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What changed in QWEST CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of QWEST CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+296 added−257 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-23)

Top changes in QWEST CORP's 2023 10-K

296 paragraphs added · 257 removed · 198 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

48 edited+13 added−9 removed36 unchanged
Biggest changeThese individuals typically satisfy their IT requirements by contracting with us or a rapidly evolving group of competitors, or by deploying in-house solutions. Similarly, our sales and marketing approach to our mass markets customers emphasizes customer-oriented sales, marketing and service with a local presence.
Biggest changeOur business customers range from small business offices to select enterprise customers. Our direct sales representatives generally market our business services to members of in-house IT departments or other highly-sophisticated customers with deep technological experience. These individuals typically satisfy their IT requirements by contracting with us or a rapidly evolving group of competitors, or by deploying in-house solutions.
State agencies also regulate certain aspects of non-ILEC communications businesses, including administering the payment of federal subsidies to support broadband infrastructure construction. Data Privacy Regulations Various foreign, federal and state laws govern our storage, maintenance and use of customer data, including a wide range of consumer protection, data protection, privacy, intellectual property and similar laws.
State agencies also regulate certain aspects of non-ILEC communications businesses, including administering the payment of federal subsidies to support broadband infrastructure construction. Data Privacy Laws and Regulations Various foreign, federal and state laws govern our storage, maintenance and use of customer data, including a wide range of consumer protection, data protection, privacy, intellectual property and similar laws.
Additionally, the FCC regulates several aspects of our business related to international communications services, privacy, public safety and network infrastructure, including (i) our access to and use of local telephone numbers, (ii) our provision of emergency 911 services and (iii) our use or removal (potentially on a reimbursable basis) of equipment produced by certain vendors deemed to cause national security risks.
Additionally, the FCC regulates several aspects of our business related to international communications services, privacy, public safety and network infrastructure, including (i) our access to and use of local telephone numbers, (ii) our provision of emergency 911 services and (iii) our use or removal (potentially on a reimbursable basis) of equipment produced by certain vendors deemed to cause potential national security risks.
We were incorporated under the laws of the State of Colorado in 1911. Our principal executive offices are located at 100 CenturyLink Drive, Monroe, Louisiana 71203 and our telephone number is (318) 388-9000. 5 For a discussion of certain risks applicable to our business, see “Risk Factors” in Item 1A of Part I of this report.
We were incorporated under the laws of the State of Colorado in 1911. Our principal executive offices are located at 100 CenturyLink Drive, Monroe, Louisiana 71203 and our telephone number is (318) 388-9000. For a discussion of certain risks applicable to our business, see “Risk Factors” in Item 1A of Part I of this report.
We expect continued intense competition from a wide variety of sources under these evolving market conditions. In addition to competition from large communications providers, we are facing competition from a growing number of sources, including, systems integrators, hyperscalers, cloud service providers, software networking companies, infrastructure companies, cable companies, wireless services providers, device providers, resellers and smaller niche providers.
We expect continued intense competition from a wide variety of sources under these evolving market conditions. In addition to competition from large communications providers, we are facing competition from a growing number of sources, including, systems integrators, hyperscalers, cloud service providers, software networking companies, infrastructure companies, cable companies, wireless service providers, device providers, resellers and smaller niche providers.
Market demand for our broadband services could be adversely affected by (i) advanced wireless data transmission technologies, including fixed wireless and low-earth-orbit satellite services, and (ii) continued enhancements to cable-based services, each of which generally provides faster average broadband transmission speeds than our legacy copper-based infrastructure.
Market demand for our broadband services could be adversely affected by (i) advanced wireless data transmission technologies, including fixed wireless and low-earth-orbit satellite services, and (ii) continued enhancements to cable-based services, each of which generally provides faster average broadband transmission speeds than our copper-based infrastructure.
Our specific products and services are detailed below under the heading "Operations - Products and Services." Our ultimate parent company, Lumen Technologies, Inc., has cash management arrangements or loan arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends.
Our specific products and services are detailed below under the heading "Operations - Products and Services." 5 Our ultimate parent company, Lumen Technologies, Inc., has cash management arrangements or loan arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends.
Such regulations are enacted by municipalities, counties, state, federal, or other regional governmental bodies, and can vary widely from jurisdiction to jurisdiction as a result. Such regulations may also require us to pay substantial fees. 11 Seasonality Overall, our business is not materially impacted by seasonality.
Such regulations are enacted by municipalities, counties, state, federal, or other regional governmental bodies, and can vary widely from jurisdiction to jurisdiction as a result. Such regulations may also require us to pay substantial fees. Seasonality Overall, our business is not materially impacted by seasonality.
From time to time, we may change the categorization of our products and services. Our Network Our and Lumen's network, through which we provide most of our products and services, consists of fiber-optic and copper cables, high-speed transport equipment, electronics, voice switches, data switches, routers, and various other equipment.
From time to time, we may change the categorization of our products and services. 7 Our Network Our and Lumen's network, through which we provide most of our products and services, consists of fiber-optic and copper cables, high-speed transport equipment, electronics, voice switches, data switches, routers, and various other equipment.
For information on various litigation risks associated with owning and using intellectual property rights, see “Risk Factors—Business Risks” in Item 1A of Part I of this report, and Note 14—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report. 9 Regulation of Our Business Our domestic operations are regulated by the Federal Communications Commission (the “FCC”), by various state regulatory commissions and occasionally by local agencies.
For information on various litigation risks associated with owning and using intellectual property rights, see “Risk Factors—Business Risks” in Item 1A of Part I of this report, and Note 14—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report. 10 Regulation of Our Business Our domestic operations are regulated by the Federal Communications Commission (the “FCC”), by various state regulatory commissions and occasionally by local agencies.
You should be aware that we have not independently verified data from industry or other third-party sources and cannot guarantee its accuracy or completeness.
You should be aware that we have not independently verified data from industry or other third-party sources and cannot guarantee its accuracy or completeness. 14
We offer our customers a complete portfolio of traditional Time Division Multiplexing ("TDM") voice services including Primary Rate Interface ("PRI") service, local inbound service, switched one-plus, toll free, long distance and international services; 6 • Private Line. We deliver private line services, a direct circuit or channel specifically dedicated for connecting two or more organizational sites.
We offer our business customers a complete portfolio of traditional Time Division Multiplexing ("TDM") voice services including Primary Rate Interface ("PRI") service, local inbound service, switched one-plus, toll free, long distance and international services; and ◦ Private Line. We deliver private line services, a direct circuit or channel specifically dedicated for connecting two or more organizational sites.
Research, Development & Intellectual Property Due to the dynamic nature of our industry, we prioritize investing in developing new products, improving existing products, and licensing third party intellectual property rights to anticipate and meet our customers’ evolving needs. Patent licenses give us the freedom to operate our business without the risk of interruption from the holder of the patented technology.
Research, Development & Intellectual Property Due to the dynamic nature of our industry, we prioritize investing in developing new products, improving existing products, and licensing third party intellectual property rights to anticipate and meet our customers’ evolving needs, which give us the freedom to operate our business without the risk of interruption from the holder of the patented technology.
Additional information about competitive pressures is located under the heading "Risk Factors—Business Risks" in Item 1A of Part I of this report. Sales and Marketing Our enterprise sales and marketing approach revolves around solving complex customer problems with advanced technology and network solutions, striving to make core networks services compatible with digital tools.
Additional information about competitive pressures is located under the heading "Risk Factors—Business Risks" in Item 1A of Part I of this report. 9 Sales and Marketing Our enterprise sales and marketing approach focuses on solving complex customer problems with advanced technology and network solutions, striving to make core networks services compatible with digital tools.
Depending on the applicable market and services, competition can be intense, especially if one or more competitors in the market have network assets better suited to the customer’s needs, are offering faster transmission speeds or lower prices, or in certain markets, are incumbent communications providers that have a longer history of providing service in the market.
Depending on the applicable market and services, competition can be intense, especially if competitors in the market have network assets better suited to customer needs, faster transmission speeds or lower prices, or, in certain markets, are incumbent communications providers that have a longer history of providing service in the market.
In November 2021, the U.S. Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants. As of the date of this report, various state and federal agencies are continuing to take steps to make this funding available to eligible applicants, including us.
Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants. As of the date of this report, various state and federal agencies are continuing to take steps to make this funding available to eligible applicants, including us.
Data privacy regulations are complex and vary across jurisdictions. We must comply with various jurisdictional data privacy regulations, adopted by various jurisdictions in certain of our domestic markets. The application, interpretation and enforcement of these laws are often uncertain, and may be interpreted and applied inconsistently from jurisdiction to jurisdiction.
Data privacy regulations are complex and vary across jurisdictions. We must comply with various jurisdictional data privacy regulations, adopted by various jurisdictions in certain of our domestic markets. Domestically, the number of state privacy laws continues to increase. The application, interpretation and enforcement of these laws are often uncertain, and may be interpreted and applied inconsistently from jurisdiction to jurisdiction.
We and Lumen have devoted, and plan to continue to devote, substantial resources to (i) simplify and modernize our network and legacy systems and (ii) expand our and Lumen’s network to address demand for enhanced or new products. A key element of our network expansion plan is our Quantum Fiber buildout project.
We and Lumen have devoted, and plan to continue to devote, substantial resources to (i) simplify and modernize our network and legacy systems (ii) retire aging or obsolete systems and plant and (iii) expand our and Lumen’s network to address demand for enhanced or new products. A key element of our network expansion plan is our Quantum Fiber buildout project.
Investors should also be aware that while we do, at various times, answer questions raised by securities analysts, it is against our policy to disclose to them selectively any material non-public information or other confidential information. Investors should not assume that we agree with any statement or report issued by an analyst with respect to our past or projected performance.
Although, at various times, we answer questions raised by securities analysts, it is against our policy to disclose to them selectively any material non-public information or other confidential information. Investors should not assume that we agree with any statement or report issued by an analyst with respect to our past or projected performance.
Employees At December 31, 2022, we had approximately 11,900 employees, of which approximately 43% are members of either the Communications Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW").
Employees At December 31, 2023, we had approximately 11,400 employees, of which approximately 43% are members of either the Communications Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW").
The ultimate outcome of any remaining examinations is unknown, but could result in a liability to us in excess of our reserve accruals established for these matters. In early 2020, the FCC created the Rural Digital Opportunity Fund (the "RDOF"), which is a new federal support program designed to replace the CAF II program.
The ultimate outcome of any remaining examinations is unknown, but could result in a liability to us in excess of our reserve accruals established for these matters. In early 2020, the FCC created the Rural Digital Opportunity Fund (the "RDOF"), which is a federal support program designed to fund broadband deployment in rural America.
Our ability to compete hinges upon effectively enhancing and better integrating our existing products, introducing new products on a timely and cost-effective basis, meeting changing customer needs, providing high-quality information security to build customer confidence and combat cyber-attacks, extending our core technology into new applications and anticipating emerging standards, business models, software delivery methods and other technological changes.
Our ability to compete hinges upon effectively enhancing and better integrating our existing products, introducing new products on a timely and cost-effective basis, meeting changing customer needs, providing high-quality information security to build customer confidence and combat cyber-attacks, extending our core technology into new applications and anticipating emerging technological and industry changes.
For our traditional voice services, providers of wireless voice, social networking, videoconferencing, and electronic messaging services are significant competitors as many customers are increasingly relying on these providers to communicate, resulting in the long-term systemic decline we have seen in our traditional voice services.
For our traditional voice services, providers of wireless voice, social networking, videoconferencing, and electronic messaging services are significant competitors as many customers are increasingly using these services to communicate, resulting in the long-term systemic decline in our traditional voice services.
We anticipate that all these trends will continue to place downward pressures on the use of our network. 8 Additionally, the Telecommunications Act of 1996 obligates incumbent local telephone carriers ("ILECs") to permit competitors to interconnect their facilities to the ILEC’s network and to take various other steps that are designed to promote competition, including obligations to (i) negotiate interconnection agreements in good faith, (ii) provide nondiscriminatory “unbundled” access to specific portions of the ILEC’s network and (iii) permit competitors to physically or virtually collocate their plant on the ILEC’s property.
Additionally, the Telecommunications Act of 1996 obligates incumbent local telephone carriers ("ILECs"), including those operated by use, to permit competitors to interconnect their facilities to the ILEC’s network and to take various other steps that are designed to promote competition, including obligations to (i) negotiate interconnection agreements in good faith, (ii) provide nondiscriminatory “unbundled” access to specific portions of the ILEC’s network and (iii) permit competitors to physically or virtually collocate their plant on the ILEC’s property.
The amount and timing of these costs are subject to the weather patterns of any given year, but have generally been highest during the third quarter and have been related to damage from severe storms in our markets.
The amount and timing of these costs are subject to the weather patterns of any given year, but have generally been highest during the third quarter and have been related to damage from severe storms, including hurricanes, tropical storms and tornadoes in our markets along the Atlantic and Gulf of Mexico coastlines.
In connection with the CAF II funding, we were required to meet certain specified infrastructure buildout requirements in 13 states by the end of 2021, which required substantial capital expenditures.
Our share of this CAF II funding was approximately $145 million annually. In connection with the CAF II funding, we were required to meet certain specified infrastructure buildout requirements in 13 states by the end of 2021, which required substantial capital expenditures.
We develop and maintain systems and programs designed to protect against cyber-attacks and network outages. The development, maintenance and operation of these systems and programs is costly and requires ongoing monitoring and updating as technologies change and efforts to bypass security measures become more sophisticated and evolve rapidly.
