REG - AT & T Inc. - 2015 10-K <Origin Href="QuoteRef">T.N</Origin> - Part 5

AT&TAnnouncement

01/04/2016 16:03

- Part 5: For the preceding part double click  ID:nRSZ3512Qd 

broadband Internet access services have challenged the FCC's decision before the U.S. Court of
Appeals for the D.C. Circuit. We expect a decision on AT&T's appeal in the first half of 2016. 
 
We provide satellite video service through our subsidiary DIRECTV, whose satellites are licensed by the FCC. The
Communications Act of 1934 and other related acts give the FCC broad authority to regulate the U.S. operations of DIRECTV.
In addition, states representing a majority of our local service access lines have adopted legislation that enables us to
provide U-verse video service through a single statewide or state-approved franchise (as opposed to the need to acquire
hundreds or even thousands of municipal-approved franchises) to offer competitive video services. We also are supporting
efforts to update and improve regulatory treatment for retail services. Regulatory reform and passage of legislation is
uncertain and depends on many factors. 
 
We provide wireless services in robustly competitive markets, but those services are subject to substantial and increasing
governmental regulation. Wireless communications providers must obtain licenses from the FCC to provide communications
services at specified spectrum frequencies within specified geographic areas and must comply with the FCC rules and
policies governing the use of the spectrum. While wireless communications providers' prices and service offerings are
generally not subject to state regulation, states sometimes attempt to regulate or legislate various aspects of wireless
services, such as in the area of consumer protection. 
 
The FCC has recognized that the explosive growth of bandwidth-intensive wireless data services requires the U.S. Government
to make more spectrum available. In February 2012, Congress set forth specific spectrum blocks to be auctioned and licensed
by February 2015 (the "AWS-3 Auction"), and also authorized the FCC to conduct an "incentive auction," to make available
for wireless broadband use certain spectrum that is currently used by broadcast television licensees (the "600 MHz
Auction"). We participated in the AWS-3 Auction. The FCC announced that the 600 MHz Auction (Auction 1000) is scheduled to
begin on March 29, 2016. 
 
In May 2014, in a separate proceeding, the FCC issued an order revising its policies governing mobile spectrum holdings.
The FCC rejected the imposition of caps on the amount of spectrum any carrier could acquire, retaining its case-by-case
review policy. Moreover, it increased the amount of spectrum that could be acquired before exceeding an aggregation
"screen" that would automatically trigger closer scrutiny of a proposed transaction. On the other hand, it indicated that
it will separately consider an acquisition of "low band" spectrum that exceeds one-third of the available low band spectrum
as presumptively harmful to competition. In addition, the FCC imposed limits on certain bidders in the 600 MHz Auction,
including AT&T, restricting them from bidding on up to 40 percent of the available spectrum in the incentive auction in
markets that cover as much as 70-80 percent of the U.S. population. On balance, the order and the new spectrum screen
should allow AT&T to obtain additional spectrum to meet our customers' needs, but because AT&T uses more "low band"
spectrum in its network than some other national carriers, the separate consideration of low band spectrum acquisitions
might affect AT&T's ability to expand capacity in these bands ("low band" spectrum has better propagation characteristics
than "high band" spectrum). We seek to ensure that we have the opportunity, through the auction process and otherwise, to
obtain the spectrum we need to provide our customers with high-quality service in the future. 
 
Expected Growth Areas 
 
Over the next few years, we expect our growth to come from IP-based broadband services, video entertainment and wireless
services from our expanded North American footprint. With our 2015 acquisitions of DIRECTV and wireless properties in
Mexico, our revenue mix is much more diversified. We can now provide integrated services to diverse groups of customers in
the U.S. on different technological platforms, including wireless, satellite and wireline. In 2016, we expect our largest
revenue stream to come from business customers, followed by U.S. consumer video and broadband, U.S. consumer mobility and
then international video and mobility. 
 
Integration of Data/Broadband and Entertainment Services  As the communications industry continues to move toward
Internet-based technologies that are capable of blending wireline, satellite and wireless services, we plan to offer
services that take advantage of these new and more sophisticated technologies. In particular, we intend to continue to
focus on expanding our high-speed Internet and video offerings and on developing IP-based services that allow customers to
unite their home or business fixed services with their mobile service. During 2016, we will continue to develop and provide
unique integrated video, mobile and broadband solutions. In January 2016, we began offering an unlimited mobile data plan
to customers who also purchase DIRECTV or U-verse video service, thereby facilitating our customers' desire to view video
anywhere on demand and encouraging customer retention. 
 
Wireless  We expect to deliver continued revenue growth in the coming years. We are in a period of rapid growth in wireless
data usage and believe that there are substantial opportunities available for next-generation converged services that
combine technologies and services. For example, we entered into agreements with many automobile manufacturers and began
providing vehicle-embedded security and entertainment services. 
 
In the United States, we now cover all major metropolitan areas and more than 310 million people with our LTE technology.
We also provide 4G coverage using another technology (HSPA+), and when combined with our upgraded backhaul network, we are
able to enhance our network capabilities and provide superior mobile broadband speeds for data and video services. Our
wireless network also relies on other GSM digital transmission technologies for 3G and 2G data communications. As of
December 31, 2015, we served more than 128 million U.S. subscribers. 
 
As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our
ability to offer innovative video and data services and a wireless network that has sufficient spectrum and capacity to
support these innovations. We continue to face spectrum and capacity constraints on our wireless network in certain
markets. We expect such constraints to increase and expand to additional markets in the coming years. While we are
continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the
quality of existing voice and data services and our ability to launch new, advanced wireless broadband services, unless we
are able to obtain more spectrum. Any long-term spectrum solution will require that the FCC make additional spectrum
available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to address
spectrum and capacity constraints on a market-by-market basis. 
 
