Leases

12 Months Ended

Dec. 31, 2024

Leases [Abstract]

Leases

Note 5—Leases

We primarily lease various office facilities, colocation facilities, equipment and transmission capacity to or from third parties. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease at the commencement date. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.

Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs). We generally account for each component separately based on the estimated standalone price of each component. For colocation leases, we account for the lease and non-lease components as a single lease component.

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless we determine that we are reasonably certain of renewing the lease. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not generally contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2024		2023	2022
	(Dollars in millions)
Operating and short-term lease cost	$	446	459	451
Finance lease cost:
Amortization of right-of-use assets	25		32	37
Interest on lease liability	11		12	15
Total finance lease cost	36		44	52
Total lease cost	$	482	503	503

We lease various equipment, office facilities, retail outlets, switching facilities and other network sites or components from third parties. These leases, with few exceptions, provide for renewal options and rent escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that we believe are reasonably assured.

On a regular basis, we rationalize our lease footprint. When we determine that we no longer need leased space, we may incur accelerated lease costs. Our accelerated lease costs in December 31, 2024, 2023 and 2022 were not material.

For the years ended December 31, 2024, 2023 and 2022, our gross rental expense, including the accelerated lease costs discussed above, was $482 million, $503 million and $503 million, respectively. We also received sublease rental income of $25 million for each of the years ended December 31, 2024, 2023 and 2022.

Supplemental consolidated balance sheet information and other information related to leases is included below:

		As of December 31,
Leases (Dollars in millions)	Classification on the Balance Sheet	2024			2023
Assets
Operating lease assets	Other, net	$	1,119		1,230
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	236			260
Total leased assets		$	1,355		1,490
Liabilities
Current
Operating	Current operating lease liabilities	$	253		268
Finance	Current maturities of long-term debt	17			16
Noncurrent
Operating	Other	959			1,040
Finance	Long-term debt	198			215
Total lease liabilities		$	1,427		1,539
Weighted-average remaining lease term (years)
Operating leases		7.7			8.2
Finance leases		11.4			11.3
Weighted-average discount rate
Operating leases		8.90		%	7.59	%
Finance leases		4.40		%	4.98	%

Supplemental consolidated cash flow statement information related to leases is included below:

	Years Ended December 31,
	2024		2023
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	427	461
Operating cash flows for finance leases	11		12
Financing cash flows for finance leases	17		25
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	191	143
Right-of-use assets obtained in exchange for new finance lease liabilities	2		10

As of December 31, 2024, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2025	$	340	27
2026	252		28
2027	204		28
2028	167		28
2029	131		26
Thereafter	592		140
Total lease payments	1,686		277
Less: interest	(474)		(62)
Total	1,212		215
Less: current portion	(253)		(17)
Long-term portion	$	959	198

As of December 31, 2024, we had no material operating or finance leases that had not yet commenced.

Operating Lease Revenue

We lease various dark fiber and conduit, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations. See "Revenue Recognition" in Note 1—Background and Summary of Significant Accounting Policies.

For the years ended December 31, 2024, 2023 and 2022, our gross rental income was approximately $1.0 billion, $1.0 billion and $1.2 billion, respectively, which represents 7% of our operating revenue for each of the years ended December 31, 2024, 2023 and 2022.

Leases

Note 5—Leases

We primarily lease various office facilities, colocation facilities, equipment and transmission capacity to or from third parties. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease at the commencement date. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.

Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs). We generally account for each component separately based on the estimated standalone price of each component. For colocation leases, we account for the lease and non-lease components as a single lease component.

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless we determine that we are reasonably certain of renewing the lease. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not generally contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2024		2023	2022
	(Dollars in millions)
Operating and short-term lease cost	$	446	459	451
Finance lease cost:
Amortization of right-of-use assets	25		32	37
Interest on lease liability	11		12	15
Total finance lease cost	36		44	52
Total lease cost	$	482	503	503

We lease various equipment, office facilities, retail outlets, switching facilities and other network sites or components from third parties. These leases, with few exceptions, provide for renewal options and rent escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that we believe are reasonably assured.

On a regular basis, we rationalize our lease footprint. When we determine that we no longer need leased space, we may incur accelerated lease costs. Our accelerated lease costs in December 31, 2024, 2023 and 2022 were not material.

For the years ended December 31, 2024, 2023 and 2022, our gross rental expense, including the accelerated lease costs discussed above, was $482 million, $503 million and $503 million, respectively. We also received sublease rental income of $25 million for each of the years ended December 31, 2024, 2023 and 2022.

