| DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
On February 7, 2017, Trilogy International Partners LLC
(“Trilogy LLC”), a Washington limited liability
company, and Alignvest Acquisition Corporation
(“Alignvest”), completed a court approved plan of
arrangement (the “Arrangement”) pursuant to an
arrangement agreement dated November 1, 2016 (as amended
December 20, 2016, the “Arrangement Agreement”).
Alignvest, a special purpose acquisition corporation
(“SPAC”), was incorporated under the Business
Corporations Act of Ontario (“OBCA”) on May 11,
2015 for the purpose of effecting an acquisition of one or more
businesses or assets, by way of a merger, share exchange, asset
acquisition, share purchase, reorganization, or any other similar
transaction involving Alignvest, referred to as its
“qualifying acquisition”. The consummation of the
Arrangement with Trilogy LLC represented Alignvest’s
qualifying acquisition. At the effective time of the Arrangement,
Alignvest’s name was changed to Trilogy International
Partners Inc. (“TIP Inc.” and together with its
consolidated subsidiaries, the “Company”). Immediately
following the completion of the Arrangement, TIP Inc. was continued
out of the jurisdiction of Ontario under the OBCA and into the
jurisdiction of British Columbia under the Business Corporation Act
(British Colombia) (“BCBCA”). For accounting purposes,
the Arrangement was treated as a “reverse acquisition”
and recapitalization; therefore, Trilogy LLC was considered the
accounting acquirer of TIP Inc. Accordingly, Trilogy LLC’s
historical financial statements as of the period ended and for the
periods ended prior to the acquisition are presented as the
historical financial statements of TIP Inc. prior to the date of
the acquisition. As a result of the Arrangement, TIP Inc., through
a wholly owned subsidiary, obtained a controlling interest in and
thus consolidates Trilogy LLC.
To effect the Arrangement, the following organizational
transactions occurred prior to or concurrent with the consummation
of the Arrangement:
• On January 9, 2017, Trilogy LLC
converted an outstanding intercompany loan to its New Zealand
subsidiary, Two Degrees Mobile Limited (“2degrees”),
into 10,920,280 shares of 2degrees in full repayment of the
outstanding $13.9 million loan balance. The conversion
increased Trilogy LLC’s ownership in 2degrees by 1% from
62.9% to 63.9%. The carrying amounts of the noncontrolling interest
attributable to 2degrees were adjusted to reflect the change in
ownership interests.
• On February 7, 2017, Trilogy LLC
indirectly acquired noncontrolling interests in 2degrees in
exchange for common shares of TIP Inc. (the “Common
Shares”) and $1.4 million in cash. The transaction
increased Trilogy LLC’s ownership in 2degrees from 63.9% to
73.3%. The carrying amounts of the noncontrolling interests
attributable to 2degrees were adjusted to reflect the change in
ownership interests.
• Trilogy LLC’s equity structure
was recapitalized into 157,339,668 Class A Units (the
“Trilogy LLC Class A Units” or “Class A
Units”), 44,177,149 Class B Units (the “Trilogy
LLC Class B Units” or “Class B Units”)
and 39,142,787 Class C Units (the “Trilogy LLC
Class C Units” or “Class C Units”). The
Trilogy LLC Class A Units have nominal economic value, and
represent 100% of the voting rights in Trilogy LLC and do not
participate in any appreciation in the value of Trilogy LLC. The
Class B and Class C Units possess the economic interests
in Trilogy LLC. The recapitalization was effected through
amendments to the Trilogy LLC amended and restated Limited
Liability Company Agreements (the “Trilogy LLC
Agreement”).
• Trilogy LLC issued the new
Class A Units and Class B Units to wholly owned
subsidiaries of TIP Inc. in exchange for $199.3 million of
cash, representing the remaining proceeds from TIP Inc.’s
2015 initial public offering along with private placements that
closed concurrently with the Arrangement, net of certain
redemptions and expenses of TIP Inc. As a result of the exchange,
TIP Inc. acquired, directly or indirectly, all the voting interests
and a 53.0% equity interest in Trilogy LLC. The number of
Class B Units issued and outstanding is equal to, and at all
times is required to be equal to, the number of outstanding Common
Shares of TIP Inc. See Note 13 – Equity.
