AT&T Wireless 2009 Annual Report Download - page 43

AT&T 09 AR 41
2010 Expense Trends We expect a challenging operating
environment for 2010. We will continue to focus sharply on
cost-control measures, including areas such as organizational
and systems integration. We will continue our ongoing
initiatives to improve customer service and billing so we
can realize our strategy of bundling services and providing a
simple customer experience. We expect our 2010 operating
income margin to be stable with the opportunity to improve
margins, in the event the U.S. economy improves. We do not
expect significant pension funding requirements in 2010.
Expenses related to growth areas of our business, especially
in the wireless area, will apply some pressure to our operating
income margin.
Market Conditions During 2009, the securities and
mortgage markets and the banking system in general
experienced some stabilization compared with 2008 as the
year progressed, although bank lending and the housing
industry remained weak. The ongoing weakness in the general
economy has also affected our customer and supplier bases.
We saw lower demand from our residential customers as well
as our business customers at all organizational sizes. Some of
our suppliers continue to experience increased financial and
operating costs. To a large extent, these negative trends were
offset by continued growth in our wireless and IP-related
services. While the economy appears to have stabilized at
a weakened level at year-end, we do not expect a quick
return to growth during 2010. Should the economy instead
deter iorate further, we likely will experience further pressure
on pricing and margins as we compete for both wireline
and wireless customers who have less discretionary income.
We also may experience difficulty purchasing equipment in
a timely manner or maintaining and replacing warranteed
equipment from our suppliers.
Included on our consolidated balance sheets are assets
held by benefit plans for the payment of future benefits.
The losses associated with the securities markets declines
during 2008 are not expected to have an impact on the ability
of our benefit plans to pay benefits. We do not expect to
make significant funding contributions to our pension plans
in 2010. However, because our pension plans are subject to
funding requirements of the Employee Retirement Income
Security Act of 1974, as amended (ERISA), a continued
weakness in the markets could require us to make
contributions to the pension plans in order to maintain
minimum funding requirements as established by ERISA.
In addition, our policy on recognizing losses on investments
in the pension and other postretirement plans accelerated
the recognition of losses in 2009 earnings (see “Significant
Accounting Policies and Estimates”).
OPERATING ENVIRONMENT OVERVIEW
AT&T subsidiaries operating within the U.S. are subject to
federal and state regulatory authorities. AT&T subsidiaries
operating outside the U.S. are subject to the jurisdiction
of national and supranational regulatory authorities in
the markets where service is provided, and regulation is
generally limited to operational licensing authority for the
provision of services to enterprise customers.
Our Other segment also includes our equity investments
in international companies, the income from which we report
as equity in net income of affiliates. Our earnings from foreign
affiliates are sensitive to exchange-rate changes in the value
of the respective local currencies. Our foreign investments
are recorded under generally accepted accounting principles
(GAAP), which include adjustments for the equity method
of accounting and exclude certain adjustments required for
local reporting in specific countries. Our equity in net income
of affiliates by major investment is listed below:
2009 2008 2007
América Móvil $505 $469 $381
Telmex 133 252 265
Telmex Internacional 72 72 —
Other (4) 1 (1)
Other Segment Equity in
Net Income of Affiliates $706 $794 $645
Equity in net income of affiliates decreased $88 in 2009.
Our investment in Telmex and Telmex Internacional
decreased $119, reflecting lower operating results and
currency translation losses, partially offset by $36 of improved
operating results at América Móvil. The $149 increase in 2008
reflects improved operating results at América Móvil, as well
as lower depreciation and tax expenses, and improved results
at Telmex and Telmex Internacional. On January 13, 2010,
América Móvil announced that its Board of Directors had
authorized it to submit an offer for 100% of the equity of
Carso Global Telecom, S.A. de C.V. (CGT), a holding company
that owns 59.4% of Telmex and 60.7% of Telmex Internacional,
in exchange for América Móvil shares; and an offer for
Telmex Internacional shares not owned by CGT, to be
purchased for cash or to be exchanged for América Móvil
shares, at the election of the shareholders.
OPER ATING E NVIRO N M ENT A ND T R E NDS O F T H E BUS I N E SS
2010 Revenue Trends We expect our operating environ-
ment in 2010 to remain challenging as the economic
recession continues, competition remains strong and the
federal regulatory framework may or may not remain
receptive to investment. Despite this environment, we expect
our operating revenues in 2010 to remain stable, reflecting
continuing growth in our wireless and broadband/data
services. We expect our primary driver of growth to be
wireless, especially in sales and increased use of advanced
handsets and emerging devices (such as netbooks, eReaders
and mobile navigation devices) and that all our major
customer categories will continue to increase their use
of Internet-based broadband/data services. We expect
continuing declines in traditional access lines and in
advertising from our print directories. Where available, our
U-verse services are proving effective in stemming access
line losses, and we expect to continue to expand our
U-verse service offerings in 2010.