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MarketScreener Homepage  >  Equities  >  Nyse  >  AT&T Inc.    T

AT&T INC.

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AT&T : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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02/20/2020 | 07:06am EDT

OVERVIEW


AT&T Inc. is referred to as "we," "AT&T" or the "Company" throughout this
document, and the names of the particular subsidiaries and affiliates providing
the services generally have been omitted. AT&T is a holding company whose
subsidiaries and affiliates operate worldwide in the telecommunications, media
and technology industries. You should read this discussion in conjunction with
the consolidated financial statements and accompanying notes (Notes). We
completed the acquisition of Time Warner Inc. (Time Warner) on June 14, 2018,
and have included its results after that date. In accordance with U.S. generally
accepted accounting principles (GAAP), operating results from Time Warner prior
to the acquisition are excluded.



Our Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this document generally discusses 2019 and 2018 items and
year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and
year-to-year comparisons between 2018 and 2017 that are not included in this
document can be found in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II, Item 7 of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2018.



We have four reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin
America and (4) Xandr. Our segment results presented in Note 4 and discussed
below follow our internal management reporting. We analyze our segments based on
segment operating contribution, which consists of operating income, excluding
acquisition-related costs and other significant items and equity in net income
(loss) of affiliates for investments managed within each segment. Each segment's
percentage calculation of total segment operating revenue and contribution is
derived from our segment results table in Note 4 and may total more than 100%
due to losses in one or more segments. Percentage increases and decreases that
are not considered meaningful are denoted with a dash. We have recast our
segment results for all prior periods presented to exclude wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands from our Mobility and
Business Wireline business units of the Communications segment, instead
reporting them with Corporate and Other (see Note 6).



                                                                            Percent Change
                                  2019          2018         2017    2019 vs. 2018   2018 vs. 2017
Operating Revenues
Communications                 $   142,359$   143,721$   149,457         (0.9) %         (3.8) %
WarnerMedia                         33,499        18,941         430          76.9               -
Latin America                        6,963         7,652       8,269         (9.0)           (7.5)
Xandr                                2,022         1,740       1,373          16.2            26.7
Corporate and other                  1,603         2,101       2,200        (23.7)           (4.5)
Eliminations and consolidation     (5,253)       (3,399)     (1,183)        (54.5)               -
AT&T Operating Revenues            181,193       170,756     160,546           6.1             6.4

Operating Contribution
Communications                      32,230        32,108      31,488           0.4             2.0
WarnerMedia                          9,326         5,695          62          63.8               -
Latin America                        (635)         (710)       (266)          10.6               -
Xandr                                1,318         1,333       1,202         (1.1)            10.9

Segment Operating Contribution $ 42,239$ 38,426$ 32,486

   9.9 %          18.3 %




The Communications segment accounted for approximately 77% of our 2019 total
segment operating revenues compared to 84% in 2018 and 76% of our 2019 total
segment operating contribution as compared to 84% in 2018. This segment provides
services to businesses and consumers located in the U.S. and businesses
globally. Our business strategies reflect bundled product offerings that cut
across product lines and utilize shared assets. This segment contains the
following business units:

?Mobility provides nationwide wireless service and equipment.

?Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services to residential customers. This segment also sells advertising on DIRECTV and U-verse distribution platforms.

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?Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.




The WarnerMedia segment accounted for approximately 18% of our 2019 total
segment operating revenues compared to 11% in 2018 and 22% of our 2019 total
segment operating contribution compared to 15% in 2018. This segment develops,
produces and distributes feature films, television, gaming and other content
over various physical and digital formats. This segment contains the following
business units:

?Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.

?Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT and streaming services internationally, as well as content licensing and home entertainment.

?Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.

The Latin America segment accounted for approximately 4% of our 2019 and 2018 total segment operating revenues. This segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:

?Mexico provides wireless service and equipment to customers in Mexico.

?Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.




The Xandr segment accounted for approximately 1% of our total segment operating
revenues in 2019 and 2018 and 3% of our total segment operating contribution in
2019 and 2018. This segment provides advertising services. These services
utilize data insights to develop and deliver targeted advertising across video
and digital platforms.



RESULTS OF OPERATIONS



Consolidated Results Our financial results are summarized in the following
table. We then discuss factors affecting our overall results for the past three
years. Additional analysis is discussed in our "Segment Results" section. We
also discuss our expected revenue and expense trends for 2020 in the "Operating
Environment and Trends of the Business" section. Certain prior period amounts
have been reclassified to conform to the current period's presentation.



                                                                        Percent Change
                                                                    2019 vs.     2018 vs.
                                 2019         2018         2017       2018         2017
Operating revenues
Service                      $  163,499$  152,345$  145,597        7.3 %        4.6 %
Equipment                        17,694       18,411       14,949      (3.9)         23.2
Total Operating Revenues        181,193      170,756      160,546        6.1          6.4
Operating expenses
Operations and support          125,021      116,230      116,189        7.6            -
Depreciation and
amortization                     28,217       28,430       24,387      (0.7)         16.6
Total Operating Expenses        153,238      144,660      140,576        5.9          2.9
Operating Income                 27,955       26,096       19,970        7.1         30.7
Interest expense                  8,422        7,957        6,300        5.8         26.3
Equity in net income (loss)
of affiliates                         6         (48)        (128)          -         62.5
Other income (expense) - net    (1,071)        6,782        1,597          -            -
Income Before Income Taxes       18,468       24,873       15,139     (25.8)         64.3
Net Income                       14,975       19,953       29,847     (24.9)       (33.1)
Net Income Attributable to
AT&T                             13,903       19,370       29,450     (28.2)       (34.2)
Net Income Attributable to
Common Stock                 $   13,900$   19,370$   29,450     (28.2) %     (34.2) %




OVERVIEW



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Dollars in millions except per share amounts




Operating revenues increased in 2019, primarily due to including a full year's
worth of Time Warner results, which was acquired in June 2018. Partially
offsetting the increase were declines in the Communications segment driven by
continued pressure in legacy and video services and lower wireless equipment
upgrades that were offset by growth in advanced data and wireless services.



Operations and support expenses increased in 2019, primarily due to our 2018
acquisition of Time Warner and the abandonment of certain copper assets that
will not be necessary to support future network activity (see Note 7). The
increase was partially offset by lower costs in our Communications segment,
specifically fewer subscribers contributing to lower content costs, lower
upgrades driving a decline in wireless equipment costs and our continued focus
on cost management.


Depreciation and amortization expense decreased in 2019.

Amortization expense decreased $415, or 5.0%, in 2019 primarily due to the amortization of intangibles associated with WarnerMedia. We expect continued declines in amortization expense, reflecting the accelerated method of amortization applied to certain of the WarnerMedia intangibles.

Depreciation expense increased $202, or 1.0%, in 2019 primarily due to the Time Warner acquisition.

Operating income increased in 2019 and 2018. Our operating margin was 15.4% in 2019, compared to 15.3% in 2018 and 12.4% in 2017.

Interest expense increased in 2019, primarily due to lower capitalized interest associated with putting spectrum into network service.

Equity in net income (loss) of affiliates increased in 2019, primarily due to the sale of Hulu, which had losses of $44 in 2019 and $105 in 2018. (See Note 6)




Other income (expense) - net decreased in 2019 primarily due to the recognition
of $5,171 in actuarial losses, compared to gains of $3,412 in 2018. Also
contributing to the decline were higher debt redemption costs, partially offset
by increased income from Rabbi trusts and other investments and gains from the
sales of nonstrategic assets.



Income tax expense decreased in 2019, primarily driven by a decrease in income
before income taxes. Our effective tax rate was 18.9% in 2019, 19.8% in 2018,
and (97.2)% in 2017. All years were impacted by The Tax Cuts and Jobs Act, which
was enacted in 2017.



Segment Results Our segments are strategic business units that offer different
products and services over various technology platforms and/or in different
geographies that are managed accordingly. Our segment results presented below
follow our internal management reporting. In addition to segment operating
contribution, we also evaluate segment performance based on EBITDA and/or EBITDA
margin. EBITDA is defined as segment operating contribution, excluding equity in
net income (loss) of affiliates and depreciation and amortization. We believe
EBITDA to be a relevant and useful measurement to our investors as it is part of
our internal management reporting and planning processes and it is an important
metric that management uses to evaluate operating performance. EBITDA does not
give effect to cash used for debt service requirements and thus does not reflect
available funds for distributions, reinvestment or other discretionary uses.
EBITDA margin is EBITDA divided by total revenues.



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COMMUNICATIONS SEGMENT                                                    Percent Change
                                                                       2019 vs.    2018 vs.
                                       2019        2018        2017      2018        2017
Segment Operating Revenues
Mobility                             $  71,056$  70,521$  70,259     0.8 %       0.4 %
Entertainment Group                     45,126      46,460      49,995   (2.9)       (7.1)
Business Wireline                       26,177      26,740      29,203  

(2.1) (8.4) Total Segment Operating Revenues 142,359 143,721 149,457 (0.9) (3.8)


Segment Operating Contribution
Mobility                                22,321      21,568      20,011     3.5         7.8
Entertainment Group                      4,822       4,715       5,471     2.3      (13.8)
Business Wireline                        5,087       5,825       6,006 

(12.7) (3.0) Total Segment Operating Contribution $ 32,230$ 32,108$ 31,488 0.4 % 2.0 %

Selected Subscribers and Connections

                                           December 31,
(000s)                                2019    2018      2017
Mobility subscribers                 165,889 151,921   139,986

Total domestic broadband connections 14,659 14,751 14,487 Network access lines in service 8,487 10,002 11,754 U-verse VoIP connections

               4,370   5,114     5,682




Operating revenues decreased in 2019, driven by declines in our Entertainment
Group and Business Wireline business units, partially offset by increases in our
Mobility business unit. The decrease reflects the continued shift away from
legacy voice and data products and linear video, largely offset by higher
wireless service revenues from growth in postpaid phone subscribers and average
revenue per subscriber (ARPU), and growth in our prepaid subscriber base.



Operating contribution increased in 2019 and 2018. The 2019 contribution
includes improvements in our Mobility and Entertainment Group business units,
partially offset by declines in our Business Wireline business unit. Our
Communications segment operating income margin was 22.6% in 2019, 22.3% in 2018
and 21.1% in 2017.



