AT&T INC. 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 ofTime 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 fromTime 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 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 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, 2019 . We have three reportable segments: (1) Communications, (2) WarnerMedia and (3)Latin America . 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 include our priorXandr segment within our WarnerMedia segment and to remove the Crunchyroll anime business that is classified as held-for-sale and removed from the WarnerMedia segment, instead including it in Corporate and Other. Percent Change 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 Operating Revenues Communications$ 138,850 $ 142,359 $ 143,721 (2.5) % (0.9) % WarnerMedia 30,442 35,259 20,585 (13.7) 71.3 Latin America 5,716 6,963 7,652 (17.9) (9.0) Corporate and other 1,932 1,865 2,197 3.6 (15.1) Eliminations and consolidation (5,180) (5,253) (3,399) 1.4 (54.5) AT&T Operating Revenues 171,760 181,193 170,756 (5.2) 6.1 Operating Contribution Communications 30,521 32,230 32,108 (5.3) 0.4 WarnerMedia 8,210 10,659 7,020 (23.0) 51.8 Latin America (729) (635) (710) (14.8) 10.6 Segment Operating Contribution$ 38,002 $ 42,254 $ 38,418 (10.1) % 10.0 % The Communications segment accounted for approximately 79% of our 2020 total segment operating revenues compared to 77% in 2019 and 80% of our 2020 total segment operating contribution as compared to 76% in 2019. 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. InDecember 2020 , we changed our management strategy and reevaluated our domestic video business, allowing us to maximize value in our domestic video business and further accelerate our ability to innovate and execute in our fast-growing broadband and fiber business. In conjunction with the strategy change, we separated the former Entertainment Group into two business units, Video and Broadband, which includes legacy telephony operations. We have recast our results for all prior periods to split theEntertainment Group into two separate business units, Video and Broadband, and removed video operations from Business Wireline, combining all video operations in the Video business unit. This segment contains the following business units: •Mobility provides nationwide wireless service and equipment. 28 -------------------------------------------------------------------------------- AT&T Inc. Dollars in millions except per share amounts •Video provides video, including over-the-top (OTT) services and also sells multiplatform advertising services as video revenues. •Broadband provides internet, including broadband fiber, and legacy telephony voice communication services to residential customers. •Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers. The WarnerMedia segment accounted for approximately 17% of our 2020 total segment operating revenues compared to 19% in 2019 and 22% of our 2020 total segment operating contribution compared to 25% in 2019. This segment develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats globally. Historical financial results of Eliminations & Other included in the WarnerMedia segment have been recast to includeXandr , previously a separate reportable segment, and to remove the Crunchyroll anime business that was classified as held-for-sale. This segment contains the following: •Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties. •Home Box Office consists of premium pay television and HBO Max domestically and premium pay, basic tier television internationally and content licensing and home entertainment. •Warner Bros. primarily 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. •Eliminations & Other includes theXandr advertising business, and also removes transactions between the Turner,Home Box Office and Warner Bros. business units, including internal sales of content to the HBO Max platform that began in the fourth quarter of 2019 (see Note 5). TheLatin America segment accounted for approximately 3% of our 2020 total segment operating revenues compared to 4% in 2019. This segment provides entertainment and wireless services outside of theU.S. This segment contains the following business units: •Vrio provides video services primarily to residential customers using satellite technology inLatin America and theCaribbean . •Mexico provides wireless service and equipment to customers inMexico . COVID-19 Update Disruptions caused by the coronavirus (COVID-19) and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results of operations. We recorded approximately$850 , or$0.10 per diluted share, for the year endedDecember 31, 2020 , of incremental costs associated with voluntary corporate actions taken to protect and compensate front-line employees and contractors and additional WarnerMedia production disruption. In addition to these incremental costs, we estimate that our operations and comparability were impacted by approximately$2,925 , or$0.33 per diluted share, for the year endedDecember 31, 2020 , for: (1) reluctance of consumers to travel at previous levels, driving significantly lower international wireless roaming service revenues that do not have a directly correlated expense reduction, (2) the partial closure of movie theaters and postponement of theatrical releases, leading to lower content revenues, and (3) lower television licensing and production revenues due to production hiatus, and associated expenses. With partial reopening of the economy and improved collections experience, the economic effects of the pandemic and resulting societal changes remain unpredictable. There are a number of uncertainties that could impact our future results of operations, including the effectiveness of COVID-19 mitigation measures, the duration of the pandemic, the efficacy and widespread distribution of a vaccine, global economic conditions, changes to our operations, changes in consumer confidence, behaviors and spending, work and learn from home trends and the sustainability of supply chains. We expect operating results and cash flows to continue to be adversely impacted by COVID-19 for the duration of the pandemic. We expect our 2021 results to be impacted by the following: •Lower revenues from the continued partial closure of movie theaters and higher costs based on our decision to distribute 2021 films on HBO Max in theU.S. simultaneous with theaters for 31 days and costs associated with the international launch of HBO Max; •Uncertainty in revenues from international wireless roaming services due to reduced travel, particularly in the first quarter; and •Continued expenses to protect front-line employees, contractors and customers. 29 -------------------------------------------------------------------------------- AT&T Inc. Dollars in millions except per share amounts
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the following table. We then discuss factors affecting our overall results. Additional analysis is discussed in our "Segment Results" section. We also discuss our expected revenue and expense trends for 2021 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
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Service $ 152,767 $ 163,499 $ 152,345 (6.6) % 7.3 %
Equipment 18,993 17,694 18,411 7.3 (3.9)
Total Operating Revenues 171,760 181,193 170,756 (5.2) 6.1
Operating expenses
Operations and support 117,959 123,563 116,184 (4.5) 6.4
Asset impairments and abandonments 18,880 1,458 46 - -
Depreciation and amortization 28,516 28,217 28,430 1.1 (0.7)
Total Operating Expenses 165,355 153,238 144,660 7.9 5.9
Operating Income 6,405 27,955 26,096 (77.1) 7.1
Interest expense 7,925 8,422 7,957 (5.9) 5.8
Equity in net income (loss) of
affiliates 95 6 (48) - -
Other income (expense) - net (1,431) (1,071) 6,782 (33.6) -
Income (Loss) Before Income Taxes (2,856) 18,468 24,873
- (25.8)
Net Income (Loss) (3,821) 14,975 19,953 - (24.9)
Net Income (Loss) Attributable to
AT&T (5,176) 13,903 19,370 - (28.2)
Net Income (Loss) Attributable to
Common Stock $ (5,369) $ 13,900 $ 19,370 - % (28.2) %
OVERVIEW
Operating revenues decreased in 2020, with declines in all segments reflecting
impacts of the COVID-19 pandemic. Lower WarnerMedia segment revenues reflect
limited and postponed theatrical and home entertainment releases as well as
lower television licensing, productions and advertising revenues. Communications
segment revenue declines were driven by continued declines in video and legacy
services, partially offset by higher wireless device sales and increases in
strategic and managed business service revenues. Latin America segment revenue
declines were primarily due to foreign exchange rates.
Operations and support expenses decreased in 2020, driven by impacts of the
pandemic which resulted in lower broadcast and programming costs in our
Communications and WarnerMedia segments and lower film-related print and
advertising costs at WarnerMedia. Also contributing to declines were a noncash
gain of $900 on a spectrum transaction in the first quarter that was recorded as
an offset to operating expenses as well as our continued focus on cost
management. Offsetting these expense decreases were higher costs associated with
our investment in HBO Max, employee separation charges and incremental costs
related to COVID-19. As part of our cost and efficiency initiatives, we expect
operations and support expense improvements to continue as we size our
operations to reflect the current economic activity level.
Asset impairments and abandonments increased in 2020, primarily due to noncash
impairment charges of $15,508 in the fourth quarter, resulting from our
assessment of the recoverability of the long-lived assets and goodwill
associated with our video business (see Notes 7 and 9). The increase also
includes a goodwill impairment of $2,212 at our Vrio business unit in the second
quarter (see Note 9) and $780 from the impairment of production and other
content inventory at WarnerMedia, with approximately $524 resulting from the
continued shutdown of theaters during the pandemic and the hybrid distribution
model for our 2021 film slate (see Note 11). Charges in 2019 primarily related
to the abandonment of certain copper assets that were not necessary to support
future network activity (see Note 7).
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Dollars in millions except per share amounts
Depreciation and amortization expense increased in 2020.
Amortization expense increased $307 , or 3.9%, in 2020 due to the amortization of
orbital slot licenses, which began in the first quarter of 2020 (see Note 1).
Amortization expense in 2021 will reflect approximately $1,200 of reductions
from the 2020 impairment of orbital slots and customers lists associated with
our domestic video business (see Note 9).
Depreciation expense decreased $8 in 2020 primarily due to ongoing capital spend
for network upgrades and expansion partially offset by fully depreciated assets
in our Communications segment. Depreciation expense in 2021 will reflect
approximately $480 of reductions from the 2020 impairment of property, plant and
equipment associated with our domestic video business (see Note 7).
Operating income decreased in 2020 and increased in 2019. Our operating margin was 3.7% in 2020, compared to 15.4% in 2019 and 15.3% in 2018.
Interest expense decreased in 2020, primarily due to lower interest rates and debt balances.
Equity in net income (loss) of affiliates increased in 2020, reflecting changes in our investment portfolio, including$130 equity in earnings resulting from an investee transaction. Other income (expense) - net decreased in 2020 primarily due to the recognition of$1,405 of debt redemption costs and lower income from Rabbi trusts and other investments. Offsetting the decrease were lower actuarial losses in 2020,$4,169 compared to$5,171 in 2019 (see Note 15).
