|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connections
|
|
|
|
|
|
|
|
|
|
Percent Change
|
(in 000s)
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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
|
(in 000s)
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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.
|
|
|
|
|
|
|
|
|
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
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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.
|
|
|
|
|
|
|
|
|
AT&T Inc.
|
Dollars in millions except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WARNERMEDIA SEGMENT
|
|
|
|
|
|
|
|
Percent Change
|
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
2018
|
Segment 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
|
$
|
8,210
|
|
$
|
10,659
|
|
$
|
7,020
|
|
(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 include Xandr, 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 from Time Warner operations prior to our June 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 in August 2018 and May 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.
|
|
|
|
|
|
|
|
|
AT&T Inc.
|
Dollars in millions except per share amounts
|
WarnerMedia Business Unit Discussion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner Results
|
|
|
|
|
|
|
|
Percent Change
|
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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.
|
|
|
|
|
|
|
|
|
AT&T Inc.
|
Dollars in millions except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Box Office Results
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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 $1,800 of programming investment related to HBO Max.
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 HBO operating income margin was 10.0% in 2020, 34.6% in 2019 and 37.7% in 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warner Bros. Results
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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)
|
%
|
—
|
%
|
|
|
|
|
|
|
|
|
|
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
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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
|
$
|
(729)
|
|
$
|
(635)
|
|
$
|
(710)
|
|
(14.8)
|
%
|
10.6
|
%
|
Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations. In May 2020, we found it necessary to close our DIRECTV operations in Venezuela due to political instability in the country and to comply with sanctions of the U.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 in Mexico. Our Latin America segment operating income margin was (13.2)% in 2020, (9.5)% in 2019 and (9.7)% in 2018.
|
|
|
|
|
|
|
|
|
AT&T Inc.
|
Dollars in millions except per share amounts
|
Latin America Business Unit Discussion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio Results
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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
|
(in 000s)
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
2018
|
Vrio Video Subscribers
|
10,942
|
|
13,331
|
|
13,838
|
|
(17.9)
|
%
|
(3.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
(in 000s)
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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 Venezuela.
|
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 are U.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.
|
|
|
|
|
|
|
|
|
AT&T Inc.
|
Dollars in millions except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico Results
|
|
|
|
|
Percent Change
|
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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
|
(in 000s)
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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
|
(in 000s)
|
2020
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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 Mexico expenses are U.S. dollar-based, with the remainder in the local currency.
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 Mexico operating income margin was (22.9)% in 2020, (25.0)% in 2019 and (36.9)% in 2018. Our Mexico EBITDA margin was (2.9)% in 2020, (7.5)% in 2019 and (19.1)% in 2018.
|
|
|
|
|
|
|
|
|
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
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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
|
2019
|
2018
|
2020 vs.
2019
|
2019 vs.
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)
|
%
|
|
|
|
|
|
|
|
|
|
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”).
|
|
|
|
|
|
|
|
|
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 FCC. Suits have been filed concerning such laws in two states.
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, the FCC 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, in November 2020 the FCC 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 the 9th Circuit Court of Appeals, where the appeals remain pending.
In December 2018, we introduced the nation’s first commercial mobile 5G service, and in July 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 the U.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.
|
|
|
|
|
|
|
|
|
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 the FCC. The Communications Act of 1934 and other related acts give the FCC broad authority to regulate the U.S. operations of DIRECTV, and some of WarnerMedia’s businesses are also subject to obligations under the Communications Act and related FCC 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 the U.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 the U.S., various laws and regulations, as well as trade agreements with the U.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, including China, 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 the U.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 our Mexico 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 of December 31, 2020, we served 202 million wireless subscribers in North America, with more than 182 million in the United States. Our LTE technology covers over 440 million people in North America, and in the 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. In December 2018, we introduced the nation’s first commercial mobile 5G service and expanded that deployment nationwide in July 2020.
Our networks covering both the U.S. and Mexico 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 in Mexico.
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.
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AT&T Inc.
