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REG - AT & T Inc. - 3rd Quarter Results 2017 <Origin Href="QuoteRef">T.N</Origin> - Part 5

- Part 5: For the preceding part double click  ID:nRSK8888Yd 

installment programs pay a lower monthly service charge, which
results in lower service revenue recorded for these subscribers. At September 30, 2017, about 53% of the postpaid
smartphone base is on an equipment installment program compared to 50% at September 30, 2016. Over 90% of postpaid
smartphone gross adds and upgrades for all periods presented were either equipment installment plans or Bring Your Own
Device (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 primarily wholesale
automobile systems. Connected device subscribers increased 5.0% during the third quarter when compared to June 30, 2017 and
20.2% when compared to September 30, 2016. During the third quarter and first nine months of 2017, we added approximately
1.5 million and 4.7 million wholesale 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 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, 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 will 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, in part recoverable from FirstNet, over the life of the 25-year contract to
build, operate and maintain the network. AT&T will construct and operate the network and provide sustainability payments to
FirstNet. Sustainability payments are required to be used for the operating expenses of FirstNet and to fund network
improvements included in our $40,000 estimate. FirstNet's operating expenses are anticipated to be in the $75-$100 range
annually, and when adjusted for inflation, we expect to be in the $3,000 range over the life of the 25-year contract. After
FirstNet's operating expenses are paid, we anticipate that the remaining amount, expected to be in the $15,000 range, will
be reinvested into the network. As of November 2, 2017, 30 states and territories have opted-in to the program,
representing 38%, or approximately $6,900, of this total sustainability payment commitment. The actual reach of the network
and our investment over the 25-year period will be determined by the number of individual states and territories electing
to participate in FirstNet. 
 
States have until December 28, 2017 to elect to opt-out of the federally funded program, after which any state that did not
formally make an election will automatically be opted-in. 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. In June 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. In
July 2017, plaintiffs filed an appeal in the U.S. Court of Appeals for the Ninth Circuit, which is pending. 
 
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 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. A bench trial began on
August 14, 2017, and was suspended on August 25, 2017, after the FTC rested its case, so that the court could consider
DIRECTV's motion for judgment. The hearing on the motion occurred on October 25, 2017, and the judge took it under
advisement. 
 
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 "en
banc," which the Court agreed to do. The en banc hearing was held on September 19, 2017. We do not expect a decision until
early 2018. 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. 
 
Labor Contracts As of September 30, 2017, we employed approximately 257,000 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 mobility employees across the country are covered by a contract that expired in early 2017. We
continue to negotiate with labor representatives. On October 30, 2017, we presented a contract that provides for, among
other things, compounded annual wage increases totaling nearly 10% over the term of the contract and continued health care
coverage. The contract is subject to acceptance and ratification. 
 
·     Approximately 15,000 traditional wireline employees in our West region are covered by a contract that expired in
April 2016. In August, these employees, along with 2,300 legacy DIRECTV non-management employees, ratified a new four-year
contract that will expire in April 2020. 
 
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. 
 
On April 20, 2017, the FCC adopted an order that 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. Several parties
appealed the FCC's decision. These appeals were consolidated in the U.S. Court of Appeals for the Eighth Circuit, where
they remain pending. 
 
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 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 expanded
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. On May 1, 2017, the Court of Appeals denied requests for rehearing filed by AT&T and several other
parties. 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 should pass
bipartisan legislation that codifies core principles of net neutrality while maintaining a stable regulatory environment
conducive to investment, future innovation and economic growth. On September 28, 2017, AT&T and other parties filed with
the United States Supreme Court petitions for certiorari to review the Court of Appeals decision. 
 
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. 
 
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. 
 
Tax Reform  On November 2, 2017, the Tax Cuts and Jobs Act was introduced in the U.S. House of Representatives. If enacted,
we expect it would stimulate investment, job creation and economic growth which would result in a positive impact on demand
for our services. As written, we anticipate the legislation will have a positive impact on our consolidated operations and
cash flows. 
 
