When they said they don't do that I thought I was either using the wrong terminology or they just don't to lease to me. The IRU contract defines detailed technical and performance specifications for the IRU fibers. It affects the timing of revenue recognition, characterization of payments as expenses or capital investments, the ability to take depreciation deductions, etc. The strand may or may not be immediately capable of transmitting optical communication signals. Intercity Dark Fiber sales are typically structured as something similar to a long-term lease, known in the industry as an Indefeasible Right of Use (“IRU”), 4 Start Printed Page 55864 with an up-front payment and some recurring fees for maintenance of the fiber. Terminology often used interchangeably, and in fact very similar. It is a way for the owners to capitalize the unused capacity or any unowned capacity, after the system comes into service. Applicants may request Category One support for the following charges related to each type of fiber service, subject to program rules: For the purposes of the E-rate Program, special construction charges are the upfront, non-recurring costs of deploying new fiber or upgraded facilities to E-rate eligible entities. The lease rate factor is easy to convert to the more common annual percentage rate. IRU and dark-fibre leasing best for meeting the objectives of the project h) A template with terms and conditions for dark-fibre lease agreements; i) A template with terms and for IRU agreements 25 j) Training of stakeholders on the two types of agreements (IRU vs dark-fibre leasing). Indeed, some might argue that under the facts as described, the transaction should be characterized as a normal (true) lease, or simply the provision of a service. For example, if a conveyance that is called an IRU actually looks like an operating lease to a court or the IRS, it will be treated like an operating lease. In telecommunications, Indefeasible Right of Use (IRU) is the effective long-term lease (temporary ownership) of a portion of the capacity of an international cable. IV.Content of an IRU or Dark Fiber Lease Agreement. GENERALLY-APPLICABLE FCC WIRELINE FILINGS AND REPORTS, Follow California Telecom on WordPress.com. Since IRU's are technically rights to a physical part of a cable, they can be considered an asset, which means their cost isn't part of the company's operating results, but shows up under tangible assets. The term of an IRU often … I focus primarily on legal and regulatory matters relating to the buildout and operation of telecommunications networks and issues relating to the energy industry. 11 Tuesday Feb 2014. The payments for IRUs were deemed by the FCC to be a capital investments for regulated ratemaking purposes, which would enable record carriers to include in their rate calculations amounts to provide returns on those investments. 3. To determine the difference between a license and a lease, we look at: The answer is “yes” or “no,” and, in fact, it really didn’t matter in their particular case. The IRU agreement is different from a telecommunications services agreement, but the dark fiber lease resembles a services agreement. At the end of the contract term, the IRU expires and the holder has no more interest in the IRU; however, it is not uncommon for the holder to have the right to purchase the dark fiber at that point for a nominal amount. A dark fiber lease extends up to 5 years, often with renewal options. The advantage of an IRU can be its capitalization as an asset if it qualifies as a capital lease. The communicatio… It also connects San Antonio and Houston to Laredo and McAllen which are primary border crossings for voice and data traffic between the U.S. and Mexico. At this point in time, “IRU” still means different things to different people. What is the right-of-use asset? These terms must be valid for the full duration of the IRU contract. Simple Install Monetary Impact of Fiber Lease vs. IRU Pros and Cons Is Dark Fiber the Answer? A periodic fee corresponding to the maintenance services provided to IRU user by the IRU grantor. And, the reverse is true: if a conveyance is called an operating lease, but has the characteristics of a capital lease (aka IRU), it … IRUs have features of lease, sale and service yet not completely fall into the domain of any of these. “Indefeasible Right of Use” (IRU) vs. Leasing is a great choice for drivers who like to try out new models every few years since leases typically last around two to three years. It will normally be associated with ongoing obligations for shared maintenance. Is leasing a pair of dark fiber where I would put the light on both ends the same as .. leasing/renting (what is the correct term) a wave or the same as an x number of years IRU ? You would pay the telecom provider a one time payment at the start of the twenty years, then you have the right to use the fiber optic strands for twenty years. europarl.europa.eu. Simple Install Monetary Impact of Fiber Lease vs. IRU Pros and Cons Is Dark Fiber the Answer? ( Log Out /  I. Only a … The This payment usually accounts for the greatest part of the IRU budget. Dark Fiber Lease. The answer: an IRU is a lease, of which there are two types, an operating lease or a capital lease. The customer purchases the right to use a certain amount of the capacity of the system, for a specified number of years. Fill in your details below or click an icon to log in: You are commenting using your WordPress.com account. Capital Leases Vs Operating Leases. In these models you would pay a set fee per strand per mile monthly or yearly and then add on a share of maintenance fees you would pay monthly or yearly. According to the generally accepted accounting principals (GAAP) a lease contract is viewed as an expense, and a pre-paid IRU contract is viewed as an asset. The reply was that my client