Revenue Recognition

12 Months Ended

Dec. 31, 2022

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Product and Service Categories

We categorize our products and services revenue among the following 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 include Time Division Multiplexing ("TDM") voice, private line and other legacy services.

We categorize our products and services revenue among the following categories for the Mass Markets segment:

•Fiber Broadband, under which we provide high speed broadband services to residential and small business customers utilizing our fiber-based network infrastructure;

•Other Broadband, under which we provide primarily lower speed broadband services to residential and small business customers utilizing our copper-based network infrastructure; and

•Voice and Other, under which we derive revenues from (i) providing local and long-distance services, professional services, and other ancillary services, and (ii) federal broadband and state support payments.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following tables provide total revenue by segment, sales channel and product category. They also provide 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. The amounts in the tables below include the Latin American and ILEC businesses revenues prior to their sales on August 1, 2022 and October 3, 2022, respectively:

	Year Ended December 31, 2022
	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	$	667	(227)	440
IP and Data Services	1,510		—	1,510
Fiber Infrastructure	830		(136)	694
Voice and Other	638		—	638
Total IGAM Revenue	3,645		(363)	3,282
Large Enterprise
Compute and Application Services	621		(60)	561
IP and Data Services	1,517		—	1,517
Fiber Infrastructure	478		(46)	432
Voice and Other	793		—	793
Total Large Enterprise Revenue	3,409		(106)	3,303
Mid-Market Enterprise
Compute and Application Services	135		(29)	106
IP and Data Services	1,629		(4)	1,625
Fiber Infrastructure	192		(7)	185
Voice and Other	509		—	509
Total Mid-Market Enterprise Revenue	2,465		(40)	2,425
Wholesale
Compute and Application Services	242		(157)	85
IP and Data Services	1,115		—	1,115
Fiber Infrastructure	652		(113)	539
Voice and Other	1,511		(239)	1,272
Total Wholesale Revenue	3,520		(509)	3,011
Business Segment by Product Category
Compute and Application Services	1,665		(473)	1,192
IP and Data Services	5,771		(4)	5,767
Fiber Infrastructure	2,152		(302)	1,850
Voice and Other	3,451		(239)	3,212
Total Business Segment Revenue	13,039		(1,018)	12,021
Mass Markets Segment by Product Category
Fiber Broadband	604		(18)	586
Other Broadband	2,163		(200)	1,963
Voice and Other	1,672		(134)	1,538
Total Mass Markets Revenue	4,439		(352)	4,087
Total Revenue	$	17,478	(1,370)	16,108
Timing of revenue
Goods and services transferred at a point in time				$	154
Services performed over time				15,954
Total revenue from contracts with customers				$	16,108

	Year Ended December 31, 2021
	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	$	731	(279)	452
IP and Data Services	1,716		(1)	1,715
Fiber Infrastructure	889		(129)	760
Voice and Other	747		—	747
Total IGAM Revenue	4,083		(409)	3,674
Large Enterprise
Compute and Application Services	696		(62)	634
IP and Data Services	1,583		—	1,583
Fiber Infrastructure	540		(50)	490
Voice and Other	952		(1)	951
Total Large Enterprise Revenue	3,771		(113)	3,658
Mid-Market Enterprise
Compute and Application Services	127		(30)	97
IP and Data Services	1,710		(6)	1,704
Fiber Infrastructure	207		(8)	199
Voice and Other	605		—	605
Total Mid-Market Enterprise Revenue	2,649		(44)	2,605
Wholesale
Compute and Application Services	188		(159)	29
IP and Data Services	1,198		—	1,198
Fiber Infrastructure	622		(118)	504
Voice and Other	1,608		(252)	1,356
Total Wholesale Revenue	3,616		(529)	3,087
Business Segment by Product Category
Compute and Application Services	1,742		(530)	1,212
IP and Data Services	6,207		(7)	6,200
Fiber Infrastructure	2,258		(305)	1,953
Voice and Other	3,912		(253)	3,659
Total Business Segment Revenue	14,119		(1,095)	13,024
Mass Markets Segment by Product Category
Fiber Broadband	524		—	524
Other Broadband	2,507		(227)	2,280
Voice and Other	2,537		(570)	1,967
Total Mass Markets Revenue	5,568		(797)	4,771
Total Revenue	$	19,687	(1,892)	17,795
Timing of revenue
Goods and services transferred at a point in time				$	138
Services performed over time				17,657
Total revenue from contracts with customers				$	17,795

