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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 2001
REGISTRATION NO. 333-52670
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AT&T CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 4811 13-4924710
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
32 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10013-2412
(212) 387-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MARILYN J. WASSER
VICE PRESIDENT -- LAW AND SECRETARY
AT&T CORP.
295 NORTH MAPLE AVENUE
BASKING RIDGE, NJ 07920
(908) 221-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
STEVEN A. ROSENBLUM VICTOR I. LEWKOW
WACHTELL, LIPTON, ROSEN & KATZ CLEARY, GOTTLIEB, STEEN & HAMILTON
51 WEST 52ND STREET ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10006
(212) 403-1000 (212) 225-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective and the other
conditions to the commencement of the exchange offer described herein have been
satisfied or waived.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED AGGREGATE
TITLE OF EACH CLASS AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE
OF SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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AT&T Wireless Group tracking stock, par
value $1.00 per share................. shares $ $10,000,000,000 $2,500,000(2)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933.
(2) This amount has previously been paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this document is not complete and may be changed. We
may not sell these shares until the registration statement filed with
the Securities and Exchange Commission is effective. This document is
not an offer to sell these securities and it is not soliciting an offer
to buy these securities in any state where the offer or sale is not
permitted.
PRELIMINARY OFFERING CIRCULAR/PROSPECTUS SUBJECT TO COMPLETION DATED , 2001
[AT&T LOGO]
OFFER TO EXCHANGE
SHARES OF AT&T WIRELESS GROUP TRACKING STOCK
FOR EACH SHARE OF AT&T COMMON STOCK
THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 2001 UNLESS THIS EXCHANGE OFFER IS EXTENDED.
AT&T will issue shares of AT&T Wireless Group tracking stock in
exchange for each share of AT&T common stock that is validly tendered and
accepted by AT&T in this exchange offer. AT&T will accept up to an aggregate of
shares of AT&T common stock and will issue up to an aggregate of
shares of AT&T Wireless Group tracking stock in this exchange offer.
If more than shares of AT&T common stock are validly tendered, AT&T
will accept shares of AT&T common stock for exchange on a pro rata basis as
described in this document.
AT&T Wireless Group tracking stock is a class of common stock of AT&T. AT&T
Wireless Group tracking stock is intended to reflect the financial performance
and economic value of AT&T's wireless services businesses. AT&T Wireless Group
tracking stock is listed on the New York Stock Exchange under the symbol "AWE".
All persons holding AT&T common stock, which is listed on the New York
Stock Exchange under the symbol "T", are eligible to participate in this
exchange offer if they tender their shares in a jurisdiction where this exchange
offer is permitted under local law. However, there are a number of conditions to
this exchange offer. In the event that any one of these conditions is not
satisfied, and we decide not to waive the satisfaction of that condition, we are
under no obligation to complete this exchange offer.
INVESTING IN AT&T WIRELESS GROUP TRACKING STOCK, OR RETAINING AT&T COMMON
STOCK, INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 20.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
document is truthful or complete. Any representation to the contrary is a
criminal offense.
AT&T has retained the services of Georgeson Shareholder Communications,
Inc. as information agent to assist you in connection with this exchange offer.
AT&T has also retained Credit Suisse First Boston as dealer manager and Lehman
Brothers as marketing manager. You may call Georgeson Shareholder Communications
at (800) 603-1913 (toll free) in the United States or at (888) 660-6629 (toll
free) elsewhere, Credit Suisse First Boston at (877) 355-7046 (toll free) in the
United States or at ( ) - (collect) elsewhere or Lehman Brothers ( )
- (toll free) in the United States or at ( ) - (collect)
elsewhere to request additional documents and to ask any questions.
OFFERING CIRCULAR/PROSPECTUS DATED , 2001
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TABLE OF CONTENTS
PAGE
----
Questions and Answers about this Exchange Offer............. 1
Summary..................................................... 3
Risk Factors................................................ 20
Special Note Regarding Forward-Looking Statements........... 44
This Exchange Offer......................................... 46
Price Range and Dividends for AT&T Common Stock............. 60
Price Range for AT&T Wireless Group Tracking Stock.......... 61
Capitalization of AT&T...................................... 62
DoCoMo Strategic Investment................................. 63
Business of AT&T............................................ 70
Business of AT&T Wireless Group............................. 71
Relationship between AT&T Common Stock Group and AT&T
Wireless Group before the Split-Off....................... 105
Description of AT&T Capital Stock........................... 112
Comparison of Rights of Holders of AT&T Common Stock and
AT&T Wireless Group Tracking Stock before the Split-Off... 122
The Split-Off............................................... 124
Relationship between AT&T and AT&T Wireless Services
following the Split-Off................................... 129
Description of AT&T Wireless Services Capital Stock
following the Split-Off................................... 133
Material U.S. Federal Income Tax Consequences............... 140
Legal Matters............................................... 142
Experts..................................................... 142
Where You Can Find More Information......................... 144
Index to Financial Statements............................... F-1
This document incorporates by reference important business, financial and
other information about both AT&T and AT&T Wireless Group that is not included
in or delivered with this document. See "Where You Can Find More Information"
for a list of the documents that AT&T has incorporated by reference into this
document.
Documents incorporated by reference are available from AT&T without charge,
excluding all exhibits unless specifically incorporated by reference as exhibits
in this document. You may obtain some of the documents incorporated by reference
into this document at AT&T's website, www.att.com. You should be aware that the
information contained on AT&T's website is not a part of this document. Written
and telephone requests for any of these documents should be directed to us at
the following address:
AT&T Corp.
32 Avenue of the Americas
New York, New York 10013-2412
Tel: (212) 387-5400
Attn: Corporate Secretary's Department
If you would like to request copies of any of these documents, please do so
by , 2001 to assure that you receive them before the expiration
of this exchange offer. In the event that AT&T extends the exchange offer
period, you must submit your request no later than five business days before the
expiration date of this exchange offer, as extended by AT&T.
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QUESTIONS AND ANSWERS ABOUT THIS EXCHANGE OFFER
The following questions and answers, and the summary of this exchange offer
that follows, highlight selected information from this document and may not
contain all of the information that is important to you. To better understand
this exchange offer you should read this entire document, the accompanying
letter of transmittal and instructions to the letter of transmittal carefully.
Q. HOW MANY SHARES OF AT&T WIRELESS GROUP TRACKING STOCK WILL I RECEIVE FOR EACH
SHARE OF AT&T COMMON STOCK THAT I TENDER IN THIS EXCHANGE OFFER?
A. You will receive shares of AT&T Wireless Group tracking stock for each
share of AT&T common stock that you validly tender in this exchange offer
that is accepted by AT&T. We sometimes refer to this number in this document
as the "exchange ratio." If more than shares of AT&T common stock are
validly tendered in this exchange offer, we will accept those shares for
exchange on a pro rata basis, as described below.
Q. DOES THIS EXCHANGE OFFER INVOLVE A PREMIUM TO THE VALUE I COULD RECEIVE IF I
SOLD MY SHARES OF AT&T COMMON STOCK IN THE MARKET?
A. Based on the closing trading prices for shares of AT&T common stock and AT&T
Wireless Group tracking stock on April , 2001, the exchange ratio would
result in your receiving shares of AT&T Wireless Group tracking stock with a
market value of % of the market value of the shares of AT&T common stock
tendered. However, the relative trading prices for AT&T Wireless Group
tracking stock and AT&T common stock will fluctuate over the course of this
exchange offer and any premium or discount that you might receive as a
tendering shareholder will depend on the prices of shares of AT&T common
stock and AT&T Wireless Group tracking stock at the time of the completion of
this exchange offer.
Q. IS THIS EXCHANGE OFFER SUBJECT TO PRORATION IF TOO MANY SHARES OF AT&T COMMON
STOCK ARE TENDERED?
A. Yes. If more than shares of AT&T common stock are tendered in this
exchange offer, all shares of AT&T common stock that are validly tendered
will be accepted for exchange on a pro rata basis. However, tenders by
persons who own odd-lots, or fewer than 100 shares of AT&T common stock as of
April , 2001, and who tender all of the shares they own will not be subject
to proration and those shares of AT&T common stock will be accepted in full.
Shares of AT&T common stock you own in an AT&T savings plan are not eligible
for the preferential treatment that odd-lot holders will receive.
Q. WHEN DOES THIS EXCHANGE OFFER EXPIRE?
A. If you wish to participate in this exchange offer, you must tender your
shares of AT&T common stock so that the exchange agent receives them before
5:00 p.m., New York City time, on , , 2001, unless
AT&T extends this exchange offer. We sometimes refer to this date and time,
as we may extend it, as the "expiration date."
Q. ARE THERE ANY CONDITIONS TO AT&T'S OBLIGATION TO COMPLETE THIS EXCHANGE
OFFER?
A. Yes. We do not have to complete this exchange offer unless all of the
conditions outlined on pages to are satisfied. In particular, there is a
condition that at least shares of AT&T common stock must be
tendered into this exchange offer. We sometimes refer to this condition in
this document as the "minimum condition." AT&T may at any time waive any or
all of the conditions to this exchange offer.
Q. WILL AT&T PAY DIVIDENDS ON AT&T WIRELESS GROUP TRACKING STOCK?
A. We currently do not expect to pay dividends on AT&T Wireless Group tracking
stock in the foreseeable future.
Q. WHAT HAPPENS IF AT&T DECLARES A QUARTERLY DIVIDEND ON AT&T COMMON STOCK
DURING THIS EXCHANGE OFFER AND I PREVIOUSLY HAVE TENDERED MY SHARES OF AT&T
COMMON STOCK?
A. If a dividend is declared with a record date before the completion of this
exchange offer, you will be entitled to that dividend even if you previously
have tendered your shares of AT&T common stock. Tendering your shares of AT&T
common stock in this exchange offer is not a sale or transfer of those shares
until
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we accept them for exchange upon completion of this exchange offer.
Q. HOW CAN I GET MORE INFORMATION ABOUT THIS EXCHANGE OFFER?
A. You may call the information agent, Georgeson Shareholder Communications, to
ask any questions or to request additional documents at (800) 603-1913 (toll
free) in the United States or at (888) 660-6629 (toll free) elsewhere. You
also may obtain free copies of other documents publicly filed by AT&T at the
Securities and Exchange Commission's website at www.sec.gov or at AT&T's
website at www.att.com. You should be aware that the information contained on
AT&T's website is not part of this document. For more information, see "Where
You Can Find More Information".
