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InvestorBriefing
         No. 261 | July 23, 2008



2nd QUARTER 2008


AT&T Delivers Solid Second-Quarter Results
Highlighted by Strong Wireless Growth,
Double-Digit Increase in IP Data Revenues,
Further Ramp in AT&T U-verse TV Subscribers
                                                               AT&T Inc. reported solid second-quarter results highlighted by
         Results include continued
                                                               strong wireless growth, double-digit gains in revenues from
               solid earnings growth,
                                                               IP-based data services, and further expansion of consolidated
                      progress on major
                                                               margins. Second-quarter highlights include the following:
                growth initiatives and
        substantial value returned                             •	 	 otal	wireless	revenues	increased	15.8	percent	versus	the	year-earlier	quarter,	
                                                                  T
                                                                  driven	by	solid	subscriber	gains	and	52.0	percent	growth	in	wireless	data	services	
            to shareowners through
                                                                  such as Internet access, e-mail, messaging, data access and media bundles.
                             dividends and                     •	 	 T&T’s	second-quarter	net	gain	in	total	wireless	subscribers	exceeded	
                                                                  A
                                                                  1.3	million,	with	continued	strong	gross	add	flow	share	and	a	reduction	
                     share repurchases.
                                                                  in	retail	postpaid	churn	to	1.1	percent	in	the	second	quarter,	the	lowest	
                                                                  level	in	the	company’s	history.	
                                                               •	 	 T&T	further	advanced	the	significant	improvement	in	wholesale	customer	
                                                                  A
                                                                  revenue trends it has achieved over the past year. Total wholesale revenues
                                                                  were	$3.5	billion,	down	just	0.2	percent	versus	the	year-earlier	quarter.	
                                                                  This	represents	a	major	step	up	from	a	year-over-year	decline	of	8.3	percent	
                                                                  in	the	second	quarter	of	2007	and	marks	the	company’s	second	consecutive	
                                                                  quarter of sequential revenue growth in this category. This growth reflects
                                                                  solid demand from wireless carriers, Internet service providers, content
                                                                  providers and other customers.


Second-Quarter EPS Reconciliation
                                                                                                                                                           2Q08         2Q07

Reported EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 		 $0.63		   $0.47
Adjustments	to	results:	
  Merger integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	            	        0.03
  Noncash merger-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	 0.13	                     0.20
Adjusted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $0.76        $0.70
Pretax	adjustments	to	earnings:	in	2Q07,	merger	integration,	noncash	intangible	amortization	and	a	directory-related	purchase	accounting	
effect	totaling	$2,164	million;	in	2Q08,	noncash	intangible	amortization	totaling	$1,169	million.
2
                 InvestorBriefing | 2Q 2008


                                                    Page TWO
                                                                                                                                               Page THREE
                                                                                                3.6	percent	compared	with	second-quarter	
                           AT&T ADJUSTED CONSOLIDATED REVENUES
                                                                                                2007	pro	forma	revenues,	which	exclude	
                           Dollars in billions
                                                                                                merger-related accounting impacts on
                                                                                                                        AT&T ADJUSTED OPERATING INCOME MA
                                                                                      $30.9
   Continued strength                                                   $30.7
                                                                                                directory revenues.
                                                          $30.4
         in wireless and                     $30.3
                                                                                                   These increases were driven by strong                             24
      improvements in         $29.8
                                                                                                double-digit growth rates in wireless, stable
wholesale contributed                                                                                                                                  24.0%
                                                                                                                            23.9%
                                                                                                wireline business revenues and improved   23.7%
to AT&T’s consolidated
                                                                                                growth rates in wholesale. In the second
     revenue growth in
                                                                                                quarter, revenues from wireless and sales
    the second quarter.                                                                         to business and wholesale customers
                                                                                                represented	80.4	percent	of	AT&T’s	total	
                                                                                                consolidated revenues.
                                                                                                   Compared with results for the year-earlier
                                                                                                quarter,	AT&T’s	reported	operating	expenses	
                               2Q07          3Q07         4Q07          1Q08          2Q08
                                                                                                for	the	second	quarter	of	2008	were	
                           Revenues for 2007 are adjusted to exclude merger-related directory
                                                                                                                            2Q07          3Q07         4Q07          1Q
                                                                                                $24.3	billion,	down	from	$24.5	billion;	 18.1%
                           accounting impacts.
                                                                                                               Reported     16.8%         17.6%                      19
                                                                                                reported	operating	income	was	$6.6	billion,	
                                                                                                                        Merger integration and amortization costs and ot
                                                                                                up	from	$4.9	billion;	and	AT&T’s	reported	
                           •	 	 nterprise	business	revenue	trends	
                              E                                                                                         are excluded from adjusted operating income ma
                                                                                                operating	income	margin	was	21.3	percent,	
                              continue to be solid, led by strong
                                                                                                up	from	16.8	percent.	
                              double-digit growth in IP-based data
                                                                                                   AT&T’s	reported	second-quarter	2008	
                              services	such	as	virtual	private	networking	
                                                                                                net	income	totaled	$3.8	billion,	up	from	
                              (VPN) and managed Internet services.
                                                                                                $2.9	billion	in	the	year-earlier	quarter,	
                              Enterprise fundamentals in terms of
                                                                                                and reported earnings per diluted share
                              closed sales, a strong sales funnel and
                                                                                                totaled	$0.63,	up	from	$0.47	in	the	
                              new service adoption remain solid.
                                                                                                second	quarter	of	2007.
                              AT&T expects to deliver positive growth
                              in total enterprise revenues for the
                                                                                                ADJUSTED RESULTS
                              full	year	2008.
                                                                                                AT&T’s	adjusted	results	for	the	second	quarter	
                           •	 	 T&T	U-verseSM	TV,	the	company’s	next-
                              A
                                                                                                of	2008	exclude	noncash	merger-related	
                              generation IP-based video service,
                                                                                                amortization	expenses.	For	the	second	
                              continued its strong ramp during the
                                                                                                quarter	of	2007,	adjusted	results	excluded	
                              second quarter, with a net subscriber
                                                                                                merger integration costs, noncash merger-
                              gain	of	170,000	to	reach	549,000	in	
                                                                                                related	amortization	expenses	and	a	
                              service.	U-verse	network	deployment	
                                                                                                merger-related directory accounting effect.
                              is on schedule, install times continue to
                                                                                                   Compared with results for the year-earlier
                              decline and the attach rates for broadband
                                                                                                quarter,	AT&T’s	adjusted	operating	expenses	
                              service continue to be high. The company
                                                                                                for	the	second	quarter	of	2008	totaled	
                              is	on	a	trajectory	to	reach	its	target	of	
                                                                                                $23.1	billion,	versus	$22.7	billion;	adjusted	
                              more	than	1	million	AT&T	U-verse	TV	
                                                                                                operating	income	was	$7.7	billion,	up	from	
                              subscribers	by	year-end	2008.	
                                                                                                $7.1	billion;	and	AT&T’s	adjusted	operating	
                           REPORTED RESULTS                                                     income	margin	was	25.1	percent,	up	from	
                                                                                                23.9	percent.	This	margin	expansion	reflects	
                           For	the	quarter	ended	June	30,	2008,	
                                                                                                revenue growth along with benefits from
                           AT&T’s	consolidated	revenues	totaled	
                                                                                                merger synergies and other productivity
                           $30.9	billion,	up	4.7	percent	versus	reported	
                                                                                                initiatives.
                           results in the year-earlier quarter and up
3
                         InvestorBriefing | 2Q 2008


                                                           Page THREE
                                                                                                          STRONG BALANCE SHEET
                                     AT&T ADJUSTED OPERATING INCOME MARGIN
30.9
                                                                                                          AT&T’s	balance	sheet	continues	to	be	strong.	
         Solid revenue growth                                                                  25.1%
                                                                                                          At	the	end	of	the	second	quarter,	AT&T’s	
                   and progress                                                  24.6%
                                                                                                          long-term	debt	was	$63.7	billion	and	
                on productivity
                                                                                                          total	debt	was	$80.1	billion.	Cash	and	cash	
                                                                    24.0%
                                        23.9%
          initiatives combined                        23.7%
                                                                                                          equivalents at the end of the quarter
              to expand AT&T’s
                                                                                                          totaled	$1.6	billion.	AT&T’s	second-quarter	
        adjusted consolidated                                                                             debt-to-total-capitalization	ratio	was	
             operating income                                                                             41.7	percent	and	the	company’s	annualized	
                   margin in the                                                                          debt-to-EBITDA	was	1.7.
                second quarter.
                                                                                                          ADDITIONAL BACKGROUND ON
                                                                                                          ADJUSTED AND PRO FORMA RESULTS
Q08

                                                                                                          AT&T’s	adjusted	earnings	for	the	second	
ctory
                                        2Q07          3Q07         4Q07          1Q08          2Q08
                                                                                                          quarter	of	2008	exclude	noncash,	pretax	
                          Reported      16.8%         17.6%        18.1%         19.5%         21.3%

                                                                                                          amortization	costs	related	to	acquisitions	
                                     Merger integration and amortization costs and other one-time items
                                     are excluded from adjusted operating income margins.
                                                                                                          totaling	$1.2	billion,	or	$0.13	per	diluted	
                                                                                                          share.	Adjusted	results	for	the	second	
                                        AT&T’s	adjusted	second-quarter	2008	
                                                                                                          quarter	of	2007	excluded:	(1)	pretax	cash	
                                     net	income	totaled	$4.5	billion,	up	from	
                                                                                                          merger-related integration costs totaling
                                     $4.3	billion	in	the	year-earlier	quarter,	and	
                                                                                                          $324	million,	or	$0.03	per	diluted	share;	
                                     adjusted	earnings	per	diluted	share	totaled	
                                                                                                          (2)	noncash,	pretax	merger-related	costs	
                                     $0.76,	up	from	$0.70	in	the	second	quarter	
                                                                                                          totaling	$1.7	billion,	or	$0.18	per	diluted	
                                     of	2007.
                                                                                                          share;	and	(3)	a	merger-related	directory	
                                                                                                          accounting	impact	of	$187	million,	or	
                                     CASH FROM OPERATIONS,
                                                                                                          $0.02	per	diluted	share.
                                     SHARE REPURCHASES
                                                                                                             Advertising	&	Publishing	results	for	2007	
                                     AT&T’s	cash	from	operating	activities	for	the	
                                                                                                          were	affected	by	accounting	adjustments	
                                     second	quarter	of	2008	totaled	$8.5	billion,	
                                                                                                          following	AT&T’s	late-2006	acquisition	of	
                                     capital	expenditures	totaled	$5.3	billion,	and	
                                                                                                          BellSouth. In accordance with purchase
                                     free cash flow (cash from operations minus
                                                                                                          accounting rules, deferred revenues and
                                     capital	expenditures)	totaled	$3.2	billion.	
                                                                                                          expenses for all BellSouth directories
                                     Year	to	date	through	the	first	half	of	2008,	
                                                                                                          delivered prior to the close of the merger
                                     cash from operating activities totaled
                                                                                                          were	eliminated	from	2007	consolidated	
                                     $13.5	billion,	capital	expenditures	totaled	
                                                                                                          results.	This	elimination	of	amortizations	
                                     $9.6	billion,	and	free	cash	flow	totaled	
                                                                                                          reduced	second-quarter	2007	consolidated	
                                     $3.9	billion.
                                                                                                          revenues	by	$306	million	and	consolidated	
                                        As it invests in the future of its business,
                                                                                                          operating	expenses	by	$119	million.	
                                     AT&T continues to return substantial value
                                                                                                             AT&T manages its print directory business
                                     to shareowners through dividends and
                                                                                                          using	amortized	results.	As	a	result,	2007	
                                     share repurchases. Dividends paid totaled
                                                                                                          amortized	results	are	shown	in	the	
                                     $2.4	billion	in	the	second	quarter	and	
                                                                                                          Advertising & Publishing segment on
                                     $4.8	billion	year	to	date.	Shares	repurchased	
                                                                                                          AT&T’s	Statement	of	Segment	Income.	
                                     totaled	52.6	million	for	$2.0	billion	in	the	
                                                                                                          In	2008,	both	consolidated	and	segment	
                                     second	quarter	and	164.2	million	for	
                                                                                                          results	reflect	amortization	accounting.	
                                     $6.1	billion	through	the	first	half	of	the	
                                     year. AT&T ended the second quarter with
                                     5.9	billion	shares	outstanding.
4
         InvestorBriefing | 2Q 2008




