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AT&T Dividend Stock Analysis | 40 pages PDF Research

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					                 AT&T                                                              MOBILE PLANS & PHONES
                                                                                   Mobile Subscriber Plan Pricing 5
                 ANALYSIS for NYSE : T                    NOVEMBER 12, 2012        AT&T Postpaid Market Share 6
                                                                                   AT&T Wholesale Market Share 7
                                                                                   SMS & Internet Revenue per AT&T
                                                                                   Mobile Subscriber 8
      $  36.00
          $209 B MKT CAP
                                                $  33.87
                                                  $192.4 B MKT CAP
                                                                                   Mobile Plans & Phones EBITDA
                                                                                   Margin 9
                                                                                   Mobile CapEx (As % of Mobile
                                                                                   EBITDA) 10
             Trefis Estimate                          Market Price
                                                                                   INTERNET & TV
                  See the Full Analysis for AT&T on Trefis                         U-Verse TV Pricing 12
                                                                                   U-Verse TV Subscribers 12
                      — CORPORATE SNAPSHOT —                                       Fee Per DSL Subscriber 13
                                                                                   AT&T Broadband Market Share 14
                                                                                   U-Verse Internet Subscribers 16
AT&T makes money primarily through mobile phone subscription plans for             Internet & TV EBITDA Margin 16
consumers and businesses. The company also provides landline phone service         Landline CapEx (As % of Landline
to residences, small businesses, and large enterprises. Broadband Internet         EBITDA) 17
service and fiber optic TV service (U-Verse) are growth areas for AT&T.
                                                                                   PHONE LANDLINES
                      — VALUATION HIGHLIGHTS —                                     Revenue per Home Line 19
                                                                                   Number of AT&T Home Lines 20
  1. Mobile Plans & Phones constitute 62% of the Trefis price estimate for         Phone Lines EBITDA Margin 21
     AT&T's stock.                                                                 Landline CapEx (As % of Landline
  2. AT&T Business (Wholesale, Enterprise, Mass Markets) constitute 15%            EBITDA) 21
     of the Trefis price estimate for AT&T's stock.
  3. Internet & TV constitutes 14% of the Trefis price estimate for AT&T's         WHOLESALE
     stock.                                                                        Revenue per Wholesale Line 22
                                                                                   Wholesale & Coin Access Lines 23
                                                                                   Wholesale EBITDA Margin 23
                                                                                   Landline CapEx (As % of Landline
                                                                                   EBITDA) 24

                                                                                   ENTERPRISE
                                                                                   Enterprise Revenues 25
                                                                                   Enterprise EBITDA Margin 25
                                                                                   Landline CapEx (As % of Landline
                                                                                   EBITDA) 26

                                                                                   MASS MARKETS
                                                                                   Mass Market Revenues 27
             See the Interactive Valuation Breakdown on Trefis                     Mass Markets EBITDA Margin 27
                                                                                   Landline CapEx (As % of Landline
                                                                                   EBITDA) 28
Our share price estimate and the overall company value is derived by
summing-up the values of individual divisions/businesses in a sum-of-the-          INVESTMENTS
parts analysis. The value of each division is calculated using a discounted cash   Investment Revenues 29
flow (DCF) methodology.                                                            Investments EBITDA Margin 29
     We forecast fundamental drivers like pricing, market share, and profit
margins for different businesses in estimating the division’s value within the     APPENDICES
                                                                                   Summary P&L for AT&T 32
DCF framework. The analysis below primarily focuses on those important
                                                                                   Detailed Mobile Plans & Phones
forecasts that drive our share price and value estimate.                           P&L 33
     Our complete analysis, including sources of historical data, underlying       Detailed Internet & TV P&L 34
equations and additional discussion are available on www.trefis.com.               Detailed Phone Landlines P&L 36
                                                                                   Detailed Wholesale P&L 37
      — POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE —
                                                                                     Detailed Enterprise P&L 38
                                                                                     Detailed Mass Markets P&L 39
Below are key drivers of AT&T's value that present opportunities for upside          Detailed Investments P&L 40
or downside to the current Trefis price estimate for AT&T.

Mobile Plans & Phones

  • U.S. Mobile Phones in Use: We estimate that this figure will increase
     from about 300 million in 2011 to around 335 million by the end of our
     forecast period as the U.S. mobile industry gets saturated and growth
     slows down. However, if the growth rate remains high and the figure
     reaches 390 million, there could be an upside of about 9% to our price
     estimate.
  • SMS & Internet Revenue Per Subscriber: We estimate that this figure
     will increase from a little under $18 in 2011 to a little over $25 by the end
     of our forecast period as more people upgrade to smartphones and
     subscribe to higher priced plans for more data usage. However, there
     could be a downside of around 5% to our price estimate if this figure only
     reaches to $22 instead. This could happen if the proportion of low data
     ARPU connected devices increases so much that it offsets higher ARPU
     smartphone customer increase. On the other hand, there could be an
     upside of the same magnitude if this figure hits $28 mark by end of our
     forecast period.
  • Mobile CapEx as % of Mobile EBITDA: We expect this figure to
     increase only slightly from around 46% in 2011 to 46.5% by the end of our
     forecast period. However, there could be a downside of more than 5% to
     our price estimate if AT&T's capital expenses increase more aggressively
     to 50% of mobile EBITDA by the end of our forecast period.
For additional details, select a driver above or select a division from the
interactive Trefis split for AT&T at the top of the page.

                         — SOURCES OF VALUE —

The Mobile Plans & Phones division constitutes the majority of AT&T's
value for these two reasons:

High AT&T Share in a Large Mobile Phone Market
We estimate that AT&T had a 31% market share in 2011 out of a total of
about 330 million wireless connections in the U.S., implying around 103
million wireless connections subscribed on AT&T. We expect AT&T's
market share to increase in future and the number of US wireless connections
to grow to over 470 million by the end of the forecast period.
     In comparison, the number of AT&T home landlines will decline from
about 21 million in 2011 to an estimated 14.5 million by the end of the forecast
period. Similarly, the number of AT&T business landlines will decline from
15.6 million to 12.5 million, by our estimates.

                              — KEY TRENDS —



    TREFIS ANALYSIS for AT&T          CONTENT@TREFIS.COM              + 1 617 394 8763                              •2
Mobile Phone Voice Plan Pricing Declines Offset by Data
Mobile voice plan pricing has seen a gradual decline, as competition has
intensified and technology (primarily speed and reliability) and reach have
improved. Increasingly, data is a significant part of usage. So, while average
voice revenues have been on a downward trend, increased data revenue
contribution has helped in mitigating the impact on total ARPU.

Push for 4G
Mobile operators have now started pushing for 4G networks that offer higher
data speeds than 3G. AT&T and Verizon have rapidly expanded their LTE
networks and Sprint has also jumped on the bandwagon. First to deploy
LTE, Verizon has however maintained lead, with its LTE network covering
almost thrice as many U.S. citizens as second-placed AT&T's does. AT&T's
progress in LTE has been slower compared to that of Verizon as the
company spent some time in improving its 3G network by deploying HSPA
technology.

Scarcity of wireless spectrum
The wireless market is intensely competitive, with the number of wireless
subscriber connections (327.6 million) exceeding the total population (315.5
million) in the U.S. As an ever increasing number of smartphone users
demand higher speeds and congestion-free networks, wireless carriers are
hard-pressed for additional spectrum in order to meet these demands. AT&T
has been especially vocal about its spectrum crunch situation, even trying to
acquire T-Mobile in an aggressive $39 billion bid. However, it had to
eventually abandon the deal as it faced some stern opposition from the FCC,
which was concerned about the duopoly it would create. Without the deal
and a government auctions of TV airwaves some way off, AT&T has to find
a near-term solution for its spectrum needs, else its LTE plans might suffer.

SMS usage on a decline
SMS texting rates have started declining in several advanced SMS markets
such as Finland, Netherlands and Hong Kong. Since the U.S. saw a boom in
text-messaging a couple of years after these countries, we expect the trend to
come to U.S. shores soon. The decline in SMS usage can be attributed to the
growing use of smartphones that has caused customers to migrate from
traditional modes of communication such as text-messaging or SMS to the
more convenient and new age messaging services of social media (Facebook
& Twitter), email and other IP-based messaging systems. The erosion in
SMS usage may have a negative impact on most wireless carriers' data
ARPUs as carriers generally charge much more per byte of SMS data sent
than any other data sent over the Internet.

Declining Phone Lines per Household
The number of phone lines per household is expected to continue to decline
in line with trends in recent years, as many consumers eliminate secondary
lines and mobile phones become the primary phones for many consumers.
Improvements in the reliability and connection quality of cell phones will



   TREFIS ANALYSIS for AT&T          CONTENT@TREFIS.COM              + 1 617 394 8763   •3
have a significant impact on residential phone lines.
                   See the Full Analysis for AT&T on Trefis




   TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM         + 1 617 394 8763   •4
Mobile Plans & Phones
The Mobile Plans & Phones division constitutes 62.3% of our $36.00 price estimate for this stock, based on our sum of the
parts analysis.The most important drivers for the Mobile Plans & Phones business are:
  • Mobile Subscriber Plan Pricing
  • AT&T Postpaid Market Share
  • AT&T Wholesale Market Share
  • SMS & Internet Revenue per AT&T Mobile Subscriber
  • Mobile Plans & Phones EBITDA Margin
  • Mobile CapEx (As % of Mobile EBITDA)

                                     — MOBILE SUBSCRIBER PLAN PRICING —

Mobile Subscriber Plan Pricing refers to the average monthly subscription fee paid by AT&T's mobile subscribers for
mobile voice services only. These customers use subscriber plans and are also known as postpaid subscribers. We have
averaged this over AT&T's postpaid and wholesale subscriber base, so the value could be a little lesser than the company's
postpaid ARPU alone.



                               Mobile Subscriber Plan Pricing ($ per month)

       40
       35
       30
       25
       20
       15
       10
        5
        0
                2008 0 9          10      11      12      13      14      15      16      17      18     19




Decline in Mobile Subscriber Plan Pricing, which refers to the pricing of only the voice service component, has been an
industry wide trend over the past few years for a number of reasons, as explained below. For AT&T, we estimate that the
average subscriber plan price has gone down from as much as $42 per month in 2007 to below $34 in 2011. We expect
Mobile Subscriber Plan Pricing declines to continue, albeit at a less than historical rate. Voice ARPUs have been
declining for a long time now. We believe that most of the decline has happened already and the prices should stabilize
soon.

