Cricket Wireless 2010 Annual Report Download - page 98

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LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company
Leap Wireless International, Inc. (“Leap”), a Delaware corporation, together with its subsidiaries and
consolidated joint ventures, is a wireless communications carrier that offers digital wireless services in the
United States under the “Cricket»” brand. Cricket service offerings provide customers with unlimited nationwide
wireless services for a flat rate without requiring a fixed-term contract or a credit check. The Company’s primary
service is Cricket Wireless, which offers customers unlimited nationwide voice and data services for a flat monthly
rate. Leap conducts operations through its subsidiaries and has no independent operations or sources of income
other than interest income and through dividends, if any, from its subsidiaries.
Cricket service is offered by Cricket, a wholly-owned subsidiary of Leap. Cricket service is also offered in
Oregon by LCW Wireless Operations, LLC (“LCW Operations”); in the upper Midwest by Denali Spectrum
Operations, LLC (“Denali Operations”); and in South Texas by STX Wireless Operations, LLC (“STX
Operations”). Cricket’s ownership and interests in these entities are as follows:
• LCW Operations and its parent company, LCW Wireless, LLC, (“LCW Wireless”), are wholly-owned
subsidiaries of Cricket. The Company acquired the remaining 5.4% membership interests that it did not
previously own in LCW Wireless on August 25, 2010.
• Denali Operations and its parent company, Denali Spectrum, LLC (“Denali”), are wholly-owned
subsidiaries of Cricket. Cricket purchased the remaining 17.5% membership interest that it did not
previously own in Denali on December 27, 2010. Immediately prior to its purchase of the remaining
membership interest in Denali, Denali contributed all of its wireless spectrum outside of its Chicago and
Southern Wisconsin operating markets and a related spectrum lease to Savary Island Wireless, LLC
(“Savary Island”), a newly formed venture, in exchange for an 85% non-controlling membership interest.
Savary Island is a “very small business” designated entity under the FCC regulations. The Company
consolidates its interests in Savary Island in accordance with the authoritative guidance for the consolidation
of variable interest entities because this entity is a variable interest entity and the Company has entered into
an agreement with Savary Island’s other member which establishes a specified purchase price in the event
that it exercises its right to sell its membership interest to the Company.
• Cricket controls STX Operations through a 75.75% controlling membership interest in its parent company,
STX Wireless, LLC, (“STX Wireless”). STX Wireless is a joint venture created by Cricket and various
entities doing business as Pocket Communications (“Pocket”) to provide Cricket service in the South Texas
region. The Company consolidates STX Wireless in accordance with the authoritative guidance for
consolidations based on the voting interest model.
For more information regarding the transactions and ventures described above, see “Note 7. Significant
Acquisitions and Other Agreements.”
Leap, Cricket and their subsidiaries and consolidated joint ventures are collectively referred to herein as the
“Company.”
Note 2. Change in Accounting Principle
During the fourth quarter of 2010, the Company elected to change the method of accounting for regulatory fees
and telecommunications taxes paid with respect to its service plans, including Universal Service Fund and E-911
fees, from a net to a gross basis in the consolidated statements of operations. Prior to the fourth quarter of 2010, the
Company accounted for regulatory fees and telecommunications taxes on a net basis, such that these amounts were
recorded as service revenues, net of amounts owed and remitted to government agencies. Following the introduction
of the Company’s “all-inclusive” rate plans in August 2010 (which do not include separate charges for certain fees
and telecommunications taxes), the Company changed its accounting policy in the fourth quarter of 2010 to a gross
basis such that the Company no longer deducts from service revenues regulatory fees and telecommunications taxes
owed and remitted to government agencies and instead includes such amounts in cost of service. This change in
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