                              Wireless
 AT&T’s second-quarter        AT&T,	the	U.S.	market	leader	in	wireless	with	72.9	million	subscribers,	operates	
                              the	nation’s	largest	wireless	digital	voice	and	data	network,	offers	the	nation’s	
  wireless results were       fastest	third-generation	(3G)	network	according	to	data	compiled	by	leading	
                              independent wireless research firms, and has the broadest global coverage
  highlighted by strong       of	any	U.S.	provider	with	roaming	available	in	more	than	200	countries.	
                                 Building	on	these	strengths,	in	the	second	quarter	AT&T	took	important	
  double-digit revenue        steps to further advance a new era of wireless growth, as it extended its
                              coverage	and	spectrum	depth,	expanded	its	3G	coverage	to	300	cities	with	
growth driven by robust       plans	to	expand	to	nearly	350	by	the	end	of	the	year,	and	became	the	
                              exclusive	U.S.	network	provider	for	the	breakthrough	Apple	iPhone	3G,	
  increases in wireless       which was launched in early July.

data services and solid       STRONG WIRELESS REVENUE GROWTH
                              AT&T’s	total	wireless	revenues	increased	15.8	percent	to	$12.0	billion	in	the	
      subscriber gains.       second quarter, and wireless service revenues, which exclude handset and
                              accessory	sales,	grew	14.8	percent	to	$11.0	billion.	Growth	was	driven	by	
                              solid subscriber gains and a greater number of customers choosing more
                              advanced smartphones and integrated devices, spurring increased usage
                              of data services such as Internet and data access, e-mail and messaging.
                                 Growth	trends	in	ARPU	(average	monthly	revenues	per	subscriber)	also	
                              reflect increasing adoption and usage of advanced wireless data services.
                              Total	blended	wireless	service	ARPU	was	$50.60	in	the	second	quarter,	in	
                              line	with	results	in	the	year-earlier	quarter,	with	data	ARPU	up	32.2	percent.	
                              Retail	postpaid	subscriber	ARPU	was	up	3.5	percent	versus	the	year-earlier	
                              quarter,	with	postpaid	data	ARPU	up	36.5	percent.

                              SOLID SUBSCRIBER GAINS WITH
                              REDUCED RETAIL POSTPAID CHURN
                              AT&T’s	second-quarter	net	gain	in	total	wireless	subscribers	exceeded	
                              1.3	million,	down	123,000	versus	results	in	the	second	quarter	of	2007	
                              and	up	38,000	compared	with	the	first	quarter	of	this	year.	
                                 AT&T continued its strong record of wireless subscriber flow share with
                              4.9	million	second-quarter	gross	subscriber	additions,	up	from	4.5	million	
                              in the year-earlier quarter. Total average monthly subscriber churn, which
                              includes	postpaid,	prepaid	and	reseller	subscribers,	was	1.6	percent,	flat	
                              with	the	year-earlier	quarter	and	down	10	basis	points	from	the	first	
                              quarter	of	2008.
USE THESE
                                                                                                                                                   5
               InvestorBriefing | 2Q 2008

                             Wireless - Chart ONE                                                                           Wireless - Chart TW
                                                                                             quarter	to	$2.5	billion.	Data	now	represents	
                        AT&T WIRELESS SERVICE REVENUES
                                                                                             22.9	percent	of	AT&T’s	total	wireless	service	
                                                                                                                      AT&T WIRELESS SUBSCRIBERS
                        Dollars in billions
                                                                                             revenues,	up	from	17.3	percent	in	the	
     AT&T’s wireless                                                                                                  In millions
                                                                                 $11.0
                                                                    $10.6
                                                      $10.2
                                                                                             second	quarter	of	2007.
                                          $9.9
   service revenues         $9.5                                                                                                                     70.1
                                                                                                Wireless Internet access revenues more
grew 14.8 percent in
                                                                                             than doubled versus results for the 65.7    year-
 the second quarter,
                                                                                             earlier second quarter, while revenues from
     reflecting solid                                                                                                      63.7
                                                                                             e-mail, messaging and data access all
subscriber gains and
                                                                                             delivered	greater	than	50	percent	growth.	
  robust adoption of
                                                                                             Text messaging volumes tripled versus totals
       data services.
                                                                                             for the year-earlier quarter, and multimedia
                                                                                             message volumes increased more than
                                                                                             170	percent.
                           2Q07           3Q07        4Q07          1Q08         2Q08
                                                                                                AT&T expects continued2Q07  robust growth in 4Q07
                                                                                                                                        3Q07

                                                                                             wireless data services as more increase in 4Q07 included 1.7 m
                                                                                                                      Subscriber customers
                           Retail postpaid gross adds were in line with                                               through acquisition; 2Q08 increase includes
                                                                                             adopt integrated devices that deliver access
                                                                                                                      added via acquisition.
                        totals	in	the	year-earlier	quarter	at	2.8	million,	
                                                                                             to a broad array of applications and
                        and	retail	postpaid	net	adds	totaled	894,000,	
                                                                                             content. At the end of the second quarter,
                        down	2.0	percent	versus	the	year-earlier	
                                                                                             approximately	18	percent	of	AT&T’s	postpaid	
                        second	quarter	and	up	26.8	percent	from	
                                                                                             wireless subscribers had an integrated
                        results in the first quarter of this year.
                                                                                             device,	up	from	8	percent	one	year	earlier.	
                        This sequential postpaid improvement was
                                                                                             On	average,	these	subscribers	have	ARPUs	
                        achieved despite reduced iPhone sales
                                                                                             roughly double the company average.
                        ahead	of	the	early	July	iPhone	3G	launch.	
                                                                                                Adoption	of	3G-compatible	devices	is	
                           Retail postpaid churn moved down to
                                                                                             also	a	key	to	driving	wireless	data	growth.	
                        1.1	percent	in	the	second	quarter,	the	
                                                                                             At the end of the second quarter,
                        lowest	level	in	the	company’s	history.	
                                                                                             approximately	13	million	AT&T	customers	
                                                                                             had	3G	devices.	AT&T’s	broad	3G	network	
                        ROBUST GROWTH IN
                                                                                             now	includes	300	U.S.	metro	 olitan	areas,	
                                                                                                                               p
                        WIRELESS DATA SERVICES
                                                                                             and	the	company	expects	to	deliver	3G	
                        AT&T’s	wireless	data	revenues	continued	
                                                                                             services	to	nearly	350	U.S.	markets	by	the	
                                                                                                                            Wireless - Chart TH
                        their rapid expansion in the second quarter,
                          Wireless - Chart TWO                                               end	of	2008.	AT&T	also	has	started	doubling	
                        growing	52.0	percent	versus	the	year-earlier	
                                                                                             the	data	capacity	of	its	3G	markets,	and	
                                                                                             nearly	half	of	all	3G	cell	sites	will	receive	
                                                                                                                      AT&T WIRELESS DATA REVENUES
                        AT&T WIRELESS SUBSCRIBERS
                                                                                             additional capacity by the endbillions year.
                                                                                                                      Dollars in of the
                        In millions
                                                                                  72.9
  AT&T increased its                                                71.4
                                                                                             OPERATING INCOME GROWTH,
                                                       70.1
 wireless subscriber                                                                                                                                $2.0
                                                                                             MARGIN EXPANSION
  base by more than                                                                                                                     $1.8
                                                                                             Strong	growth	in	wireless	revenues,	network	
                                          65.7                                                                          $1.7
       9 million over       63.7
                                                                                             efficiencies and operational improvements
       the past year.
                                                                                             continue to drive strong wireless operating
                                                                                             income and margins.
                                                                                                On	a	reported	basis,	AT&T’s	second-quarter	
                                                                                             wireless operating expenses totaled
                                                                                             $9.0	billion,	and	operating	income	was	
                                                                                             $3.1	billion,	up	91.0	percent	from	$1.6	billion	
                           2Q07           3Q07        4Q07          1Q08         2Q08
                                                                                             in	the	second	quarter	of	2007.	Adjusting	for	
                                                                                                                        2Q07     3Q07      4Q07
                        Subscriber increase in 4Q07 included 1.7 million subscribers added
                                                                                             merger integration costs, wireless operating
                        through acquisition; 2Q08 increase includes 182,000 subscribers
                        added via acquisition.
6
                       InvestorBriefing | 2Q 2008
                                                                                                                                   Wireless - Chart FOU
                                        Wireless - Chart THREE
                                                                                                                                AT&T ADJUSTED WIRELESS MARGINS
                                                                                                     (OIBDA service margin is operating income
                                                                                                                           Operating Income Margin                       OIBD
                                  AT&T WIRELESS DATA REVENUES
                                                                                                     before	depreciation	and	amortization,	
                                  Dollars in billions
             AT&T’s wireless                                                                         divided by total service revenues.)
                                                                                           $2.5
                                                                             $2.3
        data revenues grew
                                                                                                                                                29.9%
                                                                                                     LEADER IN WIRELESS NETWORKS,
      52.0 percent year over                                    $2.0
                                                                                                                                                                         37.
                                                                                                     ADVANCED DEVICES24.9%
              year, driven by                       $1.8
                                      $1.7
                                                                                                     AT&T is creating the next generation of
            increased usage
                                                                                                     wireless	by	advancing	network	capabilities,	
        of wireless Internet
                                                                                                     offering	breakthrough	devices	and	launching	
            and data access,
                                                                                                     innovative services. Over the past several
              messaging and
                                                                                                     weeks,	AT&T:
             media bundles.
                                                                                                     •	 	 nnounced	that	it	will	be	the	exclusive	
                                                                                                        A
                                                                                                        U.S.	provider	of	the	new	Apple	iPhone	3G,	
                                                                                                                                  2Q07         2Q08                        2Q
                                                                                                                   Unadjusted
                                                                                                                                 15.4%         25.5%                       35.
                                                                                                                      Results
                                                                                                        which	was	launched	on	July	11.	The	
                                     2Q07           3Q07        4Q07         1Q08         2Q08
                                                                                                        iPhone	3G	delivers	a	home	broadband-like	
                                                                                                                              Merger integration and intangible amortization c
ed
                                                                                                                              from adjusted operating income margins: $983 m
                                                                                                        speed experience and $529 customers surf integration co
                                                                                                                               when million in 2Q08. Merger
                                  expenses	totaled	$8.4	billion,	and	operating	                                               adjusted OIBDA service margins: $163 million in
                                                                                                        the Internet, share files and use media-
                                  income	was	$3.6	billion,	up	38.9	percent	from	
                                                                                                        rich	Web	applications;	business-class	
                                  $2.6	billion	in	the	second	quarter	of	2007.	
                                                                                                        capabilities, including e-mail, viewed on
                                     AT&T’s	reported	wireless	operating	
                                                                                                        a large, touch-screen device and designed
                                  income	margin	was	25.5	percent,	up	from	
                                                                                                        to meet the needs of companies of all
                                  15.4	percent	in	the	year-earlier	quarter,	
                                                                                                        sizes;	and	the	ability	for	developers,	
                                  and	its	adjusted	wireless	operating	income	
                                                                                                        including	AT&T,	to	create	customized	
                                  margin	was	29.9	percent,	up	from	
                                                                                                        consumer and business applications using
                                  24.9	percent	in	the	year-earlier	quarter.	
                                                                                                        the	Apple	software	developer’s	kit.	AT&T	
                                     AT&T’s	second-quarter	wireless	OIBDA	
                                                                                                        expects	that	the	iPhone	3G’s	attractive	
                                  service	margin	was	41.2	percent,	up	from	
                                                                                                        pricing and rich set of features will spur
                                  an	unadjusted	35.8	percent	and	an	adjusted	
                                                                                                        subscriber growth and expand adoption
                                     Wireless - Chart FOUR
                                  37.5	percent	in	the	year-earlier	quarter.	
                                                                                                        of advanced wireless data services. In the
                                                                                                        first	12	days	of	sales	following	launch,	
                                  AT&T ADJUSTED WIRELESS MARGINS                                        sales	of	the	iPhone	3G	were	nearly	double	
                                                                                                        levels	achieved	in	AT&T’s	2007	iPhone	
                                   Operating Income Margin                  OIBDA Service Margin
             AT&T’s wireless
                                                                                                        launch.	Approximately	40	percent	of	the	
                                                                                          41.2%
              OIBDA service
                                                                                                        purchasers were new to AT&T.
2.5
           margin expanded
                                                    29.9%
            370 basis points
                                                                             37.5%
            versus adjusted          24.9%

