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  • 1. InvestorBriefing No. 262 | October 22, 2008 3rd QUARTER 2008 Strong Wireless Gains, Sound Operational Execution Highlight AT&T’s Third Quarter; Results Led by 2.4 Million iPhone 3G Activations, Rapid Wireless Data Growth AT&T Inc. reported third-quarter results highlighted by AT&T delivered its best-ever strong wireless gains and stable business trends, including quarterly postpaid wireless continued double-digit growth in IP data services and a subscriber gain, accelerated its major turnaround in wholesale revenue growth. Total U-verse video subscriber ramp wireless revenues grew 15.4 percent, driven by a significant and sustained stable trends step up in retail postpaid subscriber additions, continued in business services. rapid adoption of wireless data services and robust demand for integrated devices, led by the Apple iPhone 3G. Third-quarter highlights included the following: • otal wireless subscribers increased by 2.0 million to reach 74.9 million in T service, with a net gain in retail postpaid wireless subscribers of 1.7 million. This was the largest quarterly postpaid subscriber increase in the company’s history. Third-Quarter EPS Reconciliation 3Q08 3Q07 Reported EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.55 $0.50 Adjustments: Merger integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.04 Noncash merger-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.12 0.17 Adjusted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.67 $0.71 Pretax adjustments to earnings: in 3Q07, merger integration costs, noncash intangible amortization and a directory-related purchase accounting effect totaling $1,898 million; in 3Q08, noncash intangible amortization totaling $1,096 million.
  • 2. 2 InvestorBriefing | 3Q 2008 Page TWO • T&T further accelerated its ramp of A next-generation, IP-based TV service and THREE Page AT&T ADJUSTED CONSOLIDATED REVENUES Dollars in billions Strong gains in ended the third quarter with 781,000 $31.3 wireless and AT&T U-verseSM TV AT&T ADJUSTEDin service. INCOME MA subscribers OPERATING $30.9 $30.7 continued double- This reflects a third-quarter net gain of $30.4 $30.3 digit growth in 232,000, up from 170,000 subscribers 24 IP data services added in the second23.9% quarter of this year. 24.0% 23.7% drove AT&T’s AT&T is on a trajectory to exceed its target of more than 1 million U-verse TV third-quarter subscribers by year-end 2008. U-verse revenue growth. network deployment now passes 14 million living units. REPORTED RESULTS For the quarter ended Sept. 30, 2008, AT&T’s 3Q07 4Q07 1Q08 2Q08 3Q08 consolidated revenues totaled $31.3 billion, Revenues for 2007 are adjusted to exclude merger-related directory 2Q07 3Q07 4Q07 1Q purchase accounting impacts. up 4.0 percent versus reported results in the Reported 16.8% 17.6% 18.1% 19 year-earlier quarter and up 3.3 percent Merger integration and amortization costs and ot • ostpaid subscriber growth was boosted by P compared with third-quarter 2007 pro forma income ma are excluded from adjusted operating the dramatic market success of the Apple revenues, which exclude merger-related iPhone 3G, which was launched in the accounting impacts on directory revenues. United States as an AT&T exclusive on Consolidated revenue growth was driven July 11. Third-quarter activations of the by 15.4 percent growth in wireless revenues iPhone 3G totaled 2.4 million, approximately and a 16.2 percent increase in wireline IP 40 percent of them for wireless customers data revenues, which includes AT&T U-verse who were new to AT&T. services and business offerings such as VPNs, • ireless data revenues grew 50.5 percent, W managed Internet services and hosting. reflecting continued strong increases in Gains in these areas more than offset areas such as Internet access, messaging, pressures in the macro-environment and a e-mail and related services. Wireless decline in wireline consumer voice, which Internet access revenues and multimedia was consistent with trends in recent quarters. message volumes more than doubled Compared with results for the year-earlier versus results for the year-earlier quarter. quarter, AT&T’s reported operating expenses • ireline business trends were stable, W for the third quarter of 2008 were $25.7 billion with enterprise, regional business and versus $24.8 billion; reported operating wholesale revenues all up sequentially, income was $5.6 billion, up from $5.3 billion; led by growth in IP data services such as and AT&T’s reported operating income margin virtual private networks (VPNs), managed was 17.9 percent, up from 17.6 percent. Internet services and hosting. AT&T’s reported third-quarter 2008 net income totaled $3.2 billion, up from $3.1 billion in the year-earlier quarter, and reported earnings per diluted share totaled $0.55, up from $0.50 in the third quarter of 2007.
  • 3. 3 InvestorBriefing | 3Q 2008 ADJUSTED RESULTS Based on third-quarter customer response, AT&T is optimistic regarding continued strong AT&T’s adjusted results for the third quarter iPhone 3G activations and is confident in the of 2008 exclude noncash merger-related long-term value created by this investment amortization expenses. For the third quarter in acquiring high-value, data-centric wireless of 2007, adjusted results excluded merger subscribers. As a result, AT&T expects its integration costs, merger-related dilution associated with the iPhone 3G amortization expenses and a merger- will run above its previous expectation, and related directory accounting effect. AT&T now expects, depending on volumes, Compared with results for the year-earlier its full-year 2008 wireless service OIBDA quarter, AT&T’s adjusted operating expenses margin to be better than 37 percent versus for the third quarter of 2008 totaled its previous outlook of 39 percent to $24.6 billion versus $23.1 billion; adjusted 40 percent. AT&T expects its full-year operating income was $6.7 billion, compared adjusted consolidated operating income with $7.2 billion; and AT&T’s adjusted margin to be approximately 23 percent operating income margin was 21.4 percent versus its previous outlook of approximately versus 23.7 percent. AT&T’s adjusted 24 percent. third-quarter 2008 net income totaled $3.9 billion versus $4.3 billion in the STRONG BALANCE SHEET year-earlier quarter, and adjusted earnings AT&T’s cash from operating activities for the per diluted share totaled $0.67, compared third quarter of 2008 totaled $9.3 billion, with $0.71 in the third quarter of 2007. capital expenditures totaled $5.3 billion and iPHONE 3G IMPACTS AND free cash flow (cash from operations minus HURRICANE-RELATED EXPENSES capital expenditures) totaled $4.0 billion. Through the first three quarters of 2008, AT&T’s third-quarter 2008 reported and cash from operating activities totaled adjusted margins and earnings reflect $22.8 billion, capital expenditures totaled revenue growth and continued progress with $14.8 billion and free cash flow totaled previously outlined cost initiatives, offset by $7.9 billion. AT&T continues to expect full- hurricane-related expenses and effects on year 2008 capital expenditures in the wireless results from the iPhone 3G. Impacts mid-teens as a percentage of total revenues from the company’s iPhone 3G initiative and expects full-year 2008 free cash flow reduced third-quarter pretax earnings by of approximately $14 billion. approximately $900 million or $0.10 per Through the first three quarters of 2008, share, and costs related to hurricanes dividends paid totaled $7.2 billion, shares reduced pretax earnings by approximately repurchased totaled 164.2 million for $145 million or $0.02 per share. $6.1 billion and AT&T ended the third quarter with 5.9 billion shares outstanding.
