AT&T Wireless 2008 Annual Report Download

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Connect people with their
world, everywhere they live
and work, and do it better
than anyone else.
AT&T Inc. 2008 Annual Report

Table of contents

  • Page 1
    AT&T Inc. 2008 Annual Report Connect people with their world, everywhere they live and work, and do it better than anyone else.

  • Page 2
    ...Wireless 40% Local Search/Other Consumer 5% 37% Business $116.8 $117.1 $119.9 $124.0 08 08 $1.61 18% In billions *05 Wireless is AT&T's largest and fastest-growing area. *06 *07 AT&T's revenues were up more than 3 percent in 2008. *pro forma Earnings Per Share Dividends Per Common Share...

  • Page 3
    ... slowdown early in the year and quickly moved to reduce costs without sacrificing growth opportunities or customer service. As a result, we ended 2008 as we began it - financially strong, with world-class operations and clear market leadership. In 2009, we plan to repeat that performance, in what...

  • Page 4
    AT&T Annual Report 2008 2 Delivering more of what customers want Around the world, businesses and consumers are looking for more mobility, connectivity and speed. They are hungry for expanded access to Internet applications and content and for seamless integration of devices, networks and services...

  • Page 5
    AT&T Annual Report 2008 data usage continues to expand and as more devices can connect wirelessly, we're investing aggressively to build on our industry leadership. TV More than 1 million customers now subscribe to AT&T U-verseSM TV service. They were attracted to U-verse's great features, such as ...

  • Page 6
    ... a new 18-megabit-per-second broadband service in several U.S. markets where we've deployed our U-verse network. To support our customers' growing desire to access data, software applications and video at higher speeds, we completed the world's largest deployment of 40-gigabit-per-second transport...

  • Page 7
    ... investors, for your continuing confidence. We have substantial opportunities ahead of us to deliver more for our customers and to build value for you. I look forward to reporting on our continuing progress. 5 Sincerely, Randall Stephenson Chairman, Chief Executive Officer and President February...

  • Page 8
    AT&T Annual Report 2008 6 Above: Great services. Great devices. Great networks. They all work together to keep our customers connected - anytime and in more places.

  • Page 9
    ... hits the pillow, we use a variety of devices to check e-mail, text friends, share photos, download songs, update social networking sites, surf the Web and watch movies and TV shows. Wireless Data Revenues 7 No wonder the demand for anytime, anywhere connectivity continues to grow. And as it does...

  • Page 10
    ... data, and we remain focused on helping our customers do even more. Defining the future Mobility isn't just about people connecting with people. We are quickly moving toward a world in which any electronic device can wirelessly connect to our network. To address this opportunity, we created a new...

  • Page 11
    ...IP home phone service that provides new, integrated features such as the ability to view call logs on U-verse TV. Adding to our Advanced TV portfolio, our new alliance with DIRECTV gives consumers the option of AT&T | DIRECTV satellite service as part of an AT&T bundle, including wireless, broadband...

  • Page 12
    ... offer wired broadband service in our 22-state footprint. For millions of homes with access to AT&T U-verse, that includes Internet service at speeds up to 18 megabits per second. To provide even more options, AT&T is proud to feature the country's largest Wi-Fi hotspot network. AT&T customers with...

  • Page 13
    ... with the best wireless coverage worldwide, the fastest 3G network in the U.S. and great wireless data devices - from LaptopConnect to our exclusives on iconic wireless devices. We provide the mobile applications and services businesses need to make sales, solve problems and serve customers from any...

  • Page 14
    ... our global data center capacity to handle the exploding demand for increasingly datarich applications and services. Last year, we introduced a broad range of networking products and solutions designed to help businesses increase their efficiency. AT&T's Telepresence Solution with Cisco makes it...

  • Page 15
    ... the sales reports. Good thing I've got wireless access even in France. I call the team and get the data I need before heading into my meeting. Even after a long, long day, it's nice to deliver good news. AT&T has the best wireless coverage worldwide of any U.S. wireless provider. "AT&T makes my...

  • Page 16
    .... As Best Buy's primary wireless carrier, AT&T's global coverage increases the retailer's productivity worldwide. And as Best Buy expands to China, Mexico, Turkey and beyond, AT&T provides the network solutions to connect and manage Best Buy's stores, sales offices and corporate headquarters. With...

