Segment Information

We are organized into operating segments based on customer type, business and consumer. These operating segments are our two reportable segments in our consolidated financial statements:

•

Business Segment. Consists generally of providing strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers. Our strategic products and services offered to these customers include our MPLS, private line (including special access), Ethernet, high-speed Internet, colocation, managed hosting, cloud hosting and other ancillary services. Our legacy services offered to these customers primarily include switched access and local and long-distance voice services, including the sale of unbundled network elements ("UNEs") which allow our wholesale customers to use all or part of our network to provide voice and data services to their customers. Our data integration offerings include the sale of telecommunications equipment located on customers' premises and related professional services. These services include network management, installation and maintenance of data equipment and the building of proprietary fiber-optic broadband networks; and


•	Consumer Segment. Consists generally of providing strategic and legacy products and services to residential customers. Our strategic products and services offered to these customers include our high-speed Internet, video (including our Prism TV services) and wireless services. Our legacy services offered to these customers include local and long-distance voice services.

The following table summarizes our segment results for 2015, 2014 and 2013 based on the segment categorization we were operating under at December 31, 2015.



	Years Ended December 31,
	2015			2014		2013
	(Dollars in millions)
Total segment revenues	$	16,668		17,028		17,095
Total segment expenses	8,459			8,509		8,167
Total segment income	$	8,209		8,519		8,928
Total margin percentage	49		%	50	%	52	%
Business segment:
Revenues	$	10,647		11,034		11,091
Expenses	6,034			6,089		5,808
Income	$	4,613		4,945		5,283
Margin percentage	43		%	45	%	48	%
Consumer segment:
Revenues	$	6,021		5,994		6,004
Expenses	2,425			2,420		2,359
Income	$	3,596		3,574		3,645
Margin percentage	60		%	60	%	61	%

Product and Service Categories

We categorize our products, services and revenues among the following four categories:

•

Strategic services, which include primarily high-speed Internet, MPLS (which is a data networking technology that can deliver the quality of service required to support real-time voice and video), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), video (including our facilities-based video services, which we now offer in 16 markets), VoIP and Verizon Wireless and other ancillary services;


•	Legacy services, which include primarily local and long-distance voice services, including the sale of UNEs, switched access and Integrated Services Digital Network ("ISDN") services (which use regular telephone lines to support voice, video and data applications);


•	Data integration, which includes the sale of telecommunications equipment located on customers' premises and related professional services, such as network management, installation and maintenance of data equipment and building of proprietary fiber-optic broadband networks for our governmental and business customers; and

•

Other operating revenues, which consist primarily of CAF support payments, USF support payments and USF surcharges. We receive federal support payments from both CAF Phase 1 and CAF Phase 2 programs, and support payments from both federal and state USF programs. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services, including the costs of deploying, maintaining and operating voice and high-speed Internet infrastructure in high-cost rural areas where we are not able to recover our costs from our customers. USF surcharges are the amounts we collect based on specific items we list on our customers' invoices to fund the FCC's universal service programs. We also generate other operating revenues from leasing and subleasing of space in our office buildings, warehouses and other properties. Because we centrally manage the activities that generate these other operating revenues, these revenues are not included in our segment revenues.

Our operating revenues for our products and services consisted of the following categories for the years ended December 31, 2015, 2014 and 2013:



	Years Ended December 31,
	2015		2014	2013
	(Dollars in millions)
Strategic services
Business high-bandwidth data services (1)	$	2,816	2,579	2,230
Business low-bandwidth data services (2)	2,052		2,345	2,577
Business hosting services (3)	1,281		1,316	1,259
Other business strategic services (4)	162		76	60
Consumer high-speed Internet services (5)	2,611		2,469	2,358
Other consumer strategic services (6)	421		381	292
Total strategic services revenues	9,343		9,166	8,776

