Products and Services Revenue

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Products and Services Revenue

Revenue Recognition

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,
	2020		2019	2020	2019
	(Dollars in millions)
Total revenue (1)	$	1,984	1,926	3,964	3,876
Adjustments for non-ASC 606 revenue	(228)		(89)	(453)	(194)
Total revenue from contracts with customers	$	1,756	1,837	3,511	3,682

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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, 2020 and December 31, 2019:

	June 30, 2020		December 31, 2019
	(Dollars in millions)
Customer receivables (1)	$	805	678
Contract assets	33		32
Contract liabilities	382		423

⁽¹⁾Reflects gross customer receivables of $833 million and $691 million, net of allowance for doubtful accounts of $28 million and $13 million, at June 30, 2020 and December 31, 2019, 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 five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets. During the three months ended June 30, 2020 and 2019, we recognized $30 million and $24 million, respectively, and for the six months ended June 30, 2020 and 2019, we recognized $129 million and $119 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020 and January 1, 2019, respectively.

Performance Obligations

As of June 30, 2020, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts (including affiliates) that are unsatisfied (or partially satisfied) is approximately $3.8 billion. We expect to recognize approximately 87% of this revenue through 2022, 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 table provides changes in our contract acquisition costs and fulfillment costs:

	Three Months Ended June 30,
	2020			2019
	(Dollars in millions)
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
Beginning of period balance	$	86	122	74	97
Costs incurred	7		21	11	25
Amortization	(16)		(21)	(12)	(16)
End of period balance	$	77	122	73	106

	Six Months Ended June 30,
	2020			2019
	(Dollars in millions)
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
Beginning of period balance	$	79	121	64	84
Costs incurred	30		44	29	51
Amortization	(32)		(43)	(20)	(29)
End of period balance	$	77	122	73	106

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 an expected contract term of 12 to 60 months for our 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 twelve months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond 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 facilities-based video services, 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, which includes telecommunication services that we also provide to our 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,
	2020		2019	2020	2019
	(Dollars in millions)
IP and Data Services	$	893	915	1,798	1,838
Transport and Infrastructure	634		631	1,282	1,261
Voice and Collaboration	382		341	735	681
Other	23		1	49	3
Affiliate Services	52		38	100	93
Total operating revenue	$	1,984	1,926	3,964	3,876

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