REG - AT & T Inc. - Half-year Report 10-Q <Origin Href="QuoteRef">T.N</Origin> - Part 3
22/08/2016 10:00
- Part 3: For the preceding part double click ID:nRSV7286Hb
33,015 22.7 81,055 65,591 23.6
Operating expenses
Cost of services and sales
Equipment 4,260 4,353 (2.1 ) 8,635 8,899 (3.0 )
Broadcast, programming and operations 4,701 1,148 - 9,330 2,270 -
Other cost of services 9,514 9,578 (0.7 ) 18,910 18,390 2.8
Selling, general and administrative 8,909 7,467 19.3 17,350 15,428 12.5
Depreciation and amortization 6,576 4,696 40.0 13,139 9,274 41.7
Total Operating Expenses 33,960 27,242 24.7 67,364 54,261 24.1
Operating Income 6,560 5,773 13.6 13,691 11,330 20.8
Income Before Income Taxes 5,421 4,922 10.1 11,428 9,650 18.4
Net Income 3,515 3,184 10.4 7,400 6,523 13.4
Net Income Attributable to AT&T $ 3,408 $ 3,082 10.6 % $ 7,211 $ 6,345 13.6 %
Overview
Operating revenues increased $7,505, or 22.7%, in the second quarter and $15,464, or 23.6%, for the first six months of
2016.
Service revenues increased $7,601, or 25.7%, in the second quarter and $15,740, or 26.9%, for the first six months of 2016.
The increases were primarily due to our 2015 acquisition of DIRECTV and increases in IP broadband and fixed strategic
business services. These were partially offset by continued declines in our legacy wireline voice and data products and a
true-up that increased the discounts recorded on Ethernet services. The second quarter revenues were also lower as a result
of more customers choosing to purchase devices through installment payment agreements, which entitle them to lower monthly
service rates under our wireless Mobile Share plans.
21
AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Equipment revenues decreased $96, or 2.8%, in the second quarter and $276, or 3.9%, for the first six months of 2016. These
declines reflect fewer wireless handset sales and additional promotional offers during 2016. Revenue declines were
partially offset by the continuing trend of our wireless customers choosing to purchase higher priced devices and an
increase in customers choosing to purchase devices on installment when compared to the prior year.
Operating expenses increased $6,718, or 24.7%, in the second quarter and $13,103, or 24.1%, for the first six months of
2016.
Equipment expenses decreased $93, or 2.1%, in the second quarter and $264, or 3.0%, for the first six months of 2016. The
decreases were primarily due to the decline in devices sold to postpaid subscribers and vendor incentives, partially offset
by increased sales volumes to our prepaid and international wireless customers.
Broadcast, programming and operations expenses increased $3,553 in the second quarter and $7,060 for the first six months
of 2016 due to our acquisition of DIRECTV, slightly offset by fewer AT&T U-verse ® (U-verse) subscribers.
Other cost of services expenses decreased $64, or 0.7%, in the second quarter and increased $520, or 2.8%, for the first
six months of 2016. The decrease in the second quarter was primarily attributable to higher 2015 expenses of $364 of
network rationalization charges and merger-related expenses, combined with lower network and access charges in 2016 and our
change in accounting estimate related to customer fulfillment costs (see Note 1). The decrease was mostly offset by higher
expenses resulting from our acquisition of DIRECTV, higher compensation- related costs for programs tied to our stock price
and an increase in noncash financing-related costs associated with our pension and postretirement benefits.
The increase for the first six months was primarily due to our acquisitions of DIRECTV and Mexican wireless properties.
Also contributing to higher expenses was an increase in noncash financing-related costs associated with our pension and
postretirement benefits. These increases were partially offset by prior year network rationalization charges, a decline in
network and access charges and lower employee separation charges.
Selling, general and administrative expenses increased $1,442, or 19.3%, in the second quarter and $1,922, or 12.5%, for
the first six months of 2016. The increases were primarily due to our acquisitions in 2015 and increased advertising
activity in 2016, partially offset by lower wireless commission expenses. The increase for the first six months was also
offset by a $736 noncash gain on wireless spectrum transactions and lower employee separation charges.
Depreciation and amortization expense increased $1,880, or 40.0%, in the second quarter and $3,865, or 41.7%, for the first
six months of 2016. Amortization expense increased $1,197 in the second quarter and $2,425 for the first six months of 2016
due to the amortization of intangibles from recent acquisitions.
