REG - AT & T Inc. - Half-year Report 10-Q <Origin Href="QuoteRef">T.N</Origin> - Part 4
22/08/2016 10:00
- Part 4: For the preceding part double click ID:nRSV7286Hc
revenue decreased $411, or 5.6%, in the second quarter and $765, or 5.2%, for the first six months of 2016. The
decreases were largely due to postpaid customers continuing to shift to no-device-subsidy plans that allow for discounted
monthly service charges under our Mobile Share plans, and the migration of subscribers to Business Solutions. Revenues from
postpaid customers declined $627, or 11.1%, in the second quarter and $1,143, or 10.2%, for the first six months. Without
the migration of customers to Business Solutions, postpaid wireless revenues would have decreased approximately 6.2% and
5.2%, respectively. The decreases were partially offset by higher prepaid service revenues of $249 in the second quarter
and $453 for the first six months and include services sold under the Cricket brand.
Equipment revenue decreased $158, or 11.3%, in the second quarter and $254, or 8.8%, for the first six months of 2016. The
decreases in equipment revenues resulted from lower postpaid handset volumes and increased promotional activities,
partially offset by increases in handsets sold to prepaid customers and devices purchased on installment payment agreements
rather than the device subsidy model.
31
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
Operations and support expenses decreased $522, or 10.0%, in the second quarter and $1,151, or 10.7%, 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 expenses, such as compensation and benefits.
Decreased operations and support expenses in the second quarter were primarily due to the following:
· Equipment costs decreased $223 primarily due to lower postpaid handset volumes partially offset by the sale of more devices to prepaid subscribers.
· Selling and commission expenses decreased $113 primarily due to lower sales volumes and lower average commission rates, including those paid under the AT&T Next program, combined with fewer upgrade transactions.
· Network costs decreased $81 primarily due to lower interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies.
· Customer service costs decreased $69 primarily due to reduced salaries and benefits and lower vendor and professional services from reduced call volumes.
Decreased operations and support expenses for the first six months were primarily due to the following:
· Equipment costs decreased $343 primarily due to lower postpaid handset volumes partially offset by the sale of more devices to prepaid subscribers.
· Selling and commission expenses decreased $318 primarily due to lower sales volumes and lower average commission rates, including those paid under the AT&T Next program, combined with fewer upgrade transactions.
· Network costs decreased $196 primarily due to lower interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies.
· Customer service costs decreased $113 primarily due to reduced salaries and benefits and lower vendor and professional services from reduced call volumes.
Depreciation expense decreased $2, or 0.2%, in the second quarter and $82, or 4.2%, for the first six months of 2016. The
decrease was primarily due to fully depreciated assets, partially offset by the ongoing capital spending for network
upgrades and expansion.
Operating income decreased $45, or 1.7%, in the second quarter and increased $214, or 4.4%, in the first six months of
2016. Our Consumer Mobility segment operating income margin in the second quarter increased from 29.9% in 2015 to 31.4% in
2016, and for the first six months increased from 27.7% in 2015 to 30.7% in 2016. Our Consumer Mobility EBITDA margin in
the second quarter increased from 40.6% in 2015 to 42.8% in 2016, and for the first six months increased from 38.7% in 2015
to 41.9% in 2016.
32
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
International
Segment Results
Second Quarter Six-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
Segment operating revenues
Video entertainment $ 1,222 $ - - % $ 2,352 $ - - %
Wireless 489 444 10.1 944 659 43.2
Equipment 117 47 - 199 68 -
Total Segment Operating Revenues $ 1,828 $ 491 - $ 3,495 $ 727 -
Segment operating expenses
Operations and support $ 1,723 $ 529 - $ 3,311 $ 747 -
Depreciation and amortization 298 93 - 575 121 -
Total Segment Operating Expenses 2,021 622 - 3,886 868 -
Segment Operating Income (Loss) (193 ) (131) (47.3 ) (391 ) (141) -
Equity in Net Income of Affiliates 9 - - 23 - -
Segment Contribution $ (184 ) $ (131) (40.5 ) % $ (368 ) $ (141) - %
The following tables highlight other key measures of performance for the International segment:
(in 000s) June 30,2016 June 30,2015 PercentChange
Mexican Wireless Subscribers
Postpaid 4,570 4,144 10.3 %
Prepaid 5,059 3,926 28.9
Branded 9,629 8,070 19.3
Reseller 326 480 (32.1 )
Total Mexican Wireless Subscribers 9,955 8,550 16.4
Latin America Satellite Subscribers
PanAmericana 7,175 - -
SKY Brazil 5,348 - -
Total Latin America Satellite Subscribers 1 12,523 - - %
1 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.