Communications Business Unit Discussion
Mobility Results
                                                                       Percent Change
                                                                    2019 vs.    2018 vs.
                                    2019        2018        2017      2018        2017
Operating revenues
Service                           $  55,331$  54,294$  57,023     1.9 %     (4.8) %
Equipment                            15,725      16,227      13,236   (3.1)        22.6
Total Operating Revenues             71,056      70,521      70,259     0.8         0.4

Operating expenses
Operations and support               40,681      40,690      42,317       -       (3.8)

Depreciation and amortization 8,054 8,263 7,931 (2.5)

        4.2
Total Operating Expenses             48,735      48,953      50,248   (0.4)       (2.6)
Operating Income                     22,321      21,568      20,011     3.5         7.8
Equity in Net Income (Loss) of
Affiliates                                -           -           -       -           -
Operating Contribution            $  22,321$  21,568$  20,011     3.5 %       7.8 %




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Dollars in millions except per share amounts




The following tables highlight other key measures of performance for Mobility:

Mobility Subscribers

                                                                                            Percent Change
                                                                                     2019 vs.          2018 vs.
(in 000s)                                    2019            2018            2017      2018              2017
Postpaid Phone Subscribers                   63,018          62,882          63,197     0.2 %              (0.5) %
Total Phone Subscribers                      79,700          78,767          77,657     1.2                  1.4

Postpaid smartphones                         60,664          60,131          59,298     0.9                  1.4

Postpaid feature phones and other devices 14,543 15,937

 17,376   (8.7)                (8.3)
Postpaid                                     75,207          76,068          76,674   (1.1)                (0.8)
Prepaid                                      17,803          16,828          15,154     5.8                 11.0
Reseller                                      6,893           7,693           9,171  (10.4)               (16.1)
Connected devices1                           65,986          51,332          38,987    28.5                 31.7
Total Mobility Subscribers                  165,889         151,921         139,986     9.2 %                8.5 %

1 Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management

       and session-based tablets.




Mobility Net Additions
                                                                                 Percent Change
                                                                                 2019 vs.     2018 vs.
(in 000s)                                  2019        2018        2017            2018         2017
Postpaid Phone Net Additions                  483         194       (186)       149.0 %        204.3 %
Total Phone Net Additions                     989       1,248         659      (20.8)           89.4

Postpaid2                                   (435)        (90)         853           -              -
Prepaid                                       677       1,301         996      (48.0)           30.6
Reseller                                    (928)     (1,599)     (1,765)        42.0            9.4
Connected devices3                         14,645      12,324       9,694        18.8           27.1

Mobility Net Subscriber Additions1 13,959 11,936 9,778

     16.9 %         22.1 %

Postpaid Churn4                              1.18 %      1.12 %      1.07 %         6 BP           5 BP
Postpaid Phone-Only Churn4                   0.95 %      0.90 %      0.85   %       5 BP           5 BP

1 Excludes acquisition-related additions during the period.

In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds 2 (losses) were (1,487), (1,200) and 59 for the years ended

December 31, 2019, 2018 and 2017, respectively. Wearables and other net adds were 569, 916 and

980 for the years ended December 31, 2019, 2018

and 2017, respectively.

Includes data-centric devices such as session-based tablets, monitoring devices and primarily 3 wholesale automobile systems. Excludes

postpaid tablets.

Calculated by dividing the aggregate number of wireless subscribers who canceled service during a 4 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.



Service revenue increased during 2019 largely due to prepaid subscriber gains and higher postpaid phone ARPU driven by the adoption of unlimited plans.

ARPU

ARPU increased primarily due to pricing actions that were not in effect in the prior year and a continued shift by subscribers to our unlimited plans.



Churn

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The effective management of subscriber churn is critical to our ability to
maximize revenue growth and to maintain and improve margins. Competitive pricing
in the industry contributed to higher postpaid churn rates in 2019, and our move
to unlimited plans combined with an improved customer experience in 2018
contributed to lower churn rates in that year.



Equipment revenue decreased in 2019. The 2019 decrease was driven by lower
postpaid sales, resulting from the continuing trend of customers choosing to
upgrade devices less frequently or bring their own, which is generally offset by
lower equipment expense.


Operations and support expenses decreased in 2019, primarily due to lower equipment expense driven by low upgrade rates and increased operational efficiencies, partially offset by higher bad debt expense and handset insurance costs.

Depreciation expenses decreased in 2019, primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades and expansion.

Operating income increased in 2019 and 2018. Our Mobility operating income margin was 31.4% in 2019, 30.6% in 2018 and 28.5% in 2017. Our Mobility EBITDA margin was 42.7% in 2019, 42.3% in 2018 and 39.8% in 2017.

Subscriber Relationships


As the wireless industry has matured, we believe future wireless growth will
depend on our ability to offer innovative services, plans and devices that take
advantage of our premier 5G wireless network, and to provide these services in
bundled product offerings. Subscribers that purchase two or more services from
us have significantly lower churn than subscribers that purchase only one
service. To support higher mobile data usage, our priority is to best utilize 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 mature and highly competitive market, we
have launched a wide variety of plans, including our FirstNet and prepaid
products, and arrangements that bundle our video services. 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. Such offerings are intended to encourage
existing subscribers to upgrade their current services and/or add devices,
attract subscribers from other providers and/or minimize subscriber churn. We
also offer unlimited data plans and such subscribers also tend to have higher
retention and lower churn rates.



Connected Devices


Connected devices include data-centric devices such as wholesale automobile
systems, monitoring devices, fleet management and session-based tablets.
Connected device subscribers increased in 2019, and we added approximately 8.4
million wholesale connected cars through agreements with various carmakers, and
experienced strong growth in other Internet of Things (IoT) connections as well.
We believe that these connected car agreements give us the opportunity to create
future retail relationships with the car owners.



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Dollars in millions except per share amounts




Entertainment Group Results
                                                                       Percent Change
                                                                    2019 vs.    2018 vs.
                                    2019        2018        2017      2018        2017
Operating revenues
Video entertainment               $  32,110$  33,357$  36,167   (3.7) %     (7.8) %
High-speed internet                   8,403       7,956       7,674     5.6         3.7

Legacy voice and data services 2,573 3,041 3,767 (15.4)

     (19.3)
Other service and equipment           2,040       2,106       2,387   (3.1)      (11.8)
Total Operating Revenues             45,126      46,460      49,995   (2.9)       (7.1)

Operating expenses
Operations and support               35,028      36,430      38,903   (3.8)       (6.4)

Depreciation and amortization 5,276 5,315 5,621 (0.7)

      (5.4)
Total Operating Expenses             40,304      41,745      44,524   (3.5)       (6.2)
Operating Income                      4,822       4,715       5,471     2.3      (13.8)
Equity in Net Income (Loss) of
Affiliates                                -           -           -       -           -
Operating Contribution            $   4,822$   4,715$   5,471     2.3 %    (13.8) %




The following tables highlight other key measures of performance for Entertainment Group:

Connections
                                                                                      Percent Change
                                                                                  2019 vs.       2018 vs.
(in 000s)                                 2019            2018            2017      2018           2017
Video Connections
Premium TV                                19,473          22,903          24,089  (15.0) %         (4.9) %
AT&T TV NOW                                  926           1,591           1,155  (41.8)            37.7
Total Video Connections                   20,399          24,494          25,244  (16.7)           (3.0)

Broadband Connections
IP                                        13,598          13,729          13,462   (1.0)             2.0
DSL                                          521             680             888  (23.4)          (23.4)
Total Broadband Connections               14,119          14,409          14,350   (2.0)             0.4

Retail Consumer Switched Access Lines      3,329           3,967           4,774  (16.1)          (16.9)
U-verse Consumer VoIP Connections          3,794           4,582           5,222  (17.2)          (12.3)
Total Retail Consumer Voice Connections    7,123           8,549           

9,996 (16.7) (14.5)


Fiber Broadband Connections (included in                                            40.7            56.4
IP)                                        3,887           2,763           1,767         %               %




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Net Additions
                                                                   Percent Change
                                                                2019 vs.    2018 vs.
(in 000s)                        2019        2018        2017     2018        2017
Video Net Additions
Premium TV                      (3,430)     (1,186)     (1,176)       - %     (0.9) %
AT&T TV NOW                       (665)         436         888       -      (50.9)
Net Video Additions             (4,095)       (750)       (288)       -           -

Broadband Net Additions
IP                                (131)         267         574       -      (53.5)
DSL                               (159)       (208)       (403)    23.6        48.4
Net Broadband Additions           (290)          59         171       -      (65.5)

Fiber Broadband Net Additions 1,124 1,034 1,525 8.7 %

 (32.2) %



Video entertainment revenues are comprised of subscription and advertising revenues. Revenues decreased in 2019, largely driven by a 15.0% decline in premium TV subscribers, as we continue to focus on high-value customers, partially offset by subscription-based advertising growth of 4.8%. Our customers continue to shift, consistent with the rest of the industry, from a premium linear service to our more economically priced OTT video service, or to competitors, which has pressured our video revenues.




Revenue declines in our premium TV products were partially offset by growth in
revenues from our OTT service, AT&T TV NOW, which were primarily attributable to
pricing actions. AT&T TV NOW subscriber net additions declined in 2019 due to
price increases and fewer promotions.



High-speed internet revenues increased in 2019, reflecting higher ARPU resulting
from the continued shift of subscribers to our higher-speed fiber services. Our
bundling strategy is helping to lower churn with subscribers who bundle
broadband with another AT&T service.



Legacy voice and data service revenues decreased in 2019, reflecting the
continued migration of customers to our more advanced IP-based offerings or to
competitors. The trend at which we are experiencing these revenue declines has
slowed, with a decrease of $468 in 2019 compared to $726 in 2018.



Operations and support expenses decreased in 2019, largely driven by lower
content costs from fewer subscribers and our ongoing focus on cost initiatives.
Partially offsetting the decreases were higher amortization of fulfillment cost
deferrals, including the impact of second-quarter updates to decrease the
estimated economic life for our Entertainment Group customers, and costs
associated with NFL SUNDAY TICKET. We expect the second-quarter 2019 update to
estimated economic customer lives, and our launch of AT&T TV, our new streaming
premium TV product, to contribute to expense pressure in the first half of 2020.



Depreciation expenses decreased in 2019, due to network assets becoming fully
depreciated. Partially offsetting the decreases was ongoing capital spending for
network upgrades and expansion, including the completion of the fiber commitment
under the DIRECTV acquisition.



