US Cellular 2010 Annual Report Download - page 52

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
Revenues related to wireless services and other value added services are recognized as services are
rendered. Revenues billed in advance or in arrears of the services being provided are estimated and
deferred or accrued, as appropriate.
Revenues from sales of equipment and accessories are recognized when title and risk of loss passes to
the agent or end-user customer.
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple Deliverable
Revenue Arrangements—a consensus of FASB Emerging Issues Task Force (‘‘ASU 2009-13’’).
ASU 2009-13 provides for less restrictive separation criteria that must be met for a deliverable to be
considered a separate unit of accounting. Additionally, under this Standard, there is a hierarchy for
determining the selling price of a unit of accounting and consideration must be allocated using a relative-
selling price method. U.S. Cellular is required to adopt the provisions of ASU 2009-13 on January 1,
2011, however elected to adopt the provisions as of October 1, 2010 on a retroactive basis to January 1,
2010. U.S. Cellular made this election due to certain new service offerings (Belief Plans) with multiple
elements that were introduced by U.S. Cellular in the fourth quarter of 2010. These new service offerings
may include a combination of the following elements which are considered separate units of accounting
under ASU 2009-13: wireless service (voice, messaging and data), wireless devices, phone replacement
of such wireless handsets, and loyalty reward points that may be redeemed by customers for wireless
products and services in future periods. The adoption of ASU 2009-13 on October 1, 2010 had no
impact on any previously reported financial statement amounts for 2010 interim periods.
U.S. Cellular allocates revenue to each element of these service offerings accounted for under
ASU 2009-13 using the relative selling price method. Under this method, arrangement consideration,
which consists of the amounts billed to the customer net of any cash-based discounts, are allocated to
each element on the basis of their relative selling price, on a stand-alone basis. Such stand-alone selling
price is determined in accordance with the following hierarchy:
• U.S. Cellular-specific objective evidence of stand-alone selling price, if available; otherwise
• Third-party evidence of selling price, if it is determinable; otherwise
• A best estimate of stand-alone selling price.
U.S. Cellular estimates stand-alone selling prices of the elements of its new service offerings as follows:
• Wireless services—Based on the actual selling price U.S. Cellular offers when such plan is sold on a
stand-alone basis, or if the plan is not sold on a stand-alone basis, U.S. Cellular’s estimate of the price
of such plan based on similar plans that are sold on a stand-alone basis.
• Wireless devices—Based on the selling price of the respective wireless device when it is sold on a
stand-alone basis.
• Phone Replacement—Based on U.S. Cellular’s estimate of the price of this service if it were sold on a
stand-alone basis, which was calculated by estimating the cost of this program plus a reasonable
margin.
• Loyalty reward points—By estimating the retail price of the products and services for which points may
be redeemed and dividing such amount by the number of loyalty points required to receive such
products and services. This is calculated on a weighted average basis and requires U.S. Cellular to
estimate the percentage of loyalty points that will be redeemed for each product or service.
U.S. Cellular follows the deferred revenue method of accounting for its loyalty reward program. Under
this method, revenue allocated to loyalty reward points is deferred and recognized at the time the
customer redeems loyalty reward points. U.S. Cellular does not have sufficient historical data in which to
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