	Year Ended December 31, 2020
	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	$	759	(265)	494
IP and Data Services	1,736		—	1,736
Fiber Infrastructure	846		(110)	736
Voice and Other	796		—	796
Total IGAM Revenue	4,137		(375)	3,762
Large Enterprise
Compute and Application Services	665		(82)	583
IP and Data Services	1,628		(2)	1,626
Fiber Infrastructure	601		(46)	555
Voice and Other	1,067		(2)	1,065
Total Large Enterprise Revenue	3,961		(132)	3,829
Mid-Market Enterprise
Compute and Application Services	127		(16)	111
IP and Data Services	1,809		(6)	1,803
Fiber Infrastructure	212		(9)	203
Voice and Other	753		—	753
Total Mid-Market Enterprise Revenue	2,901		(31)	2,870
Wholesale
Compute and Application Services	184		(161)	23
IP and Data Services	1,249		—	1,249
Fiber Infrastructure	618		(121)	497
Voice and Other	1,758		(258)	1,500
Total Wholesale Revenue	3,809		(540)	3,269
Business Segment by Product Category
Compute and Application Services	1,735		(524)	1,211
IP and Data Services	6,422		(8)	6,414
Fiber Infrastructure	2,277		(286)	1,991
Voice and Other	4,374		(260)	4,114
Total Business Segment Revenue	14,808		(1,078)	13,730
Mass Markets Segment by Product Category
Fiber Broadband	427		—	427
Other Broadband	2,639		(236)	2,403
Voice and Other	2,838		(601)	2,237
Total Mass Markets Revenue	5,904		(837)	5,067
Total Revenue	$	20,712	(1,915)	18,797
Timing of revenue
Goods and services transferred at a point in time				$	250
Services performed over time				18,547
Total revenue from contracts with customers				$	18,797

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(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, net of amounts classified as held for sale, as of December 31, 2022 and 2021:

	December 31, 2022		December 31, 2021
	(Dollars in millions)
Customer receivables(1)	$	1,424	1,493
Contract assets(2)	34		73
Contract liabilities(3)	656		680

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(1)Reflects gross customer receivables of $1.5 billion and $1.6 billion, net of allowance for credit losses of $73 million and $102 million, at December 31, 2022 and December 31, 2021, respectively. These amounts exclude customer receivables, net, classified as held for sale of $76 million at December 31, 2022 (related to the EMEA business) and $288 million at December 31, 2021 (related to both the Latin American business and the ILEC business).

(2)These amounts exclude contract assets classified as held for sale of $16 million at December 31, 2022 (related to the EMEA business) and $9 million at December 31, 2021 (related to both the Latin American business and the ILEC business).

(3)These amounts exclude contract liabilities classified as held for sale of $59 million at December 31, 2022 (related to the EMEA business) and $161 million at December 31, 2021 (related to both the Latin American business and the ILEC business).

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 years ended December 31, 2022 and December 31, 2021, we recognized $539 million and $605 million, respectively, of revenue that was included in contract liabilities of $841 million and $950 million as of January 1, 2022 and 2021, respectively, including contract liabilities that were classified as held for sale.

Performance Obligations

As of December 31, 2022, we expect to recognize approximately $7.4 billion of revenue in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied. We expect to recognize approximately 75% of this revenue through 2025, 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), (ii) contracts that are classified as leasing arrangements or government assistance that are not subject to ASC 606 and (iii) the value of unsatisfied performance obligations for contracts which relate to our planned divestiture of the EMEA business.