In 2015, we acquired two Mexican wireless providers. These two acquisitions give us a GSM network covering both the U.S.
and Mexico and enable our customers to use wireless services without roaming on other companies' networks. We believe this
seamless access will prove attractive to customers and provide a significant growth opportunity. We also announced in 2015
our plan to invest $3,000 to upgrade the network in Mexico to provide LTE coverage to 100 million people and businesses by
year-end 2018. As of year-end 2015, this LTE network covered approximately 44 million people and businesses in Mexico. 
 
REGULATORY DEVELOPMENTS 
 
Set forth below is a summary of the most significant regulatory proceedings that directly affected our operations during
2015. Industry-wide regulatory developments are discussed above in Operating Environment Overview. While these issues may
apply only to certain subsidiaries, the words "we," "AT&T" and "our" are used to simplify the discussion. The following
discussions are intended as a condensed summary of the issues rather than as a comprehensive legal analysis and description
of all of these specific issues. 
 
International Regulation  Our subsidiaries operating outside the United States are subject to the jurisdiction of
regulatory authorities in the market where service is provided. Our licensing, compliance and advocacy initiatives in
foreign countries primarily enable the provision of enterprise (i.e., large business) services. AT&T is engaged in multiple
efforts with foreign regulators to open markets to competition, reduce network costs, foster conditions favorable to
investment, and increase our scope of fully authorized network services and products. 
 
Federal Regulation  In February 2015, the FCC released an order in response to the D.C. Circuit's January 2014 decision
adopting new rules, and reclassifying both fixed and mobile consumer broadband Internet access services as
telecommunications services, subject to comprehensive regulation under the Telecom Act. The FCC's decision significantly
expands the FCC's existing authority to regulate the provision of fixed and mobile broadband Internet access services. The
FCC also asserted jurisdiction over Internet interconnection arrangements, which until now have been unregulated. These
actions could have an adverse impact on our fixed and mobile broadband services and operating results. AT&T and several
other parties, including US Telecom and CTIA trade groups, have appealed the FCC's order. Briefing and oral argument on the
appeal have been completed. The D.C. Circuit is expected to rule on the appeal in the first half of 2016. 
 
COMPETITION 
 
Competition continues to increase for communications and digital entertainment services. Technological advances have
expanded the types and uses of services and products available, which has expanded opportunities in significant portions of
our business, including our 2015 acquisitions of DIRECTV and two Mexican wireless providers. Certain of our competitors may
have lower costs for comparable alternative services due to a lack of or a reduced level of regulation. 
 
We face substantial and increasing competition in our wireless businesses. Under current FCC rules, multiple licensees, who
provide wireless services on the cellular, PCS, Advanced Wireless Services, 700 MHz and other spectrum bands, may operate
in each of our service areas. Our competitors include brands such as Verizon Wireless, Sprint, T-Mobile/Metro PCS, a larger
number of regional providers of cellular, PCS and other wireless communications services and resellers of those services.
In addition, we face competition from providers who offer voice, text messaging and other services as applications on data
networks. More than 98 percent of the U.S. population live in areas with at least three mobile telephone operators, and
more than 94 percent of the population live in areas with at least four competing carriers. We are one of three providers
in Mexico, with the most significant market share controlled by América Móvil. We may experience significant competition
from companies that provide similar services using other communications technologies and services. While some of these
technologies and services are now operational, others are being developed or may be developed. We compete for customers
based principally on service/device offerings, price, call quality, coverage area and customer service. 
 
Our subsidiaries providing communications and digital entertainment services will face continued competitive pressure in
2016 from multiple providers, including wireless, satellite, cable and other VoIP providers, online video providers, and
interexchange carriers and resellers. In addition, the desire for high-speed data on demand, including video, and lingering
economic sluggishness are continuing to lead customers to terminate their traditional wired services and use our or
competitors' wireless, satellite and Internet-based services. In most markets, we compete for customers, often on pricing
of bundled services, with large cable companies, such as Comcast Corporation, Cox Communications Inc. and Time Warner Cable
Inc., for high-speed Internet, video and voice services and other smaller telecommunications companies for both
long-distance and local services. In addition, in Latin American countries served by our DIRECTV subsidiary, we also face
competition from other video providers, including América Móvil and Telefónica. 
 
Our Entertainment Group and Business Solutions segments generally remain subject to regulation for certain legacy wireline
wholesale services by state regulatory commissions for intrastate services and by the FCC for interstate services. Under
the Telecom Act, companies seeking to interconnect to our networks and exchange local calls enter into interconnection
agreements with us. Any unresolved issues in negotiating those agreements are subject to arbitration before the appropriate
state commission. These agreements (whether fully agreed-upon or arbitrated) are then subject to review and approval by the
appropriate state commission. 
 
Our Entertainment Group and Business Solutions segments operate portions of their business under state-specific forms of
regulation for retail services that were either legislatively enacted or authorized by the appropriate state regulatory
commission. Most states deregulate the competitive services; impose price caps for some services where the prices for these
services are not tied to the cost of providing the services or to rate-of-return requirements; or adopt a regulatory
framework that incorporates deregulation and price caps. Some states may impose minimum customer service standards with
required payments if we fail to meet the standards. 
 
We continue to lose legacy voice and data subscribers due to competitors (e.g., wireless, cable and VoIP providers) who can
provide comparable services at lower prices because they are not subject to traditional telephone industry regulation (or
the extent of regulation is in dispute), utilize different technologies, or promote a different business model (such as
advertising based). In response to these competitive pressures, for a number of years we have used a bundling strategy that
rewards customers who consolidate their services (e.g., telephone, high-speed Internet, wireless and video) with us. We
continue to focus on bundling services, including combined packages of wireless data and voice and video service. We will
continue to develop innovative and integrated services that capitalize on our wireless and IP-based network and
satellites. 
 
Additionally, we provide local and interstate telephone and switched services to other service providers, primarily large
Internet Service Providers using the largest class of nationwide Internet networks (Internet backbone), wireless carriers,
other telephone companies, cable companies and systems integrators. These services are subject to additional competitive
pressures from the development of new technologies, the introduction of innovative offerings and increasing satellite,
wireless, fiber-optic and cable transmission capacity for services. We face a number of international competitors,
including Orange Business Services, British Telecom, Singapore Telecommunications Limited and Verizon Communications Inc.,
as well as competition from a number of large systems integrators, such as HP Enterprise Services. 
 