• The Class C Units were issued to
the legacy equity holders of Trilogy LLC and can be redeemed by the
holders thereof for, at Trilogy LLC’s option, Common Shares
on a one-for-one lock-up
• TIP Inc.’s authorized capital
was amended to create one special voting share (the “Special
Voting Share”) and an unlimited number of Common Shares. The
Special Voting Share was issued to the trustee under a voting trust
agreement and entitles the Class C Unit holders to exercise
their voting rights in TIP Inc. on an as converted basis. Holders
of Common Shares and the Special Voting Share vote together as a
single class of shares.
• The 13,402,685 share purchase
warrants of Alignvest were deemed to be amended to be share
purchase warrants to acquire Common Shares. Additionally, the
warrants were reclassified from equity to a liability, as the
warrants were determined to be written options not indexed to
Common Shares. See Note 13 – Equity for more details.
• As a result of the transaction, TIP
Inc. is subject to income tax in both the U.S. and Canada. The
losses generated by TIP Inc. from the date of the transaction are
offset by a full valuation allowance.
As a result of these organizational transactions and the
consummation of the Arrangement, TIP Inc. owns and controls a
majority stake in Trilogy LLC. Trilogy LLC is a provider of
wireless voice and data communications in New Zealand and Bolivia
including local, international long distance and roaming services,
for both customers and international visitors roaming on its
networks. Trilogy LLC’s services are provided under Global
System for Mobile Communications (“GSM” or
“2G”), Universal Mobile Telecommunication Service, a
GSM-based
Below is a brief summary of each of the Company’s
operations:
New Zealand:
2degrees was formed under the laws of New Zealand on
February 15, 2001. 2degrees holds spectrum licenses to
provide nationwide wireless communication services. A portion of
these licenses expire in 2021 while others expire in 2031. 2degrees
launched commercial operations in 2009 as the third operator in New
Zealand. 2degrees provides voice, data and long distance services
to its customers over 2G, 3G and 4G networks. 2degrees also
maintains inbound visitor roaming and international outbound
roaming agreements with various international carriers. 2degrees
offers its mobile communications services through both prepaid and
postpaid payment plans. Additionally, with the acquisition of Snap
Limited (“Snap”) on April 30, 2015, 2degrees began
offering fixed broadband communications services to residential and
enterprise customers.
As of December 31, 2017, through its consolidated
subsidiaries, Trilogy LLC’s ownership interest in 2degrees
was 73.3%.
Bolivia:
In November 1999, Empresa de Telecomunicaciones NuevaTel (PCS de
Bolivia), S.A. (“NuevaTel”) was formed to engage in
Personal Communication Systems (“PCS”) operations.
NuevaTel was awarded its first PCS license in 1999 and commenced
commercial service in November 2000 under the brand name Viva.
NuevaTel provides voice and data services, including an array of
services delivered via a short message service-based platform, to
its mobile customers in Bolivia over the existing GSM network.
NuevaTel’s 2G, 3G and 4G networks provide a variety of data
services, including high-speed Internet, messaging services and
application and content downloads. NuevaTel offers its mobile
communications services through both prepaid and postpaid payment
plans, although the majority of NuevaTel’s subscribers pay on
a prepaid basis. In addition to basic voice and data services,
NuevaTel offers public telephony services. NuevaTel’s public
telephony service utilizes wireless pay telephones located in
stores and call centers that are owned and managed by NuevaTel
resellers.
As of December 31, 2017, through its consolidated
subsidiaries, Trilogy LLC’s ownership interest in NuevaTel
was 71.5%.
Basis of Presentation and Principles of
Consolidation
The Company’s Consolidated Financial Statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The
Company consolidates majority-owned subsidiaries over which it
exercises control, as well as variable interest entities
(“VIEs”) where it is deemed to be the primary
beneficiary and thus VIEs are required to be consolidated in our
financial statements. All significant intercompany transactions and
accounts have been eliminated in consolidation for all periods
presented.
The Company has two reportable segments, New Zealand and Bolivia.
Unallocated corporate operating expenses, which pertain primarily
to corporate administrative functions that support the segments,
but are not specifically attributable to or managed by any segment,
are presented as a reconciling item between total segment results
and consolidated financial results. Additional details on our
reportable segments are included in Note 19 – Segment
Information, of these Consolidated Financial Statements.
Significant Accounting Policies
Use of Estimates:
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the amounts of assets and liabilities and the amounts of revenues
and expenses reported for the periods presented. Certain estimates
require difficult, subjective or complex judgments about matters
that are inherently uncertain. Actual results could differ from
those estimates.
