Metro PCS 2010 Annual Report Download - page 80

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field technicians and related utility and maintenance charges.
•Interconnection Costs. We pay other telecommunications companies and third-party providers for
leased facilities and usage-based charges for transporting and terminating network traffic from our cell
sites and switching centers. We have pre-negotiated rates for transport and termination of calls
originated by our customers, including negotiated interconnection agreements with relevant exchange
carriers in each of our service areas.
•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.
•Customer Support. We pay charges to nationally recognized third-party providers for customer care,
billing and payment processing services.
Cost of Equipment. Cost of equipment primarily includes the cost of handsets and accessories purchased from
third-party vendors to resell to our customers and independent retailers in connection with our services. We do not
manufacture any of this equipment.
Selling, General and Administrative Expenses. Our selling expenses include 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 expenses include 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 and restricted stock awards, 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, three to ten years for capitalized interest, up to fifteen years for capital leases, three to eight years for office
equipment, which includes software and 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 and capital
lease obligations, amortization of debt issuance costs and amortization of discounts and premiums on long-term
debt. Interest income is earned primarily on our cash, cash equivalents and short term investments.
Income Taxes. For the years ended December 31, 2010, 2009 and 2008, we paid no federal income taxes. We
have paid approximately $2.9 million, $3.1 million and $2.7 million of state income tax during the years ended
December 31, 2010, 2009 and 2008, respectively.
Seasonality
Our customer activity is influenced by seasonal effects related to traditional retail selling periods and other factors
that arise from our target customer base. Based on historical results, we generally expect net customer additions to
be strongest in the first and fourth quarters. Softening of sales and increased customer turnover, or churn, in the
second and third quarters of the year usually combine to result in fewer net customer additions. However, sales
activity and churn can be strongly affected by the launch of new metropolitan areas, introduction of new price plans,
and by promotional activity, which could reduce or outweigh certain seasonal effects.