Depreciation expense increased $683, or 14.9%, in the second quarter and $1,440, or 15.9%, for the first six months of
2016. The increase was primarily due to previously mentioned acquisitions and ongoing capital spending for network
upgrades.
Operating income increased $787, or 13.6%, in the second quarter and $2,361, or 20.8%, for the first six months of 2016.
Our operating income margin in the second quarter decreased from 17.5% in 2015 to 16.2% in 2016, and the first six months
decreased from 17.3% in 2015 to 16.9% in 2016.
Interest expense increased $326, or 35.0%, in the second quarter and $634, or 34.6%, for the first six months of 2016. The
increases were primarily due to higher average debt balances, including debt issued and debt acquired in connection with
our acquisition of DIRECTV. The increase for the first six months was slightly offset by higher capitalized interest
resulting from the spectrum acquired in the Advanced Wireless Service (AWS)-3 Auction (see Note 7).
22
AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Equity in net income of affiliates decreased $5, or 15.2%, in the second quarter and increased $8, or 24.2%, for the first
six months of 2016. Equity in net income of affiliates is primarily attributable to the results from our investments in the
Game Show Network, SKY Mexico, YP Holdings LLC and Otter Media Holdings.
Other income (expense) - net We had other income of $91 in the second quarter and $161 for the first six months of 2016,
compared to other income of $48 in the second quarter and $118 for the first six months of 2015. Results in the second
quarter and for the first six months of 2016 included net gains on the sale of non-strategic assets and investments of $41
and $85 and interest and dividend income of $38 and $67.
Other income in the second quarter and for the first six months of 2015 included net gains on the sale of non-strategic
assets and investments of $17 and $50 and interest and dividend income of $26 and $45.
Income taxes increased $168, or 9.7%, in the second quarter and $901, or 28.8%, for the first six months of 2016. Our
effective tax rate was 35.2% for both the second quarter and first six months of 2016, as compared to 35.3% for the second
quarter and 32.4% for the first six months of 2015. The increases in income tax expense for the second quarter and the
first six months of 2016 were primarily due to higher income before income taxes in 2016. In 2015, we recognized tax
benefits related to the restructuring of a portion of our Business Solutions segment, which contributed to lower tax
expense and the effective tax rate for the first six months of 2015.
Selected Financial and Operating Data
June 30,
Subscribers and connections in (000s) 2016 2015
Domestic wireless subscribers 131,805 123,902
Mexican wireless subscribers 9,955 8,550
North American wireless subscribers 141,760 132,452
North American branded subscribers 99,557 95,049
North American branded net additions 1 2,596 1,280
Domestic satellite video subscribers 20,454 -
U-verse video subscribers 4,869 5,971
Latin America satellite video subscribers 2 12,523 -
Total video subscribers 37,846 5,971
Total domestic broadband connections 15,641 15,961
Network access lines in service 15,285 18,116
U-verse VoIP connections 5,593 5,381
Debt ratio 3 50.5 % 55.5 %
Net Debt Ratio 4 47.6 % 45.2 %
Ratio of earnings to fixed charges 5 4.01 4.18
Number of AT&T employees 277,200 250,730
1 At June 30, 2015, our Mexican wireless subscribers have been excluded.
2 Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41% stake. At March
31, 2016, SKY Mexico had 7.7 million subscribers.
3 Debt ratios are calculated by dividing total debt (debt maturing within one year plus long-term debt) by total capital
(total debt plus total stockholders' equity) and do not consider cash available to pay down debt. See our "Liquidity and
Capital Resources" section for discussion.
4 Net debt ratios are calculated by deriving total debt (debt maturing within one year plus long-term debt) less cash
available by total capital (total debt plus total stockholders' equity).
5 See Exhibit 12.
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AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Segment Results
Our segments are strategic business units that offer different products and services over various technology platforms
and/or in different geographies that are managed accordingly. Our operating segment results presented in Note 4 and
discussed below for each segment follow our internal management reporting. We analyze our operating segments based on
Segment Contribution, which consists of operating income, excluding acquisition-related costs and other significant items,
and equity in net income (loss) of affiliate for investments managed within each operating segment. We have four reportable
segments: (1) Business Solutions, (2) Entertainment Group, (3) Consumer Mobility and (4) International.