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SUMMARY
WHAT IS THIS EXCHANGE OFFER?
In this exchange offer, we are giving you the opportunity to tender some or
all of your shares of AT&T common stock in exchange for shares of AT&T Wireless
Group tracking stock.
WHAT IS TRACKING STOCK?
A tracking stock is a separate class or series of a company's common stock
that is intended to reflect the financial performance and economic value of a
group of assets or a specific business unit, division or subsidiary of that
company. Holders of a tracking stock are common shareholders of the company
issuing the tracking stock and have no direct financial interest in the assets,
subsidiary or business whose performance the tracking stock is intended to
reflect.
AT&T WIRELESS GROUP TRACKING STOCK
AT&T Wireless Group tracking stock is a class of common stock of AT&T. AT&T
Wireless Group tracking stock is intended to reflect the financial performance
and economic value of AT&T Wireless Group, rather than the financial performance
and economic value of AT&T as a whole. However, there may not always be a
linkage between the market value of AT&T Wireless Group tracking stock and the
financial performance and economic value of AT&T Wireless Group. The market
value of AT&T Wireless Group tracking stock may be adversely affected not only
by factors that adversely affect AT&T Wireless Group, but also by factors that
adversely affect AT&T generally.
AT&T Wireless Group includes:
- all of AT&T's mobile and fixed wireless licenses,
- all of AT&T's wireless networks, operations, sites on which cellular
transmitters are located, wireless customer care facilities and customer
location assets, and
- AT&T's interests in partnerships and affiliates providing wireless mobile
communications in the United States and internationally.
AT&T Wireless Group does not include:
- AT&T's existing and future wireless activities that stem from
country-specific joint venture relationships that predominantly are
non-wireless, and
- incidental wireless capabilities of AT&T or links in any backbone or
other communications network of AT&T that predominately are non-wireless.
In this document, we use the term AT&T Wireless Group to refer to the
businesses, assets and liabilities of AT&T whose financial performance and
economic value we intend to reflect in AT&T Wireless Group tracking stock. We
also refer to AT&T Wireless Group as though it conducts those businesses. We do
this solely for ease of reference. In reading this document, you should keep in
mind that AT&T Wireless Group is a defined set of businesses, assets and
liabilities of AT&T and its subsidiaries, including AT&T Wireless Services, Inc.
AT&T Wireless Group is not, and does not conduct those businesses as, a separate
legal entity.
Following this exchange offer, we plan to split-off the businesses, assets
and liabilities included in AT&T Wireless Group as an independent company. We
plan to do this in two steps. First, we plan to distribute some of our shares of
our subsidiary, AT&T Wireless Services, which owns substantially all of these
businesses, assets and liabilities, in exchange for all of the outstanding
shares of AT&T Wireless Group tracking stock. Second, we plan to distribute most
of the remaining shares of AT&T Wireless Services as a dividend to holders of
AT&T common stock. AT&T has announced that it intends to retain up to $3 billion
of shares of AT&T Wireless Services for its own account for sale, exchange or
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monetization within six months of the split-off. As we describe below, this
split-off of AT&T Wireless Services and the retention of these shares are
subject to our receipt of an IRS ruling and other conditions.
AT&T COMMON STOCK
AT&T common stock is also a class of common stock of AT&T. AT&T common
stock is intended to reflect the financial performance and economic value of
AT&T's businesses, assets and liabilities whose financial performance and
economic value we do not intend to reflect in our two outstanding classes of
tracking stock. AT&T currently has tracking stocks intended to reflect Liberty
Media Group and AT&T Wireless Group. In this document, we refer to these other
businesses, assets and liabilities of AT&T as AT&T Common Stock Group.
The principal businesses, assets and liabilities of AT&T Common Stock Group
include AT&T's business communications services and consumer communications
services businesses and AT&T's broadband business. However, in addition to
reflecting the financial performance and economic value of these AT&T
businesses, assets and liabilities, AT&T common stock currently is intended to
reflect approximately 69.7% of the financial performance and economic value of
AT&T Wireless Group, as explained in the following paragraphs.
Before this exchange offer, only approximately 14.3% of the financial
performance and economic value of AT&T Wireless Group is intended to be
reflected by outstanding shares of AT&T Wireless Group tracking stock. In
addition, approximately 16% of the financial performance and economic value of
AT&T Wireless Group is intended to be reflected by securities recently issued to
NTT DoCoMo, Inc., a Japanese wireless communications company. DoCoMo also
received warrants to purchase securities intended to reflect approximately 1.6%
of the financial performance and economic value of AT&T Wireless Group.
The remaining portion of the financial performance and economic value of
AT&T Wireless Group, approximately 69.7%, or approximately 68.4% assuming
exercise of the DoCoMo warrants, is reserved for the benefit of AT&T Common
Stock Group and is intended to be reflected in AT&T common stock. If this
exchange offer is fully subscribed, these percentages will decrease to %,
or approximately %, assuming exercise of the DoCoMo warrants. We refer to
the percentage of the financial performance and economic value of AT&T Wireless
Group not intended to be reflected in outstanding shares of AT&T Wireless Group
tracking stock or by the securities issued to DoCoMo as AT&T Common Stock
Group's retained portion of the value of AT&T Wireless Group.
As of December 31, 2000, the assets included in AT&T Wireless Group as a
whole represented approximately % of AT&T's total assets, and those assets
generated approximately % of AT&T's total revenue for the year ended
December 31, 2000.
THIS EXCHANGE OFFER AND ITS CONSEQUENCES TO YOU
Subject to the satisfaction of the conditions to this exchange offer, we
will issue shares of AT&T Wireless Group tracking stock for each share
of AT&T common stock that is validly tendered and accepted by us. We will accept
up to a maximum of shares of AT&T common stock and will issue up to a
maximum of shares of AT&T Wireless Group tracking stock in this exchange
offer.
YOU SHOULD BE AWARE THAT NONE OF AT&T, AT&T WIRELESS SERVICES, THE EXCHANGE
AGENT, THE INFORMATION AGENT, THE DEALER MANAGER OR THE MARKETING MANAGER, OR
ANY OF THEIR OFFICERS OR DIRECTORS, MAKES ANY RECOMMENDATION AS TO WHETHER YOU
SHOULD TENDER YOUR SHARES OF AT&T COMMON STOCK IN THIS EXCHANGE OFFER.
You should also be aware that regardless of whether you participate in this
exchange offer, this exchange offer will have consequences to you as a holder of
AT&T common stock. AT&T's restructuring plan, including the split-off of AT&T
Wireless Services, will also have consequences to you as a holder of AT&T common
stock. The consequences differ depending on whether, and to what extent, you
participate in this exchange offer.
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To the extent you tender shares of AT&T common stock in exchange for shares
of AT&T Wireless Group tracking stock, then following completion of this
exchange offer:
- you will have shares of AT&T Wireless Group tracking stock intended to
reflect the financial performance and economic value of AT&T Wireless
Group,
- you will no longer have shares intended to reflect the financial
performance and economic value of AT&T's other communications and
broadband businesses,
- if we complete the split-off in the manner we contemplate, you will
receive shares of AT&T Wireless Services common stock in exchange for
your shares of AT&T Wireless Group tracking stock. This means that you
will no longer be a shareholder of AT&T, but instead will be a
shareholder of AT&T Wireless Services, a completely separate legal entity
whose business is focused on wireless communications services, and
- you will not be eligible to participate in the rest of AT&T's
restructuring plan, and you will not receive securities relating to
AT&T's other business units.
To the extent you do not tender shares of AT&T common stock in exchange for
shares of AT&T Wireless Group tracking stock and do not sell those shares, then
following completion of this exchange offer:
- you will have shares intended to reflect the financial performance and
economic value of AT&T Common Stock Group. These shares are intended to
reflect the value of the AT&T Wireless Group only to the extent of AT&T
Common Stock Group's retained portion of the value of AT&T Wireless
Group,
- the portion of the value of AT&T Wireless Group that is retained by AT&T
Common Stock Group and that is intended to be reflected in each of your
shares of AT&T common stock will decrease,
- if we complete the split-off of AT&T Wireless Services in the manner we
contemplate, you will receive some shares of AT&T Wireless Services
without being required to surrender any of your shares of AT&T common
stock. However, you will not receive as many shares of AT&T Wireless
Services common stock as you would have received if you had tendered your
shares of AT&T common stock in this exchange offer, and
- you will be eligible to participate in the rest of AT&T's restructuring
plan, and, if we complete the restructuring plan, you may receive other
securities relating to AT&T's other business units issued to holders of
AT&T common stock in AT&T's restructuring plan.
You should consider these consequences in making your decision as to
whether to tender shares of AT&T common stock in this exchange offer. The
securities you would own if you tendered your shares of AT&T common stock in
this exchange offer may be worth more or less at any point in the future than
the securities you would own if you did not tender your shares of AT&T common
stock in this exchange offer.
SPLIT-OFF OF AT&T WIRELESS SERVICES
AT&T Wireless Group is a part of AT&T. However, in connection with AT&T's
restructuring plan, following completion of this exchange offer and subject to
specified conditions, AT&T intends to split-off AT&T Wireless Group from AT&T.
We will do this by moving into AT&T Wireless Services substantially all of the
businesses, assets and liabilities of AT&T Wireless Group not already held by
AT&T Wireless Services, and then issuing most of the remaining shares of AT&T
Wireless Services (1) in exchange for AT&T Wireless Group tracking stock and (2)
as a dividend to holders of AT&T common stock. The conditions to the split-off
include the receipt of a favorable ruling on the split-off from the IRS and
satisfaction of conditions contained in AT&T's new $18.3 billion credit
agreement, including the repayment of AT&T Wireless Group's intercompany
obligations to AT&T. AT&T has announced its intention to retain up to $3 billion
of the shares of AT&T Wireless Services for its own account for sale, exchange
or monetization within six months of the split-off, subject to receipt of a
satisfactory IRS ruling. Based on the
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$ closing trading price of AT&T Wireless Group tracking stock on April ,
2001, this $3 billion of retained shares would represent approximately % of
AT&T Wireless Services' outstanding common stock after the split-off. AT&T does
not plan to seek any vote of holders of AT&T common stock or AT&T Wireless Group
tracking stock for the split-off of AT&T Wireless Services from AT&T.
THE OTHER PIECES OF AT&T'S RESTRUCTURING PLAN
In addition to the split-off of AT&T Wireless Services, we intend to fully
separate, or issue separate tracking stocks intended to reflect the financial
performance and economic value of, each of AT&T's other major units. We also
plan to distribute all the common stock we hold in Liberty Media Corporation in
exchange for all the outstanding shares of Liberty Media Group tracking stock.
