Revenue Recognition

Comparative Results

The following tables present our reported results under ASC 606 and a reconciliation to results using the historical accounting method:



	Year Ended December 31, 2018
	Reported Balances		Impact of ASC 606		ASC 605 Historical Adjusted Amount
	(Dollars in millions)
Operating revenue	$	8,493	6		8,499
Cost of services and products (exclusive of depreciation and amortization)	2,767		17		2,784
Selling, general and administrative	799		—		799
Income tax expense	494		(3	)	491
Net income	1,665		(8	)	1,657

The following table presents a reconciliation of certain consolidated balance sheet captions under ASC 606 to the balance sheet results using the historical accounting method:



	As of December 31, 2018
	Reported Balances			Impact of ASC 606		ASC 605 Historical Adjusted Balances
	(Dollars in millions)
Other current assets	$	147		(119	)	28
Other long-term assets, net	96			(54	)	42
Deferred revenue	303			(13	)	290
Deferred income taxes, net	1,098			(53	)	1,045
Other long-term liabilities	547			42		589
Accumulated deficit	(182		)	(149	)	(331	)

Disaggregated Revenue by Service Offering

The following tables provide disaggregation of revenue from contracts with customers based on service offerings for the year ended December 31, 2018. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards.



	Year Ended December 31, 2018
	Total Revenue		Adjustments for Non-ASC 606 Revenue ⁽⁷⁾		Total Revenue from Contracts with Customers
	(Dollars in millions)
IP and data services ⁽¹⁾	$	616	—		616
Transport and infrastructure⁽²⁾	2,926		(321	)	2,605
Voice and collaboration ⁽³⁾	1,800		—		1,800
IT and managed services ⁽⁴⁾	6		—		6
Regulatory revenue ⁽⁵⁾	210		(210	)	—
Affiliate revenue⁽⁶⁾	2,935		—		2,935
Total revenue	$	8,493	(531	)	7,962

Timing of revenue
Goods and services transferred at a point in time					$	69
Services performed over time					7,893
Total revenue from contracts with customers					$	7,962



(1	)	Includes primarily VPN data networks, Ethernet, IP and other ancillary services
(2	)	Includes primarily broadband, private line (including business data services) and other ancillary services.
(3	)	Includes local voice, including wholesale voice, and other ancillary services.
(4	)	Includes IT services and managed services revenue.
(5	)	Includes CAF II and federal and state USF support revenue.
(6	)	Includes telecommunications and data services we bill to our affiliates.
(7	)	Includes regulatory revenue, lease revenue, sublease rental income, which are 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 as of December 31, 2018 and January 1, 2018:



	December 31, 2018		January 1, 2018
	(Dollars in millions)
Customer receivables ⁽¹⁾	$	518	631
Contract liabilities	207		238
Contract assets	64		68


(1)	Gross customer receivables of $554 million and $669 million, net of allowance for doubtful accounts of $36 million and $38 million, at December 31, 2018 and January 1, 2018, respectively.

Contract liabilities are consideration we have received from our customers or billed in advance of providing goods and 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 ranges from one to seven years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheet.

The following table provides information about revenue recognized for the year ended December 31, 2018:



	(Dollars in millions)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period (January 1, 2018)	$	42
Performance obligations satisfied during 2018	—

Performance Obligations

As of December 31, 2018, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts that are unsatisfied (or partially satisfied) is approximately $191 million. We expect to recognize approximately 100% of this revenue through 2021, with the balance recognized thereafter.

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have a right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), or contracts that are classified as leasing arrangements that are not subject to ASC 606.

Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:



	Year Ended December 31, 2018
	Acquisition Costs			Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	91		61
Costs incurred	62			27
Amortization	(63		)	(31	)
End of period balance	$	90		57

Acquisition costs include commissions 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 telecommunications 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 customer life of 30 months for consumer customers and up to 49 months for business customers and 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 statement of operations. The amount of acquisition costs included in these deferred costs that are anticipated to be amortized in the next twelve 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 an annual basis.