Telecom accounting: the key IFRS issues

Why is telecom accounting different?

Four features drive most of the accounting judgements at an operator. Customers buy bundles of devices and services under long contracts, so revenue has to be split and timed. Customer acquisition is expensive and paid upfront to dealers and sales staff. The business depends on licences and networks that cost billions and last for decades. And the network sits on thousands of leased sites, rooftops and towers. Small judgements on any of these, multiplied across millions of customers or thousands of sites, move the numbers materially.

Which IFRS issues matter most in telecom accounting?

How does revenue recognition work for bundled plans?

When a customer signs a 24-month plan that includes a handset, IFRS 15 treats the handset and the airtime as separate performance obligations. The total contract price is allocated between them in proportion to their standalone selling prices, so a handset "given away for free" still earns revenue on the day it is handed over, and service revenue is lower than the monthly bill. The difference is a contract asset that unwinds over the contract. In a typical example, a 24-month plan at 45 a month with a handset that sells alone for 600 gives handset revenue of about 491 on day one and service revenue of about 24.55 a month. See telecom revenue recognition for bundled plans.

Operators also offer device instalment plans, where the customer buys the handset on credit under a separate contract; that changes the accounting, introducing a financing component and a receivable. See handset subsidies and device instalment plans.

Other revenue issues include prepaid airtime, where revenue is recognised as customers use it and unused balances are recognised as breakage; interconnect and roaming, where the operator must decide whether it acts as principal or agent; and value-added services sold through the operator's billing, such as content subscriptions, which are often reported net.

Why are customer acquisition costs capitalised?

Commissions paid to dealers and sales staff for each new postpaid contract are incremental costs of obtaining a contract, so IFRS 15 requires them to be capitalised if the operator expects to recover them, and amortised over the period the customer is expected to stay, including expected renewals. For an operator adding a million postpaid customers a year at a commission of 60 each, that is 60 million a year moved from expenses to the balance sheet and spread over the expected customer life. See dealer commissions and contract costs.

How are spectrum licences accounted for?

Spectrum licences are intangible assets under IAS 38, measured at cost, which includes the present value of any deferred auction payments. Amortisation starts when the network using the spectrum is ready for use, not when the licence is won, and runs over the licence term. US GAAP operators often treat their licences as indefinite-lived instead, because renewal is routine, testing them annually for impairment without amortisation, which is one of the biggest differences between telecom accounts under the two frameworks. See spectrum licences.

How is the network depreciated?

Network assets, from towers and fibre to radio equipment and core switching, are property, plant and equipment under IAS 16. Operators componentise them: civil works and towers may last 20 years or more, fibre 20 to 30 years, radio equipment 5 to 10 years, and IT systems 3 to 5 years. Technology change, such as the move from 3G to 5G or the switch-off of legacy networks, shortens useful lives and can trigger accelerated depreciation or impairment. Site restoration obligations, the cost of removing equipment and restoring leased land, are added to the cost of the assets and provided for under IAS 37.

Why are leases so significant in telecom?

A national mobile network may sit on 10,000 or more sites, most of them leased: land for towers, rooftops, and space on towers owned by independent tower companies. Under IFRS 16, each is a lease liability and a right-of-use asset, and the lease term, including renewal options the operator is reasonably certain to exercise because relocating a site is expensive, drives the size of the liability. See IFRS 16 for telecom sites, towers and fibre.

Two telecom-specific lease questions recur. In tower sale and leaseback deals, operators sell their towers to a tower company and lease back space, recognising only part of the gain. And with indefeasible rights of use (IRUs), long-term rights to fibre or capacity, the question is whether the arrangement is a lease of specific fibres or a service.

What about credit losses?

Operators carry millions of small postpaid receivables and, increasingly, device instalment receivables and contract assets. They usually measure expected credit losses with roll rates or a provision matrix by ageing bucket and customer segment, because monthly billing data is plentiful and payment behaviour changes quickly. See roll rate analysis and ECL on contract assets.

What happens in telecom mergers?

Consolidation is common in telecom, and purchase price allocations typically identify spectrum, customer relationships, brands and network assets, with large goodwill balances for synergies such as shared networks. After a merger, integration costs, network rationalisation and decommissioning of duplicate sites raise questions about impairment, useful lives and restructuring provisions. See purchase price allocation.

How do telecom KPIs relate to IFRS figures?

Operators report EBITDA, ARPU (average revenue per user), churn and capex intensity alongside their financial statements. IFRS 16 raised reported EBITDA for every operator, because site rents became depreciation and interest, which makes comparisons across the 2019 change and with US peers under ASC 842 difficult. From 2027, any subtotal such as EBITDA used in public communications will be a management-defined performance measure under IFRS 18, reconciled in a note. See management-defined performance measures.

An illustrative operator

The ranges are broad illustrations, not benchmarks; actual figures vary widely by market, network maturity and business model.

How does US GAAP differ for telecom companies?

The revenue and contract cost rules under ASC 606 and ASC 340-40 are essentially the same. The main differences are spectrum licences, often indefinite-lived under US GAAP; leases, where ASC 842 keeps most site leases as operating leases with a single straight-line cost; and impairment, where US GAAP's undiscounted recoverability test delays impairments. See IFRS 16 vs ASC 842 and IFRS 15 vs ASC 606.

Where can I read more about each telecom issue?

Each issue has its own guide: network depreciation and useful lives, prepaid airtime and breakage, interconnect and roaming, ECL on telecom receivables, telecom mergers, site restoration provisions and telecom KPIs.

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