Forecast Rationale



    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM            + 1 617 394 8763                                    •5
We considered the following four factors for this forecast:
     Supporting Factor:
  1. INTENSE COMPETITION IN THE SPACE – Apart from the 3 big players with a pan-US presence (Verizon, AT&T, and
     Sprint), there are a number of smaller players like T-Mobile, Leap and MetroPCS etc. With the number of wireless
     connections now exceeding the total U.S. population, carriers are now focusing more on retaining customers and
     minimizing churn. Service providers have therefore been offering discounts and promotional offers like free minutes,
     free calls to other subscribers, and roll-over minutes, putting pressure on plan prices.
  2. TECHNICAL IMPROVEMENTS – The wireless industry in the US has witnessed very high growth rates over the last few
     years. Technology and reach have improved many times since 2000-2001; and consequently, costs have come down.
  3. PRICING REDUCTIONS TO ENCOURAGE CONTINUED CONVERSION OF LANDLINE CUSTOMERS TO WIRELESS SERVICE. –
     The very reason why the customers are opting for wireless and replacing their landlines is because of savings that
     wireless customers achieve. This is another motivation for the companies to keep reducing the call rates.
  4. PRICING REDUCTIONS TO CAPTURE MARKET SHARE IN UNDER-PENETRATED CELLULAR MARKETS – Although the U.S.
     mobile market is approaching saturation there is some scope of expanding the uncaptured segment of the market. As
     a result companies will reduce their calling rates to attract new customers which will likely lead to a reduction in the
     average revenue per user.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                        — AT&T POSTPAID MARKET SHARE —

AT&T Postpaid Market Share refers to AT&T's market share (by number of postpaid subscribers) of the US mobile
market.



                                        AT&T Postpaid Market Share (%)


       20

       15

       10

         5

         0
                 2008 0 9          10      11      12      13      14      15      16      17       18      19




We estimate that AT&T's postpaid market share increased from around 22% in 2007 to 23% in 2011. We expect it to grow
at a slower rate in future.




    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM             + 1 617 394 8763                                      •6
Forecast Rationale
We considered the following five factors for this forecast:
  1. APPLE'S IPHONE HAS HELPED AT&T, BUT NOW EXCLUSIVITY IS GONE. – AT&T previously had an exclusive tie-up
     with Apple for selling immensely popular iPhone. iPhone has proven to be a big hit and continues to be the most
     popular smart-phone model. However, the exclusivity ended at the start of 2011 and Verizon first and then Sprint
     started offering the iPhone as well.
  2. INTENSE COMPETITION IN THE SPACE – The wireless market is intensely competitive, with Verizon, Sprint, and T-
     Mobile being some of the bigger competitors on a nationwide scale. All the networks have scale and reach. The basis
     of competition is primarily cost and customer service.
  3. NUMBER OF WIRELESS SUBSCRIBERS SATURATED – The wireless market has witnessed very rapid growth in the past
     few years; and is close to getting saturated, with limited opportunities to add more users to the retail subscriber pool.
     As a result, wireless service operators compete even more fiercely to retain their existing subscribers and poach from
     the rivals' bases.
  4. PAUCITY OF WIRELESS SPECTRUM – AT&T has been very vocal about its spectrum crunch problems. It even tried to
     acquire T-Mobile for the spectrum but the FCC thwarted the attempt, citing anti-competitive concerns. Congress
     has approved TV spectrum auctions but it could take some time to materialize. Until then, if AT&T is unable to find
     adequate spectrum for its purposes, its customers could see deteriorating service and defect.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                       — AT&T WHOLESALE MARKET SHARE —

AT&T Wholesale Market Share is the percentage of the overall mobile phone users in the U.S. that are AT&T's
wholesale subscribers.
    These are subscribers that subscribe to voice and data communication services over AT&T's network but not under
AT&T's brand name. A number of resellers lease resources on AT&T's network and offer services to US retail customers
under their own brand name. AT&T gets a share of revenues generated by customers who subscribe to these services.



                                        AT&T Wholesale Market Share (%)
       6

       5

       4

       3

       2

       1

       0
               2008 0 9           10      11      12       13      14      15       16      17      18       19




    TREFIS ANALYSIS for AT&T           CONTENT@TREFIS.COM            + 1 617 394 8763                                      •7
AT&T's Wholesale Market Share has been increasing rapidly over the last few years. We expect the growth to continue
over the next few years and then stabilize.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                        — SMS & INTERNET REVENUE PER AT&T MOBILE SUBSCRIBER —
    SMS & Internet Revenue per AT&T Mobile Subscriber refers to the average monthly amount spent by AT&T's
customers on non-voice communication.
    Non-voice communication (or data communication, as it is more commonly known) includes messaging, surfing the
Internet, downloading music, playing games, and engaging in other bandwidth-intensive activities.



                SMS & Internet Revenue per AT&T Mobile Subscriber ($ per month)
       30

       25

       20

       15

       10

         5

         0
                 2008 0 9          10      11      12      13      14      15      16      17      18       19




There has been a huge jump in data revenues in the last few years as smartphones facilitated easy use of mobile
internet.SMS & Internet Revenue per AT&T Mobile Subscriber has increased from about $9 in 2007 to close to $18 in
2011. We expect the growth to continue.

Forecast Rationale
We considered the following four factors for this forecast:
     Supporting Factors:
  1. IMPROVED TECHNOLOGY RESULTING IN HIGHER SPEEDS AND CONSEQUENTLY HIGHER DATA USAGE – Mobile data
     usage has sky-rocketed in the last few years because there has been a marked improvement in both connection speeds
     and reliability. As a result, data usage has moved on from the traditional SMS or text messaging to accessing higher
     bandwidth consuming data like e-mails and increasingly, video clips. Carriers are now moving to 4G technology
     which will offer higher speeds and thus stimulate higher data usage.
  2. INCREASED USE OF SMARTPHONES – Smartphones like Apple's hugely successful iPhone and RIM's BlackBerry as
     well as Samsung's Galaxy series have become popular. These easy-to-use and slick looking phones have resulted in
     more users accessing the Internet over their mobile phones . As a result, Internet access on mobile phones has
     increased and is no longer limited to just e-mail access. For example, social networking site users (like Facebook) have
     increasingly accessed the sites through smartphones. Further, improvements in phone camera resolutions have


    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM             + 1 617 394 8763                                      •8
    resulted in an a large number of images and mobile videos being recorded and transferred over mobiles-- another
    rapidly growing source of increased data usage

Mitigating:
  3. NO SIGNIFICANT INCREASE IN DATA ACCESSING COSTS – Intense competition in the wireless industry has ensured that
     operators are unable to hike rates significantly. With increased investment in infrastructure and newer technologies,
     operating costs for service providers are on a downward trend, enabling them to keep data access fees constant.
  4. ADDITION OF CONNECTED DEVICES MIGHT ACT AS A DAMPNER – Connected devices like e-readers, alarm monitoring
     etc add to data revenues, but there ARPU is lower. A large portion of new subscriber additions is coming from such
     devices. As proportion of these devices increase in total customer base, it will put downward pressure on data ARPU
  5. DECLINING SMS USAGE RATES WILL IMPACT DATA ARPU – A trend of declining SMS rates has been established in
     advanced SMS markets such as Finland, Netherlands and Hong Kong. This is expected to hit U.S. shores soon. The
     decline can be attributed to the growing use of smartphones that has caused customers to migrate from traditional
     modes of communication such as text-messaging or SMS to the more convenient and new age messaging services of
     social media (Facebook & Twitter), email and other IP-based messaging systems. The erosion in SMS usage may
     have a negative impact on most wireless carriers' data ARPUs as carriers generally charge much more per byte of
     SMS data sent than any other data sent over the Internet.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                 — MOBILE PLANS & PHONES EBITDA MARGIN —

EBITDA margin represents EBITDA as a percentage of revenue. EBITDA is determined as revenue minus the
operating expenses excluding D&A.



                                 Mobile Plans & Phones EBITDA Margin (%)

       35
       30
       25
       20
       15
       10
         5
         0
                2008 0 9          10      11      12      13      14      15      16      17      18      19




Mobile Plans & Phones EBITDA Margin has come down from about 36.2% in 2006 to 30.6% in 2011. The decline in
margin has been a result of introduction of smartphones that result in losses for the company due to subsidy payments.
Additionally, there has been pricing pressure as evident from subscriber voice fee declines. We expect this trend to


    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM            + 1 617 394 8763                                      •9
continue for a while but gradually over time to be offset by improvements in data revenues and addition of high margin
connected devices like e-readers, alarms etc.

Forecast Rationale
Supporting:
  1. MOBILE PHONE PLAN PRICING REDUCTIONS ALSO AFFECT MARGINS NEGATIVELY – Decreasing voice ARPUs could
     affect margins negatively as Verizon deals with industry wide decrease in mobile phone plans pricing to remain
     competitive.
  2. SUBSIDY PAYMENTS – The practice of subsidizing smartphones is likely to continue well into the future in order to
     increase the usage of high-end phones that drive data ARPUs. Being one of the leaders of the wireless industry,
     AT&T will also continue to invest in new technologies such as HSPA+ and LTE. This will then necessitate
     subsidizing smartphones that run on these technologies in order to drive their adoption.
  3. PROMOTIONS TO DRIVE LTE – Aside from subsidizing smartphones, AT&T will also incur increased marketing
     expenses in order to promote the new faster 4G technology.

Mitigating:
  4. INCREASING DATA ARPUS – Declining voice revenues will be offset by an increase in data ARPU levels as smartphones
     and 4G technologies are widely adopted, thereby supporting margins.
  5. PROLIFERATION OF CONNECTED DEVICES – Connected devices such as e-readers, e-alarms, M2M devices, fleet
     management and security systems, etc are increasingly forming a part of AT&T's connection base. These subscribe to
     data-only plans that have lower pricing. While that leads to a lower ARPUs, the margins are higher than normal
     phone plans due to lower cost of sales, marketing and subsidy.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                 — MOBILE CAPEX (AS % OF MOBILE EBITDA) —

Capital Expenditures are cash expenditures by the company to purchase, repair, or upgrade physical assets, such as
property, buildings, or equipment. We forecast the mobile division's capital expenditures using Mobile CapEx (As % of
Mobile EBITDA).