LIQUIDITY AND CAPITAL RESOURCES 
 
In anticipation of the Time Warner transaction, we had $48,499 in cash and cash equivalents available at September 30,
2017. Cash and cash equivalents included cash of $3,707 and money market funds and other cash equivalents of $44,792.
Approximately $888 of our cash and cash equivalents resided in foreign jurisdictions and were primarily in foreign
currencies; these funds are primarily used to meet working capital requirements of foreign operations. 
 
Cash and cash equivalents increased $42,711 since December 31, 2016. In the first nine 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 nine months of 2017, cash provided by operating activities was $29,274, compared to $29,202 for the first
nine months of 2016. Higher operating cash flows in 2017 were primarily due to higher receipts from our sale of AT&T Next
receivables and working capital improvements. 
 
Cash Used in or Provided by Investing Activities 
 
For the first nine months of 2017, cash used in investing activities totaled $15,266 and consisted primarily of $15,756 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
conclusion of the FCC's 600 MHz Auction. 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 $473 in the first nine 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 nine
months of 2017, vendor financing related to capital investments was $897. 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 takes into account existing tax law and does not reflect anticipated tax reform. We continue to focus on ensuring
DIRECTV merger commitments are met. 
 
Cash Provided by or Used in Financing Activities 
 
For the first nine months of 2017, cash provided by financing activities totaled $28,703 and included net proceeds of
$46,761 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). 
 
·      August issuance of $750 of floating rate notes due 2023, $1,750 of 2.85% global notes due 2023, $3,000 of 3.40%
global notes due 2024, $5,000 of 3.90% global notes due 2027, $4,500 of 4.90% global notes due 2037, $5,000 of 5.15% global
notes due 2050 and $2,500 of 5.30% global notes due 2058. All are subject to mandatory redemption. 
 
For notes subject to mandatory redemption ($29,801), if we do not consummate the Time Warner acquisition pursuant to the
merger agreement, on or prior to April 22, 2018, or, if prior to such date, the merger agreement is terminated, then in
either case we must redeem certain of the notes at a redemption price equal to 101% of the principal amount of the notes,
plus accrued but unpaid interest. 
 
On October 27, 2017, we issued $1,150 of 5.35% global notes due 2066. The underwriters have an option to purchase up to an
additional $173 aggregate principal amount within 30 days of the offering. 
 
On October 30, 2017, we launched an exchange offer covering approximately $24,000 of notes issued by AT&T Inc., DIRECTV
Holdings LLC and DIRECTV Financing Co., Inc. due between 2020 and 2023. We may issue up to $8,000 of new AT&T Inc. notes,
subject to increase, due 2028 and 2030. Also on October 30, 2017, we offered to exchange approximately $9,000 of
high-coupon existing AT&T Inc. notes and existing subsidiary notes for new AT&T Inc. notes. The notes covered in the
exchange have coupons ranging from 5.85% to 8.75% and maturities from 2022 to 2097. The existing AT&T Inc. notes may be
exchanged for new AT&T Inc. notes due 2046 and the subsidiary bonds may be exchanged for new AT&T Inc. notes due 2046 or
new AT&T Inc. notes with identical coupon and maturity as the existing subsidiary notes. We are also seeking consent of
bondholders to modify the covenants of the subsidiary indentures to generally conform to AT&T Inc.'s indenture. The
exchange offers will expire on November 28, 2017. 
 
During the first nine months of 2017, we redeemed or repaid $10,309 of debt, primarily consisting of the following: 
 
·      $1,142 of 2.400% global notes due 2017. 
 
·      $1,000 of 1.600% global notes due 2017. 
 
·      $500 of floating rate notes due 2017. 
 
·      £750 of 5.875% global notes due 2017. 
 
·      $750 repayment of a private financing agreement with Export Development Canada due 2017. 
 
·      $1,150 of 1.700% global notes due 2017. 
 
·      $4,155 repayment of amounts outstanding under our syndicated credit agreement. 
 
