AT&T Wireless 2008 Annual Report Download - page 31

AT&T Annual Report 2008
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 • Localwholesalerevenuesdecreased$350,or18.7%,
in 2008 and increased $324, or 20.9%, in 2007.
The decrease in 2008 was primarily due to the declining
number of competitive providers using local wholesale
lines. However, this declining revenue trend stabilized
in the second half of 2008 since industry consolidation
and local wholesale line loss has slowed. The increase in
2007 was primarily due to the acquisition of BellSouth,
which increased local wholesale revenues approximately
$615. Wholesale revenue decreased in 2007 due to
industry consolidation as certain customers moved
more traffic to their own networks.
Data revenues increased $1,277, or 5.3%, in 2008 and
increased $5,758, or 31.4%, in 2007. Data revenues accounted
for approximately 36% of wireline operating revenues in
2008, 34% in 2007 and 32% in 2006. Data revenues include
transport, IP and packet-switched data services.
IP data revenues increased $1,537, or 16.1%, in 2008
primarily due to growth in consumer and business broadband,
VPNs and managed Internet services, and increased $3,080,
or 47.6%, in 2007 primarily due to the acquisition of BellSouth,
which increased IP data approximately $2,235. Broadband
high-speed Internet access increased IP data revenues
$498 in 2008. The increase in broadband revenues was
partially offset by the decline in revenue due to the
renegotiation of our Yahoo! agreement which took effect
April 2008. VPNs increased $477 and various other
IP data services such as U-verse video and dedicated
Internet access services contributed $535 to the increase
in 2008. The increase in IP data revenues in 2008 and
2007 reflects continued growth in the customer base and
migration from other traditional circuit-based services.
Our transport services increased $163, or 1.4%, in 2008,
primarily due to continuing volume growth in Ethernet (types
of high-capacity switched lines), ISDN and international private
lines. These increases were partially offset by declines in
usage-based transport services used by our largest business
customers. In 2007, transport services revenues increased
$2,640, or 29.7%, due to the acquisition of BellSouth.
Our traditional circuit-based services, which include frame
relay, asynchronous transfer mode and managed packet
services, decreased $423, or 14.1%, in 2008. This decrease
is primarily due to lower demand as customers continue to
shift to IP-based technology such as VPNs, broadband and
managed Internet services. We expect these traditional
services to continue to decline as a percentage of our
overall data revenues. In 2007, circuit-based services
revenues increased $38, or 1.3%, primarily due to the
acquisition of BellSouth, which increased circuit-based
services revenues $265.
Other operating revenues increased $426, or 7.2%, in
2008 and $436, or 8.0%, in 2007. Major items included
in other operating 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
Operating Margin Trends
Our wireline segment operating income margin was 16.0%
in 2008, compared to 16.7% in 2007 and 14.3% in 2006.
Results for 2008 reflect revenue declines that exceeded
expense declines. Our wireline segment operating income
decreased $839, or 7.0%, in 2008 and increased $3,792 in
2007 primarily reflecting the addition of BellSouth’s operating
results in 2007. Our operating income continued to be
pressured by access line declines due to increased
competition, as customers disconnected both primary and
additional lines and switched to alternative technologies,
such as wireless, VoIP and cable for voice and data.
The deteriorating economy during 2008 also adversely
affected our customers’ ability to purchase and maintain
both wireline and wireless services. Our strategy is to offset
these line losses by increasing non-access-line-related
revenues from customer connections for data, video and
voice. Additionally, we have the opportunity to increase
wireless segment revenues if customers choose AT&T Mobility
as an alternative provider. As noted above, 2007 revenues
and expenses reflect the addition of BellSouth’s results while
our 2006 results only include two days of their results.
Accordingly, the following discussion of changes in our
revenues and expenses is affected by this acquisition.
Voice revenues decreased $3,432, or 8.2%, in 2008
primarily due to declining demand for traditional voice
services and increased $7,916, or 23.5%, in 2007. Included in
voice revenues are revenues from local voice, long-distance
and local wholesale services. Voice revenues do not include
VoIP revenues, which are included in data revenues.
 •Localvoicerevenuesdecreased$1,887,or7.7%,in2008
and increased $6,831, or 38.4%, in 2007. The decrease
in 2008 was driven primarily by loss of revenue of
$1,230 from a decline in access lines and by $422
from a decline from ATTC’s mass-market customers.
The increase in 2007 was primarily due to the
acquisition of BellSouth, which increased local voice
revenues approximately $8,040. Local voice revenues
also increased in 2007 due to pricing increases for
regional telephone service, custom calling features
and inside wire maintenance agreements. Local voice
revenues in 2007 were negatively impacted by
expected declines in revenues from ATTC’s mass-
market customers and from customer demand-related
declines for calling features and inside wire agreements.
We expect our local voice revenue to continue to be
negatively affected by increased competition from
alternative technologies, the disconnection of additional
lines and the deteriorating economy.
 • Long-distancerevenuesdecreased$1,195,or7.9%,in
2008 and increased $761, or 5.3%, in 2007 primarily
due to the acquisition of BellSouth, which increased
long-distance revenues approximately $2,075. The
decrease in 2008 was primarily due to a net decrease
in demand for long-distance service, due to expected
declines in the number of ATTC’s mass-market customers,
which decreased revenues $677 and decreased demand
from global and consumer customers, which decreased
revenues $532.