ACCOUNTING POLICIES AND STANDARDS 
 
Critical Accounting Policies and Estimates  Because of the size of the financial statement line items they relate to or the
extent of judgment required by our management, some of our accounting policies and estimates have a more significant impact
on our consolidated financial statements than others. The following policies are presented in the order in which the topics
appear in our consolidated statements of income. 
 
Allowance for Doubtful Accounts  We record expense to maintain an allowance for doubtful accounts for estimated losses that
result from the failure or inability of our customers to make required payments. When determining the allowance, we
consider the probability of recoverability based on past experience, taking into account current collection trends as well
as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical write-offs, net of
recoveries, as well as an analysis of the aged accounts and installment receivable balances with reserves generally
increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known
to exist, such as pending bankruptcy or catastrophes. The analysis of receivables is performed monthly, and the allowances
for doubtful accounts are adjusted through expense accordingly. A 10% change in the amounts estimated to be uncollectible
would result in a change in the provision for uncollectible accounts of approximately $142. 
 
Pension and Postretirement Benefits  Our actuarial estimates of retiree benefit expense and the associated significant
weighted-average assumptions are discussed in Note 12. Our assumed discount rate for pension and postretirement benefits of
4.60% and 4.50%, respectively, at December 31, 2015, reflects the hypothetical rate at which the projected benefit
obligations could be effectively settled or paid out to participants. We determined our discount rate based on a range of
factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate
bonds available at the measurement date and the related expected duration for the obligations. These bonds were all rated
at least Aa3 or AA- by one of the nationally recognized statistical rating organizations, denominated in U.S. dollars, and
neither callable, convertible nor index linked. For the year ended December 31, 2015, we increased our pension discount
rate by 0.30%, resulting in a decrease in our pension plan benefit obligation of $1,977 and increased our postretirement
discount rate by 0.30%, resulting in a decrease in our postretirement benefit obligation of $854. For the year ended
December 31, 2014, we decreased our pension discount rate by 0.70%, resulting in an increase in our pension plan benefit
obligation of $4,854 and decreased our postretirement discount rate 0.80%, resulting in an increase in our postretirement
benefit obligation of $2,786. 
 
Our expected long-term rate of return on pension plan assets is 7.75% for 2016 and 2015. Our expected long-term rate of
return on postretirement plan assets is 5.75% for 2016 and 2015. Our expected return on plan assets is calculated using the
actual fair value of plan assets. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the
expected long-term rate of return would cause 2016 combined pension and postretirement cost to increase $232, which under
our accounting policy would be adjusted to actual returns in the current year as part of our fourth-quarter remeasurement
of our retiree benefit plans. In 2015, the actual return on our combined pension and postretirement plan assets was 1.3%,
resulting in an actuarial loss of $3,070. 
 
We recognize gains and losses on pension and postretirement plan assets and obligations immediately in our operating
results. These gains and losses are generally measured annually as of December 31 and accordingly will normally be recorded
during the fourth quarter, unless an earlier remeasurement is required. Should actual experience differ from actuarial
assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit
obligation and postretirement benefit cost would be affected in future years. Note 12 also discusses the effects of certain
changes in assumptions related to medical trend rates on retiree healthcare costs. 
 
Depreciation  Our depreciation of assets, including use of composite group depreciation and estimates of useful lives, is
described in Notes 1 and 6. We assign useful lives based on periodic studies of actual asset lives. During 2014, we
completed studies evaluating the periods that we were utilizing our software assets, which resulted in our extending our
estimated useful lives for certain capitalized software to five years to better reflect the estimated periods during which
these assets will remain in service, which is also consistent with the estimated useful lives used in the industry. Prior
to 2014, all capitalized software costs were primarily amortized over a three-year period. 
 
If all other factors were to remain unchanged, we expect that a one-year increase in the useful lives of our plant in
service would have resulted in a decrease of approximately $3,550 in our 2015 depreciation expense and that a one-year
decrease would have resulted in an increase of approximately $4,886 in our 2015 depreciation expense. 
 
Asset Valuations and Impairments  We allocate the purchase price of acquired businesses to the assets acquired and
liabilities assumed based on their estimated fair values. The estimated fair values of intangible assets acquired are based
on the expected discounted cash flows of the identified customer relationships, patents, trade names, orbital slots and
wireless licenses (spectrum). In determining the future cash flows, we consider demand, competition and other economic
factors. 
 
Customer relationships, which are finite-lived intangible assets, are primarily amortized using the
sum-of-the-months-digits method of amortization over the period in which those relationships are expected to contribute to
our future cash flows. The sum-of-the-months-digits method is a process of allocation and reflects our belief that we
expect greater revenue generation from these customer relationships during the earlier periods after acquisition.
Amortization of other intangibles, including patents and certain trade names, is determined using the straight-line method
of amortization over the expected remaining useful lives or specified contractual terms. 
 
Goodwill and other indefinite lived intangible assets are not amortized but tested at least annually for impairment. We
conduct our impairment tests as of October 1. We test goodwill on a reporting unit basis, and some reporting units coincide
with our segments, while others are one level below our segments. If, due to changes in how we manage the business, we move
a portion of a reporting unit to another reporting unit, we determine the amount of goodwill to reallocate to the new
reporting unit based on the relative fair value of the portion of the business moved and the portion of the business
remaining in the reporting unit. The goodwill impairment test is a two-step process. The first step involves determining
the fair value of the reporting unit and comparing that measurement to the book value. If the fair value exceeds the book
value, then no further testing is required. If the fair value is less than the book value (i.e., an indication of
impairment exists), then we perform the second step. 
 