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was
approximately 4.4% as of September 30, 2017, compared to 4.2% as of December 31, 2016. We had $162,450 of total notes and
debentures outstanding at September 30, 2017, which included Euro, British pound sterling, Swiss franc, Brazilian real,
Mexican peso and Canadian dollar denominated debt that totaled approximately $37,260. 
 
As of September 30, 2017, we had approximately 388 million shares remaining from 2013 and 2014 authorizations from our
Board of Directors to repurchase shares of our common stock. During the first nine months of 2017, we repurchased
approximately 7 million shares totaling $279 under these authorizations. In 2017, 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 $9,030 during the first nine months of 2017, compared with $8,850 for the first nine months of 2016,
primarily reflecting the increase in the quarterly dividend approved by our Board of Directors in October 2016. Dividends
declared by our Board of Directors totaled $0.49 per share in the third quarter and $1.47 per share in the first nine
months of 2017 and $0.48 per share in the third quarter and $1.44 for the first nine months of 2016. 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 September 30, 2017, we had $8,551 of debt maturing within one year, $8,379 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. In May 2017, $1 was redeemed by
the holder for $1. If the remainder of the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the
redemption amount will be $1,029. 
 
Credit Facilities 
 
The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its
entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K. 
 
We use credit facilities as a tool in managing our liquidity status. In December 2015, we entered into a five-year $12,000
revolving credit agreement of which no amounts are outstanding as of September 30, 2017. On September 5, 2017 we repaid all
of the amounts outstanding under our $9,155 syndicated credit agreement and terminated the facility. On September 29, 2017,
we entered into a five-year $2,250 syndicated term loan credit agreement containing (i) a $750 term loan facility (the
"Tranche A Facility), (ii) a $750 term loan facility (the "Tranche B Facility") and (iii) a $750 term loan facility (the
"Tranche C Facility"), with certain investment and commercial banks and The Bank of Nova Scotia, as administrative agent.
No amounts are outstanding under the Tranche A Facility, the Tranche B Facility or the Tranche C Facility as of September
30, 2017. 
 
We also enter into various credit arrangements supported by government agencies to support network equipment purchases. 
 
In connection with our pending Merger with Time Warner, we entered into a $30,000 bridge loan credit agreement ("Bridge
Loan") and a $10,000 term loan agreement ("Term Loan"). Following the August issuances of $22,500 of global notes, we
reduced the commitments under the Bridge Loan to $0 and terminated the facility. No amounts will be borrowed under the Term
Loan prior to the closing of the Merger. Borrowings under the Term Loan will be used solely to finance a portion of the
cash to be paid in the Merger, the refinancing of debt of Time Warner and its subsidiaries and the payment of related
expenses. 
 
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior
debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day
of each fiscal quarter, a ratio of not more than 3.5-to-1. As of September 30, 2017, we were in compliance with the
covenants for our credit facilities. 
 
Collateral Arrangements 
 
During the first nine months of 2017, we received $2,743 of additional cash collateral, on a net basis, from banks and
other participants in our derivative arrangements. Cash postings under these arrangements vary with changes in credit
ratings and netting agreements. At September 30, 2017, we had posted collateral assets of $837 and received collateral
liabilities of $338, compared to December 31, 2016, posted collateral assets of $3,242 and no collateral liabilities. (See
Note 6) 
 
Other 
 
Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method investments. At September 30, 2017, our debt ratio was 56.4%,
compared to 50.1% at September 30, 2016, and 49.9% at December 31, 2016. Our net debt ratio was 39.7% at September 30,
2017, compared to 47.8% at September 30, 2016 and 47.5% at December 31, 2016. The debt ratio is affected by the same
factors that affect total capital, and reflects our recent debt issuances and repayments. 
 
During the first nine months of 2017, we received $4,217 from the monetization of various assets, primarily the sale of
certain equipment installment receivables. We plan to continue to explore similar opportunities. 
 
