AT&T Wireless 2015 Annual Report Download - page 52

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
50 | AT&T INC.
Software Costs We capitalize certain costs incurred in
connection with developing or obtaining internal-use
software. Capitalized software costs are included in
“Property, Plant and Equipment” on our consolidated
balance sheets. In addition, there is certain network software
that allows the equipment to provide the features and
functions unique to the AT&T network, which we include
in the cost of the equipment categories for financial
reporting purposes.
We amortize our capitalized software costs over a three-year
to five-year period, reflecting the estimated period during
which these assets will remain in service, which also aligns
with the estimated useful lives used in the industry.
Goodwill and Other Intangible Assets AT&T has five
major classes of intangible assets: goodwill, licenses, which
include Federal Communications Commission (FCC), other
wireless licenses and orbital slots, other indefinite-lived
intangible assets, primarily made up of the AT&T and
DIRECTV International trade names including SKY, customer
lists and various other finite-lived intangible assets
(see Note 7).
Goodwill represents the excess of consideration paid
over the fair value of net assets acquired in business
combinations. FCC and wireless licenses (wireless licenses)
provide us with the exclusive right to utilize certain radio
frequency spectrum to provide wireless communications
services. While wireless licenses are issued for a fixed
period of time (generally 10 years), renewals of wireless
licenses have occurred routinely and at nominal cost.
Moreover, we have determined that there are currently
no legal, regulatory, contractual, competitive, economic
or other factors that limit the useful lives of our wireless
licenses. Orbital slots represent the space in which we
operate the broadcast satellites that support our digital
video entertainment service offerings. Similar to our
wireless licenses, there are no factors that limit the useful
lives of our orbital slots. We acquired the rights to the
AT&T and other brand names in previous acquisitions.
We have the effective ability to retain these exclusive
rights permanently at a nominal cost.
Goodwill, licenses and other indefinite-lived intangible
assets are not amortized but are tested at least annually
for impairment. The testing is performed on the value as
of October 1 each year, and compares the book value of
the assets to their fair value. Goodwill is tested by
comparing the book value of each reporting unit, deemed
to be our principal operating segments or one level
below them (Business Solutions, Entertainment Group,
Consumer Mobility, and Mexico Wireless, Brazil and
PanAmericana in the International segment), to the fair
value of those reporting units calculated using a discounted
cash flow approach as well as a market multiple approach.
Licenses are tested for impairment on an aggregate basis,
consistent with our use of the licenses on a national
scope using a discounted cash flow approach. We also
corroborated the value of wireless licenses with a market
approach as the AWS-3 auction provided market price
information for national wireless licenses. Brand names
are tested by comparing the book value to a fair value
calculated using a discounted cash flow approach on a
presumed royalty rate derived from the revenues related
to the brand name.
Intangible assets that have finite useful lives are amortized
over their useful lives (see Note 7). Customer lists and
relationships are amortized using primarily the sum-of-the-
months-digits method of amortization over the period in
which those relationships are expected to contribute to our
future cash flows. The remaining finite-lived intangible assets
are generally amortized using the straight-line method.
Broadcast Programming and Other Costs We recognize
the costs of television programming distribution rights
when we distribute the related programming. We
recognize the costs of television programming rights to
distribute live sporting events to expense using the
straight-line method over the course of the season or
tournament, which approximates the pattern of usage.
Advertising Costs We expense advertising costs for
products and services or for promoting our corporate
image as we incur them (see Note 18).
Traffic Compensation Expense We use various
estimates and assumptions to determine the amount
of traffic compensation expense recognized during
any reporting period. Switched traffic compensation
costs are accrued utilizing estimated rates and
volumes by product, formulated from historical
data and adjusted for known rate changes. Such
estimates are adjusted monthly to reflect newly
available information, such as rate changes and