Revenue from Contracts with Customers

The Company earns revenue primarily through the sale of our wireless telecommunications services, wireless equipment, and business, residential, and enterprise cable and wireline services that include video, internet, voice, and data services. Revenue earned for the three months ended June 30, 2018 was as follows:



(in thousands)	Wireless			Cable			Wireline			Consolidated
Wireless service	$	93,219		$	—		$	—		$	93,219
Wireless equipment	15,819			—			—			15,819
Business, residential and enterprise	—			29,466			10,513			39,979
Tower and other	3,244			2,645			8,599			14,488
Total revenue	112,282			32,111			19,112			163,505
Internal revenues	(1,244		)	(1,097		)	(7,134		)	(9,475		)
Total operating revenue	$	111,038		$	31,014		$	11,978		$	154,030

Revenues earned for the six months ended June 30, 2018 was as follows:



(in thousands)	Wireless			Cable			Wireline			Consolidated
Wireless service	$	182,978		$	—		$	—		$	182,978
Wireless equipment	33,193			—			—			33,193
Business, residential and enterprise	—			58,597			21,204			79,801
Tower and other	6,509			5,225			17,615			29,349
Total revenue	222,680			63,822			38,819			325,321
Internal revenues	(2,483		)	(2,128		)	(14,948		)	(19,559		)
Total operating revenue	$	220,197		$	61,694		$	23,871		$	305,762

Wireless service

The majority of the Company's revenue is earned through providing network access to Sprint under the affiliate agreement, which represents approximately 61% of consolidated revenues. Wireless service revenue is variable based on billed revenues to Sprint’s subscribers in the Company's affiliate area, less applicable fees retained by Sprint.

The Company's revenue related to Sprint’s postpaid customers is the amount that Sprint bills its postpaid subscribers, reduced by customer credits, write-offs of receivables, and 8% management and 8.6% service fees. The Company is also charged for the costs of subsidized handsets sold through Sprint’s national channels as well as commissions paid by Sprint to third-party resellers in the Company's service territory.

The Company's revenue related to Sprint’s prepaid customers is the amount Sprint bills its prepaid subscribers, reduced by costs to acquire and support the customer, based on national averages for Sprint’s prepaid programs, and a 6% management fee.

The Company considers Sprint, rather than Sprint's subscribers, to be the customer under the new revenue recognition standard and the Company's performance obligation is to provide Sprint a series of continuous network access services. The reimbursement to Sprint for the costs of handsets sold through Sprint’s national channels, as well as commissions paid by Sprint to third-party resellers in our service territory represent consideration payable to a customer that is not in exchange for a distinct service under Topic 606. Therefore, these reimbursements result in increases to our contract asset position that are subsequently recognized as a reduction of revenue over the average subscriber life of approximately two years which is the period the Company expects those payments to result in increased revenues. Historically, under ASC 605 the customer was considered the subscriber rather than Sprint and as a result, reimbursement payments to Sprint for costs of handsets and commissions were recorded as operating expenses in the period incurred. During 2017, these costs totaled $63.5 million recorded in cost of goods and services, and $16.9 million recorded in selling, general and administrative costs.

On January 1, 2018, upon adoption, the Company recorded a wireless contract asset of approximately $42.8 million. During the three months ended June 30, 2018, payments that increased the wireless contract asset balance totaled $14.6 million and amortization reflected as a reduction of revenue totaled approximately $13.7 million. During the six months ended June 30, 2018, payments that increased the wireless contract asset balance totaled $28.4 million and amortization reflected as a reduction of revenue totaled approximately $27.1 million. The wireless contract asset balance as of June 30, 2018 was approximately $44.1 million.

Wireless equipment

The Company owns and operates Sprint-branded retail stores within their geographic territory from which the Company sells equipment, primarily wireless handsets, and service to Sprint subscribers. The Company's equipment is generally sold to subscribers under subsidized plans or to Sprint under equipment financing plans. Under the equipment financing plans, Sprint purchases the equipment from the Company and resells the equipment to their subscribers. Historically, under ASC 605, the Company concluded that it was the agent in these equipment financing transactions and recorded revenues net of related handset costs which were approximately $63.8 million in 2017. Under Topic 606 the Company concluded that it is the principal in these equipment financing transactions, as the Company controls and bears the risk of ownership of the inventory prior to sale, and accordingly revenues and handset costs are recorded on a gross basis, the corresponding cost of the equipment is recorded separately to cost of goods sold.