33
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
(in 000s) 2016 2015 PercentChange 2016 2015 PercentChange
Mexican Wireless Net Additions
Postpaid 165 2 - % 281 32 - %
Prepaid 614 (161) - 1,064 (467) -
Branded Net Additions 779 (159) - 1,345 (435) -
Reseller (37 ) (11) - (74 ) (23) -
Mexican Wireless Net Subscriber Additions 742 (170) - 1,271 (458) -
Latin America Satellite Net Additions
PanAmericana 81 - - 109 - -
SKY Brazil 6 - - (95 ) - -
Latin America Satellite Net Subscriber Additions 1 87 - - % 14 - - %
1 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 and net subscriber additions of 398,000 in the first quarter of 2016.
Operating Results
Our International segment consists of the Latin American operations acquired in our July 2015 acquisition of DIRECTV as
well as the Mexican wireless operations acquired earlier in 2015 (see Note 7). Video entertainment services are provided to
primarily residential customers using satellite technology. 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.
Operating revenues increased $1,337 in the second quarter and $2,768 for the first six months of 2016. The increase in the
second quarter and for the first six months includes $1,222 and $2,352 from video services in Latin America and increases
of $115 and $416 attributable to additional wireless revenues in Mexico.
Operations and support expenses increased $1,194 in the second quarter and $2,564 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 and personnel expenses, such as compensation and
benefits.
Depreciation expense increased $205 in the second quarter and $454 for the first six months of 2016. The increase was
primarily due to the acquisition of DIRECTV.
34
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 decreased $62 in the second quarter and $250 for the first six months of 2016. Our International segment
operating income margin in the second quarter was (10.6)% in 2016 and (26.7)% in 2015, and for the first six months was
(11.2)% in 2016 and (19.4)% in 2015. Our International EBITDA margin in the second quarter was 5.7% in 2016 and (7.7)% in
2015 and the first six months was 5.3% in 2016 and (2.8)% for 2015.
Supplemental Operating Information
As a supplemental discussion of our operating results, for comparison purposes, we are providing a view of our combined
domestic wireless operations (AT&T Mobility).
AT&T Mobility Results
Second Quarter Six-Month Period
2016 2015 PercentChange 2016 2015 PercentChange
Operating revenues
Service $ 14,912 $ 15,115 (1.3 ) % $ 29,710 $ 29,927 (0.7 ) %
Equipment 3,013 3,189 (5.5 ) 6,169 6,563 (6.0 )
Total Operating Revenues 17,925 18,304 (2.1 ) 35,879 36,490 (1.7 )
Operating expenses
Operations and support 10,502 10,973 (4.3 ) 21,126 22,445 (5.9 )
EBITDA 7,423 7,331 1.3 14,753 14,045 5.0
Depreciation and amortization 2,081 2,031 2.5 4,137 4,036 2.5
Total Operating Expenses 12,583 13,004 (3.2 ) 25,263 26,481 (4.6 )
Operating Income $ 5,342 $ 5,300 0.8 % $ 10,616 $ 10,009 6.1 %
The following tables highlight other key measures of performance for AT&T Mobility:
(in 000s) June 30,2016 June 30,2015 PercentChange
Wireless Subscribers 1
Postpaid smartphones 58,508 57,536 1.7 %
Postpaid feature phones and data-centric devices 18,787 19,005 (1.1 )
Postpaid 77,295 76,541 1.0
Prepaid 12,633 10,438 21.0
Branded 89,928 86,979 3.4
Reseller 12,920 13,506 (4.3 )