              results for the
             second quarter
                    of 2007.




                                                                                          2Q08
                                     2Q07          2Q08                      2Q07
                     Unadjusted
                                                                                          41.2%
                                     15.4%         25.5%                     35.8%
                        Results
Q08
                                  Merger integration and intangible amortization costs excluded
                                  from adjusted operating income margins: $983 million in 2Q07
                                  and $529 million in 2Q08. Merger integration costs excluded from
                                  adjusted OIBDA service margins: $163 million in 2Q07.
7
InvestorBriefing | 2Q 2008




       •	 	 ompleted	the	deployment	of	High	Speed	
          C                                             •	 	 oined	with	MediaFLO	USA	Inc.	to	
                                                           J
          Uplink	Packet	Access	(HSUPA)	technology	         introduce	AT&T	Mobile	TV	with	FLO,	
          across	AT&T’s	entire	3G	wireless	broadband	      a mobile television service featuring
          network,	making	AT&T	the	only	U.S.	carrier	      high-quality live programming. The
          to	have	fully	deployed	HSPA	technology	          mobile	TV	service	launched	in	May	2008	
          in	its	3G	network.	With	the	new	addition	        on	two	new	exclusive	handsets,	the	LG	
          of	HSUPA	technology,	AT&T	3G	users	              VuTM and the Samsung AccessTM. AT&T
          can	send	large	files	faster	and	take	full	       Mobile TV delivers full-length television
          advantage of the latest interactive              content and sporting events from top
          Internet and business applications.              networks,	including	programming	from	
       •	 	 aunched	free	Wi-Fi	access	for	qualifying	
          L                                                leading entertainment brands CBS
          LaptopConnect	customers	to	more	than	            Mobile, Comedy Central, ESPN Mobile
          17,000	Wi-Fi	hot	spots	across	the	               TV,	FOX	Mobile,	MTV,	NBC	2GO,	NBC	
          United	States.	Users	can	access	Wi-Fi	           News2Go	and	Nickelodeon.
          at	nearly	7,000	participating	Starbucks	
          locations plus thousands more AT&T
          Wi-FiSM locations, including restaurants,
          airports, hotels and other convenient
          locations	across	the	United	States.
8
           InvestorBriefing | 2Q 2008




                                Wireline
Second-quarter results in       Second-quarter	revenues	in	AT&T’s	wireline	segment	totaled	$17.6	billion	
                                versus	$18.0	billion	in	the	year-earlier	quarter.	This	reflects	strong	growth	in	
 AT&T’s wired operations        IP data services across business and consumer customer categories, largely
                                offsetting	expected	declines	in	voice	and	legacy	packet-switched	data	products.	
     were highlighted by        Results were highlighted by a significant step up in wholesale growth rates,
                                stable fundamental trends in regional business and enterprise, and a continued
  double-digit growth in        ramp	in	AT&T	U-verse	TV	subscribers.
                                   AT&T	expects	further	stabilization	in	overall	wireline	revenue	trends	during	
      IP data revenues, a       the	remainder	of	2008	as	enterprise	delivers	growth	for	the	full	year,	
                                wholesale	trends	show	further	improvement	and	AT&T	U-verse	services	
 continued turnaround in        gain additional scale.
                                   Compared with results for the year-earlier quarter, on a reported basis,
wholesale, and a further        second-quarter	wireline	operating	expenses	totaled	$14.5	billion	versus	
                                $14.8	billion;	operating	income	was	$3.1	billion	versus	$3.2	billion;	and	
    ramp in AT&T U-verse        AT&T’s	wireline	operating	income	margin	was	17.7	percent,	which	was	
                                unchanged	versus	the	second	quarter	of	2007.
          TV subscribers.          Adjusted	wireline	results	for	the	second	quarter	of	2007	exclude	merger-
                                related	integration	and	amortization	expenses.	Adjusted	wireline	results	for	the	
                                second	quarter	of	2008	exclude	only	merger-related	amortization	expenses.	
                                   Compared	with	results	for	the	year-earlier	quarter,	second-quarter	adjusted	
                                wireline	operating	expenses	totaled	$14.1	billion,	down	0.1	percent;	adjusted	
                                operating	income	was	$3.5	billion	versus	$3.9	billion;	and	AT&T’s	adjusted	
                                wireline	operating	income	margin	was	20.1	percent	versus	21.7	percent.
                                   On	a	sequential	basis,	AT&T’s	wireline	adjusted	operating	income	increased	
                                5.1	percent	and	its	wireline	adjusted	operating	income	margin	improved	
                                100	basis	points.
                                   The following wireline highlights include ongoing shifts in customer
                                categories	to	reflect	AT&T’s	management	of	customer	relationships.

                                CONTINUED STRENGTH IN ENTERPRISE
                                Over	the	past	two	years,	AT&T	has	delivered	a	major	turnaround	in	enterprise	
                                growth rates, and in the second quarter results were highlighted by an
                                18.4	percent	increase	in	enterprise	IP	data	revenues,	including	areas	such	
                                as VPNs, managed Internet services and hosting.
                                   Total	enterprise	revenues	in	the	second	quarter	were	$4.7	billion,	down	
                                1.0	percent	versus	results	for	the	year-earlier	quarter,	and	enterprise	service	
                                revenues,	which	exclude	CPE	sales,	were	down	0.1	percent.
9
                                                                                                                                                          Wireline
                  InvestorBriefing | 2Q 2008

                                                     Wireline
                                                                                                 quarter, leading industry analyst RATES REVENUES — YE
                                                                                                                             AT&T WHOLESALE
                                                                                                                             GROWTH firm
                               AT&T ENTERPRISE IP DATA REVENUES
                                                                                                 Gartner,	Inc.	positioned	AT&T	in	the	Leaders	
                                                                                                                             0
                               Dollars in millions
                                                                                                 Quadrant	of	its	Managed	and	Professional	
                                                                                      $851
AT&T sustained strong                                                                                                       -1
                                                                                                 Network	Service	Providers,	North	America	
  enterprise revenues                                                                                                       -2
                                                                                                 report.	The	Gartner	Magic	Quadrant	report	
                                                            $802
in the second quarter,                                                                                                      -3
                                                                         $796
                                                                                                 is	a	guide	for	midsize	businesses	and	large	
        highlighted by                                                                                                      -4
                                                                                                 companies to identify and evaluate vendors
     continued strong                                                                                                       -5
                                                  $738
                                                                                                 that deliver IT services in-6support of connec-
  double-digit growth               $719                                                                                                 (7.0)%
                                                                                                 tivity and communications infrastructure.
 in IP-based services.                                                                                                      -7
                                                                                                                                     -8
                                                                                                 WHOLESALE TURNAROUND
                                                                                                                   (8.3)%                                                (8.5)%
                                                                                                                -9
                                                                                                 AT&T is a leading global provider of
                                                                                                              Enterprise delivering a full portfolio 4Q07
                                                                                                                                       2Q07            3Q07
                                                                                                 wholesale services,service
                                                                                                                revenue growth        (3.0)%          (0.7)%         0.4%
                                                                                                 of	network,	voice,	data	and	IP	solutions	to	
                                                                                                                                  2007 comparisons are to 2006 pro forma
                                    2Q07          3Q07      4Q07         1Q08         2Q08
                                                                                                 carriers, wireless operators, cable the former BellSouth and AT
                                                                                                                                  results from providers,
                                                                                                 systems integrators, Internetacquired operations.
                                                                                                                                  from
                                                                                                                                          service
                                  AT&T expects to deliver positive growth
                                                                                                 providers and content providers.
                               in total enterprise revenues for the full year
                                                                                                    Through	the	first	half	of	2008,	AT&T	has	
                               2008.	Enterprise	fundamentals	in	terms	
                                                                                                 delivered a substantial turnaround in
                               of closed sales, a strong sales funnel and
                                                                                                 wholesale revenue trends. Total wholesale
                               new service adoption remain solid, and
                                                                                                 revenues	were	$3.5	billion	in	the	second	
                               the	company	expects	revenues	from	major	
                                                                                                 quarter,	down	just	0.2	percent	versus	the	
                               contracts such as its agreements with Royal
                                                                                                 year-earlier	quarter.	This	represents	a	major	
                               Dutch	Shell	and	with	U.S.	government	
                                                                                                 step up from a year-over-year decline of
                               agencies will increase in the second half
                                                                                                 8.3	percent	in	the	second	quarter	of	2007	
                               of the year.
                                                                                                 and	marks	the	company’s	second	consecutive	
                                  AT&T is the premier provider for enterprise
                                                                                                 quarter of sequential revenue growth in
                               customers,	delivering	networking	services	
                                                                                                 this category.
                                                                                                                                                            Wireline
                               and solutions to multinational corporations,
                                                                                                    This improvement reflects solid demand
                               U.S.	governmental	agencies	and	regionally	
                                                                                                 from wireless carriers, Internet service
                               based domestic companies. The company
                                                                                                 providers, content providers and other
                               continues to expand its capabilities through
                                              Wireline                                           customers, offsetting expectedTOTAL ENTERPRISE REVENUE
                                                                                                                                     AT&T declines in
                               network	expansion	and	enhancement	of	
                                                                                                                                                        Wireline
                                                                                                 local voice. AT&T expects 2        that wholesale
                               service capabilities. During the second
                                                                                                 revenues	will	continue	to	stabilize	in	the	
                                                                                                                                    1
                                                                                                 remainder	of	2008,	as	traffic	migration	
                                                                                                 involving carriers thatAT&T 0 merged CONNECTIONS IN SER
                                                                                                                                    U-VERSE TV nears
                               AT&T WHOLESALE REVENUES — YEAR-OVER-YEAR                                                       have
                               GROWTH RATES                                                                                                                                (0.2
                                                                                                                            In thousands
    AT&T’s wholesale                                                                             completion. In addition, last fall AT&T and
                                                                                      (0.2)%
                               0                                                                                                   -1
      revenue growth                                                                             IBM announced an agreement that calls
                               -1                                                                                                                             (1.7)%
      trends continue                                                                            for AT&T to become the primary global
                                                                                                                                   -2
                               -2
                                                                                                 network	management	services	provider	to	
     to improve, with                                                                                                                                                          3
                               -3                                                                                                  -3
                                                                                                 IBM. As a result, AT&T expects to receive
   the second quarter          -4                                                                                                              (3.9)%
                                                                                                 up	to	$5	billion	of	additional	revenues	
     of 2008 marking                                                        (4.0)%                                                 -4
                               -5
                                                                                                 over the five-year term of the agreement, 231
        the company’s          -6                                                                                                        1Q07            2Q07         3Q07
                                                                                                               Enterprise service
                                                                                                 largely in the wholesale customer category
                                                  (7.0)%
  second consecutive                                                                                              revenue growth        (3.0)%          (0.7)%         0.4%
                               -7
                                                                                                 at the outset. These revenues comparisons are to 2006 pro form
                                                                                                                                    2007 are 126  expected
             quarter of        -8
                                                                                                 to	ramp	further	in	the	second	half	of	2008	
                                                                                                                                    results from the former BellSouth and A
                                         (8.3)%                 (8.5)%
   sequential growth.          -9                                                                                                   from acquired operations.
                                                                                                                                  51
                                                                                                 and	in	2009.
                                     2Q07          3Q07     4Q07         1Q08         2Q08
          Enterprise service
                                                                                                                                   2Q07          3Q07          4Q07          1
            revenue growth          (3.0)%        (0.7)%    0.4%         1.5%         2.1%

