Handset subsidies and device instalment plans

Operators have moved from subsidised handsets bundled into airtime contracts to device instalment plans, where the customer buys the phone on credit. The two look similar to customers but are accounted for differently. This guide compares them, shows the numbers for each, and covers handsets sold through dealers.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. 3 minute read.

Short answer

Handset subsidies arise when an operator sells a phone below its standalone selling price as part of a service contract; under IFRS 15 the bundle is split so the handset still earns revenue at its allocated value, creating a contract asset. Device instalment plans work differently: the customer buys the handset under a separate contract and pays for it over time, so the operator recognises handset revenue at the present value of the payments and a receivable, with interest income over the term. A 30 a month, 24-month instalment plan at an 8% rate gives handset revenue of about 663.

At a glance

Subsidised handset
Part of a bundle, revenue allocated
Instalment plan
Separate sale on credit
Instalment revenue
Present value of payments
Financing
Interest income over the term
Balance sheet
Contract asset vs receivable
Credit risk
ECL on both
Handset subsidies and device instalment plansSubsidised handset: Part of a bundle, revenue allocated; Instalment plan: Separate sale on credit; Instalment revenue: Present value of payments; Financing: Interest income over the term; Balance sheet: Contract asset vs receivable; Credit risk: ECL on both.KEY FACTS AT A GLANCEHandset subsidies and device instalment plansSubsidised handsetPart of a bundle, revenueallocatedInstalment planSeparate sale on creditInstalment revenuePresent value of paymentsFinancingInterest income over thetermBalance sheetContract asset vsreceivableCredit riskECL on bothTax BakersHandset subsidies and device instalment plansSubsidised handset: Part of a bundle, revenue allocated; Instalment plan: Separate sale on credit; Instalment revenue: Present value of payments; Financing: Interest income over the term; Balance sheet: Contract asset vs receivable; Credit risk: ECL on both.KEY FACTS AT A GLANCEHandset subsidies and deviceinstalment plansSubsidised handsetPart of a bundle, revenue allocatedInstalment planSeparate sale on creditInstalment revenuePresent value of paymentsFinancingInterest income over the termBalance sheetContract asset vs receivableCredit riskECL on bothTax Bakers
Key facts at a glance, as set out in this guide.

Handset subsidies vs device instalment plans

Subsidised handset vs instalment planSubsidised handset vs instalment planTOPICSubsidised handsetInstalment planHandset revenueAllocated sharePresent valueBalance sheet assetContract assetReceivableSeparate contractUsually notOften yesInterest incomeOnly if financing significantYesExpected credit lossesOn contract assetOn receivable
Similar for the customer, different in the accounts.

Whether a handset sale is part of the service contract or a separate contract matters. If the handset and the service are priced and sold together, with the customer unable to keep the plan without the handset terms, they are usually one contract with two performance obligations. If the customer signs a handset instalment agreement that stands on its own, with its own price and payment terms, and could take a SIM-only plan separately, the handset sale is often a separate contract, or the two are combined only if they were negotiated as a package.

A device instalment plan example

A customer buys a handset that sells for 720 in cash, paying 30 a month for 24 months, interest-free to the customer, alongside a separate SIM-only plan. The operator's rate for financing customers of this risk is 8% a year.

ItemAmount
Total instalments: 30 x 24720
Present value at 8% a year663.32
Handset revenue on day one663.32
Interest income over 24 months56.68

On day one: Dr Instalment receivable 663.32, Cr Revenue 663.32. Each month, interest accrues at 0.67% on the receivable and the 30 payment reduces it. Because the cash price, 720, is higher than the present value, the operator is giving the customer free credit worth 57, which reduces revenue. The receivable carries an expected credit loss allowance from day one.

How is a subsidised handset in a bundle accounted for?

As in telecom revenue recognition for bundled plans: the total contract price is allocated between handset and service by standalone selling prices. A handset given for nothing upfront on a 24-month plan earns revenue on day one, matched by a contract asset that unwinds as the customer pays the monthly bills. The contract asset also carries ECL.

What if handsets are sold through dealers?

Many operators sell through independent dealers. If the dealer buys handsets from the operator and resells them, the operator recognises revenue on its sale to the dealer. Payments the operator then makes to dealers to subsidise the handset price for end customers need careful analysis: if the dealer is the operator's customer, they may be consideration payable to a customer, reducing revenue; if they reward the dealer for signing up a service customer, they may be costs of obtaining a contract, capitalised under IFRS 15. See dealer commissions and contract costs.

What happens when a customer upgrades early?

An upgrade is usually a contract modification. Any remaining contract asset or instalment receivable on the old handset has to be dealt with: settled by the customer, carried into the new contract, or written off if the operator waives it. Upgrade programmes with guaranteed trade-in values may also include a right of return or a guarantee that needs separate accounting under IFRS 15.

What do operators disclose?

Operators typically disclose the split of revenue between equipment and service, contract assets and instalment receivables with their credit loss allowances, and the significant judgements on allocation and financing. See ECL on contract assets and telecom accounting.

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Questions people ask

How are handset subsidies accounted for under IFRS 15?

The bundle price is allocated between the handset and the service by standalone selling prices, so the handset earns revenue upfront and a contract asset is recognised.

How are device instalment plans accounted for?

Usually as a separate sale on credit: handset revenue at the present value of the instalments, a receivable, and interest income over the term.

Are interest-free handset instalments a financing component?

Yes, if significant: the free credit reduces revenue, and the operator recognises interest income as the receivable unwinds.

How are payments to dealers for handset subsidies treated?

Depending on who the customer is, as consideration payable to a customer that reduces revenue, or as capitalised costs of obtaining a contract.

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.

TelecomTelecom revenue recognition for bundled plansTelecomDealer commissions and contract costs in telecomECLECL on contract assets

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