  • 4. 4 InvestorBriefing | 3Q 2008 AT&T’s balance sheet continues to be Advertising & Publishing results for 2007 strong. During the third quarter, AT&T were affected by accounting adjustments reduced total debt by $3.4 billion. At the following AT&T’s late 2006 acquisition of end of the quarter, AT&T’s long-term debt BellSouth. In accordance with purchase was $59.4 billion and total debt was accounting rules, deferred revenues and $76.8 billion. Cash and cash equivalents at expenses for all BellSouth directories the end of the quarter totaled $1.6 billion. delivered prior to the close of the merger AT&T’s third-quarter debt-to-total- were eliminated from 2007 consolidated capitalization ratio was 40.6 percent, and results. This elimination of amortizations the company’s annualized debt-to-EBITDA reduced third-quarter 2007 consolidated ratio was 1.7. revenues by $196 million and consolidated operating expenses by $64 million. ADDITIONAL BACKGROUND ON AT&T manages its print directory business ADJUSTED AND PRO FORMA RESULTS using amortized results. As a result, 2007 AT&T’s adjusted earnings for the third amortized results are shown in the quarter of 2008 exclude noncash, pretax Advertising & Publishing segment on amortization costs related to acquisitions AT&T’s Statement of Segment Income. totaling $1.1 billion or $0.12 per diluted In 2008, both consolidated and segment share. Adjusted results for the third quarter results reflect amortization accounting. of 2007 excluded: (1) pretax cash merger- related integration costs totaling $322 million or $0.04 per diluted share; (2) noncash, pretax merger-related costs totaling $1.4 billion or $0.16 per diluted share; and (3) a merger-related directory accounting impact of $132 million or $0.01 per diluted share.
  • 5. 5 InvestorBriefing | 3Q 2008 Wireless AT&T delivered strong AT&T significantly accelerated growth in advanced wireless services in the third quarter. Results included a major step up in retail postpaid subscriber wireless subscriber additions and a continued strong ramp in wireless data revenues from areas such as Internet access, e-mail and multimedia messaging. Expansion in and revenue growth in these areas was boosted by robust demand for integrated devices, led by strong performance from the Apple iPhone 3G, which was launched in the the third quarter, powered United States as an AT&T exclusive on July 11. by 2.4 million iPhone 3G STRONGEST QUARTERLY POSTPAID NET ADDS IN COMPANY’S HISTORY activations and rapid In the third quarter, AT&T posted the largest postpaid net subscriber gain for any quarter in its history. Retail postpaid net subscriber additions of adoption of advanced 1.7 million were up nearly 40 percent versus results in the year-earlier third quarter and accounted for more than 85 percent of AT&T’s 2.0 million data services. total wireless net adds. Gross subscriber flow totaled 5.7 million, and postpaid gross adds for the third quarter topped 3.8 million, with both totals exceeding results in the year-earlier quarter. Total monthly subscriber churn in the third quarter was 1.7 percent, flat with results for the year-earlier quarter, and postpaid churn improved to 1.2 percent from 1.3 percent in the third quarter of 2007. 2.4 MILLION iPHONE 3G ACTIVATIONS Postpaid subscriber growth was boosted by the dramatic market success of the iPhone 3G. Third-quarter activations of the iPhone 3G totaled 2.4 million, 2.4 times results for the original iPhone through the end of the third quarter in 2007. Approximately 40 percent of iPhone 3G activations in the third quarter of 2008 were for wireless customers who were new to AT&T. In addition, AT&T’s iPhone exclusive has delivered subscribers with ARPU (average monthly revenues per subscriber) approximately 1.6 times higher and churn rates significantly lower than the company’s overall postpaid subscriber base. The iPhone and other integrated devices are key to AT&T’s success in driving wireless data growth and in expanding flow share of high-value subscribers. During the third quarter, more than two-thirds of the company’s postpaid net adds came from customers choosing an integrated device, and 22 percent of AT&T’s postpaid wireless subscribers now have an integrated device, up from 10.5 percent one year earlier.
