Revenue for Telecoms

150 | Revenue for Telecoms – Issues In-Depth
| 8 Customer options for additional goods or services
These promises require careful analysis of the terms and conditions to determine
the appropriate accounting. Because the waiver is provided on the condition
that the customer enters into a new contract, some view the waiver as an
incentive (akin to a discount) offered as part of the new contract. Therefore, the
promise or right to upgrade at a discount could be accounted for as a material
right. However, others believe that the waiver of the early termination penalties
affects the transaction price of the initial contract. In these cases, the promise
or right to early upgrade with some waived fees would result in less expected
consideration on the first handset and thus would require an estimate of the
variable consideration. However, the consideration of the contract only would
vary if the renewal option is exercised and an additional service plan is agreed to.
Accordingly, the exercise of the early upgrade option also affects both the scope
of the goods and services, as well as the price, and therefore some believe the
option is not variable consideration. Whether the promise or right is accounted for
as a material right or variable consideration, the amount and timing of the revenue
recognized for the handset and service may be similar.
When the contract does not explicitly include the promise to upgrade and this
is not implied by customary business practices, a contract asset would remain
at the time of early upgrade. If the telecom entity concludes that the contract
modification guidance applies, then the contract asset may be rolled into the new
contract and derecognized prospectively as a reduction of the revenue recognized
under the new contract.
Determining the class of customer when assessing options requires careful
consideration
When assessing whether an option grants a material right to the customer, a
telecom entity assesses whether the discount provided is incremental to the
range of discounts typically given for those goods or services to that class of
customer. In determining the appropriate class of customer, a telecom entity
considers a number of factors, such as geography or market. For example,
enterprise customers may be a different class of customer from individual
consumers.
However, a class of customer is not determined by the customer’s prior
purchasing history. For example, a customer who has already purchased goods
or services from the telecom entity (i.e. an ‘existing’ customer) is not necessarily
(if all other factors are the same) in a different class from those customers who
have not already purchased goods or services from the telecom entity (i.e.
‘new’ customers).
Customer loyalty arrangements may convey material rights
Customer loyalty arrangements that allow customers to accrue points, or similar
benefits, through purchases over time may convey material rights. See 10.4 in
Issues In-Depth, Edition 2016 for additional guidance.
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