In 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding
company for our U.S. wireless operations, to the pension trust used to pay benefits under our qualified pension plans. The
preferred equity interest had a value of $9,354 as of September 30, 2017, and $8,477 as of December 31, 2016, does not have
any voting rights and has a liquidation value of $8,000. The trust is entitled to receive cumulative cash distributions of
$560 per annum, which are distributed quarterly in equal amounts. Mobility II distributed $420 to the trust during the
first nine months of 2017. So long as those distributions are made, the terms of the preferred equity interest will not
impose any limitations on our ability to declare a dividend or repurchase shares. 
 
During the third quarter, AT&T notified the trust and the fiduciary of the preferred interest that AT&T would not exercise
its call option of the preferred interest until at least September 9, 2022, which raised the valuation of the preferred
interest by approximately $1,245. 
 
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE 
 
We believe the following measure is relevant and useful information to investors as it is used by management as a method of
comparing performance with that of many of our competitors. This supplemental measure should be considered in addition to,
but not as a substitute of, our consolidated and segment financial information. 
 
Supplemental Operational Measure 
 
We provide a supplemental discussion of our domestic wireless operations that is calculated by combining our Consumer
Mobility and Business Solutions segments, and then adjusting to remove non-wireless operations. The following table
presents a reconciliation of our supplemental AT&T Mobility results. 
 
                                                                               Three Months Ended  
                                                                               September 30, 2017                         September 30, 2016  
                                                                               Consumer Mobility      Business Solutions                      Adjustments1     AT&T Mobility       Consumer Mobility     Business Solutions     Adjustments1     AT&T Mobility  
 Operating Revenues                                                                                                                                                                                                                                             
 Wireless service                                                           $  6,507               $  8,034               $                   -             $  14,541           $  6,914              $  8,050               $  -             $  14,964         
 Fixed strategic services                                                      -                      3,087                                   (3,087)          -                   -                     2,913                  (2,913)          -              
 Legacy voice and data services                                                -                      3,434                                   (3,434)          -                   -                     4,042                  (4,042)          -              
 Other service and equipment                                                   -                      852                                     (852)            -                   -                     886                    (886)            -              
 Wireless equipment                                                            1,241                  1,654                                   -                2,895               1,353                 1,876                  -                3,229          
 Total Operating Revenues                                                      7,748                  17,061                                  (7,373)          17,436              8,267                 17,767                 (7,841)          18,193         
                                                                                                                                                                                                                                                                
 Operating Expenses                                                                                                                                                                                                                                             
 Operations and support                                                        4,551                  10,233                                  (4,671)          10,113              4,751                 10,925                 (4,979)          10,697         
 EBITDA                                                                        3,197                  6,828                                   (2,702)          7,323               3,516                 6,842                  (2,862)          7,496          
 Depreciation and amortization                                                 877                    2,325                                   (1,192)          2,010               944                   2,539                  (1,376)          2,107          
 Total Operating Expense                                                       5,428                  12,558                                  (5,863)          12,123              5,695                 13,464                 (6,355)          12,804         
 Operating Income                                                           $  2,320               $  4,503               $                   (1,510)       $  5,313            $  2,572              $  4,303               $  (1,486)       $  5,389          
 1 Non-wireless (fixed) operations reported in Business Solutions segment.  
 
 
                                                                               Nine Months Ended   
                                                                               September 30, 2017                         September 30, 2016  
                                                                               Consumer Mobility      Business Solutions                      Adjustments1     AT&T Mobility       Consumer Mobility     Business Solutions     Adjustments1     AT&T Mobility  
 Operating Revenues                                                                                                                                                                                                                                             
 Wireless service                                                           $  19,644              $  23,969              $                   -             $  43,613           $  20,805             $  23,868              $  -             $  44,673         
 Fixed strategic services                                                      -                      9,089                                   (9,089)          -                   -                     8,469                  (8,469)          -              
 Legacy voice and data services                                                -                      10,572                                  (10,572)         -                   -                     12,577                 (12,577)         -              
 Other service and equipment                                                   -                      2,513                                   (2,513)          -                   -                     2,619                  (2,619)          -              
 Wireless equipment                                                            3,635                  4,873                                   -                8,508               3,976                 5,422                  -                9,398          
 Total Operating Revenues                                                      23,279                 51,016                                  (22,174)         52,121              24,781                52,955                 (23,665)         54,071         
                                                                                                                                                                                                                                                                
