REG - AT & T Inc. - Half-year Report 10-Q <Origin Href="QuoteRef">T.N</Origin> - Part 4
23/08/2017 16:51
- Part 4: For the preceding part double click ID:nRSW8233Oc
and $329, or 6.5%, for the first six months of 2017. Our
Consumer Mobility segment operating income margin in the second quarter decreased from 31.4% in 2016 to 30.8% in 2017, and
for the first six months decreased from 30.7% in 2016 to 30.5% in 2017. Our Consumer Mobility EBITDA margin in the second
quarter decreased from 42.8% in 2016 to 42.0% in 2017, and for the first six months decreased from 41.9% in 2016 to 41.7%
in 2017.
International
Segment Results
Second Quarter Six-Month Period
2017 2016 PercentChange 2017 2016 PercentChange
Segment operating revenues
Video entertainment $ 1,361 $ 1,222 11.4 % $ 2,702 $ 2,352 14.9 %
Wireless service 535 489 9.4 1,010 944 7.0
Wireless equipment 130 117 11.1 243 199 22.1
Total Segment Operating Revenues 2,026 1,828 10.8 3,955 3,495 13.2
Segment operating expenses
Operations and support 1,772 1,723 2.8 3,531 3,311 6.6
Depreciation and amortization 311 298 4.4 601 575 4.5
Total Segment Operating Expenses 2,083 2,021 3.1 4,132 3,886 6.3
Segment Operating Income (Loss) (57 ) (193 ) 70.5 (177 ) (391 ) 54.7
Equity in Net Income (Loss) of Affiliates 25 9 - 45 23 95.7
Segment Contribution $ (32 ) $ (184 ) 82.6 % $ (132 ) $ (368 ) 64.1 %
32
AT&T INC.
JUNE 30, 2017
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 following tables highlight other key measures of performance for the International segment:
June 30, Percent
(in 000s) 2017 2016 Change
Mexican Wireless Subscribers
Postpaid 5,187 4,570 13.5 %
Prepaid 7,646 5,059 51.1
Branded 12,833 9,629 33.3
Reseller 249 326 (23.6 )
Total Mexican Wireless Subscribers 13,082 9,955 31.4
Latin America Satellite Subscribers
PanAmericana 8,103 7,175 12.9
SKY Brazil 1 5,519 5,348 3.2
Total Latin America Satellite Subscribers 13,622 12,523 8.8 %
1 Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41.3% stake. SKY Mexico
had 8.0 million subscribers at March 31, 2017 and 7.8 million subscribers at June 30, 2016.
Second Quarter Six-Month Period
(in 000s) 2017 2016 PercentChange 2017 2016 PercentChange
Mexican Wireless Net Additions
Postpaid 92 165 (44.2 )% 222 281 (21.0 )%
Prepaid 402 614 (34.5 ) 919 1,064 (13.6 )
Branded Net Additions 494 779 (36.6 ) 1,141 1,345 (15.2 )
Reseller (18 ) (37 ) 51.4 (32 ) (74 ) 56.8
Mexican Wireless Net Subscriber Additions 476 742 (35.8 ) 1,109 1,271 (12.7 )
Latin America Satellite Net Additions 1
PanAmericana 13 81 (84.0 ) 65 109 (40.4 )
SKY Brazil (69 ) 6 - (30 ) (95 ) 68.4
Latin America Satellite Net Subscriber Additions 2 (56 ) 87 - % 35 14 - %
1 In 2017, we updated the methodology used to account for prepaid video connections, which were reflected in beginning of period subscribers.
2 Excludes SKY Mexico net subscriber losses of 18,000 for the quarter ended March 31, 2017 and additions of 398,000 for the quarter ended
March 31, 2016.
Operating Results
Our International segment consists of the Latin American operations acquired with DIRECTV as well as our Mexican wireless
operations. 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 $198, or 10.8%, in the second quarter and $460, or 13.2%, for the first six months of 2017.
The increases include $139 and $350 from video services in Latin America due to price increases driven primarily by
macroeconomic conditions with mixed local currencies. Mexico wireless revenues increased $59, or 9.7%, in the second
quarter and $110, or 9.6%, for the first six months of 2017, primarily due to an increase in our subscriber base and higher
equipment sales offset by competition and lower ARPU (average revenue per average wireless subscriber) and foreign currency
pressures.
