QWEST CORP 10-K

ITEM 1. BUSINESS 4 Business Overview We are a leading digital networking services company, empowering enterprise businesses to fuel growth in a multi-cloud, AI-first marketplace by connecting people, data, and applications quickly, securely, and effortlessly. We are unleashing the world's digital potential by providing a broad array of integrated products and services to our domestic and global Business customers and our domestic Mass Markets customers. We operate one of the world’s most interconnected communications networks. Our platform empowers our customers to swiftly adjust digital programs to meet immediate demands, create efficiencies, accelerate market access, and reduce costs, which allows our customers to rapidly evolve their IT programs to address dynamic changes. Our specific products and services are detailed below under the heading “Products and Services.” On May 21, 2025, we and certain of our affiliates entered into a definitive agreement to sell our Mass Markets Fiber-to-the-Home business in 11 states (the "Territory") to AT&T. On February 2, 2026, we completed our sale of our Mass Fiber-to-the-Home business in the Territory ("Mass Markets Fiber-to-the-Home business") to AT&T in exchange for gross cash proceeds of $5.75 billion, subject to post-closing adjustments (the "Mass Markets Fiber-to-the-Home divestiture"). Cash Management and Intercompany Arrangements Our ultimate parent company, Lumen Technologies, Inc., maintains cash management and intercompany financing arrangements with many of its subsidiaries, including us. Under these arrangements, most of our cash is advanced daily to Lumen's service company affiliate for centralized management, with intercompany balances settled as needed. We may also periodically declare and pay dividends to our direct parent, Qwest Services Corporation ("QSC"), which can affect these balances. Additional information regarding these arrangements is provided in Note 1—Background and Summary of Significant Accounting Policies in Item 8 under the heading "Affiliate Transactions." Reporting Segment For the reasons noted in Note 1—Background and Summary of Significant Accounting Policies to our consolidated financial statements in Item 8, we believe we have one reportable segment. Our Stakeholders We believe that regular communications with our stakeholders is a vital component of our success. Our "North Star" strategy focuses on the operating principles of teamwork, trust, and transparency and infuses clarity into the communications we have with all of our stakeholders, including our investors, employees, customers, vendors, partners, and our local communities. Employees and Human Capital Resources To drive growth and success, we’ve strengthened our senior leadership team, modernized our business, and energized our culture. We strive to attract, develop, and retain a workforce that is inspired by strong leadership, engaged in meaningful work, and motivated by career growth opportunities. Our goal is to foster a culture where teamwork, trust, and transparency empower thriving employees to achieve both individual and collective success. We aim to attract broad talent to develop innovative ideas that transform industries worldwide. As of December 31, 2025, we had approximately 9,100 employees, of which approximately 43% are members of either the Communications Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). See "Risk Factors— Business Risks" in Item 1A and Note 17—Labor Union Contracts in Item 8 for a discussion of risks relating to our labor relations and for additional information on the timing of certain contract expirations. 5 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. We also rely on our call center personnel and a variety of channel partners to promote sales of services that meet the needs of our customers. To meet the needs of different customers, our offerings include both stand-alone services and bundled services designed to provide a complete offering of integrated services. Our 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. 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. 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. Products and Services While most of our customized customer interactions involve multiple integrated technologies and services, we structure our products and services according to the core technologies that drive them. As of December 31, 2025, 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 services, professional services, and other ancillary services, (ii) federal broadband and state support payments, 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; • Grow : Includes products and services that we anticipate will grow, including: ◦ 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. • Nurture : Includes our more mature offerings, such as: ◦ 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. • Harvest: Includes our legacy services managed for cash flow, including: ◦ Voice Services : We offer our Business customers a complete portfolio of traditional Time Division Multiplexing voice services including Primary Rate Interface ("PRI") service, local inbound service, switched one-plus, toll free, long distance and international services; and 6 ◦ Private Line : We deliver private line services, a direct circuit or channel specifically dedicated for connecting two or more organizational sites. 