Metro PCS 2007 Annual Report Download - page 65

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Revenues
We derive our revenues from the following sources:
Service. We sell wireless broadband PCS services. The various types of service revenues associated with
wireless broadband PCS for our customers include monthly recurring charges for airtime, monthly recurring charges
for optional features (including nationwide long distance, unlimited text messaging, international text messaging,
voicemail, downloads, ringtones, games and content applications, unlimited directory assistance, enhanced directory
assistance, ring back tones, mobile Internet browsing, mobile instant messaging, push e-mail and nationwide
roaming) and charges for long distance service. Service revenues also include intercarrier compensation and
nonrecurring activation service charges to customers.
Equipment. We sell wireless broadband PCS handsets and accessories that are used by our customers in
connection with our wireless services. This equipment is also sold to our independent retailers to facilitate
distribution to our customers.
Costs and Expenses
Our costs and expenses include:
Cost of Service. The major components of our cost of service are:
• Cell Site Costs. We incur expenses for the rent of cell sites, network facilities, engineering operations, field
technicians and related utility and maintenance charges.
• Intercarrier Compensation. We pay charges to other telecommunications companies for their transport and
termination of calls originated by our customers and destined for customers of other networks. These variable
charges are based on our customers’ usage and generally applied at pre-negotiated rates with other carriers,
although some carriers have sought to impose such charges unilaterally.
• Variable Long Distance. We pay charges to other telecommunications companies for long distance service
provided to our customers. These variable charges are based on our customers’ usage, applied at pre-
negotiated rates with the long distance carriers.
Cost of Equipment. We purchase wireless broadband PCS handsets and accessories from third-party vendors to
resell to our customers and independent retailers in connection with our services. We subsidize the sale of handsets
to encourage the sale and use of our services. We do not manufacture any of this equipment.
Selling, General and Administrative Expenses. Our selling expense includes advertising and promotional costs
associated with marketing and selling to new customers and fixed charges such as retail store rent and retail
associates’ salaries. General and administrative expense includes support functions including, technical operations,
finance, accounting, human resources, information technology and legal services. We record stock-based
compensation expense in cost of service and in selling, general and administrative expenses for expense associated
with employee stock options, which is measured at the date of grant, based on the estimated fair value of the award.
Depreciation and Amortization. Depreciation is applied using the straight-line method over the estimated useful
lives of the assets once the assets are placed in service, which are seven to ten years for network infrastructure assets
and capitalized interest, three to seven years for office equipment, which includes computer equipment, three to
seven years for furniture and fixtures and five years for vehicles. Leasehold improvements are amortized over the
term of the respective leases, which includes renewal periods that are reasonably assured, or the estimated useful life
of the improvement, whichever is shorter.
Interest Expense and Interest Income. Interest expense includes interest incurred on our borrowings, amortization
of debt issuance costs and amortization of discounts and premiums on long-term debt. Interest income is earned
primarily on our cash and cash equivalents and short-term investments.
Income Taxes. As a result of our operating losses and accelerated depreciation available under federal tax laws,
we paid no federal income taxes prior to 2006. For the years ended December 31, 2007 and 2006, we paid
approximately $0.3 million and $2.7 million, respectively, in federal income taxes. In addition, we have paid $1.1