Operating income increased in 2019 and decreased in 2018. Our Entertainment Group operating income margin was 10.7% in 2019, 10.1% in 2018 and 10.9% in 2017. Our Entertainment Group EBITDA margin was 22.4% in 2019, 21.6% in 2018 and 22.2% in 2017.




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Business Wireline Results
                                                                       Percent Change
                                                                    2019 vs.    2018 vs.
                                    2019        2018        2017      2018        2017
Operating revenues
Strategic and managed services    $  15,440$  14,660$  13,880     5.3 %       5.6 %
Legacy voice and data services        9,180      10,674      13,791  (14.0)      (22.6)
Other service and equipment           1,557       1,406       1,532    10.7       (8.2)
Total Operating Revenues             26,177      26,740      29,203   (2.1)       (8.4)

Operating expenses
Operations and support               16,091      16,201      18,441   (0.7)      (12.1)

Depreciation and amortization 4,999 4,714 4,756 6.0

      (0.9)
Total Operating Expenses             21,090      20,915      23,197     0.8       (9.8)
Operating Income                      5,087       5,825       6,006  (12.7)       (3.0)
Equity in Net Income (Loss) of            -           -           -       -           -
Affiliates
Operating Contribution            $   5,087$   5,825$   6,006  (12.7) %     (3.0) %




Strategic and managed services revenues increased in 2019. Our strategic
services are made up of (1) data services, including our VPN, dedicated internet
ethernet and broadband, (2) voice service, including VoIP and cloud-based voice
solutions, (3) security and cloud solutions, and (4) managed, professional and
outsourcing services. Revenue increases were primarily attributable to our data
services and security and cloud solutions.



Legacy voice and data service revenues decreased in 2019, primarily due to lower
demand as customers continue to shift to our more advanced IP-based offerings or
our competitors. The trend at which we are experiencing these revenue declines
has slowed, with a decrease of $1,494 in 2019 compared to $3,117 in 2018.



Other service and equipment revenues increased in 2019, driven by higher intellectual property licensing activity. Revenues from the licensing of intellectual property assets vary from period-to-period and can impact revenue trends. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.

Operations and support expenses decreased in 2019. The 2019 decrease was primarily due to our continued efforts to shift to a software-based network and automate and digitize our customer support activities, partially offset by higher fulfillment deferral amortization.

Depreciation expense increased in 2019, primarily due to increases in capital spending for network upgrades and expansion.




Operating income decreased in 2019 and 2018. Our Business Wireline operating
income margin was 19.4% in 2019, 21.8% in 2018 and 20.6% in 2017. Our Business
Wireline EBITDA margin was 38.5% in 2019, 39.4% in 2018 and 36.9% in 2017.



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WARNERMEDIA SEGMENT

                                       2019       2018      2017
Segment Operating Revenues
Turner                               $ 13,122$  6,979$  430
Home Box Office                         6,749      3,598        -
Warner Bros.                           14,358      8,703        -
Eliminations & Other                    (730)      (339)        -

Total Segment Operating Revenues 33,499 18,941 430


Segment Operating Contribution
Turner                                  5,199      3,108      140
Home Box Office                         2,365      1,384        -
Warner Bros.                            2,350      1,449        -
Eliminations & Other                    (588)      (246)     (78)

Total Segment Operating Contribution $ 9,326$ 5,695$ 62





Our WarnerMedia segment consists of our Turner, Home Box Office and Warner Bros.
business units. The order of presentation reflects the consistency of revenue
streams, rather than overall magnitude as that is subject to timing and
frequency of studio releases. WarnerMedia also includes our financial results
for regional sports networks (RSNs).



The WarnerMedia segment does not include results from Time Warner operations for
the periods prior to our June 14, 2018 acquisition. Otter Media is included as
an equity method investment for periods prior to our August 7, 2018 acquisition
of the remaining interest and is in the segment operating results following the
acquisition. Consistent with our past practice, many of the impacts of the fair
value adjustments from the application of purchase accounting required under
GAAP have not been allocated to the segment, instead they are reported as
acquisition-related items in the reconciliation to consolidated results.



Due to the June 2018 acquisition of Time Warner, segment and business unit results for 2019 are not comparable to prior periods, and, therefore, comparative results are not discussed.




WarnerMedia Business Unit Discussion
Turner Results


                                     2019      2018     2017
Operating revenues
Subscription                       $  7,736$ 4,207$ 365
Advertising                           4,566     2,330      65
Content and other                       820       442       -
Total Operating Revenues             13,122     6,979     430

Operating expenses
Operations and support                7,740     3,794     331
Depreciation and amortization           235       131       4
Total Operating Expenses              7,975     3,925     335
Operating Income                      5,147     3,054      95

Equity in Net Income of Affiliates 52 54 45 Operating Contribution

             $  5,199$ 3,108$ 140

Turner includes the WarnerMedia businesses managed by Turner as well as our financial results for RSNs.




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Operating revenues are generated primarily from licensing programming to distribution affiliates and from selling advertising on its networks and digital properties. We expect strong advertising revenue growth in 2020 as Turner advertising revenues are expected to benefit from presidential election political spend and from airing the NCAA Final Four and Championship games.




Operating income increased in 2019. Our Turner operating income margin was 39.2%
for 2019 and 43.8% for 2018. Our Turner EBITDA margin was 41.0% for 2019 and
45.6% for 2018.



Home Box Office Results


                                    2019      2018     2017
Operating revenues
Subscription                       $ 5,814$ 3,201   $   -
Content and other                      935       397       -
Total Operating Revenues             6,749     3,598       -

Operating expenses
Operations and support               4,312     2,187       -
Depreciation and amortization          102        56       -
Total Operating Expenses             4,414     2,243       -
Operating Income                     2,335     1,355       -

Equity in Net Income of Affiliates 30 29 - Operating Contribution

             $ 2,365$ 1,384   $   -




Operating revenues are generated from the exploitation of original and licensed programming through distribution outlets.




Operating income increased in 2019. Our Home Box Office operating income margin
was 34.6% for 2019 and 37.7% for 2018. Our Home Box Office EBITDA margin was
36.1% for 2019 and 39.2% for 2018.



Warner Bros. Results


                                            2019      2018     2017
Operating revenues
Theatrical product                        $  5,978$ 4,002   $   -
Television product                           6,367     3,621       -
Games and other                              2,013     1,080       -
Total Operating Revenues                    14,358     8,703       -

Operating expenses
Operations and support                      11,816     7,130       -
Depreciation and amortization                  162        96       -
Total Operating Expenses                    11,978     7,226       -
Operating Income                             2,380     1,477       -

Equity in Net Income (Loss) of Affiliates (30) (28) - Operating Contribution

                    $  2,350$ 1,449   $   -




Operating revenues primarily relate to theatrical product (which is content made
available for initial exhibition in theaters) and television product (which is
content made available for initial airing on television or OTT services). During
2019, fourth-quarter revenues were pressured from foregone content licensing
revenues as we prepare for our launch of HBO Max in 2020 and lower theatrical
product resulting from a more favorable mix of box office and home entertainment
releases in the prior year. The timing of theatrical releases varies from year
to year and is based on several factors. The variability of the release

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schedule and the difficulty in predicting the popularity of content can result
in meaningful/material changes in quarterly revenue results as well as difficult
year-over-year comparisons.



Operating income increased in 2019. Our Warner Bros. operating income margin was
16.6% for 2019 and 17.0% for 2018. Our Warner Bros. EBITDA margin was 17.7% for
2019 and 18.1% for 2018.



LATIN AMERICA SEGMENT
                                                                      Percent Change
                                                                   2019 vs.    2018 vs.
                                      2019       2018       2017     2018        2017
Segment Operating Revenues
Vrio                                 $ 4,094$   4,784$ 5,456  (14.4) %    (12.3) %
Mexico                                 2,869       2,868     2,813       -         2.0

Total Segment Operating Revenues 6,963 7,652 8,269 (9.0)

(7.5)


Segment Operating Contribution
Vrio                                      83         347       522  (76.1)  

(33.5)

Mexico                                 (718)     (1,057)     (788)    32.1  

(34.1)

Total Segment Operating Contribution $ (635)$ (710)$ (266) 10.6 % - %





Operating Results

Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations.

Operating revenues decreased in 2019, driven by lower revenues for Vrio, primarily resulting from foreign exchange pressure related to Argentina's hyperinflationary economy. Mexico revenues were stable, with service revenue growth offset by lower equipment sales.




Operating contribution increased in 2019 and decreased in 2018, reflecting
foreign exchange pressure, offset by improvement in Mexico. Our Latin America
segment operating income margin was (9.5)% in 2019, (9.7)% in 2018 and (4.3)% in
2017.



Latin America Business Unit Discussion
Mexico Results
                                                                        Percent Change
                                                                     2019 vs.    2018 vs.
                                        2019       2018       2017     2018        2017
Operating revenues
Service                                $ 1,863$   1,701$ 2,047     9.5 %    (16.9) %
Equipment                                1,006       1,167       766  (13.8)        52.3
Total Operating Revenues                 2,869       2,868     2,813       -         2.0

Operating expenses
Operations and support                   3,085       3,415     3,232   (9.7)         5.7
Depreciation and amortization              502         510       369   (1.6)        38.2
Total Operating Expenses                 3,587       3,925     3,601   (8.6)         9.0
Operating Income (Loss)                  (718)     (1,057)     (788)    32.1      (34.1)
Equity in Net Income of Affiliates           -           -         -       -           -
Operating Contribution                 $ (718)$ (1,057)$ (788)    32.1 %    (34.1) %




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The following tables highlight other key measures of performance for Mexico:

                                                                                              Percent Change
                                                                                       2019 vs.          2018 vs.
(in 000s)                                      2019            2018            2017      2018              2017
Mexico Wireless Subscribers1
Postpaid                                        5,103           5,805           5,498  (12.1) %                5.6 %
Prepaid                                        13,584          12,264           9,397    10.8                 30.5
Reseller                                          472             252             204    87.3                 23.5
Total Mexico Wireless Subscribers              19,159          18,321          15,099     4.6 %               21.3 %

                                                                                              Percent Change
                                                                                       2019 vs.          2018 vs.
(in 000s)                                      2019            2018            2017      2018              2017
Mexico Wireless Net Additions
Postpaid                                        (608)             307             533       - %             (42.4) %
Prepaid                                         1,919           2,867           2,670  (33.1)                  7.4
Reseller                                          219              48            (77)       -                    -
Mexico Wireless Net Subscriber Additions        1,530           3,222           3,126  (52.5) %                3.1 %

2019 excludes the impact of 692 subscriber disconnections resulting from the churn of customers related to 1 sales by certain third-party

distributors and the sunset of 2G services in Mexico, which are reflected in beginning of period subscribers.