Income tax expense decreased in 2020, primarily driven by decreased income before income taxes offset by impairments of goodwill (see Note 9), which are not deductible for tax purposes.
Our effective tax rate was (33.8)% in 2020, 18.9% in 2019, and 19.8% in 2018.
The effective tax rate in 2020 was impacted by the goodwill impairments, which
are not deductible for tax purposes.
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 depreciation and amortization expenses incurred in operating
contribution nor is it burdened by cash used for debt service requirements and
thus does not reflect available funds for distributions, reinvestment or other
discretionary uses. EBITDA margin is EBITDA divided by total revenues.
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Dollars in millions except per share amounts
COMMUNICATIONS SEGMENT Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Segment Operating Revenues
Mobility $ 72,564 $ 71,056 $ 70,521 2.1 % 0.8 %
Video 28,610 32,124 33,363 (10.9) (3.7)
Broadband 12,318 13,012 13,108 (5.3) (0.7)
Business Wireline 25,358 26,167 26,729 (3.1) (2.1)
Total Segment Operating Revenues 138,850 142,359 143,721 (2.5) (0.9)
Segment Operating Contribution
Mobility 22,372 22,321 21,568 0.2 3.5
Video 1,729 2,064 1,331 (16.2) 55.1
Broadband 1,822 2,681 3,369 (32.0) (20.4)
Business Wireline 4,598 5,164 5,840 (11.0) (11.6)
Total Segment Operating Contribution
(5.3) % 0.4 %
Selected Subscribers and Connections
December 31,
(000s) 2020 2019 2018
Mobility subscribers 182,558 165,889 151,921
Total domestic broadband connections 15,384 15,389 15,701
Network access lines in service 7,263 8,487 10,002
U-verse VoIP connections 3,816 4,370 5,114
Operating revenues decreased in 2020 and were impacted by the COVID-19 pandemic.
Declines in our Video, Broadband and Business Wireline business units were
partially offset by increases in our Mobility business unit. The decrease also
reflects the continued shift away from linear video and legacy services,
partially offset by higher equipment and service revenues.
Operating contribution decreased in 2020 and increased in 2019. The 2020
operating contribution includes declines in our Video, Broadband and Business
Wireline business units, and reflects stable operating contribution from our
Mobility business. Our Communications segment operating income margin was 22.0%
in 2020, 22.6% in 2019 and 22.3% in 2018.
Communications Business Unit Discussion
Mobility Results
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Service $ 55,542 $ 55,331 $ 54,295 0.4 % 1.9 %
Equipment 17,022 15,725 16,226 8.2 (3.1)
Total Operating Revenues 72,564 71,056 70,521 2.1 0.8
Operating expenses
Operations and support 42,106 40,681 40,690 3.5 -
Depreciation and amortization 8,086 8,054 8,263 0.4 (2.5)
Total Operating Expenses 50,192 48,735 48,953 3.0 (0.4)
Operating Income 22,372 22,321 21,568 0.2 3.5
Equity in Net Income (Loss) of
Affiliates - - - - -
Operating Contribution $ 22,372 $ 22,321 $ 21,568 0.2 % 3.5 %
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AT&T Inc.
Dollars in millions except per share amounts
The following tables highlight other key measures of performance for Mobility:
Subscribers
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Postpaid 77,154 75,207 76,068 2.6 % (1.1) %
Prepaid 18,102 17,803 16,828 1.7 5.8
Reseller 6,535 6,893 7,693 (5.2) (10.4)
Connected devices1 80,767 65,986 51,332 22.4 28.5
Total Mobility Subscribers 182,558 165,889 151,921 10.0 % 9.2 %
1Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management and session-based
tablets.
Mobility Net Additions
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Postpaid Phone Net Additions 1,457 483 194 - % - %
Total Phone Net Additions5 1,640 989 1,248 65.8 (20.8)
Postpaid2, 6 2,183 (435) (90) - -
Prepaid5, 6 379 677 1,301 (44.0) (48.0)
Reseller6 (449) (928) (1,599) 51.6 42.0
Connected devices3 14,785 14,645 12,324 1.0 18.8
Mobility Net Subscriber Additions1 16,898 13,959 11,936 21.1 % 16.9 %
Postpaid Churn4 0.98 % 1.18 % 1.12 % (20) BP 6 BP
Postpaid Phone-Only Churn4 0.79 % 0.95 % 0.90 % (16) BP 5 BP
1 Excludes acquisition-related additions during the period.
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net (losses) were (512), (1,487) and (1,200) for
the years ended December 31, 2020 , 2019 and 2018, respectively. Wearables and other net adds were 1,223, 569 and 916 for the years
ended December 31, 2020 , 2019 and 2018, respectively.
3 Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
Excludes postpaid tablets.
4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month 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.
5The year ended December 31, 2020 , includes 188 subscriber disconnections resulting from updating our prepaid activation policy.
6The year ended December 31, 2020 , includes subscribers transferred in connection with business dispositions.
1
Service revenue increased during 2020 largely due to growth in phone subscribers
and connected devices, offset by declines in international roaming revenue due
to reduced travel during the pandemic. Successful offers aimed at customer
retention contributed to subscriber growth and lower churn.
ARPU
Average revenue per subscriber (ARPU) decreased primarily due to the decline in international roaming and waived fees.
Churn
The effective management of subscriber churn is critical to our ability to
maximize revenue growth and to maintain and improve margins. Postpaid churn and
postpaid phone-only churn were lower in 2020 due to migrations to unlimited
plans, continued network improvements, subscriber retention offers in the fourth
quarter, and lower overall involuntary disconnects.
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AT&T Inc.
Dollars in millions except per share amounts
Equipment revenue increased in 2020 primarily due to higher equipment revenue
from higher postpaid upgrade volumes, the mix of sales of higher-priced
smartphones, and higher sales of data devices, including wearables, wireless
modems and hotspots.
Operations and support expenses increased in 2020, largely driven by higher
equipment costs, increased commission deferral amortization and intercompany
content costs associated with plans offering HBO Max, partially offset by lower
bad debt expense. The increase in commission deferral amortization is partly
offset by the impacts of our second-quarter 2020 updates to extend the expected
economic life of our Mobility customers.
Depreciation expense increased in 2020, primarily due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets.
Operating income increased in 2020 and 2019. Our Mobility operating income margin was 30.8% in 2020, 31.4% in 2019 and 30.6% in 2018. Our Mobility EBITDA margin was 42.0% in 2020, 42.7% in 2019 and 42.3% in 2018.
Subscriber Relationships As the wireless industry has matured, future wireless growth will depend on our ability to offer innovative services, plans and devices that take advantage of our premier 5G wireless network, which went nationwide inJuly 2020 , 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 subscribers to such plans tend to have higher retention and lower churn rates. We offer unlimited data plans and such subscribers also tend to have higher retention and lower churn rates. Our 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. 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 2020, and we added approximately 9.9 million wholesale connected cars through agreements with various carmakers, and experienced strong growth in other Internet of Things (IoT) connections. These connected car agreements give us the opportunity to create future retail relationships with the car owners.
Video Results
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Service $ 28,465 $ 32,123 $ 33,363 (11.4) % (3.7) %
Equipment 145 1 - - -
Total Operating Revenues 28,610 32,124 33,363 (10.9) (3.7)
Operating expenses
Operations and support 24,619 27,599 29,334 (10.8) (5.9)
Depreciation and amortization 2,262 2,461 2,698 (8.1) (8.8)
Total Operating Expenses 26,881 30,060 32,032 (10.6) (6.2)
Operating Income 1,729 2,064 1,331 (16.2) 55.1
Equity in Net Income (Loss) of
Affiliates - - - - -
Operating Contribution $ 1,729 $ 2,064 $ 1,331 (16.2) % 55.1 %
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AT&T Inc. Dollars in millions except per share amounts
The following tables highlight other key measures of performance for Video:
Connections
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Video Connections
Premium TV 16,505 19,496 22,926 (15.3) % (15.0) %
AT&T TV NOW1 656 926 1,591 (29.2) (41.8)
Total Video Connections1 17,161 20,422 24,517 (16.0) % (16.7) %
1Beginning in
Net Additions
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Video Net Additions
Premium TV (2,991) (3,430) (1,189) 12.8 % - %
AT&T TV NOW1 (270) (665) 436 59.4 -
Net Video Additions1 (3,261) (4,095) (753) 20.4 % - %
1Beginning in January 2021 , AT&T TV NOW has been combined with AT&T TV.
Service revenues are comprised of video entertainment subscription and
advertising revenues. Revenues decreased in 2020 and 2019, largely driven by a
decline in premium TV and OTT subscribers as we continue to focus on retention
of existing subscribers with a particular focus on our high-value subscribers.
Partially offsetting video revenue declines was higher advertising revenues
during a general election year. Consistent with the rest of the industry, our
customers continue to shift from a premium linear video service to more
economically priced OTT and subscription video on demand offerings, which has
impacted our video revenues.
Equipment revenue increased in 2020 primarily due to the nationwide introduction of our IP-based AT&T TV service in early 2020.
Operations and support expenses decreased in 2020 and 2019, largely driven by lower content costs from fewer subscribers, partially offset by annual content rate increases, including those associated with NFL SUNDAY TICKET and pandemic-related compassion payments made in the first half of 2020.
Depreciation expense decreased in 2020 and 2019, due to network assets becoming fully depreciated.