Examples of significant estimates include the allowance for
doubtful accounts, the useful lives of property and equipment,
amortization periods for intangible assets, fair value of financial
instruments and equity-based compensation, imputed interest on
equipment installment receivables, cost estimates for asset
retirement obligations, deferred income taxes, fair value
measurements related to goodwill, spectrum licenses and
intangibles, projections used in impairment analysis, evaluation of
minimum operating lease terms, the allocation of purchase price in
connection with business combinations and the period for
recognizing prepaid and postpaid revenues based on breakage.
The Company records estimated revenue for rollover services (unused
credit carried from month to month for up to 12 billing cycles)
that is not expected to be used by its customers. These estimates
are based primarily on rate plans in effect and our historical
usage and billing patterns. In the third quarter of 2016, as a
result of changes in rate plans and offerings and the related
impacts on vendor-specific objective evidence as used for values
applied to rollover balances (primarily for data services), the
Company recorded a $1.7 million increase in Wireless service
revenues offset by a reduction to Customer deposits and unearned
revenues, as a change in estimate.
Cash and Cash Equivalents:
Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less at the acquisition date
or with a variable rate which can be liquidated on demand. The
balance of cash and cash equivalents held by our consolidated
subsidiaries was $37.7 million and $18.7 million, of
which $3.2 million and $2.6 million was held by 2degrees
and $34.4 million and $16.0 million was held by NuevaTel,
as of December 31, 2017 and 2016, respectively.
Short-term Investments:
The Company’s short-term investments, consisting primarily of
U.S. Treasury securities and commercial paper with original
maturities of more than three months from the date of purchase, are
considered available-for-sale
Restricted Cash:
The Company classifies cash as restricted when the cash is
unavailable for use in general operations. These balances are
reclassified to Cash and cash equivalents when the underlying
obligation is satisfied, or in accordance with the governing
agreement. Restricted cash expected to become unrestricted during
the next twelve months is recorded in current assets. The Company
had $0.7 million and $1.7 million of restricted cash
included in Prepaid expenses and other current assets and Other
assets within the Consolidated Balance Sheets as of
December 31, 2017 and 2016, respectively. The restricted
cash balances consisted primarily of cash balances held as
collateral for derivative instruments.
Accounts Receivable, net:
Accounts receivable consist primarily of amounts billed and due
from customers, other wireless service providers, and dealers
(“third party retail channels”) and are generally
unsecured. Local interconnection and telecom cooperative
receivables due from other wireless service providers represent
$27.0 million and $29.6 million of Accounts receivable,
net at December 31, 2017 and 2016, respectively.
Interconnection receivables and payables are reported on a gross
basis on the Consolidated Balance Sheets and on the Consolidated
Statements of Cash Flows as there is no legal right to offset these
amounts, consistent with the presentation of related
interconnection revenues and expenses on the Consolidated
Statements of Operations and Comprehensive Loss.
Management makes estimates of the uncollectability of its accounts
receivable. In determining the adequacy of the allowance of
doubtful accounts, management analyzes historical experience and
current collection trends, known troubled accounts, receivable
aging and current economic trends. The Company writes off account
balances against the allowance for doubtful accounts when
collection efforts are unsuccessful. Provisions for uncollectible
receivables are included in General and administrative expenses.
The allowance for doubtful accounts was $9.3 million and
$5.1 million as of December 31, 2017 and 2016,
respectively.
Equipment Installment Plan (“EIP”)
Receivables:
In New Zealand, the Company offers certain wireless customers the
option to pay for their handset in installments over a period of up
to 24 months using an EIP. The amounts recorded as EIP receivables
at the end of each period represent EIP receivables for which
invoices were not yet generated for the customer
(“unbilled”). Invoiced EIP receivables
(“billed”) are recorded in the Accounts receivable, net
balance, consistent with other outstanding customer trade
receivables. The Company assesses the credit quality of each EIP
applicant and applicants representing the greatest risk of default
are not permitted to participate in an EIP. Customers considered to
be high risk must participate in a risk mitigation program which
includes paying a deposit and allowing for automatic payments. All
EIP customers are required to make a down payment for a handset.
The current portion of the EIP receivables is included in Equipment
installment plan receivables, net and the long-term portion of the
EIP receivables is included in Long-term equipment installment plan
receivables on our Consolidated Balance Sheets.
At the time of sale, we impute risk adjusted interest on the
receivables associated with EIPs. We record the imputed interest as
a reduction of equipment sales, and the deferred interest is
included within Equipment installment plan receivables, net on the
Consolidated Balance Sheets. The balance of the unamortized imputed
interest recorded as of December 31, 2017 and 2016 was
$2.6 million and $2.3 million, respectively .