Business, residential and enterprise

The Company earns revenue in the cable and wireline segments from business, residential, and enterprise customers where the performance obligations are to provide cable and telephone network services, sell and lease equipment and wiring services, and lease fiber-optic cable capacity. The Company's arrangements are generally composed of contracts that are cancellable at the customer’s discretion without penalty at any time. As there are multiple performance obligations in these arrangements, the Company recognizes revenue based on the standalone selling price of each distinct good or service. The Company generally recognizes these revenues over time as customers simultaneously receive and consume the benefits of the service, with the exception of equipment sales and home wiring which are recognized as revenue at a point in time when control transfers and when installation is complete, respectively.

Under the new revenue recognition standard, the Company concluded that installation services do not represent a separate performance obligation. Accordingly, installation fees are allocated to services and are recognized ratably over the longer of the contract term or the period the unrecognized portion of the fee remains material to the contract, typically 10 and 11 months for cable and wireline customers, respectively. Historically, the Company deferred these fees over the estimated customer life of 42 months. Additionally, the Company incurs commission and installation costs related to in-house and third-party vendors that were previously expensed as incurred. Under Topic 606, the Company capitalizes and amortizes these commission and installation costs over the expected benefit period which is approximately 44 months, 72 months, and 46 months, for cable, wireline, and enterprise business, respectively.

Tower / Other

Tower revenues consist primarily of tower space leases accounted for under Topic 840, Leases, and Other revenues include network access-related charges for service provided to customers across the segments.

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of the new revenue recognition standard were as follows:



(in thousands)	Balance at December 31, 2017		Adjustments due to Topic 606			Balance at January 1, 2018
Assets
Prepaid expenses and other	$	17,111	$	36,577		$	53,688
Deferred charges and other assets, net	13,690		16,107			29,797
Liabilities
Advanced billing and customer deposits	21,153		(14,302		)	6,851
Deferred income taxes	100,879		18,151			119,030
Other long-term liabilities	15,293		(1,200		)	14,093
Retained earnings	297,205		50,035			347,240

The impact of the adoption of the new revenue recognition standard on our consolidated income statement and balance sheet was as follows:



	Three Months Ended June 30, 2018
(in thousands)	As Reported		Balances without Adoption of Topic 606		Effect of Change Higher/(Lower)
Operating revenues:
Service revenues and other	$	138,021	$	156,267	$	(18,246	)
Equipment revenues	16,009		1,799		14,210
Operating expenses:
Cost of services	49,134		48,999		135
Cost of goods sold	15,166		6,328		8,838
Selling, general and administrative	29,915		45,579		(15,664		)



	Six Months Ended June 30, 2018
(in thousands)	As Reported		Balances without Adoption of Topic 606		Effect of Change Higher/(Lower)
Operating revenues:
Service revenues and other	$	272,174	$	310,079	$	(37,905	)
Equipment revenues	33,588		3,858		29,730
Operating expenses:
Cost of services	98,476		98,198		278
Cost of goods sold	30,971		12,446		18,525
Selling, general and administrative	58,665		88,547		(29,882		)



	As of June 30, 2018
(in thousands)	As Reported		Balances without Adoption of Topic 606		Effect of Change Higher/(Lower)
Assets
Prepaid expenses and other	$	64,163	$	26,215	$	37,948
Deferred charges and other assets, net	34,021		18,094		15,927
Liabilities
Advanced billing and customer deposits	6,668		22,704		(16,036		)
Deferred income taxes	111,125		92,190		18,935
Other long-term liabilities	15,080		16,259		(1,179		)
Retained earnings	359,893		307,738		52,155

Future performance obligations

On June 30, 2018, the Company had approximately $3.1 million of transaction price allocated to unsatisfied performance obligations, which is exclusive of contracts with original expected duration of one year or less. The Company expects to recognize approximately $0.4 million of this amount as revenue during the remainder of 2018, $0.6 million in 2019, an additional $0.6 million by 2020, and the balance thereafter.

Contract acquisition costs and costs to fulfill contracts

Capitalized contract costs represent contract fulfillment costs and contract acquisition costs which include commissions and installation costs in our cable and wireline segments. Capitalized contract costs are amortized on a straight line basis over the contract term plus expected renewals. The Company applies the practical expedient to expense contract acquisition costs when incurred if the amortization period would be twelve months or less. The amortization of these costs is included in cost of services, and selling, general and administrative expenses. Amounts capitalized were approximately $9.8 million as of June 30, 2018 of which $4.6 million is presented as prepaid expenses and other and $5.2 million is presented as deferred charges and other assets, net. Amortization recognized during the six-month period ended at June 30, 2018 was approximately $2.7 million.