Operating income decreased in 2020 and increased in 2019. Our Video operating
income margin was 6.0% in 2020, 6.4% in 2019 and 4.0% in 2018. Our Video EBITDA
margin was 13.9% in 2020, 14.1% in 2019 and 12.1% in 2018.
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Dollars in millions except per share amounts
Broadband Results
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
High-speed internet $ 8,534 $ 8,403 $ 7,956 1.6 % 5.6 %
Legacy voice and data services 2,213 2,573 3,042 (14.0) (15.4)
Other service and equipment 1,571 2,036 2,110 (22.8) (3.5)
Total Operating Revenues 12,318 13,012 13,108 (5.3) (0.7)
Operating expenses
Operations and support 7,582 7,451 7,116 1.8 4.7
Depreciation and amortization 2,914 2,880 2,623 1.2 9.8
Total Operating Expenses 10,496 10,331 9,739 1.6 6.1
Operating Income 1,822 2,681 3,369 (32.0) (20.4)
Equity in Net Income (Loss) of
Affiliates - - - - -
Operating Contribution $ 1,822 $ 2,681 $ 3,369 (32.0) % (20.4) %
The following tables highlight other key measures of performance for Broadband:
Connections
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Broadband Connections
Total Broadband Connections 14,100 14,119 14,409 (0.1) % (2.0) %
Fiber Broadband Connections 4,951 3,887 2,763 27.4 40.7
Voice Connections
Retail Consumer Switched Access
Lines 2,862 3,329 3,967 (14.0) (16.1)
U-verse Consumer VoIP Connections 3,231 3,794 4,582 (14.8) (17.2)
Total Retail Consumer Voice
Connections 6,093 7,123 8,549 (14.5) % (16.7) %
Net Additions
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Broadband Net Additions
Total Broadband Net Additions (19) (290) 59 93.4 % - %
Fiber Broadband Net Additions 1,064 1,124 1,034 (5.3) % 8.7 %
High-speed internet revenues increased in 2020 and 2019, reflecting higher ARPU resulting from the continued shift of subscribers to our higher-speed fiber services and pricing actions.
Legacy voice and data service revenues decreased in 2020 and 2019, reflecting the continued decline in the number of customers.
Other service and equipment revenues decreased in 2020 and 2019, reflecting the continued decline in the number of VoIP customers.
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AT&T Inc.
Dollars in millions except per share amounts
Operations and support expenses increased in 2020, largely driven by
intercompany content costs associated with plans offering HBO Max. Expense
increases in 2020 and 2019 also reflect higher acquisition and fulfillment cost
deferral amortization, including the impact of updates to decrease the estimated
economic life of our subscribers.
Depreciation expense increased in 2020 and 2019, primarily due to ongoing capital spending for network upgrades and expansion.
Operating income decreased in 2020 and 2019. Our Broadband operating income margin was 14.8% in 2020, 20.6% in 2019 and 25.7% in 2018. Our Broadband EBITDA margin was 38.4% in 2020, 42.7% in 2019 and 45.7% in 2018.
Business Wireline Results
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Strategic and managed services $ 15,788 $ 15,430 $ 14,649 2.3 % 5.3 %
Legacy voice and data services 8,183 9,180 10,674 (10.9) (14.0)
Other service and equipment 1,387 1,557 1,406 (10.9) 10.7
Total Operating Revenues 25,358 26,167 26,729 (3.1) (2.1)
Operating expenses
Operations and support 15,534 16,069 16,181 (3.3) (0.7)
Depreciation and amortization 5,226 4,934 4,708 5.9 4.8
Total Operating Expenses 20,760 21,003 20,889 (1.2) 0.5
Operating Income 4,598 5,164 5,840 (11.0) (11.6)
Equity in Net Income (Loss) of
Affiliates - - - - -
Operating Contribution $ 4,598 $ 5,164 $ 5,840 (11.0) % (11.6) %
Strategic and managed services revenues increased in 2020. 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 growth in
our security and cloud solutions, dedicated internet and voice services and the
impact of higher demand for connectivity due to the pandemic.
Legacy voice and data service revenues decreased in 2020, primarily due to lower
demand as customers continue to shift to our more advanced IP-based offerings or
our competitors.
Other service and equipment revenues decreased in 2020, reflecting higher prior-year licensing of intellectual property assets. Revenue trends are impacted by the licensing of intellectual property assets, which vary from period-to-period. 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 2020, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization.
Depreciation expense increased in 2020, reflecting increases in capital spending for network upgrades and expansion.
Operating income decreased in 2020 and 2019. Our Business Wireline operating
income margin was 18.1% in 2020, 19.7% in 2019 and 21.8% in 2018. Our Business
Wireline EBITDA margin was 38.7% in 2020, 38.6% in 2019 and 39.5% in 2018.
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AT&T Inc.
Dollars in millions except per share amounts
WARNERMEDIA SEGMENT
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018Segment Operating Revenues Turner$ 12,568 $ 13,122 $ 6,979 (4.2) % - % Home Box Office 6,808 6,749 3,598 0.9 - Warner Bros. 12,154 14,358 8,703 (15.4) - Eliminations & Other (1,088) 1,030 1,305 - -
Total Segment Operating Revenues 30,442 35,259 20,585
(13.7) -
Cost of revenues
Turner 5,330 5,970 2,815 (10.7) -
Home Box Office 4,356 3,248 1,669 34.1 -
Warner Bros. 8,236 10,006 6,130 (17.7) -Selling, general and administrative 5,803 5,368 2,895
8.1 -
Eliminations & Other (2,146) (420) (230) - -
Depreciation and amortization 671 589 311 13.9 -
Total Operating Expenses 22,250 24,761 13,590 (10.1) -
Operating Income 8,192 10,498 6,995 (22.0) -
Equity in Net Income (Loss) of
Affiliates 18 161 25 (88.8) -
Total Segment Operating Contribution
(23.0) % - % Our WarnerMedia segment includes our Turner,Home Box Office (HBO) 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. Historical financial results of the WarnerMedia segment, (Eliminations & Other) have been recast to includeXandr , previously a separate reportable segment, and to remove the Crunchyroll anime business that is classified as held-for-sale. The WarnerMedia segment does not include results fromTime Warner operations prior to ourJune 14, 2018 acquisition. For this reason, 2018 results are not comparable to the other two years presented for this segment and therefore percent changes comparing 2018 and 2019 are not shown in the tables.Otter Media and HBO Latin America Group (HBO LAG) are included as equity method investments prior to our acquiring the remaining interests in each, which occurred inAugust 2018 andMay 2020 , respectively. Both are included in the segment operating results following the dates of 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. Operating revenues decreased in 2020, primarily due to lower theatrical and television product revenues, reflecting the pandemic-related postponement of theatrical releases and theatrical and television production delays at Warner Bros. Turner revenues also decreased due to lower advertising revenues resulting from cancellation and shifting of sporting events, and/or compressed seasons.HBO revenues partially offset these decreases, driven by growth in international revenues and domestic HBO Max retail subscribers, partially offset by lower licensing revenues. Operating contribution decreased in 2020 and increased in 2019. The WarnerMedia segment operating income margin was 26.9% in 2020, 29.8% in 2019 and 34.0% in 2018. 38
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AT&T Inc.
Dollars in millions except per share amounts
WarnerMedia Business Unit Discussion
Turner Results
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Subscription $ 7,613 $ 7,736 $ 4,207 (1.6) % - %
Advertising 3,941 4,566 2,330 (13.7) -
Content and other 1,014 820 442 23.7 -
Total Operating Revenues 12,568 13,122 6,979 (4.2) -
Operating expenses
Cost of revenues 5,330 5,970 2,815 (10.7) -Selling, general and administrative 1,624 1,770 979
(8.2) -
Depreciation and amortization 277 235 131 17.9 -
Total Operating Expenses 7,231 7,975 3,925 (9.3) -
Operating Income 5,337 5,147 3,054 3.7 -
Equity in Net Income (Loss) of
Affiliates (2) 52 54 - -
Operating Contribution $ 5,335 $ 5,199 $ 3,108 2.6 % - %
Operating revenues decreased in 2020 primarily due to lower advertising revenues
resulting from the cancellation of the NCAA Division I Men's Basketball
Tournament in the first quarter of 2020 and the impacts from shifting sporting
event schedules and/or compressed seasons, such as the delay of the NBA season
that historically has started earlier in the fourth quarter. These revenue
declines were partially offset by increased advertising due to news coverage of
general elections and COVID-19 developments. Operating revenue declines were
also caused by lower subscription revenues at regional sports networks and
unfavorable exchange rates, partially offset by higher content and other
revenue, including internal sales to HBO Max, which are eliminated in
consolidation within the WarnerMedia segment.
Cost of revenues decreased in 2020 primarily due to lower sports programming
costs as a result of the previously mentioned cancellations and modifications to
the timing and/or duration of various sporting events.
Selling, general and administrative decreased in 2020 driven by cost-saving initiatives.
Operating income increased in 2020 and 2019. Our Turner operating income margin was 42.5% in 2020, 39.2% in 2019 and 43.8% in 2018.
39
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AT&T Inc.