33
AT&T INC.
JUNE 30, 2017
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 increased $49, or 2.8%, in the second quarter and $220, or 6.6%, for the first six months
of 2017. 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.
The increases in Latin America in the second quarter and for the first six months were primarily due to higher programming
and other operating costs. The second quarter was partially offset by favorable foreign currency exchange rates and our
reassessment of operating tax contingencies in Brazil. The increases in Mexico in the second quarter and for the first six
months were primarily driven by higher operational costs, including expenses associated with our network expansion,
partially offset by favorable foreign currency exchange rates.
Depreciation expense increased $13, or 4.4%, in the second quarter and $26, or 4.5%, for the first six months of 2017. The
increases were primarily due to updating the estimated asset lives for video equipment in Latin America and higher capital
spending in Mexico.
Operating income increased $136, or 70.5%, in the second quarter and $214, or 54.7%, for the first six months of 2017. Our
International segment operating income margin in the second quarter increased from (10.6)% in 2016 to (2.8)% in 2017, and
for the first six months increased from (11.2)% in 2016 to (4.5)% in 2017. Our International EBITDA margin in the second
quarter increased from 5.7% in 2016 to 12.5% in 2017, and for the first six months increased from 5.3% in 2016 to 10.7% in
2017.
34
AT&T INC.
JUNE 30, 2017
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
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). See "Discussion and Reconciliation of Non-GAAP Measure" for a reconciliation
of these supplemental measures to the most directly comparable financial measures calculated and presented in accordance
with U.S. generally accepted accounting principles.
AT&T Mobility Results
Second Quarter Six-Month Period
2017 2016 PercentChange 2017 2016 PercentChange
Operating revenues
Service $ 14,534 $ 14,911 (2.5 )% $ 29,072 $ 29,709 (2.1 )%
Equipment 2,984 3,013 (1.0 ) 5,613 6,169 (9.0 )
Total Operating Revenues 17,518 17,924 (2.3 ) 34,685 35,878 (3.3 )
Operating expenses
Operations and support 10,197 10,501 (2.9 ) 20,195 21,125 (4.4 )
EBITDA 7,321 7,423 (1.4 ) 14,490 14,753 (1.8 )
Depreciation and amortization 1,992 2,081 (4.3 ) 3,989 4,137 (3.6 )
Total Operating Expenses 12,189 12,582 (3.1 ) 24,184 25,262 (4.3 )
Operating Income $ 5,329 $ 5,342 (0.2 )% $ 10,501 $ 10,616 (1.1 )%
The following tables highlight other key measures of performance for AT&T Mobility:
June 30, PercentChange
(in 000s) 2017 2016
Wireless Subscribers 1
Postpaid smartphones 59,178 58,508 1.1 %
Postpaid feature phones and data-centric devices 18,223 18,787 (3.0 )
Postpaid 77,401 77,295 0.1
Prepaid 14,187 12,633 12.3
Branded 91,588 89,928 1.8
Reseller 10,254 12,920 (20.6 )
Connected devices 2 34,658 28,957 19.7
Total Wireless Subscribers 136,500 131,805 3.6
Branded Smartphones 71,818 69,058 4.0
Smartphones under our installment programs at end of period 31,649 29,026 9.0 %
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, 2017
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
2017 2016 PercentChange 2017 2016 PercentChange
(in 000s)
Wireless Net Additions 1, 4
Postpaid 127 257 (50.6 )% (64 ) 386 - %
Prepaid 267 365 (26.8 ) 549 865 (36.5 )
Branded Net Additions 394 622 (36.7 ) 485 1,251 (61.2 )
Reseller (368 ) (459 ) 19.8 (950 ) (859 ) (10.6 )
Connected devices 2 2,256 1,198 88.3 4,828 2,750 75.6
Wireless Net Subscriber Additions 2,282 1,361 67.7 4,363 3,142 38.9
Smartphones sold under our installment programs during period 3,583 3,960 (9.5 )% 7,084 8,095 (12.5 )%
Total Churn 3, 4 1.28 % 1.35 % (7) BP 1.37 % 1.38 % (1) BP
Branded Churn 3, 4 1.57 % 1.47 % 10 BP 1.64 % 1.55 % 9 BP
Postpaid Churn 3, 4 1.01 % 0.97 % 4 BP 1.07 % 1.04 % 3 BP
Postpaid Phone Only Churn 3, 4 0.79 % 0.84 % (5) BP 0.84 % 0.90 % (6) 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 month divided by the total number
of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.
