Revenue Recognition

9 Months Ended

Sep. 30, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Product and Service Categories

Since the first quarter of 2021, we have categorized our products and services revenue among the following 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.

Since the first quarter of 2021, we have categorized our products and services revenue among the following 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. They also provide 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 September 30, 2021				Three Months Ended September 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	$	178	(71)	107	188	(66)	122
IP and Data Services	429		—	429	431	—	431
Fiber Infrastructure Services	230		(33)	197	206	(28)	178
Voice and Other	182		—	182	188	—	188
Total IGAM Revenue	1,019		(104)	915	1,013	(94)	919
Large Enterprise
Compute and Application Services	176		(16)	160	167	(22)	145
IP and Data Services	387		—	387	393	(1)	392
Fiber Infrastructure Services	137		(11)	126	162	(12)	150
Voice and Other	232		—	232	268	—	268
Total Large Enterprise Revenue	932		(27)	905	990	(35)	955
Mid-Market Enterprise
Compute and Application Services	31		(7)	24	32	(3)	29
IP and Data Services	432		(1)	431	460	(1)	459
Fiber Infrastructure Services	53		(2)	51	54	(1)	53
Voice and Other	150		—	150	191	—	191

	Three Months Ended September 30, 2021				Three Months Ended September 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)
Total Mid-Market Enterprise Revenue	666		(10)	656	737	(5)	732
Wholesale
Compute and Application Services	46		(39)	7	47	(41)	6
IP and Data Services	297		—	297	311	—	311
Fiber Infrastructure Services	155		(30)	125	157	(33)	124
Voice and Other	393		(63)	330	443	(64)	379
Total Wholesale Revenue	891		(132)	759	958	(138)	820
Business Segment by Product Category
Compute and Application Services	431		(133)	298	434	(132)	302
IP and Data Services	1,545		(1)	1,544	1,595	(2)	1,593
Fiber Infrastructure Services	575		(76)	499	579	(74)	505
Voice and Other	957		(63)	894	1,090	(64)	1,026
Total Business Segment Revenue	$	3,508	(273)	3,235	3,698	(272)	3,426
Mass Markets Segment by Product Category
Consumer Broadband	$	715	(52)	663	730	(56)	674
SBG Broadband	39		(4)	35	38	(3)	35
Voice and Other	502		(20)	482	578	(27)	551
CAF II	123		(123)	—	123	(123)	—
Total Mass Markets Segment	$	1,379	(199)	1,180	1,469	(209)	1,260
Total Revenue	$	4,887	(472)	4,415	5,167	(481)	4,686

	Nine Months Ended September 30, 2021				Nine Months Ended September 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	$	536	(210)	326	581	(199)	382
IP and Data Services	1,283		—	1,283	1,300	—	1,300
Fiber Infrastructure Services	662		(95)	567	610	(82)	528
Voice and Other	555		—	555	594	—	594
Total IGAM Revenue	3,036		(305)	2,731	3,085	(281)	2,804
Large Enterprise
Compute and Application Services	513		(47)	466	481	(61)	420
IP and Data Services	1,170		—	1,170	1,194	(2)	1,192
Fiber Infrastructure Services	388		(38)	350	436	(35)	401
Voice and Other	729		—	729	818	—	818
Total Large Enterprise Revenue	2,800		(85)	2,715	2,929	(98)	2,831
Mid-Market Enterprise
Compute and Application Services	103		(23)	80	101	(14)	87
IP and Data Services	1,323		(4)	1,319	1,389	(3)	1,386
Fiber Infrastructure Services	166		(6)	160	165	(8)	157
Voice and Other	472		—	472	598	—	598
Total Mid-Market Enterprise Revenue	2,064		(33)	2,031	2,253	(25)	2,228
Wholesale
Compute and Application Services	143		(120)	23	138	(120)	18
IP and Data Services	899		—	899	942	—	942
Fiber Infrastructure Services	464		(89)	375	462	(93)	369
Voice and Other	1,219		(188)	1,031	1,343	(197)	1,146
Total Wholesale Revenue	2,725		(397)	2,328	2,885	(410)	2,475
Business Segment by Product Category
Compute and Application Services	1,295		(400)	895	1,301	(394)	907
IP and Data Services	4,675		(4)	4,671	4,825	(5)	4,820
Fiber Infrastructure Services	1,680		(228)	1,452	1,673	(218)	1,455
Voice and Other	2,975		(188)	2,787	3,353	(197)	3,156
Total Business Segment Revenue	$	10,625	(820)	9,805	11,152	(814)	10,338
Mass Markets Segment by Product Category

	Nine Months Ended September 30, 2021				Nine Months Ended September 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)
Consumer Broadband	$	2,169	(157)	2,012	2,178	(164)	2,014
SBG Broadband	117		(12)	105	116	(11)	105
Voice and Other	1,561		(60)	1,501	1,772	(85)	1,687
CAF II	368		(368)	—	369	(369)	—
Total Mass Markets Segment	$	4,215	(597)	3,618	4,435	(629)	3,806
Total Revenue	$	14,840	(1,417)	13,423	15,587	(1,443)	14,144

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(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 September 30, 2021 and 2020, our gross rental income was $329 million and $332 million, respectively, which represents approximately 7% and 6%, respectively, of our operating revenue for the three months ended September 30, 2021 and 2020. For the nine months ended September 30, 2021 and 2020, our gross rental income was $988 million and $998 million, respectively, which represents 7% and 6%, respectively, of our operating revenue for the nine months ended September 30, 2021 and 2020.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts reclassified as held for sale, as of September 30, 2021 and December 31, 2020:

	September 30, 2021		December 31, 2020
	(Dollars in millions)
Customer receivables(1)(2)	$	1,491	1,889
Contract assets(3)	71		108
Contract liabilities(4)	703		950

______________________________________________________________________

(1)Reflects gross customer receivables of $1.6 billion and $2.1 billion, net of allowance for credit losses of $107 million and $174 million, at September 30, 2021 and December 31, 2020, respectively.

(2)As of September 30, 2021, amount excludes customer receivables, net reclassified as held for sale of $293 million.

(3)As of September 30, 2021, amount excludes contract assets reclassified as held for sale of $10 million.

(4)As of September 30, 2021, amount excludes contract liabilities reclassified as held for sale of $165 million.

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 and liabilities held for sale in our consolidated balance sheets. During the three and nine months ended September 30, 2021, we recognized $61 million and $544 million, respectively, of revenue that was included in contract liabilities as of January 1, 2021. During the three and nine months ended September 30, 2020, we recognized $58 million and $612 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020.

Performance Obligations

As of September 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 $6.4 billion. We expect to recognize approximately 70% 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), (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606 and (iii) the value of unsatisfied performance obligations for contracts which relate to our planned divestitures.

Contract Costs

The following tables provide changes in our contract acquisition costs and fulfillment costs:

	Three Months Ended September 30, 2021			Three Months Ended September 30, 2020
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)			(Dollars in millions)
Beginning of period balance	$	271	217	300	219
Costs incurred	43		37	45	35
Amortization	(51)		(37)	(53)	(37)
Reclassified as held for sale(1)	(35)		(31)	—	—
End of period balance	$	228	186	292	217

	Nine Months Ended September 30, 2021			Nine Months Ended September 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	132		112	130	105
Amortization	(158)		(111)	(164)	(109)
Reclassified as held for sale(1)	(35)		(31)	—	—
End of period balance	$	228	186	292	217

______________________________________________________________________

(1)Represents the amounts reclassified as held for sale related to our planned divestitures. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

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.