Connected devices 2 28,957 23,417 23.7
Total Wireless Subscribers 131,805 123,902 6.4
Branded Smartphones 69,058 65,243 5.8
Mobile Share connections 58,246 57,813 0.7
Smartphones under our installment program at end of period 29,026 21,106 37.5 %
1 Represents 100% of AT&T Mobility wireless subscribers.
2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
35
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)
Wireless Net Additions 1, 4
Postpaid 257 410 (37.3 ) % 386 851 (54.6 ) %
Prepaid 365 331 10.3 865 429 -
Branded Net Additions 622 741 (16.1 ) 1,251 1,280 (2.3 )
Reseller (459) (95) - (859) (361) -
Connected devices 2 1,198 1,448 (17.3 ) 2,750 2,393 14.9
Wireless Net Subscriber Additions 1,361 2,094 (35.0 ) 3,142 3,312 (5.1 )
Smartphones sold under our installment program during period 3,960 3,859 2.6 8,095 7,924 2.2
Total Churn 3, 4 1.35% 1.31% 4 BP 1.38% 1.36% 2 BP
Branded Churn 3, 4 1.47% 1.52% (5) BP 1.55% 1.55% -
Postpaid Churn 3, 4 0.97% 1.01% (4) BP 1.04% 1.01% 3 BP
1 Excludes 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 income increased $42, or 0.8%, in the second quarter and $607, or 6.1%, for the first six months of 2016. The
operating income margin of AT&T Mobility in the second quarter increased from 29.0% in 2015 to 29.8% in 2016, and increased
for the first six months from 27.4% in 2015 to 29.6% in 2016. AT&T Mobility's EBITDA margin in the second quarter increased
from 40.1% in 2015 to 41.4% in 2016, and increased for the first six months from 38.5% in 2015 to 41.1% in 2016. AT&T
Mobility's EBITDA service margin in the second quarter increased from 48.5% in 2015 to 49.8% in 2016, and increased for the
first six months from 46.9% in 2015 to 49.7% in 2016. (EBITDA service margin is operating income before depreciation and
amortization, divided by total service revenues.)
Subscriber Relationships
As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our
ability to offer innovative services, plans and devices and a wireless network that has sufficient spectrum and capacity to
support these innovations on as broad a geographic basis as possible. To attract and retain subscribers in a maturing
market, we have launched a wide variety of plans, including Mobile Share and AT&T Next. Additionally, beginning in the
first quarter of 2016, we introduced an integrated offer that allows for unlimited wireless data when combined with our
video services, ending the second quarter with more than 5.0 million subscribers on these packages.
36
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
The expected year-end 2016 shutdown of our U.S. 2G network is beginning to contribute to higher disconnections and churn of
subscribers. We expect that churn and net additions could be negatively impacted by the shutdown of this network if these
subscribers do not choose to migrate to another device. Our 2G subscribers and connections at June 30 are as follows:
(in 000s) June 30,2016 June 30,2015 PercentChange
Postpaid (primarily phones) 626 1,252 (50.0 ) %
Prepaid 254 405 (37.3 )
Reseller 1 1,287 3,768 (65.8 )
Connected devices 2 3,983 7,449 (46.5 )
Total 2G Subscribers and Connections 6,150 12,874 (52.2 ) %
1 Primarily included in our Consumer Mobility segment.
2 Primarily included in our Business Solutions segment.
ARPU
Postpaid phone-only ARPU (average revenue per average wireless subscriber) was $59.80 for the second quarter and $59.66 for
the first six months of 2016, compared to $61.26 and $60.62 in 2015. Postpaid phone-only ARPU plus AT&T Next subscriber
installment billings increased 2.5% compared to the second quarter of 2015 and 3.8% compared to the first six months of
2015 due to the continuing growth of the AT&T Next program.
Churn
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and
improve margins. Total churn was higher for the second quarter and first six months of 2016, but could be negatively
impacted in the future by the loss of 2G reseller subscribers and connected devices on our 2G network. While postpaid churn
was lower in the second quarter, it was higher for the six months, reflecting continuing competitive pressure in the
industry.
Branded Subscribers
Branded subscribers increased 0.7% when compared to March 31, 2016 and 3.4% when compared to June 30, 2015. These increases
included a 3.8% and 21.0% increase in prepaid subscribers and a 0.2% and 1.0% increase in postpaid subscribers,
respectively. At June 30, 2016, 89% of our postpaid phone subscriber base used smartphones, compared to 85% at June 30,
2015. Virtually all of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at
reduced rates, and such subscribers tend to have higher retention and lower churn rates. Device connections on our Mobile
Share plans now represent 75% of our postpaid customer base. Such offerings are intended to encourage existing subscribers
to upgrade their current services and/or add connected devices, attract new subscribers from other providers and minimize
churn.
During the first quarter of 2016, we discontinued offering subsidized smartphones to most of our customers. Under this
no-subsidy model, subscribers must purchase a device on installments under an equipment installment program or choose to
bring their own device, with no annual service contract. At June 30, 2016, about 50% of the postpaid smartphone base is on
an installment program compared to nearly 37% at June 30, 2015. Of the postpaid smartphone gross adds and upgrades during
the second quarter and first six months of 2016, 93% and 92% were either equipment installment plans or BYOD. While BYOD
customers do not generate equipment revenue or expense, the service revenue helps improve our margins. During the second
quarter and first six months of 2016, we added approximately 477,000 and 1,033,000 BYOD customers, compared to 334,000 and
647,000 in 2015.