Service revenues increased in 2019, primarily due to growth in our subscriber base.

Equipment revenues decreased in 2019, reflecting higher demand in the prior year for our initial offering of equipment installment programs.

Operations and support expenses decreased in 2019, driven by lower equipment costs. Approximately 6% of Mexico expenses are U.S. dollar-based, with the remainder in the local currency.

Depreciation expense decreased in 2019, primarily due to changes in the useful lives of certain assets, partially offset by the amortization of spectrum licenses and higher in-service assets.




Operating income increased in 2019 and decreased in 2018. Our Mexico operating
income margin was (25.0)% in 2019, (36.9)% in 2018 and (28.0)% in 2017. Our
Mexico EBITDA margin was (7.5)% in 2019, (19.1)% in 2018 and (14.9)% in 2017.



Vrio Results
                                                                  Percent Change
                                                               2019 vs.    2018 vs.
                                    2019      2018      2017     2018        2017
Operating revenues                 $ 4,094$ 4,784$ 5,456  (14.4) %    (12.3) %

Operating expenses
Operations and support               3,378     3,743     4,172   (9.8)      (10.3)
Depreciation and amortization          660       728       849   (9.3)      (14.3)
Total Operating Expenses             4,038     4,471     5,021   (9.7)      (11.0)
Operating Income                        56       313       435  (82.1)      (28.0)
Equity in Net Income of Affiliates      27        34        87  (20.6)      (60.9)
Operating Contribution             $    83$   347$   522  (76.1) %    (33.5) %




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The following tables highlight other key measures of performance for Vrio:

                                                                                                     Percent Change
                                                                                                 2019 vs.     2018 vs.
(in 000s)                                         2019                2018                2017     2018         2017
Vrio Video Subscribers1,2                         13,331              13,838              13,629   (3.7) %       1.5 %


                                                                                                     Percent Change
                                                                                                 2019 vs.     2018 vs.
(in 000s)                                         2019                2018                2017     2018         2017
Vrio Video Net Subscriber Additions3               (285)                 250                  42       - %         - %

Excludes subscribers of our equity investment in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 7.4 1 million

subscribers at September 30, 2019 and 7.6 million and 8.0 million at December 31, 2018 and 2017, respectively.

2019 excludes the impact of 222 subscriber disconnections resulting from conforming our video credit policy 2 across the region, which is

reflected in beginning of period subscribers.

Excludes SKY Mexico net subscriber losses of 225 in the nine months ended September 30, 2019 and losses of 366 3 and 23 for

        years ended December 31, 2018 and 2017, respectively.




Operating revenues decreased in 2019, due to foreign exchange pressures.

Operations and support expenses decreased in 2019, reflecting changes in foreign currency exchange rates. Approximately 19% of Vrio expenses are U.S. dollar-based, with the remainder in the local currency.

Depreciation expense decreased in 2019, primarily due to changes in foreign currency exchange rates.

Operating income decreased in 2019 and 2018. Our Vrio operating income margin was 1.4% in 2019, 6.5% in 2018 and 8.0% in 2017. Our Vrio EBITDA margin was 17.5% in 2019, 21.8% in 2018 and 23.5% in 2017.



XANDR SEGMENT
                                                                  Percent Change
                                                               2019 vs.    2018 vs.
                                    2019      2018      2017     2018        2017
Segment Operating Revenues         $ 2,022$ 1,740$ 1,373   16.2 %       26.7 %

Segment Operating Expenses
Operations and support                 646       398       169   62.3            -
Depreciation and amortization           58         9         2      -            -

Total Segment Operating Expenses 704 407 171 73.0

-

Segment Operating Income             1,318     1,333     1,202  (1.1)       

10.9

Equity in Net Income of Affiliates - - - -

-

Segment Operating Contribution $ 1,318$ 1,333$ 1,202 (1.1) %

  10.9 %



Operating revenues increased in 2019 due to growth in subscription-based advertising revenue and our acquisition of AppNexus in August 2018 (see Note 6).

Operations and support expenses increased in 2019 reflecting our acquisition of AppNexus and our ongoing development of the platform supporting Xandr's business.

Operating income decreased in 2019 and increased 2018. Our Xandr segment operating income margin was 65.2% in 2019, 76.6% in 2018 and 87.5% in 2017.

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SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION


As a supplemental presentation to our Xandr segment operating results, we are
providing a view of total advertising revenues generated by AT&T. This combined
view presents the entire portfolio of advertising revenues reported across all
operating segments and represents a significant strategic initiative and growth
opportunity for AT&T. See the revenue categories table in Note 5 for a
reconciliation.



Total Advertising Revenues

                                                                Percent Change
                                                             2019 vs.    2018 vs.
                             2019        2018        2017      2018        2017
Advertising Revenues
WarnerMedia                $   4,676$   2,461$      65    90.0 %         - %
Communications                 1,963       1,827       1,513     7.4        20.8
Xandr                          2,022       1,740       1,373    16.2        26.7
Eliminations                 (1,672)     (1,595)     (1,357)   (4.8)      (17.5)
Total Advertising Revenues $   6,989$   4,433$   1,594    57.7 %         - %



SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATION


As a supplemental presentation to our Communications segment operating results,
we are providing a view of our AT&T Business Solutions results which includes
both wireless and wireline operations. This combined view presents a complete
profile of the entire business customer relationship, including mobile solutions
for our business customers. Wireless business relationships include FirstNet
customers, IoT connections and other company paid-for devices. 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 GAAP.



Business Solutions Results
                                                                       Percent Change
                                                                    2019 vs.    2018 vs.
                                     2019        2018       2017      2018        2017
Operating revenues
Wireless service                  $   7,925$   7,323$   7,928     8.2 %     (7.6) %
Strategic and managed services       15,440      14,660      13,880     5.3 

5.6

Legacy voice and data services 9,180 10,674 13,791 (14.0)

     (22.6)
Other service and equipment           1,557       1,406       1,532    10.7       (8.2)
Wireless equipment                    2,757       2,510       1,532     9.8        63.8
Total Operating Revenues             36,859      36,573      38,663     0.8       (5.4)

Operating expenses
Operations and support               22,735      22,608      24,376     0.6       (7.3)

Depreciation and amortization 6,213 5,900 5,859 5.3

        0.7
Total Operating Expenses             28,948      28,508      30,235     1.5       (5.7)
Operating Income                      7,911       8,065       8,428   (1.9)       (4.3)
Equity in Net Income (Loss) of            -           -           -       -           -
Affiliates
Operating Contribution            $   7,911$   8,065$   8,428   (1.9) %     (4.3) %



OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS


2020 Revenue Trends We expect revenue growth in our wireless and broadband
businesses as customers demand premium content, instant connectivity and higher
speeds made possible by our fiber network expansion and wireless network
enhancements through 5G deployment. In our Communications segment, we expect
that our network quality and First Responder Network Authority (FirstNet)
deployment will contribute to wireless subscriber and service revenue growth,
and that 5G handset introductions during 2020 will drive wireless equipment
revenue growth. We anticipate that applications like video streaming will also
drive greater demand for broadband. In our WarnerMedia segment, we expect our
premium content

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to drive revenue growth from both the current wholesale distribution through
traditional pay-TV providers and our new video streaming platform, HBO Max, to
be launched in May 2020. Across AT&T, we expect to provide consumers with a
broad variety of video entertainment services, from mobile-centric and OTT
live-TV streaming packages, to traditional full-size linear video. We expect
growth in our advertising businesses from combining the data insights from our
170 million direct-to-consumer relationships with our premium video and digital
advertising inventory. Revenue from business customers will continue to grow for
mobile and IP-based services, but decline for legacy wireline services. Overall,
we believe growth in wireless, broadband and WarnerMedia's premium content
should offset pressure from our linear video and legacy voice and data services.



2020 Expense Trends We expect the spending required to support growth
initiatives, primarily our 5G deployment and FirstNet build, as well as the
launch of the HBO Max platform, to pressure expense trends in 2020. To the
extent 5G handset introductions in 2020 are as expected, the expenses associated
with those device sales will also contribute to higher costs. In addition, we
expect the second-quarter 2019 update to estimated economic customer lives, and
our launch of AT&T TV, our new streaming premium TV product, to contribute to
expense pressure in the first half of the year. During 2020, we will also
continue to transition our hardware-based network technology to more efficient
and less expensive software-based technology. These investments will prepare us
to meet increased customer demand for enhanced wireless and broadband services,
including video streaming, augmented reality and "smart" technologies. The
software benefits of our 5G wireless technology and new video delivery platforms
should result in a more efficient use of capital and lower network-related
expenses in the coming years.



To offset the costs of these initiatives, we anticipate savings from corporate
initiatives to lower labor-related costs and corporate overhead, digital
transformation of customer service and ordering functions, vendor discounts and
WarnerMedia merger synergies. Cost savings and non-strategic asset sales should
help to further reduce our debt level.



Market Conditions The U.S. stock market experienced a positive year although
general business investment remained modest, which affected our business
services. Most of our products and services are not directly affected by the
imposition of tariffs on Chinese goods. To date, we have not experienced any
disruptions from our wireless handset supply chain due to the coronavirus
epidemic in China but we continue to monitor the situation. While unemployment
remains historically low, our residential customers continue to be price
sensitive in selecting offerings, especially in the video area, and continue to
focus on products that give them efficient access to video and broadcast
services. We expect ongoing pressure on pricing during 2020 as we respond to the
competitive marketplace, especially in wireless and video services.



Included on our consolidated balance sheets are assets held by benefit plans for
the payment of future benefits. Our pension plans are subject to funding
requirements of the Employee Retirement Income Security Act of 1974, as amended
(ERISA). We expect only minimal ERISA contribution requirements to our pension
plans for 2020. Investment returns on these assets depend largely on trends in
the economy, and a weakness in the equity, fixed income and real asset markets
could require us to make future contributions to the pension plans. In addition,
our policy of recognizing actuarial gains and losses related to our pension and
other postretirement plans in the period in which they arise subjects us to
earnings volatility caused by changes in market conditions; however, these
actuarial gains and losses do not impact segment performance as they are
required to be recorded in other income (expense) - net. Changes in our discount
rate, which are tied to changes in the bond market, and changes in the
performance of equity markets, may have significant impacts on the valuation of
our pension and other postretirement obligations at the end of 2020 (see
"Critical Accounting Policies and Estimates").