4 2017 excludes the impact of the 2G shutdown and a true-up to the reseller subscriber base, which were reflected in beginning of period subscribers.
Operating income decreased $13, or 0.2%, in the second quarter and $115, or 1.1%, for the first six months of 2017. The
second-quarter operating income margin of AT&T Mobility increased from 29.8% in 2016 to 30.4% in 2017 and for the first six
months increased from 29.6% in 2016 to 30.3% in 2017. AT&T Mobility's second-quarter EBITDA margin increased from 41.4% in
2016 to 41.8% in 2017 and for the first six months increased from 41.1% in 2016 to 41.8% in 2017. AT&T Mobility's
second-quarter EBITDA service margin increased from 49.8% in 2016 to 50.4% in 2017 and for the first six months increased
from 49.7% in 2016 to 49.8% in 2017 (EBITDA service margin is operating income before depreciation and amortization,
divided by total service revenues).
Subscriber Relationships
As the wireless industry continues to mature, future wireless growth will become increasingly dependent 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 unlimited, as well as equipment installment programs. Beginning in the
first quarter of 2017, we expanded our unlimited wireless data plans to make them available to customers that do not
subscribe to our video services.
ARPU
Postpaid phone-only ARPU was $58.30 for the second quarter and $58.20 for the first six months of 2017, compared to $59.80
and $59.66 in 2016. Postpaid phone-only ARPU plus equipment installment billings was $69.04 for the second quarter and
$68.93 for the first six months of 2017, compared to $69.97 and $69.75 in 2016. ARPU has been affected by customers
shifting to unlimited plans, which decreases overage revenues; however, customers are adding additional devices helping to
offset that decline.
36
AT&T INC.
JUNE 30, 2017
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
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 lower for the second quarter and first six months of 2017. Postpaid churn was higher for
the second quarter and first six months of 2017, reflecting higher tablet churn. Postpaid phone-only churn was lower in the
second quarter and first six months of 2017, despite competitive pressure in the industry.
Branded Subscribers
Branded subscribers increased 0.4% in the second quarter of 2017 when compared to March 31, 2017 and increased 1.8% when
compared to June 30, 2016. The sequential increase reflects growth of 0.1% and 2.5% in postpaid and prepaid subscribers and
the year-over-year rise includes increases of 0.1% and 12.3% in postpaid and prepaid subscribers, respectively.
At June 30, 2017, 92% of our postpaid phone subscriber base used smartphones, compared to 89% at June 30, 2016, with more
than 95% of phone sales during both years attributable to smartphones. 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 and unlimited wireless data plans now represent 86%
of our postpaid customer base, compared to 82% at June 30, 2016. Such offerings are intended to encourage existing
subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and/or
minimize subscriber churn.
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. At June 30, 2017, about 53% of the postpaid smartphone
base is on an equipment installment program compared to 50% at June 30, 2016. Over 90% of postpaid smartphone gross adds
and upgrades for all periods presented were either equipment installment plans or BYOD. While BYOD customers do not
generate equipment revenue or expense, the service revenue helps improve our margins.
Connected Devices
Connected Devices includes data-centric devices such as session-based tablets, monitoring devices and automobile systems.
Connected device subscribers increased 7.0% during the second quarter when compared to March 31, 2017 and 19.7% when
compared to June 30, 2016. During the second quarter and first six months of 2017, we added approximately 1.5 million and
3.2 million "connected" cars, respectively, through agreements with various carmakers, and experienced strong growth in
other IoT connections as well. We believe that these connected car agreements give us the opportunity to create future
retail relationships with the car owners.
OTHER BUSINESS MATTERS
Time Warner Inc. Acquisition In October 2016, we announced an agreement (Merger Agreement) to acquire Time Warner Inc.
