LVLT/FT: The accounting stuff is really of little relevance here, I believe. In 99 or 2000 there was an accounting change. Before, you got the cash for DF when it was delivered and you booked it into revenue at the same time. Then, e.g., for a 20 year IRU, the accounting was changed, so that you had to amortize the DF sales revenue over 20 years in GAAP, i.e. over the term of the IRU.
In addition FT continued to pay LVLT maintenance revenue for the DF, which, however was very little. This revenue was recognized simultaneously in GAAP.
Now FT decided that it is cheaper for them to let LVLT run the optronics or part of it, i.e. it is like outsourcing. I believe it is cheaper for FT, because probably FT is not that large in the US. So in cash they pay now more than the maintenance revenue, as LVLT now also has the cost of running the optronics.
But now FT terminates the IRU, so instead of continuing to amortize the balance of the DF revenue LVLT recognizes it in one quarter. Apparently when the DF was sold to FT in 2000, the price has been so high that the annually amortized amount is now larger than what it cost to outsource the DF, the optronics and the people who run that. Just shows how much DF was overpriced in 2000.
I believe that may make sense for other foreign carriers that have limited networks in the US. So far large IXCs have not yet done this. SBC, however has outsourced their LD voice network to WilTel/Leukadia. |
