Products and Services Revenue

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Products and Services Revenue

Revenue Recognition

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, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:

	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
Total revenue	$	1,801	2,011	5,518	6,069
Adjustments for non-ASC 606 revenue (1)	(118)		(123)	(360)	(375)
Total revenue from contracts with customers	$	1,683	1,888	5,158	5,694

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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 as of September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(Dollars in millions)
Customer receivables (1)	$	378	430
Contract assets	13		18
Contract liabilities	297		338

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(1)Gross customer receivables of $418 million and $462 million, net of allowance for doubtful accounts of $40 million and $32 million, at September 30, 2020 and December 31, 2019, 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 five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets. During the three and nine months ended September 30, 2020, we recognized $13 million and $210 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020. During the three and nine months ended September 30, 2019, we recognized $4 million and $269 million, respectively, of revenue that was included in contract liabilities as of January 1, 2019.

Performance Obligations

As of September 30, 2020, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $161 million. We expect to recognize approximately 96% of this revenue through 2022, 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), and (ii) 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, 2020			Three Months Ended September 30, 2019
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	81	59	87	60
Costs incurred	12		6	15	10
Amortization	(15)		(8)	(15)	(8)
End of period balance	$	78	57	87	62

	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	86	64	90	57
Costs incurred	39		18	44	29
Amortization	(47)		(25)	(47)	(24)
End of period balance	$	78	57	87	62

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 average contract life of 29 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 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 12 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.

Products and Services Revenue

We are an integrated communications company engaged primarily in providing an array of communications services, including local voice, broadband, private line (including business data services), Ethernet, network access, information technology and other ancillary services. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services.

We categorize our products, services and revenue among the following six categories:

•IP and Data Services, which include primarily VPN data networks, Ethernet, IP and other ancillary services;

•Transport and Infrastructure, which include broadband, private line (including business data services) and other ancillary services;

•Voice and Collaboration, which includes primarily local voice, including wholesale voice, and other ancillary services;

•IT and Managed Services, which include information technology services and managed services, which may be purchased in conjunction with our other network services;

•Regulatory Revenue, which consist of Connect America Fund ("CAF") support payments and other operating revenue. We receive federal support payments from the federal CAF program. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services including the costs of deploying, maintaining and operating voice and broadband infrastructure in high-cost rural areas where we are not able to fully recover our costs from our customers; and

•Affiliate Services, which are telecommunication services that we also provide to external customers. In addition, we provide to our affiliates computer system development and support services, network support and technical services.

From time to time, we may change the categorization of our products and services.

Our operating revenue for our products and services consisted of the following categories:

	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
IP and Data Services	$	130	161	397	446
Transport and Infrastructure	649		703	1,957	2,100
Voice and Collaboration	376		397	1,151	1,234
IT and Managed Services	1		1	2	3
Regulatory Revenue	44		48	135	143
Affiliate Services	601		701	1,876	2,143
Total operating revenue	$	1,801	2,011	5,518	6,069