Revenue Recognition

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Refer to the Revenue Recognition section of Note 1—Background and Summary of Significant Accounting Policies and Note 3—Revenue Recognition in our annual report on Form 10-K for the year ended December 31, 2018 for further information regarding our application of ASC 606, “Revenue from Contracts with Customers”, including practical expedients and judgments applied in determining the amounts and timing of revenue from contracts with customers.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following table provides the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
	(Dollars in millions)
Total revenue	$	2,039		2,149		6,145		6,380
Adjustments for non-ASC 606 revenue ⁽¹⁾	(123		)	(82	)	(375	)	(240	)
Total revenue from contracts with customers	$	1,916		2,067		5,770		6,140

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⁽¹⁾	Includes regulatory revenue, lease revenue, sublease rental income and revenue from fiber capacity lease arrangements 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 September 30, 2019 and December 31, 2018:



	September 30, 2019		December 31, 2018
	(Dollars in millions)
Customer receivables ⁽¹⁾	$	493	518
Contract liabilities	318		207
Contract assets	75		64


(1)	Gross customer receivables of $528 million and $554 million, net of allowance for doubtful accounts of $35 million and $36 million, at September 30, 2019 and December 31, 2018, respectively.

Contract liabilities consist of 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 ranges from one to seven years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets.

The following table provides information about revenue recognized for the three and nine months ended September 30, 2019 and 2018:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2019		2018	2019	2018
	(Dollars in millions)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period (January 1, 2019 and 2018, respectively)	$	4	11	269	291
Performance obligations satisfied in previous periods	—		—	—	—

Performance Obligations

As of September 30, 2019, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts that are partially or wholly unsatisfied is approximately $181 million. We expect to recognize approximately 98% 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 the 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:



	Three Months Ended September 30, 2019					Three Months Ended September 30, 2018
	Acquisition Costs			Fulfillment Costs		Acquisition Costs		Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	87		60		89		58
Costs incurred	15			10		29		13
Amortization	(15		)	(8	)	(29	)	(13	)
End of period balance	$	87		62		89		58



	Nine Months Ended September 30, 2019					Nine Months Ended September 30, 2018
	Acquisition Costs			Fulfillment Costs		Acquisition Costs		Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	90		57		91		61
Costs incurred	44			29		45		20
Amortization	(47		)	(24	)	(47	)	(23	)
End of period balance	$	87		62		89		58

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 communications 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. Amortized fulfillment costs are included in cost of services 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 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.