In the second step, we determine the fair values of all of the assets and liabilities of the reporting unit, including
those that may not be currently recorded. The difference between the sum of all of those fair values and the overall
reporting unit's fair value is a new implied goodwill amount, which we compare to the recorded goodwill. If implied
goodwill is less than the recorded goodwill, then we record an impairment of the recorded goodwill. The amount of this
impairment may be more or less than the difference between the overall fair value and book value of the reporting unit. It
may even be zero if the fair values of other assets are less than their book values. 
 
As shown in Note 7, all of our goodwill resides in the Business Solutions, Entertainment Group, Consumer Mobility and
International segments. For each of the reporting units in those segments, we assess their fair values using an income
approach (also known as a discounted cash flow) and a market multiple approach. The income approach utilizes a 10-year cash
flow projection with a perpetuity value discounted using an appropriate weighted average cost of capital rate for each
reporting unit. The market multiple approach uses a multiple of a company's EBITDA. We determined the multiples of the
publicly traded companies whose services are comparable to those offered by the reporting unit and then calculated a
weighted-average of those multiples. Using those weighted averages, we then calculated fair values for each of those
reporting units. In 2015, the calculated fair value of the reporting unit exceeded book value in all circumstances, and no
additional testing was necessary. In the event of a 10% drop in the fair values of the reporting units, the fair values
would have still exceeded the book values of the reporting units, and additional testing would still have not been
necessary. 
 
Wireless licenses (spectrum) in the U.S. are tested for impairment on an aggregate basis, consistent with use of the
licenses to support the Business Solutions and Consumer Mobility segments on a national scope. As in prior years, we
performed our test of the fair values of licenses using a discounted cash flow model (the Greenfield Approach). We also
corroborated the value of wireless licenses with a market approach as the AWS-3 auction provided market price information
for national wireless licenses. The Greenfield Approach assumes a company initially owns only the wireless licenses, and
then makes investments required to build an operation comparable to the one that currently utilizes the licenses. We
utilized a 17-year discrete period to isolate cash flows attributable to the licenses, including modeling the hypothetical
build-out. The projected cash flows are based on certain financial factors, including revenue growth rates, EBITDA margins
and churn rates. For impairment testing purposes, we assumed wireless revenue growth to trend up from our 2015 decline of
0.4% to a long-term growth rate that reflects expected long-term inflation trends. We assumed our churn rates will increase
in 2016 from our rate of 1.39% in 2015, in line with expected trends in the U.S. industry but at a rate comparable with
industry-leading churn. EBITDA margins were assumed to trend toward 40% annually, and EBITDA service margins were assumed
to continue to trend to at least 40% annually. 
 
This model then incorporates cash flow assumptions regarding investment in the network, development of distribution
channels and the subscriber base, and other inputs for making the business operational. We based the assumptions on a
combination of average marketplace participant data and our historical results, trends and business plans. We also used
operating metrics such as capital investment per subscriber, acquisition costs per subscriber, minutes of use per
subscriber, etc., to develop the projected cash flows. Since we included the cash flows associated with these other inputs
in the annual cash flow projections, the present value of the unlevered free cash flows of the segment, after investment in
the network, subscribers, etc., is attributable to the wireless licenses. The terminal value of the segment, which
incorporates an assumed sustainable growth rate, is also discounted and is likewise attributed to the licenses. We used a
discount rate of 8.25%, based on the optimal long-term capital structure of a market participant and its associated cost of
debt and equity, to calculate the present value of the projected cash flows. This discount rate is also consistent with
rates we use to calculate the present value of the projected cash flows of licenses acquired from third parties. 
 
If either the projected rate of long-term growth of cash flows or revenues declined by 0.5%, or if the discount rate
increased by 0.5%, the fair values of the wireless licenses, while less than currently projected, would still be higher
than the book value of the licenses. The fair value of the licenses exceeded the book value by more than 10%. 
 
We review customer relationships and other long-lived assets for impairment whenever events or circumstances indicate that
the carrying amount may not be recoverable over the remaining life of the asset or asset group. To determine that the asset
is recoverable, we verify that the expected undiscounted future cash flows directly related to that asset exceed its book
value. 
 
We evaluate our investments to determine whether market declines are temporary and accordingly reflected in accumulated
other comprehensive income, or other-than-temporary and recorded as an expense in "Other income (expense) - net" in the
consolidated statements of income. This evaluation is based on the length of time and the severity of decline in the
investment's value. In 2014, we identified an immaterial other-than-temporary decline in the value of equity method
investments and various cost investments. 
 
Income Taxes  Our estimates of income taxes and the significant items giving rise to the deferred assets and liabilities
are shown in Note 11 and reflect our assessment of actual future taxes to be paid on items reflected in the financial
statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from
these estimates due to future changes in income tax law or the final review of our tax returns by federal, state or foreign
tax authorities. 
 
We use our judgment to determine whether it is more likely than not that we will sustain positions that we have taken on
tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review
our uncertain tax positions and adjust our unrecognized tax benefits (UTBs) in light of changes in facts and circumstances,
such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our
UTBs may affect our income tax expense. Settlement of uncertain tax positions may require use of our cash. 
 
New Accounting Standards 
 
See Note 1 for a discussion of recently issued or adopted accounting standards. 
 
OTHER BUSINESS MATTERS 
 
DIRECTV  In July 2015, we completed our acquisition of DIRECTV, a leading provider of digital television entertainment
services in both the United States and Latin America. The acquisition gives us a unique and complementary set of assets and
the opportunity to achieve substantial cost synergies over time, as well as increasing revenue from bundling and
integrating services. Our distribution scale enables us to offer consumers attractive combinations of video, high-speed
broadband and mobile services, using all the sales channels of both companies. We believe the combined company will be a
content distribution leader across mobile, video and broadband platforms. 
 
Under the merger agreement, each share of DIRECTV stock was exchanged for $28.50 cash plus 1.892 shares of our common
stock. After adjustment for shares issued to trusts consolidated by AT&T, stock based payment arrangements and fractional
shares, which were settled in cash, AT&T issued 954,407,524 shares to DIRECTV shareholders, giving them an approximate 16%
stake in the combined company, based on common shares outstanding. Based on our $34.29 per share closing stock price on
July 24, 2015, the aggregate value of consideration paid to DIRECTV shareholders was $47,409, including $32,727 of AT&T
stock and $14,378 in cash, $299 for share-based payment arrangements and $5 for DIRECTV shares previously purchased on the
open market by trusts consolidated by AT&T. 
 