(Time Warner) in a 50% cash and 50% stock transaction for $107.50 per share of Time Warner common stock, or approximately
$85,400 at the date of the announcement (Merger). Each share of Time Warner common stock will be exchanged for $53.75 per
share in cash and a number of shares of AT&T common stock equal to the exchange ratio. The cash portion of the purchase
price will be financed with new debt and cash. The transaction remains subject to review by the U.S. Department of Justice
and certain foreign jurisdictions, but is expected to close before year-end 2017. See Note 7 for additional details of the
transaction and "Liquidity" for a discussion of our financing arrangements.
FirstNet On March 30, 2017, the First Responder Network Authority (FirstNet) announced its selection of AT&T to build and
manage the first nationwide broadband network dedicated to America's first responders. FirstNet expects to provide 20 MHz
of valuable telecommunications spectrum and success-based payments of $6,500 over the next five years to support network
buildout. We expect to spend about $40,000 over the life of the 25-year contract to build, deploy, operate and maintain the
network.
37
AT&T INC.
JUNE 30, 2017
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 actual reach of the network and our investment over the 25-year period will be determined by the number of individual
states electing to participate in FirstNet. Individual states are currently reviewing participation plans, and as of July
31, 2017, seven states have opted-in to the program. We do not expect FirstNet to materially impact our 2017 results.
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. In June 2016, the plaintiffs filed a consolidated amended complaint.
We vigorously dispute the allegations the complaints have asserted. In August 2016, DIRECTV filed a motion to compel
arbitration and the NFL defendants filed a motion to dismiss the complaint. The court held a hearing on both motions on
February 13, 2017. On June 30, 2017, the court granted the NFL defendants' motion to dismiss the complaint without leave to
amend, finding that: (1) the plaintiffs did not plead a viable market; (2) the plaintiffs did not plead facts supporting
the contention that the exclusive agreement between the NFL and DIRECTV harms competition; (3) the claims failed to
overcome the fact that the NFL and its teams must cooperate to sell broadcasts; and (4) the plaintiffs do not have standing
to challenge the horizontal agreement among the NFL and the teams. In light of the order granting the motion to dismiss,
the court denied DIRECTV's motion to compel arbitration as moot.
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 vigorously dispute these allegations. On April 4,
2017, we reported to the court that we had reached a written settlement with the FTC Bureau of Consumer Protection.
Commission approval is still required. The court scheduled trial to begin on August 14, 2017, if Commission approval has
not been secured by that date.
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, 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, on August 29, 2016, issued its decision reversing the district court and finding that
the FTC lacked jurisdiction to proceed with the action. The FTC asked the Court of Appeals to reconsider the decision. On
May 9, 2017, the Ninth Circuit Court of Appeals granted the FTC's petition for en banc review, which will be conducted by
an eleven-judge panel. The court set oral argument for the week of September 18, 2017, in San Francisco. 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, 2017
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
Labor Contracts As of June 30, 2017, we employed approximately 260,000 persons. Approximately 46% of our employees are
represented by the Communications Workers of America, the International Brotherhood of Electrical Workers or other unions.
After expiration of the agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other
agreements being reached.
A summary of labor contract negotiations, by region or employee group, is as follows:
· Approximately 20,000 traditional wireline employees in the Southwest ratified a new contract in April 2017. The new contract will expire in April 2021.
· Approximately 5,000 traditional wireline employees primarily in the Midwest ratified a new contract in May 2017. The new contract will expire in June 2022.
· Approximately 20,000 mobility employees across the country are covered by a contract that expired in early 2017. We continue to negotiate with labor representatives.
· Approximately 15,000 traditional wireline employees in our West region are covered by a contract that expired in April 2016. In July, we reached a tentative agreement on a new four-year contract that will expire in April 2020, if ratified.
· Approximately 11,000 former DIRECTV employees were eligible for and chose union representation. Bargaining has resulted in approximately 80% of these employees now being covered under ratified contracts that expire between 2017 and 2021.
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.
Since the Telecom Act was passed, the Federal Communications Commission (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. However, based on their public statements and written opinions, we
expect the new leadership at the FCC to chart a more predictable and balanced regulatory course that will encourage
long-term investment and benefit consumers. In addition, 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 March 2017, the FCC circulated a draft order proposing to significantly reduce regulation of the bulk data connections
that telecom companies provide to businesses, otherwise known as special access services or business data services. That
order, which was adopted on April 20, 2017, maintains light touch pricing regulation of packet-based services, extends such
light touch pricing regulation to high-speed TDM transport services and to most of our TDM channel termination services,
based on a competitive market test for such services. For those services that do not qualify for light touch regulation,
the order allows companies to offer volume and term discounts, as well as contract tariffs.
