Telecoms prepare for new rules in accounting
Canadian telecoms are overhauling their data systems to prepare for new accounting rules that will have an oversized effect on an industry with millions of personalized consumer contracts.
Only a handful of reporting periods remain for telecoms to comply with new revenue reporting rules under International Financial Reporting Standard 15, which could drastically change important industry performance indicators such as average revenue per user when implemented by Jan. 1, 2018.
The standard chiefly impacts wireless contracts that couple smartphones with voice, data and text plans. Instead of spreading out the revenue from the smartphone — customers typically pay for a phone over two years, resulting in higher monthly revenue — telecoms will have to recognize the revenue up front. The amount of money changing hands remains the same, but it could look like companies are getting less each month.
Considering there were 28.8 million wireless subscribers in Canada in 2015, all with diverse plans that consumers can change on a whim, it will take a lot of heavy lifting to recalculate each contract.
“The mass amount of data is what I would argue would be the biggest challenge,” Telus’ new CFO Doug French said in an interview.
Telus started working on the shift four years ago, getting its IT department involved to track data from eight million customers with varied plans, French said. He stressed the rules don’t change the company’s fundamental economics, but said Telus is developing a full communication strategy to ensure investors know what to expect.
“Communication is going to be key,” French said. “Unless things were left to the last minute, this is doable.”
Originally the rule was scheduled to come into effect in 2017, but telecoms submitted a joint letter asking for a year extension. The extra time was welcomed for what is primarily a data job, French said.
Spokespeople from Bell and Rogers also stated they have been preparing for the rules for years and working on communication plans to ensure analysts build the changes into their expectations. Still, it’s not clear exactly how much financial indicators will swing under the new rules.
The Big Three companies count 26 million subscribers between them. The remaining 10 per cent of subscribers are split between companies such as Videotron and Wind Mobile. When Wind’s owner, Shaw Communications Inc., reported its quarterly results last week, analysts noticed that it already moved toward the new standard by how it amortizes its handset subsidy.
IFRS 15, which aims to recognize revenue as soon as goods and services are transferred, will also affect the tech, pharmaceutical, biotech and construction industries, explained BDO Canada national accounting standards partner Armand Capisciolto.