Segment Information

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Segment Information

Segment Information

We report our results within two segments: Business and Mass Markets.

Under our Business segment we provide products and services to meet the needs of our enterprise and wholesale customers under four distinct sales channels: International and Global Accounts, Large Enterprise, Mid-Market Enterprise and Wholesale. For Business segment revenue, we report the following product categories: Compute and Application Services, IP and Data Services, Fiber Infrastructure Services and Voice and Other, in each case through the sales channels outlined above.

Under our Mass Markets Segment, we provide products and services to residential and small business customers. Following the completion of the CAF II program at December 31, 2021, we recategorized our products used to report our Mass Markets segment revenue and currently use the following categories: Fiber Broadband, Other Broadband and Voice and Other. See detailed descriptions of these product and service categories in Note 4—Revenue Recognition.

As described in more detail below, our segments are managed based on the direct costs of providing services to their customers and directly associated selling, general and administrative costs (primarily salaries and commissions). Shared costs are managed separately and included in "Operations and Other" in the tables below. As referenced above, we reclassified certain prior period amounts to conform to the current period presentation. See Note 1— Background for additional detail on these changes.

The following table summarizes our segment results for the three months ended March 31, 2022 and 2021, based on the segment categorization we were operating under at March 31, 2022.

	Three Months Ended March 31, 2022
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	3,401	1,275	4,676	—	4,676
Expenses:
Cost of services and products	815		32	847	1,138	1,985
Selling, general and administrative	298		134	432	368	800
Less: stock-based compensation	—		—	—	(23)	(23)
Total expense	1,113		166	1,279	1,483	2,762
Total adjusted EBITDA	$	2,288	1,109	3,397	(1,483)	1,914

	Three Months Ended March 31, 2021
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	3,595	1,434	5,029	—	5,029
Expenses:
Cost of services and products	884		43	927	1,209	2,136
Selling, general and administrative	304		134	438	318	756
Less: stock-based compensation	—		—	—	(20)	(20)
Total expense	1,188		177	1,365	1,507	2,872
Total adjusted EBITDA	$	2,407	1,257	3,664	(1,507)	2,157

Revenue and Expenses

Our segment revenue includes all revenue from our two 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 cost of service 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. We have not allocated assets or debt to specific segments.

The following items are excluded from our segment results, because they are centrally managed and not monitored by or reported to our CODM by segment:

•network expenses not incurred as a direct result of providing services and products to segment customers;

•centrally managed expenses such as Finance, Human Resources, Legal, Marketing, Product Management and IT, which are reported as "Operations and other expenses" in the table below;

•depreciation and amortization expense;

•goodwill or other impairments;

•interest expense;

•stock-based compensation; and

•other income and expense items.

The following table reconciles total segment adjusted EBITDA to net income for the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31,
	2022		2021
	(Dollars in millions)
Total segment adjusted EBITDA	$	3,397	3,664
Depreciation and amortization	(808)		(1,150)
Operations and other expenses	(1,483)		(1,507)
Stock-based compensation	(23)		(20)
Operating income	1,083		987
Total other expense, net	(282)		(355)
Income before income taxes	801		632
Income tax expense	202		157
Net income	$	599	475