The Company establishes an allowance for EIP receivables to cover
probable and reasonably estimated losses. The estimate of allowance
for doubtful accounts considers a number of factors, including
collection experience, receivable aging, customer credit quality
and other qualitative factors including macro-economic factors. The
Company monitors the EIP receivable balances and writes off account
balances if collection efforts are unsuccessful and future
collection is unlikely. See Note 6 – EIP Receivables for
additional information as it relates to the allowance for doubtful
accounts specifically attributable to the EIP receivables.
Inventories:
Inventory consists primarily of wireless devices and accessories.
Effective January 1, 2017, we adopted accounting guidance that
simplifies the subsequent measurement of certain inventories by
replacing the lower of cost or market test with a lower of cost and
net realizable value test. The adoption of this guidance did not
have a material impact on the Company’s Consolidated
Financial Statements. Cost is determined by the first-in, first-out
Handset costs in excess of the revenues generated from handset
sales, or handset subsidies, are expensed at the time of sale. The
Company does not recognize the expected handset subsidies prior to
the time of sale because the promotional discount decision is made
at the point of sale and/or because the Company expects to recover
the handset subsidies through service revenues.
For certain inventories held by a third-party distribution and
logistics company located in New Zealand, the Company records
inventories on our Consolidated Balance Sheets, with a
corresponding increase to Other current liabilities and accrued
expenses. The third-party distribution and logistics company
purchases the inventory from various equipment manufacturers on
behalf of and at the direction of 2degrees, with 2degrees
specifying the purchase price, timing of purchase, and type and
quantity of handsets. Therefore, the Company records the inventory
once risk of loss is assumed in connection with the transfer from
the manufactures to the third-party distribution and logistics
company.
Property and Equipment:
Property and equipment is recorded at cost or fair value for assets
acquired as part of business combinations and depreciation is
calculated on a straight-line method over the estimated useful
lives of the assets. Estimated useful lives are generally as
follows: (i) buildings range from 28 to 50 years;
(ii) wireless communications systems range from 2 to 20 years;
and (iii) furniture, equipment, vehicles and software range from 2
to 17 years. Leasehold improvements are recorded at cost and
depreciated over the lesser of the term of the lease or the
estimated useful life. Costs of additions and major replacements
and improvements are capitalized. Repair and maintenance
expenditures which do not enhance the asset’s functionality
or extend the asset’s useful life are charged to operating
expenses as incurred. Construction costs, labor and overhead
incurred in the expansion or enhancement of the Company’s
networks are capitalized. Capitalization commences with
pre-construction
Interest expense incurred during the construction phase of the
Company’s wireless networks is capitalized as part of
property and equipment until assets are placed into service.
Capitalized interest costs are amortized over the estimated useful
lives of the related assets. Interest capitalized for the years
ended December 31, 2017, 2016 and 2015 was
$1.1 million, $1.7 million and $1.1 million,
respectively.
The Company capitalizes certain costs incurred in connection with
developing or acquiring internal use software. Capitalization of
software costs commences once selection of a specific software
project has been made and the Company approves and commits to
funding the project. Capitalized costs include direct development
costs associated with internal use software, including internal
direct labor costs and external costs of materials and services.
Capitalized software costs are included in Property and equipment,
net and amortized on a straight-line basis over the estimated
useful life of the asset. Costs incurred during the preliminary
project stage, as well as maintenance and training costs, are
expensed as incurred.
The Company records an asset retirement obligation
(“ARO”) for the fair value of legal obligations
associated with the retirement of tangible long-lived assets and a
corresponding increase in the carrying amount of the related asset
in the period in which the obligation is incurred. These
obligations primarily pertain to the Company’s legal
obligations related to the network infrastructure, principally
tower and related assets. These obligations include obligations to
remediate leased land on which the Company’s network
infrastructure assets are located. The liability is accreted to its
present value each period, and the capitalized cost is depreciated
over the estimated useful life of the related asset. Upon
settlement of the liability, any difference between the recorded
ARO liability and the actual retirement costs incurred is
recognized as an operating gain or loss in the Consolidated
Statement of Operations and Comprehensive Loss.
The significant assumptions used in estimating the Company’s
ARO include the following: a probability that the Company’s
leases with ARO will be remediated at the lessor’s directive;
expected settlement dates that coincide with lease expiration dates
plus estimated lease extensions; remediation costs that are
indicative of what third party vendors would charge the Company to
remediate the sites; expected inflation rates that are consistent
with historical inflation rates; and credit-adjusted risk-free
interest rates which approximate the Company’s incremental
borrowing rates.