We expect the separations of AT&T Wireless Services and Liberty Media
Corporation to occur around the middle of this year. Later in the year, we plan
to create and issue new tracking stocks intended to reflect the financial
performance and economic value of our AT&T Broadband unit and our AT&T Consumer
Services unit. Within about a year after the issuance of these new tracking
stocks, we expect to separate AT&T Broadband fully from the rest of AT&T. Upon
that separation, the AT&T Business Services unit and the separately tracked AT&T
Consumer Services unit would constitute one publicly traded company, and AT&T
Broadband would constitute a separate publicly traded company. In addition, AT&T
and British Telecommunications plc (BT) are currently engaged in discussions
that could lead to a variety of strategic alternatives to their Concert joint
venture, including transactions that could require a shareholder vote. The
various elements of the plan are not conditioned on the successful completion of
all elements of the plan.
If you tender and exchange all your shares of AT&T common stock for shares
of AT&T Wireless Group tracking stock, you will only be able to participate in
the first step, the planned distribution of common stock of AT&T Wireless
Services in exchange for AT&T Wireless Group tracking stock. If you continue to
hold some or all of your shares of AT&T common stock, you would be eligible to
participate in all of the restructuring steps, except for the distribution of
Liberty Media Corporation, which will be made only to holders of Liberty Media
Group tracking stock.
We plan to hold a special shareholder meeting to vote on the establishment
of the AT&T Broadband and AT&T Consumer Services tracking stocks, and to obtain
other votes, if necessary or deemed desirable, for other transactions.
The full separation of AT&T Wireless Services and of Liberty Media
Corporation, the first of our planned steps, are more certain as to timing and
completion than the remaining steps. All of these steps, however, are subject to
conditions, including IRS rulings, and other uncertainties. If we fail to
satisfy any conditions, if we encounter unfavorable or different financial,
industry or economic conditions or if other unforeseen events intervene, or if
discussions with BT result in a transaction (although we cannot assure you that
any transaction with BT will occur), some or all of our currently planned steps
could occur on a different timetable or on different terms than we currently
contemplate, or might not occur at all.
AT&T
AT&T is among the world's communications leaders, providing voice, data and
video communications to large and small businesses, consumers and government
entities. AT&T and its subsidiaries furnish domestic and international long
distance, regional, local and wireless communications services, cable television
and Internet communications services. AT&T also provides billing, directory
assistance, and calling card services to support its communications business.
AT&T's primary lines of business are business communications services,
consumer communications services, broadband services and wireless services. In
addition, AT&T's other lines of business include network management and
professional services through AT&T Solutions and international operations and
ventures.
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As described above, AT&T has announced plans to restructure itself into a
number of separate companies or separately tracked business units.
The principal executive offices of AT&T are located at 32 Avenue of the
Americas, New York, New York 10013-2412. The phone number is (212) 387-5400.
AT&T WIRELESS GROUP
AT&T Wireless Group is one of the largest wireless service providers in the
United States. AT&T Wireless Group seeks to provide high quality, innovative
wireless services and to expand its customer base and revenue stream by
attracting subscribers who are heavy users of wireless communications services.
As of, or for the year ended, December 31, 2000, AT&T Wireless Group had:
- 15.2 million consolidated subscribers,
- $10.4 billion of combined revenues, and
- $1.6 billion of combined operational earnings before interest, taxes,
depreciation and amortization, excluding other income.
AT&T Wireless Group operates one of the largest U.S. digital wireless
networks. As of December 31, 2000, AT&T Wireless Group and its affiliates and
partners held 850 megahertz and 1900 megahertz licenses to provide wireless
services covering 98% of the U.S. population. As of December 31, 2000,
approximately 77% of the U.S. population was covered by at least 30 megahertz of
wireless spectrum owned by AT&T Wireless Group, its affiliates or its partners.
At the end of 2000, AT&T Wireless Group's networks and those of its affiliates
and partners operated in markets including over 76% of the U.S. population and
in 49 of the 50 largest U.S. metropolitan areas. AT&T Wireless Group supplements
its operations with roaming agreements that allow its subscribers to use other
providers' wireless services in regions where AT&T Wireless Group does not have
operations. With these roaming agreements, AT&T Wireless Group is able to offer
customers wireless services covering over 95% of the U.S. population. AT&T
Wireless Group plans to continue to increase its coverage and the quality of its
services by expanding its footprint and the capacity of its network through new
network construction, acquisitions, and partnerships with other wireless
providers.
The principal executive offices of AT&T Wireless Group are located at 7277
164th Avenue NE, Building 1, Redmond, Washington 98052. The telephone number is
(425) 580-6000.
7
11
TERMS OF THIS EXCHANGE OFFER
TERMS OF THIS EXCHANGE
OFFER......................... We are offering to exchange
shares of AT&T Wireless Group tracking stock
for each share of AT&T common stock that you
validly tender and that we accept in this
exchange offer, up to an aggregate maximum of
shares of AT&T common stock.
This is a voluntary exchange offer, which means
that you may tender all, some or none of your
shares of AT&T common stock in this exchange
offer.
We will exchange, at the exchange ratio, all
shares of AT&T common stock that you validly
tender and do not withdraw and that we accept,
on the terms and subject to the conditions of
this exchange offer, including the proration
provisions. We promptly will return in
uncertificated form any shares of AT&T common
stock that we do not accept for exchange
following the expiration date and determination
of the final proration factor.
EXPIRATION DATE; EXTENSION;
TERMINATION................. This exchange offer and withdrawal rights will
expire at 5:00 p.m., New York City time, on
, 2001, unless we extend this
exchange offer. You must validly tender your
shares of AT&T common stock so that the
exchange agent receives them before the
expiration date if you wish to participate in
this exchange offer. We also may terminate this
exchange offer in the circumstances described
in "This Exchange Offer -- Conditions for
Completion of this Exchange Offer."
PRORATION; ODD-LOTS........... If more than shares of AT&T
common stock are tendered and not withdrawn, we
will accept all shares validly tendered on a
pro rata basis.
If you hold fewer than 100 shares of AT&T
common stock as of April , 2001 and tender all
of your shares of AT&T common stock for
exchange, we will accept all of your shares of
AT&T common stock for exchange without
proration if we complete this exchange offer.
Shares of AT&T common stock you own through an
AT&T savings plan are not eligible for this
preferential treatment.
WITHDRAWAL RIGHTS............. You may withdraw tenders of your shares of AT&T
common stock at any time before the expiration
date. If you change your mind before the
expiration date, you may retender your shares
of AT&T common stock by following the tender
procedures again and retendering before the
expiration date.
CONDITIONS FOR COMPLETION OF
THIS EXCHANGE OFFER......... This exchange offer is subject to various
conditions that must be satisfied in order for
us to be obligated to complete this exchange
offer, including the condition that at least
shares of AT&T common stock be tendered
into this exchange offer. We may, at any time,
waive any or all of the conditions to this
exchange offer.
8
12
PROCEDURES FOR TENDERING
SHARES
REGISTERED HOLDERS.......... If you hold AT&T common stock certificates, you
must complete and sign the letter of
transmittal designating the number of shares of
AT&T common stock you wish to tender in this
exchange offer. Send the letter of transmittal,
together with your AT&T common stock
certificates and any other required documents,
by one of the mailing methods described in the
letter of transmittal, so that it is received
by the exchange agent at the applicable address
set forth on the back cover of this document
before the expiration date.
SHARES HELD THROUGH A
BROKER...................... If you hold shares of AT&T common stock through
a broker, you should receive instructions from
your broker on how to participate in this
exchange offer. Please contact your broker
directly if you have not yet received
instructions. Some financial institutions also
may effect tenders by transferring shares
electronically through The Depository Trust
Company.
UNCERTIFICATED SHARES....... If you hold shares of AT&T common stock without
certificates through our direct registration
system, or through AT&T's dividend reinvestment
and stock purchase plan, you should send the
executed letter of transmittal indicating the
number of shares to be tendered to the exchange
agent by one of the mailing methods described
in the letter of transmittal, so that it is
received by the exchange agent at the
applicable address set forth on the back cover
of this document before the expiration date.
SHARES HELD IN AT&T SAVINGS
PLANS.................... If you hold shares of AT&T common stock through
an AT&T savings plan, you will receive separate
instructions from the savings plan trustees or
administrator of the savings plan regarding how
to tender those shares. You should follow those
instructions, and you should not use the letter
of transmittal to tender those shares.
GUARANTEED DELIVERY......... If you hold AT&T common stock certificates or
if you hold shares of AT&T common stock through
a broker, you also may comply with the
procedures for guaranteed delivery.
COMPARATIVE PER SHARE MARKET
PRICE INFORMATION........... Shares of AT&T common stock and AT&T Wireless
Group tracking stock currently are listed on
the NYSE. AT&T common stock is listed under the
symbol "T" and AT&T Wireless Group tracking
stock is listed under the symbol "AWE".
On October 24, 2000, the last trading day
before the public announcement of AT&T's
intention to commence this exchange offer, the
per share closing trading prices of AT&T common
stock and AT&T Wireless Group tracking stock
were:
AT&T common stock........................ $26 7/8
AT&T Wireless Group tracking stock....... $21 5/8
9
13
Throughout this document, we refer to the
closing price reported on the NYSE composite
tape on any given day as the "closing trading
price" for that day.
On April , 2001, the last trading day before
the announcement of the exchange ratio, the per
share closing trading price of AT&T common
stock and AT&T Wireless Group tracking stock
were:
AT&T common stock...............
AT&T Wireless Group tracking
stock................................
U.S. FEDERAL INCOME TAX
CONSEQUENCES................ For U.S. federal income tax purposes, we expect
the exchange of AT&T Wireless Group tracking
stock for AT&T common stock in this exchange
offer to be tax free to AT&T and to
shareholders who participate in this exchange
offer, except with respect to cash received in
lieu of fractional shares. You should consult
your tax advisor as to the particular tax
consequences of this exchange offer to you.
FRACTIONAL SHARES............. We will pay shareholders cash instead of
issuing any fractional shares of AT&T Wireless
Group tracking stock in this exchange offer.
If, as a result of proration, all of your
shares of AT&T common stock are not accepted,
we will pay you cash instead of returning
fractional shares of AT&T common stock.
