NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS | NOTE 6         Group         Company             2013 Rm   2012 Rm         2013 Rm   2012 Rm     6. OPERATING EXPENSES                             Operating expenses comprise:                             6.1 Employee expenses   9,861   8,636         9,490   8,291         Salaries and wages   7,536   6,987         7,283   6,751         Medical aid contributions   19   18         –   –         Retirement contributions   624   575         606   558         Post-retirement pension and retirement fund (refer to note 30)   (95)   (88)         (95)   (88)            Current service cost   5   5         5   5            Interest cost   794   737         794   737            Expected return on plan assets   (894)   (830)         (894)   (830)         Post-retirement medical aid (refer to notes 29 and 30)   491   468         490   466            Current service cost   110   107         110   106            Interest cost   622   569         621   568            Expected return on plan asset   (241)   (208)         (241)   (208)         Telephone rebates (refer to notes 29 and 30)   53   56         53   56            Current service cost   7   7         7   7            Interest cost   44   47         44   47            Past service cost   2   2         2   2         Other benefits*   1,754   1,127         1,674   1,055         Employee expenses capitalised   (521)   (507)         (521)   (507)         The increase in salaries and wages is mainly due to an average salary increase of 6.5%.                               Other benefits increased mainly due to the provision for the voluntary severance and voluntary early retirement packages (VSP/VERP) offset by a curtailment gain of R276 million (2012: curtailment loss of R2 million) on the post-retirement medical aid and a curtailment loss of R6 million (2012: RNil million) on the telephone rebates. Refer to note 29.                               * Other benefits include skills development, annual leave, performance incentive, service bonuses, curtailment and voluntary employee severance/ voluntary early retirement packages costs.                             6.2 Payments to other operators   4,678   5,484         4,479   5,288         Payments to other network operators consist of expenses in respect of interconnection with other network operators and decreased due to the reduction in the mobile termination rates.                             6.3 Selling, general and administrative expenses   7,216   7,193         6,825   8,224         Selling and administrative expenses*   2,384   1,588         2,111   2,713         Maintenance   3,112   2,684         3,102   2,672         Marketing   956   1,059         934   1,025         Mobile direct costs and dealer incentives   312   1,019         312   1,019         Fixed-line dealer incentives   51   153         51   153         Impairment of receivables*   401   690         315   642         Selling and administrative expenses increased due to the provision for the Competition Commission fines.                               Maintenance costs increased due to the expenditure on the integration of independent business systems.                               Mobile direct costs and fixed-line dealer incentives decreased due to lower sale acquisition costs incurred as a direct result of the refocus of the company strategy.                               Included in mobile direct costs is amortisation of R137 million (2012: R43 million) relating to the connection incentive bonus (refer to note 14).                               * Included in impairment of receivables is bad debts recovered of R181 million for the Group and Company. In the 2012 financial year for selling and administrative expenses is an amount of R93 million for bad debts recovered for Group and Company.                             6.4 Service fees   3,103   2,974         3,068   2,952         Facilities and property management   1,660   1,505         1,659   1,503         Consultancy services   409   506         388   497         Security and other   972   895         969   892         Auditors’ remuneration   62   68         52   60       6.5 Operating leases*   936   825         880   757         Land and buildings   422   331         385   282         Transmission and data lines   18   19         –   –         Equipment   36   30         35   29         Vehicle   460   445         460   446         * Operating lease commitments are disclosed in note 37.                             6.6 Depreciation, amortisation, impairment and write-offs   18,156   6,138         18,093   5,467         Depreciation of property, plant and equipment   5,072   4,608         5,045   4,556         Amortisation of intangible assets   906   707         871   657         Impairment of property, plant and equipment and intangible assets   12,000   569         12,000   –         Write-offs of property, plant and equipment and intangible assets   178   254         254   254         Property, plant and equipment                               The estimated useful lives assigned to groups of property, plant and equipment are:                                   Years   Years         Years   Years         Freehold buildings   15 to 40   15 to 40         15 to 40   15 to 40         Leasehold buildings   4 to 6   1 to 9         6   1 to 7         Network equipment                               Cables   20 to 40   20 to 40         20 to 40   20 to 40         Switching equipment   5 to 18   5 to 18         5 to 18   5 to 18         Transmission equipment   5 to 18   5 to 18         5 to 18   5 to 18         Other   2 to 20   2 to 20         2 to 20   2 to 20         Support equipment   5 to 13   5 to 13         5 to 13   5 to 13         Furniture and office equipment   1 to 15   1 to 15         11 to 15   11 to 15         Data processing equipment and software   1 to 10   1 to 10         5 to 10   5 to 10         Other   1 to 20   1 to 20         2 to 20   2 to 20         The expected useful lives assigned to intangible assets are:                                   Years   Years         Years   Years         Licences   3 to 11   3 to 11                       Software   2 to 10   2 to 10         5 to 10   5 to 10         Connection incentive bonus*   0   2         0   2         Trademarks, copyrights and other   4 to 13   4 to 13         4 to 13   4 to 13         * For the Connection incentive bonus, refer to the Connection incentive in the Summary of significant accounting policies under Revenue recognition.                               As a result of rolling out of the next generation network transformation programme, the Group re-assessed the useful lives of certain legacy equipment. The re-assessment of useful lives had the effect of increasing the depreciation expense for the year ended 31 March 2013 by R667 million (2012: R605 million). Depreciation for each year of the remaining useful lives of the individually re-assessed equipment could be significantly lower as a result of the impairment loss recognised on the legacy assets – refer to note 14. The impairment loss relates to property, plant and equipment of R11,025 million and relates to intangible assets of R975 million of the Telkom Cash-Generating Unit. This is based on Value in Use. Refer to key valuation assumptions detailed in note 14.