The FCC approved the transaction subject to the following conditions: 
 
·      Fiber to the Premises Deployment - Within four years, we will offer our all-fiber Internet access service to at
least 12.5 million customer locations such as residences, home offices and very small businesses. Combined with our
existing high-speed broadband network, at least 25.7 million customer locations will have access to broadband speeds of
45Mbps or higher by the end of the four-year build. While the addition of medium and large businesses do not count towards
the commitments, we will have the opportunity to provide services to those customers as part of this expansion. In
addition, we will offer 1 Gbps fiber Internet access service pursuant to applicable E-rate rules to any eligible school or
library requesting that service within or contiguous to our all-fiber footprint. 
 
·      Discounted Broadband Services Program - Within our 21-state area, we will offer a discounted fixed broadband service
to low-income households that qualify for the government's Supplemental Nutrition Assistance Program. In locations where it
is available, service with speeds of at least 10Mbps will be offered for ten dollars per month. Elsewhere, 5Mbps service
will be offered for ten dollars per month or, in some locations, 3Mbps service will be offered for five dollars per month. 
 
·      Non-Discriminatory Usage-Based Practices - We are required to refrain from using usage-based allowances or other
retail terms and conditions on our fixed broadband Internet access service, as defined in the order, to discriminate in
favor of our own online video services. We can and will continue to offer discounts on integrated bundles of our video and
fixed broadband services. 
 
·      Internet Interconnection Disclosure Requirements - We will submit to the FCC new interconnection agreements we enter
into with peering networks and with "on-net" customers that purchase Managed Internet Service to exchange Internet traffic
with other AT&T customers. We will develop, together with an independent expert, a methodology for measuring the
performance of our Internet traffic exchange and regularly report these metrics to the FCC. 
 
·      Compliance Program and Reporting - We have appointed a Company Compliance Officer to develop and implement a plan to
ensure compliance with these merger conditions. We will engage an independent, third-party compliance officer to evaluate
the plan and our implementation. Both AT&T and the independent compliance officer will submit periodic reports to the FCC. 
 
The conditions will remain in effect for four years from July 24, 2015. A condition may be extended once for two years if
the FCC makes a formal finding that we have violated the condition in whole or in part. 
 
Litigation Challenging DIRECTV's NFL Sunday Ticket  More than a dozen putative class actions have been filed in the U.S.
District Courts for the Central District of California and the Southern District of New York against DIRECTV and the
National Football League (NFL) alleging that the NFL and DIRECTV violated federal antitrust law in connection with the NFL
Sunday Ticket package. Among other things, the complaints allege that plaintiffs have been overcharged for the televised
presentation of out-of-market NFL games due to DIRECTV's exclusive agreement with the NFL to broadcast out-of-market games
through the Sunday Ticket package. The complaints seek unspecified treble damages and attorneys' fees along with injunctive
relief. The first complaint, Abrahamian v. National Football League, Inc., et al., was served in June 2015. In December
2015, the Judicial Panel on Multidistrict Litigation transferred the cases outside the Central District of California to
that court for consolidation and management of pre-trial proceedings. We vigorously dispute the allegations the complaints
have asserted. 
 
Federal Trade Commission Litigation Involving DIRECTV  In March 2015, the Federal Trade Commission (FTC) filed a civil suit
in the U.S. District Court for the Northern District of California against DIRECTV seeking injunctive relief and
unspecified money damages under Section 5 of the Federal Trade Commission Act and Section 4 of the Restore Online Shoppers'
Confidence Act. The FTC's allegations concern DIRECTV's advertising, marketing and sale of programming packages. The FTC
alleges that DIRECTV did not adequately disclose all relevant terms. We are disputing these allegations vigorously. 
 
Unlimited Data Plan Claims  In October 2014, the FTC filed a civil suit in the U.S. District Court for the Northern
District of California against AT&T Mobility, LLC seeking injunctive relief and unspecified money damages under Section 5
of the Federal Trade Commission Act. The FTC's allegations concern AT&T's Maximum Bit Rate (MBR) program, which temporarily
reduces the download speeds of a small portion of our legacy Unlimited Data Plan customers each month. MBR is an
industry-standard practice that is designed to affect only the most data-intensive applications (such as video streaming).
Texts, emails, tweets, social media posts, Internet browsing and many other applications are typically unaffected. Contrary
to the FTC's allegations, which we vigorously dispute, our MBR program is permitted by our customer contracts, was fully
disclosed in advance to our Unlimited Data Plan customers, and was implemented to protect the network for the benefit of
all customers. In March 2015, our motion to dismiss the litigation on the grounds that the FTC lacked jurisdiction to file
suit was denied. In May 2015, the Court granted our motion to certify its decision for immediate appeal. The United States
Court of Appeals for the Ninth Circuit subsequently granted our petition to accept the appeal, and the appeal is now
pending before that Court while limited discovery proceeds in the District Court. In addition to the FTC case, several
class actions have been filed also challenging our MBR program. We vigorously dispute the allegations the complaints have
asserted. 
 
On June 17, 2015, the FCC issued a Notice of Apparent Liability and Order (NAL) to AT&T Mobility, LLC concerning our MBR
policy that applies to Unlimited Data Plan customers. The NAL alleges that we violated the FCC's Open Internet Transparency
Rule by using the term "unlimited" in connection with the offerings subject to the MBR policy and by failing adequately to
disclose the speed reductions that apply once a customer reaches a specified data threshold. The NAL proposes a forfeiture
penalty of $100, and further proposes to order us to correct any misleading and inaccurate statements about our unlimited
plans, inform customers of the alleged violation, revise our disclosures to address the alleged violation and inform these
customers that they may cancel their plans without penalty after reviewing the revised disclosures. On July 17, 2015, we
filed our response to the NAL. We believe that the NAL is unlawful and should be withdrawn, because we have fully complied
with the Open Internet Transparency Rule and the FCC has no authority to impose the proposed remedies. The matter is
currently pending before the FCC. 
 
