Revenue Recognition

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Product and Service Categories

Beginning in the first quarter of 2021, we categorize our products and services revenue among the following four categories for the Business segment:

•Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;

•IP and Data Services, which include Ethernet, IP, and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;

•Fiber Infrastructure Services, which include dark fiber, optical services and equipment; and

•Voice and Other, which includes Time Division Multiplexing ("TDM") voice, private line and other legacy services.

Beginning in the first quarter of 2021, we categorize our products and services revenue among the following four categories for the Mass Markets segment:

•Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;

•Small Business Group ("SBG") Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

•Voice and Other, which includes primarily local and long-distance services, retail video services (including our linear and TV services), professional services and other ancillary services; and

•Connect America Fund ("CAF") II, which consists of Connect America Fund II support payments designed to reimburse us for various costs related to certain telecommunications services.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following table provides total revenue by segment, sales channel and product category. It also provides the amount of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:

	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services	$	179	(69)	110	201	(69)	132
IP and Data Services	427		—	427	437	—	437
Fiber Infrastructure Services	216		(30)	186	202	(26)	176
Voice and Other	191		—	191	201	—	201
Total IGAM Revenue	1,013		(99)	914	1,041	(95)	946
Large Enterprise
Compute and Application Services	165		(15)	150	154	(17)	137
IP and Data Services	395		—	395	401	—	401
Fiber Infrastructure Services	124		(15)	109	138	(10)	128
Voice and Other	253		—	253	273	—	273
Total Large Enterprise Revenue	937		(30)	907	966	(27)	939
Mid-Market Enterprise
Compute and Application Services	36		(8)	28	34	(8)	26
IP and Data Services	453		(1)	452	466	(1)	465
Fiber Infrastructure Services	60		(2)	58	54	(4)	50
Voice and Other	167		—	167	207	—	207
Total Mid-Market Enterprise Revenue	716		(11)	705	761	(13)	748
Wholesale
Compute and Application Services	48		(40)	8	46	(40)	6
IP and Data Services	305		—	305	318	—	318
Fiber Infrastructure Services	154		(31)	123	153	(30)	123
Voice and Other	422		(63)	359	452	(68)	384
Total Wholesale Revenue	929		(134)	795	969	(138)	831
Business Segment by Product Category
Compute and Application Services	428		(132)	296	435	(134)	301
IP and Data Services	1,580		(1)	1,579	1,622	(1)	1,621
Fiber Infrastructure Services	554		(78)	476	547	(70)	477
Voice and Other	1,033		(63)	970	1,133	(68)	1,065
Total Business Segment Revenue	$	3,595	(274)	3,321	3,737	(273)	3,464
Mass Markets Segment by Product Category
Consumer Broadband	$	731	(52)	679	722	(53)	669
SBG Broadband	39		(4)	35	39	(3)	36

	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
Voice and Other	541		(21)	520	607	(29)	578
CAF II	123		(123)	—	123	(123)	—
Total Mass Markets Segment	$	1,434	(200)	1,234	1,491	(208)	1,283
Total revenue	$	5,029	(474)	4,555	5,228	(481)	4,747

_____________________________________________________________________

(1)Includes regulatory revenue and lease revenue not within the scope of ASC 606.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of March 31, 2021 and December 31, 2020:

	March 31, 2021		December 31, 2020
	(Dollars in millions)
Customer receivables(1)	$	1,805	1,889
Contract assets	103		108
Contract liabilities	883		950

______________________________________________________________________

(1)Reflects gross customer receivables of $2.0 billion and $2.1 billion, net of allowance for credit losses of $148 million and $174 million, at March 31, 2021 and December 31, 2020, respectively.

Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets. During the three months ended March 31, 2021, we recognized $425 million of revenue that was included in contract liabilities as of January 1, 2021. During the three months ended March 31, 2020, we recognized $495 million of revenue that was included in contract liabilities as of January 1, 2020.

Performance Obligations

As of March 31, 2021, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $5.2 billion. We expect to recognize approximately 90% of this revenue through 2023, with the balance recognized thereafter.

These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), and (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606.

Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:

	Three Months Ended March 31, 2021
	Acquisition Costs		Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	289	216
Costs incurred	44		37
Amortization	(54)		(37)
End of period balance	$	279	216

	Three Months Ended March 31, 2020
	Acquisition Costs		Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	326	221
Costs incurred	49		36
Amortization	(55)		(37)
End of period balance	$	320	220

Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of approximately 30 months for mass markets and business customers. Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are anticipated to be amortized in the next 12 months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond the next 12 months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.