  • 6. USE THESE 6 InvestorBriefing | 3Q 2008 Wireless - Chart ONE Wireless - Chart TW Driven by subscriber gains and data AT&T WIRELESS REVENUES growth, AT&T’s total wireless revenues AT&T WIRELESS SUBSCRIBERS Dollars in billions increased 15.4 percent to $12.6 billion, and $12.6 Strong subscriber In millions $12.0 $11.8 wireless service revenues, which exclude $11.4 gains and rapid $10.9 handset and accessory sales, grew adoption of data 71.4 14.3 percent to $11.3 billion. Total 70.1 service services drove ARPU was $50.80, flat versus the year- AT&T’s 15.4 percent 65.7 earlier third quarter, and retail postpaid third-quarter subscriber ARPU was $58.99, up 2.6 percent growth in total versus the third quarter of 2007. wireless revenues. To spur continued strong growth in wireless data services, AT&T has expanded its 3G network coverage to 324 cities, with plans to expand to nearly 350 by the end of the year. AT&T’s 3G network is the 3Q07 4Q07 1Q08 2Q08 3Q08 3Q07 4Q07 1Q08 nation’s fastest, according to third-party included 1.7 m Subscriber increase in 4Q07 CONTINUED RAPID EXPANSION data, and allows typical download speeds through acquisition; 2Q08 increase included added through acquisition. IN WIRELESS DATA of up to 1.7 megabits per second. AT&T’s wireless data revenues grew More than 17 million AT&T wireless 50.5 percent versus the year-earlier quarter subscribers now use 3G devices, up to $2.7 billion, reflecting strong increases in approximately 4 million over the past three areas such as Internet access, messaging, months. At the end of the third quarter, e-mail and related services. Wireless Internet AT&T’s total wireless broadband-capable access revenues more than doubled versus subscribers — those using 3G LaptopConnect results for the year-earlier quarter, and cards and broadband-speed integrated multimedia message volumes were also devices with a QWERTY or touch-screen more than double third-quarter 2007 levels. keyboard — totaled nearly 5.9 million, up In the third quarter, data represented 2.8 million over the past three months and 24.2 percent of AT&T’s total wireless service more than 4.4 million over the past year. revenues, up from 18.4 percent in the third quarter of 2007. Chart TWO Wireless - Wireless - Chart TH WIRELESS MARGINS On a reported basis, third-quarter wireless operating expenses totaled $10.2 billion, AT&T WIRELESS SUBSCRIBERS AT&T POSTPAID NET SUBSCRIBER ADD operating income was $2.4 billion and In millions In thousands AT&T increased its 74.9 AT&T’s wireless operating income margin 72.9 wireless subscriber 71.4 was 18.9 percent versus 18.0 percent in the 70.1 base by 2.0 million year-earlier third quarter. On an adjusted in the third quarter basis, third-quarter wireless operating 1,212 1,178 65.7 and by 9.2 million expenses totaled $9.7 billion, operating over the past year. income was $2.9 billion and AT&T’s wireless operating income margin was 22.8 percent 705 versus 26.4 percent in the year-earlier third quarter. AT&T’s third-quarter wireless OIBDA service margin was 33.5 percent versus an unadjusted 37.3 percent and an adjusted 3Q07 4Q07 1Q08 2Q08 3Q08 39.1 percent in the year-earlier quarter. 3Q07 4Q07 1Q08 Subscriber increase in 4Q07 included 1.7 million subscribers added through acquisition; 2Q08 increase included 182,000 subscribers added through acquisition.
  • 7. 7 InvestorBriefing | 3Q 2008 Wireless - Chart THREE Wireless - Chart FOUR wireless research firms. AT&T also offers AT&T POSTPAID NET SUBSCRIBER ADDITIONS the broadest global coverage DATA REVENUES AT&T WIRELESS of any U.S. In thousands AT&T delivered its provider, with voice roaming available in Dollars in billions 1,693 best-ever quarterly more than 200 countries; access to e-mail, $2.5 the Web and other data applications in net gain in postpaid $2.3 more than 145 countries; and access to subscribers, up $2.0 1,212 1,178 mobile broadband 3G networks in more $1.8 39.7 percent versus than 60 countries. results in the third 894 Building on this foundation, AT&T is quarter of 2007. 705 defining and delivering the next generation of wireless by advancing network capabilities, offering breakthrough devices and launching innovative services. In addition to its highly successful launch 3Q07 4Q07 1Q08 2Q08 3Q08 3Q07 4Q07 1Q08 2Q08 of the Apple iPhone 3G, over the past ed s several weeks, AT&T: In addition to operational improvements, • oined with Samsung Mobile to launch J year-over-year margin comparisons reflect Samsung RugbyTM, the first rugged handset approximately $900 million of pressure to feature AT&T’s breakthrough Video associated with the iPhone 3G and ShareSM calling and to run on the largest approximately $55 million of expenses due Push to Talk network in the country. to hurricanes. Without the iPhone and • xpanded its location-based services E hurricane impacts, AT&T’s third-quarter (LBS) portfolio with the launch of two wireless OIBDA service margin would have new navigation applications, MapQuest been approximately 42 percent. (OIBDA Navigator and AAA Mobile navigator, and service margin is operating income before announced the deployment of assisted depreciation and amortization, divided by GPS technology (A-GPS) in its wireless total service revenues.) network to enhance existing and planned location-based services. The LEADER IN WIRELESS INNOVATION new applications add to the company’s AT&T operates the nation’s largest wireless AT&T Navigator and AT&T Navigator digital voice and data network and offers Global Edition offerings, and AT&T’s the Wireless - Chart FOUR nation’s fastest 3G network according deployment of A-GPS paves the way for to data compiled by leading independent new offers from AT&T in the LBS space, including plans for a family-oriented AT&T WIRELESS DATA REVENUES service and a location-enabled social Dollars in billions networking service. 1,693 AT&T’s wireless $2.7 • nnounced the launch of “My A $2.5 data revenues grew $2.3 Communities,” a new downloadable 50.5 percent year $2.0 gateway that lets users create and over year, driven by $1.8 manage multiple social networking increased usage of accounts through a single dashboard wireless Internet view on their mobile phone. My and data access, Communities offers a diverse roster messaging and of social networks, and through media bundles. My Communities, subscribers can register for social sites directly from their phone. From an easy-to-use 3Q08 3Q07 4Q07 1Q08 2Q08 3Q08
  • 8. 8 InvestorBriefing | 3Q 2008 dashboard view, My Communities users • nnounced the availability of AT&T A can upload photos from their phone, Navigator Global Edition, the only view and respond to new messages, GPS-based service available from a U.S. approve and deny friend requests and wireless carrier to provide international view and post new comments across navigation capabilities. The service can be multiple sites. Updates are synched used in 20 countries on AT&T-powered across mobile and online channels smartphones featuring built-in GPS in real time. capabilities. AT&T Navigator Global Edition’s • ith Sierra Wireless, announced the W coverage area includes most countries availability of the AT&T USBConnect in western Europe, North America, the Mercury, the newest and smallest addition U.S. Caribbean and six cities in China. to AT&T’s High Speed Packet Access • nnounced the availability of Microsoft A (HSPA)-capable lineup of LaptopConnect System Center Mobile Device Manager devices. The device provides plug-and-play 2008, an enterprise-grade mobile device installation by including a preloaded management solution that also provides version of AT&T Communication Manager security, mobile VPN and software software for Microsoft Windows Vista, distribution for Windows Mobile devices. XP and 2000 notebooks and Sierra’s AT&T also announced the availability of WatcherTM software for Mac notebooks the MDM Early Adopter QuickStart (versions 10.4.11 or later). Program that was developed cooperatively • oined with LG Mobile Phones to launch J by AT&T and Enterprise Mobile and is an the LG InvisionTM, a new multimedia device exclusive offering designed to assist AT&T for users who want the best in video on customers with deploying the Microsoft their mobile phone. It is the smallest mobility solution. Mobile TV-capable phone in the U.S., at just a little more than 4 inches tall, 2 inches wide and less than one-half inch thick.
