the Finnish citizen” by acting ethically and responsibly and nature are always communicated in press Foundation for Share Promotion (Pörssisäätiö). by promoting sustainable development. To releases in accordance with Swedish, Finnish ensure this, the Group applies several policies and United States regulations for listed com- Guidelines for inside information that have been adopted by the Board of Direc- panies. Laws concerning inside information prohibit tors and that must be known and observed by TeliaSonera draws up Annual Reports and trading activity with shares or other financial the entire organization. quarterly reports in accordance with Inter- instruments on the basis of material informa- national Financial Reporting Standards (IFRS/ tion that is not known to the general public. Shareholders IAS). Annual reports and quarterly reports In addition to these restrictions, there are also On December 31, 2003, TeliaSonera had a total contain a balance sheet, income statement and rules for individuals with special insight, i.e.

34 TELIASONERA ANNUAL REPORT 2003 Corporate Governance

persons deemed to enjoy especially good con- and closely affiliated natural and legal persons. heads of certain Group staff functions at Head- ditions for obtaining access to confidential Changes in such holdings must also be reported quarters and heads of certain Profit Centers. information regarding the company. The rules to the Swedish Financial Supervisory Authority. A number of officers at Headquarters are also stipulate that a person holding a special insight The following individuals within TeliaSonera registered along with presidents and heads of position must report to the Swedish Financial are registered with the Swedish Financial Super- business and financial control at certain sub- Supervisory Authority (Finansinspektionen) in visory Authority as persons with special insight: sidiaries. writing shareholdings and other financial Board members, CEO, Deputy CEO, CFO, instruments in the company held by him or her external auditors, heads of Group-wide units,

AGM, Board, Committees and Auditors

Annual General Meeting the meeting. functions on behalf of the shareholders. The TeliaSonera convenes the Annual General The Annual General Meeting is held in primary purpose of the committee is to lead Meeting, AGM, as directed in the Articles of Stockholm, as this is where TeliaSonera has its the process for Board appointments and nom- Association and the Swedish Companies Act. registered office. In 2003, shareholders were inate Board members and present proposals Notice of the AGM is always posted as an also able to participate in the Annual General regarding Board member compensation. The advertisement in the Swedish newspapers Meeting through audio and video telecom- recommendations of the nominating committee Svenska Dagbladet, Dagens Nyheter and Post- munication in Helsinki. The meeting was con- are released before the Annual General Meeting och Inrikes Tidningar, as well as in a press release ducted in Swedish and simultaneously inter- and are presented at the meeting itself. and may also be posted in other daily news- preted into Finnish and English. Shareholders The committee shall devote special atten- papers, e.g. in Finland. The notice is also pub- who participated in Helsinki had the exact same tion to the need for greater equality between lished at www.teliasonera.com. Normally, no rights, including voting rights, as the share- women and men. At the extraordinary meet- special notice is sent to the shareholders. Those holders in attendance in Stockholm. ing of shareholders on November 4, 2002, it shareholders who have indicated that they wish Shareholders representing 77 percent of was decided that the nominating committee to receive financial reports sent to their homes the capital and the votes attended the Annual shall consist of the Chairman and the Deputy receive information about the Annual General General Meeting in May 2003. Chairman of the Board. Meeting in the Annual Report. Decisions made at the Annual General Nominating committee Board of Directors Meeting are made public through a press The Annual General Meeting decided in 2001 The TeliaSonera Board of Directors has nine release immediately following the closing of to establish a nominating committee, which non-executive members, who are elected by the Annual General Meeting for one-year terms.

The Board considers these members as inde- Corporate Governance Ownership Control pendent. In addition, the Board includes three employee representatives and one additional employee representative who is a non-voting attendee at the Board meetings. The employee Shareholders representatives are not considered independent and are appointed by the labor unions. The CEO is not a member of the Board. Annual General Meeting The Board is responsible for the organization Nominating Auditors of the company and for the administration of committee the company’s concerns. This includes adopting strategies and making strategic decisions of Audit greater importance. The Board appoints the Board of Directors committee President of TeliaSonera AB, who also serves as Remuneration the CEO of the TeliaSonera Group, and provides committee him or her with the guidelines and instructions for the management of the company. The Board appoints the Chairman and Deputy Chairman from among the Board President and CEO members. Each Board member has equal responsibility vis-à-vis the Annual General Meeting, but to distribute the workload, the Board may assign its members to committees

TELIASONERA ANNUAL REPORT 2003 35 Corporate Governance

with special areas of responsibilities. A com- Remuneration committee accounting records and the administration of mittee shall investigate matters that fall within The Board of Directors has among themselves the Board of Directors and the CEO. The audi- its realm of responsibility and present recom- appointed a remuneration committee, which tors thus derive their mandate from the share- mendations, reports, etc., for decisions or deals with matters involving remuneration holders and report to them. actions by the Board. To date, there are two (salary and other compensation including pen- At the Annual General Meeting 2003, the committees, the remuneration committee and sion benefits) to the CEO, Executive Manage- registered auditors Ernst & Young AB and the audit committee. ment and Group Vice Presidents reporting KPMG Bohlins AB were appointed as auditors. As resolved by the Annual General Meeting directly to the CEO. This also includes incentive It was stipulated that compensation to the in 2003, remuneration is paid to the Board of programs that target a broader group of auditors shall be paid on the basis of invoice. Directors in the amount of SEK 750,000 per employees within the Group. In May 2003, the Board of Directors year to the Chairman, SEK 550,000 per year launched an audit tender process, with the aim to the Deputy Chairman and SEK 400,000 per Audit committee to choose one audit firm, best qualified, to take year to each other elected Board member. No At the beginning of 2003, the Board of audit responsibilities in the TeliaSonera Group. separate remuneration is paid to Board mem- Directors appointed an audit committee, which After an extensive process led by the audit bers for committee work. Board members is responsible for reviewing the company’s committee, the Board decided in January 2004 appointed as employee representatives are not financial reports and internal reporting and to propose to the Annual General Meeting remunerated. control systems. The committee is also respon- 2004 to elect PricewaterhouseCoopers as audi- The composition of the Board of Directors sible for leading the process of nominating tor of TeliaSonera. in 2003 and a brief presentation of each mem- external auditors. More detailed information on remuneration ber are found on page 40. The work of the Board to auditors during 2003 is found in Note 38. of Directors during 2003, including the various External auditors committees and their compositions, is describ- The auditors are appointed by the sharehold- ed in the Report of the Board of Directors on ers’ meeting with the duty of auditing the page 46. company’s annual financial statements and

Management and Control

To ensure effective utilization of TeliaSonera’s The TeliaSonera Group consists of Corporate Headquarters full potential and to enable the Group to reach and four geographic Profit Centers. its goals – to serve its customers in the best possible way and to create value for shareholders – a structure has been established that President includes division of responsibilities and control and CEO models.

Decentralized operations with strong CFO Deputy CEO central control TeliaSonera operates as an integrated company with strong central management and control of overall strategic issues, synergies and improve- Group Staff ments within the different geographic profit Functions centers. The CEO is responsible for the Group’s strategic development and business control and Marketing, Norway, manages and coordinates its day-to-day oper- Networks Products Denmark and Sweden Finland International ations in accordance with the guidelines deter- and and Baltic Technology mined by the Board of Directors. The CEO Services Countries appoints the heads of Group-wide units, Group staff functions and geographic profit centers. Corporate Headquarters Geographic Profit Centers TeliaSonera applies person-to-person delegation, in which the CEO delegates decision Management and control functions are exercised by the CEO, supported by Corporate Headquarters, which consists of two Group-wide units: Marketing, Products and Services, and Networks and Technology, as well as Group staff func- making authority within a strict framework to tions. Day-to-day operations are decentralized to four geographic Profit Centers: TeliaSonera Sweden, TeliaSonera those managers appointed by the CEO. Finland, TeliaSonera Norway, Denmark, Baltic Countries and TeliaSonera International. TeliaSonera strictly applies the principle that

36 TELIASONERA ANNUAL REPORT 2003 Corporate Governance

senior executives are appointed solely on the magnetic fields. The Group follows research in Marketing, Products and Services has overall basis of competence and ability. the area and continuously updates information responsibility for the Group’s product and The corporate headquarters supports the to concerned stakeholders. service development. This responsibility com- CEO in managing the Group. Corporate head- Customer satisfaction surveys are another prises objectives and strategies within the area quarters consists of two Group-wide units, instrument for following up the development and includes brand strategies, price policies, Marketing, Products and Services and Net- of customer relationships and the perception pan-Nordic services and joint campaigns. The works and Technology, as well as Group staff of customer value. They give the Group con- unit is also responsible for approving request- functions within corporate control and finance, tinuous signals about which areas need more ed deviations from centrally determined plans. human resources, legal affairs, internal audit input in order to secure customer value. For optimum service to business customers in and communications. The legal affairs unit and Sweden and Finland with substantial multina- the internal audit unit report directly to the Profit centers close to customers tional operations, the Group-wide unit is also CEO in order to ensure the independence of The geographic profit centers have full opera- currently responsible for coordinating Group the units vis-à-vis the other parts of the organ- tional responsibility and are responsible for activities and resources for some 20 such cus- ization. customer satisfaction and profitability within tomers. The operational sales resources, how- Responsibility for profitability and day-to- their individual areas. ever, fall under the geographic profit centers day operations is decentralized to four geo- The profit centers TeliaSonera Sweden and where revenues and costs are posted for these graphic profit centers: TeliaSonera Sweden, TeliaSonera Finland have similar organizations. customers. TeliaSonera Finland, TeliaSonera Norway, In these markets, where TeliaSonera offers a The Group-wide unit Networks and Tech- Denmark, Baltic Countries and TeliaSonera complete range of services, business and profit nology has overall responsibility for the Group’s International. responsibility lies closest to the customer, with- telecommunications platforms and IT systems Strong management and control of key in the customer segments Consumer, Business, and for purchasing, including contracts with issues and developed delegation of day-to-day Large Corporate Customers, and Operators. key suppliers. This responsibility involves strate- operations enable TeliaSonera to combine Two functional units, Products and Services gies and targets for these areas. economies of scale with proximity to customers, and Networks and Production, are in place in flexibility and decisiveness in each market. order to ensure efficiency in the product range Competence centers and network platforms. Several competence centers have been creat- Secure customer value The segments are responsible for the cus- ed in order to focus on high-priority areas for The success of TeliaSonera depends on deliv- tomer offerings as a whole and their job is to TeliaSonera’s business. ering good customer value in the markets in ensure both profitability and customer satis- A competence center consists of specialists which the Group operates. Securing customer faction within their own segment. The seg- with expertise within a particular technology value is the responsibility of the entire organi- ments operate and consolidate all business in or product or service area. The competence zation. their respective customer segments and are centers are commissioned by the Group as a Key to this success is the ability to deliver a responsible for their part of the costs in the whole, but are organized under the geographic portfolio of services and products that meet functional units. profit centers and serve to unify networks, customer needs. Services can be combined and Networks and Production is responsible for products and services, which is essential for bundled in a variety of ways to suit different the Operators segment. As per the commit- winning synergies. Corporate Governance customer needs and to create the added value ments made to the EU, the network opera- Competence centers provide data to the elements for companies and consumers for tions in Sweden and Finland are kept legally Group-wide units, which then establish strate- which customers are ready to pay. separated from the retail services business. gies and development targets in different areas. TeliaSonera’s services build on cutting edge Within other geographic profit centers, oper- The strategies and targets comprise the frame- global telecommunications technology and ations are organized based on the Group’s work for the developmental efforts of the geo- must be easy to understand, easy to buy and offerings in each market and on the customer graphic profit centers, which is also where the easy to use. Simple, clear and comprehensible logic applied. costs for the competence centers are posted. pricing is an important part of this. The geographic profit centers are responsi- TeliaSonera continuously invests in monitor- ble for all operational resources, including Planning, control and follow-up ing and anticipating various customer needs. marketing, sales, product and service develop- The rapidly changing market demands respon- New services are developed and thoroughly ment as well as production and network oper- sive and flexible organizations. This is why tested in pilot tests with customers prior to ations. The profit centers make operational TeliaSonera works with rolling seven quarters commercial launch. Getting customers involved decisions within the framework of established plans in a coherent process for planning and at early stages in the development ensures not strategies, development plans and operational follow-up. Balanced scorecards with KPI (Key only functionality, but also captures new cus- plans, including responsibility for pricing, pur- Performance Indicators) are used to ensure tomer demands and preferences. Securing feed- chasing and investment priorities. plan performance in the quarterly follow-ups. back from customers about existing services is Each manager has a balanced scorecard for his another high priority. Group-wide units or her level. Product safety is an important responsibility The two Group-wide units Marketing, Products The Group encourages the attainment of its in both the short-term and the long-term. Telia- and Services and Networks and Technology business objectives using payroll systems with Sonera will continue its dedication to safety secure economies of scale and penetration in both fixed and variable annual pay. issues within mobile telephony and electro- a global context. An internal audit unit provides assistance

TELIASONERA ANNUAL REPORT 2003 37 Corporate Governance

for reaching the company’s goals by proposing Group’s business control and follow-up. These personnel and for safeguarding networks, serv- measures to increase internal efficiency, improve operations serve to identify risks that may pose ices and customers against infringements and internal control and streamline control process- a threat to attaining business objectives and to fraud. es. The unit primarily focuses on operational propose measures to minimize these risks. The The insurance coverage is managed by cen- follow-up. security organization works with preventive tral guidelines and determined by business security measures within security and crisis units or other units responsible for applicable Risk management management. The unit is responsible for pro- risks. Financial Instruments and Financial Risk Risk management is an integral part of the tecting the Group’s property, IT systems and Management are described in Note 30.

Human Resources Management and Compensation

TeliaSonera is an international service company Salary structures TeliaSonera has, depending on market condi- that operates on a knowledge-intensive and TeliaSonera rewards people through fixed and tions, commission-based pay systems and plans competitive market. At year-end, the company variable pay, incentives and benefits. Telia- for employees who work in direct sales. had 26,700 employees in its wholly-owned and Sonera continuously benchmarks reward levels For more details on employee costs and majority-owned operations, which are primarily and best practices in reward systems in the employee structure, see Note 36. in the Nordic and Baltic countries and Eurasia. market in order to apply market-competitive TeliaSonera also has interests in companies in rewards. Employee stock option plans the Baltic countries, Russia and Turkey. Employee rewards are linked to perform- The 2001 Annual General Meeting voted in Acting in a rapidly changing and know- ance, which is related to business targets and favor of establishing an employee stock option ledge-intensive industry places great demands Shared Values. Variable pay is based on achiev- program involving the issuance of debt instru- on the employees and on the company’s ability ing business targets. The level of pay, incen- ments with option rights to subscribe to shares to secure competency resources. This is why tives and benefits and conditions of employ- in TeliaSonera AB. The employee stock options skills development is mission-critical within ment are provided with a view to attract, retain were allotted free of charge and all employees TeliaSonera. and motivate people. affected were given 1,000 options. The pro- During 2003, the TeliaSonera People Frame- TeliaSonera negotiates pay directly with gram covers a total of no more than 21,000,000 work was developed. The aim of the frame- employees or through collective bargaining options that entitle the holder to acquire an work is to contribute to creating the perception processes according to local market practices. equal number of shares in TeliaSonera AB. of one company and to attain efficiency and TeliaSonera has a variable pay plan covering Option holders may exercise their options no excellent outcomes from Human Resources managers and employees. The management earlier than May 31, 2003 and no later than processes. variable pay plan covers the CEO, the Deputy May 31, 2005. Competence Management is a crucial part CEO, all executives and selected managers. The extraordinary meeting of shareholders of the framework, handling the competence The Board has approved the plan. The level of in 2002 adopted a resolution to issue warrants market, recruitment, leadership and develop- variable pay varies so that the CEO and the in exchange for Sonera warrants. Each warrant ment. In 2003, Human Resources focused on Deputy CEO have a maximum variable pay of entitles the warrant holder to subscribe for 1.5 the creation of one common internal job mar- 50 percent of their annual fixed pay. The CFO, new shares in TeliaSonera. ket, to be implemented in 2004, a common the heads of Group-wide units and Profit For more information on the financial impact way to conduct the annual development and Centers, and the head of Corporate Human of these stock option plans, see Note 36. assessment dialogues and management and Resources have a maximum variable pay of 35 succession planning. With these initial achieve- percent of their annual fixed pay. The man- ments, TeliaSonera encourages career develop- agers included in a variable pay plan are enti- ment and offers opportunities to the individual. tled to a maximum variable pay of 15 percent, 20 percent or 25 percent of their annual fixed Redundancies pay. The targets are primarily defined on the TeliaSonera must constantly ensure that the financial outcome based on Corporate, Profit capacity and competence of the Group corre- Center or unit financials and development spond to customer needs. Financial stability towards the Wanted Position. and a competitive cost level are other impor- For other employees, there are country-spe- tant factors for TeliaSonera. cific employee variable pay plans. These plans TeliaSonera has established effective proce- also follow the variable pay plan approved by dures for handling situations in which an the Board. The targets are based mainly on employee’s competencies are no longer need- financial measures. The maximum variable pay ed in the current job position and employees according to such plans varies between 6.25 are threatened by redundancy. percent and 16.6 percent of annual fixed pay.

38 TELIASONERA ANNUAL REPORT 2003 Corporate Governance

Corporate Social Responsibility

TeliaSonera aspires to be a ”good corporate the fundamental ILO conventions and to shareholders. We shall furthermore treat each citizen” by acting ethically and responsibly and encourage and assist our suppliers, subcon- other with mutual trust and respect and pro- promoting sustainable development within tractors and associated companies to do the vide an environment where individuals may the marketplace, the workplace, the environ- same. TeliaSonera respects national and inter- question a Group practice without suffering ment and the community at large. national legislation and shall undertake only any repercussions. We shall not make or receive The telecommunications industry can be a those activities and operate those businesses payments of any kind that are illegal and/or catalyst for sustainable development in many that we are willing to submit to public scrutiny unethical in the territory concerned. ways. Several of TeliaSonera’s services, such as and debate. TeliaSonera’s external and internal commu- teleconferencing and voicemail in the network, To ensure this, the Group applies rules and nications must be simultaneous, open, accurate, are replacing travel and products. guidelines that have been adopted by the simple and rapid and must demonstrate an Business as such has to follow commonly Board of Directors and that must be observed awareness of service to our stakeholders. The accepted ethical principles and employees’ by all TeliaSonera employees. Our guidelines communications should be balanced and create working conditions are of crucial importance. apply to the wholly-owned operations, but we a correct and uniform picture of TeliaSonera As an active player in building the information strive to apply our approach even in those and its actions and an accurate basis for valuing society, TeliaSonera aims to act ethically and businesses where we do not hold 100 percent the TeliaSonera share. responsibly. This entails the protection of pri- of the shares. vacy and personal data and the prevention of The cornerstone of TeliaSonera’s commit- abusive or illegal use of telecommunications ment is our Shared Values, which we apply in services. all our relationships, both internal and external. The foundation of TeliaSonera’s policies is We shall deal honestly and in good faith with to recognize and honor the United Nations all stakeholders affected by our activities; cus- Universal Declaration on Human Rights and tomers, suppliers, partners, employees and Corporate Governance

TELIASONERA ANNUAL REPORT 2003 39 Corporate Governance

Board of Directors

Tapio Hintikka Carl Bennet Ingvar Carlsson Eva Liljeblom

Sven-Christer Nilsson Paul Smits Caroline Sundewall Roger Talermo

Tom von Weymarn Yvonne Karlsson Berith Westman Elof Isaksson

Tapio Hintikka Abp, Fennia Mutual Insurance Born 1958. Shares in TeliaSonera: in Industry, telecommunications Chairman of the Board. Elected to Company and Kuntarahoitus Oyj 2,000. section (SIF-TELE). Member of the the Board of TeliaSonera AB in 2002. (Municipality Finance Plc). Born Board of Telia Pension Fund. Born Member of the boards of Evli Bank 1958. Shares in TeliaSonera: 999. Roger Talermo 1945. Shares in TeliaSonera: 650. Plc, Onninen Oy and Teleste Elected to the Board of TeliaSonera Corporation. Born 1942. Shares in Sven-Christer Nilsson AB in 2002. President and CEO of Elof Isaksson TeliaSonera: 0. Elected to the Board of TeliaSonera Amer Group Plc. Member of the Employee Representative. Elected AB in 2003. Partner of Startupfac- Board of Amer Group Plc. Born to the Board of TeliaSonera AB in Carl Bennet tory. Member of the boards of Assa 1955. Shares in TeliaSonera: 0. 2000. Chairman of the Union of Vice Chairman of the Board. Elected Abloy AB, CEVA, Inc. and Startup- Service and Communication to the Board of TeliaSonera AB in factory. Chairman of the Swedish Tom von Weymarn Employees (SEKO TELE) within 2000. Chairman of the boards of Public Service Broadcasting Elected to the Board of TeliaSonera TeliaSonera. Member of the Board Elanders, Getinge, Lifco and Sorb Foundation, the Swedish Institute AB in 2002. President and CEO of of Telia Pension Fund. Born 1942. Industri. Vice Chairman of the for Quality Development (SIQ) and Oy Rettig Ab (retired as of February Shares in TeliaSonera: 550. boards of Boliden and SNS (Center Xelerated, Inc. Born 1944. Shares 1, 2004). Chairman of the Board for Business and Policy Studies). in TeliaSonera: 0. of Lännen Tehtaat Plc. Member of Deputy members Member of the Board of AMS (the the boards of Oy Rettig Ab, Oy Stefan Carlsson National Labour Market Board). Paul Smits Telko Ab, CPS Color Group Oy and Employee Representative. SIF-TELE. Member of the Swedish Elected to the Board of TeliaSonera Hydrios Biotechnology Oy (Ltd.). Shares in TeliaSonera: 650. Government’s Research Advisory AB in 2003. Member of the Member of the advisory board of Arja Kovin Council. Born 1951. Shares in Supervisory Boards of Travel Unie Industri Kapital. Born 1944. Shares Employee Representative. SIF-TELE. TeliaSonera: 10,000. International (TUI) Nederland, in TeliaSonera: 4,316. Shares in TeliaSonera: 0. Unit4Agresso, and Enertel BV. Magnus Brattström Ingvar Carlsson Member of the Advisory Boards of Yvonne Karlsson Employee Representative. SEKO Elected to the Board of TeliaSonera Runway Group BV and Deerns BV. Employee Representative. Elected TELE. Shares in TeliaSonera: 0. AB in 2000. Former Prime Minister Chairman of the Advisory Board of to the Board of TeliaSonera AB in of Sweden. Born 1934. Shares in Media Plaza. Member of the Board 2002. Vice Chairman of the Swedish Auditors TeliaSonera: 400. of Stichting Feyenoord Rotterdam. Union of Clerical and Technical Ernst & Young AB Chairman of the Board of Stichting Employees in Industry, telecommu- Chief Auditor: Lars Träff Eva Liljeblom Centrale Discotheek Rotterdam. nications section (SIF-TELE). Born Authorized Public Accountant. Elected to the Board of TeliaSonera Born 1946. Shares in TeliaSonera: 0. 1959. Shares in TeliaSonera: 175. Born 1954. Shares in TeliaSonera: 0. AB in 2002. Professor of Finance and Head of the Department of Caroline Sundewall Berith Westman KPMG Bohlins AB Finance and Statistics at the Swedish Elected to the Board of TeliaSonera Employee Representative. Elected to Chief Auditor: Thomas Thiel School of Economics and Business AB in 2001. Independent business the Board of TeliaSonera AB in 1993. Authorized Public Accountant. Administration in Helsinki. Member consultant. Member of the boards Chairman of the Swedish Union of Born 1947. Shares in TeliaSonera: 0. of the boards of Stockmann Oyj of Haldex, Strålfors and Lifco AB. Clerical and Technical Employees

40 TELIASONERA ANNUAL REPORT 2003 Corporate Governance

Executive Management and Group Vice Presidents

Anders Igel Harri Koponen Kim Ignatius Rune Nyberg

Terje Christoffersen Lars-Gunnar Johansson Jan Henrik Ahrnell Michael Kongstad

Marie Ehrling Anni Vepsäläinen Kenneth Karlberg

Anders Igel Rune Nyberg Jan Henrik Ahrnell Anni Vepsäläinen Appointed by Telia as President and Group Vice President and head of Group Vice President and General President, profit center TeliaSonera Chief Executive Officer in 2002. Corporate Human Resources. Counsel. Employed by Telia since Finland and TeliaSonera Finland Previously President and CEO of Employed by TeliaSonera in 2003. 1989. General Counsel since 1999. Oyj. Employed by Sonera since Esselte. Has held several executive Previously Group Vice President of Previously General Counsel at Telia 1987 and member of Sonera’s positions within Ericsson, including Human Resources at Sandvik, TeleCom Services and Corporate Executive Management Team since as President of Ericsson UK, head of President of Pair Ltd, and Vice Counsel in various Telia companies. 2001. Has held several executive the business area Infocom Systems President of Human Resources at Born 1959. Shares in TeliaSonera: positions within Sonera, including

and Executive Vice President of the Sandvik Coromant, JS Saba and 2,500. Head of Sonera Mobile Operations Corporate Governance Ericsson Group. Born 1951. Shares Distributions AB DAGAB. Born in Finland, and has been in charge in TeliaSonera: 35,100. 1949. Shares in TeliaSonera: 1,000. Michael Kongstad of Products and Services, Human Group Vice President and head of Resources and Competencies. Born Harri Koponen Terje Christoffersen Corporate Communications. 1963. Shares in TeliaSonera: 1,500. Deputy CEO and President, profit Group Vice President and head of Employed by Telia since 2001. center TeliaSonera International. the corporate unit Marketing, Previously President of Burson- Kenneth Karlberg Appointed by Sonera as President Products and Services. Employed by Marsteller’s Swedish operations and President, profit center TeliaSonera and CEO in 2001. Previously TeliaSonera since 2002. Previously communications director at Posten, Norway, Denmark and Baltic Executive Vice President and President of TeliaSonera’s operations WASA Insurance Group and OM Countries. Employed by Telia since General Manager of Ericsson’s con- in Denmark and President of Group. Born 1960. Shares in 1987, member of Group executive sumer products division in North TeliaSonera’s Norwegian subsidiary TeliaSonera: 2,000. management since 1999. America. Has also held various NetCom. Has also headed Hewlett- Previously Executive Vice President positions at Hewlett-Packard. Born Packard’s operations in the Nordic Marie Ehrling of Telia and head of the Telia 1962. Shares in TeliaSonera: 12,069. region. Born 1952. Shares in President, profit center TeliaSonera Mobile business area. Active in TeliaSonera: 0. Sweden. Employed by TeliaSonera mobile communications since 1995, Kim Ignatius in 2003. Previously Deputy CEO of first as regional head and produc- Chief Financial Officer. Employed by Lars-Gunnar Johansson SAS Group and Head of SAS tion manager, subsequently as Sonera and member of Sonera’s Group Vice President and head of Airlines. Has held several executive business area head and President Executive Management Team since the corporate unit Networks and positions within SAS. Information of Telia Mobile. Born 1954. Shares 2000 as Executive Vice President Technology. Employed by Telia since Officer at the Ministry of Finance in TeliaSonera: 1,400. and CFO. Previous positions include 1969. Previously head of Telia’s and the Ministry of Education and serving as CFO with Tamro Group. wholesale business Skanova, head of Science and financial analyst for Has held various management posi- business area Carrier and Networks, Fjärde AP-fonden (Fourth National tions at Amer Group Ltd. Born responsible for network planning Pension Insurance Fund). Born 1956. Shares in TeliaSonera: 3,028. within Telia Region Väst, and head 1955. Shares in TeliaSonera: 1,000. of network planning in the Gothenburg telecom district. Born 1944. Shares in TeliaSonera: 2,350.

TELIASONERA ANNUAL REPORT 2003 41 TeliaSonera Share

TeliaSonera Share 2003

TeliaSonera shall create value for its shareholders through improved profitability and greater cash flow. For 2003, the Board of Directors and the CEO are proposing an increase of the dividend to SEK 1.00 per share, consisting of an ordinary dividend of SEK 0.80 (0.40) and an extra dividend of SEK 0.20, reflecting the exceptionally strong cash flow. This results in a total distribution of SEK 4,675 million. By main- taining a strong financial position, TeliaSonera is ready to take advantage of favor- able growth opportunities. The TeliaSonera share is listed on Stockholmsbörsen, Helsinki Exchanges and Nasdaq. During 2003, the share price increased 13 percent, from SEK 33.30 to SEK 37.60 at close. TeliaSonera’s market capitalization on December 30, 2003 totaled SEK 175.8 billion (151.1), making TeliaSonera the second largest company on Stockholms- börsen. At year-end, the TeliaSonera share represented 7.6 percent (8) of the total market capitalization of Stockholmsbörsen. Approximately 2,798 million (1,900) TeliaSonera shares at a value of SEK 90.4 billion (60.3) were traded on Stockholmsbörsen during 2003. Share turnover was equivalent to 59.6 percent (63.3) of the total number of issued shares. The share capital totals SEK 15 billion as per December 31, 2003, divided into 4,675,232,069 shares with a par value of SEK 3.20. Each share carries one vote.

Stockholmsbörsen Telia’s shares were quoted on the A list of Stockholmsbörsen on June 13, 2000 under the ticker symbol TLI. When Telia and Sonera merged on December 9, 2002, the name of the company was changed to TeliaSonera and the ticker symbol was changed to TLSN. The share price is quoted in Swedish kronor. One trading lot is 500 shares. The highest settlement price during the year, SEK 38.70 (48.60), was quoted on December 30. The lowest settlement price during the year was SEK 23.70 on March 31 (21.10). The average turnover per trading day totaled approximately 11.2 million shares (7.6), equivalent to a value of SEK 363 million (241.3). The average number of trades per day totaled 1,149 (1,108).

Helsinki Exchanges The TeliaSonera share has the ticker symbol TLS1V on Helsinki Exchanges. The share price is in euros. One trading lot on Helsinki Exchanges consists of 100 Telia- Sonera shares. On December 31, 2003, TeliaSonera was the second largest company on Helsinki Exchanges in terms of market capitalization. The highest settlement price during the year, EUR 4.24, was quoted on December 30. The lowest settlement price during the year was EUR 2.57 on March 31. 290 million TeliaSonera shares were traded during 2003, at a value of EUR 1,018.4 million.

42 TELIASONERA ANNUAL REPORT 2003 TeliaSonera Share

Share Development 2003

SEK 45

0 Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Aug 1 Sep 1 Oct 1 Nov 1 Dec 1 Dec 31

TeliaSonera SAX DJ Euro Stoxx Fixed Line Communications

Nasdaq TeliaSonera was listed on Nasdaq in December 2002 under the ticker symbol TLSN. The share is traded in the form of ADSs (American Depository Shares). ADS is an American depository receipt and one (1) ADS represents 5 underlying shares. The share price is in US dollars. The highest settlement price during the year, USD 26.20, was quoted on December 29. The lowest settlement price during the year was USD 14.05 on March 31. Over 2 million TeliaSonera shares were traded during 2003, at a value of USD 42 million.

Dividend policy The outlook for operating cash flow generation, capital expenditure requirements, earnings growth and the amount of funds available for distribution shall be taken into consideration when proposing the level of dividend. The intention is to increase the dividend annually.

Ownership structure On December 31, 2003, TeliaSonera had a total of 869,967 shareholders. The Swedish state owned 45.3 percent and the Finnish state owned 19.1 percent of

TeliaSonera. Swedish and Finnish private investors owned 3.6 percent (3.9) and Financials 2.4 percent (2.4), respectively. Swedish institutional investors owned 19.8 percent (14.7) of the share capital and Finnish institutional investors owned 3.9 percent (2.8). Shareholders outside Sweden and Finland represented 5.9 percent (10.8). TeliaSonera’s financial reporting and service to shareholders are described in the Corporate Governance section.

TELIASONERA ANNUAL REPORT 2003 43 TeliaSonera Share

Shareholder Categories Number of shareholders Number of shares Holding of shares and votes, % Swedish State 1 2,118,278,261 45.31 Institutions and companies, Sweden 12,622 926,196,557 19.81 Finnish State 1 891,800,230 19.07 Shareholders outside Sweden and Finland 9,247 274,893,973 5.88 Institutions and companies, Finland 3,866 184,066,365 3.94 Individual investors, Sweden 720,455 167,105,702 3.57 Individual investors, Finland 123,775 112,890,981 2.41 Total 869,967 4,675,232,069 100.00

Shareholder Structure, December 31, 2003 Number of shares % Number of shareholders % 1–500 146,347,499 3.13 783,082 90.01 501–1,000 30,692,314 0.66 40,272 4.63 1,001–10,000 107,162,226 2.29 43,522 5.00 10,001–100,000 64,940,769 1.39 2,406 0.28 100,001–1,000,000 165,109,326 3.53 496 0.06 1,000,001– 4,160,979,935 89.00 189 0.02 Total 4,675,232,069 100.00 869,967 100.00

List of Countries List of Shareholders Country % of capital/votes Number of shares Name % of capital/votes Number of shares Sweden 68.69 3,211,580,520 Swedish State 45.31 2,118,278,261 Finland 25.43 1,188,757,576 Finnish State 19.07 891,800,230 United States 1.84 86,100,944 Robur funds 2.78 129,743,930 United Kingdom 1.02 47,543,872 SEB funds 1.56 72,999,376 Luxembourg 0.95 44,552,538 Nordea funds 1.33 62,379,416 Belgium 0.52 24,239,080 AMF Pension 1.18 54,955,000 Norway 0.27 12,545,690 Skandia 1.09 51,122,033 Germany 0.23 10,890,071 Fjärde AP-fonden 1.04 48,817,000 Japan 0.18 8,278,120 SEB-Trygg Försäkring 1.00 46,768,000 Switzerland 0.16 7,533,939 SHB/SPP funds 0.89 41,775,390 Total others 0.71 33,209,719 Total other shareholders 24.74 1,156,593,433 Total 100.00 4,675,232,069 Total 100.00 4,675,232,069

Changes in Share Capital Number of shares Par value, SEK/share Share capital, SEK thousand Share capital, Dec 31, 1999 8,800,000 1,000.00 8,800,000 Bonus issue, May 20, 2000 – 1,036.80 323,840 Split 324:1, May 20, 2000 2,842,400,000 3.20 – New share issue, June 16, 2000 150,000,000 3.20 480,000 Share capital, Dec 31, 2000 3,001,200,000 3.20 9,603,840 Share capital, Dec 31, 2001 3,001,200,000 3.20 9,603,840 New share issue, Dec 3, 2002 1,604,556,725 3.20 5,134,582 Share capital, Dec 31, 2002 4,605,756,725 3.20 14,738,422 New share issue, Feb 10, 2003 69,475,344 3.20 222,321 Share capital, Dec 31, 2003 4,675,232,069 3.20 14,960,743

Forward-Looking Statements This annual report contains statements concerning, among statement, including TeliaSonera’s market position, growth other things, TeliaSonera’s financial condition and results of in the telecommunications industry in Europe, the effects of operations that are forward-looking in nature. Such state- competition and other economic, business, competitive ments are not historical facts but, rather, represent TeliaSonera’s and/or regulatory factors affecting the business of TeliaSonera future expectations. TeliaSonera believes that the expectations and the telecommunications industry in general. Forward- reflected in these forward-looking statements are based on looking statements speak only as of the date they were made, reasonable assumptions; however, forward-looking state- and, other than as required by applicable law, TeliaSonera ments involve inherent risks and uncertainties, and a number undertakes no obligation to update any of them in light of of important factors could cause actual results or outcomes to new information or future events. differ materially from those expressed in any forward-looking

44 TELIASONERA ANNUAL REPORT 2003 Annual General Meeting 2004

Annual General Meeting 2004

TeliaSonera’s Annual General Meeting will be held on Wednesday, April 28, 2004 at 5:00 p.m. in the Globe Arenas, Stockholm, Sweden and simultaneously at 6:00 p.m. Finnish time at the Helsinki Fair Centre, Helsinki, Finland.

Right to participate in the Annual General Meeting Shareholders who meet the following criteria are entitled to attend TeliaSonera’s Annual General Meeting: • shareholders entered on TeliaSonera’s register of shareholders as per Friday, April 16, 2004, • and having notified TeliaSonera of their intention to attend not later than 4:00 p.m. (Swedish time) on Thursday, April 22, 2004.

Registration procedure TeliaSonera’s register of shareholders is maintained by VPC AB. Stock may be registered either in the shareholder’s name or in the name of a nominee. To attend the meeting, shareholders whose stock has been registered in the names of nom- inees must arrange for their shares to be re-registered in their own names at VPC not later than Friday, April 16, 2004. This procedure also applies to shareholders using a bank’s shareholder deposit and/or trading over the Internet. Contact your administrator in advance for more information. As Finnish shareholders within the Finnish book-entry system (APK) are nominee registered, APK will automatically re-register these shareholders with record date Friday, April 16, 2004. Please note that these Finnish shareholders still have to notify the company of their intention to participate as described below.

Notice of intention to attend Notice can be given: • by phone: +46 (0)8 611 60 15 (Sweden) or +358 (0)800 304 040 (Finland) • by fax: +46 (0)8 611 60 17 (Sweden) or +358 (0)800 304 041 (Finland) • by mail: TeliaSonera AB, Box 10, SE-182 11 Danderyd, Sweden • on TeliaSonera’s website: www.teliasonera.com under section Investor Relations In providing such notice, shareholders should state: • name/company • Personal ID/Corporate Registration Number • daytime telephone number (including area code/country code) • number of accompanying persons

Payment of dividend Monday, May 3, 2004 is proposed as the record date for the right to receive dividends. Dividends are expected to be distributed by VPC on Thursday, May 6, Financials 2004.

TELIASONERA ANNUAL REPORT 2003 45 Report of the Directors Report of the Directors

Focus Areas in 2003 Financial position, cash flow and investments are described in more The merger of Telia and Sonera is complete and a corporate gover- detail in the section “Financial Overview.” nance model has been established with a clear division of responsibilities and control models that ensure efficiency and good utilization Personnel of the Group’s full potential. The merger with Sonera in December 2002 impacted the average Large parts of the organization contributed during the year to the number of employees in 2003, which amounted to 26,188 (17,277), development of a common direction for TeliaSonera, which is now representing a 52 percent increase. The proportion of women was implemented in the Group. 42 percent (44). The average number of employees outside Sweden Efforts to win synergies from the merger are goal-oriented and was 14,867 (4,684), of which 39 percent (35) women. Net sales per are succeeding faster than planned. employee decreased to SEK 3,147 thousand (3,443). Underperforming operations were restructured and all are cur- Salaries and remunerations totaled SEK 8,460 million (6,732), up rently showing positive trends with substantially improved earnings. 26 percent. Employer’s social security contributions increased 8 per- During 2003, TeliaSonera significantly increased its home market cent to SEK 1,950 million (1,804). Salaries and wages for employees activities, which is yielding results. The growth potential in the inter- outside Sweden were SEK 3,844 million (1,890). national mobile operations is successfully exploited. Applied Research and Development Consolidated Financial Statements in Accordance with Rapid advances in telecommunications make demands on Telia- IFRS/IAS and ÅRL Sonera’s ability to renew and refine its businesses and products. The TeliaSonera’s consolidated financial statements are prepared in emphasis is shifting from in-house development to cooperation with accordance with International Financial Reporting Standards (IFRS/ suppliers, universities, customers and research institutions. Telia- IAS). Effective January 1, 2001, this means that certain financial instru- Sonera’s costs for applied research and development in 2003 totaled ments are valued on an ongoing basis at fair value. This is also in SEK 2,543 million (1,167). accordance with the EU’s fourth and seventh directives. The Swedish The overarching focus of TeliaSonera’s research and development Annual Accounts Act (ÅRL) has so far stipulated valuation at the is to develop services that are reliable and easy to use and that enable lower of acquisition value or fair value. A decided change in accor- users to access the desired services regardless of the type of access. dance with the EU directives will be effective January 1, 2004. As in The more short-term development initiatives in 2003 were mainly previous years, TeliaSonera has also prepared consolidated financial focused on simplifying and new customer offers, MMS, increased statements in accordance with the current valuation rules of ÅRL. Non- speed and quality in fixed and mobile networks, managed IT services, restricted equity is determined based on the consolidated financial pan-Nordic datacom services based on MPLS technology and private statements in accordance with ÅRL. company networks.

Sales and Earnings Environment The TeliaSonera Group’s net sales increased 39 percent to SEK 82,425 TeliaSonera focuses on issues that impact sustainable development million (59,483), mainly due to the full-year effect of the merger with in the marketplace, workplace, environment and community. Sonera. The increase for comparable units was 1 percent. Growth TeliaSonera is concerned about possible health risks from expo- remained strong in mobile communications, Internet and broadband, sure to electromagnetic fields (EMF) and is closely monitoring the while fixed-voice sales fell. issue. TeliaSonera requires that electromagnetic exposure levels from Due to profitable mobile growth, successful restructuring in Inter- mobile phones and base stations provided to TeliaSonera by its sup- national Carrier and in the fixed network operations in Denmark, pliers do not exceed the levels established by recognized, independ- continued streamlining and synergy gains, resulted in exceptionally ent research organizations, such as ICNIRP. strong earnings improvement during the year. EBITDA excluding TeliaSonera works actively to fight spam, unsolicited e-mail. Spam non-recurring items increased to SEK 30,700 million (15,692) and is a major problem and incurs costs for both individual users and operating income, in 2002 impacted by extensive non-recurring society as a whole. When possible in markets, TeliaSonera blocks items, improved to SEK 14,710 million (–10,895). Comments on the known senders of spam based on blacklists of open relays that for- earnings trend are found in the section “Financial Overview”. ward e-mail uncontrolled. Information and telecommunications services contribute to Financial Position, Cash Flow and Investments increased productivity with a minimal impact on the environment. The Group’s financial position remains good. Total assets decreased This is of great importance as the Kyoto Protocol established that to SEK 190,060 million (206,656). Shareholders’ equity increased to greenhouse gases must be reduced and governments and compa- SEK 112,393 million (108,829). The equity/assets ratio improved to nies are not allowed to exceed their assigned carbon dioxide limits. 56.7 percent (51.8). The Group’s retained earnings equaled SEK TeliaSonera has demonstrated in its operations that it is possible to 26,148 million (17,129). significantly reduce CO2 emissions simply by replacing business trav- Mainly due to increased cash flow from operating activities, free el with teleconferencing. TeliaSonera was ranked as the best telecom- cash flow improved substantially to SEK 17,351 million (3,877) and munications company in the Climate Index of the Swedish insurance allowed for continued amortization of maturing debt. Net interest- company Folksam. bearing liability decreased to SEK 8,847 million (25,034). Investments totaled SEK 12,118 million (54,438). The merger Regulatory Development with Sonera affected the comparative year. CAPEX decreased 35 per- The new regulatory framework cent to SEK 9,373 million (14,345). Depreciation, amortization and In 2003, the new EC directives for electronic communications were write-downs for the year totaled SEK 17,707 million (20,844). implemented in Swedish, Finnish and Danish legislation. Similar

46 TELIASONERA ANNUAL REPORT 2003 Report of the Directors

provisions were implemented also in Norway. According to the new affecting primarily the fixed line operators but also to some extent the regulatory framework, the national regulatory authorities (NRA) shall mobile operators, containing requirements for cost based pricing, etc. impose obligations on an operator with significant market power (SMP) if a market analysis under competition law principles indicates Changes in the Board of Directors that a relevant market is not effectively competitive. Possible obliga- At the Annual General Meeting of shareholders on May 8, 2003, tions could include inter alia transparency, accounting separation, Tapio Hintikka, Carl Bennet, Ingvar Carlsson, Eva Liljeblom, Caroline network access and price control. If a market is found to be effectively Sundewall, Roger Talermo and Tom von Weymarn were re-elected as competitive, existing obligations should be withdrawn. members of the Board of Directors. Sven-Christer Nilsson and Paul In 2003, the Swedish NRA published preliminary market defini- Smits were at the meeting elected as new members of the Board. tions and market analyses in most relevant markets for consultation. Lars-Eric Petersson had declined re-election. In the beginning of 2004, a second assessment including preliminary During 2003, there have been no changes among the members obligations was published. TeliaSonera was found to have SMP sta- of the Board appointed by the employee organizations. Yvonne tus in several markets and final decisions on TeliaSonera’s obligations Karlsson, Elof Isaksson and Berith Westman are ordinary members of are expected in the second quarter of 2004. the Board and Stefan Carlsson, Arja Kovin and Magnus Brattström are In accordance with the EU rules, the Finnish NRA notified in deputies to the members representing the employee organizations. November the European Commission of its definitions, analyses and In addition, Taru Maria Solakivi, representing the employee organ- proposed obligations on TeliaSonera and other operators in a num- izations in TeliaSonera Finland, has participated in Board meetings ber of relevant markets. The Commission published its comments without voting power. on January 5, 2004. In its comments, the Commission noted that the NRA, based on a provision in the Finnish Communications Market Work of the Board of Directors Act, had excluded fixed-to-mobile calls from the scope of the pro- TeliaSonera’s Board of Directors had nine ordinary members during posed obligations. The Commission envisaged opening an infringe- the year. In addition, the employee organizations were represented ment procedure against Finland under Article 226 of the Treaty with by three ordinary members. The Board of Directors held ten ordinary respect to this provision. The Commission also expressed serious meetings during the year as well as a number of extra meetings. In doubts in relation to the analysis of the markets for international average, 11 of the 12 ordinary Board members have attended the telephony and extended its investigations by an additional two meetings. months. In addition, the NRA during the autumn published draft The guidelines for the work of the Board of Directors and instruc- market analyses and SMP designations in several other markets for tions defining the responsibilities of the Board members and the national consultation. The SMP process in Finland will continue dur- Chief Executive Officer (CEO), respectively, along with reporting to ing 2004. the Board, are set down in standing orders adopted by the Board on In Denmark, the SMP process started during the autumn by the February 19, 2003. The standing orders lay down rules regarding Danish NRA establishing models and procedures for collecting market the number of ordinary Board meetings (at least five ordinary meet- data (for 2003) with an aim of presenting its analyses in the period ings per calendar year), the business on the agenda of ordinary May to August 2004 and final decisions thereafter. Board meetings, responsibilities within the Board, including the obli- In December, the Norwegian NRA presented a draft market analy- gations of the Chairman of the Board, responsibilities of members of sis and SMP designation regarding the market of call origination and the Board and the CEO, and how work is carried out in committees. access to mobile networks. NetCom was not found to have SMP sta- The Board of Directors has appointed a compensation commit- tus. In Norway, final SMP decisions are not expected until the tee, which considers cases and submits recommendations to the autumn of 2004. Board. The committee deals with matters involving remuneration to In Estonia, Latvia and Lithuania, legislation, which will implement the Chief Executive Officer, Executive Management and Group vice the new EU regulatory framework, has been prepared during 2003. presidents reporting directly to the CEO. The responsibility also in- It remains uncertain whether the new legislation will enter into force cludes incentive programs that target a broader group of employees before the accession to the European Union on May 1, 2004. within the Group. The committee members since January 7, 2003 are Tapio Hintikka, Carl Bennet, Ingvar Carlsson, Roger Talermo and Tom Some other matters von Weymarn. The Swedish NRA continued its consultation process with the tele- The Board of Directors appointed an audit committee on January 7, com industry on forward-looking calculation models for cost-based 2003, which considers cases and submits recommendations to the pricing. A final model for the fixed network and proposals for the Board. The committee is responsible for reviewing the company’s mobile networks were published in the autumn of 2003. financial reports and internal reporting and control systems. The In October 2003, the Finnish Government submitted a bill for an committee members are Tapio Hintikka, Eva Liljeblom and Caroline act on data privacy of electronic communications. Sundewall. Lars-Eric Petersson was a member of the committee No significant changes occurred in the Danish telecommunica- between January 7 and May 8, 2003. tions regulation, affecting TeliaSonera’s business in Denmark. In addition to follow-up of the day-to-day operations, the Board In Norway, the UMTS license holders NetCom and Telenor were of Directors focused special attention on the following matters during given 15 months’ postponement for their license obligations con- the year: cerning rollout requirements. In May 2003, the Norwegian NRA took • Financial reporting; a decision under the old rules, by which it designated NetCom as an • Growth strategy; operator with SMP status on the Norwegian market for intercon- • Capital structure; Financials nection. By such SMP designation followed an obligation to keep • Audit tender process; cost oriented termination rates and NetCom reduced its mobile ter- • Remuneration issues; mination rate in accordance with requirements from the NRA. • Investments; During 2003, Estonia, Latvia and Lithuania continued their efforts • Administrative routines and risk management. to implement new sector specific regulation in order to align the national legislation with the 1998 regulatory framework of the Euro- Nominating Committee pean Union. The national regulatory authorities issued regulations The Annual General Meeting on May 10, 2001 decided to establish

TELIASONERA ANNUAL REPORT 2003 47 Report of the Directors

a nominating committee. The primary purpose of the committee is SEK 7,718 million (4,586) were primarily attributable to capital infu- to nominate Board members and present proposals regarding Board sions in subsidiaries and associated companies. Of the capital infu- member compensation. The committee shall devote special attention sions to subsidiaries, SEK 2,013 million (578) was provided through to the need for greater equality between women and men. At the debt conversion. Applied research and development costs amounted extraordinary meeting of shareholders on November 4, 2002, it was to SEK 190 million (413). decided that the company’s nominating committee shall comprise As of December 31, 2003, the number of employees was 2,982 the Chairman of the Board and the Vice Chairman. (3,308). The average number of employees during the year was 3,118 The nominating committee members since the extraordinary (3,305) of which 36 (36) percent women. Salaries and remuneration meeting of shareholders 2002 until the Annual General Meeting totaled SEK 1,245 million (1,255). Employer’s social security contri- 2003 have been Tapio Hintikka (Chairman of the Board) and Lars-Eric butions were SEK 425 million (430). Petersson (Vice Chairman of the Board). Carl Bennet was elected new Vice Chairman of the Board on June 16, 2003, and since then the Dividend 2003 members of the nomination committee have been Tapio Hintikka The Board of Directors will be proposing an increase of the dividend and Carl Bennet. to SEK 1.00 per share to the Annual General Meeting, consisting of The recommendations of the nominating committee will be an ordinary dividend of SEK 0.80 (0.40) and an extra dividend of SEK reported in the notice of Annual General Meeting and at the meeting 0.20, reflecting the exceptionally strong cash flow. This results in a itself. total distribution of SEK 4,675 million (see also the section “Pro- posed Appropriation of Earnings”). The AGM will be held on April TeliaSonera Share 28, 2004. The TeliaSonera share is listed on Stockholmsbörsen, Helsinki Ex- changes and Nasdaq. The share’s settlement price on Stockholms- Outlook 2004 börsen was SEK 33.30 at the beginning of the year and SEK 37.60 at During 2004, the market is expected to show continued good growth year-end. The highest settlement price was SEK 38.70 (December in mobile, decline in fixed voice and strong growth in Internet based 31) and the lowest was SEK 23.70 (March 31). services. We remain committed to pursuing profitable growth in our On December 31, 2003, TeliaSonera had 869,967 shareholders. current footprint of operations. Based on continued market efforts, The Swedish state owned 45.3 percent and the Finnish state owned our ambition is that, during 2004, organic revenue growth will devel- 19.1 percent of the share capital. Swedish and Finnish private op in line with or better than our markets. investors owned 3.6 and 2.4 percent of the share capital, respec- The home market especially remains very competitive and we tively, while Swedish and Finnish institutional investors owned 19.8 will continue to adapt the cost structure to reflect the market con- and 3.9 percent, respectively. Shareholders outside Sweden and Fin- ditions in different segments. land owned 5.9 percent. Margins will be positively impacted by continued efficiency improvements and increased volumes and negatively by lower prices. Parent Company Free cash flow will remain strong although impacted by higher cash The parent company TeliaSonera AB, which is domiciled in Stock- taxes, somewhat increased capital expenditure and higher use of the holm, comprises the Group’s Swedish activities in development and provisions. operation of fixed networks and basic production of network serv- Our ambition is to achieve majority control in all operations by ices. The parent company also includes Group management func- increasing our shareholding in the associated companies, if possible. tions and the Group’s internal banking operations. Our strong financial position together with our recent experience in Net sales were SEK 21,858 million (23,100), of which SEK 17,108 making a successful cross-border merger, allow us now also to look million (19,004) was billed to subsidiaries. Earnings before appro- further ahead to take an active role in the consolidation of the Euro- priations and taxes ended higher, at SEK 5,450 million (385), due to pean telecom service industry. Our starting point is to build on or improved operating income and Group contributions from subsi- increase our strength in the Nordic and Baltic home market, if and diaries. Earnings after appropriations and taxes were SEK 3,328 mil- when the right opportunity occurs. Any acquisition must be value- lion (2,150). enhancing by fulfilling our return requirements and allow us to Based on an economic life analysis, resulting in a decision to extend maintain a solid financial position. the depreciation period for the copper cables in the fixed local access network from 8 years to 20 years and for switching equipment for ADSL customers from 3 years to 10 years, tangible fixed assets were written up by SEK 4,949 million as of December 31, 2003. The write- up, net of deferred income taxes, has been recognized as a revaluation reserve in restricted equity. Including this and the completion of the merger with Sonera, shareholders’ equity increased to SEK 96,269 million (89,197). Retained earnings amounted to SEK 23,209 million (21,751). The balance sheet total decreased to SEK 137,112 million (139,002). Cash flow from operating activities was SEK 7,561 million (7,377) and cash flow before financing activities improved to SEK 5,606 million (–1,348). Net borrowings were SEK 3,196 million (451). Cash and cash equivalents totaled SEK 8,809 million (3,294). The equity/assets ratio (including the equity component of untaxed reserves) was 74.2 percent (69.8). Total investments amounted to SEK 12,805 million (64,650), including SEK 2,506 million (3,537) in tangible fixed assets, primarily fixed-line installations. The purchase price consideration for Sonera amounted to SEK 2,581 million (56,527). Other investments totaling

48 TELIASONERA ANNUAL REPORT 2003 Financial Overview Financial Overview

cessful restructuring in International Carrier and the fixed network Review of the TeliaSonera Group, Pro forma operations in Denmark, continued streamlining and synergy efforts now yielding results. The merger of Telia and Sonera was effected on December 3, 2002. Operating income increased to SEK 13,140 million (–45,958). Among the conditions laid down by the European Commission to Non-recurring items had an effect on operating income in the approve of the merger were that Telia’s Finnish mobile operations amount of SEK –1,691 million (–51,950). Non-recurring items include and Swedish cable TV operations be divested and, as long as such costs for redundancies and synergies implementation, write-downs divestments were not consummated, that a Monitoring Trustee, on holdings within TeliaSonera Holding, reversal of reserves for appointed by the EU Commission, should exercise Telia’s rights as restructuring International Carrier and capital gains from divestitures. shareholder. To present as fair a view as possible of the combined Excluding non-recurring items, operating income increased to SEK company’s earnings and financial position, this financial overview is 14,831 million (5,992). based on TeliaSonera Group pro forma, i.e. as if the merger of Telia In the fourth quarter, items recorded in connection with the Telia- and Sonera had taken place on January 1, 2002 and excluding Telia’s Sonera merger in December 2002 were adjusted. This decreased Finnish mobile operations and Swedish cable TV operations. goodwill as well as deferred tax assets and liabilities in the balance sheet. Further, operating income increased by SEK 291 million, Key Figures income tax expense by SEK 113 million and net income by SEK 178 January–December million. The changes have been retroactively reflected in all quarters In millions, except percentages 2003 2003 2002 for 2003. Comparative figures for 2002 have not been restated. and per share data SEK EUR1) SEK EBITDA excluding non-recurring items increased to SEK 30,690 Net sales 81,772 9,010 80,979 EBITDA excl. non-recurring items2) 30,690 3,382 25,457 million (25,457) and the margin strengthened to 38 percent (31). Margin (%) 37.5 37.5 31.4 Exchange rate fluctuations affected EBITDA by –1 percent. Income from associated companies 382 42 –33,039 Operating income 13,140 1,448 –45,958 Financial items totaled SEK –794 million (–833) and were affect- Operating income ed by capital gains and write-downs of financial investments and excl. non-recurring items 14,831 1,634 5,992 reserves for guarantee commitments for the Italian 3G operator Ipse Income after financial items 12,346 1,360 –46,791 Net income 7,671 845 –32,890 totaling SEK –22 million (56). Earnings/loss per share 1.64 0.18 –7.03 Net income increased to SEK 7,671 million (–32,890) and earn- CAPEX 8,960 987 11,710 Free cash flow 17,499 1,928 9,534 ings per share totaled SEK 1.64 (–7.03). The comparative year was impacted by substantial positive deferred tax benefits. In 2003, taxes 1) Convenience translation only, conversion rate SEK 1 = EUR 0.110183. 2) Non-recurring items, see table on page 57. were positively affected by a previously unrecognized deferred tax asset from losses in Telia’s former Finnish mobile operations. Continued good customer growth CAPEX dropped to SEK 8,960 million (11,710). and the best result ever In 2003, Group net sales increased 1 percent to SEK 81,772 million Record-high cash flow, strong financial position (80,979). Price changes and exchange rate fluctuations had a negative The strong earnings improvement, low CAPEX and low cash taxes effect on sales of –4 and –1 percent, respectively. Structural changes generated record-high free cash flow of SEK 17,499 million (9,534). through acquisitions and divestitures had a positive impact of 1 per- Disbursements from restructuring reserves affected free cash flow by cent. SEK –1,747 million. Reserves for future disbursements at year-end In the consolidated operations, mobile external net sales showed totaled SEK 3,093 million. strong growth in most markets. In Sweden mobile sales increased 5 In addition to the effect of free cash flow, TeliaSonera’s financial percent, in Norway 10 percent, in Denmark 52 percent and in the position improved by approximately SEK 2.3 billion through the sale Baltics 7 percent. of Com Hem and Telia Mobile Finland, as stipulated by the European In Eurasia, Fintur (consolidated as of September 2002) increased Commission for the merger. Continued divestments of non-core sales 44 percent in local currency. operations also had a positive effect on liquidity. Larger stakes in the In Finland, mobile sales decreased 3 percent. Disregarding the mobile operator Omnitel in Lithuania and the fixed network opera- adjustment of accruals, sales decreased 1 percent. tor Auria in Finland led to cash outflows of SEK 865 million and SEK In addition, the mobile operators in Turkey and Russia that are 213 million, respectively. not consolidated showed very strong growth in 2003. The strong cash flow enabled the Group to further strengthen its Demand for Internet and broadband access remained strong in financial position by reducing net debt by SEK 19,868 million to SEK all markets. 18,207 million. The equity/assets ratio increased from 52.1 to 56.7 The market for fixed voice is declining and external net sales fell percent during 2003. overall, except in Finland where the acquisition of the fixed network At the beginning of 2004, an agreement was signed to divest operator Auria increased fixed voice sales by 3 percent. In Sweden, Telia Finans AB yielding cash inflow of approximately SEK 6.2 billion. fixed voice sales dropped 4 percent. Financials Group sales were negatively affected by the phase-out of opera- Synergies faster than plan tions within International Carrier and the fixed network operations Efforts to win synergies are progressing faster than planned. The ini- in Denmark. tiatives taken thus far are expected to yield annual cost savings of SEK 1,751 million at the end of 2005, along with annual capital expen- Strong earnings improvement diture savings of SEK 374 million at the same time. Costs for the TeliaSonera attained exceptionally strong earnings improvement in implementation of these initiatives are estimated at approximately 2003. The improvement was due to profitable mobile growth, suc- SEK 952 million.