  • Page 17
    ... efficiency. tool is AT&T Tech Support 360SM, which delivers live technical support for software installation, network and security setup, mobile device maintenance and PC performance enhancement. Another is AT&T's Onward Small Business Web site, which was named by Compass Intelligence in 2008 as...

  • Page 18
    ... find and connect with businesses that have what they need. But, as consumers have more and more ways to search, making those connections can be a challenge. Fortunately, AT&T has an elegantly simple solution: Offer advertisers a way to connect with consumers via wireless devices, PCs, U-verse TV or...

  • Page 19
    ... to link buyers to advertisers through free voice search at 1-800-YELLOWPAGES. Today, AT&T also connects businesses to consumers via interactive TV and mobile devices. YELLOWPAGES.COM's powerful interactive channel on AT&T U-verse TV provides millions of local business listings that are customized...

  • Page 20
    ... house calls to patients. Convergence applications to facilitate more seamless access to information across wireless, TV and PC screens. These innovations include HD consumer video conferencing, an integrated message center, an application that turns iPhone 3G into a TV/DVR remote, live traffic...

  • Page 21
    ...wireless technologies and new applications that will help AT&T meet customers' connectivity needs for years to come. Integrating services We're also deploying advanced technologies to integrate our wireless and wired networks, enabling more seamless sharing of information across networks and devices...

  • Page 22
    ... better people's lives and strengthen our communities, and 2008 was no exception. We moved to align our corporate citizenship and sustainability initiatives more closely than ever with our daily business operations. Our board of directors expanded the responsibility of its Public Policy Committee to...

  • Page 23
    ... Financial Statements Report of Management Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Board of Directors Senior Officers 22 23 49 53 76 77 78 79 80 AT&T Annual Report 2008 | 21

  • Page 24
    ... and in 13 states prior to that acquisition). Beginning in 2006, the number includes BellSouth lines in service. 7 Broadband connections include in-region DSL lines, in-region U-verse high-speed Internet access, satellite broadband and 3G LaptopConnect cards. 22 | AT&T Annual Report 2008

  • Page 25
    ...wireless service revenue should customers choose AT&T Mobility as their alternative provider. Operating expenses increased $2,441, or 2.5%, in 2008 and $45,757, or 86.7%, in 2007. The increase in 2008 was primarily due to higher equipment costs related to the successful launch of the Apple iPhone 3G...

  • Page 26
    ... mass-market customers, which are composed of consumers and small businesses. Pro forma data growth was led by an increase in IP data revenues of 13.3% in 2007, with strength in high-speed Internet, managed Internet, Virtual Private Network (VPN) and hosting services. Data transport service revenues...

  • Page 27
    ...long-distance voice, switched access, IP and Internet access data, messaging services, managed networking to business customers, AT&T U-verseSM TV service and satellite television services through our agency agreements. The advertising & publishing segment accounted for approximately 4% of our 2008...

  • Page 28
    ... advanced handsets, such as the Apple iPhone 3G, by these customers. In 2008, data services ARPU grew 33.8% compared to 2007. The continued increase in data revenue was related to increased use of text messaging, Internet access, e-mail and other data services. We expect continued growth from data...

  • Page 29
    ...3G network. The increase in 2007 was related to increased use of text messaging and Internet access services, which resulted in an increase in data ARPU of 46.9%. Data service revenues represented approximately 23.9% of our wireless segment service revenues in 2008 and 18.0% in 2007. • Voice...

  • Page 30
    ...572 due to increases in sales and advertising expenses and Apple iPhone related costs, partially offset by a decrease in net commission expense, which was consistent with the increase in prepaid plan sales as a percentage of total retail sales. • Increases of $572 in customer maintenance and...

  • Page 31
    ... revenues are integration services and customer premises equipment, government-related services and outsourcing, which account for more than 60% of total revenue for all periods. Equipment sales and related network integration and management services increased $260 in AT&T Annual Report 2008 | 29

  • Page 32
    ... accounts; advertising costs; sales and marketing functions, including our retail and wholesale customer service centers; centrally managed real estate costs, including maintenance and utilities on all owned and leased buildings; credit and collection functions; and corporate overhead costs...

  • Page 33
    ... of ending our retail payphone operations. 5 Total wired broadband connections include DSL, U-verse high-speed Internet access and satellite broadband. 6 Satellite service includes connections under our agency and resale agreements. 7 Amounts shown include BellSouth's access lines in service after...