LIQUIDITY AND CAPITAL RESOURCES 
 
We had $5,121 in cash and cash equivalents available at December 31, 2015. Approximately $807 of our cash and cash
equivalents resided in foreign jurisdictions, some of which are subject to restrictions on repatriation. Cash and cash
equivalents decreased $3,482 since December 31, 2014. We also had $401 in short-term investments, which we included in
"Other current assets" on our consolidated balance sheets. In 2015, cash inflows were primarily provided by cash receipts
from operations, including cash from our sale and transfer of certain equipment installment receivables to third parties
and long-term debt issuances. These inflows were offset by cash used to meet the needs of the business, including, but not
limited to, payment of operating expenses; acquisitions of wireless spectrum, DIRECTV, GSF Telecom Holdings, S.A.P.I. de
C.V. (GSF Telecom) and Nextel Mexico; funding capital expenditures; debt repayments; dividends to stockholders; and
collateral posting (see Note 9). We discuss many of these factors in detail below. 
 
Cash Provided by or Used in Operating Activities 
 
During 2015, cash provided by operating activities was $35,880, compared to $31,338 in 2014. Higher operating cash flows in
2015 were primarily due to improved operating results, our acquisition of DIRECTV and working capital improvements. 
 
During 2014, cash provided by operating activities was $31,338 compared to $34,796 in 2013. Lower operating cash flows in
2014 were primarily due to wireless device financing related to AT&T Next, which results in cash collection over the
installment period instead of at the time of sale, increased inventory levels and retirement benefit funding. Proceeds from
the sale of equipment installment receivables and the timing of working capital payments partially offset the decline in
operating cash flows. 
 
Cash Used in or Provided by Investing Activities 
 
During 2015, cash used in investing activities consisted primarily of: 
 
·      $17,740 for acquisitions of spectrum licenses, largely due to the remaining payment for AWS spectrum licenses in the
AWS-3 Auction. 
 
·      $19,218 in capital expenditures, excluding interest during construction. 
 
·      $13,019 net of cash acquired for the acquisitions of DIRECTV, GSF Telecom, Nextel Mexico and other operations. 
 
During 2015, we also received $1,945 upon the maturity of certain short-term investments and paid $400 for additional
short-term investments. 
 
Virtually all of our capital expenditures are spent on our communications networks and our video services and support
systems for our digital entertainment services. Capital expenditures, excluding interest during construction, decreased
$1,981 from 2014, reflecting the completion of our LTE build and other Project Velocity IP initiatives in 2014. In
connection with capital improvements to our wireless network in Mexico, we also negotiated in 2015 favorable payment terms
(referred to as vendor financing). In 2015, we deferred $684 of vendor financing related to capital additions to future
periods. Capital expenditures also include spending for DIRECTV, GSF Telecom and Nextel Mexico after the acquisition dates.
As part of our organizational realignment, we no longer allocate capital expenditures to our segments. 
 
We expect our 2016 capital investment, which includes our capital expenditures plus vendor financing payments related to
our Mexico network, for our existing businesses to be in the $22,000 range, and we expect our capital investment to be in
the 15 percent range of service revenues or lower from 2016 through 2018. The amount of capital investment is influenced by
demand for services and products, capacity needs and network enhancements. We are also focused on ensuring merger
commitments are met. 
 
Cash Used in or Provided by Financing Activities 
 
We paid dividends of $10,200 in 2015, $9,552 in 2014, and $9,696 in 2013. The increase in 2015 is primarily due to the
increase in shares outstanding resulting from our acquisition of DIRECTV and the increase in the quarterly dividend
approved by our Board of Directors in December 2014. The decrease in 2014 reflects the decline in shares outstanding
resulting from repurchase activity, partially offset by dividend rate increases. In December 2015, our Board of Directors
approved a 2.1% increase in the quarterly dividend from $0.47 to $0.48 per share. This follows a 2.2% dividend increase
approved by our Board in December 2014. Dividends declared by our Board of Directors totaled $1.89 per share in 2015, $1.85
per share in 2014, and $1.81 per share in 2013. Our dividend policy considers the expectations and requirements of
stockholders, capital funding requirements of AT&T and long-term growth opportunities. It is our intent to provide the
financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends
to be paid in future periods. All dividends remain subject to declaration by our Board of Directors. 
 
During 2015, we received net proceeds of $33,969 from the issuance of $34,129 in long-term debt in various markets, with an
average weighted maturity of approximately 12 years and a weighted average coupon of 2.7%. Debt issued included: 
 
·      February 2015 issuance of $2,619 of 4.600% global notes due 2045. 
 
·      March 2015 borrowings under a variable rate term loan facility due 2018, variable rate term loan facility due 2020
and variable rate 18-month credit agreement due 2016, together totaling $11,155. 
 
·      March 2015 issuance of E1,250 of 1.300% global notes due 2023 and E1,250 of 2.450% global notes due 2035 (together,
equivalent to $2,844, when issued). 
 
·      May 2015 issuance of $3,000 of 2.450% global notes due 2020; $2,750 of 3.000% global notes due 2022; $5,000 of
3.400% global notes due 2025; $2,500 of 4.500% global notes due 2035; $3,500 of 4.750% global notes due 2046; and $750
floating rate global notes due 2020. The floating rate for the note is based upon the three-month London Interbank Offered
Rate (LIBOR), reset quarterly, plus 93 basis points. 
 
During 2015, we redeemed $10,042 in debt, primarily consisting of the following repayments: 
 
·      Redemption of $902 of various senior notes in connection with the January 2015 GSF Telecom acquisition and April
2015 Nextel Mexico acquisition. 
 
·      April 2015 redemption of E1,250 (approximately $1,975 at maturity) of AT&T 6.125% notes due 2015. 
 
