Dealer commissions and contract costs in telecom

Customer acquisition is one of an operator's biggest costs, and IFRS 15 moves much of it onto the balance sheet. The judgement is not whether to capitalise but over what period, and when to impair. This guide explains which telecom costs qualify, how the amortisation period is set, and works through a year's intake of new customers.

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

Short answer

Telecom contract costs, mainly commissions paid to dealers and sales staff for each new postpaid customer, are incremental costs of obtaining a contract. 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 which no new commission is paid. A 60 commission on a 24-month contract where customers stay 36 months on average is amortised over 36 months. Operators may expense costs immediately when the amortisation period would be a year or less.

At a glance

Capitalise
Incremental costs of obtaining a contract
Typical costs
Dealer and sales commissions
Amortise over
Expected customer life, with renewals
Practical expedient
Expense if one year or less
Not capitalised
Advertising, salaries, retention marketing
Impairment
If churn rises or margins fall
Dealer commissions and contract costs in telecomCapitalise: Incremental costs of obtaining a contract; Typical costs: Dealer and sales commissions; Amortise over: Expected customer life, with renewals; Practical expedient: Expense if one year or less; Not capitalised: Advertising, salaries, retention marketing; Impairment: If churn rises or margins fall.KEY FACTS AT A GLANCEDealer commissions and contract costs in telecomCapitaliseIncremental costs ofobtaining a contractTypical costsDealer and salescommissionsAmortise overExpected customer life,with renewalsPractical expedientExpense if one year orlessNot capitalisedAdvertising, salaries,retention marketingImpairmentIf churn rises or marginsfallTax BakersDealer commissions and contract costs in telecomCapitalise: Incremental costs of obtaining a contract; Typical costs: Dealer and sales commissions; Amortise over: Expected customer life, with renewals; Practical expedient: Expense if one year or less; Not capitalised: Advertising, salaries, retention marketing; Impairment: If churn rises or margins fall.KEY FACTS AT A GLANCEDealer commissions and contractcosts in telecomCapitaliseIncremental costs of obtaining a contractTypical costsDealer and sales commissionsAmortise overExpected customer life, with renewalsPractical expedientExpense if one year or lessNot capitalisedAdvertising, salaries, retention marketingImpairmentIf churn rises or margins fallTax Bakers
Key facts at a glance, as set out in this guide.

Which telecom contract costs are capitalised?

Only costs the operator would not have incurred if the contract had not been obtained; the revenue side of the same contracts is covered in telecom revenue recognition. Commissions paid to dealers per activation, bonuses paid to sales staff for each contract signed, and commissions to agents for business contracts qualify. Salaries of shop staff, advertising and general marketing do not, because they are incurred whether or not a particular customer signs. Costs of fulfilling a contract, such as installing a broadband line, are considered separately and capitalised only if they meet the fulfilment cost criteria and are not within another standard, such as IAS 16 for network equipment.

A dealer commission example

An operator pays dealers 60 for each new 24-month postpaid contract and signs 100,000 customers at the start of the year. Its churn data shows customers stay 36 months on average, many renewing at the end of the first contract without a new commission. It therefore capitalises 6,000,000 and amortises it over 36 months.

Capitalised commissions remaining for one year's intakeCapitalised commissions remaining for one year's intake6,000,000Start4,000,000Year 12,000,000Year 20Year 3Capitalised commissions
Amortised over a 36-month expected customer life.
End of yearAmortisation in the yearCapitalised cost remaining
12,000,0004,000,000
22,000,0002,000,000
32,000,0000

Amortising over only the 24-month contract term would charge 3,000,000 a year instead of 2,000,000, front-loading the cost. Retention commissions of 30 paid when a customer renews are a new contract cost, amortised over the renewal term of 24 months.

How is the amortisation period set?

On a systematic basis consistent with the transfer of the services the costs relate to. When commissions are paid only on the first contract and not on renewals, the services include expected renewals, so the period reflects expected customer life, estimated from churn by segment. When a commensurate commission is paid on each renewal, the initial commission relates only to the initial contract term. Operators usually amortise portfolios of contracts with similar characteristics rather than individual contracts.

When can commissions be expensed?

When the amortisation period would be one year or less, IFRS 15 offers a practical expedient: the cost can be expensed as incurred. Commissions on prepaid SIM activations, where customers do not commit for a period and often churn quickly, are commonly expensed on this basis.

Are commissions on business contracts different?

The principle is the same, but business contracts are larger, longer and often negotiated individually, with commissions paid in stages or clawed back if the customer leaves early. A commission that is repayable if the customer cancels within six months is still capitalised when paid, with the expected clawback considered when measuring it. Commissions on multi-year enterprise deals are usually amortised over the contract term, plus expected renewals if no commensurate commission is paid on renewal.

When are capitalised contract costs impaired?

When the carrying amount exceeds the remaining consideration the operator expects to receive for the related services, less the costs of providing them. A sharp rise in churn, or a price war that cuts margins, can trigger an impairment, and also shortens the amortisation period prospectively.

How are contract costs presented?

As a separate asset, current or non-current based on the expected amortisation period, with amortisation usually presented within selling or customer acquisition costs. Operators disclose the closing balance by category, the amortisation and any impairment in the period. See contract costs under IFRS 15, handset subsidies and telecom accounting.

Need help applying the standards?

Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.

Book a call Chat on WhatsApp

Questions people ask

Are dealer commissions capitalised under IFRS 15?

Yes, if they are incremental costs of obtaining a contract that the operator expects to recover.

Over what period are telecom commissions amortised?

Over the expected customer life, including expected renewals, when no commensurate commission is paid on renewal.

Can telecom operators expense commissions immediately?

Yes, when the amortisation period would be one year or less, as is common for prepaid activations.

When are capitalised contract costs impaired?

When their carrying amount exceeds the remaining consideration expected for the related services, less the costs of providing them.

Sources

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

  1. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers

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.

IFRS 15Contract costs: costs to obtain and fulfil a contract under IFRS 15TelecomHandset subsidies and device instalment plansTelecomTelecom accounting: the key IFRS issues

More in Telecom

Next in this topicSpectrum licences: accounting under IFRSTopicAll 15 guides in Telecom

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