                               2007 comparisons are to 2006 pro forma results, which combine
                               results from the former BellSouth and AT&T and exclude revenues
                               from acquired operations.
10
                                                                                                                       Wireline
                         InvestorBriefing | 2Q 2008

                                                         Wireline
                                                                                   REGIONAL CONSUMER INITIATIVES
                                                                                                        AT&T AVERAGE MONTHLY CONSUMER REV
                                   AT&T U-VERSE TV CONNECTIONS IN SERVICE
                                                                                   Second-quarter regional consumer revenues
                                                                                                         PER HOUSEHOLD SERVED
                                   In thousands
                                                                                   continued trends of recent quarters, with
                                                                            549
              AT&T accelerated
2)%
                                                                                                                                       $60.
                                                                                   growth in revenues from broadband and
             subscriber growth                                                                                                $59.73
                                                                                                                    $59.43
                                                                                   AT&T	U-verse	services	in	large	part	offsetting	
                 in its advanced                                                                           $58.91
                                                                                   traditional voice access line pressures.
           IP-based TV service,                                     379
                                                                                      Regional consumer revenues totaled
              with a net gain of
                                                                                   $5.6	billion,	down	2.1	percent	versus	the	
          170,000 subscribers
                                                                                   year-earlier	quarter	and	down	0.7	percent	
                                                            231
         in the second quarter.
                                                                                   sequentially. In addition to operational
                                                                                   trends, these comparisons also reflect
                                                  126

                                                                                   a	change	in	AT&T’s	relationship	with	
                                       51
                                                                                   Yahoo!® Inc., which provides portal services
 08
                                                                                   to	AT&T’s	more	than	14	million	total	wireline	
                                                                                                           2Q07      3Q07      4Q07    1Q0
                                      2Q07        3Q07      4Q07    1Q08    2Q08
1%
                                                                                   broadband	subscribers.	Under	the	new	
bine
                                                                                   arrangement, AT&T no longer pays monthly
enues
                                   REGIONAL BUSINESS GROWTH
                                                                                   portal fees and receives a reduced level of
                                   AT&T’s	total	regional	business	customer	
                                                                                   shared advertising revenues from Yahoo!
                                   revenues	increased	1.6	percent	versus	the	
                                                                                      Regional consumer IP revenues, which
                                   year-earlier	second	quarter	to	$3.2	billion.	
                                                                                   combine revenues from broadband and
                                   Regional business data revenues grew
                                                                                   AT&T	U-verse	services,	grew	19.3	percent	
                                   5.2	percent	year	over	year,	led	by	robust	
                                                                                   versus the year-earlier quarter, and revenues
                                   growth	in	Ethernet	services	and	13.7	percent	
                                                                                   per consumer household served increased
                                   growth in IP data services, including
                                                                                   4.2	percent.	Regional	consumer	revenue	
                                   double-digit gains in managed Internet
                                                                                   connections (retail voice, high speed Internet
                                   and VPN.
                                                                                   and	video)	totaled	48.4	million	at	the	end	of	
                                      AT&T’s	broad	portfolio	of	communications	
                                                                                   the	quarter,	versus	49.5	million	at	the	end	of	
                                   services for its regional business customers
                                                                                   the	second	quarter	of	2007	and	49.3	million	
                                   includes wireless, broadband Internet access,
                                                                                   at	the	end	of	the	first	quarter	of	2008.	Total	
                                   business e-mail services, Web hosting,
                                                                                   consumer broadband and TV connections
                                   unified messaging, remote data storage
                                                                                   over	the	past	year	increased	by	2.2	million.
                                   and	network	security	options.
                                                                                      At the end of the second quarter, AT&T had
                                      AT&T continues to expand these offerings.
                                                                                   14.7	million	total	broadband	connections, up
                                   For example, in May, AT&T announced the
                                                                                   1.4	million	over	the	past	year	and	up	46,000	
                                   immediate	availability	of	the	AT&T	U-verse	
                                                                                   in	the	second	quarter	of	2008.
.2%
                                   platform for highspeed Internet access to
                                                                                      AT&T	U-verse	TV,	the	company’s	next-
                                   small	businesses	in	more	than	40	U.S.	
                                                                                   generation IP-based video service, continued
                                   markets.	AT&T	High	Speed	Internet	U-verse	
                                                                                   its strong ramp during the second quarter,
                                   Enabled Business Edition offers download
                                                                                   with	a	net	subscriber	gain	of	170,000	to	
                                   speeds	of	up	to	10	Mbps,	which,	depending	
                                                                                   reach	549,000	in	service.	U-verse	network	
                                   on the applications needed, can serve up to
                                                                                   deployment is on schedule, install times
                                   32	Internet	access	connections	over	existing	
                                                                                   continue to decline, and the attach rates
                                   telephone	wiring	in	the	customer’s	business.	
                                                                                   for broadband service continue to be high.
                                                                                   The	company	is	on	a	trajectory	to	reach	its	
Q08
                                                                                   target	of	more	than	1	million	AT&T	U-verse	
.1%
                                                                                   TV	subscribers	by	year-end	2008.	
mbine
venues
11
                                              Wireline
                     InvestorBriefing | 2Q 2008




                                                                                 several	quarters,	reflecting	the	2004	decision	
                               AT&T AVERAGE MONTHLY CONSUMER REVENUES
                                                                                 to	discontinue	proactive	marketing	in	this	
                               PER HOUSEHOLD SERVED
            AT&T’s regional                                                      space	and	AT&T’s	strategy	of	migrating	
549                                                                     $61.40
       consumer ARPU has                                                         customers within its regional footprint to its
                                                             $60.57
                                                   $59.73
      ramped steadily over                                                       regional platforms to deliver better service
                                          $59.43
                                 $58.91
                                                                                 and a broader array of service options.
           the past several
                                                                                    National	mass	markets	represented	
        quarters, reflecting
                                                                                 3.9	percent	of	total	wireline	revenues	in	
      growth in broadband
                                                                                 the second quarter and accounted for
          and TV revenues.
                                                                                 80	percent	of	AT&T’s	year-over-year	decline	
                                                                                 in total wireline revenues.

                                                                                          PRODUCT CATEGORIES
                                 2Q07     3Q07      4Q07     1Q08       2Q08
Q08
                                                                                 WIRELINE DATA SERVICES
                                  Increasingly, AT&T is focused on developing
                                                                                 AT&T’s	data	revenues,	which	include	results	
                               services for consumers that combine and
                                                                                 from several customer categories, grew
                               integrate the capabilities of its wireless and
                                                                                 5.1	percent	versus	results	for	the	year-earlier	
                               wired	networks.	For	example,	in	June,	the	
                                                                                 second	quarter	to	$6.3	billion.
                               company launched AT&T Net Reach, a bundle
                                                                                    Data	growth	was	led	by	a	16.1	percent	
                               providing home and on-the-go high speed
                                                                                 increase in revenues from IP-based services,
                               Internet services for consumers. Net Reach
                                                                                 with continued gains in high speed Internet,
                               includes	AT&T	High	Speed	Internet	and	
                                                                                 managed Internet, VPN and hosting services.
                               LaptopConnect	services,	in	addition	to	
                                                                                    Data transport service revenues increased
                               free	access	to	more	than	17,000	hot	spots	
                                                                                 1.1	percent,	and	packet	switched	data	
                               with AT&T Wi-Fi service. Plus, as part of
                                                                                 revenues, which include Frame Relay and
                               the	LaptopConnect	service,	new	software	
                                                                                 ATM	services,	were	down	13.5	percent,	
                               automatically detects the strongest available
                                                                                 consistent with industry trends.
                               AT&T	signal	from	a	nearby	network	—	3G,	
                                                                                    In	the	second	quarter,	73.2	percent	of	
                               EDGE,	Wi-Fi	or	one’s	AT&T	High	Speed	
                                                                                 AT&T’s	data	revenues	came	from	retail	
                               Internet	connection	at	home	—	making	
                                                                                 business and consumer customers. These
                               connecting simple and easy. AT&T Net Reach
                                                                                 retail	data	revenues	were	up	6.6	percent	
                               is available to new and existing residential
                                                                                 versus results for the year-earlier quarter.
                               customers	who	subscribe	to	AT&T	High	
                               Speed	Internet	and	AT&T	LaptopConnect	            WIRELINE VOICE SERVICES
                               services. Customers must also opt to
                                                                                 AT&T’s	second-quarter	wireline	voice	
                               combine their wireless and wireline services
                                                                                 revenues, which include retail local voice
                               onto one billing statement.
                                                                                 and long distance as well as wholesale
                                                                                 voice,	totaled	$9.8	billion,	representing	a	
                               NATIONAL MASS MARKETS
                                                                                 decline	of	7.8	percent	versus	results	for	
                               Revenues	from	AT&T’s	national	mass	markets	
                                                                                 the	second	quarter	of	2007.	This	comparison	
                               category, which includes the remainder of
                                                                                 is consistent with results in recent quarters,
                               the	former	AT&T’s	standalone	long	distance	
                                                                                 reflecting the industrywide migration of voice
                               and local bundled business, totaled
                                                                                 usage from wired to wireless platforms,
                               $680	million	in	the	second	quarter,	
                                                                                 customer transitions to broadband and
                               representing	a	decline	of	31.2	percent	
                                                                                 VoIP services and increased local voice
                               year over year. Results are as expected
                                                                                 competition.
                               and consistent with trends over the past
12
         InvestorBriefing | 2Q 2008