Dollars in millions except per share amounts
Home Box Office Results
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Subscription $ 6,090 $ 5,814 $ 3,201 4.7 % - %
Content and other 718 935 397 (23.2) -
Total Operating Revenues 6,808 6,749 3,598 0.9 -
Operating expenses
Cost of revenues 4,356 3,248 1,669 34.1 -Selling, general and administrative 1,672 1,064 518
57.1 -
Depreciation and amortization 98 102 56 (3.9) -
Total Operating Expenses 6,126 4,414 2,243 38.8 -
Operating Income 682 2,335 1,355 (70.8) -
Equity in Net Income (Loss) of
Affiliates 16 30 29 (46.7) -
Operating Contribution $ 698 $ 2,365 $ 1,384 (70.5) % - %
Operating revenues increased in 2020, primarily due to the May 2020 acquisition
of HBO LAG and higher domestic HBO Max retail subscribers, partially offset by
decreases in content and other revenue from lower content licensing. At December
31, 2020 , we had 41.5 million U.S. subscribers from HBO and HBO Max, up from
34.6 million at December 31, 2019 , including growth from intercompany
relationships with the Communications segment.
Cost of revenues increased in 2020, primarily due to approximately
Selling, general and administrative increased in 2020, primarily due to higher marketing costs associated with HBO Max.
Operating income decreased in 2020 and increased in 2019. Our
Warner Bros. Results
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Theatrical product $ 4,389 $ 5,978 $ 4,002 (26.6) % - %
Television product 6,171 6,367 3,621 (3.1) -
Games and other 1,594 2,013 1,080 (20.8) -
Total Operating Revenues 12,154 14,358 8,703 (15.4) -
Operating expenses
Cost of revenues 8,236 10,006 6,130 (17.7) -Selling, general and administrative 1,681 1,810 1,000
(7.1) -
Depreciation and amortization 169 162 96 4.3 -
Total Operating Expenses 10,086 11,978 7,226 (15.8) -
Operating Income 2,068 2,380 1,477 (13.1) -
Equity in Net Income (Loss) of
Affiliates (70) (30) (28) - -
Operating Contribution $ 1,998 $ 2,350 $ 1,449 (15.0) % - %
40
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AT&T Inc.
Dollars in millions except per share amounts
Operating revenues decreased in 2020, primarily due to pandemic-related movie theater closures and television and theatrical production delays.
Theatrical product revenues were lower due to theaters closing for a significant portion of the year and postponement of theatrical releases, which also reduced licensing revenues, such as home entertainment licensing. Additionally, unfavorable comparisons to the prior-year releases, which included, in 2019, Joker and carryover revenues from the theatrical release of Aquaman, compared to the limited-capacity theater and hybrid HBO Max distribution release of Wonder Woman 1984, in late 2020. Television product revenues decreased primarily due to lower initial telecast revenues resulting from television production delays, including delays in the start of the 2020-2021 broadcast season, partially offset by increased licensing, including internal sales to HBO Max, which are eliminated in consolidation within the WarnerMedia segment. Games and other revenue declines were primarily due to reduced studio operations and unfavorable games comparison to the prior year, which included, in 2019, the release of Mortal Kombat 11.
Cost of revenues decreased in 2020, primarily due to the production hiatus and lower marketing of theatrical product, partially offset by incremental production shutdown costs.
Selling, general and administrative decreased in 2020, primarily due to lower print and advertising expenses from limited theatrical releases and lower distribution fees.
Operating income decreased in 2020 and increased in 2019. Our Warner Bros. operating income margin was 17.0% in 2020, 16.6% in 2019 and 17.0% in 2018.
LATIN AMERICA SEGMENT Percent Change 2020 vs. 2019 vs. 2020 2019 2018 2019 2018 Segment Operating Revenues Vrio$ 3,154 $ 4,094 $ 4,784 (23.0) % (14.4) % Mexico 2,562 2,869 2,868
(10.7) - Total Segment Operating Revenues 5,716 6,963 7,652 (17.9) (9.0)
Segment Operating Contribution Vrio (142) 83 347 - (76.1) Mexico (587) (718) (1,057)
18.2 32.1
Total Segment Operating Contribution
OurLatin America operations conduct business in their local currency and operating results are converted toU.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations. InMay 2020 , we found it necessary to close our DIRECTV operations inVenezuela due to political instability in the country and to comply with sanctions of theU.S. government.
Operating revenues decreased in 2020, primarily driven by foreign exchange rates and overall economic impacts.
Operating contribution decreased in 2020, reflecting foreign exchange rates and overall economic impacts, and increased in 2019, due to improvement inMexico . OurLatin America segment operating income margin was (13.2)% in 2020, (9.5)% in 2019 and (9.7)% in 2018. 41 -------------------------------------------------------------------------------- AT&T Inc. Dollars in millions except per share amounts Latin America Business Unit Discussion Vrio Results Percent Change 2020 vs. 2019 vs. 2020 2019 2018 2019 2018 Operating revenues$ 3,154 $ 4,094 $ 4,784 (23.0) % (14.4) % Operating expenses Operations and support 2,800 3,378 3,743 (17.1) (9.8) Depreciation and amortization 520 660 728 (21.2) (9.3) Total Operating Expenses 3,320 4,038 4,471 (17.8) (9.7) Operating Income (Loss) (166) 56 313 - (82.1) Equity in Net Income of Affiliates 24 27 34 (11.1) (20.6) Operating Contribution$ (142) $ 83 $ 347 - % (76.1) %
The following tables highlight other key measures of performance for Vrio:
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Vrio Video Subscribers 10,942 13,331 13,838 (17.9) % (3.7) %
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Vrio Video Net Subscriber Additions1 (148) (285) 250 48.1 % - %
12020 excludes the impact of 2.2 million subscriber disconnections resulting from the closure of our DIRECTV operations in
Operating revenues decreased in 2020, primarily driven by foreign exchange and overall economic impacts.
Operations and support expenses decreased in 2020, primarily driven by foreign exchange and overall economic impacts. Approximately 21% of Vrio expenses areU.S. dollar-based, with the remainder in the local currency.
Depreciation expense decreased in 2020, primarily due to changes in foreign exchange rates.
Operating income decreased in 2020 and 2019. Our Vrio operating income margin
was (5.3)% in 2020, 1.4% in 2019 and 6.5% in 2018. Our Vrio EBITDA margin was
11.2% in 2020, 17.5% in 2019 and 21.8% in 2018.
42
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AT&T Inc.
Dollars in millions except per share amounts
Mexico Results
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Service $ 1,656 $ 1,863 $ 1,701 (11.1) % 9.5 %
Equipment 906 1,006 1,167 (9.9) (13.8)
Total Operating Revenues 2,562 2,869 2,868 (10.7) -
Operating expenses
Operations and support 2,636 3,085 3,415 (14.6) (9.7)
Depreciation and amortization 513 502 510 2.2 (1.6)
Total Operating Expenses 3,149 3,587 3,925 (12.2) (8.6)
Operating Income (Loss) (587) (718) (1,057) 18.2 32.1
Equity in Net Income (Loss) of
Affiliates - - - - -
Operating Contribution $ (587) $ (718) $ (1,057) 18.2 % 32.1 %
The following tables highlight other key measures of performance for Mexico :
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Mexico Wireless Subscribers1
Postpaid 4,696 5,103 5,805 (8.0) % (12.1) %
Prepaid 13,758 13,584 12,264 1.3 10.8
Reseller 489 472 252 3.6 87.3
Mexico Wireless Subscribers 18,943 19,159 18,321 (1.1) % 4.6 %
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Mexico Wireless Net Additions1
Postpaid (407) (608) 307 33.1 % - %
Prepaid 174 1,919 2,867 (90.9) (33.1)
Reseller 118 219 48 (46.1) -
Mexico Wireless Net Additions (115) 1,530 3,222 - % (52.5) %
12020 excludes the impact of 101 subscriber disconnections resulting from conforming our policy on reporting of fixed wireless resellers.
Service revenues decreased in 2020, primarily due to foreign exchange rates, as well as lower volumes and store traffic related to COVID-19.
Equipment revenues decreased in 2020, primarily due to lower equipment sales volumes related to COVID-19 and changes in foreign exchange rates.
Operations and support expenses decreased in 2020, primarily due to lower
equipment sales and changes in foreign exchange rates. Approximately 7% of
Depreciation expense increased in 2020, primarily due to amortization of spectrum licenses and higher in-service assets. These increases were partially offset by changes in foreign exchange rates.
Operating income increased in 2020 and 2019. Our
43
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AT&T Inc.
Dollars in millions except per share amounts
SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION
As a supplemental presentation, we are providing a view of total advertising
revenues generated by AT&T . See revenue categories tables in Note 5 for a
reconciliation.
Total Advertising Revenues
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating Revenues
Turner $ 3,941 $ 4,566 $ 2,330 (13.7) % 96.0 %
Video 1,718 1,672 1,595 2.8 4.8
Xandr 2,089 2,022 1,740 3.3 16.2
Other 386 382 352 1.0 8.5
Eliminations (1,718) (1,672) (1,595) (2.8) (4.8)
Total Advertising Revenues $ 6,416 $ 6,970 $ 4,422 (7.9) % 57.6 %
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 and underscores the
importance of mobile solutions for our business customers. Results have been
recast to conform to the current period's classification of consumer and
business wireless subscribers. 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
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Wireless service $ 7,732 $ 7,444 $ 6,893 3.9 % 8.0 %Strategic and managed services 15,788 15,430 14,649
2.3 5.3
Legacy voice and data services 8,183 9,180 10,674 (10.9) (14.0)
Other service and equipment 1,387 1,557 1,406 (10.9) 10.7
Wireless equipment 2,882 2,754 2,508 4.6 9.8
Total Operating Revenues 35,972 36,365 36,130 (1.1) 0.7
Operating expenses
Operations and support 22,713 22,714 22,586 - 0.6
Depreciation and amortization 6,509 6,148 5,894 5.9 4.3
Total Operating Expenses 29,222 28,862 28,480 1.2 1.3
Operating Income 6,750 7,503 7,650 (10.0) (1.9)
Equity in Net Income (Loss) of
Affiliates - - - - -
Operating Contribution $ 6,750 $ 7,503 $ 7,650 (10.0) % (1.9) %
44
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AT&T Inc.