  • Page 34
    ... or 6.0%, in 2008 largely driven by continuing declines in print revenue of $453 and lower sales agency revenue of approximately $113 due to the sale of the independent line of business segment of the L.M. Berry Company. This decrease was partially offset by increased Internet advertising revenue of...

  • Page 35
    ...to be wireless, especially in sales and increased use of advanced handsets including the Apple iPhone 3G, and that all our major customer categories will continue to increase their use of Internet-based broadband/data services. We expect revenue growth will also reflect the increased information and...

  • Page 36
    ... our network coverage, improve our network quality and offer a broad array of products and services, including exclusive devices such as the Apple iPhone 3G and free mobile-to-mobile calling among our wireless customers. Minimizing customer churn is critical to our ability to maximize revenue growth...

  • Page 37
    ...verse high-speed broadband and TV services. As of December 31, 2008, we have passed approximately 17 million living units (constructed housing units as well as platted housing lots) and are marketing the services to almost 65 percent of those units. Our deployment strategy is to enter each new area...

  • Page 38
    ...bundling of products and services, including wireless and video, large-business data services and broadband. In most markets, we compete with large cable companies, such as Comcast Corporation, Cox Communications, Inc. and Time Warner Inc., for local, high-speed Internet and video services customers...

  • Page 39
    ... Internet networks (Internet backbone), wireless carriers, CLECs, regional phone ILECs, cable companies and systems integrators. These services are subject to additional competitive pressures from the development of new technologies and the increased availability of domestic and international...

  • Page 40
    Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Dollars in millions except per share amounts combined pension and postretirement cost to increase $650 over 2008. Under GAAP, the expected long-term rate of return is calculated on the market-related ...

  • Page 41
    ...will significantly increase the amount of disclosures for plan assets in our 2009 Annual Report. EITF 08-6 In November 2008, the Emerging Issues Task Force (EITF) reached a consensus on EITF 08-6, "Equity Method Investment Accounting Considerations." EITF 08-6 provides guidance on the application of...

  • Page 42
    ... A number of our handsets, as well as those provided by other wireless carriers, were subject to a patent dispute at the U.S. International Trade Commission (ITC) between Broadcom Corporation and Qualcomm Incorporated (Qualcomm). In October 2008, the Court of Appeals for the Federal Circuit vacated...

  • Page 43
    ... support systems for our communications services. Capital spending (excluding interest during construction) in our wireless segment increased 42.1% in 2008, primarily for network capacity expansion, integration and upgrades to our Universal Mobile Telecommunications System/High-Speed Packet Access...

  • Page 44
    ...terminated commitments may not be reinstated. Advances under this agreement may be used for general corporate purposes, including support of commercial paper borrowings and other short-term borrowings. There is no material adverse change provision governing the drawdown of advances under this credit...

  • Page 45
    ...value that we expect to incur. Future impacts would be based on actual developments in global financial markets. We do not foresee any significant changes in the strategies used to manage interest rate risk, foreign currency rate risk or equity price risk in the near future. AT&T Annual Report 2008...

  • Page 46
    ...countries, receive dividends and proceeds from sales or borrow funds in foreign currency. Before making an investment, or in anticipation of a foreign currency receipt, we often will enter into forward foreign exchange contracts. The contracts are used to provide currency at a fixed rate. Our policy...

  • Page 47
    .... Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs Purchase Period Total Number of Shares Purchased Average Price Paid per Share1 January 30, 2008 - January 31, 2008 February 1, 2008...

  • Page 48
    ... Europe and other foreign markets persist or worsen, those customers would likely be affected in a similar manner. Adverse changes in medical costs and the U.S. securities markets and interest rates could materially increase our benefit plan costs. Our pension and postretirement costs are subject to...

  • Page 49
    ... acts or other breaches of network or IT security that affect our wireline and wireless networks, including telephone switching offices, microwave links, third-party owned local and long-distance networks on which we rely, our cell sites or other equipment, could have a material adverse effect...

  • Page 50
    ...medical cost trends. • The final outcome of Federal Communications Commission proceedings and reopenings of such proceedings and judicial review, if any, of such proceedings, including issues relating to access charges, broadband deployment, unbundled loop and transport elements and wireless...

