Segment Information

6 Months Ended

Jun. 30, 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 FCC's Connect America Fund II ("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 tables summarize our segment results for the three and six months ended June 30, 2022 and 2021, based on the segment categorization we were operating under at June 30, 2022.

	Three Months Ended June 30, 2022
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	3,416	1,196	4,612	—	4,612
Expenses:
Cost of services and products	845		34	879	1,179	2,058
Selling, general and administrative	284		136	420	395	815
Less: stock-based compensation	—		—	—	(25)	(25)
Total expense	1,129		170	1,299	1,549	2,848
Total adjusted EBITDA	$	2,287	1,026	3,313	(1,549)	1,764

	Three Months Ended June 30, 2021
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	3,522	1,402	4,924	—	4,924
Expenses:
Cost of services and products	863		40	903	1,212	2,115
Selling, general and administrative	295		153	448	314	762
Less: stock-based compensation	—		—	—	(42)	(42)
Total expense	1,158		193	1,351	1,484	2,835
Total adjusted EBITDA	$	2,364	1,209	3,573	(1,484)	2,089

	Six Months Ended June 30, 2022
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	6,817	2,471	9,288	—	9,288
Expenses:
Cost of services and products	1,660		66	1,726	2,317	4,043
Selling, general and administrative	582		270	852	763	1,615
Less: stock-based compensation	—		—	—	(48)	(48)
Total expense	2,242		336	2,578	3,032	5,610
Total adjusted EBITDA	$	4,575	2,135	6,710	(3,032)	3,678

	Six Months Ended June 30, 2021
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	7,117	2,836	9,953	—	9,953
Expenses:
Cost of services and products	1,747		83	1,830	2,421	4,251
Selling, general and administrative	599		287	886	632	1,518
Less: stock-based compensation	—		—	—	(62)	(62)
Total expense	2,346		370	2,716	2,991	5,707
Total adjusted EBITDA	$	4,771	2,466	7,237	(2,991)	4,246

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 chief operating decision maker 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 tables in this note;

•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 and six months ended June 30, 2022 and 2021:

	Three Months Ended June 30,			Six Months Ended June 30,
	2022		2021	2022	2021
	(Dollars in millions)
Total segment adjusted EBITDA	$	3,313	3,573	6,710	7,237
Operations and other expenses	(1,549)		(1,484)	(3,032)	(2,991)
Depreciation and amortization	(827)		(1,041)	(1,635)	(2,191)
Stock-based compensation	(25)		(42)	(48)	(62)
Operating income	912		1,006	1,995	1,993
Total other expense, net	(459)		(332)	(741)	(687)
Income before income taxes	453		674	1,254	1,306
Income tax expense	109		168	311	325
Net income	$	344	506	943	981