We also evaluate segment performance based on Segment Contribution, excluding equity in net income (loss) of affiliates and
depreciation and amortization, which we refer to as EBITDA and/or EBITDA margin. We believe EBITDA to be a relevant and
useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an
important metric that management uses to evaluate operating performance. EBITDA does not give effect to cash used for debt
service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses.
EBITDA margin is EBITDA divided by total revenues.
The Business Solutions segment provides services to business customers, including multinational companies; governmental and
wholesale customers; and individual subscribers who purchase wireless services through employer-sponsored plans. We provide
advanced IP-based services including Virtual Private Networks (VPN); Ethernet-related products and broadband, collectively
referred to as strategic business services; as well as traditional data and voice products. We utilize our wireless and
wired networks (referred to as "wired" or "wireline") to provide a complete communications solution to our business
customers.
The Entertainment Group segment provides video, internet, voice communication, and interactive and targeted advertising
services to customers located in the U.S. or in U.S. territories. We utilize our copper and IP-based wired network and/or
our satellite technology.
The Consumer Mobility segment provides nationwide wireless service to consumers and wholesale and resale wireless
subscribers located in the U.S. or in U.S. territories. We utilize our U.S. wireless network to provide voice and data
services, including high-speed internet, video, and home monitoring services.
The International segment provides entertainment services in Latin America and wireless services in Mexico. Video
entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional
and national wireless networks in Mexico to provide consumer and business customers with wireless data and voice
communication services. Our international subsidiaries conduct business in their local currency, and operating results are
converted to U.S. dollars using official exchange rates. Our International segment is subject to foreign currency
fluctuations.
Our operating assets are utilized by multiple segments and consist of our wireless and wired networks as well as an
international satellite fleet. We manage our assets to provide for the most efficient, effective and integrated service to
our customers, not by operating segment, and therefore asset information and capital expenditures by operating segment are
not presented. Depreciation is allocated based on network usage or asset utilization by segment.
We discuss capital expenditures in "Liquidity and Capital Resources."
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AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Business Solutions
Segment Results
Second Quarter Six-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
Segment operating revenues
Wireless service $ 7,963 $ 7,756 2.7 % $ 15,818 $ 15,271 3.6 %
Fixed strategic services 2,797 2,580 8.4 5,559 5,099 9.0
Legacy voice and data services 4,158 4,681 (11.2 ) 8,521 9,465 (10.0 )
Other service and equipment 886 854 3.7 1,744 1,700 2.6
Wireless equipment 1,775 1,793 (1.0 ) 3,546 3,686 (3.8 )
Total Segment Operating Revenues 17,579 17,664 (0.5 ) 35,188 35,221 (0.1 )
Segment operating expenses
Operations and support 10,857 10,972 (1.0 ) 21,659 22,045 (1.8 )
Depreciation and amortization 2,521 2,460 2.5 5,029 4,802 4.7
Total Segment Operating Expenses 13,378 13,432 (0.4 ) 26,688 26,847 (0.6 )
Segment Operating Income 4,201 4,232 (0.7 ) 8,500 8,374 1.5
Equity in Net Income of Affiliates - - - - - -
Segment Contribution $ 4,201 $ 4,232 (0.7 ) % $ 8,500 $ 8,374 1.5 %
The following tables highlight other key measures of performance for the Business Solutions segment:
(in 000s) June 30,2016 June 30,2015 PercentChange
Business Wireless Subscribers
Postpaid/Branded 49,432 46,697 5.9 %
Reseller 52 19 -
Connected devices 1 28,061 22,462 24.9
Total Business Wireless Subscribers 77,545 69,178 12.1
Business IP Broadband Connections 948 872 8.7 %
1 Includes data-centric devices such as monitoring devices and automobile systems. Excludes postpaid tablets.
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AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Second Quarter Six-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
(in 000s)
Business Wireless Net Additions 1, 4
Postpaid/Branded 185 288 (35.8 ) % 318 585 (45.6 ) %
Reseller (13) 3 - (35) 6 -
Connected devices 2 1,199 1,478 (18.9 ) 2,777 2,502 11.0
Business Wireless Net Subscriber Additions 1,371 1,769 (22.5 ) 3,060 3,093 (1.1 )
Business Wireless Postpaid Churn 1, 3, 4 0.91% 0.91% - 0.97% 0.90% 7 BP
Business IP Broadband Net Additions 20 23 (13.0 ) % 37 50 (26.0 ) %
1 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.
2 Includes data-centric devices such as monitoring devices and automobile systems. Excludes postpaid tablets.
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.
