Tucows 2012 Annual Report Download - page 42

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37
COST OF REVENUES
Wholesale
OpenSRS Domain Service
Cost of revenues for domain registrations represents the amortization of registry fees on a basis consistent with
the recognition of revenues from our customers, namely ratably over the term of provision of the service. Registry fees,
the primary component of cost of revenues, are paid in full when the domain is registered, and are initially recorded as
prepaid domain registry fees. This accounting treatment reasonably approximates a recognition pattern that corresponds
with the provision of the services during the period. Market development funds that do not meet the criteria for revenue
recognition under ASC 605-50 “Customer Payments and Incentives”, are reflected as cost of goods sold and are
recognized as earned.
Value-Added Services
Costs of revenues for Value-Added Services include licensing and royalty costs related to the provisioning of
certain components of related to hosted email, fees paid to third-party service providers, primarily for trust certificates
and for printing services in connection with Platypus. Fees payable for trust certificates are amortized on a basis
consistent with the provision of service, generally one year, while email hosting fees and monthly printing fees are
included in cost of revenues in the month they are incurred.
Retail
Costs of revenues for our provision and management of Internet services through our retail site, Hover.com,
include the amortization of registry fees on a basis consistent with the recognition of revenues from our customers,
namely ratably over the term of provision of the service. Registry fees, the primary component of cost of revenues, are
paid in full when the domain is registered, and are recorded as prepaid domain registry fees.
The costs of revenue for Ting's mobile phone service include hardware (the cost of devices sold to our
customers) and network services (our customers' voice, messaging and data usage) provided by our Mobile Network
Operator.
Portfolio
Costs of revenues for our Portfolio represent the amortization of registry fees for domains added to our portfolio
over the renewal period, which is generally one year, the value attributed under intangible assets to any domain name
sold and any impairment charges that may arise from our assessment of our domain name intangible assets. As the total
names in our portfolio continue to grow, this cost will become a more significant component of our cost of revenues.
Payments for domain registrations are payable for the full term of service at the time of activation of service and are
recorded as prepaid domain registry fees and are expensed ratably over the renewal term.
Costs of revenues for our larger ad-supported content sites (tucows.com and butterscotch.com) include the fees
paid to third-party service providers, primarily for digital certificates sold through our content sites and content license
fees.
Network costs
Network costs include personnel and related expenses, depreciation and amortization, communication costs,
equipment maintenance, stock-based compensation and employee and related costs directly associated with the
management and maintenance of our network. Communication costs include bandwidth, co-location and provisioning
costs we incur to support the supply of all our services.