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM             + 1 617 394 8763                                      •10
                                 Mobile CapEx (As % of Mobile EBITDA) (%)


      40

      30

      20

      10

        0
                2008 0 9          10     11      12      13         14      15     16      17      18      19




Historically, the company has not been a very large spender in the mobile division, concentrating instead on building up
its fixed line infrastructure (primarily, U-Verse and DSL networks). Verizon was spending much more.
      However AT&T has now realized the need for investment and has done so throughout 2010 and 2011 by upgrading
its 3G network and now rolling out 4G LTE network. However, it has already spent a lot and as the benefits of the
investment start coming in, EBITDA should increase. So, although we expect capital expenses to continue to increase on
an absolute scale, when seen as a percent of rising EBITDA should not rise much from current levels.

Forecast Rationale
  1. INCREASING FOCUS ON THE WIRELESS DIVISION – AT&T has adopted initiatives to expand its Wireless division to
     improve coverage and voice quality. Mobile SMS and Internet have been a fast growing segment and hence will
     require more expansion plans. The company has also been rapidly rolling out LTE, a 4G network technology that
     will enable faster data speeds.
Sources for historical data and explanations can be found on the Trefis.com website (link)

                                        2008   2009   2010   2011    2012   2013   2014   2015   2016   2017   2018   2019
 Total Revenue (Bil $)                  49.2   53.5   58.5   63.2    66.9   71.0   76.0   81.0   86.4   91.3   95.7   99.8
  Mobile Phone Revenues (% of total)    10.0   9.23   8.53   10.3    11.3   11.1   10.7   10.3   9.99   9.63   9.37   9.17
  SMS & Internet Data (% of total)      21.5   26.4   31.1   34.8    39.0   42.5   45.7   48.4   50.8   52.7   54.4   55.7
  Prepaid Voice Revenues (% of total)   3.34   2.83   2.62   2.58    2.41   2.30   2.19   2.10   2.03   1.97   1.91   1.88
  Postpaid and Other Voice Revenues 65.1       61.5   57.8   52.3    47.3   44.1   41.4   39.2   37.2   35.7   34.4   33.3
  (% of total)

 Direct Expense (Bil $)                 31.3   35.2   36.8   42.0    44.6   47.5   50.9   54.3   57.9   61.2   64.0   66.7
 Indirect Expense (Bil $)               6.37   9.12   9.44   11.4    14.0   14.8   15.8   16.8   17.8   18.8   19.8   20.7
 Adjusted EBITDA (Bil $)                17.8   18.3   21.7   21.2    22.2   23.5   25.1   26.7   28.4   30.1   31.7   33.1
 Free Cash Flow (Bil $)                 n/a    n/a    n/a    n/a     8.20   8.71   9.29   9.88   10.6   11.3   11.9   12.5




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM              + 1 617 394 8763                                     •11
In addition, you can see the detailed P&L for the Mobile Plans & Phones business in the Appendix (link)



Internet & TV
The most important drivers for the Internet & TV business are:
 • U-Verse TV Pricing
 • U-Verse TV Subscribers
 • Fee Per DSL Subscriber
 • AT&T Broadband Market Share
 • U-Verse Internet Subscribers
 • Internet & TV EBITDA Margin
 • Landline CapEx (As % of Landline EBITDA)

                                              — U-VERSE TV PRICING —
U-Verse TV Pricing refers to the average monthly fee paid by U-Verse TV subscribers.



                                        U-Verse TV Pricing ($ per month)


       75


       50


       25


         0
                 2008 0 9          10      11      12      13      14      15      16      17      18      19




We estimate the U-Verse average prices to be in the vicinity of $60-$65/month, which is in line with digital cable services.
We expect price rises as economy improves and customers move from traditional cable TV to advanced offerings such as
U-Verse followed by stabilization as competition might not allow further price increases.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                           — U-VERSE TV SUBSCRIBERS —
     U-Verse TV Subscribersrefers to the number of U-Verse TV subscribers. AT&T started rolling out the U-Verse TV
service only in late 2005.
     U-Verse is a triple play service and is one of AT&T's flagship services. The company sees this as an alternative video
option to the more traditional cable video offerings from operators like Comcast and Time Warner; and the DBS service


    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM             + 1 617 394 8763                                    •12
providers.



                                          U-Verse TV Subscribers (Mil)


       10.0

         7.5

         5.0

         2.5

         0.0
                   2008 0 9          10     11      12      13      14      15     16      17      18      19




U-Verse service has gained tremendous traction in last few years. From just about 0.23 million subscribers in 2007, the
subscriber base has increased to almost 3.8 million by 2011. We expect the rapid growth to continue.

Forecast Rationale
We considered the following four factors for this forecast
  1. A BUNDLED PACKAGE WORKS OUT TO BE CHEAPER AND FASTER THAN SYNTHETIC BUNDLES – AT&T did not have a
     viable video option before U-Verse and even now, in non U-Verse areas, it ties up with DBS service providers to
     provide satellite video signals. Satellite connections tend to be more expensive and slower than both cable bundles and
     the U-Verse package. In fact, most of the initial subscribers to U-Verse are satellite customers.
  2. FASTER INTERNET SPEED COMPARED TO CABLE COMPANIES IS AN ADVANTAGE – U-Verse provides both fiber-to-
     premise and fiber-to-node services. Fiber-to-premise services are faster than cable broadband connections. As
     customers demand higher speeds for their data needs, this is likely to be an advantage for AT&T.
  3. HIGHER PRICES MIGHT BE A CONCERN – U-Verse tends to be a little more expensive than cable video offerings.
     Studies and surveys suggest that customers prefer the IPTV experience of U-Verse (and FiOS), but higher costs
     might act as a deterrent. Further, as the economic weakness continues, customers are likley to become more price-
     conscious and thus slow down or even postpone their upgrade plans.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                           — FEE PER DSL SUBSCRIBER —

Fee Per DSL Subscriber refers to the average monthly fee paid by AT&T's DSL broadband subscribers.




    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM             + 1 617 394 8763                                      •13
                                     Fee Per DSL Subscriber ($ per month)
       30

       25

       20

       15

       10

         5

         0
                 2008 0 9          10      11      12      13      14      15      16       17      18      19




We estimate that the average DSL subscriber fee has remained constant at around $29 per month over the past few years.
These rates tend to be cheaper than cable-based broadband and Verizon’s FiOS.
     We estimate that the average fee will remain more or less constant at this rate with a downward bias going forward as
the customers continue to shift from DSL to broadband.

Forecast Rationale
We considered the following two factors for this forecast
  1. COMPETITION LIMITING THE PRICE RISES – There is intense competition in the space--not only from faster services
     like cable-based broadband and FiOS, which are continuing to add subscribers at a rapid pace--but also from a
     number of regional and smaller DSL players. As a result, there is limited scope for AT&T to raise prices.
  2. DOUBLE PLAY AND TRIPLE PLAY BUNDLES LEADING TO A PRESSURE ON AVERAGE REVENUES – AT&T is increasingly
     beginning to offer bundled services to its subscribers, which give them a package of voice (either wireless or switched-
     access), video (through a tie-up with DBS providers or through U-Verse), and data (mainly DSL) to compete with
     cable operators. This bundling is likely to weigh on the average fee per subscriber as well.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                      — AT&T BROADBAND MARKET SHARE —

This refers to AT&T's share of the US broadband market by the number of subscribers.
     The US broadband market includes cable-based broadband subscribers, DSL subscribers, and other small segments
(like optical fiber-based subscribers and satellite broadband subscribers).




    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM             + 1 617 394 8763                                     •14
                                       AT&T Broadband Market Share (%)


          20

          15

          10

            5

            0
                    2008 0 9         10      11      12      13      14      15      16      17      18      19




AT&T provides broadband services to its subscribers on multiple platforms. Most of its broadband subscribers use DSL,
but it also has a sizable number of U-Verse and satellite broadband customers as well. AT&T became the largest
broadband service provider in the US in 2005-06 after the BellSouth acquisition; and since then, it has managed to hold a
relatively stable market share. In recent years, however, it has come under increased pressure from Comcast and other
operators. It has an approximate 19% share of the US broadband market. We estimate that it will be difficult for AT&T
to pick up additional market share.

Forecast Rationale
We considered the following three factors for this forecast:
  1. DSL SERVICE LOSING OUT ON CUSTOMERS BECAUSE OF COMPETITION AND SLOWER SPEEDS – Its DSL-based service
     faces intense competition from not only other DSL service providers, but more importantly from cable-based
     broadband and increasingly Verizon’s FiOS. Also, both these services tend to be faster than DSL (though more
     expensive); and as customers demand higher speeds, AT&T’s DSL is likely to lose out. Alarmingly, most of the gain
     in DSL subscribers has been the result of migration from slower dial-up connections or more expensive satellite
     broadband connections with very little attrition from cable-based or FiOS broadband subscribers.
  2. U-VERSE SERVICE TO CANNIBALIZE ON DSL – One of AT&T’s core focus areas has been the roll out of its U-Verse
     service; however, its growth is unlikely to offset the loss of switched access lines in more and more subscriber homes.
     Also, a significant portion of U-Verse’s growth is likely to come from AT&T’s own DSL subscribers.
  3. SATELLITE SERVICE LOSING OUT, AS CABLE PROVIDERS (AND TELECOMS) INCREASE REACH – Traditionally, satellite
     broadband has been used by subscribers who do not have ready access to either cable or fixed telephone line based
     services. As the reach improves and more of the US is covered by these operators, the satellite subscribers are likely to
     switch. This is borne out by the losses in subscribers faced by DBS service providers. There has been a significant
     attrition in both satellite video and broadband subscribers.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                       — U-VERSE INTERNET SUBSCRIBERS —




    TREFIS ANALYSIS for AT&T          CONTENT@TREFIS.COM             + 1 617 394 8763                                     •15
U-Verse Internet Subscribers refers to the number of U-Verse broadband subscribers.
    U-Verse is offered in bundles and a sizable number of subscribers bundle the primary video service with either
broadband or wireless/landline service or both. However, not all subscribers take up the double (or triple) play offers.