TELIASONERA ANNUAL REPORT 2003 49 Financial Overview

Synergy savings from decisions to date During the year, the number of employees was reduced by 549

Full run rate annual employees. In addition, 376 employees were redundant at year-end. SEK in millions effect (by 2005) Effect in 2003 Costs for these redundancies are covered by the provision of SEK 341 OPEX million made in 2003. Product and service development 529 205 IT systems and infrastructure 276 100 CAPEX declined due to effective investment management, which Purchasing 303 254 led to higher capacity utilization in the networks, and the renegoti- Network operations 490 178 ation of certain supplier contracts. During the year, SEK 407 million Corporate functions 153 145 Total 1,751 882 (646) was invested in mobile communications and SEK 2,696 million CAPEX (4,009) in fixed communications, including broadband and mobile- Product and service development 13 46 supporting investments. IT systems and infrastructure 22 53 Svenska UMTS-nät AB has invested SEK 1,221 million in the UMTS Purchasing 324 348 Network operations 15 34 network to date. The usage of recent cost efficient technology, such Total 374 481 as EDGE, would lower the cost of the buildout in rural areas but is currently not accepted by the regulatory authorities. TeliaSonera is During 2003, cost savings totaled SEK 882 million and capital expen- actively working to achieve an understanding for the need for a prop- diture savings SEK 481 million, while the implementation costs were er balance between the commercial and technical freedom in the 3G SEK 685 million. introduction in Sweden. TeliaSonera expects that the annual cost savings will reach SEK 2.3 billion and that the annual capital expenditure savings will reach SEK Mobile communications 640 million by the end of 2005. External net sales rose 5 percent to SEK 11,001 million within mobile The number of employees was trimmed by 1,766 to 26,694 dur- communications. The number of mobile customers increased by ing 2003 through streamlining measures and synergy gains. 234,000 to 3,838,000. The number of subscription customers increased by 40,000 to 1,857,000 and prepaid card customers increased by 194,000 to 1,981,000. The number of customers through service Review of Profit Centers, Pro forma providers climbed by 43,000 to 131,000. Average traffic volume per customer and month (MoU) decreased to 128 (130) and ARPU dropped to SEK 272 (277) due to price cuts Stronger position within mobile, negative fixed and a larger share of prepaid card customers. Churn was 11 percent consumer trend broken and robust earnings (12). The number of SMS messages sent per customer and month improvement in Sweden surged to 18 (12). Aggressive market initiatives with attractive new offerings enabled EBITDA excluding non-recurring items climbed to SEK 5,529 mil- Telia to strengthen its position on the Swedish mobile market within lion (5,217) and the margin improved to 45 percent (44). all customer segments during 2003. By posting an increase of over 25,000 fixed-voice consumer customers during December, Telia Fixed communications broke the negative trend in the consumer segment that had been External net sales fell 2 percent to SEK 30,384 million within fixed prevalent since the introduction of the carrier preselect reform. communications. New control forms with continued streamlining and sharp focus Voice sales decreased 4 percent to SEK 20,883 million. Traffic rev- on costs, synergies from the merger and the full impact of the enues dropped 9 percent to SEK 8,959 million, primarily due to streamlining efforts implemented in 2002 resulted in powerful earn- reduced market shares as well as total market decline and price cuts. ings improvement for 2003. Subscription and value-added services sales climbed 1 percent to The weak market growth affected net sales. External net sales fell SEK 11,924 million. Sales of value-added services surged due to 1 percent to SEK 41,385. Increased price competition had a negative increased demand for caller ID, conference calling and incoming call impact on sales particularly in the second half of the year. handling. The number of fixed voice subscriptions fell by 126,000 The robust earnings growth meant that operating income exclud- to 5,432,000 and the number of ISDN channels fell by 59,000 to ing non-recurring items increased 24 percent to SEK 11,150 million. 824,000. Earnings were increased by SEK 400 million through the release of Early in 2004, Telia took over Fortum’s 37,000 voice and Internet the reserve for the dispute with Tele2 and Vodafone on termination customers. rates. Certain development projects shifted focus, which entailed a Increased demand, primarily for Internet access, improved sales write-down of SEK 400 million, of which SEK 300 million in the fourth within Internet and data services by 4 percent to SEK 7,985 million. quarter. During the year, the number of customers with broadband access EBITDA excluding non-recurring items increased 11 percent to increased by 78,000 to 399,000 and the number of customers with SEK 17,637 million and the margin strengthened to 42 percent (37). dial-up Internet access increased by 60,000 to 823,000. Within fixed communications, EBITDA excluding non-recurring January–December items increased to SEK 12,109 million (10,679) and the margin rose SEK in millions, except percentages 2003 2002 to 40 percent (34). Net sales 42,364 43,562*) of which external 41,385 41,683 EBITDA 17,296 14,977 Sustained profitability in fierce competition in Finland EBITDA excl. non-recurring items 17,637 15,896 Margin (%) 41.6 36.5 In Finland, Sonera managed to sustain its performance, despite esca- Operating income 10,809 8,035 lated competition following the introduction of mobile number Operating income excl. non-recurring items 11,150 8,970 portability. Net sales and earnings were positively affected by strong CAPEX 3,103 4,655 broadband growth and growth in mobile usage, and negatively *) Pro forma net sales 2002 include certain intercompany sales, which were only eliminated on Group level. The impact is SEK 403 million in the fourth quarter and affected by the drop in mobile subscriptions and price. The intensi- SEK 557 million for the full year. fied market efforts and new offerings during the latter part of the year gained effect and in December, Sonera recorded a net inflow of new customers of 12,000.

50 TELIASONERA ANNUAL REPORT 2003 Financial Overview

January–December equivalent subscriptions. Auria’s retail shops for home electronics SEK in millions, except percentages 2003 2002 are reported under TeliaSonera Holding. Net sales 17,697 17,515 For fixed communications, external net sales increased 7 percent of which external 17,394 17,295 to SEK 6,643 million. Fixed voice sales increased 3 percent to SEK EBITDA 6,668 6,925 EBITDA excl. non-recurring items 6,738 6,869 2,749 million, while sales for Internet and data services increased Margin (%) 38.1 39.2 4 percent to SEK 2,531 million. Other sales, including customer equip- Operating income 1,981 2,112 Operating income excl. non-recurring items 2,051 2,056 ment, climbed 23 percent to SEK 1,363 million. CAPEX 2,348 2,151 Excluding Auria, fixed communications external net sales climbed 4 percent in 2003. Net sales increased 1 percent to SEK 17,697 million during the year EBITDA excluding non-recurring items increased to SEK 1,538 despite the fact that price erosion affected net sales by –4 percent. million (1,207) and the margin climbed to 23 percent (19). The acquisition of the fixed network operator Auria affected sales by The number of fixed voice subscriptions declined in the tradition- SEK 172 million, while the adjustment to accruals made earlier in the al local network areas. However, the acquisition of Auria increased year affected sales by SEK –242 million. Disregarding these effects, the number of equivalent subscriptions by 83,000 to 804,000. sales increased 1 percent. The number of broadband customers increased by 68,000 to The adjustment of previous accruals and price erosion also signif- 150,000, of which 13,000 were from Auria. icantly burdened earnings, and operating income excluding non- The number of customers with dial-up Internet access fell by recurring items remained at the same level as for 2002. 26,000 to 155,000. EBITDA excluding non-recurring items dropped to SEK 6,738 million, and the margin fell to 38 percent (39). Auria affected EBITDA by Continued strong development in Norway SEK 47 million. NetCom showed continued strong growth in both net sales and During the year, SEK 15 million was reserved for redundancies. earnings despite much tougher competition during 2003. Robust As part of the synergies implementation, a billing platform was writ- customer growth, increased usage per customer and a strong SMS ten down by SEK 55 million during the fourth quarter. and MMS trend led to a 10 percent increase in net sales compared Additional streamlining measures were implemented in 2003. with the preceding year. In local currency, the increase was 17 per- Duplicate functions within product and service development due to cent. Price cuts had an impact of –4 percent. the merger with Telia were eliminated. Efficiency was also enhanced within administration and certain support functions. As a result, 400 January–December SEK in millions, except percentages 2003 2002 jobs were discontinued during the year. 176 permanent employees Net sales 6,081 5,537 were given notice and the remainder of the reduction is handled of which external 6,011 5,482 through internal transfers, pension plans and non-renewal of tem- EBITDA 2,499 2,133 EBITDA excl. non-recurring items 2,499 2,129 porary contracts. Margin (%) 41.1 38.5 SEK 1,132 million (898) was invested in mobile communications Operating income 423 –38 and SEK 1,216 million (1,253) in fixed communications. In mobile Operating income excl. non-recurring items 452 –42 CAPEX 861 1,094 communications, these investments were concentrated to GPRS, EDGE and UMTS in order to realize high-capacity services, while the EBITDA excluding non-recurring items increased 17 percent to SEK driving force behind CAPEX in fixed communications was increased 2,499 million and the margin strengthened to 41 percent (38). In usage of broadband services. local currency, EBITDA improved 25 percent. Operating income excluding non-recurring items improved to Mobile communications SEK 452 million (–42), attributable to increased EBITDA and lower The implementation of number portability on July 25 led to intense depreciation due to exchange rate effects. The write-off of the MMS activity on the market. In mobile communications, external net sales platform, as part of the synergies implementation, affected operating decreased 3 percent to SEK 10,751 million. Price erosion affected net income by SEK –29 million. sales by –6 percent. EBITDA excluding non-recurring items dropped The number of customers climbed by 107,000 to 1,195,000, to SEK 5,200 million (5,662) and the margin fell to 48 percent (51). with an increased proportion of subscription customers in the cus- Disregarding the adjustment of accruals, sales decreased 1 percent, tomer base. and EBITDA excluding non-recurring items decreased to SEK 5,442 The number of customers via service providers remained largely million and the margin fell to 49 percent. unchanged at 90,000. The number of mobile customers dropped during the year by The average traffic volume per customer and month increased to 62,000 to 2,428,000. However, customers via service providers 168 (153) minutes and ARPU increased to NOK 367 (345). increased by 142,000 to 177,000 and Sonera’s service providers The interconnect fee for termination in NetCom’s network was strengthened their market positions during the year. reduced on July 1 from NOK 1.11 to NOK 1.01 and in January 2004, The number of GPRS customers increased by 332,000 to 422,000. the fee was further reduced to NOK 0.91. The average traffic per customer and month increased to 160 NetCom’s customers are high-volume users of SMS and MMS, minutes (151) and ARPU dropped to EUR 39.2 (40) due to the adjust- due to attractive prices as well as NetCom’s valuable cooperation ment of accruals and price erosion. The number of SMS messages with content providers. During the year, the number of SMS mes- sent per customer and month increased to 28 (27). sages sent per customer and month rose to 76 (61). The introduction of number portability entailed much higher The extensive use of SMS serves as a good platform for launching Financials churn on the Finnish market. Churn totaled 19.9 percent in the fourth MMS services. On December 1, 2003, a fee of NOK 2.50 was imple- quarter. mented for each MMS sent. In the fourth quarter, NetCom’s customers sent a total of 4 million MMS. Fixed communications During 2003, Sonera strengthened its market footprint through the acquisition of Auria, a fixed network operator with a strong presence in southwestern Finland. The acquisition added 126,000 fixed-voice

TELIASONERA ANNUAL REPORT 2003 51 Financial Overview

Both fixed and mobile EBITDA positive in the fourth Baltic Countries quarter in Denmark January–December Net sales increased 18 percent to SEK 3,278 million. Adjusting for SEK in millions, except percentages 2003 2002 accounting changes on mobile interconnect revenues, sales increased Net sales 5,881 6,063 of which external 5,823 6,038 12 percent. EBITDA 2,796 2,995 EBITDA excl. non-recurring items 2,846 3,020 January–December Margin (%) 48.4 49.8 SEK in millions, except percentages 2003 2002 Income from associated companies 379 358 Net sales 3,278 2,783 Operating income 994 1,182 of which external*) 3,188 2,593 Operating income excl. non-recurring items 1,164 1,214 EBITDA 70 –1,849 CAPEX 758 1,334 EBITDA excl. non-recurring items 70 –1,309 Margin (%) 2.1 –47.0 Operating income –561 –5,764 Strong mobile growth and turnaround programs in the Operating income excl. non-recurring items –561 –2,234 fixed line business in Lithuania CAPEX 391 953 Mobile communications *) External mobile interconnect revenues were previously reported in net, but a transition was made to reporting in gross during 2003. The change entails higher revenues of The mobile operator Omnitel increased net sales 10 percent to SEK SEK 164 million. The change was made for the full year in the fourth quarter. 2,032 million compared with the preceding year. Price cuts affected sales by –11 percent. Earnings showed substantial improvement, attributable to strong Increased sales improved EBITDA excluding non-recurring items development across all operations, and in 2003, positive EBITDA ex- to SEK 900 million (736) and strengthened the margin to 44 percent cluding non-recurring items was achieved at SEK 70 million (–1,309) (40). Operating income excluding non-recurring items increased to in Denmark. SEK 352 million (235). Reduced CAPEX is attributable to the restructuring of the fixed The number of customers increased by 202,000 to 1,052,000. line operations and the completion of the GSM network in 2002. In December 2003, TeliaSonera acquired Motorola’s 35 percent Of CAPEX, SEK 173 (424) million referred to mobile communi- interest in Omnitel, thereby increasing its stake in the company from cations and SEK 218 (529) million to fixed communications, includ- 55 to 90 percent. ing cable TV. Fixed communications Mobile communications The fixed network operator Lietuvos Telekomas reported a 16 per- Despite tough competition and increased price pressure, Telia suc- cent drop in net sales to SEK 2,136 million. Fixed voice sales decreased ceeded in growing its mobile customer base and improving prof- 15 percent to SEK 1,665 million due to price cuts of 5 percent and itability. tough competition from the mobile sector. The number of fixed voice Strong customer growth increased external net sales by 75 per- customers fell by 107,000 to 829,000, but the loss of customers cent to SEK 1,492 million despite price cuts of approximately 20 per- almost ceased in December. cent. Adjusting for accounting changes on mobile interconnect rev- Internet and data services sales climbed 4 percent to SEK 340 mil- enues, net sales grew 52 percent compared with the preceding year. lion due to increased demand for Internet access, including broad- EBITDA excluding non-recurring items improved to SEK –91 mil- band. Price cuts affected sales by –9 percent. The number of cus- lion (–505). tomers with ADSL jumped by 14,000 to 25,000 during the year. The number of customers rose by 59,000 to 525,000. The launch Lower sales affected EBITDA excluding non-recurring items, of the TeliaXpress subscription, with attractive pricing for voice serv- which dropped to SEK 1,059 million (1,373) and the margin fell to ices and free usage of SMS, was an important factor behind the 50 percent (54). strong customer growth. Operating income includes non-recurring items of SEK 170 mil- During the year, the number of sent SMS messages per customer lion for impairment charges (real estate, network capacity and equip- and month surged to 175 (39). ment) and redundancies. Excluding non-recurring items, operating MMS also showed a significant increase and, in the second half income fell to SEK –124 million (153). of the year, Telia’s customers sent 651,000 MMS messages. Strong mobile growth and good earnings in fixed line Fixed communications operations in Latvia To improve the fixed line business, the operations were restructured Mobile communications and the product portfolio streamlined. The mobile operator Latvijas Mobilais Telefons (LMT) increased net External net sales (excluding Stofa) decreased 9 percent to SEK sales by 2 percent to SEK 1,855 million, due to customer growth. In 1,051 million. Price cuts had an impact of –10 percent. local currency, the increase was 13 percent. Price cuts affected sales by The restructuring had a positive effect on earnings and EBITDA –3 percent. The number of customers climbed by 87,000 to 534,000 excluding non-recurring items improved to SEK –1 million (–891). and customers via service providers increased by 48,000 to 75,000. SEK 229 million of the restructuring reserve was disbursed in EBITDA excluding non-recurring items improved to SEK 944 mil- 2003, and the reserve totaled SEK 250 million on December 31. lion (927) while the margin was unchanged at 51 percent. In local In the cable TV company Telia Stofa, external net sales rose 9 per- currency, EBITDA increased 13 percent. cent to SEK 645 million due to customer growth and increased usage. Operating income excluding non-recurring items improved to Price increases affected sales by 6 percent. SEK 632 million (494). EBITDA excluding non-recurring items improved to SEK 162 mil- GPRS and MMS services were launched during the year. lion (87). The number of cable TV customers increased by 7,000 to 195,000 and the number of broadband customers climbed by Fixed communications 23,000 to 104,000. The fixed network operator Lattelekom (associated company, 49 percent holding) successfully carried out a cost-cutting program and increased efforts to develop its Internet and data communications business.

52 TELIASONERA ANNUAL REPORT 2003 Financial Overview

Lattelekom showed decreased sales but increased earnings compared Strong customer growth and improved profitability with the preceding year. in Turkey Share of net income increased to SEK 117 million (74). After amor- Turkcell (associated company, 37 percent holding) reported a strong tization of goodwill and fair value adjustments, income from Lattele- positive trend in both net sales and earnings during the year. The kom remained at almost the same level as in 2002, SEK 205 million. number of customers climbed by 3,300,000 to 19,000,000, of which 14,200,000 were prepaid customers Good performance in Estonia Mobile communications January–December SEK in millions 2003 2002 The mobile operator EMT (associated company, 49 percent holding) Share of net income (US GAAP)*) 600 70 reported increased net sales and earnings before tax compared with IFRS/IAS adjustments 706 551 the preceding year. Share of net income totaled SEK 215 million Amortization of goodwill and fair value adjustments –688 –954 (232). After amortization of goodwill and fair value adjustments, Income from associated companies 618 –333 income from EMT was SEK 136 million (144). *) Turkcell’s financials are included in TeliaSonera’s reporting with a one-quarter lag. Fixed communications Price pressure intensified in 2003, but Turkcell successfully defended Elion (associated company, 49 percent holding) reported increased its leading position using loyalty programs and volume-based offer- net sales and earnings compared with the preceding year. Share of ings. The traffic volume per customer climbed. net income increased to SEK 84 million (54). After amortization of Share of net income from Turkcell increased to SEK 600 million goodwill and fair value adjustments, income from Elion was SEK 41 (70). After inflation adjustments, amortization of goodwill and fair million (7). value adjustments, income from Turkcell increased to SEK 618 million (–333). Amortization of goodwill and fair value adjustments was Continued strong growth and profit development in affected by the reduction in Turkcell goodwill in the fourth quarter, Eurasia which has been retroactively reflected in all quarters for 2003. The Fintur (consolidated as of September 2002) reported strong net sales change increased income from associated companies by SEK 291 and earnings in 2003. In local currency, sales increased 44 percent million for 2003. Comparative figures for 2002 have not been restated. compared with the preceding year. The number of mobile customers The high inflation rate in Turkey during 2003 increased Telia- rose by 771,000 to 2,385,000 while ARPU remained on the same Sonera’s carrying value of Turkcell by SEK 1,372 million. In the long level. Growth was primarily within prepaid cards. term, we believe that inflation should be reflected in the value of the Turkish lira and that the increase of the carrying value may therefore January–December be temporary. SEK in millions, except percentages 2003 2002 TeliaSonera has during the year actively worked for a proper cor- Net sales 2,742 847 of which external 2,740 847 porate governance model in Turkcell and has declared its prepared- EBITDA 1,490 457 ness to increase its shareholding to a controlling stake, should the EBITDA excl. non-recurring items 1,490 457 Margin (%) 54.3 54.0 opportunity arise and the conditions be beneficial from a TeliaSonera Operating income 889 –76 shareholder value point of view. Operating income excl. non-recurring items 889 –76 CAPEX 990 234 Positive EBITDA and positive operating income The strong customer growth combined with maintained margins in International Carrier at year-end (54 percent) led to a sharp improvement in earnings during the year. During the year, Telia’s and Sonera’s international carrier operations In the fourth quarter, the margin dropped, as planned, due to were integrated and Telia’s carrier business successfully restructured. increased marketing activities. In the fourth quarter, the carrier business showed positive cash flow The strong customer growth entailed high CAPEX, totaling 36 per- excluding restructuring costs as well as positive operating income cent of net sales in 2003. excluding non-recurring items. In March 2003, Fintur increased its holding in Moldcell from 77 to Net sales decreased 29 percent to SEK 4,892 million due to a 100 percent. deliberate decision to close down operations in Asia, domestic capacity operations in the United States and domestic voice reseller oper- Nearly 3.2 million new customers and increased market ations in the United Kingdom and Germany. The decrease is also share in Russia attributable to prioritizing profitable voice destinations and cus- MegaFon (associated company, 44 percent holding) reported strong tomers. During the year, a sound base was created to support revenue growth in both net sales and earnings during the year. The company line growth. strengthened its market position by boosting its number of customers by 3,145,000 to 6,175,000 customers. The highest absolute increase January–December SEK in millions 2003 2002 in customers was in the North-West region. Areas where market Net sales 4,892 6,861 shares were won include Moscow and the Urals. of which external 3,589 5,577 EBITDA 237 –6,004 January–December EBITDA excl. non-recurring items 144 –1,225 SEK in millions 2003 2002 Margin (%) 2.9 –17.9 Operating income –259 –12,080 Share of net income 709 168 Operating income excl. non-recurring items –298 –1,992 Amortization of goodwill and CAPEX 239 1,117 Financials fair value adjustments –200 –231 Income from associated companies 509 –63 Despite decreased net sales, EBITDA excluding non-recurring items improved to SEK 144 million (–1,225) and operating income exclud- The share of net income from MegaFon increased to SEK 709 million ing non-recurring items improved to SEK –298 million (–1,992). (168) in 2003. After amortization of goodwill and fair value adjust- Non-recurring items had a positive effect on operating income in ments, income from MegaFon increased to SEK 509 million (–63). the amount of SEK 39 million. Provisions and other one-off items related to the integration of the Telia and Sonera carrier operations

TELIASONERA ANNUAL REPORT 2003 53 Financial Overview

totaled SEK 455 million in 2003. Lower than expected restructuring announced that the company does not intend to exercise its option costs, mainly due to the French project but also to redundancies in to buy the remaining shares in the company and in January 2004, Sweden and customer contracts, enabled a reversal of SEK 427 mil- Yahoo! exercised its option to sell back its 16 percent stake to Telia- lion of the restructuring reserve. Fluctuations in exchange rates on Sonera. TeliaSonera will now seek other ways to divest Sonera Zed. the restructuring reserve had a positive impact of SEK 100 million. Zed had a satisfactory earnings trend during 2003 and net sales During the year, SEK 1,159 million of the reserve was utilized for climbed from SEK 373 million to SEK 753 million. restructuring Telia’s carrier operations. As per December 31, SEK 2,267 The Spanish government reduced its requirements on bank guar- million of the reserve remained. Up to SEK 1,500 million is expected antees for Xfera (3G investments in Spain) during the year. The to be disbursed in 2004. The remaining part will be used later during counter guarantees issued by TeliaSonera to the Spanish state were the phase-out of long-term contracts. thereby reduced from EUR 383 million to EUR 98 million. TeliaSonera Of the restructuring reserve for synergies implementation, SEK anticipates that the arbitration proceedings related to Xfera shares 327 million remained as per December 31 after the disbursement of held by Vodafone will result in a ruling whereby TeliaSonera will pur- SEK 18 million. chase an additional 2.2 percent stake in Xfera, paying approximately CAPEX decreased compared with the preceding year and was EUR 9.5 million in purchase price, interest and arbitration expenses. strictly customer-related or dedicated to reducing operating costs. Accordingly, the counter guarantees are anticipated to increase by EUR 11 million to approximately EUR 110 million. The TeliaSonera TeliaSonera Holding commitment to invest EUR 368 million, after the additional 2.2 per- During the year, some 30 holdings were sold in whole or in part. The cent stake, in Xfera will be reduced as a result of the ongoing negoti- greatest impact on earnings was the divestiture of the holdings in ations between the owners. Bharti Mobile and Netia as well as Respons within the Telefos Group During the fourth quarter, TeliaSonera increased its provisions for (49 percent stake). guarantee commitments for Ipse (3G investments in Italy) by SEK TeliaSonera reduced its voting power in Overseas Telecom AB from 153 million. 65 to 42 percent during the year, which means that the company is Auria’s retail shops for home electronics were transferred to Telia- reported as an associated company starting in the third quarter. Sonera Holding. Auria affected net sales by SEK 192 million and During the third quarter, Telia Credit and Telia Promotor were EBITDA by SEK 4 million in the fourth quarter. moved from TeliaSonera Holding to TeliaSonera Sweden. At the same In 2003, net sales for comparable units increased 32 percent in time, leasing operations concerning TeliaSonera’s own products were TeliaSonera Holding. transferred from Telia Finans to Telia Credit. Telia Finans will only Non-recurring items affected operating income by SEK –1,120 finance products outside the Group. At the beginning of 2004, Telia million, of which capital gains comprised SEK 231 million and write- Finans was divested to the Dutch financing company De Lage Landen downs SEK –1,351 million. International B.V. yielding cash inflow of approximately SEK 6.2 billion Improved earnings in Sonera Zed, Telefos, SmartTrust and Pay- and a capital gain of approximately SEK 0.5 billion. phone, as well as the dissolution of a reserve of SEK 154 million for the associated company AUCS, contributed to improved operating January–December income excluding non-recurring items of SEK –243 million (–943). SEK in millions 2003 2002 Infonet, Metro One and INGROUP had a negative effect on earnings. Net sales 1,982 2,180 of which external 1,611 1,952 EBITDA 196 –3,665 Condensed Consolidated Income Statements, Pro forma EBITDA excl. non-recurring items 196 243 Margin (%) 9.9 11.1 January–December Income from associated companies –1,176 –32,773 In millions, except per share 2003 2003 2002 Operating income –1,363 –38,438 data and number of shares SEK EUR SEK Operating income excl. non-recurring items –243 –943 Net sales 81,772 9,010 80,979 CAPEX 213 153 Operating expenses –51,450 –5,669 –65,579 EBITDA 30,322 3,341 15,400 The holdings in Infonet Services Corp. and Metro One were written Depreciation, amortization down by SEK 1,028 million and SEK 151 million, respectively, in light and write-downs –17,564 –1,935 –28,319 Income from associated of weak earnings development and decline in the share price. Addi- companies 382 42 –33,039 tional write-downs totaling SEK 473 million were made in venture Operating income 13,140 1,448 –45,958 capital companies. Net financial revenues and expenses –794 –88 –833 During the fourth quarter, the satellite company Inmarsat was Income after financial items 12,346 1,360 –46,791 divested, contributing a capital gain of SEK 80 million. TeliaSonera’s Income taxes –3,706 –408 14,409 stake in Metro One was reduced from 24 to 7 percent, which led to Minority interests –969 –107 –508 a capital loss of SEK 158 million. The remaining holding in Metro One Net income 7,671 845 –32,890 was divested in the beginning of 2004. The divestiture incurred a Earnings/loss per share Basic 1.64 0.18 –7.03 minor capital loss. A corresponding write-down was made in the final Diluted 1.64 0.18 –7.03 accounts for 2003. Weighted average number of shares (thousands) In November, an agreement was signed for the sale of KI Consult- Basic 4,675,232 4,675,232 4,675,232 ing, which is part of the Telefos Group, to TietoEnator. The deal was Diluted 4,676,040 4,676,040 4,676,262 completed in the beginning of January 2004 and incurred a minor EBITDA excl. capital gain and a cash injection of SEK 660 million in Telefos. The non-recurring items 30,690 3,382 25,457 Operating income excl. main part of the cash has been used to amortize loans to TeliaSonera non-recurring items 14,831 1,634 5,992 in January 2004. In December, TeliaSonera signed an agreement for the sale of its 37 percent holding in INGROUP to Manpower Solutions. The deal was completed in February 2004. The divestiture entails a capital loss for which a provision of SEK 102 million was made in the fourth quarter. In December, Yahoo!, which holds 16 percent of Sonera Zed,

54 TELIASONERA ANNUAL REPORT 2003 Financial Overview

Condensed Consolidated Balance Sheets, Pro forma January–December SEK in millions 2003 2002 December 31, 2003 2003 2002 EBITDA In millions SEK EUR SEK Sweden 17,296 14,977 Mobile 5,529 5,217 Assets Fixed 11,767 9,760 Intangible fixed assets 61,820 6,811 68,095 Finland 6,668 6,925 Tangible fixed assets 49,161 5,417 55,023 Mobile 5,136 5,662 Financial fixed assets 42,061 4,634 48,533 Fixed 1,532 1,263 Total fixed assets 153,042 16,862 171,651 Norway – mobile 2,499 2,133 Inventories, etc. 501 55 554 Denmark 70 –1,849 Receivables 24,170 2,663 26,518 Mobile –91 –505 Short-term investments 8,658 954 3,826 Fixed 161 –1,344 Cash and bank 3,689 407 2,821 Baltic countries 2,796 2,995 Total current assets 37,018 4,079 33,719 Lithuania – mobile 900 735 Total assets 190,060 20,941 205,370 Lithuania – fixed 1,009 1,346 Shareholders’ equity and liabilities Latvia – mobile 944 923 Shareholders’ equity 112,393 12,384 108,829 Other –57 –9 Minority interests 3,441 379 5,120 Eurasia – mobile 1,490 457 Provisions for pensions and Russia 0 0 employment contracts 522 57 183 Turkey 0 0 Deferred tax liability, International Carrier 237 –6,004 other provisions 14,775 1,628 18,141 Holding 196 –3,665 Total provisions 15,297 1,685 18,324 Corporate –964 –591 Long-term loans 25,867 2,850 31,336 Eliminations 34 22 Short-term loans 4,687 517 12,608 The Group 30,322 15,400 Non-interest bearing liabilities 28,375 3,126 29,153 Total liabilities 58,929 6,493 73,097 January–December Total shareholders’ SEK in millions 2003 2002 equity and liabilities 190,060 20,941 205,370 EBITDA excl. non-recurring items Sweden 17,637 15,896 Condensed Consolidated Cash Flow Statements, Mobile 5,529 5,217 Pro forma Fixed 12,108 10,679 Finland 6,738 6,869 January–December Mobile 5,200 5,662 2003 2003 2002 Fixed 1,538 1,207 In millions SEK EUR SEK Norway – mobile 2,499 2,129 Cash flow from operating Denmark 70 –1,309 activities 26,554 2,926 20,717 Mobile –91 –505 Intangible and tangible assets Fixed 161 –804 acquired (cash CAPEX) –9,055 –998 –11,183 Baltic countries 2,846 3,020 Free cash flow 17,499 1,928 9,534 Lithuania – mobile 900 736 Cash flow from other Lithuania – fixed 1,059 1,373 investing activities 3,334 367 7,685 Latvia – mobile 944 927 Total cash flow from Other –57 –16 investing activities –5,721 –631 –3,498 Eurasia – mobile 1,490 457 Cash flow before Russia 0 0 financing activities 20,833 2,295 17,219 Turkey 0 0 Cash flow from International Carrier 144 –1,225 financing activities –14,162 –1,560 –21,889 Holding 196 243 Corporate –964 –603 Cash flow for the period 6,671 735 –4,670 Eliminations 34 –20 The Group 30,690 25,457 Segment Information, Pro forma

January–December January–December SEK in millions 2003 2002 SEK in millions 2003 2002 Net sales Depreciation, amortization Sweden 42,364 43,562 and write-downs Mobile 12,312 11,846 Sweden –6,481 –6,938 Fixed1) 30,052 31,716 of which amortization of goodwill Finland 17,697 17,515 and fair value adjustments –3 6 Mobile 10,898 11,208 Finland –4,757 –4,836 Fixed1) 6,799 6,307 of which amortization of goodwill Norway – mobile 6,081 5,537 and fair value adjustments –2,240 –2,201 Denmark 3,278 2,783 Norway –2,076 –2,170 Mobile 1,552 1,021 of which amortization of goodwill Fixed1) 1,726 1,762 and fair value adjustments –1,260 –1,347 Baltic countries 5,881 6,063 Denmark –619 –3,911 Lithuania – mobile 2,032 1,840 of which amortization of goodwill Lithuania – fixed 2,136 2,557 and fair value adjustments –14 –22 Latvia – mobile 1,855 1,815 Baltic countries –2,181 –2,171 Other –142 –149 of which amortization of goodwill Eurasia – mobile 2,742 847 and fair value adjustments –529 –548 Russia 0 2 Eurasia –600 –250 International Carrier 4,892 6,861 of which amortization of goodwill Holding 1,982 2,180 and fair value adjustments –176 –40 Corporate 4 21 International Carrier –496 –6,075 Eliminations –3,149 –4,392 of which amortization of goodwill Financials The Group 81,772 80,979 and fair value adjustments –1 –1 Holding –383 –2,002 1) Including eliminations between fixed and mobile communications of which amortization of goodwill and fair value adjustments –3 67 Corporate –12 –2 Eliminations 41 36 The Group –17,564 –28,319 of which amortization of goodwill and fair value adjustments –4,227 –4,086

TELIASONERA ANNUAL REPORT 2003 55 Financial Overview

January–December January–December SEK in millions 2003 2002 SEK in millions 2003 2002 Income from associated companies Operating income excluding Sweden –6 –4 non-recurring items Finland 70 24 Sweden 11,150 8,970 Denmark –12 –4 Finland 2,051 2,056 Baltic countries 379 358 Norway 452 –42 Latvia – fixed 205 207 Denmark –561 –2,234 Share of net income 117 74 Baltic countries 1,164 1,214 Amortization of goodwill and Eurasia 889 –76 fair value adjustments 88 133 Russia 509 –43 Estonia – mobile 136 144 Turkey 618 –333 Share of net income 215 232 International Carrier –298 –1,992 Amortization of goodwill and Holding –243 –943 fair value adjustments –79 –88 Corporate –976 –605 Estonia – fixed 41 7 Eliminations 76 20 Share of net income 84 54 The Group 14,831 5,992 Amortization of goodwill and fair value adjustments –43 –47 Eurasia – –283 January–December Share of net income – –232 SEK in millions 2003 2002 Amortization of goodwill and CAPEX fair value adjustments – –51 Sweden 3,103 4,655 Russia 509 –63 Finland 2,348 2,151 Share of net income 709 168 Norway 861 1,094 Amortization of goodwill and Denmark 391 953 fair value adjustments –200 –231 Baltic countries 758 1,334 Turkey 618 –333 Eurasia 990 234 Share of net income (U.S. GAAP) 600 70 International Carrier 239 1,117 IFRS/IAS adjustments 706 551 Holding 213 153 Amortization of goodwill and Corporate 57 18 fair value adjustments –688 –954 Eliminations 0 1 Holding –1,176 –32,773 The Group 8,960 11,710 Share of net income –271 –1,608 Capital gains/losses 251 2,404 Write-downs –1,435 –34,073 January–December Amortization of goodwill and SEK in millions 2003 2002 fair value adjustments 279 504 Number of employees Corporate 0 39 Sweden Eliminations 0 0 At the end of the period 10,712 11,261 The Group 382 –33,039 Average for the period 10,254 11,268 Finland January–December At the end of the period 6,661 6,235 Average for the period 5,984 6,266 SEK in millions 2003 2002 Norway Operating income At the end of the period 722 734 Sweden 10,809 8,035 Average for the period 718 724 Finland 1,981 2,112 Denmark Norway 423 –38 At the end of the period 1,030 1,105 Denmark –561 –5,764 Average for the period 1,014 1,202 Baltic countries 994 1,182 Baltic countries Eurasia 889 –76 At the end of the period 4,741 5,691 Russia 509 –63 Average for the period 5,011 5,870 Turkey 618 –333 Eurasia International Carrier –259 –12,080 At the end of the period 1,024 879 Holding –1,363 –38,438 Average for the period 962 357 Corporate –976 –554 Russia Eliminations 76 59 At the end of the period 1 1 The Group 13,140 –45,958 Average for the period 1 2 Turkey At the end of the period 3 3 Average for the period 3 4 International Carrier At the end of the period 555 914 Average for the period 658 934 Holding At the end of the period 947 1,410 Average for the period 1,038 2,467 Corporate At the end of the period 298 227 Average for the period 263 227 The Group At the end of the period 26,694 28,460 Average for the period 25,906 29,321

56 TELIASONERA ANNUAL REPORT 2003 Financial Overview

Non-Recurring Items, Pro forma January–December SEK in millions 2003 2002 Within EBITDA –368 –10,058 Restructuring charges, etc.: Sweden –341 –919 Finland –15 56 Denmark – –540 Lietuvos Telekomas –50 – Telia International Carrier 394 –4,818 Synergy implementation costs: Finland –55 – International Carrier –401 – Provisions (FX rate effect): International Carrier 100 – Capital gains: Primatel, Libancell, Gateway lease assets, Sonera Info Communications, etc. – 1,658 Share write-downs/capital losses and other: Ipse (3G Italy), etc. – –5,425 Other investments – –70 Within Depreciation, amortization and write-downs –203 –10,233 Write-downs: Denmark – –2,985 Lietuvos Telekomas –120 – International Carrier –54 – Telia International Carrier – –5,309 Other –29 –1,939 Within Income from associated companies –1,120 –31,659 Capital gains/losses: Bharti Mobile 341 176 Pannon, Comsource, etc. – 2,238 Metro One –110 – Write-downs: Metro One –151 – Infonet –1,028 – Group 3 G – –34,073 Provisions and other: INGROUP, etc. –172 – Within Financial revenues and expenses –22 56 Capital gains/losses: Netia 594 – Metro One –48 – Other financial investments –42 155 Provisions: Ipse (3G Italy) –153 – Write-downs: Metro One –12 – Other financial investments –361 –99 Total –1,713 –51,894 Financials

TELIASONERA ANNUAL REPORT 2003 57 Consolidated Income Statements – IFRS/IAS

Consolidated Income Statements – IFRS/IAS

January–December Note 2003 2002 2001 2003 2002 2001 In millions, except per share data SEK EUR*) Net sales 6, 34, 35 82,425 59,483 57,196 9,082 6,554 6,302 Costs of production 7, 10 –46,688 –38,182 –40,435 –5,144 –4,207 –4,455 Gross income 35,737 21,301 16,761 3,938 2,347 1,847 Sales, administrative, and research & development expenses 7, 10 –23,161 –18,667 –17,943 –2,552 –2,057 –1,977 Other operating revenues and expenses 8, 10 1,752 –14,057 506 193 –1,549 56 Income from associated companies 11, 34, 35 382 528 6,136 42 58 676 Operating income 34, 35 14,710 –10,895 5,460 1,621 –1,201 602 Financial revenues and expenses 13 –811 –721 –652 –90 –79 –72 Income after financial items 13,899 –11,616 4,808 1,531 –1,280 530 Income taxes 14 –3,850 3,619 –2,917 –424 399 –321 Minority interests –969 –70 –22 –107 –8 –3 Net income 9,080 –8,067 1,869 1,000 –889 206 Earnings/loss per share (SEK/EUR) 21 Basic 1.95 –2.58 0.62 0.21 –0.28 0.07 Diluted 1.95 –2.58 0.62 0.21 –0.28 0.07

*) Convenience translation only, conversion rate SEK 1 = EUR 0.110183

58 TELIASONERA ANNUAL REPORT 2003 Consolidated Balance Sheets – IFRS/IAS

Consolidated Balance Sheets – IFRS/IAS

December 31, Note 2003 2002 2001 2003 2002 2001 In millions SEK EUR*) Assets Intangible fixed assets 15 61,820 68,106 26,816 6,811 7,504 2,955 Tangible fixed assets 16, 28 49,161 56,172 47,314 5,417 6,189 5,213 Equity participations in associated companies 17, 30 20,401 23,027 9,927 2,248 2,537 1,094 Other financial fixed assets 17, 28, 30 21,660 25,507 10,857 2,386 2,811 1,196 Total fixed assets 153,042 172,812 94,914 16,862 19,041 10,458 Inventories, etc. 18 501 580 636 55 64 70 Receivables 19, 28, 30 24,170 26,607 23,521 2,663 2,932 2,592 Short-term investments 20 8,658 3,826 7,602 954 421 838 Cash and bank 3,689 2,831 1,518 407 312 167 Total current assets 37,018 33,844 33,277 4,079 3,729 3,667 Total assets 190,060 206,656 128,191 20,941 22,770 14,125 Shareholders’ equity and liabilities Restricted equity Share capital 14,961 14,738 9,604 1,649 1,624 1,058 Restricted reserves 71,284 76,962 36,261 7,854 8,480 3,995 Non-restricted equity Non-restricted reserves 17,068 25,196 12,151 1,881 2,776 1,339 Net income 9,080 –8,067 1,869 1,000 –889 206 Total shareholders’ equity 112,393 108,829 59,885 12,384 11,991 6,598 Minority interests in equity 3,441 5,120 204 379 564 23 Provisions for pensions and employment contracts 22 522 224 2,358 57 25 260 Deferred tax liability 14, 23 8,537 10,673 6,940 941 1,176 764 Other provisions 23 6,238 7,509 3,809 687 827 420 Total provisions 15,297 18,406 13,107 1,685 2,028 1,444 Interest-bearing liabilities Long-term loans 24, 28, 30 25,867 32,124 25,193 2,850 3,540 2,776 Short-term loans 25, 28, 30 4,687 12,608 3,931 517 1,389 433 Non-interest-bearing liabilities Long-term liabilities 26, 28 2,489 2,350 3,049 274 259 336 Current liabilities 27, 30 25,886 27,219 22,822 2,852 2,999 2,515 Total liabilities 58,929 74,301 54,995 6,493 8,187 6,060 Total shareholders’ equity and liabilities 190,060 206,656 128,191 20,941 22,770 14,125

Contingent assets 31 –––––– Collateral pledged 31 2,789 373 91 307 41 10 Contingent liabilities 31 3,099 6,006 785 341 662 86

*) Convenience translation only, conversion rate SEK 1 = EUR 0.110183 Financials

TELIASONERA ANNUAL REPORT 2003 59 Consolidated Statements of Cash Flows – IFRS/IAS Consolidated Statements of Cash Flows – IFRS/IAS

January–December Note 2003 2002 2001 2003 2002 2001 In millions SEK EUR*) Net income 9,080 –8,067 1,869 1,000 –889 206 Adjustments: Depreciation, amortization and write-downs 18,248 21,029 14,147 2,010 2,317 1,559 Capital gains/losses on sales/discards of fixed assets –2,618 –88 –769 –288 –10 –85 Income from associated companies 251 –528 –5,848 28 –58 –644 Pensions and other provisions –2,880 2,791 –1,132 –317 308 –125 Financial items 33 363 –425 286 40 –47 31 Income taxes 33 2,542 –3,741 2,286 280 –412 252 Minority interest, miscellaneous non-cash items 978 140 –567 108 15 –62 Cash flow before change in working capital 25,964 11,111 10,272 2,861 1,224 1,132 Increase (–)/Decrease (+) in operating receivables 1,423 4,102 –5,007 157 452 –551 Increase (–)/Decrease (+) in inventories etc. 125 382 12 14 42 1 Increase (+)/Decrease (–) in operating liabilities –1,069 –3,146 5,139 –118 –346 566 Change in working capital 479 1,338 144 53 148 16 Cash flow from operating activities 26,443 12,449 10,416 2,914 1,372 1,148 Intangible and tangible fixed assets acquired –9,092 –8,572 –16,922 –1,002 –945 –1,865 Intangible and tangible fixed assets divested 358 218 1,316 39 24 145 Compensation received for divested IRU 10 13 – 1 1 – Compensation paid for acquired IRU 0 –48 –996 0 –5 –110 Shares, participations and operations acquired 33 –2,188 363 –2,241 –241 40 –247 Shares, participations and operations divested 33 3,902 1,271 15,631 430 140 1,722 Loans made and other investments –172 –20 –33 –19 –2 –3 Repayment of loans made and other investments 1,215 1,355 482 134 149 53 Investment in financial leasing receivables –2,962 –4,590 –4,031 –326 –506 –444 Amortization of financial leasing receivables 3,400 3,474 3,448 374 383 380 Compensation from/Payment to pension fund 1,000 –1,011 502 110 –111 55 Net change in advances and short-term loans to associated companies etc. 1,086 1,994 6,476 120 220 714 Cash flow from investing activities –3,443 –5,553 3,632 –380 –612 400 Cash flow before financing activities 23,000 6,896 14,048 2,534 760 1,548 Dividend –1,870 –600 –1,501 –206 –66 –165 Transactions with minority shareholders –468 –1,059 – –51 –117 – Loans raised 374 5,678 4,107 41 626 452 Loans amortized –6,272 –12,840 –62 –691 –1,415 –7 Net change in interest-bearing liabilities with short maturities –8,176 –1,523 –9,152 –901 –168 –1,008 Cash flow from financing activities –16,412 –10,344 –6,608 –1,808 –1,140 –728 Cash flow for the year 6,588 –3,448 7,440 726 –380 820

Cash and cash equivalents, opening balance 5,465 8,923 1,437 602 983 158 Cash flow for the year 6,588 –3,448 7,440 726 –380 820 Exchange rate differences in cash and cash equivalents 16 –10 46 2 –1 5 Cash and cash equivalents, closing balance 33 12,069 5,465 8,923 1,330 602 983

*) Convenience translation only, conversion rate SEK 1 = EUR 0.110183

60 TELIASONERA ANNUAL REPORT 2003 Consolidated Statements of Changes in Shareholders’ Equity – IFRS/IAS Consolidated Statements of Changes in Shareholders’ Equity – IFRS/IAS

Acc. exchange Acc. exchange Share Equity Other rate diff., Non- rate diff., SEK in millions, except for convenience Share premium method restricted restricted restricted non-restricted Total translation to EUR in millions capital reserve reserve reserves reserves equity reserves equity Closing balance, December 31, 2000 9,604 13,894 1,297 17,512 1,440 11,689 552 55,988 Changes in accounting principles (Note 21) – – – –342 – – – –342 Adjusted closing balance, December 31, 2000 9,604 13,894 1,297 17,170 1,440 11,689 552 55,646 New share issue expenses after taxes – –16 – – – – – –16 Transactions with non-related parties – – –155 – – – – –155 Exchange rate difference (Note 21) – – – – 3,286 – 499 3,785 Reporting financial instruments at fair value (Note 21) – – – 257 – – – 257 Net income recognized directly in equity – –16 –155 257 3,286 – 499 3,871 Dividend – – – – – –1,501 – –1,501 Transfer between restricted and non-restricted equity – – –655 –257 – 912 – – Net income – – – – – 1,869 – 1,869 Closing balance, December 31, 2001 9,604 13,878 487 17,170 4,726 12,969 1,051 59,885 New share issue expenses after taxes – 16 – – – – – 16 Transactions with non-related parties – – – – – –57 – –57 Exchange rate difference (Note 21) – – – – 1,692 – 35 1,727 Reporting financial instruments at fair value (Note 21) – – – 20 – – – 20 Net income recognized directly in equity – 16 – 20 1,692 –57 35 1,706 Dividend – – – – – –600 – –600 New share issue 5,134 50,771 – – – – – 55,905 Transfer from restricted to non-restricted equity decided by EGM – –11,957 – – – 11,957 – – Transfer between restricted and non-restricted equity – – 130 29 – –159 – – Net income – – – – – –8,067 – –8,067 Closing balance, December 31, 2002 14,738 52,708 617 17,219 6,418 16,043 1,086 108,829 Transactions with non-related parties – – –13 – – – – –13 Exchange rate difference (Note 21) – – – – –8,266 – 165 –8,101 Inflation adjustments – – 2,427 – – – – 2,427 Reporting financial instruments at fair value (Note 21) – – –10 – – – – –10 Net income recognized directly in equity – – 2,404 – –8,266 – 165 –5,697 Dividend – – – – – –1,870 – –1,870 New share issue 223 1,828 – – – – – 2,051 Transfer between restricted and non-restricted equity – – 1,192 –2,836 – 1,644 – – Net income – – – – – 9,080 – 9,080 Closing balance, December 31, 2003 14,961 54,536 4,213 14,383 –1,848 24,897 1,251 112,393 Closing balance, December 31, 2003*) 1,649 6,009 464 1,585 –204 2,743 138 12,384

*) Convenience translation only, conversion rate SEK 1 = EUR 0.110183 Financials

TELIASONERA ANNUAL REPORT 2003 61 Notes to Consolidated Financial Statements – IFRS/IAS Notes to Consolidated Financial Statements – IFRS/IAS

financial statements are based on accounts prepared by all Group companies as of 1 Basis for Presentation December 31, and have been prepared using the purchase method of accounting, as in previous years. General Values for companies acquired or divested during the year are included in the TeliaSonera’s consolidated financial statements have been prepared in accordance consolidated income statement only for the period during which they were owned. with International Financial Reporting Standards (IFRS/IAS). Goodwill and fair value adjustments arising from the acquisition of foreign entities are considered to be denominated in the foreign currency. Accounting principles In subsidiaries not wholly owned, the share of equity and untaxed reserves The applied accounting principles are described in the respective notes. owned by external shareholders is recorded as minority interest. The income state- Discrepancies between Swedish, Finnish and U.S. GAAP and the accounting prin- ment shows the minority share of income after tax. ciples that TeliaSonera applies are discussed in separate notes. Internal sales and other intercompany transactions and profits within the Group have been eliminated in the consolidated financial statements. Amounts and dates Unless otherwise specified, all amounts are in millions of Swedish kronor (SEK) or Foreign currency translation and inflation adjustments other currency specified and are based on the twelve-month period ended Decem- A majority of the Group’s subsidiaries outside Sweden are independent. A few sub- ber 31 for income statement items and as of December 31 for balance sheet items, sidiaries in the Group have independent branch offices outside Sweden. The respectively. accounts for foreign operations are kept in the currency used for the normal conduct of business by that Group unit. Changes and innovations The consolidated financial statements are presented in Swedish kronor (SEK), New accounting standards which is the measurement currency of the parent company. The income statements IAS 41 “Agriculture” became effective on January 1, 2003. IAS 41 does not affect and balance sheets of foreign independent operations (subsidiaries, associated com- TeliaSonera’s operations. panies, and branch offices) are translated into SEK based on the current method, On December 17, 2003, revisions to IAS 32 “Financial Instruments: Disclosure that is, the exchange rate prevailing on the balance sheet date (closing rate) is used and Presentation” and IAS 39 “Financial Instruments: Recognition and Measure- to convert all items in the balance sheets except for equity, which is converted at ment” were published. On December 18, 2003, IAS 15 “Information Reflecting the the historical rate. Each income statement is translated using the average rate for Effects of Changing Prices” was withdrawn and revisions were published to IAS 1 that period. Differences resulting from translation, as well as realized and unrealized “Presentation of Financial Statements,” IAS 2 “Inventories,” IAS 8 “Accounting Poli- gains or losses after tax on financial instruments used to hedge net foreign invest- cies, Changes in Accounting Estimates and Errors,” IAS 10 “Events after the Balance ments, do not affect income but are charged directly to equity. Sheet Date,” IAS 16 “Property, Plant and Equipment,” IAS 17 “Leases,” IAS 21 “The When the measurement currency for a subsidiary or an associated company is Effects of Changes in Foreign Exchange Rates,” IAS 24 “Related Party Disclosures,” the currency of a hyperinflationary economy, the reported non-monetary assets and IAS 27 “Consolidated and Separate Financial Statements,” IAS 28 “Investments in liabilities, and equity are restated in terms of the measuring unit current at the balance Associates,” IAS 31 “Interests in Joint Ventures,” IAS 33 “Earnings per Share” and sheet date. The restated financial statements are translated into SEK at the closing IAS 40 “Investment Property.” The effective date for all revised standards is January 1, rate. The restating effects are recorded as financial revenue or expense and in income 2005. Earlier application is encouraged. TeliaSonera’s adoption of the revisions of from associated companies, respectively. IAS 2, IAS 8, IAS 10, IAS 16, IAS 17, IAS 21, IAS 24, IAS 28, IAS 31, IAS 32, IAS 33 and IAS 39 will not entail any restatements of comparative figures. When adopting Associated companies IAS 1 and IAS 27, TeliaSonera will have to recognize the share of equity owned by Companies in which the TeliaSonera Group has a long-term interest and directly or external shareholders not as a separate line item on the face of the balance sheet indirectly owns shares or participations granting control of 20-50 percent of the voting but as a separate component within shareholders’ equity. Likewise, the minority rights or otherwise has a significant influence are recorded as associated companies. share of income will not be recognized as a separate line item on the face of the Holdings in associated companies are recorded in the consolidated income income statement but as a disclosure on the face of the income statement of the statement and balance sheet according to the equity method of accounting. In the allocation of profit or loss for the period. TeliaSonera does not own assets of the type income statement, the Group’s share of net income in associated companies is regulated by IAS 40. recorded in operating income because the operations of associated companies are In subsidiaries not wholly owned, the share of equity and untaxed reserves related to telecommunications and it is the Group’s strategy to capitalize on indus- owned by external shareholders is recorded as minority interest. The income state- try know-how by means of investing in jointly owned operations. The income statement shows the minority share of income after tax. ment item Income from associated companies also includes amortization and write- down of goodwill and similar assets on consolidation in associated companies as Restated segment reporting well as gains and losses on the sale of participations in associated companies. TeliaSonera’s business organization was changed on January 1, 2003. Hence, segment Any internal profits are eliminated in relation to the share of equity owned. information in this annual report has been restated. Business segments The Group’s operations are managed and reported primarily by profit center and reported secondarily by product area. Segments are consolidated based on the same 2 Use of Estimates principles as the Group as a whole. When operations are transferred from one business area to another, comparative period figures are restated. To be able to prepare accounts according to generally accepted accounting principles, management and the Board of Directors must make estimates and assumptions that affect the asset and liability items and revenue and expense items recorded in the final accounts as well as other information, such as that provided on contingent 4 Transactions in Foreign Currencies liabilities. These estimates are based on historical experience and various other assumptions that management and the Board believe are reasonable under the cir- Transactions denominated in foreign currencies are translated into Swedish kronor cumstances, the results of which form the basis for making judgments about the (SEK) at the exchange rates prevailing at the time of each transaction. Monetary carrying values of assets and liabilities that are not readily apparent from other sources. assets and liabilities denominated in foreign currencies and related forward con- Actual results may differ from these estimates under different assumptions or conditions. tracts for foreign exchange are translated at the closing rate, any resulting exchange Areas comprising critical judgment that may significantly impact TeliaSonera’s rate differences being charged to income. Accordingly, realized as well as unrealized earnings and financial position are revenue recognition and revenue collection, val- exchange rate differences are recorded in the income statement. Exchange rate dif- uation of intangible and other fixed assets, restructuring activities, provisions for ferences arising from operating receivables or liabilities are recorded in operating pensions, income taxes, and litigation and contingent liabilities, all of which are dis- income, while differences attributable to financial assets or liabilities are recorded as cussed in the respective notes. earnings or losses on financial investments.

3 Consolidated Financial Statements 5 Changes in Group Composition

General Events in 2003 and after the balance sheet date The consolidated financial statements comprise the parent company TeliaSonera AB Sonera and all companies in which TeliaSonera directly or indirectly controls more than 50 As a result of a mandatory redemption offer, which expired on January 31, 2003, percent of the voting rights or otherwise has control. TeliaSonera’s consolidated TeliaSonera acquired Sonera shares, including shares in the form of ADSs, repre-

62 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

senting 4.4 percent of the shares and votes. Following the completion of the manda- holding a 37 percent share, signed an agreement to sell all of their shares to Man- tory redemption offer, TeliaSonera in total held 99.4 percent of Sonera shares and power. After approval by relevant competition authorities, the divesture was com- votes. pleted on February 20, 2004. In addition, in December 2002, TeliaSonera commenced a separate compulsory acquisition proceeding under Finnish law pursuant to which the remaining hold- Sonera Zed ers of Sonera shares were required to surrender their Sonera shares to TeliaSonera On January 13, 2004, Yahoo!, with reference to an existing put option, sold back its for redemption at a fair price as determined under Finnish law. As required under 16 percent holding in Sonera Zed Oy to TeliaSonera, whereby Sonera Zed became Finnish law, an arbitral panel was appointed to hear and resolve any disputes con- a wholly owned subsidiary of TeliaSonera. cerning TeliaSonera’s right of redemption and the redemption price in the compulsory acquisition proceeding. On March 20, 2003, at the request of the arbitral panel, Telia Finans TeliaSonera issued a counter-indemnity for a bank guarantee for the payment of the On January 15, 2004, TeliaSonera signed an agreement to sell its wholly owned sub- redemption price plus accrued interest with respect to all outstanding Sonera shares sidiary, the Swedish leasing company Telia Finans AB, to De Lage Landen International not held by TeliaSonera. According to Finnish law, as a result of the arbitral panel’s B.V. B.V. After approval by the Swedish Financial Supervisory Authority (Finansin- acceptance of the bank guarantee, TeliaSonera became the sole record and benefi- spektionen), the sale was completed on March 1, 2004. cial owner of Sonera’s shares. Simultaneously, the Sonera share was delisted from the main list of Helsinki Exchanges. On June 26, 2003, the arbitral panel determined Sturenportti the redemption price for the remaining Sonera shares. The redemption price for the On February 27, 2004, TeliaSonera purchased all shares in the real estate company remaining Sonera shares plus accrued interest was paid on July 11, 2003. Kiinteistö Oy Sturenportti from Sonera Pension Fund.