EXCHANGE AGENT................ Equiserve Trust Company
INFORMATION AGENT............. Georgeson Shareholder Communications
NO RECOMMENDATION............. None of AT&T, the exchange agent, the
information agent, the dealer manager, the
marketing manager or any of their respective
officers or directors makes any recommendation
as to whether you should tender your shares of
AT&T common stock in this exchange offer.
We urge you to read this document, including
the matters described under "Risk Factors," and
the accompanying documents very carefully.
LEGAL LIMITATION.............. We are not making any offer to sell, nor are we
soliciting any offer to buy, shares of AT&T
Wireless Group tracking stock or AT&T common
stock in any jurisdiction in which the offer or
sale is not permitted.
10
14
COMPARATIVE PER SHARE DATA
We summarize in the tables below the historical and pro forma per share
information for AT&T Wireless Group tracking stock and for AT&T common stock. In
2000, AT&T's historical book value per share was calculated based on AT&T common
stock, Liberty Media Group Class A common stock, Liberty Media Group Class B
common stock and AT&T Wireless Group tracking stock outstanding and 1.95 billion
additional shares of AT&T Wireless Group tracking stock, which shares represent
AT&T Common Stock Group's retained portion of the value of AT&T Wireless Group.
In reading the following information, you should note that the exchange
ratio in this exchange offer is , and therefore that the per share data set
forth below does not set forth a comparison between the per share data for AT&T
common stock and the comparable data for the number of shares of AT&T Wireless
Group tracking stock you would receive in this exchange offer in exchange for
each share of AT&T common stock. You also should note that, on December 20,
2000, AT&T announced that it had reduced the quarterly dividend on AT&T common
stock to $0.0375 per share.
HISTORICAL PER SHARE DATA
AT AND FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
Book value per share (AT&T)................................. $11.94 $13.78 $ 9.70
Cash dividends per share
AT&T Common Stock Group................................ 0.6975 0.88 0.88
Liberty Media Group.................................... -- -- --
AT&T Wireless Group.................................... -- -- --
Diluted earnings (loss) per share from continuing operations
attributable to common stock
AT&T Common Stock Group................................ 0.88 1.74 1.94
Liberty Media Group.................................... 0.58 (0.80) --
AT&T Wireless Group.................................... 0.21 -- --
11
15
PRO FORMA PER SHARE DATA
This pro forma per share information gives effect to
- a fully subscribed exchange offer,
- the DoCoMo investment, and
- the distribution of AT&T Wireless Group
as if such events had been completed on January 1, 1999 for income statement
purposes, and at December 31, 2000 for balance sheet purposes. The pro forma per
share information also gives effect to the Tele-Communications, Inc., or TCI,
and MediaOne Group, Inc. mergers as if they had been completed on January 1,
1999 for income statement purposes. As a result of this exchange offer, the
earnings (loss) per share calculation of AT&T common stock will reflect the
lower number of outstanding shares of AT&T common stock and the shareholders'
decreased interest in the available separate combined net income (loss) of AT&T
Wireless Group. While there will be no change to the earnings per share of AT&T
Wireless Group tracking stock as a result of this exchange offer, the earnings
per share calculation of AT&T Wireless Group tracking stock will reflect the
shareholders' increased interest in the available separate combined net income
(loss) of AT&T Wireless Group and the proportionate increase in the number of
shares of AT&T Wireless Group tracking stock outstanding.
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
2000 1999
------- -----------
Cash dividends per share
AT&T Common Stock Group................................ $0.6975 $ 0.88
Liberty Media Group.................................... -- --
AT&T Wireless Group.................................... -- --
Earnings (loss) per share from continuing operations
attributable to common stock
AT&T Common Stock Group................................ 1.13 2.68
Liberty Media Group.................................... 0.58 (0.89)
AT&T Wireless Group.................................... 0.21 --
12
16
SUMMARY HISTORICAL FINANCIAL DATA
The following information is only a summary and you should read it together
with the financial information we include elsewhere in this document or
incorporate by reference into this document. For copies of the financial
information we incorporate by reference, see "Where You Can Find More
Information".
AT&T CORP.
In the table below, we provide you with selected historical consolidated
financial data of AT&T. We prepared this information using our consolidated
financial statements at and for each of the fiscal years in the five-year period
ended December 31, 2000. We derived the consolidated income statement data below
for each of the three years ended December 31, 2000, and the consolidated
balance sheet data at December 31, 2000 and 1999, from consolidated financial
statements audited by PricewaterhouseCoopers LLP, independent accountants. We
derived the remaining data from unaudited consolidated financial statements.
13
17
SUMMARY HISTORICAL FINANCIAL DATA
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
AT AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
2000(1) 1999(2) 1998 1997 1996
-------- -------- ------- ------- -------
INCOME STATEMENT DATA:
Revenue................................................ $ 65,981 $ 62,600 $53,223 $51,577 $50,688
Operating income....................................... 4,277 10,859 7,487 6,836 8,709
Income from continuing operations...................... 4,669 3,428 5,235 4,249 5,458
AT&T COMMON STOCK GROUP:
Income from continuing operations...................... 3,105 5,450 5,235 4,249 5,458
Weighted average common shares and potential common
shares............................................... 3,545 3,152 2,700 2,683 2,651
Income from continuing operations per share:
Basic................................................ $ 0.89 $ 1.77 $ 1.96 $ 1.59 $ 2.07
Diluted.............................................. $ 0.88 $ 1.74 $ 1.94 $ 1.59 $ 2.07
Cash dividends declared................................ $ 0.6975 $ 0.88 $ 0.88 $ 0.88 $ 0.88
AT&T WIRELESS GROUP:
Income from continuing operations...................... 76 -- -- -- --
Weighted average common shares and potential common
shares............................................... 362 -- -- -- --
Income from continuing operations per share:
Basic................................................ $ 0.21 -- -- -- --
Diluted.............................................. $ 0.21 -- -- -- --
Cash dividends declared................................ -- -- -- -- --
LIBERTY MEDIA GROUP:
Income (loss) from continuing operations............... 1,488 (2,022) -- -- --
Weighted average common shares and potential common
shares............................................... 2,572 2,519 -- -- --
Income (loss) from continuing operations per share:
Basic................................................ $ 0.58 $ (0.80) -- -- --
Diluted.............................................. $ 0.58 $ (0.80) -- -- --
Cash dividends declared................................ -- -- -- -- --
BALANCE SHEET DATA:
Total assets........................................... $242,223 $169,406 $59,550 $61,095 $57,348
Long-term debt......................................... 33,092 23,217 5,556 7,857 8,878
Shareowners equity..................................... 103,198 78,927 25,522 23,678 21,092
---------------
(1) On June 15, 2000, the MediaOne merger closed. The MediaOne merger was
recorded as a purchase. Accordingly, the results of operations of MediaOne
have been included in AT&T's consolidated results since the date the merger
closed.
(2) On March 9, 1999, the TCI merger closed. The TCI merger was recorded as a
purchase. Accordingly, the results of operations of TCI and Liberty Media
Group have been included in AT&T's consolidated results since the date the
TCI merger closed. In conjunction with the TCI merger, AT&T issued Liberty
Media Group tracking stock intended to reflect the financial performance and
economic value of Liberty Media Group. AT&T does not have a "controlling
financial interest" for financial accounting purposes in Liberty Media
Group, therefore AT&T accounts for Liberty Media Group as an equity
investment. Because Liberty Media Group is entirely reflected by separate
tracking stock, AT&T excludes all of the earnings or losses related to
Liberty Media Group from the earnings available to the holders of AT&T
common stock.
14
18
CONSOLIDATING CONDENSED FINANCIAL INFORMATION
In conjunction with the issuance of AT&T Wireless Group and Liberty Media
Group tracking stocks, AT&T has separated for financial reporting purposes in
all periods the AT&T Common Stock Group, Liberty Media Group and AT&T Wireless
Group. We present below the consolidating financial information reflecting the
businesses of these individual groups, including the allocation of expenses
between the groups in accordance with our allocation policies, as well as other
related party transactions such as sales of services between groups and interest
income and expense on intercompany borrowings. Because AT&T Wireless Group
tracking stock is intended to reflect the financial performance and economic
value of the businesses, assets and liabilities we include in the AT&T Wireless
Group, we believe the additional financial data about AT&T Wireless Group
presented below may be helpful to you in deciding whether to invest in AT&T
Wireless Group tracking stock. However, you should keep in mind that AT&T
Wireless Group is not a separate company or legal entity. Rather it is a defined
set of businesses, assets and liabilities of AT&T and its subsidiaries,
including AT&T Wireless Services. The AT&T Common Stock Group presented below
excludes its retained portion of the value of AT&T Wireless Group.
AT&T Wireless Group purchases long distance and other network-related
services from AT&T at market-based prices and accordingly such amounts are
eliminated. Prior to the offering of AT&T Wireless Group tracking stock, the
capital structure of AT&T Wireless Group had been assumed based upon AT&T's
historical capital ratio adjusted for certain items. Intercompany interest rates
are intended to be substantially equivalent to the interest rate that AT&T
Wireless Group would be able to obtain or receive if it were a stand-alone
entity. General corporate overhead related to AT&T's corporate headquarters and
common support divisions has been allocated to AT&T Wireless Group based on the
ratio of AT&T Wireless Group's external costs and expenses to AT&T's
consolidated external costs and expenses, adjusted for any functions that AT&T
Wireless Group performs on its own. The consolidated income tax provision,
related tax payments or refunds, and deferred tax balances of AT&T have been
allocated to AT&T Wireless Group based principally on the taxable income and tax
credits directly attributable to AT&T Wireless Group.
AT&T does not have a controlling financial interest in LMG for financial
accounting purposes; therefore, our ownership in LMG is reflected as an
investment accounted for under the equity method and is reflected as such in the
consolidating financial statements below. Pursuant to the Inter-Group agreement,
AT&T does not allocate general overhead expenses to Liberty Media Group and only
charges Liberty Media Group for specific services that Liberty Media Group
receives from AT&T pursuant to service agreements or similar arrangements.
Additionally, as Liberty Media Group operates independent of AT&T, there is no
cash or debt allocated to them.
The following events have occurred subsequent to December 31, 2000, or are
anticipated to occur in conjunction with the split-off of AT&T Wireless Group
from AT&T, which are not reflected in the summary financial data included below.