4 Includes the impacts of the expected shutdown of our U.S. 2G network.
Operating Revenues decreased $85, or 0.5%, in the second quarter and $33, or 0.1%, for the first six months of 2016.
Revenue decreases were due to continued declines in our legacy voice and data products, lower equipment revenue, the sale
of certain hosting operations and foreign exchange pressures. These decreases were partially offset by increased wireless
service revenues and fixed strategic services.
Wireless service revenues increased $207, or 2.7%, in the second quarter and $547, or 3.6%, for the first six months of
2016. The revenue increase is primarily due to customer migrations from our Consumer Mobility segment and reflects
smartphone and tablet gains.
At June 30, 2016, we served 77.5 million subscribers, an increase of 12.1% from the prior year. Postpaid subscribers
increased 5.9% from the prior year reflecting the addition of new customers as well as migrations from our Consumer
Mobility segment, partially offset by continuing competitive pressures in the industry and losses attributable to the
expected shutdown of our U.S. 2G network. Connected devices, which have lower average revenue per average subscriber
(ARPU), increased 24.9% from the prior year reflecting growth in business customers using tracking, monitoring and other
sensor-embedded devices on their equipment. We expect that churn and net additions of connected devices could be negatively
impacted by the shutdown of the 2G network if these subscribers do not migrate to another device.
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and
improve margins. In the second quarter, business wireless postpaid churn was 0.91% in both 2016 and 2015, and for the first
six months increased to 0.97% in 2016 from 0.90% in 2015.
Fixed strategic services revenues increased $217, or 8.4%, in the second quarter and $460, or 9.0%, for the first six
months of 2016. Our revenues, which were negatively impacted by foreign exchange rates, increased in the second quarter and
for the first six months of 2016 due to: AT&T Dedicated Internet (formally known as Ethernet access to Managed Internet
Services) of $61 and $115, Ethernet of $34 and $99, U-verse services of $40 and $90, and VPN of $30 and $56.
Legacy wired voice and data service revenues decreased $523, or 11.2%, in the second quarter and $944, or 10.0%, for the
first six months of 2016. Traditional data revenues in the second quarter and for the first six months of 2016 decreased
$327 and $562 and long-distance and local voice revenues decreased $193 and $376. The decreases were primarily due to lower
demand as customers continue to migrate to fixed strategic services or shift to competitors, and the sale of certain
hosting operations.
26
AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Other service and equipment revenues increased $32, or 3.7%, in the second quarter and $44, or 2.6%, for the first six
months of 2016. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues
from other managed services, outsourcing, government professional service and customer premises equipment.
Wireless equipment revenues decreased $18, or 1.0%, in the second quarter and $140, or 3.8%, for the first six months of
2016. The decrease in equipment revenues resulted from a decrease in handsets sold to postpaid customers and increased
promotional offers. The decreases were partially offset by an increase in purchases of devices on installment payment
agreements rather than the device subsidy model.
Operations and support expenses decreased $115, or 1.0%, in the second quarter and $386, or 1.8%, for the first six months
of 2016. Operations and support expenses consist of costs incurred to provide our products and services, including costs of
operating and maintaining our networks and personnel costs, such as compensation and benefits.
The second quarter decrease was primarily due to declines in wireless commissions costs resulting from lower sales volumes,
lower amortization of customer fulfillment costs (see Note 1) and the sale of certain hosting operations. Partially
offsetting these decreases were higher wireless handset insurance claims due to an increase in the volume and cost of
replacement phones, advertising costs, bad debt expense driven by a higher AT&T Next SM (AT&T Next) subscriber base and
wireless equipment expense.
The decrease for the first six months was primarily due to declines of $157 in wireless equipment and $252 in wireless
commissions costs, reflecting a decrease in sales volumes. Access costs also declined $84, largely resulting from lower
interconnect costs. Lower employee-related costs and the sale of certain hosting operations also contributed to the
decrease. Partially offsetting these decreases were higher advertising expenses, wireless handset insurance claims and bad
debt expense driven by a higher AT&T Next subscriber base.
Depreciation expense increased $61, or 2.5%, in the second quarter and $227, or 4.7%, for the first six months of 2016. The
increases were primarily due to ongoing capital spending for network upgrades and expansion, partially offset by fully
depreciated assets.
