AT&T Wireless 2011 Annual Report Download - page 42

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
40 AT&T Inc.
Our Other segment also includes our equity investments in
América Móvil and Telmex, 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 equity in net income
of affiliates by major investment is listed below:
2011 2010 2009
América Móvil $720 $560 $505
Telmex1 95 150 133
Telmex Internacional2 — 34 72
Other (2) (2) (2)
Other Segment Equity in
Net Income of Affiliates $813 $742 $708
1Acquired by América Móvil in 2011
2Acquired by América Móvil in 2010
Equity in net income of affiliates increased $71, or 9.6%, in
2011 and $34, or 4.8%, for 2010. Increased equity in net
income of affiliates in both years was due to higher operating
results at América Móvil, partially offset by lower results at
Telmex in 2011. In November 2011, we tendered all of our
shares in Telmex as part of América Móvil’s acquisition of
the outstanding shares of Telmex.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
2012 Revenue Trends We expect our operating
environment in 2012 to remain challenging as weak economic
conditions continue and competition remains strong. Despite
these challenges, we expect our operating revenues in 2012
to grow, reflecting continuing growth in our wireless data
and IP-related wireline data services, including U-verse
and strategic business services. We expect our primary
driver of growth to be wireless, especially in sales of and
increases in data usage on smartphones and emerging
devices (such as tablets, eReaders and mobile navigation
devices). We expect 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 print directory advertising.
Where available, our U-verse services have proved effective
in stemming access line losses, and we expect to continue
to expand our U-verse service offerings in 2012.
2012 Expense Trends We will continue to focus sharply
on cost-control measures. 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 2012 operating
income margin to improve as our revenues improve.
Expenses related to growth areas of our business, especially
in the wireless and strategic business services areas, will
apply some pressure to our operating income margin.
Market Conditions During 2011, the securities and fixed
income markets and the banking system in general continued
to stabilize, 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
financing and operating costs. These negative economic
trends were partially offset by continued growth in our
wireless data and IP-related services. While the economy
appears to have stabilized, we do not expect a return to
historical growth levels during 2012. Should the economy
instead deteriorate 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
equipment under warranty from our suppliers.
Included on our consolidated balance sheets are assets
held by benefit plans for the payment of future benefits.
We contributed $1,000 to our pension plan in the fourth
quarter of 2011 and are not required to make further
significant funding contributions to our pension plans in
2012. 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 equity, fixed income and real asset markets
could require us in future years to make contributions to
the pension plans in order to maintain minimum funding
requirements as established by ERISA. Investment returns on
these assets depend largely on trends in the U.S. securities
markets and the U.S. economy. In addition, our policy of
recognizing actuarial gains and losses related to our pension
and other postretirement plans in the period in which they
arise subjects us to earnings volatility caused by changes in
market conditions. Changes in our discount rate, which are
tied to changes in the bond market and changes in the
performance of equity markets, may have significant impacts
on the fair value of pension and other postretirement plans
at the end of 2012 (see “Significant Accounting Policies
and Estimates”).
OPERATING ENVIRONMENT OVERVIEW
AT&T subsidiaries operating within the United States are
subject to federal and state regulatory authorities. AT&T
subsidiaries operating outside the United States 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.
In the Telecommunications Act of 1996 (Telecom Act),
Congress established a national policy framework intended
to bring the benefits of competition and investment in
advanced telecommunications facilities and services to all
Americans by opening all telecommunications markets to
competition and reducing or eliminating regulatory burdens