Revenue Recognition

12 Months Ended

Dec. 31, 2022

Revenue from Contract with Customer [Abstract]

Revenue Recognition

NOTE 5. REVENUE RECOGNITION

We report our revenues net of sales taxes and record certain regulatory fees, primarily Universal Service Fund (USF) fees, on a net basis. No customer accounted for more than 10% of consolidated revenues in 2022, 2021 or 2020.

Wireless, Advanced Data, Legacy Voice & Data Services and Equipment Revenue

We offer service-only contracts and contracts that bundle equipment used to access the services and/or with other service offerings. Some contracts have fixed terms and others are cancellable on a short-term basis (i.e., month-to-month arrangements).

Examples of service revenues include wireless, strategic services (e.g., virtual private network service), and legacy voice and data (e.g., traditional local and long-distance). These services represent a series of distinct services that is considered a separate performance obligation. Service revenue is recognized when services are provided, based upon either usage (e.g., minutes of traffic/bytes of data processed) or period of time (e.g., monthly service fees).

Some of our services require customer premises equipment that, when combined and integrated with AT&T’s specific network infrastructure, facilitates the delivery of service to the customer. In evaluating whether the equipment is a separate performance obligation, we consider the customer’s ability to benefit from the equipment on its own or together with other readily available resources and if so, whether the service and equipment are separately identifiable (i.e., is the service highly dependent on, or highly interrelated with the equipment). When equipment is a separate performance obligation, we record the sale of equipment when title has passed and the products are accepted by the customer. For devices sold through indirect channels (e.g., national dealers), revenue is recognized when the dealer accepts the device, not upon activation.

Our equipment and service revenues are predominantly recognized on a gross basis, as most of our services do not involve a third party and we typically control the equipment that is sold to our customers.

Revenue recognized from fixed term contracts that bundle services and/or equipment is allocated based on the standalone selling price of all required performance obligations of the contract (i.e., each item included in the bundle). Promotional discounts are attributed to each required component of the arrangement, resulting in recognition over the contract term. Standalone selling prices are determined by assessing prices paid for service-only contracts (e.g., arrangements where customers bring their own devices) and standalone device pricing.

We offer the majority of our customers the option to purchase certain wireless devices in installments over a specified period of time, and, in many cases, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled. For customers that elect these equipment installment payment programs, at the point of sale, we recognize revenue for the entire amount of revenue allocated to the customer receivable net of fair value of the trade-in right guarantee. The difference between the revenue recognized and the consideration received is recorded as a note receivable when the devices are not discounted and our right to consideration is unconditional. When installment sales include promotional discounts (e.g., “buy one get one free” or equipment discounts with trade-in of a device), the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.

Less commonly, we offer certain customers highly discounted devices when they enter into a minimum service agreement term. For these contracts, we recognize equipment revenue at the point of sale based on a standalone selling price allocation. The

difference between the revenue recognized and the cash received is recorded as a contract asset that will amortize over the contract term.

Our contracts allow for customers to frequently modify their arrangement, without incurring penalties in many cases. When a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a new contract or if it should be considered a change of the existing contract. We generally do not have significant impacts from contract modifications.

Revenues from transactions between us and our customers are recorded net of revenue-based regulatory fees and taxes. Cash incentives given to customers are recorded as a reduction of revenue. Nonrefundable, upfront service activation and setup fees associated with service arrangements are deferred and recognized over the associated service contract period or customer relationship life.