OPERATING 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. Nonetheless, over
the ensuing two decades, 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. More recently, the FCC has
pursued a more deregulatory agenda, eliminating a variety of antiquated and
unnecessary regulations and streamlining its processes in a number of areas. In
addition, we are pursuing, at both the state and federal levels, additional
legislative and regulatory

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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.



We have organized the following discussion by reportable segment.

Communications Segment


Internet The FCC currently classifies fixed and mobile consumer broadband
services as information services, subject to light-touch regulation. Although
the D.C. Circuit upheld the FCC's current classification, challenges to that
decision remain pending. A more detailed discussion can be found under
"Regulatory Developments".



A number of states have adopted legislation or issued executive orders that
would reimpose net neutrality rules repealed by the FCC, and in some cases,
established additional requirements. Suits have been filed concerning laws in
certain states, but have been stayed pursuant to agreements by those states not
to enforce their laws pending final resolution of all appeals. We will continue
to support congressional action to codify a set of standard consumer rules for
the internet. A more detailed discussion can be found under "Regulatory
Developments".



In October 2016, the 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. In April 2017, the president signed a resolution passed by Congress
repealing the new rules under the Congressional Review Act.



Privacy-related legislation has been considered or adopted in a number of
states. Legislative and regulatory action could result in increased costs of
compliance, claims against broadband internet access service providers and
others, and increased uncertainty in the value and availability of data.
Effective as of January 1, 2020, a California state law gives consumers the
right to know what personal information is being collected about them, and
whether and to whom it is sold or disclosed, and to access and request deletion
of this information. Subject to certain exceptions, it also gives California
consumers the right to opt out of the sale of personal information.



Wireless The 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 local
permitting processes that allow for the placement of small cell equipment on
reasonable timelines and terms. Federal regulations also can delay and impede
the deployment of infrastructure used to provide telecommunications and
broadband services, including small cell equipment. In March, August and
September 2018, the FCC adopted orders to streamline federal and local wireless
infrastructure review processes in order to facilitate deployment of
next-generation wireless facilities. Specifically, the FCC's March 2018 Order
streamlined historical, tribal, and environmental review requirements for
wireless infrastructure, including by excluding most small cell facilities from
such review. The Order was appealed and in August 2019, the D.C. Circuit Court
of Appeals vacated the FCC's finding that most small cell facilities are
excluded from review, but otherwise upheld the FCC's Order. The FCC's August and
September 2018 Orders simplified the regulations for attaching
telecommunications equipment to utility poles and clarified when local
government right-of-way access and use restrictions can be preempted because
they unlawfully prohibit the provision of telecommunications services. Those
orders were appealed to the 9th Circuit Court of Appeals, where they remain
pending. In addition to the FCC's actions, to date, 28 states and Puerto Rico
have adopted legislation to facilitate small cell deployment.



In December 2018, we introduced the nation's first commercial mobile 5G service.
We expect to have mobile 5G service available nationwide to more than 200
million people by the second quarter of 2020; we anticipate the introduction of
5G handsets and devices will contribute to a renewed interest in equipment
upgrades.



As the U.S. wireless industry has matured, we believe future wireless growth
will depend on our ability to offer innovative services, plans and devices and
to provide these services in bundled product offerings to best utilize a
wireless network that has sufficient spectrum and capacity to support these
innovations on as broad a geographic basis as possible. 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. We secured the FirstNet
contract, which provides us with access to 20 MHz of nationwide low band
spectrum, and invested in 5G and millimeter-wave technologies with our
acquisition of Fiber-Tower Corporation, which holds significant amounts of
spectrum in the millimeter wave bands (39 GHz) that the FCC reallocated for
mobile broadband

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services. We were also awarded 24 GHz licenses covering a nationwide footprint
in a recent FCC auction. These bands will help to accelerate our entry into 5G
services.



Video We provide domestic 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, and some of WarnerMedia's businesses are also subject to
obligations under the Communications Act and related FCC regulations.



WarnerMedia Segment


We create, own and distribute intellectual property, including copyrights,
trademarks and licenses of intellectual property. To protect our intellectual
property, we rely on a combination of laws and license agreements. Outside of
the U.S., laws and regulations relating to intellectual property protection and
the effective enforcement of these laws and regulations vary greatly from
country to country. The European Union Commission is pursuing legislative and
regulatory initiatives that could impair Warner Bros.' current
country-by-country licensing approach in the European Union. Piracy,
particularly of digital content, continues to threaten WarnerMedia's revenues
from products and services, and we work to limit that threat through a
combination of approaches, including technological and legislative solutions.
Outside the U.S., various laws and regulations, as well as trade agreements with
the U.S., also apply to the distribution or licensing of feature films for
exhibition in movie theaters and on broadcast and cable networks. For example,
in certain countries, including China, laws and regulations limit the number of
foreign films exhibited in such countries in a calendar year.



EXPECTED GROWTH AREAS



Over the next few years, we expect our growth to come from wireless,
software-based video offerings like HBO Max, IP-based broadband services and
advertising and data insights (especially with WarnerMedia). We now provide
integrated services to diverse groups of customers in the U.S. on an integrated
telecommunications network utilizing different technological platforms,
including wireless, satellite and wireline. In 2020, our key initiatives
include:

?Launching 5G service nationwide on our premier wireless network.

?Generating mobile subscriber growth from FirstNet and our premier network quality.

?Launching HBO Max, our new platform for premium content and video offered directly to consumers, as well as through our traditional distributors.

?Increasing fiber penetration and growing broadband revenues.

?Continuing to develop a competitive advantage through our industry-leading network cost structure.

?Growing profitability in our Mexico business unit.




Wireless We expect to continue to deliver revenue growth in the coming years. We
are in a period of rapid growth in wireless video usage and believe that there
are substantial opportunities available for next-generation converged services
that combine technologies and services. We secured the FirstNet contract, which
provides us with access to 20 MHz of nationwide low band spectrum and the
opportunity to grow subscribers through the first responder agencies served, and
invested in 5G and millimeter-wave technologies with our acquisition of
FiberTower Corporation, which holds significant amounts of spectrum in the
millimeter wave bands (39 GHz) that the FCC reallocated for mobile broadband
services. These bands will help to accelerate our entry into 5G services.



As of December 31, 2019, we served 185 million wireless subscribers in North
America, with 166 million in the United States. Our LTE technology covers over
430 million people in North America, and in the United States, we cover all
major metropolitan areas and more than 330 million people. We also provide 4G
coverage using another technology (HSPA+), and when combined with our upgraded
backhaul network, we provide enhanced network capabilities and superior mobile
broadband speeds for data and video services. In December 2018, we introduced
the nation's first commercial mobile 5G service and plan to expand that
deployment nationwide by the second quarter of 2020 to cover approximately 200
million people.



Our networks covering both the U.S. and Mexico have enabled our customers to use
wireless services without roaming on other companies' networks. We believe this
seamless access will prove attractive to customers and provide a significant
growth opportunity. As of the end of 2019, we provided LTE coverage to
approximately 100 million people in Mexico.



Integration of Data/Broadband and Entertainment Services As the communications
industry has evolved into internet-based technologies capable of blending
wireline, satellite and wireless services, we plan to focus on expanding our
wireless network capabilities and provide high-speed internet and video
offerings that allow customers to integrate their home or

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business fixed services with their mobile service. During 2020, we will continue
to develop and provide unique integrated video, mobile and broadband solutions.
The launch of the HBO Max platform will facilitate our customers' desire to view
video anywhere on demand and encourage customer retention.



REGULATORY DEVELOPMENTS



Set forth below is a summary of the most significant regulatory proceedings that
directly affected our operations during 2019. Industry-wide regulatory
developments are discussed above in Operating Environment Overview. While these
issues may apply only to certain subsidiaries, the words "we," "AT&T" and "our"
are used to simplify the discussion. The following discussions are intended as a
condensed summary of the issues rather than as a comprehensive legal analysis
and description of all of these specific issues.



International Regulation Our subsidiaries operating outside the United States
are subject to the jurisdiction of regulatory authorities in the territories in
which the subsidiaries operate. Our licensing, compliance and advocacy
initiatives in foreign countries primarily enable the provision of enterprise
(i.e., large business), wireless and satellite television services. AT&T is
engaged in multiple efforts with foreign regulators to open markets to
competition, foster conditions favorable to investment and increase our scope of
services and products.



The General Data Protection Regulation went into effect in Europe in May of
2018. AT&T processes and handles personal data of its customers and subscribers,
employees of its enterprise customers and its employees. This regulation created
a range of new compliance obligations and significantly increased financial
penalties for noncompliance.



Federal Regulation We have organized our following discussion by service impacted.




Internet 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 Order, which
represented a departure from longstanding bipartisan precedent, significantly
expanded the FCC's authority to regulate broadband internet access services, as
well as internet interconnection arrangements. In December 2017, the FCC
reversed its 2015 decision by reclassifying fixed and mobile consumer broadband
services as information services and repealing most of the rules that were
adopted in 2015. In lieu of broad conduct prohibitions, the order requires
internet service providers to disclose information about their network practices
and terms of service, including whether they block or throttle internet traffic
or offer paid prioritization. Several parties appealed the FCC's December 2017
decision and the D.C. Circuit heard oral argument on the appeals on February 1,
2019. On October 1, 2019, the court issued a unanimous opinion upholding the
FCC's reclassification of broadband as an information service, and its reliance
on transparency requirements and competitive marketplace dynamics to safeguard
net neutrality. While the court vacated the FCC's express preemption of any
state regulation of net neutrality, it nevertheless stressed that its ruling
does not prevent the FCC or ISPs from relying on conflict preemption to
invalidate particular state laws that are inconsistent with the FCC's regulatory
objectives and framework. The court also concluded that the FCC failed to
satisfy its obligation under the Administrative Procedure Act (APA) to consider
the impact of its 2017 order in three discrete areas: public safety, the
Lifeline program, and pole attachment regulation, and thus remanded it to the
FCC for further proceedings on those issues, but without disturbing the
operative effect of that order. Several petitions for rehearing of the D.C.
Circuit's October 1 decision have been filed. Those petitions remain pending. A
number of states have adopted legislation to reimpose the very rules the FCC
repealed. In some cases, state legislation imposes requirements that go beyond
the FCC's February 2015 order. Additionally, some state governors have issued
executive orders that effectively reimpose the repealed requirements. Suits have
been filed concerning laws in California and Vermont. Both lawsuits have been
stayed pursuant to agreements by those states not to enforce their laws pending
final resolution of all appeals of the FCC's December 2017 order. We expect that
going forward additional states may seek to impose net neutrality requirements.
We will continue to support congressional action to codify a set of standard
consumer rules for the internet.