  • 9. 9 InvestorBriefing | 3Q 2008 Wireline Third-quarter results in Third-quarter revenues in AT&T’s wireline segment totaled $17.6 billion versus $17.9 billion in the year-earlier quarter. Results included AT&T’s fourth consecutive AT&T’s wired operations quarter of strong mid-teens growth in total wireline IP data revenues, up 16.2 percent versus the year-earlier quarter. Consumer IP data revenues, which included continued include broadband and U-verse services, grew 19.0 percent, and business IP data revenues from products such as VPNs, managed Internet services and hosting double-digit growth in were up 14.7 percent. Growth in these areas largely offset expected declines in voice and legacy packet-switched data products. IP data revenues, Third-quarter wireline results were highlighted by an accelerated ramp in AT&T U-verse TV subscribers and stable business trends, including a return to stable business trends, growth in wholesale revenues. AT&T’s total business revenues — comprised of the enterprise, regional and wholesale customer categories — grew 0.3 percent including a major versus the year-earlier quarter to $11.5 billion. All three business categories posted sequential revenue growth in the third quarter. turnaround in wholesale, Compared with results for the year-earlier quarter, on a reported basis, third-quarter wireline operating expenses totaled $14.8 billion versus and an accelerated ramp $15.0 billion; operating income was $2.7 billion versus $3.0 billion; and AT&T’s wireline operating income margin was 15.6 percent versus 16.5 percent. in AT&T U-verse Adjusted wireline results exclude merger-related integration and amortization expenses for the third quarter of 2007 and exclude only merger-related TV subscribers. amortization expenses for the third quarter of 2008. Compared with results for the year-earlier quarter, third-quarter adjusted wireline operating expenses totaled $14.4 billion versus $14.4 billion; adjusted operating income was $3.1 billion versus $3.6 billion; and AT&T’s adjusted wireline operating income margin was 17.9 percent versus 19.9 percent. In addition to operational drivers, third-quarter 2008 results include approximately $90 million in costs related to hurricanes. The following wireline highlights include ongoing shifts in customer categories to reflect AT&T’s management of customer relationships. WHOLESALE TURNAROUND In the third quarter, AT&T delivered a return to growth in wholesale revenues, extending a major turnaround of trends in this category over the past year. Wholesale revenues totaled $3.5 billion, up 0.8 percent sequentially and 0.7 percent versus the year-earlier quarter. This was AT&T’s third consecutive quarter of sequential revenue growth in wholesale revenues.
  • 10. 10 InvestorBriefing | 3Q 2008 Wireline Wireline AT&T WHOLESALE REVENUES — Y integrators, Internet service providers GROWTH RATES AT&T WIRELINE IP DATA REVENUES and content providers. Dollars in billions In recent weeks, AT&T announced it has AT&T’s IP data service $2.8 $2.7 received a Market Leadership Award for its $2.6 $2.6 revenues, including $2.4 U.S. Wholesale Metro SONET service portfolio U-verse services and from Frost & Sullivan, a global growth business products (4.0)% consulting company. In addition, the such as VPNs, AT&T Wholesale organization received four managed Internet 2008 ATLANTIC-ACM Wholesale Metro services and hosting, (7.0)% Carrier Excellence Awards based on the grew 16.2 percent results of the third annual Metro Carrier year over year. (8.5)% Report Card, which evaluates the performance of metro carriers by their 3Q07 4Q07 1Q08 Enterprise service wholesale customers and is (3.0)% on(0.7)% based more 3Q07 4Q07 1Q08 2Q08 3Q08 IP data as a percentage revenue growth 0.4% of total wireline data revenues 39.9% 41.5% 42.3% 43.4% 44.0% than 3,000 individual carrier evaluations. to 2006 pro form 2007 comparisons are results from the former BellSouth and The turnaround in wholesale trends from acquired operations. STABLE ENTERPRISE TRENDS reflects solid demand from wireless carriers, Total enterprise revenues in the third quarter Internet service providers, content providers totaled $4.7 billion, up 0.8 percent and other customers along with increased sequentially and down 1.4 percent versus revenues from the agreement announced the year-earlier quarter, reflecting solid last fall that makes AT&T the primary global sales results with some economic pressures network management services provider on voice and data transport volumes. to IBM. Enterprise fundamentals in terms of closed AT&T is one of the largest wholesale sales, a strong sales funnel and new service transport and communications service adoption remain solid, and the company providers in the world, maintaining expects revenues from major contracts, Wireline connections to more than 600 carriers in such as its agreements with Royal Dutch more than 220 countries and territories, Shell and with U.S. government agencies, and delivers a full portfolio of end-to-end, to increase in the quarters ahead. reliable and highly secure network, voice, AT&T is the premier provider for enterprise data and IP solutions to carriers, wireless AT&T TOTAL ENTERPRISE REVENUE GROWTH RATES Wireline customers, delivering networking services Wireline operators, cable providers, systems 2 and solutions to multinational corporations, 1.2% 1 governmental agencies and regionally AT&T WHOLESALE REVENUES — YEAR-OVER-YEAR based domestic companies. The company AT&T U-VERSE TV CONNECTIONS IN SER GROWTH RATES 0 continues to expand itsthousands In capabilities through (0.2)% AT&T has delivered -1 network expansion and enhancement of 0.7% a substantial service capabilities. For example, in August, (1.7)% (0.2)% -2 AT&T announced the global (2.0)% launch of AT&T turnaround in 5 -3 Synaptic HostingSM, its next-generation wholesale revenue utility computing service with managed growth, driven by (3.9)% (4.0)% -4 networking, security and storage for solid demand and 379 1Q07 2Q07 3Q07 4Q07 1Q08 businesses. And in September, the company increased revenues Enterprise service revenue growth (3.0)% (0.7)% 0.4% 1.5% 2.1% launched AT&T Mobile Enterprise Applications, (7.0)% from the company’s 231 2007 comparisons are to 2006 pro forma results, which combine results from the formerhosted and managed mobile which offers BellSouth and AT&T and exclude revenues global network 126 integration solutions and application from acquired operations. (8.5)% services agreement consulting services for companies that with IBM. 3Q07 4Q07 1Q08 2Q08 3Q08 want to extend their business-critical Enterprise service 3Q07 4Q07 1Q08 2 revenue growth (3.0)% (0.7)% 0.4% 1.5% 2.1% information to mobile employees. 2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
