AT&T Wireless 2014 Annual Report Download - page 40

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
38 | AT&T INC.
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. In addition, these competitors generally
can focus on discrete customer segments since they
do not have regulatory obligations to provide universal
service. 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.
Unfavorable litigation or governmental investigation
results could require us to pay significant amounts
or lead to onerous operating procedures.
We are subject to a number of lawsuits both in the
United States and in foreign countries, including, at
any particular time, claims relating to antitrust; patent
infringement; wage and hour; personal injury; customer
privacy violations; regulatory proceedings, and our
advertising, sales and billing and collection practices.
We also spend substantial resources complying with
various government standards, which may entail related
investigations and litigation. As we deploy newer
technologies, especially in the wireless area, we also
face current and potential litigation relating to alleged
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, video 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
participated in spectrum auctions, at increasing financial
cost, and continue to deploy 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
materially 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