On January 22, 2001, DoCoMo invested approximately $9.8 billion for shares
of a new class of AT&T preferred stock that are convertible into 406,255,889
shares of AT&T Wireless Group tracking stock, and are intended to reflect
approximately 16% of the financial performance and economic value of AT&T
Wireless Group. Of the 406,255,889 shares issued to DoCoMo, 228,128,307 shares
represented new share equivalents at $27.00 each, and the remaining 178,127,582
share equivalents represented a reduction of AT&T Common Stock Group's retained
portion of the value of AT&T Wireless Group at $20.50 each. Accordingly, AT&T
Common Stock Group retained $3.6 billion of the DoCoMo investment and allocated
$6.2 billion to AT&T Wireless Group.
AT&T Wireless Services, a legal entity included within AT&T Wireless Group,
completed a private placement of $6.5 billion in Senior Notes on March 1, 2001.
The notes included $1.0 billion paying interest at 7.35% due in 2006, $3.0
billion paying interest at 7.875% due in 2011, and $2.5 billion paying interest
at 8.75% due in 2031. The net offering proceeds, after underwriting commissions
and related expenses totaled $6.447 billion.
In conjunction with the split-off of AT&T Wireless Group from AT&T, AT&T
Wireless Group will pay-off all intercompany short-term and long-term debt due
to AT&T, as well as redeem preferred stock held by AT&T. The intercompany
amounts outstanding as of December 31, 2000, included short-term debt of $638
million, long-term debt of $1.8 billion, and preferred stock of $3.0 billion.
15
19
CONSOLIDATING CONDENSED FINANCIAL INFORMATION
(IN MILLIONS)
AT AND FOR THE YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------
AT&T
COMMON AT&T LIBERTY
STOCK WIRELESS MEDIA ELIMINATIONS/ CONSOLIDATED
GROUP GROUP GROUP RECLASSIFICATIONS(1) AT&T CORP.
-------- -------- ------- -------------------- ------------
INCOME STATEMENT DATA:
Revenue................................. $ 55,533 $10,448 $ $ $ 65,981
Inter-group revenue..................... 321 (321)
Total Revenue........................... 55,854 10,448 (321) $ 65,981
Operating Expenses
Costs of services and products.......... 13,001 4,969 (383) 17,587
Access and other connection............. 13,140 378 13,518
Selling, general and administrative..... 10,001 3,302 13,303
Depreciation and other amortization..... 5,923 1,686 (335) 7,274
Amortization of goodwill, franchise
costs and other purchased
intangibles........................... 2,665 328 2,993
Net restructuring and other charges..... 7,029 7,029
Inter-group expenses.................... (208) 529 (321)
Total operating expenses................ 51,551 10,486 (333) 61,704
Operating income (loss)................. 4,303 (38) 12 4,277
Other income (expense).................. 1,150 391 (27) 1,514
Inter-group interest income............. 326 143 (469)
Interest expense........................ 3,294 (111) 3,183
Inter-group interest expense............ 143 196 (339)
Income before income taxes, minority
interest and earnings (losses) from
equity investments.................... 2,342 411 (145) 2,608
Provision for income taxes.............. 3,199 141 2 3,342
Minority interest income................ 4,092 28 4,120
Equity earnings from Liberty Media
Group................................. 1,488 1,488
Net earnings (losses) from other equity
investments........................... (585) 388 (8) (205)
Net income.............................. 2,650 658 1,488 (127) 4,669
Dividend requirements on preferred stock
held by AT&T, net..................... 130 (130)
Net income after preferred stock
dividends............................. $ 2,650 $ 528 $ 1,488 $ 3 $ 4,669
CASH FLOW DATA:
Net cash provided by operating
activities............................ $ 11,684 $ 1,635 $ $ (12) $ 13,307
Capital expenditures and other
additions............................. (10,912) (4,012) (14,924)
Equity investment distributions and
sales................................. 992 360 1,352
Equity investment contributions and
purchases............................. (1,767) (1,645) (3,412)
Net acquisitions of businesses including
cash acquired......................... (16,647) (4,763) (21,410)
Issuance of AT&T Wireless Group common
stock................................. 3,314 7,000 10,314
Increase in short-term borrowings,
net................................... 17,009 638 (674) 16,973
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 64 $ 62 $ $ $ 126
Short-term note due from related
party................................. 638 (638)
Property, plant and equipment, net...... 41,269 9,892 51,161
Licensing costs, net.................... 13,627 (1) 13,626
Other investments and related
advances.............................. 30,876 3,385 34,261
Long-term assets due from related
party................................. 4,800 (4,800)
Total assets............................ $178,293 $35,302 $34,290 $(5,662) $242,223
Debt maturing within one year........... $ 31,838 $ 109 $ $ $ 31,947
Short-term debt due to related party.... 638 (638)
Long-term debt.......................... 33,089 3 33,092
Long-term debt due to related party..... 1,800 (1,800)
Total liabilities....................... $121,747 $10,384 $(2,699) $129,432
Shareowners' equity due to related
party................................. 3,000 (3,000)
Total shareowners' equity............... 46,994 24,877 34,290 (2,963) 103,198
---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
as well as reclassifications and adjustments related to AT&T Wireless Group
tracking stock.
16
20
CONSOLIDATING CONDENSED FINANCIAL INFORMATION
(IN MILLIONS)
AT AND FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------
AT&T
COMMON AT&T LIBERTY
STOCK WIRELESS MEDIA ELIMINATIONS/ CONSOLIDATED
GROUP GROUP GROUP RECLASSIFICATIONS(1) AT&T CORP.
-------- -------- ------- -------------------- ------------
INCOME STATEMENT DATA:
Revenue....................................... $ 54,973 $ 7,627 $ $ $ 62,600
Inter-group revenue........................... 227 (227)
Total Revenue................................. 55,200 7,627 (227) 62,600
Operating Expenses
Costs of services and products................ 11,158 3,676 (240) 14,594
Access and other connection................... 14,439 247 14,686
Selling, general and administrative........... 11,243 2,273 13,516
Depreciation and other amortization........... 5,137 1,253 (252) 6,138
Amortization of goodwill, franchise costs and
other purchased intangibles................. 1,057 244 1,301
Net restructuring and other charges........... 976 531 (1) 1,506
Inter-group expenses.......................... (333) 560 (227)
Total operating expenses...................... 43,677 8,293 (229) 51,741
Operating income (loss)....................... 11,523 (666) 2 10,859
Other income (expense)........................ 824 122 (15) 931
Inter-group interest income................... 270 (270)
Interest expense.............................. 1,755 (78) 88 1,765
Inter-group interest expense.................. 214 (214)
Income (loss) before income taxes, minority
interest and earnings (losses) from equity
investments................................. 10,862 (680) (157) 10,025
Provision for income taxes.................... 4,016 (294) (27) 3,695
Minority interest income (expense)............ (132) 17 (115)
Equity earnings from Liberty Media Group...... (2,022) (2,022)
Net earnings (losses) from other equity
investments................................. (760) (19) 14 (765)
Income (loss)................................. 5,954 (405) (2,022) (99) 3,428
Dividend requirements on preferred stock held
by AT&T, net................................ 56 (56)
Net income (loss) after preferred stock
dividends................................... $ 5,954 $ (461) $(2,022) $ (43) $ 3,428
CASH FLOW DATA:
Net cash provided by operating activities..... $ 10,907 $ 867 $ $ (253) $ 11,521
Capital expenditures and other additions...... (11,795) (2,272) 47 (14,020)
Equity investment distributions and sales..... 1,639 236 1,875
Equity investment contributions and
purchases................................... (7,837) (284) (8,121)
Net acquisitions of businesses including cash
acquired.................................... (6,955) 244 (6,711)
BALANCE SHEET DATA:
Cash and cash equivalent...................... $ 1,019 $ 5 $ $ $ 1,024
Property, plant and equipment, net............ 33,366 6,349 (97) 39,618
Licensing costs, net.......................... 8,571 (23) 8,548
Other investments and related advances........ 14,856 4,502 8 19,366
Long-term assets due from related party....... 4,400 (4,400)
Total assets.................................. $112,039 $23,512 $38,460 $(4,605) $169,406
Debt maturing within one year................. $ 12,479 $ 154 $ $ $ 12,633
Long-term debt................................ 23,213 4 23,217
Long-term debt due to related party........... 3,400 (3,400)
Total liabilities............................. $ 77,632 $ 9,495 $(3,739) $ 83,388
Shareowners' equity due to related party...... 1,000 (1,000)
Total shareowners' equity..................... 27,336 13,997 38,460 (866) 78,927
---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
as well as reclassifications and adjustments related to AT&T Wireless Group
tracking stock.
17
21
CONSOLIDATING CONDENSED FINANCIAL INFORMATION
(IN MILLIONS)
AT AND FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
AT&T
COMMON AT&T
STOCK WIRELESS ELIMINATIONS/ CONSOLIDATED
GROUP GROUP RECLASSIFICATIONS(1) AT&T CORP.
------- -------- -------------------- ------------
INCOME STATEMENT DATA:
Revenue........................................... $47,817 $5,406 $ $53,223
Inter-group revenue............................... 73 (73)
Total Revenue..................................... 47,890 5,406 (73) 53,223
Operating Expenses:
Costs of services and products.................... 8,336 2,363 (204) 10,495
Access and other connection....................... 15,117 211 15,328
Selling, general and administrative............... 10,845 1,931 (6) 12,770
Depreciation and other amortization............... 3,534 1,079 (235) 4,378
Amortization of goodwill, franchise costs and
other purchased intangibles..................... 44 207 251
Net restructuring and other charges............... 2,514 120 (120) 2,514
Inter-group expenses.............................. (183) 256 (73)
Total operating expenses.......................... 40,207 5,749 (220) 45,736
Operating income (loss)........................... 7,683 (343) 147 7,487
Other income...................................... 811 650 (180) 1,281
Inter-group interest income....................... 246 (246)
Interest expense.................................. 515 (70) (18) 427
Inter-group interest expense...................... 190 (190)
Income from continuing operations before income
taxes, minority interest and earnings (losses)
from equity investments......................... 8,225 187 (71) 8,341
Provision for income taxes........................ 2,996 59 (6) 3,049
Minority interest income.......................... 21 21
Net earnings (losses) from other equity
investments..................................... (108) 36 (6) (78)
Income from continuing operations................. 5,121 164 (50) 5,235
Dividend requirements on preferred stock held by
AT&T, net....................................... 56 (56)
Income from continuing operations after preferred
stock dividends................................. $ 5,121 $ 108 $ 6 $ 5,235
CASH FLOW DATA:
Net cash provided by operating activities......... $ 9,928 $ 414 $(125) $10,217
Capital expenditures and other additions.......... (6,509) (1,219) 15 (7,713)
Equity investment distributions and sales......... 148 1,354 14 1,516
Equity investment contributions and purchases..... (1,118) (156) (7) (1,281)
Net acquisitions of businesses including cash
acquired........................................ 4,183 324 4,507
Increase in short-term borrowings, net............ (3,076) 43 (3,033)
---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
as well as reclassifications and adjustments related to AT&T Wireless Group
tracking stock.