Com Hem/Telia Mobile Finland Major acquisitions and divestitures during 2001–2003 On June 5, 2003, TeliaSonera sold its Swedish cable TV operator Com Hem AB to In fiscal 2003, 2002 and 2001, TeliaSonera acquired and divested a number of com- EQT Northern Europe and on June 6, 2003, Telia’s Finnish mobile operations were panies and businesses from and to independent parties outside the Group. Apart sold to Finnet Oy. Telia agreed to dispose of these operations as part of its under- from the merger with Sonera Oyj (now TeliaSonera Finland Oyj) in 2002 (see also takings to the European Commission in the context of the merger between Telia and note “Merger with Sonera Oyj”), none of those acquisitions or divestitures, individ- Sonera. ually or collectively, was of a size that would have had a material effect on the Group’s pro forma net sales or net income for the year in which the transaction was Bharti executed or the year immediately preceding. The following table shows the Telia- In May 2002, an agreement was signed with the Indian company Bharti Tele- Sonera Group pro forma net sales, net income and earnings/loss per share, had the Ventures for the sale of TeliaSonera’s holding of 26 percent of the shares in the mobile merger with Sonera taken place at January 1, 2001, including the effects of the fact operator Bharti Mobile Ltd. The transaction was completed on June 16, 2003. that due to the merger, three entities in Latvia and Lithuania that were previously associated companies to Telia and Sonera, became controlled subsidiaries to Telia- Netia Sonera. As of December 31, 2002, TeliaSonera owned 48 percent of the share capital in the Polish company Netia S.A. (formerly Netia Holdings S.A.) As part of a financial January–December restructuring, a conversion of lenders’ claims to equity in the company was com- SEK in millions, pleted on January 30, 2003, reducing TeliaSonera’s shareholding to 4.4 percent. On except per share data 2003 2002 2001 May 16, 2003, the final step of Netia’s restructuring, which required the issuance of Pro forma net sales 82,425 83,090 82,200 warrants to pre-restructuring shareholders of Netia, including TeliaSonera, was com- Pro forma net income 9,080 –34,049 1,140 pleted. TeliaSonera received subscription warrants entitling it to acquire an aggre- Pro forma basic and diluted gate of 31,300,532 Netia shares. earnings/loss per share (SEK) 1.95 –10.90 0.38 On May 22, 2003, TeliaSonera’s 11 percent stake in the Polish long-distance operator Netia 1 Sp z o.o. was sold to the other shareholder Netia. Starting in June 2003, TeliaSonera has sold all of its shares and most of its subscription warrants in Netia. Given the remaining holdings of subscription warrants as 6 Net Sales at the end of February 2004 and assuming that all subscription warrants issued by Netia will be exercised and exchanged for shares, TeliaSonera would hold 1.2 per- Net sales are recorded at the sales value, adjusted for discounts granted and sales- cent of Netia’s share capital. TeliaSonera has entered into agreements to completely related taxes. Sales principally consist of traffic charges including interconnect and divest its holdings in Netia. roaming, subscription fees, connection fees, and service charges as well as sales of customer premises equipment. Reveko/Esdata Revenue is recognized for the period in which the service is performed or the On July 1, 2003, TeliaSonera’s 55 percent stake in the Estonian company Reveko Tele- product is delivered. Subscription fees are recognized as revenue over the subscrip- kom AS was sold to the Elion Group. On December 12, 2003, Elion acquired Telia- tion period. Sales relating to pre-paid phone cards, primarily mobile, are deferred Sonera’s 70 percent shareholding in AS Esdata. and recorded in revenue based on the actual usage of the cards. Customer cable TV hookup fees were recorded as cost reductions over the depre- Omnitel ciation period for the facility in question. Other connection and installation fees On August 26, 2003, an agreement was reached with Motorola to acquire Motor- received from new or existing subscribers are recognized as revenue at the time of ola’s 35 percent shareholding in the Lithuanian mobile operator UAB Omnitel. After sale to the extent of direct costs incurred. Direct costs consist primarily of technical approval by the Lithuanian Competition Council, the deal was finally closed on installation work, changes in customer support systems, costs for modems, SIM cards December 17, 2003, whereby TeliaSonera holds 90 percent of the shares in Omnitel. and other equipment, distributor commissions and credit checks, and costs for sup- plying the customer with the printed telephone directory and a printed customer Suomen Erillisverkot information package. To date, direct costs associated with connection fees have On December 19, 2003, TeliaSonera sold its 40 percent shareholding in Suomen exceeded such revenues. Therefore, no connection revenues have been deferred. Erillisverkot Oy to the Finnish state. In the portal operations, ad swapping with another portal provider is not recognized as revenue. Service and construction contract revenues are recognized using Auria Group the percentage of completion method. Assessment of the degree of completion is On September 17, 2003, TeliaSonera announced its intention in three consecutive based on the value of contractual phases completed as a percentage of total under- steps to acquire full ownership in the Finnish fixed-line operator Auria Group. The takings. parent company of the group is Loimaan Seudun Puhelin Oy (LSP). The first step was Within the international carrier operations, sales of Indefeasible Rights of Use executed in September, increasing TeliaSonera’s shareholding in LSP from 29 per- (IRU) regarding fiber and duct are recognized as revenue over the period of the cent to 40 percent. On October 1, TeliaSonera increased its holding to 55 percent agreement (see also section “TeliaSonera as operating lessor” in note “Leasing and launched a tender offer in cash to the other shareholders in LSP. As of December Agreements and Contractual Obligations”). When entering into swap contracts for 31, TeliaSonera held 96.85 percent of the shares in LSP. A compulsory acquisition infrastructure and capacity with other carriers, evenly balanced swap-deals and the proceeding under Finnish law has been initiated to redeem the remaining LSP shares. non-cash part of unbalanced swap-deals are not recorded as revenue or expense in the consolidated accounts, as the contracts refer to assets of similar nature and value. Metro One Therefore, they are recognized based on the carrying value of the assets exchanged, During December 2003, TeliaSonera sold most of its shares in Metro One Telecom- rather than at fair value. In an unbalanced swap-deal, any cash paid is recorded as munications, Inc., reducing TeliaSonera’s shareholding from 24.2 percent to 6.6 an asset and any cash received is recorded as deferred revenue. These amounts are Financials percent. All remaining shares in Metro One were sold on January 14, 2004. recognized in operations over the term of the related contracts on a straight-line basis. In transactions where the monetary consideration received is at least 25 per- Satellite companies and venture capital investments cent of the fair value of the exchange, and the fair value of the assets transferred is In 2003 TeliaSonera divested its minority holdings in New Skies Satellites N.V. and reasonably determinable, the exchange is treated as part monetary and part non- Inmarsat Ventures plc as well as in a number of venture capital companies. The monetary. Until both parties have fulfilled all deliveries as agreed, the value provided minority holding in Eutelsat S.A. was sold in February 2004. might differ from the value received. The value of the unfulfilled deliveries in a swap- deal is recorded as a current liability (net received) or a current receivable (net pro- INGROUP vided). The corresponding asset or deferred revenue is not amortized until delivery At year-end 2003, the shareholders of INGROUP Holding AB, including TeliaSonera has occurred.

TELIASONERA ANNUAL REPORT 2003 63 Notes to Consolidated Financial Statements – IFRS/IAS

Sales are broken down geographically by business segment in the “Profit Center Breakdown” note. Sales (including exports) were distributed among economic regions as follows.

January–December 2003 2002 2001 Amount in Amount in Amount in SEK million % SEK million % SEK million % European Union (EU) 65,472 79.4 50,828 85.5 50,826 88.8 European Economic Area (EEA) 6,352 7.7 5,798 9.7 4,670 8.2 Rest of Europe 6,941 8.4 1,422 2.4 555 1.0 North-American Free Trade Agreement (NAFTA) 657 0.8 682 1.1 636 1.1 Rest of world 3,003 3.7 753 1.3 509 0.9 Total 82,425 100.0 59,483 100.0 57,196 100.0 of which outside Sweden 40,641 49.3 16,998 28.6 12,741 22.3 of which Nordic markets outside Sweden 27,921 33.9 11,582 19.5 8,512 14.9

Net sales are broken down by product category as follows. Operating costs were distributed by nature as follows.

January–December January–December SEK in millions 2003 2002 2001 SEK in millions 2003 2002 2001 Mobile communications 36,737 19,297 15,702 Goods purchased 13,947 13,444 9,566 Fixed telephony 27,791 24,840 24,642 Network expenses 11,816 9,203 9,182 Internet 4,325 2,882 2,264 Change in inventories 250 89 74 Data communications and network Total 26,013 22,736 18,822 capacity 8,524 6,725 6,869 Salaries and remuneration 8,460 6,732 8,852 Service, installation and customer Employer’s social security contributions 1,950 1,804 2,614 equipment 1,324 2,324 4,732 Capitalized work by employees –2 –74 –139 Cable TV 981 1,531 1,161 Pension expenses 1,406 971 613 Financial services 382 276 301 Other personnel expenses 587 500 1,218 Other 2,361 1,608 1,525 Total 12,401 9,933 13,158 Total 82,425 59,483 57,196 Rent and leasing fees 1,771 1,540 1,572 Energy expenses 434 223 205 Invoiced advertising tax totaled SEK – million, SEK 0 million and SEK 1 million for the Travel expenses 654 529 760 years 2003, 2002 and 2001, respectively. Consultants’ services 1,739 2,075 2,579 The distribution of sales change between volume effects, structural effects, Marketing expenses 4,475 2,364 2,024 exchange rate effects, and price effects was as follows. Bad debt expense 476 814 908 Information technology 1,760 2,427 1,804 January–December Other expenses 2,471 1,852 2,625 % 2003 2002 2001 Total 13,780 11,824 12,477 Sales change 38.6 4.0 5.8 Depreciation, amortization of which volume growth 6.1 7.0 8.3 and write-downs 17,655 12,356 13,921 structural changes 37.7 –0.8 –1.0 Total 69,849 56,849 58,378 exchange rate effects –1.3 0.2 1.4 price reductions –3.9 –2.2 –2.7 Costs for advertising totaled SEK 1,022 million, SEK 524 million and SEK 417 million for the years 2003, 2002 and 2001, respectively. 7 Operating Costs 8 Other Operating Revenues The production function includes all costs for services and products sold as well as for installation, maintenance, service, and support. and Expenses Costs for commissions to retailers, advertising, and other marketing are expensed as incurred. The same applies to expenses for maintenance and adaptation of existing Other operating revenues and other operating expenses include: gains and losses on software for euro conversion. Costs for customer-specific product development and the sale of shares or operations in companies that are not associated companies (cf. applied research are expensed in the period in which they occur. note “Income from Associated Companies”), gains or losses on the sale or retirement Operating costs were distributed by function as follows. of intangible or tangible fixed assets, and public grants. Exchange rate differences on operating transactions are also recorded here, including value changes in deriv- January–December atives for hedging operational transaction exposure and possible hedging ineffectiveness (see note “Financial Instruments and Financial Risk Management”). This SEK in millions 2003 2002 2001 item also includes restructuring costs, non-capitalizable costs in 2003 and 2002 Production 46,688 38,182 40,435 related to the merger with Sonera and other items of a non-recurring nature. Other functions Other operating revenues and expenses were distributed as follows. Sales 12,786 9,225 8,738 Administration 7,832 8,275 7,902 January–December Research and development 2,543 1,167 1,303 SEK in millions 2003 2002 2001 Total other functions 23,161 18,667 17,943 Other operating revenues Total 69,849 56,849 58,378 Capital gains, shares 1,868 220 776 Capital gains, divested operations 20 17 59 Each function includes depreciation, amortization, and write-downs as specified in Capital gains, other 86 61 512 note “Depreciation, Amortization, and Write-Downs.” This is also broken down by Exchange rate gains 450 521 183 class of asset. Commissions etc. 13 171 152 Grants, etc. 27 3 8 Recovered accounts receivable 275 55 42 Damages received 4 47 86 Total 2,743 1,095 1,818 Other operating expenses Capital losses, shares –13 –40 –459 Capital losses, divested operations –43 –22 –10 Capital losses, other –296 –322 –103 Provisions for onerous contracts –3 11 –49 Exchange rate losses –294 –438 –152 Sonera merger expenses –3 –13 – Restructuring costs –247 –14,321 –524 Damages paid –92 –7 –15 Total –991 –15,152 –1,312 Net effect on income 1,752 –14,057 506

64 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

Infonet 9 Related Party Transactions TeliaSonera owns a participating interest in the American company Infonet Services Corp. In 2003, 2002 and 2001 TeliaSonera sold services and products to Infonet Group companies worth SEK 48 million, SEK 41 million and SEK 29 million, respectively, and purchased Commercial terms and market prices apply for the supply of goods and services services and products worth SEK 225 million, SEK 260 million and SEK 320 million, between Group companies. Intercompany sales totaled SEK 50,914 million, SEK respectively. 53,852 million and SEK 52,794 million for the years 2003, 2002 and 2001, respectively. Telefos Since June 2001, TeliaSonera owns 49 percent of the shares in the former subsidiary The Swedish State and the Finnish State Telefos AB. As of December 31, 2003, TeliaSonera had interest-bearing claims on the The Swedish State currently owns 45.3 percent and the Finnish State 19.1 percent Telefos Group of SEK 875 million and had signed guarantees of SEK 200 million for of the shares in TeliaSonera AB. The TeliaSonera Group’s services and products are commitments made by Telefos companies. On January 2, 2004, Telefos divested some offered to the Swedish and the Finnish State, their agencies, and state-owned com- of its operations, whereby TeliaSonera’s claims and guarantees were reduced to SEK panies in competition with other operators and on conventional commercial terms. 434 million and SEK 120 million, respectively. In 2003 and 2002 and for 2001, in the Certain state-owned companies run businesses that compete with TeliaSonera. Like- period after the change in ownership, TeliaSonera sold services and products to the wise, TeliaSonera buys services from state-owned companies at market prices and Telefos Group worth SEK 139 million, SEK 324 million and SEK 279 million, respec- on otherwise conventional commercial terms. Neither the Swedish and Finnish State tively, and bought services and products worth SEK 2,675 million, SEK 3,534 million and their agencies, nor state-owned companies represent a significant share of Telia- and SEK 1,210 million. Some of the services purchased by TeliaSonera relate to con- Sonera’s net sales or earnings. struction of fixed assets. The Swedish telecommunications market is governed mainly by the Electronic Communications Act and ordinances, regulations and decisions in accordance with IN the Act. Operators that have a significant publicly available communications net- TeliaSonera holds an indirect participating interest in INGROUP Sweden AB (IN). In work are required to pay a fee to finance measures to prevent serious threats and 2003, 2002 and 2001 TeliaSonera sold services and products to IN worth SEK 13 disruptions to electronic communications during peacetime. To date, TeliaSonera million, SEK 46 million and SEK 67 million, and bought services and products worth has been the only operator obliged to pay this fee. The required fee was SEK 50 mil- SEK 249 million, SEK 267 million and SEK 245 million. lion in 2003, SEK 50 million in 2002 and SEK 100 million in 2001. Under the new act the fee will be apportioned to more operators. In addition, TeliaSonera, like other Overseas Telecom operators, pays annual fees to Post- och Telestyrelsen (PTS; the Swedish National In 2003, the Annual General Meeting of shareholders in TeliaSonera’s associated Post and Telecom Agency) to fund the Agency’s activities under the Electronic Com- company Overseas Telecom AB decided to reduce the company’s equity, resulting munications Act and the Radio and Telecommunications Terminal Equipment Act. in a repayment of SEK 274 million to TeliaSonera. TeliaSonera paid fees of SEK 64 million in 2003, SEK 64 million in 2002 and SEK 59 million in 2001. Service Factory The Finnish telecommunications market is governed mainly by the Communi- In 2003, 2002 and 2001, TeliaSonera bought services from the associated company cations Market Act and the Act on the Protection of Privacy and Data Security in Service Factory SF AB worth SEK 35 million, SEK 32 million and SEK 94 million, respec- Telecommunications as well as by regulations, decisions and technical directions in tively. accordance with these acts. In 2003, TeliaSonera paid EUR 2.8 million (EUR 2.5 million in 2002) for the use of radio frequencies and EUR 1.6 million (EUR 1.3 million Other relations in 2002) for the use of numbers. In addition, TeliaSonera sells and buys services and products to a limited extent to and from other associated companies. The transactions between TeliaSonera and these Svenska UMTS-nät associated companies, as well as the transactions mentioned above, are based on TeliaSonera owns 50 percent of Svenska UMTS-nät AB. In 2003, TeliaSonera sold commercial terms. services and products worth SEK 131 million to Svenska UMTS-nät. As security for certain amounts borrowed by Svenska UMTS-nät under a third-party credit facility, TeliaSonera had, as of December 31, 2003, issued a guarantee of a maximum of SEK 3,500 million to the lenders and granted pledges of its shares in Svenska UMTS-nät. 10 Depreciation, Amortization and Write-Downs Lattelekom TeliaSonera holds a participating interest in the Latvian company Lattelekom SIA. In Scheduled depreciation on tangible assets and amortization on intangible assets are 2003, TeliaSonera sold services and products to Lattelekom worth SEK 114 million based on the historical acquisition value (purchase cost), with appropriate adjust- and purchased services and products worth SEK 73 million. Further, in 2003, the ment for impairment and taking into account the estimated economic life of various Annual General Meeting of shareholders in Lattelekom decided to annul the com- classes of assets. No general changes in depreciation schedules were applied in 2003, pany’s class C shares, resulting in a repayment of SEK 350 million to TeliaSonera. 2002 or 2001. Effective January 1, 2004, the depreciation rate for copper cables in the fixed local access network in Sweden will be changed from 12.5 percent to 5 MegaFon percent annually and for switching equipment for ADSL customers from 33.3 percent TeliaSonera holds a participating interest in the Russian company OAO MegaFon. to 10 percent annually. For assets acquired during the year, depreciation is calculated As of December 31, 2003, TeliaSonera had interest-bearing and non-interest-bearing from the date of acquisition. claims on MegaFon of SEK 379 million. Depreciation is mainly recorded on a straight-line basis at the following rates.

Unisource/AUCS TeliaSonera previously held equal stakes in Unisource N.V. together with Swisscom Goodwill Individual evaluation, minimum 5% and KPN of the Netherlands. All operations in Unisource, with the exception of AUCS – Sonera and NetCom goodwill 5% Communications Services (AUCS) and its subsidiaries, were sold or shut down in Trade names Individual evaluation, minimum 10% 1999 and the company was dissolved on July 1, 2000. In May 2003, TeliaSonera and Licenses for fixed and mobile telephony the other shareholders of AUCS approved a liquidation plan for the AUCS group of and related goodwill License period, minimum 5% companies. Other intangible assets 7–20% Unisource and its joint owners, including TeliaSonera, signed a three-year man- Buildings 2–10% agement agreement with Infonet Services Corp. (see below) in 1999 on the opera- Land improvements 5–20% tions in AUCS. The agreement provided for the sale of a large part of AUCS’s oper- Expenditure on improvements to ations to Infonet. The management agreement was supplemented in December property not owned by the Group Remaining term of corresponding lease 2002 by a termination agreement, valid until the first quarter of 2004. Under the Fixed networks terms of various contracts, Unisource was required to provide services to Infonet. – Switching systems and transmission Unisource and its joint owners will also be liable for any losses in AUCS and will pay systems 10–33% Infonet a bonus if the losses are lower than an amount specified in the contract. In – Transmission media (cable) 5–12.5% total, this means that TeliaSonera’s share of Unisource’s expenses as per the agree- – Equipment for special networks 20–33% ment will be at least SEK 1,348 million. TeliaSonera received compensation for these – Usufruct agreements of limited undertakings through the acquisition of shares in Infonet at a price less than market duration Agreement period or time value shortly prior to Infonet’s listing on the stock exchange. Based on the selling price corresponding to the underlying Financials at the time of listing, the value of the shares was SEK 2,758 million, while Telia paid tangible fixed asset SEK 110 million. The future profit on this transaction, that is, the difference between – Other installations 3–33% the market value of the shares after deducting the purchase price (SEK 2,648 million) Mobile networks and the obligations that Telia has undertaken (SEK 1,348 million, as explained above), – Base stations 9.5–14.5% will be recorded as share of earnings in AUCS over the term of the management – Other installations 10–33% agreement and other agreements. Cable TV networks and alarm systems 10–33% In 2003, 2002 and 2001 TeliaSonera sold services to AUCS worth SEK 0 million, Equipment, tools and installations 12.5–33% SEK 27 million and SEK 44 million, respectively.

TELIASONERA ANNUAL REPORT 2003 65 Notes to Consolidated Financial Statements – IFRS/IAS

The carrying values of the Group’s intangible, tangible, and financial fixed assets are Accelerated depreciation, to the extent allowed by local tax legislation, is recorded in reassessed, at least annually and else whenever events or changes in circumstances the individual Group companies as appropriations and untaxed reserves (see corre- indicate that the carrying value of an asset may not be recoverable, by analyzing sponding section in note “Income Taxes”). individual assets or classes of assets that naturally belong together. If an analysis indicates that the value recorded is too high, the asset’s recoverable value is set, which is the higher of the net realizable value of the asset and its value in use. Value in use is measured as expected future discounted cash flows (DCF model). A write-down 11 Income from Associated Companies consists of the difference between carrying value and recoverable value. A number of significant assumptions and estimates are involved in the applica- Shares of earnings are calculated on the associated companies’ net income. Earnings tion of a DCF model to forecast operating cash flows, including market growth rates, for each associated company are based on the company’s most recent accounts, revenue volumes, market prices for telecommunications services, costs to maintain adjusted for any discrepancies in accounting principles, and with estimated adjust- and develop communications networks and working capital requirements. Forecasts ments for significant events and transactions up to TeliaSonera’s close of books. of future cash flows are based on the best estimates of future revenues and operating This item also includes amortization of goodwill and other consolidation adjust- expenses using historical trends, general market conditions, industry trends and ments made upon the acquisition of associated companies as well as gains or losses forecasts and other available information. These assumptions are subject to review by on the divestiture of stakes in associated companies. management and the audit committee of the board of directors. The cash flow fore- January–December casts are adjusted by an appropriate discount rate derived from our cost of capital SEK in millions 2003 2002 2001 plus a reasonable risk premium at the date of evaluation. Share in net income for the year 2,096 293 –903 If the projections for future cash flows for any of TeliaSonera’s fixed assets change Amortization of goodwill –565 –112 –465 as a result of changes in business model or strategy, competitive pressures, or reg- Write-down of goodwill etc. –1,436 –33 –1,820 ulatory environment, TeliaSonera may have to recognize impairment charges on the Net capital gains 287 380 9,324 intangible, tangible and financial fixed assets. Net effect on income 382 528 6,136 Substantially all goodwill recorded (see specification in note “Intangible Fixed Assets”) has been recognized in connection with the merger with Sonera Oyj in 2002 Income from associated companies is broken down by business segments in the and the acquisition of NetCom ASA in 2000. According to standard procedures, the notes “Profit Center Breakdown” and “Product Area Breakdown.” carrying value of TeliaSonera Finland (formerly Sonera) was tested for impairment Large individual stakes (including stakes held through subsidiaries) have impacted as of December 31, 2003. The recoverable value was found to be in excess of the earnings as follows. carrying value. Hence, the related goodwill was not impaired. NetCom constitutes a cash-generating unit. Lower market valuations of mobile January–December operators triggered testing the carrying value of NetCom for impairment on a quar- SEK in millions 2003 2002 2001 terly basis, starting in 2002. The recoverable value of NetCom was measured as value UAB Omnitel, Lithuania – 13 –15 in use, applying a DCF model. The discount rate (weighted average cost of capital, AB Lietuvos Telekomas, Lithuania – –115 –43 WACC) used in calculating the recoverable value was set at 11.4 percent in 2003 and Latvijas Mobilais Telefons SIA, Latvia – 126 118 13.2 percent in 2002. Using what management believes are reasonable assumptions Lattelekom SIA, Latvia 205 61 – based on the best information available as of the date of the financial statements, AS Eesti Telekom, Estonia 177 133 135 the recoverable value of NetCom was found to be in excess of its carrying value at OAO MegaFon, Russia 509 51 153 December 31, 2003 and 2002 and therefore the related goodwill was not impaired. Turkcell Iletisim Hizmetleri A.S., Turkey 618 115 – Overseas Telecom AB, Sweden 141 85 53 The whole of the former business area Telia International Carrier constituted a Telefos AB, Sweden 254 –81 –80 cash-generating unit. Weak profitability in the business area and surplus capacity in Eniro AB, Sweden – –3 6,052 the industry in 2001 led Telia to review the need for write-downs in the operations. Scandinavia Online AB, Sweden – –1 –226 The recoverable value, measured as the value in use as there was no market, was INGROUP Holding AB, Sweden –123 –16 9 found to fall short of the book value by SEK 3,027 million. The amount was recog- COOP Bank AB, Sweden 20 –126 –14 nized as cost in the Production function and the Fixed networks class of assets. Netia S.A., Poland – 0 –2,464 WACC used was 11.2 percent. In 2002, TeliaSonera completed a comprehensive Unisource N.V./AUCS, the Netherlands 227 38 –372 review of the international carrier operations. Management decided to change the Comsource UnLtd/Eircom plc, Ireland – 151 126 strategic focus of Telia International Carrier and significantly restructure its opera- SI.MOBIL, Slovenia – – 372 tions (see also note “Restructuring Costs”). Under the new strategic focus the recov- Infonet Services Corp., USA –1,517 18 40 erable value of assets was found to fall SEK 6,131 million below book value, which Metro One Telecommunications, Inc., USA –309 67 – was written down (of which SEK 824 million refers to financial assets). The amount Tess S/A, Brazil – 0 2,359 Bharti Mobile Ltd., India 341 184 10 was recognized as Other operating expenses in the Fixed networks class of assets. Other holdings –161 –172 –77 WACC used in calculating the recoverable value was 16.2 percent. In 2002, the Danish fixed network operations were reviewed in order to value Net effect on income 382 528 6,136 their assets and determine a new focus (se also note “Restructuring Costs”). As a result Due to the merger with Sonera Oyj (now TeliaSonera Finland Oyj); Latvijas Mobilais of the review, the recoverable value was found to be SEK 3,033 million lower than the Telefons SIA, UAB Omnitel AB and Lietuvos Telekomas are consolidated subsidiaries book value. The resulting write-down was recognized as Other operating expenses in since December 3, 2002. The comparative year values for the then subsidiary Over- the Goodwill, Other intangible assets, Fixed assets and Other machinery and equipment seas Telecom AB refer to Overseas’ holdings in certain associated companies. See also classes of assets. In calculating the recoverable value, WACC used was 13.7 percent. note “Financial Fixed Assets” and note “Specification of Shareholdings and Partici- Depreciation, amortization and write-downs on intangible and tangible fixed pations.” assets were distributed by function as follows. Turkcell’s financials are included in TeliaSonera’s reporting with a one-quarter lag. January–December In 2003, the merger with Sonera was legally completed and consequently the pur- SEK in millions, chase price allocation was finalized, including reallocation of part of the Turkcell except for percentages 2003 2002 2001 goodwill (see note “Merger with Sonera Oyj”). As of September 30, 2001, TeliaSonera wrote down all remaining goodwill in Netia Production 14,503 11,184 13,061 S.A., amounting to SEK 1,820 million, and discontinued recognition of its share of losses Sales 1,533 503 366 Administration 1,136 589 467 in Netia. For the year and the 15-month period ended December 31, 2002, the unrec- Research and development 483 80 27 ognized share of losses in Netia was SEK 1,459 million and SEK 2,182 million, respec- Other operating expenses 52 8,488 54 tively. As of January 30, 2003, Netia is no longer an associated company. For the one- Total 17,707 20,844 13,975 month period then ended the unrecognized share of losses in Netia was SEK 27 million. In the second quarter of 2003 management concluded that TeliaSonera’s owner- Proportion of net sales (%) 21.5 35.0 24.4 ship interest in Infonet Services Corp. is not strategic and it is now defined as an asset possible to divest in light of market conditions or otherwise in an effort to maximize Depreciation, amortization and write-downs are broken down by business segments TeliaSonera’s return on the investment. Simultaneous with this decision, Infonet in the notes “Profit Center Breakdown” and “Product Area Breakdown.” announced its full year earnings and indicated lower margins and the recording of Depreciation, amortization and write-downs were distributed by asset class as certain impairment charges. As a result of the management decision and Infonet’s follows. reported operating performance, the carrying value was written down by SEK 1,028 January–December million. SEK in millions 2003 2002 2001 Goodwill 3,488 1,938 1,403 Other intangible assets 1,987 738 340 12 Reconciliation of EBITDA Buildings 335 430 136 Land improvements 8 17 6 Excluding Non-Recurring Items Fixed networks 6,372 12,866 8,061 Mobile networks 3,833 2,634 1,807 to Operating Income Other machinery and equipment 1,684 2,221 2,222 Total 17,707 20,844 13,975 These financial statements include information on “underlying” measures of Telia- Sonera’s results of operations, such as “EBITDA excluding non-recurring items” and “Operating income excluding non-recurring items.” EBITDA equals operating income 66 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

before depreciation, amortization and write-downs, excluding income from associated companies. Non-recurring items include write-downs, capital gains/losses, restruc- 14 Income Taxes turing/phase-out of operations and personnel redundancy costs, and non-capitalized expenses in conjunction with the merger with Sonera in 2002. Tax expense Effective January 1, 2003, only capital gains/losses, write-downs, restructuring The income statement item Income Taxes shows current and deferred corporate programs or similar items that represent more than SEK 100 million on an individ- income tax for Swedish and non-Swedish Group units. TeliaSonera Group companies ual basis, will be reported as non-recurring. Earlier periods have not been restated. are liable for taxation under current legislation in the countries where they are domi- TeliaSonera’s management uses operating income excluding non-recurring items ciled. The corporate income tax rate in Sweden was 28 percent in 2003, 2002 and as the principal measure for monitoring profitability in internal reporting. Manage- 2001, and is applied to the nominal income recorded, plus non-deductible items and ment believes that, besides operating income, EBITDA excluding non-recurring items less non-taxable revenues and other deductions, mainly tax-free dividends from and operating income excluding non-recurring items are also measures commonly subsidiaries. reported and widely used by analysts, investors and other interested parties in the The liability method is used to report income taxes. According to this method, telecommunications industry. Accordingly, these “underlying” measures are presented deferred tax liabilities and assets are recorded for all temporary differences between to enhance the understanding of TeliaSonera’s historical operating performance. book values and tax-effective values of assets and liabilities and for other tax-effec- These “underlying” measures, however, should not be considered as alternatives tive deductions or losses. Deferred tax liabilities and assets are calculated based on to operating income as indicators of operating performance. Similarly, EBITDA exclud- the tax rate expected when the temporary difference will be reversed. The effects ing non-recurring items should not be considered as an alternative to cash flows from of changes in applicable tax rates are charged to income in the period when the operating activities as a measure of liquidity. EBITDA excluding non-recurring items change is substantively enacted. Deferred tax assets are reduced by means of a val- and operating income excluding non-recurring items are not measures of financial uation allowance to the extent that the ability of realizing the underlying tax asset performance under IFRS/IAS or U.S. GAAP and may not be comparable to other sim- within the foreseeable future is not likely. To the extent the likely recovery of a ilarly titled measures for other companies. These “underlying” measures are not meant deferred tax asset changes, the effect is brought to income for the relevant period. to be predictive of potential future results. Deferred tax liabilities on undistributed earnings in foreign subsidiaries are not recorded if such retained earnings are regarded as permanently invested in the January–December countries in question. Deferred tax liabilities for undistributed earnings in Swedish SEK in millions 2003 2002 2001 companies and in foreign associated companies are not recorded because such EBITDA excluding retained earnings can be withdrawn as non-taxable dividends. However, some for- non-recurring items 30,700 15,692 12,915 eign jurisdictions impose withholding tax on dividends. In such cases, a deferred tax Non-recurring items 1,335 –6,271 384 liability calculated based on the respective withholding tax rate is recorded. EBITDA 32,035 9,421 13,299 Significant management judgment is required in determining current tax liabil- Depreciation, amortization ities and assets as well as provisions for deferred tax liabilities and assets, in particu- and write-downs (Note 10) –17,707 –20,844 –13,975 lar valuation of deferred tax assets. As part of this process, income taxes have to be Income from associated companies (Note 11) 382 528 6,136 estimated in each of the jurisdictions in which TeliaSonera operates. The process involves estimating the actual current tax exposure together with assessing tempo- Operating income 14,710 –10,895 5,460 rary differences resulting from the different valuation of certain assets and liabilities The following table sets forth non-recurring items. in the financial statements and tax returns. Management must also assess the likelihood that the deferred tax assets will be recovered from future taxable income. January–December Actual results may differ from these estimates, among others due to future changes SEK in millions 2003 2002 2001 in business environment, currently unknown changes in income tax legislation or Restructuring charges (excluding results from the final review of tax returns by tax authorities or by courts of law. depreciation, amortization and Pre-tax income was distributed as follows. write-downs on intangible and tangible assets but including January–December reversals of provisions and foreign SEK in millions 2003 2002 2001 exchange rate effects) 88 –5,924 –478 Implementation costs to gain synergies Sweden, Group companies and integrate Telia and Sonera –456 – – (including foreign branch offices) 9,878 –3,405 –1,700 Transaction expenses related to the Sweden, associated companies 103 –307 –423 merger with Sonera – –13 – Total Sweden 9,981 –3,712 –2,123 Certain pension-related items – –248 88 Finland, Group companies –14 36 68 Net capital gains/losses (excluding Finland, associated companies 22 3 – associated companies) 1,703 –86 774 Rest of world, Group companies 3,939 –8,396 9,628 Total 1,335 –6,271 384 Rest of world, associated companies –29 453 –2,765 Total outside Sweden 3,918 –7,904 6,931 EBITDA excluding non-recurring items, non-recurring items, EBITDA and operating Total 13,899 –11,616 4,808 income are broken down by business segments in note “Profit Center Breakdown.” Recorded tax expense was distributed as follows.

13 Financial Revenues and Expenses January–December SEK in millions 2003 2002 2001 Financial items are expensed as incurred, with the exception of interest during instal- Current tax lation periods, which is capitalized (see also note “Intangible Fixed Assets” and note Sweden 1,994 156 644 “Tangible Fixed Assets”). Finland 7 –256 11 Revenues and costs relating to guarantee commissions are included in Other inter- Rest of world 760 694 290 est income and Interest expense. Interest expenses include loan-related bank fees and Total 2,761 594 945 fees to rating institutions and market makers. The interest component of the change in Deferred tax fair value of derivatives is included in Other interest income (gain) and Interest expense Sweden 513 –2,284 –28 (loss). The corresponding exchange rate components are recorded in Exchange rate Finland 16 –602 12 gains and Exchange rate losses, respectively. This item also includes any hedging Rest of world 560 –1,327 1,988 ineffectiveness. See also note “Financial Instruments and Financial Risk Management.” Total 1,089 –4,213 1,972

January–December Total 3,850 –3,619 2,917 SEK in millions 2003 2002 2001 Current tax expense for each fiscal year attributable to the previous years’ earnings Earnings from financial investments and tax booked directly to equity were as follows. Dividends 3 5 1 Capital gains/losses 685 –1 4 January–December Write-downs –695 –185 –147 SEK in millions 2003 2002 2001

Total –7 –181 –142 Financials Other financial revenues Tax attributable to previous year –305 –1 43 Interest on financial leases 611 662 600 Tax booked directly to equity 7 –16 –186 Other interest income 608 474 964 Exchange rate gains 544 138 129 Total 1,763 1,274 1,693 Other financial expenses Interest expenses –2,065 –1,697 –2,168 Capitalized interest 43 19 81 Exchange rate losses –545 –136 –116 Total –2,567 –1,814 –2,203 Net effect on income –811 –721 –652 TELIASONERA ANNUAL REPORT 2003 67 Notes to Consolidated Financial Statements – IFRS/IAS

The difference between the nominal rate of Swedish taxation and the effective tax Deferred tax liabilities and assets were distributed as follows. rate comprises the following components. December 31, January–December SEK in millions 2003 2002 2001 % 2003 2002 2001 Deferred tax liability Swedish income tax rate 28.0 28.0 28.0 Shares and participations 447 2,645 301 Differences in tax rates on foreign Other long-term assets 5,926 7,255 6,258 operations –0.7 2.9 4.1 Provisions 1,994 488 – Adjustment of taxes for previous periods –4.6 3.8 2.5 Current receivables and liabilities 2 17 98 Adjustment for new tax legislation – – 10.1 Off-balance-sheet items 168 268 283 Losses for which deferred tax assets Total deferred tax liability 8,537 10,673 6,940 were not recognized 4.1 –2.6 70.3 Deferred tax asset Profits for which deferred tax liabilities Shares and participations 131 23 76 were not recognized –2.0 0.2 –5.9 Other long-term assets 5,258 2,058 1,322 Non-deductible expenses 8.2 –5.2 9.5 Provisions and other long-term liabilities 1,282 1,172 973 Non-taxable revenues –5.3 4.1 –57.9 Current receivables and liabilities 32 157 19 Tax rate as per the income statement 27.7 31.2 60.7 Tax loss carry-forwards 10,561 14,236 1,343 Tax booked directly to equity 0.1 –0.1 –3.9 Subtotal 17,264 17,646 3,733 Effective tax rate 27.8 31.1 56.8 Valuation allowance –2,304 –1,715 –2,243 Tax rate, current tax 19.9 5.1 19.7 Total deferred tax asset 14,960 15,931 1,490 Net deferred tax asset (–)/liability (+) –6,423 –5,258 5,450 In 2003, the Finnish government announced its intention to propose Parliament to Net change in valuation allowance reduce the Finnish corporate income tax rate from 29 percent to 26 percent. As of (increase +/decrease –) 589 –528 1,624 December 31, 2003, the tax rate change was not substantively enacted. The deferred tax expense for 2003 would have increased by approximately SEK 1,018 million and The deferred tax liability with respect to other long-term assets chiefly refers to un- the effective tax rate by approximately 7.3 percent, had the change of nominal tax taxed reserves (see below). Unrecorded deferred tax liabilities for undistributed rate been substantively enacted as of the said date. earnings in subsidiaries totaled SEK 436 million in 2003, SEK 350 million in 2002, In 2001, Swedish tax legislation changed so that capital losses on business-related and SEK 515 million in 2001. shares and participations after December 7, 2001 may only be offset against capital The deferred tax asset originating from tax loss carry-forwards mainly refers to gains on shares and participations. Deferred tax assets attributable to holdings in extensive write-downs of investments in foreign associated companies and other which latent capital losses were deemed to exist were consequently valued only to the minority holdings in 2002. By means of an intra-group asset transfer in 2003, a portion extent that the loss was estimated to be offset by capital gains on shares. The remain- of the losses was utilized and a corresponding deferred tax asset with respect to other der of deferred tax assets was expensed, increasing the tax expense for 2001. long-term assets was established. The accumulated tax loss carry-forwards were distributed as follows. The valuation allowance was distributed as follows.

December 31, December 31, SEK in millions 2003 2002 2001 SEK in millions 2003 2002 2001 Sweden 871 916 233 Other long-term assets 1,183 767 934 Finland 31,178 42,005 8 Provisions 402 – – Rest of world 5,725 6,397 3,957 Tax loss carry-forwards 719 948 1,309 Total 37,774 49,318 4,198 Total valuation allowance 2,304 1,715 2,243

Swedish tax loss carry-forwards have no expiration date, while Finnish tax loss carry- Appropriations and untaxed reserves forwards expire after 10 years. Total loss carry-forwards as of December 31, 2003 Tax legislation in Sweden, Finland and certain other countries allows companies to expire in the following years. postpone tax payments by making allocations to untaxed reserves in the balance sheet via the Appropriations line item in the income statement. Of particular interest Expiry SEK in millions to TeliaSonera, with its extensive capital expenditure in infrastructure, are Swedish and 2004 160 Finnish tax regulations that make it possible to depreciate assets at an accelerated rate 2005 117 (see also note “Depreciation, Amortization, and Write-Downs”). However, appropri- 2006 439 ations and untaxed reserves are not recorded in the consolidated financial statements. 2007 124 In the consolidated accounts, untaxed reserves after eliminations have been 2008 – divided into a deferred tax liability and a restricted reserve in shareholders’ equity. If 2009–2023 31,178 Unlimited 5,756 recorded as income and taxed, the latter would be transferred to non-restricted reserves (see note “Shareholders’ Equity, Earnings per Share”). Total 37,774 Overall, the individual Group companies recorded the following untaxed reserves.

December 31, SEK in millions 2003 2002 2001 Profit equalization reserve 3,114 1,503 2,811 Accumulated excess depreciation 14,136 14,217 18,870 Contingency reserve 353 160 135 Total 17,603 15,880 21,816

Excess depreciation, applicable to intangible assets, buildings and plant and machinery, changed as follows.

December 31, 2003 2002 2001 Intangible Plant and Intangible Plant and Intangible Plant and SEK in millions assets Buildings machinery assets Buildings machinery assets Buildings machinery Opening balance 582 55 13,580 662 – 18,208 197 12 18,257 Operations acquired/divested 183 55 537 227 131 1,533 – – –101 Provisions 12 0 597 219 – 55 465 – 1,466 Reversals –8 –98 –1,359 –526 –76 –6,216 – –12 –1,414 Closing balance 769 12 13,355 582 55 13,580 662 – 18,208

68 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

15 Intangible Fixed Assets

Intangible assets are recorded in the balance sheet at acquisition value less accumu- Direct external and internal charges for the development of software for in-house lated scheduled amortization, and write-downs. For assets acquired during the year, administrative use are capitalized, provided that probable future economic benefits amortization is calculated from the date of acquisition. The rates and other param- exceed accrued expenses. Activities in projects at the feasibility study stage as well eters applied are specified in note “Depreciation, Amortization, and Write-Downs.” as maintenance and training activities are expensed as incurred.

December 31, 2003 2002 2001 SEK in millions Goodwill Other Goodwill Other Goodwill Other Acquisition value, opening balance 64,058 12,758 26,790 2,895 24,838 1,740 Purchases 1,903 1,292 30,929 5,119 448 1,316 Operations acquired – 57 – 3,496 – – Sales/discards – –259 –5 –101 – –27 Operations divested – –65 – – –643 –142 Reclassifications –679 677 3,874 1,271 –1 –50 Exchange rate differences –4,047 –336 2,470 78 2,148 58 Accumulated acquisition value, closing balance 61,235 14,124 64,058 12,758 26,790 2,895 Amortization, opening balance –5,078 –2,641 –2,075 –763 –902 –477 Purchases –1 – – – – 0 Operations acquired – –27 – –1,337 – – Sales/discards – 128 1 39 – 26 Operations divested – 60 – – 247 56 Reclassifications 221 –245 –1,256 –38 –1 –18 Amortization for the year –3,450 –1,686 –1,572 –535 –1,375 –338 Exchange rate differences 352 90 –176 –7 –44 –12 Accumulated amortization, closing balance –7,956 –4,321 –5,078 –2,641 –2,075 –763 Write-downs, opening balance –396 –595 –29 –2 –1 – Operations acquired – – – –390 – – Operations divested – – – – – – Write-downs for the year –38 –301 –366 –203 –28 –2 Exchange rate differences 77 –9 –1 0 0 – Accumulated write-downs, closing balance –357 –905 –396 –595 –29 –2 Advances – 0 – – – – Total book value, closing balance 52,922 8,898 58,584 9,522 24,686 2,130

The acquisition value includes accumulated interest of SEK 22 million for 2003, SEK New installations under construction are valued at the expense already incurred, 22 million for 2002, and SEK 22 million for 2001. including interest during the installation period. For buildings, interest paid on con- Capitalized software for in-house administrative use amounted to SEK 110 mil- struction loans is capitalized. Otherwise capitalized interest is calculated based on lion, SEK 192 million in 2002, and SEK 182 million in 2001. In the three years, amor- the Group’s estimated average cost of borrowing (5.0 percent for 2003, 5.75 per- tization was SEK 140 million, SEK 101 million, and SEK 45 million, respectively. cent for 2002 and 5.5 percent for 2001). The total book value was distributed as follows. To the extent a legal or constructive obligation to a third party exists, the acquisition cost includes estimated costs of dismantling and removing the asset and restoring December 31, the site. A change in estimated expenditures for dismantling, removal and restoration SEK in millions 2003 2002 2001 is added to and/or deducted from the carrying value of the related asset. To the extent Goodwill, TeliaSonera Finland 28,217 30,068 – that the change would result in a negative carrying amount, this effect is recognized Goodwill, NetCom 19,857 24,456 23,998 as income. The change in depreciation charge is recognized prospectively. Goodwill, other 4,848 4,060 688 Administrative software systems 680 386 476 Buildings and land Trade names, licenses, contractual TeliaSonera’s real estate holdings include some 4,000 properties, mainly in Sweden agreements, patents, etc. 6,853 8,666 1,594 and Finland. The substantial majority is used solely for technical facilities, like net- Leases, etc. 908 85 11 work installations, computer installations, research centers and service outlets. Work in progress, advances 457 385 49 Total book value 61,820 68,106 26,816 December 31, SEK in millions 2003 2002 2001 In connection with the completion of the merger with Sonera Oyj (now TeliaSonera Acquisition value, opening balance 5,859 2,406 2,193 Finland Oyj), goodwill has been finally allocated to units concerned. Purchases 157 237 269 Given the current ownership structure and the same exchange rates as in 2003, Operations acquired 51 3,099 – and that no events will occur that would trigger goodwill impairment charges, Telia- Sales/discards –102 –23 –651 Sonera expects the following amortization of goodwill and other intangible assets Operations divested –1 – –39 during the next five-year period. Reclassifications 221 177 613 Exchange rate differences –142 –37 21 SEK in millions 2004 2005 2006 2007 2008 Accumulated acquisition value, Expected future closing balance 6,043 5,859 2,406 amortization of goodwill 3,388 3,388 3,388 3,355 3,355 Depreciation, opening balance –1,756 –763 –786 Expected future amortization Operations acquired –28 –795 – of other intangible fixed assets 1,623 1,323 1,323 1,123 777 Sales/discards 44 3 141 Operations divested – – 17 Total 5,011 4,711 4,711 4,478 4,132 Reclassifications 1 –41 –4 Depreciation for the year –308 –163 –130 Exchange rate differences 23 3 –1 16 Tangible Fixed Assets Accumulated depreciation, closing balance –2,024 –1,756 –763 General Write-downs, opening balance –298 –13 0 Tangible assets are recorded in the balance sheet at acquisition value less accumu- Sales/discards 7 – – Reclassifications –32 – – Financials lated scheduled depreciation, and write-downs. In the case of cable TV installations, Write-downs for the year –35 –284 –13 a deduction is made for customer hookup fees paid in advance (fixed-asset contri- Exchange rate differences 4 –1 0 butions). Software that is a direct prerequisite for end-user service production is capitalized as a tangible asset. Accumulated write-downs, For assets acquired during the year, depreciation is calculated from the date of closing balance –354 –298 –13 Advances 5 – – acquisition. The rates and other parameters applied are specified in note “Depreci- ation, Amortization, and Write-Downs.” Total book value, closing balance 3,670 3,805 1,630

No interest is included in the acquisition value for the years 2003, 2002 or 2001.

TELIASONERA ANNUAL REPORT 2003 69 Notes to Consolidated Financial Statements – IFRS/IAS

The Group’s Swedish real estate holdings have been assessed for taxes at the follow- Distribution by class of asset ing values. The total book value was distributed as follows.

December 31, December 31, SEK in millions 2003 2002 2001 SEK in millions 2003 2002 2001 Buildings 199 206 178 Buildings and land Land and land improvements 58 33 54 Expenditure on improvements to Tax-assessed value 257 239 232 property not owned by the Group 123 21 164 Buildings 3,152 3,398 1,309 At the 2003 property assessment for taxation purposes, a number of additional prop- Land and land improvements 395 386 157 erties were assessed for the first time, while others had their assessments increased. Total 3,670 3,805 1,630 The number of real estate properties valued for tax purposes is limited as many of Plant and machinery them are classified as non-taxable communication buildings. Fixed networks – switching systems and peripheral equipment 9,480 10,107 5,970 Plant and machinery Fixed networks – transmission systems 13,837 11,907 12,200 December 31, Fixed networks – transmission media SEK in millions 2003 2002 2001 and other types of media 9,720 8,831 9,728 Mobile networks 7,271 13,456 7,288 Acquisition value, opening balance 138,065 93,985 82,605 Cable TV networks 550 1,307 1,329 Purchases 7,545 8,206 14,398 Alarm systems 16 11 20 Operations acquired 664 36,136 1,507 New installations under construction, Dismantling/restoration 106 – – Sales/discards –2,305 –1,384 –1,910 advances 2,413 3,469 4,624 Operations divested –4,113 – –1,190 Total 43,287 49,088 41,159 Reclassifications –2,294 1,275 –2,332 Equipment, tools and installations Inflation adjustments –6 – – Financial leasing, vehicles 271 297 308 Exchange rate differences –2,478 –153 907 Other equipment, tools and installations 1,933 2,982 4,217 Accumulated acquisition value, Total 2,204 3,279 4,525 closing balance 135,184 138,065 93,985 Total 49,161 56,172 47,314 Depreciation, opening balance –77,975 –49,393 –43,929 Operations acquired –584 –20,954 –257 New installations under construction under Plant and machinery are chiefly instal- Sales/discards 1,894 1,207 1,649 lations for fixed and mobile networks. Assets owned by Group companies and leased Operations divested 3,039 – 544 Reclassifications 1,292 –481 48 to other Group companies are included in Plant and machinery and Other equip- Inflation adjustments –1 – – ment, tools and installations as appropriate. Depreciation for the year –10,120 –8,347 –7,249 Exchange rate differences 960 –7 –199 Accumulated depreciation, 17 Financial Fixed Assets closing balance –81,495 –77,975 –49,393 Write-downs, opening balance –10,929 –3,364 –135 Sales/discards 156 182 21 General Reclassifications 382 – – The principles for the consolidation of subsidiaries and associated companies are Write-downs for the year –289 –7,807 –3,250 described in note “Consolidated Financial Statements.” Negative equity participa- Exchange rate differences 233 60 – tions in associated companies are recognized only for companies for which the Group Accumulated write-downs, has contractual obligations to contribute additional capital. This is then recorded as closing balance –10,447 –10,929 –3,364 Other provisions. Fixed-asset contributions from Other holdings of securities are valued at fair value if listed (application of IAS 39 cable TV customers, net – –74 –72 effective 2001), otherwise at acquisition cost unless an assessment of the market Advances 45 1 3 value indicates that a write-down is necessary (see note “Depreciation, Amortization, Total book value, closing balance 43,287 49,088 41,159 and Write-downs”).

The acquisition value includes accumulated interest of SEK 617 million, SEK 574 mil- Equity participations in associated companies lion and SEK 555 million for the years 2003, 2002 and 2001, respectively. In 2002 December 31, and 2001, the carrying value of the previous business area Telia International Carrier SEK in millions 2003 2002 2001 was written down and, in 2002, assets in the Danish fixed-line operations were impaired (see also note “Restructuring Costs”). Book value, opening balance 23,027 9,927 13,298 Acquisitions 748 8,373 1,845 Equipment, tools and installations Operations acquired – 10,830 – Equity participation in former December 31, subsidiaries – – 295 SEK in millions 2003 2002 2001 Transactions with non-related parties – –57 – Acquisition value, opening balance 10,092 7,634 6,682 New shares issues and shareholder Purchases 744 801 1,742 contributions 10 776 414 Operations acquired 722 4,936 43 Share in earnings 2,096 293 –903 Sales/discards –661 –980 –656 Amortization and write-down of Operations divested –664 –8 –1,391 goodwill etc. –2,001 –145 –2,285 Reclassifications –3,245 –2,349 1,071 Divestitures –15 –1,133 –4,758 Exchange rate differences –258 58 143 Dividends received –697 –348 –307 Accumulated acquisition value, Reclassifications –3,060 –5,085 1,157 closing balance 6,730 10,092 7,634 Inflation adjustments 2,457 – – Depreciation, opening balance –6,349 –2,943 –2,744 Exchange rate differences –2,164 –404 1,171 Operations acquired –783 –3,385 –2 Book value, closing balance 20,401 23,027 9,927 Sales/discards 611 755 531 Operations divested 319 5 801 The book value was distributed as follows. Reclassifications 3,235 549 –16 Depreciation for the year –1,444 –1,287 –1,446 December 31, Exchange rate differences 162 –43 –67 SEK in millions 2003 2002 2001 Accumulated depreciation, closing balance –4,249 –6,349 –2,943 Goodwill and similar assets on Write-downs, opening balance –464 –166 –1 consolidation 8,934 9,157 3,352 Operations acquired 213 – – Participation in equity 11,467 13,870 6,575 Sales/discards – –1 – Total 20,401 23,027 9,927 Reclassifications –15 – – Write-downs for the year –8 –297 –165 Book value is broken down by business segments in the notes “Profit Center Break- Exchange rate differences –3 0 0 down” and “Product Area Break-down.” Accumulated write-downs, closing balance –277 –464 –166 Total book value, closing balance 2,204 3,279 4,525

No interest is included in the acquisition value for the years 2003, 2002 or 2001.

70 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

The following shows the associated companies’ aggregate balance sheets and income statements in summary. 18 Inventories, etc.

December 31, Inventory and stock in trade are valued at acquisition value, based on FIFO (first in/ SEK in millions 2003 2002 2001 first out), or net selling price, whichever is lower. Write-downs for obsolescence are Fixed assets 45,298 40,308 35,816 made separately for each individual stockholding. Obsolescence is assessed with refer- Current assets 24,662 33,203 17,374 ence to the age and rate of turnover of the articles. The entire difference between Provisions and long-term liabilities 12,888 23,764 16,696 the opening and closing balances of the reserve for obsolescence is charged to oper- Current liabilities 19,055 12,320 4,886 ating income for the year. Net sales 43,590 35,115 46,168 Construction contracts are valued at expense incurred, applying the lower of Gross income 8,418 7,390 17,450 original cost and replacement value. Interest paid during installation is not capital- Net income 4,711 1,076 1,032 ized. Construction contracts refer chiefly to short-term (one to three months) installation works on the customer’s site. Installation work is recognized as revenue when Other holdings of securities all or nearly all undertakings have been completed. December 31, After deductions for obsolescence amounting to SEK 7 million, SEK 10 million and SEK in millions 2003 2002 2001 SEK 35 million for the years 2003, 2002 and 2001, respectively, the total book value Book value, opening balance 1,164 426 635 is distributed as follows. Changes in accounting principles – – –223 Book value, adjusted opening balance 1,164 426 412 December 31, Acquisitions 102 128 68 SEK in millions 2003 2002 2001 Operations acquired – 769 – Raw materials and essential inputs 244 197 105 Divestitures –326 –19 –18 Products at work 7 7 - Write-ups – – 72 Finished goods and goods for resale 206 303 463 Write-downs –460 –201 –29 Expense incurred, construction contracts 24 37 61 Reclassifications 85 49 –32 Advances to suppliers 20 36 7 Share of earnings in partnerships –2 –3 –47 Total 501 580 636 Exchange rate differences –5 15 – Book value, closing balance 558 1,164 426 Finished goods include purchased supplies that are mainly intended for use in con- structing TeliaSonera’s own installations and for repair and maintenance. Supplies Other long-term financial assets valued at SEK 6 million, SEK 26 million and SEK 9 million for the years 2003, 2002 December 31, and 2001, respectively, were stored at a central location. The remainder was held at SEK in millions 2003 2002 2001 local warehouses and worksites. Book value, opening balance 24,343 10,431 8,402 Changes in accounting principles – – 484 Book value, adjusted opening balance 24,343 10,431 8,886 Purchases 1,124 6,303 3,159 19 Receivables Operations acquired – 11,938 – Allowance for doubtful receivables on mass invoicing is calculated primarily using a Sales/discards –3,187 –3,398 –3,733 Operations divested – – –586 standardized method based on actual losses from previous years and taking into Write-downs –550 –847 –6 account current collection trends. Should economic or specific industry trends worsen Reclassifications –335 – 2,514 compared to the estimates, the allowance may have to be increased, negatively Exchange rate differences –293 –84 197 impacting earnings. Book value, closing balance 21,102 24,343 10,431 Net receivables from clients for service and construction contracts are recorded as accruals and deferrals. Revenue is recognized progressively. Assessment of the Changes in accounting principles in 2001 refer to the application of IAS 39 and gross degree of completion is based on the value of phases completed as a percentage of recording of derivatives in the balance sheet (see also note “Financial Instruments total undertakings. and Financial Risk Management”). December 31, Distribution by class of asset SEK in millions 2003 2002 2001 The total book value was distributed as follows. Accounts receivable Invoiced receivables 12,677 12,376 12,616 December 31, Reserve for doubtful receivables –904 –861 –1,078 SEK in millions 2003 2002 2001 Total 11,773 11,515 11,538 Associated companies Other current receivables Equity participations in associated Interest-bearing companies 20,401 23,027 9,927 Receivable from associated companies 226 601 857 Interest-bearing receivables 809 1,127 1,154 Financial leasing agreements 3,157 3,352 3,046 Non-interest-bearing receivables 2 242 17 Foreign currency interest rate swaps 47 543 20 Receivable from others 340 350 268 Total 21,212 24,396 11,098 Non-interest-bearing Other holdings of securities Receivable from associated companies 628 399 225 Shares and participations 357 1,050 426 Value-added tax 296 277 692 Other securities 201 114 – Other tax assets 244 369 417 Total 558 1,164 426 International settlements 237 377 32 Deferred tax asset 14,960 15,931 1,490 Currency swaps, forward exchange Other long-term receivables contracts 84 157 355 Interest-bearing Receivable from others 1,521 1,394 1,432 Financial leasing agreements 3,298 4,229 3,901 Total 6,780 7,819 7,344 Service-financing agreements 503 462 438 Accrued revenues and prepaid Loans to employees 14 136 229 expenses Interest rate swaps – 506 27 Metered call charges 2,549 1,201 889 Foreign currency interest rate swaps 306 514 1,167 Interconnect and roaming charges 1,070 810 703 Other 624 281 168 Other traffic charges 122 3,085 1,129 Non-interest-bearing Construction and service contracts 31 – 32 Operating lease agreements 344 676 1,495 Prepaid rent and leasing fees 397 258 201 Other 242 239 345 Other accrued or prepaid items 1,448 1,919 1,685 Total 5,331 7,043 7,770 Total 5,617 7,273 4,639 Total 42,061 48,534 20,784 Financials Total 24,170 26,607 23,521 The deferred tax asset is discussed in note “Income taxes” and leasing agreements in Written-down accounts receivable (bad debt expense) and recovered accounts note “Leasing Agreements and Contractual Obligations.” The valuation of financial receivable for the years 2003, 2002 and 2001 are recorded in note “Operating Costs” fixed assets is discussed in note “Financial Instruments and Risk Management.” and note “Other Operating Revenues and Expenses.” For information on leases, see Shareholdings and participations in associated companies as well as other holdings note “Leasing Agreements and Contractual Obligations.” of securities are specified in note “Specification of Shareholdings and Participations.”

