Revenue Recognition Accounting Policy
Multiple Deliverable Arrangements
In both Verizon Wireless and Wireline segments, Verizon offers products and services to customers through bundled arrangements. These arrangements involve multiple deliverables which may include products, services, or a combination of products and services.
On January 1, 2011, Verizon prospectively adopted the accounting standard updates regarding revenue recognition for multiple deliverable arrangements, and arrangements that include software elements. These updates require a vendor to allocate revenue in an arrangement using its best estimate of selling price if neither vendor specific objective evidence (VSOE) nor third party evidence (TPE) of selling price exists. The residual method of revenue allocation is no longer permissible. These accounting standard updates do not change Verizon's units of accounting for bundled arrangements, nor do they materially change how Verizon allocates arrangement consideration to various products and services. Accordingly, the adoption of these standard updates did not have a significant impact on Verizon's consolidated financial statements. Additionally, Verizon does not currently foresee any changes to products, services or pricing practices that will have a significant effect on consolidated financial statements in periods after the initial adoption, although this could change.
Verizon Wireless
Verizon Wireless segment earns revenue primarily by providing access to and usage of its network. In general, access revenue is billed one month in advance and recognized when earned. Usage revenue is generally billed in arrears and recognized when service is rendered. Equipment sales revenue associated with the sale of wireless handsets and accessories is recognized when the products are delivered to and accepted by the customer, as this is considered to be a separate earnings process from providing wireless services. For agreements involving the resale of third-party services in which Verizon is considered the primary obligor in the arrangements, Verizon records the revenue gross at the time of the sale.
Wireless bundled service plans primarily consist of wireless voice and data services. The bundling of a voice plan with a text messaging plan ("Talk & Text"), for example, creates a multiple deliverable arrangement consisting of a voice component and a data component in the form of text messaging. For these arrangements, revenue is allocated to each deliverable using a relative selling price method. Under this method, arrangement consideration is allocated to each separate deliverable based on Verizon's standalone selling price for each product or service, up to the amount that is not contingent upon providing additional services. For equipment sales, Verizon currently subsidizes the cost of wireless devices. The amount of this subsidy is generally contingent on the arrangement and terms selected by the customer. The equipment revenue is recognized up to the amount collected when the wireless device is sold.
Wireline
Wireline segment earns revenue based upon usage of its network and facilities and contract fees. In general, fixed monthly fees for voice, video, data and certain other services are billed one month in advance and recognized when earned. Revenue from services that are not fixed in amount and are based on usage is generally billed in arrears and recognized when service is rendered.
Verizon sells each of the services offered in bundled arrangements (i.e., voice, video and data), as well as separately; therefore each product or service has a standalone selling price. For these arrangements revenue is allocated to each deliverable using a relative selling price method. Under this method, arrangement consideration is allocated to each separate deliverable based on Verizon's standalone selling price for each product or service. These services include FiOS services, individually or in bundles, and High Speed Internet.
When Verizon bundles equipment with maintenance and monitoring services, Verizon recognizes equipment revenue when the equipment is installed in accordance with contractual specifications and ready for the customer's use. The maintenance and monitoring services are recognized monthly over the term of the contract as Verizon provides the services. Long-term contracts for network installation are accounted for using the percentage of completion method. Verizon uses the completed contract method if Verizon cannot estimate the costs with a reasonable degree of reliability.
Installation related fees, along with the associated costs up to but not exceeding these fees, are deferred and amortized over the estimated customer relationship period.
Verizon reports taxes imposed by governmental authorities on revenue-producing transactions between Verizon and customers on a net basis.
Source: Verizon Communications Inc., Annual Report
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