Wireless and Broadband Since November 2017, the FCC has adopted four significant
rulings designed to accelerate broadband infrastructure deployment. In November
2017, the FCC updated and streamlined certain rules governing pole attachments,
copper retirement, and service discontinuances. In March 2018, the FCC
eliminated lengthy environmental, historical and tribal reviews for most small
cell deployments and streamlined processes that must be followed when those
reviews are required. The D.C. Circuit Court of Appeals vacated the FCC's
finding in this Order that small cell facilities do not require environmental,
historical and tribal reviews, but left intact all other processes adopted to
streamline review when required. In August 2018, the FCC adopted more
comprehensive pole attachment reform, including by simplifying the attaching
process (i.e., one-touch make-ready) and clarified that the Communications Act
precludes local governments from imposing moratoria on the deployment of
communications facilities. And, in September 2018, the FCC restricted the
ability

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of state and local governments to impede small cell deployments in rights-of-way
and on government-owned structures, through exorbitant fees, unreasonable
aesthetic requirements and other actions. These decisions will remove regulatory
barriers and reduce the costs of the infrastructure needed for 5G deployment,
which will enhance our ability to place small cell facilities on utility poles
and to replace legacy facilities and services with advanced broadband
infrastructure and services. Appeals of the August and September 2018 Orders
remain pending in the 9th Circuit Court of Appeals.



In 2018, the FCC took several actions to make spectrum available for 5G
services. In late 2018, the FCC adopted auction rules for the 39 GHz band that
will allow the FCC to auction remaining unlicensed 39 GHz spectrum and realign
the band to allow large, contiguous blocks of spectrum that will support 5G.
This auction, which also includes spectrum in the 37 GHz and 47 GHz bands, is
currently underway. The FCC has granted AT&T special temporary authority to
launch its 5G service in 400 MHz of contiguous spectrum in the 37/39 GHz band in
a total of 32 markets. In addition, the FCC completed auctions in 2019 of 24 and
28 GHz spectrum, two other bands that will support 5G. AT&T was awarded 24 GHz
licenses covering a nationwide footprint.



ACCOUNTING POLICIES AND STANDARDS


Critical Accounting Policies and Estimates Because of the size of the financial
statement line items they relate to or the extent of judgment required by our
management, some of our accounting policies and estimates have a more
significant impact on our consolidated financial statements than others. The
following policies are presented in the order in which the topics appear in our
consolidated statements of income.



Pension and Postretirement Benefits Our actuarial estimates of retiree benefit
expense and the associated significant weighted-average assumptions are
discussed in Note 15. Our assumed weighted-average discount rates for pension
and postretirement benefits of 3.40% and 3.20%, respectively, at December 31,
2019, reflect the hypothetical rate at which the projected benefit obligations
could be effectively settled or paid out to participants. We determined our
discount rate based on a range of factors, including a yield curve composed of
the rates of return on several hundred high-quality, fixed income corporate
bonds available at the measurement date and corresponding to the related
expected durations of future cash outflows for the obligations. These bonds were
all rated at least Aa3 or AA- by one of the nationally recognized statistical
rating organizations, denominated in U.S. dollars, and neither callable,
convertible nor index linked. For the year ended December 31, 2019, when
compared to the year ended December 31, 2018, we decreased our pension discount
rate by 1.10%, resulting in an increase in our pension plan benefit obligation
of $8,018 and decreased our postretirement discount rate by 1.20%, resulting in
an increase in our postretirement benefit obligation of $2,399.



Our expected long-term rate of return on pension plan assets is 7.00% for 2020
and 2019. Our expected long-term rate of return on postretirement plan assets is
4.75% for 2020 and 5.75% for 2019. Our expected return on plan assets is
calculated using the actual fair value of plan assets. If all other factors were
to remain unchanged, we expect that a 0.50% decrease in the expected long-term
rate of return would cause 2020 combined pension and postretirement cost to
increase $273, which under our accounting policy would be adjusted to actual
returns in the current year as part of our fourth-quarter remeasurement of our
retiree benefit plans.



We recognize gains and losses on pension and postretirement plan assets and
obligations immediately in "Other income (expense) - net" in our consolidated
statements of income. These gains and losses are generally measured annually as
of December 31, and accordingly, will normally be recorded during the fourth
quarter, unless an earlier remeasurement is required. Should actual experience
differ from actuarial assumptions, the projected pension benefit obligation and
net pension cost and accumulated postretirement benefit obligation and
postretirement benefit cost would be affected in future years. See Note 15 for
additional discussions regarding our assumptions.



Depreciation Our depreciation of assets, including use of composite group depreciation for certain subsidiaries and estimates of useful lives, is described in Notes 1 and 7.




If all other factors were to remain unchanged, we expect that a one-year
increase in the useful lives of our plant in service would have resulted in a
decrease of approximately $3,027 in our 2019 depreciation expense and that a
one-year decrease would have resulted in an increase of approximately $4,196 in
our 2019 depreciation expense. See Notes 7 and 8 for depreciation and
amortization expense applicable to property, plant and equipment, including our
finance lease right-of-use assets.



Asset Valuations and Impairments Goodwill and other indefinite-lived intangible
assets are not amortized but tested at least annually for impairment. For
impairment testing, we estimate fair values using models that predominantly rely
on the

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expected cash flows to be derived from the use of the asset. We recorded an impairment in 2019 for our SKY Brasil trade name (see Note 9).




We test goodwill on a reporting unit basis by comparing the estimated fair value
of each reporting unit to its book value. If the fair value exceeds the book
value, then no impairment is measured. We estimate fair values using an income
approach (also known as a discounted cash flow) and a market multiple approach.
The income approach utilizes our 10-year cash flow projections with a perpetuity
value discounted at an appropriate weighted average cost of capital. The market
multiple approach uses the multiples of publicly traded companies whose services
are comparable to those offered by the reporting units. In 2019, the calculated
fair values of the reporting units exceeded their book values in all
circumstances. If either the projected rate of long-term growth of cash flows or
revenues declined by 0.5%, or if the discount rate increased by 0.5%, the fair
values would still be higher than the book value of the goodwill. In the event
of a 10% drop in the fair values of the reporting units, the fair values still
would have exceeded the book values of the reporting units.



We assess fair value for U.S. wireless licenses using a discounted cash flow
model (the Greenfield Approach) and a corroborative market approach based on
auction prices, depending upon auction activity. The Greenfield Approach assumes
a company initially owns only the wireless licenses and makes investments
required to build an operation comparable to current use. Inputs to the model
include subscriber growth, churn, revenue per user, capital investment and
acquisition costs per subscriber, ongoing operating costs and resulting EBITDA
margins. We based our assumptions on a combination of average marketplace
participant data and our historical results, trends and business plans. These
licenses are tested annually for impairment on an aggregated basis, consistent
with their use on a national scope for the United States. For impairment
testing, we assume subscriber and revenue growth will trend up to projected
levels, with a long-term growth rate reflecting expected long-term inflation
trends. We assume churn rates will initially exceed our current experience, but
decline to rates that are in line with industry-leading churn. We used a
discount rate of 8.75%, based on the optimal long-term capital structure of a
market participant and its associated cost of debt and equity for the licenses,
to calculate the present value of the projected cash flows. If either the
projected rate of long-term growth of cash flows or revenues declined by 0.5%,
or if the discount rate increased by 0.5%, the fair values of these wireless
licenses would still be higher than the book value of the licenses. The fair
value of these wireless licenses exceeded their book values by more than 10%.



Orbital slots are also valued using the Greenfield Approach. The projected cash
flows are based on various factors, including satellite cost, other capital
investment per subscriber, acquisition costs per subscriber and usage per
subscriber, as well as revenue growth, subscriber growth and churn rates. For
impairment testing purposes, we assumed sustainable long-term growth assumptions
consistent with the business plan and industry counterparts in the United
States. We used a discount rate of 8.5% to calculate the present value of the
projected cash flows. In 2019, the fair value of orbital slots was slightly
lower than the prior year, which exceeded the book value by approximately 10% in
2018. The decrease in fair value was driven by the transition of the video
business to OTT and streaming technology.



We review customer relationships, licenses in Mexico and other finite-lived
intangible assets for impairment whenever events or circumstances indicate that
the book value may not be recoverable over their remaining life. For this
analysis, we compare the expected undiscounted future cash flows attributable to
the asset to its book value.


We review operating lease right-of-use assets for impairment whenever events or circumstances indicated that the book value may not be recoverable over the remaining life.

We periodically assess our network assets for impairment (see Note 1).




Income Taxes Our estimates of income taxes and the significant items giving rise
to the deferred assets and liabilities are shown in Note 14 and reflect our
assessment of actual future taxes to be paid on items reflected in the financial
statements, giving consideration to both timing and probability of these
estimates. Actual income taxes could vary from these estimates due to future
changes in income tax law or the final review of our tax returns by federal,
state or foreign tax authorities.

We use our judgment to determine whether it is more likely than not that we will
sustain positions that we have taken on tax returns and, if so, the amount of
benefit to initially recognize within our financial statements. We regularly
review our uncertain tax positions and adjust our unrecognized tax benefits
(UTBs) in light of changes in facts and circumstances, such as changes in tax
law, interactions with taxing authorities and developments in case law. These
adjustments to our UTBs may affect our income tax expense. Settlement of
uncertain tax positions may require use of our cash.



New Accounting Standards

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Beginning with 2019 interim and annual reporting periods, we adopted the FASB's
new accounting guidance related to leasing. The most significant impact of the
new guidance was to our balance sheet, as we recorded a right-of-use asset and
corresponding liability for our operating leases existing at January 1, 2019. We
adopted the new leasing standard using a modified retrospective transition
method as of the beginning of the period of adoption, which did not require us
to adjust the balance sheet for prior periods, therefore affecting the
comparability of our financial statements. See Note 1 for discussion of the
impact of the standard.