                              Advertising
                              & Publishing
AT&T is a leader in local     AT&T’s	Advertising	&	Publishing	segment	offers	businesses	a	full	suite	of	local	
                              search options including print and Internet Yellow Pages in addition to Web site
 search with more than        design,	search	engine	marketing	and	mobile	search.
                                 AT&T’s	Advertising	&	Publishing	operations	deliver	print	directories	to	more	
 1,250 print directories      than	83	million	residences	and	businesses	in	22	states	and	have	a	premier	
                              online	presence	nationwide	with	YELLOWPAGES.COM,	which	offers	consumers	
and YELLOWPAGES.COM,          access to local business information, the latest business listings, city guides,
                              maps and driving directions. Combined, these print and online products receive
 its fast-growing online      approximately	5	billion	consumer	searches	a	year	for	local	business	information	
                              and	provide	more	than	1	million	advertisers	with	valuable	sales	leads	to	help	
         search service.      their businesses grow.
                                 Advertising & Publishing revenue trends reflect migration from print to
                              electronic	search,	including	rapid	growth	at	AT&T’s	YELLOWPAGES.COM.	
                              Advertising	&	Publishing’s	Internet	revenues	increased	40.2	percent	versus	
                              the year-earlier second quarter, and total Advertising & Publishing revenues
                              declined	4.8	percent,	in	part	reflecting	revenues	lost	through	the	sale	of	
                              a sales agency business that serves independent telephone companies.
                              That transaction closed early in the second quarter.
                                 Compared with reported results in the year-earlier quarter, operating
                              expenses	totaled	$974	million,	down	7.7	percent;	operating	income	totaled	
                              $433	million,	up	2.4	percent;	and	the	segment’s	operating	income	margin	
                              was	30.8	percent,	up	220	basis	points.
                                 Adjusted	results	for	Advertising	&	Publishing	exclude	merger-related	noncash	
                              amortization	costs	in	both	quarters.	Compared	with	results	in	the	year-earlier	
                              quarter,	second-quarter	2008	adjusted	operating	expenses	totaled	$781	million,	
                              down	2.4	percent;	adjusted	operating	income	totaled	$626	million,	down	
                              7.7	percent;	and	the	segment’s	adjusted	operating	income	margin	was	
                              44.5	percent,	down	140	basis	points.
13
          InvestorBriefing | 2Q 2008




                               Other
  AT&T’s Other segment         AT&T’s	Other	segment	includes	results	from	AT&T’s	Sterling	Commerce	operations	
                               and	AT&T’s	customer	information	services	operations,	both	of	which	are	included	
includes results from its      in segment revenues and operating expenses. Customer information services
                               include operator services and directory assistance. Sterling Commerce is one
Sterling Commerce unit,        of	the	world’s	largest	providers	of	multi-enterprise	collaboration	solutions.	
                               The	company	serves	the	retail,	consumer	packaged	goods,	manufacturing,	
  customer information         financial services, health care and telecommunications industries.
                                  The	Other	segment	also	includes	AT&T’s	proportionate	share	of	results	from	
    services and equity        Telmex, América Móvil and Telmex Internacional, which are shown in the Equity
                               in	Net	Income	of	Affiliates	line	for	this	segment.	AT&T’s	equity	interest	in	each	
 investments in Telmex,        company	is	more	than	8	percent.
                                  América Móvil is one of the leading providers of telecommunications services
     América Móvil and         in	Latin	America,	with	more	than	159	million	wireless	subscribers	at	the	end	of	
                               the	first	quarter	of	2008	in	countries	throughout	the	region,	including	more	
  Telmex Internacional.        than	51	million	in	Mexico.
                                  Telmex is the leading telecommunications company in Mexico. Telmex and
                               its subsidiaries provide a wide range of telecommunications services, data
                               and video transmission, Internet access and integrated telecommunications
                               solutions. Telmex Internacional has telecommunications operations in Argentina,
                               Brazil,	Chile,	Colombia,	Ecuador,	Mexico,	Peru	and	Uruguay.
                                  On	a	reported	basis,	Other	segment	income	totaled	$167	million	in	the	
                               second	quarter	versus	$117	million	in	the	year-earlier	quarter.	Segment	
                               revenues	totaled	$512	million,	compared	with	$558	million	for	the	second	
                               quarter	of	2007.	Equity	in	Net	Income	of	Affiliates	totaled	$209	million,	
                               up	from	$202	million	in	the	year-earlier	quarter.
14
                        InvestorBriefing | 2Q 2008




AT&T Inc.
Consolidated Statements of Income (Unaudited)
(Dollars in Millions, Except per Share Amounts)
                                                                  Three Months Ended                      Six Months Ended

                                                          6/30/08	                               6/30/08	
                                                                         6/30/07	    %	Change	                  6/30/07	 %	Change
Operating Revenues
                                                          $10,894	                               $21,499	
  Wireless service                                                      $	 9,513	      14.5%	                  $18,583	      15.7%
                                                              9,519	                              19,212	
  Voice                                                                  10,378	       -8.3%	                   20,833	       -7.8%
                                                              6,054	                              12,026	
  Data                                                                    5,746	        5.4%	                   11,401	       5.5%
                                                              1,383	                                 2,781	
  Directory                                                               1,155	       19.7%	                    2,177	      27.7%
                                                              3,016	                                 6,092	
  Other                                                                   2,686	       12.3%	                    5,453	      11.7%
     Total Operating Revenues                              30,866	                                61,610	
                                                                         29,478	        4.7%	                   58,447	       5.4%
Operating Expenses
  Cost of services and sales (exclusive of depreciation
                                                           11,900	                                23,902	
	 	 and	amortization	shown	separately	below)	                            11,658	        2.1%	                   23,080	       3.6%
                                                              7,441	                              15,300	
  Selling, general and administrative                                     7,460	       -0.3%	                   14,727	       3.9%
                                                              4,958	                                 9,861	
	 Depreciation	and	amortization	                                          5,416	       -8.5%	                   11,032	      -10.6%
     Total Operating Expenses                              24,299	                                49,063	
                                                                         24,534	       -1.0%	                   48,839	       0.5%
Operating Income                                              6,567	                              12,547	
                                                                          4,944	       32.8%	                    9,608	      30.6%
Interest Expense                                               854	                                  1,719	
                                                                            879	       -2.8%	                    1,752	       -1.9%
Equity in Net Income of Affiliates                             212	                                   455	
                                                                            210	        1.0%	                      383	      18.8%
Other Income (Expense) – Net                                    (43)	                                  (10)	
                                                                            127	           —	                      631	          —
Income Before Income Taxes                                    5,882	                              11,273	
                                                                          4,402	       33.6%	                    8,870	      27.1%
Income Taxes                                                  2,110	                                 4,040	
                                                                          1,498	       40.9%	                    3,118	      29.6%
Net Income                                                $ 3,772	                               $ 7,233	
                                                                        $	 2,904	      29.9%	                  $	 5,752	     25.7%

Basic Earnings Per Share                                  $    0.64	                             $    1.21	
                                                                        $	 	 0.47	     36.2%	                  $	 	 0.93	    30.1%
Weighted Average Common Shares
                                                              5,926	                                 5,962	
	 Outstanding	(000,000)                                                   6,145	       -3.6%	                    6,184	       -3.6%

Diluted Earnings Per Share                                $    0.63	                             $    1.21	
                                                                        $	 	 0.47	     34.0%	                  $	 	 0.92	    31.5%
Weighted Average Common Shares
                                                              5,962	                                 5,997	
	 Outstanding	with	Dilution	(000,000)	                                    6,195	       -3.8%	                    6,230	       -3.7%
AT&T Quarterly Earnings - 2Q 2008
AT&T Quarterly Earnings - 2Q 2008
AT&T Quarterly Earnings - 2Q 2008
AT&T Quarterly Earnings - 2Q 2008
AT&T Quarterly Earnings - 2Q 2008

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AT&T Quarterly Earnings - 2Q 2008

