Revenue Recognition

6 Months Ended

Jun. 30, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Product and Service Categories

Beginning in the first quarter of 2021, we categorize our products and services revenue among the following four categories for the Business segment:

•Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;

•IP and Data Services, which include Ethernet, IP, and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;

•Fiber Infrastructure Services, which include dark fiber, optical services and equipment; and

•Voice and Other, which include Time Division Multiplexing ("TDM") voice, private line and other legacy services.

Beginning in the first quarter of 2021, we categorize our products and services revenue among the following four categories for the Mass Markets segment:

•Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;

•Small Business Group ("SBG") Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

•Voice and Other, which include primarily local and long-distance services, retail video services (including our linear and TV services), professional services and other ancillary services; and

•Connect America Fund ("CAF") II, which consists of Connect America Fund Phase II payments through the end of 2021 to support voice and broadband in FCC-designated high-cost areas.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following tables provide total revenue by segment, sales channel and product category. It also 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 June 30, 2021				Three Months Ended June 30, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services	$	179	(70)	109	192	(64)	128
IP and Data Services	427		—	427	432	—	432
Fiber Infrastructure Services	216		(32)	184	202	(28)	174
Voice and Other	182		—	182	205	—	205
Total IGAM Revenue	1,004		(102)	902	1,031	(92)	939

	Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
Large Enterprise
Compute and Application Services	172		(16)	156	160	(22)	138
IP and Data Services	388		—	388	400	(1)	399
Fiber Infrastructure Services	127		(12)	115	136	(13)	123
Voice and Other	244		—	244	277	—	277
Total Large Enterprise Revenue	931		(28)	903	973	(36)	937
Mid-Market Enterprise
Compute and Application Services	36		(8)	28	35	(3)	32
IP and Data Services	438		(2)	436	463	(1)	462
Fiber Infrastructure Services	53		(2)	51	57	(3)	54
Voice and Other	155		—	155	200	—	200
Total Mid-Market Enterprise Revenue	682		(12)	670	755	(7)	748
Wholesale
Compute and Application Services	49		(41)	8	45	(39)	6
IP and Data Services	297		—	297	313	—	313
Fiber Infrastructure Services	155		(28)	127	152	(30)	122
Voice and Other	404		(62)	342	448	(65)	383
Total Wholesale Revenue	905		(131)	774	958	(134)	824
Business Segment by Product Category
Compute and Application Services	436		(135)	301	432	(128)	304
IP and Data Services	1,550		(2)	1,548	1,608	(2)	1,606
Fiber Infrastructure Services	551		(74)	477	547	(74)	473
Voice and Other	985		(62)	923	1,130	(65)	1,065
Total Business Segment Revenue	$	3,522	(273)	3,249	3,717	(269)	3,448
Mass Markets Segment by Product Category
Consumer Broadband	$	723	(53)	670	726	(55)	671
SBG Broadband	39		(4)	35	39	(5)	34
Voice and Other	518		(19)	499	587	(29)	558
CAF II	122		(122)	—	123	(123)	—
Total Mass Markets Segment	$	1,402	(198)	1,204	1,475	(212)	1,263
Total Revenue	$	4,924	(471)	4,453	5,192	(481)	4,711

	Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services	$	358	(139)	219	393	(133)	260
IP and Data Services	854		—	854	869	—	869
Fiber Infrastructure Services	432		(62)	370	404	(54)	350
Voice and Other	373		—	373	406	—	406
Total IGAM Revenue	2,017		(201)	1,816	2,072	(187)	1,885
Large Enterprise
Compute and Application Services	337		(31)	306	314	(39)	275
IP and Data Services	783		—	783	801	(1)	800
Fiber Infrastructure Services	251		(27)	224	274	(23)	251
Voice and Other	497		—	497	550	—	550
Total Large Enterprise Revenue	1,868		(58)	1,810	1,939	(63)	1,876
Mid-Market Enterprise
Compute and Application Services	72		(16)	56	69	(11)	58
IP and Data Services	891		(3)	888	929	(2)	927
Fiber Infrastructure Services	113		(4)	109	111	(7)	104
Voice and Other	322		—	322	407	—	407
Total Mid-Market Enterprise Revenue	1,398		(23)	1,375	1,516	(20)	1,496
Wholesale
Compute and Application Services	97		(81)	16	91	(79)	12
IP and Data Services	602		—	602	631	—	631
Fiber Infrastructure Services	309		(59)	250	305	(60)	245
Voice and Other	826		(125)	701	900	(133)	767
Total Wholesale Revenue	1,834		(265)	1,569	1,927	(272)	1,655
Business Segment by Product Category
Compute and Application Services	864		(267)	597	867	(262)	605
IP and Data Services	3,130		(3)	3,127	3,230	(3)	3,227
Fiber Infrastructure Services	1,105		(152)	953	1,094	(144)	950
Voice and Other	2,018		(125)	1,893	2,263	(133)	2,130
Total Business Segment Revenue	$	7,117	(547)	6,570	7,454	(542)	6,912
Mass Markets Segment by Product Category
Consumer Broadband	$	1,454	(105)	1,349	1,448	(108)	1,340

	Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
SBG Broadband	78		(8)	70	78	(8)	70
Voice and Other	1,059		(40)	1,019	1,194	(58)	1,136
CAF II	245		(245)	—	246	(246)	—
Total Mass Markets Segment	$	2,836	(398)	2,438	2,966	(420)	2,546
Total Revenue	$	9,953	(945)	9,008	10,420	(962)	9,458

_____________________________________________________________________

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

Operating Lease Revenue

Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in our consolidated statements of operations.

For the three months ended June 30, 2021 and 2020, our gross rental income was $327 million and $333 million, respectively, which represents approximately 7% and 6%, respectively, of our operating revenue for the three months ended June 30, 2021 and 2020. For the six months ended June 30, 2021 and 2020, our gross rental income was $659 million and $666 million, respectively, which represents 7% and 6%, respectively, of our operating revenue for the six months ended June 30, 2021 and 2020.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of June 30, 2021 and December 31, 2020:

	June 30, 2021		December 31, 2020
	(Dollars in millions)
Customer receivables(1)	$	1,830	1,889
Contract assets	85		108
Contract liabilities	876		950

______________________________________________________________________

(1)Reflects gross customer receivables of $2.0 billion and $2.1 billion, net of allowance for credit losses of $137 million and $174 million, at June 30, 2021 and December 31, 2020, 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 typically 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 six months ended June 30, 2021, we recognized $58 million and $483 million, respectively, of revenue that was included in contract liabilities as of January 1, 2021. During the three and six months ended June 30, 2020, we recognized $59 million and $554 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020.

Performance Obligations

As of June 30, 2021, 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 $6.7 billion. We expect to recognize approximately 72% of this revenue through 2023, 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 tables provide changes in our contract acquisition costs and fulfillment costs:

	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)			(Dollars in millions)
Beginning of period balance	$	279	216	320	220
Costs incurred	45		38	36	34
Amortization	(53)		(37)	(56)	(35)
End of period balance	$	271	217	300	219

	Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)			(Dollars in millions)
Beginning of period balance	$	289	216	326	221
Costs incurred	89		75	85	70
Amortization	(107)		(74)	(111)	(72)
End of period balance	$	271	217	300	219

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 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 approximately 30 months for mass markets and 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 an annual basis.