Metro PCS 2007 Annual Report Download - page 62

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underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral values,
discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. The estimated
market value of the Company’ s auction rate security holdings at December 31, 2007 was approximately $36.1
million.
The credit and capital markets have continued to deteriorate in 2008. If uncertainties in these markets continue,
these markets deteriorate further or the Company experiences any additional ratings downgrades on any investments
in its portfolio (including on auction rate securities), the Company may incur additional impairments to its
investment portfolio.
FCC Licenses and Microwave Relocation Costs
We operate broadband PCS networks under licenses granted by the FCC for a particular geographic area on
spectrum allocated by the FCC for broadband PCS services. In addition, in November 2006, we acquired a number
of AWS licenses which can be used to provide services comparable to the PCS services provided by us, as well as
other advanced wireless services. The PCS and AWS licenses included the obligation to relocate existing fixed
microwave users of our licensed spectrum if our spectrum interfered with their systems and/or reimburse other
carriers (according to FCC rules) that relocated prior users if the relocation benefits our system. Additionally, we
incurred costs related to microwave relocation in constructing our PCS network. The PCS and AWS licenses and
microwave relocation costs are recorded at cost. Although FCC licenses are issued with a stated term, ten years in
the case of PCS licenses and fifteen years in the case of AWS licenses, the renewal of PCS and AWS licenses is
generally a routine matter without substantial cost and we have determined that no legal, regulatory, contractual,
competitive, economic, or other factors currently exist that limit the useful life of our PCS and AWS licenses. The
carrying value of FCC licenses and microwave relocation costs was approximately $2.1 billion as of December 31,
2007.
Our primary indefinite-lived intangible assets are our FCC licenses. Based on the requirements of Statement of
Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and other Intangible Assets,” (“SFAS No. 142”) we
test investments in our FCC licenses for impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value of our FCC licenses might be impaired. We perform our annual FCC
license impairment test as of each September 30th. The impairment test consists of a comparison of the estimated
fair value with the carrying value. We estimate the fair value of our FCC licenses using a discounted cash flow
model. Cash flow projections and assumptions, although subject to a degree of uncertainty, are based on a
combination of our historical performance and trends, our business plans and management’ s estimate of future
performance, giving consideration to existing and anticipated competitive economic conditions. Other assumptions
include our weighted average cost of capital and long-term rate of growth for our business. We believe that our
estimates are consistent with assumptions that marketplace participants would use to estimate fair value. We
corroborate our determination of fair value of the FCC licenses, using the discounted cash flow approach described
above, with other market-based valuation metrics. Furthermore, we segregate our FCC licenses by regional clusters
for the purpose of performing the impairment test because each geographical region is unique. An impairment loss
would be recorded as a reduction in the carrying value of the related indefinite-lived intangible asset and charged to
results of operations. Historically, we have not experienced significant negative variations between our assumptions
and estimates when compared to actual results. However, if actual results are not consistent with our assumptions
and estimates, we may be required to record to an impairment charge associated with indefinite-lived intangible
assets. Although we do not expect our estimates or assumptions to change significantly in the future, the use of
different estimates or assumptions within our discounted cash flow model when determining the fair value of our
FCC licenses or using a methodology other than a discounted cash flow model could result in different values for
our FCC licenses and may affect any related impairment charge. The most significant assumptions within our
discounted cash flow model are the discount rate, our projected growth rate and management’ s future business
plans. A change in management’ s future business plans or disposition of one or more FCC licenses could result in
the requirement to test certain other FCC licenses. If any legal, regulatory, contractual, competitive, economic or
other factors were to limit the useful lives of our indefinite-lived FCC licenses, we would be required to test these
intangible assets for impairment in accordance with SFAS No. 142 and amortize the intangible asset over its
remaining useful life.
For the license impairment test performed as of September 30, 2007, the fair value of the FCC licenses was in
excess of its carrying value and no impairment has been recognized through December 31, 2007.