The development, maintenance and operation of these systems and programs is costly and requires ongoing monitoring and updating as technologies change and efforts to bypass security measures become more sophisticated and evolve rapidly.
See "Risk Factors— Business Risks" in Item 1A of Part I of this report and Note 16—Labor Union Contracts to our consolidated financial statements in Item 8 of Part II of this report for a discussion of risks relating to our labor relations and for additional information on the timing of certain contract expirations.
See "Risk Factors— Business Risks" in Item 1A of Part I of this report and Note 16—Labor Union Contracts to our consolidated financial statements in Item 8 of Part II of this report for a discussion of risks relating to our labor relations and for additional information on the timing of certain contract expirations. 13 Additional Information For further information on regulatory, technological and competitive factors that could impact our revenue, see "Regulation" and "Competition" above under this Item 1 and "Risk Factors" under Item 1A below.
ITEM 1. BUSINESS Business Overview and Purpose We are an integrated facilities-based communications company focused on providing our business and mass markets customers with a broad array of communications products and services.
ITEM 1. BUSINESS Business Overview and Purpose We are a facilities-based technology and communications company that provides a broad array of integrated communications products and services to our business and mass markets customers.
Our approach includes marketing our products and services primarily through direct sales representatives, inbound call centers, telemarketing and third parties, including retailers, satellite television providers, door to door sales agents and digital marketing firms.
Similarly, our sales and marketing approach to our mass market customers emphasizes customer-oriented sales, marketing and service with a local presence. Our approach includes marketing our products and services primarily through direct sales representatives, inbound call centers, telemarketing and third parties, including retailers, satellite television providers, door to door sales agents and digital marketing firms.
IP and Data Services • Ethernet. We deliver a robust array of networking services built on ethernet technology. Ethernet services include point-to-point and multi-point equipment configurations that facilitate data transmissions across metropolitan areas and larger enterprise-class wide area networks. Our ethernet technology is also used by wireless service providers for data transmission via our fiber-optic cables connected to their towers.
Ethernet services include point-to-point and multi-point equipment configurations that facilitate data transmissions across metropolitan areas and larger enterprise-class wide area networks. Our ethernet technology is also used by wireless service providers for data transmission via our fiber-optic cables connected to their towers. • Harvest, which includes our legacy services managed for cash flow, including: ◦ Voice Services.
Competition from large communications providers, systems integrators, hyperscalers and others have increased pricing pressures with respect to several key products and services that we offer to our enterprise and wholesale business customers. In particular, several hyperscalers have recently built their own data transmission facilities, which has reduced demand for our network services.
Competition from large communications providers, systems integrators, hyperscalers and others have increased pricing pressures with respect to several key products and services that we offer to our enterprise and wholesale business customers.
To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility. 12 Unless otherwise indicated, information contained in this report and other documents filed by us under the federal securities laws concerning our views and expectations regarding the technology or communications industries are based on estimates made by us using data from industry sources, and on assumptions made by us based on our management’s knowledge and experience in the markets in which we operate and our industry generally.
Unless otherwise indicated, information contained in this report and other documents filed by us under the federal securities laws concerning our views and expectations regarding the technology or communications industries are based on estimates made by us using data from industry sources and making assumptions based on our industry knowledge and experience.
The ultimate impact of these pending judicial matters and calls for additional regulation are currently unknown to us, although the imposition of heightened regulation of our Internet operations could potentially hamper our ability to operate our data networks efficiently, restrict our ability to implement network management practices necessary to ensure quality service, increase the cost of operating, maintaining and upgrading our network and otherwise negatively impact our current operations.
The ultimate impact of these pending judicial matters and calls for additional regulation are currently unknown to us, although the imposition of heightened regulation of our Internet operations could potentially hamper our ability to operate our data networks efficiently, restrict our ability to implement network management practices necessary to ensure quality service, increase the cost of operating, maintaining and upgrading our network and otherwise negatively impact our current operations. 12 State Regulation of Domestic Operations Historically ILECs, including ours, have been regulated as “common carriers,” and state regulatory commissions have generally exercised jurisdiction over intrastate voice telecommunications services and their associated facilities.
Operations For the reasons noted in Note 1—Background and Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of Part II of this report, we believe we have one reportable segment.
Operations For the reasons noted in Note 1—Background and Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of Part II of this report, we believe we have one reportable segment. 6 Products and Services While most of our customized customer interactions involve multiple integrated technologies and services, we organize our products and services according to the core technologies that drive them.
Although either we or Lumen own most of our network, we lease a substantial portion of our core fiber network from several other communication companies under arrangements that will periodically need to be renewed or replaced to support our current network operations. 7 Like other large communications companies, we are a constant target of cyber-attacks of various degrees, and from time to time in the ordinary course of our business we experience disruption in our services.
Although either we or Lumen own most of our network, we lease a substantial portion of our core fiber network from several other communication companies under arrangements that will periodically need to be renewed or replaced to support our current network operations.
We maintain local offices in most of the larger population centers within our local service area. These offices provide sales and customer support services to the communities in our local markets. We generally market our business services to members of in-house IT departments or other highly-sophisticated customers with deep technological experience.
These offices provide sales and customer support services to the communities in our local markets. We generally market our business services to members of in-house IT departments or other highly-sophisticated customers with deep technological experience. These individuals typically satisfy their IT requirements by contracting with us or a rapidly evolving group of competitors, or by deploying in-house solutions.
A substantial portion of our broadband subscribers are located within the local service area of our wireline telephone operations; and • Optical Services. We deliver high bandwidth optical wavelength networks to customers requiring an end-to-end solution with ethernet technology for a scalable amount of bandwidth connecting sites or providing high-speed access to cloud computing resources.
We deliver high bandwidth optical wavelength networks to customers requiring an end-to-end solution with ethernet technology for a scalable amount of bandwidth connecting sites or providing high-speed access to cloud computing resources. • Nurture, which includes our more mature offerings, such as: ◦ Ethernet. We deliver a robust array of networking services built on ethernet technology.
Our business customers range from small business offices to select enterprise customers. Our marketing plans include marketing our products and services primarily through direct sales representatives, inbound call centers, telemarketing and third parties, including telecommunications agents, system integrators, value-added resellers and other telecommunications firms. We support our distribution through digital advertising, events, website promotions and public relations.
We also market our products and services through inbound call centers, telemarketing and third parties, including telecommunications agents, system integrators, value-added resellers and other telecommunications firms. We support our distribution through digital advertising, events, website promotions and public relations. We maintain local offices in most of the larger population centers within our local service area.
In December 2017, the FCC voted to repeal the classification of BIAS as a Title II service and to preempt states from imposing substantial regulations on broadband services. Opponents of this change appealed this action in federal court. Several states have also opposed the change and have proposed, implemented or enacted laws or orders focused on state-specific Internet service regulation.
Opponents of this change appealed this action in federal court. Several states have also opposed the change and have proposed, implemented or enacted laws or orders focused on state-specific Internet service regulation. In October 2019, the federal court upheld the FCC’s classification decision but vacated a part of its preemption ruling.
Private line service offers a high-speed, secure solution for frequent transmission of large amounts of data between sites, including wireless backhaul transmissions; • Regulatory.
Private line service offers a high-speed, secure solution for frequent transmission of large amounts of data between sites, including wireless backhaul transmissions; Affiliate Services • Affiliate Services. We provide our affiliates certain telecommunication services that we also provide to external customers. Please see our products and services listed above for further description of these services.
Financial Highlights The following table summarizes the results of our consolidated operations: Years Ended December 31, 2022 2021 2020 (Dollars in millions) Operating revenue $ 6,449 6,951 7,313 Operating expenses 3,694 3,843 4,602 Operating income $ 2,755 3,108 2,711 Net income $ 1,919 2,107 1,707 The following table summarizes certain selected financial information from our consolidated balance sheets: As of December 31, 2022 2021 (Dollars in millions) Total assets $ 18,925 18,370 Total long-term debt (1) 2,157 2,156 Total stockholder's equity 13,554 11,635 _______________________________________________________________________________ (1) Total long-term debt does not include note payable-affiliate.
The following table summarizes certain selected financial information from our consolidated balance sheets: As of December 31, 2023 2022 (Dollars in millions) Total assets $ 16,337 18,956 Total long-term debt (1) 2,157 2,157 Total stockholder's equity 10,756 13,567 _______________________________________________________________________________ (1) Total long-term debt does not include note payable-affiliate.
In October 2019, the federal court upheld the FCC’s classification decision but vacated a part of its preemption ruling. Various courts are considering or have ruled upon the issue of the enforceability of state broadband regulation, and additional litigation and appeals are expected with respect to this issue.
Various courts are considering or have ruled upon the issue of the enforceability of state broadband regulation, and additional litigation and appeals are expected with respect to this issue. In addition, members of the current administration and various consumer interest groups have advocated in favor of reclassifying BIAS as a Title II utility service.
We could incur substantial penalties if we fail to comply with the FCC's applicable regulations. Many of the FCC’s regulations adopted in recent years remain subject to judicial review and additional rulemakings, thus increasing the difficulty of determining the ultimate impact of these changes on us and our competitors.
Many of the FCC’s regulations adopted in recent years remain subject to judicial review and additional rule-makings, thus increasing the difficulty of determining the ultimate impact of these changes on us and our competitors. 11 Universal Service Between 2015 and 2021, Lumen received approximately $500 million annually through CAF II, a program that ended on December 31, 2021.
Affiliate Services • Affiliate Services. We provide our affiliates certain telecommunication services that we also provide to external customers. Please see our products and services listed above for further description of these services. In addition, we provide our affiliates application development and support services, network support and technical services.
In addition, we provide our affiliates application development and support services, network support and technical services.
For additional information about these programs, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of this report. 10 Broadband Regulation In February 2015, the FCC adopted an order classifying broadband internet access services ("BIAS") under Title II of the Communications Act of 1934 and applying new regulations.
For additional information about these programs, see (i) Note 3—Revenue Recognition to our consolidated financial statements in Item 8 of Part II of this report and (ii) "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of this report.
It remains premature to speculate on the potential impact of this legislation on us.
Although it remains premature to speculate on the ultimate impact of this legislation on us, we anticipate that the release of this funding would increase competition for broadband customers in newly-served areas.
Competition to provide broadband and other data services to our mass markets customers remains high.
In particular, several hyperscalers have recently built their own data transmission facilities, which has reduced demand for our network services. 8 Competition to provide broadband services to our mass markets customers remains high.
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Products and Services While most of our customized customer interactions involve multiple integrated technologies and services, we organize our products and services according to the core technologies that drive them.
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We report our revenue derived from our operations serving our mass markets customers, primarily within the 'Other Broadband', 'Voice and Other' and 'Fiber Broadband' categories and our revenue derived from our operations servicing our business customers, primarily in the 'Harvest', 'Nurture' and 'Grow' categories.
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At December 31, 2022, we reported our related revenue under the following categories: Voice and Other, Fiber Infrastructure, IP and Data Services and Affiliate Services, each of which is described in further detail below. Voice and Other • Voice Services.
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Financial Highlights The following table summarizes the results of our consolidated operations: Years Ended December 31, 2023 (1) 2022 2021 (Dollars in millions) Operating revenue $ 5,915 6,449 6,951 Operating expenses 6,110 3,694 3,843 Operating income $ (195) 2,755 3,108 Net (loss) income $ (831) 1,919 2,107 _______________________________________________________________________________ (1) During 2023 we recorded non-cash, non-tax-deductible goodwill impairment charge of $2.4 billion.
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Between 2015 and December 31, 2021, we received significant federal support payments from the FCC's Connect America Fund ("CAF") Phase II program, and beginning in the second quarter of 2022 we began receiving much smaller support payments from the FCC's Rural Digital Opportunity Fund; and • Other .
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For additional information, see Note 2—Goodwill And Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report.
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We continue to provide certain services based on older platforms to support our customers as they transition to newer technology, such as conferencing services. Fiber Infrastructure Services • Fiber-based and DSL-based Broadband Services. Our broadband services deliver a cost-effective Internet connection through existing telephone lines or fiber-optic cables while customers enjoy high speed data transfer.
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At December 31, 2023, we reported our revenue derived from our operations serving our mass markets customers, primarily within the first three categories listed below, and our revenue derived from our operations servicing our business customers, primarily in the 'Harvest', 'Nurture' and 'Grow' categories listed below: • Other Broadband , under which we provide primarily lower speed broadband services to residential and small business customers utilizing our copper-based network infrastructure; • Voice and Other, under which we derive revenues from (i) providing local and long-distance voice services, professional services, and other ancillary services, and (ii) federal broadband and state support programs; • Fiber Broadband , under which we provide high speed broadband services to residential and small business customers utilizing our fiber-based network infrastructure; • Grow, which includes products and services that we anticipate will grow, primarily including: ◦ Optical Services .
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Universal Service Between 2015 and 2021, Lumen received approximately $500 million annually through CAF II, a program that ended on December 31, 2021. Our share of this CAF II funding was approximately $145 million annually.
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As a critical infrastructure provider, we are a constant target of cyber-attacks from a wide range of intruders, including advanced persistent threat actors. From time to time in the ordinary course of our business we experience security incidents and disruption in our services. We develop and maintain systems and programs designed to protect against cyber-attacks and network outages.
