Metro PCS 2008 Annual Report Download - page 114

MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
F-12
constitutes a multiple element arrangement that should be divided into separate units of accounting with the
consideration received allocated among the separate units of accounting using the residual method of accounting.
The Company has determined that the sale of wireless services through its direct and indirect sales channels with
an accompanying handset constitutes a revenue arrangement with multiple deliverables. In accordance with EITF
No. 00-21, the Company divides these arrangements into separate units of accounting, and allocates the
consideration between the handset and the wireless service using the residual method of accounting. Consideration
received for the wireless service is recognized at fair value as service revenue when earned, and any remaining
consideration received is recognized as equipment revenue when the handset is delivered and accepted by the
customer.
Equipment revenues arise from the sale of handsets and accessories. Revenues and related costs from the sale of
handsets in the Company’s retail locations are recognized at the point of sale. Handsets shipped to independent
retailers are recorded as deferred revenue and deferred charges upon shipment by the Company and are recognized
as equipment revenues and related costs when service is activated by its customers. Revenues and related costs from
the sale of accessories are recognized at the point of sale. The costs of handsets and accessories sold are recorded in
cost of equipment.
Sales incentives offered without charge to customers related to the sale of handsets are recognized as a reduction
of revenue when the related equipment revenue is recognized. Customers have the right to return handsets within
30 days or 60 minutes of usage, whichever occurs first.
Federal Universal Service Fund (“FUSF”), E-911 and various other fees are assessed by various governmental
authorities in connection with the services that the Company provides to its customers. The Company reports these
fees on a gross basis in service revenues and cost of service on the accompanying statements of income and
comprehensive income. For the years ended December 31, 2008, 2007 and 2006, the Company recorded
approximately $135.6 million, $94.0 million and $44.3 million, respectively, of FUSF, E-911, and other fees. Sales,
use and excise taxes are reported on a net basis in selling, general and administrative expenses on the accompanying
statements of income and comprehensive income.
Software Costs
In accordance with Statement of Position (“SOP”) 98-1, “Accounting for Costs of Computer Software Developed
or Obtained for Internal Use,” (“SOP 98-1”), certain costs related to the purchase of internal use software are
capitalized and amortized over the estimated useful life of the software. For the years ended December 31, 2008,
2007 and 2006, approximately $14.6 million, $9.2 million and $8.8 million, respectively, of purchased software
costs under SOP 98-1 were placed in service. The Company amortizes software costs over a three-year life and for
the years ended December 31, 2008, 2007 and 2006, the Company recognized amortization expense of
approximately $10.7 million, $5.5 million and $2.8 million, respectively. Capitalized software costs are classified as
office equipment.
FCC Licenses and Microwave Relocation Costs
The Company operates wireless broadband mobile networks under licenses granted by the FCC for a particular
geographic area on spectrum allocated by the FCC for wireless broadband services. In addition, in November 2006,
the Company acquired a number of advanced wireless services (“AWS”) licenses which can be used to provide
services comparable to the services provided by the Company, and other advanced wireless services. In June 2008,
the Company acquired a 700 MHz license that also can be used to provide similar services. The personal
communications services (“PCS”) licenses previously included, and the AWS licenses currently include, the
obligation and resulting costs to relocate existing fixed microwave users of the Company’s licensed spectrum if the
Company’s spectrum interfered with their systems and/or reimburse other carriers (according to FCC rules) that
relocated prior users if the relocation benefits the Company’s system. Accordingly, the Company incurred costs
related to microwave relocation in constructing its PCS and AWS networks. The PCS, AWS, and 700 MHz licenses
and microwave relocation costs are recorded at cost. Although PCS, AWS and 700 MHz licenses are issued with a
stated term, ten years in the case of the PCS licenses, fifteen years in the case of the AWS licenses and 10 years