In October 2016, a sharply divided FCC adopted new rules governing the use of customer information by providers of
broadband internet access service. Those rules were more restrictive in certain respects than those governing other
participants in the internet economy, including so-called "edge" providers such as Google and Facebook. On April 3, 2017,
the President signed a resolution passed by Congress repealing the new rules under the Congressional Review Act, which
prohibits the issuance of a new rule that is substantially the same as a rule repealed under its provisions, or the
reissuance of the repealed rule, unless the new or reissued rule is specifically authorized by a subsequent act of
Congress. In June 2017, the FCC released an order clarifying that providers of broadband internet access service continue
to be subject to privacy
39
AT&T INC.
JUNE 30, 2017
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
requirements under section 222 of The Communications Act of 1934 (Communications Act), but not the more restrictive rules
that were adopted in October 2016.
In February 2015, the FCC released an order classifying both fixed and mobile consumer broadband internet access services
as telecommunications services, subject to Title II of the Communications Act. The FCC's decision significantly expands its
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. In
June 2016, a panel of the Court of Appeals upheld the FCC's classification of broadband internet access and the attendant
rules by a 2-1 vote. In July 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 of Appeals. On May 1, 2017, the
Court of Appeals denied the rehearing requests, and on July 20, 2017, the United States Supreme Court extended to September
28, 2017 the deadline for filing petitions for certiorari to review the Court of Appeals decision. In May 2017, the FCC
initiated a proceeding to reverse its 2015 decision to classify broadband internet access services as telecommunications
services. AT&T fully supports an open internet and believes that Congress must pass bipartisan legislation that codifies
core principles of net neutrality while maintaining a stable regulatory environment conducive to investment, future
innovation and economic growth.
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 IP-based 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 our 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 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 or local
regulation, states sometimes attempt to regulate or legislate various aspects of wireless services, such as in the areas of
consumer protection and the deployment of cell sites and equipment. The anticipated industry-wide deployment of 5G
technology, which is needed to satisfy extensive demand for video and internet access, will involve significant deployment
of "small cell" equipment and therefore increase the need for a quick permitting process.
The FCC has recognized that the explosive growth of bandwidth-intensive wireless data services requires the U.S. government
to make more spectrum available. The FCC finished its most recent auction in April 2017 of certain spectrum that is
currently used by broadcast television licensees (the "600 MHz Auction").
In May 2014, 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. The spectrum screen (including the low band screen) recently increased by 23 MHz. On balance, the
order and the spectrum screen should allow AT&T to obtain additional spectrum to meet our customers' needs.
40
AT&T INC.
JUNE 30, 2017
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
As the wireless industry continues to mature, future wireless growth will become increasingly dependent 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 invest significant capital in expanding our network capacity, as well as to secure and utilize
spectrum that meets our long-term needs. To that end, we have:
· Submitted winning bids for 251 Advanced Wireless Services (AWS) spectrum licenses for a near-nationwide contiguous block of high-quality spectrum in the AWS-3 Auction.
· Redeployed spectrum previously used for basic 2G services to support more advanced mobile internet services on our 3G and 4G networks.
· Secured the FirstNet contract, which provides us with access to a nationwide low band 20 MHz of spectrum, assuming all states opt-in.
· Invested in 5G and millimeter-wave technologies with our in-process acquisition of Fiber Tower Corporation, which holds significant amounts of spectrum in the millimeter wave bands (28 GHz and 39 GHz) that the FCC recently reallocated for mobile broadband services. These bands will help to accelerate our entry into 5G services.
LIQUIDITY AND CAPITAL RESOURCES
In anticipation of the Time Warner transaction, we had $25,617 in cash and cash equivalents available at June 30, 2017.
Cash and cash equivalents included cash of $2,801 and money market funds and other cash equivalents of $22,816.
Approximately $866 of our cash and cash equivalents resided in foreign jurisdictions and were in foreign currencies; these
funds are primarily used to meet working capital requirements of foreign operations.