TELIASONERA ANNUAL REPORT 2003 71 Notes to Consolidated Financial Statements – IFRS/IAS

During the last four years, the share capital changed as follows. 20 Short-term Investments Number Par value, Share Short-term investments consist primarily of surplus funds invested in the overnight of shares SEK/share capital, SEK market and are valued at the acquisition value plus accrued interest income (amortized Share capital, cost). Investments with maturities over three months are valued at fair value. December 31, 1999 8,800,000 1,000.00 8,800,000,000 Bonus issue, December 31, May 20, 2000 – 1,036.80 323,840,000 SEK in millions 2003 2002 2001 Split 324:1, May 20, 2000 2,842,400,000 3.20 – Investments with maturities over New share issue, three months 278 1,192 197 June 16, 2000 150,000,000 3.20 480,000,000 Investments with maturities up to Share capital, and including three months 8,380 2,634 7,405 December 31, 2000 3,001,200,000 3.20 9,603,840,000 Total 8,658 3,826 7,602 Share capital, December 31, 2001 3,001,200,000 3.20 9,603,840,000 See also note “Financial Instruments and Financial Risk Management” and note “Cash New share issue, Flow Information.” December 3, 2002 1,604,556,725 3.20 5,134,581,520 Share capital, December 31, 2002 4,605,756,725 3.20 14,738,421,520 New share issue, 21 Shareholders’ Equity, February 10, 2003 69,475,344 3.20 222,321,101 Share capital, Earnings per Share December 31, 2003 4,675,232,069 3.20 14,960,742,621

Restricted and non-restricted equity Dividend payments are proposed by the Board of Directors in accordance with the According to Swedish law, shareholders’ equity is divided into funds available for regulations of the Swedish Companies Act and decided by the General Meeting of distribution (non-restricted) and not available for distribution (restricted). In a group shareholders. The proposed but not yet decided dividend for 2003 totals SEK 4,675 the shareholders can receive as distribution only the non-restricted funds in the par- million (SEK 1.00 per share). This amount has not been recorded as a liability. ent company or the group, whichever is lower. Restricted equity is made up of the share capital and share premium reserve/legal Exchange rate differences reserve. The Group’s non-restricted equity in the consolidated accounts includes only that part of a subsidiary’s non-restricted equity that can be assigned to the parent December 31, company without having to write down the value of the shares in the subsidiary. SEK in millions 2003 2002 2001 The Group balance sheet also shows the equity component of untaxed reserves Translation of foreign operations –7,783 1,686 4,203 as restricted equity. Earnings in associated companies that have not been distributed Forward contracts used as equity hedge – 11 –671 are recorded in the Group’s equity as an equity reserve in restricted reserves. The Operations divested –318 33 85 equity effect of recording financial instruments at fair value (application of IAS 39 Tax effect arising from the translation effective 2001) is attributed to a fair value reserve in restricted reserves. of foreign associated companies – – –20 Other tax effect – –3 188 Share capital Total –8,101 1,727 3,785 According to the by-laws of TeliaSonera AB the authorized share capital shall amount to no less than SEK 8,000,000,000 and no more than SEK 32,000,000,000. All issued The cumulative exchange rate differences in restricted equity were distributed as shares have been paid in full and carry equal rights to vote and participate in the follows. assets of the company. No shares are held by the company itself or by its subsidiaries. December 31, SEK in millions 2003 2002 2001 Equity method reserve –1,711 177 397 Other restricted reserves –137 6,241 4,329 Total –1,848 6,418 4,726

Inflation adjustments December 31, SEK in millions 2003 2002 2001 Translation of operations in hyperinflationary economies 2,427 – – Tax effect arising from the translation of associated companies in hyperinflationary economies – – – Total 2,427 – –

Fair value reserve December 31, 2003 2002 2001 SEK in millions Securities Derivatives Securities Derivatives Securities Derivatives Book value, opening balance –11 –56 –19 –68 – – Changes in accounting principles – – – – –224 –253 Tax effect – – – – 62 71 Book value, adjusted opening balance –11 –56 –19 –68 –162 –182 Provisions – –57 –3 – –11 –33 Reversals – 42 16 17 210 191 Tax effect – 4 –5 –5 –56 –44 Book value, closing balance –11 –67 –11 –56 –19 –68

No part of the reversed amount referred to reversals that necessitate adjusting the acquisition value. See also the introduction to note “Financial Instruments and Finan- cial Risk Management.”

72 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

Earnings per share nificant impact on the projected benefit obligations, funding requirements and January–December periodic pension cost. 2003 2002 2001 December 31, Net income (SEK million) 9,080 –8,067 1,869 % 2003 2002 2001 Average number of shares (thousands) 4,667,618 3,124,289 3,001,200 – after dilution (thousands) 4,668,426 3,125,314 3,001,200 Discount rate 5.5 5.5 5.5 Earnings/Loss per share (SEK) Expected rate of compensation increase 3.5 3.5 3.0 – Basic 1.95 –2.58 0.62 Employee turnover rate 2.7 3.8 5.0 – Diluted 1.95 –2.58 0.62 Average expected remaining working Dividend per share (SEK) (for 2003 life, years 15.1 14.7 15.0 as proposed by the Board) 1.00 0.40 0.20 Increase in income base amount 2.5 2.5 – Dividend (SEK million) (for 2003 as Annual adjustments to pensions 2.0 2.0 2.0 proposed by the Board) 4,675 1,870 600 Expected return on plan assets 6.5 6.5 7.5

In 2002 and 2001, General Meetings of shareholders decided to implement a num- The discount rate reflects the rates at which the pension benefits could be effectively ber of stock option schemes (see section “Stock-Based Compensation” in note settled, which means a period somewhere from 15 to 30 years. TeliaSonera has cho- “Human Resources”). With the terms and conditions that apply to the employee sen to base the estimated discount rate on the yields of domestic government bonds, stock option schemes, they had a very limited dilution effect upon computation of as management regards such bonds as high-quality fixed income investments cur- earnings per share for 2003 and 2002, and no dilution effect for 2001. rently available and expected to be available during the period to maturity of the pension benefits. However, the longest term of domestic nominal bonds is 15 years. The yields for terms over 15 years have been estimated by extrapolating the yield curve. The final decision on the expected discount rate is made after analyzing the 22 Provisions for Pensions relationship of the spread of the yields between domestic government bonds and a benchmark of euro government bonds (which are available at terms longer than 15 and Employment Contracts years). The expected annual rate of compensation increase reflects expected future salary General increases as a compound of inflation, seniority and promotion. The estimate is based Almost all employees in Sweden, Finland and Norway are covered by defined ben- on historical data on salary increases and on the expected future inflation rate (see efit pension plans, which means that the individual is guaranteed a pension equal to also below). Historical data is also the basis for estimating the employee turnover a certain percentage of his or her salary. The pension plans mainly include old-age rate, which reflects the expected level of employees, by age class, leaving the com- pension, disability pension and family pension. The pension obligations are secured pany through natural attrition. The estimate for average expected remaining work- mostly by pension funds, but also by provisions in the balance sheet and by insur- ing life is based on current employee age distribution and the expected employee ance premiums. In Finland, a part of the pension is funded in advance and the turnover rate. The income base amount, existing only in Sweden, is set annually and remaining part financed as a pay-as-you-go pension. The Group’s employees out- inter alia used for determining the ceiling for pensionable income in the public pen- side Sweden, Finland and Norway are usually covered by defined contribution pension system. The estimate for the expected annual income base amount increase is sion plans. Contributions to the latter are normally set at a certain percentage of the based on the expected future inflation rate and the historical annual rate of com- employee’s salary. pensation increase on the total labor market. Pension obligations that TeliaSonera AB assumed when it was converted into a Expected annual adjustments to pensions reflect the inflation rate. In determining limited liability company on July 1, 1993 and the remaining pension obligations of this rate, TeliaSonera has chosen to use the inflation target rates set by the national the parent company as well as obligations of a number of Swedish subsidiaries are and European central banks. secured by Telia Pension Fund. The expected return on plan assets reflects the average rate of earnings expected Pension obligations are calculated annually, on the balance sheet date, based on on the investments made (or to be made) to provide for the pension benefit obliga- actuarial principles. tions that are secured by the pension fund. Plan assets chiefly consist of equity instru- The assets of the pension funds constitute plan assets for pensions and are valued ments and fixed income instruments. The asset portfolios are balanced to give the at market value. When the net cumulative unrecognized actuarial gain or loss on expected average return, chiefly based on historical data, as further described below. pension obligations and plan assets goes outside a “corridor” equal to 10 percent of the greater of either pension obligations or the market value of plan assets, the surplus amount is amortized over the remaining employment period. The following provisions for pension obligations were made in the balance sheet.

December 31, SEK in millions 2003 2002 2001 Present value of pension obligations 16,977 16,398 14,683 Fair value of plan assets –14,295 –13,987 –13,464 Pension obligations less plan assets 2,682 2,411 1,219 Unrecognized past service cost 34 36 – Unrecognized transition gains 152 200 240 Unrecognized actuarial gains (+)/losses (–) –2,346 –2,423 899 Provisions for pension obligations 522 224 2,358

Total pension expenses were distributed as follows.

January–December SEK in millions 2003 2002 2001 Current service cost 328 220 253 Interest on pension provisions 878 784 883 Expected return on assets –892 –1,022 –1,122 Amortization of past service cost –3 – – Amortization of transition gains –42 –40 –40 Amortization of actuarial gains (–)/losses (+) 68 – –80 Pension expenses, defined benefit pension plans 337 –58 –106 Settlement of pension obligations – –2 – Early retirement pensions (excl. premiums and pension-related social charges) 150 28 43 Pension premiums, defined benefit/defined contribution pension Financials plans and pay-as-you-go systems 661 349 409 Pension-related social charges, other pension expenses 258 654 267 Total pension expenses 1,406 971 613

Actuarial calculation assumptions The actuarial calculation of pension obligations and pension expenses is based on the following principal assumptions, each presented as a weighted average for the respective pension plan. A change in any of these key assumptions may have a sig-

TELIASONERA ANNUAL REPORT 2003 73 Notes to Consolidated Financial Statements – IFRS/IAS

Specifications to pension obligation provision and pension Strategic asset allocation expense As of the balance sheet date, plan assets market values were as follows. Changes in projected benefit obligation, plan assets, and the net liability in the balance sheet and actuarial net gains or losses for the defined benefit pension plans December 31, were as follows. 2003 2002 2001 SEK in SEK in SEK in December 31, Asset category millions % millions % millions % SEK in millions 2003 2002 2001 Fixed income Present value of pension instruments 8,838 61.8 8,754 62.6 5,825 43.3 obligations Shares and other Opening balance 16,398 14,683 15,801 equity instruments 5,457 38.2 5,233 37.4 7,639 56.7 Current service cost 328 220 253 Total 14,295 100.0 13,987 100.0 13,464 100.0 Interest expenses 878 784 883 Benefits paid –1,089 –1,071 –1,141 Plan assets include shares in TeliaSonera AB with a market value of SEK 81 million, Early retirement pensions 150 28 43 SEK 78 million and SEK 114 million as of December 31, 2003, 2002 and 2001, Operations acquired/divested –93 1,448 –1,394 respectively. Settlement of pension obligations – –2 – As of December 31, 2003, the strategic asset allocation for the Swedish pension Past service cost – –36 – fund, representing approximately 85 percent of total plan assets, was 60 percent Actuarial gains (–)/losses (+) 430 314 238 fixed income, 30 percent equities and 10 percent alternative investments. The alter- Exchange rate differences –25 30 0 native investments include hedge funds, private equity, emerging market debt and Closing balance 16,977 16,398 14,683 high yield bonds. Out of the total assets 35 percent are domestic index (inflation) Plan assets linked government bonds and 25 percent refers to other domestic fixed income Opening balance 13,987 13,464 15,334 assets with low credit risk. Out of the equity holdings one third is domestic and the Expected return on plan assets 892 1,022 1,122 rest is global equities. Contribution to pension fund 96 1,025 – The actual allocation may fluctuate from the strategic allocation in a range of Payment from pension fund –1,026 –3 –502 +/–10 percent between equities and fixed income. Operations acquired (+)/divested (–) –21 1,456 –744 All assets in the Swedish pension fund are managed by appointed external man- Actuarial gains (+)/losses (–) 395 –3,005 –1,746 agers with specialist mandates, with the exception of the index-linked bonds, which Exchange rate differences –28 28 0 are managed in-house with no active trading mandate. Closing balance 14,295 13,987 13,464 The expected nominal return from the total Swedish pension fund portfolio is Expected return on plan assets approximately 6.5 percent per annum over a 10-year period, where inflation is Expected return on plan assets 892 1,022 1,122 assumed to be 2 percent per annum. Actuarial gains (+)/losses (–) 395 –3,005 –1,746 The strategic asset allocation is composed to give the expected average return, Actual return 1,287 –1,983 –624 based on historical data, with some adjustment reflecting the lower inflation rate Provisions for pension obligations that is currently in place. More specifically the expected nominal return in the Swedish Opening balance 224 2,358 3,525 pension fund is based on the following assumptions; domestic fixed income 5 per- Pension expenses, defined benefit cent, domestic and global equity 8 percent and alternative investments 10 percent. pension plans 337 –58 –106 The assumptions used in the Finnish and Norwegian pension funds are similar. Benefits paid –1,089 –1,071 –1,141 Contribution to pension fund –96 –1,025 – Future cash flows Payment from pension fund 1,026 3 502 Contributions Early retirement pensions 150 28 43 For companies in Sweden, part of the liabilities is secured also by credit insurance. Operations acquired/divested, net –29 –8 –465 This means, should the pension obligations increase, that each company can choose Settlement of pension obligations – –3 – if and when to contribute to the pension fund or otherwise to recognize a pension Exchange rate differences –1 –0 0 provision in the balance sheet. Closing balance 522 224 2,358 To pension funds outside Sweden, TeliaSonera expects to contribute SEK 181 Actuarial gains/losses million in 2004. Opening balance, actuarial gains (+)/losses (–) –2,423 899 2,775 Estimated future benefits paid Actuarial gains (–)/losses (+) Given the current actuarial calculation assumptions, TeliaSonera expects the follow- to be recognized 68 – –80 ing benefit payments during the next ten-year period. Actuarial gains (–)/losses (+), settlement of pension obligations – –1 – 2009– Actuarial gains (–)/losses (+), SEK in millions 2004 2005 2006 2007 2008 2013 Total acquired/divested operations 43 –2 188 Actuarial gains (+)/losses (–), Benefits paid 1,020 1,011 984 961 964 5,951 10,891 pension obligations –430 –314 –238 Actuarial gains (+)/losses (–), plan assets 395 –3,005 –1,746 Exchange rate differences 1 –0 0 23 Deferred Tax Liability, Closing balance, Other Provisions actuarial gains (+)/losses (–) –2,346 –2,423 899 Operations acquired Changes in other provisions, including deferred tax liability, were as follows. Increase in pension obligations 29 1,448 – Increase in plan assets –12 –1,456 – December 31, Net position 17 –8 – SEK in millions 2003 2002 2001 Operations divested Book value, opening balance 18,182 10,749 7,826 Decrease in pension obligations –122 –0 –1,394 Provisions for the period 2,571 5,139 3,752 Decrease in plan assets 33 0 744 Operations acquired 226 4,795 109 Decrease in unrecognized net Utilized provisions –2,749 –1,889 –936 transition gain/loss, past service cost 0 – – Operations divested –41 0 –53 Decrease in unrecognized net Reclassifications –2,162 – – transition gain/loss 0 0 –3 Reversals of provisions –1,076 –617 –11 Changes in unrecognized Timing and interest-rate effects 67 16 24 actuarial gains (–)/losses (+) 43 0 188 Exchange rate differences –243 –11 38 Net position –46 –0 –465 Book value, closing balance 14,775 18,182 10,749

74 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

The book value of the provisions was distributed as follows. 27 Current Liabilities December 31, SEK in millions 2003 2002 2001 Current liabilities were distributed as follows. Deferred tax liability 8,537 10,673 6,940 Other provisions December 31, Payroll taxes on future SEK in millions 2003 2002 2001 pension payments 302 302 314 Accounts payable 7,595 8,949 6,232 Restructuring 3,404 5,247 582 Liabilities to associated companies 632 756 1,031 Onerous contracts 87 188 528 Tax liabilities 2,338 1,111 481 Guarantee reserves 2,294 1,673 2,329 Other liabilities Other 151 99 56 Telephone card reserve, deductible Total 6,238 7,509 3,809 calling charges 742 758 808 Total 14,775 18,182 10,749 Advances, deposits, etc. 512 749 888 Value-added tax, excise taxes 1,176 955 613 The deferred tax liability is discussed in note “Income Taxes” and provisions for Employee withholding tax, payable restructuring in note “Restructuring Costs”. to employees 420 269 294 International settlements 422 805 463 Currency swaps, forward exchange contracts 85 158 430 24 Long-term Loans Liability to minority shareholders in subsidiaries – – 1,310 Long-term loans were distributed as follows. Other 1,040 1,166 847 Total other liabilities 4,397 4,860 5,653 December 31, Accrued expenses and SEK in millions 2003 2002 2001 prepaid revenues Financial leasing, vehicles 201 220 255 Accrued payroll expenses 1,419 1,265 876 TeliaSonera FTN/FTO 4,903 5,082 7,509 Accrued employer’s social security TeliaSonera EMTN, other foreign contributions, etc. 508 915 427 currency loans 7,272 7,363 14,072 Accrued leasing fees 520 595 513 TeliaSonera Finland EMTN, Accrued interest 1,052 1,248 613 other foreign currency loans 11,997 14,838 – Subscription charges 2,090 2,139 1,909 Other loans 1,227 4,098 3,206 Interconnect charges 721 728 288 Interest rate swaps 108 66 90 Retailer commissions 183 248 154 Foreign currency interest rate swaps 159 457 61 Prepaid leasing agreements 689 777 732 Other accrued or prepaid items 3,742 3,628 3,913 Total 25,867 32,124 25,193 Total accrued expenses and prepaid revenues 10,924 11,543 9,425 For the years 2003, 2002 and 2001, SEK 4,995 million, SEK 5,359 million and SEK 3,325 million, respectively, of the loans were due more than five years after the balance Total current liabilities 25,886 27,219 22,822 sheet date. See also note “Financial Instruments and Financial Risk Management.” 28 Leasing Agreements and 25 Short-term Loans Contractual Obligations

Short-term loans were distributed as follows. TeliaSonera as a lessee As a lessee, TeliaSonera has entered into financial and operating leases and rental December 31, contracts. For a financial leasing agreement, the consolidated accounts include the SEK in millions 2003 2002 2001 leased asset as a tangible fixed asset and the future obligation to the lessor as a lia- Loans from associated companies 17 24 845 bility in the balance sheet. Other agreements are operating leases, with the leasing Financial leasing, vehicles 73 80 59 costs amortized evenly throughout the period of the agreement. TeliaSonera ECP – – 1,001 TeliaSonera FTN 300 1,923 1,128 Financial leases TeliaSonera EMTN, other foreign The Group’s financial leasing concerns computers and other IT equipment, production currency loans 523 6,388 319 vehicles, company cars to employees, and other vehicles. There is no subleasing. TeliaSonera Finland EMTN, The book value of the leased assets as of the balance sheet date was as follows. other foreign currency loans 2,726 1,839 – Other loans 953 2,322 577 December 31, Interest rate swaps 25 32 2 Foreign currency interest rate swaps 70 – – SEK in millions 2003 2002 2001 Total 4,687 12,608 3,931 Acquisition value 1,834 385 367 Less accumulated depreciation –1,302 –88 –59 Bank overdraft facilities had a total limit of SEK 984 million, SEK 6,593 million and Net value of financial leasing SEK 3,083 million for the years 2003, 2002 and 2001, respectively. See also note agreements 532 297 308 “Financial Instruments and Financial Risk Management.” Depreciation and write-downs totaled SEK 274 million, SEK 56 million and SEK 134 million for the years 2003, 2002 and 2001, respectively. Leasing fees paid during these years totaled SEK 301 million, SEK 72 million and SEK 147 million, respectively. 26 Long-term Liabilities As of December 31, 2003, future minimum leasing fees and their present value as per financial agreements that could not be canceled in advance and were longer Long-term liabilities were distributed as follows. than one year in duration were as follows.

December 31, SEK in millions Future Present value of future SEK in millions 2003 2002 2001 Maturity leasing fees minimum leasing fees Liabilities to associated companies – 13 – 2004 236 225 Prepaid leasing agreements 1,340 1,477 2,286 2005 164 149 License fees 494 545 619 2006 56 49 Financials Other liabilities 655 315 144 2007 48 40 Total 2,489 2,350 3,049 2008 50 43 Later years 29 20 In September 2001, SEK 246 million was paid in cash for the UMTS license obtained Total 583 526 in Denmark. The remainder will be paid over 10 years. For information on leases, see notes “Leasing Agreements and Contractual Oblig- ations” and “Contingent Assets, Collateral Pledged and Contingent Liabilities.” Of the other long-term liabilities for the years 2003, 2002 and 2001, SEK 136 million, SEK 204 million and SEK 275 million, respectively, fell due more than five years after the balance sheet date.

TELIASONERA ANNUAL REPORT 2003 75 Notes to Consolidated Financial Statements – IFRS/IAS

As of the balance sheet date, the present value of future minimum leasing fees under TeliaSonera as operating lessor noncancelable financial leasing agreements was as follows. Fiber and duct are sold as part of the operations of TeliaSonera’s international carrier business. TeliaSonera has decided to view these as integral equipment. Under the December 31, agreements, title was not transferred to the lessee. The transactions are therefore SEK in millions 2003 2002 2001 recorded as operating lease agreements. Direct expenditures incurred in connection Total future minimum leasing fees 583 342 362 with agreements are capitalized and written off over the term of the agreement. The Less interest charges –57 –43 –48 contracted sales price is chiefly paid in advance and is recognized as revenue during Present value of future minimum the period of the agreement. Sales not recognized in income are recorded as long- leasing fees 526 299 314 term liabilities and prepaid revenues. The book value of the leased assets as of the balance sheet date was as follows: Operating leases TeliaSonera’s operating lease agreements primarily concern office space, technical December 31, sites, land, computers and other equipment. Certain contracts include renewal SEK in millions 2003 2002 2001 options for various periods of time. Subleasing consists mainly of home computers Acquisition value 3,260 2,535 1,750 leased to employees and certain office premises. Less accumulated depreciation –1,259 –595 –150 Future minimum leasing fees under operating lease agreements in effect as of Gross book value 2,001 1,940 1,600 December 31, 2003 that could not be canceled in advance and were in excess of Plus prepaid sales costs 2 7 9 one year were as follows. Less prepaid lease payments –1,030 –1,837 –2,286 Net value of operating leasing SEK in millions agreements 973 110 –677 Maturity Future leasing fees Subleasing 2004 1,533 59 Depreciation and write-downs totaled SEK 548 million, SEK 336 million and SEK 141 2005 1,126 41 million for the years 2003, 2002 and 2001. 2006 1,016 42 Future minimum lease payment receivables under operating agreements in effect 2007 908 41 as of December 31, 2003 that could not be canceled in advance and were in excess 2008 858 41 of one year were as follows. Later years 2,922 189 Total 8,363 413 SEK in millions Maturity Future lease payment Total rent and leasing fees paid were SEK 1,771 million, SEK 1,540 million and SEK 2004 615 1,572 million for the years 2003, 2002 and 2001, respectively. For these years, rev- 2005 357 enue for subleased items totaled SEK 56 million, SEK 61 million and SEK 47 million, 2006 208 respectively. 2007 124 At the end of 2003 office space and technical site leases covered approximately 2008 107 967,000 square meters. Apart from certain short-term leases, leasing terms range Later years 7 mainly between 3 and 15 years with an average term of approximately 6 years. All Total 1,418 leases have been entered into on conventional commercial terms. Certain contracts include renewal options for various periods of time. The leasing portfolio includes some twenty agreements with other international operators and over 100 other contracts. Contract periods range between 10 and 25 TeliaSonera as financial lessor years, with an average term of 20 years. TeliaSonera owns assets that it leases to customers under financial leasing agreements. These assets are recorded at the gross investment cost in the lease, less un- Other contractual obligations earned financial revenues. Some of the leasing receivables have been securitized. As of December 31, 2003, the Group had the following contractual obligations Based on the terms of the securitization contracts, the leasing receivables have been regarding future acquisitions (or equivalent) of intangible, tangible and financial included in the Group balance sheet. fixed assets. As of the balance sheet date, the present value of future minimum lease payment receivables under noncancelable financial leasing agreements was as follows. SEK in millions Later Maturity 2004 2005 2006 2007 years Total December 31, Intangible fixed assets 39 1–––40 SEK in millions 2003 2002 2001 Tangible fixed assets 1,745 306 89 – – 2,140 Gross investment in financial Associated companies 78110–80 lease contracts 7,129 8,457 7,750 Xfera capital commitment 3,013––––3,013 Less unearned financial revenues –674 –876 –803 Total 4,875 308 90 0 – 5,273 Net investment in financial lease contracts 6,455 7,581 6,947 Most of the obligations relating to tangible fixed assets cover the construction under Less: Unguaranteed residual values contract of TeliaSonera’s fixed network in Finland and mobile network in Kaza- of leased properties for the benefit khstan. See note “Contingent Assets, Collateral Pledged and Contingent Liabilities” of the lessor –33 –15 –19 for information related to the Xfera capital commitment. Present value of future minimum lease payment receivables 6,422 7,566 6,928

As of December 31, 2003, the gross investment and present value of receivables 29 Dependency on Third Parties relating to future minimum lease payments under non-cancelable financial leasing agreements were distributed as follows. The TeliaSonera Group offers a diversified portfolio of services and products in extremely competitive markets. Hence, the Group has limited exposure to individual SEK in millions Present value of future customers, suppliers, lenders, products or services sold, geographic markets, mate- Maturity Gross investment minimum lease payments rials procured, personnel, services purchased, or licenses. 2004 3,325 3,123 2005 2,126 1,911 2006 1,043 889 2007 401 323 30 Financial Instruments and 2008 166 127 Financial Risk Management Later years 68 49 Total 7,129 6,422 General Financial assets and liabilities are recorded according to the “settlement date prin- Reserve for doubtful receivables regarding minimum lease payments totaled SEK 41 ciple.” million as of December 31, 2003. Financial assets, with certain exceptions, are recorded at fair value. Official pub- The leasing portfolio comprises financing of products and services related to Telia- lic quotes as of the close of books are used for determining fair value. If such a rate Sonera’s product and service offerings in Sweden and Denmark. At the end of 2003, is not available, the instrument is valued by discounting future cash flows at a quoted the Danish part of the total portfolio was 14 percent. market rate of interest for each maturity. Currency swaps and forward exchange The term of the contract stock is approximately 15 quarters. The term of new contracts are valued at the forward rate. Conversion to Swedish kronor (SEK) is done contracts signed in 2003 is 14 quarters. Of all contracts, 75 percent carry a floating at quoted exchange rates as per the close of books. interest rate and 25 percent a fixed rate. Most contracts are renewable. Assets held to maturity, receivables arising from own lending and assets whose fair value cannot be reliably determined, e.g. unlisted shares and participations, are

76 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

valued at their amortized cost. TeliaSonera considers quoted securities as available or interest rate swaps, which are expressly intended to and do effectively hedge for sale, with the unrealized gains and losses up to the date of sale recorded as a interest-bearing assets or liabilities as specified above, are recorded on an ongoing component of equity. basis as an interest revenue or expense. Financial liabilities are valued primarily at their amortized cost. Liabilities that are Derivatives used for hedging of foreign net investments are designated as cash flow not held for trading and that are hedged against changes in fair value, however, are hedges. Upon maturity of the derivative the accumulated change of value is retained recorded at fair value. in equity until the subsidiary is divested or closed down. Balances and transactions are hedged and hedge accounting is applied if the Derivative instruments that do not meet the criteria for hedge accounting are hedging actions have the express purpose of serving as a hedge, have a direct cor- recorded on the balance sheet at fair value and changes in fair value are recorded relation to the hedged position and effectively hedge the position. An effective in the income statement immediately. hedge produces financial effects that counteract the effects created by the position that is hedged. Book value and fair value of interest-bearing financial instruments TeliaSonera uses derivative instruments (interest and foreign currency interest The table below presents book values and fair values distributed by type of interest- rate swaps, forward contracts, etc.) primarily to control exposure to fluctuations in bearing financial instrument based on the following prerequisites. Non-interest- exchange rates and interest rates. bearing financial instruments, like accounts receivable from customers and accounts Derivatives and embedded derivatives, when their economic characteristics and payable, are recorded at fair value and are not shown in the table. risks are not clearly and closely related to other characteristics of the host contract, The estimated fair value is based on market rates and generally accepted valua- are recognized at fair value on the balance sheet. For fair value hedges, the effective tion methods. Values recorded are indicative and will not necessarily be realized. and ineffective portions of the change in fair value of the derivative, along with the The market value for publicly quoted associated companies is reduced by loans gain or loss on the hedged item attributable to the risk being hedged, are recorded made by Group companies to the company in question. For leasing receivables, any in the income statement as incurred. The effective portion of the change in fair value credit losses arising are reduced by gains from the sale of equipment returned. of outstanding derivatives used to hedge anticipated cash flows is booked directly to Market interest rates apply to other interest bearing long-term and current equity until the underlying transaction is reflected in the income statement, at which accounts receivable, including claims on associated companies and personnel. Thus, time any deferred hedging gains or losses are recorded in earnings. The ineffective the book value of these items is regarded as corresponding to the fair value. portion of the change in fair value of a derivative used as a cash flow hedge is record- The values for interest rate swaps and foreign currency interest rate swaps ed as incurred on the same line item as the gain or loss on the item being hedged. include underlying principal and accrued interest. Swaps received and paid refer to Amounts to be paid or received as a result of foreign currency interest rate swaps the respective legs of a swap (see notes “Financial Fixed Assets” and “Receivables”, and “Long-term Loans” and “Short-term Loans”, respectively).

December 31, 2003 2002 2001 SEK in millions Book value Fair value Book value Fair value Book value Fair value Equity participations in associated companies 20,401 23,315 23,027 19,341 9,927 9,682 Other holdings of securities 558 558 1,164 1,164 426 426 Leasing receivables 6,455 6,367 7,581 7,493 6,947 6,859 Other long-term and short-term receivables 2,369 2,369 2,934 2,934 3,114 3,114 Short-term investments 278 278 1,192 1,192 197 197 Interest rate swaps received 2,178 2,178 8,666 8,666 673 673 Interest rate swaps paid –2,084 –2,084 –8,139 –8,139 –646 –646 Foreign currency interest rate swaps received 5,989 5,989 12,298 12,298 12,629 12,629 Foreign currency interest rate swaps paid –5,583 –5,583 –11,239 –11,239 –11,442 –11,442 Other currency derivatives 84 84 157 157 355 355 Assets 30,645 33,471 37,641 33,867 22,180 21,847 Provisions for pensions 522 522 224 224 2,358 2,358 Long-term loans 25,940 27,023 32,122 32,630 25,543 25,890 Short-term loans 4,686 4,710 12,680 12,717 4,030 4,044 Interest rate swaps received –1,314 –1,314 –7,369 –7,369 –1,970 –1,970 Interest rate swaps paid 1,442 1,442 7,584 7,584 2,062 2,062 Foreign currency interest rate swaps received –1,795 –1,795 –2,213 –2,213 –1,840 –1,840 Foreign currency interest rate swaps paid 1,927 1,927 2,428 2,428 1,901 1,901 Other currency derivatives 85 85 158 158 430 430 Liabilities 31,493 32,600 45,614 46,159 32,514 32,875 Less book value of: – pensions –522 –224 –2,358 – accrued interest –332 –500 –602 – other currency derivatives –85 –158 –430 Book value of interest-bearing liabilities 30,554 44,732 29,124

The market capitalizations of the Group’s holdings of publicly quoted shares as of the balance sheet date were as follows.

December 31, SEK in millions 2003 2002 2001 AB Lietuvos Telekomas, Lithuania 2,018 1,171 809 AS Eesti Telekom, Estonia 4,038 3,608 1,415 Turkcell Iletisim Hizmetleri A.S., Turkey 13,261 8,994 – Netia S.A., Poland – 200 129 Infonet Services Corp., USA 1,154 1,649 2,446 eBay Inc., USA – 121 – Digital Telecommunications Phils. Inc., Philippines 54 40 48 Other holdings 42 35 10 Total 20,567 15,818 4,857

Principles of financing and financial risk management TeliaSonera’s financing and financial risks are managed under the control and super-

vision of TeliaSonera’s Board of Directors. Financial management is centralized with- Financials in the TeliaSonera Corporate Finance & Treasury unit of TeliaSonera AB, which functions as TeliaSonera’s internal bank and is responsible for the management of financing and financial risks. TeliaSonera Corporate Finance & Treasury is responsible for Group-wide financial risk management including netting and pooling of capital requirements and payment flows. TeliaSonera Corporate Finance & Treasury also seeks to optimize the cost of risk management, which in certain cases may mean that e.g. an inter company transaction is not replicated with an identical transaction outside the Group. This

TELIASONERA ANNUAL REPORT 2003 77 Notes to Consolidated Financial Statements – IFRS/IAS

means that situations may arise in which certain derivative transactions with parties national program aimed at short-term borrowing and has a limit of EUR 1,000 million outside the Group do not fully satisfy the requirements for hedge accounting. Telia- (USD 1,000 million). As of December 31, 2003, the ECP program was not utilized Sonera Corporate Finance & Treasury’s deviation mandates are clearly defined, how- (no utilization as of December 31, 2002). ever, and the impact on earnings of deals made within those mandates is therefore In the Swedish market, TeliaSonera AB’s Flexible Term Note (FTN) program pro- not deemed to be substantial. TeliaSonera Corporate Finance & Treasury’s deviation vides loan facilities, both short-term and long-term, on an uncommitted basis, of up mandate in the currency markets is currently capped at the equivalent of a nominal to SEK 12,000 million (12,000). FTNs outstanding at December 31, 2003, totaled SEK +/–200 million. As of December 31, 2003, the risk mandate was utilized by less SEK 5,100 million (7,040), with an average remaining maturity of approximately 2.2 than SEK 50 million. years. SEK is the measurement currency of TeliaSonera AB. Its borrowings are therefore In addition to this TeliaSonera AB has established a Finnish Commercial Paper normally denominated in, or swapped into, SEK unless directly linked to interna- (CP) program for non-domestic issuers, aimed at short-term borrowing, with a limit tional operations. TeliaSonera Finland Oyj’s borrowings are denominated in EUR. of EUR 300 million. TeliaSonera Finland Oyj’s (former Sonera Oyj’s) Finnish Com- If the available loan form does not directly reflect the desired loan portfolio struc- mercial Paper program has been cancelled. As of December 31, 2003, the CP pro- ture in terms of interest or currency, various forms of derivative instruments are used gram was not utilized (utilization as of December 31, 2002 in Sonera’s domestic to adapt the structure in terms of duration and currency. This adaptation is achieved Finnish CP amounted to EUR 24 million). chiefly through interest rate swaps and foreign currency interest rate swaps. Foreign TeliaSonera Finland Oyj has an old EMTN program with a limit of EUR 3,000 mil- currency interest rate swaps are normally used to hedge financial flows such as loans lion (3,000). As of December 31, 2003, the equivalent of EUR 1,600 million (1,800) and investments longer than one year, while shorter terms are hedged using cur- was utilized under the EMTN program, with an average remaining maturity of approx- rency swaps or forward exchange contracts. imately 1.9 years. This program will not be used for any new financing or refinancing. The intention is that TeliaSonera AB will make future refinancing of the outstand- Liquidity and bank credit facilities ing TeliaSonera Finland debt. TeliaSonera’s policy is to have a strong liquidity position in terms of available cash and/or unutilized committed credit facilities. As of December 31, 2003, the surplus Borrowings, maturity structure, interest rates and currencies liquidity amounted to an equivalent of SEK 12,347 million. Cash surplus is deposited As of December 31, 2003, borrowings by TeliaSonera AB had a present value of SEK in banks or invested in short-term interest-bearing instruments with good credit rat- 14,193 million (SEK 21,294 million in 2002). The average cost for the year was ings. At year-end no such investments were made in interest-bearing securities with approximately 5.6 (5.7) percent and the weighted average time to maturity of bor- maturities exceeding one month. In addition to available cash, TeliaSonera AB has rowings was approximately 2.9 years (2.4). a revolving credit facility, which is a committed syndicated bank credit facility with As of December 31, 2003, borrowings by TeliaSonera Finland Oyj had a present final maturity in March 2008, capped at EUR 1,400 million and used for short-term value of EUR 1,613 million (2,406 in 2002). The average cost for the year was financing and back-up purposes. This facility was not utilized as of December 31, approximately 4.3 percent (4.9) and the weighted average time to maturity of bor- 2003. In total, as of the balance sheet date, the available unutilized amount under rowings was approximately 1.9 years (2.6). committed bank credit lines was approximately SEK 13,700 million. The average cost, including relevant hedges, of outstanding long-term and short- term borrowings as per the balance sheet date was as follows. Open-market financing programs As of December 31, 2003, the equivalent of EUR 808 million (USD 1,170 million in December 31, 2002) had been utilized of TeliaSonera AB’s Euro Medium Term Note (EMTN) pro- % 2003 2002 2001 gram, an uncommitted international program aimed at long-term borrowing with TeliaSonera AB (SEK) a limit of EUR 5,000 million (USD 3,000 million). The average term to maturity was Long-term borrowings 5.32 5.92 5.62 approximately 3.4 years. Short-term borrowings 5.52 5.48 5.03 TeliaSonera AB’s Euro Commercial Paper (ECP) program is an uncommitted inter- TeliaSonera Finland Oyj (EUR) Long-term borrowings 5.39 – – Short-term borrowings 3.03 – –

As of December 31, 2003, the Group’s interest-bearing borrowings had the following maturity structure.

TeliaSonera AB SEK in millions (incl debt derivatives) TeliaSonera Finland Maturity Fixed rate Floating rate Fixed rate Floating rate Total Other units Group 2004 847 – 3 2,723 3,573 1,114 4,687 2005 2,880 600 9,072 – 12,552 260 12,812 2006 2,374 3,582 – – 5,956 107 6,063 2007 843–––84372915 2008 58 777 – – 835 95 930 Later years 1,384 665 2,925 – 4,974 173 5,147 Total 8,386 5,624 12,000 2,723 28,733 1,821 30,554

Normally, borrowings by TeliaSonera AB denominated in foreign currencies are swapped into SEK. The exceptions are funds borrowed to finance the Group’s ventures abroad. TeliaSonera AB’s portfolio of interest rate swaps and foreign currency interest rate swaps as of December 31, 2003, 2002 and 2001 had a nominal value of SEK 10,708 million, SEK 15,721 million and SEK 16,595 million, respectively. TeliaSonera Finland’s borrowings are denominated in EUR. The portfolio of Telia- Sonera Finland’s interest rate swaps as of December 31, 2003, 2002 and 2001 had a nominal value of EUR – million, EUR 1,424 million and EUR 2,207 million, respectively. TeliaSonera Finland’s portfolio of interest options (cap) as of December 31, 2003, 2002 and 2001 had a nominal value of EUR 40 million, EUR 170 million and EUR 270 million, respectively.

78 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

As of the balance sheet date, the TeliaSonera Group’s long-term loan portfolio was composed of the following currencies, with Swedish krona equivalents based on swap contracts.

December 31, 2003 2002 2001 For the respective currency Interest Amount Interest Amount Interest Amount Currency (%) (in millions) (%) (in millions) (%) (in millions) Swapped into SEK EUR 5.9 772 6.1 731 5.8 1,231 DEM – – 6.1 113 5.4 283 GBP ––––6.248 JPY 3.8 3,000 5.0 3,000 5.3 6,000 Total SEK million 5.9 6,903 6.1 7,048 5.6 12,514 Swapped into EUR USD 3.6 5 5.2 16 – – LTL – – 10.5 150 – – LTL – – 12.0 12 – – Total SEK million 3.6 36 9.3 571 – – Non-swapped SEK 4.8 6,475 5.7 5,268 5.6 9,929 EUR 4.3 1,296 4.5 2,062 – – NOK 5.0 32 – – 5.0 1,637 DKK 4.5 61 5.7 4 5.7 375 LKR – – 22.3 2,786 22.3 3,034 LVL 5.0 1 – – 5.0 1 USD ––––8.70 Total SEK million 18,928 24,505 12,679 Total SEK million 25,867 32,124 25,193

Financial risk management Foreign exchange risk Foreign exchange risk is the risk that fluctuations in exchange rates will adversely affect items in the Group’s income statement, balance sheet and/or cash flows. For- eign exchange risk can be divided into transaction exposure and conversion exposure. Transaction exposure is the risk that arises from net inflow or outflow of a foreign currency required by operations (exports and imports) and financing (interest and amortization). Conversion exposure is the risk that arises from equity in a foreign subsidiary or associated company that is denominated in a foreign currency and any goodwill arising from acquisitions.

Transaction exposure Net foreign exchange outflow (expressed as equivalent value in SEK million) on a full-year basis was distributed as follows in the Group’s Swedish, Finnish, Norwegian and Danish operations, respectively.

January–December Equivalent value in SEK million 2003 2002 2001 2003 2003 2003 Currency Sweden Finland Norway Denmark USD 556 1,320 2,138 135 127 7 EUR 523 376 382 – 295 30 GBP 70 137 214 –24 8 26 SEK – – – –55 4 –3 DKK 41 –171 22 24 24 – NOK 2339210– 0 Other currencies 18 –53 175 11 8 1 Total net outflow 1,231 1,612 3,023 101 466 61 – gross outflow 2,876 4,241 6,642 566 467 88 – gross inflow –1,645 –2,629 –3,619 –465 –1 –28

For 2001, recorded EUR values also include other EMU currencies. The operational need to net purchase foreign currency, is primarily due to settlement deficits in international telecom traffic and the import of equipment and supplies. Emanating from the operations in the above-mentioned countries, the negative impact on Group pre-tax income would be approximately SEK 12 million on a full- year basis, should the Swedish krona weaken by one percentage point against all of the transaction currencies, assuming an operational transaction exposure equivalent to that in 2003, and provided that no hedging measures were taken and not including any potential impact on income due to currency translation of other income statement items. Applying the same assumptions, the positive impact on income would be approximately SEK 7 million on a full-year basis, should the euro weaken by one percentage point against all of the transaction currencies. The TeliaSonera Group’s operational transaction exposure is not significant at present, but it is expected to increase over time. In order to limit earnings fluctua-

tion, the general policy is normally to hedge the majority of known operational Financials transaction exposure up to 12 months into the future. This hedging is primarily initiated via forward exchange contracts and refers to invoiced transactions. Financial flows, however, are usually hedged until maturity, even if that is longer than 12 months. Foreign currency interest rate swaps are normally used to hedge financial flows such as loans and investments longer than one year, while shorter terms are hedged using currency swaps or forward exchange contracts. Currency options are also used from time to time.

TELIASONERA ANNUAL REPORT 2003 79 Notes to Consolidated Financial Statements – IFRS/IAS

Conversion exposure TeliaSonera’s conversion exposure has increased significantly due to the merger with Sonera Oyj, and is expected to continue to grow due to on-going expansion of Telia- Sonera’s operations outside of Sweden. TeliaSonera does not typically hedge its conversion exposure, unless the exposure would be short-term and relate to a large amount of a freely convertible foreign currency of a country with smoothly func- tioning financial markets. Net foreign assets are distributed as follows.

December 31, 2003 2002 2001 Amount in Amount in Amount in Currency SEK millions % SEK millions % SEK millions % EUR 60,320 52 53,594 46 17,744 32 NOK 26,156 22 30,310 26 28,190 51 TRL 10,4289–––– LTL 6,009 5 7,431 7 3,209 6 USD 5,592 5 19,004 17 4,258 8 LVL 3,081 3 2,345 2 315 0 EEK 1,069 1 2,467 2 540 1 DKK 1,021 1 –72 –0 722 1 AZM 9741–––– KZT 7561–––– GBP 587 0 456 0 627 1 LKR 134 0 92 0 89 0 CZK 157 0 –127 –0 – – UGX 110 0 188 0 121 0 PLN – – –1 –0 –71 –0 Other currencies –20 –0 185 0 –21 –0 Total 116,374 100 115,872 100 55,723 100 of which hedged ––––4961

For 2001, recorded EUR values also include other EMU currencies. As of December 31, 2003, the TeliaSonera Group’s portfolio of other foreign exchange If the Swedish krona weakened by one percentage point against all of the cur- derivatives hedging loans, investments, and operational transaction exposures repre- rencies related to net foreign assets, the positive impact on Group equity would be sented the following currencies and maturities. Amounts indicated include underlying approximately SEK 1,200 million, based on the exposure as of December 31, 2003 principal. and not including any potential equity impact due to TeliaSonera’s operational need to net purchase foreign currency or to currency translation of other income state- Later ment items. SEK in millions 2004 2005 2006 years Total Sell DKK 2,651–––2,651 Foreign-exchange derivatives Sell NOK 760–––760 As of December 31, 2003, TeliaSonera’s portfolio of foreign currency interest rate Sell USD 569 5 – – 574 swaps represented the following currencies and maturities. Amounts indicated Sell EUR 493 11 5 – 509 include underlying principal and accrued interest. Sell GBP 206–––206 Sell CZK 152–––152 Later Sell LVL 86–––86 SEK in millions 2004 2005 2006 2007 2008 years Total Sell CHF 64–––64 Foreign currency Sell PLN 43–––43 interest rate swaps, Sell LTL 12–––12 received Sell HUF 10–––10 Buy EUR – 2,931 2,560 – – 1,503 6,994 Sell SGD 4 – – – 4 Buy DEM 547–––––547 Sell HKD 4 – – – 4 Buy JPY –––––202202 Sell total 5,054 16 5 – 5,075 Buy USD 2588–––41 Buy EUR –10,915––––10,915 Total, received 572 2,939 2,568 – – 1,705 7,784 Buy NOK –3,516––––3,516 Foreign currency Buy GBP –485––––485 interest rate Buy USD –106––––106 swaps, paid Buy CHF –7––––7 Total –526 –2,693 –2,648 – – –1,643 –7,510 Buy PLN –1––––1 Net position 46 246 –80 – – 62 274 Buy total –15,030––––15,030 Net position –9,976 16 5 – –9,955

Interest rate risk The TeliaSonera Group’s sources of funds are primarily shareholders’ equity, cash flows from operating activities, and borrowing. The interest-bearing borrowing exposes the Group to interest rate risk. Interest rate risk is the risk that a change in interest rates will negatively affect the Group’s net interest income and/or cash-flows. TeliaSonera’s financial policy provides guidelines for interest rates and the average maturity of borrowings. The Group aims at balancing the estimated running cost of borrowing and the risk of significant negative impact on earnings, should there be a sudden, major change in interest rates. The Group’s policy is that the duration of interest of the debt portfolio should be from six months to four years. If the available loan form does not directly reflect the desired loan portfolio structure, various forms of derivative instruments are used to adapt the structure in terms of duration and currency. This adaptation is achieved chiefly through interest rate swaps and foreign currency interest rate swaps. As of December 31, 2003, TeliaSonera AB and TeliaSonera Finland Oyj had interest-bearing debt of SEK 28,733 million with duration of interest of approximately 1.5 years, including derivatives. The volume of loans exposed to changes in interest rates over the next 12-month period was at the same date approximately SEK 9,200 million, assuming that existing loans maturing during the year are refinanced and after accounting for derivatives. The exact effect of a change in interest rates on the financial net stemming from this debt portfolio depends on the timing of maturity of the debt as well as reset dates for floating rate debt, and that the volume of loans may vary over time, thereby affecting the estimate. Fair value of the loan portfolio

80 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

would, however, change by approximately SEK 450 million, should the level in mar- industries. Solvency information is required for credit sales to minimize the risk of ket interest rates make a parallel shift of one percentage point, and assuming the unnecessary bad debt expense and is based on group-internal information on pay- same volume of loans and a similar duration on those loans as per year-end 2003. ment behavior, if necessary completed by credit and business information from TeliaSonera AB has designated certain interest rate swaps as cash flow hedges to external sources. Bad debt expense in relation to consolidated net sales was approx- hedge against changes in the amount of future cash flows related to interest pay- imately 0.7 percent, 1.4 percent and 1.6 percent in 2003, 2002 and 2001, respec- ments on existing liabilities. Hedge ineffectiveness related to outstanding cash flow tively. hedges was immaterial and recorded to earnings during the year. Net changes in fair value recorded in shareholders’ equity are presented in section “Fair value reserve” Insurable risks of note “Shareholders’ Equity, Earnings per Share.” There were no cash flow hedges The insurance cover is governed by corporate guidelines. The business units and discontinued during the year because it was probable that the original forecasted other units being responsible for assessing the risks decide the extent of actual cover. transaction would not occur by the end of the originally specified time period. In the Swedish operations, the Group’s in-house insurance company TeliaSonera As of December 31, 2003, the TeliaSonera Group’s portfolio of interest rate swap Försäkring AB manages all non-life and life insurances. Its risks are in part reinsured contracts was composed as follows. Amounts indicated include underlying principal in the international reinsurance market. and accrued interest.

Later SEK in millions 2004 2005 2006 2007 2008 years Total 31 Contingent Assets, Collateral Interest received Pledged and Contingent Liabilities Fixed interest rate – 106 2,072–––2,178 Floating interest rate – 151 – 503 – 660 1,314 Determination of the treatment of contingent assets and liabilities is based on man- Total – 257 2,072 503 – 660 3,492 agement’s view of the expected outcome of the applicable contingency. Manage- Interest paid ment consults with legal counsel on matters related to litigation and other experts Fixed interest rate – 161 – 557 – 724 1,442 both within and outside the company with respect to matters in the ordinary course Floating interest rate – 101 1,983–––2,084 of business. A provision is recognized if an adverse outcome is probable and the Total – 262 1,983 557 – 724 3,526 amount is estimable. If the likelihood of an adverse outcome is less than probable but reasonably possible, or an estimate is not determinable, the matter is disclosed Pension obligation risk provided that the contingency is material. As of December 31, 2003, TeliaSonera had pension obligations, which net present value amounted to SEK 16,977 million (see note “Provisions for Pensions and Employ- December 31, ment Contracts”). The approximate impact on those obligations is SEK 2,200 million, SEK in millions 2003 2002 2001 should the weighted average discount rate be altered by one percentage point from Contingent assets – – – the approximately 5.5 percent which is currently used. Such an increase in the pen- Collateral pledged sion obligations, were interest rates to fall, should be partly offset by a positive impact For derivative instruments: from the fixed income assets in the pension funds. Based on the duration of the Blocked funds in bank accounts – – 5 Swedish and Finnish pension fund’s fixed income portfolios (including index-linked For guarantee provisions: bonds) as of December 31, 2003, and assuming that the value of the other assets in Blocked funds in bank accounts 1,168 – – the pension funds were unchanged, a similar reduction in interest rates is estimated For deposits from customers: to increase the value of the pension funds assets by some SEK 700 million. Blocked funds in bank accounts 91 96 4 To secure these obligations TeliaSonera has pension funds, with plan assets equiv- For off-balance sheet items: alent to SEK 14,295 million based on market values as of December 31, 2003. The Blocked funds in bank accounts – 6 – pension funds assets are used as prime funding source for the pension obligations, For long-term liabilities to credit institutions: and consisted of approximately 62 percent fixed income instruments and approxi- Real estate mortgages 20 20 – Chattel mortgages 262 – – mately 38 percent shares and other equity instruments at year-end 2003. The Current receivables 36 42 – expected return on plan assets is approximately 6.5 percent annually. The portion of Shares in Turun Puhelin Oy 570 – – the Swedish liabilities not covered by plan assets and the taxed reserve for employ- Shares in Suntel Ltd. – 90 82 ment contracts are recorded as provisions in the balance sheet. Pension obligations Shares in Svenska UMTS-nät AB 489 – – not covered by plan assets are secured through an external credit guarantee. Except Shares in OAO MegaFon 153 119 – for the taxed reserve for employment contracts, the Group’s pension obligations are Total 2,789 373 91 thus secured through pension funds and/or external credit guarantees. Contingent liabilities Credit guarantees on behalf Financing risk of Svenska UMTS-nät AB 363 – – TeliaSonera’s aggregate borrowings usually have a longer maturity than duration Credit guarantees on behalf (principal is fixed longer than interest rates). This allows the Group to obtain the of OAO MegaFon 338 415 – desired interest rate risk without having to assume a high financing risk. The Group’s Credit guarantees on behalf policy is that the average maturity of borrowings should normally exceed 2 years. of other associated companies 25 72 206 In order to reduce financing risk, the Group aims to spread loan maturity dates over Performance guarantees on a longer period. behalf of Xfera Móviles S.A. 1,159 3,760 – TeliaSonera AB enjoys a strong credit rating with the rating agencies Standard & Guarantees on behalf of Ipse Poor’s and Moody’s. Standard & Poor’s has assigned TeliaSonera AB a credit rating 2000 S.p.A. – 317 – of A-1 for short-term borrowing and a rating of A for long-term borrowing, with a Other credit and performance stable outlook. Moody’s has given TeliaSonera AB a P-1 for short-term borrowing guarantees, etc. 1,038 1,220 416 and A2 for long-term borrowing, with a negative outlook. These ratings represent FPG/PRI, other pension guarantees 176 222 163 a solid investment grade level and are thus expected to allow TeliaSonera continued Total 3,099 6,006 785 good access to the financial markets. TeliaSonera finances its operations chiefly by borrowing under its uncommitted As of December 31, 2003, total contingent liabilities represented the following open-market financing programs directly in Swedish and international money mar- maturities. kets and capital markets. TeliaSonera AB and TeliaSonera Finland Oyj also use bank financing, which represented approximately 5 percent of the Group’s total borrow- Later ing as of December 31, 2003. The open-market financing programs provide a cost- SEK in millions 2004 2005 2006 2007 2008 years Total effective and flexible alternative to bank financing. Most of the open-market borrow- Contingent liabilities 648 543 391 135 971 411 3,099 ing is at fixed interest rates, along with some floating rate notes. Some loan covenants agreed limit the scope for divesting or pledging certain assets. Credit risk TeliaSonera has a dispute with Tele2 and Vodafone concerning interconnect prices TeliaSonera accepts only creditworthy counterparts for financial transactions such in Sweden. TeliaSonera believes that it has recorded sufficient provisions. as interest rate swaps, foreign currency swaps and other transactions in derivatives. For all guarantees, except the credit guarantee on behalf of TeliaSonera’s 50 per- TeliaSonera requires each counterpart to have an approved rating and an Interna- cent owned associated company Svenska UMTS-nät AB, stated amounts equal the Financials tional Swaps and Derivatives Association, Inc. (ISDA) agreement. The permitted maximum potential amount of future payments that TeliaSonera could be required exposure to each counterpart depends on the rating of that counterpart. to make under the respective guarantee. As security for certain amounts borrowed As of December 31, 2003, the aggregate exposure to counterparts in derivatives by Svenska UMTS-nät under a third-party credit facility totaling SEK 7,000 million, was SEK 168 million, calculated as a net claim on each counterpart. Any surplus cash TeliaSonera and Tele2, the other shareholder of Svenska UMTS-nät, have each sever- is deposited in banks or invested in short-term interest-bearing instruments with ally but not jointly issued guarantees of a maximum of SEK 3,500 million to the good credit ratings. The permitted exposure to each counterpart depends on the lenders and granted pledges of their shares in Svenska UMTS-nät. The indebtedness rating of that counterpart. under the credit facility may become due on an accelerated basis, under certain cir- The credit risk with respect to TeliaSonera’s trade receivables is diversified among cumstances, including if either TeliaSonera or Tele2 ceases to hold, directly or indi- a large number of customers, both private individuals and companies in various rectly, 50 percent of the company, unless the lenders provide their advance consent.

TELIASONERA ANNUAL REPORT 2003 81 Notes to Consolidated Financial Statements – IFRS/IAS

TeliaSonera is not contractually required to provide any further capital contributions Post- och Telestyrelsen (PTS, the Swedish National Post and Telecom Agency) has to or guarantees in favor of Svenska UMTS-nät. As of December 31, 2003, Svenska upheld a claim brought by Tele2 that TeliaSonera must reimburse Tele2 for all mobile UMTS-nät had, under the credit facility, borrowed SEK 725 million, of which Telia- traffic transferred by TeliaSonera to Tele2’s mobile network. PTS also ruled that Telia- Sonera guarantees 50 percent. Sonera is in its turn entitled to be reimbursed from Tele2 and the other Swedish As of December 31, 2003, TeliaSonera has recorded all of its commitments on operators who have transferred mobile traffic onto TeliaSonera’s network. After pre- behalf of Ipse 2000 S.p.A. in the balance sheet as provisions for guarantee commit- vailing in the lower administrative court in this matter, Tele2 has brought an action ments. Ipse’s 3G license payments to the Italian government and the rental payments in the Swedish civil courts seeking reimbursement. TeliaSonera subsequently paid for base station sites have been secured by bank guarantees. According to an agree- to Tele2 certain amounts for the mobile traffic transfers at issue in this matter. Telia- ment with the bank, Ipse and its shareholders, including TeliaSonera, have given Sonera has appealed the decision of PTS to the Swedish Administrative Court of cash collateral for the remaining license payments in 2004 and onwards. Telia- Appeal, which has finally decided that TeliaSonera must reimburse Tele2 for all mobile Sonera’s part of the cash collateral amounts to EUR 128.7 million, equivalent to SEK traffic transferred by TeliaSonera to Tele2’s mobile network. The court, however, 1,168 million. remanded to PTS the issue of the level of the interconnection fee and the issue As of December 31, 2003, under the shareholders’ agreement between the share- regarding from which date the reimbursement should be done. TeliaSonera will be holders of Xfera, TeliaSonera has an existing capital commitment to Xfera of EUR required to reimburse Tele2 as well as other mobile operators in Sweden for such 332 million, equivalent to SEK 3,013 million, through 2004 (see section “Other con- traffic transferred by TeliaSonera onto their networks. TeliaSonera would in turn be tractual obligations” in note “Leasing Agreements and Contractual Obligations”). entitled to claim corresponding amounts from other operators. TeliaSonera will, Should TeliaSonera breach its obligations under the shareholders’ agreement, the however, assume a credit risk. non-breaching shareholders have the right to purchase all of TeliaSonera’s shares at fair value. Management believes that TeliaSonera’s investments pursuant to its contractual capital commitment will enable Xfera to meet the performance requirements in relation to its UMTS license. Therefore, management does not expect that 33 Cash Flow Information TeliaSonera will have to make any additional significant payments with respect to its performance guarantees on behalf of Xfera commitments. The Spanish govern- Financial items ment reduced its requirements on bank guarantees for Xfera during 2003. The Interest received and interest paid for each year was as follows. counter guarantees issued by TeliaSonera to the Spanish state were thereby reduced January–December from EUR 383 million to EUR 98 million. TeliaSonera anticipates that the arbitration proceedings related to Xfera shares SEK in millions 2003 2002 2001 held by Vodafone will result in a ruling whereby TeliaSonera will purchase an addi- Interest received 1,060 1,054 1,558 tional 2.2 percent stake in Xfera, paying approximately EUR 9.5 million in purchase Interest paid –1,622 –1,772 –2,060 price, interest and arbitration expenses. Accordingly, the counter guarantees are Net position –562 –718 –502 anticipated to increase by EUR 11 million to approximately EUR 110 million and the capital commitment under the shareholder’s agreement by EUR 36 million to EUR Income taxes 368 million. TeliaSonera anticipates its commitment to invest in Xfera to be reduced Income taxes paid for the years 2003, 2002 and 2001, totaled SEK 1,308 million, as a result of the ongoing negotiations between the owners. SEK 122 million and SEK 631 million, respectively. In December 1998, TeliaSonera’s subsidiary TeliaSonera Finland Oyj (formerly Sonera Oyj) entered into a cross-border finance lease-leaseback agreement under Acquisitions and divestitures which TeliaSonera Finland leased some of its mobile telecommunications network The TeliaSonera Group is continually restructured through the acquisition and equipment (“Head Lease”) to a group of U.S. equity trusts which simultaneously divestiture of subsidiaries and lines of business as well as associated companies and leased the equipment back to TeliaSonera Finland (“Back Lease”). The ownership of companies outside the Group. The market value of assets and liabilities assumed in the equipment, total book value of which was EUR 19 million, EUR 40 million and subsidiaries and the total cash flow from acquisitions were broken down as follows. EUR 64 million as of December 31, 2003, 2002 and 2001, respectively, is retained with TeliaSonera Finland. Both the Head Lease receivables and the Back Lease obli- January–December gations were settled at the inception of the lease agreements, and TeliaSonera Fin- SEK in millions 2003 2002 2001 land received a net cash consideration of USD 11 million (EUR 9 million) which is Intangible fixed assets 1,735 35,621 448 presented in the balance sheet as an advance payment received and recognized in Tangible fixed assets 577 13,532 1,291 income as other financial income over the lease term. No other cash payments are Financial fixed assets, accounts currently expected to be made by TeliaSonera Finland under the lease agreements. receivable, inventories etc. 1,316 42,241 87 The agreement is valid for 15 years, but TeliaSonera Finland has an option to ter- Cash and cash equivalents 223 900 1 minate the agreement after 11 years after the inception of the agreement. Separate Minority interests 1,400 –2,179 – financial institutions are taking care of the annual repayments received by the equi- Provisions –237 –4,250 –106 ty investors and debt financiers that are participating in the agreement. The funds Long-term liabilities –856 –19,711 –698 securing the repayments to equity investors have been invested in U.S. Treasury and Current liabilities 232 –9,627 –427 other similar bonds, and a bank deposit has been made to secure the repayments Total purchase price 4,390 56,527 596 of debt financing. At the inception of the agreement, the total amount of funds Less purchase price consideration invested was USD 224 million. in terms of new share issue –2,051 –56,527 – Less cash and cash equivalents in acquired group companies –223 –900 –1 Net cash flow from acquired 32 Legal Disputes and Regulatory group companies 2,116 –900 595 Proceedings Purchase price for other acquisitions 72 537 1,646 Total cash flow from acquisitions 2,188 –363 2,241 In its normal course of business, TeliaSonera is involved in a number of legal disputes and regulatory proceedings, mainly involving claims arising out of commercial and The market value of assets and liabilities transferred in subsidiaries and the total cash competition law issues and regulatory matters. In particular, TeliaSonera is present- flow from divestitures were broken down as follows. ly involved in various disputes regarding termination fees in mobile and fixed networks as well as in investigations from competition authorities regarding pricing of January–December broadband services. Pending legal, arbitration or regulatory proceedings that are SEK in millions 2003 2002 2001 most relevant to TeliaSonera are described briefly in this section. Intangible fixed assets 2,067 – 2,028 In May 2002, the parties to Lattelekom SIA arbitration stated their claims. Tilts Tangible fixed assets 1,154 2 898 Communications A/S, TeliaSonera’s wholly-owned Danish subsidiary, claims approxi- Financial fixed assets, accounts mately EUR 152 million from the Republic of Latvia as compensation for losses sus- receivable, inventories etc. 509 3 2,870 tained as a consequence of the shortening by the Republic of Latvia of the twenty- Cash and cash equivalents 82 32 582 year exclusivity period granted to Lattelekom in 1994, and failure by the Republic Provisions –108 –0 –994 of Latvia to ensure that telecommunications tariffs were fixed at contractually Long-term liabilities –229 – –1,740 agreed levels. The Republic of Latvia has quantified counterclaims of approximately Current liabilities –806 –19 –2,416 EUR 1,040 million, principally arising from the alleged failure by Tilts to digitalize the Total sales price 2,669 18 1,228 fixed network in Latvia and certain other alleged breaches by Tilts of its obligations. Less cash and cash equivalents The parties to the dispute have on March 3, 2004 settled the dispute and withdrawn in divested group companies –82 –32 –582 all previous claims. TeliaSonera’s current holding in Lattelekom is 49 percent. Repayment of loans in group companies divested 375 1 1,115 In November 2002, TeliaSonera’s subsidiary TeliaSonera Finland Oyj (formerly Sonera Oyj) was served a writ by Broadband Mobile ASA bankruptcy estate, claiming Net cash flow from divested a total of NOK 332 million plus interest from the shareholders of Broadband Mobile group companies 2,962 –13 1,761 (TeliaSonera 50 percent). In December 2002, TeliaSonera filed a response to the writ Sale price for other divestitures 940 1,284 13,870 with a district court in Norway. The hearing of the case is not expected to take place Total cash flow from divestitures 3,902 1,271 15,631 until the end of 2004.

