Segment Information

6 Months Ended

Jun. 30, 2021

Segment Reporting [Abstract]

Segment Information

Segment Information

Jeff Storey, our chief operating decision maker ("CODM"), made changes to our segment and customer-facing sales channel reporting categories beginning in 2021 to align with operational changes designed to better support our customers. Following these changes, we now report two segments: Business and Mass Markets. The Business segment includes four sales channels: International and Global Accounts, Large Enterprise, Mid-Market Enterprise and Wholesale. These changes also include both the creation of new product categories and the realignment of products and services within previously reported product categories to better reflect product life cycles and our go-to-market approach. For Business segment revenue, we report the following product categories: Compute and Application Services, IP and Data Services, Fiber Infrastructure Services and Voice and Other, by the sales channels outlined above. For Mass Markets segment revenue, we report the following product categories: Consumer Broadband, SBG Broadband, Voice and Other and CAF II. See detailed descriptions of these product and service categories in Note 3—Revenue Recognition.

As described in more detail below, our segments are managed based on the direct costs of providing services to their customers and the associated selling, general and administrative costs (primarily salaries and commissions). Shared costs are managed separately and included in "Operations and Other" in the tables below. As referenced above, we reclassified certain prior period amounts to conform to the current period presentation. See Note 1— Background for additional detail on these changes.

At June 30, 2021, we had the following two reportable segments:

•Business Segment: Under our Business segment, we provide our products and services under four distinct sales channels to meet the needs of our enterprise and commercial customers; and

•Mass Markets Segment: Under our Mass Markets segment, we provide products and services to consumer and small business customers.

The following tables summarize our segment results for the three months ended June 30, 2021 and 2020, based on the segment categorization we were operating under at June 30, 2021.

	Three Months Ended June 30, 2021
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	3,522	1,402	4,924	—	4,924
Expenses:
Cost of services and products	862		39	901	1,214	2,115
Selling, general and administrative	298		150	448	314	762
Less: share-based compensation	—		—	—	(42)	(42)
Total expense	1,160		189	1,349	1,486	2,835
Total adjusted EBITDA	$	2,362	1,213	3,575	(1,486)	2,089

	Three Months Ended June 30, 2020
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	3,717	1,475	5,192	—	5,192
Expenses:
Cost of services and products	919		48	967	1,265	2,232
Selling, general and administrative	334		144	478	417	895
Less: share-based compensation	—		—	—	(20)	(20)
Total expense	1,253		192	1,445	1,662	3,107
Total adjusted EBITDA	$	2,464	1,283	3,747	(1,662)	2,085

The following tables summarize our segment results for the six months ended June 30, 2021 and 2020, based on the segment categorization we were operating under at June 30, 2021.

	Six Months Ended June 30, 2021
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	7,117	2,836	9,953	—	9,953
Expenses:
Cost of services and products	1,743		82	1,825	2,426	4,251
Selling, general and administrative	604		283	887	631	1,518
Less: share-based compensation	—		—	—	(62)	(62)
Total expense	2,347		365	2,712	2,995	5,707
Total adjusted EBITDA	$	4,770	2,471	7,241	(2,995)	4,246

	Six Months Ended June 30, 2020
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	7,454	2,966	10,420	—	10,420
Expenses:
Cost of services and products	1,826		97	1,923	2,544	4,467
Selling, general and administrative	676		284	960	788	1,748
Less: share-based compensation	—		—	—	(89)	(89)
Total expense	2,502		381	2,883	3,243	6,126
Total adjusted EBITDA	$	4,952	2,585	7,537	(3,243)	4,294

Revenue and Expenses

Our segment revenue includes all revenue from our two segments as described in more detail above. Our segment revenue is based upon each customer's classification. We report our segment revenue based upon all services provided to that segment's customers. Our segment expenses include specific cost of service expenses incurred as a direct result of providing services and products to segment customers, along with selling, general and administrative expenses that are directly associated with specific segment customers or activities.

The following items are excluded from our segment results, because they are centrally managed and not monitored by or reported to our CODM by segment:

•network expenses not incurred as a direct result of providing services and products to segment customers;

•centrally managed expenses such as Operations, Finance, Human Resources, Legal, Marketing, Product Management and IT, which are reported as "Operations and Other";

•depreciation and amortization expense or impairments;

•interest expense, because we manage our financing on a consolidated basis and have not allocated assets or debt to specific segments;

•stock-based compensation; and

•other income and expense items are not monitored as a part of our segment operations.

The following table reconciles total segment adjusted EBITDA to net income:

	Three Months Ended June 30,			Six Months Ended June 30,
	2021		2020	2021	2020
	(Dollars in millions)			(Dollars in millions)
Total segment adjusted EBITDA	$	3,575	3,747	7,241	7,537
Depreciation and amortization	(1,041)		(1,162)	(2,191)	(2,322)
Other operating expenses	(1,486)		(1,662)	(2,995)	(3,243)
Stock-based compensation	(42)		(20)	(62)	(89)
Operating income	1,006		903	1,993	1,883
Total other expense, net	(332)		(390)	(687)	(937)
Income before income taxes	674		513	1,306	946
Income tax expense	168		136	325	255
Net income	$	506	377	981	691