·      August 2015 redemption of $1,500 of AT&T 2.500% notes due August 2015. 
 
·      September 2015 redemption of $1,000 of 0.800% notes due December 2015; $1,000 of 0.900% AT&T notes due February
2016; $750 of 3.125% DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. notes due February 2016; and $1,500 of 3.500% of
DIRECTV senior notes due March 2016. 
 
·      September 2015 prepayment of $1,000 of the outstanding advances under the $2,000 18-month credit agreement (the
"18-Month Credit Agreement") by and between AT&T and Mizuho. (See the "Credit Facilities" discussion below.) 
 
In 2015, we continued to take advantage of lower market interest rates and undertook several activities related to our
long-term debt which caused our weighted average interest rate of our entire long-term debt portfolio, including the impact
of derivatives, to decrease from 4.2% at December 31, 2014 to 4.0% at December 31, 2015. We had $124,847 of total notes and
debentures outstanding (see Note 9) at December 31, 2015, which included Euro, British pound sterling, Swiss franc,
Brazilian real and Canadian dollar denominated debt of approximately $26,221. 
 
On February 9, 2016, we issued $6,000 of long-term debt which included: 
 
·      $1,250 of 2.800% global notes due 2021. 
 
·      $1,500 of 3.600% global notes due 2023. 
 
·      $1,750 of 4.125% global notes due 2026. 
 
·      $1,500 of 5.650% global notes due 2047. 
 
At December 31, 2015, we had $7,636 of debt maturing within one year, substantially all of which was related to long-term
debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders: 
 
·      $1,000 of annual put reset securities issued by BellSouth Corporation that may be put back to us each April until
maturity in 2021. 
 
·      An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the zero-coupon note (issued
for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030. 
 
Our Board of Directors has approved repurchase authorizations of 300 million shares each in 2013 and 2014 (see Note 14).
For the year ended December 31, 2014, we had repurchased approximately 48 million shares totaling $1,617 under these
authorizations and for the year ended December 31, 2015, we had repurchased approximately 8 million shares totaling $269
under these authorizations. At December 31, 2015 we had approximately 407 million shares remaining from the 2013 and 2014
authorizations. 
 
The emphasis of our 2016 financing activities will be the issuance of debt, the payment of dividends, which is subject to
approval by our Board of Directors, and the repayment of debt. We plan to fund our financing uses of cash through a
combination of cash from operations, debt issuances and asset sales. The timing and mix of debt issuance will be guided by
credit market conditions and interest rate trends. 
 
Credit Facilities 
 
On December 11, 2015, we entered into a five-year, $12,000 credit agreement (the "Revolving Credit Agreement") with
Citibank, N.A. (Citibank), as administrative agent, replacing our $5,000 credit agreement that would have expired in
December 2018. At the same time, AT&T and the lenders terminated their obligations under the existing revolving $3,000
credit agreement with Citibank that would have expired in December 2017. 
 
In January 2015, we entered into a $9,155 credit agreement (the "Syndicated Credit Agreement") containing (i) a $6,286 term
loan facility (the "Tranche A Facility") and (ii) a $2,869 term loan facility (the "Tranche B Facility"), with certain
investment and commercial banks and Mizuho Bank, Ltd. ("Mizuho"), as administrative agent. We also entered into a $2,000
18-month credit agreement (the "18-Month Credit Agreement") with Mizuho as initial lender and agent. On December 11, 2015,
AT&T amended the Syndicated Credit Agreement and the 18-Month Credit Agreement to, among other things, revise the financial
covenant to match the financial covenant in the Revolving Credit Agreement. 
 
Revolving Credit Agreement 
 
In the event advances are made under the Revolving Credit Agreement, those advances would be used for general corporate
purposes. Advances are not conditioned on the absence of a material adverse change. All advances must be repaid no later
than the date on which lenders are no longer obligated to make any advances under the agreement. We can terminate, in whole
or in part, amounts committed by the lenders in excess of any outstanding advances; however, we cannot reinstate any such
terminated commitments. We also may request that the total amount of the lender's commitments be increased by an integral
multiple of $25 effective on a date that is at least 90 days prior to the scheduled termination date then in effect,
provided that no event of default has occurred and in no event shall the total amount of the lender's commitments at any
time exceed $14,000. At December 31, 2015, we had no advances outstanding under the Revolving Credit Agreement and we have
complied will all covenants. 
 
The obligations of the lenders to provide advances will terminate on December 11, 2020, unless prior to that date either:
(i) AT&T reduces to $0 the commitments of the lenders, or (ii) certain events of default occur. We and lenders representing
more than 50% of the facility amount may agree to extend their commitments for two one-year periods beyond the December 11,
2020, termination date, under certain circumstances. 
 
Advances under the Revolving Credit Agreement would bear interest, at AT&T's option, either: 
 
·      at a variable annual rate equal to (1) the highest of: (a) the base rate of the bank affiliate of Citibank, N.A.
which is serving as administrative agent under the Agreement, (b) 0.50% per annum above the Federal funds rate, and (c) the
LIBOR applicable to U.S. dollars for a period of one month plus 1.00% per annum, plus (2) an applicable margin, as set
forth in the Revolving Credit Agreement ("Applicable Margin for Base Advances"); or 
 
·      at a rate equal to: (i) LIBOR for a period of one, two, three or six months, as applicable, plus (ii) the Applicable
Margin ("Applicable Margin for Eurocurrency Rate Advances"). 
 
The Applicable Margin for Eurocurrency Rate Advances will equal 0.680%, 0.910%, 1.025%, or 1.125% per annum, depending on
AT&T's credit rating. The Applicable Margin for Base Rate Advances will be equal to the greater of 0.00% and the relevant
Applicable Margin for Eurocurrency Rate Advances minus 1.00% per annum depending on AT&T's credit rating. 
 
We will pay a facility fee of 0.070%, 0.090%, 0.100% or 0.125% per annum, depending on AT&T's credit rating, of the amount
of lender commitments. 
 