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SUMMARY PRO FORMA FINANCIAL DATA
The following information is only a summary and you should read it together
with the financial information we include elsewhere in this document or
incorporate by reference into this document. For copies of the financial
information we incorporate by reference, see "Where You Can Find More
Information."
AT&T
The unaudited pro forma financial information set forth below for AT&T
gives effect to
- this exchange offer,
- the DoCoMo investment, and
- the AT&T Wireless Group distribution
as if those events had been completed on January 1, 1998 for income statement
purposes, and on December 31, 2000 for balance sheet purposes. The unaudited pro
forma financial information set forth below for AT&T also give effect to the TCI
and MediaOne mergers as if they had been completed on January 1, 1998 for income
statement purposes. The unaudited selected pro forma financial information does
not necessarily represent what AT&T's financial position or results of
operations would have been had the TCI or MediaOne mergers or the AT&T wireless
events occurred on such dates.
We have included detailed unaudited pro forma financial statements at the
end of this document.
SUMMARY PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
AT AND FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
2000 1999
---------- ----------
INCOME STATEMENT DATA:
Revenue..................................................... $ 57,180 $ 58,836
Operating income............................................ 3,870 10,423
Income from continuing operations -- attributable to AT&T
common stock group........................................ 3,796 9,292
Weighted average AT&T common shares -- diluted.............. 3,393 3,478
Earnings per AT&T common share -- basic..................... $ 1.14 $ 2.77
Earnings per AT&T common share -- diluted................... 1.13 2.68
Cash dividends declared per AT&T common share............... $ 0.6975 $ 0.88
BALANCE SHEET DATA:
Total assets................................................ $210,783
Long-term debt.............................................. 33,089
Total shareowners' equity................................... 87,974
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RISK FACTORS
You should carefully consider each of the following risks and uncertainties
and all of the other information set forth in this document or in other
documents that we refer to in this document before deciding whether to
participate in this exchange offer.
RISK FACTORS RELATING TO THIS EXCHANGE OFFER
Your decision to tender shares of AT&T common stock in this exchange offer
will significantly affect your ability to participate in AT&T's restructuring
plan
If we complete our restructuring plan, holders of shares of AT&T common
stock who retain their shares of AT&T common stock will be able to participate
in all of AT&T's restructuring, which may involve the distribution to holders of
AT&T common stock of securities relating to AT&T's other businesses. To the
extent that you participate in this exchange offer and exchange your shares of
AT&T common stock for AT&T Wireless Group tracking stock, you would receive
shares of common stock of AT&T Wireless Services if we complete the split-off,
but you will not receive any other securities that we may issue in our
restructuring plan for your shares of AT&T common stock that you tender and are
exchanged in this exchange offer.
If you do not tender shares of AT&T common stock in this exchange offer, you
will still receive some shares in AT&T Wireless Services if we complete the
split-off, but fewer shares than if you do tender
All holders of shares of AT&T common stock will receive shares of AT&T
Wireless Services in mid-2001 if we complete the split-off as we expect. If you
do not tender any shares of AT&T common stock in this exchange offer and retain
those shares, you would receive some shares in AT&T Wireless Services at that
time. However, your interest in AT&T Wireless Services will be smaller than it
would be if you tendered your shares of AT&T common stock in this exchange
offer.
We will not seek shareholder approval of the split-off of AT&T Wireless
Services
AT&T does not plan to seek shareholder approval for the split-off of AT&T
Wireless Services. If the split-off occurs, any shares of AT&T Wireless Group
tracking stock you receive in this exchange offer will be exchanged into shares
of AT&T Wireless Services without the consent of any of the holders of AT&T
Wireless Group tracking stock. We describe some of the risks relating to the
potential split-off under "-- Risk Factors Relating to the Split-Off."
If we do not complete the split-off of AT&T Wireless Services in the manner and
in the timeframe we contemplate, this may have a material adverse effect on the
value of the AT&T Wireless Group tracking stock
In deciding whether to tender your shares of AT&T common stock in this
exchange offer, you should consider that we may not complete the split-off of
AT&T Wireless Services as we plan. The failure to complete the split-off may
materially adversely affect the value of the shares of AT&T Wireless Group
tracking stock that we issue in this exchange offer. We describe some of the
risks relating to the failure to complete the potential split-off under "-- Risk
Factors Relating to the Split-Off."
You may not receive any premium for the shares of AT&T common stock that you
exchange for shares of AT&T Wireless Group tracking stock in the exchange
offer
If you tender your shares of AT&T common stock in this exchange offer, you
may not receive any premium. Any premium that you would receive in this exchange
offer will depend upon a variety of factors, including the market prices of
shares of AT&T common stock and AT&T Wireless Group tracking stock at the time
of the closing of this exchange offer. Even if you receive a premium in this
exchange offer, it is possible that over time the market value of the number of
shares of AT&T common stock tendered in this exchange offer, including any
securities you receive as part of AT&T's restructuring plan, will exceed the
market value of AT&T Wireless Group tracking stock you receive in this exchange
offer.
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The issuance of AT&T Wireless Group tracking stock in this exchange offer may
materially adversely affect the market price of AT&T Wireless Group tracking
stock and/or AT&T common stock
This exchange offer could increase substantially the number of publicly
held shares of AT&T Wireless Group tracking stock and the number of holders of
AT&T Wireless Group tracking stock. The shares of AT&T Wireless Group tracking
stock to be issued in this exchange offer will be eligible for immediate resale
in the open market. If a significant number of shareholders who receive shares
of AT&T Wireless Group tracking stock in this exchange offer attempt to sell
those shares on the open market after this exchange offer, the market price of
AT&T Wireless Group tracking stock could be materially adversely affected. In
addition, this exchange offer may adversely affect the market price of AT&T
common stock, including by reducing AT&T Common Stock Group's retained portion
of the value of AT&T Wireless Group.
RISK FACTORS RELATING TO THE FACT THAT AT&T WIRELESS GROUP TRACKING STOCK IS A
TRACKING STOCK
The market price of AT&T Wireless Group tracking stock may not reflect the
financial performance and economic value of the AT&T Wireless Group as we
intend and may not effectively track the separate performance of AT&T Wireless
Group
The market price of AT&T Wireless Group tracking stock may not in fact
reflect the financial performance and economic value of AT&T Wireless Group as
we intend. Holders of AT&T Wireless Group tracking stock will continue to be
common shareholders of AT&T and, as such, will be subject to all risks
associated with an investment in AT&T and all of its businesses, assets and
liabilities. The performance of AT&T as a whole may affect the market price of
the AT&T Wireless Group tracking stock or the market price could more
independently reflect the performance of the business of AT&T Wireless Group.
Investors may discount the value of AT&T Wireless Group tracking stock because
AT&T Wireless Group is part of a common enterprise with the rest of the
operations of AT&T rather than a stand-alone entity.
Holders of AT&T common stock, AT&T Wireless Group tracking stock and Liberty
Media Group tracking stock are shareholders of one company and, therefore,
financial impacts on one group could affect the other groups
Holders of AT&T common stock, AT&T Wireless Group tracking stock and
Liberty Media Group tracking stock are all common shareholders of AT&T, and are
subject to risks associated with an investment in a single company and all of
AT&T's businesses, assets and liabilities. Financial effects arising from one
group that affect AT&T's consolidated results of operations or financial
condition could, if significant, affect the combined results of operations or
financial position of the other groups or the market price of the class of
common shares relating to the other groups. In addition, if AT&T or any of its
subsidiaries were to incur significant indebtedness on behalf of a group,
including indebtedness incurred or assumed in connection with an acquisition or
investment, it could affect the credit rating of AT&T and its subsidiaries.
This, in turn, could increase the borrowing costs of the other groups and AT&T
as a whole. Net losses of any group and dividends or distributions on shares of
any class of common or preferred stock will reduce the funds of AT&T legally
available for payment of future dividends on each of AT&T common stock, AT&T
Wireless Group tracking stock and Liberty Media Group tracking stock. For these
reasons, you should read AT&T's consolidated financial information together with
the financial information of AT&T Wireless Group and Liberty Media Group in
deciding whether to participate in this exchange offer.
The complex nature of the terms of AT&T Wireless Group tracking stock, or
confusion in the marketplace about what a tracking stock is, could adversely
affect the market prices of AT&T Wireless Group tracking stock
Tracking stocks, like AT&T Wireless Group tracking stock, are more complex
than traditional common stock and are not directly comparable to common stock of
companies that have been spun off by their parent companies. The complex nature
of the terms of AT&T Wireless Group tracking stock, and the
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potential difficulties investors may have in understanding these terms, may
adversely affect the market price of AT&T Wireless Group tracking stock.
Examples of these terms include:
- discretion of AT&T's board of directors to make determinations affecting
AT&T Wireless Group tracking stock,
- redemption and conversion rights in the event AT&T disposes of
substantially all the assets attributed to AT&T Wireless Group,
- ability of AT&T to convert shares of AT&T Wireless Group tracking stock
into shares of AT&T common stock, or
- voting rights of AT&T Wireless Group tracking stock and AT&T common
stock.
Confusion in the marketplace about what a tracking stock is and what it is
intended to represent could also adversely affect the market price of AT&T
Wireless Group tracking stock.
Holders of AT&T Wireless Group tracking stock will have limited separate
shareholder rights, and will have no additional rights specific to AT&T
Wireless Group, including direct voting rights
Holders of AT&T Wireless Group tracking stock do not have any direct voting
rights in AT&T Wireless Group, except to the extent required under AT&T's
charter or by New York law. Separate meetings for holders of AT&T Wireless Group
tracking stock are not held. When a vote is taken on any matter as to which all
of our common shares are voting together as one class, any class or series of
our common shares that is entitled to more than the number of votes required to
approve the matter being voted upon is in a position to control the outcome of
the vote on that matter.