82 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

Non-cash transactions AUCS Sonera Claims of SEK 157 million on the Dutch associated company AUCS Communications The completion of the merger with Sonera Oyj was mainly effected through an Services v.o.f. were converted to equity in the company during the year. exchange of shares (see note “Merger with Sonera Oyj”). Cash and cash equivalents Vehicles Investments with maturities up to and including three months are combined with TeliaSonera leases vehicles through financial leasing, primarily from GE Capital. New Cash and bank to produce the item Cash and cash equivalents, as follows. acquisitions during the year entailed non-cash investments of SEK 47 million. December 31, Infrastructure/capacity swaps SEK in millions 2003 2002 2001 Within the international carrier operations, swap contracts for infrastructure and Investments 8,380 2,634 7,405 capacity are signed with other carriers. Until both parties have fulfilled all deliveries Cash and bank 3,689 2,831 1,518 as agreed, the value provided may differ from the value received. As of December Cash and cash equivalents 12,069 5,465 8,923 31, 2003, no such unbalance was recognized. Other cash flow information Cash flow before financing activities, non-cash transactions and cash/non-cash effects of restructuring programs are broken down by business segment as follows.

January–December 2003 Cash flow before financing Non-cash transactions Restructuring programs Business segment activities (SEK in millions) (see above) (see note 37) TeliaSonera Sweden 12,950 Vehicles Redundancies in the Swedish, Finnish and Lithuanian operations TeliaSonera Finland 3,844 Sonera Redundancies in the Swedish, Finnish and Lithuanian operations TeliaSonera Norway, Denmark, Baltic Countries 1,158 Redundancies in the Swedish, Finnish and Lithuanian operations TeliaSonera International –1,588 Infrastructure/capacity Synergies implementation swaps, Vehicles in International Carrier Holding and Corporate 6,636 AUCS, Vehicles Total 23,000

Investments by class of asset, changes in net interest-bearing liabilities and changes in capital employed and operating capital over the last eight-year period are recorded below.

Investments by class of asset January–December SEK in millions 2003 2002 2001 2000 1999 1998 1997 1996 CAPEX 9,373 14,345 17,713 16,580 7,701 7,663 9,637 8,304 Other intangible assets 850 5,119 1,316 509 373 248 233 317 Real estate properties 196 237 269 552 53 370 1,478 477 Machinery and equipment 8,327 8,989 16,128 15,519 7,275 7,045 7,926 7,510 Fixed networks 2,961 4,527 7,022 4,115 3,364 2,158 3,023 3,367 Mobile networks 2,884 2,336 2,124 1,411 1,166 1,273 1,360 1,188 Other machinery and equipment 2,482 2,126 6,982 9,993 2,745 3,614 3,543 2,955 Acquisitions 2,745 40,093 3,022 31,162 4,444 4,075 1,227 2,704 Goodwill and fair value adjustments 2,413 30,929 448 22,893 335 223 50 740 Shares and participations 332 9,164 2,574 8,269 4,109 3,852 1,177 1,964 Total (Notes 34, 35) 12,118 54,438 20,735 47,742 12,145 11,738 10,864 11,008

Investments are broken down by business segments in the notes “Profit Center Breakdown” and “Product Area Breakdown.”

Change in net interest-bearing liability December 31, SEK in millions 2003 2002 2001 2000 1999 1998 1997 1996 Opening balance 25,034 10,661 20,235 7,527 6,767 14,609 13,534 12,065 Increase (+)/Decrease (–) in long-term loans –6,257 6,931 4,317 11,753 2,632 –591 2,658 2,404 Increase (+)/Decrease (–) in short-term loans –7,921 8,677 –9,235 6,232 –128 –669 2,318 2,920 Increase (–)/Decrease (+) in short-term investments –4,832 3,776 –7,424 1,086 –1,062 315 –345 586 Increase (–)/Decrease (+) in cash and bank –858 –1,313 –166 –839 –32 561 –87 –371 Change in net debt –19,868 18,071 –12,508 18,232 1,410 –384 4,544 5,539 Increase (–)/Decrease (+) in interest-bearing receivables 3,383 –1,564 4,101 –5,803 –2,163 –2,258 –298 –426 Change in net borrowings –16,485 16,507 –8,407 12,429 –753 –2,642 4,246 5,113 Increase (+)/Decrease (–) in pension provisions 298 –2,134 –1,167 279 1,513 –5,200 –3,171 –3,644 Change in net interest-bearing liability –16,187 14,373 –9,574 12,708 760 –7,842 1,075 1,469 Closing balance 8,847 25,034 10,661 20,235 7,527 6,767 14,609 13,534 Financials

TELIASONERA ANNUAL REPORT 2003 83 Notes to Consolidated Financial Statements – IFRS/IAS

Capital employed and operating capital December 31, SEK in millions 2003 2002 2001 2000 1999 1998 1997 1996 Fixed assets 153,042 172,812 94,914 91,340 53,487 49,198 49,471 47,399 Current assets 37,018 33,844 33,277 31,375 23,117 18,080 16,439 15,116 Non-interest-bearing liabilities –28,375 –29,569 –25,871 –21,014 –16,956 –16,436 –13,042 –13,901 Non-interest-bearing provisions –14,775 –18,182 –10,749 –7,826 –7,242 –6,002 –5,329 –4,042 Non-interest-bearing financing –43,150 –47,751 –36,620 –28,840 –24,198 –22,438 –18,371 –17,943 Dividend (for 2003 as proposed by the Board) –4,675 –1,870 –600 –1,501 –1,470 –1,400 –1,210 –1,152 Total capital employed 142,235 157,035 90,971 92,374 50,936 43,440 46,329 43,420 Shareholders’ equity 112,393 108,829 59,885 55,988 32,893 29,344 25,487 24,413 Less dividend (for 2003 as proposed by the Board) –4,675 –1,870 –600 –1,501 –1,470 –1,400 –1,210 –1,152 Minority capital 3,441 5,120 204 320 210 210 306 218 Long-term interest-bearing liabilities 25,867 32,124 25,193 20,876 9,123 6,491 7,082 4,424 Current interest-bearing liabilities 4,687 12,608 3,931 13,166 6,934 7,062 7,731 5,413 Provisions for pensions 522 224 2,358 3,525 3,246 1,733 6,933 10,104 External financing 31,076 44,956 31,482 37,567 19,303 15,286 21,746 19,941 Total financing 142,235 157,035 90,971 92,374 50,936 43,440 46,329 43,420 Interest-bearing financial fixed assets –6,112 –8,419 –7,510 –4,968 –5,563 –5,561 –4,401 –4,058 Interest-bearing current assets –16,117 –11,503 –13,311 –12,364 –6,213 –2,958 –2,736 –2,349 Operating capital (Notes 34, 35) 120,006 137,113 70,150 75,042 39,160 34,921 39,192 37,013

34 Profit Center Breakdown

Effective January 1, 2003, the Group’s operations are managed and reported pri- NDB was written down and discarded by SEK 3,033 million (see also note “Restruc- marily by geographical Profit Center (PC). PC consolidation is based on the same turing costs”). In 2002 and 2001, the carrying value of the former business area Telia principles as that for the Group as a whole. Intersegment transactions are based on International Carrier within PC International was written down by SEK 6,131 million commercial terms. Minor organizational adjustments were carried out in 2003, with and SEK 3,027 million, respectively (see also note “Restructuring Costs”). operations shifted between the existing PCs. Comparative years have been restated TeliaSonera Holding is responsible for the Group’s non-core/non-strategic oper- in order to reflect current Group management and reporting. ations. The operations in TeliaSonera Holding are being gradually divested through PC Sweden, PC Finland, PC Norway, Denmark, Baltic countries (NDB; reported sales or partial divestiture. Corporate includes corporate staffs and Group-wide ini- by country/region) and PC International are responsible for the customer contacts, tiatives (programs) as well as eliminations of intersegment transfers and similar items. operations and the financial results within their respective geographical area. The PCs Besides net sales and operating income, principal segment control and reporting employ all operational resources in TeliaSonera and all operational plans are managed concepts are EBITDA excluding non-recurring items and operating capital, respec- within the PCs. PC International’s geographical area covers Eurasia, Russia, Turkey tively (see note “Definitions” and note “Reconciliation of EBITDA excluding non- and this PC is also responsible for TeliaSonera’s international carrier operations. recurring items to Operating Income”). No income statement items below operat- In 2002, the carrying value of assets related to the Danish operations within PC ing income have been allocated to reportable segments.

January–December 2003 or December 31, 2003 Baltic International SEK in millions Sweden Finland Norway Denmark countries Eurasia Russia Turkey carrier Holding Corporate Group Net sales 42,364 17,697 6,081 3,278 5,881 2,742 – 5 4,892 2,940 –3,455 82,425 External net sales 41,385 17,324 6,011 3,188 5,823 2,740 – – 3,589 2,443 –78 82,425 EBITDA excluding non-recurring items 17,637 6,738 2,499 70 2,846 1,490 – 1 144 205 –930 30,700 Non-recurring items –341 –71 0 0 –50 0 – – 93 1,703 1 1,335 EBITDA 17,296 6,667 2,499 70 2,796 1,490 0 1 237 1,908 –929 32,035 Depreciation, amortization and write-downs –6,481 –4,757 –2,076 –619 –2,181 –601 – – –496 –526 30 –17,707 Income from associated companies –6 70 0 –12 379 0 509 618 0 –1,176 – 382 Operating income 10,809 1,980 423 –561 994 889 509 619 –259 206 –899 14,710 Operating capital 20,638 44,023 22,852 2,368 12,789 3,924 2,890 12,208 714 –655 –1,745 120,006 of which Segment assets 34,211 47,875 24,131 4,178 13,366 4,441 2,899 12,208 7,040 3,258 14,223 167,830 of which Segment liabilities –13,573 –3,852 –1,279 –1,810 –577 –517 –9 0 –6,326 –3,913 –15,968 –47,824 Equity participation in associated companies 492 45 0 2 2,999 0 3,028 12,208 0 1,626 1 20,401 Investments 3,103 4,506 861 391 1,401 1,077 0 0 239 481 59 12,118 of which CAPEX 3,103 2,635 861 391 797 1,027 0 0 239 263 57 9,373 Number of employees 10,712 6,661 722 1,030 4,741 1,024 1 3 555 947 298 26,694 Average number of full-time employees 10,254 5,984 718 1,014 5,011 962 1 3 658 1,320 263 26,188

84 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

January–December 2002 or December 31, 2002 (restated) Baltic International SEK in millions Sweden Finland Norway Denmark countries Eurasia Russia Turkey carrier Holding Corporate Group Net sales 43,562 1,461 5,537 2,783 578 211 2 – 5,306 3,382 –3,339 59,483 External net sales 41,683 1,443 5,482 2,593 576 211 0 – 4,331 3,156 8 59,483 EBITDA excluding non-recurring items 15,896 502 2,129 –1,309 207 118 0 – –1,285 –100 –466 15,692 Non-recurring items –919 –136 4 –540 – 3 0 – –4,818 123 12 –6,271 EBITDA 14,977 366 2,133 –1,849 207 121 0 0 –6,103 23 –454 9,421 Depreciation, amortization and write-downs –6,938 –405 –2,170 –3,911 –196 –33 0 – –5,957 –1,232 –2 –20,844 Income from associated companies –4 –31 – –4 218 – 51 115 – 183 – 528 Operating income 8,035 –70 –37 –5,764 229 88 51 115 –12,060 –1,026 –456 –10,895 Operating capital 24,938 44,559 27,799 2,315 14,844 4,070 3,143 12,174 –459 2,660 1,070 137,113 of which Segment assets 35,756 49,826 29,197 4,774 15,373 4,659 3,155 12,174 8,346 8,101 15,378 186,739 of which Segment liabilities –10,818 –5,267 –1,398 –2,459 –529 –589 –12 0 –8,805 –5,441 –14,308 –49,626 Equity participation in associated companies 498 106 – 3 3,456 – 3,152 12,174 – 3,638 – 23,027 Investments 4,919 30,741 1,100 957 4,224 75 1,531 8,891 1,032 950 18 54,438 of which CAPEX 4,655 5,265 1,094 953 693 74 – 0 1,032 561 18 14,345 Number of employees 11,261 6,235 734 1,105 5,691 879 1 3 914 2,123 227 29,173 Average number of full-time employees 11,268 601 724 1,202 519 30 2 0 769 1,935 227 17,277

January–December 2001 or December 31, 2001 (restated) Baltic International SEK in millions Sweden Finland Norway Denmark countries Eurasia Russia Turkey carrier Holding Corporate Group Net sales 44,691 – 4,316 2,567 40 – 4 – 4,742 11,265 –10,429 57,196 External net sales 41,835 – 4,287 2,240 35 – 0 – 3,630 5,170 –1 57,196 EBITDA excluding non-recurring items 15,478 – 1,381 –677 5 – 2 – –1,573 –1,046 –655 12,915 Non-recurring items 287 – – 1–––––1284384 EBITDA 15,765 – 1,381 –676 5 – 2 0 –1,573 –1,034 –571 13,299 Depreciation, amortization and write-downs –6,579 – –1,769 –658 –7 – 0 – –3,582 –1,378 –2 –13,975 Income from associated companies –5 – – 1 195 – 153 – 0 5,785 7 6,136 Operating income 9,181 – –388 –1,333 193 – 155 – –5,155 3,373 –566 5,460 Operating capital 29,180 – 26,950 6,052 3,784 – 1,463 – 8,614 1,197 –7,090 70,150 of which Segment assets 40,349 – 28,076 8,739 3,793 – 1,463 – 14,728 9,971 251 107,370 of which Segment liabilities –11,169 – –1,126 –2,687 –9 – 0 – –6,114 –8,774 –7,341 –37,220 Equity participation in associated companies 249 – – 2 3,746 – 1,459 – 0 4,471 0 9,927 Investments 8,762 – 1,057 3,063 19 – 353 – 5,018 2,462 1 20,735 of which CAPEX 7,606 – 1,044 2,698 19–––5,0181,328017,713 Number of employees 11,915 – 712 1,259 35 – 2 – 742 2,267 217 17,149 Average number of full-time employees 11,802 – 658 1,113 35 – 2 – 636 10,460 273 24,979 Financials

TELIASONERA ANNUAL REPORT 2003 85 Notes to Consolidated Financial Statements – IFRS/IAS

35 Product Area Breakdown

The Group’s operations are reported secondarily by product area. Consolidation by Fixed Communications include Internet and data services and equipment sales. Other product area is based on the same principles as for the Group as a whole. includes non-core/non-strategic operations, corporate staffs and Group-wide initiatives (programs) as well as eliminations of intersegment transfers and similar items.

January–December or December 31, 2003 2002 (restated) 2001 (restated) Mobile Fixed Mobile Fixed Mobile Fixed Communi- Communi- Communi- Communi- Communi- Communi- SEK in millions cations cations Other Group cations cations Other Group cations cations Other Group External net sales 35,889 44,114 2,422 82,425 18,333 37,946 3,204 59,483 14,969 37,023 5,204 57,196 Depreciation, amortization and write-downs –7,385 –9,810 –512 –17,707 –4,026 –15,571 –1,247 –20,844 –3,037 –9,551 –1,387 –13,975 Income from associated companies 1,265 297 –1,180 382 433 –88 183 528 373 –29 5,792 6,136 Operating income 10,287 5,195 –772 14,710 3,932 –13,349 –1,478 –10,895 3,096 –445 2,809 5,460 Operating capital 85,723 36,664 –2,381 120,006 89,305 44,047 3,761 137,113 35,388 40,601 –5,839 70,150 of which Segment assets 95,618 54,717 17,495 167,830 99,028 64,195 23,516 186,739 40,716 56,384 10,270 107,370 of which Segment liabilities –9,895 –18,053 –19,876 –47,824 –9,723 –20,148 –19,755 –49,626 –5,328 –15,783 –16,109 –37,220 Equity participation in associated companies 16,989 1,785 1,627 20,401 17,486 1,903 3,638 23,027 2,758 2,698 4,471 9,927 Investments 4,202 7,372 444 12,118 38,381 15,081 976 54,438 4,547 13,706 2,482 20,735 of which CAPEX 4,152 4,896 325 9,373 6,418 7,340 587 14,345 3,908 12,458 1,347 17,713 Number of employees 4,987 20,406 1,301 26,694 8,795 17,996 2,382 29,173 2,448 12,182 2,519 17,149 Average number of full-time employees 4,854 19,629 1,705 26,188 3,453 11,630 2,194 17,277 2,541 11,670 10,768 24,979

36 Human Resources

Employees, salaries, and social security expenses increasing by 426 in Profit Center Finland. In the other reportable segments, the Divestitures and streamlining efforts in 2003 resulted in a decrease of the number total number of employees decreased by 2,356, of which 950 in the Baltic countries of employees by 1,173 and 2,029, respectively, totaling 3,202. At the same time, and 1,176 in TeliaSonera Holding. the acquisition of Auria Group added 723 employees. Hence, the net change dur- Adjusted for operations acquired and divested, the number of employees ing 2003 was a decrease by 2,479 employees to 26,694 (29,173) at year-end. decreased by 2,029. The breakdown by business segment is presented in note “Profit Center Break- The average number of full-time employees was as follows. down.” In Profit Center Sweden the number of employees decreased by 549, while

January–December 2003 2002 2001 Country Total of which men Total of which men Total of which men Sweden 11,321 6,211 12,593 6,679 20,922 13,111 Finland 6,408 4,103 1,142 647 775 443 Norway 738 496 746 499 736 478 Denmark 1,048 679 1,251 838 1,369 883 Lithuania 4,386 2,459 445 265 40 33 Latvia 632 377 143 94 77 47 Estonia 48 39 3 2 – – Kazakhstan 300 123 9 5 – – Azerbaijan 351 177 11 6 – – Georgia 154 79 5 3 – – Moldova 149 68 5 3 – – Russia 89 53 75 53 72 51 United Kingdom 96 55 170 104 211 128 Germany 66 48 68 55 73 56 United States 53 39 81 68 134 95 Sri Lanka 198 160 383 313 382 315 Rest of world 151 86 147 97 188 143 Total 26,188 15,252 17,277 9,731 24,979 15,783

The Swedish operations were conducted virtually throughout the country, and oper- The number of female and male Group senior executives is as follows. Senior execu- ations outside Sweden in 28, 30 and 28 countries during the years 2003, 2002 and tives include ordinary members of the Board of Directors, presidents and those on 2001, respectively. executive management teams at the corporate level, profit center level and company level.

December 31, 2003 2002 2001 Boards of Other senior Boards of Other senior Boards of Other senior Number Directors executives Directors executives Directors executives Women 50 34 39 34 44 23 Men 224 124 217 115 217 107

The data for 2002 and 2001 refer to those companies included in the Group on December 31, 2003.

86 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

Absence due to illness, as a percentage of ordinary work hours excluding leave time and vacation, is distributed as follows in the Group’s Swedish units.

2003 % July–December January–December Total absence due to illness 6.6 6.3 Absence due to illness that concerns a period of 60 consecutive days or longer 4.5 4.2 Total absence due to illness, men 3.5 3.3 Total absence due to illness, women 10.2 9.7 Total absence due to illness, employees 29 years of age and younger 5.8 5.6 Total absence due to illness, employees 30–49 years of age 5.8 5.5 Total absence due to illness, employees 50 years of age and older 7.8 7.4

Salaries and other remuneration, along with social security expenses, were as follows.

January–December SEK in millions 2003 2002 2001 Salaries and other remuneration 8,460 6,732 8,852 Social security expenses Employer’s social security contributions 1,950 1,804 2,614 Pension expenses 1,220 934 555 Contractual pensions for early retirement 186 37 58 Total 3,356 2,775 3,227 Total 11,816 9,507 12,079

Pension expenses for all the Boards of Directors and Presidents in the TeliaSonera Group totaled SEK 23 million, SEK 39 million and SEK 43 million for the years 2003, 2002 and 2001, respectively. No pension expenses were recorded for external board members of the parent company TeliaSonera AB. Salaries and other remuneration were divided between Boards of Directors and Presidents and other employees as follows. Variable salaries were based on last year’s performance.

January–December SEK in millions 2003 2002 2001 Boards and Boards and Boards and Presidents Presidents Presidents (of which Other (of which Other (of which Other Country variable salary) employees variable salary) employees variable salary) employees Sweden 40 (10) 4,576 76 (19) 4,766 68 (9) 7,010 Finland 31 (11) 2,125 9 (3) 379 3 (1) 251 Norway 3 (1) 417 7 (2) 456 6 (1) 383 Denmark 4 (1) 437 9 (1) 591 14 (1) 621 Lithuania 11 (2) 329 1 (0) 38 0 (0) 5 Latvia 2 (0) 98 0 (0) 20 0 (0) 10 Estonia 0 (0) 6 0 (0) 0 – – Kazakhstan 1 (0) 19 0 (0) 2 – – Azerbaijan 1 (0) 37 0 (0) 3 – – Georgia 0 (0) 7 0 (0) 0 – – Moldova 1 (0) 7 0 (0) 0 – – Russia 0 (0) 17 0 (0) 11 1 (0) 6 United Kingdom 3 (0) 96 3 (1) 113 4 (1) 118 Germany 2 (0) 8 0 (0) 43 4 (0) 44 United States 2 (0) 49 7 (1) 80 13 (0) 131 Sri Lanka 1 (0) 11 0 (0) 28 2 (0) 27 Rest of world 6 (0) 113 6 (0) 84 6 (1) 125 Total 108 (25) 8,352 118 (27) 6,614 121 (14) 8,731 Remuneration to corporate officers equal to those applicable to other employees. ”Other corporate officers” refers to the Policies seven individuals who, along with the CEO and the deputy CEO, constituted Telia- As resolved by the Annual General Meeting, remuneration is paid to the chairman Sonera group executive management on December 31, 2003. of the Board and directors in the amount of SEK 750,000 per year to the chairman, Variable salary to the CEO and the deputy CEO is capped at an amount equal to SEK 550,000 per year to the vice chairman and SEK 400,000 per year to each elected 50 percent of the base salary. For other corporate officers, the variable salary is capped director. No separate remuneration is paid to directors for committee work. Direc- at 35 percent of the base salary. Variable salary is based on the financial performance of tors appointed as employee representatives are not remunerated. the group, financial performance in each officer’s area of responsibility and individual Remuneration to the Chief Executive Officer (CEO) and other corporate officers performance objectives. consists of a base salary, certain taxable benefits, variable salary, and pension bene- Remuneration to the CEO, the deputy CEO and other corporate officers as fits. Employee stock options have been allotted to other corporate officers on terms described above is paid as part of each individual’s total remuneration package.

Remuneration and other benefits during the year Financials Base salary/board Variable Other Pension Financial Other SEK remuneration salary benefits expense instruments remuneration Total Chairman of the Board 629,879–––––629,879 Chief Executive Officer 6,067,200 3,000,000 656,083 3,585,701 – – 13,308,984 Deputy Chief Executive Officer 5,226,356 1,294,659 – 2,390,501 – – 8,911,516 Other corporate officers (seven individuals) 19,012,085 4,918,672 4,039,823 8,662,552 – – 36,633,132 Total 30,935,520 9,213,331 4,695,906 14,638,754 – – 59,483,511

TELIASONERA ANNUAL REPORT 2003 87 Notes to Consolidated Financial Statements – IFRS/IAS

Comments on the table: salary for a period of 24 months. Other income shall be deducted from the severance • Base salary in 2004 amounts to SEK 6,240,000 (+4 percent) for the CEO and SEK amount. If the CEO resigns his position, he shall not be entitled to severance pay. 19,265,000 (+1.76 percent) for other corporate officers. Base salary at January 1, The contract between the company and the deputy CEO requires both parties 2004 for the deputy CEO was equivalent to SEK 5,094,449. to provide six months’ notice of resignation or termination of employment. Upon • Variable salary was expensed in 2003, but will be settled in cash in 2004. Variable termination by the company, the deputy CEO shall be entitled to severance pay corre- salary corresponds to 50 percent of the base salary for the CEO, to 25 percent for sponding to 18 months’ salary. If the deputy CEO resigns his position, he shall not the deputy CEO and for other corporate officers to 17.5 – 35 percent of the base be entitled to severance pay. salary. No variable salary for 2002 was paid to the CEO in 2003. Variable salary with The contract between the company and other corporate officers requires a period respect to performance in 2002 was paid in 2003 to the deputy CEO in an amount of notice of six months from the employee and 12 months from the company with equivalent to SEK 3,942,785 and to other corporate officers in an amount of SEK respect to resignation or termination of employment. Upon termination by the 3,442,367. company, other corporate officers shall be entitled to severance pay equal to the fixed • Other benefits refer chiefly to company car benefit. For the CEO other benefits monthly salary for a period of 12 months. Other income shall be deducted against the include reimbursement of costs related to moving his family to Sweden and for one salary during the notice period and against the severance amount. If an other corpo- other corporate officer other benefits include relieving a non-Swedish pension rate officer resigns his or her position, he or she shall not be entitled to severance pay. benefit in an amount equivalent to SEK 3,554,832. • Pension expense refers mainly to defined benefit pension plans and to the Planning and decision process expense that affected earnings for the year. See below for further disclosures Remuneration to the Chief Executive Officer for fiscal 2003 was decided by the concerning the terms and conditions of pensions. Board of Directors based on the recommendation of the compensation committee. Remuneration to other corporate officers is decided by the Chief Executive Officer Stock options in consultation with the compensation committee. In exchange for their Sonera warrants, the deputy CEO and two Finnish other corporate officers were granted TeliaSonera warrants in connection with the merger Stock-Based Compensation and, as of December 31, 2003, held the following number of warrants. General At General Meetings of shareholders of TeliaSonera AB, a number of stock option Number of schemes have been adopted. Under current IFRS/IAS, TeliaSonera does not record TeliaSonera warrants an expense with respect to these option schemes. The option schemes are described Other below, together with pro forma information regarding net income and earnings per corporate Exercise share, determined as if TeliaSonera had accounted for its stock options at fair value. Deputy officers (two price per Subscription Summarized information about warrants outstanding as of December 31, 2003 Series CEO individuals) share (SEK) period by exercise price is as follows. On the last trading day of the year, December 30, 2003, 2002/2005:A 255,000 117,500 71.62 June 1, 2001– the closing price for the TeliaSonera share on Stockholmsbörsen was SEK 37.60. June 30, 2005 2002/2008:A – 75,000 347.38 Nov. 2, 2002– Outstanding Of which exercisable May 31, 2008 Remaining Remaining 2002/2008:B – 75,000 347.38 May 2, 2003– Exercise price Number of contractual Number of contractual May 31, 2008 SEK warrants life in years warrants life in years 2002/2008:C – 150,000 347.38 May 2, 2004– May 31, 2008 33.64 2,246,000 6.42 – – 2002/2010:A 100,000 41,667 49.09 Nov. 2, 2002– 49.09 3,429,236 6.42 – – May 31, 2010 69.00 12,550,000 1.42 12,550,000 1.42 2002/2010:B 100,000 41,667 49.09 May 2, 2003– 71.62 5,956,650 1.50 5,956,650 1.50 May 31, 2010 108.17 101,800 4.42 – – 2002/2010:C 200,000 83,334 49.09 May 2, 2004– 347.38 9,444,600 4.42 – – May 31, 2010 2002/2010:D 40,000 40,000 33.64 Nov. 2, 2002– The fair value for these options has been estimated at the date of grant using a Black- May 31, 2010 Scholes option-pricing model. The estimated fair value of the options is amortized to 2002/2010:E 40,000 40,000 33.64 May 2, 2003– expense over the options’ vesting period. TeliaSonera’s aggregate pro forma infor- May 31, 2010 mation is as follows. 2002/2010:F 80,000 80,000 33.64 May 2, 2004– May 31, 2010 SEK in millions 2003 2002 2001 On February 10, 2004, the Board of Directors of TeliaSonera decided to cancel all Reported net income 9,080 –8,067 1,869 warrants of series 2002/2008:A, 2002/2008:B, 2002/2010:A, 2002/2010:B, 2002/ Less: Compensation expense –18 –121 –91 2010:D and 2002/2010:E, due to non-fulfillment of certain exercise criteria. Pro forma net income 9,062 –8,188 1,778 Two of the Swedish other corporate officers employed in 2001 were each allotted Pro forma basic and diluted 1,000 employee stock options in the 2001 option program on terms equal to those earnings/loss per share (SEK) 1.94 –2.62 0.59 applicable to other employees of the Group. The options are exercisable during the period between May 31, 2003 and May 31, 2005. The exercise price is set to SEK The Black-Scholes option valuation model was developed for use in estimating the 69 per share. fair value of traded options, which have no vesting restrictions and are fully trans- There was no additional option program during 2003. ferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because most of Telia- Pensions Sonera’s stock options have characteristics significantly different from those of traded The age of retirement for the CEO is 60. Pension benefits between age 60 and 65 options, and because changes in the subjective input assumptions can materially shall equal 70 percent of pensionable salary. Pension benefits after age 65 shall be affect the fair value estimate, in management’s opinion, the existing models do not paid in accordance with the ITP plan with supplementation of benefits for that part necessarily provide a reliable single measure of the fair value of its employee stock of salary exceeding 20 income base amounts, so that the total pension equals 50 options. percent of the pensionable salary. Pensionable salary corresponds to the base salary. All pension benefits are unassailable, i.e. are not subject to conditions concerning 2001 Employee stock option program (ESOP) future employment. The 2001 Annual General Meeting voted in favor of establishing an employee stock The age of retirement for other corporate officers employed in Sweden varies option program involving issue of debt instruments with option rights to subscribe between 60 and 62. Pension benefits between age 60 (62) and 65 shall equal 70 to shares in TeliaSonera AB. The employee stock options were allotted free of charge percent of pensionable salary, except in one case were pension benefits equal 43 per- and all employees affected were given 1,000 options. cent of pensionable salary. Pension benefits after age 65 shall be paid in accordance The program covers a total of no more than 21,000,000 options that entitle the with the ITP plan with supplementation of benefits, amounting to 32.5 percent of the holder to acquire an equal number of shares in TeliaSonera AB. Furthermore; a max- pensionable salary, for that part of salary exceeding 20 income base amounts. Pen- imum of 6,500,000 options may be transferred to the market in order to counteract sionable salary includes base salary and variable salary for those employed prior to the effect of payroll overhead incurred by the option program. Payroll overhead will July 1, 2002. For those employed after that date the pensionable salary corresponds then be charged to expense, while consideration for options issued will be booked to the base salary. All pension benefits are unassailable, i.e. are not subject to condi- directly to shareholders’ equity. tions concerning future employment. The 2001 stock options are exercisable as from May 31, 2003. However, option The age of retirement for the deputy CEO and one other corporate officer employed holders may exercise their options no later than May 31, 2005. The exercise price in Finland is 60. Pension benefits between age 60 and 65 equal 60 percent of the pen- has been set at SEK 69. The terms of the ESOP may be recalculated as a consequence sionable salary, which includes variable salary. Pension benefits after age 65 is paid of share issues, etc. according to statutory TEL pension. If fully exercised, options outstanding as of December 31, 2003 in the 2001 ESOP will entail an increase in share capital of approximately SEK 40 million, equal to a 0.3 Severance pay percent increase in the number of shares. The contract between the company and the CEO requires both parties to provide The fair value of these options, estimated at the date of grant, was SEK 273 mil- six months’ notice of resignation or termination of employment. Upon termination lion. The fair value was estimated using a Black-Scholes option-pricing model with by the company, the CEO shall be entitled to severance pay equal to his fixed monthly the following weighted-average assumptions. No new options were granted in 2003.

88 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

2002 2001 lation (see note “Merger with Sonera Oyj”). The assumptions used in calculating the fair value of the 2002/2005 option schemes, at the date of grant, relating to the Fair market value of underlying share (SEK) 45.60 62.00 exercise price of warrants is presented in the table above. The other weighted aver- Expected volatility of underlying share (%) 50.0 47.3 Expected dividend yield (%) 0.4 0.3 age assumptions used in calculating the fair value were as follows. Risk-free interest rate for expected term (%) 4.59 4.24 Expected life of options (years) 2.4 3.0 2003 2002 Fair market value of underlying share (SEK) 29.50 34.70 For the years ended December 31, 2003, 2002 and 2001, compensation costs amor- Expected volatility of underlying share (%) 50.0 50.0 tized over the vesting period amounted to SEK 18 million, SEK 121 million and SEK Expected dividend yield (SEK) 0.74 0.73 91 million, respectively, totaling SEK 230 million. Due to forfeitures and all options Risk-free interest rate for expected term (%) 5.5 5.5 being fully vested, no more compensation cost will be incurred. Expected life of warrants (years) 2.39 2.58 A summary of the 2001 stock option activity, and related information for the years ended December 31, 2003, 2002 and 2001 is presented below. A summary of the series 2002/2005 option schemes as of and changes in the years ended December 31, 2003 and 2002 is presented below: Weighted Weighted average average Weighted Weighted Number of exercise fair value average average options price (SEK) (SEK) Number of exercise fair value warrants price (SEK) (SEK) Options outstanding at December 31, 2000 – – Series 2002/2005:A Granted (exercise price higher Warrants outstanding on than the share market price) 16,200,000 69 20,08 December 31, 2001 – – Exercised – – Granted (exercise price higher Forfeited –900,000 69 than the share market price) 5,798,880 72.02 6.78 Options outstanding at Exercised – – December 31, 2001 15,300,000 69 Forfeited – – Granted (exercise price higher Warrants outstanding on than the share market price) 592,000 69 9,02 December 31, 2002 5,798,880 72.02 Exercised – – Granted (exercise price higher Forfeited –1,590,000 69 than the share market price) 157,870 72.02 3.77 Options outstanding at Exercised – – December 31, 2002 14,302,000 69 Forfeited –100 – Granted (exercise price higher Warrants outstanding on than the share market price) – 69 – December 31, 2003 5,956,650 71.62 Exercised – – Warrants exercisable on Forfeited –1,752,000 69 December 31, Options outstanding at 2002 5,798,880 72.02 December 31, 2003 12,550,000 69 2003 5,956,650 71.62 Options exercisable at Series 2002/2005:B December 31, Warrants outstanding on 2001 and 2002 – – December 31, 2001 – – 2003 12,550,000 69 Granted (exercise price higher than the share market price) 5,145,708 132.82 1.96 The exercise price for options outstanding as of December 31, 2003 was SEK 69. The Exercised – – weighted-average remaining contractual life of those options is 1.42 years. Forfeited – – Warrants outstanding on December 31, 2002 5,145,708 132.82 2002 stock option scheme – series 2002/2005:A-B Granted (exercise price higher On November 4, 2002, the extraordinary General Meeting of Telia AB (now Telia- than the share market price) 132,082 132.82 0.87 Sonera AB) adopted a resolution to issue a maximum of 7,500,000 warrants of series Exercised – – 2002/2005:A and a maximum of 5,846,847 of series 2002/2005:B warrants in Cancelled –5,277,790 – exchange for Sonera Oyj warrants of series 1999A and 1999B, respectively. Information Warrants outstanding on on the number of warrants etc. under the 2002/2005 option scheme is as follows. December 31, 2003 – – Warrants exercisable on Number of warrants December 31, 2002 and 2003 – – Issued in Issued in Exercise the exchange the redemp- price per Subscription 2002 stock option scheme – series 2002/2008:A-F and 2002/2010:A-F Series offer tion offer share (SEK) period On November 4, 2002, the extraordinary General Meeting of Telia AB (now Telia- 2002/2005:A 5,798,880 157,870 71.62 June 1, 2001– Sonera AB) adopted a resolution to issue a maximum of 11,456,200 warrants of June 30, 2005 series 2002/2008:A-F and a maximum of 6,417,272 warrants of series 2002/2010:A-F 2002/2005:B 5,145,708 132,082 132.82 June 1, 2003– in exchange for Sonera warrants of series 2000/A1-C2 and 2000/A3-C4. Detailed June 30, 2005 information on the warrants outstanding under the 2002/2008 and the 2002/2010 Total 10,944,588 289,952 option schemes is as follows.

Each warrant entitles the warrant holder to subscribe for one and a half (1.5) new Number of warrants share in TeliaSonera AB. The exercise price as well as the number of new shares that Issued in Issued in Exercise each warrant entitles to subscribe for may be recalculated as a consequence of share the exchange the redemp- price per Subscription issues, cash dividends, etc. Series offer tion offer share (SEK) period Series A warrants are exercisable. On December 9, 2002, series A warrants were 2002/2008:A 2,433,350 73,800 347.38 Nov. 2, 2002– listed on the Helsinki Exchanges, and an employee can sell series A warrants on the May 31, 2008 stock exchange, at a price determined by public quotes. However, option holders 2002/2008:B 2,433,350 73,800 347.38 May 2, 2003– may exercise their options no later than June 30, 2005. In 2003, according to the May 31, 2008 2002/2008:C 4,866,700 147,600 347.38 May 2, 2004– said terms, the exercise price of the series A warrants was adjusted by the 2002 div- May 31, 2008 idend per share. 2002/2008:D 30,600 3,600 108.17 Nov. 2, 2002– The subscription rights could be exercised with series B warrants provided that May 31, 2008 Sonera’s cumulative earnings per share (under Finnish GAAP) during January 1, 2002/2008:E 30,600 3,600 108.17 May 2, 2003– 1999 through December 31, 2002 was at least EUR 1.66 and that Sonera’s operat- May 31, 2008 ing profit in relation to net sales (under Finnish GAAP) was at least 15 percent, on 2002/2008:F 61,200 7,200 108.17 May 2, 2004– the average, during the same period; and finally that the employee did not leave May 31, 2008 2002/2010:A 915,146 2,501 49.09 Nov. 2, 2002– Sonera before June 1, 2003 (for other than retirement or death). For Sonera’s top

May 31, 2010 Financials management, exercise of the series B warrants was also contingent upon Sonera’s 2002/2010:B 915,146 2,501 49.09 May 2, 2003– share price development exceeding the reference index for a peer group of com- May 31, 2010 panies. In May 2003, the Board of Directors of TeliaSonera concluded that the said 2002/2010:C 1,830,292 5,002 49.09 May 2, 2004– parameters were not reached and all series B warrants were cancelled. May 31, 2010 If fully exercised, warrants outstanding as of December 31, 2003 in the 2002/ 2002/2010:D 571,500 3,000 33.64 Nov. 2, 2002– 2005 option scheme will entail an increase in share capital of approximately SEK 29 May 31, 2010 million, equal to a 0.2 percent increase in the number of shares. 2002/2010:E 571,500 3,000 33.64 May 2, 2003– May 31, 2010 The fair value, in total SEK 49.4 million, of all 10,944,588 warrants issued in the 2002/2010:F 1,143,000 6,000 33.64 May 2, 2004– exchange offer was recognized in 2002 as part of the purchase price for the merger. May 31, 2010 The fair value, in total SEK 0.7 million, of all 289,952 warrants issued in the manda- Total 15,802,384 331,604 tory redemption offer, was recognized as part of the adjusted purchase price calcu- TELIASONERA ANNUAL REPORT 2003 89 Notes to Consolidated Financial Statements – IFRS/IAS

Each warrant entitles the warrant holder to subscribe for one and a half (1.5) new Weighted Weighted share in TeliaSonera AB. The exercise price as well as the number of new shares that average average each warrant entitles to subscribe for may be recalculated as a consequence of share Number of exercise fair value issues, cash dividends, etc. warrants price (SEK) (SEK) Holders of warrants of series 2002/2008:A, 2002/2008:B, 2002/2008:D, 2002/ Series 2002/2008:D-F 2008:E, 2002/2010:A, 2002/2010:B, 2002/2010:D and 2002/2010:E are not enti- Warrants outstanding on tled to subscribe for shares in TeliaSonera unless the development of the value of December 31, 2001 – – the Sonera share during the period April 1, 1999 – December 31, 2002 exceeds the Granted (exercise price higher development of the value of the reference index for a peer group of companies dur- than the share market price) 122,400 108.17 10.53 ing the same period or unless the development of the value of the Sonera share dur- Exercised – – ing the period April 1, 1999 – December 31, 2003 exceeds the development of the Forfeited – – value of the reference index during the same period. On February 10, 2004, the Warrants outstanding on Board of Directors of TeliaSonera concluded that the said parameters were not December 31, 2002 122,400 108.17 reached and consequently decided that holders of warrants of series 2002/2008:A, Granted (exercise price higher 2002/2008:B, 2002/2008:D, 2002/2008:E, 2002/2010:A, 2002/2010:B, 2002/ than the share market price) 14,400 108.17 7.04 2010:D and 2002/ 2010:E are not entitled to subscribe for shares in TeliaSonera. Exercised – – Holders of warrants of series 2002/2008:C, 2002/2008:F, 2002/2010:C and 2002/ Forfeited –35,000 – Warrants outstanding on 2010:F are not entitled to subscribe for shares in TeliaSonera unless the develop- December 31, 2003 101,800 108.17 ment of the value of the Sonera share during the period April 1, 1999 – December 31, 2003 exceeds the development of the value of the reference index for a peer group Warrants exercisable on of companies during the same period. December 31, 2002 and 2003 – – If fully exercised, warrants outstanding as of December 31, 2003 in the 2002/ Series 2002/2010:A-C 2008 and 2002/2010 option schemes will entail an increase in share capital of approx- Warrants outstanding on imately SEK 73 million, equal to a 0.5 percent increase in the number of shares. December 31, 2001 – – The fair value, in total SEK 177.5 million, of all 15,802,384 warrants issued in the Granted (exercise price higher exchange offer was recognized in 2002 as part of the purchase price. The fair value, than the share market price) 3,660,584 49.09 24.23 in total SEK 0.9 million, of all 331,604 warrants issued in the mandatory redemp- Exercised – – Forfeited – – tion offer, was recognized as part of the adjusted purchase price calculation for the Warrants outstanding on merger (see note “Merger with Sonera Oyj”). The assumptions used in calculating December 31, 2002 3,660,584 49.09 the fair value of the 2002/2008 and the 2002/2010 option schemes, at the date of Granted (exercise price higher grant, relating to the exercise price of warrants is presented in the table above. The than the share market price) 10,004 49.09 18.50 other weighted average assumptions used were as follows. Exercised – – Forfeited –241,352 – 2003 2002 Warrants outstanding on Series 2002/2008:A-F December 31, 2003 3,429,236 49.09 Fair market value of underlying share (SEK) 29.50 34.70 Warrants exercisable on Expected volatility of underlying share (%) 50.0 50.0 December 31, 2002 and 2003 – – Expected dividend yield (SEK) 1.67 1.74 Series 2002/2010:D-F Risk-free interest rate for expected term (%) 5.5 5.5 Warrants outstanding on Expected life of warrants (years) 5.31 5.49 December 31, 2001 – – Series 2002/2010:A-F Granted (exercise price lower Fair market value of underlying share (SEK) 29.50 34.70 than the share market price) 2,286,000 33.64 28.65 Expected volatility of underlying share (%) 50.0 50.0 Exercised – – Expected dividend yield (SEK) 2.20 2.48 Forfeited – – Risk-free interest rate for expected term (%) 5.5 5.5 Warrants outstanding on Expected life of warrants (years) 7.31 7.49 December 31, 2002 2,286,000 33.64 Granted (exercise price lower A summary of the 2002/2008 and 2002/2010 stock option schemes as of and changes than the share market price) 12,000 33.64 22.35 in the years ended December 31, 2003 and 2002 is presented below: Exercised – – Forfeited –52,000 – Weighted Weighted Warrants outstanding on average average December 31, 2003 2,246,000 33.64 Number of exercise fair value Warrants exercisable on warrants price (SEK) (SEK) December 31, 2002 and 2003 – – Series 2002/2008:A-C Warrants outstanding on Profit-sharing system December 31, 2001 – – The subsidiary Telia Finans AB made provisions totaling SEK 3 million, SEK 1 million Granted (exercise price higher and SEK 1 million for costs of employee profit-sharing for the years 2003, 2002 and than the share market price) 9,733,400 347.38 2.26 2001, respectively. Exercised – – Forfeited – – Warrants outstanding on December 31, 2002 9,733,400 347.38 37 Restructuring Costs Granted (exercise price higher than the share market price) 295,200 347.38 1.27 TeliaSonera has engaged, and may continue to engage, in restructuring activities, Exercised – – which require management to utilize significant estimates related to realizable values Forfeited –584,000 – Warrants outstanding on of assets made redundant or obsolete (see note “Depreciation, Amortization and December 31, 2003 9,444,600 347.38 Write-Downs”) and expenses for severance and other employee separation costs, lease cancellation and other exit costs. Should the actual amounts differ from these Warrants exercisable on estimates, usage of restructuring provisions could be materially impacted. December 31, 2002 and 2003 – – Implementation of post-merger integration synergies in the international carrier operations To realize post-merger synergy gains, management in 2003 decided to integrate the international carrier operations previously run separately by Telia and Sonera. Over- lapping operations will be phased out and the traffic moved over from leased capacity to the wholly owned network. Parts of Sonera’s operations in the United Kingdom, the United States, Sweden and Germany have been closed down. Under this program TeliaSonera recorded integration provisions, but to some extent costs were also expensed as incurred. The integration efforts also incurred impairment charges related to network capacity and equipment. The program is expected to be completed by the end of 2005.

90 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

Each of the elements of the international carrier integration costs would result in Each of the elements of the Danish fixed network refocusing costs would result in future cash outflows except for write-downs, which are non-cash in nature. The future cash outflows except for write-downs, which are non-cash in nature. The material elements of the integration costs and related cash outflows were as follows. material elements of the refocusing costs and related cash outflows were as follows.

Change in Change in Change in Integration Cash integration Restruc- restruc- restruc- charges outflow provision turing Cash turing Cash turing SEK in millions 2003 2003 2003 charges outflow provision outflow provision Integration provision, SEK in millions 2002 2002 2002 2003 2003 beginning of period – – – Restructuring Workforce reduction 27 –10 17 provision, beginning Leasing and service of period ––––486 contracts, technical sites 211 –3 208 Workforce reduction 45 – 45 –54 –54 Leasing contracts, offices 66 –4 62 Leasing and service Dismantling of technical contracts, technical sites 113 –39 74 –29 –29 sites and offices 19 19 Leasing contracts, offices 11 – 11 –22 –22 Other costs 16 –1 15 Dismantling of technical Exchange rate differences, sites and offices 157 – 157 –19 –19 timing effects – – 6 Other costs 193 – 193 –105 –105 Integration provision, Exchange rate end of period – – 327 differences – – 6 – –7 Workforce reduction 8 –8 Restructuring provision, Leasing and service contracts, end of period – – 486 – 250 technical sites 3 –3 Write-downs and Leasing contracts, offices 4 –4 discards of intangible Dismantling of technical sites and tangible fixed assets 3,033 – – and offices 9 –9 Total charges/total Write-downs of tangible cash outflow 3,552 –39 –229 fixed assets 54 – Total charges/total cash outflow 417 –42 Strategic refocusing of the international carrier operations In 2002, TeliaSonera completed a comprehensive review of its international carrier Redundancies in the Swedish, Finnish and Lithuanian operations operations. Management decided to change the strategic focus of Telia International The organization and control models introduced in 2003 have significantly increased Carrier and significantly restructure its operations. As part of the restructuring pro- efficiency and created potential to eliminate duplicate functions within several areas, gram, Management decided to close down Telia International Carrier’s Asian oper- like product and service development. Efficiency was also enhanced within adminis- ations as well as its domestic voice reseller business in the United Kingdom and Ger- tration and certain support functions. many, discontinue offering domestic network services in the United States and The management of TeliaSonera Sweden under this program established a terminate its co-location business. TeliaSonera has also centralized Telia Internation- redundancy of approximately 1,200 employees, including 500 hired personnel. Telia- al Carrier’s sales, administration and customer care resources to Sweden. The strate- Sonera has negotiated with the trade unions to determine which of the permanent gic refocusing and restructuring will also enable Telia International Carrier to sub- employees are affected by the redundancy. Of these employees, approximately 300 stantially scale down the number of offices and technical facilities, as well as lead to have left TeliaSonera Sweden or been redeployed within the Group. The remaining reduced operation and maintenance costs and leased lines. Management also esti- redundancies are handled through natural attrition, tailored pension plans and with- mates that, as part of the restructuring, Telia International Carrier will reduce its orig- in the framework of Telia Resources and Redeployment, which manages redundancies inal workforce of approximately 800 persons by more than 50 percent. As of Decem- in wholly-owned Swedish operations. At year-end 2003, 376 employees were part ber 31, 2002 and 2003, the number of employees was 736 and 475, respectively. of the redundancy program. Most of the restructuring provision is expected to be used in 2004 and the remain- In Finland, a redundancy of 400 employees was determined after negotiations ing part will be used later during the phase-out of long-term contracts. with the employee organizations. 176 permanent employees were given notice and Each of the elements of the carrier restructuring costs would result in future cash the remainder of the reduction is handled through pension plans, non-renewal of outflows except for write-downs, which are non-cash in nature. The material ele- temporary contracts and redeployment within the Group. ments of the carrier restructuring costs and related cash outflows were as follows. In the Lithuanian fixed-line operations an efficiency enhancement program was started in 2003 to further reduce personnel, operating costs and CAPEX. In the sec- Change in Change in ond half of the year, the number of employees was reduced by 478 to 3,586 at year- Restruc- restruc- restruc- end. The Lithuanian program also incurred impairment charges related to real estate, turing Cash turing Cash turing network capacity and equipment. charges outflow provision outflow provision Each of the elements of the Swedish, Finnish and Lithuanian restructuring costs SEK in millions 2002 2002 2002 2003 2003 would result in future cash outflows except for write-downs, which are non-cash in Restructuring provision, nature. The material elements of the restructuring costs and related cash outflows beginning of period ––––3,854 were as follows. Workforce reduction 303 –40 263 –165 –165 Leasing and service Change in contracts, technical Restructuring Cash restructuring sites and land 2,860 –66 2,794 –827 –827 charges outflow provision Leasing contracts, SEK in millions 2003 2003 2003 offices 186 –2 184 –31 –31 Dismantling of Restructuring provision, technical sites and beginning of period – – – offices 230 – 230 –55 –55 Workforce reduction 435 –44 391 Customer Other costs 4 –4 0 compensation 233 – 233 –66 –66 Reversal, not utilized – – –28 Legal and similar fees 151 –1 150 –15 –15 Reclassification to pension provision – – –173 Timing effects ––––99 Restructuring provision, end of period – – 190 Reversal, not utilized –––––427 Write-downs and discards of tangible Exchange rate fixed assets 120 – differences –––––100 Total charges/ Restructuring provision, total cash outflow 559 –48 end of period – – 3,854 – 2,267 Write-downs of New focus for the Danish fixed network operations intangible and tangible The Danish fixed network operations were reviewed during 2002 in order to value fixed assets 5,307 – – their assets and determine a new focus. Looking forward, the operations will be Write-downs of financial Financials focused on telephony sales to businesses and consumers and wholesale network fixed assets 824 – – capacity to operators and service providers. Unprofitable products have been dis- Total charges/ continued or frozen. Frozen operations will continue to serve current customers. total cash outflow 10,094 –109 –1,159 Most of the workforce reduction was effectuated in the last few months of 2002, when the number of employees was reduced by approximately 100 people and Lower than expected restructuring costs, mainly due to the French operations but consultants and temporary staff were reduced by more than 100 people. In terms also to redundancies in Sweden and certain customer contracts, enabled a reversal of product offerings and workforce the restructuring program gained full effect at of the restructuring reserve. the end of 2003. Settlement of leasing and other contracts will take place during the next three-year period.

TELIASONERA ANNUAL REPORT 2003 91 Notes to Consolidated Financial Statements – IFRS/IAS

Streamlining the core business Each of the elements of satellite restructuring costs would result in future cash out- At the beginning of 2002, Management started a program to streamline the core flows except for equipment write-off, which is non-cash in nature. The material ele- business. Under this program TeliaSonera recorded restructuring provisions, but to ments of satellite restructuring costs and related cash outflows were as follows. a large extent costs were also expensed as incurred. In Sweden, substantial efficiency measures and restructuring efforts mainly focused on sales and distribution chan- Change in Change in nels, concentrating customer services in fewer locations, streamlining the delivery Restruc- restruc- restruc- process and increasing sales of standardized products and services through web and turing Cash turing Cash turing interactive voice response. Products with unsatisfactory profitability were removed charges outflow provision outflow provision as offerings. SEK in millions 2001 2002 2002 2003 2003 Telia Resources and Redeployment handles redundancies in wholly-owned Restructuring Swedish operations and will support redundant employees in finding new employ- provision, beginning ment either within or outside the Group for the statutory period of notice as well as of period – – 455 – 85 a further six months, although for a period of no less than ten months in all. Costs Workforce reduction 39 –19 –19 –6 –6 incurred chiefly include re-training, but also severance pays and early-retirement Leasing contracts, costs. In 2002 the number of employees in Sweden decreased by 774, as a result of satellite capacity 357 –192 –192 –79 –79 the streamlining efforts. An additional 323 employees within Telia Resources and Site restoration, Redeployment were identified as redundant at year-end 2002, of which 240 left the customer compensation, other costs 59 –21 –21 – – unit in 2003. During the streamlining efforts, a freeze was imposed on the employ- Reversal, non-utilized – – –138 – – ment of permanent staff and also on the employment of temporary staff and con- Restructuring provision, sultants. At year-end 2002, the number of consultants used as employee substitutes end of period – 85 – – had been brought down by almost 50 percent to 400. Satellite station Some of the measures taken involved closing down of operations, like Vimera equipment write-off 45 – – (customer training) and Time (accounting services) within TeliaSonera Holding and Total charges/total part of the portal business and payment and security services within the former busi- cash outflow 500 –232 –85 ness area Telia Internet Services, the latter including equipment being written-off due to economic obsolescence. Furthermore some 30 retail outlets in Telia Mobile Due to partial transfer of satellite capacity for international telephony to be used in Finland were transferred to a new owner. the international carrier operations, the costs for terminating leasing contracts have Except write-off items, which are non-cash in nature, each element of the stream- been reduced. lining effort costs would result in immediate or future cash outflows. The material elements of these streamlining effort costs and related cash outflows were as follows.

Change in Change in 38 Auditors’ Fees Restruc- restruc- restruc- turing Cash turing Cash turing The following remuneration was paid to auditors and accounting firms for audits charges outflow provision outflow provision and other reviews based on applicable legislation and for advice and other assis- SEK in millions 2002 2002 2002 2003 2003 tance resulting from observations in the reviews. Remuneration was also paid for Restructuring independent advice, using Group auditors or other audit firms, in the fields of Tax/ provision, beginning Law and Corporate Finance as well as other consulting services. Audit fees to other of period ––––287accounting firms refers to consolidated companies not audited by the Group auditors. Workforce reduction 389 –75 314 –194 –194 Other 53 –2 51 –14 –14 January–December Reversal, non-utilized – – –78 – –20 SEK in millions 2003 2002 2001 Restructuring provision, Ernst & Young AB end of period – – 287 – 59 Audits 28 28 25 Workforce reduction 302 –302 – Independent advice 18 37 30 Administrative support systems write-off 57 – – Total 46 65 55 Customer and KPMG Bohlins AB Internet services Audits 25 – – equipment write-off 114 – – Independent advice 15 – – Total charges/total Total 40 – – cash outflow 915 –379 –208 Swedish National Audit Office Audits 0 0 0 Close-down of satellite-related activities Total 0 0 0 At the end of 2001, Management decided on a plan to cease TeliaSonera’s Swedish- based satellite-related activities. This plan involved the termination of employees, Other accounting firms Audits 10 4 0 evaluating the usefulness of satellite station equipment, terminating contractual Independent advice 6 2 8 commitments and incurring legal, accounting and similar fees. The close-down was completed in 2003. Total 16 6 8 The satellite division employees included operating and product development Total 102 71 63 personnel and corporate staff. The restructuring plan affected a total of 48 employees who gradually ceased their services. The information concerns significant Group units inside and outside Sweden. Audit Upon evaluation of the satellite station equipment, Management’s decision to services were performed by auditors and accounting firms appointed by the Group no longer pursue the satellite activities resulted in the equipment having no further units. economic use and was written off. Termination of various satellite capacity contracts triggered penalty payments. 39 Value Added

Value added is a measure of the TeliaSonera Group’s productive efforts, in other words the increase in value achieved by business activities. Value added consists of the Group’s net sales less the cost of purchased goods and services. Value added is divided among the Group’s stakeholders: the employees, creditors, Governments, and the shareholders. The remainder is retained in the Group to cover the cost of wear and tear on machinery, equipment, and installations (depreciation) and to enable further expansion of the business. The Group also serves as a collector of value-added tax, the indirect tax levied on the value added by the Group. To provide a comprehensive view of the Group’s contribution to the state, a measure of value added adjusted for such tax effects is also presented.