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On December 7, 2020, the FCC allocated in its RDOF Phase I auction $9.2 billion in support payments over 10 years to deploy high speed broadband to over 5.2 million unserved locations. Lumen Technologies started receiving support payments under this program in the second quarter of 2022, but our share of these payments is not material.
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We anticipate that all these trends will continue to place downward pressures on the use of our voice network.
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In addition, members of the Biden Administration and various consumer interest groups have advocated in favor of reclassifying BIAS under Title II.
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We could incur substantial penalties if we fail to comply with the FCC's applicable regulations.
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State Regulation of Domestic Operations Historically ILECs, including ours, have been regulated as “common carriers,” and state regulatory commissions have generally exercised jurisdiction over intrastate voice telecommunications services and their associated facilities. In recent years, most states have reduced their regulation of ILECs.
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For the first phase of this program, RDOF Phase I, the FCC ultimately awarded $6.4 billion in support payments to be paid in equal monthly installments over 10 years.
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Additional Information For further information on regulatory, technological and competitive factors that could impact our revenue, see "Regulation" under this Item 1 above, "Competition" under this Item 1, above, and "Risk Factors" under Item 1A below.
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Lumen Technologies was awarded RDOF funding in several of the states in which we operate and began receiving monthly support payments during the second quarter of 2022, our share of which is not material.
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Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the a prior administration. In late 2021, the U.S.
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Broadband Regulation In February 2015, the FCC adopted an order regulating broadband internet access services ("BIAS") as a Title II utility service under the Communications Act of 1934. In December 2017, the FCC voted to repeal the classification of BIAS as a Title II utility service and to preempt states from imposing substantial regulations on broadband services.
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In recent years, most states have reduced their regulation of ILECs.
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To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeVarious other factors could intensify these risks, including (i) our maintenance of information in digital form stored on servers connected to the Internet, (ii) our use of open and software-defined networks, (iii) the complexity of our network composed of legacy and acquired properties, (iv) growth in the size and sophistication of our customers and their service requirements, (v) increased use of our network due to greater demand for data services and (vi) our increased incidence of employees working from remote locations.
Biggest changeVarious other factors could intensify these risks, including, (i) our maintenance of information in digital form stored on servers connected to the Internet, (ii) our use of open and software-defined networks, (iii) the challenges of operating and maintaining our complex multi-continent network composed of legacy and acquired properties, which is more difficult to safeguard than newer fully-integrated networks, (iv) growth in the size and sophistication of our customers and their service requirements, (v) increased use of our network due to greater demand for data services, (vi) our increased incidence of employees working from remote locations and (vii) the increased difficulty of defending against attacks that use AI-generated social engineering, increasingly malicious code and increasingly sophisticated phishing techniques. 17 As a critical infrastructure service provider, we and our customers are constant targets of cyber-attacks.
The remainder of the debt of Level 3 Financing, Inc. is not secured by any of its assets, but is guaranteed on an unsecured basis by certain of its affiliates. As of the date of this annual report, substantial amounts of debt are also owed by two direct or indirect subsidiaries of Qwest Communications International Inc., including us.
The remainder of the debt of Level 3 Financing is not secured by any of its assets, but is guaranteed on an unsecured basis by certain of its affiliates. As of the date of this annual report, substantial amounts of debt are also owed by two direct or indirect subsidiaries of Qwest Communications International Inc., including us.
Under our and our affiliates’ consolidated debt and financing arrangements, the issuer of the debt is subject to various covenants and restrictions, the most restrictive of which pertain to the debt of Lumen Technologies, Inc. and Level 3 Financing, Inc.
Under our and our affiliates’ consolidated debt and financing arrangements, the issuer of the debt is subject to various covenants and restrictions, the most restrictive of which pertain to the debt of Lumen Technologies, Inc. and Level 3 Financing.
Any failure to make appropriate capital expenditures could adversely impact our financial performance or prospects. We will also continue to need substantial amounts of cash to meet our fixed commitments and other business objectives, including without limitation funding our operating costs, maintenance expenses, debt repayments, tax obligations, periodic pension contributions and other benefits payments.
Any failure to make appropriate capital expenditures could adversely impact our financial performance or prospects. We will also continue to need substantial amounts of cash to meet our fixed commitments and other business objectives, including without limitation funding our debt repayments, operating costs, maintenance expenses, debt repayments, tax obligations, periodic pension contributions and other benefits payments.
Lumen Technologies, Inc.’s senior secured credit facilities and secured notes contain several significant limitations restricting the ability of it and its subsidiaries to, among other things, borrow additional money or issue 22 guarantees; pay dividends or other distributions to shareholders; make loans; create liens on assets; sell assets; transact with its affiliates and engage in mergers, consolidations or other similar transactions.
Lumen Technologies, Inc.’s senior secured credit facilities and secured notes contain several significant limitations restricting the ability of it and its subsidiaries to, among other things, borrow additional money or issue guarantees; pay dividends or other distributions to shareholders; make loans; create liens on assets; sell assets; transact with its affiliates and engage in mergers, consolidations or other similar transactions.
We rely on various patents, copyrights, trade names, trademarks, service marks, trade secrets and other similar intellectual property rights, as well as confidentiality agreements and procedures, to establish and protect our proprietary rights. For a variety of reasons, however, these steps may not fully protect us, including inherent limitations on the ability to enforce these rights.
We rely on various patents, copyrights, trade names, trademarks, service marks, trade secrets and other similar intellectual property rights, as well as confidentiality agreements and procedures, to establish and protect our proprietary rights. For a variety of reasons, however, these steps may not fully protect us, including due to inherent limitations on the ability to enforce these rights.
Cyber-attacks could (i) disrupt the proper functioning of our networks and systems, which could in turn disrupt the operations of our customers, (ii) result in the destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, classified or otherwise valuable information of ours, our employees, our customers or our customers’ end users, (iii) require us to notify customers, regulatory agencies or the public of data breaches, (iv) damage our reputation or result in a loss of business, (v) require us to provide credits for future service to our customers or to offer expensive incentives to retain customers, (vi) subject us to claims by our customers or regulators for damages, fines, penalties, license or permit revocations or other remedies, (vii) result in the loss of industry certifications or (viii) require significant management attention or financial resources to remedy the resulting damages or to change our systems.
Cyber-attacks could (i) disrupt the proper functioning of our networks and systems, which could in turn disrupt the operations of our customers, (ii) result in the destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, classified or otherwise valuable information of ours, our employees, our customers or our customers’ end users, (iii) require us to notify customers, regulatory agencies or the public of data incidents, (iv) damage our reputation or result in a loss of business, (v) require us to provide credits for future service to our customers or to offer expensive incentives to retain customers, (vi) subject us to claims by our customers or regulators for damages, fines, penalties, license or permit revocations or other remedies, (vii) result in the loss of industry certifications or (viii) require significant management attention or financial resources to remedy the resulting damages or to change our systems.
We have several complex high-value national and global customer contracts. These contracts are frequently impacted by a variety of factors that could reduce or eliminate the profitability of these contracts. Moreover, we would be adversely impacted if we fail to renew major contracts upon their expiration. Reliance on landowners.
We have several complex high-value national and global customer contracts. These contracts are frequently impacted by a variety of factors that could reduce or eliminate the profitability of these contracts. Moreover, we would be adversely impacted if we fail to renew major contracts upon their expiration. 19 Reliance on landowners.
Our failure to comply with complex governmental regulations and laws applicable to these programs, or the terms of our governmental contracts, could result in our suffering substantial negative publicity or penalties, being suspended or debarred from future governmental programs or contracts for a significant period of time and in certain instances could lead to the revocation of our FCC licenses.
Our failure to comply with complex governmental regulations and laws applicable to these programs, or the terms of our governmental contracts, could result in us suffering substantial negative publicity or penalties, being suspended or debarred from future governmental programs or contracts for a significant period of time and in certain instances could lead to the revocation of our FCC licenses.
Such third-party content could also result in adverse publicity and damage our reputation. Moreover, as noted above, pending proposals to change the law could materially heighten our legal exposure. Pending legal proceedings could have a material adverse impact on us. There are several potentially material proceedings pending against us and our affiliates.
Such third-party content could also result in adverse publicity and damage our reputation. Moreover, as noted above, pending proposals to change the law could materially heighten our legal exposure. Pending legal proceedings against us or our affiliates could have a material adverse impact on us. There are several potentially material proceedings pending against us and our affiliates.
Additionally, several communications companies rely on our network to transmit their data or voice traffic. Their reliance on our network exposes us to the risk that they may transfer all or a portion of this traffic from our network to alternative networks owned, constructed or leased by them, thereby reducing our revenue.
Additionally, several companies rely on our network to transmit their data or voice traffic. Their reliance on our network exposes us to the risk that they may transfer all or a portion of this traffic from our network to alternative networks owned, constructed or leased by them, thereby reducing our revenue.
These modernization efforts will require efficient allocation of resources, development capacity, greater use of artificial intelligence and other emerging technologies, access to subject-matter experts, development of a sustainable operating model and successful collaboration between legal, privacy and security personnel.
These modernization efforts will require efficient allocation of resources, development capacity, greater use of artificial intelligence ("AI") and other emerging technologies, access to subject-matter experts, development of a sustainable operating model and successful collaboration between legal, privacy and security personnel.
Our ability to conduct our operations could have a material adverse impact on us if certain of our arrangements with third parties were terminated, including those further described below. 16 Reliance on other communications providers.
Our ability to conduct our operations could have a material adverse impact on us if certain of our arrangements with third parties were terminated, including those further described below. Reliance on other communications providers.
We may be unable to attract and retain skilled and motivated leaders and employees who possess the right skillsets and technical, managerial and development expertise to execute on our plans for transformation, innovation and strategic growth.
We may be unable to attract and retain skilled and motivated leaders and employees who possess the right skillsets and technical, managerial and development expertise to execute our plans for transformation, innovation and strategic growth.
We cannot assure you we will be able to integrate our legacy IT systems, modernize our infrastructure, timely retire aging systems or deploy a master data management platform.
We cannot assure you we will be able to integrate our legacy IT systems, modernize our infrastructure, timely retire aging or obsolete systems or deploy a master data management platform.
The debt and financing arrangements of Level 3 Financing, Inc. contain substantially similar limitations that restrict their operations on a standalone basis as a separate restricted group.
The debt and financing arrangements of Level 3 Financing contain substantially similar limitations that restrict their operations on a standalone basis as a separate restricted group.
Increases in costs for pension and healthcare benefits for our active and retired employees may have a material impact on us. As of December 31, 2022, we had a substantial number of active employees participating in a qualified pension plan sponsored by Lumen Technologies that has assumed the obligations under Qwest Communications International Inc.’s predecessor pension plan.
Increases in costs for pension and healthcare benefits for our active and retired employees may have a material impact on us. As of December 31, 2023, we had a substantial number of active employees participating in a qualified pension plan sponsored by Lumen Technologies that has assumed the obligations under Qwest Communications International Inc.’s predecessor pension plan.
Business Risks We may not be able to create the global digital experience expected by customers. Our customers expect us to create and maintain a global digital experience, including: (i) automation and simplification of our offerings, and (ii) digital self-service access to our products, services and customer support.
We may not be able to create the global digital experience expected by customers. Our customers expect us to create and maintain a global digital experience, including: (i) automation and simplification of our offerings, and (ii) digital self-service access to our products, services and customer support.
Our vulnerability to cyber-attacks is heightened by several features of our operations, including (i) our material reliance on our networks to conduct our operations, (ii) our transmission of large amounts of data over our systems and (iii) our processing and storage of sensitive customer data.
Our vulnerability to cyber-attacks is heightened by several features of our operations, including (i) our material reliance on our owned and leased networks to conduct our operations, (ii) our transmission of large amounts of data over our systems and (iii) our processing and storage of sensitive customer data.
As of December 31, 2022, approximately 43% of our employees were members of various bargaining units represented by labor unions. Although we have agreements with these labor unions, we cannot predict the outcome of our future negotiations of these agreements.
As of December 31, 2023, approximately 43% of our employees were members of various bargaining units represented by labor unions. Although we have agreements with these labor unions, we cannot predict the outcome of our future negotiations of these agreements.
Challenges with integrating or modernizing our existing applications and systems could harm our performance. To succeed, we need to integrate, update and upgrade our existing applications and systems, including many legacy systems from past acquisitions.
Business Risks Challenges with integrating or modernizing our existing applications and systems could harm our performance. To succeed, we need to integrate, update and upgrade our existing applications and systems, including many legacy systems from past acquisitions.
For these reasons, you are urged to review the risk factor disclosures contained in Item 1A of Lumen’s Annual Report on Form 10-K for the year ended December 31, 2022. We face other business risks.
For these reasons, you are urged to review the risk factor disclosures contained in Item 1A of Lumen’s Annual Report on Form 10-K for the year ended December 31, 2023. 20 We face other business risks.
Moreover, certain governmental agencies frequently reserve the right to terminate their contracts for convenience or if funding is unavailable. If our governmental contracts are terminated for any 19 reason, or if we are suspended or debarred from governmental programs or contracts, it could result in a material adverse impact on our results of operations and financial condition.
Moreover, certain governmental agencies frequently reserve the right to terminate their contracts for convenience or if funding is unavailable. If our governmental contracts are terminated for any reason, or if we are suspended or debarred from governmental programs or contracts, it could have a material adverse impact on our results of operations and financial condition.
We remain vulnerable to future disruptions due to several factors, including aging network elements, human error, continuous changes in our network, the introduction of new products or technologies, vulnerabilities in our vendors or supply chain, aberrant employees and hardware and software limitations.
