Revenue Recognition

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue Recognition

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, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:

	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
Total revenue	$	1,971	1,952	5,935	5,828
Adjustments for non-ASC 606 revenue (1)	(234)		(94)	(687)	(288)
Total revenue from contracts with customers	$	1,737	1,858	5,248	5,540

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(1) Includes lease revenue which is 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 September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(Dollars in millions)
Customer receivables (1)	$	766	678
Contract assets	32		32
Contract liabilities	383		423

(1)Reflects gross customer receivables of $803 million and $691 million, net of allowance for doubtful accounts of $37 million and $13 million, at September 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 September 30, 2020 and 2019, we recognized $29 million and $27 million, respectively, and for the nine months ended September 30, 2020 and 2019, we recognized $158 million and $146 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020 and January 1, 2019, respectively.

Performance Obligations

As of September 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 partially or wholly unsatisfied is approximately $3.9 billion. We expect to recognize approximately 84% 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 September 30,
	2020			2019
	(Dollars in millions)
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
Beginning of period balance	$	77	122	73	106
Costs incurred	14		21	13	26
Amortization	(15)		(22)	(12)	(17)
End of period balance	$	76	121	74	115

	Nine Months Ended September 30,
	2020			2019
	(Dollars in millions)
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
Beginning of period balance	$	79	121	64	84
Costs incurred	44		65	42	77
Amortization	(47)		(65)	(32)	(46)
End of period balance	$	76	121	74	115

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 12 months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond 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.

Products and Services Revenues

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 September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
IP and Data Services	$	889	910	2,687	2,748
Transport and Infrastructure	654		636	1,936	1,897
Voice and Collaboration	350		362	1,085	1,043
Other	25		3	74	6
Affiliate Services	53		41	153	134
Total operating revenue	$	1,971	1,952	5,935	5,828