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 : 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. From time to time, we may change the categorization of our products and services. Our Network We deliver most of our products and services through our network, together with Lumen's, which is primarily built on fiber-optic cables and supporting equipment. Portions of our network use leased assets, and much of the equipment uses licensed software. Strategic Investments and Modernization We and Lumen view our network as one of our most critical assets. We and Lumen have devoted — and will continue to devote — significant resources to maintain, modernize, and expand it. Key efforts include: • simplifying and modernizing our network and legacy systems; • retiring aging and obsolete infrastructure and systems; and • expanding our network to meet growing demand for enhanced and new products. We sold a portion of our network on February 2, 2026, as discussed in Note 2—Divestiture in Item 8. Leased Network Assets Although either we, Lumen, or one of the Lumen's affiliates own most of our network, we lease a substantial portion of our fiber network from several other communication companies under arrangements that will periodically need to be renewed or replaced to support our current network operations. Cybersecurity and Network Resilience As a critical infrastructure provider, we and our customers face ongoing cyber threats, including advanced persistent threat actors. We experience occasional security incidents and service disruptions in the ordinary course of business and maintain robust systems to mitigate these risks. The development, maintenance, and operation of these systems and programs require significant investments and continuous updates to address evolving threats. For additional information regarding our oversight of cybersecurity matters, see "Cybersecurity" in Item 1C, and regarding risks relating to our systems, network assets, network operations, capital expenditure requirements and reliance upon third parties, see "Risk Factors," in Item 1A. Competition We compete in a dynamic and highly competitive market where demand for high-speed, secure data services continues to grow. Our competitors include global communications providers as well as systems integrators, hyperscalers, cloud service providers, software networking companies, infrastructure companies, cable companies, wireless service providers, device providers, resellers, and smaller niche providers. Intense competition is expected to continue across a wide range of industry participants amid the evolving market landscape. 7 Our Success Our ability to compete and succeed in this competitive environment depends on: • enhancing and integrating existing products; • introducing new offerings quickly and cost-effectively; • meeting changing customer needs; • delivering robust information security to build trust and mitigate cyber threats; • extending our core technologies into new applications; and • anticipating industry and technology shifts. Competitive pressures are particularly strong when rivals have network assets better suited to customer needs, faster transmission speeds, lower prices, or a longer track record in the market. Business Customers We compete for enterprise and wholesale customers based on factors such as: • network reliability and comprehensive coverage; • data transmission speed and latency; • pricing and billing simplicity; • integrated service offerings; • IP network reach and peering capacity; • digital ordering capabilities and ease of use; and • customer service quality. Pricing pressure remains significant as large communications companies and system integrators deliver high-speed fiber services, while other companies target price-sensitive customers with lower-cost, slower-speed non-fiber alternatives. Mass Markets Customers Broadband Services Competition to provide broadband services to our Mass Markets customers remains high. Market demand for our broadband services could be adversely affected by: • advanced wireless data transmission technologies (e.g., fixed wireless and low-earth-orbit satellites services); • continued enhancements to cable-based services; and • newly established fiber-based networks built by competitors or municipalities, often supported by government subsidies. 8 Following the recent sale of our Mass Markets Fiber-to-the-Home business, we expect that broadband services will be a significantly smaller portion of our go-forward strategy. Legacy Voice Services Our legacy voice services face significant competition from wireless voice, social networking, videoconferencing, and messaging platforms as customers shift to these alternatives. Additional sources of competition include non-carrier systems capable of partially or fully bypassing our local networks through various methods. Software innovations have enabled low-cost networking alternatives, further reducing reliance on legacy voice networks. We anticipate that all these trends will continue to decrease use of our voice network. Incumbent Local Exchange Carriers ("ILECs") We operate various ILECs that are required under federal law to allow competitors to interconnect their facilities to the ILEC's network and to take other various steps designed to promote competition including: • negotiating interconnection agreements in good faith; • providing nondiscriminatory “unbundled” access to portions of the ILEC’s network; and • permitting competitors to collocate facilities on the ILEC’s property either physically or virtually Consequently, our ILECs face competition from competitive local exchange carriers (“CLECs”). These CLECs typically provide competing services through: • reselling an ILEC’s local services; • using an ILEC’s unbundled network elements; • operating their own facilities; or • utilizing hybrid approaches of the aforementioned. Additional information about competitive pressures is located under the heading "Risk Factors — Business Risks" in Item 1A. Research, Development and 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. We, or our affiliates, plan to continue to file new patent applications as we enhance and develop products and services, and we plan to continue to seek opportunities to expand our patent portfolio through strategic acquisitions and licensing. In addition to our patent rights, either directly or through our affiliates, we have rights in various trade names, trademarks, copyrights and other intellectual property that we use to conduct our business. Our services often use the intellectual property of others, including licensed software. We also occasionally license our intellectual property to others as we deem appropriate. For information on various litigation risks associated with owning and using intellectual property rights, see “Risk Factors — Business Risks” in Item 1A and Note 15—Commitments, Contingencies and Other Items in Item 8. 