AT&T Wireless 2008 Annual Report Download - page 49

AT&T Annual Report 2008
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supranational regulatory authorities in the market where
service is provided. Our wireless subsidiaries are regulated
to varying degrees by the FCC and some state and local
agencies. The adoption of new regulations or changes to
existing regulations could significantly increase our costs,
which either would reduce our operating margins or
potentially increase customer turnover should we attempt
to increase prices to cover our increased costs. In addition,
the development of new technologies, such as IP-based
services, has created or potentially could create conflicting
regulation between the FCC and various state and local
authorities, which may involve lengthy litigation to resolve
and may result in outcomes unfavorable to us.
Increasing competition in our wireline markets could
adversely affect wireline operating margins.
We expect competition in the telecommunications industry
to continue to intensify. We expect this competition will
continue to put pressure on pricing, margins and customer
retention. A number of our competitors that rely on
alternative technologies (e.g., wireless, cable and VoIP) are
typically subject to less (or no) regulation than our wireline
and ATTC subsidiaries and therefore are able to operate with
lower costs. These competitors also have cost advantages
compared to us, due in part to a nonunionized workforce,
lower employee benefits and fewer retirees (as most of
the competitors are relatively new companies). We believe
such advantages can be offset by continuing to increase
the efficiency of our operating systems and by improving
employee training and productivity; however, there can be
no guarantee that our efforts in these areas will be successful.
Increasing competition in the wireless industry could
adversely affect our operating results.
On average, we have three to four other wireless
competitors in each of our service areas and compete for
customers based principally on price, service/device
offerings, call quality, coverage area and customer service.
In addition, we are likely to experience growing competition
from providers offering services using alternative wireless
technologies and IP-based networks as well as traditional
wireline networks. We expect intense industry competition
and market saturation may cause the wireless industry’s
customer growth rate to moderate in comparison with
historical growth rates. We expect that the availability of
additional 700 MHz spectrum could increase competition and
the effectiveness of existing competition. This competition
will continue to put pressure on pricing and margins as
companies compete for potential customers. Our ability
to respond will depend, among other things, on continued
improvement in network quality and customer service and
effective marketing of attractive products and services, and
cost management. These efforts will involve significant
expenses and require strategic management decisions
on, and timely implementation of equipment choices,
marketing plans and financial budgets.
Equipment failures, natural disasters and terrorist attacks
may materially adversely affect our operations.
Major equipment failures or natural disasters, including
severe weather, terrorist 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 on our operations. While we have
insurance coverage for some of these events, our inability to
operate our wireline or wireless systems, even for a limited
time period, may result in significant expenses, a loss of
customers or impair our ability to attract new customers,
which could have a material adverse effect on our business,
results of operations and financial condition.
The success of our U-verse services initiative will depend
on the timing, extent and cost of deployment; the
development of attractive and profitable service offerings;
the extent to which regulatory, franchise fees and
build-out requirements apply to this initiative; and the
availability and reliability of the various technologies
required to provide such offerings.
The trend in telecommunications technology is to shift
from the traditional circuit- and wire-based technology to
IP-based technology. IP-based technology can transport voice
and data, as well as video, from both wired and wireless
networks. IP-based networks also potentially cost less to
operate than traditional networks. Our competitors, many
of which are newer companies, are deploying this IP-based
technology. In order to continue to offer attractive and
competitively priced services, we are deploying a new
broadband network to offer IP-based voice, data and video
services. Using a new and sophisticated technology on a very
large scale entails risks but also presents opportunities to
expand service offerings to customers. Should deployment of
our network be delayed or costs exceed expected amounts,
our margins would be adversely affected and such effects
could be material. Should regulatory requirements be different
than we anticipated, our deployment could be delayed,
perhaps significantly, or limited to only those geographical
areas where regulation is not burdensome. In addition, should
the delivery of services expected to be deployed on our
network be delayed due to technological or regulatory
constraints, performance of suppliers, or other reasons, or
the cost of providing such services becomes higher than
expected, customers may decide to purchase services from
our competitors, which would adversely affect our revenues
and margins, and such effects could be material.
A majority of our workforce is represented by labor unions.
Absent the successful negotiation of certain agreements,
we could experience lengthy work stoppages when these
contracts expire during 2009.
A majority of our employees are represented by labor
unions as of year-end 2008. Labor contracts covering many
of these employees will expire during 2009. We experienced
a work stoppage in 2004 when the contracts involving our
wireline employees expired, and we may experience additional
work stoppages this year. A work stoppage could adversely
affect our business operations, including a loss of revenue and
strained relationships with customers, and we can not predict
the length of any such strike. We can not predict what will be
the unions’ requirements for a new contract nor the impact of
a new contract on our financial condition.