We remain vulnerable to future disruptions due to several factors, including the challenges of maintaining and replacing aging or obsolete network elements, human error, continuous changes in our network, the introduction of new products or technologies, vulnerabilities in our vendors or supply chain, aberrant employees and hardware and software limitations.
The hybrid working environment may impair our ability to maintain our collaborative and innovative culture, and may cause disruptions among our employees, including decreases in productivity, challenges in collaboration between on-site and off-site employees and, potentially, employee dissatisfaction and 14 attrition. If our attempts to operate under a hybrid working environment are not successful, our business could be adversely impacted.
These work arrangements may impair our ability to maintain our collaborative and innovative culture, and may cause disruptions among our employees, including decreases in productivity, challenges in collaboration between on-site and off-site employees and, potentially, employee dissatisfaction and attrition. If our attempts to operate under a hybrid working environment are not successful, our business could be adversely impacted.
For example, as service providers continue to invest in 5G and low earth orbit satellite networks and services, their services could reduce demand for our network services. Increasingly, customers are demanding more technologically advanced products that suit their evolving needs.
For example, as service providers continue to invest in 5G and low earth orbit satellite networks and services, their services could reduce demand for our network services. Increasingly, customers are demanding more technologically advanced products that suit their evolving needs, including traditional and generative AI services.
In addition, we are exposed to the risk that other carriers may be unwilling or unable to continue or renew these arrangements in the future. Those risks are heightened when the other carrier is a competitor who may benefit from terminating the agreement or imposing price increases.
In addition, we are exposed to the risk that other companies may be unwilling or unable to continue or renew these arrangements in the future. Those risks are heightened when the other company is a competitor who may benefit from terminating the agreement or imposing price increases.
Our significant levels of debt and related debt service obligations could adversely affect us in several respects, including: • requiring us to dedicate a substantial portion of our cash flow from operations to the payment of interest and principal on our debt, thereby reducing the funds available to us for other purposes, including acquisitions, capital expenditures, strategic initiatives and dividends to our direct parent company; • hindering our ability to capitalize on business opportunities and to plan for or react to changing market, industry, competitive or economic conditions; • making us more vulnerable to economic or industry downturns, including interest rate increases (especially with respect to our variable rate debt); • placing us at a competitive disadvantage compared to less leveraged companies; • adversely impacting other parties’ perception of Lumen, including but not limited to existing or potential customers, vendors, employees or creditors; • making it more difficult or expensive for us to obtain any necessary future financing or refinancing, including the risk that this could force us to sell assets or take other less desirable actions to raise capital; and • increasing the risk that we may not meet the financial or non-financial covenants contained in our debt agreements or timely make all required debt payments, either of which could result in the acceleration of some or all of our outstanding indebtedness. 21 The effects of each of these factors could be intensified if we increase our borrowings or experience any downgrade in our credit ratings or those of our affiliates.
Our significant levels of debt and related debt service obligations could adversely affect us in several respects, including: • requiring us to dedicate a substantial portion of our cash flow from operations to the payment of interest and principal on our debt, thereby reducing the funds available to us for other purposes, including acquisitions, capital expenditures, strategic initiatives and dividends to our direct parent company; • hindering our ability to capitalize on business opportunities and to plan for or react to changing market, industry, competitive or economic conditions; • making us more vulnerable to economic or industry downturns, including interest rate increases (especially with respect to our variable rate debt); • placing us at a competitive disadvantage compared to less leveraged companies; • adversely impacting other parties’ perception of Lumen, including but not limited to existing or potential customers, vendors, employees or creditors; • making it more difficult or expensive for us to obtain any necessary future financing or refinancing, including the risk that this could force us to sell assets or take other less desirable actions to raise capital; and • increasing the risk that we may not meet the financial or non-financial covenants contained in our debt agreements or timely make all required debt payments, either of which could result in the acceleration of some or all of our outstanding indebtedness.
Nearly half of the debt of Level 3 Financing, Inc. is (i) secured by a pledge of substantially all of its assets and (ii) guaranteed on a secured basis by certain of its affiliates.
Over half of the debt of Level 3 Financing is (i) secured by a pledge of substantially all of its assets and (ii) guaranteed on a secured basis by certain of its affiliates.
As a large national business with complex operations, we face various other general risks, including among others, the risk that one or more of our ongoing tax audits or examinations could result in tax liabilities that differ materially from those we have recognized in our consolidated financial statements.
As a large national business with complex operations, we face various other general risks, including among others, the risk that one or more of our ongoing tax audits or examinations could result in tax liabilities that differ materially from those we have recognized in our consolidated financial statements. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
We maintain (i) disclosure controls and procedures designed to provide reasonable assurances regarding the accuracy and completeness of our SEC reports and (ii) internal control over financial reporting designed to provide reasonable assurance regarding the reliability and compliance with GAAP of our financial statements. We cannot assure you these measures will be effective.
We maintain (i) disclosure controls and procedures designed to provide reasonable assurances regarding the accuracy and completeness of our SEC reports and (ii) internal control over financial reporting designed to provide reasonable assurance regarding the reliability and compliance with U.S. generally accepted accounting principles ("GAAP") of our financial statements. We cannot assure you these measures will be effective.
We expect to continue to require significant capital to pursue our Quantum Fiber buildout plans and to otherwise maintain, upgrade and expand our network infrastructure, based on several factors, including (i) changes in customers’ service requirements; (ii) our continuing need to expand and improve our network to remain competitive and meet customer demand; and (iii) our regulatory commitments.
We expect to continue to require significant capital to pursue our Quantum Fiber buildout plans and to otherwise maintain, upgrade and expand our network infrastructure and product offerings, based on several factors, including (i) changes in customers’ service requirements; (ii) our need to replace aging or obsolete infrastructure; (iii) our continuing need to expand and improve our network to remain competitive and meet customer demand; and (iv) our regulatory commitments.
On occasion, we have resolved such matters by entering into consent decrees, which are court orders that frequently bind us to specific conduct going forward. If breached by us, these consent decrees expose us not only to contractual remedies, but also to judicial enforcement via contempt of court proceedings, any of which could have material adverse consequences.
On occasion, we have resolved such matters by entering into consent decrees, which are court orders that frequently restrict our future conduct. If breached by us, these consent decrees expose us not only to contractual remedies, but also to judicial enforcement via contempt of court proceedings, any of which could have material adverse consequences.
A substantial number of our facilities are located in areas subject to the risk of earthquakes, floods, wildfires, tornadoes or other similar casualty events.
A substantial number of our facilities are located in areas that subject them to the risk of earthquakes, floods, fires, tornadoes or other similar casualty events.
Some of our current and potential competitors: (i) offer products or services that are substitutes for our traditional wireline services, including wireless broadband, wireless voice and non-voice communication services, (ii) offer a more comprehensive range of communications products and services, (iii) have greater financial, provisioning, technical, engineering, research, development, marketing, customer relations or other resources, (iv) conduct operations or raise capital at a lower cost than we do, (v) are subject to less regulation than we are, (vi) have stronger brand names, (vii) have deeper or more long-standing relationships with key customers, (viii) might be perceived as having an ESG profile more attractive to customers or employees, or (ix) have larger operations than ours, any of which may enable them to compete more successfully for customers, strategic partners and acquisitions.
Some of our current and potential competitors: (i) offer products or services that are substitutes for our traditional wireline services, including wireless broadband, wireless voice and non-voice communication services, (ii) offer a more comprehensive range of communications products and services, (iii) operate systems that enable them to provision services easier and faster, (iv) have greater financial, provisioning, technical, engineering, research, development, marketing, customer relations or other resources, (v) conduct operations or raise capital at a lower cost, (vi) are subject to less regulation, (vii) have stronger brand names, (viii) have deeper or more long-standing relationships with key customers, or (ix) have larger operations than ours, any of which may enable them to compete more successfully for customers, strategic partners and acquisitions.
Prevailing market conditions could be adversely affected by (i) general market conditions, such as disruptions in domestic or overseas sovereign or corporate debt markets, geo-political instabilities, trade restrictions, pandemics, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad, and (ii) specific conditions in the communications industry.
Our ability to obtain additional financing could also depend on prevailing market conditions, which could be adversely affected by (i) general market conditions, such as disruptions in domestic or overseas sovereign or corporate debt markets, geo-political instabilities, trade restrictions, pandemics, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad, and (ii) specific conditions in the communications industry.
Most of the nearly 300 subsidiaries of Lumen Technologies, Inc. have neither borrowed money nor guaranteed any of the debt of Lumen Technologies, Inc. or its affiliates.
Most of the over 200 subsidiaries of Lumen Technologies, Inc. have neither borrowed money nor guaranteed any of the debt of Lumen Technologies, Inc. or its affiliates.
From time to time these events have disrupted our operations, and similar future events could cause substantial damages, including downed transmission lines, flooded facilities, power outages, fuel shortages, network congestion, delay or failure, damaged or destroyed property and equipment, and work interruptions.
From time to time these events have disrupted the operations of us or our affiliates, and similar future events could cause substantial damages, including downed transmission lines, flooded facilities, power outages, fuel shortages, network delays or failures, damaged or destroyed property and equipment, and work interruptions.
Adapting and responding to changing regulatory requirements has historically materially impacted our operations. We believe evolving regulatory developments and regulatory uncertainty could continue to have a material impact on our business. In particular, our business could be materially impacted if the U.S.
We believe evolving regulatory developments and regulatory uncertainty could continue to have a material impact on our business. In particular, our business could be materially impacted if the U.S.
Any failure to timely accomplish these initiatives may negatively affect our (i) customer and employee experiences, (ii) ability to meet regulatory, legal or contractual obligations, (iii) network stability, (iv) ability to realize anticipated efficiencies, (v) ability to timely repair infrastructure and respond to service outages or (vi) ability to deliver services to our customers at required speed and scale. 13 We operate in an intensely competitive industry and existing and future competitive pressures could harm our performance.
Any failure to timely accomplish these initiatives may negatively affect our (i) customer and employee experiences, (ii) ability to meet regulatory, legal or contractual obligations, (iii) network stability, (iv) ability to realize anticipated efficiencies, (v) ability to timely repair infrastructure and respond to service outages or (vi) ability to deliver services to our customers at required speed and scale.
High inflation could continue to adversely impact us. Although inflation appears to be declining, during 2021 and 2022 our operations were impacted by the highest domestic inflation rates in decades. If inflation rates remain elevated, our operations will likely continue to be impacted.
High inflation could continue to adversely impact us. Although inflation has recently been declining, during the past three years, our operations were impacted by the highest domestic inflation rates in decades. If inflation rates remain elevated, our operations will likely continue to be impacted.
Unfavorable general economic, societal or environmental conditions, including unstable economic and credit markets, or depressed economic activity caused by trade wars, epidemics, pandemics, wars, societal unrest, rioting, civic disturbances, natural disasters, terrorist attacks, environmental disasters, political instability or other factors, could negatively affect our business or operations.
Unfavorable general economic, societal, health or environmental conditions, including unstable economic and credit markets, or depressed economic activity caused by trade wars, epidemics, pandemics, wars, societal unrest, rioting, civic disturbances, natural disasters, terrorist attacks, environmental disasters, political instability or other factors, could negatively affect our business or operations in a variety of ways. 28 Shareholder or debtholder activism efforts could cause a material disruption to our business.
In recent years, competitive pressures have commoditized pricing for some of our products and services and lowered market prices for many of our other products and services. Continued competitive pressures will likely place further downward pressure on market pricing.
In recent years, competitive pressures have commoditized pricing for some of our products and services and lowered market prices for many of our other products and services.
We operate in a highly competitive and expanding industry, where competition for highly skilled employees has grown increasingly intense, and we have experienced, and may continue to experience, higher than anticipated levels of employee attrition. Our competitors periodically target our employees with highly sought-after skills and will likely continue to do so in the future.
We operate in a highly competitive and expanding industry, where competition for highly skilled employees has grown increasingly intense and competitors have targeted hiring our employees. We have experienced, and may continue to experience, higher than anticipated levels of employee attrition.
We engage in various intercompany transactions with affiliates of Lumen that are not members of our consolidated group of companies.
Our consolidated operations constitute only a portion of the consolidated operations of our corporate parent, Lumen. We engage in various intercompany transactions with affiliates of Lumen that are not members of our consolidated group of companies.
Financial Risks Our significant debt levels expose us to a broad range of risks. As of December 31, 2022, we had $2.2 billion of outstanding consolidated unsecured indebtedness (excluding finance lease obligations, unamortized discounts, net and unamortized debt issuance costs, and note payable-affiliate).
As of December 31, 2023, we had $2.2 billion of outstanding consolidated unsecured indebtedness (excluding finance lease obligations, unamortized discounts, net and unamortized debt issuance costs, and note payable-affiliate).
Consequently, you should assume we will be unable to implement security barriers or other preventative measures that repel all future cyber-attacks. 15 Although Lumen Technologies maintains insurance coverage that may, subject to policy terms and conditions (including self-insured deductibles, coverage restrictions and monetary coverage caps), cover certain aspects of our cyber risks, such insurance coverage may be unavailable or insufficient to cover our losses.
Although Lumen Technologies maintains insurance coverage that may, subject to policy terms and conditions (including self-insured deductibles, coverage restrictions and monetary coverage caps), cover certain aspects of our cyber risks, such insurance coverage may be unavailable or insufficient to cover our losses.