Dollars in millions except per share amounts
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
2021 Revenue Trends We expect revenue growth in our wireless and broadband
businesses as customers demand premium content, instant connectivity and higher
speeds made possible by our fiber network expansion and wireless network
enhancements through 5G deployment.
In our Communications segment, we expect that our network quality and First
Responder Network Authority (FirstNet) deployment will continue to contribute to
wireless subscriber and service revenue growth, that 5G handsets will continue
to drive wireless equipment revenue growth, and that applications like video
streaming will also continue to drive greater demand for broadband services. The
reluctance of consumers to travel at levels prior to the pandemic is expected to
continue to contribute to uncertainty in international roaming wireless service
revenues.
In our WarnerMedia segment, we expect our video streaming platform, HBO Max, and
premium content will continue to drive revenue growth. The pandemic-related
partial closure of movie theaters is expected to continue to pressure revenues
and higher costs are anticipated based on our decision to distribute our 2021
films on HBO Max in the U.S. simultaneous with theaters for 31 days.
Across AT&T , we expect to provide consumers with a broad variety of video
entertainment services, from mobile-centric and OTT streaming packages, to
traditional full-size linear video. Revenue from business customers is expected
to 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.
2021 Expense Trends We expect the spending required to support growth
initiatives, primarily our continued deployment of fiber, 5G, and FirstNet
build, as well as continued investment into the HBO Max platform, to pressure
expense trends in 2021. To the extent 5G handset introductions continue in 2021,
and as anticipated, the expenses associated with those device sales are expected
to contribute to higher costs. During 2021, we will also continue to transition
our hardware-based network technology to more efficient and less expensive
software-based technology. These investments will help 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.
We continue to transform our operations to be more efficient and effective,
reinvesting savings into growth areas of the business. We are restructuring
businesses, sunsetting legacy networks, improving customer service and ordering
functions through digital transformation, sizing our support costs and staffing
with current activity levels, and reassessing overall benefit costs. We expect
continued savings from these initiatives and through our WarnerMedia merger
synergy program. Cost savings and non-strategic asset sales aligns with our
focus on debt reduction.
Market Conditions The U.S. stock market experienced significant volatility in
2020 due to several factors, including the global pandemic, and thus general
business investment remained modest, which had impact on our business services.
The global pandemic has caused, and could again cause, delays in the
development, manufacturing (including the sourcing of key components) and
shipment of products. As the labor market has not returned to pre-pandemic
levels of unemployment, 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. Most
of our products and services are not directly affected by the imposition of
tariffs on Chinese goods. However, we expect ongoing pressure on pricing during
2021 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 2021. 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 2021 (see
"Critical Accounting Policies and Estimates").
45
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AT&T Inc.
Dollars in millions except per share amounts
OPERATING ENVIRONMENT OVERVIEW
AT&T subsidiaries operating within the United States are subject to federal and
state regulatory authorities. AT&T subsidiaries operating outside the United
States are subject to the jurisdiction of national and supranational regulatory
authorities in the markets where service is provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress established a
national policy framework intended to bring the benefits of competition and
investment in advanced telecommunications facilities and services to all
Americans by opening all telecommunications markets to competition and reducing
or eliminating regulatory burdens that harm consumer welfare. Nonetheless, over
the ensuing two decades, the Federal Communications Commission (FCC ) and some
state regulatory commissions have maintained or expanded certain regulatory
requirements that were imposed decades ago on our traditional wireline
subsidiaries when they operated as legal monopolies. More recently, the FCC has
pursued a more deregulatory agenda, eliminating a variety of antiquated and
unnecessary regulations and streamlining its processes in a number of areas. We
continue to support regulatory and legislative measures and efforts, at both the
state and federal levels, to reduce inappropriate regulatory burdens that
inhibit our ability to compete effectively and offer needed services to 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.
Communications Segment
Internet The FCC currently classifies fixed and mobile consumer broadband
services as information services, subject to light-touch regulation. The D.C.
Circuit upheld the FCC 's current classification, although it remanded three
discrete issues to the FCC for further consideration. These issues related to
the effect of the FCC 's decision to classify broadband services as information
services on public safety, the regulation of pole attachments, and universal
service support for low-income consumers through the Lifeline program. Because
no party sought Supreme Court review of the D.C. Circuit's decision to uphold
the FCC 's classification of broadband as an information service, that decision
is final.
In October 2020 , the FCC adopted an order addressing the three issues remanded
by the D.C. Circuit for further consideration. After considering those issues,
the FCC concluded they provided no grounds to depart from its determination that
fixed and mobile consumer broadband services should be classified as information
services. An appeal of the FCC 's remand order is pending.
Some states have adopted legislation or issued executive orders that would
reimpose net neutrality rules repealed by the
Privacy-related legislation continues to be adopted or considered in a number of jurisdictions. Legislative, regulatory and litigation actions could result in increased costs of compliance, further regulation or claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. 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. Between 2018 and 2019, theFCC streamlined multiple federal wireless structure review processes with the potential to delay and impede deployment of infrastructure used to provide telecommunications and broadband services, including small cell equipment. Recognizing that state and local regulations have the same potential, inNovember 2020 theFCC adopted an order tightening the limits on state and local authority to deny requests to use existing structures for wireless facilities. These orders were appealed to the9th Circuit Court of Appeals , where the appeals remain pending. InDecember 2018 , we introduced the nation's first commercial mobile 5G service, and inJuly 2020 , we announced nationwide 5G coverage. 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. We will need a network with sufficient spectrum and capacity and sufficiently broad coverage to support the growth of these services. 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. 46 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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 which could impact WarnerMedia's activities in the EU. 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, and IP-based fiber broadband services. We provide integrated services to diverse groups of customers in theU.S. on an integrated telecommunications network utilizing different technological platforms. In 2021, our key initiatives include: •Continuing expansion of 5G service on our premier wireless network. •Generating mobile subscriber growth from FirstNet and our premier network quality. •Increasing subscriber base for HBO Max, our platform for premium content and video offered directly to consumers, as well as through other distributors. •Improving fiber penetration and growing broadband revenues. •Continuing to develop a competitive advantage through our corporate cost structure. •Improving profitability in ourMexico business unit. Wireless We expect to continue to deliver revenue growth in the coming years. We are in a period of rapid growth in wireless video usage and believe that there are substantial opportunities available for next-generation converged services that combine technologies and services. As ofDecember 31, 2020 , we served 202 million wireless subscribers inNorth America , with more than 182 million inthe United States . Our LTE technology covers over 440 million people inNorth America , and inthe United States , we cover all major metropolitan areas and over 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 expanded that deployment nationwide inJuly 2020 . 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 2020, we provided LTE coverage to over 110 million people inMexico . Integration of Data/Broadband and Entertainment Services As the communications industry has evolved into internet-based technologies capable of blending wireline 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 business fixed services with their mobile service. During 2021, we will continue to develop and provide unique integrated video, mobile and broadband solutions. The launch of the HBO Max platform has facilitated our customers' desire to view video anywhere on demand and has encouraged customer retention. 47 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts REGULATORY DEVELOPMENTS Set forth below is a summary of the most significant regulatory proceedings that directly affected our operations during 2020. 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. OnOctober 1, 2019 , the D.C. Circuit 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 stressed that its ruling did 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 remanded the matter to theFCC for further consideration of the impact of reclassifying broadband services as information services on public safety, the Lifeline program, and pole attachment regulation. InOctober 2020 , theFCC adopted an order concluding that those issues did not justify reversing its decision to reclassify broadband services as information services. An appeal of theFCC 's remand decision is pending. Following theFCC 's 2017 decision to reclassify broadband as information services, a number of states 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 were stayed pursuant to agreements by those states not to enforce their laws pending final resolution of all appeals of theFCC 'sDecember 2017 order. Because that order is now final, theCalifornia suit has returned to active status. Nonetheless, enforcement of both theCalifornia andVermont laws remains stayed pending a ruling by aU.S. District Court inCalifornia on motions for a preliminary injunction against enforcement of theCalifornia law. Argument on those motions is now scheduled forFebruary 2021 . 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 In June andNovember 2020 , theFCC issued a Declaratory Ruling clarifying the limits on state and local authority to deny applications to modify existing structures to accommodate wireless facilities. Appeals of theNovember 2020 order remain pending in the9th Circuit Court of Appeals . If sustained on appeal, theseFCC decisions will remove state and local regulatory barriers and reduce the costs of the infrastructure needed for 5G and FirstNet deployments, which will enhance our ability to place small cell facilities on utility poles, expand existing facilities to accommodate public safety services, and replace legacy facilities and services with advanced broadband infrastructure and services. 48 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts In 2020, theFCC took several actions to make spectrum available for 5G services. First, theFCC completed the auction of the 39 GHz band in large, contiguous blocks of spectrum that will support 5G.AT&T obtained spectrum in this auction, which also included spectrum in the 37 GHz and 47 GHz bands (see "Other Business Matters"). TheFCC also made 150 MHz of mid-band CBRS spectrum available, to be shared with Federal incumbents, who enjoy priority. Furthermore, theFCC began the auction of 280 MHz of mid-band spectrum presently used for satellite service (the "C Band " auction). This auction is expected to conclude by June of 2021. Other mid-band spectrum auctions are planned for later in 2021. Following enactment inDecember 2019 of the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act) byCongress , theFCC adopted new rules requiring voice service providers to implement caller ID authentication protocols (known as STIR/SHAKEN) and adopt robocall mitigation measures. These measures apply to portions of their networks where STIR/SHAKEN is not enabled, in addition to other anti-robocall measures. The new rules contemplate ongoingFCC oversight and review of efforts related to STIR/SHAKEN implementation. Among other goals, theFCC has stated its intention to promote the IP transition through its rules. InSeptember 2019 , theFCC released reformed aspects of its intercarrier compensation regime related to tandem switching and transport charges, with the goal of reducing the prevalence of telephone access arbitrage schemes. InOctober 2020 , theFCC further reformed aspects of its intercarrier compensation regime by greatly reducing, and in some cases eliminating, the charges long distance carriers must pay to originating carriers for toll-free calls. Appeals of both orders are pending at theD.C. Circuit Court of Appeals . 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 2.70% and 2.40%, respectively, atDecember 31, 2020 , 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, 2020 , when compared to the year endedDecember 31, 2019 , we decreased our pension discount rate by 0.70%, resulting in an increase in our pension plan benefit obligation of$5,594 and decreased our postretirement discount rate by 0.80%, resulting in an increase in our postretirement benefit obligation of$1,311 . Our expected long-term rate of return on pension plan assets is 6.75% for 2021 and 7.00% for 2020. Our expected long-term rate of return on postretirement plan assets is 4.50% for 2021 and 4.75% for 2020. 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 2021 combined pension and postretirement cost to increase$277 , 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.