and the counterparty had decided on a different payment structure, but otherwise the basic terms were to be the same. IFRS 16 will replace IAS 17 for reporting periods beginning on or after 1 January 2019. For example, if a conveyance that is called an IRU actually looks like an operating lease to a court or the IRS, it will be treated like an operating lease. More specifically, it includes dark fiber acceptance and testing procedures, the description of the dark fiber physical route, operating specifications for the dark fiber infrastructure, performance specifications (attenuation, Chromatic Dispersion, Polarization Mode Dispersion, Optical Return Loss), maintenance and restoration terms. A license can be granted without the owner and the licensee ever meeting. one to five years. An IRU owner can unconditionally and exclusively use the relevant capacity of the IRU grantor’s network for the specified time period. Others argue that an IRU is really a type of hybrid ownership interest, something between a lease and outright fee ownership. That means their cost isn't part of a company's operating results, but of the property, plant, and equipment line listed on a firm's balance sheet. Leasing is very flexible (In terms of contract duration, speed option etc.) IRU stands for “indefeasible right of use,” which is a hybrid type of property interest in communications facilities — something between outright ownership and a leasehold. Dark Fiber Lease. But, change or add a few factors, and the outcome could well be different. Posted by John Clark in Telecom Business, Broadband, Dark Fiber, Fiber, IRU, Lease, Network. Leasing fiber vs a wave vs IRU vs other options ? europarl.europa.eu. Posted by John Clark in Telecom Business ≈ 3 Comments. Project management Special construction does not include charges for Network Equipm… Impact on accounting. An Indefeasible Right of Use (IRU) is similar to a lease, but usually applies to a longer term, e.g. The reply was that my client and the counterparty had decided on a different payment structure, but otherwise the basic terms were to be the same. Spanning all of the major markets in South Texas, this fiber connects San Antonio and Houston via Harlingen and Corpus Christi. As a consequence, working capital stays the same, but the debt/equity ratio increases, creating additional leverage. Dark Fiber Lease. Our goal is to have you drive confidently off the lot in your new purchase. Thus, the primary focus needs to be on the details of what the parties are trying to accomplish, understanding what the ramifications of their deal points are, and whether the transaction, as contemplated, will accomplish their respective goals, rather than what to call the interest being conveyed. The right of use is indefeasible, so the capacity purchased is also nonreturnable, and maintenance costs incurred become payable and irrefusable. Electronics In telecom, the lease of capacity on someone else's network can for example take the form of dark fiber or wavelength lease. Although the original regulatory rationale for the creation of IRUs is long past, IRUs obviously continue to be a standard way to characterize interests in fiber optic capacity and infrastructure. Special construction consists of three components: 1. No problem, but why the change? If you are looking for flexibility and a lower cost to get your Dark Fiber network up and running, a lease gives you the control you need with minimal up-front costs. [2], The Dark fiber (DF) IRU "shall mean the exclusive, unrestricted, and indefeasible right to use one, a pair, or more strands of fiber of a fiber cable for any legal purpose". Leasing is a great choice for drivers who like to try out new models every few years since leases typically last around two to three years. Whether it is an operating lease or a capital lease depends on the terms of the IRU and the indicia laid out by the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. “Indefeasible Right of Use” (IRU) vs. Can we have short term IRUs, say 5 years. Buying vs Leasing Subaru. Recently, a sophisticated client asked me to draft a dark fiber IRU agreement and a short time later changed his mind and asked for a dark fiber lease agreement. These contracts obligate the purchaser to pay a portion of the operating costs, and the costs of maintaining the cable, including any costs incurred repairing the cable after mishaps. 1DWLRQZLGH 7HQDQW &RPIRUW 6XSSRUW IRU 6DIH 5HWXUQV 3HUVRQDO YV 3URMHFWLRQ RQ &ROOHDJXHV YV 32% 25% 33% 34% 18% 21% 16% 19% I am personally comfortable with or supportive of coming back to our physical o!ice space Our employees (my colleagues) are generally comfortable with or supportive of coming back to our physical o!ice space Agree / Strongly Agree / Somewhat … Since IRUs are technically rights to a physical part of an underground cable, they can be considered an asset. I assumed that a 10 year IRU (Irrevocable Right of Use) was the same as a lease. 2 The maintenance cost is calculated on route miles, not strand miles. Only a few companies in the United States sell Intercity Dark Fiber. Unlike leasing an apartment, landlords that are leasing a house may also include an “option to buy” or “rent-to-own” clause in the lease agreement. Construction of network facilities 2. And, the reverse is true: if a conveyance is called an operating lease, but has the characteristics of a capital lease (aka IRU), it will be treated as such. I think that the take-away from this post should be that what you call a particular conveyance (i.e., a grant of an “IRU” or a “lease”) is not critical.. You could call a five-year conveyance of a facility an “IRU” if you wanted to, but doing so would not necessarily define the “IRU” holder’s rights or how the transaction is treated from a tax or accounting standpoint. For more details, see Lease vs Buy.. Only FiTel can light and use the fibre Identified asset The end to end fibre strand is dedicated to FiTel Benefit throughout period of use 4 4 4. A lump-sum payment corresponding to the dark-fiber construction cost and the use of the dark-fiber infrastructure for the IRU duration. 