  • 1. InvestorBriefing No. 261 | July 23, 2008 2nd QUARTER 2008 AT&T Delivers Solid Second-Quarter Results Highlighted by Strong Wireless Growth, Double-Digit Increase in IP Data Revenues, Further Ramp in AT&T U-verse TV Subscribers AT&T Inc. reported solid second-quarter results highlighted by Results include continued strong wireless growth, double-digit gains in revenues from solid earnings growth, IP-based data services, and further expansion of consolidated progress on major margins. Second-quarter highlights include the following: growth initiatives and substantial value returned • otal wireless revenues increased 15.8 percent versus the year-earlier quarter, T driven by solid subscriber gains and 52.0 percent growth in wireless data services to shareowners through such as Internet access, e-mail, messaging, data access and media bundles. dividends and • T&T’s second-quarter net gain in total wireless subscribers exceeded A 1.3 million, with continued strong gross add flow share and a reduction share repurchases. in retail postpaid churn to 1.1 percent in the second quarter, the lowest level in the company’s history. • T&T further advanced the significant improvement in wholesale customer A revenue trends it has achieved over the past year. Total wholesale revenues were $3.5 billion, down just 0.2 percent versus the year-earlier quarter. This represents a major step up from a year-over-year decline of 8.3 percent in the second quarter of 2007 and marks the company’s second consecutive quarter of sequential revenue growth in this category. This growth reflects solid demand from wireless carriers, Internet service providers, content providers and other customers. Second-Quarter EPS Reconciliation 2Q08 2Q07 Reported EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.63 $0.47 Adjustments to results: Merger integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.03 Noncash merger-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.13 0.20 Adjusted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.76 $0.70 Pretax adjustments to earnings: in 2Q07, merger integration, noncash intangible amortization and a directory-related purchase accounting effect totaling $2,164 million; in 2Q08, noncash intangible amortization totaling $1,169 million.
  • 2. 2 InvestorBriefing | 2Q 2008 Page TWO Page THREE 3.6 percent compared with second-quarter AT&T ADJUSTED CONSOLIDATED REVENUES 2007 pro forma revenues, which exclude Dollars in billions merger-related accounting impacts on AT&T ADJUSTED OPERATING INCOME MA $30.9 Continued strength $30.7 directory revenues. $30.4 in wireless and $30.3 These increases were driven by strong 24 improvements in $29.8 double-digit growth rates in wireless, stable wholesale contributed 24.0% 23.9% wireline business revenues and improved 23.7% to AT&T’s consolidated growth rates in wholesale. In the second revenue growth in quarter, revenues from wireless and sales the second quarter. to business and wholesale customers represented 80.4 percent of AT&T’s total consolidated revenues. Compared with results for the year-earlier quarter, AT&T’s reported operating expenses 2Q07 3Q07 4Q07 1Q08 2Q08 for the second quarter of 2008 were Revenues for 2007 are adjusted to exclude merger-related directory 2Q07 3Q07 4Q07 1Q $24.3 billion, down from $24.5 billion; 18.1% accounting impacts. Reported 16.8% 17.6% 19 reported operating income was $6.6 billion, Merger integration and amortization costs and ot up from $4.9 billion; and AT&T’s reported • nterprise business revenue trends E are excluded from adjusted operating income ma operating income margin was 21.3 percent, continue to be solid, led by strong up from 16.8 percent. double-digit growth in IP-based data AT&T’s reported second-quarter 2008 services such as virtual private networking net income totaled $3.8 billion, up from (VPN) and managed Internet services. $2.9 billion in the year-earlier quarter, Enterprise fundamentals in terms of and reported earnings per diluted share closed sales, a strong sales funnel and totaled $0.63, up from $0.47 in the new service adoption remain solid. second quarter of 2007. AT&T expects to deliver positive growth in total enterprise revenues for the ADJUSTED RESULTS full year 2008. AT&T’s adjusted results for the second quarter • T&T U-verseSM TV, the company’s next- A of 2008 exclude noncash merger-related generation IP-based video service, amortization expenses. For the second continued its strong ramp during the quarter of 2007, adjusted results excluded second quarter, with a net subscriber merger integration costs, noncash merger- gain of 170,000 to reach 549,000 in related amortization expenses and a service. U-verse network deployment merger-related directory accounting effect. is on schedule, install times continue to Compared with results for the year-earlier decline and the attach rates for broadband quarter, AT&T’s adjusted operating expenses service continue to be high. The company for the second quarter of 2008 totaled is on a trajectory to reach its target of $23.1 billion, versus $22.7 billion; adjusted more than 1 million AT&T U-verse TV operating income was $7.7 billion, up from subscribers by year-end 2008. $7.1 billion; and AT&T’s adjusted operating REPORTED RESULTS income margin was 25.1 percent, up from 23.9 percent. This margin expansion reflects For the quarter ended June 30, 2008, revenue growth along with benefits from AT&T’s consolidated revenues totaled merger synergies and other productivity $30.9 billion, up 4.7 percent versus reported initiatives. results in the year-earlier quarter and up
  • 3. 3 InvestorBriefing | 2Q 2008 Page THREE STRONG BALANCE SHEET AT&T ADJUSTED OPERATING INCOME MARGIN 30.9 AT&T’s balance sheet continues to be strong. Solid revenue growth 25.1% At the end of the second quarter, AT&T’s and progress 24.6% long-term debt was $63.7 billion and on productivity total debt was $80.1 billion. Cash and cash 24.0% 23.9% initiatives combined 23.7% equivalents at the end of the quarter to expand AT&T’s totaled $1.6 billion. AT&T’s second-quarter adjusted consolidated debt-to-total-capitalization ratio was operating income 41.7 percent and the company’s annualized margin in the debt-to-EBITDA was 1.7. second quarter. ADDITIONAL BACKGROUND ON ADJUSTED AND PRO FORMA RESULTS Q08 AT&T’s adjusted earnings for the second ctory 2Q07 3Q07 4Q07 1Q08 2Q08 quarter of 2008 exclude noncash, pretax Reported 16.8% 17.6% 18.1% 19.5% 21.3% amortization costs related to acquisitions Merger integration and amortization costs and other one-time items are excluded from adjusted operating income margins. totaling $1.2 billion, or $0.13 per diluted share. Adjusted results for the second AT&T’s adjusted second-quarter 2008 quarter of 2007 excluded: (1) pretax cash net income totaled $4.5 billion, up from merger-related integration costs totaling $4.3 billion in the year-earlier quarter, and $324 million, or $0.03 per diluted share; adjusted earnings per diluted share totaled (2) noncash, pretax merger-related costs $0.76, up from $0.70 in the second quarter totaling $1.7 billion, or $0.18 per diluted of 2007. share; and (3) a merger-related directory accounting impact of $187 million, or CASH FROM OPERATIONS, $0.02 per diluted share. SHARE REPURCHASES Advertising & Publishing results for 2007 AT&T’s cash from operating activities for the were affected by accounting adjustments second quarter of 2008 totaled $8.5 billion, following AT&T’s late-2006 acquisition of capital expenditures totaled $5.3 billion, and BellSouth. In accordance with purchase free cash flow (cash from operations minus accounting rules, deferred revenues and capital expenditures) totaled $3.2 billion. expenses for all BellSouth directories Year to date through the first half of 2008, delivered prior to the close of the merger cash from operating activities totaled were eliminated from 2007 consolidated $13.5 billion, capital expenditures totaled results. This elimination of amortizations $9.6 billion, and free cash flow totaled reduced second-quarter 2007 consolidated $3.9 billion. revenues by $306 million and consolidated As it invests in the future of its business, operating expenses by $119 million. AT&T continues to return substantial value AT&T manages its print directory business to shareowners through dividends and using amortized results. As a result, 2007 share repurchases. Dividends paid totaled amortized results are shown in the $2.4 billion in the second quarter and Advertising & Publishing segment on $4.8 billion year to date. Shares repurchased AT&T’s Statement of Segment Income. totaled 52.6 million for $2.0 billion in the In 2008, both consolidated and segment second quarter and 164.2 million for results reflect amortization accounting. $6.1 billion through the first half of the year. AT&T ended the second quarter with 5.9 billion shares outstanding.
  • 4. 4 InvestorBriefing | 2Q 2008 Wireless AT&T’s second-quarter AT&T, the U.S. market leader in wireless with 72.9 million subscribers, operates the nation’s largest wireless digital voice and data network, offers the nation’s wireless results were fastest third-generation (3G) network according to data compiled by leading independent wireless research firms, and has the broadest global coverage highlighted by strong of any U.S. provider with roaming available in more than 200 countries. Building on these strengths, in the second quarter AT&T took important double-digit revenue steps to further advance a new era of wireless growth, as it extended its coverage and spectrum depth, expanded its 3G coverage to 300 cities with growth driven by robust plans to expand to nearly 350 by the end of the year, and became the exclusive U.S. network provider for the breakthrough Apple iPhone 3G, increases in wireless which was launched in early July. data services and solid STRONG WIRELESS REVENUE GROWTH AT&T’s total wireless revenues increased 15.8 percent to $12.0 billion in the subscriber gains. second quarter, and wireless service revenues, which exclude handset and accessory sales, grew 14.8 percent to $11.0 billion. Growth was driven by solid subscriber gains and a greater number of customers choosing more advanced smartphones and integrated devices, spurring increased usage of data services such as Internet and data access, e-mail and messaging. Growth trends in ARPU (average monthly revenues per subscriber) also reflect increasing adoption and usage of advanced wireless data services. Total blended wireless service ARPU was $50.60 in the second quarter, in line with results in the year-earlier quarter, with data ARPU up 32.2 percent. Retail postpaid subscriber ARPU was up 3.5 percent versus the year-earlier quarter, with postpaid data ARPU up 36.5 percent. SOLID SUBSCRIBER GAINS WITH REDUCED RETAIL POSTPAID CHURN AT&T’s second-quarter net gain in total wireless subscribers exceeded 1.3 million, down 123,000 versus results in the second quarter of 2007 and up 38,000 compared with the first quarter of this year. AT&T continued its strong record of wireless subscriber flow share with 4.9 million second-quarter gross subscriber additions, up from 4.5 million in the year-earlier quarter. Total average monthly subscriber churn, which includes postpaid, prepaid and reseller subscribers, was 1.6 percent, flat with the year-earlier quarter and down 10 basis points from the first quarter of 2008.
