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) onJune 14, 2018 , and have included its results after that date. In accordance withU.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 endedDecember 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 inPuerto Rico and theU.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
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 theU.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.
?
27 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
?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.
?
?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
?
?Vrio provides video services primarily to residential customers using satellite
technology in
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 28
--------------------------------------------------------------------------------AT&T Inc. 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 inJune 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
Depreciation expense increased
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
Other income (expense) - net decreased in 2019 primarily due to the recognition of$5,171 in actuarial losses, compared to gains of$3,412 in 2018. Also contributing to the decline were higher debt redemption costs, partially offset by increased income from Rabbi trusts and other investments and gains from the sales of nonstrategic assets. Income tax expense decreased in 2019, primarily driven by a decrease in income before income taxes. Our effective tax rate was 18.9% in 2019, 19.8% in 2018, and (97.2)% in 2017. All years were impacted by The Tax Cuts and Jobs Act, which was enacted in 2017. Segment Results Our segments are strategic business units that offer different products and services over various technology platforms and/or in different geographies that are managed accordingly. Our segment results presented below follow our internal management reporting. In addition to segment operating contribution, we also evaluate segment performance based on EBITDA and/or EBITDA margin. EBITDA is defined as segment operating contribution, excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating performance. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenues. 29 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts COMMUNICATIONS SEGMENT Percent Change 2019 vs. 2018 vs. 2019 2018 2017 2018 2017 Segment Operating Revenues Mobility$ 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
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 ourEntertainment 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 ourMobility 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 % 30
--------------------------------------------------------------------------------AT&T Inc. 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
980 for the years ended
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 31
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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. 32 --------------------------------------------------------------------------------AT&T Inc. 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 forEntertainment 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 % % 33
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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 anotherAT&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$726 in 2018. Operations and support expenses decreased in 2019, largely driven by lower content costs from fewer subscribers and our ongoing focus on cost initiatives. Partially offsetting the decreases were higher amortization of fulfillment cost deferrals, including the impact of second-quarter updates to decrease the estimated economic life for ourEntertainment Group customers, and costs associated with NFL SUNDAY TICKET. We expect the second-quarter 2019 update to estimated economic customer lives, and our launch of AT&T TV, our new streaming premium TV product, to contribute to expense pressure in the first half of 2020. Depreciation expenses decreased in 2019, due to network assets becoming fully depreciated. Partially offsetting the decreases was ongoing capital spending for network upgrades and expansion, including the completion of the fiber commitment under the DIRECTV acquisition.
Operating income increased in 2019 and decreased in 2018. Our
34 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts Business Wireline Results Percent Change 2019 vs. 2018 vs. 2019 2018 2017 2018 2017 Operating revenues Strategic and managed services$ 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$3,117 in 2018.
Other service and equipment revenues increased in 2019, driven by higher intellectual property licensing activity. Revenues from the licensing of intellectual property assets vary from period-to-period and can impact revenue trends. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.
Operations and support expenses decreased in 2019. The 2019 decrease was primarily due to our continued efforts to shift to a software-based network and automate and digitize our customer support activities, partially offset by higher fulfillment deferral amortization.
Depreciation expense increased in 2019, primarily due to increases in capital spending for network upgrades and expansion.
Operating income decreased in 2019 and 2018. Our Business Wireline operating income margin was 19.4% in 2019, 21.8% in 2018 and 20.6% in 2017. Our Business Wireline EBITDA margin was 38.5% in 2019, 39.4% in 2018 and 36.9% in 2017. 35 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts WARNERMEDIA SEGMENT 2019 2018 2017 Segment Operating Revenues Turner$ 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
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 ourJune 14, 2018 acquisition. Otter Media is included as an equity method investment for periods prior to ourAugust 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
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.
36 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
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
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. OurHome 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 37 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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
Operating Results
Our
Operating revenues decreased in 2019, driven by lower revenues for Vrio,
primarily resulting from foreign exchange pressure related to
Operating contribution increased in 2019 and decreased in 2018, reflecting foreign exchange pressure, offset by improvement inMexico . OurLatin 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) % 38
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts The following tables highlight other key measures of performance forMexico : Percent Change 2019 vs. 2018 vs. (in 000s) 2019 2018 2017 2018 2017Mexico 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
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
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. OurMexico 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) % 39
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
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
subscribers at
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
years endedDecember 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
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
10.9 %
Operating revenues increased in 2019 due to growth in subscription-based
advertising revenue and our acquisition of
Operations and support expenses increased in 2019 reflecting our acquisition of
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.
40 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
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 byAT&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 forAT&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 andFirst 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 41
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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 inMay 2020 . AcrossAT&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 TheU.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 inChina 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 withinthe United States are subject to federal and state regulatory authorities.AT&T subsidiaries operating outsidethe 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, theFederal 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, theFCC 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 42 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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 TheFCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. Although the D.C. Circuit upheld theFCC '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 theFCC , 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". InOctober 2016 , theFCC 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. InApril 2017 , the president signed a resolution passed byCongress 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 ofJanuary 1, 2020 , aCalifornia 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 givesCalifornia 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 andSeptember 2018 , theFCC adopted orders to streamline federal and local wireless infrastructure review processes in order to facilitate deployment of next-generation wireless facilities. Specifically, theFCC 'sMarch 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 inAugust 2019 , theD.C. Circuit Court of Appeals vacated theFCC 's finding that most small cell facilities are excluded from review, but otherwise upheld theFCC 's Order. TheFCC 's August andSeptember 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 the9th Circuit Court of Appeals , where they remain pending. In addition to theFCC 's actions, to date, 28 states andPuerto Rico have adopted legislation to facilitate small cell deployment. InDecember 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 theU.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 ofFiber-Tower Corporation , which holds significant amounts of spectrum in the millimeter wave bands (39 GHz) that theFCC reallocated for mobile broadband 43 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts services. We were also awarded 24 GHz licenses covering a nationwide footprint in a recentFCC 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 theFCC . The Communications Act of 1934 and other related acts give theFCC broad authority to regulate theU.S. operations of DIRECTV, and some of WarnerMedia's businesses are also subject to obligations under the Communications Act and relatedFCC 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 theU.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 theEuropean 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 theU.S. , various laws and regulations, as well as trade agreements with theU.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, includingChina , 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 theU.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
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 ofFiberTower Corporation , which holds significant amounts of spectrum in the millimeter wave bands (39 GHz) that theFCC reallocated for mobile broadband services. These bands will help to accelerate our entry into 5G services. As ofDecember 31, 2019 , we served 185 million wireless subscribers inNorth America , with 166 million inthe United States . Our LTE technology covers over 430 million people inNorth America , and inthe 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. InDecember 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 theU.S. andMexico 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 inMexico . 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 44 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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 outsidethe 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 inEurope 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 InFebruary 2015 , theFCC 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 theFCC 's authority to regulate broadband internet access services, as well as internet interconnection arrangements. InDecember 2017 , theFCC 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 theFCC 'sDecember 2017 decision and the D.C. Circuit heard oral argument on the appeals onFebruary 1, 2019 . OnOctober 1, 2019 , the court issued a unanimous opinion upholding theFCC '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 theFCC 's express preemption of any state regulation of net neutrality, it nevertheless stressed that its ruling does not prevent theFCC or ISPs from relying on conflict preemption to invalidate particular state laws that are inconsistent with theFCC 's regulatory objectives and framework. The court also concluded that theFCC 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 theFCC for further proceedings on those issues, but without disturbing the operative effect of that order. Several petitions for rehearing of the D.C. Circuit'sOctober 1 decision have been filed. Those petitions remain pending. A number of states have adopted legislation to reimpose the very rules theFCC repealed. In some cases, state legislation imposes requirements that go beyond theFCC 'sFebruary 2015 order. Additionally, some state governors have issued executive orders that effectively reimpose the repealed requirements. Suits have been filed concerning laws inCalifornia andVermont . Both lawsuits have been stayed pursuant to agreements by those states not to enforce their laws pending final resolution of all appeals of theFCC 'sDecember 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 SinceNovember 2017 , theFCC has adopted four significant rulings designed to accelerate broadband infrastructure deployment. InNovember 2017 , theFCC updated and streamlined certain rules governing pole attachments, copper retirement, and service discontinuances. InMarch 2018 , theFCC 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 theFCC '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. InAugust 2018 , theFCC 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, inSeptember 2018 , theFCC restricted the ability 45 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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 andSeptember 2018 Orders remain pending in the9th Circuit Court of Appeals . In 2018, theFCC took several actions to make spectrum available for 5G services. In late 2018, theFCC adopted auction rules for the 39 GHz band that will allow theFCC 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. TheFCC has grantedAT&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, theFCC 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, atDecember 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 inU.S. dollars, and neither callable, convertible nor index linked. For the year endedDecember 31, 2019 , when compared to the year endedDecember 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 ofDecember 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 46
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
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 forU.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 forthe 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 inthe 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 inMexico 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 47
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
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 atJanuary 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 InOctober 2014 , theFTC filed a civil suit in theU.S. District Court for the Northern District of California againstAT&T Mobility, LLC seeking injunctive relief and unspecified money damages under Section 5 of the Federal Trade Commission Act. TheFTC's allegations concern the application ofAT&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 theFTC'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 theFTC staff inAugust 2019 , pendingFTC approval. TheFTC approved the Stipulated Order onNovember 4, 2019 , and the Court approved and entered the Order onDecember 3, 2019 . In the resolution of this matter, we did not admit theFTC's allegations, and the settlement amount is not material to our financial results. In addition to theFTC 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
?A contract covering approximately 7,000 traditional wireline employees in our Midwest region expired inApril 2018 . InAugust 2019 , a new four-year contract was ratified by employees and will expire inApril 2022 .