Contract Costs

The following tables provide changes in our contract acquisition costs and fulfillment costs:

	Year Ended December 31, 2022
	Acquisition Costs		Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	222	186
Costs incurred	172		158
Amortization	(192)		(149)
Classified as held for sale(1)	—		(3)
End of period balance	$	202	192

	Year Ended December 31, 2021
	Acquisition Costs		Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	289	216
Costs incurred	176		151
Amortization	(209)		(149)
Classified as held for sale(2)	(34)		(32)
End of period balance	$	222	$	186

______________________________________________________________________

(1)Represents changes in amounts classified as held for sale related to the divestitures of our Latin American and ILEC businesses on August 1, 2022 and October 3, 2022, respectively, and $6 million acquisition costs and no fulfillment costs classified as held for sale as of December 31, 2022 related to the planned divestiture of the EMEA business. See Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business.

(2)Represents the amounts classified as held for sale related to the divestitures of our Latin American and ILEC businesses on August 1, 2022 and October 3, 2022, respectively. See Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business.

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 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 contract life of approximately 32 months for mass markets customers and 30 months for 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 twelve months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on a quarterly basis.

Governmental Funding

Lumen participates in various U.S. federal and state programs under which government support payments are received to offset costs associated with providing services in targeted locations such as unserved or underserved high-cost or rural areas, or for certain types of customers, including non-profit organizations, educational institutions and local governmental bodies. Support payments may be conditioned on specified infrastructure buildouts by milestone deadlines or provision of services at specified locations and speed requirements. Commitments may be made annually, on a multi-year basis ranging from one to ten years or be on-going subject to periodic change or termination. Consistent with customary practice and as referenced in ASC 832 Government Assistance, Lumen applies a grant model of accounting by which it accounts for these transactions as non-ASC 606 revenue over the periods in which the costs for which the funding is intended to compensate are incurred. This non-ASC 606 revenue is included in operating revenue in our consolidated statements of operations. Corresponding receivables are recorded when services have been provided to the customers and costs incurred, but the cash has not been received. These amounts are included in our accounts receivable, less allowance in our consolidated balance sheets. Certain programs are subject to audits of compliance with program commitments and, subject to the outcomes of those assessments, Lumen may be required to reimburse the government entity for cash previously received, or, in some cases, pay a penalty. Lumen evaluates each program and establishes a liability under the principles of ASC 450 if it is probable support payments will be recaptured or a penalty will be imposed.

For the year ended December 31, 2022, Lumen recorded non-customer revenue of $190 million under government assistance programs, of which 31% was associated with state universal service fund support programs.

Between 2015 and 2021, we received approximately $500 million annually through the FCC's Connect America Fund II ("CAF II"), a federal multi-year recurring subsidy program for more extensive broadband deployment in price-cap ILEC territories. For this program, which ended on December 31, 2021, we were required to meet certain specified infrastructure buildout requirements in 33 states by the end of 2021, which required substantial capital expenditures. In the first quarter of 2022, we recognized $59 million of previously deferred revenue related to the conclusion of the CAF II program based upon our final buildout and filing submissions. The government has the right to audit our compliance with the CAF II program and the ultimate outcome of any remaining examinations is unknown, but could result in a liability to us in excess of our reserve accruals established for these matters.

In early 2020, the FCC created the Rural Digital Opportunity Fund (the “RDOF”), which is a federal support program designed to replace the CAF II program. On December 7, 2020, the FCC allocated in its RDOF Phase I auction $9.2 billion in support payments over 10 years to deploy high speed broadband to over 5.2 million unserved locations. We won bids to receive approximately $26 million of annual RDOF Phase I support payments approximately 36% of which is attributable to the ILEC business we divested on October 3, 2022. Our support payments under the RDOF Phase I program commenced during the second quarter of 2022.

Lumen participates in multiple state sponsored programs for broadband deployment in unserved and underserved areas for which the states have state universal service funds sourced from fees levied on telecommunications providers and passed on to consumers. During the year ending December 31, 2022, Lumen participated in these types of programs primarily in the states of Arkansas, California, Colorado, Maine, Nebraska, New Mexico, Oregon, Utah, Vermont, and Wisconsin.