See Note 1 for discussion of the expected impact of other new standards.

OTHER BUSINESS MATTERS


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. We reached a tentative
agreement (Stipulated Order) with the FTC staff in August 2019, pending FTC
approval. The FTC approved the Stipulated Order on November 4, 2019, and the
Court approved and entered the Order on December 3, 2019. In the resolution of
this matter, we did not admit the FTC's allegations, and the settlement amount
is not material to our financial results. In addition to the FTC case, several
class actions were filed challenging our MBR program. We have secured dismissals
in each of these cases except Roberts v. AT&T Mobility LLC, which is ongoing.



Labor Contracts As of January 31, 2020, we employed approximately 246,000 persons. Approximately 40% of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the collective bargaining agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.


?A contract covering approximately 7,000 traditional wireline employees in our
Midwest region expired in April 2018. In August 2019, a new four-year contract
was ratified by employees and will expire in April 2022.

?A contract covering approximately 3,000 traditional wireline employees in our legacy AT&T Corp. business expired in April 2018. In August 2019, a new four-year contract was ratified by employees and will expire in April 2022.

?A contract covering approximately 18,000 traditional wireline employees in our Southeast region expired in August 2019. In October 2019, a new five-year contract was ratified by employees and will expire in August 2024.


?Contracts covering approximately 20,000 employees are scheduled to expire
during 2020, including a contract expiring in February covering approximately
7,000 Mobility employees and a contract expiring in April covering approximately
13,000 traditional wireline employees in our West region.



Environmental We are subject from time to time to judicial and administrative
proceedings brought by various governmental authorities under federal, state or
local environmental laws. We reference in our Forms 10-Q and 10-K certain
environmental proceedings that could result in monetary sanctions (exclusive of
interest and costs) of one hundred thousand dollars or more. However, we do not
believe that any of those currently pending will have a material adverse effect
on our results of operations.


LIQUIDITY AND CAPITAL RESOURCES


We had $12,130 in cash and cash equivalents available at December 31, 2019. Cash
and cash equivalents included cash of $2,654 and money market funds and other
cash equivalents of $9,476. Approximately $2,681 of our cash and cash
equivalents were held by our foreign entities in accounts predominantly outside
of the U.S. and may be subject to restrictions on repatriation.



Cash and cash equivalents increased $6,926 since December 31, 2018. In 2019,
cash inflows were primarily provided by cash receipts from operations, including
cash from an increased amount of sales and transfers of our receivables to third
parties, sale of investments, issuance of long-term debt, collateral received
from banks and other participants in our derivative arrangements and issuances
of nonconvertible perpetual preferred interests in subsidiaries and cumulative
preferred stock.

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These inflows were offset by cash used to meet the needs of the business,
including, but not limited to, payment of operating expenses, debt repayments,
funding capital expenditures and vendor financing payments, spectrum purchases
and dividends to stockholders.



Cash Provided by or Used in Operating Activities


During 2019, cash provided by operating activities was $48,668 compared to
$43,602 in 2018. Higher operating cash flows in 2019 were primarily due to
contributions from full year of WarnerMedia and higher cash flows from working
capital initiatives, including sales of receivables (see Note 18), partly offset
by higher spend on film and television production and net tax payments in 2019
compared to net tax refunds in 2018.



We actively manage the timing of our supplier payments for non-capital items to
optimize the use of our cash. Among other things, we seek to make payments on
90-day or greater terms, while providing the suppliers with access to bank
facilities that permit earlier payments at their cost. In addition, for payments
to a key supplier, we have arrangements that allow us to extend payment terms up
to 90 days at an additional cost to us (referred to as supplier financing). The
net impact of supplier financing on cash from operating activities was to
improve working capital $909 in 2019, and $1,869 in 2018. All supplier financing
payments are due within one year.



Cash Used in or Provided by Investing Activities


During 2019, cash used in investing activities totaled $16,690, and consisted
primarily of $19,635 (including interest during construction) for capital
expenditures ($1,616 lower than the prior-year), and $982 of wireless spectrum
offset by proceeds from the sales of our ownership interests in Hulu and
WarnerMedia's headquarters (Hudson Yards) under a sale-leaseback arrangement
(see Note 6).



For capital improvements, we have negotiated favorable vendor payment terms of
120 days or more (referred to as vendor financing) with some of our vendors,
which are excluded from capital expenditures and reported as financing
activities. Vendor financing payments were $3,050 in 2019, compared to $560 in
2018. Capital expenditures in 2019 were $19,635, and when including $3,050 cash
paid for vendor financing and excluding $1,005 of FirstNet reimbursements, gross
capital investment was $23,690 ($450 higher than the prior-year). The vast
majority of our capital expenditures are spent on our networks, including
product development and related support systems. In 2019, we placed $2,632 of
equipment in service under vendor financing arrangements (compared to $2,162 in
2018) and $1,116 of assets related to the FirstNet build (compared to $1,500 in
2018). Total reimbursements from the government for FirstNet were $1,374 for
2019 and $1,670 for 2018, predominately for capital expenditures.



The amount of capital expenditures is influenced by demand for services and
products, capacity needs and network enhancements. In 2020, we expect that our
gross capital investment, which includes capital expenditures and cash paid for
vendor financing and excludes expected FirstNet reimbursement of approximately
$1,000, will be in the $20,000 range.



Cash Used in or Provided by Financing Activities

For the full year, cash used in financing activities totaled $25,083 and included net proceeds from debt issuances of $17,039, which consisted primarily of the following issuances:




Issued and redeemed in 2019

?January draw of $2,850 on an 11-month syndicated term loan agreement (repaid in the third quarter).

?January draw of $750 on a private financing agreement (repaid in the first quarter).

?August borrowings of $400 under a private financing agreement (repaid in the third quarter).

Issued and outstanding in 2019

?February issuance of $3,000 of 4.350% global notes due 2029.

?February issuance of $2,000 of 4.850% global notes due 2039.

?Borrowings of $725 in January and $525 in June that are supported by government agencies to support network equipment purchases.

?June draw of $300 on a private financing agreement.


?September issuance of €1,000 of 0.25% global notes due 2026, €1,250 of 0.80%
global notes due 2030 and €750 of 1.80% global notes due 2039 (when combined,
$3,308 at issuance).

?September draw of $1,300 on a Bank of America term loan credit agreement.

?November draw of $750 on a private financing agreement.

?December issuance of $1,265 of 4.250% global notes due 2050.

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During 2019, repayment of long-term debt totaled $27,592. Repayments primarily consisted of the following:




Notes redeemed at maturity:

?$1,850 of 2.300% AT&T global notes in the first quarter.

?$400 of AT&T floating-rate notes in the first quarter.

?€1,500 of AT&T floating-rate notes in the second quarter ($1,882 at maturity).

?$650 of 2.100% Warner Media, LLC notes in the second quarter.

?CHF 450 0.500% senior fixed-rate notes in the fourth quarter ($467 at maturity).

Notes redeemed or repurchased prior to maturity:

?$2,010 of AT&T global notes with interest rates ranging from 5.000% to 5.200% and original maturities in 2020 and 2021, in the first quarter.

?$2,000 of Warner Media, LLC notes with interest rates ranging from 4.700% to 4.750% and original maturities in 2021, in the first quarter.

?$1,295 of 4.700% AT&T global notes with an original maturity in 2044, in the fourth quarter.


?$590 of Warner Media, LLC and/or Historic TW Inc. notes that were tendered for
cash in our second quarter obligor debt exchange. The notes had interest rates
ranging between 6.500% and 9.150% and original maturities ranging from 2023 to
2036.

?$1,409 of subsidiary notes that were tendered for cash in December 2019. The notes had interest rates ranging between 2.950% and 9.150% and original maturities ranging from 2022 to 2097.

?$243 of open market repurchases of AT&T Corp, AT&T Mobility LLC, and New Cingular Wireless Services, Inc. notes, with interest rates ranging from 7.125% to 8.750% and original maturities in 2031, in the second quarter.

?$154 of open market repurchases of Warner Media, LLC, Historic TW Inc., BellSouth LLC and AT&T Mobility LLC notes, with interest rates ranging from 2.95% to 7.625% and original maturities ranging from 2022 to 2097, in the third quarter.

Credit facilities repaid and other redemptions:

?$2,625 of final amounts outstanding under our Acquisition Term Loan (defined below) in the first quarter.

?$750 of January borrowings under a private financing agreement, in the first quarter.

?$1,500 of four-year and five-year borrowings under the Nova Scotia Credit Agreement (defined below) in the second quarter and $750 of three-year borrowings in the third quarter.

?$600 of borrowings under our credit agreement with Canadian Imperial Bank of Commerce in the second quarter.

?$500 of advances under our November 2018 Term Loan (defined below) in the second quarter, with payment of the remaining $3,050 of advances in the third quarter.

?$250 of borrowings under a U.S. Bank credit agreement in the second quarter.

?$750 of borrowings under a private credit agreement in the third quarter.

?$400 of borrowings under a private financing agreement in the third quarter.

?$2,850 of borrowings under an 11-month syndicated term loan agreement from January 2019 in the third quarter.




Our weighted average interest rate of our entire long-term debt portfolio,
including the impact of derivatives, was approximately 4.4% as of December 31,
2019 and 4.4% as of December 31, 2018. We had $161,109 of total notes and
debentures outstanding at December 31, 2019, which included Euro, British pound
sterling, Canadian dollar, Mexican peso, Australian dollar, Brazilian real and
Swiss franc denominated debt that totaled approximately $42,485.



At December 31, 2019, we had $11,838 of debt maturing within one year,
consisting of $4 of other short-term borrowings and $11,834 of long-term debt
issuances. Debt maturing within one year includes the following notes that may
be put back to us by the holders:

?$1,000 of annual put reset securities issued by BellSouth that may be put back to us each April until maturity in 2021.


?An accreting zero-coupon note that may be redeemed each May until maturity in
2022. If the remainder of the zero-coupon note (issued for principal of $500 in
2007 and partially exchanged in the 2017 debt exchange offers) is held to
maturity, the redemption amount will be $592.



During 2019, we paid $3,050 of cash under our vendor financing program. Total
vendor financing payables included in our December 31, 2019 consolidated balance
sheet were approximately $2,067, with $1,625 due within one year (in "Accounts

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payable and accrued liabilities") and the remainder predominantly due within two to three years (in "Other noncurrent liabilities").