                                       U-Verse Internet Subscribers (Mil)

       10.0

         7.5

         5.0

         2.5

         0.0
                   2008 0 9          10      11      12      13      14      15      16      17      18      19




Currently, around 90% of U-Verse video subscribers take up broadband. We estimate this proportion to remain in the
current high range. This is because it costs a U-Verse video subscriber a smaller incremental fee to subscribe to U-Verse
broadband as well; and sometimes this works out to be a cheaper option compared to even DSL.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                        — INTERNET & TV EBITDA MARGIN —
     EBITDA margin represents EBITDA as a percentage of revenue. EBITDA is determined as revenue minus the cost
of goods and services sold as well as the cost of sales and marketing.




    TREFIS ANALYSIS for AT&T          CONTENT@TREFIS.COM             + 1 617 394 8763                                      •16
                                       Internet & TV EBITDA Margin (%)

       40
       35
       30
       25
       20
       15
       10
        5
        0
                2008 0 9          10      11      12      13     14      15      16      17      18      19




This is a high margin business. However the margins have come down in recent times as competition has intensified.
However, we expect it to stabilize around current levels as improving economy should enable more room for price control
and margin control.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                              — LANDLINE CAPEX (AS % OF LANDLINE EBITDA) —
    Capital expenditures are cash expenditures by the company to purchase, repair or upgrade physical assets, such as
property, buildings or equipment. We forecast company wide Capital Expenditures using Landline CapEx (As % of
Landline EBITDA) and allocate a proportion to each division.




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM            + 1 617 394 8763                                      •17
                                Landline CapEx (As % of Landline EBITDA) (%)

       60
       50
       40
       30
       20
       10
         0
                 2008 0 9          10      11       12      13         14      15     16     17      18       19




A major part of the fixed-line division's capital expenditure pertains to maintaining and upgrading AT&T's existing
switched-access line voice networks and the DSL broadband network. We expect that capital expenditures will decline in
absolute terms but increase as % of gross profits as landline gross profits get squeezed at a faster rate due to declining
revenues and margins.

Forecast Rationale
We considered the following two factors for this forecast:
  1. INVESTMENT NEEDED TO UPGRADE DSL INFRASTRUCTURE – AT&T's existing DSL network is slower than both cable
     companies' cable based broadband and Verizon's FiOS. The company has been losing DSL subscribers to both cable
     broadband and FiOS. As a result, it needs to invest more in infrastructure in order to free up the bandwidth and
     increase speeds.
  2. INVESTMENT IN HIGH CAPACITY SWITCHED ACCESS LINES – As the number of switched-access lines goes down, it has
     less lines to maintain. However, it still needs to invest in more high-capacity lines to not lose its existing subscriber
     base.
Sources for historical data and explanations can be found on the Trefis.com website (link)

                                          2008   2009    2010   2011    2012   2013   2014   2015   2016   2017   2018   2019
 Total Revenue (Bil $)                    5.58   6.54    7.66   8.84    10.1   11.2   12.4   13.6   15.0   16.4   17.9   19.4
   U-Verse Internet (% of total)          2.88   6.85    11.1   14.9    17.9   20.0   21.6   23.2   24.8   26.1   27.2   28.0
   Satellite (% of total)                 3.01   2.76    2.46   2.15    1.84   1.61   1.44   1.28   1.14   1.02   0.91   0.81
   U-Verse TV Revenues (% of total)       7.97   17.0    25.0   30.8    36.6   40.9   44.1   46.8   49.4   51.6   53.5   55.2
   DSL (% of total)                       86.1   73.4    61.4   52.1    43.6   37.5   32.9   28.7   24.7   21.3   18.4   16.0
 Direct Expense (Bil $)                   3.30   3.90    4.54   5.26    6.00   6.67   7.42   8.16   8.97   9.84   10.7   11.7
 Indirect Expense (Bil $)                 1.46   1.98    1.76   2.30    2.82   3.03   3.29   3.55   3.81   4.11   4.43   4.77
 Adjusted EBITDA (Bil $)                  2.27   2.64    3.11   3.57    4.06   4.49   4.98   5.46   5.98   6.55   7.15   7.76
 Free Cash Flow (Bil $)                   n/a    n/a     n/a    n/a     1.24   1.46   1.69   1.91   2.17   2.44   2.72   2.99



    TREFIS ANALYSIS for AT&T          CONTENT@TREFIS.COM               + 1 617 394 8763                                    •18
In addition, you can see the detailed P&L for the Internet & TV business in the Appendix (link)



Phone Landlines
The most important drivers for the Phone Landlines business are:
 • Revenue per Home Line
 • Number of AT&T Home Lines
 • Phone Lines EBITDA Margin
 • Landline CapEx (As % of Landline EBITDA)

                                          — REVENUE PER HOME LINE —

Revenue per Home Line refers to the average monthly fee paid by AT&T's home phone line subscribers.



                                  Revenue per Home Line ($ per month)


      50

      40

      30

      20

      10

        0
                2008 0 9         10      11      12      13        14   15      16      17        18   19




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM             + 1 617 394 8763                         •19
This has historically been in the range of $40-45/month. Interestingly enough, the average price per line has trended
upwards even as the number of lines have come down. This is primarily the result of a loss of lesser-used switched access
lines (as households got rid of non-essentialservices and secondary lines to cut costs).

    We estimate the average fee to continue to increase.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                        — NUMBER OF AT&T HOME LINES —
    Number of AT&T Home Lines refers to the number of AT&T's phone lines used my medium-to-large businesses.



                                       Number of AT&T Home Lines (Mil)

       30
       25
       20
       15
       10
         5
         0
                 2008 0 9          10      11      12      13      14      15      16        17    18      19




The number of phone lines has been going down at a rapid pace, as businesses have been moving on to alternative
technologies like VoIP and mobile wireless for their voice communication needs. Barring 2005-06, when the number of
home lines actually increased as the result of the BellSouth acquisition, the rate of decline has been well north of 5%. We
expect the trend of fixed line losses to continue.

Forecast Rationale
We considered the following three factors for this forecast:
  1. WIDER ADOPTION OF MOBILE PHONES HAS MADE FIXED LINES INCREASINGLY REDUNDANT – Newer technologies like
     VoIP and wireless have ensured that a fixed line is no longer needed for voice services. All the major incumbent
     telecom carriers, including AT&T, Verizon, and all the baby Bells have been losing lines, as customers move on to
     VoIP or wireless services.
  2. SHIFT FROM DIAL-UP TO BROADBAND INTERNET HAS MADE SECONDARY PHONE LINES REDUNDANT IN US
     HOUSEHOLDS – A number of US households had multiple lines because they needed them either for different family
     members or to access services like faxing or dial-up Internet. Improved technology has made secondary lines
     redundant, since more family members have mobile phones and the Internet can be accessed via cable or DSL and
     doesn’t need a separate fixed line. As a result, an increasing number of households are getting rid of their secondary
     lines.


    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM             + 1 617 394 8763                                    •20
  3. FIXED-LINE VOICE SERVICES TEND TO BE MORE EXPENSIVE THAN ALTERNATIVES – A switched-access line works out
     to be more expensive than alternatives like wireless and VoIP. VoIP and the availability of free night and weekend
     mobile minutes are proving to be lower cost alternatives. As a result, more households are moving on solely to these
     services, rejecting their primary lines altogether. This trend is likely to pick up speed in the next couple of years, as the
     economy slows down further and households look to cut costs.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                           — PHONE LINES EBITDA MARGIN —

EBITDA margin represents EBITDA as a percentage of revenue. EBITDA is determined as revenue minus the cost of
goods and services sold as well as the cost of sales and marketing.



                                           Phone Lines EBITDA Margin (%)
       35
       30
       25
       20
       15
       10
         5
         0
                 2008 0 9           10       11      12      13         14      15     16      17      18       19




Unsurprisingly, the EBITDA margin has been trending downwards in recent years, in line with revenues trends. We
expect the trend to continue but at a slower pace.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                — LANDLINE CAPEX (AS % OF LANDLINE EBITDA) —


See our analysis of Landline CapEx (As % of Landline EBITDA) in the Internet & TV division here.

                                           2008    2009   2010   2011    2012   2013   2014   2015   2016   2017    2018   2019
 Total Revenue (Bil $)                     25.5    23.4   21.8   20.3    19.1   18.0   17.3   16.8   16.4   16.1    15.8   15.6
  Business Lines (% of total)              35.8    36.9   37.6   38.6    39.2   40.3   40.9   41.3   41.6   41.9    41.8   41.6
  Home Lines (% of total)                  64.2    63.1   62.4   61.4    60.8   59.7   59.1   58.7   58.4   58.1    58.2   58.4
 Direct Expense (Bil $)                    16.9    16.6   14.9   14.4    13.6   12.9   12.4   12.2   11.9   11.7    11.5   11.4



    TREFIS ANALYSIS for AT&T           CONTENT@TREFIS.COM               + 1 617 394 8763                                     •21
                                        2008    2009   2010   2011    2012   2013   2014   2015   2016   2017   2018   2019
 Indirect Expense (Bil $)               5.53    5.12   3.91   3.84    3.81   3.43   3.19   3.03   2.87   2.75   2.66   2.59
 Adjusted EBITDA (Bil $)                8.62    6.83   6.92   5.96    5.49   5.08   4.83   4.66   4.51   4.38   4.29   4.22
 Free Cash Flow (Bil $)                 n/a     n/a    n/a    n/a     1.68   1.65   1.64   1.63   1.64   1.63   1.63   1.63


In addition, you can see the detailed P&L for the Phone Landlines business in the Appendix (link)



Wholesale
The Wholesale division is part of the AT&T Business business, and constitutes 7.46% of our $36.00 price estimate for the
stock, based on our sum of the parts analysis.The most important drivers for the Wholesale business are:
  • Revenue per Wholesale Line
  • Wholesale & Coin Access Lines
  • Wholesale EBITDA Margin
  • Landline CapEx (As % of Landline EBITDA)

                                      — REVENUE PER WHOLESALE LINE —
    This refers to the average monthly revenue expected from each wholesale line.