  • Page 51
    ... except per share amounts 2008 2007 2006 Operating Revenues Wireless service Voice Data Directory Other Total operating revenues Operating Expenses Cost of services and sales (exclusive of... 9,907 52,767 10,288 (1,843) 2,043 393 593 10,881 3,525 $ 7,356 $ $ 1.89 1.89 AT&T Annual Report 2008 | 49

  • Page 52
    ... 31, 2008 2007 Assets Current Assets Cash and cash equivalents Accounts receivable - net of allowances for uncollectibles of $1,270 and $1,364 Prepaid expenses Deferred income taxes Other current assets Total current assets Property, Plant and Equipment - Net Goodwill Licenses Customer Lists and...

  • Page 53
    ...loss from impairment and sale of investments Gain on license exchange Changes in operating assets and liabilities: Accounts receivable Other current assets Accounts payable and accrued liabilities Share-based payment tax benefit Other - net Total adjustments Net Cash Provided by Operating Activities...

  • Page 54
    ...of net actuarial loss and prior service benefit Included in net income, net of taxes of $(74) and $125 Other Other comprehensive income (loss) Adoption of FAS 158, net of tax Balance at end of year Total Comprehensive Income Net income Additional minimum pension liability adjustments per above Other...

  • Page 55
    ...will significantly increase the amount of disclosures for plan assets in our 2009 Annual Report. EITF 08-6 In November 2008, the Emerging Issues Task Force (EITF) reached a consensus on EITF 08-6, "Equity Method Investment Accounting Considerations." EITF 08-6 provides guidance on the application of...

  • Page 56
    ... cash payments made during 2008 and the adjustments thereto. 12/31/07 Balance Cash Payments Adjustments and Accruals 12/31/08 Balance Severance accruals paid from: Company funds Pension and postemployment benefit plans Lease terminations Equipment removal and other related costs Total $ 540 $(321...

  • Page 57
    ... fair market value of these securities was $1,632 at December 31, 2008. Revenue Recognition Revenues derived from wireless, local telephone, long-distance, data and video services are recognized when services are provided. This is based upon either usage (e.g., minutes of traffic processed), period...

  • Page 58
    ... basis, consistent with the management of the business on a national scope. During the fourth quarter of 2008, we completed the annual impairment tests for indefinite-lived FCC licenses. These annual impairment tests resulted in no impairment of indefinite-lived FCC licenses. Advertising Costs...

  • Page 59
    ... provider in the southeastern U.S., providing wireline communications services, including local exchange, network access, longdistance services and Internet services to substantial portions of the population across nine states. BellSouth also provided long-distance services to enterprise customers...

  • Page 60
    ... 64% of Edge Wireless for a combined $663, recording $449 in goodwill. The acquisitions of these companies are designed to expand our wireless and Wi-Fi coverage area. During 2007, we acquired Interwise®, a global provider of voice, Web and video conferencing services to businesses, for $122...

  • Page 61
    ... local and longdistance voice, switched access, Internet protocol and Internet access data, messaging services, managed networking to business customers, AT&T U-verseSM TV service and satellite television services through our agency agreements with EchoStar Communications Corp. (EchoStar) and...

  • Page 62
    ... AT&T consolidated results, for 2008, 2007 and 2006 are as follows: At December 31, 2008 or for the year ended Wireless Wireline Advertising & Publishing Other Consolidation and Elimination Consolidated Results Revenues from external customers Intersegment revenues Total segment operating revenues...

  • Page 63
    ... AND OTHER INTANGIBLE ASSETS Changes in the carrying amounts of goodwill, by segment, for the years ended December 31, 2008 and 2007, are as follows: Wireless Wireline Advertising & Publishing Other Total Balance as of January 1, 2007 Goodwill acquired: Goodwill adjustment related to BellSouth...

  • Page 64
    ... provide wireless communications services. While FCC licenses are issued for a fixed time, renewals of FCC licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit...

  • Page 65
    ... current maturities Current maturities of long-term debt Total long-term debt Financing Activities Debt During 2008, debt repayments totaled $4,010 and consisted of: • $3,915 related to debt repayments with a weightedaverage interest rate of 3.98 66 related to repayments of Edge Wireless...

  • Page 66
    ... fair values. We held other short-term marketable securities of $25 at December 31, 2008 compared to $1 at December 31, 2007. Derivatives We use interest rate swaps, interest rate forward contracts and foreign currency exchange contracts to manage our market risk changes in interest rates and...

  • Page 67
    ...3 (1) Foreign Currency Forward Contracts We enter into foreign currency forward contracts to manage our exposure to changes in currency exchange rates related to foreign currency-denominated transactions. At December 31, 2008 and 2007, our foreign exchange contracts consisted principally of Mexican...