Financing activities in 2019 also included $7,876 of capital from the issuance
of nonconvertible preferred interests issued by subsidiaries and $1,164 for the
December issuance of cumulative 5.00% preferred stock. In February 2020, we
issued Series B and Series C preferred stock for approximately $3,900. (See Note
17)



At December 31, 2019, we had approximately 319 million shares remaining from
share repurchase authorizations approved by the Board of Directors in 2013 and
2014 (see Note 17). For the year ended December 31, 2019, we repurchased
approximately 56 million shares under these authorizations. In January 2020, we
repurchased $4,000 of AT&T common stock under an accelerated share repurchase
agreement (see Note 2).



We paid dividends on common shares of $14,888 in 2019 and $13,410 in 2018,
primarily reflecting the increase in the number of shares outstanding related to
our acquisition of Time Warner as well as an increase in our quarterly dividend
approved by our Board of Directors in December 2018. Dividends declared by our
Board of Directors totaled $2.05 per share in 2019 and $2.01 per share in 2018.
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.



Our 2020 financing activities will focus on managing our debt level,
repurchasing common stock and paying dividends, subject to approval by our Board
of Directors. We plan to fund our financing uses of cash through a combination
of cash from operations, issuance of debt, issuance of additional preferred
stock and asset sales. The timing and mix of any debt issuance and/or
refinancing will be guided by credit market conditions and interest rate trends.



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
2018, we amended our five-year revolving credit agreement (the "Amended and
Restated Credit Agreement") and concurrently entered into a new five-year
agreement (the "Five Year Credit Agreement") such that we now have two $7,500
revolving credit agreements totaling $15,000. The Amended and Restated Credit
Agreement terminates on December 11, 2021 and the Five Year Credit Agreement
terminates on December 11, 2023. No amounts were outstanding under either
agreement as of December 31, 2019.



In September 2019, we entered into and drew on a $1,300 term loan credit
agreement containing (i) a 1.25 year $400 facility due in 2020 (BAML Tranche A
Facility), (ii) a 2.25 year $400 facility due in 2021 (BAML Tranche B Facility),
and (iii) a 3.25 year $500 facility due in 2022 (BAML Tranche C Facility), with
Bank of America, N.A., as agent. No repayment had been made under these
facilities as of December 31, 2019.



We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases, as well as a commercial paper program.




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
December 31, 2019, we were in compliance with the covenants for our credit
facilities.



Collateral Arrangements

During the year, we amended collateral arrangements with certain counterparties
to require cash collateral posting by AT&T only when derivative market values
exceed certain thresholds. Under these arrangements, counterparties are still
required to post collateral. During 2019, we received $1,413 of cash collateral,
on a net basis, primarily driven by the amended arrangements. Cash postings
under these arrangements vary with changes in credit ratings and netting
agreements. (See Note 13)



Other

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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 investees. At December 31, 2019, our debt ratio was
44.7%, compared to 47.7% at December 31, 2018 and 53.6% at December 31, 2017.
Our net debt ratio was 41.4% at December 31, 2019, compared to 46.2% at December
31, 2018 and 37.2% at December 31, 2017. The debt ratio is affected by the same
factors that affect total capital, and reflects debt issuances, repayments and
debt acquired in business combinations.



A significant amount of our cash outflows is related to tax items and benefits
paid for current and former employees. Total taxes incurred, collected and
remitted by AT&T during 2019 and 2018, were $24,170 and $22,172. These taxes
include income, franchise, property, sales, excise, payroll, gross receipts and
various other taxes and fees. Total health and welfare benefits provided to
certain active and retired employees and their dependents totaled $4,059 in
2019, with $941 paid from plan assets. Of those benefits, $3,707 related to
medical and prescription drug benefits. In addition, in 2019 we prefunded $500
for future benefit payments. During 2019, we paid $6,356 of pension benefits out
of plan assets.


During 2019, we received $4,684 from the disposition of assets, and when combined with capital received from issuing preferred interests to external investors, an amendment of collateral arrangements, and working capital monetization initiatives, which include the sale of receivables, total cash received from monetization efforts, net of spectrum acquisitions, was approximately $18,000. We plan to continue to explore similar opportunities.




                                       52

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AT&T Inc.
Dollars in millions except per share amounts




CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES


Our contractual obligations as of December 31, 2019 are in the following table:



                                                                         Payments Due By Period
                                                               Less than            1-3             3-5           More than
Contractual Obligations                       Total              1 Year            Years           Years           5 Years
Long-term debt obligations1                 $   168,065$     12,149$   22,225$   21,262$   112,429
Interest payments on long-term debt             108,976               7,204          13,259          11,847            76,666
Purchase obligations2                            67,807              16,590          21,121          11,153            18,943
Operating lease obligations3                     31,155               4,723           8,377           6,689            11,366
FirstNet sustainability payments4                17,640                 120             315             390            16,815
Unrecognized tax benefits5                       10,236                 569               -               -             9,667
Other finance obligations6                       11,028               2,459           2,034           1,429             5,106
Authorized share repurchases7                     4,000               4,000               -               -                 -
Total Contractual Obligations               $   418,907$     47,814

$ 67,331$ 52,770$ 250,992

Represents principal or payoff amounts of notes and debentures at maturity or, for putable debt, the next put 1 opportunity (see Note 12).

The purchase obligations will be funded with cash provided by operations or through incremental borrowings. The 2 minimum

commitment for certain obligations is based on termination penalties that could be paid to exit the contracts. If we

elect to exit these

contracts, termination fees for all such contracts in the year of termination could be approximately $257 in 2020,

$344 in the

aggregate for 2021 and 2022, $129 in the aggregate for 2023 and 2024, and $22 in the aggregate thereafter. Certain

termination fees

are excluded from the above table, as the fees would not be paid every year and the timing of such payments, if any,

        is uncertain. (See Note 21)
3       Represents operating lease payments (see Note 8).

Represents contractual commitment to make sustainability payments over the 25-year contract. These sustainability 4 payments represent

our commitment to fund FirstNet's operating expenses and future reinvestment in the network, which we will own and

operate.

FirstNet has a statutory requirement to reinvest funds that exceed the agency's operating expenses, which we

anticipate

to be $15,000. (See Note 20)

The noncurrent portion of the UTBs is included in the "More than 5 Years" column, as we cannot reasonably estimate 5 the timing or

amounts of additional cash payments, if any, at this time (see Note 14).

Represents future minimum payments under the Crown Castle and other arrangements (see Note 19), payables subject to 6 extended

payment terms (see Note 22) and finance lease payments (see Note 8).

Represents commitments to repurchase shares of common stock under an accelerated share repurchase program (see Note 7 2).





Certain items were excluded from this table, as the year of payment is unknown
and could not be reliably estimated since past trends were not deemed to be an
indicator of future payment, the obligations are immaterial or because the
settlement of the obligation will not require the use of cash. These items
include: deferred income tax liability of $59,502 (see Note 14); net
postemployment benefit obligations of $20,316; expected pension and
postretirement payments (see Note 15); other noncurrent liabilities of $13,412;
third-party debt guarantees; and fair value of our interest rate swaps.

                                       53

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AT&T Inc.
Dollars in millions except per share amounts




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.


Business Solutions Reconciliation


We provide a supplemental discussion of our Business Solutions operations that
is calculated by combining our Mobility and Business Wireline business units,
and then adjusting to remove non-business operations. The following table
presents a reconciliation of our supplemental Business Solutions results.



                                                       Year Ended December 31, 2019
                                                            Business                  Business
                                               Mobility     Wireline   Adjustments1   Solutions
Operating revenues
Wireless service                            $     55,331 $         - $     (47,406)$     7,925
Strategic and managed services                         -      15,440              -      15,440
Legacy voice and data services                         -       9,180              -       9,180
Other service and equipment                            -       1,557              -       1,557
Wireless equipment                                15,725           -       (12,968)       2,757
Total Operating Revenues                          71,056      26,177       (60,374)      36,859

Operating expenses
Operations and support                            40,681      16,091       (34,037)      22,735
EBITDA                                            30,375      10,086       (26,337)      14,124
Depreciation and amortization                      8,054       4,999        (6,840)       6,213
Total Operating Expenses                          48,735      21,090       (40,877)      28,948
Operating Income                            $     22,321$     5,087$     (19,497)$     7,911
1Non-business wireless reported in the Communications segment under the Mobility business unit.




                                                       Year Ended December 31, 2018
                                                            Business                  Business
                                               Mobility     Wireline   Adjustments1   Solutions
Operating revenues
Wireless service                            $     54,294 $         - $     (46,971)$     7,323
Strategic managed services                             -      14,660              -      14,660
Legacy voice and data services                         -      10,674              -      10,674
Other service and equipment                            -       1,406              -       1,406
Wireless equipment                                16,227           -       (13,717)       2,510
Total Operating Revenues                          70,521      26,740       (60,688)      36,573

Operating expenses
Operations and support                            40,690      16,201       (34,283)      22,608
EBITDA                                            29,831      10,539       (26,405)      13,965
Depreciation and amortization                      8,263       4,714        (7,077)       5,900
Total Operating Expenses                          48,953      20,915       (41,360)      28,508
Operating Income                            $     21,568$     5,825 $    

(19,328) $ 8,065 1Non-business wireless reported in the Communications segment under the Mobility business unit.




                                       54
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AT&T Inc.
Dollars in millions except per share amounts




                                                       Year Ended December 31, 2017
                                                            Business                  Business
                                               Mobility     Wireline   Adjustments1   Solutions
Operating revenues
Wireless service                            $     57,023 $         - $     (49,095)$     7,928
Strategic and managed services                         -      13,880              -      13,880
Legacy voice and data services                         -      13,791              -      13,791
Other service and equipment                            -       1,532              -       1,532
Wireless equipment                                13,236           -       (11,704)       1,532
Total Operating Revenues                          70,259      29,203       (60,799)      38,663

Operating expenses
Operations and support                            42,317      18,441       (36,382)      24,376
EBITDA                                            27,942      10,762       (24,417)      14,287
Depreciation and amortization                      7,931       4,756        (6,828)       5,859
Total Operating Expenses                          50,248      23,197       (43,210)      30,235
Operating Income                            $     20,011$     6,006 $    

(17,589) $ 8,428 1Non-business wireless reported in the Communications segment under the Mobility business unit.

© Edgar Online, source Glimpses

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