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Introduction

IT and software-related expenses account for a growing share of telcos' opex and capex spending, and operators must be mindful of accounting rules when capitalizing such expenses.

Highlights

  • Although there are clear accounting guidelines on how to treat software costs, companies must distinguish between different stages of software development and segregate the costs to be capitalized from costs to be expensed.
  • When a telco enters into a cloud computing contract whereby the vendor holds the software license, the contract costs are treated as operating expenses. However, the accounting treatment of implementation and other upfront costs is still unclear.

Features and Benefits

  • Explains how CSPs should carefully draft and update software contracts with each stage of software development and mention the scope of enhancements.
  • Understand why operators must carefully evaluate cloud computing versus on-premises software licensing arrangements.

Key questions answered

  • How much has software and IT spending grown as a share of telcos' operating expenses?
  • What are the accounting guidelines on software expenses?
  • How do accounting guidelines change as software moves away from traditional licensing arrangements to cloud computing contracts?

Table of contents

Summary

  • Catalyst
  • Ovum view
  • Recommendations

Steady growth in telco IT spending

  • IT operations expense grew from 3.5% to 6.9% of total opex in six years

Is software an expense or an asset?

  • Accounting for software expenses
  • Cloud computing: clear operations, unclear accounting
  • IoT to pose bigger accounting challenges

Appendix

  • Methodology
  • Further reading
  • Author

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