2 Strands of Dark Fiber for IRU or lease on this Rarely Available Route!! A license is permission from the owner to a licensee to do something on the owner's property. IRU refers to a type of contract that gives the buyer a strong form of ownership, stronger than a lease. Typically the provider will charge an extra recurring fee for this or a 3rd party contractor must be hired to perform these services. Both involve an exclusive, irrevocable (so long as IRU fee and lease payment are made) possessory interest in certain property, for a term. Whether it is an operating lease or a capital lease depends on the terms of the IRU and the indicia laid out by the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. Change ). Proposed solution: Dark fibre IRU This is a lease 9 Global Communications GAAP Summit June 2016 Criteria Right to control the use Met? Use this Lease versus Buy calculator to compare the costs of leasing a car versus buying with an auto loan, including comparison of payments, total costs, taxes and finance charges. For customers that have the funds to spend upfront and want smaller annual payments, an Indefeasible Right of Use (IRU) would be the option to consider. The IRU is counted as though it is a part of the physical plant of the business buying the IRU. IRU is granted by the company or consortium of companies that built the (usually optical fiber) cable. You must first determine whether your agreement is a lease or a conditional sales contract. In short, buying an IRU gives the purchaser the right to use some capacity on a telecommunications cable system, including the right to lease that capacity to someone else. The annual maintenance charge is the same per mile regardless of whether the lease is for 1 or 10 or 100 strands on the same route. Dark Fiber lease. Under an IRU or a lease, the customer is obtaining a “facility,” not a service such as broadband or VoIP. For lessees, IFRS 16 introduces a single accounting treatment, recognition of a right-of-use asset and a lease liability. Recently, a sophisticated client asked me to draft a dark fiber IRU agreement and a short time later changed his mind and asked for a dark fiber lease agreement. Buying vs Leasing Subaru. In this case dark fiber is called "dark" since it has to be lit by the IRU owner, not the cable's owner. Post was not sent - check your email addresses! Intercity Dark Fiber sales are typically structured as something similar to a long-term lease, known in the industry as an Indefeasible Right of Use (“IRU”), 4 Start Printed Page 55864 with an up-front payment and some recurring fees for maintenance of the fiber. leases’ on balance sheet, there are some key differences with the revised US Standard. IRU contracts are almost always long term, commonly lasting 20 to 30 years. http://contracts.corporate.findlaw.com/agreements/athome/att.iru.1998.12.19.html, "Global Crossing's Use of Swaps To Boost Revenue Wasn't Unusual", http://www.porta-optica.org/publications/POS-D3.2_Economical_analysis.pdf, Economic analysis, dark fibre usage cost model and model of operations, Porta Optica Study, Example agreement: SEA-ME-WE 3 STANDARD IRU AGREEMENT, https://en.wikipedia.org/w/index.php?title=Indefeasible_rights_of_use&oldid=935714083, Creative Commons Attribution-ShareAlike License. A dark fiber lease extends up to 5 years, often with renewal options. PwC 1. An IRU contract that does not meet the definition of a lease is accounted for as a service contract. Lit fiber networks utilize light pulses to transmit data through fiber optic cables that contain thin strands of glass in them. If the agreement is a lease, you may deduct the payments as rent.If the agreement is a conditional sales contract, you consider yourself as the outright purchaser of the equipment.You may generally recover the cost of such property used in a trade or business through depreciation deductions. Indefeasible right of use (IRU) is a type of telecommunications lease permanent contractualagreement, that cannot be undone, between the owners of a communications system and a customer of that system. It's a different way of showing the amount of interest the lessee must pay on a lease with monthly payments. Without providing such investment opportunities, there would have been no reason for record carrier shareholders to continue to stick around for as long a time as the FCC wanted them to after their long-term radio facility investments were rendered obsolete following the implementation of vastly superior submarine cable technology. The upfront cost for the purchase of a 20-year IRU can be a one-time investment. J. As far as maintenance goes, it is pretty common for the facility “owner” (as opposed to the IRU holder) to be responsible, and charge, for maintenance of dark fiber. With an IRU contractual arrangement the buyer of the IRU can unconditionally, and exclusively, use the fibers of the IRU for a long time period, around 25–30 years.[3]. The communication system can be a wire cable, such as a submarine communications cable, fiber-optic cable, or satellite. Get traffic statistics, SEO keyword opportunities, audience insights, and competitive analytics for Aacg. ( Log Out /  IRUs are specified in terms of a certain number of channels of a given bandwidth. Financial reporting developments A comprehensive guide Lease accounting Accounting Standards Codification 840, Leases Revised August 2020 Indefeasible right of use (IRU) is a type of telecommunications lease permanent contractual agreement, that cannot be undone, between the owners of a communications system and a customer of that system.