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Segment Information
9 Months Ended
Sep. 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. The Business segment included the results of our Latin American business prior to the closing of its sale on August 1, 2022.

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 nine months ended September 30, 2022 and 2021, based on the segment categorization we were operating under at September 30, 2022.

Three Months Ended September 30, 2022
BusinessMass MarketsTotal SegmentsOperations and OtherTotal
(Dollars in millions)
Revenue$3,217 1,173 4,390 — 4,390 
Expenses:
Cost of services and products792 25 817 1,182 1,999 
Selling, general and administrative263 169 432 360 792 
Gain on sale of business— — — (593)(593)
Less: stock-based compensation— — — (23)(23)
Total expense1,055 194 1,249 926 2,175 
Total adjusted EBITDA$2,162 979 3,141 (926)2,215 

Three Months Ended September 30, 2021
BusinessMass MarketsTotal SegmentsOperations and OtherTotal
(Dollars in millions)
Revenue$3,508 1,379 4,887 — 4,887 
Expenses:
Cost of services and products867 36 903 1,248 2,151 
Selling, general and administrative293 128 421 233 654 
Less: stock-based compensation— — — (27)(27)
Total expense1,160 164 1,324 1,454 2,778 
Total adjusted EBITDA$2,348 1,215 3,563 (1,454)2,109 
Nine Months Ended September 30, 2022
BusinessMass MarketsTotal SegmentsOperations and OtherTotal
(Dollars in millions)
Revenue$10,034 3,644 13,678 — 13,678 
Expenses:
Cost of services and products2,452 91 2,543 3,499 6,042 
Selling, general and administrative845 439 1,284 1,123 2,407 
Gain on sale of business— — — (593)(593)
Less: stock-based compensation— — — (71)(71)
Total expense3,297 530 3,827 3,958 7,785 
Total adjusted EBITDA$6,737 3,114 9,851 (3,958)5,893 

Nine Months Ended September 30, 2021
BusinessMass MarketsTotal SegmentsOperations and OtherTotal
(Dollars in millions)
Revenue$10,625 4,215 14,840 — 14,840 
Expenses:
Cost of services and products2,614 119 2,733 3,669 6,402 
Selling, general and administrative892 415 1,307 865 2,172 
Less: stock-based compensation— — — (89)(89)
Total expense3,506 534 4,040 4,445 8,485 
Total adjusted EBITDA$7,119 3,681 10,800 (4,445)6,355 

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 and centrally managed expenses such as Finance, Human Resources, Legal, Marketing, Product Management and IT, all of which are reported as "Operations and Other" in the tables above, and "Operations and other expenses" in the tables 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 and nine months ended September 30, 2022 and 2021:

 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (Dollars in millions)
Total segment adjusted EBITDA$3,141 3,563 9,851 10,800 
Operations and other expenses(926)(1,454)(3,958)(4,445)
Depreciation and amortization(808)(951)(2,443)(3,142)
Stock-based compensation(23)(27)(71)(89)
Operating income1,384 1,131 3,379 3,124 
Total other expense, net(447)(415)(1,188)(1,102)
Income before income taxes937 716 2,191 2,022 
Income tax expense359 172 670 497 
Net income$578 544 1,521 1,525