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AT&T Inc.
Dollars in millions except per share amounts
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 $3,128 in our 2020 depreciation expense and that a
one-year decrease would have resulted in an increase of approximately $4,353 in
our 2020 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 on October 1 for impairment. For impairment testing, we
estimate fair values using models that predominantly rely on the expected cash
flows to be derived from the reporting unit or use of the asset. Long-lived
assets are reviewed for impairment whenever events or circumstances indicated
that the book value may not be recoverable over the remaining life. Inputs
underlying the expected cash flows include, but are not limited to, subscriber
counts, revenues from subscriptions, advertising and content, revenue per user,
capital investment and acquisition costs per subscriber, production and content
costs, and ongoing operating costs. We based our assumptions on a combination of
our historical results, trends, business plans and marketplace participant data.
Annual Goodwill Testing
Goodwill is tested 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 model) and a market
multiple approach. The income approach utilizes our future 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.
As of October 1, 2020 , the calculated fair values of the reporting units
exceeded their book values in all circumstances; however, the Turner, HBO and
Entertainment Group (prior to our December reporting unit change discussed
below) fair values exceed their book values by less than 10% with COVID-19
impacts, industry trends and our content distribution strategy affecting fair
value. For the reporting units with fair value in excess of 10% of book value,
if either the projected rate of long-term growth of cash flows or revenues
declined by 0.5%, or if the weighted average cost of capital 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. For the
Turner and HBO reporting units as of October 1, 2020 , if the projected rate of
longer-term growth of cash flows or revenues declined by 1% and more than 2%,
respectively, or if the weighted average cost of capital increased by 0.5%, it
would result in impairment of the goodwill. Carrying values of the reporting
units in the WarnerMedia segment (Turner, HBO and Warner Bros.) decrease as
intangibles identified in the acquisition are amortized.
Domestic Video Business
In December 2020 , we changed our management strategy and reevaluated our
domestic video business, allowing us to maximize value in our domestic video
business and further accelerate our ability to innovate and execute in our
fast-growing broadband and fiber business. The strategy change required us to
reassess the grouping and recoverability of the video business long-lived
assets. In conjunction with the strategy change, we separated the former
Entertainment Group into two business units, Video and Broadband, which includes
legacy telephony operations. These changes required us to identify a separate
Video reporting unit, which required evaluating assigned goodwill for
impairment, while first assessing any impairment of goodwill at the historical
Entertainment Group level.
The fair value of long-lived assets was determined primarily using the present
value approach of probability-weighted expected cash flow. We determined that
these assets were no longer recoverable and recognized an impairment to their
estimated fair value. A pre-tax impairment of $7,255 ($4,373 orbital slots,
$1,201 customer lists and $1,681 in property, plant and equipment) was assigned
to the long-lived assets of the video business (see Notes 7 and 9). Upon
updating the carrying value of the video business, we were then required to
reperform our goodwill impairment testing of the historical Entertainment Group
reporting unit, as of December 31, 2020 , and before separation into the two
reporting units, where we again concluded that no impairment was required,
consistent with the testing as of October 1, 2020 . GAAP requires ongoing fair
value assessments for recoverability upon defined triggering events.
We further concluded that our video business should be identified as a separate
reporting unit within the Communications segment. The change in reporting unit
required the historical Entertainment Group goodwill to be assigned to the
separate Video and Broadband reporting units, for which we used the relative
fair value allocation methodology. The affected reporting units were then tested
for goodwill impairment. We recorded an impairment of the entire $8,253 of
goodwill allocated to the Video reporting unit. No goodwill impairment was
required in the Broadband reporting unit. (See Note 9).
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AT&T Inc.
Dollars in millions except per share amounts
In total, we recorded an impairment charge of
U.S. Wireless Licenses The fair value ofU.S. wireless licenses is assessed 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. 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 9.25%, 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%. Other Finite-Lived Intangibles Customer relationships, licenses inMexico , certain trade names in ourLatin America business and other finite-lived intangible assets are reviewed 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. When the asset's book value exceeds undiscounted future cash flows, an impairment is recorded to reduce the book value of the asset to its estimated fair value (see Notes 7 and 9). Vrio Goodwill In the second quarter of 2020, driven by significant and adverse economic and political environments inLatin America , including the impact of the COVID-19 pandemic, we experienced accelerated subscriber losses and revenue decline in the region, as well as closure of our operations inVenezuela . When combining these business trends and higher weighted-average cost of capital resulting from the increase in country-risk premiums in the region, we concluded that it was more likely than not that the fair value of the Vrio reporting unit, estimated using discounted cash flow and market multiple approaches, is less than its carrying amount. We recorded a$2,212 goodwill impairment, the entire amount of goodwill allocated to the Vrio reporting unit, with$105 attributable to noncontrolling interest (see Note 9). Orbital Slots During the first quarter of 2020, in conjunction with the nationwide launch of AT&T TV and our customers' continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for our orbital slot licenses. As a result, we changed the estimated lives of these licenses from indefinite to finite-lived, effectiveJanuary 1, 2020 , and amortized$1,504 of the orbital slots in 2020. (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 Beginning with 2020 interim and annual reporting periods, we adopted the FASB's new accounting guidance related to the measurement of credit losses on trade receivables, loans, contract assets and certain other assets not subject fair value measurement existing atJanuary 1, 2020 . We adopted the standard using a modified retrospective approach as of the beginning of the period of adoption, which did not require us to adjust the balance for prior periods, therefore affecting the comparability of our financial statements. Upon adoption, we recorded an increase to our allowances for credit losses, primarily for trade and loan receivables. See Note 1 for discussion of the impact of the standard. 51 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts
See Note 1 for discussion of the expected impact of new standards.
OTHER BUSINESS MATTERS Video Business OnFebruary 25, 2021 , we signed an agreement to form a new company named DIRECTV (New DTV) withTPG Capital , which will be jointly governed by a board with representation from bothAT&T and TPG. Under the agreement, we will contribute our Video business unit to New DTV for$4,250 of junior preferred units, an additional distribution preference of$4,200 and a 70% economic interest in common units. We expect to receive$7,600 in cash from New DTV at closing. TPG will contribute approximately$1,800 in cash to New DTV for$1,800 of senior preferred units and a 30% economic interest in common units. The remaining$5,800 will be funded by debt taken on by New DTV. As part of this transaction, we agreed to pay net losses under the NFL SUNDAY TICKET contract up to a cap of$2,500 over the remaining period of the contract.
