Products and Services Revenue

6 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Refer to the Revenue Recognition section of Note 1—Background and Summary of Significant Accounting Policies and Note 4—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 June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
	(Dollars in millions)
Total revenue	$	2,014		2,052		$	4,060		$	4,139
Adjustments for non-ASC 606 revenue ⁽¹⁾	(89		)	(80	)	(194		)	(149		)
Total revenue from contracts with customers	$	1,925		1,972		$	3,866		$	3,990

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⁽¹⁾	Includes 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 June 30, 2019 and December 31, 2018:



	June 30, 2019		December 31, 2018
	(Dollars in millions)
Customer receivables ⁽¹⁾	$	771	712
Contract assets	28		19
Contract liabilities	404		393


(1)	Gross customer receivables of $785 million and $723 million, net of allowance for doubtful accounts of $14 million and $11 million, at June 30, 2019 and December 31, 2018, respectively.

Contract liabilities are 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 six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,		Six Months Ended June 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)	24	16	119	113
Performance obligations satisfied in previous periods	—	—	—	—

Performance Obligations

As of June 30, 2019, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts (including affiliates) that are unsatisfied (or partially satisfied) is approximately $5.2 billion. We expect to recognize approximately 72% 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 are contractually entitled to bill pre-determined amounts for future services (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 tables provides changes in our contract acquisition costs and fulfillment costs:



	Three Months Ended June 30,
	2019					2018
	(Dollars in millions)
	Acquisition Costs			Fulfillment Costs		Acquisition Costs		Fulfillment Costs
Beginning of period balance	$	74		97		26		35
Costs incurred	11			25		11		24
Amortization	(12		)	(16	)	(3	)	(7	)
End of period balance	$	73		106		34		52



	Six Months Ended June 30,
	2019					2018
	(Dollars in millions)
	Acquisition Costs			Fulfillment Costs		Acquisition Costs		Fulfillment Costs
Beginning of period balance	$	64		84		13		14
Costs incurred	29			51		26		47
Amortization	(20		)	(29	)	(5	)	(9	)
End of period balance	$	73		106		34		52

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 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 expected contract term of 12 to 60 months for our 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 statements of operations. The amount of these deferred costs that are expected 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.

Products and Services Revenue

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


•	IP and Data Services, which include primarily VPN data networks, Ethernet, IP, video (including our CDN services and Vyvx broadcast services) and other ancillary services;


•	Transport and Infrastructure, which includes private line (including business data services), wavelength, colocation and data center services, including cloud, hosting and application management solutions, professional services, network security services, dark fiber services and other ancillary services;


•	Voice and Collaboration, which includes primarily TDM voice services, VOIP and other ancillary services;


•	Other, which includes sublease rental income and information technology services and managed services, which may be purchased in conjunction with our other network services; and


•	Affiliate Services, we provide our affiliates with telecommunication services that we also provide to external customers.

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 June 30,			Six Months Ended June 30,
	2019		2018	2019	2018
	(Dollars in millions)
IP and Data Services	$	965	988	1,945	1,991
Transport and Infrastructure	655		673	1,313	1,349
Voice and Collaboration	355		363	706	745
Other	1		1	3	2
Affiliate Services	38		27	93	52
Total operating revenue	$	2,014	2,052	4,060	4,139

We recognize revenue in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our customers. Our consolidated statements of operations also reflect the offsetting expense for the amounts we remit to the government agencies. The total amount of such surcharges and transaction taxes that we included in revenue aggregated $101 million and $98 million for the three months ended June 30, 2019 and June 30, 2018, respectively, and $210 million and $205 million for the six months ended June 30, 2019 and June 30, 2018, respectively. These USF surcharges, where we record revenue and transaction taxes, are assigned to the products and services categories based on the underlying revenue. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to bill our customers, for which we do not record any revenue or expense because we only act as a pass-through agent.