9 Regulation of Our Business Our domestic operations are regulated by the Federal Communications Commission (the “FCC”), state regulatory commissions, and occasionally local agencies. In most areas where we offer regulated services, we must obtain and maintain operating licenses from these bodies. Changes in the leadership or structure of these regulatory bodies can significantly affect our revenue, expenses, competitive position or prospects. Because such changes are often difficult to predict, long-term planning is challenging. This section highlights certain regulations affecting our operations, though additional regulations could have a significant impact. For additional information, see “Risk Factors” in Item 1A. Federal Regulation We are subject to extensive regulation by the FCC and state commissions, including obligations under the Universal Service Fund programs. The FCC regulates our interstate services, including business data service charges for wholesale network transmission and intercarrier compensation — such as interstate access charges billed to other communications companies for originating and terminating interstate phone calls and voice services, such as compliance with rules designed to protect consumers against unlawful automated calls or robocalls. The FCC also regulates several aspects of our business related to international communications services, privacy, public safety, and network infrastructure, including: • our access to and use of telephone numbers; • our provision of emergency 911 services; and • our use or removal (potentially on a reimbursable basis) of equipment from vendors deemed to cause potential national security risks. Failure to comply with FCC regulations can result in significant penalties. Many recently adopted FCC regulations remain under judicial review or subject to further rule-making, increasing the difficulty of determining the ultimate impact of these changes on us and our competitors. Universal Service Fund The federal government has introduced several programs to expand broadband access, including the Rural Digital Opportunity Fund (“RDOF”) program, an FCC initiative that provides federal financial support to fund broadband deployment in rural America. We were awarded RDOF funding in several of the states in which we operate and received payments for a period starting in 2022. In the third quarter of 2024, we relinquished rights to deploy services in RDOF census blocks in certain states, and in the second quarter of 2025, we voluntarily relinquished the remainder of our RDOF awards. As a result, we will no longer receive funding through the RDOF program and recognized a reduction to revenue of $11 million in our consolidated statements of operations in the second quarter of 2025. We also incurred fees of $12 million in connection therewith, which are reflected in our operating expenses within our consolidated statements of operations for the year ended December 31, 2025. In January 2026, we paid the $23 million of revenue and fees summarized above, along with an additional $3 million relating to our 2024 relinquishment as repayment of funds previously received and remittance of the fees incurred. In 2024, a federal appellate court ruled that the FCC's universal service funding system, which levied fees against us and other telecommunication companies, was unlawful. The Supreme Court reversed that ruling, but the parties challenging the USF program have filed a renewed challenge asserting additional arguments. With judicial and legislative proceedings still pending, the ultimate impact of legal challenges and reform proposals on our operations remains uncertain. 10 Other Federal Regulation 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, and lower broadband costs. In late 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. We believe that the release of this funding could increase competition for broadband customers. For additional information about these programs, see Note 4—Revenue Recognition to our consolidated financial statements in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7. Broadband Regulation The regulatory environment for broadband internet access service (“BIAS”) has shifted significantly in recent years, creating uncertainty about future requirements. Key developments include: • FCC classified BIAS as a common carrier service under Title II of the Communications Act of 1934 and imposed net neutrality rules in 2015; • FCC repealed the Title II classification and most of the net neutrality mandates in 2017; • FCC adopted a new order reclassifying BIAS as a Title II utility service and re-imposing net neutrality rules in 2024; and • a federal appeals court vacated the FCC's 2024 order, concluding that Congress did not authorize Title II regulations of BIAS in 2025. Several states have proposed or enacted laws or orders focused on state-specific Internet service regulation. Certain members of Congress and consumer interest groups continue to advocate for classifying BIAS as a Title II utility service. These developments create uncertainty regarding the future regulatory landscape for BIAS. Any increase in regulation could: • hinder our ability to operate our data networks efficiently; • restrict necessary network management practices to ensure quality service; and • increase the cost of operating, maintaining, and upgrading