Our equipment installment purchase programs, including AT&T Next, allow for postpaid subscribers to purchase certain
devices in installments over a period of up to 30 months. Additionally, after a specified period of time, AT&T Next
subscribers also have the right to trade in the original device for a new device with a new installment plan and have the
remaining unpaid balance satisfied. For installment programs, we recognize equipment revenue at the time of the sale for
the amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed interest. A
significant percentage of our customers choosing equipment installment programs pay a lower monthly service charge, which
results in lower service revenue recorded for these subscribers.
37
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
Connected Devices
Connected Devices includes data-centric devices such as session-based tablets, monitoring devices and automobile systems.
Connected device subscribers increased 4.3% during the second quarter when compared to March 31, 2016 and 23.7% when
compared to June 30, 2015. During the second quarter and first six months of 2016, we added approximately 1.3 million and
2.4 million "connected" cars through agreements with various carmakers. We believe that these connected car agreements give
us the opportunity to create future retail relationships with the car owners.
OTHER BUSINESS MATTERS
Litigation Challenging DIRECTV's NFL Sunday Ticket More than two dozen putative class actions were 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). These cases were brought by residential and commercial DIRECTV subscribers that have
purchased NFL Sunday Ticket. The plaintiffs allege that (i) the 32 NFL teams have unlawfully agreed not to compete with
each other in the market for nationally televised NFL football games and instead have "pooled" their broadcasts and
assigned to the NFL the exclusive right to market them; and (ii) the NFL and DIRECTV have entered into an unlawful
exclusive distribution agreement that allows DIRECTV to charge "supra-competitive" prices for the NFL 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. On June 24, 2016, the plaintiffs filed a consolidated amended
complaint. 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 the application of AT&T's Maximum Bit Rate (MBR) program
to customers who enrolled in our Unlimited Data Plan from 2007-2010. MBR temporarily reduces in certain instances the
download speeds of a small portion of our legacy Unlimited Data Plan customers each month after the customer exceeds a
designated amount of data during the customer's billing cycle. 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. Oral argument on the appeal was heard on June 17, 2016, and we are now waiting
for the appellate court to issue its decision. 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.
38
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
In June 2015, the Federal Communications Commission (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 described above. 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. In July 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.
Labor Contracts A contract covering approximately 9,000 mobility employees in the Southwest region, which expired in
February 2016, was ratified on April 14, 2016. A contract covering nearly 16,000 traditional wireline employees in our West
region expired in April 2016 and employees are working under the terms of the prior contract, including benefits, while
negotiations continue. After expiration of the current agreements, work stoppages or labor disruptions may occur in the
absence of new contracts or other agreements being reached.
For our U.S. mobility employees, contracts covering wages and other non-benefit working terms are structured on a regional
basis, with a separate national contract primarily covering medical benefits. Approximately 40,000 employees are covered in
this separate contract that has a no strike/no lock-out clause. On August 3, 2016, we reached a tentative agreement on this
contract that was due to expire on December 31, 2016.
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities.
AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational
regulatory authorities in the markets where service is provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the
benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening
all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare.
However, since the Telecom Act was passed, the FCC and some state regulatory commissions have maintained or expanded
certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated
as legal monopolies. We are pursuing, at both the state and federal levels, additional legislative and regulatory measures
to reduce regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our
ability to compete more effectively and offer services wanted and needed by our customers, including initiatives to
transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that
legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.
In February 2015, the FCC released an order 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. AT&T
and other providers of broadband internet access services challenged the FCC's decision before the U.S. Court of Appeals
for the D.C. Circuit. On June 14, 2016, a panel of the Court of Appeals upheld the FCC's rules by a 2-1 vote. On July 29,
2016, AT&T and several of the other parties that challenged the rules filed petitions with the Court of Appeals asking that
the case be reheard either by the panel or by the full Court. Those petitions remain pending.
The FCC is in the process of adopting new rules that could restrict our commercial flexibility in the provision of video,
special access, business and advertising services. New rules are expected before the end of 2016. If new rules are adopted,
we expect to appeal any rule that we believe to restrain on our business unlawfully.
39
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
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 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 a competitive video product. 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 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 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 600 MHz Auction (Auction 1000) began on March 29, 2016, and the multiple phases
of Auction 1000 are expected to progress over the next several months.
We have also submitted a bid to provide a nationwide mobile broadband network for first responders (FirstNet). Should our
bid be accepted, the actual reach of the network will depend on participation by the individual States.
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 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.
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.
