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Chairman's Letter

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Chairman's Letter Multimedia
 

In 2009, we extended our unmatched track record of leadership in delivering innovative solutions that allow our customers to connect in new and better ways. In the process, we achieved solid financial and operating results and positioned your company to lead the next wave of communications growth.

Randall Stephenson - Chairman,
Chief Executive Officer and President

Our significant investments in advanced, innovative networks and products have established AT&T as a leader in providing mobile broadband access to the Internet — a powerful communications force that impacts every aspect of how people live and how companies do business around the world.

Despite a challenging economy, our focused strategy and solid execution enabled us to finish 2009 in a position of unsurpassed financial strength among our telecommunications peers and poised for continued growth in key areas:

  • We invested more than $17 billion in capital to move our business forward and deploy innovative network technologies that will drive new and better customer solutions.
  • We led the industry in several growth categories, including mobile broadband and wireless, where we added more than 7 million subscribers — equaling our best year ever and the best performance in the U.S. wireless market.
  • Net income attributable to AT&T exceeded $12.5 billion, while cash from operating activities reached $34.4 billion — the highest total in our history.
  • We returned a record $9.7 billion to stockholders through dividends. And in December, we raised our quarterly dividend for the 26th consecutive year.

But these accomplishments don't just demonstrate our financial strength and ability to execute. Just as important, they validate our strategy and our deep commitment to building long-term value for you, our owners.

Chairman's Letter Chairman's Letter

Approximately 70 percent of AT&T's revenues are generated by our growth areas of wireless, wireline data and managed services.

True to our heritage, we are a company of people innovating for people. Last year, we introduced new capabilities that are pushing the boundaries of communications and defining its future. In this report, you can read stories of how our customers count on AT&T to deliver the connectivity they need. But first, here are highlights of our 2009 performance:

Mobile broadband
Mobility driving growth. Mobility is the driving force behind our industry's growth around the globe. And AT&T is ahead of the competition, leading the worldwide mobile broadband revolution that is transforming lives, businesses and economies. Leadership in this high-growth market was a goal we set several years ago; we've achieved that and will continue to build upon it. AT&T delivers the nation's most advanced mobile broadband experience. And in 2009, we began working to make the nation's fastest 3G network even faster with next-generation technology that will double our theoretical peak 3G speeds and prepare us to deploy even faster and more powerful LTE mobile service in 2011.1 AT&T's network supports more 3G HSPA broadband customers than any other carrier worldwide. Our early leadership, experience and expertise in this important area give us a distinct advantage going forward as more consumers and businesses adopt mobile broadband, applications and devices.

Smartphone leadership. As the mobile broadband leader with the best lineup of devices, we significantly expanded our smartphone subscriber base. Compared with our closest U.S. competitor, twice as many smartphone users have chosen AT&T — one of the key factors driving wireless revenue growth of nearly 9 percent.

Emerging devices. We extended our industry leadership in emerging devices that depend on wireless connectivity, such as eReaders, netbooks, navigation devices and health care monitors, by certifying more than 750 wireless specialty consumer and machine-to-machine devices to date on AT&T's network. These devices — more than 2 million of which are connected to our network today — represent the next wave of growth in wireless. Most of the major emerging device brands — including Apple — are choosing AT&T as their mobile broadband network provider.

Mobile solutions for businesses. Devices like smartphones, laptops and netbooks enable companies to extend sophisticated mobile capabilities to their employees around the world. To create even more customer value, AT&T is deploying mobile-enabled applications that are transforming companies — and even entire industries — with solutions like wireless energy metering, fleet management and GPS.

Left to Right: Forrest Miller, Group President-Corporate Strategy and Development; Rick Lindner, Senior Executive Vice President and Chief Financial Officer; Bill  Blase Jr., Senior Executive Vice President-Human Resources; Ray Wilkins Jr., Chief Executive Officer-AT&T Diversified Businesses; Cathy Coughlin, Senior Executive Vice President and Global Marketing Officer; Ron Spears, President and Chief Executive Officer, AT&T Business Solutions; Randall Stephenson, Chairman, Chief Executive Officer and President; Jim Callaway, Senior Executive Vice President-Executive Operations; John Stankey, President and Chief Executive Officer, AT&T Operations, Inc.; Wayne Watts, Senior Executive Vice President and General Counsel; Ralph de la Vega, President and Chief Executive Officer, AT&T Mobility and Consumer Markets; Jim Cicconi, Senior Executive Vice President-External and Legislative Affairs, AT&T Services, Inc.

Chairman's Letter

Dividends Per Common Share
For 26 consecutive years, AT&T has demonstrated its commitment to stockholders with increases in its quarterly dividend, and our dividend has increased more than 20 percent in the past three years.

AT&T U-verse
U-verse scale. Three years ago, we launched the nation's largest deployment of Internet Protocol (IP) TV technology. Today, our AT&T U-verseSM platform is deployed to approximately 23 million living units, and we've nearly doubled our subscribers in the past year. U-verse is on track to be a $3 billion annual revenue stream in 2010. And AT&T U-verse TV ranked "Highest in Residential Television Service Satisfaction in the South and West Regions Two Years in a Row" by J.D. Power and Associates.2

U-verse integration. U-verse is a powerful platform for bundled services. More than 90 percent of U-verse TV customers bundle high speed Internet, and nearly 70 percent add IP voice. It's a great example of how our strategic investments in innovation are transforming our customers' lives, offering them an unmatched bundle of wireless and wired services that makes content and applications portable across all three screens people use most — TVs, computers and mobile devices.

