Indefeasible rights of use (IRUs)

IRUs are the telecom industry's way of selling long-term access to fibre without selling the cable. The same name covers very different arrangements, which is why the accounting question is always what exactly is being delivered. This guide sets out the lease or service test, and works through an IRU from both sides.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 3 minute read.

Short answer

An indefeasible right of use (IRU) is a long-term right, often 15 to 25 years, to use specified fibre, wavelengths or capacity on a telecom network, usually paid for upfront. Its accounting depends on what is delivered. If the IRU gives the right to use specific, identified fibres or wavelengths, with substantially all their capacity, it is a lease under IFRS 16. If it gives capacity on a network without specific fibres being identified, it is a service, accounted for under IFRS 15 by the seller and as a prepaid service by the buyer. In this guide's example, a 20-year IRU over two dark fibres for CU 10 million is a lease.

At a glance

What
Long-term right to fibre or capacity
Typical term
15 to 25 years, paid upfront
Specific fibres
Usually a lease (IFRS 16)
Capacity only
Usually a service (IFRS 15)
Seller, lease
Often a finance lease
Seller, service
Revenue over the term
Indefeasible rights of use (IRUs)What: Long-term right to fibre or capacity; Typical term: 15 to 25 years, paid upfront; Specific fibres: Usually a lease (IFRS 16); Capacity only: Usually a service (IFRS 15); Seller, lease: Often a finance lease; Seller, service: Revenue over the term.KEY FACTS AT A GLANCEIndefeasible rights of use (IRUs)WhatLong-term right to fibreor capacityTypical term15 to 25 years, paidupfrontSpecific fibresUsually a lease (IFRS 16)Capacity onlyUsually a service (IFRS15)Seller, leaseOften a finance leaseSeller, serviceRevenue over the termTax BakersIndefeasible rights of use (IRUs)What: Long-term right to fibre or capacity; Typical term: 15 to 25 years, paid upfront; Specific fibres: Usually a lease (IFRS 16); Capacity only: Usually a service (IFRS 15); Seller, lease: Often a finance lease; Seller, service: Revenue over the term.KEY FACTS AT A GLANCEIndefeasible rights of use (IRUs)WhatLong-term right to fibre or capacityTypical term15 to 25 years, paid upfrontSpecific fibresUsually a lease (IFRS 16)Capacity onlyUsually a service (IFRS 15)Seller, leaseOften a finance leaseSeller, serviceRevenue over the termTax Bakers
Key facts at a glance, as set out in this guide.

Is an indefeasible right of use a lease or a service?

Is the IRU a lease or a service?Is the IRU a lease or a service?Are specific fibres orwavelengths identified?NoService:IFRS 15YesDoes the buyer get substantiallyall their capacity and direct use?NoService:IFRS 15YesLease: IFRS 16
Specific fibres point to a lease; bandwidth on a network points to a service.

The deciding factor is whether there is an identified asset. Dark fibre IRUs usually specify the physical strands, which the buyer lights with its own equipment: an identified asset. A wavelength IRU may specify a particular wavelength on a particular fibre, which can be a physically distinct portion of the capacity. A capacity IRU, a right to a given bandwidth carried over the seller's network by whatever route it chooses, has no identified asset and is a service.

An example: a dark fibre IRU

A buyer pays CU 10 million upfront for a 20-year IRU over two specified dark fibres on a route whose useful life is 25 years. The seller's carrying amount for those two fibres is 4 million.

Buyer (lessee)Seller (lessor)
ClassificationLeaseFinance lease: term is 80% of the fibres' life
At commencementRight-of-use asset 10 million; no liability, as paid upfrontDerecognise fibres 4 million; gain 6 million
Each yearDepreciation 0.5 millionNo further income on the fibres

If the same deal were a capacity IRU, the buyer would record a prepayment of 10 million expensed over 20 years, and the seller a contract liability recognised as revenue over 20 years. Because payment is received up to 20 years before the service is delivered, the seller would also assess whether there is a significant financing component, which would increase both revenue and interest expense over the term.

Is a fibre IRU a finance or operating lease for the seller?

A finance lease if it transfers substantially all the risks and rewards of the fibres, for example when the term covers the major part of their economic life or the upfront payment amounts to substantially all their fair value. IRUs covering most of a cable's life, paid upfront, are usually finance leases, so the seller recognises the gain immediately. Shorter IRUs are operating leases, with income recognised over the term.

What about maintenance and other services?

IRUs usually include maintenance of the route, charged annually or included in the upfront price. Maintenance is a non-lease service component: the seller recognises it as revenue as it is performed, and the buyer expenses it. If it is bundled into the upfront payment, part of the price is allocated to it.

What about IRU swaps?

Operators sometimes exchange IRUs over different routes with each other. An exchange of capacity between operators in the same line of business to facilitate sales to customers is not revenue under IFRS 15, so the operators need to consider whether the swap has commercial substance and how each side's right should be measured.

Where to go next

See IFRS 16 for telecom sites, towers and fibre, identifying a lease and lessor accounting.

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Questions people ask

What is an indefeasible right of use?

A long-term right, often 15 to 25 years and paid upfront, to use specified fibre, wavelengths or capacity on a telecom network.

Is an IRU a lease under IFRS 16?

If it gives the right to use specific, identified fibres or wavelengths with substantially all their capacity, it is usually a lease; capacity without an identified asset is a service.

How does the seller account for a dark fibre IRU?

Often as a finance lease, derecognising the fibres and recognising a gain at commencement, if the IRU covers most of their economic life.

How is a capacity IRU accounted for?

As a service: the seller recognises revenue over the term, assessing any significant financing component, and the buyer expenses its prepayment over the term.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 16 Leases

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

TelecomIFRS 16 for telecom sites, towers and fibreIFRS 16Is it a lease? The IFRS 16 identification testIFRS 16Lessor accounting under IFRS 16: finance and operating leases

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This guide is general information. It is not tax or legal advice for your situation.