AT&T Wireless 2007 Annual Report Download - page 32

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| 2007 AT&T Annual Report
Accounting for AT&T Mobility
The wireless segment reflects 100% of the results reported
by AT&T Mobility (formerly Cingular), which was our wireless
joint venture with BellSouth prior to the December 29, 2006
acquisition, at which time it became a wholly-owned
subsidiary of AT&T. Prior to the BellSouth acquisition (see
Note 2), we accounted for our 60% economic interest in AT&T
Mobility under the equity method since we shared control
equally with BellSouth. This means that our consolidated
results in 2006 and 2005 included our 60% share of AT&T
Mobility’s results in “Equity in net income of affiliates” in our
consolidated statements of income. Following the BellSouth
acquisition, AT&T Mobility became a wholly-owned subsidiary
and AT&T Mobility’s results are included as operating revenues
and expenses in our consolidated statements of income.
Accordingly, results from this segment for the last two days
of 2006 were included in our operating revenues and
expenses and not in the “Equity in net income (loss) of
affiliates” line. However, for all the periods presented, the
wireless segment reflects 100% of the results reported by
AT&T Mobility based on the management of the business.
Dobson Acquisition
In November 2007, we acquired Dobson Communications
Corporation (Dobson). Dobson marketed wireless services
under the Cellular One brand and had provided roaming
services to AT&T subsidiaries since 1990. Dobson had
1.7 million subscribers across 17 states, mostly in rural
and suburban areas with a population covered of more
than 12.6 million people. Dobson was incorporated into
our wireless operations subsequent to our acquisition.
Our 2007 results included net revenue of $141 and
expense of $109 from Dobson.
Wireless Customer and Operating Trends
As of December 31, 2007, we served 70.1 million wireless
customers, compared to 61.0 million at December 31, 2006
and 54.1 million at December 31, 2005. Approximately 70%
of our wireless customer net additions in 2007 were retail
customer additions, and 75% of these additions were postpaid
customer additions. Contributing to our net additions and
retail customer growth was improvement in customer
turnover (customer churn) levels due to our strong network
performance and attractive products and services offerings,
including the Apple iPhone, which were partially offset by
a slowing growth rate of new wireless users reflecting a
maturing domestic wireless industry. The improvement in
churn levels benefited from network and customer service
improvements and continued high levels of advertising.
Also contributing to the increase in net additions was a
significant increase in prepaid gross additions. Gross
customer additions were 20.1 million in 2007, 19.2 million
in 2006 and 18.5 million in 2005. Postpaid customer gross
additions declined primarily due to higher postpaid market
penetration and market maturation, as well as lower
industry postpaid churn.
As the wireless industry continues to mature, we believe
that future wireless growth will become increasingly
dependent on our ability to offer innovative services,
which will encourage existing customers to upgrade their
current services and handsets and will attract customers
from other providers, as well as on our ability to minimize
customer churn. Average service revenue per user/customer
(ARPU) increased 2.2% compared to 2006 primarily due to
increased data services ARPU growth. In 2007, data services
ARPU grew 46.9% compared to 2006. The continued increase
in data revenue was related to increased use of text
messaging, Internet access, e-mail and other data services,
which we expect to grow as we continue expanding our
third-generation (3G) services. The growth in data ARPU
was partially offset by a decline in voice service ARPU of
4.1% compared to 2006, reflecting a higher percentage of
prepaid and reseller customers, which provide significantly
lower ARPU than postpaid customers, and continued shifts
to all-inclusive rate plans that offer lower monthly charges.
We expect continued pressure on voice service ARPU.
ARPU declined 1.1% in 2006 due to decreases in local
service, net roaming and other revenue per customer mostly
Wireless
Segment Results
Percent Change
2007 vs. 2006 vs.
2007 2006 2005 2006 2005
Segment operating revenues
Service $38,678 $33,788 $30,673 14.5% 10.2%
Equipment 4,006 3,749 3,795 6.9 (1.2)
Total Segment Operating Revenues 42,684 37,537 34,468 13.7 8.9
Segment operating expenses
Cost of services and equipment sales 15,991 15,057 14,388 6.2 4.6
Selling, general and administrative 12,594 11,446 11,645 10.0 (1.7)
Depreciation and amortization 7,079 6,462 6,608 9.5 (2.2)
Total Segment Operating Expenses 35,664 32,965 32,641 8.2 1.0
Segment Operating Income 7,020 4,572 1,827 53.5 —
Equity in Net Income (Loss) of Affiliates 16 40 (11) (60.0) —
Minority Interest1 (198) (169) (103) (17.2) (64.1)
Segment Income $ 6,838 $ 4,443 $ 1,713 53.9% —
1Minority interest is recorded as “Other Income (Expense) – Net” in the consolidated statements of income.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts