AT&T Inc. Dollars in millions except per share amounts The Communications segment provides services to businesses and consumers located in the US. and businesses globally. Our business strategies reect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units: - Mobility provides nationwide wireless service and equipment. c Entertainment Group provides video, including over-thetop (OTT) services, intemet and voice communications services to residential customers This segment also sells advertising on DIRECTV and U-Verse distribution platforms. 0 Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers. The WarnerMediu segment develops, produces and distributes feature lms, television, gaming and other content over various physical and digital formats. This segment contains the following business units: 0 Turner primarily operates multichannel basic television networks and digital properties. Tumer also sells advertising on its networks and digital properties. - Home Box Ofce consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT and streaming services internationally, as well as content licensing and home entertainment I Warner Bros. consists of the production, distribution and licensing of television programming and feature lms, the distribution of home entertainment products and the production and distribution of games. The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units: 0 Mexico provides wireless service and equipment to customers in Mexico. 0 Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean. The Xandr segment provides advertising services. These services utilize data insights to develop and deliver targeted advertising across video and digital platforms. Corporate and Other reconciles our segment results to consolidated operating income and income before income taxes, and includes: 0 Corporate, which consists of: (1) businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated other income (expense) net and (5) the recharacterization of programming intangible asset amortization, for programming acquired in the Time Warner acquisition, which we continue to report with WarnerMedia segment operating expense, to consolidated amortization expense. - Acquisition-related items, which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets. 0 Certain Signicant items, which includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment or impairment of assets and (3) other items for which the individual segments are not being evaluated. 0 Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including content licensing between WarnerMedia and Communications and (2) includes adjustments for our reporting of the advertising business. Areas of Focus We are in a period of rapid growth in wireless video usage and believe that there are substantial opportunities available for nextgeneration converged services that combine technologies and services. Our First Responder Network Authority (FirstNet) contract and our strong spectrum position allows us to execute a different 5G deployment strategy. With our upcoming launch of HBO Max, we will capitalize on our premier network, technology and running... .. ..u.:::iz.. i. \"mu. . .i. .i . . . .a'..,:... A,. \"Hum... ._.i .. .u..__...... insult. ....i-,...,... ..v__,..._ :t BUSINESS OPERATIONS OPERATING SEGMENTS Our segments are strategic business units that offer different products and services over various technology platforms and/ or in different geographies that are managed accordingly. We analyze our operating segments based on segment contribution, which consists of operating income, excluding acquisition-related costs and other signicant items, and equity in net income (loss) of afliates for investments managed within each operating segment. We have four reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America and (4) Xandr. Additional information about our segments, including nancial information, is included under the heading \"Segment Results\" in Item 7. and in Note 4 of Item 8. COMMUNICATIONS Our Communications segment provides wireless and Wireline telecom, video and broadband services to consumers located in the US. and businesses globally. Our Communications services and products are marketed under the AT&T, Cricket, AT&T PREPAID and DIRECTV brand names. The Communications segment provided approximately 77% of 2019 segment operating revenues and 76% of our 2019 total segment contribution. This segment contains the Mobility, Entertainment Group and Business Wireline business units. Mobility Our Mobility business unit provides nationwide wireless services to consumers and wholesale and resale wireless subscribers located in the United States by utilizing our network to provide voice and data services, including highspeed internet over wireless devices. We classify our subscribers as either postpaid, prepaid, connected device or reseller. At December 31, 4 AT&T Inc. Dollars in millions except per share amounts 2019, we served 166 million Mobility subscribers, including 75 million postpaid, 18 million prepaid, 7 million reseller and 66 million connected devices. Our Mobility business unit revenue includes the following categories: service and equipment. Wireless Services We offer a comprehensive range of high-quality nationwide wireless voice and data communications services in a variety of pricing plans to meet the communications needs of targeted customer categories. Through our FirstNet services, we also provide a nationwide wireless broadband network dedicated to public safety. Consumers continue to require increasing availability of datacentric services and a network to connect and control those devices. An increasing number of our subscribers are using more advanced integrated and data-centric devices, including embedded computing systems and/or software, commonly called the Internet of Things (IoT). We offer plans that include unlimited features allowing for the sharing of voice, text and data across multiple devices, which attracts subscribers from other providers and helps minimize subscriber churn. Customers in our \"connected device\" category (e.g., users of monitoring devices and automobile systems) generally purchase those devices from thirdparty suppliers that buy data access supported by our network. We continue to upgrade our network and coordinate with equipment manufacturers and application developers to further capitalize on the continued growing demand for wireless data services. to'thAe extended AT&T community and unlimited data access to social networldng. We also offer prepaid services to customers who prefer to pay in advance. With the increased capacity from our completed LTE network, we also expect additional reseller