We believe some of our competitors with greater resources and fewer cost constraints than us have from time to time been able to offer compensation, benefits or accommodations in excess of what we are able to offer. These risks to attracting and retaining the necessary talent may be exacerbated by inflationary pressures on employee wages and benefits.
We believe some of our competitors with greater resources and fewer cost constraints than us have from time to time been able to offer compensation, benefits or accommodations in excess of what we are able to offer.
These threats may also arise from failure or breaches of systems owned, operated or controlled by other unaffiliated operators to the extent we rely on them to operate our business.
These threats may also arise from failure or intrusions of systems owned, operated or controlled by other unaffiliated operators, upon whom we are materially reliant to operate our business.
If we are unable to make required debt payments or refinance our debt, we would likely have to consider other options, such as selling assets, issuing additional securities, cutting or delaying costs or otherwise reducing our cash requirements, or negotiating with our lenders to restructure our applicable debt.
For these and other reasons, we can give no assurance additional financing for any of these purposes will be available on terms acceptable to us, or at all. 24 If we are unable to make required debt payments or refinance our debt, we would likely have to consider other options, such as selling assets, issuing additional securities, cutting or delaying costs or otherwise reducing our cash requirements, or negotiating with our lenders to restructure our applicable debt.
Consequently, we have experienced declining consolidated revenues (excluding acquisitions) for a prolonged period and have not been able to realize cost savings sufficient to fully offset the decline. More recently, we have experienced declines in revenue derived from a broader array of our products and services. We have thus far been unable to reverse our annual revenue losses (excluding acquisitions).
More recently, we have experienced declines in revenue derived from a broader array of our products and services. We have thus far been unable to reverse our annual revenue losses (excluding acquisitions).
We face other financial risks, including among others the risk that downgrades in our credit ratings or unfavorable financial analyst reports regarding us, our affiliates, or our industry could adversely impact the liquidity or market prices of our outstanding debt securities. 24 General Risk Factors An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic, could have a material adverse impact on us.
We face other financial risks. We face other financial risks, including among others the risk that downgrades in our credit ratings or unfavorable financial analyst reports regarding us, our affiliates, or our industry could adversely impact the liquidity or market prices of our outstanding debt securities.
Climate change may increase the frequency or severity of natural disasters and other extreme weather events in the future, which would increase our exposure to the above-cited risks and could disrupt our supply chain from our key suppliers and vendors. 17 Our environmental, social and governance commitments and disclosures may expose us to reputational and legal risks.
Any of these occurrences could result in lost revenues from business interruption, damage to our reputation and reduced profits. Climate change may increase the frequency or severity of natural disasters and other extreme weather events in the future, which would increase our exposure to the above-cited risks and could disrupt our supply chain from our key suppliers and vendors.
If any of these vendors experience business interruptions, security breaches, litigation or other issues that interfere with their ability to deliver their products or services on a timely basis, our operations could suffer significantly.
Our operations could be adversely affected if any of these vendors experience business interruptions, security incidents, litigation or other issues that interfere with their ability to deliver their products or services on a timely basis. Reliance on key licensors. We rely on key technologies licensed from third parties to deliver certain of our products and services.
Our ability to successfully compete could be hampered if we fail to timely develop and market innovative technology solutions that address changing customer demands. The technology and communications industry has been and continues to be impacted by significant technological changes, which are enabling an increasing variety of companies to compete with us.
The technology and communications industry has been and continues to be impacted by significant technological changes, which are enabling an increasing variety of companies to compete with us.
In addition, we could be criticized for the timing, scope or nature of these initiatives, goals, or commitments, or for any revisions to them. To the extent that our required and voluntary disclosures about ESG matters increase, we could be criticized for the accuracy, adequacy or completeness of such disclosures.
These initiatives, goals, or commitments could be difficult to achieve and costly to implement. To the extent that our required and voluntary disclosures about ESG matters increase, we could be criticized for their accuracy, adequacy, or completeness. We could fail to achieve, or be perceived to fail to achieve, our ESG-related initiatives, goals, or commitments.
Several of our services continue to experience declining revenue, and our efforts to offset these declines may not be successful. Primarily as a result of the competitive and technological changes discussed above, we have experienced a prolonged systemic decline in our local voice, long-distance voice, network access and private line revenues.
Primarily as a result of the competitive and technological changes discussed above, we have experienced a prolonged systemic decline in our local voice, long-distance voice, network access and private line revenues. Consequently, we have experienced declining consolidated revenues (excluding acquisitions) for a prolonged period and have not been able to realize cost savings sufficient to fully offset the decline.
Increased costs under these plans could reduce Lumen’s profitability and increase its funding commitments to its pension plans, which in turn could affect our liquidity.
Increased costs under these plans could reduce Lumen’s profitability and increase its funding commitments to its pension plans, which in turn could affect our liquidity. See Note 9—Employee Benefits for additional information regarding the funded status of Lumen's pension plans and Lumen's other post-retirement benefit plans.
A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal and other data. The European Union and other international regulators, as well as some state governments, have recently enacted or enhanced data privacy regulations, and other governments are considering establishing similar or stronger protections.
A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal and other data.
Subject to certain limitations and restrictions, the current terms of our debt instruments and our subsidiaries’ debt instruments permit us or them to incur additional indebtedness. We expect to periodically require financing, and we cannot assure you we will be able to obtain such financing on terms that are acceptable to us, or at all.
We expect to periodically require financing, and we cannot assure you we will be able to obtain such financing on terms that are acceptable to us, or at all. We expect to periodically require financing in the future to refinance existing indebtedness and potentially for other purposes.
If we are required to record intangible asset impairments, we will be required to record a significant charge to earnings and reduce our stockholders' equity. As of December 31, 2022, approximately 50% of our total consolidated assets reflected on the consolidated balance sheet included in this annual report consisted of goodwill, customer relationships and other intangible assets.
As of December 31, 2023, approximately 43% of our total consolidated assets reflected on the consolidated balance sheet included in this annual report consisted of goodwill and other intangible assets. In the fourth quarter of 2023, we recorded a large non-cash charge to earnings in connection with required reductions of the value of our intangible assets.
Due to substantial deductibles, coverage limits and exclusions, and limited availability, we have typically recovered only a portion of our losses through insurance.
Due to substantial deductibles, coverage limits and exclusions, and limited availability, we have typically recovered only a portion of our losses through insurance. Our system redundancy and other measures we take to protect our infrastructure and operations from the impacts of such events may be ineffective or inadequate to sustain our operations following such events.
Our brand and reputation could be impacted by our public commitments to various corporate environmental, social and governance ("ESG") initiatives, including our political contributions, our advocacy positions, and our goals for sustainability, inclusion and diversity. Positions we take or do not take on ESG issues could negatively impact our ability to attract or retain customers and employees.
Our environmental, social and governance (ESG) commitments, programs and disclosures may expose us to reputational, legal and business risks. Our reputation and brands could be impacted by our public commitments to various corporate environmental, social and governance (ESG) initiatives, including our political contributions, our advocacy positions, and our goals for sustainability, inclusion and diversity.
However, our corporate reputation is susceptible to material damage by events such as disputes with customers or competitors, cyber-attacks or service outages, internal control deficiencies, delivery failures, compliance violations, government investigations or legal proceedings. Similar events impacting one of our competitors could result in negative publicity for our entire industry that indirectly harms our business.
We believe the Lumen and Qwest brand names and our reputation are important corporate assets that help us attract and retain customers and talented employees. However, our corporate reputation is susceptible to material damage by events such as disputes with customers or competitors, cyber-attacks or service outages, internal control deficiencies, delivery failures, compliance violations, government investigations or legal proceedings.
We may also experience reputational damage if customers, vendors, employees, advocacy groups, regulators, investors, the media, social media influencers or others criticize our services, operations or public positions. There is a risk that negative or inaccurate information about us, even if based on rumor or misunderstanding, could adversely affect our business.
Similar events impacting one of our competitors could result in negative publicity for our entire industry that indirectly harms our business. We may also experience reputational damage if customers, vendors, employees, advocacy groups, regulators, investors, the media, social media influencers or others criticize our services, operations or public positions.
We expect to periodically require financing in the future to refinance existing indebtedness and potentially for other purposes. Our ability to arrange additional financing will depend on, among other factors, our financial position, performance, credit ratings, and debt covenants, as well as prevailing market conditions and other factors beyond our control.
Our ability to arrange additional financing will depend on, among other factors, our financial position, performance, credit ratings, and debt covenants.
The process for remediating any interruptions, outages, delays or cessations of service could be more expensive, time-consuming, disruptive and resource intensive than planned. Delayed sales, lower margins, fines or lost customers resulting from future disruptions could have a material adverse impact on our business, reputation, results of operations, financial condition, cash flows and stock price.
Delayed sales, lower margins, fines or lost customers resulting from future disruptions could have a material adverse impact on our business, reputation, results of operations, financial condition, cash flows and stock price. 18 Several of our services continue to experience declining revenue, and our efforts to offset these declines may not be successful.
Many of these laws are complex and change frequently and often conflict with the laws in other jurisdictions. Some of our customers impose similar requirements on us that are equally or more demanding. Despite our best efforts to comply with these governmental or contractual requirements, any noncompliance could result in incurring potential substantial penalties and reputational damage.
Some of our customers impose similar requirements on us that are equally or more demanding. If we fail to comply with any of these governmental or contractual requirements, we could incur potential substantial penalties and reputational damage. 21 Adapting and responding to changing regulatory requirements has historically materially impacted our operations.
See Note 9—Employee Benefits for additional information regarding the funded status of Lumen's pension plans and Lumen's other post-retirement benefit plans. 23 Lapses in our disclosure controls and procedures or internal control over financial reporting could materially and adversely affect us.
Lapses in our disclosure controls and procedures or internal control over financial reporting could materially and adversely affect us.
You should be further aware that defenses against cyber-attacks currently available to U.S. companies are unlikely to prevent intrusions by a highly-determined, highly-sophisticated hacker.
It should also be noted that defenses against cyber-attacks currently available to us and others are unlikely to prevent intrusions by a highly-determined, highly-sophisticated threat actor. Consequently, you should assume that we will continue to experience cyber incidents in the future.
Cyber-attacks can take many forms, including computer hackings, computer viruses, ransomware, worms or other destructive or disruptive software, denial of service attacks, or other malicious activities. Cyber-attacks can put at risk personally identifiable customer data or protected health information, thereby implicating stringent domestic and foreign data protection laws.
As further described in Item 1C of this annual report, cyber-attacks on our systems may stem from a variety of sources and take many forms. Cyber-attacks can put at risk personally identifiable customer data or protected health information, thereby implicating stringent domestic and foreign data protection laws.
If we are unsuccessful in protecting or enforcing our intellectual property rights, then our business, competitive position, results of operations and financial condition could be adversely affected. 20 We have been accused of infringing the intellectual property rights of others and will likely face similar accusations in the future.
If we are unsuccessful in protecting or enforcing our intellectual property rights, our business, competitive position, results of operations and financial condition could be adversely affected. 22 Issues related to the development and use of artificial intelligence (AI) could give rise to legal or regulatory actions, damage our reputation or otherwise materially harm our business.
When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument. Our cash flows may not adequately fund all of our cash requirements. Our business is very capital intensive.
When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument. 25 Certain debtholders of our affiliate, Level 3, may seek to claim that Level 3’s use of proceeds following the sale of its Latin American business resulted in potential defaults under its credit documents.
Our management previously identified a material weakness related to our accounting for revenue transactions. Although we successfully remediated this material weakness during 2019, the deficiency was costly to remediate and caused us to request an extension in order to timely file our annual report on Form 10-K for the year ended December 31, 2018.
Our and Lumen's management previously identified two material weaknesses that, while successfully remediated during 2019, were costly to remediate and delayed the filing of Lumen's annual report on Form 10-K for the year ended December 31, 2018. 27 If we are required to record additional intangible asset impairments, we will be required to record a significant charge to earnings and reduce our stockholders' equity.
Removed
As a result, we may be unable to cost-effectively hire and retain employees with market-leading skills. There is no assurance our efforts to recruit and retain qualified personnel will be successful. If we are unable to do so, such failure could have a material adverse effect on our operations and financial condition.
Added
We operate in an intensely competitive industry and existing and future competitive pressures could harm our performance.
Removed
The COVID-19 pandemic caused us to modify our workforce practices, including having the majority of our employees work from home on a fully remote or hybrid basis. We reopened our offices in 2022 under a “hybrid” working environment, meaning that some of our employees have the flexibility to work remotely at least some of the time, for the foreseeable future.
Added
Continued competitive pressures will likely place further downward pressure on market pricing. 15 Our ability to successfully compete could be hampered if we fail to timely develop and market innovative technology solutions that address changing customer demands.
Removed
We do not expect these developments to have a material adverse impact on us, but we can provide no assurances to this effect. We could be harmed if our reputation is damaged. We believe the Lumen and Qwest brand names and our reputation are important corporate assets that help us attract and retain customers and talented employees.
Added
As we note below, several of our competitors have dedicated substantially more resources to their development. If we fail to develop competitive AI services, our business and financial performance could be adversely impacted.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeHowever, we also lease from third parties certain facilities, plant and equipment and software under various finance and operating lease arrangements when the leasing arrangements are more favorable to us than owning the assets. We also own and lease administrative offices in major metropolitan locations primarily within our local service area.