                                Revenue per Wholesale Line ($ per month)

      800
      700
      600
      500
      400
      300
      200
      100
        0
                  2008 0 9         10      11     12      13         14      15     16      17      18      19




Average monthly revenue per wholesale line has been on an upward trend. This is primarily because of a decrease in the
number of non-essential and low traffic carrying wholesale lines.
We expect the figure to continue to increase steadily before stabilizing at around $800 levels.
Sources for historical data and explanations can be found on the Trefis.com website (link)




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM               + 1 617 394 8763                                   •22
                                    — WHOLESALE & COIN ACCESS LINES —
    This refers to the number of wholesale lines of AT&T.



                                    Wholesale & Coin Access Lines (Mil)

      3.0
      2.5
      2.0
      1.5
      1.0
      0.5
      0.0
                 2008 0 9         10      11      12     13      14      15      16     17      18      19




As with other switched-access lines, the number of lines has been on a downward trend, barring a minor increase in 2005-
06, which was a result of BellSouth's acquisition. The loss rate has been substantial.
    For AT&T in particular, the loss rate has been higher than that of the industry as a whole. We expect the losses to
continue, although at a slower rate.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                        — WHOLESALE EBITDA MARGIN —
     EBITDA margin represents EBITDA as a percentage of revenue. EBITDA is determined as revenue minus the cost
of goods and services sold as well as the cost of sales and marketing.




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM            + 1 617 394 8763                                  •23
                                         Wholesale EBITDA Margin (%)
      35
      30
      25
      20
      15
      10
        5
        0
                2008 0 9         10      11      12      13         14      15     16     17      18       19




Unsurprisingly, the EBITDA margin has been trending downwards in recent years, in line with revenues trends. We
expect the trend to continue but at a slower pace.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                             — LANDLINE CAPEX (AS % OF LANDLINE EBITDA) —


See our analysis of Landline CapEx (As % of Landline EBITDA) in the Internet & TV division here.

                                        2008   2009   2010   2011    2012   2013   2014   2015   2016   2017   2018   2019
 Total Revenue (Bil $)                  18.6   16.8   16.1   15.6    15.5   15.1   14.8   14.6   14.5   14.1   13.8   13.5
 Direct Expense (Bil $)                 12.3   11.9   11.0   11.0    11.0   10.8   10.6   10.6   10.5   10.3   10.0   9.84
 Indirect Expense (Bil $)               4.04   3.67   2.89   2.94    3.09   2.88   2.73   2.63   2.53   2.42   2.32   2.24
 Adjusted EBITDA (Bil $)                6.29   4.90   5.11   4.57    4.46   4.27   4.13   4.05   3.97   3.86   3.75   3.65
 Free Cash Flow (Bil $)                 n/a    n/a    n/a    n/a     1.36   1.39   1.40   1.42   1.44   1.44   1.42   1.41


In addition, you can see the detailed P&L for the Wholesale business in the Appendix (link)




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM              + 1 617 394 8763                                   •24
Enterprise
The Enterprise division is part of the AT&T Business business, and constitutes 6.95% of our $36.00 price estimate for the
stock, based on our sum of the parts analysis.The most important drivers for the Enterprise business are:
  • Enterprise Revenues
  • Enterprise EBITDA Margin
  • Landline CapEx (As % of Landline EBITDA)

                                            — ENTERPRISE REVENUES —
    Enterprise Revenues refers to the annual revenues from AT&T's enterprise segment.



                                           Enterprise Revenues ($ Bil)

       15.0
       12.5
       10.0
        7.5
        5.0
        2.5
        0.0
                   2008 0 9         10      11     12      13      14     15      16      17     18      19




Enterprise business revenues have been on a downward trend in line with fixed phone line business. However, with
increasing competition from the likes of Comcast and other cable companies that are becoming increasingly involved in
the corporate communication services space, AT&T no longer faces competition solely from other telcos. Comcast has
been pushing its 100 MBps broadband lines targeted at businesses, TWC has also been pushing its business VoIP efforts.
     Thus, we expect the revenue growth to continue to be negative.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                         — ENTERPRISE EBITDA MARGIN —
     EBITDA margin represents EBITDA as a percentage of revenue. EBITDA is determined as revenue minus the cost
of goods and services sold as well as the cost of sales and marketing.




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM            + 1 617 394 8763                                   •25
                                         Enterprise EBITDA Margin (%)
       35
       30
       25
       20
       15
       10
        5
        0
                2008 0 9          10      11      12     13          14      15     16     17      18       19




The margins have been coming down in recent years, in-line with declining revenues. We expect this trend to continue in
future but at a slower pace.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                              — LANDLINE CAPEX (AS % OF LANDLINE EBITDA) —


See our analysis of Landline CapEx (As % of Landline EBITDA) in the Internet & TV division here.

                                         2008   2009   2010   2011    2012   2013   2014   2015   2016   2017   2018   2019
 Total Revenue (Bil $)                   15.6   15.0   14.4   13.9    13.9   13.6   13.3   13.0   12.9   12.8   12.7   12.7
 Direct Expense (Bil $)                  10.3   10.6   9.81   9.84    9.87   9.74   9.59   9.44   9.37   9.30   9.27   9.28
 Indirect Expense (Bil $)                3.37   3.28   2.58   2.63    2.77   2.59   2.46   2.35   2.26   2.19   2.14   2.12
 Adjusted EBITDA (Bil $)                 5.26   4.38   4.56   4.08    3.99   3.84   3.73   3.61   3.55   3.49   3.46   3.45
 Free Cash Flow (Bil $)                  n/a    n/a    n/a    n/a     1.22   1.25   1.26   1.26   1.29   1.30   1.31   1.33


In addition, you can see the detailed P&L for the Enterprise business in the Appendix (link)




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM               + 1 617 394 8763                                   •26
Mass Markets
The Mass Markets division is part of the AT&T Business business, and constitutes 0.26% of our $36.00 price estimate for
the stock, based on our sum of the parts analysis.The most important drivers for the Mass Markets business are:
  • Mass Market Revenues
  • Mass Markets EBITDA Margin
  • Landline CapEx (As % of Landline EBITDA)

                                          — MASS MARKET REVENUES —
    Mass Market Revenues refers to the annual revenues from mass market lines.



                                         Mass Market Revenues ($ Bil)

      2.5

      2.0

      1.5

      1.0

      0.5

      0.0
                 2008 0 9         10      11      12     13      14      15      16     17      18     19




This is one of the declining businesses for AT&T. As the subscribers disconnect their fixed phone lines and move on to
newer technologies like VoIP and wireless, the division revenues have gone down continuously.We expect the decline to
continue.

Forecast Rationale
We base our forecast on the following main factor:
  1. LOSS IN NUMBER OF FIXED LANDLINE SUBSCRIBERS – Both business and residential customers continue to move away
     from fixed lines to alternative technologies. Also, in case of an economic downturn, this trend is exacerbated, as
     customers become more price-conscious and look to reduce costs.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                       — MASS MARKETS EBITDA MARGIN —

EBITDA margin represents EBITDA as a percentage of revenue. EBITDA is determined as revenue minus the cost of
goods and services sold as well as the cost of sales and marketing.



    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM           + 1 617 394 8763                                   •27
                                      Mass Markets EBITDA Margin (%)
      35
      30
      25
      20
      15
      10
        5
        0
                2008 0 9         10      11      12     13          14      15     16     17      18       19




Mass Markets EBITDA margin has been trending downwards over the last few years as the business comes under
pressure. We expect this trend to continue.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                             — LANDLINE CAPEX (AS % OF LANDLINE EBITDA) —


See our analysis of Landline CapEx (As % of Landline EBITDA) in the Internet & TV division here.

                                        2008   2009   2010   2011    2012   2013   2014   2015   2016   2017   2018   2019
 Total Revenue (Bil $)                  2.56   1.86   1.35   1.06    0.84   0.70   0.62   0.56   0.51   0.48   0.46   0.44
 Direct Expense (Bil $)                 1.69   1.32   0.92   0.75    0.59   0.50   0.44   0.40   0.37   0.35   0.33   0.32
 Indirect Expense (Mil $)               553    406    241    199     166    133    114    99.9   89.4   82.2   76.9   72.9
 Adjusted EBITDA (Mil $)                863    542    427    309     240    198    172    153    140    131    124    118
 Free Cash Flow (Mil $)                 n/a    n/a    n/a    n/a     73.4   64.5   58.6   53.9   51.0   48.9   47.2   45.8


In addition, you can see the detailed P&L for the Mass Markets business in the Appendix (link)




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM              + 1 617 394 8763                                   •28
Investments
The most important drivers for the Investments business are:
 • Investment Revenues
 • Investments EBITDA Margin

                                              — INVESTMENT REVENUES —
    Investment Revenues refers to the annual consolidated revenues for this division.
    This division incorporates AT&T's miscellaneous investments-- primarily minority equity investments.



                                             Investment Revenues ($ Mil)
       1,000


          750


          500


          250


              0
                      2008 0 9          10      11     12      13      14      15      16         17   18   19




This figure has declined from about $2.2 billion in 2007 to a little over $450 million in 2011.

Forecast Rationale
We expect the revenues to continue their declining trend in the future as well.
Sources for historical data and explanations can be found on the Trefis.com website (link)


                                          — INVESTMENTS EBITDA MARGIN —
     EBITDA margin represents EBITDA as a percentage of revenue. EBITDA is determined as revenue minus the cost
of goods and services sold as well as the cost of sales and marketing.




