Bundled offerings

IFRS 15 requires entities to allocate revenue to performance obligations based on the standalone selling price of a good or service in a bundle of goods and services. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer.

Revenue is recognised when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service.

Postpaid and prepaid products with multiple deliverables are defined as multiple element (or bundled) arrangements. Postpaid products typically include the sale of a handset and a service contract; and prepaid products include a subscriber identification module (SIM) card and airtime.

During 2014, the Group resolved to change its accounting policy in recognising revenue relating to bundled arrangements from applying the residual value method to the relative fair value method. In applying the relative fair value method, the consideration received or receivable is allocated to each of the elements (delivered and undelivered) in the transaction according to their standalone selling prices, resulting in the proportionate allocation of any discount to all elements in the bundle.

The new accounting policy aligns the Group’s policy more closely with the requirements of IFRS 15.

Contract changes

IFRS 15 requires entities to account for contract modifications as cancellations of the old contracts and the creation of new contracts where additional distinct goods or services are provided at prices that do not reflect the standalone selling prices of those goods or services.

Postpaid contracts may be upgraded or downgraded by customers which will typically result in the cancellation of the old contract and the creation of a new contract. Contract changes are significant in MTN South Africa and to a lesser extent, in MTN Cyprus.

This requirement has been implemented as part of the Group’s policy change in recognising revenue relating to bundled arrangements as discussed above.

Significant financing component

IFRS 15 requires entities to adjust the promised amount of consideration to reflect the time value of money if the contract has a significant financing component.

Factors to consider when determining whether a contract has a significant financing component include, but are not limited to:

	the expected length of time between when the entity transfers the promised goods or services to the customer and when the customer pays for those goods or services;
	whether the amount of consideration would differ substantially if the customer paid in cash promptly in accordance with typical credit terms in the industry and jurisdiction; and
	the interest rate in the contract and prevailing interest rates in the relevant market.

N/A – not applicable.

This requirement is expected to have a significant impact on the Group’s postpaid subscriber base where devices are sold with long-term service contracts mainly within MTN South Africa and to a lesser extent, in MTN Cyprus.

If possible, the Group will elect the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if its expected, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Contract acquisition costs

IFRS 15 requires an entity to recognise as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs.

The incremental costs of obtaining a contract are those costs that an entity would not have incurred if the contract had not been obtained. All other contract acquisition costs incurred regardless of whether a contract was obtained are recognised as an expense.

Contract costs recognised as an asset are amortised on a systematic basis consistent with the pattern of transfer of the goods or services to which the asset relates. In some cases, the asset might relate to goods or services to be provided in future anticipated contracts (for example, service to be provided to a customer in the future if the customer chooses to renew an existing contract).

The Group’s current accounting policy is to expense contract acquisition costs when incurred.

The Group will elect the practical expedient permitted by IFRS 15 to expense incremental costs of obtaining a contract when incurred if the amortisation period would be one year or less.

This requirement is expected to have a significant impact on long-term postpaid contracts, mainly within MTN South Africa and to a lesser extent, in MTN Cyprus. Significant system development will be required to identify, track and amortise contract acquisition costs over the contract period or estimated customer life.

No significant impact is expected within the Group’s prepaid environment as the prepaid service lifecycle is typically short.

Breakage

IFRS 15 requires that when a breakage percentage (services that expire) is expected, revenue should be grossed up to take account of units of service that will be forfeited.

This requirement is not expected to result in a significant change in the financial results of the Group.

Loyalty awards

IFRS 15 requires that loyalty awards be recognised as separate performance obligations and that revenue be allocated to awards relative to the fair value of the awards and other performance obligations. Revenue allocated to the loyalty awards should be recognised when the future goods or services are transferred or when the awards expire.

The Group’s current accounting policy is to recognise reward points as separately identifiable components of the initial sale transaction by allocating revenue to the reward points such that the reward points are initially recognised as deferred income at their fair value.

This requirement is not expected to result in a significant change in the financial results of the Group.

Impairment

IFRS 9 requires that credit losses are recognised on initial recognition of receivables and contract assets and not at the point when the amounts are considered to be impaired.

Provision for impairment of receivables and contract assets will be upfront and recognised separately when the revenue is recognised, modelled on historic losses.

The Group expects to choose an accounting policy to always measure the impairment at the present value of expected cash shortfalls over the remaining life of the receivables and contract assets using a provision matrix.

N/A – not applicable.

This requirement is expected to have a significant impact on long-term postpaid contract assets and receivables, mainly within MTN South Africa.