Biggest changeHowever, we also lease from third parties certain facilities, plant and equipment and software under various finance and operating lease arrangements. We also own and lease administrative offices in major metropolitan locations primarily within our local service area.
It is possible that we may lose our rights under one or more of these agreements, due to their termination or expiration or in connection with legal challenges to our rights under such agreements. Our net property, plant and equipment was approximately $8.3 billion and $8.2 billion at December 31, 2022 and 2021, respectively.
It is possible that we may lose our rights under one or more of these agreements, due to their termination or expiration or in connection with legal challenges to our rights under such agreements. 31 Our net property, plant and equipment was approximately $8.7 billion and $8.3 billion at December 31, 2023 and 2022, respectively.
Our gross property, plant and equipment consisted of the following components: As of December 31, 2022 2021 Land 2 % 2 % Fiber, conduit and other outside plant (1) 43 % 43 % Central office and other network electronics (2) 33 % 34 % Support assets (3) 17 % 18 % Construction in progress (4) 5 % 3 % Gross property, plant and equipment 100 % 100 % _______________________________________________________________________________ (1) Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures.
Our gross property, plant and equipment consisted of the following components: As of December 31, 2023 2022 Land 2 % 2 % Fiber, conduit and other outside plant (1) 42 % 43 % Central office and other network electronics (2) 32 % 33 % Support assets (3) 17 % 17 % Construction in progress (4) 7 % 5 % Gross property, plant and equipment 100 % 100 % _______________________________________________________________________________ (1) Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeMINE SAFETY DISCLOSURES Not applicable. 26 PART II Unless the context requires otherwise, (i) references in this report to "QC" refer to Qwest Corporation, (ii) references to "Qwest," "we," "us," "the Company" and "our" refer to Qwest Corporation and its consolidated subsidiaries, (iii) references to "QSC" refer to our direct parent company, Qwest Services Corporation and its consolidated subsidiaries, (iv) references to "QCII" refer to QSC's direct parent company and our indirect parent company, Qwest Communications International Inc., and its consolidated subsidiaries and (v) references to "Lumen Technologies", or "Lumen Technologies, Inc." or "Lumen" refer to QCII's direct parent company and our ultimate parent company, Lumen Technologies, Inc., and its consolidated subsidiaries including Level 3 Parent, LLC, referred to as "Level 3".
Biggest changeMINE SAFETY DISCLOSURES Not applicable. 32 PART II Unless the context requires otherwise, (i) references in this report to "QC" refer to Qwest Corporation, (ii) references to "Qwest," "we," "us," "the Company" and "our" refer to Qwest Corporation and its consolidated subsidiaries, (iii) references to "QSC" refer to our direct parent company, Qwest Services Corporation and its consolidated subsidiaries, (iv) references to "QCII" refer to QSC's direct parent company and our indirect parent company, Qwest Communications International Inc., and its consolidated subsidiaries and (v) references to "Lumen Technologies", or "Lumen Technologies, Inc." or "Lumen" refer to QCII's direct parent company and our ultimate parent company, Lumen Technologies, Inc., and its consolidated subsidiaries including Level 3 Parent, LLC, referred to as "Level 3".

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeConsolidated Financial Statements and Supplementary Data 39 Consolidated Statements of Operations 41 Consolidated Balance Sheets 42 Consolidated Statements of Cash Flows 43 Consolidated Statements of Stockholder's Equity 44 Notes to Consolidated Financial Statements 45
Biggest changeConsolidated Financial Statements and Supplementary Data 48 Consolidated Statements of Operations 50 Consolidated Balance Sheets 51 Consolidated Statements of Cash Flows 52 Consolidated Statements of Stockholder's Equity 53 Notes to Consolidated Financial Statements 54
Item 6. [Reserved] 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 38 Item 8.
Item 6. [Reserved] 33 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 47 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe decrease was primarily due to (i) decreases in our voice, traditional broadband, and Ethernet services and (ii) a $132 million reduction in CAF II program revenue for the year ended December 31, 2022 compared to 2021 due to the conclusion of the CAF II program on December 31, 2021.
Biggest changeWithin each product category, this decrease was primarily due to: • Decreases in Other Broadband by $164 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to decreased subscribers to our low speed broadband services; • Decreases in Voice and Other by $102 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily attributable to (i) a decrease of $87 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 from a decline in voice services and (ii) a decrease of $13 million related to recognition in the first quarter of 2022 of previously deferred revenue related to the CAF II program, which lapsed on December 31, 2021, impacting the year ended December 31, 2023 as compared to the year ended December 31, 2022; • Decreases in Harvest by $86 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily attributable to declines in legacy voice services for business customers of $58 million; • Decreases in Nurture by $42 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to declines in Ethernet services. 36 • Decreases in Grow by $14 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to declines in wavelengths services.
Our ultimate parent company, Lumen Technologies, Inc., has cash management arrangements or loan arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends. As part of these cash management or loan arrangements, affiliates provide lines of credit to certain other affiliates.
Our ultimate parent company, Lumen Technologies, Inc., has cash management arrangements or loan arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends. As part of these cash management or loan arrangements, affiliates provide lines of credit to certain other affiliates.
Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate.
Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate.
None of our outstanding debt is due in the next 12 months (excluding finance lease obligations). 34 Subject to market conditions, and to the extent permitted under applicable debt covenants, Qwest Corporation may issue debt securities from time to time in the future primarily to refinance a portion of our maturing debt.
None of our outstanding debt is due in the next 12 months (excluding finance lease obligations). Subject to market conditions, and to the extent permitted under applicable debt covenants, Qwest Corporation may issue debt securities from time to time in the future primarily to refinance a portion of our maturing debt.
Related to debt, as noted in Note 6—Long-Term Debt and Note Payable - Affiliate, we have long-term obligations of $2.2 billion, with $2 million of current maturities and no obligations related to note payable - affiliate, as discussed above.
Related to debt, as noted in Note 6—Long-Term Debt and Note Payable - Affiliate, we have long-term obligations of $2.2 billion, with $1 million of current maturities and no obligations related to note payable - affiliate, as discussed above.
The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned to Qwest Corporation by credit rating agencies, among other factors. As of the filing date of this report, the credit ratings for Qwest Corporation's senior unsecured debt were as follows: Agency Credit Ratings Standard & Poor's BB Moody's Investors Service, Inc.
The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned to Qwest Corporation by credit rating agencies, among other factors. As of the filing date of this report, the credit ratings for Qwest Corporation's senior unsecured debt were as follows: Agency Credit Ratings Standard & Poor's B Moody's Investors Service, Inc.
In addition, we provide to our affiliates application development and support services, network support and technical services. From time to time, we may change the categorization of our products and services.
In addition, we provide to our affiliates application development and support services and network support. From time to time, we may change the categorization of our products and services.
The amount of Lumen’s consolidated capital investment, and our portion thereof, is influenced by, among other things, demand for Lumen’s services and products, cash flow generated by operating activities, cash required for other purposes, regulatory considerations (such governmentally mandated infrastructure buildout requirements), and the availability of requisite supplies, labor and permits.
The amount of Lumen’s consolidated capital investment, and our portion thereof, is influenced by, among other things, demand for Lumen’s services and products, our network requirements, cash flow generated by operating activities, cash required for debt services and other purposes, regulatory considerations (such governmentally mandated infrastructure buildout requirements), and the availability of requisite supplies, labor and permits.
See Note 9—Employee Benefits to the consolidated financial statements in Item 8 of Part II of this report and Note 11—Employee Benefits to the consolidated financial statements in Item 8 of Part II of Lumen's annual report on Form 10-K for the year ended December 31, 2022 for additional information about our and Lumen's pension and post-retirement benefit arrangements.
See Note 9—Employee Benefits to the consolidated financial statements in Item 8 of Part II of this report and Note 11—Employee Benefits to the consolidated financial statements in Item 8 of Part II of Lumen's annual report on Form 10-K for the year ended December 31, 2023 for additional information about our and Lumen's pension and post-retirement benefit arrangements.
Affiliate Transactions We recognize intercompany charges at the amounts billed to us by our affiliates and we recognize intercompany revenue for services we bill to our affiliates.
Affiliate Transactions We recognize intercompany charges for the amounts billed to us by our affiliates and we recognize intercompany revenue for services we bill to our affiliates.
Benefits paid by Lumen's qualified pension plan are paid through a trust that holds all of the plan's assets. Based on current laws and circumstances, Lumen Technologies does not expect any contributions to be required for their qualified pension plan during 2023.
Benefits paid by Lumen's qualified pension plan are paid through a trust that holds all of the plan's assets. Based on current laws and circumstances, Lumen Technologies does not expect any contributions to be required for their qualified pension plan during 2024.
The amount of required contributions to Lumen's qualified pension plan in 2024 and beyond will depend on a variety of factors, most of which are beyond their control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations.
The amount of required contributions to Lumen's qualified pension plan in 2025 and beyond will depend on a variety of factors, most of which are beyond their control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations.
You can find descriptions of these legal proceedings in Lumen's quarterly and annual reports filed with the SEC. Because we are not a party to any of the matters, we have not accrued any liabilities for these matters as of December 31, 2022.
You can find descriptions of these legal proceedings in Lumen's quarterly and annual reports filed with the SEC. Because we are not a party to any of the matters, we have not accrued any liabilities for these matters as of December 31, 2023.
The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. 33 The measurement of deferred taxes often involves the exercise of considerable judgment related to the realization of tax basis.
The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. 42 The measurement of deferred taxes often involves the exercise of considerable judgment related to the realization of tax basis.
Market Risk As of December 31, 2022, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations, amended and restated revolving promissory note and fluctuations in certain foreign currencies.
Market Risk As of December 31, 2023, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations, amended and restated revolving promissory note and fluctuations in certain foreign currencies.
Lumen Technologies occasionally makes voluntary contributions in addition to required contributions and reserves the right to do so in the future. Lumen Technologies has advised that it does not expect to make a voluntary contribution to the trust of the qualified pension plan in 2023.
Lumen Technologies occasionally makes voluntary contributions in addition to required contributions and reserves the right to do so in the future. Lumen Technologies has advised that it does not expect to make a voluntary contribution to the trust of the qualified pension plan in 2024.
Actual values may differ materially from those disclosed by us from time to time if market conditions vary from the assumptions used in the analyses performed. Our analyses only incorporate the risk exposures that existed at December 31, 2022.
Actual values may differ materially from those disclosed by us from time to time if market conditions vary from the assumptions used in the analyses performed. Our analyses only incorporate the risk exposures that existed at December 31, 2023.
For 2023, Lumen's expected annual long-term rate of return on these assets is 6.5%. However, actual returns could be substantially different. 36 For additional information, see "Risk Factors—Financial Risks in Item 1A of Part I of this report.
For 2024, Lumen's expected annual long-term rate of return on these assets is 6.5%. However, actual returns could be substantially different. For additional information, see "Risk Factors—Financial Risks in Item 1A of Part I of this report.
A hypothetical increase of 100 basis points in LIBOR relative to this debt would decrease our annual pre-tax earnings by $2 million. At December 31, 2022, we had no debt which was owed to an affiliate of our ultimate parent, Lumen Technologies, Inc under the note payable-affiliate.
A hypothetical increase of 100 basis points in SOFR relative to this debt would decrease our annual pre-tax earnings by $2 million. At December 31, 2023, we had no debt which was owed to an affiliate of our ultimate parent, Lumen Technologies, Inc under the note payable-affiliate.
In 2015, we agreed to a plan to settle the outstanding pension and post-retirement affiliate obligations, net balance with QCII over a 30 year term. Under the plan, payments are scheduled to be made on a monthly basis. For the year ended December 31, 2022, we made net settlement payments of $61 million to QCII in accordance with the plan.
In 2015, we agreed to a plan to settle the outstanding pension and post-retirement affiliate obligations, net balance with QCII over a 30 year term. Under the plan, payments are scheduled to be made on a monthly basis. For the year ended December 31, 2023, we made net settlement payments of $57 million to QCII in accordance with the plan.
We are continuing to enhance our product capabilities and simplify our product portfolio based on demand and profitability to enable customers to have access to greater bandwidth. • Businesses continue to adopt distributed, large-scale operating models.
We are continuing to enhance our product capabilities and simplify our product portfolio based on demand and profitability to enable customers to have access to greater bandwidth. • Businesses continue to adopt distributed, global operating models.
Ba2 Fitch Ratings BB Lumen's and Qwest Corporation's credit ratings are reviewed and adjusted from time to time by the rating agencies. Any future changes in the senior unsecured or secured debt ratings of us or our subsidiaries could impact our access to capital or borrowing costs.
Caa3 Fitch Ratings B+ Lumen's and Qwest Corporation's credit ratings are reviewed and adjusted from time to time by the rating agencies. Any future changes in the senior unsecured or secured debt ratings of us or our subsidiaries could impact our access to capital or borrowing costs.
From time to time over the past couple of years, we have engaged in various refinancings, redemptions, tender offers, open market purchases and other transactions designed to reduce our consolidated indebtedness, lower our interest costs, improve our financial flexibility or otherwise enhance our debt profile. We plan to continue to pursue similar transactions in the future.
From time to time over the past couple of years, we have engaged in various refinancings, redemptions, tender offers, open market purchases and other transactions designed to reduce our consolidated indebtedness, lower our interest costs, improve our financial flexibility or otherwise enhance our debt profile.