Operating income decreased $31, or 0.7%, in the second quarter and increased $126, or 1.5%, for the first six months of
2016. Our Business Solutions segment operating income margin in the second quarter decreased from 24.0% in 2015 to 23.9% in
2016, and for the first six months increased from 23.8% in 2015 to 24.2% in 2016. Our Business Solutions EBITDA margin in
the second quarter increased from 37.9% in 2015 to 38.2% in 2016, and for the first six months increased from 37.4% in 2015
to 38.4% in 2016.
27
AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Entertainment Group
Segment Results
Second Quarter Six-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
Segment operating revenues
Video entertainment $ 8,963 $ 1,991 - % $ 17,867 $ 3,862 - %
High-speed internet 1,867 1,623 15.0 3,670 3,176 15.6
Legacy voice and data services 1,244 1,516 (17.9 ) 2,557 3,128 (18.3 )
Other service and equipment 637 652 (2.3 ) 1,275 1,276 (0.1 )
Total Segment Operating Revenues 12,711 5,782 - 25,369 11,442 -
Segment operating expenses
Operations and support 9,569 4,913 94.8 19,147 9,772 95.9
Depreciation and amortization 1,489 1,065 39.8 2,977 2,130 39.8
Total Segment Operating Expenses 11,058 5,978 85.0 22,124 11,902 85.9
Segment Operating Income (Loss) 1,653 (196) - 3,245 (460) -
Equity in Net Income (Loss) of Affiliates (2 ) (12) 83.3 1 (18) -
Segment Contribution $ 1,651 $ (208) - % $ 3,246 $ (478) - %
The following tables highlight other key measures of performance for the Entertainment Group segment:
(in 000s) June 30,2016 June 30,2015 PercentChange
Video Connections
Satellite 20,454 - - %
U-verse 4,841 5,946 (18.6 )
Total Video Connections 25,295 5,946 -
Broadband Connections
IP 12,596 12,013 4.9
DSL 1,585 2,415 (34.4 )
Total Broadband Connections 14,181 14,428 (1.7 )
Retail Consumer Switched Access Lines 6,515 8,142 (20.0 )
U-verse Consumer VoIP Connections 5,300 5,170 2.5
Total Retail Consumer Voice Connections 11,815 13,312 (11.2 ) %
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AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Second Quarter Six-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
(in 000s)
Video Net Additions
Satellite 342 - - % 670 - - %
U-verse (391 ) (23) - (773 ) 26 -
Net Video Additions (49 ) (23) - (103 ) 26 -
Broadband Net Additions
IP 54 217 (75.1 ) 240 630 (61.9 )
DSL (164 ) (324) 49.4 (345 ) (644) 46.4
Net Broadband Additions (110 ) (107) (2.8 ) % (105 ) (14) - %
Operating revenues increased $6,929 in the second quarter and $13,927 for the first six months of 2016, largely due to our
acquisition of DIRECTV in the third quarter of 2015. Also contributing to the increases was continued growth in consumer IP
broadband, which more than offset lower revenues from legacy voice and data products.
Video entertainment revenues increased $6,972 in the second quarter and $14,005 for the first six months of 2016, primarily
related to our acquisition of DIRECTV. We are now focusing our sales efforts on satellite service as there are lower
content costs for satellite subscribers. U-verse video revenue was lower in the second quarter and the first six months of
2016, primarily due to an 18.6% decrease in U-verse video connections, when compared to 2015. At June 30, 2016, more than
80% of our video subscribers were on the DIRECTV platform.
High-speed internet revenues increased $244, or 15.0%, in the second quarter and $494, or 15.6%, for the first six months
of 2016. When compared to 2015, IP broadband subscribers increased 4.9%, to 12.6 million subscribers at June 30, 2016;
however, second-quarter and year-to-date net additions were lower due to fewer U-verse sales promotions in the year. The
churn of video customers also contributed to lower net additions, as a portion of these video subscribers also chose to
disconnect their IP broadband service.
Legacy voice and data service revenues decreased $272, or 17.9%, in the second quarter and $571, or 18.3%, for the first
six months of 2016. At June 30, 2016, legacy voice and data services represented approximately 10% of our total
Entertainment Group revenue, and reflect decreases of $161 and $340 in long-distance, and $111 and $231 in traditional data
revenues. The decreases reflect the continued migration of customers to our more advanced IP-based offerings or to
competitors. At June 30, 2016, approximately 11% of our broadband connections were DSL compared to nearly 17% at June 30,
2015.