  • 11. 11 InvestorBriefing | 3Q 2008 REGIONAL CONSUMER RESULTS In recognition of the high quality of AT&T’s enterprise capabilities, in August, leading Third-quarter regional consumer revenues industry analyst firm Gartner Inc. positioned continued trends of recent quarters, with AT&T in the Leaders Quadrant of its “Magic growth in revenues from broadband and Quadrant for U.S. Wireless Service Providers, AT&T U-verse services in large part offsetting 2008” report, and Gartner gave the company pressures in traditional voice, as the the same ranking in its “Managed and consumer space moves through a Professional Network Service Providers, transformation from primarily voice- Worldwide” report. centered relationships to connections driven by mobility, broadband and video. REGIONAL BUSINESS GROWTH Third-quarter regional consumer revenues AT&T posted third-quarter growth in regional totaled $5.5 billion, down 3.8 percent. This business revenues of 0.7 percent sequentially reflects operational trends and a change and 2.3 percent versus the year-earlier in AT&T’s relationship with Yahoo!® Inc., quarter to $3.2 billion. which provides portal services to AT&T’s Regional business data revenues grew nearly 15 million wireline broadband 8.4 percent year over year, led by Ethernet subscribers. Under the new arrangement, and IP data services including managed announced in the second quarter of 2008, Internet and VPNs. IP data and Ethernet, AT&T no longer pays monthly portal fees which made up 53.6 percent of AT&T’s and receives a reduced level of shared regional business data revenues, grew advertising revenues from Yahoo! 18.9 percent versus the year-earlier third Reflecting growth in wireline broadband quarter. and AT&T U-verse services, revenues per AT&T’s portfolio of communications services consumer household served increased for its regional business customers includes 4.3 percent versus the year-earlier third wireless, broadband Internet access, business quarter. Regional consumer revenue e-mail services, Web hosting, unified connections (retail voice, high speed messaging, remote data storage and network Internet and video) totaled 47.5 million security options. at the end of the quarter versus 49.6 million To further differentiate its products for at the end of the third quarter of 2007 and regional business customers, AT&T is 48.4 million at the end of the second quarter offering attractive bundles and term of 2008. Over the past year, total consumer contract offers with an increased focus broadband and TV connections increased on wireless including FamilyTalk® plans by 1.9 million. for small and midsized firms. In addition, AT&T’s innovations in the consumer space AT&T is expanding its data and broadband include marketing broadband/wireless capabilities. For example, in September, bundles and combining wireline broadband the company launched AT&T Tech Support with wireless LaptopConnect service and 360SM, an information technology helpdesk AT&T’s extensive Wi-Fi availability. that provides live, technical service In September, AT&T announced the designed specifically for small businesses, introduction of AT&T HomeManagerTM — including online computer support. an innovative home phone that combines access to Internet content and popular wireless phone applications with traditional
  • 12. 12 InvestorBriefing | 3Q 2008 Wireline Wireline On October 1, AT&T announced that AT&T AT&T U-VERSE TV CONNECTIONS IN SERVICE U-verse TV ranked highest in customer AT&T AVERAGE MONTHLY CONSUMER REV In thousands satisfaction among residential television 781 PER HOUSEHOLD SERVED customers in the North Central, South and AT&T continues to 0.7% West regions in the J.D. Power and $60. accelerate subscriber $59.73 $59.43 Associates 2008 Residential Television growth in its advanced $58.91 549 Service Provider Satisfaction StudySM. IP-based TV service, Customers evaluated AT&T’s performance as customers respond and reliability, customer service, cost of 379 positively to the service, billing and offerings and promotions. high-quality viewing In October, AT&T announced agreements 231 experience and rich with Circuit City and Wal-Mart to sell AT&T set of features 126 U-verse TV and AT&T U-verse High Speed U-verse offers. Internet in more than 600 retail locations. 08 These are the first national retail agreements 2Q07 3Q07 4Q07 1Q0 3Q07 4Q07 1Q08 2Q08 3Q08 % for AT&T U-verse. bine nues home phone service. Using a portable, BROADBAND GROWTH seven-inch color touch-screen frame, AT&T At the end of the third quarter, AT&T’s HomeManager provides one-touch access wireline broadband subscribers, including from anywhere in the home to a robust both consumer and business customers, lineup of popular features and content, totaled 14.8 million, up 148,000 in the including visual voice mail, weather reports, quarter and 1.1 million over the past year. e-mail access, local news, a portable Customers increasingly use both wireline speakerphone and more. and wireless connections for broadband connectivity, as reflected in AT&T’s strong ACCELERATED RAMP IN AT&T growth in wireless LaptopConnect cards U-VERSE TV SUBSCRIBERS and integrated devices. In recognition of AT&T further accelerated its ramp in U-verse this trend, AT&T now also provides data TV growth with a net gain of 232,000 on total broadband connections, which subscribers in the third quarter, up from combines wireline and wireless subscribers. 170,000 added in the second quarter of Total broadband-capable connections in this year. At the end of the quarter, service increased 2.9 million in the third subscribers to the company’s next- quarter to reach 20.7 million. (Wireless generation, IP-based TV service totaled broadband connections include data users 781,000, on a trajectory to exceed AT&T’s with 3G LaptopConnect cards and target of more than 1 million U-verse TV broadband-speed integrated devices with subscribers by year-end 2008. U-verse a QWERTY or touchscreen keyboard.) network deployment now passes 14 million living units. AT&T’s rollout of Total Home DVR service is under way and expected to be completed by the end of the year. Attach rates for broadband service continue to be high, at more than 85 percent.