  • 5. USE THESE 5 InvestorBriefing | 2Q 2008 Wireless - Chart ONE Wireless - Chart TW quarter to $2.5 billion. Data now represents AT&T WIRELESS SERVICE REVENUES 22.9 percent of AT&T’s total wireless service AT&T WIRELESS SUBSCRIBERS Dollars in billions revenues, up from 17.3 percent in the AT&T’s wireless In millions $11.0 $10.6 $10.2 second quarter of 2007. $9.9 service revenues $9.5 70.1 Wireless Internet access revenues more grew 14.8 percent in than doubled versus results for the 65.7 year- the second quarter, earlier second quarter, while revenues from reflecting solid 63.7 e-mail, messaging and data access all subscriber gains and delivered greater than 50 percent growth. robust adoption of Text messaging volumes tripled versus totals data services. for the year-earlier quarter, and multimedia message volumes increased more than 170 percent. 2Q07 3Q07 4Q07 1Q08 2Q08 AT&T expects continued2Q07 robust growth in 4Q07 3Q07 wireless data services as more increase in 4Q07 included 1.7 m Subscriber customers Retail postpaid gross adds were in line with through acquisition; 2Q08 increase includes adopt integrated devices that deliver access added via acquisition. totals in the year-earlier quarter at 2.8 million, to a broad array of applications and and retail postpaid net adds totaled 894,000, content. At the end of the second quarter, down 2.0 percent versus the year-earlier approximately 18 percent of AT&T’s postpaid second quarter and up 26.8 percent from wireless subscribers had an integrated results in the first quarter of this year. device, up from 8 percent one year earlier. This sequential postpaid improvement was On average, these subscribers have ARPUs achieved despite reduced iPhone sales roughly double the company average. ahead of the early July iPhone 3G launch. Adoption of 3G-compatible devices is Retail postpaid churn moved down to also a key to driving wireless data growth. 1.1 percent in the second quarter, the At the end of the second quarter, lowest level in the company’s history. approximately 13 million AT&T customers had 3G devices. AT&T’s broad 3G network ROBUST GROWTH IN now includes 300 U.S. metro olitan areas, p WIRELESS DATA SERVICES and the company expects to deliver 3G AT&T’s wireless data revenues continued services to nearly 350 U.S. markets by the Wireless - Chart TH their rapid expansion in the second quarter, Wireless - Chart TWO end of 2008. AT&T also has started doubling growing 52.0 percent versus the year-earlier the data capacity of its 3G markets, and nearly half of all 3G cell sites will receive AT&T WIRELESS DATA REVENUES AT&T WIRELESS SUBSCRIBERS additional capacity by the endbillions year. Dollars in of the In millions 72.9 AT&T increased its 71.4 OPERATING INCOME GROWTH, 70.1 wireless subscriber $2.0 MARGIN EXPANSION base by more than $1.8 Strong growth in wireless revenues, network 65.7 $1.7 9 million over 63.7 efficiencies and operational improvements the past year. continue to drive strong wireless operating income and margins. On a reported basis, AT&T’s second-quarter wireless operating expenses totaled $9.0 billion, and operating income was $3.1 billion, up 91.0 percent from $1.6 billion 2Q07 3Q07 4Q07 1Q08 2Q08 in the second quarter of 2007. Adjusting for 2Q07 3Q07 4Q07 Subscriber increase in 4Q07 included 1.7 million subscribers added merger integration costs, wireless operating through acquisition; 2Q08 increase includes 182,000 subscribers added via acquisition.
  • 6. 6 InvestorBriefing | 2Q 2008 Wireless - Chart FOU Wireless - Chart THREE AT&T ADJUSTED WIRELESS MARGINS (OIBDA service margin is operating income Operating Income Margin OIBD AT&T WIRELESS DATA REVENUES before depreciation and amortization, Dollars in billions AT&T’s wireless divided by total service revenues.) $2.5 $2.3 data revenues grew 29.9% LEADER IN WIRELESS NETWORKS, 52.0 percent year over $2.0 37. ADVANCED DEVICES24.9% year, driven by $1.8 $1.7 AT&T is creating the next generation of increased usage wireless by advancing network capabilities, of wireless Internet offering breakthrough devices and launching and data access, innovative services. Over the past several messaging and weeks, AT&T: media bundles. • nnounced that it will be the exclusive A U.S. provider of the new Apple iPhone 3G, 2Q07 2Q08 2Q Unadjusted 15.4% 25.5% 35. Results which was launched on July 11. The 2Q07 3Q07 4Q07 1Q08 2Q08 iPhone 3G delivers a home broadband-like Merger integration and intangible amortization c ed from adjusted operating income margins: $983 m speed experience and $529 customers surf integration co when million in 2Q08. Merger expenses totaled $8.4 billion, and operating adjusted OIBDA service margins: $163 million in the Internet, share files and use media- income was $3.6 billion, up 38.9 percent from rich Web applications; business-class $2.6 billion in the second quarter of 2007. capabilities, including e-mail, viewed on AT&T’s reported wireless operating a large, touch-screen device and designed income margin was 25.5 percent, up from to meet the needs of companies of all 15.4 percent in the year-earlier quarter, sizes; and the ability for developers, and its adjusted wireless operating income including AT&T, to create customized margin was 29.9 percent, up from consumer and business applications using 24.9 percent in the year-earlier quarter. the Apple software developer’s kit. AT&T AT&T’s second-quarter wireless OIBDA expects that the iPhone 3G’s attractive service margin was 41.2 percent, up from pricing and rich set of features will spur an unadjusted 35.8 percent and an adjusted subscriber growth and expand adoption Wireless - Chart FOUR 37.5 percent in the year-earlier quarter. of advanced wireless data services. In the first 12 days of sales following launch, AT&T ADJUSTED WIRELESS MARGINS sales of the iPhone 3G were nearly double levels achieved in AT&T’s 2007 iPhone Operating Income Margin OIBDA Service Margin AT&T’s wireless launch. Approximately 40 percent of the 41.2% OIBDA service purchasers were new to AT&T. 2.5 margin expanded 29.9% 370 basis points 37.5% versus adjusted 24.9% results for the second quarter of 2007. 2Q08 2Q07 2Q08 2Q07 Unadjusted 41.2% 15.4% 25.5% 35.8% Results Q08 Merger integration and intangible amortization costs excluded from adjusted operating income margins: $983 million in 2Q07 and $529 million in 2Q08. Merger integration costs excluded from adjusted OIBDA service margins: $163 million in 2Q07.
  • 7. 7 InvestorBriefing | 2Q 2008 • ompleted the deployment of High Speed C • oined with MediaFLO USA Inc. to J Uplink Packet Access (HSUPA) technology introduce AT&T Mobile TV with FLO, across AT&T’s entire 3G wireless broadband a mobile television service featuring network, making AT&T the only U.S. carrier high-quality live programming. The to have fully deployed HSPA technology mobile TV service launched in May 2008 in its 3G network. With the new addition on two new exclusive handsets, the LG of HSUPA technology, AT&T 3G users VuTM and the Samsung AccessTM. AT&T can send large files faster and take full Mobile TV delivers full-length television advantage of the latest interactive content and sporting events from top Internet and business applications. networks, including programming from • aunched free Wi-Fi access for qualifying L leading entertainment brands CBS LaptopConnect customers to more than Mobile, Comedy Central, ESPN Mobile 17,000 Wi-Fi hot spots across the TV, FOX Mobile, MTV, NBC 2GO, NBC United States. Users can access Wi-Fi News2Go and Nickelodeon. at nearly 7,000 participating Starbucks locations plus thousands more AT&T Wi-FiSM locations, including restaurants, airports, hotels and other convenient locations across the United States.
  • 8. 8 InvestorBriefing | 2Q 2008 Wireline Second-quarter results in Second-quarter revenues in AT&T’s wireline segment totaled $17.6 billion versus $18.0 billion in the year-earlier quarter. This reflects strong growth in AT&T’s wired operations IP data services across business and consumer customer categories, largely offsetting expected declines in voice and legacy packet-switched data products. were highlighted by Results were highlighted by a significant step up in wholesale growth rates, stable fundamental trends in regional business and enterprise, and a continued double-digit growth in ramp in AT&T U-verse TV subscribers. AT&T expects further stabilization in overall wireline revenue trends during IP data revenues, a the remainder of 2008 as enterprise delivers growth for the full year, wholesale trends show further improvement and AT&T U-verse services continued turnaround in gain additional scale. Compared with results for the year-earlier quarter, on a reported basis, wholesale, and a further second-quarter wireline operating expenses totaled $14.5 billion versus $14.8 billion; operating income was $3.1 billion versus $3.2 billion; and ramp in AT&T U-verse AT&T’s wireline operating income margin was 17.7 percent, which was unchanged versus the second quarter of 2007. TV subscribers. Adjusted wireline results for the second quarter of 2007 exclude merger- related integration and amortization expenses. Adjusted wireline results for the second quarter of 2008 exclude only merger-related amortization expenses. Compared with results for the year-earlier quarter, second-quarter adjusted wireline operating expenses totaled $14.1 billion, down 0.1 percent; adjusted operating income was $3.5 billion versus $3.9 billion; and AT&T’s adjusted wireline operating income margin was 20.1 percent versus 21.7 percent. On a sequential basis, AT&T’s wireline adjusted operating income increased 5.1 percent and its wireline adjusted operating income margin improved 100 basis points. The following wireline highlights include ongoing shifts in customer categories to reflect AT&T’s management of customer relationships. CONTINUED STRENGTH IN ENTERPRISE Over the past two years, AT&T has delivered a major turnaround in enterprise growth rates, and in the second quarter results were highlighted by an 18.4 percent increase in enterprise IP data revenues, including areas such as VPNs, managed Internet services and hosting. Total enterprise revenues in the second quarter were $4.7 billion, down 1.0 percent versus results for the year-earlier quarter, and enterprise service revenues, which exclude CPE sales, were down 0.1 percent.
  • 9. 9 Wireline InvestorBriefing | 2Q 2008 Wireline quarter, leading industry analyst RATES REVENUES — YE AT&T WHOLESALE GROWTH firm AT&T ENTERPRISE IP DATA REVENUES Gartner, Inc. positioned AT&T in the Leaders 0 Dollars in millions Quadrant of its Managed and Professional $851 AT&T sustained strong -1 Network Service Providers, North America enterprise revenues -2 report. The Gartner Magic Quadrant report $802 in the second quarter, -3 $796 is a guide for midsize businesses and large highlighted by -4 companies to identify and evaluate vendors continued strong -5 $738 that deliver IT services in-6support of connec- double-digit growth $719 (7.0)% tivity and communications infrastructure. in IP-based services. -7 -8 WHOLESALE TURNAROUND (8.3)% (8.5)% -9 AT&T is a leading global provider of Enterprise delivering a full portfolio 4Q07 2Q07 3Q07 wholesale services,service revenue growth (3.0)% (0.7)% 0.4% of network, voice, data and IP solutions to 2007 comparisons are to 2006 pro forma 2Q07 3Q07 4Q07 1Q08 2Q08 carriers, wireless operators, cable the former BellSouth and AT results from providers, systems integrators, Internetacquired operations. from service AT&T expects to deliver positive growth providers and content providers. in total enterprise revenues for the full year Through the first half of 2008, AT&T has 2008. Enterprise fundamentals in terms delivered a substantial turnaround in of closed sales, a strong sales funnel and wholesale revenue trends. Total wholesale new service adoption remain solid, and revenues were $3.5 billion in the second the company expects revenues from major quarter, down just 0.2 percent versus the contracts such as its agreements with Royal year-earlier quarter. This represents a major Dutch Shell and with U.S. government step up from a year-over-year decline of agencies will increase in the second half 8.3 percent in the second quarter of 2007 of the year. and marks the company’s second consecutive AT&T is the premier provider for enterprise quarter of sequential revenue growth in customers, delivering networking services this category. Wireline and solutions to multinational corporations, This improvement reflects solid demand U.S. governmental agencies and regionally from wireless carriers, Internet service based domestic companies. The company providers, content providers and other continues to expand its capabilities through Wireline customers, offsetting expectedTOTAL ENTERPRISE REVENUE AT&T declines in network expansion and enhancement of Wireline local voice. AT&T expects 2 that wholesale service capabilities. During the second revenues will continue to stabilize in the 1 remainder of 2008, as traffic migration involving carriers thatAT&T 0 merged CONNECTIONS IN SER U-VERSE TV nears AT&T WHOLESALE REVENUES — YEAR-OVER-YEAR have GROWTH RATES (0.2 In thousands AT&T’s wholesale completion. In addition, last fall AT&T and (0.2)% 0 -1 revenue growth IBM announced an agreement that calls -1 (1.7)% trends continue for AT&T to become the primary global -2 -2 network management services provider to to improve, with 3 -3 -3 IBM. As a result, AT&T expects to receive the second quarter -4 (3.9)% up to $5 billion of additional revenues of 2008 marking (4.0)% -4 -5 over the five-year term of the agreement, 231 the company’s -6 1Q07 2Q07 3Q07 Enterprise service largely in the wholesale customer category (7.0)% second consecutive revenue growth (3.0)% (0.7)% 0.4% -7 at the outset. These revenues comparisons are to 2006 pro form 2007 are 126 expected quarter of -8 to ramp further in the second half of 2008 results from the former BellSouth and A (8.3)% (8.5)% sequential growth. -9 from acquired operations. 51 and in 2009. 2Q07 3Q07 4Q07 1Q08 2Q08 Enterprise service 2Q07 3Q07 4Q07 1 revenue growth (3.0)% (0.7)% 0.4% 1.5% 2.1% 2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
