AT&T Wireless 2010 Annual Report Download - page 57

AT&T Inc. 55
interest rates. If actual investment returns, medical costs and
interest rates are worse than those previously assumed, our
annual costs will increase.
The FASB requires companies to recognize the funded status
of defined benefit pension and postretirement plans as an
asset or liability in our statement of financial position and to
recognize changes in that funded status in the year in which
the changes occur. We have elected to reflect the annual
adjustments to the funded status in our consolidated
statement of income. Therefore, an increase in our costs or
adverse market conditions will have a negative effect on our
operating results.
The ongoing uncertainty in global financial markets could
materially adversely affect our ability and our larger
customers’ ability to access capital needed to fund
business operations.
The continuing instability in the global financial markets has
resulted in periodic volatility in the credit, currency, equity and
fixed income markets. Volatility has limited, in some cases
severely, companies’ access to the credit markets, leading to
higher borrowing costs for companies or, in some cases, the
inability of these companies to fund their ongoing operations.
As a result, our larger customers, who tend to be heavy users
of our data and wireless services, may be forced to delay or
reduce or be unable to finance purchases of our products and
services and may delay payment or default on outstanding
bills to us. In addition, we contract with large financial
institutions to support our own treasury operations, including
contracts to hedge our exposure on interest rates and foreign
exchange and the funding of credit lines and other short-term
debt obligations, including commercial paper. These financial
institutions also face new capital-related and other regulations
in the U.S. and Europe, as well as ongoing legal and financial
issues concerning their loan portfolios, which may hamper
their ability to provide credit or raise the cost of providing
such credit. While we have been successful in continuing to
access the credit and fixed income markets when needed,
a financial crisis could render us unable to access these
markets, severely affecting our business operations.
Changes in available technology could increase
competition and our capital costs.
The telecommunications industry has experienced rapid
changes in the last several years. The development of
wireless, cable and IP technologies has significantly increased
the commercial viability of alternatives to traditional wireline
telephone service and enhanced the capabilities of wireless
networks. In order to remain competitive, we are deploying a
more sophisticated wireline network and continue to deploy a
more sophisticated wireless network, as well as research other
new technologies. If the new technologies we have adopted
or on which we have focused our research efforts fail to be
cost-effective and accepted by customers, our ability to
remain competitive could be materially adversely affected.
RISK FACTORS
In addition to the other information set forth in this document,
including the matters contained under the caption “Cautionary
Language Concerning Forward-Looking Statements,” you
should carefully read the matters described below. We believe
that each of these matters could materially affect our
business. We recognize that most of these factors are beyond
our ability to control and therefore we cannot predict an
outcome. Accordingly, we have organized them by first
addressing general factors, then industry factors and, finally,
items specifically applicable to us.
A worsening U.S. economy would magnify our customers’
and suppliers’ current financial difficulties and could
materially adversely affect our business.
We provide services and products to consumers and large and
small businesses in the United States and to larger businesses
throughout the world. Current economic conditions in the U.S.
have adversely affected our customers’ demand for and ability
to pay for existing services, especially local landline service,
and their interest in purchasing new services. Our suppliers
are also facing higher financing and operating costs. Should
these current economic conditions worsen, we likely would
experience both a decrease in revenues and an increase in
certain expenses, including expenses relating to bad debt and
equipment and software maintenance. We also may incur
difficulties locating financially stable equipment and other
suppliers, thereby affecting our ability to offer attractive new
services. We are also likely to experience greater pressure on
pricing and margins as we continue to compete for customers
who would have even less discretionary income. While our
largest business customers have been less affected by these
adverse changes in the U.S. economy, if the continued adverse
economic conditions in the U.S., 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 annual pension and postretirement costs are subject to
increases, primarily due to continuing increases in medical
and prescription drug costs, and can be affected by lower
returns on funds held by our pension and other benefit plans,
which are reflected in our financial statements for that year.
Investment returns on these funds depend largely on trends
in the U.S. securities markets and the U.S. economy. It is also
unclear how many provisions of the new national healthcare
law will apply to us since many regulations implementing the
law have not been finalized. In addition, there have been
third-party challenges to the constitutionality of the new
national healthcare law that, if sustained, could have an
impact on our accounting for related costs. In calculating the
annual costs included on our financial statements of providing
benefits under our plans, we have made certain assumptions
regarding future investment returns, medical costs and