ECL on telecom receivables

Telecom receivables ECL by segment

Consumer postpaid carries half the allowance from a third of the balances, because it has the most small, high-churn accounts. Carrier balances are large but low risk, as long as the counterparties are sound. The weighted loss rate across the book is 2.1%.

Which method suits telecom receivables?

Monthly billing produces rich data on how balances move from current to 30, 60 and 90 days overdue, which makes roll rates a natural fit for consumer postpaid: a rise in late payments shows up within a month. Enterprise receivables, fewer and larger, usually use a provision matrix with the largest accounts assessed individually. See roll rate analysis and roll rates vs a provision matrix.

A postpaid roll rate example

If each month 6% of current postpaid balances roll to 1-30 days overdue, 35% of those roll on to 31-60 days, 55% of those to 61-90 days, and 85% of balances over 90 days are written off, the cumulative loss rate on current balances is 6% x 35% x 55% x 85% = 0.98%. Older buckets carry much higher rates. Because bills are issued monthly, a deterioration in the first roll rate shows up in the allowance within weeks.

Why do device instalment receivables need special care?

A customer paying for a phone over 24 months carries credit risk for two years, longer than a monthly bill. Loss rates are measured over the instalment term, often by vintage, because defaults cluster in the early months. The handset itself gives little protection: operators can block a stolen or unpaid device, which encourages payment, but rarely recover its value.

How do disconnection and write-off policies fit in?

Most operators restrict service after a short period of non-payment and disconnect after 60 to 90 days, passing the debt to collection agencies. The write-off policy, for example writing off balances 180 days after disconnection, should reflect when there is no reasonable expectation of recovery, and recoveries by agencies after write-off are credited to profit or loss. Consistency matters: if the operator changes its disconnection rules, historical roll rates may no longer apply.

What do operators disclose?

The method used, the receivables and allowance by segment or ageing bucket, a reconciliation of the allowance, and any overlays. Device instalment receivables are often shown separately from trade receivables because of their longer term.

How is the allowance made forward-looking?

By adjusting loss rates for expected changes in conditions, such as rising unemployment or inflation squeezing household budgets, and for business changes, such as relaxed credit checks to win market share. Operators that sell handsets on credit to riskier segments often add an overlay until the new segment has its own history.

What about contract assets and carrier balances?

Contract assets from bundled plans relate to the same customers as the bills, so they usually take the current-bucket rate for the segment; see ECL on contract assets. Carrier balances depend on the counterparty: large international carriers are low risk, while small operators in stressed markets may need specific assessment, especially if settlement is delayed. See also telecom accounting.

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