Revenue Recognition

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

The following tables present our reported results under ASC 606 and a reconciliation to results using the historical accounting method:



	Year Ended December 31, 2018
	Reported Balances		Impact of ASC 606		ASC 605 Historical Adjusted Amount
	(Dollars in millions)
Operating revenue	$	8,493	6		8,499
Cost of services and products (exclusive of depreciation and amortization)	2,767		17		2,784
Selling, general and administrative	799		—		799
Income tax expense	494		(3	)	491
Net income	1,665		(8	)	1,657

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following tables provide disaggregation of revenue from contracts with customers based on service offerings for the years ended December 31, 2019 and 2018. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards.



	Year Ended December 31, 2019
	Total Revenue		Adjustments for Non-ASC 606 Revenue⁽⁷⁾		Total Revenue from Contracts with Customers
	(Dollars in millions)
IP and data services ⁽¹⁾	$	624	—		624
Transport and infrastructure ⁽²⁾	2,829		(308	)	2,521
Voice and collaboration ⁽³⁾	1,639		—		1,639
IT and managed services ⁽⁴⁾	3		—		3
Regulatory revenue ⁽⁵⁾	189		(189	)	—
Affiliate revenue ⁽⁶⁾	2,873		—		2,873
Total revenue	$	8,157	(497	)	7,660

Timing of revenue
Goods and services transferred at a point in time					54
Services performed over time					7,606
Total revenue from contracts with customers					7,660



	Year Ended December 31, 2018
	Total Revenue		Adjustments for Non-ASC 606 Revenue⁽⁷⁾		Total Revenue from Contracts with Customers
	(Dollars in millions)
IP and data services ⁽¹⁾	$	615	—		615
Transport and infrastructure⁽²⁾	2,925		(317	)	2,608
Voice and collaboration ⁽³⁾	1,798		—		1,798
IT and managed services ⁽⁴⁾	6		—		6
Regulatory revenue ⁽⁵⁾	214		(214	)	—
Affiliate revenue⁽⁶⁾	2,935		—		2,935
Total revenue	$	8,493	(531	)	7,962

Timing of revenue
Goods and services transferred at a point in time					$	69
Services performed over time					7,893
Total revenue from contracts with customers					$	7,962

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(1	)	Includes primarily VPN data networks, Ethernet, IP and other ancillary services
(2	)	Includes primarily broadband, private line (including business data services) and other ancillary services.
(3	)	Includes local voice, including wholesale voice, and other ancillary services.
(4	)	Includes IT services and managed services revenue.
(5	)	Includes CAF II and federal and state USF support revenue.
(6	)	Includes telecommunications and data services we bill to our affiliates.
(7	)	Includes regulatory revenue, lease revenue, sublease rental income, 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 December 31, 2019 and December 31, 2018:



	December 31, 2019		December 31, 2018
	(Dollars in millions)
Customer receivables ⁽¹⁾	$	430	518
Contract liabilities	338		207
Contract assets	18		64


(1)	Gross customer receivables of $462 million and $554 million, net of allowance for doubtful accounts of $32 million and $36 million, at December 31, 2019 and December 31, 2018, respectively.

Contract liabilities are consideration we have received from our customers or billed in advance of providing goods and 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 five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheet. During the years ended December 31, 2019 and December 31, 2018, we recognized $273 million and $42 million, respectively, of revenue that was included in contract liabilities as of January 1, 2019 and January 1, 2018, respectively.

Performance Obligations

As of December 31, 2019, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts that are unsatisfied (or partially satisfied) is approximately $162 million. We expect to recognize approximately 99% of this revenue through 2022, with the balance recognized thereafter.

We do not disclose 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), or contracts that are classified as leasing arrangements that are not subject to ASC 606.

Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:



	Year Ended December 31, 2019
	Acquisition Costs			Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	90		57
Costs incurred	60			39
Amortization	(64		)	(32	)
End of period balance	$	86		64



	Year Ended December 31, 2018
	Acquisition Costs			Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	91		61
Costs incurred	62			27
Amortization	(63		)	(31	)
End of period balance	$	90		57

Acquisition costs include commissions 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 contract life of 30 months for consumer customers and up to 49 months for 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 acquisition costs included in these deferred costs that are anticipated 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.