  • 13. 13 InvestorBriefing | 3Q 2008 NATIONAL MASS MARKETS Data transport service revenues increased 1.6 percent year over year, and packet- Revenues from AT&T’s national mass markets switched data revenues, which include category, which includes the remainder of Frame Relay and ATM services, were down the former AT&T’s standalone long distance 15.1 percent, consistent with industry trends. and local bundled business, totaled In the third quarter, 73.4 percent of AT&T’s $636 million in the third quarter, data revenues came from retail business repre enting a decline of 28.7 percent year s and consumer customers. These retail data over year. Results are as expected and revenues were up 7.4 percent versus results consistent with trends over the past for the year-earlier quarter. several quarters. National mass markets represented 3.6 percent of total wireline WIRELINE VOICE SERVICES revenues in the third quarter and AT&T’s third-quarter wireline voice revenues, accounted for 65.5 percent of AT&T’s which include retail local voice and long year-over-year decline in total wireline distance as well as wholesale voice, totaled revenues. $9.5 billion, representing a decline of 8.1 percent versus results for the third PRODUCT CATEGORIES quarter of 2007. These results continue trends in recent quarters, reflecting the WIRELINE DATA SERVICES industrywide migration of voice usage AT&T’s data revenues, which include results from wired to wireless platforms, customer from several customer categories, grew transitions to broadband and VoIP services 5.3 percent versus results for the year-earlier and increased local voice competition. third quarter to $6.4 billion. Data growth was led by a 16.2 percent increase in revenues from IP-based services, with continued gains in high speed Internet, managed Internet, VPN and hosting services.
  • 14. 14 InvestorBriefing | 3Q 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 173 million directories to 1,250 print directories and residences and businesses in 22 states and have a premier online presence nationwide with YELLOWPAGES.COM, which offers consumers access to local YELLOWPAGES.COM, business information, the latest business listings, city guides, maps and driving directions. Combined, these print and online products receive approximately its fast-growing online 5 billion consumer searches a year for local business information and provide more than 1 million advertisers with valuable sales leads to help their search service. 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 29.7 percent versus the year-earlier quarter, and total Advertising & Publishing revenues declined 7.3 percent, in part reflecting revenues lost through the sale of a sales agency business that serves independent telephone companies. That transaction closed in the second quarter of 2008. Excluding revenues from this sold unit, Advertising & Publishing revenues would have declined 5.0 percent year over year. Compared with reported results in the year-earlier quarter, reported operating expenses totaled $929 million versus $993 million; operating income totaled $421 million, compared with $464 million; and the segment’s operating income margin was 31.2 percent versus 31.8 percent. Adjusted results for Advertising & Publishing exclude merger-related noncash amortization costs in both quarters. Compared with results in the year-earlier quarter, third-quarter 2008 adjusted operating expenses totaled $744 million versus $763 million; adjusted operating income totaled $606 million, compared with $694 million; and the segment’s adjusted operating income margin was 44.9 percent versus 47.6 percent.
  • 15. 15 InvestorBriefing | 3Q 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 includes results from its which are included in segment revenues and operating expenses. Customer information services include operator services and directory assistance. Sterling Commerce unit, Sterling Commerce is one of the world’s largest providers of multi-enterprise collaboration solutions, serving the retail, consumer packaged goods, customer information manufacturing, financial services, health care and telecommunications industries. services and equity The Other segment also includes AT&T’s proportionate share of results from Telmex, América Móvil and Telmex Internacional, which are shown in the investments in Telmex, Equity in Net Income of Affiliates line for this segment. AT&T’s equity interest in each company is more than 8 percent. América Móvil and América Móvil is one of the leading providers of telecommunications services in Latin America, with more than 165 million wireless subscribers Telmex Internacional. at the end of the second quarter of 2008 in countries throughout the region, including 52.9 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 $338 million in the third quarter versus $203 million in the year-earlier quarter. Segment revenues totaled $501 million, compared with $562 million for the third quarter of 2007. Equity in Net Income of Affiliates totaled $257 million, up from $159 million in the year-earlier quarter.