 Operating Expenses                                                                                                                                                                                                                                             
 Operations and support                                                        13,599                 30,722                                  (14,013)         30,308              14,343                32,584                 (15,105)         31,822         
 EBITDA                                                                        9,680                  20,294                                  (8,161)          21,813              10,438                20,371                 (8,560)          22,249         
 Depreciation and amortization                                                 2,621                  6,972                                   (3,594)          5,999               2,798                 7,568                  (4,122)          6,244          
 Total Operating Expense                                                       16,220                 37,694                                  (17,607)         36,307              17,141                40,152                 (19,227)         38,066         
 Operating Income                                                           $  7,059               $  13,322              $                   (4,567)       $  15,814           $  7,640              $  12,803              $  (4,438)       $  16,005         
 1 Non-wireless (fixed) operations reported in Business Solutions segment.  
 
 
AT&T INC. 
 
SEPTEMBER 30, 2017 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk 
 
Dollars in millions except per share amounts 
 
At September 30, 2017, we had interest rate swaps with a notional value of $10,775 and a fair value of $11. 
 
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a
U.S. dollar notional value of $38,694 to hedge our exposure to changes in foreign currency exchange rates. These
derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of $(842) at September
30, 2017. 
 
Item 4. Controls and Procedures 
 
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including
its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and
reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The chief executive
officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the
registrant's disclosure controls and procedures as of September 30, 2017. Based on that evaluation, the chief executive
officer and chief financial officer concluded that the registrant's disclosure controls and procedures were effective as of
September 30, 2017. 
 
AT&T INC. 
 
SEPTEMBER 30, 2017 
 
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS 
 
Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and
actual results could differ materially. Many of these factors are discussed in more detail in the "Risk Factors" section.
We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995. 
 
The following factors could cause our future results to differ materially from those expressed in the forward-looking
statements: 
 
·      Adverse economic and/or capital access changes in the markets served by us or in countries in which we have
significant investments, including the impact on customer demand and our ability and our suppliers' ability to access
financial markets at favorable rates and terms. 
 
·      Changes in available technology and the effects of such changes, including product substitutions and deployment
costs. 
 
·      Increases in our benefit plans' costs, including increases due to adverse changes in the United States and foreign
securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality
assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation,
regulations or related court decisions. 
 
·      The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial
review, if any, of such proceedings) involving issues that are important to our business, including, without limitation,
special access and business data services; intercarrier compensation; interconnection obligations; pending Notices of
Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy
TDM-based services; universal service; broadband deployment; wireless equipment siting regulations; E911 services;
competition policy; privacy; net neutrality, including the FCC's order classifying broadband as Title II services subject
to much more comprehensive regulation; unbundled network elements and other wholesale obligations; multi-channel video
programming distributor services and equipment; availability of new spectrum, on fair and balanced terms; and wireless and
satellite license awards and renewals. 
 
·      The final outcome of state and federal legislative efforts involving issues that are important to our business,
including deregulation of IP-based services, relief from Carrier of Last Resort obligations and elimination of state
commission review of the withdrawal of services. 
 
·      Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to
existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any
taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce
our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs. 
 
·      Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative
technologies or delivery methods (e.g., cable, wireless, VoIP and over-the-top video service), subscriber reluctance to
purchase new wireless handsets, and our ability to maintain capital expenditures. 
 
·      The extent of competition including from governmental networks and other providers and the resulting pressure on
customer totals and segment operating margins. 
 
·      Our ability to develop attractive and profitable product/service offerings to offset increasing competition. 
 
·      The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and
regulatory and legislative actions adverse to us, including state regulatory proceedings relating to unbundled network
elements and non-regulation of comparable alternative technologies (e.g., VoIP). 
 