Additionally, we have a current obligation for asset retirement obligations of $6 million and a long-term obligation of $26 million. Dividends We periodically pay dividends to QSC, our direct parent company, which reduce our capital resources for debt repayments and other purposes.
Additionally, we have a current obligation for asset retirement obligations of $3 million and a long-term obligation of $27 million. Dividends We periodically pay dividends to QSC, our direct parent company, which reduce our capital resources for debt repayments and other purposes.
Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the Obama Administration. In November 2021, the U.S.
Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the a prior administration. In late 2021, the U.S.
Changes in the affiliate obligations, net are reflected in operating activities on our consolidated statements of cash flows. For the year ended 2023, we expect to make aggregate settlement payments of $57 million to QCII under the plan. For 2022, Lumen's expected annual long-term rate of return on pension plan assets, net of administrative expenses was 5.5%.
Changes in the affiliate obligations, net are reflected in operating activities on our consolidated statements of cash flows. For the year ended 2024, we expect to make aggregate settlement payments of $52 million to QCII under the plan. 45 For 2023, Lumen's expected annual long-term rate of return on pension plan assets, net of administrative expenses was 6.5%.
At December 31, 2022, we served approximately 2.5 million broadband subscribers. Our methodology for counting broadband subscribers may not be comparable to those of other companies.
At December 31, 2023, we served approximately 2.1 million broadband subscribers. Our methodology for counting broadband subscribers may not be comparable to those of other companies.
Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants. As of the date of this report, various state and federal agencies are continuing to take steps to make this funding available to eligible applicants, including us. It remains premature to speculate on the potential impact of this legislation on us.
Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants. As of the date of this report, various state and federal agencies are continuing to take steps to make this funding available to eligible applicants, including us.
Additionally, as discussed further elsewhere herein, the pandemic and macroeconomic changes arising therefrom have resulted in (i) increases in certain revenue streams and decreases in others, (ii) increases in overtime expenses during 2020 and 2021, (iii) operational challenges resulting from shortages of certain components and other supplies that we use in our business, (iv) delays in our cost transformation initiatives, and (v) delayed decision-making by certain of our customers.
Additionally, as discussed further elsewhere herein, the pandemic and macroeconomic changes arising therefrom have resulted in (i) increases in certain revenue streams and decreases in others, (ii) operational challenges resulting from inflation and, to a lesser extent, shortages of certain components and other supplies that we use in our business, (iii) delays in our cost transformation initiatives and (iv) delayed decision-making by certain of our customers.
Overview We are an integrated facilities-based communications company focused on providing our business and mass markets customers with a broad array of communications products and services. Our specific products and services are detailed in Note 3—Revenue Recognition and below under the heading "Operations - Products and Services" in Item 1 of Part I of this report.
Overview We are a facilities-based technology and communications company that provides a broad array of integrated communications products and services to our business and mass markets customers. Our specific products and services are detailed in Note 3—Revenue Recognition and below under the heading "Operations - Products and Services" in Item 1 of Part I of this report.
Under our operating leases as noted in Note 4—Leases, we have a current obligation, including interest, of $24 million and a long-term obligation of $66 million. As noted in Note 14—Commitments, Contingencies and Other Items, we have a current obligation related to right-of-way agreements and purchase commitments of $59 million and a long-term obligation of $139 million.
Under our operating leases as noted in Note 4—Leases, we have a current obligation, including interest, of $22 million and a long-term obligation of $52 million. As noted in Note 14—Commitments, Contingencies and Other Items, we have a current obligation related to right-of-way agreements and purchase commitments of $48 million and a long-term obligation of $125 million.
Lumen Technologies is involved in several legal proceedings to which we are not a party that, if resolved against it, could have a material adverse effect on its business and financial condition. As a wholly owned subsidiary of Lumen Technologies, our business and financial condition could be similarly affected.
See Note 14—Commitments, Contingencies and Other Items for additional information. Lumen Technologies is involved in several legal proceedings to which we are not a party that, if resolved against it, could have a material adverse effect on its business and financial condition. As a wholly owned subsidiary of Lumen Technologies, our business and financial condition could be similarly affected.
At December 31, 2022, we had approximately $2.0 billion (excluding finance lease and other obligations) of long-term debt outstanding which bears interest at fixed rates and is therefore not exposed to interest rate risk. At December 31, 2022, we had $215 million floating rate debt exposed to changes in the London InterBank Offered Rate (LIBOR).
At December 31, 2023, we had approximately $2.0 billion (excluding finance lease and other obligations) of long-term debt outstanding which bears interest at fixed rates and is therefore not exposed to interest rate risk. At December 31, 2023, we had $215 million floating rate debt exposed to changes in the Secured Overnight Financing Rate ("SOFR").
Our provision for income taxes includes amounts for tax consequences deferred to future periods. We record deferred income tax assets and liabilities reflecting future tax consequences attributable to tax credit carryforwards and differences between the financial statement carrying value of assets and liabilities and the tax bases of those assets and liabilities.
We record deferred income tax assets and liabilities reflecting future tax consequences attributable to tax credit carryforwards and differences between the financial statement carrying value of assets and liabilities and the tax bases of those assets and liabilities.
Depreciation and Amortization The following table provides detail of our depreciation and amortization expense: Years Ended December 31, % Change 2022 2021 (Dollars in millions) Depreciation $ 781 833 (6) % Amortization 79 176 (55) % Total depreciation and amortization $ 860 1,009 (15) % 31 Annual depreciation expense is impacted by several factors, including changes in our depreciable cost basis, changes in our estimates of the remaining economic life of certain network assets and the addition of new plant.
Depreciation and Amortization The following table provides detail of our depreciation and amortization expense: Years Ended December 31, % Change 2023 2022 (Dollars in millions) Depreciation $ 756 781 (3) % Amortization 67 79 (15) % Total depreciation and amortization $ 823 860 (4) % Annual depreciation expense is impacted by several factors, including changes in our depreciable cost basis, changes in our estimates of the remaining economic life of certain network assets and the addition of new plant.
We are expanding and densifying our fiber network, connecting more buildings to our network to generate revenue opportunities and reduce our costs associated with leasing networks from other carriers. • Changes in customer preferences and in the regulatory, technological and competitive environment are (i) significantly reducing demand for our more mature service offerings, commoditizing certain of our other offerings, or resulting in volume or rate reductions for other of our offerings and (ii) also creating certain opportunities for us arising out of increased demand for lower latency provided by Edge computing and for faster and more secure data transmissions. • The operating margins of several of our newer, more technologically advanced services, some of which may connect to customers through other carriers, are lower than the operating margins on our traditional, on-net wireline services. • Declines in our traditional wireline services and other more mature offerings have necessitated right-sizing our cost structures to remain competitive.
We are expanding and enhancing our fiber network, connecting more buildings to our network to generate revenue opportunities and reducing our reliance upon other carriers. • Changes in customer preferences and in the regulatory, technological and competitive environment are (i) significantly reducing demand for our more mature service offerings, commoditizing certain of our other offerings, or resulting in volume or rate reductions for other of our offerings and (ii) also creating certain opportunities for us arising out of increased demand for lower latency provided by Edge computing and for faster and more secure data transmissions. • The operating margins of several of our newer, more technologically advanced services, some of which may connect to customers through other carriers, are lower than the operating margins on our traditional, on-net wireline services. • Uncertainties regarding our financial performance, leverage and the debt covenant compliance of our affiliates have caused, and may continue to cause, certain of our customers and other third parties to reduce or cease transacting business with us. • Declines in our traditional wireline services and other more mature offerings have necessitated right-sizing our cost structures to remain competitive.
At December 31, 2022, the accounting unfunded status of Lumen's qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was approximately $615 million and $2.0 billion, respectively.
At December 31, 2023, the accounting unfunded status of Lumen's qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was approximately $769 million and $1.9 billion, respectively.
See Note 13—Affiliate Transactions for additional information. Income Taxes We are included in the consolidated federal income tax return of Lumen Technologies. Under Lumen's tax allocation policy, Lumen treats our consolidated results as if we were a separate taxpayer.
See Note 13—Affiliate Transactions for additional information. Income Taxes We are included in the consolidated federal income tax return of Lumen Technologies. Lumen Technologies treats our consolidated results as if we were a separate taxpayer. We are required to pay our tax liabilities to Lumen Technologies based upon our separate return taxable income.
Cash Flow Activities The following table summarizes our consolidated cash flow activities: Years Ended December 31, (Decrease) / Increase 2022 2021 (Dollars in millions) Net cash provided by operating activities $ 2,626 3,033 (407) Net cash used in investing activities (1,349) (751) 598 Net cash used in financing activities (1,271) (2,293) (1,022) Operating Activities Net cash provided by operating activities decreased by $407 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily due to lower net income adjusted for non-cash items and partially offset by increases related to changes in working capital.
Cash Flow Activities The following table summarizes our consolidated cash flow activities: Years Ended December 31, (Decrease) / Increase 2023 2022 (Dollars in millions) Net cash provided by operating activities $ 2,389 2,626 (237) Net cash used in investing activities (466) (1,349) (883) Net cash used in financing activities (1,921) (1,271) 650 Operating Activities Net cash provided by operating activities decreased by $237 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to a net loss adjusted for non-cash items and partially offset by increases related to changes in working capital.
Other Matters We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. See Note 14—Commitments, Contingencies and Other Items for additional information.
See Note 6—Long-Term Debt and Note Payable - Affiliate for additional information on our outstanding debt securities and financing activities. Other Matters We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows.
In early 2020, the FCC created the Rural Digital Opportunity Fund ( the "RDOF"), which is a new federal support program designed to replace the CAF Phase II program.
Federal Broadband Support Programs In early 2020, the FCC created the Rural Digital Opportunity Fund ( the "RDOF"), which is a federal support program designed to fund broadband development in rural America.
For additional information on these programs, see "Business—Regulation" in Item 1 of Part I of this report and see "Risk Factors—Financial Risks" in Item 1A of Part I of this report.
For additional information on these programs, see (i) Note 3—Revenue Recognition to our consolidated financial statements in Item 8 of Part II of this report, (ii)"Business—Regulation" in Item 1 of Part I of this report and (iii) "Risk Factors—Financial Risks" in Item 1A of Part I of this report.
However, in conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and expect to incur additional accelerated lease costs in future periods.
We did not incur material accelerated lease costs during the year ended December 31, 2022. In conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and expect to incur additional accelerated real estate costs in future periods.
Income Tax Expense For the years ended December 31, 2022 and 2021, our effective income tax rate was 25.9% and 25.2%, respectively. For additional information on income taxes, see Note 12—Income Taxes. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States.
For additional information on income taxes, see Note 12—Income Taxes. 40 Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States.
If any of the above-listed factors intensify, our financial results could be materially impacted in a variety of ways, including by increasing our expenses, decreasing our revenues, further delaying our network expansion plans or otherwise interfering with our ability to deliver products and services.
Continued inflationary pressures, supply constraints or business uncertainty could materially impact our financial results in a variety of ways, including by increasing our expenses, decreasing our revenues, further delaying our network expansion plans or otherwise interfering with our ability to deliver products and services.
The amount of support payments we receive from governmental agencies has decreased substantially since December 31, 2021. Inflation during 2021 and 2022 placed downward pressure on our margins and likely contributed to delayed decision-making by certain of our customers, which are trends that will likely continue to impact us as long as inflation rates remain elevated.
Inflation has placed downward pressure on our margins and macroeconomic uncertainties have likely contributed to delayed decision-making by certain of our customers, which are trends that will likely continue to impact us as long as inflation rates remain elevated.
Investing Activities Net cash used in investing activities increased by $598 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily due to an increase in advances to affiliates and an increase in capital expenditures. 37 Financing Activities Net cash used in financing activities decreased by $1.0 billion for the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily due to a decrease in dividends paid to our parent and a decrease in repayments of advances from affiliates and third-party debt.
Investing Activities Net cash used in investing activities decreased by $883 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to a decrease in advances to affiliates, partially offset by an increase in capital expenditures. 46 Financing Activities Net cash used in financing activities increased by $650 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to an increase in dividends paid to our parent, partially offset by the timing of payments of the Note Payable - Affiliate.
Capital Expenditures We incur capital expenditures on an ongoing basis in order to expand and improve our service offerings, enhance and modernize our networks, and compete effectively in our markets.
See note under "Results of Operations—Goodwill Impairment" for consideration of the potential for additional goodwill impairments in future quarters. Capital Expenditures We incur capital expenditures on an ongoing basis in order to expand and improve our service offerings, enhance and modernize our networks, and compete effectively in our markets.
For additional information about our indebtedness, see Note 6—Long-Term Debt and Note Payable - Affiliate. 35 Future Contractual Obligations Our estimated future obligations as of December 31, 2022 include both current and long term obligations.
For more information, see "Note Payable—Affiliate" in Note 6—Long-Term Debt and Note Payable - Affiliate — to the financial statements appearing elsewhere herein. 44 Future Contractual Obligations Our estimated future obligations as of December 31, 2023 include both current and long term obligations.
Selling, General and Administrative Selling, general and administrative expenses are expenses incurred in selling products and services to our customers, corporate overhead and other operating expenses.
These decreases were partially offset by higher network expenses of $32 million. 37 Selling, General and Administrative Selling, general and administrative expenses are expenses incurred in selling products and services to our customers, corporate overhead and other operating expenses.
The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue and expenses. We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations related to (i) affiliate transactions and (ii) income taxes.