Currently:
- each share of AT&T common stock has one vote,
- each share of Class B Liberty Media Group tracking stock has 0.375 of a
vote,
- each share of Class A Liberty Media Group tracking stock has 0.0375 of a
vote; and
- each share of AT&T Wireless Group tracking stock has 0.5 of a vote.
The voting power of each class is subject to adjustment for stock splits,
stock dividends and combinations, including any distribution of AT&T Wireless
Group tracking stock to holders of AT&T common stock.
There is no board of directors or committee that owes any separate fiduciary
duties to holders of AT&T Wireless Group tracking stock, apart from those owed
to AT&T shareholders generally
AT&T Wireless Group does not have a separate board of directors to
represent solely the interests of the holders of AT&T Wireless Group tracking
stock. Each of AT&T's board of directors and the AT&T Wireless Group capital
stock committee owes fiduciary duties to AT&T and its shareholders as a whole.
Consequently, there is no separate board of directors or committee that owes any
separate duties to the holders of AT&T Wireless Group tracking stock.
Until the split-off, AT&T Wireless Group will be controlled by AT&T
Subject to fiduciary duties, our policy statements and inter-company
agreements, AT&T's board of directors could make operational and financial
decisions or implement policies that affect disproportionately the businesses of
a group. These decisions could include:
- allocation of financing opportunities in the public markets,
- allocation of business opportunities, resources and personnel, and
- transfers of services, including sales agency, resale and other
arrangements, funds or assets between groups and other inter-group
transactions
that, in each case, may be suitable for one or more groups. Any of these
decisions may benefit one group more than the other groups.
In addition, AT&T Wireless Group is, and may continue to be, subject to
AT&T's existing agreements or arrangements with third parties and consent
decrees, as well as new agreements or decrees.
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These agreements or arrangements or decrees currently may benefit AT&T Wireless
Group, as in the case of purchasing arrangements, or may have the effect of
limiting or impairing its business opportunities. For example, AT&T and British
Telecommunications plc have entered into a joint venture agreement for the
provision of global communications services. As part of that joint venture
agreement, among other things, AT&T has agreed to various restrictions on its
businesses and activities, including non-competition provisions and exclusive
purchasing requirements, all of which apply to AT&T Wireless Group.
Holders of AT&T Wireless Group tracking stock may have potentially diverging
interests from holders of other classes of AT&T capital stock
The existence of separate classes of our common stock could give rise to
occasions when the interests of the holders of AT&T common stock, AT&T Wireless
Group tracking stock and/or Liberty Media Group tracking stock diverge, conflict
or appear to diverge or conflict. Examples include determinations by AT&T's
board of directors to:
- set priorities for use of capital and debt capacity,
- pay or omit the payment of dividends on AT&T common stock, AT&T Wireless
Group tracking stock or Liberty Media Group tracking stock, except where
such dividends are required,
- redeem shares of AT&T Wireless Group tracking stock for shares of AT&T
common stock or stock of qualifying subsidiaries of AT&T,
- approve dispositions of assets attributed to any group,
- allocate the proceeds of issuances of AT&T Wireless Group tracking stock
either to AT&T Common Stock Group with a corresponding reduction in the
AT&T Common Stock Group's retained portion, if any, or to the equity of
AT&T Wireless Group,
- formulate public policy positions for AT&T,
- establish material commercial relationships between groups, and
- make operational and financial decisions with respect to one group that
could be considered to be detrimental to another group.
In addition, decisions regarding distribution and other commercial
arrangements between the groups may affect costs, service alternatives and
marketing approaches for each group. When making decisions with regard to
matters that create potential diverging interests, our board of directors will
act in accordance with:
- the terms of AT&T's charter, the AT&T Wireless Group policy statement,
the Liberty Media Group policy statement and the inter-group agreement
between AT&T and Liberty Media Group, which governs the relationship
between AT&T Common Stock Group and Liberty Media Group, to the extent
applicable, and
- its fiduciary duties, which require our board of directors to consider
the impact of these decisions on all shareholders of AT&T.
Our board of directors also could, from time to time, refer to the Liberty Media
Group capital stock committee and the AT&T Wireless Group capital stock
committee matters involving any conflict, and have those committees report to
our board of directors on those matters or decide those matters to the extent
permitted by AT&T's by-laws and applicable law.
AT&T's board of directors may redeem AT&T Wireless Group tracking stock in
exchange for stock of AT&T Wireless Services, or another subsidiary
AT&T's charter provides that AT&T may, at any time, redeem all outstanding
shares of AT&T Wireless Group tracking stock in exchange for a specified number
of outstanding shares of common stock of a subsidiary of AT&T that satisfies
requirements under the Internal Revenue Code and that holds, directly or
indirectly, all of the assets and liabilities of AT&T Wireless Group. This type
of redemption may only be made on a pro rata basis, and must be tax free to the
holders of AT&T Wireless Group tracking stock, except with respect to any cash
that holders receive in lieu of fractional shares. For more
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information, see "Description of AT&T Capital Stock -- AT&T Wireless Group
Tracking Stock -- Redemption."
If we complete the proposed split-off in the manner we contemplate, our
Board of Directors will use this redemption right to exchange all shares of AT&T
Wireless Group tracking stock for shares of AT&T Wireless Services. In this
case, shareholders of AT&T Wireless Group tracking stock would no longer be
shareholders of AT&T but would be shareholders of AT&T Wireless Services. We
describe some of the risks related to the proposed split-off under "-- Risk
Factors Relating to the Split-Off."
A decision by AT&T's board of directors to dispose of assets attributed to
AT&T Wireless Group could have an adverse impact on the trading price of AT&T
Wireless Group tracking stock
Assuming AT&T Wireless Group's assets represent less than substantially all
of the properties and assets of AT&T as a whole, our board of directors could,
in its sole discretion and without shareholder approval, approve sales and other
dispositions of any amount of the properties and assets of AT&T Wireless Group
because the New York Business Corporation Law, or NYBCL, requires shareholder
approval only for a sale or other disposition of all or substantially all of the
properties and assets of all of AT&T.
However, in the event of a disposition of all or substantially all of the
properties and assets attributed to AT&T Wireless Group, generally defined as
80% or more of the fair value of that group, AT&T will be required under its
charter to:
- convert each outstanding share of AT&T Wireless Group tracking stock into
shares of AT&T common stock at a 10% premium, or
- distribute cash and/or securities, other than AT&T common stock, or other
property equal to the fair value of the net proceeds from that
disposition allocable to AT&T Wireless Group tracking stock, either by
special dividend or by redemption of all or part of the outstanding
shares of AT&T Wireless Group tracking stock, or
- take a combination of the actions described in the preceding bullet
points whereby AT&T would convert some shares of AT&T Wireless Group
tracking stock into AT&T common stock at a 10% premium and pay a dividend
on the remaining shares of AT&T Wireless Group tracking stock or redeem
all or part of the remaining shares of AT&T Wireless Group tracking stock
for cash and/or property equal to the fair value of a portion of the net
proceeds of the disposition allocable to AT&T Wireless Group tracking
stock.
Our board of directors is not required to select the option that would
result in the distribution with the highest value to the holders of AT&T
Wireless Group tracking stock. See "-- The fiduciary duties of AT&T's board of
directors to more than one class of common stock are not clear under New York
law" for a discussion of our board of directors' fiduciary duties to the holders
of the different classes of our common shares.
In addition, under New York law, our board of directors could decline to
dispose of AT&T Wireless Group assets even if a majority of the holders of AT&T
Wireless Group tracking stock request such a disposition.
AT&T may take positions on public policy or regulatory matters that benefit one
group more than another
Because of the nature of the businesses of AT&T Common Stock Group, and
AT&T Wireless Group, the groups may have diverging interests as to the position
AT&T should take with respect to various regulatory issues. For example, FCC
regulations that may advance the interests of one group may not advance the
interests of the other groups. Under the AT&T Wireless Group policy statement,
we will resolve material matters involving potentially divergent interests in a
manner that our board of directors, or the AT&T Wireless Group capital stock
committee, determines to be in the best interests of AT&T and all of our common
shareholders after giving fair consideration to the potentially divergent
interests and all
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other relevant interests of the holders of the separate classes of our common
shares. Nevertheless, AT&T's board of directors could take positions on any
given issue that may benefit one group more than another.
The fiduciary duties of AT&T's board of directors to more than one class of
common stock are not clear under New York law
Although we are not aware of any legal precedent under New York law
involving the fiduciary duties of directors of corporations having two or more
classes of common stock, or separate classes or series of capital stock,
principles of Delaware law established in cases involving differing treatment of
two classes of capital stock or two groups of holders of the same class of
capital stock provide that a board of directors owes an equal duty to all
shareholders regardless of class or series, and does not have separate or
additional duties to either group of shareholders. Under these principles of
Delaware law and the related principle known as the "business judgment rule,"
absent abuse of discretion, a good faith business decision made by a
disinterested and adequately informed board of directors, or a committee of the
board of directors, with respect to any matter having disparate impacts upon
holders of AT&T common stock, AT&T Wireless Group tracking stock or Liberty
Media Group tracking stock would be a defense to any challenge to a
determination made by or on behalf of the holders of any class of our common
shares. Nevertheless, a New York court hearing a case involving this type of a
challenge may decide to apply principles of New York law different from the
principles of Delaware law discussed above, or may develop new principles of
law, in order to decide that case. Any future shareholder litigation over the
meaning or application of the terms of the AT&T Wireless Group tracking stock or
our board's policies may be costly and time consuming to AT&T and AT&T Wireless
Group.
AT&T's board of directors has the ability to control inter-group transactions
between AT&T Common Stock Group and AT&T Wireless Group
AT&T's board of directors may decide to transfer funds or other assets
between groups. Transfers of assets from AT&T Common Stock Group to AT&T
Wireless Group that AT&T's board of directors designates as an equity
contribution by AT&T Common Stock Group to AT&T Wireless Group will result in an
increase in AT&T Common Stock Group's retained portion of the value of AT&T
Wireless Group.
Under the AT&T Wireless Group policy statement, AT&T Common Stock Group may
make loans to AT&T Wireless Group at interest rates and on terms and conditions
substantially equivalent to the interest rates and terms and conditions that
AT&T Wireless Group would be able to obtain from third parties. We anticipate
that interest rates payable by AT&T Wireless Group initially will be higher than
those payable by AT&T or the AT&T Common Stock Group.
Any increase in AT&T Common Stock Group's retained portion of AT&T Wireless
Group resulting from an equity contribution, or any decrease in that retained
portion resulting from a transfer of funds from AT&T Wireless Group to AT&T
Common Stock Group, would be determined by reference to the then-current market
value of AT&T Wireless Group tracking stock. Such an increase or decrease,
however, could occur at a time when those shares are considered under- or
over-valued.