The transaction is expected to close in the second half of 2021, pending
customary closing conditions. The total of
In the first quarter of 2021, we expect to apply held-for-sale accounting treatment to the assets and liabilities of theU.S. video business, and accordingly will include the assets in "Other current assets," and the related liabilities in "Accounts payable and accrued liabilities," on our consolidated balance sheet atMarch 31, 2021 . The carrying amounts atDecember 31, 2020 of these assets and liabilities were approximately$16,150 and$4,900 , respectively. Spectrum Auction InMarch 2020 , we were the winning bidder of high-frequency 37/39 GHz licenses inFCC Auction 103 covering an average of 786 MHz nationwide for approximately$2,400 . Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately$300 that were previously acquired throughFiberTower Corporation for vouchers to be applied against the winning bids and recorded a$900 gain in the first quarter of 2020. These vouchers yielded a value of approximately$1,200 which was applied toward our$2,400 gross bids. We made our final payment of approximately$950 for the Auction 103 payment inApril 2020 . TheFCC granted the licenses inJune 2020 . OnFebruary 24, 2021 , theFCC announced thatAT&T was the winning bidder for 1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40 MHz in Phase I. We must provide to theFCC an initial down payment of$4,681 onMarch 10, 2021 , of which$550 was paid as an upfront payment prior to the start of the auction, and to pay a remaining$18,725 on or beforeMarch 24, 2021 . We estimate thatAT&T will be responsible for$955 of Incentive Payments upon clearing of Phase I spectrum and$2,112 upon clearing of Phase II spectrum. Additionally, we will be responsible for a portion of compensable relocation costs over the next several years as the spectrum is being cleared. Satellite operators have provided theFCC with relocation cost estimates totaling$3,400 .AT&T intends to fund the purchase price using a combination of cash and short-term investments, funds from operations and either short-term or long-term debt, depending upon market conditions. Labor Contracts As ofDecember 31, 2020 , we employed approximately 231,000 persons. Approximately 37% of our employees are represented by theCommunications Workers of America (CWA), theInternational Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the collective bargaining agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached. There are no significant contracts expiring in 2021. A contract covering approximately 14,000 Mobility employees in 36 states and theDistrict of Columbia that was set to expire inFebruary 2021 was extended untilFebruary 2022 . A contract covering approximately 10,000 Mobility employees in nine Southeast states that was set to expire inFebruary 2022 was extended untilFebruary 2023 . Pension Diversification In 2013, we made a voluntary contribution of 320 million Series A Cumulative Perpetual Preferred Membership Interests inAT&T Mobility II LLC (Mobility preferred interests), the primary holding company for our wireless business, to the trust used to pay pension benefits under certain of our qualified pension plans (see Note 17). Since their contribution, the Mobility preferred interests are plan assets under ERISA, and have been recognized as such in the plan's separate financial statements. OnSeptember 28, 2020 , the trust, through the independent investment manager/fiduciary, sold 106.7 million of the Mobility preferred interests to unrelated third parties. The aggregate purchase price was$2,885 , which includes accrued distributions through the date of sale (see Note 15). 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 three 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. 52 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts LIQUIDITY AND CAPITAL RESOURCES We had$9,740 in cash and cash equivalents available atDecember 31, 2020 . Cash and cash equivalents included cash of$2,842 and money market funds and other cash equivalents of$6,898 . Approximately$2,205 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.
The Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during 2020. We will continue to monitor impacts of the COVID-19 pandemic on our liquidity and capital resources.
Cash and cash equivalents decreased$2,390 sinceDecember 31, 2019 . In 2020, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties and the issuances of long-term debt, cumulative preferred stock and cumulative preferred interests in a subsidiary. 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, dividends to stockholders, share repurchases and spectrum acquisitions.
Cash Provided by or Used in Operating Activities
During 2020, cash provided by operating activities was
We actively manage the timing of our supplier payments for operating 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, as part of our working capital initiatives, 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 was to improve cash from operating activities$432 in 2020 and$909 in 2019. All supplier financing payments are due within one year. Cash Used in or Provided by Investing Activities During 2020, cash used in investing activities totaled$13,548 , and consisted primarily of$15,675 (including interest during construction) for capital expenditures, final payment of approximately$950 for wireless spectrum licenses won in Auction 103 and$141 of net cash paid to acquire the remaining interest in HBO LAG. Investing activities also included cash receipts of$1,928 from the sale of our operations inPuerto Rico , which were used to redeem the preferred interests secured by the sales proceeds (see Notes 6 and 17),$1,100 from the sale of our investment inCentral European Media Enterprises, Ltd. (see Note 6) and$400 from corporate owned life insurance investments. 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$2,966 in 2020, compared to$3,050 in 2019. Capital expenditures in 2020 were$15,675 , and when including$2,966 cash paid for vendor financing and excluding$1,063 of FirstNet reimbursements, gross capital investment was$19,704 ($3,986 lower than the prior year). The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. In 2020, we placed$4,664 of equipment in service under vendor financing arrangements (compared to$2,632 in 2019) and approximately$1,230 of assets related to the FirstNet build (compared to$1,116 in 2019). Total reimbursements from the government for FirstNet were$1,626 for 2020 and$1,374 for 2019, predominately for capital expenditures. The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. In 2021, 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$21,000 range (including capital expenditures in the$18,000 range). Cash Used in or Provided by Financing Activities For the year, cash used in financing activities totaled$32,007 and was comprised of issuances and repayments of debt, issuances of preferred stock, issuances and redemptions of preferred interests in subsidiaries, payments of dividends and share repurchases. 53 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts During 2020, debt issuances included proceeds of$9,440 in short-term borrowings (including approximately$3,950 of commercial paper) and$31,988 of net proceeds from long-term debt. Borrowing activity included the following issuances: Issued and redeemed in 2020: •March draw of$750 on a private financing agreement (repaid in the second quarter). •April draw of$5,500 on a term loan credit agreement with certain commercial banks andBank of America, N.A ., as lead agent (repaid in the second quarter). Issued and outstanding in 2020: •February issuance of$2,995 of 4.000% global notes due 2049. •March borrowings of$665 from loan programs with export agencies of foreign governments to support network equipment purchases in those countries. •May issuances totaling$12,500 in global notes, comprised of$2,500 of 2.300% global notes due 2027,$3,000 of 2.750% global notes due 2031,$2,500 of 3.500% global notes due 2041,$3,000 of 3.650% global notes due 2051 and$1,500 of 3.850% global notes due 2060. •May issuances totaling €3,000 million in global notes (approximately$3,281 at issuance), comprised of €1,750 million of 1.600% global notes due 2028, €750 million of 2.050% global notes due 2032 and €500 million of 2.600% global notes due 2038. •June issuance of$1,050 of 3.750% global notes due 2050. •August issuances totaling$11,000 in global notes, comprised of$2,250 of 1.650% global notes due 2028,$2,500 of 2.250% global notes due 2032,$2,500 of 3.100% global notes due 2043,$2,250 of 3.300% global notes due 2052 and$1,500 of 3.500% global notes due 2061.
During 2020, repayments of debt included
Notes redeemed at maturity: •$800 ofAT&T floating-rate notes in the first quarter. •$687 ofAT&T floating-rate notes in the second quarter. •€2,250 million ofAT&T floating-rate notes in the third quarter (approximately$2,637 at maturity). •€1,000 million of 1.875%AT&T global notes in the fourth quarter ($1,290 at maturity). •CAD$1,000 million of 3.825%AT&T global notes in the fourth quarter (approximately$954 at maturity). Notes redeemed or repurchased prior to maturity: •$2,619 of 4.600%AT&T global notes with original maturity in 2045, in the first quarter. •$2,750 of 2.450%AT&T global notes with original maturity in 2020, in the second quarter. •$1,000 of annual put reset securities issued by BellSouth, in the second quarter. •$683 of 4.600%AT&T global notes with original maturity in 2021, in the second quarter. •$1,695 of 2.800%AT&T global notes with original maturity in 2021, in the second quarter. •$853 of 4.450%AT&T global notes with original maturity in 2021, in the second quarter. •$1,172 of 3.875%AT&T global notes with original maturity in 2021, in the second quarter. •$1,430 of 5.500%AT&T global notes with original maturity in 2047, in the second quarter. •$1,457 of 3.000%AT&T global notes with original maturity in 2022, in the third quarter. •$1,250 of 3.200%AT&T global notes with original maturity in 2022, in the third quarter. •$1,012 of 3.800%AT&T global notes with original maturity in 2022, in the third quarter. •$422 of 4.000%AT&T global notes with original maturity in 2022, in the third quarter. •$60 of 3.800% DIRECTV senior notes with original maturity in 2022, in the third quarter. •$63 of 4.000%Warner Media, LLC notes with original maturity in 2022, in the third quarter. •$11,384 ofAT&T global notes and subsidiary notes that were tendered for cash in the third quarter. The notes had floating and fixed interest rates. The fixed rates ranged from 3.400% to 7.850% and original maturities ranging from 2021 to 2025. •$53 of 3.400%Warner Media, LLC notes with original maturity in 2022, in the third quarter. •$177 of 3.400%AT&T global notes with original maturity in 2022, in the third quarter. •$928 of 3.600%AT&T global notes with original maturity in 2023, in the third quarter. 54 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts Credit facilities repaid and other redemptions: •$750 of borrowings under a private financing agreement, in the first quarter. •$750 of borrowings under a private financing agreement, in the second quarter. •$5,500 under ourApril 2020 term loan credit agreement with certain commercial banks andBank of America , in the second quarter. •$1,300 under our term loan credit agreement withBank of America , in the second quarter. •$500 under our term loan credit agreement with Bank of Communications Co., in the second quarter. •R$3,381 million of Sky Serviços de Banda Larga Ltda. floating-rate loan in the third quarter (approximately$1,000 when issued inApril 2018 and$638 at redemption due to strengthening of theU.S. dollar against Brazilian real). Debt Exchanges: •During the third quarter of 2020, we exchanged$17,677 ofAT&T and subsidiary notes, with interest rates ranging from 4.350% to 8.750% and original maturities ranging from 2031 to 2058 for$1,459 of cash and$21,500 of three new series ofAT&T global notes, with interest rates ranging from 3.500% to 3.650% and maturities ranging from 2053 to 2059. •During the fourth quarter of 2020, we exchanged$8,280 ofAT&T and subsidiary notes, with interest rates ranging from 2.950% to 7.125% and original maturities ranging from 2026 to 2048 for$8 of cash and$9,678 of two new series ofAT&T global notes, with interest rates of 2.550% and 3.800% and maturities of 2033 and 2057, respectively. Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.1% as ofDecember 31, 2020 and 4.4% as ofDecember 31, 2019 . We had$155,209 of total notes and debentures outstanding atDecember 31, 2020 , which included Euro, British pound sterling, Canadian dollar, Mexican peso, Australian dollar, Swiss franc and Brazilian real denominated debt that totaled approximately$43,399 . AtDecember 31, 2020 , we had$3,470 of debt maturing within one year, consisting entirely of long-term debt issuances. Debt maturing within one year includes 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 2020, we paid$2,966 of cash under our vendor financing program, compared to$3,050 in 2019. Total vendor financing payables included in ourDecember 31, 2020 consolidated balance sheet were approximately$3,761 , with$3,563 due within one year (in "Accounts payable and accrued liabilities") and the remainder predominantly due within two to three years (in "Other noncurrent liabilities").