Supplemental consolidated balance sheet information and other information related to leases is included below:

		As of December 31,
Leases (Dollars in millions)	Classification on the Balance Sheet	2024			2023
Assets
Operating lease assets	Other, net	$	1,119		1,230
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	236			260
Total leased assets		$	1,355		1,490
Liabilities
Current
Operating	Current operating lease liabilities	$	253		268
Finance	Current maturities of long-term debt	17			16
Noncurrent
Operating	Other	959			1,040
Finance	Long-term debt	198			215
Total lease liabilities		$	1,427		1,539
Weighted-average remaining lease term (years)
Operating leases		7.7			8.2
Finance leases		11.4			11.3
Weighted-average discount rate
Operating leases		8.90		%	7.59	%
Finance leases		4.40		%	4.98	%

Supplemental consolidated cash flow statement information related to leases is included below:

	Years Ended December 31,
	2024		2023
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	427	461
Operating cash flows for finance leases	11		12
Financing cash flows for finance leases	17		25
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	191	143
Right-of-use assets obtained in exchange for new finance lease liabilities	2		10

As of December 31, 2024, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2025	$	340	27
2026	252		28
2027	204		28
2028	167		28
2029	131		26
Thereafter	592		140
Total lease payments	1,686		277
Less: interest	(474)		(62)
Total	1,212		215
Less: current portion	(253)		(17)
Long-term portion	$	959	198

As of December 31, 2024, we had no material operating or finance leases that had not yet commenced.

Operating Lease Revenue

We lease various dark fiber and conduit, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations. See "Revenue Recognition" in Note 1—Background and Summary of Significant Accounting Policies.

For the years ended December 31, 2024, 2023 and 2022, our gross rental income was approximately $1.0 billion, $1.0 billion and $1.2 billion, respectively, which represents 7% of our operating revenue for each of the years ended December 31, 2024, 2023 and 2022.

Leases

Note 5—Leases

We primarily lease various office facilities, colocation facilities, equipment and transmission capacity to or from third parties. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease at the commencement date. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.

Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs). We generally account for each component separately based on the estimated standalone price of each component. For colocation leases, we account for the lease and non-lease components as a single lease component.

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless we determine that we are reasonably certain of renewing the lease. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not generally contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

	Years Ended December 31,
	2024		2023	2022
	(Dollars in millions)
Operating and short-term lease cost	$	446	459	451
Finance lease cost:
Amortization of right-of-use assets	25		32	37
Interest on lease liability	11		12	15
Total finance lease cost	36		44	52
Total lease cost	$	482	503	503

We lease various equipment, office facilities, retail outlets, switching facilities and other network sites or components from third parties. These leases, with few exceptions, provide for renewal options and rent escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that we believe are reasonably assured.

On a regular basis, we rationalize our lease footprint. When we determine that we no longer need leased space, we may incur accelerated lease costs. Our accelerated lease costs in December 31, 2024, 2023 and 2022 were not material.

For the years ended December 31, 2024, 2023 and 2022, our gross rental expense, including the accelerated lease costs discussed above, was $482 million, $503 million and $503 million, respectively. We also received sublease rental income of $25 million for each of the years ended December 31, 2024, 2023 and 2022.

Supplemental consolidated balance sheet information and other information related to leases is included below:

		As of December 31,
Leases (Dollars in millions)	Classification on the Balance Sheet	2024			2023
Assets
Operating lease assets	Other, net	$	1,119		1,230
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	236			260
Total leased assets		$	1,355		1,490
Liabilities
Current
Operating	Current operating lease liabilities	$	253		268
Finance	Current maturities of long-term debt	17			16
Noncurrent
Operating	Other	959			1,040
Finance	Long-term debt	198			215
Total lease liabilities		$	1,427		1,539
Weighted-average remaining lease term (years)
Operating leases		7.7			8.2
Finance leases		11.4			11.3
Weighted-average discount rate
Operating leases		8.90		%	7.59	%
Finance leases		4.40		%	4.98	%

Supplemental consolidated cash flow statement information related to leases is included below:

	Years Ended December 31,
	2024		2023
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	427	461
Operating cash flows for finance leases	11		12
Financing cash flows for finance leases	17		25
Supplemental lease cash flow disclosures:
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	191	143
Right-of-use assets obtained in exchange for new finance lease liabilities	2		10

As of December 31, 2024, maturities of lease liabilities were as follows:

	Operating Leases		Finance Leases
	(Dollars in millions)
2025	$	340	27
2026	252		28
2027	204		28
2028	167		28
2029	131		26
Thereafter	592		140
Total lease payments	1,686		277
Less: interest	(474)		(62)
Total	1,212		215
Less: current portion	(253)		(17)
Long-term portion	$	959	198

As of December 31, 2024, we had no material operating or finance leases that had not yet commenced.

Operating Lease Revenue

We lease various dark fiber and conduit, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations. See "Revenue Recognition" in Note 1—Background and Summary of Significant Accounting Policies.

For the years ended December 31, 2024, 2023 and 2022, our gross rental income was approximately $1.0 billion, $1.0 billion and $1.2 billion, respectively, which represents 7% of our operating revenue for each of the years ended December 31, 2024, 2023 and 2022.