our network. Collectively, these developments and potential regulatory changes could materially impact our operations and increase compliance costs. State Regulation of Domestic Operations State regulation of ILECs, including ours, has evolved significantly in recent years. Historically, ILECs have been regulated as “common carriers”, with state regulatory commissions exercising jurisdiction over intrastate voice telecommunications services and related facilities. While most states have reduced regulation, state regulatory commissions generally continue to: • set rates for traffic exchanged between telecommunications companies; • exercise some control over rates charged to customers for regulated services; • require ILECs to provide voice service throughout their territories, especially where alternative voice services are unavailable; 11 • administer support programs subsidizing service in high-cost rural areas; • regulate the purchase and sale of ILECs; • require ILECs to provide service under publicly-filed tariffs outlining terms, conditions, and prices of regulated services; • regulate ILECs’ ability to borrow and pledge their assets; • regulate transactions between ILECs and their affiliates; and • impose various other service standards. In some states, switched and business data services and interconnection services remain subject to price regulation, though the extent varies by service type and geographic region. State agencies also regulate certain aspects of non-ILEC communications businesses, including determining carrier eligibility for federal universal service fund support. Data Privacy Laws and Regulations We are subject to numerous foreign, federal, and state laws governing the storage, maintenance, and use of customer data, including consumer protection, data protection, privacy, intellectual property, and other similar laws. These requirements are complex and vary widely across jurisdictions. International Regulations As a global service provider, we must comply with various jurisdictional data privacy regulations, including the EU’s General Data Protection Regulation (“GDPR”) and similar data privacy laws adopted in other jurisdictions of our international markets. Domestic Regulations 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. These regulations require careful handling of personal and customer data and could have a significant impact on our business, especially if we violate any of those regulations. Anti-Bribery and Corruption Regulations As a global service provider, we are subject to complex foreign and U.S. laws governing business ethics and practices, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other local laws prohibiting corrupt payments to government officials, as well as anti-competition regulations. To mitigate risk, we maintain compliance policies, programs, and training designed to prevent non-compliance with these anti-corruption and fair competition laws across all jurisdictions where we operate. Other Regulations Our networks and properties are subject to numerous federal, state, and local laws and regulations, including those governing the use, storage and disposal of hazardous materials, the release of pollutants into the environment and the remediation of contamination. Our contingent liabilities under these laws are further described in Note 15—Commitments, Contingencies and Other Items in Item 8. Certain federal and state agencies, including attorneys general, monitor and exercise oversight related to consumer protection issues. We are also subject to codes that regulate our trenching and construction activities that require us to obtain permits, licenses or franchises to operate. These regulations are enacted by municipalities, counties, states, federal government, or other regional governmental bodies and can vary widely across jurisdictions. In some cases, such regulations may also require us to pay substantial fees or impose conditions that affect our network buildout initiatives. 12 Seasonality Overall, our business is not materially impacted by seasonality. Our network-related operating expenses are, however, generally higher in the second and third quarters of the year. From time to time, weather related problems have resulted in increased costs to repair our network and respond to service calls in some of 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. Website Access and Important Investor Information Lumen's and our website is www.lumen.com, and we routinely post important investor information in the “Investor” section of our website at ir.lumen.com . Our principal executive offices and telephone number are listed on the cover page of this report. Information on our website is provided for convenience only and is not part of this or any other SEC filing. SEC Filings Free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other information filed with the SEC are available on our website under “Investors” → “Financials” → “SEC Filings” or at https://www.sec.gov. Reports for certain subsidiaries are also available. Available Information We typically disclose material non-public information by disseminating press releases, making public filings with the SEC, or disclosing information during publicly accessible meetings or conference calls. Nonetheless, from time to time we have used, and intend to continue to use, our investor relations website (www.ir.lumen.com) and the following social media accounts to augment our disclosures: • https://www.twitter.com/lumentechco; • https://www.linkedin.com/company/lumentechnologies; • https://www.facebook.com/lumentechnologies; and • https://www.youtube.com/lumentechnologies Please note that this list may be updated from time to time. Investors should subscribe to these social media accounts and our investor alerts, in addition to following Lumen's press releases, SEC filings, public conference calls and webcasts. 13