Financing activities in 2020 also included
We repurchased approximately 142 million shares of common stock at a cost of$5,278 , predominantly in the first quarter, and completed the share repurchase authorization approved by the Board of Directors in 2013. InMarch 2020 , we cancelled an accelerated share repurchase agreement that was planned for the second quarter and other repurchases to maintain flexibility and focus on continued investment in serving our customers, taking care of our employees and enhancing our network, including 5G. AtDecember 31, 2020 , we had approximately 178 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014. We paid dividends on common shares and preferred shares of$14,956 in 2020, compared with$14,888 in 2019. Dividends were higher in 2020, primarily due to dividend payments to preferred stockholders and the increase in our quarterly dividend on common stock approved by our Board of Directors inDecember 2019 , partially offset by fewer shares outstanding. Dividends on common stock declared by our Board of Directors totaled$2.08 per share in 2020 and$2.05 per share in 2019. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements ofAT&T and long-term growth opportunities. Our 2021 financing activities will focus on managing our debt level 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, 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. 55 --------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts 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. InNovember 2020 , we amended one of our$7,500 revolving credit agreements by extending the termination date. In total, we have two$7,500 revolving credit agreements, totaling$15,000 , with one terminating onDecember 11, 2023 and the other terminating onNovember 17, 2025 . No amounts were outstanding under either agreement as ofDecember 31, 2020 . 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, (ii) a 2.25 year$400 facility due in 2021, and (iii) a 3.25 year$500 facility due in 2022, withBank of America, N.A ., as agent. These facilities were repaid and terminated in the second quarter of 2020.
On
OnJanuary 29, 2021 , we entered into a$14,700 Term Loan Credit Agreement (Term Loan), withBank of America, N.A ., as agent. The Term Loan is available for a single draw at any time beforeMay 29, 2021 . The proceeds will be used for general corporate purposes, which may include among other things, financing acquisitions of additional spectrum. The entire principal amount of the Term Loan will be due and payable 364 days after the date on which the borrowing is made. AtJanuary 31, 2021 , we had approximately$6,100 of commercial paper outstanding.
We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases, as well as a commercial paper program.
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring us to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.5-to-1. As ofDecember 31, 2020 , we were in compliance with the covenants for our credit facilities. Collateral Arrangements During 2019 and 2020, we amended collateral arrangements with counterparties to require cash collateral posting byAT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover over 90% of our approximate$41,000 derivative portfolio, counterparties are still required to post collateral. During 2020, we received approximately$800 of cash collateral, on a net basis. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 13)
Other
Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders' equity. Our capital structure does not include debt issued by our equity method investment. AtDecember 31, 2020 , our debt ratio was 46.7%, compared to 44.7% atDecember 31, 2019 and 47.7% atDecember 31, 2018 . Our net debt ratio was 43.8% atDecember 31, 2020 , compared to 41.4% atDecember 31, 2019 and 46.2% atDecember 31, 2018 . The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments and debt acquired in business combinations. A significant amount of our cash outflows is related to tax items, acquisition of spectrum throughFCC auctions and benefits paid for current and former employees: •Total taxes incurred, collected and remitted byAT&T during 2020 and 2019, were$21,967 and$24,170 . These taxes include income, franchise, property, sales, excise, payroll, gross receipts and various other taxes and fees. •Total domestic spectrum acquired primarily throughFCC auctions, including cash, exchanged spectrum and auction deposits was approximately$2,800 in 2020,$1,300 in 2019 and$450 in 2018. •Total health and welfare benefits provided to certain active and retired employees and their dependents totaled$3,656 in 2020, with$1,029 paid from plan assets. Of those benefits,$3,293 related to medical and prescription drug benefits. In addition, in 2020 we prefunded$745 for future benefit payments. During 2020, we paid$5,124 of pension benefits out of plan assets. 56 -------------------------------------------------------------------------------- AT&T Inc. Dollars in millions except per share amounts During 2020, we have received$3,641 from the disposition of assets, and when combined with working capital monetization initiatives, which include the sale of receivables, total cash received from monetization efforts, net of$1,613 of spectrum acquisitions, was approximately$1,100 . We plan to continue to explore similar opportunities. CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES Our contractual obligations as ofDecember 31, 2020 are in the following table: Payments Due By Period Less than 1-3 3-5 More than Contractual Obligations Total 1 Year Years Years 5 Years Long-term debt obligations1$ 165,654 $ 3,418 $ 13,730 $ 14,238 $ 134,268 Interest payments on long-term debt 123,582 6,627 12,851 11,817 92,287 Purchase obligations2 70,610 20,274 21,275 11,142 17,919 Operating lease obligations3 31,123 4,808 8,621 6,464 11,230 FirstNet sustainability payments4 17,520 120 390 390 16,620 Unrecognized tax benefits5 10,560 463 - - 10,097 Other finance obligations6 12,437 4,236 2,232 1,602 4,367 Total Contractual Obligations$ 431,486 $ 39,946 $ 59,099 $ 45,653 $ 286,788 1Represents principal or payoff amounts of notes and debentures at maturity or, for putable debt, the next put opportunity (see Note 12). Foreign debt includes the impact from hedges, when applicable. 2We expect to fund the purchase obligations with cash provided by operations or through incremental borrowings. The 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$259 in 2021,$257 in the aggregate for 2022 and 2023 and$64 in the aggregate for 2024 and 2025 and$1,987 in the aggregate thereafter. Certain termination fees are excluded from the above table, as the fees would not be paid every year and the timing of such payments, if any, is uncertain. (See Note 21) 3Represents operating lease payments (see Note 8). 4Represents contractual commitment to make sustainability payments over the 25-year contract. These sustainability payments represent our commitment to fund FirstNet's operating expenses and future reinvestment in the network, which we own and operate. FirstNet has a statutory requirement to reinvest funds that exceed the agency's operating expenses, which we anticipate to be$15,000 . (See Note 20) 5The noncurrent portion of the UTBs is included in the "More than 5 Years" column, as we cannot reasonably estimate the timing or amounts of additional cash payments, if any, at this time (see Note 14). 6Represents future minimum payments under the Crown Castle and other arrangements (see Note 19), payables subject to extended payment terms (see Note 22) and finance lease payments (see Note 8). 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, we believe 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$60,472 (see Note 14); net postemployment benefit obligations of$19,690 ; expected pension and postretirement payments (see Note 15); and other noncurrent liabilities of$11,829 . 57 -------------------------------------------------------------------------------- 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. Results have been recast to conform to the current period's classification. Year Ended
Business Business
Mobility Wireline Adjustments1 Solutions
Operating revenues
Wireless service $ 55,542 $ - $ (47,810) $ 7,732
Strategic and managed services - 15,788 - 15,788
Legacy voice and data services - 8,183 - 8,183
Other service and equipment - 1,387 - 1,387
Wireless equipment 17,022 - (14,140) 2,882
Total Operating Revenues 72,564 25,358 (61,950) 35,972
Operating expenses
Operations and support 42,106 15,534 (34,927) 22,713
EBITDA 30,458 9,824 (27,023) 13,259
Depreciation and amortization 8,086 5,226 (6,803) 6,509
Total Operating Expenses 50,192 20,760 (41,730) 29,222
Operating Income $ 22,372 $ 4,598 $ (20,220) $ 6,750
1Non-business wireless reported in the Communications segment under the Mobility business unit.
Year Ended December 31, 2019
Business Business
Mobility Wireline Adjustments1 Solutions
Operating revenues
Wireless service $ 55,331 $ - $ (47,887) $ 7,444
Strategic and managed services - 15,430 - 15,430
Legacy voice and data services - 9,180 - 9,180
Other service and equipment - 1,557 - 1,557
Wireless equipment 15,725 - (12,971) 2,754
Total Operating Revenues 71,056 26,167 (60,858) 36,365
Operating expenses
Operations and support 40,681 16,069 (34,036) 22,714
EBITDA 30,375 10,098 (26,822) 13,651
Depreciation and amortization 8,054 4,934 (6,840) 6,148
Total Operating Expenses 48,735 21,003 (40,876) 28,862
Operating Income $ 22,321 $ 5,164
58
--------------------------------------------------------------------------------AT&T Inc. Dollars in millions except per share amounts Year Ended
Business Business
Mobility Wireline Adjustments1 Solutions
Operating revenues
Wireless service $ 54,295 $ - $ (47,402) $ 6,893
Strategic and managed services - 14,649 - 14,649
Legacy voice and data services - 10,674 - 10,674
Other service and equipment - 1,406 - 1,406
Wireless equipment 16,226 - (13,718) 2,508
Total Operating Revenues 70,521 26,729 (61,120) 36,130
Operating expenses
Operations and support 40,690 16,181 (34,285) 22,586
EBITDA 29,831 10,548 (26,835) 13,544
Depreciation and amortization 8,263 4,708 (7,077) 5,894
Total Operating Expenses 48,953 20,889 (41,362) 28,480
Operating Income $ 21,568 $ 5,840
59
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AT&T Inc. Dollars in millions except per share amounts
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