92 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

January–December TeliaSonera shares issued to Sonera shareholders in the mandatory redemption offer have been valued based on the quoted closing market price at Stockholmsbörsen 2003 2002 2001 (Stockholm Stock Exchange) on February 10, 2003, the date when TeliaSonera’s Board Total SEK Total Total of Directors decided to issue the new shares, in accordance with the authorization (SEK in Total thousand/ (SEK in (SEK in by the General Meeting of shareholders. millions) (%) employee millions) millions) The fair value of TeliaSonera warrants issued to Sonera warrant holders have been Net sales 82,425 100 3,147 59,483 57,196 calculated based on a Black-Scholes valuation. The calculation is based on the num- Cost of purchased ber of Sonera warrants outstanding and the closing market price of the Telia share, goods and services –41,786 –36,031 –33,130 calculated as a weighted average price, and assuming an exchange ratio of one Telia- Other revenues and Sonera warrant for each Sonera warrant. Assumptions were also made based on the expenses, net 1,804 –5,569 560 current information for the exercise prices and other terms and conditions of the Total goods and TeliaSonera warrants, expected volatility of the TeliaSonera share, expected dividend services –39,982 –49 –1,526 –41,600 –32,570 rate of TeliaSonera, expected average life of options, and the discount rate. Value added 42,443 51 1,621 17,883 24,626 Sonera shares and warrants acquired for cash in the mandatory redemption offer Value-added tax have been valued based on the share price and the warrant prices set out in the collected 21,608 15,885 14,953 mandatory redemption offer prospectus. Sonera shares acquired for cash in the Value-added tax compulsory acquisition proceeding have been valued based on the redemption price paid –11,297 –9,858 –8,830 determined by the arbitral panel plus accrued interest. Adjusted value Final transaction related expenses capitalized by TeliaSonera as a result of the added 52,754 2,014 23,910 30,749 merger represent bankers’ fees as well as transaction related legal and accounting fees, prospectus printing expenses and other fees and expenses. Value added was distributed among the Group’s stakeholders as follows. Purchase price allocation January–December The excess of purchase price consideration over the value of Sonera’s net assets, fair 2003 2002 2001 value adjustments and goodwill are as follows. Total SEK Total Total (SEK in Total thousand/ (SEK in (SEK in December 31, Adjustments December 31, millions) (%) employee millions) millions) SEK in millions 2003 in 2003 2002 To employees Total purchase price Total salaries and consideration 59,088 2,561 56,527 wages 8,460 20 323 6,732 8,852 Less: value of Sonera’s net Employer’s social assets under IAS –17,235 –857 –16,378 security contributions 1,950 5 75 1,804 2,614 Less: capitalized Excess of purchase price salaries and consideration over value of employer’s social Sonera’s net assets 41,853 1,704 40,149 security contributions –2 –0 –0 –74 –139 Less: Identified intangibles Total 10,408 25 398 8,462 11,327 at fair value: To creditors Trade names –1,690 –144 –1,546 Interest etc. 1,415 3 54 1,202 1,110 Licenses and patents –2,349 –118 –2,231 To Governments Subscriber contracts –723 –36 –687 Income taxes 3,850 9 147 –3,619 2,917 Less: Fair value adjustment To shareholders of computer software –271 –18 –253 Dividend (for 2003 as Less: Fair value adjustment proposed by the Board) 4,675 11 178 1,870 600 of real estate and plant Retained by the Group and machinery –803 –12 –791 Depreciation and Less: Fair value adjustment amortization 17,707 42 676 20,844 13,975 of investments in Other 4,388 10 168 –10,876 –5,303 associated companies and other equity Total 22,095 52 844 9,968 8,672 holdings –7,888 2,234 –10,122 Value added 42,443 100 1,621 17,883 24,626 Add-back: Fair value Value-added tax adjustment of recorded 10,311 6,027 6,123 pension Adjusted value obligations 398 19 379 added 52,754 2,014 23,910 30,749 Deferred tax 715 –2,911 3,626 Goodwill 29,242 718 28,524 Dividends to shareholders equaled 11.0 percent of value added in 2003, 10.5 percent in 2002 and 2.4 percent in 2001. Dividends to shareholders also equaled 44.9 Most of the adjustments reflect the remaining five percent share of Sonera assets percent of the Group’s total salaries and employer’s social security contributions in acquired and obligations assumed in 2003. TeliaSonera has also performed an analy- 2003, 22.1 percent in 2002 and 5.3 percent in 2001. sis of its internal holding structure related to Turkcell Iletisim Hizmetleri A.S. and certain other international holdings. The analysis was completed in the fourth quarter and resulted in a conclusion that all legal structures would not be simplified were there a significant tax cost associated. Therefore, part of the deferred tax liabilities 40 Merger with Sonera Oyj and assets recorded in connection with the merger is no longer necessary. Accord- ingly, deferred tax liabilities were reduced by SEK 3,919 million and deferred tax As discussed in note “Changes in Group Composition” above, TeliaSonera obtained assets by SEK 545 million. Deferred income tax expense in 2003 increased by SEK sole record and beneficial ownership of all Sonera shares during 2003. The purchase 113 million. price calculation and the purchase price allocation presented in TeliaSonera’s Annual Also in the fourth quarter, TeliaSonera adjusted its purchase price allocation relating Report for 2002 has been adjusted accordingly. Further, some additional adjustments to Turkcell. The adjustment reduced the carrying value of Turkcell by SEK 2,618 million have been made, as described below. and increased operating income in 2003 by SEK 291 million. The changes have been retroactively reflected in all quarters for 2003. Compar- Purchase price calculation ative figures for 2002 have not been restated. The aggregate purchase price was calculated as follows. There were no purchased in-process research and development assets acquired.

December 31, Adjustments December 31, SEK in millions 2003 in 2003 2002 Fair value of TeliaSonera shares issued in exchange Financials for Sonera shares 57,728 2,050 55,678 Fair value of TeliaSonera warrants issued in exchange for Sonera warrants 228 1 227 Value of Sonera shares and warrants acquired for cash 495 495 – Transaction related expenses 637 15 622 Total purchase price consideration 59,088 2,561 56,527

TELIASONERA ANNUAL REPORT 2003 93 Notes to Consolidated Financial Statements – IFRS/IAS

41 Specification of Shareholdings and Participations

Associated companies Equity participation for Book value in each consolidation in the Group parent company Associated company, Partici- Par value in 2003 2002 2003 2002 Corp. Reg. No., pation Number local currency SEK in SEK in SEK in SEK in registered office (%) of shares (in millions) millions millions millions millions Parent company holdings Swedish companies Overseas Telecom AB, 556528-9138, Stockholm 65 1,180,575 SEK 118 426 151 198 – isMobile AB, 556575-0014, Luleå 50 996,008 SEK 0 0 17 0 12 Slottsbacken Venture Capital KB, 969626-1313, Stockholm 50 – SEK – 8 85 8 85 Telefos AB, 556523-6865, Stockholm 49 4,900,000 SEK 0 0 0 197 197 Lokomo Systems AB, 556580-3326, Stockholm 40 676,504 SEK 0 1 3 0 11 INGROUP Holding AB (publ), 556595-2941, Stockholm 37 228,262 SEK 16 0 37 0 43 TiFiC AB, 556578-3973, Gothenburg 30 1,422,965 SEK 0 0 4 2 7 eWork Scandinavia AB, 556587-8708, Stockholm 29 220,677 SEK 0 4 6 5 13 Service Factory SF AB, 556575-5682, Stockholm 27 388,000 SEK 0 0 9 15 15 Geyser Interactive Learning AB (publ), 556556-9752, Stockholm 27 62,375 SEK 1 0 0 0 0 Intermezzon AB, 556541-8885, Gothenburg 25 7,338,707 SEK 0 0 2 0 0 COOP Bank AB (publ), 516406-0005, Stockholm 20 200,000 SEK 20 0 0 0 0 SNPAC Swedish Number Portability Administrative Centre AB, 556595-2925, Stockholm 20 400 SEK 0 3 1 3 3 Other operating, dormant and divested companies 0 8 0 4 Companies outside Sweden OAO Telecominvest, St. Petersburg 26 4,262,165 RUR 43 814 807 700 700 Drutt Corp., Wilmington, DE 25 1,000,000 USD 0 7 15 15 26 Infonet Services Corp., 954148675, El Segundo, CA 20 94,367,361 USD 1 1,038 2,732 1,201 2,087 Other operating, dormant and divested companies 0 93 0 228 Total 2,344 3,431

Subsidiaries’ holdings Swedish companies Svenska UMTS-nät AB, 556606-7996, Stockholm 50 501,000 SEK 50 489 498 500 500 SmartTrust AB, 556179-5161, Stockholm 46 111,000,000 SEK 1 78 142 140 277 Other operating, dormant and divested companies 0 0 0 0 Companies outside Sweden Lattelekom SIA, 000305278, Riga 49 71,581,000 LVL 72 612 1,006 1,025 1,340 AS Eesti Telekom, 10234957, Tallinn 49 67,317,756 EEK 673 2,385 2,379 2,144 196 Punwire Paging Services Ltd, Chandigarh 49 14,699,780 INR 147 0 0 0 0 Turkcell Holding A.S., Istanbul 47 214,871,670,000 TRL 214,871,670 7,856 7,897 1 0 Turkcell Iletisim Hizmetleri A.S., Istanbul 13 65,370,950,001 TRL 65,370,950 4,353 4,277 1 0 Telekolmio Oy, 0785319-6, Hämeenlinna 40 3,200 EUR 1 26 – 29 – OAO MegaFon, 7812014560, Moscow 36 2,207,204 RUR 20 2,213 2,320 409 395 Helsingin GSM-Palvelut Oy, 1546079-8, Helsinki 35 700 EUR 0 11 9 1 1 AUCS Communications Services v.o.f., Hoofddorp 33 – EUR 159 64 0 0 0 Suomen Numerot NUMPAC Oy, 1829232-0, Helsinki 33 4,000 EUR 0 1 – 0 – UAB TietoEnator Consulting, 2594163, Vilnius 26 4,160 LTL 0 3 – 0 – Operators Clearing House A/S, 18936909, Copenhagen 25 250 DKK 0 2 3 1 Eltel Networks Länsi Oy, 0731522-4, Paimio 21 11,430 EUR 0 7 – 6 – Other operating, dormant and divested companies 0 526 0 985 Total 20,401 23,027

In 2003, the share of voting power in Overseas Telecom AB was reduced to 42 per- transferred to the subsidiary Baltic Tele AB, which now owns the Group’s total hold- cent and the company is no longer a subsidiary. The comparative year value of equi- ing of 49 percent of the shares in Eesti Telekom. The parent company’s shares in OAO ty participation in Overseas Telecom refers to Overseas’ participations in its associ- MegaFon were transferred to a subsidiary. The former associated company Loimaan ated companies MTN Uganda Ltd and Mobile Telecommunications Ltd (MTC) in Seudun Puhelin Oy became a subsidiary in 2003. Divestitures in 2003 included Mara- Namibia. kanda Marknadsplats AB, Maila Nordic AB and Suomen Erillisverkot Oy. Letemell AB The share of voting power in Infonet Services Corp. 21 percent. OAO Telecom- was liquidated. The holdings in Netia S.A. and Metro One Telecommunications, Inc. invest owns an additional 31 percent of the shares in OAO MegaFon. Turkcell Hold- decreased to the extent that these entities were no longer associated companies. ing A.S. owns 51 percent of the shares in Turkcell Iletisim Hizmetleri A.S. Later on the remaining shares in Netia S.A. were sold. Altogether, the Group’s equity The parent company’s and subsidiaries’ respective holdings of associated compa- participation in the named companies amounted to SEK 627 million and the book nies for the comparative year chiefly related to restructuring and companies divested. value in each parent company to SEK 1,217 million. In 2003, the parent company’s and a subsidiary’s shares in AS Eesti Telekom were

94 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

Other holdings of securities Book/fair value for Book value in each consolidation in the Group parent company Company, Partici- Par value in 2003 2002 2003 2002 Corp. Reg. No., pation Number local currency (SEK in (SEK in (SEK in (SEK in registered office (%) of shares (in millions) millions) millions) millions) millions) Parent company holdings Swedish companies Wireless MainGate AB, 556551-9690, Karlskrona 16 11,288,788 SEK 0 0 0 0 8 Taste Now AB, 556584-8602, Stockholm 16 400 SEK 0 0 0 0 0 NGF NetGame Factory AB, 556588-3344, Stockholm 10 147,000 SEK 0 0 6 0 6 Slottsbacken Fund Two KB, 969660-9875, Stockholm 18 – SEK – 5 7 5 7 Hyglo AB, 556601-6761, Stockholm 8 16,800 SEK 0 0 – 0 – Other operating, dormant and divested companies 0 0 0 0 Companies outside Sweden Digital Telecommunications Philippines Inc., Manila-Quezon City 9 600,000,000 PHP 600 40 40 40 40 Vision Capital L.P., LP64, Saint Helier 6 – USD 2 3 18 3 18 Reach-U Holding Oyj, 1700628-1, Helsinki 3 673,872 EUR 0 0 0 0 0 Eutelsat S.A., B422551176, Paris 1 7,461,620 EUR 7 67 67 67 62 Atrica, Inc., 770532447, Santa Clara, CA 1 249,377 USD 0 0 10 0 10 Intelsat, Ltd., Bermuda 0 1,566,190 USD 2 7 7 7 7 Other operating, dormant and divested companies 0 76 0 99 Total 122 257

Subsidiaries’ holdings Swedish companies Nerileran AB, 556293-1799, Karlstad 18 22,397 SEK 0 0 10 0 10 Incirco AB, 556575-8546, Stockholm 16 327,807 SEK 0 0 0 0 0 Internetprint Nordic AB, 556549-3342, Malmö 14 216,667 SEK 0 0 0 0 0 Other operating, dormant and divested companies 0 11 11

Subsidiaries’ holdings Companies outside Sweden Digia Oy, 1073758-3, Helsinki 15 51,833 EUR 0 49 60 49 60 Eveo Inc., C2175136, San Francisco, CA 10 2,000,000 USD 0 0 21 0 21 Juniper Financial Corp., Wilmington, DE 8 7,464,280 USD 0 7 16 7 16 Oy Finnet International Ab, 0946082-0, Helsinki 7 236 EUR 0 8 – 8 – Metro One Telecommunications, Inc., 930995165, Beaverton, OR 7 1,635,000 USD – 26 – 26 – CellGlide Ltd., 04573898, London 6 136,081 GBP 0 11 15 11 15 Dejima, Inc., C2335702, Palo Alto, CA 5 – USD 0 0 16 0 16 Fonecta Group Oy, 1747839-3, Helsinki 4 427,000 EUR 0 3 – 3 – Codetoys Oy, 1082133-9, Espoo 3 636,851 EUR 0 0 17 0 17 Santapark Oy, 1095079-8, Rovaniemi 3 10,000 EUR 0 2 2 2 2 InPhonic, Inc., Sacramento, CA 4 744,198 USD 0 5 21 5 21 Bytemobile, Inc., C2266090, Mountain View, CA 2 735,476 USD 0 4 10 4 10 Radiolinja Eesti AS, 10261411, Tallinn 2 8 EEK 0 1 – 1 – PacketVideo Corp., C2119477, San Diego, CA 1 262,467 USD 0 1 29 1 29 Helsinki Halli Oy, 1016235-3, Helsinki 1 36 EUR 0 4 4 4 4 Digital Media & Communications II L.P., Boston, MA 0 – USD – 16 84 16 84 Allegis Capital, LLC, 199817710056, San Francisco, CA 0 – USD – 0 66 0 66 Intellect Capital Ventures, Palo Alto, CA 0 – USD – 24 56 24 56 TelAdvent LP, Boston, MA 0 – USD – 15 37 15 37 Magnum Communications L.P., Cayman Islands 0 – USD – 11 29 11 29 Diamondhead Ventures, L.P., 200000500011, Menlo Park, CA 0 – USD – 4 18 4 18 Wideray Corp., C2261105, San Francisco, CA 0 – USD 0 0 10 0 10 Siennax International B.V., Amstelveen 0 1,841,211 EUR 0 9 9 9 9 Phonetic Systems Ltd., Petach Tikva 0 339,506 ILS 0 0 59 0 59 Kiinteistö Oy Mechelininkatu, Helsinki 0 280 EUR 0 1 1 1 1 Kiinteistö Oy Turun Monitoimihalli, 0816425-3, Turku 0 1 EUR 0 1 – 1 – Technopolis Oyj, 0487422-3, Oulu 0 27,433 EUR 0 1 1 1 1 Participations in real estate and housing companies, Finland – – EUR – 25 29 25 29 Participations in local phone companies, Finland – – EUR – 7 7 7 7 Other operating, dormant and divested companies 0 181 0 188 Total 357 1,050

The parent company’s and subsidiaries’ respective holdings of other securities for the Ledstiernan AB, Handwise Oy, 724 Solutions, Inc., Zapper Technologies, Inc., Vita- comparative year chiefly related to restructuring and companies divested. In 2003, minic S.p.A. and eBay Inc. Peoples Telephone Company Ltd. is owned by Overseas shares in Hyglo AB and Eutelsat S.A. that were previously owned by subsidiaries were Telecom AB, which became an associated company in 2003. Altogether, the Group’s transferred to the parent company. Divestitures in 2003 included Netia 1 Sp. z o.o., equity participation in the named companies amounted to SEK 271 million and the Done Solutions Oyj, Entrust, Inc., New Skies Satellites N.V., Inmarsat Ventures plc, book value in each parent company to SEK 294 million. Financials

TELIASONERA ANNUAL REPORT 2003 95 Notes to Consolidated Financial Statements – IFRS/IAS

42 Quarterly Data

2003 SEK in millions, except per share data Q1 Q2 Q3 Q4 Total Net sales 20,674 20,603 20,094 21,054 82,425 EBITDA excluding non-recurring items 7,625 8,017 7,915 7,143 30,700 Non-recurring items – 1,380 –344 299 1,335 EBITDA 7,625 9,397 7,571 7,442 32,035 Depreciation, amortization and write-downs –4,437 –4,374 –4,337 –4,559 –17,707 Income from associated companies 84 –620 419 499 382 Operating income 3,272 4,403 3,653 3,382 14,710 Income after financial items 2,742 4,704 3,353 3,100 13,899 Net income 1,609 2,983 1,792 2,696 9,080 Basic and diluted earnings/loss per share (SEK) 0.35 0.64 0.38 0.58 1.95 Free cash flow 3,891 5,013 5,138 3,309 17,351 Investments 3,375 2,231 1,899 4,613 12,118 of which CAPEX 2,153 1,995 1,889 3,336 9,373 of which acquisitions 1,222 236 10 1,277 2,745

2002 SEK in millions, except per share data Q1 Q2 Q3 Q4 Total Net sales 13,885 14,346 14,496 16,756 59,843 EBITDA excluding non-recurring items 3,381 3,587 4,281 4,443 15,692 Non-recurring items 23 –827 –3,997 –1,470 –6,271 EBITDA 3,404 2,760 284 2,973 9,421 Depreciation, amortization and write-downs –2,707 –3,004 –11,057 –4,076 –20,844 Income from associated companies 12 363 –42 195 528 Operating income 709 119 –10,815 –908 –10,895 Income after financial items 535 –78 –10,964 –1,109 –11,616 Net income 127 30 –10,118 1,894 –8,067 Basic and diluted earnings/loss per share (SEK) 0.04 0.01 –3.37 0.54 –2.58 Free cash flow –1,107 1,722 2,059 1,203 3,877 Investments 2,053 2,637 1,956 47,792 54,438 of which CAPEX 2,022 2,091 1,783 8,449 14,345 of which acquisitions 31 546 173 39,343 40,093

2001 SEK in millions, except per share data Q1 Q2 Q3 Q4 Total Net sales 13,592 14,203 14,431 14,970 57,196 EBITDA excluding non-recurring items 3,348 3,014 3,420 3,133 12,915 Non-recurring items 30 271 –239 322 384 EBITDA 3,378 3,285 3,181 3,455 13,299 Depreciation, amortization and write-downs –2,410 –2,505 –2,775 –6,285 –13,975 Income from associated companies –157 208 2,339 3,746 6,136 Operating income 811 988 2,745 916 5,460 Income after financial items 502 909 2,491 906 4,808 Net income 291 250 1,900 –572 1,869 Basic and diluted earnings/loss per share (SEK) 0.10 0.08 0.63 –0.19 0.62 Free cash flow –3,082 –1,304 –1,527 –593 –6,506 Investments 3,659 5,954 5,965 5,157 20,735 of which CAPEX 3,568 3,666 5,630 4,849 17,713 of which acquisitions 91 2,288 335 308 3,022

Income taxes 43 Swedish GAAP Deferred tax assets and liabilities are calculated for all differences between IFRS/IAS and Swedish GAAP, when applicable. Differences in principles TeliaSonera’s consolidated financial statements are prepared in accordance with Translation into Swedish GAAP International Financial Reporting Standards (IFRS/IAS). IFRS/IAS differ in certain The effects of applying Swedish GAAP are fully described in the following consoli- respects from Swedish law and accounting practices, primarily with respect to the dated financial statements in accordance with ÅRL. reporting of financial instruments and write-ups of tangible fixed assets. Besides Swedish law (Årsredovisningslagen, ÅRL – the Swedish Annual Accounts Act), accounting practices for Swedish publicly quoted companies are governed by 44 Finnish GAAP standards issued by Redovisningsrådet (the Swedish Financial Accounting Standards Council). These standards are based on IFRS/IAS but still differ from IFRS/IAS in certain The following information is provided pursuant to the Finnish Financial Supervision respects. However, with reference to TeliaSonera’s operations and other relevant cir- Authority decision no. 28/269/2002. cumstances, the accounting principles applied by TeliaSonera do not materially differ This annual report has been prepared in accordance with chapter 2, section 6 of from Redovisningsrådet’s standards. the Finnish Securities Markets Act. As defined in note “Basis for Presentation;” section “General,” TeliaSonera pre- Financial instruments pares its consolidated financial statements in accordance with International Financial Swedish law differs from IFRS/IAS mainly with regard to accounting for unrealized Reporting Standards (IFRS/IAS). The main differences between Finnish Accounting value changes in derivatives and publicly quoted securities and accounting for lia- Standards (Finnish GAAP) and IFRS/IAS, relevant to TeliaSonera, are as follows. bilities hedged against changes in fair value (see note “Financial Instruments and Financial Risk Management”). The Swedish Annual Accounts Act (ÅRL) stipulates Business combinations valuation at the lower of acquisition cost or fair value. Under Finnish GAAP an acquisition paid through the issue of own shares does not require that the purchase price is determined based on the market value of the issued Write-up of tangible fixed assets shares. IFRS/IAS require that the purchase price is determined based on the market Following an economic life analysis and a subsequent management decision to value of the issued shares, which often results in the recognition of goodwill and other change the depreciation period for the fixed local access network from 8 years to assets at consolidation and future depreciation and amortization of such amounts. 20 years and for switching equipment for ADSL customers from 3 years to 10 years, Historically TeliaSonera has not issued own shares at acquisitions but the merger with the parent company under ÅRL made a one-off write-up of tangible fixed assets. This Sonera involved the issue of own shares. method is not allowed under IFRS/IAS.

96 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

Impairment of fixed assets and long-term investments Stock-based compensation IFRS/IAS require that if future cash flows are used for recoverability tests these cash Under IFRS/IAS, TeliaSonera does not record an expense with respect to its employee flows should be discounted. Finnish GAAP do not exactly define how recoverability stock option programs, implemented in 2001 and 2002. In 2001, TeliaSonera under tests should be performed. U.S. GAAP accounted for employee stock options under the recognition and measurement provisions of APB Opinion No. 25 “Accounting for Stock Issued to Employ- Financial instruments ees” (APB 25) and related interpretations under this method. In December 2002, Under Finnish GAAP, derivative financial instruments cannot be recorded at fair value, FASB Statement No. 148 “Accounting for Stock-Based Compensation – Transition unless used for hedging purposes. Under IFRS/IAS, all derivatives are recorded in the and Disclosure” (FAS 148) was issued. FAS 148 amends FAS 123 “Accounting for balance sheet at fair value. The changes in the fair value of derivatives are recorded Stock-Based Compensation” and provides alternative methods of transition for a either in earnings or in a separate component of shareholders’ equity, depending on voluntary change to the fair value based method of accounting for stock-based the intended use and designation of the derivative at its inception. employee compensation under FAS 123. In addition, FAS 148 amends the disclosure Under Finnish GAAP, investments in marketable securities should be recorded at requirements of FAS 123 to require more prominent and more frequent disclosures the lower of cost or market value and the unrealized changes are recorded in the in financial statements about the effects of stock-based compensation. FAS 148 income statement as write-downs or reversals of write-downs. Under IFRS/IAS, Telia- became effective for fiscal years ending after December 15, 2002. Under U.S. GAAP, Sonera reports all marketable securities classified as “available-for-sale” at fair value, TeliaSonera began expensing the cost of employee stock options in the fourth quar- and records the unrealized gains and losses as a separate component of sharehold- ter of 2002 and has elected to use the retroactive restatement method of FAS 148. ers’ equity, unless there is an impairment, in which case a write-down is recorded in Accordingly, all prior periods presented have been restated to reflect compensation the income statement. costs that would have been recognized had the recognition provisions of FAS 123, as amended by FAS 148, been applied to all awards granted to employees. Deferred taxes Finnish GAAP do not require the recognition of deferred tax assets for certain tem- Alecta/SPP funds porary differences even if it is apparent that the temporary differences reverses in In 2000, Alecta, a Swedish insurance company formerly called SPP, announced a the foreseeable future. IFRS/IAS require the recognition of a deferred tax asset under refund of pension premiums paid. Part of the refund was repaid in cash and the such circumstances. remaining balance could be applied against future premiums, be paid in cash over several years, or be paid in a lump sum. Under IFRS/IAS, TeliaSonera recognized the present value of the total refund as other operating revenue. Under U.S. GAAP, cash 45 U.S. GAAP refunds are recognized as other operating revenue when received. Restructuring costs Differences in principles Under IFRS/IAS, a provision for restructuring costs is recognized when the general TeliaSonera’s consolidated financial statements are prepared in accordance with requirements for recording provisions are met. Under U.S. GAAP, a restructuring International Financial Reporting Standards (IFRS/IAS), which differ in certain respects charge is recorded when a detailed plan for exit costs has been developed and those from United States Generally Accepted Accounting Principles (U.S. GAAP). Application costs relating to employee termination benefits have been developed in sufficient of U.S. GAAP would have affected shareholders’ equity as of December 31, 2003, detail so that employees who may be subject to termination would be aware of the 2002 and 2001 and net income for each of the years in the three-year period ended benefit they were to receive upon involuntary termination. U.S. GAAP requires that December 31, 2003. The significant differences between IFRS/IAS and U.S. GAAP as significant changes in the plan are unlikely. Certain provisions of the restructuring related to TeliaSonera are discussed below. accrual recorded under IFRS/IAS in 2002 related to the workforce reduction and certain other exit costs did not meet the U.S. GAAP requirements and accordingly were Revenue recognition reversed. In 2003, the U.S. GAAP requirements related to workforce reduction were The SEC Staff Accounting Bulletin No. 104 “Revenue Recognition” (SAB 104) address- met. Under U.S. GAAP, the said other exit costs are recognized as incurred. es revenue recognition under U.S. GAAP. Under this guidance, revenue earned from access, connection and similar fees should be recognized over the estimated life of Share of earnings in associated companies the customer relationship. Also, SAB 104 permits, but does not require, companies TeliaSonera’s share of net income of its associated companies is determined using to defer costs directly associated with such revenue and to also recognize these costs the equity method and is based on financial statements of the investees prepared in over the life of the customer relationship. Under IFRS/IAS, TeliaSonera recognizes this accordance with IAS. This reconciliation item reflects adjustments for the differences revenue and related costs when the services are provided and the related costs are between IFRS/IAS and U.S. GAAP relating to the associates. incurred. Under U.S. GAAP, TeliaSonera has adjusted revenues to reflect the deferral of Financing of associated companies access, connection and similar revenues and subsequent amortization over the esti- TeliaSonera, under IFRS/IAS, records interest costs arising from financing of associ- mated customer life of seven years. TeliaSonera has elected not to defer any associat- ated companies in its operations as incurred. U.S. GAAP requires that interest costs ed costs and accordingly, as permitted under U.S. GAAP, such costs are expensed as be capitalized to the extent that such costs relate to an associated company while incurred. the associated company has activities in progress necessary to commence its planned principal activities as prescribed by FASB Statement No. 34 “Capitalization of Interest Impairment charge Costs.” At the end of 2001, TeliaSonera recorded an impairment charge relating to the impairment of its former business area, Telia International Carrier. Under IFRS/IAS, the Associated companies in hyperinflationary economies business area was written down to its realizable value as determined by discounting The financial statements of TeliaSonera’s associated companies in Turkey have been the expected future cash flows. Under U.S. GAAP, the test for impairment uses the restated under IFRS/IAS for purposes of consolidated financial statements. Under asset’s recoverable amount as determined using expected future undiscounted cash U.S. GAAP, these financial statements have been restated according to the rules set flows. The estimated recoverable (sum of undiscounted cash flows) exceeded the out in FASB Statement No. 52 ‘‘Foreign Currency Translation’’ for operations located carrying value and therefore no impairment was recognized under U.S. GAAP and in hyperinflationary economies. accordingly, the impairment charge and the related valuation allowance for deferred tax recognized under IFRS/IAS was reversed. Goodwill During 2002, management determined a new strategic focus for Telia Interna- Under IFRS/IAS, TeliaSonera amortizes goodwill and other intangible assets. In tional Carrier. Based on this decision management undertook an additional evalua- accordance with FASB Statement No. 142 “Goodwill and Other Intangible Assets” tion of International Carrier assets for impairment test under IFRS/IAS and recognized (FAS 142), goodwill and indefinite lived intangible assets will no longer be amor- an impairment charge of SEK 6,131 million. The results of this evaluation also revealed tized but will be reviewed annually for impairment. Intangible assets that are not that the sum of expected future undiscounted cash flows was below the related assets deemed to have an indefinite life will continue to be amortized over their useful lives. carrying value and therefore an impairment charge was also recognized under U.S. The amortization provisions of FAS 142 apply to goodwill and intangible assets GAAP. acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, TeliaSonera began applying the new accounting rules Sale and leaseback starting January 1, 2002. In 1998 and in 2001, TeliaSonera sold certain real estate properties to external buyers, The adoption of FAS 142 required TeliaSonera to perform an initial impairment while TeliaSonera group companies stayed on as tenants. The profit from the divesti- assessment by June 30, 2002 on all recorded goodwill as of January 1, 2002. At this tures was recognized as revenue in its entirety, under IFRS/IAS, because the rental date, TeliaSonera had no other acquired indefinite lived intangible assets. As required contracts are considered operating leases and the real estate was sold at market value. by FAS 142 this impairment analysis was updated during the fourth quarter of 2002.

Under U.S. GAAP additional conditions must be met in order to immediately rec- Telia did not recognize any impairment loss as a result of assessing impairment. Financials ognize gains on sale-leaseback transactions. As the TeliaSonera Group retained use As a result of adoption, TeliaSonera under U.S. GAAP realized a pre-tax benefit of of more than an insignificant portion, but less than substantially all of the properties SEK 1,804 million on amortization reductions for goodwill on subsidiaries and asso- sold, gain recognition is being deferred. Under U.S. GAAP, during the periods 1998- ciated companies in the year ended December 31, 2002. 2012 and 2001-2013, respectively, that portion of the profit in excess of the discounted present value of the related future gross rental payments at the time of sale Changes in accounting principles is recognized as revenue in proportion to the gross rental payments. FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Other than related operating lease commitments, which extended for 3-15 years Activities” (FAS 133) was effective January 1, 2001. FAS 133 requires that all deriv- from the respective transaction dates, the TeliaSonera Group is not bound by any atives be measured at fair value and recognized as either assets or liabilities on the other outstanding commitments or contingent obligations related to these properties. balance sheet. Changes in the fair value of derivative instruments not used for hedg-

TELIASONERA ANNUAL REPORT 2003 97 Notes to Consolidated Financial Statements – IFRS/IAS

ing purposes or qualifying as accounting hedges will be recognized in earnings Besides different carrying values of Sonera’s net assets and of Sonera’s investments in immediately. Changes in the fair value of derivative instruments qualifying as effec- associated companies, differences in the methods of calculating the fair value of tive accounting hedges will be recognized either in earnings, for hedges of changes TeliaSonera shares and warrants issued and the fair value of other intangible assets in fair value, or in Other Comprehensive Income for hedges of changes in cash flows. affect the amount of goodwill from the transaction under U.S. GAAP. Under IFRS/IAS, The ineffective portion of a derivative instrument’s change in fair value is immedi- the purchase price allocated to identifiable assets and liabilities is amortized based ately recognized in earnings. Under FAS 133, foreign exchange risks hedged under on the estimated useful life of the identifiable assets and liabilities. The excess pur- firm commitments may either be recorded as a fair value hedge or as a cash flow chase price after this allocation is described as goodwill and recognized as a sepa- hedge. TeliaSonera classifies and records these hedges as cash flow hedges. rate asset. Under IFRS/IAS, TeliaSonera amortizes goodwill arising from the merger The transitional rules in IAS 39 and FAS 133 differ somewhat in that under IAS over an economic useful life of 20 years. Under U.S. GAAP, goodwill arising in a busi- 39, TeliaSonera recorded the changes in accounting principles as an adjustment to ness combination shall not be amortized. the opening balance of shareholders’ equity at January 1, 2001. Under U.S. GAAP upon adoption of FAS 133 certain adjusting entries were recorded in earnings in Income taxes accordance with FAS 133, paragraph 52. Deferred tax assets and liabilities are calculated for all differences between IFRS/IAS and U.S. GAAP, when applicable. Merger with Sonera Oyj Under IFRS/IAS, the TeliaSonera shares issued to Sonera shareholders in the manda- Translation into U.S. GAAP tory redemption offer have been valued based on the quoted closing market price Application of U.S. GAAP has the following effects on consolidated net income and of these shares as of the date of the Board of Directors decision to issue new shares, shareholders’ equity. which was February 10, 2003. Under U.S. GAAP, the average market price for a reasonable period before and after the date the terms of a transaction are agreed and January–December announced is to be used in determining the fair value of securities issued. Accord- SEK in millions 2003 2002 2001 ingly, under U.S. GAAP, all TeliaSonera shares issued to Sonera shareholders in con- Net income under IFRS/IAS 9,080 –8,067 1,869 sideration for the merger are valued based on a weighted average share price for the Revenue recognition –325 –147 –239 five consecutive trading days between March 22 and 28, 2002, which was SEK 36.75 Impairment charge – –3,027 3,027 per share. The fair value of TeliaSonera warrants issued to Sonera warrantholders in Sale and leaseback 120 449 –274 the mandatory redemption offer has been determined using the same share price Stock-based compensation –18 –125 –91 and totaled SEK 4 million. Alecta/SPP funds 6 243 138 Furthermore, under IFRS/IAS, the total fair value of TeliaSonera warrants issued Restructuring costs –335 470 – has been recorded as part of the purchase price. Under U.S. GAAP, the fair value of Share of earnings in associated fully vested warrants, amounting to SEK 232 million, has been recognized as part of companies 8 33 29 the purchase price consideration, while the fair value of the unvested warrants, total- Financing of associated companies 0 0 –15 ing SEK 48 million, will be amortized to expense over the future remaining vesting Associated companies in hyperinflationary economies –743 –122 – period as stock-based employee compensation cost. In 2003, the compensatory Goodwill 4,205 1,804 2 cost was SEK 23 million. Changes in accounting principles – – 4 Adjusted to reflect the completion of the merger, the excess of purchase price Merger with Sonera –2,073 –152 – consideration over the fair value of Sonera’s net assets, the fair value adjustments Deferred tax 703 –114 –7 and goodwill under U.S. GAAP are as follows. Net income under U.S. GAAP 10,628 –8,755 4,443

December 31, Adjustments December 31, SEK in millions 2003 in 2003 2002 December 31, Fair value of TeliaSonera SEK in millions 2003 2002 2001 shares issued 61,520 2,553 58,967 Shareholders’ equity under IFRS/IAS 112,393 108,829 59,885 Fair value of TeliaSonera Revenue recognition –4,428 –4,103 –3,956 warrants issued 232 4 228 Impairment charge – – 3,027 Value of Sonera shares and Sale and leaseback –1,076 –1,196 –1,645 warrants acquired for cash 495 495 – Alecta/SPP funds – –6 –249 Transaction related expenses 637 15 622 Restructuring costs 135 470 – Total purchase price Share of earnings in associated consideration 62,884 3,067 59,817 companies 41 33 – Less: Fair value of Sonera’s Financing of associated companies 3 3 3 net assets under U.S. GAAP Associated companies in (based on Sonera’s U.S. GAAP hyperinflationary economies –3,292 –122 – reconciliation on Goodwill 6,011 1,806 2 December 3, 2002) –19,054 –953 –18,101 Merger with Sonera 1,593 3,138 – Deferred tax 2,111 1,408 1,522 Excess of purchase price Exchange rate differences –1,711 9 – consideration over fair value Shareholders’ equity under U.S. GAAP 111,780 110,269 58,589 of Sonera’s net assets 43,830 2,114 41,716 Less: Identified intangibles at fair value: The adjustments would have changed certain items in the consolidated income state- Trade names –1,690 –144 –1,546 ments and balance sheets. The following table shows summary income statements Licenses, patents, and and balance sheets after the application of U.S. GAAP. roaming and interconnect agreements –5,782 –290 –5,492 January–December Subscriber contracts –16,038 –969 –15,069 SEK in millions, except per share data 2003 2002 2001 Less: Fair value adjustment Income statements under U.S. GAAP of computer software –271 –18 –253 Net sales 82,099 59,336 56,957 Less: Fair value adjustment Income from associated companies 284 809 6,147 of real estate and plant Operating income 15,555 –11,472 8,033 and machinery –777 –12 –765 Income after financial items 14,744 –12,190 7,390 Less: Fair value adjustment of Income taxes –3,147 3,505 –2,925 investments in associated Minority interests –969 –70 –22 companies and other Net income 10,628 –8,755 4,443 equity holdings –6,261 2,479 –8,740 Add-back: Fair value Basic and diluted earnings/loss adjustment of per share (SEK) 2.28 –2.80 1.48 pension obligations 539 27 512 Deferred tax 6,125 –1,665 7,790 Goodwill 19,675 1,522 18,153

Under IFRS/IAS, roaming and interconnect agreements with other operators as well as most of the customer list (‘‘portfolio of customers’’) do not meet the definition of an intangible asset. Therefore, TeliaSonera under IFRS/IAS has not assigned any value to Sonera’s roaming and interconnect agreements and only assigned a limited value to Sonera’s customer list, reflecting certain long-term contractual agreements with customers. Under U.S. GAAP, the fair values of roaming and interconnect agreements and the total customer list are recorded as intangible assets and amortized over their economic useful lives.

98 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – IFRS/IAS

December 31, 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost SEK in millions 2003 2002 2001 as generally defined in EITF 94-3 was recognized at the date of an entity’s commit- Balance sheets under U.S. GAAP ment to an exit plan. FAS 146 states that an entity’s commitment to a plan, by itself, Fixed assets 163,769 183,627 99,236 does not create an obligation that meets the definition of a liability. Therefore, FAS Current assets 37,018 33,837 33,259 146 eliminates the definition and requirements for recognition of exit costs in EITF Total assets 200,787 217,464 132,495 94-3. It also establishes that fair value is the objective for initial measurement of the Shareholders’ equity 111,780 110,269 58,589 Minority interests 3,441 5,210 204 liability. FAS 146 became effective prospectively for exit or disposal activities initiated Provisions 21,072 22,386 13,107 after December 31, 2002. The application of FAS 146 did not have a material effect Long-term loans 25,867 32,124 25,193 on TeliaSonera’s earnings and financial position under U.S. GAAP. Short-term loans 4,687 12,608 3,931 Long-term liabilities 4,826 5,773 6,262 FAS 149 Current liabilities 29,114 29,094 25,209 In April 2003, FASB Statement No. 149 “Amendment of Statement 133 on Deriva- Total shareholders’ equity and liabilities 200,787 217,464 132,495 tive Instruments and Hedging Activities” (FAS 149) was issued. FAS 149 requires that contracts with comparable characteristics be accounted for similarly. In particular, Comprehensive income FAS 149 clarifies under what circumstances a contract with an initial net investment The accounts should comply with FASB Statement No. 130 “Reporting Comprehen- meets the characteristic of a derivative, clarifies when a derivative contains a financing sive Income” to take into account the concept of comprehensive income. This concept component, amends the definition of an underlying to conform it to language used includes net income for the year and items charged directly to equity originating from in FIN 45 (see below), and amends certain other existing pronouncements. FAS 149 non-owner sources. was effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. In addition, provisions of FAS January–December 149 should be applied prospectively. The application of FAS 149 did not have a SEK in millions 2003 2002 2001 material effect on TeliaSonera’s earnings and financial position under U.S. GAAP. Net income under U.S. GAAP 10,628 –8,755 4,443 Derivatives at fair value: FAS 150 Application of FAS 133 – – –182 In May 2003, FASB Statement No. 150 “Accounting for Certain Financial Instru- Change during the year –10 12 114 ments with Characteristics of both Liabilities and Equity” (FAS 150) was issued. FAS Unrealized gains/losses on securities 150 establishes standards for how an issuer classifies and measures certain financial available for sale – 8 143 instruments with characteristics of both liabilities and equity. It requires that an issuer Translation of foreign operations –9,812 1,735 3,785 classify a financial instrument that is within its scope as a liability (or an asset in some Other items –23 –57 –155 circumstances). Many of those instruments were previously classified as equity. FAS Other comprehensive income –9,845 1,698 3,705 150 is effective for financial instruments entered into or modified after May 31, 2003, Total comprehensive income 783 –7,057 8,148 and otherwise is effective at the beginning of the first interim period beginning after Accumulated comprehensive income 13,526 12,743 19,800 June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date Expected future amortization of other intangible assets of FAS 150 and still existing at the beginning of the interim period of adoption. Given the current ownership structure and the same exchange rates as in 2003, and Restatement is not permitted. The application of FAS 150 did not have a material that no events will occur that would trigger impairment charges, TeliaSonera expects effect on TeliaSonera’s earnings and financial position under U.S. GAAP. the following amortization of other intangible assets during the next five-year period. FIN 45 SEK in millions 2004 2005 2006 2007 2008 In November 2002, FASB Interpretation No. 45 “Guarantor’s Accounting and Dis- closure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness Amortization of other of Others” (FIN 45) was issued. Guarantees meeting the characteristics described in intangible fixed assets 3,558 3,258 3,258 2,996 2,579 FIN 45, which are not included in a long list of exceptions, are required to be initially Recently issued accounting pronouncements recorded at fair value, which is different from the general current practice of recording a liability only when a loss is probable and reasonably estimable, as those terms FAS 143 are defined in FASB Statement No. 5 “Accounting for Contingencies.” FIN 45 also FASB Statement No. 143 “Accounting for Obligations Associated with the Retirement requires a guarantor to make significant new disclosures for virtually all guarantees of Long-Lived Assets” (FAS 143) was issued in August 2001. FAS 143 addresses finan- even if the likelihood of the guarantor’s having to make payments under the guar- cial accounting and reporting for the retirement obligation of an asset and states antee is remote. FIN 45’s disclosure requirements are effective for financial statements that companies should recognize the asset retirement cost, at its fair value, as part of interim or annual periods ending after December 15, 2002. The initial recognition of the cost of the asset and classify the accrued amount as a liability in the consoli- and initial measurement provisions are applicable on a prospective basis to guarantees dated balance sheet. The asset retirement liability is then accreted to the ultimate issued or modified after December 31, 2002. The application of FIN 45 did not have payout as interest expense. The initial measurement of the liability would be subse- a material effect on TeliaSonera’s earnings and financial position under U.S. GAAP. quently updated for revised estimates of the discounted cash outflows. FAS 143 became effective for fiscal years beginning after June 15, 2002. The application of FIN 46 FAS 143 did not have a material effect on TeliaSonera’s earnings and financial posi- In January 2003, FASB Interpretation No. 46 “Consolidation of Variable Interest Enti- tion under U.S. GAAP. ties” (FIN 46) was issued. On December 24, 2003, it was replaced by FASB Inter- pretation No. 46 (revised December 2003) “Consolidation of Variable Interest Enti- FAS 145 ties – an interpretation of ARB No. 51” (FIN 46R). FIN 46R is an interpretation of FASB Statement No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amend- Accounting Research Bulletin No. 51 “Consolidated Financial Statements” and ment of FASB Statement No. 13, and Technical Corrections” (FAS 145) was issued in changes the criteria currently used by companies in deciding whether they are April 2002. FAS 145 rescinds FAS 4 “Reporting Gains and Losses from Extinguish- required to consolidate another entity. The application of FIN 46R did not have a ment of Debt,” and an amendment of that statement, FAS 64 “Extinguishments of material effect on TeliaSonera’s consolidated financial statements under U.S. GAAP. Debt Made to Satisfy Sinking-Fund Requirements.” FAS 145 also rescinds FAS 44 “Accounting for Intangible Assets of Motor Carriers.” FAS 145 amends FAS 13 EITF 00-21 “Accounting for Leases,” to eliminate an inconsistency between the required In November 2002, the Emerging Issues Task Force (EITF) within FASB reached a accounting for sale-leaseback transactions and the required accounting for certain consensus on Issue 00-21 “Revenue Arrangements with Multiple Deliverables” (EITF lease modifications that have economic effects that are similar to sale-leaseback 00-21), providing further guidance on how to account for multiple element con- transactions. FAS 145 also amends other existing authoritative pronouncements to tracts. EITF 00-21 is effective for all arrangements entered into on or after January 1, make various technical corrections, clarify meanings, or describe their applicability 2004. TeliaSonera does not expect the application of EITF 00-21 to have a material under changed conditions. The provisions of FAS 145 related to the rescission of FAS impact on its accounting treatment of multiple element contracts under US. GAAP. 4 shall be applied in fiscal years beginning after May 15, 2002. Two provisions related to FAS 13 became effective for transactions occurring after May 15, 2002. All other provisions of FAS 145 became effective for financial statements issued on or after May 15, 2002. The application of FAS 145 did not have a material effect on Telia- 46 Definitions Sonera’s earnings and financial position under U.S. GAAP. Financials Concepts FAS 146 EBITDA In July 2002, FASB Statement No. 146 “Accounting for Costs Associated with Exit or An abbreviation of “Earnings Before Interest, Tax, Depreciation and Amortization.” Disposal Activities” (FAS 146) was issued. FAS 146 addresses financial accounting Equals operating income before depreciation, amortization and write-downs and and reporting for costs associated with exit or disposal activities and nullifies EITF before income from associated companies. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The Non-recurring items principal difference between FAS 146 and EITF 94-3 relates to FAS 146’s requirements Non-recurring items include capital gains and losses, costs for phasing out opera- for recognition of a liability for a cost associated with an exit or disposal activity. FAS tions, personnel redundancy costs, and non-capitalized expenses in conjunction with

TELIASONERA ANNUAL REPORT 2003 99 Notes to Consolidated Financial Statements – IFRS/IAS and Auditors’ Report – IFRS/IAS

the merger with Sonera in 2002. Effective January 1, 2003, only capital gains/losses, Churn write-downs, restructuring programs or similar that represent more than SEK 100 Number of customers that have left the company expressed as a percentage of the million on an individual basis, will be reported as non-recurring. Comparable periods average number of customers. have not been restated. Labor productivity Adjusted equity Year-on-year percentage change in the ratio of net sales at fixed prices to the aver- Reported equity less the (proposed) dividend. age number of full-time employees.

Capital employed Notation conventions Total assets less non-interest-bearing liabilities and non-interest-bearing provisions In conformance with Swedish and international standards, this report applies the recorded, and the (proposed) dividend. following currency notations:

Operating capital SEK Swedish krona HKD Hong Kong dollar NOK Norwegian krone Non-interest-bearing assets less non-interest-bearing liabilities, including the (pro- AZM Azerbaijan manat HUF Hungarian forint PHP Philippine peso posed) dividend, and non-interest-bearing provisions. CHF Swiss franc INR Indian rupee PLN Polish zloty CZK Czech koruna JPY Japanese yen RUR Russian ruble Net interest-bearing liability DEM German mark KZT Kazakhstan tenge SGD Singapore dollar Interest-bearing liabilities and provisions less interest-bearing assets but including DKK Danish krone LKR Sri Lankan rupee TRL Turkish lira participations in associated companies. EEK Estonian kroon LTL Lithuanian lita UGX Ugandan shilling EUR European euro LVL Latvian lat USD U.S. dollar Net borrowings GBP Pound sterling Interest-bearing liabilities less interest-bearing assets but including participations in associated companies.

Net debt Interest-bearing liabilities less short-term investments and cash and bank. Auditors’ Report Free cash flow Cash flow from operating activities less intangible and tangible fixed assets acquired. – IFRS/IAS CAPEX An abbreviation of “Capital Expenditure.” Investments in intangible and tangible Statement at the request of the Board of Directors of TeliaSonera AB (publ) fixed assets but excluding goodwill and fair-value adjustments. We have audited the consolidated financial statements, pages 58-100, of TeliaSonera Acquisitions AB (publ) as of December 31, 2003. These financial statements are the responsibility Investments in goodwill and fair-value adjustments, shares, and participations. of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. EBITDA margin We conducted our audit in accordance with Generally Accepted Auditing Stan- EBITDA excluding non-recurring items expressed as a percentage of net sales. dards in Sweden. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of mate- Operating margin (EBIT margin) rial misstatement. An audit includes examining, on a test basis, evidence supporting Operating income expressed as a percentage of net sales. the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, Return on sales as well as evaluating the overall financial statement presentation. We believe that our Net income expressed as a percentage of net sales. audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial Total asset turnover position of the Company as of December 31, 2003, and of the results of its opera- Net sales divided by the average balance sheet total. tions and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS/IAS). Turnover of capital employed Net sales divided by the average capital employed. Stockholm, March 3, 2004 Return on assets Operating income plus financial revenues expressed as a percentage of the average Ernst & Young AB KPMG Bohlins AB balance sheet total.

Return on capital employed Lars Träff Thomas Thiel Operating income plus financial revenues expressed as a percentage of average capi- Authorized Public Accountant Authorized Public Accountant tal employed.

Return on equity Net income expressed as a percentage of average adjusted equity.

Equity/assets ratio Adjusted equity expressed as a percentage of total assets.

Debt/equity ratio Net interest-bearing liability divided by adjusted equity.

Interest coverage ratio Operating income plus financial revenues divided by financial expenses.

Self-financing rate Cash flow from operating activities divided by gross investments.

Per share data Earnings per share are based on the weighted average number of shares before and after dilution with potential ordinary shares, while shareholders’ equity per share are based on the number of shares at the end of the period.

Pay-out ratio Dividend per share divided by basic earnings per share.

ARPU Average monthly revenue per user.

100 TELIASONERA ANNUAL REPORT 2003 Consolidated Income Statements – ÅRL

Consolidated Income Statements – ÅRL

January–December SEK in millions, except per share data Note 2003 2002 2001 Net sales 6, 34, 35 82,425 59,483 57,196 Costs of production 7, 10 –46,688 –38,182 –40,435 Gross income 35,737 21,301 16,761 Sales, administrative, and research & development expenses 7, 10 –23,161 –18,667 –17,943 Other operating revenues and expenses 8, 10 1,752 –14,066 506 Income from associated companies 11, 34, 35 382 531 6,136 Operating income 34, 35 14,710 –10,901 5,460 Financial revenues and expenses 13 –811 –720 –695 Income after financial items 13,899 –11,621 4,765 Income taxes 14 –3,850 3,620 –2,905 Minority interests –969 –70 –22 Net income 9,080 –8,071 1,838 Earnings per share (SEK) 21 Basic 1.95 –2.58 0.61 Diluted 1.95 –2.58 0.61 Financials

TELIASONERA ANNUAL REPORT 2003 101 Consolidated Balance Sheets – ÅRL

Consolidated Balance Sheets – ÅRL

December 31, SEK in millions Note 2003 2002 2001 Assets Intangible fixed assets 15 61,820 68,106 26,816 Tangible fixed assets 16, 28 54,110 56,172 47,314 Equity participations in associated companies 17, 30 20,401 23,027 9,927 Other financial fixed assets 17, 28, 30 21,470 25,411 10,818 Total fixed assets 157,801 172,716 94,875 Inventories, etc. 18 501 580 636 Receivables 19, 28, 30 24,170 26,617 23,508 Short-term investments 20 8,658 3,826 7,601 Cash and bank 3,689 2,831 1,518 Total current assets 37,018 33,854 33,263 Total assets 194,819 206,570 128,138 Shareholders’ equity and liabilities Restricted equity Share capital 14,961 14,738 9,604 Restricted reserves 74,919 77,024 36,351 Non-restricted equity Non-restricted reserves 17,068 25,200 12,182 Net income 9,080 –8,071 1,838 Total shareholders’ equity 116,028 108,891 59,975 Minority interest in equity 3,441 5,120 204 Provisions for pensions and employment contracts 22 522 224 2,358 Deferred tax liability 14, 23 9,922 10,673 6,935 Other provisions 23 6,238 7,509 3,809 Total provisions 16,682 18,406 13,102 Interest-bearing liabilities Long-term loans 24, 28, 30 25,606 31,990 25,069 Short-term loans 25, 28, 30 4,687 12,596 3,929 Non-interest-bearing liabilities Long-term liabilities 26, 28 2,489 2,350 3,049 Current liabilities 27, 30 25,886 27,217 22,810 Total liabilities 58,668 74,153 54,857 Total shareholders’ equity and liabilities 194,819 206,570 128,138

Contingent assets 31 – – – Collateral pledged 31 2,789 373 91 Contingent liabilities 31 3,099 6,006 785

102 TELIASONERA ANNUAL REPORT 2003 Consolidated Statements of Cash Flows – ÅRL Consolidated Statements of Cash Flows – ÅRL

January–December SEK in millions Note 2003 2002 2001 Net income 9,080 –8,071 1,838 Adjustments: Depreciation, amortization and write-downs 18,248 21,029 14,147 Capital gains/losses on sales/discards of fixed assets –2,618 –79 –769 Income from associated companies 251 –531 –5,848 Pensions and other provisions –2,880 2,791 –1,132 Financial items 33 363 –424 329 Income taxes 33 2,542 –3,742 2,274 Minority interest, miscellaneous non-cash items 978 140 –567 Cash flow before change in working capital 25,964 11,113 10,272 Increase (–)/Decrease (+) in operating receivables 1,423 4,103 –4,996 Increase (–)/Decrease (+) in inventories etc. 125 382 12 Increase (+)/Decrease (–) in operating liabilities –1,069 –3,149 5,128 Change in working capital 479 1,336 144 Cash flow from operating activities 26,443 12,449 10,416 Intangible and tangible fixed assets acquired –9,092 –8,572 –16,922 Intangible and tangible fixed assets divested 358 218 1,316 Compensation received for divested IRU 10 13 – Compensation paid for acquired IRU 0 –48 –996 Shares, participations and operations acquired 33 –2,188 363 –2,241 Shares, participations and operations divested 33 3,902 1,271 15,631 Loans made and other investments –172 –20 –33 Repayment of loans made and other investments 1,215 1,355 482 Investment in financial leasing receivables –2,962 –4,590 –4,031 Amortization of financial leasing receivables 3,400 3,474 3,448 Compensation from/Payment to pension fund 1,000 –1,011 502 Net change in advances and short-term loans to associated companies etc. 1,086 1,994 6,476 Cash flow from investing activities –3,443 –5,553 3,632 Cash flow before financing activities 23,000 6,896 14,048 Dividend –1,870 –600 –1,501 Transactions with minority shareholders –468 –1,059 – Loans raised 374 5,678 4,107 Loans amortized –6,272 –12,840 –62 Net change in interest-bearing liabilities with short maturities –8,176 –1,523 –9,152 Cash flow from financing activities –16,412 –10,344 –6,608 Cash flow for the year 6,588 –3,448 7,440

Cash and cash equivalents, opening balance 5,465 8,923 1,437 Cash flow for the year 6,588 –3,448 7,440 Exchange rate differences in cash and cash equivalents 16 –10 46 Cash and cash equivalents, closing balance 33 12,069 5,465 8,923 Financials

TELIASONERA ANNUAL REPORT 2003 103 Consolidated Statements of Changes in Shareholders’ Equity – ÅRL Consolidated Statements of Changes in Shareholders’ Equity – ÅRL

Acc. exchange Acc. exchange Share Equity Other rate diff., Non- rate diff., Share premium method restricted restricted restricted non-restricted Total SEK in millions capital reserve reserve reserves reserves equity reserves equity Closing balance, December 31, 2000 9,604 13,894 1,297 17,512 1,440 11,689 552 55,988 New share issue expenses after taxes – –16 – – – – – –16 Transactions with non-related parties – – –155 – – – – –155 Exchange rate difference (Note 21) – – – – 3,322 – 499 3,821 Net income recognized directly in equity – –16 –155 – 3,322 – 499 3,650 Dividend – – – – – –1,501 – –1,501 Transfer between restricted and non-restricted equity – – –655 –288 – 943 – – Net income – – – – – 1,838 – 1,838 Closing balance, December 31, 2001 9,604 13,878 487 17,224 4,762 12,969 1,051 59,975 New share issue expenses after taxes – 16 – – – – – 16 Transactions with non-related parties – – – – – –57 – –57 Exchange rate difference (Note 21) – – – – 1,688 – 35 1,723 Net income recognized directly in equity – 16 – – 1,688 –57 35 1,682 Dividend – – – – – –600 – –600 New share issue 5,134 50,771 – – – – – 55,905 Transfer from restricted to non-restricted equity decided by EGM – –11,957 – – – 11,957 – – Transfer between restricted and non-restricted equity – – 130 25 – –155 – – Net income – – – – – –8,071 – –8,071 Closing balance, December 31, 2002 14,738 52,708 617 17,249 6,450 16,043 1,086 108,891 Transactions with non-related parties – – –13 – – – – –13 Write-up (Note 16) – 3,563 – – – – – 3,563 Inflation adjustments – – 2,427 – – – – 2,427 Exchange rate difference (Note 21) – – – – –8,266 – 165 –8,101 Net income recognized directly in equity – 3,563 2,414 – –8,266 – 165 –2,123 Dividend – – – – – –1,870 – –1,870 New share issue 223 1,828 – – – – – 2,051 Transfer between restricted and non-restricted equity – – 1,192 –2,836 – 1,644 – – Net income – – – – – 9,080 – 9,080 Closing balance, December 31, 2003 14,961 58,099 4,223 14,413 –1,816 24,897 1,251 116,028

104 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – ÅRL Notes to Consolidated Financial Statements – ÅRL

1 Basis for Presentation 8 Other Operating Revenues

General and Expenses TeliaSonera’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS/IAS). Effective January 1, Applied accounting principles are described in “Notes to Consolidated Financial 2001, this means that certain financial instruments are valued on an ongoing basis Statements – IFRS/IAS.” at fair value. This valuation principle is also in accordance with the European Union’s Other operating revenues and expenses were distributed as follows. fourth and seventh directives. The Swedish Annual Accounts Act (ÅRL) has so far January–December stipulated valuation at the lower of acquisition value or fair value. A decided change in accordance with the EU directives will be effective January 1, 2004. These con- SEK in millions 2003 2002 2001 solidated financial statements have been prepared in compliance with the current Other operating revenues valuation rules of ÅRL. Capital gains, shares 1,868 220 776 Capital gains, divested operations 20 17 59 Accounting principles Capital gains, other 86 61 512 The applied accounting principles are described in the respective notes. In cases Exchange rate gains 450 521 183 where there are no discrepancies, see the consolidated financial statements under Commissions etc. 13 171 152 IFRS/IAS (“Notes to Consolidated Financial Statements – IFRS/IAS”). Funding etc. 27 3 8 Recovered accounts receivable 275 55 42 Discrepancies between Swedish accounting principles applied by TeliaSonera Damages received 4 47 86 and Finnish Accounting Standards are discussed in note “Finnish GAAP.” Total 2,743 1,095 1,818 Amounts and dates Other operating expenses Unless otherwise specified, all amounts are in millions of Swedish kronor (SEK) or Capital losses, shares –13 –40 459 other currency specified and are based on the twelve-month period ended Decem- Capital losses, divested operations –43 –22 10 ber 31 for income statement items and as of December 31 for balance sheet items, Capital losses, other –296 –331 103 respectively. Provisions for onerous contracts –3 11 49 Exchange rate losses –294 –438 152 Sonera merger expenses –3 –13 – Restructuring costs –247 –14,321 524 2 Use of Estimates Damages paid –92 –7 15 Total –991 –15,161 1,312 See “Notes to Consolidated Financial Statements – IFRS/IAS.” Net effect on income 1,752 –14,066 506

3 Consolidated Financial Statements 9 Related Party Transactions

See “Notes to Consolidated Financial Statements – IFRS/IAS.” See “Notes to Consolidated Financial Statements – IFRS/IAS.”

