Revenue Recognition

12 Months Ended

Dec. 31, 2022

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

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

•Voice and Other, which include primarily local voice services, private line and other legacy services. This category also includes federal and state support payments. These support payments are government subsidies designed to compensate us for providing certain broadband and communications services in high-cost areas or at discounts to low-income, educational, and healthcare customers. This revenue included the FCC's Connect America Fund Phase II ("CAF II") support payments, which we received through December 31, 2021, when the program ended.

•Fiber Infrastructure Services, which include high speed, fiber-based and lower speed DSL-based broadband services to residential and small business customers, and optical network services;

•IP and Data Services, which consist primarily of Ethernet services; and

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

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following tables provide our total revenue by product and service category as well as 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:

	Year Ended December 31, 2022
	Total Revenue		Adjustments for Non-ASC 606 Revenue(1)	Total Revenue from Contracts with Customers
	(Dollars in millions)
Voice and Other	$	1,749	(197)	1,552
Fiber Infrastructure	1,955		(131)	1,824
IP and Data Services	451		—	451
Affiliate Services	2,294		(45)	2,249
Total revenue	$	6,449	(373)	6,076
Timing of revenue
Goods and services transferred at a point in time				$	28
Services performed over time				6,048
Total revenue from contracts with customers				$	6,076

	Year Ended December 31, 2021
	Total Revenue		Adjustments for Non-ASC 606 Revenue(1)	Total Revenue from Contracts with Customers
	(Dollars in millions)
Voice and Other	$	2,099	(334)	1,765
Fiber Infrastructure	1,990		(120)	1,870
IP and Data Services	473		—	473
Affiliate Services	2,389		(29)	2,360
Total revenue	$	6,951	(483)	6,468
Timing of revenue
Goods and services transferred at a point in time				$	30
Services performed over time				6,438
Total revenue from contracts with customers				$	6,468

	Year Ended December 31, 2020
	Total Revenue		Adjustments for Non-ASC 606 Revenue(1)	Total Revenue from Contracts with Customers
	(Dollars in millions)
Voice and Other	$	2,281	(352)	1,929
Fiber Infrastructure	2,033		(123)	1,910
IP and Data Services	512		—	512
Affiliate Services	2,487		(4)	2,483
Total revenue	$	7,313	(479)	6,834
Timing of revenue
Goods and services transferred at a point in time				$	46
Services performed over time				6,788
Total revenue from contracts with customers				$	6,834

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(1)Includes regulatory revenue and lease revenue not within the scope of ASC 606.

We do not have any single external customer that comprises more than 10% of our total consolidated operating revenue. Substantially all of our consolidated revenue comes from customers located in the United States.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of December 31, 2022 and 2021:

	December 31, 2022		December 31, 2021
	(Dollars in millions)
Customer receivables (1)	$	297	298
Contract assets	9		10
Contract liabilities	343		317

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(1)Reflects gross customer receivables, including gross affiliate receivables, of $324 million and $328 million, net of allowance for credit losses of $27 million and $30 million, at December 31, 2022 and December 31, 2021, 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 years ended December 31, 2022 and December 31, 2021, we recognized $192 million and $199 million, respectively, of revenue that was included in contract liabilities of $317 million and $300 million as of January 1, 2022 and 2021, respectively.

Performance Obligations

As of December 31, 2022, we expect to recognize approximately $1.7 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 91% of this revenue through 2025.

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 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	$	64	47
Costs incurred	50		39
Amortization	(53)		(40)
End of period balance	$	61	46

	Year Ended December 31, 2021
	Acquisition Costs		Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	73	54
Costs incurred	49		27
Amortization	(58)		(34)
End of period balance	$	64	47

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 contract life of 32 months for mass markets customers and average contract life of 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 12 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 $22 million under government assistance programs, of which 34% was associated with state universal service fund support programs.

Between 2015 and 2021, Lumen 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. This program ended on December 31, 2021. Our share of this CAF II funding was approximately $145 million annually. In connection with the CAF II funding, we were required to meet certain specified infrastructure buildout requirements in 13 states by the end of 2021, which required substantial capital expenditures. In the first quarter of 2022, we recognized $13 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. Lumen Technologies started receiving support payments under this program in the second quarter of 2022, but our share of these payments is not material.

We participate 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, we participated in these types of programs primarily in the states of Minnesota, Nebraska, and New Mexico