Revenue for Telecoms

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52 | Revenue for Telecoms – Issues In-Depth | 3 Step 2: Identify the performance obligations in the contract Example 20 – Wireless family plan with shared data Telco X enters into a contract with Customer C to provide Customer C and his child a family wireless share plan. The plan is comprised of two voice plans, two text plans and 5GB of shared data for a fixed monthly fee. The minutes and texts are not shared. Customer C and his child each have their own wireless handsets. Customer C and his child are able to benefit from the voice, text and data services individually, together with readily available resources (i.e. the existing handsets). Similarly, the two voice plans and the two text plans do not transform one another and are therefore not highly interrelated. Telco X also promised to provide data services to two users (Customer C and his child), and assesses if this creates two performance obligations. Even though the data is shared between the two users, Telco X determines that the data service is one performance obligation. Telco X therefore concludes that the contract contains five performance obligations: the two voice plans, the two text plans and the shared data plan. Similar to the triple-play in Example 18, Telco X may decide as a practical matter that it is acceptable to account for the bundle as a single performance obligation if all performance obligations have the same pattern of transfer (see 6.3). Observations Bundled telecom contracts may contain several service performance obligations A telecom entity typically offers arrangements that can include varying service combinations, such as wireless, internet, television and landline voice. Each service is regularly sold separately, further supporting the conclusion that customers can benefit from each on its own (Criterion 1). Applying Criterion 2, however, requires judgment. The entity should analyze if the services are separately identifiable. The fact that the services are regularly sold separately generally evidences that they do not transform one another. Furthermore, that analysis considers whether there is an interrelationship between the services – e.g. in enterprise contracts where the services are complex. For practical reasons, dissimilar telecom services delivered concurrently can be treated as one performance obligation when they have the same pattern of transfer ASU 2014-09.BC116 [IFRS 15.BC116] 606-10-50-5 – 50-6 [IFRS 15.114–115] Many telecom services are dissimilar (e.g. television, internet, voice) but are delivered concurrently. When performance obligations are dissimilar but have the same pattern of transfer (see 6.3), treating them as one performance obligation may have no effect on the overall pattern of revenue recognition. The classification of the revenues received, however, for disaggregated revenue disclosure or segment reporting requirements, as well as management, regulatory and tax reporting, should be considered. Home © 2016 KPMG LLP, a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Revenue for Telecoms – Issues In-Depth | 53 3.4 Telecom services | Optional services will usually be distinct but need to be evaluated for potential material rights Telecom contracts often include optional features that can be purchased separately – e.g. adding minutes, texts or data to a fixed usage plan, additional bundles of voice, text and data to an existing plan, international roaming plans, additional television channels or pay-per-view movies. When these add-ons are subscribed to by the customer, either at contract inception or later in the contract, the entity needs to assess whether they are distinct from the other services. As described above, because these add-ons can be purchased separately and can often be opted in to or out of at any time during the contract, they are generally capable of being distinct (Criterion 1). Although the add-ons (e.g. an international wireless voice plan) are typically not offered to a customer that has not subscribed to a base service plan (e.g. a wireless voice plan), the add-ons do not generally transform the base service and therefore meet Criterion 2 (distinct in the context of the contract). When these add-ons are available to the customer but the customer has not yet subscribed to them, the telecom entity should consider the guidance on options and material rights (see Section 8). Share plans add complexity Share plans add complexity when identifying the performance obligations in a contract. Their specific facts and circumstances may vary and need to be analyzed carefully. In addition, share plans may be entered into through several contracts with different users. The telecom entity should therefore determine who its customer is, which may include assessing who is responsible for payment. It should also consider the contract combination guidance (see 2.3). 3.4.2 The series guidance applied to telecom services Telecom entities need to define the nature of their promise to the customer, which may be a promise to deliver time increments of network service (minute, day etc.) or other service units (text, data gigabyte etc.). In many cases, telecom services will meet the criteria to be accounted for as a series because each time increment or service unit is distinct, similar and delivered over time. If so, the telecom service is accounted for as one performance obligation. This may have follow-on consequences when determining the pattern of transfer (see 6.3) and accounting for contract modifications. The practical outcome of accounting for the services as a series is a simplified approach to what the new standard otherwise would require. Requirements of the new standard 606-10-25-14b [IFRS 15.22(b)] A contract may contain promises to deliver a distinct series of goods or services that are substantially the same. At contract inception, an entity assesses the goods or services promised in the contract and determines whether the series is a single performance obligation. This is the case when it meets the following criteria. © 2016 KPMG LLP, a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Home
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