AT&T Wireless 2012 Annual Report Download - page 57

AT&T Inc. | 55
the U.S. economy. We have experienced historically low
interest rates during the last several years and we expect
these rates to continue at similarly low levels for the next
several years; this has led to both lower investment returns
on our plan assets and to higher funding obligations. 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 calculating
the costs included on our financial statements of providing
benefits under our plans, we have made certain assumptions
regarding future investment returns, medical costs and
interest rates. If actual investment returns, medical costs and
interest rates are worse than those previously assumed, our
costs will increase.
The Financial Accounting Standards Board (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.
Adverse changes in global financial markets could limit
our ability and our larger customers’ ability to access
capital or increase the cost of 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 United States 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. A company’s cost of borrowing is also affected by
evaluations given by various credit rating agencies and these
agencies have been applying tighter credit standards when
evaluating a company’s debt levels and future growth
prospects. While we have been successful in continuing to
access the credit and fixed income markets when needed,
adverse changes in the financial markets could render us
either unable to access these markets or able to access these
markets only at higher interest costs and with restrictive
financial or other conditions, 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 past 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. We expect our recently announced
plans to significantly expand and enhance our wireless and
wireline IP broadband networks will result in increased capital
expenditures and increased debt levels as these plans are
implemented. 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.
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.