License Costs and Other Intangible Assets:
Intangible assets consist primarily of wireless spectrum licenses
in foreign markets, tradenames and subscriber relationships.
License costs primarily represent costs incurred to acquire
wireless spectrum licenses in foreign markets, which are recorded
at cost, and the value attributed to wireless spectrum licenses
acquired in business combinations. Amortization begins with the
commencement of service to customers using the straight-line
method. The license costs are amortized over 7 to 20 years, which
correspond with the expiration dates of the licenses as issued by
the regulators. Licenses, subject to certain conditions, are
usually renewable and are generally non-exclusive.
Subscriber relationships were acquired as part of the Snap
acquisition (see Note 2 – Snap Acquisition) and relate to
established relationships with residential and enterprise customers
through contracts. Subscriber relationships are amortized over the
estimated useful life of 7 years using an accelerated method, which
we believe best reflects the estimated pattern in which the
economic benefits of the assets will be consumed.
Impairment of Long-Lived Assets:
The Company evaluates its long-lived assets, including intangible
assets subject to amortization, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset group may not be recoverable. Asset groups are determined at
the lowest level for which identifiable cash flows are largely
independent of cash flows of other groups of assets and
liabilities. When the carrying amount of a long-lived asset group
is not fully recoverable and exceeds its fair value, an impairment
loss is recognized equal to the excess of the asset group’s
carrying value over the estimated fair value. We determine fair
values by using a combination of comparable market values,
estimated future discounted cash flows and appraisals, as
appropriate. There were no events or changes in circumstances that
indicated impairment would be recorded for long-lived assets for
the fiscal years ended December 31, 2017, 2016 and
2015.
Goodwill:
Goodwill is the excess of the cost of an acquisition over the fair
value of the net identifiable assets acquired as of the acquisition
date. The Company reviews goodwill for impairment annually on
December 31, the last day of the fiscal fourth quarter and
also if events or changes in circumstances indicate the occurrence
of a triggering event. We may first elect to perform a qualitative
assessment to determine whether it is more likely than not the fair
value of the reporting unit is less than its carrying amount as a
basis for determining whether it is necessary to perform the
two-step two-step
Effective December 31, 2017, we prospectively adopted
accounting guidance that simplifies our goodwill impairment testing
by eliminating the requirement to calculate the implied fair value
of goodwill (formerly “step two”) in the event that an
impairment is identified. Instead, an impairment charge is recorded
based on the excess of the reporting unit’s carrying amount
over its fair value.
Derivative Instruments and Hedging Activities:
We employ risk management strategies, which may include the use of
interest rate swaps, cross-currency swaps and forward exchange
contracts. We do not hold or enter into derivative instruments for
trading or speculative purposes.
Derivatives are recognized in the Consolidated Balance Sheets at
fair value. Changes in the fair values of derivative instruments
designated as “cash flow” hedges, to the extent the
hedges are highly effective, are recorded in Other comprehensive
(loss) income. Derivative instruments not qualifying for hedge
accounting or ineffective portions of cash flow hedges, if any, are
recognized in current period earnings. The Company assesses, both
at inception of the hedge and on an ongoing basis, whether
derivatives used as hedging instruments are highly effective in
offsetting the changes in the fair value or cash flow of the hedged
items. If it is determined that a derivative is not highly
effective as a hedge or ceases to be highly effective, the Company
discontinues hedge accounting prospectively. As of
December 31, 2017 and 2016, no derivative instruments
were designated for hedge accounting.
Fair Value Measurements:
The Company applies fair value accounting for all financial assets
and liabilities and non-financial
Warrant Liability:
TIP Inc.’s issued and outstanding warrants are recorded as a
liability, as the warrants are written options that are not indexed
to Common Shares. The warrant liability is recorded in Other
current liabilities and accrued expenses on the Company’s
Consolidated Balance Sheets. The offsetting impact is reflected
within Accumulated deficit as a result of the reduction of
Additional paid in capital to zero with the allocation of opening
equity due to the Arrangement. The amount of the warrant liability
was $6.6 million as of December 31, 2017. Any change in
fair value of these warrants due to a change in their price during
the reporting period is recorded as Change in fair value of warrant
liability on the Company’s Consolidated Statements of
Operations and Comprehensive Loss. The fair value of the warrant
liability is determined each period by utilizing the number of
warrants outstanding and the closing trading value of the warrants
as of the reporting date. The change in fair value of the warrant
liability was a non-cash
Mezzanine Equity:
Three pre-Arrangement
Required Distributions:
Trilogy LLC is required to make quarterly distributions to its
members on a pro rata basis in accordance with each member’s
ownership interest in amounts sufficient to permit members to pay
the tax liabilities resulting from allocations of income tax items
from Trilogy LLC. Trilogy LLC was in a net taxable loss position
for the years ended December 31, 2017, 2016 and 2015;
therefore, no tax distributions were made to its members related to
these tax years.