IP networks and data services
Premier products and services. AT&T is a global leader in designing, building and managing advanced IP technologies and networks for businesses of all sizes. For our customers, connectivity — anytime, anywhere — is the lifeblood of their businesses. Empowering employees to work from anywhere and improving communications with their customers, vendors and partners helps businesses increase productivity and operate more efficiently. We're also delivering the advanced IP technologies customers need, when they need them. These include bandwidth on demand, information storage and hosting from our Internet data centers, and network security — all delivered with the world-class reliability AT&T is known for. We're managing and operating complex IP networks and technologies for our customers so they don't have to, allowing them to focus on what they do best — running their businesses. And on top of the connectivity we provide businesses, we offer industry-leading local business search and advertising capabilities — online, mobile, IPTV and print — to help businesses increase their sales.

Unmatched global reach. AT&T not only offers customers solutions to run their businesses in the U.S., we also offer them connectivity around the globe. Our network reaches countries representing 97 percent of the world's economy. With our global communications capabilities — widely regarded as the best in the industry — AT&T is a leader in serving large business customers, including all of the Fortune 1000, on six continents.

Investing in our future
We lead in all these areas because we have the largest and most advanced IP network infrastructure in the world. This infrastructure supports our next-generation growth platforms — both wireless and wired — which are taking to the next level what our customers can do on the Internet, such as download videos to mobile devices or conduct High Definition (HD) video conferences with their colleagues around the world. The global scale of AT&T's IP infrastructure not only provides users with what they need, it makes these shared solutions seamless and affordable for all our customers — from consumers and small businesses to multinational corporations. As a result, we're seeing an explosion in customers' data usage on our network: for example, mobile data traffic has grown more than 5,000 percent in the past three years.

Approximately 70 percent of our revenues now come from wireless, wireline data and managed services, up from 60 percent in the fourth quarter of 2007. These are the growth engines of our future. And we have built an unsurpassed set of capabilities to deliver on their potential.

Besides our market leadership in key growth areas, our financial results last year reflect our disciplined management in tough economic times. We moved quickly to adjust our cost structure and increase efficiencies across the board, giving us the ability to increase free cash flow, raise our dividend and strengthen our balance sheet, while continuing to invest aggressively in our network and associated growth opportunities.

We made $17.3 billion in capital investments in 2009, bringing our total over the past three years to more than $55 billion — more than any of our U.S. competitors. We also signed or completed nearly $5.5 billion in acquisitions in 2009, nearly all to expand our mobile broadband coverage and capabilities.

 
 

Setting ourselves apart
Our leadership in mobile broadband — increasingly critical for consumers and businesses — sets AT&T apart from our competitors and is the fundamental basis for our growth going forward. Mobility is our No. 1 investment priority, including a planned increase of approximately $2 billion in 2010 in wireless network and backhaul investment. It's at the center of the integrated communications solutions that give our customers the power of the nation's most advanced mobile broadband experience. I'm confident that our investments will pay off in sustained leadership and growth for AT&T. And I couldn't be more optimistic about our future. The underlying global demand for connectivity is growing — and no company is better positioned to meet it than AT&T.

A commitment to sustainability
I also want to share highlights of our continued commitment to invest in the sustainability of our communities, our business practices and our workforce:

  • Through our $100 million AT&T Aspire initiative, we're working with educators, students and parents to address the high school dropout crisis that threatens the future of our nation's workforce. Funds from this program support efforts across the country to help our young people succeed in school and go on to good careers.
  • In 2009, we announced a planned $565 million commitment to add more than 15,000 alternative fuel vehicles to our fleet over a 10-year period.
  • We continue to invest in our workforce, providing good-paying high-tech jobs with affordable health care and great training opportunities. What's more, we've ratified or reached tentative agreements with nearly all of our labor unions on new contracts that allow us to continue providing some of the best wages and benefits in the nation.

Positioned to lead for the long term
I am excited about the opportunities ahead, and I am confident in our ability to make the most of them.

We already have set ourselves apart with leading-edge products and services across every customer segment. Now, as the economy shows signs of recovery, we have the financial strength, the IP network capabilities, the investment strategy and the innovative, customer-focused solutions to accelerate our growth in key areas and further differentiate our company in the marketplace.

We'll continue to execute on our strategy of connecting more people and machines to our global IP network infrastructure — so we can deliver innovative solutions that enable our customers to do more in more places. We have the plan — and the capabilities — to deliver on that strategy and to continue to lead our industry for the long term.

Just as important, we have a terrific team of talented and committed employees. They are the ones who give life to the words "people innovating for people."

Finally, my thanks to you, AT&T's stockholders. I appreciate your continued trust in our company and in our team's ability to innovate and deliver results. We'll continue to work hard every day on your behalf.

Sincerely,

Randall Stephenson
Chairman, Chief Executive Officer and President
February 17, 2010