LONDON Dec 17 Telecoms companies face costly
upheaval to how they treat income from millions of mobile users
after accounting rule-setters backed reform on how revenue from
subsidised handsets is tallied.
The International Accounting Standards Board (IASB), whose
rules are used in over 100 countries from Europe to Canada and
Asia, is simplifying how companies book revenues.
It is being done jointly with the U.S. Financial Accounting
Standards Board (FASB) to create a global standard so that
investors can compare sectors more easily.
The IASB and FASB voted on Monday not to give operators an
exemption from the new revenue recognition rule due in 2016
despite heavy lobbying from the industry.
"There will be complexity to some extent. There will be a
need to determine what is the appropriate margin to be applied
to the handset," IASB staff member Glenn Brady told the meeting.
Global mobile telecoms lobby GSMA had no comment.
Operators typically bundle the cost of a handset with the
service contract and book revenue in line with monthly customer
payments but this may not give the full picture.
U.S. telecoms group Sprint Nextel had its best quarter
in years in the final three months of 2011, signing up a net 1.6
million new customers who flocked to the latest iPhone. The
company, however, reported a $1.3 billion loss as it subsidised
many more handsets to win those contracts.
The IASB believes such reporting fails to reflect the
healthy underlying economics of a growing company that will
collect many more monthly fees from customers.
Under the reform, an operator will have to change its
systems to recognise more revenue upfront from the handset and
less from customers' monthly payments, following the principle
that revenue should be recognised when a good like a handset or
service is handed over to a customer.
But experts warn of a problems to come.
"Analysts like to see what is the average monthly revenue
per subscriber the telecom company is pulling in and suddenly
this is going to distort those figures," said John Edwards, a
partner at KPMG accounting firm.
"Going forward, some operators may now chose to have two
sets of numbers, one for the financial statements, the other for
analysts and the market," Edwards said.
The boards on Monday agreed that companies, not just
telecoms operators, may be able to calculate revenues on a
portfolio basis, thus avoiding the more cumbersome
A board member said this may not help operators as they have
thousands of portfolios due to different service plans.