AT&T Wireless 2011 Annual Report Download - page 56

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
54 AT&T Inc.
Changes to federal, state and foreign government
regulations and decisions in regulatory proceedings
could materially adversely affect us.
Our wireline subsidiaries are subject to significant federal
and state regulation while many of our competitors are not.
In addition, our subsidiaries and affiliates operating outside
the United States are also subject to the jurisdiction of
national and 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. Adverse rulings by the FCC relating to
broadband issues could impede our ability to manage our
networks and recover costs and lessen incentives to invest
in our networks. The development of new technologies, such
as IP-based services, also 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. In addition, increased public focus on potential global
climate changes has led to proposals at state, federal and
foreign government levels to increase regulation on various
types of emissions, including those generated by vehicles
and by facilities consuming large amounts of electricity.
We do not expect these proposals to have a material adverse
impact on our operating results, and they could create
increased demand for communications services as
companies seek to reduce emissions.
Continuing growth in our wireless services will depend
on continuing access to adequate spectrum, deployment
of new technology and offering attractive services to
customers.
The wireless industry is undergoing rapid and significant
technological changes and a dramatic increase in usage, in
particular demand for and usage of data and other non-voice
services. We must continually invest in our wireless network
in order to continually improve our wireless service to meet
this increasing demand and remain competitive. Improvements
in our service depend on many factors, including continued
access to and deployment of adequate spectrum. We must
maintain and expand our network capacity and coverage as
well as the associated wireline network needed to transport
voice and data between cell sites. Network service
enhancements and product launches may not occur as
scheduled or at the cost expected due to many factors,
including delays in determining equipment and handset
operating standards, supplier delays, increases in network
equipment and handset component costs, regulatory
permitting delays for tower sites or enhancements or
labor-related delays. Deployment of new technology also
may adversely affect the performance of the network for
existing services. If the FCC does not fairly allocate sufficient
spectrum to allow the wireless industry in general, and the
Company in particular, to increase its capacity or if we cannot
acquire needed spectrum or deploy the services customers
desire on a timely basis without burdensome conditions or
at adequate cost while maintaining network quality levels,
then our ability to attract and retain customers, and therefore
maintain and improve our operating margins, could be
materially adversely affected.
Increasing competition for wireless customers could
adversely affect our operating results.
We have multiple wireless competitors in each of our service
areas and compete for customers based principally on
service/device offerings, price, call quality, coverage area
and customer service. In addition, we are facing growing
competition from providers offering services using alternative
wireless technologies and IP-based networks as well as
traditional wireline networks. We expect market saturation
to continue to cause the wireless industry’s customer
growth rate to moderate in comparison with historical
growth rates, leading to increased competition for customers.
We also expect that our customers’ growing demand for
data services will place constraints on our network capacity.
This competition and our capacity issues 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, network deployment
and management, and service offerings.
Increasing costs in our wireline operations could adversely
affect wireline operating margins.
We expect our operating costs, including customer acquisition
and retention costs will continue to put pressure on pricing,
margins and customer retention levels. A number of our
competitors that rely on alternative technologies (e.g., wireless,
cable and VoIP) and business models (e.g., advertising-
supported) are typically subject to less (or no) regulation
than our wireline 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). Over time these
cost disparities could require us to evaluate the strategic
worth of various wireline operations. We believe our cost
disadvantages could 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.