  • Page 68
    ... per share amounts change in our unrecognized tax benefits (UTB) balance from January 1, 2008 to December 31, 2008, and January 1, 2007 to December 31, 2007 is as follows: Federal, State and Foreign Tax 2008 2007 Balance at beginning of year Increases for tax positions related to the current year...

  • Page 69
    ...amount per year according to job classification or are calculated under a cash balance plan that is based on an initial cash balance amount and a negotiated annual pension band and interest credits. Most nonmanagement employees can elect to receive their pension benefits in either a lump sum payment...

  • Page 70
    ... table presents the change in the value of plan assets for the years ended December 31 and the plans' funded status at December 31: Pension Benefits 2008 2007 Postretirement Benefits 2008 2007 Fair value of plan assets at beginning of year Actual return on plan assets Benefits paid1 Contributions...

  • Page 71
    ... effect on our 2008, 2007 and 2006 combined net pension and postretirement benefits. Should the securities markets decline or medical and prescription drug costs increase at a rate greater than assumed, we would expect increasing annual combined net pension and postretirement costs for the next...

  • Page 72
    ... rate would have the following effects: One PercentagePoint Increase One PercentagePoint Decrease Increase (decrease) in total of service and interest cost components Increase (decrease) in accumulated postretirement benefit obligation $ 390 3,629 $ (315) (3,034) 70 | AT&T Annual Report 2008

  • Page 73
    ... significant assumptions for the discount rate and composite rate of compensation increase used in determining the projected benefit obligation and the net pension and postemployment benefit cost. The following tables provide the plans' benefit obligations and fair value of assets at December 31 and...

  • Page 74
    ...savings plans is fulfilled with purchases of our stock on the open market or company cash. Benefit cost is based on the cost of shares or units allocated to participating employees' accounts and was $664, $633 and $412 for the years ended December 31, 2008, 2007 and 2006. Benefit obligations at end...

  • Page 75
    ... nonvested stock units) to officers, employees and directors pursuant to these various plans. The compensation cost that has been charged against income for our share-based compensation plans is as follows: 2008 2007 2006 Performance stock units Stock option expense Restricted stock Other Total...

  • Page 76
    ... from access and long-distance services sold to AT&T Mobility on a wholesale basis and commissions revenue related to customers added through AT&T sales sources. Statements of Income 2008 2007 2006 Advertising expense Interest expense incurred Capitalized interest Total interest expense...

  • Page 77
    ... FINANCIAL INFORMATION (UNAUDITED) The following table represents our quarterly financial results: Stock Price Calendar Quarter Total Operating Revenues Operating Income Net Income Basic Earnings Per Share1 Diluted Earnings Per Share1 High Low Close 2008 First Second Third Fourth Annual 2007...

  • Page 78
    ... on the company's internal control over financial reporting. The attestation report is included on Page 78. Randall Stephenson Chairman of the Board, Chief Executive Officer and President Richard G. Lindner Senior Executive Vice President and Chief Financial Officer 76 | AT&T Annual Report 2008

  • Page 79
    ... in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December...

  • Page 80
    ...Independent Registered Public Accounting Firm on Internal Control over Financial Reporting The Board of Directors and Stockholders AT&T Inc. We have audited AT&T Inc.'s (the Company) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control...

  • Page 81
    ... of the Board: (1) Audit (2) Corporate Development (3) Corporate Governance and Nominating (4) Executive (5) Finance/Pension (6) Human Resources (7) Public Policy Retired Chairman of the Board Anheuser-Busch Companies, Inc. Director since October 1983 Southwestern Bell Telephone Director 1980-1983...

  • Page 82
    ... Chief Executive Officer, AT&T Business Solutions John Stankey, 46 President and Chief Executive Officer, AT&T Operations, Inc. Wayne Watts, 55 Senior Executive Vice President and General Counsel Ray Wilkins Jr., 57 Chief Executive Officer-AT&T Diversified Businesses 80 | AT&T Annual Report 2008

  • Page 83
    .../investor.relations. Investor Relations Securities analysts and other members of the professional financial community may call the Investor Relations staff as listed on our Web site at www.att.com/investor.relations. Stock Trading Information AT&T Inc. is listed on the New York Stock Exchange...

  • Page 84
    AT&T Inc. 208 S. Akard St. Dallas, TX 75202 att.com