Segment Information

At December 31, 2018, we had the following two segments:

•

Business Segment. Under our business segment, we provide our products and services to large domestic and global enterprises, small and medium businesses, federal, state and local governments and wholesale customers, including other communication providers. Our products and services offered to these customers include our IP and Data Services suite of products, which includes VPN and hybrid networking, Ethernet and IP services; Transport and Infrastructure, which includes wavelengths and private line, dark fiber, colocation and data center services, and professional services; Voice Services, which includes local, long-distance, toll-free and unified communications services; and IT and Managed services, all of which are described further under "Products and Services"; and


•	Consumer Segment. Under our consumer segment, we provide our products and services to residential customers. Our products and services offered to these customers include our broadband, local and long-distance voice, video and other ancillary services.

The following table summarizes our segment results for 2018, 2017 and 2016 based on the segment categorization we were operating under at December 31, 2018.



	Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Total segment revenue	$	22,720		16,924		16,766
Total segment expenses	12,269			9,390		9,081
Total segment adjusted EBITDA	$	10,451		7,534		7,685
Total margin percentage	46		%	45	%	46	%
Business segment:
Revenue	$	17,349		11,220		10,704
Expenses	10,076			6,847		6,391
Adjusted EBITDA	$	7,273		4,373		4,313
Margin percentage	42		%	39	%	40	%
Consumer segment:
Revenue	$	5,371		5,704		6,062
Expenses	2,193			2,543		2,690
Adjusted EBITDA	$	3,178		3,161		3,372
Margin percentage	59		%	55	%	56	%

Product and Service Categories

We categorize our products, services and revenue among the following five categories:


•	IP and Data Services, which include primarily VPN data networks, Ethernet, IP, video (including our facilities-based video services, CDN services and Vyvx broadcast services) and other ancillary services;


•	Transport and Infrastructure, which include broadband, private line (including business data services), data center facilities and services, including cloud, hosting and application management solutions, wavelength, equipment sales and professional services, network security services, dark fiber services and other ancillary services;


•	Voice and Collaboration, which includes primarily local and long-distance voice, including wholesale voice, and other ancillary services;


•	IT and Managed Services, which include information technology services and managed services, which may be purchased in conjunction with our other network services; and


•	Regulatory Revenue, which consist of (i) Universal Service Fund ("USF"), Connect America Fund ("CAF") and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space, none of which is included in our segment revenue.

Our operating revenue for our products and services are presented as follows for the years ended December 31, 2018, 2017 and 2016:



	Years Ended December 31,
	2018		2017	2016
	(Dollars in millions)
Business segment
IP and Data Services ⁽¹⁾	$	6,971	3,682	2,957
Transport and Infrastructure ⁽²⁾	5,356		3,569	3,807
Voice and Collaboration ⁽³⁾	4,401		3,317	3,299
IT and Managed Services ⁽⁴⁾	621		652	641
Total business segment revenue	17,349		11,220	10,704

Consumer segment
IP and Data Services ⁽⁵⁾	308		401	461
Transport and Infrastructure ⁽⁶⁾	2,892		2,776	2,776
Voice and Collaboration ⁽³⁾	2,171		2,527	2,825
Total consumer segment revenue	5,371		5,704	6,062

Non-segment revenue
Regulatory Revenue ⁽⁷⁾	723		732	704
Total non-segment revenue	723		732	704

Total revenue	$	23,443	17,656	17,470

______________________________________________________________________



(1)	Includes primarily VPN data network, Ethernet, IP and ancillary revenue.
(2)	Includes primarily broadband, private line (including business data services), colocation and data centers, wavelength and ancillary revenue.
(3)	Includes local, long-distance and other ancillary revenue.
(4)	Includes IT services and managed services revenue.
(5)	Includes retail video revenue (including our facilities-based video revenue).
(6)	Includes primarily broadband and equipment sales and professional services revenue.
(7)	Includes CAF Phase I, CAF Phase II, federal and state USF support revenue, sublease rental income and failed-sale leaseback income.

We recognize revenue 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 offsetting expense for the amounts we remit to the government agencies. The total amount of such surcharges and transaction taxes that we included in revenue aggregated to $952 million, $601 million and $572 million for the years ended December 31, 2018, 2017 and 2016, respectively. These USF surcharges, where we record revenue, and transaction taxes are assigned to the product and service categories of each segments based on the underlying revenue. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to bill our customers, for which we do not record any revenue or expense because we only act as a pass-through agent.

Allocations of Revenue and Expenses

Our segment revenue includes all revenue from our business and consumer segments as described in more detail above. Our segment revenue is based upon each customer's classification. We report our segment revenue based upon all services provided to that segment's customers. Our segment expenses 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 (i) directly associated with specific segment customers or activities, and (ii) 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 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 consolidated basis and have not allocated assets or debt to specific segments. Other income and expense items are not monitored as a part of our segment operations and are therefore excluded from our segment results.

The following table reconciles total segment adjusted EBITDA to net (loss) income for the years ended December 31, 2018, 2017 and 2016:



	Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Total segment adjusted EBITDA	$	10,451		7,534		7,685
Regulatory Revenue	723			732		704
Depreciation and amortization	(5,120		)	(3,936	)	(3,916	)
Impairment of goodwill	(2,726		)	—		—
Other operating expenses	(2,758		)	(2,321	)	(2,140	)
Total other expenses, net	(2,133		)	(1,469	)	(1,313	)
Income (loss) before income tax expense	(1,563		)	540		1,020
Income tax (expense) benefit	(170		)	849		(394	)
Net (loss) income	$	(1,733	)	1,389		626

We do not have any single customer that provides more than 10% of our consolidated total operating revenue.

The assets we hold outside of the U.S. represent less than 10% of our total assets. Revenue from sources outside of the U.S. is responsible for less than 10% of our total operating revenue.