revenue in 2020. We sell a wide variety of handsets, including smartphones manufactured by various suppliers for use with our voice and data services. We sell through our own companyowned stores, agents and thirdparty retail stores. Vrio Video entertainment services are provided to primarily residential customers using satellite technology. We are a leading provider of digital television services throughout Latin America, providing a wide selection of local and international digital-quality video entertainment and audio programming under the DIRECTV and SKY brands. We provide one of the most extensive collections of programming available in the Latin America payTV market, including HD sports video content and the most innovative interactive technology across the region. In addition, we have the unique ability to sell superior offerings of our differentiated products and services on a continentwide basis with an operational cost structure that we believe to be lower than that of our competition. We have approximately 13 million video subscribers in Latin America. Our business encompasses pay television services with satellite operations serving Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay, Venezuela and parts of the Caribbean. Our operations also include our 41% equity method investment in Innova, S. de R.L. de C.V., or SKY Mexico. Sky Mexico nancial results are accounted for as an equitymethod investment, Additional information on our Latin America segment is contained in the \"Overview\" section of Item 7. XAN DR Our Xandr segment relies on using data from our 170 million customer relationships, to develop digital and video advertising that is more relevant to consumers. The Xandr segment provided approximately 1% 0f2019 segment operating revenues and 3% of our 2019 total segment contribution. Advertisers are interested in capitalizing on our broad video distribution and ability to offer more precise marketing to customers through a digital platform. We also are expanding relationships with other video providers and digital publishers to use our platforms to reach their audiences. Additional information on our Xandr segment is contained in the \"Overview\" section of Item 7. MAJOR CLASSES OF SERVICE The following table sets forth the percentage of total consolidated reported operating revenues by any class of service that accounted for 10% or more of our consolidated total operating revenues in any of the last three scal years: 9 Additional information on our Xandr segment is contained in the \"Overview\" section of Item 7. MAJOR CLASSES OF SERVICE The following table sets forth the percentage of total consolidated reported operating revenues by any class of service that accounted for 10% or more of our consolidated total operating revenues in any of the last three scal years: 9 AT&T Inc. Dollars in millions except per share amounts Percentage of Total Consolidated Operating Revenues 2019 2018 2017 Communications Segment Wireless service 1 30 \"/a 32 % 36 % Subscription 2' 3 17 19 23 Advanced data 4 12 12 12 Equipment 9 10 9 WarnerMedia Segment Subscription 8 4 Latin America Segment Subscription 2 2 3 3 Wireless service 1 l 1 Equipment 1 l - 1 2019 and 2018 exclude $291 and $232, respectively, of advertising revenues included as Wireless service in our Mobility business unit. 2 Subscription is reported as Video in our Entertainment Group and Vrio business units. 3 2019 and 2018 exclude $1,672 and $1,595, respectively, of advertising revenues included as Video in our Entertainment Group business unit. 4 Advanced data is reported as Highspeed internet and Strategic services in our Entertainment Group and Business Wireline business units, respectively. Additional information on our geographical distribution of revenues is contained in the Annual Report in Note 4 of Item 8. 10 ITEM 7. MANAGER/[ENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW AT&T Inc. is referred to as \"we,\" \"AT&T\" or the \"Company" throughout this document, and the names of the particular subsidiaries and afliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated nancial statements and accompanying notes (Notes). We completed the acquisition of Time Warner Inc. (Time Warner) on June 14, 2018, and have included its results after that date. In accordance with U.S. generally accepted accounting principles (GAAP), operating results from Time Warner prior to the acquisition are excluded. Our Management's Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this document can be found in \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" in Part II, Item 7 of our Annual Report on Form 10-K for the scal year ended December 31, 2018. We have four reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America and (4) Xandr. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other signicant items and equity in net income (loss) of afliates for investments managed within each segment. Each segment's percentage calculation of total segment operating revenue and contribution is derived from our segment results table in Note 4 and may total more than 100% due to losses in one or more segments. Percentage increases and decreases that are not considered meaningful are denoted with a dash. We have recast our segment results for all prior periods presented to exclude wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands from our Mobility and Business Wireiine business units of the Communications segment, instead reporting them with Corporate and Other (see Note 6). Percent Change 2019 2018 2017 2019 vs. 2018 2018 vs. 2017 Operating Revenues Communications $ 142,359 $ 143,721 $ 149,457 (0.9) 'Vn (3 .8)% WarnerMedia 33,499 18,941 430 76.9 - Latin America 6,963 7,552 8,269 (9.0) (7.5) Xandr 2,022 1,740 1,373 16.2 26.7 Corporate and other 1,603 2,101 2,200 (23.7) (4.5) Eliminations and consolidation (5,253) (3,399) (l, 183) (54.5) - AT&T Operating Revenues 181,193 170,756 160,546 6.1 6_4 Operating Contribution Communications 32,230 32,108 31,488 0.4 2.0 WarnerMedia 9,326 5,695 62 63.8 - Latin America (635) (710) (266) 10.6 - Xandr 1,318 1,333 1,202 (1.1) 10.9 Segn_1ent Operating Contribution $ 42,239 $ 38,426 $ 32,486 9.9 % 18.3 % The Communications segment accounted for approximately 77% of our 2019 total segment operating revenues compared to 84% in 2018 and 76% of our 2019 total segment operating contribution as compared to 84% in 2018. This segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units: - Mobility provides nationwide wireless service and equipment. I Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services to residential customers. This segment also sells advertising on DIRECTV and Uverse distribution platforms. 27