The Revolving Credit Agreement contains covenants that are customary for an issuer with an investment grade senior debt
credit rating, as well as a net debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization, and other
modifications described in the Revolving Credit Agreement) financial ratio covenant that AT&T will maintain, as of the last
day of each fiscal quarter, a ratio of not more than 3.5-to-1. 
 
The Syndicated Credit Agreement 
 
In March 2015, AT&T borrowed all amounts available under the Tranche A Facility and the Tranche B Facility. Amounts
borrowed under the Tranche A Facility will be due on March 2, 2018. Amounts borrowed under the Tranche B Facility will be
subject to amortization from March 2, 2018, with 25 percent of the aggregate principal amount thereof being payable prior
to March 2, 2020, and all remaining principal amount due on March 2, 2020. 
 
Advances bear interest at a rate equal to: (i) the LIBOR for deposits in dollars (adjusted upwards to reflect any bank
reserve costs) for a period of three or six months, as applicable, plus (ii) the Applicable Margin (each such Advance, a
Eurodollar Rate Advance). The Applicable Margin under the Tranche A Facility will equal 1.000%, 1.125% or 1.250% per annum
depending on AT&T's credit rating. The Applicable Margin under the Tranche B Facility will equal 1.125%, 1.250% or 1.375%
per annum, depending on AT&T's credit rating. 
 
The Syndicated Credit Agreement contains covenants that are customary for an issuer with an investment grade senior debt
credit rating. Among other things, the Syndicated Credit Agreement requires us to maintain a net debt-to-EBITDA (earnings
before interest, income taxes, depreciation and amortization, and other modifications described in the Syndicated Credit
Agreement) ratio of not more than 3.5-to-1, as of the last day of each fiscal quarter. 
 
Events of default are customary for an agreement of this nature and result in the acceleration or permit the lenders to
accelerate, as applicable, required payment and which would increase the Applicable Margin by 2.00% per annum. 
 
The 18-Month Credit Agreement 
 
In March 2015, AT&T borrowed all amounts available under the 18-Month Credit Agreement. Amounts borrowed under the 18-Month
Credit Agreement will be due and payable on September 2, 2016. In September 2015, we partially repaid the amount borrowed. 
 
Advances bear interest at a rate equal to: (i) the LIBOR for deposits in dollars (adjusted upwards to reflect any bank
reserve costs) for a period of one, two, three or six months, as applicable, plus (ii) the Applicable Margin (each such
Advance, a Eurodollar Rate Advance). The Applicable Margin will equal 0.800%, 0.900% or 1.000% per annum, depending on
AT&T's credit rating. In the event that AT&T's unsecured senior long-term debt ratings are split by S&P, Moody's and Fitch,
then the Applicable Margin will be determined by the highest rating, unless the lowest of such ratings is more than one
level below the highest of such ratings, in which case the pricing will be the rating that is one level above the lowest of
such ratings. 
 
The 18-Month Credit Agreement contains affirmative and negative covenants and events of default equivalent to those
contained in the Syndicated Credit Agreement. 
 
Collateral Arrangements 
 
During 2015, we posted $2,288 of additional cash collateral, on a net basis, to banks and other participants in our
derivative arrangements. Cash postings under these arrangements vary with changes in credit ratings and netting agreements.
(See Note 10) 
 
Other 
 
Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method investments. At December 31, 2015, our debt ratio was 50.5%,
compared to 47.5% at December 31, 2014, and 44.1% at December 31, 2013. The debt ratio is affected by the same factors that
affect total capital, and reflects the debt issued and acquired in 2015 and our issuance of treasury shares of AT&T common
stock, and debt redemptions during 2015. Total capital increased $77,687 in 2015 compared to an increase of $2,905 in 2014.
The 2015 capital increase was primarily due to use of treasury stock to acquire DIRECTV and an increase in debt balances,
partially offset by a decrease in accumulated other comprehensive income due to foreign currency translation adjustments. 
 
A significant amount of our cash outflows are related to tax items and benefits paid for current and former employees.
Total taxes incurred, collected and remitted by AT&T during 2015, 2014, and 2013 were $21,501, $20,870 and $21,004. These
taxes include income, franchise, property, sales, excise, payroll, gross receipts and various other taxes and fees. Total
health and welfare benefits provided to certain active and retired employees and their dependents totaled $4,625 in 2015,
with $1,239 paid from plan assets. Of those benefits, $3,749 related to medical and prescription drug benefits. During
2015, we paid $4,681 of pension benefits out of plan assets. 
 
During 2015, we also received approximately $4,534 from monetization of various assets, primarily from our sales of certain
equipment installment receivables and real estate holdings. We plan to continue to explore monetization opportunities in
2016. 
 
In September 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the
holding company for our wireless business, to the trust used to pay pension benefits under our qualified pension plans. In
September 2013, the U.S. Department of Labor (DOL) published a proposed exemption that authorized retroactive approval of
this voluntary contribution. In July 2014, the DOL published in the Federal Register their final retroactive approval of
our voluntary contribution. 
 
The preferred equity interest had a fair value of $8,714 at December 31, 2015 and $9,104 on the contribution date and has a
liquidation value of $8,000. The trust is entitled to receive cumulative cash distributions of $560 per annum, which are
distributed quarterly in equal amounts and accounted for as contributions. We distributed $560 to the trust during 2015. So
long as we make the distributions, we will have no limitations on our ability to declare a dividend or repurchase shares.
This preferred equity interest is a plan asset under ERISA and is recognized as such in the plan's separate financial
statements. However, because the preferred equity interest is not unconditionally transferable to an unrelated party, it is
not reflected in plan assets in our consolidated financial statements and instead has been eliminated in consolidation. We
also agreed to make a cash contribution to the trust of $175 no later than the due date of our federal income tax return
for 2014, 2015 and 2016. The 2014 contribution of $175 was made to the trust during the second quarter of 2015. We are
required to contribute another $175 in 2016 and $175 in 2017. 
 
The preferred equity interest is not transferable by the trust 

- More to follow, for following part double click  ID:nRSZ3512Qf