Shaw 2013 Annual Report Download - page 29

S
haw
C
ommunications Inc
.
MANA
G
EMENT’
S
DI
SCUSS
I
O
N AND ANALY
S
I
S
August
31
,
2013
Subsc
r
ibe
r
co
nn
ectio
n
fee
r
e
v
e
n
ue
Connection fees have no stand alone value to the customer separate and independent of the
Company providing additional subscription services, therefore the connection fee revenue must
be de
f
erred and reco
g
n
i
zed s
y
stemat
i
call
y
over the
p
er
i
ods that the subscr
ip
t
i
on serv
i
ces are
earned. There is no specified term for which the customer will receive the related subscription
service, therefore the Com
p
an
y
has considered its customer churn rate and other factors, such
as com
p
et
i
t
i
on
f
rom new entrants, to determ
i
ne the de
f
erral
p
er
i
od o
f
two
y
ears.
S
ubscriber connection and installation cost
s
The costs o
fp
h
y
s
i
call
y
connect
i
n
g
a new home are ca
pi
tal
i
zed as
p
art o
f
the
C
om
p
an
y
’s
d
istribution system as the service potential of the distribution system is enhanced by the ability
t
o generate future subscriber revenue. Costs of disconnections are expensed as incurred as the
act
i
v
i
t
y
does not
g
enerate
f
uture revenue.
C
ustomer premise equipment revenue and cost
s
C
ustomer
p
rem
i
se e
q
u
ip
ment ava
i
lable
f
or sale, wh
i
ch
g
enerall
yi
ncludes D
C
T and DT
H
equ
i
pment, has no stand alone value to the customer separate and
i
ndependent o
f
the
C
ompany
providing additional subscription services. Therefore the equipment revenue must be deferre
d
and reco
g
n
i
zed s
y
stemat
i
call
y
over the
p
er
i
ods that the subscr
ip
t
i
on serv
i
ces are earned. As the
equ
i
pment sales and the related subscr
i
pt
i
on revenue are cons
i
dered one transact
i
on
,
recognition of the equipment revenue commences once the subscriber service is activated
.
There
i
snos
p
ec
ifi
ed term
f
or wh
i
ch the customer w
i
ll rece
i
ve the related subscr
ip
t
i
on serv
i
ce
,
t
here
f
ore the
C
ompany has cons
i
dered var
i
ous
f
actors
i
nclud
i
ng customer churn, compet
i
t
i
on
f
rom new entrants, and technology changes to determine the deferral period of two years
.
I
n conjunction with equipment revenue, the Company also incurs incremental direct costs
wh
i
ch
i
nclude e
q
u
ip
ment and related
i
nstallat
i
on costs. These d
i
rect costs cannot be se
p
arated
f
rom the undel
i
vered subscr
i
pt
i
on serv
i
ce
i
ncluded
i
n the mult
i
ple del
i
verable arrangement
.
U
nder IAS 2 “Inventories”, these costs represent inventoriable costs and are deferred an
d
amort
i
zed over the
p
er
i
od o
f
two
y
ears, cons
i
stent w
i
th the reco
g
n
i
t
i
on o
f
the related e
q
u
ip
men
t
revenue. The equ
i
pment and
i
nstallat
i
on costs generally exceed the amounts rece
i
ved
f
rom
customers on the sale of equipment (the equipment is sold to the customer at a subsidized
p
r
i
ce
)
. The
C
om
p
an
y
de
f
ers the ent
i
re cost o
f
the e
q
u
ip
ment,
i
nclud
i
n
g
the subs
i
d
yp
ort
i
on, a
s
it has determined that this excess cost will be recovered from future subscription revenues an
d
t
hat the investment by the customer in the equipment creates value through increased
r
ete
n
tio
n
.
S
haw Tracking equipment revenue and cost
s
S
haw Track
i
n
g
e
q
u
ip
ment revenue
i
s reco
g
n
i
zed over the
p
er
i
od o
f
the related serv
i
ce contract
f
or airtime, which is generally five years
.
I
n conjunction with Shaw Tracking equipment revenue, the Company incurs incremental direc
t
costs including equipment costs. These direct costs cannot be separated from the undelivere
d
t
rack
i
n
g
serv
i
ce
i
ncluded
i
n the mult
ip
le del
i
verable arran
g
ement. Under IA
S2“
Inventor
i
es”
,
t
hese costs represent inventoriable costs and are deferred and amortized over the period of fiv
e
years, consistent with the recognition of the related tracking equipment revenue.
25