    TREFIS ANALYSIS for AT&T          CONTENT@TREFIS.COM              + 1 617 394 8763                           •29
                                       Investments EBITDA Margin (%)
               0

         -250

         -500

         -750

      -1,000

                      2008 0 9         10       11      12      13       14       15      16      17     18      19




Historically, Investments EBITDA margins have come down from about 16% in 2007 to about -1000% in 2011. The steep
decline in 2011 was because of the penalty fee that AT&T had to pay T-Mobile because of the withdrawal of its takeover
bid.
     We expect the margins to improve in the future.
Sources for historical data and explanations can be found on the Trefis.com website (link)

                                        2008    2009    2010    2011     2012    2013    2014   2015   2016   2017   2018   2019
 Total Revenue (Mil $)                  963     664     545     453      90.6    79.7    71.8   66.0   60.7   57.7   56.0   54.3
 Direct Expense (Bil $)                 1.06    3.10    2.39    5.27     0.15    0.09    0.07   0.06   0.05   0.05   0.05   0.04
 Indirect Expense (Mil $)               -2.42   -407    -23.2   -364     -9.91   -1.01   0.34   1.12   1.43   1.54   1.68   1.81
 Adjusted EBITDA (Bil $)                -0.10   -2.44   -1.84   -4.81    -0.06   -0.01   0.00   0.01   0.01   0.01   0.01   0.01
 Free Cash Flow (Mil $)                 n/a     n/a     n/a     n/a      -46.5   -4.78   1.63   5.31   6.92   7.54   8.25   8.91


In addition, you can see the detailed P&L for the Investments business in the Appendix (link)




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM                  + 1 617 394 8763                                     •30
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    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM            + 1 617 394 8763                                    •31
Appendix


Summary P&L for AT&T
Summary P&L for AT&T
                                       2008    2009    2010    2011     2012    2013    2014   2015   2016   2017   2018   2019
Total Revenues (Bil $)                 118     117     120     123      126     129     134    139    145    151    156    161
  Mobile Plans & Phones (% of total)   41.7    45.4    48.6    51.2     53.0    54.8    56.5   57.9   59.3   60.4   61.2   61.8
  Internet & TV (% of total)           4.72    5.55    6.36    7.16     7.97    8.61    9.22   9.75   10.3   10.8   11.4   12.0
  Phone Landlines (% of total)         21.6    19.9    18.1    16.5     15.1    13.9    12.9   12.1   11.3   10.6   10.1   9.64
  Wholesale (% of total)               15.8    14.3    13.4    12.6     12.3    11.7    11.0   10.5   9.93   9.35   8.81   8.35
  Enterprise (% of total)              13.2    12.7    11.9    11.3     11.0    10.5    9.90   9.34   8.87   8.46   8.13   7.88
  Mass Markets (% of total)            2.17    1.58    1.12    0.86     0.66    0.54    0.46   0.40   0.35   0.32   0.29   0.27
  Investments (% of total)             0.82    0.56    0.45    0.37     0.07    0.06    0.05   0.05   0.04   0.04   0.04   0.03
Direct Expenses (Bil $)                77.0    82.7    80.4    88.6     85.9    88.2    91.5   95.1   99.1   102    105    109
  Mobile Plans & Phones (% of total)   43.4    52.0    54.2    60.8     55.0    56.8    58.4   59.8   61.0   62.1   62.8   63.3
  Internet & TV (% of total)           5.54    7.53    7.79    10.2     10.1    10.9    11.6   12.2   12.8   13.5   14.2   14.8
  Phone Landlines (% of total)         21.0    19.5    17.3    17.1     13.6    12.3    11.3   10.4   9.68   9.02   8.51   8.06
  Wholesale (% of total)               15.3    14.0    12.8    13.1     11.0    10.3    9.62   9.08   8.52   7.95   7.42   6.98
  Enterprise (% of total)              12.8    12.5    11.4    11.7     9.87    9.29    8.68   8.10   7.62   7.19   6.85   6.58
  Mass Markets (% of total)            2.10    1.54    1.07    0.89     0.59    0.48    0.40   0.34   0.30   0.27   0.25   0.23
  Investments (% of total)             -0.23   -6.94   -4.61   -13.80   -0.14   -0.01   0.00   0.01   0.02   0.02   0.02   0.02
Adjusted EBITDA (Bil $)                41.0    35.1    40.0    34.9     40.4    41.4    42.9   44.6   46.6   48.6   50.5   52.3
  Mobile Plans & Phones (% of total)   43.4    52.0    54.2    60.8     55.0    56.8    58.4   59.8   61.0   62.1   62.8   63.3
  Internet & TV (% of total)           5.54    7.53    7.79    10.2     10.1    10.9    11.6   12.2   12.8   13.5   14.2   14.8
  Phone Landlines (% of total)         21.0    19.5    17.3    17.1     13.6    12.3    11.3   10.4   9.68   9.02   8.51   8.06
  Wholesale (% of total)               15.3    14.0    12.8    13.1     11.0    10.3    9.62   9.08   8.52   7.95   7.42   6.98
  Enterprise (% of total)              12.8    12.5    11.4    11.7     9.87    9.29    8.68   8.10   7.62   7.19   6.85   6.58
  Mass Markets (% of total)            2.10    1.54    1.07    0.89     0.59    0.48    0.40   0.34   0.30   0.27   0.25   0.23
  Investments (% of total)             -0.23   -6.94   -4.61   -13.80   -0.14   -0.01   0.00   0.01   0.02   0.02   0.02   0.02
Indirect Expenses (Bil $)              21.3    23.2    20.8    22.9     26.7    26.9    27.6   28.4   29.4   30.4   31.4   32.5
  Mobile Plans & Phones (% of total)   29.9    39.4    45.4    49.6     52.6    55.1    57.2   59.0   60.6   62.0   63.0   63.7
  Internet & TV (% of total)           6.84    8.55    8.46    10.1     10.6    11.3    11.9   12.5   13.0   13.5   14.1   14.7
  Phone Landlines (% of total)         25.9    22.1    18.8    16.8     14.3    12.8    11.6   10.7   9.78   9.05   8.47   7.98
  Wholesale (% of total)               18.9    15.8    13.9    12.8     11.6    10.7    9.89   9.25   8.61   7.97   7.39   6.91
  Enterprise (% of total)              15.8    14.2    12.4    11.5     10.4    9.65    8.93   8.25   7.69   7.20   6.82   6.52
  Mass Markets (% of total)            2.60    1.75    1.16    0.87     0.63    0.50    0.41   0.35   0.30   0.27   0.24   0.22
  Investments (% of total)             -0.01   -1.76   -0.11   -1.59    -0.04   -0.00   0.00   0.00   0.00   0.01   0.01   0.01
Free Cash Flow (Bil $)                 n/a     n/a     n/a     n/a      13.7    14.5    15.3   16.2   17.2   18.2   19.0   19.9
  Mobile Plans & Phones (% of total)   n/a     n/a     n/a     n/a      59.8    60.0    60.6   61.1   61.7   62.2   62.5   62.7



   TREFIS ANALYSIS for AT&T       CONTENT@TREFIS.COM                + 1 617 394 8763                                        •32
Summary P&L for AT&T continued
                                         2008   2009   2010   2011    2012    2013    2014   2015   2016   2017   2018   2019
   Internet & TV (% of total)            n/a    n/a    n/a    n/a     9.04    10.1    11.0   11.8   12.6   13.4   14.3   15.1
   Phone Landlines (% of total)          n/a    n/a    n/a    n/a     12.2    11.4    10.7   10.1   9.51   8.99   8.57   8.19
   Wholesale (% of total)                n/a    n/a    n/a    n/a     9.92    9.57    9.12   8.77   8.38   7.92   7.48   7.09
   Enterprise (% of total)               n/a    n/a    n/a    n/a     8.88    8.61    8.23   7.82   7.48   7.16   6.90   6.69
   Mass Markets (% of total)             n/a    n/a    n/a    n/a     0.53    0.44    0.38   0.33   0.30   0.27   0.25   0.23
   Investments (% of total)              n/a    n/a    n/a    n/a     -0.34   -0.03   0.01   0.03   0.04   0.04   0.04   0.04



Detailed P&L for the Mobile Plans & Phones
business
The most important drivers for the Mobile Plans & Phones business are discussed above, here is the detailed P&L.

Mobile Plans & Phones: Detailed P&L
                                   2008         2009 2010 2011        2012    2013    2014 2015     2016 2017     2018   2019
Revenues
 Mobile Phone Revenues (Bil $)     4.93         4.94   4.99   6.49    7.59    7.89    8.13   8.37   8.62   8.80   8.97   9.15
   Mobile Phone Revenues ($ Bil)   4.93         4.94   4.99   6.49    7.59    7.89    8.13   8.37   8.62   8.80   8.97   9.15
 SMS & Internet Data (Bil $)       10.6         14.1   18.2   22.0    26.1    30.1    34.8   39.2   43.8   48.2   52.0   55.5
   AT&T Postpaid Market Share      22.8         23.4   23.6   23.1    22.8    22.9    23.0   23.1   23.2   23.2   23.2   23.2
     (%)

     US Mobile Phones in Use (Mil)       261    276    288    300     307     314     320    325    328    332    335    338
     AT&T Wholesale Market Share         3.28   3.78   4.04   4.54    4.84    5.14    5.44   5.64   5.84   5.94   6.04 6.04
     (%)

     AT&T Prepaid Market Share (%)       2.33   1.94   2.27   2.41    2.51    2.61    2.71   2.81   2.91   2.96   3.01   3.06
     AT&T Connected Devices              30.1   31.3   40.4   41.1    34.6    34.6    34.7   34.8   34.9   34.9   35.0   35.0
     Market Share (%)
     US Connected devices in Use (Mil)   8.83   14.9   23.0   31.8    42.9    56.7    72.5   89.2   106    122    137    154
     SMS & Internet Revenue per
     AT&T Mobile Subscriber ($ per       12.0   14.5   16.8   18.5    20.6    22.4    24.0   25.2   26.5   27.5   28.3   28.9
     month)

   Prepaid Voice Revenues (Bil $)        1.64   1.51   1.53   1.63    1.61    1.63    1.66   1.70   1.75   1.80   1.83   1.88
     AT&T Prepaid ARPU ($ per            22.5   22.0   21.5   19.8    18.0    17.1    16.4   15.9   15.6   15.4   15.3   15.3
     month)

     AT&T Prepaid Market Share (%) 2.33         1.94   2.27   2.41    2.51    2.61    2.71   2.81   2.91   2.96   3.01   3.06
     US Mobile Phones in Use (Mil)   261        276    288    300     307     314     320    325    328    332    335    338
   Postpaid and Other Voice Revenues 32.0       32.9   33.8   33.1    31.6    31.3    31.5   31.7   32.2   32.6   32.9   33.2
   (Bil $)

     Mobile Subscriber Plan Pricing ($ 40.9 38.3       36.4   33.9    31.3    30.1    29.2   28.6   28.3   28.2   28.1   28.0
     per month)

