What is the primary reason for the decline in AT&T's voice revenues?

The primary reason for the decline in voice revenues is the ongoing loss of retail access lines to wholesale Unbundled Network Element-Platform (UNE-P) services. Competitors are able to lease these lines from AT&T at below-cost rates, allowing them to offer services to customers while AT&T still incurs the costs of maintaining the network infrastructure.

How did the accounting changes affect the company's financial results?

The company adopted several accounting changes. A change in directory accounting resulted in a net charge for the third quarter but an increase in income for the nine-month period. The adoption of FAS 143 for asset retirement obligations resulted in a significant noncash gain. These changes, along with the adoption of FAS 142 for goodwill, created a substantial cumulative effect on net income, particularly for the nine-month period in 2003.

What is the outlook for the company's pension and postretirement costs?

The company experienced a significant increase in combined pension and postretirement costs in 2003, driven by factors such as lower expected long-term rates of return on plan assets, reduced discount rates, and increased medical claims. Management expects these costs to remain elevated, with a projected range of $1.8 billion to $2.0 billion for 2003, and anticipates potential further increases if market conditions and healthcare costs continue to be unfavorable.

What is the significance of the FCC's Triennial Review Order (TRO) for AT&T?

The TRO significantly impacts AT&T's wireline business by revising rules for unbundled network elements (UNEs). While it offers some relief in broadband, it largely delegates decisions on critical elements like switching and UNE-P to state commissions, creating a complex and potentially unfavorable regulatory environment. The order may lead to further revenue reductions and a decrease in capital expenditures and employment within the wireline segment.

AT&T INC. 10-Q Quarterly Report Q3 FY2003

Summary

AT&T Inc. (T), formerly SBC Communications Inc., reported mixed financial results for the third quarter and first nine months of 2003. Total operating revenues saw a slight decline compared to the prior year, driven primarily by a decrease in voice revenues due to ongoing losses of retail access lines to wholesale UNE-P services. However, data revenues showed growth, bolstered by a significant increase in DSL lines. The company experienced a notable decrease in operating income, largely attributed to the ongoing impact of below-cost UNE-P regulations, increased competition, and a significant rise in combined pension and postretirement benefit costs. These cost increases were partially offset by workforce reductions and efficiencies gained from adopting new accounting standards. The company also reported significant gains from asset dispositions, particularly its interest in Cegetel, which contributed to a substantial increase in net income for the nine-month period, despite the decline in operating income.

Key Highlights

1Operating revenues declined by 3.0% in Q3 2003 and 3.6% for the nine months ended September 30, 2003, primarily due to a drop in voice revenue from retail access line losses to UNE-P.
2Operating income decreased by 20.7% in Q3 2003 and 17.5% for the nine months, impacted by UNE-P, competition, and a significant increase in pension and postretirement costs.
3Data revenues increased by 5.5% in Q3 and 4.0% for the nine months, driven by strong growth in DSL lines.
4Net income for the nine months ended September 30, 2003, was $7.607 billion, a significant increase from $3.298 billion in the prior year, largely due to a cumulative effect of accounting changes and asset dispositions.
5The company's wireline segment experienced declining operating income and margins due to retail access line losses, while the Cingular wireless segment showed revenue growth but a decline in operating income margin.
6Significant changes in accounting methods, including directory and depreciation accounting, were adopted, resulting in both charges and benefits impacting reported net income.
7Capital expenditures decreased significantly, with a 35.9% reduction in the wireline segment year-over-year, reflecting a more cautious spending approach.

AT&T INC. Quarterly Report for Q3 Ended Sep 30, 2003

Summary

Key Highlights

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