·      The continued development and delivery of attractive and profitable video and broadband offerings; the extent to
which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors
and the availability, cost and/or reliability of the various technologies and/or content required to provide such
offerings. 
 
·      Our continued ability to maintain margins, attract and offer a diverse portfolio of video, wireless service and
devices and device financing plans. 
 
·      The availability and cost of additional wireless spectrum and regulations and conditions relating to spectrum use,
licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management
rules. 
 
·      Our ability to manage growth in wireless video and data services, including network quality and acquisition of
adequate spectrum at reasonable costs and terms. 
 
·      The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without
limitation, patent and product safety claims by or against third parties. 
 
·      The impact from major equipment failures on our networks, including satellites operated by DIRECTV; the effect of
security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or
have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; and in the case of
satellites launched, timely provisioning of services from vendors; or severe weather conditions, natural disasters,
pandemics, energy shortages, wars or terrorist attacks. 
 
·      The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting
standards or changes to existing standards. 
 
·      Our ability to integrate our acquisition of DIRECTV. 
 
·      Our ability to close our pending acquisition of Time Warner Inc. and successfully reorganize our operations,
including the ability to manage various businesses in widely dispersed business locations and with decentralized
management. 
 
·      Our ability to adequately fund our wireless operations, including payment for additional spectrum, network upgrades
and technological advancements. 
 
·      Our increased exposure to video competition and foreign economies, including foreign exchange fluctuations as well
as regulatory and political uncertainty. 
 
·      Changes in our corporate strategies, such as changing network-related requirements or acquisitions and dispositions,
which may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and
technological developments. 
 
·      The uncertainty surrounding further congressional action to address spending reductions, which may result in a
significant decrease in government spending and reluctance of businesses and consumers to spend in general. 
 
·      The uncertainty and impact of anticipated regulatory and corporate tax reform, which may impact the overall economy
and incentives for business investments. 
 
Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially
affect our future earnings. 
 
AT&T INC. 
 
SEPTEMBER 30, 2017 
 
PART II - OTHER INFORMATION 
 
Dollars in millions except per share amounts 
 
Item 1A. Risk Factors 
 
We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to
update this discussion to reflect material developments since our Form 10-K was filed. For the third quarter 2017, there
were no such material developments. 
 
 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
 (c) A summary of our repurchases of common stock during the third quarter of 2017 is as follows:  
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          (a)                                          (b)                                                                                                   (c)                                                                                                                           (d)          
 Period                                                                                            Total Number of Shares (or Units) Purchased 1, 2, 3                                                                                         Average Price Paid Per Share (or Unit)         Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs 1       Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs  
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
 July 1, 2017 -July 31, 2017                                                                       19,060                                                                                                                                      $                                       37.45                                                                                                 -                                                                                                                             388,296,000  
 August 1, 2017 -August 31, 2017                                                                   16,379                                                                                                                                                                              38.88                                                                                                 -                                                                                                                             388,296,000  
 September 1, 2017 -September 30, 2017                                                             618,928                                                                                                                                                                             38.08                                                                                                 -                                                                                                                             388,296,000  
 Total                                                                                             654,367                                                                                                                                     $                                       38.10                                                                                                 -                                                                                                                                          
 1                                                                                                 In March 2014, our Board of Directors approved an additional authorization to repurchase up to 300 million shares of our common        
                                                                                                   stock. In March 2013, our Board of Directors authorized the repurchase of up to an additional 300 million shares of our common stock.  
                                                                                                   The authorizations have no expiration date.                                                                                            
 2                                                                                                 Of the shares repurchased, 63,861 shares were acquired through the withholding of taxes on the vesting of restricted stock             
                                                                                                   and performance shares or on the exercise price of options.                                                                            
 3                                                                                                 Of the shares repurchased, 590,506 shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit         
                                                                                                   Association (VEBA) trusts.                                                                                                             
 
 
 Item 6. Exhibits                                                                                                                                                                                                        
                                                                                                                                                                                                                                                  
 The following exhibits are filed or incorporated by reference as a part of this report:                                                                             

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