  • 16. 16 InvestorBriefing | 3Q 2008 AT&T Inc. Consolidated Statements of Income (Unaudited) (Dollars in Millions Except per Share Amounts) Three Months Ended Nine Months Ended 9/30/08 9/30/08 9/30/07 % Change 9/30/07 % Change Operating Revenues $11,227 $32,726 Wireless service $ 9,834 14.2% $28,417 15.2% 9,313 28,525 Voice 10,164 -8.4% 30,997 -8.0% 6,144 18,170 Data 5,880 4.5% 17,281 5.1% 1,333 4,114 Directory 1,240 7.5% 3,417 20.4% 3,325 9,417 Other 3,014 10.3% 8,467 11.2% Total Operating Revenues 31,342 92,952 30,132 4.0% 88,579 4.9% Operating Expenses Cost of services and sales (exclusive of depreciation 13,070 36,972 and amortization shown separately below) 11,736 11.4% 34,816 6.2% 7,676 22,976 Selling, general and administrative 7,770 -1.2% 22,497 2.1% 4,978 14,839 Depreciation and amortization 5,322 -6.5% 16,354 -9.3% Total Operating Expenses 25,724 74,787 24,828 3.6% 73,667 1.5% Operating Income 5,618 18,165 5,304 5.9% 14,912 21.8% Interest Expense 858 2,577 887 -3.3% 2,639 -2.3% Equity in Net Income of Affiliates 257 712 162 58.6% 545 30.6% Other Income (Expense) – Net (81) (91) (17) — 614 — Income Before Income Taxes 4,936 16,209 4,562 8.2% 13,432 20.7% Income Taxes 1,706 5,746 1,499 13.8% 4,617 24.5% Net Income $ 3,230 $10,463 $ 3,063 5.5% $ 8,815 18.7% Basic Earnings Per Share $ 0.55 $ 1.76 $ 0.50 10.0% $ 1.43 23.1% Weighted Average Common 5,893 5,938 Shares Outstanding (000,000) 6,088 -3.2% 6,152 -3.5% Diluted Earnings Per Share $ 0.55 $ 1.75 $ 0.50 10.0% $ 1.42 23.2% Weighted Average Common Shares 5,921 5,971 Outstanding with Dilution (000,000) 6,129 -3.4% 6,196 -3.6%
  • 17. 17 InvestorBriefing | 3Q 2008 AT&T Inc. Statements of Segment Income (Unaudited) (Dollars in Millions) Three Months Ended Nine Months Ended 9/30/08 9/30/08 9/30/07 % Change 9/30/07 % Change Wireless Segment Operating Revenues $11,273 $32,869 Service $ 9,860 14.3% $28,492 15.4% 1,345 3,607 Equipment 1,077 24.9% 2,837 27.1% Total Segment Operating Revenues 12,618 36,476 10,937 15.4% 31,329 16.4% Segment Operating Expenses 4,989 13,261 Cost of services and equipment sales 4,079 22.3% 11,690 13.4% 3,849 10,489 Selling, general and administrative 3,183 20.9% 9,136 14.8% 1,401 4,327 Depreciation and amortization 1,709 -18.0% 5,410 -20.0% Total Segment Operating Expenses 10,239 28,077 8,971 14.1% 26,236 7.0% Segment Operating Income 2,379 8,399 1,966 21.0% 5,093 64.9% Equity in Net Income of Affiliates — 5 3 -100.0% 12 -58.3% Minority Interest (57) (186) (43) -32.6% (143) -30.1% Segment Income $ 2,322 $ 8,218 $ 1,926 20.6% $ 4,962 65.6% Wireline Segment Operating Revenues $ 9,515 $29,191 Voice $10,356 -8.1% $31,619 -7.7% 6,401 18,893 Data 6,076 5.3% 17,918 5.4% 1,634 4,698 Other 1,509 8.3% 4,389 7.0% Total Segment Operating Revenues 17,550 52,782 17,941 -2.2% 53,926 -2.1% Segment Operating Expenses 8,128 23,908 Cost of sales 7,778 4.5% 23,396 2.2% 3,354 10,305 Selling, general and administrative 3,868 -13.3% 11,354 -9.2% 3,331 9,770 Depreciation and amortization 3,334 -0.1% 10,076 -3.0% Total Segment Operating Expenses 14,813 43,983 14,980 -1.1% 44,826 -1.9% Segment Income $ 2,737 $ 8,799 $ 2,961 -7.6% $ 9,100 -3.3% Advertising & Publishing Segment Operating Revenues $ 1,350 $ 4,174 $ 1,457 -7.3% $ 4,378 -4.7% Segment Operating Expenses 461 1,321 Cost of sales 417 10.6% 1,214 8.8% 274 972 Selling, general and administrative 338 -18.9% 1,067 -8.9% 194 609 Depreciation and amortization 238 -18.5% 743 -18.0% Total Segment Operating Expenses 929 2,902 993 -6.4% 3,024 -4.0% Segment Income $ 421 $ 1,272 $ 464 -9.3% $ 1,354 -6.1% Other Segment Operating Revenues $ 501 $ 1,557 $ 562 -10.9% $ 1,658 -6.1% Segment Operating Expenses 420 1,862 518 -18.9% 1,673 11.3% Segment Operating Income (Loss) 81 (305) 44 84.1% (15) — Equity in Net Income of Affiliates 257 707 159 61.6% 533 32.6% Segment Income $ 338 $ 402 $ 203 66.5% $ 518 -22.4%
  • 18. 18 InvestorBriefing | 3Q 2008 AT&T Inc. Consolidated Balance Sheets (Dollars in Millions Except per Share Amounts) 9/30/08 12/31/07 Assets (Unaudited) Current Assets $ 1,594 Cash and cash equivalents $ 1,970 16,395 Accounts receivable – net of allowances for uncollectibles of $1,328 and $1,364 16,185 1,657 Prepaid expenses 1,524 1,560 Deferred income taxes 2,044 2,239 Other current assets 2,963 Total current assets 23,445 24,686 Property, Plant and Equipment – Net 97,771 95,890 Goodwill 71,537 70,713 Licenses 46,931 37,985 Customer Lists and Relationships – Net 11,495 14,505 Other Intangible Assets – Net 5,816 5,912 Investments in Equity Affiliates 2,839 2,270 Postemployment Benefit 18,164 17,291 Other Assets 6,530 6,392 Total Assets $284,528 $275,644 Liabilities and Stockholders’ Equity Current Liabilities $ 17,419 Debt maturing within one year $ 6,860 18,690 Accounts payable and accrued liabilities 21,399 3,896 Advanced billing and customer deposits 3,571 2,976 Accrued taxes 5,027 2,357 Dividends payable 2,417 Total current liabilities 45,338 39,274 Long-Term Debt 59,355 57,255 Deferred Credits and Other Noncurrent Liabilities 27,776 Deferred income taxes 24,939 25,493 Postemployment benefit obligation 24,011 14,048 Other noncurrent liabilities 14,798 Total deferred credits and other noncurrent liabilities 67,317 63,748 Stockholders’ Equity 6,495 Common shares issued ($1 par value) 6,495 91,684 Capital in excess of par value 91,638 36,613 Retained earnings 33,297 (21,412) Treasury shares (at cost) (15,683) (862) Accumulated other comprehensive income/(loss) (380) Total stockholders’ equity 112,518 115,367 Total Liabilities and Stockholders’ Equity $284,528 $275,644