Operations and support expenses increased $4,656, or 94.8%, in the second quarter and $9,375, or 95.9%, for the first six
months of 2016. Operations and support expenses consist of costs incurred to provide our products and services, including
costs of operating and maintaining our networks and providing video content, as well as personnel charges for compensation
and benefits.
Increased expenses were primarily due to our acquisition of DIRECTV, which increased our second quarter and year-to-date
Entertainment Group expenses by $5,100 and $9,923. The DIRECTV related second quarter and year-to-date increases were
primarily due to the recognition of additional content costs for satellite subscribers, customer support and service
related charges and advertising expenses. Partially offsetting these increases were lower employee charges resulting from
ongoing workforce reductions and our focus on cost initiatives.
Depreciation expenses increased $424, or 39.8%, in the second quarter and $847, or 39.8%, for the first six months of 2016.
The increases were primarily due to our acquisition of DIRECTV and ongoing capital spending for network upgrades and
expansion, partially offset by fully depreciated assets.
29
AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Operating income increased $1,849 in the second quarter and $3,705 for the first six months of 2016. Our Entertainment
Group segment operating income margin in the second quarter increased from (3.4)% in 2015 to 13.0% in 2016, and for the
first six months increased from (4.0)% in 2015 to 12.8% in 2016. Our Entertainment Group segment EBITDA margin in the
second quarter increased from 15.0% in 2015 to 24.7% in 2016, and the first six months increased from 14.6% in 2015 to
24.5% in 2016.
Consumer Mobility
Segment Results
Second Quarter Six-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
Segment operating revenues
Service $ 6,948 $ 7,359 (5.6 ) % $ 13,891 $ 14,656 (5.2 ) %
Equipment 1,238 1,396 (11.3 ) 2,623 2,877 (8.8 )
Total Segment Operating Revenues 8,186 8,755 (6.5 ) 16,514 17,533 (5.8 )
Segment operating expenses
Operations and support 4,680 5,202 (10.0 ) 9,592 10,743 (10.7 )
Depreciation and amortization 932 934 (0.2 ) 1,854 1,936 (4.2 )
Total Segment Operating Expenses 5,612 6,136 (8.5 ) 11,446 12,679 (9.7 )
Segment Operating Income 2,574 2,619 (1.7 ) 5,068 4,854 4.4
Equity in Net Income (Loss) of Affiliates - - - - - -
Segment Contribution $ 2,574 $ 2,619 (1.7 ) % $ 5,068 $ 4,854 4.4 %
The following tables highlight other key measures of performance for the Consumer Mobility segment:
(in 000s) June 30,2016 June 30,2015 PercentChange
Consumer Mobility Subscribers
Postpaid 27,862 29,844 (6.6 ) %
Prepaid 12,633 10,438 21.0
Branded 40,495 40,282 0.5
Reseller 12,869 13,487 (4.6 )
Connected devices 1 896 955 (6.2 )
Total Consumer Mobility Subscribers 54,260 54,724 (0.8 ) %
1 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
30
AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Second Quarter Six-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
(in 000s)
Consumer Mobility Net Additions 1, 4
Postpaid 72 122 (41.0 ) % 68 266 (74.4 ) %
Prepaid 365 331 10.3 865 429 -
Branded Net Additions 437 453 (3.5 ) 933 695 34.2
Reseller (446) (98) - (824) (367) -
Connected devices 2 (1) (30) 96.7 (27) (109) 75.2
Consumer Mobility Net Subscriber Additions (10) 325 - % 82 219 (62.6 ) %
Total Churn 1, 3, 4 1.96% 1.86% 10 BP 2.04% 1.95% 9 BP
Postpaid Churn 1, 3, 4 1.09% 1.16% (7) BP 1.16% 1.18% (2) BP
1 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.
2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.
4 Includes the impacts of the expected shutdown of our U.S. 2G network.
Operating Revenues decreased $569, or 6.5%, in the second quarter and $1,019, or 5.8%, for the first six months of 2016.
Decreased revenues reflect declines in postpaid service revenues due to customers choosing Mobile Share plans and migrating
to our Business Solutions segment, partially offset by higher prepaid service revenues. Our business wireless offerings
allow for individual subscribers to purchase wireless services through employer-sponsored plans for a reduced price. The
migration of these subscribers to the Business Solutions segment negatively impacted our consumer postpaid subscriber total
and service revenue growth.
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