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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 outside the 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 in Europe 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 In February 2015, the FCC 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 the FCC’s authority to regulate broadband internet access services, as well as internet interconnection arrangements. In December 2017, the FCC 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. On October 1, 2019, the D.C. Circuit issued a unanimous opinion upholding the FCC’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 the FCC’s express preemption of any state regulation of net neutrality, it stressed that its ruling did not prevent the FCC or ISPs from relying on conflict preemption to invalidate particular state laws that are inconsistent with the FCC’s regulatory objectives and framework. The court also remanded the matter to the FCC for further consideration of the impact of reclassifying broadband services as information services on public safety, the Lifeline program, and pole attachment regulation. In October 2020, the FCC adopted an order concluding that those issues did not justify reversing its decision to reclassify broadband services as information services. An appeal of the FCC’s remand decision is pending.
Following the FCC’s 2017 decision to reclassify broadband as information services, a number of states adopted legislation to reimpose the very rules the FCC repealed. In some cases, state legislation imposes requirements that go beyond the FCC’s February 2015 order. Additionally, some state governors have issued executive orders that effectively reimpose the repealed requirements. Suits have been filed concerning laws in California and Vermont. Both lawsuits were stayed pursuant to agreements by those states not to enforce their laws pending final resolution of all appeals of the FCC’s December 2017 order. Because that order is now final, the California suit has returned to active status. Nonetheless, enforcement of both the California and Vermont laws remains stayed pending a ruling by a U.S. District Court in California on motions for a preliminary injunction against enforcement of the California law. Argument on those motions is now scheduled for February 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 and November 2020, the FCC 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 the November 2020 order remain pending in the 9th Circuit Court of Appeals. If sustained on appeal, these FCC 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.
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In 2020, the FCC took several actions to make spectrum available for 5G services. First, the FCC 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”). The FCC also made 150 MHz of mid-band CBRS spectrum available, to be shared with Federal incumbents, who enjoy priority. Furthermore, the FCC 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 in December 2019 of the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act) by Congress, the FCC 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 ongoing FCC oversight and review of efforts related to STIR/SHAKEN implementation. Among other goals, the FCC has stated its intention to promote the IP transition through its rules.
In September 2019, the FCC 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. In October 2020, the FCC 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 the D.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, at December 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 in U.S. dollars, and neither callable, convertible nor index linked. For the year ended December 31, 2020, when compared to the year ended December 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 of December 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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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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In total, we recorded an impairment charge of $15,508 ($7,255 for long-lived assets and $8,253 of assigned goodwill) in December 2020 results.
U.S. Wireless Licenses
The fair value of U.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 for the 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 in Mexico, certain trade names in our Latin 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 in Latin 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 in Venezuela. 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, effective January 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 at January 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.
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See Note 1 for discussion of the expected impact of new standards.
OTHER BUSINESS MATTERS
Video Business On February 25, 2021, we signed an agreement to form a new company named DIRECTV (New DTV) with TPG Capital, which will be jointly governed by a board with representation from both AT&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 $7,600 of proceeds from the transaction are expected to reduce our total and net debt positions.
In the first quarter of 2021, we expect to apply held-for-sale accounting treatment to the assets and liabilities of the U.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 at March 31, 2021. The carrying amounts at December 31, 2020 of these assets and liabilities were approximately $16,150 and $4,900, respectively.
Spectrum Auction In March 2020, we were the winning bidder of high-frequency 37/39 GHz licenses in FCC 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 through FiberTower 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 in April 2020. The FCC granted the licenses in June 2020.
On February 24, 2021, the FCC announced that AT&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 the FCC an initial down payment of $4,681 on March 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 before March 24, 2021. We estimate that AT&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 the FCC 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 of December 31, 2020, we employed approximately 231,000 persons. Approximately 37% of our employees are represented by the Communications Workers of America (CWA), the International 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 the District of Columbia that was set to expire in February 2021 was extended until February 2022. A contract covering approximately 10,000 Mobility employees in nine Southeast states that was set to expire in February 2022 was extended until February 2023.
Pension Diversification In 2013, we made a voluntary contribution of 320 million Series A Cumulative Perpetual Preferred Membership Interests in AT&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. On September 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.
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AT&T Inc.
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Dollars in millions except per share amounts
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