Goodwill, Spectrum License Transactions and Other Intangible Assets

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill, Spectrum License Transactions and Other Intangible Assets

Note 5 – Goodwill, Spectrum License Transactions and Other Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2021, and the year ended December 31, 2020, are as follows:

(in millions)	Goodwill
Balance as of December 31, 2019, net of accumulated impairment losses of $10,766	$	1,930
Goodwill from acquisitions in 2020	9,405
Layer3 goodwill impairment	(218)
Balance as of December 31, 2020	11,117
Purchase price adjustment of goodwill from acquisitions in 2020	22
Goodwill from acquisitions in 2021	1,049
Balance as of September 30, 2021	$	12,188
Accumulated impairment losses at September 30, 2021	$	(10,984)

On April 1, 2020, we completed the Merger, which was accounted for as a business combination resulting in $9.4 billion in goodwill. The acquired goodwill was allocated to the wireless reporting unit and will be tested for impairment at this level. See Note 2 - Business Combinations for further information.

On July 1, 2021, we completed our acquisition of the Wireless Assets from Shentel, which was accounted for as a business combination resulting in $1.0 billion in goodwill. The acquired goodwill was allocated to the wireless reporting unit and will be tested for impairment at this level. See Note 2 - Business Combinations for further information.

Intangible Assets

Identifiable Intangible Assets Acquired in the Sprint Merger

The following table summarizes the fair value of the intangible assets acquired in the Sprint Merger:

	Weighted Average Useful Life (in years)	Fair Value as of April 1, 2020 (in millions)
Spectrum licenses	Indefinite-lived	$	45,400
Tradenames (1)	2 years	207
Customer relationships	8 years	4,900
Favorable spectrum leases	18 years	745
Other intangible assets	7 years	428
Total intangible assets acquired		$	51,680

(1)     Tradenames include the Sprint brand.

Spectrum licenses are issued for a fixed period of time, typically up to 15 years; however, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses acquired expire at various dates and we believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at a nominal cost. Moreover, we determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets. The fair value of spectrum licenses includes the value associated with aggregating a nationwide portfolio of owned and leased spectrum.

Favorable spectrum leases represent a contract where the market rate is higher than the future contractual lease payments. We lease this spectrum from third parties who hold the spectrum licenses. As these contracts pertain to intangible assets, they are excluded from the lease accounting guidance (ASC 842) and are accounted for as service contracts in which the expense is recognized on a straight-line basis over the lease team. Favorable spectrum leases of $745 million were recorded as an intangible asset as a result of purchase accounting and are amortized on a straight-line basis over the associated remaining lease term. Additionally, we recognized unfavorable spectrum lease liabilities of $125 million, which are also amortized over their respective remaining lease terms and are included in Other liabilities in our Condensed Consolidated Balance Sheets.

The customer relationship intangible assets represent the value associated with the acquired Sprint customers. The customer relationship intangible assets are amortized using the sum-of-the-years’ digits method over periods of up to eight years.

Other intangible assets are amortized over the remaining period that the asset is expected to provide benefit to us.

Identifiable Intangible Assets Acquired in the Shentel Acquisition

We reacquired certain rights under the Management Agreement in connection with the acquisition of the Wireless Assets that provided us the ability to fully do business in Shentel’s former affiliate territories. We recognized an intangible asset for these reacquired rights at its preliminary fair value of $770 million as of July 1, 2021. The reacquired rights intangible asset is being amortized on a straight-line basis over a useful life of approximately nine years in line with the remaining term of the Management Agreement upon the acquisition of the Wireless Assets.

Spectrum Licenses

The following table summarizes our spectrum license activity for the nine months ended September 30, 2021:

(in millions)	2021
Spectrum licenses, beginning of year	$	82,828
Spectrum license acquisitions	9,515
Spectrum licenses transferred to held for sale	(15)
Costs to clear spectrum	261
Spectrum licenses, end of period	$	92,589

In March 2021, the FCC announced that we were the winning bidder of 142 licenses in Auction 107 (“C-band spectrum”) for an aggregate purchase price of $9.3 billion, excluding relocation costs. At the inception of Auction 107 in October 2020, we deposited $438 million. Upon conclusion of Auction 107 in March 2021, we paid the FCC the remaining $8.9 billion for the licenses won in the auction. On July 23, 2021, the FCC issued to us the licenses won in Auction 107. The licenses are included in Spectrum licenses in our Condensed Consolidated Balance Sheets as of September 30, 2021. Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in (Purchases) refunds of spectrum licenses and other intangible assets, including deposits in our Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2021. We expect to incur an additional $1.0 billion in relocation costs which will be paid through 2024.

As of September 30, 2021, the activities that are necessary to get the C-band spectrum ready for its intended use have not begun, as such, capitalization of the interest associated with the costs of acquiring the C-band spectrum has not begun.

Other Intangible Assets

The components of Other intangible assets were as follows:

	Useful Lives	September 30, 2021						December 31, 2020
(in millions)		Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Customer relationships	Up to 8 years	$	4,903	$	(1,643)	$	3,260	$	4,900	$	(865)	$	4,035
Reacquired rights	Up to 9 years	770		(23)		747		—		—		—
Tradenames and patents	Up to 19 years	610		(511)		99		598		(412)		186
Favorable spectrum leases	Up to 27 years	731		(64)		667		790		(35)		755
Other	Up to 10 years	377		(103)		274		377		(55)		322
Other intangible assets		$	7,391	$	(2,344)	$	5,047	$	6,665	$	(1,367)	$	5,298

Amortization expense for intangible assets subject to amortization was $316 million and $383 million for the three months ended September 30, 2021 and 2020, respectively, and $977 million and $794 million for the nine months ended September 30, 2021 and 2020, respectively.

The estimated aggregate future amortization expense for intangible assets subject to amortization are summarized below:

(in millions)	Estimated Future Amortization
Twelve Months Ending September 30,
2022	$	1,128
2023	956
2024	799
2025	641
2026	480
Thereafter	1,043
Total	$	5,047

Substantially all of the estimated future amortization expense is associated with intangible assets acquired in the Merger and through our acquisitions of affiliates.