AT&T Wireless 2012 Annual Report Download - page 58

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
56 | AT&T Inc.
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. To this end, we have announced plans to accelerate
our deployment of LTE wireless technology and deploy other
technology advancements in order to further improve
network quality and the efficient use of our spectrum.
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
operating on newer, more technically advanced and lower-
cost networks and 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. To this end, we have begun initiatives
at both the state and federal levels to obtain regulatory
approvals, where needed, to transition services from our older
copper-based network to an advanced IP-based network.
If we do not obtain regulatory approvals for this transition or
obtain approvals with onerous conditions attached, we could
experience significant cost and competitive disadvantages.
The continued success of our U-verse services initiative
will depend on the development of attractive and
profitable broadband and video service offerings; the
extent to which regulatory, franchise fees and build-out
requirements apply to this initiative; the availability of
content on reasonable terms and conditions, including
price, and the availability and reliability of the various
technologies required to provide such offerings.
Telecommunications technology has shifted from the
traditional circuit- and wire-based technology to IP-based
technology. IP-based technology can transport voice and
data, as well as video, from both wired and wireless
networks. IP-based networks also potentially cost less to
operate than traditional networks. Our competitors, many
of which are newer companies, are deploying this IP-based
technology. In order to continue to offer attractive and
competitively priced services, we have deployed a new