Legacy services
Business legacy voice services (7)	2,590		2,780	2,916
Other business legacy services (8)	1,175		1,252	1,398
Consumer legacy voice services (7)	2,676		2,864	3,101
Other consumer legacy services (9)	311		276	248
Total legacy services revenues	6,752		7,172	7,663

Data integration
Business data integration	571		686	651
Consumer data integration	2		4	5
Total data integration revenues	573		690	656

Other revenues
High-cost support revenue (10)	732		528	547
Other revenue (11)	500		475	453
Total other revenues	1,232		1,003	1,000

Total revenues	$	17,900	18,031	18,095

______________________________________________________________________



(1)	Includes MPLS and Ethernet revenue
(2)	Includes private line and high-speed Internet revenue
(3)	Includes colocation, hosting (including cloud hosting and managed hosting) and hosting area network revenue
(4)	Includes primarily VoIP, video and IT services revenue
(5)	Includes high-speed Internet and related services revenue
(6)	Includes video and Verizon wireless revenue
(7)	Includes local and long-distance voice revenue
(8)	Includes UNEs, public access and other ancillary revenue
(9)	Includes switched access and other ancillary revenue
(10)	Includes CAF Phase 1, CAF Phase 2 and federal and state USF support revenue
(11)	Includes USF surcharges

During the first quarter of 2015, we determined that certain products and services associated with our acquisition of Savvis are more closely aligned to legacy services than to strategic services. As a result, these operating revenues are now reflected as legacy services. The revision resulted in a reduction of revenue from strategic services of $34 million and $47 million and a corresponding increase in revenue from legacy services for the years ended December 31, 2014 and 2013, respectively.

We recognize revenues in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our customers. Our consolidated statements of operations also reflect the related expense for the amounts we remit to the government agencies. The total amount of such surcharges that we included in revenues aggregated approximately $544 million, $526 million and $489 million for the years ended December 31, 2015, 2014 and 2013, respectively. Those USF surcharges, where we record revenue, are included in "other" operating revenues and transaction tax surcharges are included in "legacy services" revenues. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to include in our bills to customers, for which we do not record any revenue or expense because we only act as a pass-through agent.

Allocations of Revenues and Expenses

Our segment revenues include all revenues from our strategic, legacy and data integration operations as described in more detail above. Segment revenues are based upon each customer's classification to an individual segment. We report our segment revenues based upon all services provided to that segment's customers. Our segment expenses for our two segments include specific expenses incurred as a direct result of providing services and products to segment customers, along with selling, general and administrative expenses that are directly associated with specific segment customers or activities; and allocated expenses which include network expenses, facilities expenses and other expenses such as fleet and real estate expenses. We do not assign depreciation and amortization expense or impairments to our segments, as the related assets and capital expenditures are centrally managed and are not monitored by or reported to the chief operating decision maker ("CODM") by segment. Generally speaking, severance expenses, restructuring expenses and certain centrally managed administrative functions (such as finance, information technology, legal and human resources) are not assigned to our segments. Interest expense is also excluded from segment results because we manage our financing on a total company basis and have not allocated assets or debt to specific segments. Other income, net is not monitored as a part of our segment operations and is therefore excluded from our segment results.

The following table reconciles segment income to net income for the years ended December 31, 2015, 2014 and 2013:



	Years Ended December 31,
	2015			2014		2013
	(Dollars in millions)
Total segment income	$	8,209		8,519		8,928
Other operating revenues	1,232			1,003		1,000
Depreciation and amortization	(4,189		)	(4,428	)	(4,541	)
Impairment of goodwill	—			—		(1,092	)
Other unassigned operating expenses	(2,647		)	(2,684	)	(2,842	)
Other expenses, net	(1,289		)	(1,300	)	(1,229	)
Income tax expense	(438		)	(338	)	(463	)
Net income (loss)	$	878		772		(239	)

We do not have any single customer that provides more than 10% of our total consolidated operating revenues. Substantially all of our consolidated revenues come from customers located in the United States.