Cash and cash equivalents increased $19,829 since December 31, 2016. In the first six months of 2017, cash inflows were
primarily provided by the issuance of long-term debt, and cash receipts from operations, including cash from our sale and
transfer of certain wireless equipment installment receivables to third parties. We also received a $1,438 deposit refund
from the FCC. 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 2017, cash provided by operating activities was $18,160, compared to $18,207 for the first
six months of 2016. Lower operating cash flows in 2017 were primarily due to higher cash payments for legal and other
settlements, and the timing of working capital payments.
Cash Used in or Provided by Investing Activities
For the first six months of 2017, cash used in investing activities totaled $9,948 and consisted primarily of $10,750 for
capital expenditures, excluding interest during construction.
Investing activities also include a refund from the FCC in the amount of $1,438 in April 2017, resulting from the FCC's 600
MHz Auction that concluded in April 2017. We submitted winning bids to purchase spectrum licenses in 18 markets for which
we paid $910.
The majority of our capital expenditures are spent on our networks, our video services and related support systems. Capital
expenditures, excluding interest during construction, increased $1,048 in the first six months. The increase was primarily
due to our continued fiber buildout and timing of build schedules in 2017 compared with 2016. Additionally, in connection
with capital improvements, we negotiate favorable payment terms (referred to as vendor financing). For the first six months
of 2017, vendor financing related to capital investments was $799. We do not report capital expenditures at the segment
level.
We continue to expect our 2017 capital expenditures to be in the $22,000 range, and we expect our capital expenditures to
be in the 15% range of service revenues or lower for each of the years 2017 through 2019. The amount of capital
expenditures is influenced by demand for services and products, capacity needs and network enhancements. Our capital
spending also takes into account existing tax law and does not reflect anticipated tax reform. We are also focused on
ensuring DIRECTV merger commitments are met.
41
AT&T INC.
JUNE 30, 2017
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
Cash Provided by or Used in Financing Activities
For the first six months of 2017, cash provided by financing activities totaled $11,617 and included net proceeds of
$24,115 primarily from the following long-term debt issuances:
· February issuance of $1,250 of 3.200% global notes due 2022.
· February issuance of $750 of 3.800% global notes due 2024.
· February issuance of $2,000 of 4.250% global notes due 2027.
· February issuance of $3,000 of 5.250% global notes due 2037.
· February issuance of $2,000 of 5.450% global notes due 2047.
· February issuance of $1,000 of 5.700% global notes due 2057.
· March issuance of $1,430 of 5.500% global notes due 2047.
· March issuance of $800 floating rate global notes due 2020. The floating rate for the notes is based upon the three-month London Interbank Offered Rate (LIBOR), reset quarterly, plus 65 basis points.
· March draw of $300 on a private financing agreement with Banco Nacional de Mexico, S.A. due March 2019. The agreement contains terms similar to that provided under our syndicated credit arrangements; the interest rate is a market rate.
· May issuance of $1,500 floating rate global notes due 2021. The floating rate for the notes is based upon the three-month LIBOR, reset quarterly, plus 95 basis points.
· May issuance of CAD$600 of 2.850% global notes due 2024 and CAD$750 of 4.850% global notes due 2047 (together, equivalent to $994, when issued).
· June issuance of £1,000 of 3.550% global notes due 2037, subject to mandatory redemption (equivalent to $1,282 when issued).
· June issuance of E750 of 1.050% global notes due 2023, E1,750 of 1.800% global notes due 2026, E1,500 of 2.350% global notes due 2029, E1,750 of 3.150% global notes due 2036 and E1,250 of floating rate global notes due 2023, all except the 2036 global notes are subject to mandatory redemption (together, equivalent to $7,883, when issued).
· June issuance of E750 of 1.050% global notes due 2023, E1,750 of 1.800% global notes due 2026, E1,500 of 2.350% global notes due 2029, E1,750 of 3.150% global notes due 2036 and E1,250 of floating rate global notes due 2023, all except the 2036 global notes are subject to mandatory redemption (together, equivalent to $7,883, when issued).
On July 27, 2017, we initiated a debt offering for $22,500 that will be completed on August 7, 2017. The proceeds will be
used for general corporate purposes, including funding the cash consideration for the Time Warner acquisition and are
subject to a
- More to follow, for following part double click ID:nRSW8233OeRecent 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