Revenue Categories

The following tables set forth reported revenue by category and by business unit:

For the year ended December 31, 2022
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	60,499	$	—	$	—	$	2,162	$	13	$	—	$	62,674
Business service	—		21,891		—		—		—		—		21,891
Broadband	—		—		9,669		—		—		—		9,669
Legacy voice and data	—		—		1,746		—		323		—		2,069
Other	—		—		1,334		—		194		—		1,528
Total Service	60,499		21,891		12,749		2,162		530		—		97,831
Equipment	21,281		647		—		982		—		—		22,910
Total	$	81,780	$	22,538	$	12,749	$	3,144	$	530	$	—	$	120,741

For the year ended December 31, 2021
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	57,590	$	—	$	—	$	1,834	$	74	$	—	$	59,498
Video service	—		—		—		—		15,423		—		15,423
Business service	—		23,224		—		—		70		—		23,294
Broadband	—		—		9,085		—		—		—		9,085
Legacy voice and data	—		—		1,977		—		429		—		2,406
Other	—		—		1,384		—		611		(136)		1,859
Total Service	57,590		23,224		12,446		1,834		16,607		(136)		111,565
Equipment	20,664		713		93		913		90		—		22,473
Total	$	78,254	$	23,937	$	12,539	$	2,747	$	16,697	$	(136)	$	134,038

For the year ended December 31, 2020
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	55,542	$	—	$	—	$	1,656	$	528	$	—	$	57,726
Video service	—		—		—		—		28,465		—		28,465
Business service	—		24,313		—		—		314		—		24,627
Broadband	—		—		8,534		—		—		—		8,534
Legacy voice and data	—		—		2,213		—		554		—		2,767
Other	—		—		1,564		—		641		(267)		1,938
Total Service	55,542		24,313		12,311		1,656		30,502		(267)		124,057
Equipment	17,022		770		7		906		288		—		18,993
Total	$	72,564	$	25,083	$	12,318	$	2,562	$	30,790	$	(267)	$	143,050

Deferred Customer Contract Acquisition and Fulfillment Costs

Costs to acquire and fulfill customer contracts, including commissions on service activations, for our Mobility, Business Wireline and Consumer Wireline services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years.

During the first quarter of 2022, we updated our analysis of expected economic lives of customer relationships. As of January 1, 2022, we extended the amortization period for deferred acquisition and fulfillment contract costs within Mobility, Consumer Wireline and Business Wireline to better reflect the estimated economic lives of the relationships. These changes in accounting estimate decreased other cost of revenues approximately $395, or $0.04 per diluted share from continuing operations for the year ended December 31, 2022.

The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets at December 31:

Consolidated Balance Sheets	2022		2021
Deferred Acquisition Costs
Prepaid and other current assets	$	2,893	$	2,551
Other Assets	3,913		3,247
Total deferred customer contract acquisition costs	$	6,806	$	5,798
Deferred Fulfillment Costs
Prepaid and other current assets	$	2,481	$	2,600
Other Assets	4,206		4,148
Total deferred customer contract fulfillment costs	$	6,687	$	6,748

The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Other cost of revenue” for the years ended December 31:

Consolidated Statements of Income	2022		20211
Deferred acquisition cost amortization	$	2,935	$	2,965
Deferred fulfillment cost amortization	2,688		4,014
1Includes deferred acquisition amortization of $409 and deferred fulfillment cost amortization of $1,162 from our separated Video business for the year ended December 31, 2021.

Contract Assets and Liabilities

A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.

Our contract assets primarily relate to our wireless businesses. Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a specified service period result in additional contract assets recognized. These contract assets will amortize over the service contract period, resulting in lower future service revenue.

When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Reductions in the contract liability will be recorded as we satisfy the performance obligations.

The following table presents contract assets and liabilities on our consolidated balance sheets at December 31:

Consolidated Balance Sheets	2022		2021
Contract asset	$	5,512	$	4,389
Current portion in “Prepaid and other current assets”	2,941		2,582
Contract liability	4,170		4,133
Current portion in “Advanced billings and customer deposits”	3,816		3,776

Our contract asset balance in 2022 reflects increased promotional equipment sales in our wireless business. We expect the amortization of these promotional costs to flatten in 2023.

Our beginning of period contract liabilities recorded as customer contract revenue during 2022 was $3,795.

Remaining Performance Obligations

Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless and residential internet agreements.

Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $35,800, of which we expect to recognize approximately 76% by the end of 2024, with the balance recognized thereafter.