  • 19. 19 InvestorBriefing | 3Q 2008 AT&T Inc. Consolidated Statements of Cash Flows (Unaudited) (Dollars in Millions Increase [Decrease] in Cash and Cash Equivalents) Nine Months Ended 9/30/08 9/30/07 Operating Activities $ 10,463 Net income $ 8,815 Adjustments to reconcile net income to net cash provided by operating activities: 14,839 Depreciation and amortization 16,354 (572) Undistributed earnings from investments in equity affiliates (434) 1,297 Provision for uncollectible accounts 1,142 4,063 Deferred income tax expense 486 (2) Net gain on sales of investments (29) — Gain on license exchange (409) Changes in operating assets and liabilities: (1,597) Accounts receivable (1,253) 616 Other current assets (661) (5,958) Accounts payable and accrued liabilities (46) (15) Stock-based compensation tax benefit (149) (361) Other – net 529 Total adjustments 12,310 15,530 Net Cash Provided by Operating Activities 22,773 24,345 Investing Activities Construction and capital expenditures (14,388) Capital expenditures (12,124) (455) Interest during construction (125) (10,086) Acquisitions, net of cash acquired (233) 1,444 Dispositions 993 (103) Proceeds from sale of securities, net of investments 584 436 Sale of other investments — 33 Other 28 Net Cash Used in Investing Activities (23,119) (10,877) Financing Activities 5,188 Net change in short-term borrowings with original maturities of three months or less (4,279) 10,924 Issuance of long-term debt 7,898 (3,143) Repayment of long-term debt (3,008) (6,077) Purchase of treasury shares (8,912) 317 Issuance of treasury shares 1,736 (7,150) Dividends paid (6,584) 15 Stock-based compensation tax benefit 149 (104) Other (172) Net Cash Used in Financing Activities (30) (13,172) (376) Net increase (decrease) in cash and cash equivalents 296 1,970 Cash and cash equivalents beginning of year 2,418 Cash and Cash Equivalents End of Period $ 1,594 $ 2,714
  • 20. 20 InvestorBriefing | 3Q 2008 AT&T Inc. Supplementary Operating and Financial Data (Unaudited) (Dollars in Millions Except per Share Amounts) Three Months Ended Nine Months Ended 9/30/08 9/30/08 9/30/07 % Change 9/30/07 % Change Wireless 74,871 Wireless Customers (000) 65,666 14.0% 1,976 4,604 Net Customer Additions (000) 1,993 -0.9% 4,640 -0.8% 13 215 M&A Activity, Partitioned Customers and Other Adjs. (000) — — 64 — 58,735 Postpaid Customers (000) 52,689 11.5% 1,693 3,292 Net Postpaid Customer Additions (000) 1,212 39.7% 2,804 17.4% 1.2% 1.2% Postpaid Churn 1.3% -10 BP 1.3% -10 BP 304 Licensed POPs (000,000) 299 1.7% In-Region Wireline1 Total Consumer Revenue Connections (000)6 28,329 Retail Consumer Voice Connections2 31,658 -10.5% 3,526 Retail Consumer Additional Voice Connections2 4,112 -14.3% 12,730 Consumer Broadband Connections3 11,716 8.7% Video Connections:4 2,182 Satellite Connections 1,986 9.9% 781 U-verse Video Connections 126 — 47,548 Total Consumer Revenue Connections (000) 49,598 -4.1% (869) (1,890) Net Consumer Revenue Connection Changes (000) 85 — 737 — 14,841 Total Broadband Connections (000)3,6 13,760 7.9% 148 685 Net Broadband Connection Changes (000) 499 -70.3% 1,590 -56.9% 3,6 2,963 Total Video Connections (000) 2,112 40.3% 4 179 616 Net Video Connection Changes (000)4 215 -16.7% 602 2.3% AT&T Inc. Construction and capital expenditures $ 5,068 $ 14,388 Capital expenditures $ 4,664 8.7% $ 12,124 18.7% $ 198 $455 Interest during construction $47 — $125 — $0.4000 $ 1.2000 Dividends Declared Per Share $0.3550 12.7% $ 1.0650 12.7% 5,893 End of Period Common Shares Outstanding (000,000) 6,072 -2.9% 40.6% Debt Ratio5 35.3% 530 BP 303,530 Total Employees 303,670 — In-region wireline represents access lines served by AT&T’s incumbent local exchange companies. 1 Includes consumer U-verse voice over IP connections. 2 Broadband connections include DSL lines, U-verse high speed Internet access and satellite broadband. 3 Video connections include sales under agency agreements with EchoStar and DirecTV customers and U-verse connections. 4 Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders’ equity. 5 Prior year amounts restated to conform to current period reporting methodology. 6 Note: or the end of 3Q08, total switched access lines were 57,191, business switched access lines totaled 22,159, and wholesale and coin switched access lines F totaled 3,281.
  • 21. 21 InvestorBriefing | 3Q 2008 Fourth-Quarter 2008 Earnings Date: Jan. 28, 2009 AT&T InvestorBriefing The AT&T InvestorBriefing is published AT&T will release fourth-quarter 2008 earnings on Jan. 28, 2009, before the market opens. by the Investor Relations staff of AT&T Inc. Requests for further The company’s InvestorBriefing and related earnings materials will be available on information may be directed to one the AT&T Web site at www.att.com/investor.relations by 8 a.m. Eastern time. of the Investor Relations managers by phone at 210-351-3327. AT&T will also host a conference call to discuss the results at 10 a.m. Eastern time the same day. Dial-in and replay information will be announced on First Call approximately Correspondence should be sent to: eight weeks before the call, which will also be broadcast live and will be available for Investor Relations AT&T Inc. replay over the Internet at www.att.com/investor.relations. 208 S. Akard Street Dallas, TX 75202 Cautionary Language Concerning Forward-Looking Statements E-mail address: investr@att.com Senior Vice President- Information set forth in this InvestorBriefing contains financial estimates and other Investor Relations forward-looking statements that are subject to risks and uncertainties, and actual Brooks McCorcle results may differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. Investor Relations Staff AT&T disclaims any obligation to update or revise statements contained in this Tameka Calloway Shelly Mathews Ray Carpenter Liz Morton InvestorBriefing based on new information or otherwise. Kent Evans Jerrell Ross This InvestorBriefing may contain certain non-GAAP financial measures. Reconciliations Jeff Fancher Derek Roy between the non-GAAP financial measures and the GAAP financial measures are Lisa Forkin Blake Steward Jerry Healy Chris Womack available on the company’s Web site at www.att.com/investor.relations.