40
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
LIQUIDITY AND CAPITAL RESOURCES
We had $7,208 in cash and cash equivalents available at June 30, 2016. Cash and cash equivalents included cash of $2,408
and money market funds and other cash equivalents of $4,800. Approximately $600 of our cash and cash equivalents resided in
foreign jurisdictions, some of which are subject to restrictions on repatriation. Cash and cash equivalents increased
$2,087 since December 31, 2015. In the first six months of 2016, cash inflows were primarily provided by cash receipts from
operations, including cash from our sale and transfer of certain wireless 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; funding capital expenditures; debt repayments; dividends to
stockholders; and the acquisition of wireless spectrum and other operations. We discuss many of these factors in detail
below.
Cash Provided by or Used in Operating Activities
During the first six months of 2016, cash provided by operating activities was $18,207, compared to $15,898 for the first
six months of 2015. Higher operating cash flows in 2016 were primarily due to our acquisition of DIRECTV offset by the
timing of working capital payments.
Cash Used in or Provided by Investing Activities
For the first six months of 2016, cash used in investing activities totaled $10,017 and consisted primarily of $9,702 for
capital expenditures, excluding interest during construction, and $485 for the acquisition of wireless spectrum, Quickplay
Media, Inc. and other operations. These expenditures were partially offset by net cash receipts of $500 from the sale of
securities.
Virtually all of our capital expenditures are spent on our wireless and wireline networks, our video services and related
support systems. Capital expenditures, excluding interest during construction, increased $1,374 in the first six months.
The increase was primarily due to our wireless network expansion in Mexico, DIRECTV operations and continued fiber
buildout. In connection with capital improvements to our wireless network in Mexico, we also negotiated favorable payment
terms (referred to as vendor financing). For the first six months of 2016, we excluded $138 of vendor financing related to
capital investments. We do not report capital expenditures at the segment level.
We continue to 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 for each of the years 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 Provided by or Used in Financing Activities
For the first six months of 2016, cash used in financing activities totaled $6,103 and included net proceeds of $10,140
primarily from the following long-term debt issuances:
· February issuance of $1,250 of 2.800% global notes due 2021.
· February issuance of $1,500 of 3.600% global notes due 2023.
· February issuance of $1,750 of 4.125% global notes due 2026.
· February issuance of $1,500 of 5.650% global notes due 2047.
· May issuance of $750 of 2.300% global notes due 2019.
· May issuance of $750 of 2.800% global notes due 2021.
· May issuance of $1,100 of 3.600% global notes due 2023.
· May issuance of $900 of 4.125% global notes due 2026.
· May issuance of $500 of 4.800% global notes due 2044.
41
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
During the first six months of 2016, we redeemed $9,129 of debt, primarily consisting of the following:
· February redemption of $1,250 of AT&T Floating Rate Notes due 2016.
· March prepayment of the remaining $1,000 outstanding under a $2,000 18-month credit agreement by and between AT&T and Mizuho.
· May redemption of $1,750 of 2.950% global notes due 2016.
· June prepayment of $5,000 of outstanding advances under our $9,155 Syndicated Credit Agreement (See "Credit Facilities" below).
In July 2016, we made a refundable deposit with the FCC for the upcoming Auction 1000.
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was
approximately 4.2% as of June 30, 2016, compared to 4.1% as of March 31, 2016, and 4.0% as of December 31, 2015. We had
$125,568 of total notes and debentures outstanding at June 30, 2016, which included Euro, British pound sterling, Swiss
Franc, Brazilian real and Canadian dollar denominated debt of approximately $25,826.
As of June 30, 2016, we had approximately 402 million shares remaining from 2013 and 2014 authorizations from our Board of
Directors to repurchase shares of our common stock. During the first six months of 2016, we repurchased approximately 5
million shares for $197. In 2016, we intend to use free cash flow (operating cash flows less construction and capital
expenditures) after dividends primarily to pay down debt.
We paid dividends of $5,899 during the first six months of 2016, compared with $4,873 for the first six months of 2015,
primarily reflecting the increase in shares outstanding resulting from our acquisition of DIRECTV. Dividends declared by
our Board of Directors totaled $0.48 per share in the second quarter and $0.96 per share for the first six months of 2016
and $0.47 per share in the second quarter and $0.94 per share for the first six months of 2015. 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.
At June 30, 2016, we had $9,528 of debt maturing within one year, $9,004 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 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.
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.
42
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
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 June 30, 2016, we had no advances outstanding under the Revolving Credit Agreement and we have
complied with 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
- More to follow, for following part double click ID:nRSV7286HeRecent news on AT&T
See all newsREG - AT & T Inc. - Annual Financial Report
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT+T
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT&T
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT&T
AnnouncementREG - Nestle SA Nestle Holdings Inc - Nestlé appoints Lisa Gibby as CCO
Announcement