4 Transactions in Foreign Currencies 10 Depreciation, Amortization

See “Notes to Consolidated Financial Statements – IFRS/IAS.” and Write-Downs

See “Notes to Consolidated Financial Statements – IFRS/IAS.” 5 Changes in Group Composition

See “Notes to Consolidated Financial Statements – IFRS/IAS.” 11 Income from Associated Companies

Applied accounting principles are described in “Notes to Consolidated Financial 6 Net Sales Statements – IFRS/IAS.” January–December See “Notes to Consolidated Financial Statements – IFRS/IAS.” SEK in millions 2003 2002 2001 Share in net income for the year 2,096 293 –903 Amortization of goodwill –565 –112 –465 7 Operating Costs Write-down of goodwill etc. –1,436 –33 –1,820 Net capital gains 287 383 9,324 See “Notes to Consolidated Financial Statements – IFRS/IAS.” Net effect on income 382 531 6,136

Income from associated companies is broken down by business segments in the notes “Profit Center Breakdown” and “Product Area Breakdown.” Financials

TELIASONERA ANNUAL REPORT 2003 105 Notes to Consolidated Financial Statements – ÅRL

Large individual stakes (including stakes held through subsidiaries) have impacted earnings as follows. 13 Financial Revenues and Expenses

January–December Financial items are expensed in the period they occur, with the exception of interest SEK in millions 2003 2002 2001 during installation periods, which is capitalized (see also note “Intangible Fixed UAB Omnitel, Lithuania – 13 –15 Assets” and note “Tangible Fixed Assets”). AB Lietuvos Telekomas, Lithuania – –115 –43 Revenues and costs relating to guarantee commissions are included in Other Latvijas Mobilais Telefons SIA, Latvia – 126 118 interest income and Interest expense. Interest expenses include loan-related bank Lattelekom SIA, Latvia 205 61 – fees and fees to rating institutions and market makers. AS Eesti Telekom, Estonia 177 133 135 OAO MegaFon, Russia 509 51 153 January–December Turkcell Iletisim Hizmetleri A.S., Turkey 618 115 – SEK in millions 2003 2002 2001 Overseas Telecom AB, Sweden 141 85 53 Telefos AB, Sweden 254 –81 –80 Earnings from financial investments Eniro AB, Sweden – –3 6,052 Dividends 3 5 1 Scandinavia Online AB, Sweden – –1 –226 Capital gains/losses 685 –1 4 INGROUP Holding AB, Sweden –123 –16 9 Write-downs –695 –185 –147 COOP Bank AB, Sweden 20 –126 –14 Total –7 –181 –142 Netia S.A., Poland – 0 –2,464 Other financial revenues Unisource N.V./AUCS, the Netherlands 227 38 –372 Interest on financial leases 611 662 600 Comsource UnLtd/Eircom plc, Ireland – 154 126 Other interest income 608 475 964 SI.MOBIL, Slovenia – – 372 Exchange rate gains 544 138 128 Infonet Services Corp., USA –1,517 18 40 Total 1,763 1,275 1,692 Metro One Telecommunications, Inc., USA –309 67 – Other financial expenses Tess S/A, Brazil – 0 2,359 Interest expenses –2,065 –1,697 –2,221 Bharti Mobile Ltd., India 341 184 10 Capitalized interest 43 19 81 Other holdings –161 –172 –77 Exchange rate losses –545 –136 –105 Net effect on income 382 531 6,136 Total –2,567 –1,814 –2,245 Net effect on income –811 –720 –695 Additional information is found in the corresponding section in “Notes to Consoli- dated Financial Statements – IFRS/IAS.” 14 Income Taxes

12 Reconciliation of EBITDA Tax expense Excluding Non-recurring Items Applied accounting principles are described in “Notes to Consolidated Financial Statements – IFRS/IAS.” to Operating Income Pre-tax income was distributed as follows.

Applied accounting principles are described in “Notes to Consolidated Financial January–December Statements – IFRS/IAS.” SEK in millions 2003 2002 2001 Sweden, Group companies January–December (including foreign branch offices) 9,878 –3,401 –1,743 SEK in millions 2003 2002 2001 Sweden, associated companies 103 –307 –423 EBITDA excluding Total Sweden 9,981 –3,708 –2,166 non-recurring items 30,700 15,692 12,915 Finland, Group companies –14 27 68 Non-recurring items 1,335 –6,280 384 Finland, associated companies 22 3 – EBITDA 32,035 9,412 13,299 Rest of world, Group companies 3,939 –8,396 9,628 Depreciation, amortization Rest of world, associated companies –29 453 –2,765 and write-downs (Note 10) –17,707 –20,844 –13,975 Total outside Sweden 3,918 –7,913 6,931 Income from associated Total 13,899 –11,621 4,765 companies (Note 11) 382 531 6,136 Operating income 14,710 –10,901 5,460 Recorded tax expense was distributed as follows.

The following table sets forth non-recurring items. January–December SEK in millions 2003 2002 2001 January–December Current tax SEK in millions 2003 2002 2001 Sweden 1,994 156 630 Restructuring charges (excluding Finland 7 –256 11 depreciation, amortization and Rest of world 760 694 290 write-downs on intangible and Total 2,761 594 931 tangible assets but including Deferred tax reversals of provisions and foreign Sweden 513 –2,283 –26 exchange rate effects) 88 –5,924 –478 Finland 16 –604 12 Implementation costs to gain synergies Rest of world 560 –1,327 1,988 and integrate Telia and Sonera –456 – – Total 1,089 –4,214 1,974 Transaction expenses related to the merger with Sonera – –13 – Total 3,850 –3,620 2,905 Certain pension-related items – –248 88 Net capital gains/losses Current tax expense for each fiscal year attributable to the previous years’ earnings (excluding associated companies) 1,703 –95 774 and tax booked directly to equity were as follows. Total 1,335 –6,280 384 January–December SEK in millions 2003 2002 2001 Tax attributable to previous year –305 –1 43 Tax booked directly to equity 7 –21 –186

106 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – ÅRL

The difference between the nominal rate of Swedish taxation and the effective tax Plant and machinery rate comprises the following components. December 31, SEK in millions 2003 2002 2001 January–December % 2003 2002 2001 Acquisition value, opening balance 138,065 93,985 82,605 Purchases 7,545 8,206 14,398 Swedish income tax rate 28.0 28.0 28.0 Operations acquired 664 36,136 1,507 Differences in tax rates on foreign operations –0.7 2.9 4.1 Dismantling/restoration 106 – – Adjustment of taxes for previous periods –4.6 3.8 2.5 Sales/discards –2,305 –1,384 –1,910 Adjustment for new tax legislation – – 10.2 Operations divested –4,113 – –1,190 Losses for which deferred tax assets Reclassifications –2,294 1,275 –2,332 were not recognized 4.1 –3.0 70.9 Inflation adjustments –6 – – Profits for which deferred tax liabilities Exchange rate differences –2,478 –153 907 were not recognized –2.0 0.6 –5.9 Accumulated acquisition value, Non-deductible expenses 8.2 –5.2 9.6 closing balance 135,184 138,065 93,985 Non-taxable revenues –5.3 4.1 –58.4 Depreciation, opening balance –77,975 –49,393 –43,929 Tax rate as per the income statement 27.7 31.2 61.0 Operations acquired –584 –20,954 –257 Tax booked directly to equity 0.1 –0.1 –3.9 Sales/discards 1,894 1,207 1,649 Effective tax rate 27.8 31.1 57.1 Operations divested 3,039 – 544 Tax rate, current tax 19.9 5.1 19.5 Reclassifications 1,292 –481 48 Inflation adjustments –1 – – Additional information about the effects of changes in tax legislation and informa- Depreciation for the year –10,120 –8,347 –7,249 tion about the geographic and chronological distribution of accumulated tax loss Exchange rate differences 960 –7 –199 carry-forwards is found in the corresponding section in “Notes to Consolidated Accumulated depreciation, Financial Statements – IFRS/IAS.” closing balance –81,495 –77,975 –49,393 Deferred tax liabilities and assets were distributed as follows. Write-downs, opening balance –10,929 –3,364 –135 Sales/discards 156 182 21 December 31, Reclassifications 382 – – Write-downs for the year –289 –7,807 –3,250 SEK in millions 2003 2002 2001 Exchange rate differences 233 60 – Deferred tax liability Accumulated write-downs, Shares and participations 447 2,645 301 closing balance –10,447 –10,929 –3,364 Other long-term assets 7,311 7,255 6,253 Write-ups, opening balance – – – Provisions 1,994 488 – Write-ups for the year 4,949 – – Current receivables and liabilities 2 17 98 Off-balance-sheet items 168 268 283 Accumulated write-ups, closing balance 4,949 – – Total deferred tax liability 9,922 10,673 6,935 Fixed-asset contributions from Deferred tax asset cable TV customers, net – –74 –72 Shares and participations 131 23 69 Advances 45 1 3 Other long-term assets 5,229 2,058 1,319 Provisions and other long-term liabilities 1,282 1,147 947 Total book value, closing balance 48,236 49,088 41,159 Current receivables and liabilities 32 157 16 Tax loss carry-forwards 10,561 14,236 1,343 The acquisition value includes accumulated interest of SEK 617 million, SEK 574 mil- Subtotal 17,235 17,621 3,694 lion and SEK 555 million for the years 2003, 2002 and 2001, respectively. Valuation allowance –2,304 –1,715 –2,243 Based on an economic life analysis, resulting in a decision to extend the depreciation period for copper cables in the Swedish fixed local access network from 8 years Total deferred tax asset 14,931 15,906 1,451 to 20 years and for switching equipment for ADSL customers in Sweden from 3 years to Net deferred tax asset (–)/liability (+) –5,009 –5,233 5,484 10 years, assets were written up as of December 31, 2003. The write-up, net of deferred income taxes, has been recognized as a revaluation reserve in restricted equity. Additional information about the deferred tax liability in other long-term assets, In 2002 and 2001, the carrying value of the previous business area Telia Inter- unrecorded deferred tax liabilities for undistributed earnings in subsidiaries, the national Carrier was written down and, in 2002, assets in the Danish fixed-line oper- deferred tax asset originating from tax loss carry-forwards and distribution of the ations were impaired (see also note “Restructuring Costs”). valuation allowance is found in the corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Equipment, tools and installations See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Untaxed reserves and appropriations See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Distribution by class of asset The total book value was distributed as follows. 15 Intangible Fixed Assets December 31, SEK in millions 2003 2002 2001 See “Notes to Consolidated Financial Statements – IFRS/IAS.” Buildings and land Expenditure on improvements to property not owned by the Group 123 21 164 Buildings 3,152 3,398 1,309 16 Tangible Fixed Assets Land and land improvements 395 386 157 Total 3,670 3,805 1,630 General Plant and machinery See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Fixed networks – switching systems and peripheral equipment 9,480 10,107 5,970 Buildings and land Fixed networks – transmission systems 13,837 11,907 12,200 See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Fixed networks – transmission media and other types of media 14,669 8,831 9,728 Mobile networks 7,271 13,456 7,288 Cable TV networks 550 1,307 1,329 Alarm systems 16 11 20 New installations under construction, advances 2,413 3,469 4,624

Total 48,236 49,088 41,159 Financials Equipment, tools and installations Financial leasing, vehicles 271 297 308 Other equipment, tools and installations 1,933 2,982 4,217 Total 2,204 3,279 4,525 Total 54,110 56,172 47,314

New installations under construction under Plant and machinery are chiefly installations for fixed and mobile networks. Assets owned by Group companies and leased

TELIASONERA ANNUAL REPORT 2003 107 Notes to Consolidated Financial Statements – ÅRL

to other Group companies are included in Plant and machinery and Other equipment, tools and installations as appropriate. 18 Inventories, etc.

See “Notes to Consolidated Financial Statements – IFRS/IAS.” 17 Financial Fixed Assets General 19 Receivables The principles for the consolidation of subsidiaries and associated companies are described in note “Consolidated Financial Statements.” Negative equity participa- Applied accounting principles are described in “Notes to Consolidated Financial tions in associated companies are recognized only for companies for which the Statements – IFRS/IAS.” Group has contractual obligations to contribute additional capital. This is then recorded as Other provisions. December 31, Other holdings of securities are valued at acquisition cost unless an assessment SEK in millions 2003 2002 2001 of the market value indicates that a write-down is necessary (see note “Deprecia- Accounts receivable tion, Amortization, and Write-downs”). Invoiced receivables 12,677 12,376 12,616 Reserve for doubtful receivables –904 –861 –1,078 Equity participations in associated companies Total 11,773 11,515 11,538 See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Other current receivables Interest-bearing Other holdings of securities Receivable from associated companies 226 601 857 December 31, Financial leasing agreements 3,157 3,352 3,046 SEK in millions 2003 2002 2001 Foreign currency interest rate swaps 47 553 17 Receivable from others 340 350 268 Book value, opening balance 1,166 449 635 Non-interest-bearing Acquisitions 102 128 72 Receivable from associated companies 628 399 226 Operations acquired – 769 – Value-added tax 296 277 692 Divestitures –326 –22 –22 Other tax assets 244 369 417 Write-downs –460 –218 –157 International settlements 237 377 32 Reclassifications 89 49 –32 Currency swaps, forward exchange contracts 84 157 344 Share of earnings in partnerships –2 –3 –47 Receivable from others 1,521 1,394 1,432 Exchange rate differences –11 14 – Total 6,780 7,829 7,331 Book value, closing balance 558 1,166 449 Accrued revenues and prepaid expenses Metered call charges 2,549 1,201 889 Other long-term financial assets Interconnect and roaming charges 1,070 810 703 December 31, Other traffic charges 122 3,085 1,129 SEK in millions 2003 2002 2001 Construction and service contracts 31 – 32 Prepaid rent and leasing fees 397 258 201 Book value, opening balance 24,245 10,369 8,402 Other accrued or prepaid items 1,448 1,919 1,685 Changes in accounting principles – – 659 Book value, adjusted opening balance 24,245 10,369 9,061 Total 5,617 7,273 4,639 Purchases 1,012 6,267 3,159 Total 24,170 26,617 23,508 Operations acquired – 11,938 – Sales/discards –3,187 –3,398 –3,732 Written-down accounts receivable (bad debt expense) and recovered accounts Operations divested – – –586 receivable for the years 2003, 2002 and 2001 are recorded in note “Operating Costs” Write-downs –528 –847 –6 and note “Other Operating Revenues and Expenses.” For information on leases, see Reclassifications –333 – 2,276 note “Leasing Agreements and Contractual Obligations.” Exchange rate differences –297 –84 197 Book value, closing balance 20,912 24,245 10,369

Changes in accounting principles in 2001 refer to gross recording of derivatives in 20 Short-term Investments the balance sheet. Short-term investments consist primarily of surplus funds invested in the overnight Distribution by class of asset market and are valued at the acquisition value plus accrued interest revenue (amor- The total book value was distributed as follows. tized cost).

December 31, December 31, SEK in millions 2003 2002 2001 SEK in millions 2003 2002 2001 Associated companies Investments with maturities Equity participations in associated over three months 278 1,192 196 companies 20,401 23,027 9,927 Investments with maturities Interest-bearing receivables 810 1,127 1,154 up to and including three months 8,380 2,634 7,405 Non-interest-bearing receivables 2 242 17 Total 8,658 3,826 7,601 Total 21,213 24,396 11,098 Other holdings of securities See also note “Financial Instruments and Financial Risk Management” and note Shares and participations 357 1,052 449 “Cash Flow Information.” Other securities 201 114 – Total 558 1,166 449 Deferred tax asset 14,931 15,906 1,451 Other long-term receivables 21 Shareholders’ Equity, Interest-bearing Financial leasing agreements 3,298 4,229 3,901 Earnings per Share Service-financing agreements 503 462 438 Loans to employees 14 136 229 Restricted and non-restricted equity Interest rate swaps – 506 13 According to Swedish law, shareholders’ equity is divided into funds available for Foreign currency interest rate swaps 306 441 1,158 distribution (non-restricted) and not available for distribution (restricted). In a group Other 461 281 168 the shareholders can receive as distribution only the non-restricted funds in the parent Non-interest-bearing company or the group, whichever is lower. Operating lease agreements 344 676 1,495 Restricted equity is made up of the share capital and share premium reserve/legal Other 243 239 345 reserve. The Group’s non-restricted equity in the consolidated accounts includes Total 5,169 6,970 7,747 only that part of a subsidiary’s non-restricted equity that can be assigned to the parent company without having to write down the value of the shares in the subsidiary. Total 41,871 48,438 20,745 The Group balance sheet also shows the equity component of untaxed reserves as restricted equity. Earnings in associated companies that have not been distributed The deferred tax asset is discussed in note “Income taxes” and leasing agreements in are recorded in the Group’s equity as an equity reserve in restricted reserves. note “Leasing Agreements and Contractual Obligations.” The valuation of financial fixed assets is discussed in note “Financial Instruments and Risk Management.” Share capital Shareholdings and participations in associated companies as well as other holdings See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” of securities are specified in note “Specification of Shareholdings and Participations.”

108 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – ÅRL

Exchange rate differences The deferred tax liability is discussed in note “Income Taxes” and provisions for December 31, restructuring in note “Restructuring Costs”. In 2001, provisions for guarantee reserves were affected by commitments in connection with the sale of the Telefos SEK in millions 2003 2002 2001 Group and the Orbiant Group. Translation of foreign operations –7,783 1,685 4,202 Forward contracts used as equity hedge – 11 –620 Operations divested –318 30 85 Tax effect arising from the translation 24 Long-term Loans of foreign associated companies – – –20 Other tax effect – –3 174 Long-term loans were distributed as follows. Total –8,101 1,723 3,821 December 31, The cumulative exchange rate differences in restricted equity were distributed as fol- SEK in millions 2003 2002 2001 lows. Financial leasing, vehicles 201 220 255 TeliaSonera FTN/FTO 4,811 5,029 7,493 December 31, TeliaSonera EMTN, other SEK in millions 2003 2002 2001 foreign currency loans 7,272 7,281 14,072 Equity method reserve –1,711 177 397 TeliaSonera Finland EMTN, Other restricted reserves –105 6,273 4,365 other foreign currency loans 11,997 14,838 – Other loans 1,228 4,099 3,200 Total –1,816 6,450 4,762 Interest rate swaps 40 66 19 Foreign currency interest rate swaps 57 457 30 Inflation adjustments See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Total 25,606 31,990 25,069

Earnings per share For the years 2003, 2002 and 2001, SEK 4,995 million, SEK 5,299 million and SEK 3,266 million, respectively, of the loans fell due more than five years after the balance sheet January–December date. See also note “Financial Instruments and Financial Risk Management.” 2003 2002 2001 Net income (SEK million) 9,080 –8,071 1,838 Average number of shares (thousands) 4,667,618 3,124,289 3,001,200 – after dilution (thousands) 4,668,426 3,125,314 3,001,200 25 Short-term Loans Earnings/Loss per share (SEK) – basic 1.95 –2.58 0.61 Short-term loans were distributed as follows. – diluted 1.95 –2.58 0.61 Dividend per share (SEK) (for 2003 December 31, as proposed by the Board) 1.00 0.40 0.20 SEK in millions 2003 2002 2001 Dividend (SEK million) (for 2003 Loans from associated companies 17 24 845 as proposed by the Board) 4,675 1,870 600 Financial leasing, vehicles 73 80 59 TeliaSonera ECP – – 1,001 In 2002 and 2001, General Meetings of shareholders decided to implement a number TeliaSonera FTN 300 1,911 1,127 of stock option schemes (see section “Stock-Based Compensation” in note “Human TeliaSonera EMTN, Resources”). With the terms and conditions that apply to the employee stock option other foreign currency loans 523 6,388 319 schemes, they had a very limited dilution effect upon computation of earnings per TeliaSonera Finland EMTN, share for 2003 and 2002, and no dilution effect for 2001. other foreign currency loans 2,723 1,839 – Other loans 956 2,322 577 Interest rate swaps 25 32 1 22 Provisions for Pensions and Foreign currency interest rate swaps 70 – – Total 4,687 12,596 3,929 Employment Contracts Bank overdraft facilities had a total limit of SEK 984 million, SEK 6,593 million and See “Notes to Consolidated Financial Statements – IFRS/IAS.” SEK 3,083 million for the years 2003, 2002 and 2001, respectively. See also note “Financial Instruments and Financial Risk Management.”

23 Deferred Tax Liability, 26 Long-term Liabilities Other Provisions See “Notes to Consolidated Financial Statements – IFRS/IAS.” Changes in other provisions, including deferred tax liability, were as follows.

December 31, SEK in millions 2003 2002 2001 Book value, opening balance 18,182 10,744 7,826 Provisions for the period 3,956 5,139 3,747 Operations acquired 226 4,795 109 Utilized provisions –2,749 –1,884 –936 Operations divested –41 0 –53 Reversals of provisions –1,076 –617 –11 Reclassifications –2,162 – – Timing and interest-rate effects 67 16 24 Exchange rate differences –243 –11 38 Book value, closing balance 16,160 18,182 10,744

The book value of the provisions was distributed as follows.

December 31, SEK in millions 2003 2002 2001

Deferred tax liability 9,922 10,673 6,935 Financials Other provisions Payroll taxes on future pension payments 302 302 314 Restructuring 3,404 5,247 582 Onerous contracts 87 188 528 Guarantee reserves 2,294 1,673 2,329 Other 151 99 56 Total 6,238 7,509 3,809 Total 16,160 18,182 10,744

TELIASONERA ANNUAL REPORT 2003 109 Notes to Consolidated Financial Statements – ÅRL

27 Current Liabilities 30 Financial Instruments and

Current liabilities were distributed as follows. Financial Risk Management

December 31, General TeliaSonera uses derivative instruments (interest and foreign currency interest rate SEK in millions 2003 2002 2001 swaps, forward contracts, etc.) primarily to control exposure to fluctuations in Accounts payable 7,595 8,949 6,232 exchange rates and interest rates. Liabilities to associated companies 632 756 1,031 Balances and transactions are regarded as hedged if the hedging action has the Tax liabilities 2,338 1,111 481 express purpose of serving as a hedge, has a direct correlation to the hedged posi- Other liabilities tion, and does effectively hedge the position by producing financial effects that Telephone card reserve, counteract the effects created by the position that is hedged. deductible calling charges 742 758 808 Advances, deposits, etc. 512 749 888 In the case of forward exchange contracts, the underlying receivable or liability Value-added tax, excise taxes 1,176 955 613 and the related forward exchange contract are valued at the spot rate on the bal- Employee withholding tax, ance sheet date plus the portion of the forward premium that has accrued as of the payable to employees 420 269 294 balance sheet date. In net terms this means that it is valued at the spot rate at the International settlements 422 805 463 time that the forward contract was signed. Currency swaps, forward Amounts to be paid or received as a result of foreign currency interest rate swaps exchange contracts 85 156 418 or interest rate swaps which are intended to and do effectively hedge interest-bear- Liability to minority shareholders ing assets or liabilities as specified above, are recorded on an ongoing basis as an in subsidiaries – – 1,310 interest income or expense. Other 1,040 1,166 847 Gains and losses in conjunction with the close of a hedge contract are charged Total other liabilities 4,397 4,858 5,641 to income when the hedged position is closed. To the extent that a hedge remains, Accrued expenses and prepaid revenues the gain or loss is carried forward and written off or reversed during the time remain- Accrued payroll expenses 1,419 1,265 876 ing on the hedge contract. Accrued employer’s social security Derivatives, that do not satisfy the criteria for being regarded as hedges, are contributions, etc. 508 915 427 recorded in the balance sheet at the lesser of acquisition or fair value. Any resulting Accrued leasing fees 520 595 513 unrealized losses are recorded as losses on financial investments, while unrealized Accrued interest 1,052 1,248 613 gains are carried forward. Subscription charges 2,090 2,139 1,909 Interconnect charges 721 728 288 Book value and fair value of interest-bearing financial instruments Retailer commissions 183 248 154 The table below presents book values and fair values distributed by type of interest- Prepaid leasing agreements 689 777 732 bearing financial instrument based on the following prerequisites. Non-interest- Other accrued or prepaid items 3,742 3,628 3,913 bearing financial instruments, like accounts receivable from customers and accounts Total accrued expenses and payable, are recorded at fair value and are not shown in the table. prepaid revenues 10,924 11,543 9,425 The estimated fair value is based on market rates and generally accepted valua- Total current liabilities 25,886 27,217 22,810 tion methods. Values recorded are indicative and will not necessarily be realized. Official public quotes as per the close of books are used for valuation. If such a rate is not available, the instrument is valued by discounting future cash flows at a quoted market rate of interest for each maturity. Conversion to SEK is done at quoted 28 Leasing Agreements and exchange rates as per the close of books. Contractual Obligations The market value for publicly quoted associated companies is reduced by loans made by Group companies to the company in question. For leasing receivables, any See “Notes to Consolidated Financial Statements – IFRS/IAS.” credit losses arising are reduced by gains from the sale of equipment returned. Market interest rates apply to other interest-bearing long-term and current accounts receivable, including claims on associated companies and personnel. Thus, the book value of these items is regarded as corresponding to the fair value. 29 Dependency on Third Parties The values for interest rate and foreign currency interest rate swaps include underlying principal and accrued interest. Swaps received and paid refer to the See “Notes to Consolidated Financial Statements – IFRS/IAS.” respective legs of a swap (see notes “Financial Fixed Assets” and “Receivables”, and “Long-term Loans” and “Short-term Loans”, respectively).

December 31, 2003 2002 2001 SEK in millions Book value Fair value Book value Fair value Book value Fair value Equity participations in associated companies 20,401 23,315 23,027 19,341 9,927 9,682 Other holdings of securities 558 558 1,166 1,164 449 426 Leasing receivables 6,455 6,367 7,581 7,493 6,947 6,859 Other long-term and short-term receivables 2,371 2,369 3,255 2,934 3,114 3,114 Short-term investments 278 278 1,192 1,192 196 197 Interest rate swaps received 2,079 2,178 8,309 8,666 658 673 Interest rate swaps paid –2,076 –2,084 –8,069 –8,139 –645 –646 Foreign currency interest rate swaps received 5,713 5,989 11,924 12,298 12,353 12,629 Foreign currency interest rate swaps paid –5,380 –5,583 –10,962 –11,239 –11,178 –11,442 Other currency derivatives 84 84 157 157 344 355 Assets 30,483 33,471 37,580 33,867 22,165 21,847 Provisions for pensions 522 522 224 224 2,358 2,358 Long-term loans 25,849 27,023 32,196 32,630 25,523 25,890 Short-term loans 4,686 4,710 12,696 12,717 4,027 4,044 Interest rate swaps received –1,314 –1,314 –7,364 –7,369 –1,967 –1,970 Interest rate swaps paid 1,334 1,442 7,403 7,584 1,987 2,062 Foreign currency interest rate swaps received –1,792 –1,795 –2,208 –2,213 –1,833 –1,840 Foreign currency interest rate swaps paid 1,862 1,927 2,363 2,428 1,863 1,901 Other currency derivatives 85 85 156 158 418 430 Liabilities 31,232 32,600 45,466 46,159 32,376 32,875

The market capitalization of the Group’s holdings of publicly quoted shares is specified in Open-market financing programs the corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.”

Principles of financing and financial management Borrowing, maturity structure, interest rates and currencies See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Information about the present value of borrowings, average cost and average time to maturity is found in the corresponding section in “Notes to Consolidated Financial Liquidity and bank credit facilities Statements – IFRS/IAS.” See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.”

110 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – ÅRL

As of December 31, 2003, the Group’s interest-bearing borrowings had the following maturity structure.

TeliaSonera AB SEK in millions (incl. debt derivatives) TeliaSonera Finland Maturity Fixed rate Floating rate Fixed rate Floating rate Total Other units Group 2004 847 – 3 2,723 3,573 1,114 4,687 2005 2,868 600 9,072 – 12,540 260 12,800 2006 2,225 3,582 – – 5,807 107 5,914 2007 800 – – – 800 72 872 2008 – 777 – – 777 95 872 Later years 1,384 665 2,925 – 4,974 174 5,148 Total 8,124 5,624 12,000 2,723 28,471 1,822 30,293

Information about the nominal value of the portfolios of interest rate swaps and foreign currency interest rate swaps is found in the corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” As of the balance sheet date, the TeliaSonera Group’s long-term loan portfolio was composed of the following currencies, with Swedish krona equivalents based on swap contracts.

December 31, 2003 2002 2001 For the respective currency Interest Amount Interest Amount Interest Amount Currency (%) (in millions) (%) (in millions) (%) (in millions) Swapped into SEK EUR 5.9 764 6.1 731 5.8 1,228 DEM – – 6.1 113 5.4 283 GBP –– –– 6.248 JPY 3.8 3,000 5.0 3,000 5.3 6,000 Total SEK million 5.9 6,841 6.1 7,048 5.6 12,483 Swapped into EUR USD 3.6 5 5.2 16 – – LTL – – 10.5 150 – – LTL – – 12.0 12 – – Total SEK million 3.6 36 9.3 571 – – Non-swapped SEK 4.8 6,203 5.7 5,156 5.6 9,837 EUR 4.3 1,296 4.5 2,060 – – NOK 5.0 32 – – 5.0 1,637 DKK 4.5 61 5.7 4 5.7 375 LKR – – 22.3 2,786 22.3 3,034 LVL 5.0 1 – – 5.0 1 USD –– –– 8.70 Total SEK million 18,729 24,371 12,586 Total SEK million 25,606 31,990 25,069

Financial risk management SEK Later Foreign exchange risk in millions 2004 2005 2006 2007 2008 years Total See corresponding introductory section in “Notes to Consolidated Financial State- Foreign currency ments – IFRS/IAS.” interest rate swaps, received Transaction exposure Buy EUR The TeliaSonera Group has an operational need to net purchase foreign currency. Book value – 2,778 2,558 – – 1,384 6,720 The breakdown of the net outflow by currency and the hedging policy and risk man- Fair value – 2,931 2,560 – – 1,503 6,994 agement are described in the corresponding section in “Notes to Consolidated Buy DEM Financial Statements – IFRS/IAS.” Book value 542–––––542 Fair value 547–––––547 Conversion exposure Buy JPY The hedging policy and breakdown of the Group’s net foreign assets are described Book value –––––202202 in the corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Fair value –––––202202 Buy USD Book value 25 8 8–––41 Foreign-exchange derivatives Fair value 25 8 8–––41 As of December 31, 2003, TeliaSonera’s portfolio of foreign currency interest rate swaps represented the following currencies and maturities. Amounts indicated Total, received include underlying principal and accrued interest. Book value 567 2,786 2,566 – – 1,586 7,505 Fair value 572 2,939 2,568 – – 1,705 7,784 Foreign currency interest rate swaps, paid Book value –522 –2,565 –2,584 – – –1,571 –7,242 Fair value –526 –2,693 –2,648 – – –1,643 –7,510 Net position Book value 45 221 –18 – – 15 263 Financials Fair value 46 246 –80 – – 62 274

TELIASONERA ANNUAL REPORT 2003 111 Notes to Consolidated Financial Statements – ÅRL

As of December 31, 2003, the TeliaSonera Group’s portfolio of other foreign Interest rate risk is the risk that a change in interest rates will negatively affect exchange derivatives hedging loans, investments, and operational transaction the Group’s net interest income. Hedging policy and risk management are exposures represented the following currencies and maturities. Amounts indicated described in the corresponding section in “Notes to Consolidated Financial State- include underlying principal. ments – IFRS/IAS.” As of December 31, 2003, the TeliaSonera Group’s portfolio of interest rate swap Later contracts had the following composition. Amounts indicated include underlying SEK in millions 2004 2005 2006 years Total principal and accrued interest. Sell DKK Book value 2,649–––2,649 SEK Later Fair value 2,651–––2,651 in millions 2004 2005 2006 2007 2008 years Total Sell NOK Interest received Book value 760–––760 Fixed interest rate Fair value 760–––760 Book value – 102 1,978–––2,080 Sell USD Fair value – 106 2,072–––2,178 Book value 570 5 – – 575 Floating interest rate Fair value 569 5 – – 574 Book value – 151 – 502 – 660 1,313 Sell EUR Fair value – 151 – 503 – 660 1,314 Book value 506 10 5 – 521 Total, received Fair value 493 11 5 – 509 Book value – 253 1,978 502 – 660 3,393 Sell GBP Book value 207–––207 Fair value – 257 2,072 503 – 660 3,492 Fair value 206–––206 Interest paid Sell CZK Fixed interest rate Book value 151–––151 Book value – 154 – 513 – 667 1,334 Fair value 152–––152 Fair value – 161 – 557 – 724 1,442 Sell LVL Floating interest rate Book value 86––– 86 Book value – 101 1,975–––2,076 Fair value 86––– 86 Fair value – 101 1,983–––2,084 Sell CHF Total, paid Book value 64––– 64 Book value – 255 1,975 513 – 667 3,410 Fair value 64––– 64 Fair value – 262 1,983 557 – 724 3,526 Sell PLN Book value 44––– 44 Pension obligation risk Fair value 43––– 43 See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Sell LTL Book value 12––– 12 Fair value 12––– 12 Financing risk Sell HUF See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Book value 10––– 10 Fair value 10––– 10 Credit risk Sell SGD See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Book value 4––– 4 Fair value 4––– 4 Insurable risks Sell HKD See corresponding section in “Notes to Consolidated Financial Statements – IFRS/IAS.” Book value 4––– 4 Fair value 4––– 4 Sell total Book value 5,067 15 5 – 5,087 31 Contingent Assets, Collateral Fair value 5,054 16 5 – 5,075 Pledged and Contingent Liabilities Buy EUR Book value –10,910––––10,910 See “Notes to Consolidated Financial Statements – IFRS/IAS.” Fair value –10,915––––10,915 Buy NOK Book value –3,515––––3,515 Fair value –3,516––––3,516 32 Legal Disputes and Buy GBP Book value –487––––487 Regulatory Proceedings Fair value –485––––485 Buy USD See “Notes to Consolidated Financial Statements – IFRS/IAS.” Book value –104––––104 Fair value –106––––106 Buy CHF Book value –7––– –7 Fair value –7––– –7 Buy PLN Book value –1––– –1 Fair value –1––– –1 Buy total Book value –15,024––––15,024 Fair value –15,030––––15,030 Net position Book value –9,957 15 5 – –9,937 Fair value –9,976 16 5 – –9,955

112 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – ÅRL

33 Cash Flow Information

For information other than the following tables, see “Notes to Consolidated Finan- cial Statements – IFRS/IAS.”

Change in net interest-bearing liability December 31, SEK in millions 2003 2002 2001 2000 1999 1998 1997 1996 Opening balance 24,949 10,539 20,235 7,527 6,767 14,609 13,534 12,065 Increase (+)/Decrease (–) in long-term loans –6,384 6,921 4,193 11,753 2,632 –591 2,658 2,404 Increase (+)/Decrease (–) in short-term loans –7,909 8,667 –9,237 6,232 –128 –669 2,318 2,920 Increase (–)/Decrease (+) in short-term investments –4,832 3,775 –7,423 1,086 –1,062 315 –345 586 Increase (–)/Decrease (+) in cash and bank –858 –1,313 –166 –839 –32 561 –87 –371 Change in net debt –19,983 18,050 –12,633 18,232 1,410 –384 4,544 5,539 Increase (–)/Decrease (+) in interest-bearing receivables 3,484 –1,506 4,104 –5,803 –2,163 –2,258 –298 –426 Change in net borrowings –16,499 16,544 –8,529 12,429 –753 –2,642 4,246 5,113 Increase (+)/Decrease (–) in pension provisions 298 –2,134 –1,167 279 1,513 –5,200 –3,171 –3,644 Change in net interest-bearing liability –16,201 14,410 –9,696 12,708 760 –7,842 1,075 1,469 Closing balance 8,748 24,949 10,539 20,235 7,527 6,767 14,609 13,534

Capital employed and operating capital December 31, SEK in millions 2003 2002 2001 2000 1999 1998 1997 1996 Fixed assets 157,801 172,716 94,875 91,340 53,487 49,198 49,471 47,399 Current assets 37,018 33,854 33,263 31,375 23,117 18,080 16,439 15,116 Non-interest-bearing liabilities –28,375 –29,567 –25,859 –21,014 –16,956 –16,436 –13,042 –13,901 Non-interest-bearing provisions –16,160 –18,182 –10,744 –7,826 –7,242 –6,002 –5,329 –4,042 Non-interest-bearing financing –44,535 –47,749 –36,603 –28,840 –24,198 –22,438 –18,371 –17,943 Dividend (for 2003 as proposed by the Board) –4,675 –1,870 –600 –1,501 –1,470 –1,400 –1,210 –1,152 Total capital employed 145,609 156,951 90,935 92,374 50,936 43,440 46,329 43,420 Shareholders’ equity 116,028 108,891 59,975 55,988 32,893 29,344 25,487 24,413 Less dividend (for 2003 as proposed by the Board) –4,675 –1,870 –600 –1,501 –1,470 –1,400 –1,210 –1,152 Minority capital 3,441 5,120 204 320 210 210 306 218 Long-term interest-bearing liabilities 25,606 31,990 25,069 20,876 9,123 6,491 7,082 4,424 Current interest-bearing liabilities 4,687 12,596 3,929 13,166 6,934 7,062 7,731 5,413 Provisions for pensions 522 224 2,358 3,525 3,246 1,733 6,933 10,104 External financing 30,815 44,810 31,356 37,567 19,303 15,286 21,746 19,941 Total financing 145,609 156,951 90,935 92,374 50,936 43,440 46,329 43,420 Interest-bearing financial fixed assets –5,950 –8,348 –7,510 –4,968 –5,563 –5,561 –4,401 –4,058 Interest-bearing current assets –16,117 –11,513 –13,307 –12,364 –6,213 –2,958 –2,736 –2,349 Operating capital (Notes 34, 35) 123,542 137,090 70,118 75,042 39,160 34,921 39,192 37,013

34 Profit Center Breakdown

For information other than the following tables, see “Notes to Consolidated Finan- cial Statements – IFRS/IAS.”

January–December 2003 or December 31, 2003 Baltic International SEK in millions Sweden Finland Norway Denmark Countries Eurasia Russia Turkey Carrier Holding Corporate Group Net sales 42,364 17,697 6,081 3,278 5,881 2,742 – 5 4,892 2,940 –3,455 82,425 External net sales 41,385 17,324 6,011 3,188 5,823 2,740 – – 3,589 2,443 –78 82,425 EBITDA excluding non-recurring items 17,637 6,738 2,499 70 2,846 1,490 – 1 144 205 –930 30,700 Non-recurring items –341 –71 0 0 –50 0 – – 93 1,703 1 1,335 EBITDA 17,296 6,667 2,499 70 2,796 1,490 0 1 237 1,908 –929 32,035 Depreciation, amortization & write-downs –6,481 –4,757 –2,076 –619 –2,181 –601 – – –496 –526 30 –17,707 Income from associated companies –6 70 0 –12 379 0 509 618 0 –1,176 – 382 Operating income 10,809 1,980 423 –561 994 889 509 619 –259 206 –899 14,710 Operating capital 25,587 44,023 22,852 2,368 12,789 3,924 2,890 12,208 714 –655 –3,158 123,542 of which Segment assets 39,160 47,875 24,131 4,178 13,366 4,441 2,899 12,208 7,040 3,258 14,223 172,779 of which Segment liabilities –13,573 –3,852 –1,279 –1,810 –577 –517 –9 0 –6,326 –3,913 –17,381 –49,237 Equity participation in associated companies 492 45 0 2 2,999 0 3,028 12,208 0 1,626 1 20,401 Investments 3,103 4,506 861 391 1,401 1,077 0 0 239 481 59 12,118 of which CAPEX 3,103 2,635 861 391 797 1,027 0 0 239 263 57 9,373 Number of employees 10,712 6,661 722 1,030 4,741 1,024 1 3 555 947 298 26,694 Average number of full-time employees 10,254 5,984 718 1,014 5,011 962 1 3 658 1,320 263 26,188 Financials

TELIASONERA ANNUAL REPORT 2003 113 Notes to Consolidated Financial Statements – ÅRL

January–December 2002 or December 31, 2002 (restated) Baltic International SEK in millions Sweden Finland Norway Denmark Countries Eurasia Russia Turkey Carrier Holding Corporate Group Net sales 43,562 1,461 5,537 2,783 578 211 2 – 5,306 3,382 –3,339 59,483 External net sales 41,683 1,443 5,482 2,593 576 211 0 – 4,331 3,156 8 59,483 EBITDA excluding non-recurring items 15,896 502 2,129 –1,309 207 118 0 – –1,285 –100 –466 15,692 Non-recurring items –919 –136 4 –540 – 3 0 – –4,818 114 12 –6,280 EBITDA 14,977 366 2,133 –1,849 207 121 0 0 –6,103 14 –454 9,412 Depreciation, amortization & write-downs –6,938 –405 –2,170 –3,911 –196 –33 0 – –5,957 –1,232 –2 –20,844 Income from associated companies –4 –31 – –4 218 – 51 115 – 186 – 531 Operating income 8,035 –70 –37 –5,764 229 88 51 115 –12,060 –1,032 –456 –10,901 Operating capital 24,938 44,559 27,799 2,315 14,844 4,070 3,143 12,174 –459 2,660 1,047 137,090 of which Segment assets 35,756 49,826 29,197 4,774 15,373 4,659 3,155 12,174 8,346 8,101 15,353 186,714 of which Segment liabilities –10,818 –5,267 –1,398 –2,459 –529 –589 –12 0 –8,805 –5,441 –14,306 –49,624 Equity participation in associated companies 498 106 – 3 3,456 – 3,152 12,174 – 3,638 – 23,027 Investments 4,919 30,741 1,100 957 4,224 75 1,531 8,891 1,032 950 18 54,438 of which CAPEX 4,655 5,265 1,094 953 693 74 – 0 1,032 561 18 14,345 Number of employees 11,261 6,235 734 1,105 5,691 879 1 3 914 2,123 227 29,173 Average number of full-time employees 11,268 601 724 1,202 519 30 2 0 769 1,935 227 17,277

January–December 2001 or December 31, 2001 (restated) Baltic International SEK in millions Sweden Finland Norway Denmark Countries Eurasia Russia Turkey Carrier Holding Corporate Group Net sales 44,691 – 4,316 2,567 40 – 4 – 4,742 11,265 –10,429 57,196 External net sales 41,835 – 4,287 2,240 35 – 0 – 3,630 5,170 –1 57,196 EBITDA excluding non-recurring items 15,478 – 1,381 –677 5 – 2 – –1,573 –1,046 –655 12,915 Non-recurring items 287 – – 1–––––1284384 EBITDA 15,765 – 1,381 –676 5 – 2 0 –1,573 –1,034 –571 13,299 Depreciation, amortization & write-downs –6,579 – –1,769 –658 –7 – 0 – –3,582 –1,378 –2 –13,975 Income from associated companies –5 – – 1 195 – 153 – 0 5,785 7 6,136 Operating income 9,181 – –388 –1,333 193 – 155 – –5,155 3,373 –566 5,460 Operating capital 29,180 – 26,950 6,052 3,784 – 1,463 – 8,614 1,197 –7,122 70,118 of which Segment assets 40,349 – 28,076 8,739 3,793 – 1,463 – 14,728 9,971 202 107,321 of which Segment liabilities –11,169 – –1,126 –2,687 –9 – 0 – –6,114 –8,774 –7,324 –37,203 Equity participation in associated companies 249 – – 2 3,746 – 1,459 – 0 4,471 0 9,927 Investments 8,762 – 1,057 3,063 19 – 353 – 5,018 2,462 1 20,735 of which CAPEX 7,606 – 1,044 2,698 19 – – – 5,018 1,328 0 17,713 Number of employees 11,915 – 712 1,259 35 – 2 – 742 2,267 217 17,149 Average number of full-time employees 11,802 – 658 1,113 35 – 2 – 636 10,460 273 24,979

35 Product Area Breakdown

For information other than the following table, see “Notes to Consolidated Finan- cial Statements – IFRS/IAS.”

January–December or December 31, 2003 2002 (restated) 2001 (restated) Mobile Fixed Mobile Fixed Mobile Fixed Communi- Communi- Communi- Communi- Communi- Communi- SEK in millions cations cations Other Group cations cations Other Group cations cations Other Group External net sales 35,889 44,114 2,422 82,425 18,333 37,946 3,204 59,483 14,969 37,023 5,204 57,196 Depreciation, amortization and write-downs –7,385 –9,810 –512 –17,707 –4,026 –15,571 –1,247 –20,844 –3,037 –9,551 –1,387 –13,975 Income from associated companies 1,265 297 –1,180 382 433 –88 186 531 373 –29 5,792 6,136 Operating income 10,287 5,195 –772 14,710 3,932 –13,349 –1,484 –10,901 3,096 –445 2,809 5,460 Operating capital 85,723 41,613 –3,794 123,542 89,305 44,047 3,738 137,090 35,388 40,601 –5,871 70,118 of which Segment assets 95,618 59,666 17,495 172,779 99,028 64,195 23,491 186,714 40,716 56,384 10,221 107,321 of which Segment liabilities –9,895 –18,053 –21,289 –49,237 –9,723 –20,148 –19,753 –49,624 –5,328 –15,783 –16,092 –37,203 Equity participation in associated companies 16,989 1,785 1,627 20,401 17,486 1,903 3,638 23,027 2,758 2,698 4,471 9,927 Investments 4,202 7,372 544 12,118 38,381 15,081 976 54,438 4,547 13,706 2,482 20,735 of which CAPEX 4,152 4,896 325 9,373 6,418 7,340 587 14,345 3,908 12,458 1,347 17,713 Number of employees 4,987 20,406 1,301 26,694 8,795 17,996 2,382 29,173 2,448 12,182 2,519 17,149 Average number of full-time employees 4,854 19,629 1,705 26,188 3,453 11,630 2,194 17,277 2,541 11,670 10,768 24,979

114 TELIASONERA ANNUAL REPORT 2003 Notes to Consolidated Financial Statements – ÅRL

36 Human Resources 41 Finnish GAAP

See “Notes to Consolidated Financial Statements – IFRS/IAS.” The following information is provided pursuant to the Finnish Financial Supervision Authority decision no. 28/269/2002. As defined in note “Basis for Presentation;” section “General,” these consolidated financial statements have been prepared in accordance with the valuation rules 37 Restructuring Costs of the Swedish Annual Accounts Act (ÅRL). The main differences between Finnish Accounting Standards (Finnish GAAP) and applied Swedish principles, relevant to See “Notes to Consolidated Financial Statements – IFRS/IAS.” TeliaSonera, are as follows.

Business combinations 38 Auditors’ Fees Under Finnish GAAP an acquisition paid through the issue of own shares does not require that the purchase price is determined based on the market value of the See “Notes to Consolidated Financial Statements – IFRS/IAS.” issued shares. Swedish GAAP require that the purchase price is determined based on the market value of the issued shares which often results in the recognition of goodwill and other assets at consolidation and future depreciation and amortization of such amounts. Historically TeliaSonera has not issued own shares at acquisitions 39 Merger with Sonera Oyj but the merger with Sonera involves the issue of own shares.

See “Notes to Consolidated Financial Statements – IFRS/IAS,” Note 40. Impairment of fixed assets and long-term investments Swedish GAAP require that if future cash flows are used for recoverability tests these cash flows should be discounted. Finnish GAAP do not exactly define how recover- 40 Specification of Shareholdings ability tests should be performed. and Participations Deferred taxes Finnish GAAP do not require the recognition of deferred tax assets for certain tem- See “Notes to Consolidated Financial Statements – IFRS/IAS,” Note 41. The values porary differences even if it is apparent that the temporary differences reverses in of Other holdings of securities are calculated as follows. the foreseeable future. Swedish GAAP require the recognition of a deferred tax asset under such circumstances. December 31, SEK in millions 2003 2002 2001 Book value in parent company Holdings of TeliaSonera AB 122 257 341 Subsidiaries’ holdings 235 826 156 Less: Adjustment for Group value of Wireless MainGate AB – –8 – Netia 1 Sp.z o.o. – –23 – Orbiant Södra Holding AB – – –48 Book value in the Group 357 1,052 449 Financials

TELIASONERA ANNUAL REPORT 2003 115 Parent Company Income Statements and Balance Sheets

Parent Company Income Statements

January–December SEK in millions Note 2003 2002 2001 Net sales 3 21,858 23,100 22,651 Costs of production 4, 7 –14,829 –17,220 –17,613 Gross income 7,029 5,880 5,038 Sales, administrative, and research & development expenses 4, 7 –1,837 –5,179 –3,283 Other operating revenues and expenses 5, 7 30 –555 –405 Operating income 5,222 146 1,350 Financial revenues and expenses 8 228 239 –4,561 Income after financial items 5,450 385 –3,211 Appropriations 17 –616 2,354 1,512 Income before tax 4,834 2,739 –1,699 Income taxes 9 –1,506 –589 53 Net income 3,328 2,150 –1,646

Parent Company Balance Sheets

December 31, SEK in millions Note 2003 2002 2001 Assets Intangible fixed assets 10 283 672 299 Tangible fixed assets 11 22,628 19,778 21,393 Financial fixed assets 12 96,397 91,642 33,442 Total fixed assets 119,308 112,092 55,134 Inventories, etc. 13 0 23 55 Receivables 14 8,995 23,592 19,538 Short-term investments 15 8,159 2,601 7,396 Cash and bank 650 694 673 Total current assets 17,804 26,910 27,662 Total assets 137,112 139,002 82,796 Shareholders’ equity and liabilities Restricted equity Share capital 14,961 14,738 9,604 Other reserves 58,099 52,708 13,878 Non-restricted equity Retained earnings 19,881 19,601 11,460 Net income 3,328 2,150 –1,646 Total shareholders’ equity 16 96,269 89,197 33,296 Untaxed reserves 17 14,097 13,481 15,835 Provisions for pensions and employment contracts 18 1,445 1,429 1,430 Deferred tax liability 9, 19 831 – – Other provisions 19 1,394 1,686 1,593 Total provisions 3,670 3,115 3,023 Interest-bearing liabilities Long-term loans 20 12,901 12,874 22,079 Short-term loans 21 847 8,324 3,142 Non-interest-bearing liabilities Long-term liabilities 22 806 482 196 Current liabilities 23 8,522 11,529 5,225 Total liabilities 23,076 33,209 30,642 Total shareholders’ equity and liabilities 137,112 139,002 82,796

Contingent assets 26 – – – Collateral pledged 26 – 9 5 Contingent liabilities 26 2,992 10,492 2,087

116 TELIASONERA ANNUAL REPORT 2003 Parent Company Statements of Cash Flows

Parent Company Statements of Cash Flows

January–December SEK in millions Note 2003 2002 2001 Net income 3,328 2,150 –1,646 Adjustments: Depreciation, amortization and write-downs 8,021 6,104 8,503 Capital gains/losses on sales/discards of fixed assets –1,651 –111 1,403 Income from partnerships –2 –3 –22 Pensions and other provisions –1,410 1,021 –243 Financial items 28 –95 –69 277 Group contributions and appropriations –318 –2,354 –2,066 Taxes 28 1,758 740 –227 Cash flow before change in working capital 9,631 7,478 5,979 Increase (–)/Decrease (+) in operating receivables –1,263 –1,495 –415 Increase (–)/Decrease (+) in inventories etc. 9 32 –41 Increase (+)/Decrease (–) in operating liabilities –816 1,362 –815 Change in working capital –2,070 –101 –1,271 Cash flow from operating activities 7,561 7,377 4,708 Intangible and tangible fixed assets acquired –2,427 –3,537 –5,146 Shares and participations –5,759 –4,586 –7,286 Fixed assets divested, etc. 3,550 826 7,994 Loans made and other investments 1,802 –621 0 Repayment of loans made and other investments –79 751 6,206 Compensation from/Payment to pension fund 1,000 –1,000 500 Net change in interest-bearing current receivables –42 –558 3,976 Cash flow from investing activities –1,955 –8,725 6,244 Cash flow before financing activities 5,606 –1,348 10,952 Dividend till shareholders –1,870 –600 –1,501 Group contributions and dividends received –4,668 4,883 2,965 Loans raised 0 5,281 5,843 Loans amortized 27 –9,143 –1,338 Change in interest-bearing current liabilities 6,420 –3,847 –9,391 Cash flow from financing activities –91 –3,426 –3,422 Cash flow for the year 5,515 –4,774 7,530

Cash and cash equivalents, opening balance 3,294 8,068 538 Cash flow for the year 5,515 –4,774 7,530 Cash and cash equivalents, closing balance 28 8,809 3,294 8,068 Financials

TELIASONERA ANNUAL REPORT 2003 117 Parent Company Statements of Changes in Shareholders’ Equity Parent Company Statements of Changes in Shareholders’ Equity

Share Legal Share pre- Revaluation Non-restricted Total SEK in millions capital reserve mium reserve reserve equity equity Closing balance, December 31, 2000 9,604 1,855 12,039 – 12,961 36,459 New issue expenses after taxes – – –16 – – –16 Net income recognized directly in equity – – –16 – – –16 Dividend – – – – –1,501 –1,501 Net income – – – – –1,646 –1,646 Closing balance, December 31, 2001 9,604 1,855 12,023 – 9,814 33,296 New issue expenses after taxes – – 16 – – 16 Group contributions to subsidiaries after taxes – – – – –1,570 –1,570 Net income recognized directly in equity – – 16 – –1,570 –1,554 Dividend – – – – –600 –600 New share issue 5,134 – 50,771 – – 55,905 Transfer from restricted to non-restricted equity decided by EGM – – –11,957 – 11,957 – Net income – – – – 2,150 2,150 Closing balance, December 31, 2002 14,738 1,855 50,853 – 21,751 89,197 Write-up (note 11) – – – 3,563 – 3,563 Net income recognized directly in equity – – – 3,563 – 3,563 Dividend – – – – –1,870 –1,870 New share issue 223 – 1,828 – – 2,051 Net income – – – – 3,328 3,328 Closing balance, December 31, 2003 14,961 1,855 52,681 3,563 23,209 96,269

118 TELIASONERA ANNUAL REPORT 2003 Notes to Parent Company Financial Statements Notes to Parent Company Financial Statements

1 Basis for Presentation 4 Operating Costs

General Operating costs were distributed by function as follows. The parent company TeliaSonera AB’s financial statements have been prepared in accordance with the Annual Accounts Act, other Swedish legislation and the stan- January–December dards issued by the Swedish Financial Accounting Standards Council. SEK in millions 2003 2002 2001 Production 14,829 17,220 17,613 Accounting principles Other functions The applied accounting principles are described in full in “Notes to Consolidated Sales 377 932 719 Financial Statements – IFRS/IAS” or, when it comes to financial instruments, in “Notes Administration 1,270 3,834 2,035 to Consolidated Financial Statements – ÅRL.” The descriptions in the following notes Research and development 190 413 529 are limited to existing discrepancies. Total other functions 1,837 5,179 3,283 Discrepancies between Swedish accounting principles applied by TeliaSonera AB Total 16,666 22,399 20,896 and Finnish Accounting Standards are discussed in note “Finnish GAAP.” Each function includes depreciation, amortization, and write-downs as specified in Amounts and dates note “Depreciation, Amortization, and Write-Downs.” This is also broken down by Unless otherwise specified, all amounts are in millions of Swedish kronor (SEK million) class of asset. or other currency specified and are based on the twelve-month period ended Operating costs were distributed by nature as follows. December 31 for income statement items and as of December 31 for balance sheet items, respectively. January–December SEK in millions 2003 2002 2001 Changes and innovations New accounting standards Goods purchased 674 2,411 5,179 The Swedish Financial Accounting Standards Council’s standards RR 2:02 “Invento- Network expenses, interconnect traffic, ries,” RR 22 “Presentation of Financial Statements,” RR 26 “Events After the Balance international settlements 6,666 6,852 4,421 Sheet Date,” RR 27 “Financial Instruments: Disclosure and Presentation” and RR 28 Change in inventories 96 –1 10 “Government grants” became effective in 2003. They were all adopted in prior years. Total 7,436 9,262 9,610 Salaries and remuneration 1,245 1,255 1,198 Other Employer’s social security contributions 425 430 407 The Swedish Financial Accounting Standards Council’s standard RR 24 ”Investment Pension expenses 38 2,473 769 Other personnel expenses 62 216 236 Property” also became effective in 2003. TeliaSonera AB does not own assets of the type regulated by RR 24. Total 1,770 4,374 2,610 Rent and leasing fees 781 1,179 1,138 Energy expenses 209 191 162 Travel expenses 169 133 164 2 Use of Estimates Consultants’ services 335 362 557 Marketing expenses 201 143 101 To be able to prepare accounts according to generally accepted accounting principles, Bad debt expense 104 162 39 company management must make estimates and assumptions that affect the asset Information technology 757 1,256 1,211 and liability items and revenue and expense items recorded in the final accounts as Other expenses 362 590 687 well as other information, such as that provided on contingent liabilities. Actual out- Total 2,918 4,016 4,059 comes can differ from estimates. Depreciation, amortization, and write-downs 4,542 4,747 4,617 Total 16,666 22,399 20,896

3 Net Sales Refer to note “Provisions for Pensions and Employment Contracts” for a breakdown of the pension expenses. Sales in and exports to markets outside Sweden were distributed among economic regions as follows.

