10-KPeriod: FY2003

AT&T INC. Annual Report, Year Ended Dec 31, 2003

Filed March 11, 2004For Securities:TT-PCTBBT-PA

Summary

SBC Communications Inc. (now AT&T Inc.) in its 2003 Form 10-K presents a picture of a large, diversified telecommunications company actively managing its transition from traditional wireline services to broader digital and wireless offerings. The company highlights its significant market position across 13 states for wireline services, serving millions of consumers and businesses. A key strategic initiative is the expansion of broadband (DSL) services, which saw substantial growth in subscriber numbers, despite ongoing regulatory uncertainties surrounding its classification and deployment. Furthermore, the filing details SBC's substantial investment in Cingular Wireless, a joint venture that is a major player in the U.S. wireless market. The company also reports international investments in telecommunications operators across Europe and Latin America, indicating a global footprint. Investors should note the significant recent development of Cingular's agreement to acquire AT&T Wireless, a move poised to dramatically reshape the U.S. wireless landscape and SBC's future strategic direction. The company also addresses potential risks related to regulatory changes, competition, and labor negotiations.

Key Highlights

  • 1SBC's wireline segment remains the largest revenue contributor (65% in 2003), offering a range of voice, data, and long-distance services across 13 states.
  • 2Broadband (DSL) services showed significant growth, with DSL lines increasing from 2.2 million in 2002 to 3.5 million in 2003, with plans to reach 80% of wireline customer locations.
  • 3SBC holds a 60% economic interest in Cingular Wireless, the second-largest U.S. wireless provider, which accounted for 27% of segment revenues in 2003.
  • 4A major recent development is Cingular's announced agreement to acquire AT&T Wireless for approximately $41 billion, expected to be funded by debt and internal cash.
  • 5The company has significant international investments, including stakes in TDC (Denmark), Belgacom (Belgium), and Telmex (Mexico), contributing to segment income.
  • 6Regulatory uncertainty surrounding broadband (DSL) and Voice over Internet Protocol (VoIP) is a key theme, with ongoing FCC proceedings and legal challenges impacting the operating environment.
  • 7Labor negotiations with CWA and IBEW are underway, with major collective bargaining agreements set to expire in early April 2004.

Frequently Asked Questions

The announced acquisition of AT&T Wireless by Cingular (in which SBC holds a 60% interest) for approximately $41 billion is a monumental development. If successful, it would create a significantly larger wireless competitor, consolidating market share and potentially altering the competitive dynamics of the U.S. wireless industry. This move is expected to expand Cingular's spectrum, network coverage, and data service capabilities, and SBC anticipates contributing around $25 billion to the financing.

SBC is actively engaged with a complex and evolving regulatory environment. The company highlights ongoing FCC reviews and legal challenges concerning the classification of broadband internet access services (information vs. telecommunications services) and the rules for network unbundling (Triennial Review Order). Similarly, the emerging Voice over Internet Protocol (VoIP) technology is subject to new regulatory proceedings. These regulatory uncertainties could impact investment strategies and competitive positioning.

The primary revenue driver remains the wireline segment, accounting for about 65% of revenues in 2003, encompassing voice, data, and long-distance services. However, the Data segment within wireline is growing, and the company is making significant investments in broadband (DSL). While not consolidated, Cingular Wireless represents a substantial portion of the company's overall business activity, contributing 27% of segment revenues in 2003 and is positioned for significant future growth, especially with the potential acquisition of AT&T Wireless.

SBC identifies several key risks, including adverse economic changes, technological shifts and deployment costs, regulatory uncertainties (especially concerning FCC proceedings like the Triennial Review and VoIP), increased competition pressuring margins, labor negotiations, and the successful integration and financial impact of the Cingular/AT&T Wireless acquisition. The company also notes potential impacts from international economic conditions and currency fluctuations for its foreign investments.