Revenue Recognition:
Wireless service revenues are primarily derived from providing
access to and usage of the Company’s wireless networks. In
general, access revenues from wireless postpaid customers are
billed in arrears and recognized over the period that the
corresponding services are rendered to customers. Wireless service
revenues derived from usage of the Company’s networks,
including voice, data, roaming and long-distance revenues, are
recognized when the services are provided. As a result of the
cutoff times of our multiple billing cycles each month, we are
required to estimate the amount of subscriber revenues earned but
not billed from the end of each billing cycle to the end of each
reporting period. The Company also records estimated wireless
service revenues for rollover services (unused credit carried from
month to month for up to 12 billing cycles) that are not expected
to be used. These estimates are based primarily on rate plans in
effect and our historical usage and billing patterns.
Prepaid wireless services sold to customers are recorded as
unearned revenue prior to the commencement of services; revenue is
recognized when the services are used or expire. When prepaid
service credits are not subject to expiration, the Company
estimates breakages (cash consideration received for prepaid
services but never expected to be redeemed by customers) based upon
historical usage trends. The Company’s policy is to recognize
revenue for estimated breakage when there is a remote likelihood
the balance of prepaid services will be redeemed.
Interconnection revenues are generated when calls from other
operators terminate on the Company’s networks and are
recognized in the period the termination occurs.
Equipment sales consist principally of revenues from the sale of
wireless handsets and accessories to subscribers and dealers.
Equipment sales, including those on an EIP, are recognized when the
products are delivered to the customer or dealer. The revenues and
related expenses associated with the sale of wireless handsets and
accessories through our indirect sales channels are recognized when
the products are delivered and accepted by the dealer, including
when products are provided by the third-party distributor, as this
is considered to be a separate earnings process from the sale of
wireless services and probability of collection is likely.
The Company has determined that the sale of wireless services
through its direct sales channels with an accompanying handset
constitutes a revenue arrangement with multiple deliverables. The
Company accounts for these arrangements as separate units of
accounting, including the wireless service and handset. For these
multiple element arrangements, the Company must: (1) determine
whether and when each element has been delivered;
(2) determine relative selling price of each element using the
selling price hierarchy of vendor-specific objective evidence of
selling price, third party evidence, or the Company’s best
estimate of selling price, as applicable, and; (3) allocate
the total price among the various elements based on the relative
selling price method. The revenue allocated to the multiple revenue
streams is based on the relative selling price to the total
consideration from the sale. Consideration allocated to the handset
is recognized as equipment sales when the handset is delivered and
accepted by the subscriber. Consideration allocated to the wireless
service is recognized as service is rendered.
We also earn revenues from our wireline subscribers. These revenues
are based upon usage of our network and facilities, contract fees
and equipment sales. In general, fixed monthly fees for services
are billed one month in advance and are recognized when earned.
Revenues from services that are not fixed in amount and are based
on usage are generally billed in arrears and recognized when
service is rendered. We sell each of these services separately and
each product or service has a standalone selling price. When
equipment is sold separately from services, revenue is recognized
upon delivery to the customer. When equipment is sold as part of a
managed service, revenue is recognized over the contract
period.
Customer Sales Incentives:
The Company periodically provides incentive offers to its customers
to encourage purchases. Such offers include current discount offers
(e.g., percentage discounts off current purchases), inducement
offers (e.g., offers for future discounts subject to a minimum
current purchase), and commissions. Current discount offers, when
accepted by customers, are treated as a reduction to the purchase
price of the related transaction, while inducement offers, when
accepted by customers, are treated as a reduction to purchase price
based on estimated future redemption rates. Redemption rates are
estimated using the Company’s historical experience for
similar inducement offers. Current discount offers and commissions
are presented as a reduction to revenues unless the Company
receives, or will receive, an identifiable benefit in exchange for
the consideration, and the fair value of such benefit can be
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