?A contract covering approximately 3,000 traditional wireline employees in our
legacy
?A contract covering approximately 18,000 traditional wireline employees in our
Southeast region expired in
?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 atDecember 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 theU.S. and may be subject to restrictions on repatriation. Cash and cash equivalents increased$6,926 sinceDecember 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. 48
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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
Issued and redeemed in 2019
?January draw of
?January draw of
?August borrowings of
Issued and outstanding in 2019
?February issuance of
?February issuance of
?Borrowings of
?June draw of
?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
?November draw of
?December issuance of
49 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
During 2019, repayment of long-term debt totaled
Notes redeemed at maturity:
?
?
?€1,500 of
?
?
Notes redeemed or repurchased prior to maturity:
?
?
?
?$590 of Warner Media, LLC and/orHistoric 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.
?
?
?
Credit facilities repaid and other redemptions:
?
?
?
?
?
?
?
?
?
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.4% as ofDecember 31, 2019 and 4.4% as ofDecember 31, 2018 . We had$161,109 of total notes and debentures outstanding atDecember 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 . AtDecember 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:
?
?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 ourDecember 31, 2019 consolidated balance sheet were approximately$2,067 , with$1,625 due within one year (in "Accounts 50 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
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. InFebruary 2020 , we issued Series B and Series C preferred stock for approximately$3,900 . (See Note 17) AtDecember 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 endedDecember 31, 2019 , we repurchased approximately 56 million shares under these authorizations. InJanuary 2020 , we repurchased$4,000 ofAT&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 inDecember 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 ofAT&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. InDecember 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 onDecember 11, 2021 and the Five Year Credit Agreement terminates onDecember 11, 2023 . No amounts were outstanding under either agreement as ofDecember 31, 2019 . InSeptember 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), withBank of America, N.A ., as agent. No repayment had been made under these facilities as ofDecember 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 requiringAT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.5-to-1. As ofDecember 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 byAT&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 51
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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. AtDecember 31, 2019 , our debt ratio was 44.7%, compared to 47.7% atDecember 31, 2018 and 53.6% atDecember 31, 2017 . Our net debt ratio was 41.4% atDecember 31, 2019 , compared to 46.2% atDecember 31, 2018 and 37.2% atDecember 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 byAT&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$6,356 of pension benefits out of plan assets.
During 2019, we received
52 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
Our contractual obligations as ofDecember 31, 2019 are in the following table: Payments Due By Period Less than 1-3 3-5 More than Contractual Obligations Total 1 Year Years Years 5 Years Long-term debt obligations1$ 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
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
aggregate for 2021 and 2022,
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
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$13,412 ; third-party debt guarantees; and fair value of our interest rate swaps. 53 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE
We believe the following measure is relevant and useful information to investors as it is used by management as a method of comparing performance with that of many of our competitors. This supplemental measure should be considered in addition to, but not as a substitute of, our consolidated and segment financial information.
Business Solutions Reconciliation
We provide a supplemental discussion of our Business Solutions operations that is calculated by combining our Mobility and Business Wireline business units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results. Year Ended December 31, 2019 Business Business Mobility Wireline Adjustments1 Solutions Operating revenues Wireless service$ 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)
54
--------------------------------------------------------------------------------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)
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