Sprint - Nextel 2011 Annual Report Download - page 116

Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue consisted of the following (in thousands):
Revenue from retail subscribers is billed one month in advance and recognized ratably over the contracted service period. Revenues associated with the sale of CPE
and other equipment to subscribers is recognized when title and risk of loss is transferred to the subscriber. Shipping and handling costs billed to subscribers are classified
as revenue.
Revenues from wholesale subscribers are billed one month in arrears and are generally recognized as they are earned, based on terms defined in our commercial
agreements with our wholesale partners. For 2011, the majority of our wholesale revenues were derived from our agreement with Sprint. Under that agreement, revenues
were earned as Sprint utilized our network, with usage-based pricing that included volume discounts. In November, 2011, we entered into the November 2011 4G
MVNO Amendment with Sprint which, among other things, provides for unlimited access to our WiMAX network for 2012 and 2013 for one flat price. See Note 17,
Related Party Transactions, for further information on the provisions of this new agreement.
In October 2009, the Financial Accounting Standards Board, which we refer to as the FASB, issued new accounting guidance that amends the revenue recognition
for multiple-element arrangements and expands the disclosure requirements related to such arrangements. The new guidance amends the criteria for separating
consideration in multiple-deliverable arrangements, establishes a selling price hierarchy for determining the selling price of a deliverable, eliminates the residual method
of allocation, and requires the application of relative selling price method in allocating the arrangement consideration to all deliverables. We adopted the new accounting
guidance on January 1, 2011. Adoption of the new guidance did not have a material impact on our financial statements.
On April 18, 2011, we signed a series of agreements with Sprint, which we refer to as the April 2011 Sprint Wholesale Amendments, wherein, among other things,
the parties agreed on a new usage-based pricing structure that applies to most 4G wireless broadband services purchased by Sprint, and Sprint agreed to pay us $28.2
million to settle outstanding disputes related to prior usage, which we refer to as the Settlement Amount. Because the April 2011 Sprint Wholesale Amendments were
explicitly linked to one another, the Settlement Amount was treated as partial consideration for a revenue arrangement with multiple deliverables and was allocated to
separate units of accounting based on the deliverables' relative selling prices. Revenue-generating activities to which value was attributed in the April 2011 Sprint
Wholesale Amendments included: permission for Sprint to resell the 4G wireless broadband services on a wholesale basis to other companies, and those companies'
ability, in turn, to resell the 4G wireless broadband services on a wholesale basis; additional pricing discounts for Sprint relative to the prices paid by other resellers for
certain 4G wireless broadband services; and new prices to be paid by us for 3G wireless service.
To allocate arrangement consideration to multiple deliverables, a selling price hierarchy was used to determine the selling price of the deliverables. In accordance
with the selling price hierarchy, the selling price for each deliverable is based on vendor-specific objective evidence, which we refer to as VSOE, if available, third-party
evidence, which we refer to as TPE, if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. As neither VSOE nor TPE were available
for the identified revenue-generating activities in the April 2011 Sprint Wholesale Amendments, we determined the estimated selling price of each revenue-generating
activity using a discounted cash flow model considering provisions of the April 2011 Sprint Wholesale Amendment, market conditions as well as entity-specific factors.
Key assumptions in determining the estimated selling price of each deliverable include, but are not limited to, estimated incremental revenue from new activities based on
forecasted subscriber growth rates and usage levels, estimated profit margin and discount rate. The $28.2 million consideration received was allocated to each identified
deliverable in the April 2011 Sprint Wholesale Amendments based on their relative estimated selling price. Any revenue attributable to the delivered elements was
recognized currently in revenue and any revenue attributable to the undelivered elements was deferred and will be recognized as the undelivered elements are expected to
be delivered over the remaining term of the agreements.
Advertising Costs - Advertising costs are expensed as incurred or the first time the advertising occurs. Advertising
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For the Year Ended December 31,
2011 2010 2009
Retail revenue $ 758,254 $ 480,761 $ 238,687
Wholesale revenue 493,661 50,593 2,503
Other revenue 1,551 3,749 2,582
Total revenues $ 1,253,466 $ 535,103 $ 243,772