     AT&T Postpaid Market Share          22.8   23.4   23.6   23.1    22.8    22.9    23.0   23.1   23.2   23.2   23.2   23.2
     (%)

     US Mobile Phones in Use (Mil)       261    276    288    300     307     314     320    325    328    332    335    338



    TREFIS ANALYSIS for AT&T         CONTENT@TREFIS.COM              + 1 617 394 8763                                      •33
Mobile Plans & Phones: Detailed P&L continued
                                   2008 2009 2010 2011               2012   2013   2014 2015     2016 2017     2018   2019
   AT&T Wholesale Market Share 3.28 3.78 4.04 4.54                   4.84   5.14   5.44   5.64   5.84   5.94   6.04 6.04
   (%)

   Total Revenues (Bil $)               49.2   53.5   58.5   63.2    66.9   71.0   76.0   81.0   86.4   91.3   95.7   99.8

 Expenses
  Direct Expenses (Bil $)               31.3   35.2   36.8   42.0    44.6   47.5   50.9   54.3   57.9   61.2   64.0 66.7
    Mobile Plans & Phones EBITDA        36.3   34.1   37.1   33.5    33.2   33.1   33.0   32.9   32.9   33.0   33.1   33.2
    Margin (%)
  Indirect Expenses (Bil $)             6.37   9.12   9.44   11.4    14.0   14.8   15.8   16.8   17.8   18.8   19.8   20.7
    Mobile CapEx (As % of Mobile        33.2   33.2   42.3   46.0 45.5      45.5   45.5   45.5   45.5   45.5   45.5   45.5
     EBITDA)

     Effective Tax Rate (%)          0.00 32.9 0.00 37.7 35.2 35.0 35.0 35.0 35.0 35.0 35.0 35.0
     Increase in NWC (As % Revenues) 2.81 -1.41 0.56 0.36 0.10 -0.13 -0.31 -0.44 -0.52 -0.57 -0.60 -0.63
     Increase in NOA (As % of        -0.06 1.23 0.82 -0.27 -0.27 -0.27 -0.27 -0.27 -0.23 -0.19 -0.15 -0.13
     Revenues)

   Total Expenses (Bil $)               37.7   44.4   46.3   53.4    58.7   62.3   66.7   71.1   75.7   80.0 83.8     87.3

 Adjusted EBITDA (Bil $)                17.8   18.3   21.7   21.2    22.2   23.5   25.1   26.7   28.4   30.1   31.7   33.1
 Free Cash Flow (Bil $)                 n/a    n/a    n/a    n/a     8.20   8.71   9.29   9.88   10.6   11.3   11.9   12.5



Detailed P&L for the Internet & TV business
The most important drivers for the Internet & TV business are discussed above, here is the detailed P&L.

Internet & TV: Detailed P&L
                                        2008 2009 2010 2011          2012   2013   2014 2015     2016 2017     2018   2019
 Revenues
  U-Verse Internet (Bil $)             0.16    0.45   0.85   1.32    1.80   2.23   2.67   3.16   3.71   4.27   4.86   5.44
    U-Verse Internet Subscribers (Mil) 0.89    1.86   2.69   3.49    4.19   4.94   5.68   6.62   7.54   8.54   9.56   10.5
    U-Verse Internet Pricing ($ per    24.7    27.2   31.1   35.6    39.2   40.7   41.9   42.8   43.6   44.3   44.7   45.2
    month)

   Satellite (Mil $)                    167    180    188    190     184    180    178    174    170    167    162    157
     Satellite Broadband Pricing ($ per 65.0   69.0 73.0     78.0    83.5   87.6   90.3   92.1   93.9   95.8   96.7   97.7
     month)

     Satellite Broadband Subscribers    219    217    212    194     174    167    161    154    148    142    136    131
     (K)

   U-Verse TV Revenues (Bil $)          0.44   1.11   1.92   2.72    3.69   4.56   5.46   6.38   7.38   8.46   9.57   10.7
    U-Verse TV Subscribers (Mil)        1.04   2.06   2.99   3.79    4.55   5.37   6.17   7.04   8.02   8.99   10.1   11.1
    U-Verse TV Pricing ($ per month)    58.0   59.7   63.3   67.0    73.7   76.6   78.9   80.5   81.7   82.9   83.8   84.6
   DSL (Bil $)                          4.80   4.80   4.70   4.60    4.39   4.19   4.08   3.91   3.69   3.49   3.30   3.11
    Fee Per DSL Subscriber ($ per       28.9   28.9   28.9   29.3    29.6   29.6   29.6   29.5   29.5   29.5   29.4   29.4
     month)




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM              + 1 617 394 8763                                    •34
Internet & TV: Detailed P&L continued
                                   2008 2009 2010 2011                2012   2013   2014 2015     2016 2017     2018   2019
     AT&T Broadband Market Share 22.4 21.3 20.3 19.2                  18.2   17.8   17.5   17.2   17.0   16.9   16.8   16.7
     (%)

    Broadband Penetration (%)            58.0   63.5   68.2   72.2    75.2   78.2   81.2   83.2   85.2   87.2   89.2   91.2
    US Households (Mil)                  116    116    117    118     119    120    121    122    123    124    125    126
    U-Verse Internet Subscribers (Mil)   0.89   1.86   2.69   3.49    4.19   4.94   5.68   6.62   7.54   8.54   9.56   10.5
    Satellite Broadband Subscribers      219    217    212    194     174    167    161    154    148    142    136    131
    (K)

  Total Revenues (Bil $)                 5.58   6.54   7.66   8.84    10.1   11.2   12.4   13.6   15.0   16.4   17.9   19.4

Expenses
 Direct Expenses (Bil $)       3.30             3.90   4.54   5.26    6.00 6.67     7.42   8.16   8.97   9.84   10.7   11.7
   Internet & TV EBITDA Margin 40.8             40.4   40.6 40.4      40.4   40.2   40.2   40.1   40.0 40.0 40.0 39.9
   (%)

  Indirect Expenses (Bil $)              1.46   1.98   1.76   2.30    2.82   3.03   3.29   3.55   3.81   4.11   4.43   4.77
    Landline CapEx (As % of Landline     61.6   58.2   55.3   56.9    51.9   50.1   48.7   47.6   46.6   45.8   45.1   44.6
    EBITDA)

    Effective Tax Rate (%)          0.00 32.9 0.00 37.7 35.2 35.0 35.0 35.0 35.0 35.0 35.0 35.0
    Increase in NWC (As % Revenues) 2.81 -1.41 0.56 0.36 0.10 -0.13 -0.31 -0.44 -0.52 -0.57 -0.60 -0.63
    Increase in NOA (As % of        -0.06 1.23 0.82 -0.27 -0.27 -0.27 -0.27 -0.27 -0.23 -0.19 -0.15 -0.13
    Revenues)

  Total Expenses (Bil $)                 4.76   5.88   6.30   7.57    8.82   9.70   10.7   11.7   12.8   14.0   15.2   16.4

Adjusted EBITDA (Bil $)                  2.27   2.64   3.11   3.57    4.06 4.49     4.98   5.46   5.98   6.55   7.15   7.76
Free Cash Flow (Bil $)                   n/a    n/a    n/a    n/a     1.24 1.46     1.69   1.91   2.17   2.44   2.72   2.99




   TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM                + 1 617 394 8763                                    •35
Detailed P&L for the Phone Landlines
business
The most important drivers for the Phone Landlines business are discussed above, here is the detailed P&L.

Phone Landlines: Detailed P&L
                                        2008 2009 2010 2011          2012   2013   2014 2015     2016 2017     2018   2019
 Revenues
  Business Lines (Bil $)          9.14         8.64   8.21   7.86    7.48   7.25   7.06   6.95   6.83   6.72   6.60 6.47
    Number of AT&T Business Lines 22.0         18.5   17.0   15.6    14.8   14.1   13.7   13.3   12.9   12.6   12.4   12.1
    (Mil)

     Revenue per Business Line ($ per   34.1   35.6   38.5   40.1    40.9 41.8     42.4   43.0   43.4   43.9   44.1   44.1
     month)

   Home Lines (Bil $)                   16.4   14.8   13.6   12.5    11.6   10.7   10.2   9.89   9.59   9.34   9.20   9.10
    Number of AT&T Home Lines           30.8   27.3   24.2   21.2    18.7   17.2   16.2   15.4   14.6   14.1   13.9   13.6
     (Mil)

     Revenue per Home Line ($ per       41.5   42.3   44.0   45.8    48.4   49.8   51.1   52.3   53.4   54.2   54.7   55.3
     month)

   Total Revenues (Bil $)               25.5   23.4   21.8   20.3    19.1   18.0   17.3   16.8   16.4   16.1   15.8   15.6

 Expenses
  Direct Expenses (Bil $)               16.9   16.6   14.9   14.4    13.6   12.9   12.4   12.2   11.9   11.7   11.5   11.4
    Phone Lines EBITDA Margin           33.8   29.2   31.7   29.3    28.8   28.3   28.0   27.7   27.5   27.3   27.2   27.1
     (%)

   Indirect Expenses (Bil $)            5.53   5.12   3.91   3.84    3.81   3.43   3.19   3.03   2.87   2.75   2.66   2.59
     Landline CapEx (As % of Landline   61.6   58.2   55.3   56.9    51.9   50.1   48.7   47.6   46.6   45.8   45.1   44.6
     EBITDA)

     Effective Tax Rate (%)          0.00 32.9 0.00 37.7 35.2 35.0 35.0 35.0 35.0 35.0 35.0 35.0
     Increase in NWC (As % Revenues) 2.81 -1.41 0.56 0.36 0.10 -0.13 -0.31 -0.44 -0.52 -0.57 -0.60 -0.63
     Increase in NOA (As % of        -0.06 1.23 0.82 -0.27 -0.27 -0.27 -0.27 -0.27 -0.23 -0.19 -0.15 -0.13
     Revenues)

   Total Expenses (Bil $)               22.5   21.7   18.8   18.2    17.4   16.3   15.6   15.2   14.8   14.4   14.2   13.9

 Adjusted EBITDA (Bil $)                8.62   6.83   6.92   5.96    5.49   5.08   4.83   4.66   4.51   4.38   4.29   4.22
 Free Cash Flow (Bil $)                 n/a    n/a    n/a    n/a     1.68   1.65   1.64   1.63   1.64   1.63   1.63   1.63




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM              + 1 617 394 8763                                    •36
Detailed P&L for the Wholesale business
The most important drivers for the Wholesale business are discussed above, here is the detailed P&L.