  • 10. 10 Wireline InvestorBriefing | 2Q 2008 Wireline REGIONAL CONSUMER INITIATIVES AT&T AVERAGE MONTHLY CONSUMER REV AT&T U-VERSE TV CONNECTIONS IN SERVICE Second-quarter regional consumer revenues PER HOUSEHOLD SERVED In thousands continued trends of recent quarters, with 549 AT&T accelerated 2)% $60. growth in revenues from broadband and subscriber growth $59.73 $59.43 AT&T U-verse services in large part offsetting in its advanced $58.91 traditional voice access line pressures. IP-based TV service, 379 Regional consumer revenues totaled with a net gain of $5.6 billion, down 2.1 percent versus the 170,000 subscribers year-earlier quarter and down 0.7 percent 231 in the second quarter. sequentially. In addition to operational trends, these comparisons also reflect 126 a change in AT&T’s relationship with 51 Yahoo!® Inc., which provides portal services 08 to AT&T’s more than 14 million total wireline 2Q07 3Q07 4Q07 1Q0 2Q07 3Q07 4Q07 1Q08 2Q08 1% broadband subscribers. Under the new bine arrangement, AT&T no longer pays monthly enues REGIONAL BUSINESS GROWTH portal fees and receives a reduced level of AT&T’s total regional business customer shared advertising revenues from Yahoo! revenues increased 1.6 percent versus the Regional consumer IP revenues, which year-earlier second quarter to $3.2 billion. combine revenues from broadband and Regional business data revenues grew AT&T U-verse services, grew 19.3 percent 5.2 percent year over year, led by robust versus the year-earlier quarter, and revenues growth in Ethernet services and 13.7 percent per consumer household served increased growth in IP data services, including 4.2 percent. Regional consumer revenue double-digit gains in managed Internet connections (retail voice, high speed Internet and VPN. and video) totaled 48.4 million at the end of AT&T’s broad portfolio of communications the quarter, versus 49.5 million at the end of services for its regional business customers the second quarter of 2007 and 49.3 million includes wireless, broadband Internet access, at the end of the first quarter of 2008. Total business e-mail services, Web hosting, consumer broadband and TV connections unified messaging, remote data storage over the past year increased by 2.2 million. and network security options. At the end of the second quarter, AT&T had AT&T continues to expand these offerings. 14.7 million total broadband connections, up For example, in May, AT&T announced the 1.4 million over the past year and up 46,000 immediate availability of the AT&T U-verse in the second quarter of 2008. .2% platform for highspeed Internet access to AT&T U-verse TV, the company’s next- small businesses in more than 40 U.S. generation IP-based video service, continued markets. AT&T High Speed Internet U-verse its strong ramp during the second quarter, Enabled Business Edition offers download with a net subscriber gain of 170,000 to speeds of up to 10 Mbps, which, depending reach 549,000 in service. U-verse network on the applications needed, can serve up to deployment is on schedule, install times 32 Internet access connections over existing continue to decline, and the attach rates telephone wiring in the customer’s business. for broadband service continue to be high. The company is on a trajectory to reach its Q08 target of more than 1 million AT&T U-verse .1% TV subscribers by year-end 2008. mbine venues
  • 11. 11 Wireline InvestorBriefing | 2Q 2008 several quarters, reflecting the 2004 decision AT&T AVERAGE MONTHLY CONSUMER REVENUES to discontinue proactive marketing in this PER HOUSEHOLD SERVED AT&T’s regional space and AT&T’s strategy of migrating 549 $61.40 consumer ARPU has customers within its regional footprint to its $60.57 $59.73 ramped steadily over regional platforms to deliver better service $59.43 $58.91 and a broader array of service options. the past several National mass markets represented quarters, reflecting 3.9 percent of total wireline revenues in growth in broadband the second quarter and accounted for and TV revenues. 80 percent of AT&T’s year-over-year decline in total wireline revenues. PRODUCT CATEGORIES 2Q07 3Q07 4Q07 1Q08 2Q08 Q08 WIRELINE DATA SERVICES Increasingly, AT&T is focused on developing AT&T’s data revenues, which include results services for consumers that combine and from several customer categories, grew integrate the capabilities of its wireless and 5.1 percent versus results for the year-earlier wired networks. For example, in June, the second quarter to $6.3 billion. company launched AT&T Net Reach, a bundle Data growth was led by a 16.1 percent providing home and on-the-go high speed increase in revenues from IP-based services, Internet services for consumers. Net Reach with continued gains in high speed Internet, includes AT&T High Speed Internet and managed Internet, VPN and hosting services. LaptopConnect services, in addition to Data transport service revenues increased free access to more than 17,000 hot spots 1.1 percent, and packet switched data with AT&T Wi-Fi service. Plus, as part of revenues, which include Frame Relay and the LaptopConnect service, new software ATM services, were down 13.5 percent, automatically detects the strongest available consistent with industry trends. AT&T signal from a nearby network — 3G, In the second quarter, 73.2 percent of EDGE, Wi-Fi or one’s AT&T High Speed AT&T’s data revenues came from retail Internet connection at home — making business and consumer customers. These connecting simple and easy. AT&T Net Reach retail data revenues were up 6.6 percent is available to new and existing residential versus results for the year-earlier quarter. customers who subscribe to AT&T High Speed Internet and AT&T LaptopConnect WIRELINE VOICE SERVICES services. Customers must also opt to AT&T’s second-quarter wireline voice combine their wireless and wireline services revenues, which include retail local voice onto one billing statement. and long distance as well as wholesale voice, totaled $9.8 billion, representing a NATIONAL MASS MARKETS decline of 7.8 percent versus results for Revenues from AT&T’s national mass markets the second quarter of 2007. This comparison category, which includes the remainder of is consistent with results in recent quarters, the former AT&T’s standalone long distance reflecting the industrywide migration of voice and local bundled business, totaled usage from wired to wireless platforms, $680 million in the second quarter, customer transitions to broadband and representing a decline of 31.2 percent VoIP services and increased local voice year over year. Results are as expected competition. and consistent with trends over the past
  • 12. 12 InvestorBriefing | 2Q 2008 Advertising & Publishing AT&T is a leader in local AT&T’s Advertising & Publishing segment offers businesses a full suite of local search options including print and Internet Yellow Pages in addition to Web site search with more than design, search engine marketing and mobile search. AT&T’s Advertising & Publishing operations deliver print directories to more 1,250 print directories than 83 million residences and businesses in 22 states and have a premier online presence nationwide with YELLOWPAGES.COM, which offers consumers and YELLOWPAGES.COM, access to local business information, the latest business listings, city guides, maps and driving directions. Combined, these print and online products receive its fast-growing online approximately 5 billion consumer searches a year for local business information and provide more than 1 million advertisers with valuable sales leads to help search service. their businesses grow. Advertising & Publishing revenue trends reflect migration from print to electronic search, including rapid growth at AT&T’s YELLOWPAGES.COM. Advertising & Publishing’s Internet revenues increased 40.2 percent versus the year-earlier second quarter, and total Advertising & Publishing revenues declined 4.8 percent, in part reflecting revenues lost through the sale of a sales agency business that serves independent telephone companies. That transaction closed early in the second quarter. Compared with reported results in the year-earlier quarter, operating expenses totaled $974 million, down 7.7 percent; operating income totaled $433 million, up 2.4 percent; and the segment’s operating income margin was 30.8 percent, up 220 basis points. Adjusted results for Advertising & Publishing exclude merger-related noncash amortization costs in both quarters. Compared with results in the year-earlier quarter, second-quarter 2008 adjusted operating expenses totaled $781 million, down 2.4 percent; adjusted operating income totaled $626 million, down 7.7 percent; and the segment’s adjusted operating income margin was 44.5 percent, down 140 basis points.
  • 13. 13 InvestorBriefing | 2Q 2008 Other AT&T’s Other segment AT&T’s Other segment includes results from AT&T’s Sterling Commerce operations and AT&T’s customer information services operations, both of which are included includes results from its in segment revenues and operating expenses. Customer information services include operator services and directory assistance. Sterling Commerce is one Sterling Commerce unit, of the world’s largest providers of multi-enterprise collaboration solutions. The company serves the retail, consumer packaged goods, manufacturing, customer information financial services, health care and telecommunications industries. The Other segment also includes AT&T’s proportionate share of results from services and equity Telmex, América Móvil and Telmex Internacional, which are shown in the Equity in Net Income of Affiliates line for this segment. AT&T’s equity interest in each investments in Telmex, company is more than 8 percent. América Móvil is one of the leading providers of telecommunications services América Móvil and in Latin America, with more than 159 million wireless subscribers at the end of the first quarter of 2008 in countries throughout the region, including more Telmex Internacional. than 51 million in Mexico. Telmex is the leading telecommunications company in Mexico. Telmex and its subsidiaries provide a wide range of telecommunications services, data and video transmission, Internet access and integrated telecommunications solutions. Telmex Internacional has telecommunications operations in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. On a reported basis, Other segment income totaled $167 million in the second quarter versus $117 million in the year-earlier quarter. Segment revenues totaled $512 million, compared with $558 million for the second quarter of 2007. Equity in Net Income of Affiliates totaled $209 million, up from $202 million in the year-earlier quarter.
  • 14. 14 InvestorBriefing | 2Q 2008 AT&T Inc. Consolidated Statements of Income (Unaudited) (Dollars in Millions, Except per Share Amounts) Three Months Ended Six Months Ended 6/30/08 6/30/08 6/30/07 % Change 6/30/07 % Change Operating Revenues $10,894 $21,499 Wireless service $ 9,513 14.5% $18,583 15.7% 9,519 19,212 Voice 10,378 -8.3% 20,833 -7.8% 6,054 12,026 Data 5,746 5.4% 11,401 5.5% 1,383 2,781 Directory 1,155 19.7% 2,177 27.7% 3,016 6,092 Other 2,686 12.3% 5,453 11.7% Total Operating Revenues 30,866 61,610 29,478 4.7% 58,447 5.4% Operating Expenses Cost of services and sales (exclusive of depreciation 11,900 23,902 and amortization shown separately below) 11,658 2.1% 23,080 3.6% 7,441 15,300 Selling, general and administrative 7,460 -0.3% 14,727 3.9% 4,958 9,861 Depreciation and amortization 5,416 -8.5% 11,032 -10.6% Total Operating Expenses 24,299 49,063 24,534 -1.0% 48,839 0.5% Operating Income 6,567 12,547 4,944 32.8% 9,608 30.6% Interest Expense 854 1,719 879 -2.8% 1,752 -1.9% Equity in Net Income of Affiliates 212 455 210 1.0% 383 18.8% Other Income (Expense) – Net (43) (10) 127 — 631 — Income Before Income Taxes 5,882 11,273 4,402 33.6% 8,870 27.1% Income Taxes 2,110 4,040 1,498 40.9% 3,118 29.6% Net Income $ 3,772 $ 7,233 $ 2,904 29.9% $ 5,752 25.7% Basic Earnings Per Share $ 0.64 $ 1.21 $ 0.47 36.2% $ 0.93 30.1% Weighted Average Common Shares 5,926 5,962 Outstanding (000,000) 6,145 -3.6% 6,184 -3.6% Diluted Earnings Per Share $ 0.63 $ 1.21 $ 0.47 34.0% $ 0.92 31.5% Weighted Average Common Shares 5,962 5,997 Outstanding with Dilution (000,000) 6,195 -3.8% 6,230 -3.7%