January–December SEK in millions 2003 2002 2001 European Union (EU) 21,846 23,068 22,570 European Economic Area (EEA) 12 15 14 Rest of Europe 0 11 54 North-American Free Trade Agreement (NAFTA) – 6 12 Rest of world – 0 1 Total 21,858 23,100 22,651

The following is a breakdown of the net sales per product category.

January–December SEK in millions 2003 2002 2001 Fixed telephony 14,530 14,382 15,374 Internet 2,314 1,652 1,063

Network capacity 2,982 2,936 2,942 Financials Data communications 1,207 1,000 926 Staff for hire – 8 40 Financial services – – 142 Other 825 3,122 2,164 Total 21,858 23,100 22,651

Invoiced advertising tax was SEK – million, SEK – million and SEK 1 million for the years 2003, 2002 and 2001, respectively.

TELIASONERA ANNUAL REPORT 2003 119 Notes to Parent Company Financial Statements

5 Other Operating Revenues 8 Financial Revenues and Expenses and Expenses January–December Other operating revenues and expenses were distributed as follows. SEK in millions 2003 2002 2001

January–December Income from shares in Group companies SEK in millions 2003 2002 2001 Dividends etc. 1,299 1,445 1,227 Other operating revenues Capital gains/losses 883 80 –793 Capital gains – 1 1 Write-downs –2,380 –836 –1,080 Exchange rate gains 77 56 26 Net Group contributions etc. 934 – 554 Commissions 1 4 8 Total 736 689 –92 Rental income – 3 31 Income from shares in associated Recovered accounts receivable 0 0 19 companies Damages received 6 31 43 Dividends 196 305 266 Total 84 95 128 Capital gains/losses 792 71 –569 Other operating expenses Write-downs –1,051 –294 –2,624 Capital losses –28 –29 –21 Total –63 82 –2,927 Provisions for onerous contracts –4 –712 –7 Earnings from other financial Exchange rate losses –2 –4 –5 investments Sonera merger expenses –3 –13 – Dividends 0 0 1 Restructuring costs –17 108 –500 Capital losses/gains –19 –7 2 Total –54 –650 –533 Write-downs –49 –226 –137 Net effect on income 30 –555 –405 Total –68 –233 –134 Other financial revenues As to Provisions for onerous contracts and Restructuring costs, see note “Other pro- Interest from Group companies 1,638 2,140 4,452 visions.” Other interest income 162 180 442 Exchange rate gains 69 3 52 Total 1,869 2,323 4,946 Other financial expenses 6 Related Party Transactions Interest to Group companies –1,161 –1,324 –3,734 Other interest expenses –1,000 –1,193 –1,614 General Exchange rate losses –9 –15 –954 Conventional commercial terms apply for the supply of goods and services within Interest component of the year’s the parent company and to/from Group companies and associated companies. pension provision –76 –90 –52 Total –2,246 –2,622 –6,354 Group units Net effect on income 228 239 –4,561 Net sales before the elimination of internal sales between the Parent Company’s units were SEK 22,059 million for 2003, SEK 23,405 million for 2002 and SEK 22,780 Refer to note “Appropriations and Untaxed Reserves” on Group contributions. See million for 2001. Internal sales totaled SEK 201 million, SEK 305 million and SEK 129 also note “Provisions for Pensions and Employment Contracts” for calculation of the million, respectively. Sales to Group companies totaled SEK 17,108 million, SEK interest component of the year’s pension provision. 19,004 million and SEK 18,484 million, while purchases from Group companies totaled SEK 3,312 million, SEK 4,993 million and SEK 7,096 million for the respective years. 9 Income Taxes Other relations For descriptions of other transactions with related parties, see “Notes to Consoli- The tax expense reported was distributed as follows. dated Financial Statements – IFRS/IAS” (Note 9). January–December SEK in millions 2003 2002 2001 7 Depreciation, Amortization Current tax 1,446 599 56 Deferred tax 60 –10 –109 and Write-Downs Total 1,506 589 –53

Depreciation, amortization and write-downs on intangible and tangible fixed assets Current tax expenses for each fiscal year attributable to the previous years’ earnings were distributed by function as follows. and tax booked directly to equity were as follows.

January–December January–December SEK in millions 2003 2002 2001 SEK in millions 2003 2002 2001 Production 4,490 4,648 4,519 Tax attributable to previous year –1 –29 – Sales 0 95 98 Tax booked directly to equity – – 6 Administration 52 4 0 Other operating expenses – – 46 Tax booked directly to equity during 2001 refers to new issue expenses. Total 4,542 4,747 4,663 The difference between the nominal rate of Swedish taxation and the effective tax rate comprises the following components. Depreciation, amortization and write-downs were distributed by asset class as follows. January–December January–December % 2003 2002 2001 SEK in millions 2003 2002 2001 Swedish income tax rate 28.0 28.0 28.0 Other intangible assets 204 198 140 Adjustment of taxes for previous periods 0.0 –1.0 – Land improvements – 0 1 Losses for which deferred tax assets Fixed networks 4,319 4,464 4,428 were not recognized 1.3 0.2 0.2 Other machinery and equipment 19 85 94 Non-deductible expenses 21.8 16.0 –57.0 Total 4,542 4,747 4,663 Non-taxable revenues –19.9 –21.7 25.7 Tax rate as per the income statement 31.2 21.5 –3.1 Accelerated depreciation, to the extent allowed by Swedish tax legislation, is recorded Tax booked directly to equity – – 0.3 as appropriations and untaxed reserves (see this note). Effective tax rate 31.2 21.5 –2.8 Tax rate, current tax 29.9 21.9 3.3

No accumulated non-expiring tax loss carry-forwards exist for the years 2003, 2002 and 2001.

120 TELIASONERA ANNUAL REPORT 2003 Notes to Parent Company Financial Statements

Deferred tax liabilities and assets were distributed as follows. Plant and machinery December 31, December 31, SEK in millions 2003 2002 2001 SEK in millions 2003 2002 2001 Acquisition value, opening balance 61,008 58,489 53,908 Deferred tax liability Purchases 2,315 2,990 4,921 Other long-term assets 1,386 – – Sales/discards –588 –667 –318 Total deferred tax liability 1,386 – – Reclassifications 518 196 –22 Deferred tax asset Accumulated acquisition value, Provisions 555 615 605 closing balance 63,253 61,008 58,489 Total deferred tax asset 555 615 605 Depreciation, opening balance –41,376 –37,529 –33,366 Net deferred tax asset (–)/liability (+) 831 –615 –605 Purchases –43 – – Sales/discards 553 637 267 The parent company’s hidden deferred tax liability in untaxed reserves amounted Reclassifications –482 –20 – to SEK 3,947 million in 2003, SEK 3,775 million in 2002 and SEK 4,434 million in Depreciation for the year –4,319 –4,464 –4,430 2001. See also note “Appropriations and Untaxed Reserves.” Accumulated depreciation, closing balance –45,667 41,376 –37,529 Write-ups, opening balance – – – Write-ups for the year 4,949 – – 10 Intangible Fixed Assets Accumulated write-ups, closing balance 4,949 – – Total book value, closing balance 22,535 19,632 20,960 December 31, 2003 2002 2001 Based on an economic life analysis, resulting in a decision to extend the deprecia- SEK in millions Goodwill Other Goodwill Other Goodwill Other tion period for copper cables in the fixed local access network from 8 years to 20 Acquisition value, years and for switching equipment for ADSL customers from 3 years to 10 years, opening balance – 1,253 – 683 – 504 assets were written up as of December 31, 2003. The write-up, net of deferred Purchases – 206 – 508 – 81 income taxes, has been recognized as a revaluation reserve in restricted equity. Sales/discards – –411 – –1 – –25 No interest is included in the acquisition value for years 2003, 2002 or 2001. Reclassifications – 24 – 63 – 123 Excess tax depreciation is discussed in note “Appropriations and Untaxed Reserves.” Accumulated acquisition Equipment, tools, and installations value, closing December 31, balance – 1,072 – 1,253 – 683 SEK in millions 2003 2002 2001 Amortization, opening balance – –581 – –384 – –266 Acquisition value, opening balance 807 955 861 Sales/discards – 0 – – – 25 Purchases 35 247 222 Reclassifications – –4 – 1 – –3 Sales/discards –70 –151 –27 Amortization for Reclassifications –542 –244 –101 the year – –204 – –198 – –140 Accumulated acquisition value, Accumulated closing balance 230 807 955 depreciation, Depreciation, opening balance –665 –540 –398 closing balance – –789 – –581 – –384 Purchases –7 –208 –80 Total book value, Sales/discards 66 149 27 closing balance – 283 – 672 – 299 Reclassifications 485 19 3 Depreciation for the year –19 –85 –92 No interest is included in the acquisition value for years 2003, 2002 or 2001. Accumulated depreciation, During the years 2003, 2002 and 2001, in-house developed software was capi- closing balance –140 –665 –540 talized at SEK 194 million, SEK 528 million and SEK 201 million, respectively. In the Total book value, closing balance 90 142 415 three years, amortization was SEK 204 million, SEK 198 million and SEK 139 million, respectively. No interest is included in the acquisition value for the years 2003, 2002 or 2001. The total book value was distributed as follows. Assets from other Group companies were taken over at gross book value.

December 31, Distribution by class of asset SEK in millions 2003 2002 2001 The total book value was distributed as follows. Administrative support systems 245 626 296 Licenses, contractual agreements, December 31, patents, etc. 38 46 3 SEK in millions 2003 2002 2001 Total book value 283 672 299 Buildings and land Land and land improvements 3 4 18 Total 3 4 18 Plant and machinery 11 Tangible Fixed Assets Fixed networks – switching systems and peripheral equipment 3,601 4,966 5,767 Buildings and land Fixed networks – transmission systems 4,648 4,452 5,486 December 31, Fixed networks – transmission media SEK in millions 2003 2002 2001 and other types of media 14,286 10,213 9,707 New installations under construction, Acquisition value, opening balance 27 42 40 advances – 1 – Purchases – – 2 Total 22,535 19,632 20,960 Reclassifications – –15 – Equipment, tools, and installations 90 142 415 Accumulated acquisition value, Total book value 22,628 19,778 21,393 closing balance 27 27 42 Depreciation, opening balance –23 –24 –23 Reclassifications –1 1 – Depreciation for the year 0 0 –1 12 Financial Fixed Assets Accumulated depreciation, closing balance –24 –23 –24 General Financials Total book value, closing balance 3 4 18 Financial fixed assets, including shares and participations in subsidiaries and associated companies, are recorded at acquisition cost, or at a written down price if a decline No interest is included in the acquisition value for years 2003, 2002 or 2001. No real in value is regarded as permanent. estate properties owned by the parent company were assigned tax-assessed values.

TELIASONERA ANNUAL REPORT 2003 121 Notes to Parent Company Financial Statements

Participations in associated companies December 31, 14 Receivables SEK in millions 2003 2002 2001 Book value, opening balance 3,431 6,802 12,901 December 31, Acquisitions 40 109 1,809 Equity participation in former subsidiaries – – 197 SEK in millions 2003 2002 2001 Issues of new shares and shareholder Accounts receivable contributions – 144 115 Invoiced receivables 1,772 1,405 1,257 Write-downs –1,051 –294 –2,600 Reserve for doubtful receivables –103 –254 –177 Divestitures –423 –309 –6,015 Total 1,669 1,151 1,080 Reclassifications 347 –3,021 395 Other current receivables Book value, closing balance 2,344 3,431 6,802 Interest-bearing Receivable from subsidiaries 727 15,864 11,397 Other holdings of securities Receivable from associated companies 21 8 5 Foreign currency interest rate swaps 45 601 17 December 31, Receivable from others 305 278 282 SEK in millions 2003 2002 2001 Non-interest-bearing Book value, opening balance 257 341 515 Receivable from subsidiaries 3,250 2,737 4,969 Acquisitions 19 16 20 Receivable from associated companies 46 62 140 Divestitures –230 –12 –10 Value-added tax – – 267 Write-downs –49 –226 –137 Other tax assets – 163 302 Reclassifications 127 141 – International settlements 0 1 – Share of earnings in partnerships –2 –3 –47 Currency swaps, forward exchange Book value, closing balance 122 257 341 contracts 82 152 344 Anticipated dividends from subsidiaries – 939 – Other long-term financial assets Receivable from others 290 27 240 Total 4,766 20,832 17,963 December 31, Accrued revenues and prepaid SEK in millions 2003 2002 2001 expenses Book value, opening balance 87,954 26,299 26,707 Receivable from subsidiaries 2,114 1,242 162 Changes in accounting principles – – 659 Interconnect and roaming charges 196 131 160 Book value, adjusted opening balance 87,954 26,299 27,366 Construction and service contracts – – 2 Purchases 10,453 60,853 6,957 Prepaid rent and leasing fees 69 51 67 Sales/discards –1,021 –437 –6,944 Other accrued or prepaid items 181 185 104 Write-downs –2,380 –836 –1,098 Total 2,560 1,609 495 Reclassifications –1,075 2,882 –512 Total 8,995 23,592 19,538 Exchange rate differences 0 –807 530 Book value, closing balance 93,931 87,954 26,299 Written-down accounts receivable (bad debt expense) and recovered accounts receivable for the years 2003, 2002 and 2001 are recorded in note “Operating Changes in accounting principles in 2001 refer to gross recording of derivatives in Costs” and note “Other Operating Revenues and Expenses.” Other interest-bearing the balance sheet. accounts receivable from subsidiaries refer to the cash pool balance. Distribution by class of asset The total book value was distributed as follows. 15 Short-term Investments December 31, SEK in millions 2003 2002 2001 December 31, Subsidiaries and associated companies Shares in subsidiaries 93,408 86,895 24,333 SEK in millions 2003 2002 2001 Participations in associated companies 2,344 3,431 6,802 Investments with maturities Receivables from associated companies, over three months – 1 1 non-interest-bearing 172 0 109 Investments with maturities up to Total 95,924 90,326 31,244 and including three months 8,159 2,600 7,395 Other holdings of securities Total 8,159 2,601 7,396 Shares and participations 122 257 341 Total 122 257 341 See also note “Cash Flow Information.” Deferred tax asset – 615 605 Other long-term receivables Interest-bearing Interest rate swaps – – 13 16 Shareholders’ Equity Foreign currency interest rate swaps 306 440 1,158 Other 45 4 81 According to the by-laws of TeliaSonera AB the authorized share capital shall Total 351 444 1,252 amount to no less than SEK 8,000,000,000 and no more than SEK 32,000,000,000. All issued shares have been paid in full and carry equal rights to vote and participate Total 96,397 91,642 33,442 in the assets of the company. No shares are held by the company itself or by its subsidiaries. The deferred tax asset is discussed in note “Income taxes.” Shareholdings and participations in subsidiaries are specified in note “Specification of Shareholdings and Par- During the last four years, the share capital changed as follows. ticipations,” while information about associated companies and other holdings of securities is found in the corresponding note in “Notes to Consolidated Financial Number of Par value, Share Statements – IFRS/IAS.” shares SEK/share capital, SEK Share capital, December 31, 1999 8,800,000 1,000.00 8,800,000,000 Bonus issue, May 20, 2000 – 1,036.80 323,840,000 13 Inventories, etc. Split 324:1, May 20, 2000 2,842,400,000 3.20 – New share issue, June 16, 2000 150,000,000 3.20 480,000,000 After deductions for obsolescence, the total book value is distributed as follows. Share capital, December 31, 2000 3,001,200,000 3.20 9,603,840,000 Share capital, December 31, 2001 3,001,200,000 3.20 9,603,840,000 December 31, New share issue, December 3, 2002 1,604,556,725 3.20 5,134,581,520 SEK in millions 2003 2002 2001 Share capital, December 31, 2002 4,605,756,725 3.20 14,738,421,520 New share issue, February 10, 2003 69,475,344 3.20 222,321,101 Raw materials and essential inputs 0 20 55 Share capital, December 31, 2003 4,675,232,069 3.20 14,960,742,621 Finished products – – – Expense incurred, construction contracts – – – Dividend payments are proposed by the Board of Directors in accordance with the Advances to suppliers – 3 – regulations of the Swedish Companies Act and decided by the General Meeting of Total 0 23 55 shareholders. The proposed but not yet decided dividend for 2003 totals SEK 4,675 million (SEK 1.00 per share). This amount has not been recorded as a liability.

122 TELIASONERA ANNUAL REPORT 2003 Notes to Parent Company Financial Statements

The pension expense reported (including pension premiums) was as follows. 17 Appropriations and January–December Untaxed Reserves SEK in millions 2003 2002 2001 Contractual pension obligations Untaxed reserves in the balance sheet were distributed as follows. Current service cost 260 212 247 Pension-related social charges 19 503 99 December 31, Total 279 715 346 SEK in millions 2003 2002 2001 Non-recurring items Profit equalization reserve 3,031 1,331 2,811 Contractual pensions for early retirement 25 24 23 Accumulated excess depreciation 11,066 12,150 13,024 Pension-related social charges 6 7 6 Total 14,097 13,481 15,835 Changed estimates –40 – – Total –93129 Excess depreciation, applicable to intangible assets and plant and machinery, changed Interest expense on principal as follows. – recorded as a financial cost 76 90 52 – recorded in operating income 378 377 429 December 31, Total 454 467 481 2003 2002 2001 Effect on income of change in fund assets –610 1,350 –35 Intan- Intan- Intan- Total pension expense 114 2,563 821 gible Plant and gible Plant and gible Plant and SEK in millions assets machinery assets machinery assets machinery Surplus capital in the assets in the pension fund has changed as follows. Opening balance 399 11,751 180 12,844 154 13,655 Provisions – – 219 – 26 – December 31, Reversals –112 –972 – –1,093 – –811 SEK in millions 2003 2002 2001 Closing balance 287 10,779 399 11,751 180 12,844 Surplus capital, opening balance 59 429 1,025 Change in value during the year 1,046 –1,720 –561 Appropriations charged to income were comprised as follows. Items that affect earnings – change in recorded pension liability 465 350 465 January–December – payment to pension fund – 1,000 – SEK in millions 2003 2002 2001 – compensation from pension fund –1,000 – –500 Profit equalization reserve –1,700 1,480 727 Net effect on earnings –535 1,350 –35 Accumulated excess depreciation 1,084 874 785 Surplus capital, closing balance 570 59 429 Net effect on income –616 2,354 1,512 Telia Pension Fund totals for secured commitments, surplus capital, payments made, Under certain circumstances, it is possible to transfer profits through group contri- and compensation received are provided in the table below. butions between Swedish companies in a group. Group contributions provided are normally a deductible expense for the contributor and taxable revenue for the recip- January–December or December 31, ient. Group contributions, including shareholder contributions, net received by the SEK in millions 2003 2002 2001 parent company are regarded as dividends and recorded as income from shares in subsidiaries (see note “Financial Revenues and Expenses”), while such contributions, Secured commitments (principal) 10,836 11,262 11,623 if net rendered are recorded directly in shareholders’ equity, net of income tax. Surplus capital in pension fund 570 59 429 Payment to pension fund – 1,000 – January–December Compensation from pension fund 1,000 – 500 SEK in millions 2003 2002 2001 Shareholder contributions rendered – – – Net pre-tax Group contributions 19 Other Provisions rendered/received 934 –2,179 554 Total 934 –2,179 554 Changes in other provisions, including deferred tax liability, were as follows.

December 31, SEK in millions 2003 2002 2001 18 Provisions for Pensions and Book value, opening balance 1,686 1,593 868 Employment Contracts Provisions for the period 1,437 785 876 Utilized provisions –806 –533 –175 All employees in TeliaSonera AB are covered by a defined benefit pension plan (the Operations divested –19 – – ITP-Tele plan) which means that the individual is guaranteed a pension equal to a Reversals of provisions –11 –159 – Timing and interest-rate effects – – 24 certain percentage of his or her salary. The pension plan mainly includes old-age Exchange rate differences –62 – – pension, disability pension and family pension. All existing pension obligations that TeliaSonera AB assumed when it was con- Book value, closing balance 2,225 1,686 1,593 verted into a limited liability company on July 1, 1993 and the remaining pension obligations of the parent company are secured by Telia Pension Fund. Certain com- The book value of the provisions was distributed as follows. mitments, chiefly the contractual right to retire at age 55, 60, or 63 for certain categories of personnel, are secured by a taxed reserve in the balance sheet. December 31, Pension obligations are calculated annually, on the balance sheet date. Actuarial SEK in millions 2003 2002 2001 principles, set by the FPG/PRI system and the Swedish Financial Supervisory Authority, Deferred tax liability 831 – – are used to calculate the value of commitments made. Other provisions The pension liability reported contains the following components. Payroll taxes on future pension payments 302 302 314 Phase-out of operations/restructuring 44 156 454 December 31, Onerous contracts 623 854 366 SEK in millions 2003 2002 2001 Guarantee reserves 354 295 375 Other 71 79 84 FPG/PRI pensions 5,276 5,322 5,354 Total 1,394 1,686 1,593 Other pension commitments 5,759 6,124 6,403 Taxed reserves for employment contracts 1,245 1,245 1,295 Total 2,225 1,686 1,593 Total commitments 12,280 12,691 13,052 Deferred tax liability is discussed in note “Income taxes.” Onerous contracts include

Less pension fund capital –10,835 –11,262 –11,622 Financials a provision recognized in 2002 for termination of a lease contract for a development Book value 1,445 1,429 1,430 property in London, U.K. See also note “Restructuring Costs” in “Notes to Consol- idated Financial Statements – IFRS/IAS.”

TELIASONERA ANNUAL REPORT 2003 123 Notes to Parent Company Financial Statements

20 Long-term Loans 24 Leasing Agreements and Contractual Obligations December 31, SEK in millions 2003 2002 2001 Operating leases TeliaSonera AB leases primarily premises, land and, in 2001, also computers. Most TeliaSonera FTN/FTO 4,811 5,135 7,504 of the leases are from outside parties, while subletting of premises is mainly to sub- TeliaSonera EMTN 7,744 7,446 14,086 sidiaries. The leases are on commercial terms with respect to prices and duration. Other loans 306 250 440 Future minimum leasing fees under operating lease agreements in effect as of Interest rate swaps 0 0 19 December 31, 2003 that could not be canceled in advance and were in excess of Foreign currency interest rate swaps 40 43 30 one year were as follows. Total 12,901 12,874 22,079 Maturity For the years 2003, 2002 and 2001, SEK 1,995 million, SEK 1,555 million and SEK 1,430 SEK in millions Future leasing fees Subleasing million, respectively, of the loans fell due more than five years after the balance sheet 2004 271 32 date. See also note “Financial Instruments and Financial Risk Management” in 2005 115 33 “Notes to Consolidated Financial Statements – ÅRL.” 2006 66 34 2007 67 35 2008 69 36 21 Short-term Loans Later years 356 186 Total 944 356

December 31, Total rent and leasing fees paid were SEK 781 million, SEK 1,179 million and SEK 1,138 SEK in millions 2003 2002 2001 million for the years 2003, 2002 and 2001, respectively. For these years, revenue for subleased items totaled SEK 32 million, SEK 20 million and SEK 110 million, respectively. Loans from associated companies – – 777 TeliaSonera ECP – – 1,001 Other contractual obligations TeliaSonera FTN 300 1,940 1,127 TeliaSonera EMTN – 325 236 As of December 31, 2003, TeliaSonera AB had the following contractual obligations Other foreign currency loans 478 6,058 – regarding future acquisitions (or equivalent) of tangible and financial fixed assets. Other bank loans 45 – – Interest rate swaps 24 1 1 Maturity SEK in millions 2004 Later years Total 847 8,324 3,142 Tangible fixed assets 230 – Fully unutilized bank overdraft facilities had a total limit of SEK 961 million, SEK 943 Associated companies 78 – million and SEK 815 million for the years 2003, 2002 and 2001, respectively. See Total 308 – also note “Financial Instruments and Financial Risk Management” in “Notes to Con- solidated Financial Statements – ÅRL.” Obligations with respect to tangible fixed assets refer to the continued expansion of transmission capacity in the Swedish fixed network.

22 Long-term Liabilities 25 Dependency on Third Parties

December 31, See “Notes to Consolidated Financial Statements – IFRS/IAS” (Note 29). SEK in millions 2003 2002 2001 Liabilities to subsidiaries 344 368 131 Other liabilities 462 114 65 26 Contingent Assets, Collateral Total 806 482 196 Pledged and Contingent Liabilities For the years 2003, 2002 and 2001, no liabilities fell due more than five years after the balance sheet date. December 31, SEK in millions 2003 2002 2001 23 Current Liabilities Contingent assets – – – Collateral pledged For derivative instruments: December 31, Blocked funds in bank accounts – – 5 For long-term liabilities to credit institutions: SEK in millions 2003 2002 2001 Shares in OAO MegaFon – 9 – Accounts payable 1,770 1,897 1,327 Total – 9 5 Liabilities to subsidiaries 2,451 5,743 541 Liabilities to associated companies 461 404 798 Contingent liabilities Tax liabilities 1,273 – – Capital cover guarantee granted to Other liabilities TeliaSonera International Carrier AB – 5,442 – Advances, deposits, etc. 378 97 113 Credit guarantee on behalf of Value-added tax, excise taxes 221 119 – TeliaSonera Finland Oyj – 2,684 – Employee withholding tax, payable Other guarantees and contingent liabilities to employees 63 66 65 on behalf of subsidiaries 2,120 1,877 1,393 Currency swaps, forward exchange Other credit and performance guarantees, etc. 755 375 580 contracts 85 152 418 FPG/PRI 117 114 114 Other 1 31 39 Total 2,992 10,492 2,087 Total other liabilities 748 465 635 Accrued expenses and prepaid revenues In addition to the contingent liabilities indicated above, guarantees for fulfillment Liabilities to subsidiaries 262 557 68 of contractual undertakings are granted by the parent company on behalf of sub- Accrued payroll expenses 250 206 140 sidiaries, as part of the Group’s normal course of business. At the balance sheet date, Accrued employer’s social security there was no indication that payment will be required in connection with any such contributions 76 63 156 contractual guarantee. Accrued interest 788 501 597 Interconnect charges 10 519 250 Other accrued or prepaid items 433 1,174 713 Total accrued expenses and prepaid 27 Legal Disputes and revenues 1,819 3,020 1,924 Regulatory Proceedings Total current liabilities 8,522 11,529 5,225 See “Notes to Consolidated Financial Statements – IFRS/IAS” (Note 32).

124 TELIASONERA ANNUAL REPORT 2003 Notes to Parent Company Financial Statements

Non-cash transactions 28 Cash Flow Information Conversion of claims During the year, claims on subsidiaries totaling SEK 2,013 million were converted to Financial items equity in the companies. Interest received, interest paid and dividends received were as follows. Other January–December See the corresponding section in “Notes to Consolidated Financial Statements – SEK in millions 2003 2002 2001 IFRS/IAS” (Note 33). Interest received 1,800 2,320 5,688 Interest paid –2,161 –2,517 –6,356 Cash and cash equivalents Dividends received 1,495 1,750 1,494 Investments with maturities up to and including three months are combined with Cash and bank to produce the item Cash and cash equivalents, as follows. Net position 1,134 1,553 826 December 31, Income taxes SEK in millions 2003 2002 2001 Income taxes paid for the years 2003, 2002 and 2001, respectively, totaled SEK 519 million, SEK 170 million and SEK 261 million. Investments 8,159 2,600 7,395 Cash and bank 650 694 673 Cash and cash equivalents 8,809 3,294 8,068

Other cash flow information Changes in net interest-bearing liability over the last eight-year period are as follows.

Change in net interest-bearing liability December 31, SEK in millions 2003 2002 2001 2000 1999 1998 1997 1996 Opening balance 1,880 5,288 7,433 13,444 15,554 13,111 14,910 9,422 Increase (+)/Decrease (–) in long-term loans 27 –9,205 4,505 8,733 2,476 –418 2,200 1,869 Increase (+)/Decrease (–) in short-term loans –7,477 5,182 –8,534 –5,881 –10 4,111 –55 7,574 Increase (–)/Decrease (+) in short-term investments –5,558 4,795 –7,396 1,055 –1,015 310 –340 –10 Increase (–)/Decrease (+) in cash and bank 44 –21 –135 –225 –287 328 240 –263 Change in net debt –12,964 751 –11,560 3,682 1,164 4,331 2,045 9,170 Increase (–)/Decrease (+) in interest-bearing receivables 15,709 –4,158 9,339 –9,128 –3,390 1,371 184 483 Change in net borrowings 2,745 –3,407 –2,221 –5,446 –2,226 5,702 2,229 9,653 Increase (+)/Decrease (–) in pension provisions 16 –1 76 –565 116 –3,259 –4,028 –4,165 Change in net interest-bearing liability 2,761 –3,408 –2,145 –6,011 –2,110 2,443 –1,799 5,488 Closing balance 4,641 1,880 5,288 7,433 13,444 15,554 13,111 14,910

Salaries and other remuneration, along with social security expenses, were as follows. 29 Human Resources January–December The average number of full-time employees was as follows. SEK in millions 2003 2002 2001 Salaries and other remuneration 1,245 1,255 1,198 January–December Social security expenses 2003 2002 2001 Employer’s social security contributions 425 430 407 of which of which of which Pension expenses 83 2,532 792 Country Total men Total men Total men Contractual pensions for early retirement 31 31 29 Sweden 3,118 1,993 3,305 2,116 3,246 2,143 Total 539 2,993 1,228 Total 3,118 1,993 3,305 2,116 3,246 2,143 Total 1,784 4,248 2,426

The operations were conducted virtually throughout the country. Pension costs and outstanding pension commitments for the Board of Directors and The number of female and male senior executives is as follows. Senior executives the CEO were as follows. include ordinary members of the Board of Directors, the president and the executive management team. January–December or December 31, SEK in millions 2003 2002 2001 December 31, Pension expenses 8 26 17 2003 2002 2001 Outstanding pension commitments 120 113 83 Other Other Other Board of senior Board of senior Board of senior Number Directors executives Directors executives Directors executives Women 224232 Men777986

Absence due to illness, as a percentage of ordinary work hours excluding leave time and vacation, is distributed as follows.

2003 % July–December January–December Total absence due to illness 3.9 4.0 Absence due to illness that concerns a period of 60 consecutive days or longer 2.6 2.6 Total absence due to illness, men 2.7 2.8 Total absence due to illness, women 6.1 6.2 Total absence due to illness,

employees 29 years of age and Financials younger 1.8 2.0 Total absence due to illness, employees 30–49 years of age 3.3 3.4 Total absence due to illness, employees 50 years of age and older 4.7 4.7

TELIASONERA ANNUAL REPORT 2003 125 Notes to Parent Company Financial Statements

Salaries and other remuneration were divided between the Board of Directors and the CEO and other employees as follows.

January–December SEK in millions 2003 2002 2001 Board and CEO Board and CEO Board and CEO (of which Other (of which Other (of which Other Country variable salary) employees variable salary) employees variable salary) employees Sweden 12 (3) 1,233 11 (2) 1,244 7 (1) 1,191 Total 12 (3) 1,233 11 (2) 1,244 7 (1) 1,191

See also section “Remuneration to corporate officers” in “Notes to Consolidated Financial Statements – IFRS/IAS” (Note 36). 30 Auditors’ Fees

January–December SEK in millions 2003 2002 2001 Ernst & Young AB Audits 17 7 7 Independent advice 6 27 22 Total 233429 KPMG Bohlins AB Audits 9 – – Independent advice 2 – – Total 11––31 Merger with Sonera Oyj Swedish National Audit Office Audits 0 0 0 See “Notes to Consolidated Financial Statements – IFRS/IAS” (Note 40). Total 000 Other accounting firms Independent advice 4 2 0 32 Specification of Shareholdings Total 420 Total 383629 and Participations

Participation Number of Par value in local Book value (SEK in millions) Subsidiary, Corp. Reg. No., registered office (%) shares currency (in millions) 2003 2002 Swedish companies TeliaSonera Sverige AB, 556430-0142, Stockholm 100 3,000,000 SEK 300 1,249 1,249 TeliaSonera Mobile Networks AB, 556025-7932, Nacka 100 550,000 SEK 550 2,192 2,192 TeliaSonera Network Sales AB, 556458-0040, Stockholm 100 10,000 SEK 1 3 3 TeliaSonera IT-Service AB, 556329-5566, Haninge 100 450,000 SEK 45 243 201 Telia Credit AB, 556404-6661, Stockholm 100 1,000 SEK 0 57 41 Telia Promotor AB, 556255-1902, Stockholm 100 11,400 SEK 1 34 34 Telia Net Fastigheter AB, 556368-4801, Stockholm 100 5,000 SEK 1 169 169 Telia Fastigheter AB, 556343-6434, Stockholm 100 50,000,000 SEK 500 1,415 1,415 Telia Communications AB, 556027-2287, Haninge 100 275,000 SEK 275 1,393 1,393 Infonet Svenska AB, 556263-3080, Stockholm 100 40,000 SEK 4 25 25 Telia Networks Management AB, 556468-4388, Stockholm 100 10,000 SEK 1 6 6 Telia Online AB, 556240-6396, Stockholm 100 1,150,000 SEK 115 305 305 Telia Partner AB (publ), 556458-7011, Stockholm 100 650,000 SEK 65 209 209 Telia Försäljning AB, 556248-6240, Stockholm 100 40,000 SEK 40 621 621 Telia Handel AB, 556323-0258, Stockholm 100 350,000 SEK 35 80 80 Telia Research AB, 556235-8738, Stockholm 100 20,000 SEK 20 25 25 Telia Global Cast Internetworking AB, 556559-5948, Stockholm 100 9,000 SEK 1 2 2 Telia Internet Services AB, 556559-5930, Stockholm 100 1,000 SEK 0 144 144 Telia Electronic Commerce AB, 556228-8976, Stockholm 100 27,500 SEK 28 45 45 Telia Internet Services Management AB, 556248-8410, Stockholm 100 150,000 SEK 15 15 15 Halebop AB, 556603-7312, Stockholm 100 1,000 SEK 0 13 13 Telia Norge Holding AB, 556591-9759, Stockholm 100 1,000 SEK 0 0 0 Telia Nättjänster Norden AB, 556459-3076, Stockholm 100 10,000 SEK 1 377 377 Amber Mobile Teleholding AB, 556554-7774, Stockholm 100 1,000 SEK 0 1,456 730 Baltic Tele AB, 556454-0085, Stockholm 100 100,000 SEK 10 1,156 98 TeliaSonera International Carrier AB, 556583-2226, Stockholm 100 1,000,000 SEK 100 181 181 Sonera Sverige AB, 556476-3133, Stockholm 100 52,000 SEK 5 75 – Telia International Management AB, 556595-2917, Stockholm 100 1,000 SEK 0 5 1 Telia International AB, 556352-1284, Stockholm 100 20,000 SEK 20 481 481 TeliaSonera Försäkring AB, 516401-8490, Stockholm 100 1,000,000 SEK 100 100 100 Telia Finans AB, 556203-0576, Stockholm 100 122,000 SEK 122 587 389 Sergel Kredittjänster AB, 556264-8310, Stockholm 100 5,000 SEK 1 8 8 Telia Holding Personal AB, 556595-2958, Nacka 100 1,000 SEK 0 5 5 Telia International Holdings AB, 556572-1486, Stockholm 100 1,000 SEK 0 508 508 TeliaSonera Payphone AB, 556446-3734, Stockholm 100 5,000 SEK 1 3 – Netpool International AB, 556557-4562, Stockholm 100 1,000 SEK 0 42 – Netpool Sverige AB, 556557-4554, Stockholm 100 1,000 SEK 0 1 – Telia Business Innovation AB, 556559-2473, Stockholm 100 100,000 SEK 10 18 18 Telia InfoMedia Partner AB, 556429-6688, Stockholm 100 90,000 SEK 90 265 265 Telia Scanswitch AB, 556345-6622, Stockholm 100 500 SEK 1 8 8 Telia exBN AB, 556455-2304, Stockholm 100 250,000 SEK 25 512 512 Telia InfoMedia Interactive AB, 556138-5781, Stockholm 100 250,000 SEK 25 8 8 TeleMedia Group TMG AB, 556429-6704, Stockholm 100 100,000 SEK 100 202 202 Telia Fordon AB, 556287-3983, Stockholm 100 81,670 SEK 8 40 40 Thoreb ITMobile AB, 556480-1180, Stockholm 100 1,000 SEK 0 9 9 Other operating, dormant and divested companies 0 1,327

126 TELIASONERA ANNUAL REPORT 2003 Notes to Parent Company Financial Statements

Participation Number of Par value in local Book value (SEK in millions) Subsidiary, Corp. Reg. No., registered office (%) shares currency (in millions) 2003 2002 Companies outside Sweden TeliaSonera Finland Oyj, 1475607-9, Helsinki 100 1,115,301,729 EUR – 59,118 56,527 TeliaSonera International Carrier Finland Oy, 1649304-9, Helsinki 100 100 EUR 0 52 52 Telia Service Oy, 0676258-3, Helsinki 50 5 EUR 0 6 5 Telia Viesti Oy, 0845065-5, Helsinki 100 100 EUR 0 30 30 Telia NetCom Holding AS, 954393232, Oslo 100 100 NOK 0 4,596 4,596 TeliaSonera International Carrier Norway AS, 981946685, Oslo 100 32,666 NOK 0 80 80 NorSea Com AS, 979696892, Oslo 100 50,000 NOK 50 62 62 Telia Norge AS, 975961176, Oslo 100 2,000 NOK 2 189 189 TeliaSonera Danmark A/S, 18530740, Glostrup 100 9,000 DKK 9 1,365 1,244 Amber Teleholding A/S, 20758694, Copenhagen 100 1,000,000 DKK 1 3,048 2,053 TeliaSonera International Carrier Denmark A/S, 24210413, Glostrup 100 1,000 DKK 1 247 247 Latvijas Mobilais Telefons SIA, 000305093, Riga 24.5 2,695 USD 0 2 2 TeliaSonera International Carrier Latvia SIA, 40003251354, Riga 100 205,190 LVL 1 14 0 SIA Telia Latvija, 000305757, Riga 100 192,280 LVL 10 148 148 SIA Telia Multicom, 000321580, Riga 100 19,740 LVL 0 13 13 SIA Telia Multicom Dati, 000340396, Riga 75 150,000 LVL 2 37 37 TeliaSonera International Carrier Germany GmbH, HRB50081, Frankfurt am Main 100 – EUR 3 2,405 2,405 Sonera Deutschland GmbH, Düsseldorf 100 – EUR - 84 – TeliaSonera International Carrier France S.A., B421204793, Puteaux 100 2,699,994 EUR 40 2,468 1,014 TeliaSonera International Carrier Switzerland AG, 2171000547-8, Zürich 100 998 CHF 1 85 85 TeliaSonera International Carrier Austria GmbH, FN191783i, Vienna 100 – EUR 0 676 676 TeliaSonera International Carrier Netherlands B.V., 34128048, Amsterdam 100 5,460 EUR 1 280 122 TeliaSonera International Carrier Belgium S.A., B638443, Brussels 100 50,619 EUR 5 47 1 TeliaSonera International Carrier Italy S.p.A, 29580/2000, Turin 100 530,211 EUR 1 20 20 ZAO Telia International Carrier Russia, 7710096500, Moscow 100 100 RUR 0 6 6 TeliaSonera International Carrier Poland Sp. z o.o., RHB59638, Warsaw 100 22,500 PLN 11 30 30 TeliaSonera International Carrier Czech Republic a.s., 26207842, Prague 100 20,000 CZK 200 271 55 TeliaSonera International Carrier Hungaria Távközlési Kft., 01-09-688192, Budapest 100 1 HUF 50 16 2 TeliaSonera International Carrier, Inc., 541837195, Reston, VA 100 100 USD 0 1,287 1,287 TeliaSonera International Carrier Hong Kong Ltd., 700272, Hong Kong 100 3,010,000 HKD 3 0 0 Telia Reinsurance S.A., B53015, Luxembourg 100 129,990 SEK 13 13 13 Telia Telecommunications International B.V., 34135584, Hoofddorp 100 45,000 EUR 45 2,417 2,417 Telia Swedtel (Philippines), Inc., AS095-003695, Manila 100 124,995 PHP 12 4 4 Other operating, dormant and divested companies 019 Total 93,408 86,895

In all companies, equity participation corresponds to voting rights participation. Acquisitions by issue of own shares Telia Norge Holding AB and Telia NetCom Holding AS own NetCom ASA. Amber Under Finnish GAAP an acquisition paid through the issue of own shares does not Teleholding A/S owns 60 percent of the shares in AB Lietuvos Telekomas. Amber require that the purchase price is determined based on the market value of the Mobile Teleholding AB owns 90 percent of the shares in UAB Omnitel. Another 24.5 issued shares. Swedish GAAP require that the purchase price is determined based percent of the shares in Latvijas Mobilais Telefons SIA are owned by a subsidiary. on the market value of the issued shares, which often results in the recognition of a TeliaSonera has a board majority on Latvijas Mobilais Telefons. higher value of the acquired shares and an additional increase in equity. Historically Telia Viesti Oy owns the remaining shares in Telia Service Oy. A/S Telia Multicom TeliaSonera AB has not issued own shares at acquisitions but the merger with Sonera owns 25 percent of the shares in A/S Telia Multicom Dati. involves the issue of own shares. Other operating and dormant companies do not control Group assets of significant value. Holdings of other Swedish and non-Swedish subsidiaries for the comparative Impairment of fixed assets and long-term investments year referred to companies sold or liquidated in 2003 (SEK 855 million and SEK 19 Swedish GAAP require that if future cash flows are used for recoverability tests, these million, respectively) or reclassified to associated companies (SEK 472 million). cash flows should be discounted. Finnish GAAP do not exactly define how recover- The parent company indirectly controls a number of operating and dormant ability tests should be performed. subsidiaries of subsidiaries in addition to the companies mentioned above. Deferred taxes Finnish GAAP do not require the recognition of deferred tax assets and liabilities in the separate accounts of a legal entity. Swedish GAAP require the recognition of deferred 33 Finnish GAAP tax assets and liabilities also in the financial statements of separate legal entities.

The following information is provided pursuant to the Finnish Financial Supervision Group contributions Authority decision no. 28/269/2002. According to Finnish GAAP group contributions are recorded as extraordinary income Financials As defined in note “Basis for Presentation”; section “General,” TeliaSonera AB and expense. Swedish GAAP require that the classification be based on the nature of the prepares its financial statements in accordance with Swedish Accounting Standards transaction. TeliaSonera AB has classified group contributions net received as dividends (Swedish GAAP). The main differences between Finnish Accounting Standards and reported them as financial revenues in the income statement, while such contribu- (Finnish GAAP) and Swedish GAAP, relevant to TeliaSonera, are as follows. tions net rendered are recorded directly in shareholders’ equity, net of income tax.

TELIASONERA ANNUAL REPORT 2003 127 Proposed Appropriation of Earnings

Proposed Appropriation of Earnings

The TeliaSonera Group TeliaSonera AB According to the consolidated balance sheet as of December 31, SEK 2003, non-restricted equity totals SEK 26,148 million (17,129). Of Retained earnings 19,881,262,285 this, SEK 0 million (0) is expected to be transferred to restricted equity. Net income 3,327,946,150 Total non-restricted equity 23,209,208,435

The Board proposes that this sum be appropriated as follows:

SEK 1.00 per share dividend to the shareholders 4,675,232,069 To be carried forward to 2004 18,533,976,366 Total 23,209,208,435

Stockholm, March 3, 2004

Tapio Hintikka Carl Bennet Ingvar Carlsson Chairman Vice Chairman

Elof Isaksson Yvonne Karlsson Eva Liljeblom

Sven-Christer Nilsson Paul Smits Caroline Sundewall

Roger Talermo Berith Westman Tom von Weymarn

Anders Igel President and CEO

Our auditors’ report was rendered March 3, 2004

Ernst & Young AB KPMG Bohlins AB

Lars Träff Thomas Thiel Authorized Public Accountant Authorized Public Accountant

128 TELIASONERA ANNUAL REPORT 2003 Auditors’ Report

Auditors’ Report

To the Annual General Meeting of TeliaSonera AB (publ) the annual financial statements and consolidated financial state- Corporate Reg. No. 556103-4249 ments. We examined significant decisions, actions taken, and circumstances of the Company in order to determine the liability, if We have audited the annual financial statements, pages 46–57 and any, of any Board member or the President to the Company. We 101–128, the consolidated financial statements, the accounting have also examined whether any Board member or the President has records, and the administration of TeliaSonera AB (publ) by the performed any other act in contravention of the Swedish Compa- Board of Directors and President for fiscal 2003. The Board of Direc- nies Act, the Swedish Annual Accounts Act, or the Company’s arti- tors and President are responsible for the accounting records and cles of incorporation. We believe that our audit provides a reason- administration. Our responsibility is to express an opinion on the able basis for our opinion set out below. annual financial statements, the consolidated financial statements, The annual financial statements and consolidated financial state- and the administration based on our audit. ments have been prepared in accordance with the Swedish Annual We conducted our audit in accordance with generally accepted Accounts Act and thus provide a true and fair view of the earnings auditing standards in Sweden. Those standards require that we plan and financial position of the Company and the Group in accordance and perform the audit to obtain reasonable assurance that the annu- with generally accepted accounting standards in Sweden. al financial statements and the consolidated financial statements are We recommend that the Annual General Meeting adopt the free of material misstatement. An audit includes examining, on a test income statements and balance sheets for the Parent Company and basis, evidence supporting the amounts and disclosures in the finan- the Group, appropriate the profit of the Parent Company in accor- cial statements. An audit also includes assessing the accounting poli- dance with the proposal in the report of the Board of Directors, and cies used and their application by the Board of Directors and Presi- discharge the President and the Members of the Board of Directors dent as well as assessing the overall presentation of information in from liability for fiscal 2003.

Stockholm, March 3, 2004

Ernst & Young AB KPMG Bohlins AB

Lars Träff Thomas Thiel Authorized Public Accountant Authorized Public Accountant Financials

TELIASONERA ANNUAL REPORT 2003 129 Nine-Year Summary

Nine-Year Summary

TeliaSonera Group*: Financial Data (IFRS/IAS) 2003 2002 2001 2000 1999 1998 1997 1996 1995 Income statements (SEK million) Net sales 82,425 59,483 57,196 54,064 52,121 49,569 45,665 42,430 38,953 Operating income 14,710 –10,895 5,460 12,006 5,946 7,220 3,218 3,264 3,296 Income after financial items 13,899 –11,616 4,808 11,717 5,980 7,143 3,128 3,353 3,410 Net income 9,080 –8,067 1,869 10,278 4,222 5,011 2,222 2,337 2,484 EBITDA excluding non-recurring items 30,700 15,692 12,915 13,087 14,059 13,309 12,324 13,185 11,990 EBITDA 32,035 9,421 13,299 21,425 12,875 15,070 10,679 10,961 11,219 Depreciation, amortization, and write-downs 17,707 20,844 13,975 8,222 7,652 7,146 7,298 7,154 7,378 Balance sheets (SEK million) Intangible fixed assets 61,820 68,106 26,816 25,198 2,146 1,844 1,566 1,809 941 Tangible fixed assets 49,161 56,172 47,314 43,807 33,318 34,801 39,239 38,366 37,703 Financial fixed assets 42,061 48,534 20,784 22,335 18,023 12,553 8,666 7,224 5,724 Current assets 37,018 33,844 33,277 31,375 23,117 18,080 16,439 15,116 14,093 Total assets 190,060 206,656 128,191 122,715 76,604 67,278 65,910 62,515 58,461 Shareholders’ equity 112,393 108,829 59,885 55,988 32,893 29,344 25,487 24,413 23,083 Minority interests 3,441 5,120 204 320 210 210 306 218 13 Provisions 15,297 18,406 13,107 11,351 10,488 7,735 12,262 14,146 17,122 Interest-bearing liabilities 30,554 44,732 29,124 34,042 16,057 13,553 14,813 9,837 4,513 Non-interest-bearing liabilities 28,375 29,569 25,871 21,014 16,956 16,436 13,042 13,901 13,730 Total shareholders’ equity and liabilities 190,060 206,656 128,191 122,715 76,604 67,278 65,910 62,515 58,461 Capital employed 142,235 157,035 90,971 92,374 50,936 43,440 46,329 43,420 40,357 Operating capital 120,006 137,113 70,150 75,042 39,160 34,921 39,192 37,013 34,161 Net debt 18,207 38,075 20,004 32,512 14,280 12,870 13,254 8,710 3,171 Net interest-bearing liability 8,847 25,034 10,661 20,235 7,527 6,767 14,609 13,534 12,065 Cash flows (SEK million) Cash flow from operating activities 26,443 12,449 10,416 10,152 10,715 10,301 8,920 9,783 11,392 Cash flow from investing activities –3,443 –5,553 3,632 –37,121 –10,701 –8,967 –12,426 –14,744 –10,297 Cash flow before financing activities 23,000 6,896 14,048 –26,969 14 1,334 –3,506 –4,961 1,095 Cash flow from financing activities –16,412 –10,344 –6,608 26,818 1,005 –2,301 3,896 4,784 –1,144 Cash flow for the year 6,588 –3,448 7,440 –151 1,019 –967 390 –177 –49 Free cash flow 17,351 3,877 –6,506 –5,845 2,828 2,638 –707 1,480 2,868 Investments (SEK million) CAPEX 9,373 14,345 17,713 16,580 7,701 7,663 9,637 8,304 8,524 Acquisitions 2,745 40,093 3,022 31,162 4,444 4,075 1,227 2,704 2,053 Total investments 12,118 54,438 20,735 47,742 12,145 11,738 10,864 11,008 10,577 Business ratios EBITDA margin (%) 37.2 26.4 22.6 24.2 27.0 26.8 27.0 31.1 30.8 Operating margin (%) 17.8 –18.3 9.5 22.2 11.4 14.6 7.0 7.7 8.5 Return on sales (%) 11.0 –13.6 3.3 19.0 8.1 10.1 4.9 5.5 6.4 Depreciation, amortization, and write-downs as a percentage of net sales 21.5 35.0 24.4 15.2 14.7 14.4 16.0 16.9 18.9 CAPEX as a percentage of net sales 11.4 24.1 31.0 30.7 14.8 15.5 21.1 19.6 21.9 Total asset turnover (multiple) 0.42 0.36 0.46 0.54 0.72 0.74 0.71 0.70 0.69 Turnover of capital employed (multiple) 0.55 0.48 0.62 0.75 1.10 1.10 1.02 1.01 0.99 Return on assets (%) 8.7 –5.7 5.7 13.6 9.4 11.9 6.0 6.6 7.1 Return on capital employed (%) 11.6 –7.7 7.8 18.9 14.4 17.6 8.6 9.6 10.2 Return on equity (%) 8.5 –9.7 3.3 23.9 14.2 19.2 9.3 10.3 11.8 Equity/assets ratio (%) 56.7 51.8 46.2 44.4 41.0 41.5 36.8 37.2 37.8 Debt/equity ratio (multiple) 0.08 0.23 0.18 0.37 0.24 0.24 0.60 0.58 0.55 Interest coverage ratio (multiple) 5.1 –4.7 3.0 7.3 8.5 10.4 5.3 6.1 6.7 Self-financing rate (multiple) 2.18 0.23 0.50 0.21 0.88 0.88 0.82 0.89 1.08 Per share data Dividend (SEK million), for 2003 as proposed by the Board 4,675 1,870 600 1,501 1,470 1,400 1,210 1,152 1,000 Average number of shares (thousands) 4,667,618 3,124,289 3,001,200 2,932,757 2,851,200 2,851,200 2,851,200 2,851,200 2,851,200 – after dilution (thousands) 4,668,426 3,125,314 3,001,200 2,932,757 2,851,200 2,851,200 2,851,200 2,851,200 2,851,200 Basic and diluted earnings/loss per share (SEK) 1.95 –2.58 0.62 3.50 1.48 1.76 0.78 0.82 0.87 Dividend per share (SEK) 1.00 0.40 0.20 0.50 0.52 0.49 0.42 0.40 0.35 Payout ratio (%) 51.4 n/a 32.1 14.3 34.8 27.9 54.5 49.3 40.3 Shareholders’ equity per share (SEK) 24.04 23.63 19.95 18.66 11.54 10.29 8.94 8.56 8.10 Comparative figures under U.S. GAAP (SEK million) Net sales 82,099 59,336 56,957 53,849 51,931 49,389 45,542 42,363 38,955 Net income 10,628 –8,755 4,443 9,991 4,218 3,600 2,133 2,288 2,485 Shareholders’ equity 111,780 110,269 58,589 51,870 29,168 25,575 23,167 22,253 20,971 Balance sheet total 200,787 217,464 132,495 123,689 77,974 68,598 66,716 63,356 59,282 Basic and diluted earnings/loss per share (SEK) 2.28 –2.80 1.48 3.41 1.48 1.26 0.75 0.80 0.87

* Including Sonera and Baltic mobile and fixed-line entities since December 3, 2002.

130 TELIASONERA ANNUAL REPORT 2003 Nine-Year Summary

Nine-Year Summary

TeliaSonera Group*: Operational Data 2003 2002 2001 2000 1999 1998 1997 1996 1995 Sweden Mobile telephony, total subscriptions (thousands) 3,838 3,604 3,439 3,257 2,638 2,206 1,935 1,745 1,438 Mobile telephony, total GSM (thousands) 3,706 3,467 3,295 3,076 2,348 1,703 1,180 824 463 Mobile telephony, total NMT (thousands) 132 137 144 181 290 503 755 921 975 Mobile telephony, outgoing traffic (millions of minutes) 3,312 3,201 3,016 2,591 2,089 1,745 1,554 1,221 1,046 Mobile telephony, incoming traffic (millions of minutes) 2,400 2,294 2,067 1,766 1,416 1,091 885 677 612 Mobile telephony, traffic per customer and month (minutes) 128 130 127 123 121 114 111 99 106 Mobile telephony, SMS messages (millions) 794 488 389 185 46 13 4 – – Mobile telephony, GSM churn (%) 11 128891412n/an/a Mobile telephony, ARPU (SEK) 272 277 285 308 332 362 345 366 399 Broadband ADSL/LAN, subscriptions (thousands) 394 317 194 27 2–––– Broadband dedicated access, subscriptions (thousands) 543211111 Internet dial-up access, subscriptions (thousands) 823 763 747 687 598 439 230 105 9 Fixed telephony, PSTN subscriptions (thousands) 5,432 5,558 5,663 5,783 5,889 5,965 6,010 6,032 6,013 Fixed telephony, ISDN channels (thousands) 824 883 922 838 630 424 244 129 49 Finland Mobile telephony, total subscriptions (thousands) 2,428 2,790 239 149 33 8––– of which Sonera 2,428 2,490––––––– Mobile telephony, outgoing traffic (millions of minutes) 4,706–––––––– Mobile telephony, outgoing traffic per customer and month (minutes) 160–––––––– Mobile telephony, SMS messages (millions) 815–––––––– Mobile telephony, GSM churn (%) 17–––––––– Mobile telephony, ARPU (EUR) 39–––––––– Broadband, subscriptions (thousands) 150 82––––––– Internet dial-up access, subscriptions households (thousands) 155 181––––––– Fixed telephony, PSTN subscriptions (thousands) 570 503––––––– Fixed telephony, ISDN channels (thousands) 234 218––––––– Norway Mobile telephony, total subscriptions (thousands) 1,195 1,088 970 850––––– Mobile telephony, traffic per customer and month (minutes) 168 153 133 130––––– Mobile telephony, SMS messages (millions) 1,043 756 501 302––––– Mobile telephony, ARPU (NOK) 367 345 310 308––––– Denmark Mobile telephony, total subscriptions (thousands) 525 466 288 263 170 112––– Mobile telephony, SMS messages (millions) 1,041 175 61 39 23–––– Internet dial-up access, subscriptions (thousands) 28 34 n/a n/a n/a n/a n/a – – Cable TV, subscriptions (thousands) 195 188 179 175 170 164 145 137 135 built-out broadband connections in the cable TV network (thousands) 361 346 304 175 145 110 101 17 – of which Internet users (thousands) 104 81 58 30 11 3––– Fixed telephony, prefix and contract customers (thousands) 172 210 n/a n/a n/a n/a n/a n/a – Baltics Mobile telephony, subscriptions, Latvia (thousands) 534 447––––––– Mobile telephony, subscriptions, Lithuania (thousands) 1,052 850––––––– Fixed telephony, subscriptions, Lithuania (thousands) 829 936––––––– Cable TV, subscriptions, Latvia (thousands) – 67 66 63 31 19 7 – – International Mobile telephony, subscriptions, Eurasia (thousands) 2,385 1,614––––––– Cable TV, subscriptions, Russia (thousands) – 18 13 6––––– Human Resources Number of employees as of December 31 26,694 29,173 17,149 29,868 30,643 30,593 32,549 34,192 33,065 Average number of employees during the year 26,188 17,277 24,979 30,307 29,546 31,320 33,930 34,031 32,825 of which, in Sweden 11,321 12,593 20,922 25,383 25,414 27,540 30,474 31,290 31,503 of which, in Finland 6,408 1,142 775 999 662 521 421 178 103 of which, in other countries 8,459 3,542 3,282 3,925 3,470 3,259 3,035 2,563 1,219 of which, women 10,936 7,546 9,196 11,521 11,268 11,486 13,703 12,416 12,822 of which, men 15,252 9,731 15,783 18,786 18,278 19,834 20,227 21,615 20,003 Salaries and remuneration (SEK million) 8,460 6,732 8,852 9,543 9,184 9,098 9,472 8,876 7,948 Employer's social security contributions (SEK million) 1,950 1,804 2,614 3,055 2,895 2,762 2,807 2,719 2,606 Salaries and employer's social security contributions as a percentage of operating expenses 14.9 14.9 19.4 25.5 26.2 25.8 28.5 29.9 29.5 Net sales per employee (SEK thousand) 3,147 3,443 2,290 1,784 1,764 1,583 1,346 1,247 1,187 Operating income per employee (SEK thousand) 562 –631 219 396 201 230 95 96 100 Financials Change in labor productivity (%) –4.9 53.5 31.9 8.3 17.9 20.2 8.4 5.4 9.1 Net income (IFRS/IAS) per employee (SEK thousand) 347 –467 75 339 143 160 65 69 76 Value added (SEK million) 42,443 17,883 24,626 33,924 24,672 26,888 22,558 21,561 21,103 Value added per employee (SEK thousand) 1,621 1,035 986 1,119 835 858 665 634 643

* Including Sonera and Baltic mobile and fixed-line entities since December 3, 2002.

TELIASONERA ANNUAL REPORT 2003 131 132 TELIASONERA ANNUAL REPORT 2003