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 year ended December 31, 2018 was as follows:



(in thousands)	Wireless			Cable			Wireline			Consolidated
Wireless service	$	380,818		$	—		$	—		$	380,818
Equipment	67,510			695			193			68,398
Business, residential and enterprise	—			117,836			42,445			160,281
Tower and other	14,327			10,372			34,504			59,203
Total revenue	462,655			128,903			77,142			668,700
Internal revenue	(5,016		)	(4,706		)	(28,124		)	(37,846		)
Total operating revenue	$	457,639		$	124,197		$	49,018		$	630,854

Wireless service

The majority of the Company's revenue is earned through providing network access to Sprint under the affiliate agreement. Wireless service revenue is variable based on billed revenue 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 that Sprint bills its prepaid subscribers, reduced by costs to acquire and support the customers, 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. These reimbursements are initially recorded as a contract asset and are subsequently recognized as a reduction of revenue over the expected benefit period between 21 and 53 months. Historically, under ASC 605, Revenue Recognition, 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, the Company recorded a wireless contract asset of approximately $51.1 million. During the year ended December 31, 2018, payments that increased the wireless contract asset balance totaled $61.2 million and amortization reflected as a reduction of revenue totaled approximately $46.6 million. The wireless contract asset balance as of December 31, 2018 was approximately $65.7 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 predominantly sold to subscribers through Sprint's 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, Revenue Recognition, 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 revenue consists primarily of tower space leases accounted for under Topic 840, Leases, and Other revenue includes network access-related charges for service provided to customers across the segments.

The cumulative effect of the changes made to the 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	$	29,876		$	46,987
Deferred charges and other assets, net	13,690		31,071			44,761
Liabilities
Advanced billing and customer deposits	21,153		(14,302		)	6,851
Deferred income taxes	100,879		20,352			121,231
Other long-term liabilities	15,293		(1,200		)	14,093
Retained earnings	297,205		56,097			353,302

The impact of the adoption of the new revenue recognition standard on the consolidated statements of operations and comprehensive income and consolidated balance sheets was as follows:



	Year Ended December, 31 2018
(in thousands)	As Reported		Balances without Adoption of Topic 606		Effect of Change Higher/(Lower)
Operating revenue:
Service revenue and other	$	562,456	$	632,340	$	(69,884	)
Equipment revenue	68,398		8,298		60,100
Operating expenses:
Cost of services	194,022		193,860		162
Cost of goods sold	63,959		28,377		35,582
Selling, general and administrative	113,222		175,753		(62,531		)



	As of December 31, 2018
(in thousands)	As Reported		Balances without Adoption of Topic 606		Effect of Change Higher/(Lower)
Assets
Prepaid expenses and other	$	60,162	$	22,204	$	37,958
Deferred charges and other assets, net	49,891		12,083		37,808
Liabilities
Advanced billing and customer deposits	7,919		24,414		(16,495		)
Deferred income taxes	127,453		103,404		24,049
Other long-term liabilities	14,364		15,550		(1,186		)
Retained earnings	386,511		319,926		66,585

Future performance obligations

On December 31, 2018, the Company had approximately $3.3 million 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 $0.7 million of this amount as revenue during 2019, $0.7 million in 2020, an additional $0.6 million by 2021, 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 or expected period of benefit. The Company elected to apply 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 $10.1 million as of December 31, 2018 of which $4.6 million is presented as prepaid expenses and other and $5.5 million is presented as deferred charges and other assets, net. Amortization recognized during the year ended December 31, 2018 was approximately $5.5 million.