Revenue for Telecoms

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60 | Revenue for Telecoms – Issues In-Depth | 3 Step 2: Identify the performance obligations in the contract Example 26 – Wi-Fi hotspot access Telco A offers a premium internet package that includes, among other services, access to Wi-Fi hotspots with the advantage to customers that they are able to save on their data usage. Alternatively, Telco A offers a basic internet package which allows, for an additional fee, the same access to Wi-Fi hotspots as the premium package. Telco A determines that the access to the Wi-Fi hotspots is distinct from the other network services. This is because the customer can benefit from the Wi-Fi hotspot access on its own (i.e. it is sold separately). Furthermore, this service is distinct in the context of the contract because the Wi-Fi hotspot access is not highly interrelated with the network services. This is because the customer could choose not to take Wi-Fi hotspot access and the network services would not be significantly affected. Observations Administrative activities are not performance obligations Telecom entities charge a number of fees to their customers at inception or during the contract term. These fees cover activities that should be evaluated to determine if they are distinct goods or services and therefore accounted for as separate performance obligations. Fees such as wireless activation fees, credit check fees, service level change fees (sometimes referred to as ‘service upgrade’ or ‘downgrade fees’) and early contract termination fees are generally charged to recover the cost of administrative activities. Therefore, they would not typically give rise to performance obligations. Fees for administrative tasks that are charged at contract inception or upon contract modification, if they are nonrefundable, are assessed further under the guidance on nonrefundable up-front fees (see Section 9). Optional services may represent separate performance obligations Some telecom entities offer optional services, such as help desk support, to their customers. Judgment is needed to determine if the optional services are promises made to the customer and represent separate performance obligations. If they are included in all network service bundles, then they may still meet the criteria for being distinct. For practical purposes, in these circumstances, these optional services can however be accounted for as part of the same bundle, as a single performance obligation, if all services are provided concurrently and have the same pattern of transfer. 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 | 61 3.7 Incentives and promotional giveaways | Comparison with current US GAAP Administrative tasks SEC SAB Topic 13 The notion of an administrative task exists in current SEC guidance and refers to activities that do not represent discrete earnings events – i.e. selling a membership, signing a contract, enrolling a customer, activating telecommunications services or providing initial set-up services. Current SEC guidance distinguishes between deliverables and these activities. It states that activities that do not represent discrete earnings events are typically negotiated in conjunction with the pricing of the deliverables to the contract, and that the customer generally views these types of non-deliverable activities as having significantly lower or no value separate from the entity’s overall performance under the contract. In general, entities are unlikely to reach a substantially different conclusion under the new standard when they attempt to identify administrative tasks from that reached under current SEC guidance in identifying activities that do not represent discrete earnings events. 3.7 Incentives and promotional giveaways Incentives and promotional giveaways are performance obligations if they meet the ‘distinct’ criteria. Even if the intent of the entity in offering the incentive is solely to entice customers to subscribe to a telecom service by, for example, giving free equipment or gift cards, that does not negate the requirement to evaluate whether the incentives are performance obligations (see 3.1). Example 27 – Free handset case and gift card Customer C purchases a wireless handset and a two-year service contract (both identified as separate performance obligations) from Telco A. Telco A offers Customer C a free handset case and a gift card for a local electronics store. These items are not typically included at contract inception. Telco A determines that, although the handset case and gift card are incremental goods provided to Customer C as a marketing incentive to enter the wireless contract, they represent promises made by Telco A to Customer C. Therefore, there are four promised goods and services, as follows: – wireless handset; – handset case; – gift card; and – service contract. Telco A concludes that the handset case and gift card are distinct because Customer C could have purchased them separately, can benefit from these items separately and they are not highly interrelated with the handset and wireless services. Therefore, Telco A accounts for four performance obligations. © 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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Revenue for Telecoms

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