Wholesale: Detailed P&L
                                        2008 2009 2010 2011          2012   2013   2014 2015     2016 2017     2018   2019
 Revenues
  Wholesale Lines (Bil $)               18.6   16.8   16.1   15.6    15.5   15.1   14.8   14.6   14.5   14.1   13.8   13.5
    Wholesale & Coin Access Lines       3.17   2.79   2.43   2.17    1.96   1.80   1.70   1.61   1.53   1.45   1.40   1.34
     (Mil)

     Revenue per Wholesale Line ($      447    470    514    565     625    668    702    737    766    789    805    821
     per month)

   Total Revenues (Bil $)               18.6   16.8   16.1   15.6    15.5   15.1   14.8   14.6   14.5   14.1   13.8   13.5

 Expenses
  Direct Expenses (Bil $)               12.3   11.9   11.0   11.0    11.0   10.8   10.6   10.6   10.5   10.3   10.0   9.84
    Wholesale EBITDA Margin (%)         33.8   29.2   31.7   29.3    28.8   28.3   28.0   27.7   27.5   27.3   27.2   27.1
  Indirect Expenses (Bil $)             4.04   3.67   2.89   2.94    3.09   2.88   2.73   2.63   2.53   2.42   2.32   2.24
    Landline CapEx (As % of Landline    61.6   58.2   55.3   56.9    51.9   50.1   48.7   47.6   46.6   45.8   45.1   44.6
     EBITDA)

     Effective Tax Rate (%)          0.00 32.9 0.00 37.7 35.2 35.0 35.0 35.0 35.0 35.0 35.0 35.0
     Increase in NWC (As % Revenues) 2.81 -1.41 0.56 0.36 0.10 -0.13 -0.31 -0.44 -0.52 -0.57 -0.60 -0.63
     Increase in NOA (As % of        -0.06 1.23 0.82 -0.27 -0.27 -0.27 -0.27 -0.27 -0.23 -0.19 -0.15 -0.13
     Revenues)

   Total Expenses (Bil $)               16.4   15.6   13.9   14.0    14.1   13.7   13.3   13.2   13.0   12.7   12.4   12.1

 Adjusted EBITDA (Bil $)                6.29   4.90 5.11     4.57    4.46   4.27   4.13   4.05   3.97   3.86   3.75   3.65
 Free Cash Flow (Bil $)                 n/a    n/a n/a       n/a     1.36   1.39   1.40   1.42   1.44   1.44   1.42   1.41




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM              + 1 617 394 8763                                    •37
Detailed P&L for the Enterprise business
The most important drivers for the Enterprise business are discussed above, here is the detailed P&L.

Enterprise: Detailed P&L
                                         2008 2009 2010 2011          2012   2013   2014 2015     2016 2017     2018   2019
 Revenues
  Enterprise Revenues (Bil $)            15.6   15.0   14.4   13.9    13.9   13.6   13.3   13.0   12.9   12.8   12.7   12.7
    Enterprise Revenues ($ Bil)          15.6   15.0   14.4   13.9    13.9   13.6   13.3   13.0   12.9   12.8   12.7   12.7
  Total Revenues (Bil $)                 15.6   15.0   14.4   13.9    13.9   13.6   13.3   13.0   12.9   12.8   12.7   12.7

 Expenses
  Direct Expenses (Bil $)                10.3   10.6   9.81   9.84    9.87   9.74   9.59   9.44   9.37   9.30   9.27   9.28
    Enterprise EBITDA Margin (%)         33.8   29.2   31.7   29.3    28.8   28.3   28.0   27.7   27.5   27.3   27.2   27.1
  Indirect Expenses (Bil $)              3.37   3.28   2.58   2.63    2.77   2.59   2.46   2.35   2.26   2.19   2.14   2.12
    Landline CapEx (As % of Landline     61.6   58.2   55.3   56.9    51.9   50.1   48.7   47.6   46.6   45.8   45.1   44.6
     EBITDA)

     Effective Tax Rate (%)          0.00 32.9 0.00 37.7 35.2 35.0 35.0 35.0 35.0 35.0 35.0 35.0
     Increase in NWC (As % Revenues) 2.81 -1.41 0.56 0.36 0.10 -0.13 -0.31 -0.44 -0.52 -0.57 -0.60 -0.63
     Increase in NOA (As % of        -0.06 1.23 0.82 -0.27 -0.27 -0.27 -0.27 -0.27 -0.23 -0.19 -0.15 -0.13
     Revenues)

   Total Expenses (Bil $)                13.7   13.9   12.4   12.5    12.6   12.3   12.1   11.8   11.6   11.5   11.4   11.4

 Adjusted EBITDA (Bil $)                 5.26   4.38   4.56   4.08    3.99   3.84   3.73   3.61   3.55   3.49   3.46   3.45
 Free Cash Flow (Bil $)                  n/a    n/a    n/a    n/a     1.22   1.25   1.26   1.26   1.29   1.30   1.31   1.33




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM               + 1 617 394 8763                                    •38
Detailed P&L for the Mass Markets business
The most important drivers for the Mass Markets business are discussed above, here is the detailed P&L.

Mass Markets: Detailed P&L
                                        2008 2009 2010 2011          2012   2013   2014 2015     2016 2017     2018   2019
 Revenues
  Mass Market Revenues (Bil $)          2.56   1.86   1.35   1.06    0.84   0.70   0.62   0.56   0.51   0.48   0.46 0.44
    Mass Market Revenues ($ Bil)        2.56   1.86   1.35   1.06    0.84   0.70   0.62   0.56   0.51   0.48   0.46 0.44
  Total Revenues (Bil $)                2.56   1.86   1.35   1.06    0.84   0.70   0.62   0.56   0.51   0.48   0.46 0.44

 Expenses
  Direct Expenses (Bil $)               1.69   1.32   0.92   0.75    0.59   0.50   0.44   0.40 0.37     0.35   0.33   0.32
    Mass Markets EBITDA Margin          33.8   29.2   31.7   29.3    28.8   28.3   28.0   27.7   27.5   27.3   27.2   27.1
     (%)

   Indirect Expenses (Mil $)            553    406    241    199     166    133    114    99.9   89.4   82.2   76.9   72.9
     Landline CapEx (As % of Landline   61.6   58.2   55.3   56.9    51.9   50.1   48.7   47.6   46.6   45.8   45.1   44.6
     EBITDA)

     Effective Tax Rate (%)          0.00 32.9 0.00 37.7 35.2 35.0 35.0 35.0 35.0 35.0 35.0 35.0
     Increase in NWC (As % Revenues) 2.81 -1.41 0.56 0.36 0.10 -0.13 -0.31 -0.44 -0.52 -0.57 -0.60 -0.63
     Increase in NOA (As % of        -0.06 1.23 0.82 -0.27 -0.27 -0.27 -0.27 -0.27 -0.23 -0.19 -0.15 -0.13
     Revenues)

   Total Expenses (Bil $)               2.25   1.72   1.16   0.95    0.76   0.64 0.56     0.50   0.46 0.43     0.41   0.39

 Adjusted EBITDA (Mil $)                863    542    427    309     240    198    172    153    140    131    124    118
 Free Cash Flow (Mil $)                 n/a    n/a    n/a    n/a     73.4   64.5   58.6   53.9   51.0   48.9   47.2   45.8




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM              + 1 617 394 8763                                    •39
Detailed P&L for the Investments business
The most important drivers for the Investments business are discussed above, here is the detailed P&L.

Investments: Detailed P&L
                                        2008 2009 2010 2011              2012    2013    2014 2015       2016 2017       2018    2019
 Revenues
  Investment Revenues (Mil $)           963     664     545     453      90.6 79.7       71.8    66.0 60.7       57.7    56.0    54.3
    Investment Revenues ($ Mil)         963     664     545     453      90.6 79.7       71.8    66.0 60.7       57.7    56.0    54.3
  Total Revenues (Mil $)                963     664     545     453      90.6 79.7       71.8    66.0 60.7       57.7    56.0    54.3

 Expenses
  Direct Expenses (Bil $)               1.06    3.10    2.39    5.27     0.15    0.09    0.07    0.06    0.05    0.05    0.05    0.04
    Investments EBITDA Margin (%)       -9.93   -367    -337    -1062    -62.3   -7.26   2.74    9.74    13.7    15.7    17.7    19.7
  Indirect Expenses (Mil $)             -2.42   -407    -23.2   -364     -9.91   -1.01   0.34    1.12    1.43    1.54    1.68    1.81
    Effective Tax Rate (%)              0.00    32.9    0.00    37.7     35.2    35.0    35.0    35.0    35.0    35.0    35.0    35.0
    Increase in NWC (As % Revenues)     2.81    -1.41   0.56    0.36     0.10    -0.13   -0.31   -0.44   -0.52   -0.57   -0.60   -0.63
    Increase in NOA (As % of            -0.06 1.23      0.82    -0.27 -0.27 -0.27 -0.27 -0.27 -0.23 -0.19 -0.15 -0.13
     Revenues)

   Total Expenses (Bil $)               1.06    2.69    2.36    4.90 0.14        0.08 0.07       0.06 0.05       0.05    0.05    0.05

 Adjusted EBITDA (Bil $)                -0.10 -2.44 -1.84 -4.81 -0.06 -0.01 0.00 0.01                    0.01    0.01    0.01    0.01
 Free Cash Flow (Mil $)                 n/a n/a n/a n/a -46.5 -4.78 1.63 5.31                            6.92    7.54    8.25    8.91




    TREFIS ANALYSIS for AT&T        CONTENT@TREFIS.COM                  + 1 617 394 8763                                          •40

				
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Description: AT&T makes money primarily through mobile phone subscription plans for consumers and businesses. The company also provides landline phone service to residences, small businesses, and large enterprises. Broadband Internet service and fiber optic TV service (U-Verse) are growth areas for AT&T.