Sunday, December 1, 2013

[IFRS] IAS 18 - Revenue - Part 9: Revenue Recognition - Telecommunication Industry

Telecommunication (Mobile)

The telecom companies’ earn revenue from number of services offered to customer. Mobile operator sells handset along with call services to attract customers. The handset is sold along with pre-paid minutes for calling; message and other incentive are provided to customers. So, the telecom operator earns revenue from customer in form of monthly rental, airtime usage charges, domestic/international roaming services and other value added services. Further, the customer has option to select from varied services provided and pay only for those services availed. So, it is important for entity to decide whether particular transaction will be accounted in its entirety or separately. 

To apply revenue recognition criteria, the goods and service provided by telecom companies is broadly classified into:
  • Handset Revenue: If the handset is sold only as an instrument, then revenue should be recognized on delivery of the handset, if fair value of handset is established. If sale of handset is combined with free text and voice messages, then revenue for each element be recognized based on fair value.
  • Connection Revenue: Upfront, may also be recognized by bundling it with handset revenue
  • Interconnect Revenue: Interconnect revenue refers to amount charged to customer to allow them to communicate with the customers of another service provider. Interconnect revenue is recognized when the services are performed. 
  • Airtime usage charges: be recognized when calls are made. In case of pre-paid cards with expiry date, the revenue for unused minutes be recognized on such expiry date, i.e. when the entitlement to future use is lost. 
  • Domestic/international roaming services: recognized based on usage when the calls are made
  • Data plan: recognized based on data usage or evenly over the period for which the services is provided
Accounting Policies (Extract)
Vodafone Group plc, (LON:VOD), Consolidated Financial Statement March 2012
Revenue (Extract)
Revenue is recognized to the extent the Group has delivered goods or rendered services under an agreement, the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group. Revenue is measured at the fair value of the consideration received, exclusive of sales taxes and discounts. 

The Group principally obtains revenue from providing the following telecommunication services: access charges, airtime usage, messaging, interconnect fees, data services and information provision, connection fees and equipment sales. Products and services may be sold separately or in bundled packages. 

Revenue for access charges, airtime usage and messaging by contract customers is recognized as services are performed, with unbilled revenue resulting from services already provided accrued at the end of each period and unearned revenue from services to be provided in future periods deferred. Revenue from the sale of prepaid credit is deferred until such time as the customer uses the airtime, or the credit expires. 

Revenue from interconnect fees is recognized at the time the services are performed. 

Revenue from data services and information provision is recognized when the Group has performed the related service and, depending on the nature of the service, is recognized either at the gross amount billed to the customer or the amount receivable by the Group as commission for facilitating the service. 

Customer connection revenue is recognized together with the related equipment revenue to the extent that the aggregate equipment and connection revenue does not exceed the fair value of the equipment delivered to the customer. Any customer connection revenue not recognized together with related equipment revenue is deferred and recognized over the period in which services are expected to be provided to the customer. 

Revenue for device sales is recognized when the device is delivered to the end customer and the sale is considered complete. For device sales made to intermediaries, revenue is recognized if the significant risks associated with the device are transferred to the intermediary and the intermediary has no general right of return. If the significant risks are not transferred, revenue recognition is deferred until sale of the device to an end customer by the intermediary or the expiry of the right of return. 

In revenue arrangements including more than one deliverable, the arrangements are divided into separate units of accounting. Deliverables are considered separate units of accounting if the following two conditions are met: 
  • the deliverable has value to the customer on a stand-alone basis and 
  • there is evidence of the fair value of the item. The arrangement consideration is allocated to each separate unit of accounting based on its relative fair value.