We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations related to (i) goodwill and other intangible assets, (ii) affiliate transactions and (iii) income taxes.
Our capital expenditures continue to be focused on enhancing network operating efficiencies, supporting new service developments, and expanding our fiber network, including our Quantum Fiber buildout plan. For more information on our capital spending, see "Business" and "Risk Factors" in Items 1 and 1A, respectively, of Part I of this report.
Our capital expenditures continue to be focused on enhancing network operating efficiencies, supporting new service developments, and expanding our fiber network, including our Quantum Fiber buildout plan.
This decrease was partially offset by an increase of $31 million due to net growth in depreciable assets and an increase of $6 million resulting from annual rate depreciable life changes.
Depreciation expense decreased by $25 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to a decrease of $81 million resulting from annual rate depreciable life changes. This decrease was partially offset by an increase of $60 million due to net growth in depreciable assets.
Cost of services and products (exclusive of depreciation and amortization) decreased by $76 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The decrease in our cost of services and products was primarily due to reductions in salaries and wages and employee-related expenses resulting from lower headcount.
Cost of services and products (exclusive of depreciation and amortization) decreased by $38 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. These decreases were primarily due to reductions in allocated employee related costs of $58 million and insurance and fees of $10 million.
Selling, general and administrative expenses increased by $100 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily due to a gain on sale of assets during the year ended December 31, 2021 and an increase during 2022 in bad debt expense, partially offset by lower property taxes.
Selling, general and administrative expenses increased by $24 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to an increase in employee related expenses of $43 million.
Trends Impacting Our Operations Our consolidated operations have been, and will continue to be, impacted by the following company-wide trends: • Customers' demand for automated products and services and competitive pressures will require that we continue to invest in new technologies and automated processes to improve the customer experience and reduce our operating expenses. • The increasingly digital environment and the growth in online video and gaming require robust, scalable network services.
For additional information on the impacts of the pandemic and the macroeconomic changes arising therefrom, see (i) the remainder of this item, including "—Liquidity and Capital Resources—Overview of Sources and Uses of Cash" and (ii) Item 1A of this report. 34 Trends Impacting Our Operations In addition to the above-described impact of the pandemic and its aftermath, our consolidated operations have been, and will continue to be, impacted by the following company-wide trends: • Customers' demand for automated products and services and competitive pressures will require that we continue to invest in new technologies and automated processes to improve the customer experience and reduce our operating expenses. • The increased use of digital applications, online video, gaming and artificial intelligence has substantially increased demand for robust, scalable network services.
Debt and Other Financing Arrangements As of December 31, 2022, we had a face amount of approximately $2.2 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net, unamortized debt issuance costs, and Note Payable - Affiliate).
For more information, see Note 18—Subsequent Event, to our consolidated financial statements included under Item 8 of Part II of this annual report. As of December 31, 2023, we had a face amount of approximately $2.2 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net, unamortized debt issuance costs, and Note Payable - Affiliate).
We may not disclose these transactions in advance, unless required by applicable law or material in nature or amount. See Note 6—Long-Term Debt and Note Payable - Affiliate to our consolidated financial statements in Item 8 of Part II of this report for additional information.
Subject to market conditions, restrictions under our debt covenants, and other limitations, we may pursue similar transactions in the future to the extent feasible. See Note 6—Long-Term Debt and Note Payable - Affiliate to our consolidated financial statements in Item 8 of Part II of this report for additional information.
The decrease in interest expense - affiliate, net was primarily due to the repayment of the outstanding principal and interest on the Note Payable - Affiliate on September 30, 2022. See Note 6—Long-Term Debt and Note Payable - Affiliate for additional information about our debt.
Interest Expense - Affiliate, Net Interest expense - affiliate, net changed by $75 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. The change in interest expense - affiliate, net was primarily due to the repayment of the outstanding principal and interest on the Note Payable - Affiliate on September 30, 2022.
With the recent downgrade of our credit ratings we may find it more difficult to borrow on favorable terms, or at all. See "Risk Factors—Financial Risks" in Item 1A of Part I of this report.
We cannot provide any assurances that we will be able to borrow additional funds on favorable terms, or at all. See "Risk Factors—Financial Risks" in Item 1A of Part I of this report.
These and other developments and trends impacting our operations are discussed elsewhere in this Item 7. 28 Impact of COVID-19 Pandemic and the Macroeconomic Environment Societal, governmental and macroeconomic changes arising out of the COVID-19 pandemic have impacted us, our customers and our business in several ways since March 2020.
Changes in the Macroeconomic, Industry and Work Environments Societal, governmental and macroeconomic changes have impacted us, our customers and our business in several ways since the onset of the COVID-19 pandemic in the U.S. in March 2020.
Operating Expenses-Affiliates Since Lumen's acquisition of us, we have incurred affiliate expenses related to our use of telecommunication services, marketing and employee related support services provided by Lumen Technologies and its subsidiaries.
This increase was partially offset by lower marketing and advertising expenses of $13 million and a decrease in bad debt expense of $4 million. Operating Expenses-Affiliates We incur affiliate expenses related to our use of telecommunication services, marketing and employee related support services provided by Lumen Technologies and its subsidiaries.
Beginning in the second half of 2020 and continuing into 2022, we rationalized our leased footprint and ceased using 6 leased property locations that were underutilized. We did not further rationalize our lease footprint or incur material accelerated lease costs during the year ended December 31, 2022.
Beginning in the second half of 2020 and continuing into 2023, we rationalized our lease footprint and ceased using seven underutilized leased property locations. These lease cancellations resulted in accelerated lease costs, including $1 million and $3 million of such costs recognized during the years ended December 31, 2021 and 2023, respectively, but will lower our future operating costs.
Amortization expense decreased by $97 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a decrease of $88 million resulting from customer relationships becoming fully amortized at the end of the first quarter of 2021 and a decrease of $10 million resulting from annual rate depreciable life changes.
Amortization expense decreased by $12 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to a decrease of $17 million due to net decrease in amortizable assets. The decrease was partially offset by an increase of $4 million resulting from annual rate amortizable life changes of software for the period.
Operating expenses-affiliates decreased by $24 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily due to a decrease in the level of services provided to us by our affiliates.
Operating expenses-affiliates increased by $62 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to $82 million of increased allocated corporate expense due to Lumen's 2022 ILEC divestiture, partially offset by a decrease of $20 million from lower use of affiliate services.
For additional information on the impacts of the pandemic, see Item 1A of this report. 29 Results of Operations The following table summarizes the results of our consolidated operations for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 (Dollars in millions) Operating revenue $ 6,449 6,951 Operating expenses 3,694 3,843 Operating income 2,755 3,108 Total other expense, net (165) (292) Income before income taxes 2,590 2,816 Income tax expense 671 709 Net income $ 1,919 2,107 Operating Revenue The following table summarizes our consolidated operating revenue recorded under our four revenue categories: Years Ended December 31, % Change 2022 2021 (Dollars in millions) Voice and Other $ 1,749 2,099 (17) % Fiber Infrastructure 1,955 1,990 (2) % IP and Data Services 451 473 (5) % Affiliate Services 2,294 2,389 (4) % Total operating revenue $ 6,449 6,951 (7) % Total operating revenue decreased by $502 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021.
These and other developments and trends impacting our operations are discussed elsewhere in this Item 7. 35 Results of Operations The following table summarizes the results of our consolidated operations for the years ended December 31, 2023 and 2022: Years Ended December 31, 2023 2022 (Dollars in millions) Operating revenue $ 5,915 6,449 Operating expenses 6,110 3,694 Operating (loss) income (195) 2,755 Total other expense, net (75) (165) (Loss) income before income taxes (270) 2,590 Income tax expense 561 671 Net (loss) income $ (831) 1,919 Operating Revenue The following table summarizes our consolidated operating revenue recorded under our revenue categories described in Note 3—Revenue Recognition: Years Ended December 31, % Change 2023 2022 (Dollars in millions) Other Broadband $ 1,111 1,275 (13) % Voice and Other 589 691 (15) % Fiber Broadband 470 461 2 % Harvest 1,048 1,134 (8) % Nurture 393 435 (10) % Grow 145 159 (9) % Affiliate Services 2,159 2,294 (6) % Total operating revenue $ 5,915 6,449 (8) % Total operating revenue decreased by $534 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Operating Expenses The following table summarizes our consolidated operating expenses: Years Ended December 31, % Change 2022 2021 (Dollars in millions) Cost of services and products (exclusive of depreciation and amortization) $ 1,646 1,722 (4) % Selling, general and administrative 454 354 28 % Operating expenses-affiliates 734 758 (3) % Depreciation and amortization 860 1,009 (15) % Total operating expenses $ 3,694 3,843 (4) % These expense classifications may not be comparable to those of other companies. 30 Cost of Services and Products (exclusive of depreciation and amortization) Cost of services and products (exclusive of depreciation and amortization) are expenses incurred in providing products and services to our customers.
Operating Expenses The following table summarizes our consolidated operating expenses: Years Ended December 31, % Change 2023 2022 (Dollars in millions) Cost of services and products (exclusive of depreciation and amortization) $ 1,608 1,646 (2) % Selling, general and administrative 478 454 5 % Operating expenses-affiliates 796 734 8 % Depreciation and amortization 823 860 (4) % Goodwill impairment 2,405 — nm Total operating expenses $ 6,110 3,694 65 % _______________________________________________________________________________ nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
See Note 6—Long-Term Debt and Note Payable - Affiliate and Liquidity and Capital Resources below for additional information about our debt. Interest Expense - Affiliate, Net Interest expense - affiliate, net decreased by $45 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021.
This decline was primarily due to higher capitalized interest of $25 million, which was partially offset by the increase in our average interest rate from 6.50% to 6.79%. See Note 6—Long-Term Debt and Note Payable - Affiliate and Liquidity and Capital Resources below for additional information about our debt.
None of these effects, individually or in the aggregate, have to date materially impacted our financial performance or financial position. The COVID-19 pandemic and other factors have led to increased fiber construction demand combined with increased construction labor rates that have reduced the number of fiber buildout projects that met our internal payback requirement.
None of these effects, individually or in the aggregate, have to date materially impacted our financial performance or financial position. Industry developments over the past couple years have increased fiber construction demand. The resulting increase in construction labor rates increased the cost of enabling units to be capable of receiving our fiber broadband services.
Thus far, we believe these factors have contributed to a delay in our Quantum Fiber buildouts, but otherwise have not had a significant impact on our business results.
In 2022 and 2021, we believe these factors contributed to a delay in attaining our Quantum Fiber buildout targets.
Removed
For the reasons noted in Note 1—Background and Summary of Significant Accounting Policies we have determined that we have one reportable segment. 27 Products, Services and Revenue We categorize our products, services and revenue among the following four categories: • Voice and Other , which include primarily local voice services, private line, and other legacy services.
Added
For the reasons noted in Note 1—Background and Summary of Significant Accounting Policies we have determined that we have one reportable segment. 33 Products, Services and Revenue We reported our revenue derived from our operations serving our mass markets customers, primarily within the first three categories listed below, and our revenue derived from our operations servicing our business customers, primarily in the 'Harvest', 'Nurture' and 'Grow' categories listed below: • Other Broadband , under which we provide primarily lower speed broadband services to residential and small business customers utilizing our copper-based network infrastructure; • Voice and Other, under which we derive revenues from (i) providing local and long-distance voice services, professional services, and other ancillary services, (ii) federal broadband and state support programs, and (iii) equipment, IT solutions and other services; • Fiber Broadband , under which we provide high speed broadband services to residential and small business customers utilizing our fiber-based network infrastructure; • Harvest , which includes our legacy services managed for cash flow, including Time Division Multiplexing ("TDM") voice, private line and other legacy services; • Nurture , which includes our more mature offerings, including primarily ethernet; • Grow , which includes products and services marketed to our business customers that we anticipate will grow, including dark fiber and wavelengths services; and • Affiliate Services , which are communications services that we also provide to external customers.
Removed
This category also includes federal and state support payments. These support payments are government subsidies designed to compensate us for providing certain broadband and communications services in high-cost areas or at discounts to low-income, educational, and healthcare customers.
Added
These declines were partially offset by: • Increases in Fiber Broadband by $9 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 driven by growth in fiber customers and associated with increased rates.
Removed
This revenue included the FCC's Connect America Fund Phase II ("CAF II") support payments, which we received through December 31, 2021, when the program ended; • Fiber Infrastructure Services , which include high speed, fiber-based and lower speed DSL-based broadband services to residential and small business customers, and optical network services; • IP and Data Services , which consist primarily of Ethernet services; and • Affiliate Services, which are communications services that we also provide to external customers.
Added
Affiliate services revenue also decreased by $135 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Removed
We reopened our offices in April 2022 under a "hybrid" working environment, which will permit some of our employees the flexibility to work remotely at least some of the time for the foreseeable future.
Added
The decreases were primarily due to (i) lower affiliate service revenues of $60 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 due to the transfer of employees to our affiliates, (which lowers our affiliate revenue under our cost allocation methodology) and (ii) decreases of $75 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to declines in the level of services provided to our affiliates.
Removed
These decreases were slightly offset by growth in fiber broadband revenues. Affiliate services revenue also decreased due to a reduction in the number of employees providing services to our affiliates.
Added
These expense classifications may not be comparable to those of other companies. Cost of Services and Products (exclusive of depreciation and amortization) Cost of services and products (exclusive of depreciation and amortization) are expenses incurred in providing products and services to our customers.

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