AT&T's board of directors may change the AT&T Wireless Group Policy Statement
or our By-Laws without shareholder approval
The AT&T Wireless Group policy statement governs the relationship between
AT&T Common Stock Group and AT&T Wireless Group and AT&T's by-laws create a
capital stock committee that oversees the interaction between the two groups.
AT&T's board of directors may modify, suspend or rescind the policies set forth
in the policy statement or make additions or exceptions to them, in the sole
discretion of our board of directors, without approval of our shareholders,
although there is no present intention to do so. Our board of directors may also
adopt additional policies, depending upon the circumstances. AT&T's by-laws may
similarly be modified, suspended or rescinded. Our board of directors would make
any determination to modify, suspend or rescind these policies or our by-laws,
or to make exceptions to them or adopt additional policies or by-laws, including
any decision that would have disparate impacts upon holders of AT&T common stock
and AT&T Wireless Group tracking stock, in a manner consistent with its
fiduciary duties to AT&T and all of our common shareholders after giving fair
consideration to the
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potentially divergent interests and all other relevant interests of the holders
of the separate classes of our common shares, including the holders of AT&T
common stock, AT&T Wireless Group tracking stock and Liberty Media Group
tracking stock. See "-- The fiduciary duties of AT&T's board of directors to
more than one class of common stock are not clear under New York law" for more
information regarding our board of directors' fiduciary duties to our
shareholders and "Relationship between AT&T Common Stock Group and AT&T Wireless
Group before the Split-Off" for a description of the AT&T Wireless Group policy
statement and our by-laws.
It will be difficult for a third party to acquire AT&T Wireless Group without
AT&T's consent
If AT&T Wireless Group were an independent entity, any person interested in
acquiring it without negotiation with our management could seek control of the
outstanding stock of that entity by means of a tender offer or proxy contest.
Although AT&T Wireless Group tracking stock is a class of our common shares that
is intended to reflect the financial performance and economic value of AT&T
Wireless Group, a person interested in acquiring only AT&T Wireless Group
without negotiation with our management still would be required to seek control
of the voting power represented by all of the outstanding capital stock of AT&T
entitled to vote on that acquisition, including the classes of common shares
related to the other groups. As a result, this may discourage potential
interested bidders from seeking to acquire AT&T Wireless Group. See "-- Holders
of AT&T Wireless Group tracking stock will have limited separate shareholder
rights, and will have no additional rights specific to AT&T Wireless Group,
including direct voting rights" for more information on the rights of holders of
tracking stocks.
Future sales of AT&T Wireless Group tracking stock and AT&T common stock could
adversely affect their respective market prices and the ability to raise
capital in the future
Sales of substantial amounts of AT&T Wireless Group tracking stock,
including any sale by AT&T of AT&T Wireless Services shares it retains in the
split-off, and AT&T common stock in the public market could hurt the market
price of AT&T Wireless Group tracking stock. This also could hurt AT&T's ability
to raise capital in the future. The shares of AT&T Wireless Group tracking stock
that we sold to the public in April 2000 and the shares AT&T Wireless Group
tracking stock issued in this exchange offer are freely tradable without
restriction under the Securities Act of 1933 by persons other than "affiliates"
of AT&T, as defined under the Securities Act. Any sales of substantial amounts
of AT&T Wireless Group tracking stock or AT&T common stock in the public market,
or the perception that those sales might occur, could materially adversely
affect the market price of AT&T Wireless Group tracking stock.
The approval of the shareholders of AT&T and AT&T Wireless Group will not
be solicited by AT&T for the issuance of authorized but unissued shares of AT&T
Wireless Group tracking stock unless this approval is deemed advisable by our
board of directors or is required by applicable law, regulation or stock
exchange listing requirements. The issuance of those shares could dilute the
value of shares of AT&T Wireless Group tracking stock.
We do not expect to pay dividends on AT&T Wireless Group tracking stock or
AT&T Wireless Services common stock
Determinations as to the future dividends on AT&T Wireless Group tracking
stock primarily will be based upon the financial condition, results of
operations and business requirements of AT&T Wireless Group and AT&T as a whole.
We currently do not expect to pay any dividends on AT&T Wireless Group tracking
stock for the foreseeable future, nor do we expect AT&T Wireless Services to pay
any dividends on AT&T Wireless Services common stock for the foreseeable future
following the split-off.
Changes in the tax law or in the interpretation of current tax law may result
in redemption of AT&T Wireless Group tracking stock or may prevent us from
issuing further shares
From time to time, there have been legislative and administrative proposals
that, if effective, would have resulted in the imposition of corporate level or
shareholder level tax upon the issuance of tracking stock. As of the date of
this document, no such proposals are outstanding.
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If there are adverse tax consequences associated with the issuance of AT&T
Wireless Group tracking stock, it is possible that we would cease issuing
additional shares of AT&T Wireless Group tracking stock. This could affect the
value of AT&T Wireless Group tracking stock then outstanding.
Furthermore, we are entitled to convert AT&T Wireless Group tracking stock
into AT&T common stock at a premium of 10% if, based upon the opinion of tax
counsel, adverse U.S. federal income tax law developments related to AT&T
Wireless Group tracking stock occur.
In some instances, we may optionally redeem AT&T Wireless Group tracking
stock, including as a result of an adverse tax law change
Our board of directors may, at any time after either the occurrence of
tax-related events, such as the ones described above, or May 2, 2002, redeem all
outstanding shares of AT&T Wireless Group tracking stock for shares of AT&T
common stock at a 10% premium. We could decide to redeem shares of AT&T Wireless
Group tracking stock at a time when either or both of AT&T common stock and AT&T
Wireless Group tracking stock may be considered to be overvalued or undervalued.
In addition, a redemption at any premium would preclude holders of AT&T Wireless
Group tracking stock from retaining their investment in a security intended to
reflect separately the economic performance of AT&T Wireless Group. It would
also give holders of shares of converted AT&T Wireless Group tracking stock an
amount of consideration that may differ from the amount of consideration a
third-party buyer pays or would pay for all or substantially all of the assets
of the AT&T Wireless Group.
If we liquidate AT&T, amounts distributed to holders of each class of common
stock may not bear any relationship to the value of the assets attributed to
the groups
Under our charter, we would determine the liquidation rights of the holders
of the respective classes of stock in accordance with each group's respective
market capitalization at the time of liquidation. However, the relative market
capitalization of each group may not correctly reflect the value of the net
assets remaining and attributed to the groups after satisfaction of outstanding
liabilities.
RISK FACTORS RELATING TO THE BUSINESS OF AT&T WIRELESS GROUP
AT&T Wireless Group may substantially increase its debt level in the future,
which could subject it to various restrictions and higher interest costs and
decrease its cash flow and earnings
AT&T Wireless Group may substantially increase its debt level in the
future, which could subject it to various restrictions and higher interest costs
and decrease its cash flow and earnings. It may also be difficult for AT&T
Wireless Group to obtain all the financing it needs to fund its business and
growth strategy on desirable terms. AT&T Wireless Group currently anticipates
requiring substantial additional financing for the foreseeable future to fund
capital expenditures, license purchases and costs and expenses in connection
with funding its operations, domestic and international investments and its
growth strategy and to repay indebtedness and preferred equity owed to or held
by AT&T and affiliated entities at the time of the split-off. As of December 31,
2000, the aggregate amount of this intercompany debt and preferred equity was
approximately $5.4 billion.
AT&T and AT&T Wireless Group are exploring and evaluating the relative
advantages and disadvantages of various funding mechanisms for AT&T Wireless
Services. AT&T Wireless Services recently completed a $6.5 billion long-term
debt offering and entered into bank credit facilities of up to $2.5 billion.
Other funding mechanisms that still may be considered include commercial paper,
and other forms of public and private debt facilities. The decision on debt
composition is dependent on, among other things, the business and financial
plans of AT&T Wireless Services and the market conditions at the time of
financing. The agreements governing this indebtedness may contain financial and
other covenants that could impair the flexibility of AT&T Wireless Services and
restrict its ability to pursue growth opportunities.
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AT&T's relationship with DoCoMo contains features that could adversely affect
the financial condition of AT&T Wireless Group or the way in which it conducts
its business
The terms of the DoCoMo investment enable DoCoMo to terminate its
investment and require repayment of its $9.8 billion investment, plus interest,
if AT&T does not complete the split-off of AT&T Wireless Services within a
specified time frame, or if by June 30, 2004 AT&T Wireless Group either fails to
commence service using an agreed technology in at least 13 of the top 50
domestic markets or abandons wideband code division multiple access, also known
as universal mobile telecommunications system, as its primary technology for
third generation services. If AT&T must repay DoCoMo's investment before the
split-off, AT&T Wireless Group will fund approximately $6.2 billion, plus
interest. After the split-off, if DoCoMo requires repayment, AT&T Wireless
Services will fund the entire repurchase obligation. If DoCoMo requires
repayment of its investment, it may also terminate the technology rights
provided to AT&T Wireless Group in connection with its investment.
Before the split-off, AT&T will need to obtain DoCoMo's consent in order to
undertake a number of business actions relating to AT&T Wireless Group. After
the split-off, AT&T Wireless Services will need to obtain DoCoMo's consent in
order to make any fundamental change in the nature of its business or to allow
another wireless operator to acquire more than 15% but less than 50% of AT&T
Wireless Services' equity. These limitations could prevent AT&T Wireless Group
or AT&T Wireless Services from taking advantage of some business opportunities
or relationships that it might otherwise pursue.
AT&T Wireless Group has substantial capital requirements that it may not be
able to fund
AT&T Wireless Group's strategy and business plan will continue to require
substantial capital, which AT&T Wireless Group may not be able to obtain or to
obtain on favorable terms. A failure to obtain necessary capital would have a
material adverse effect on AT&T Wireless Group, and result in the delay, change
or abandonment of AT&T Wireless Group's development or expansion plans and the
failure to meet regulatory build-out requirements.
AT&T Wireless Group currently estimates that its capital expenditures for
the build out of its networks, including expenditures related to its fixed
wireless operations during 2001, will total approximately $5.5 billion, as
compared to $4.1 billion in 2000. AT&T Wireless Group expects these 2001 capital
expenditure amounts to include approximately $5 billion of mobility expenditures
and approximately $450 million for fixed wireless. AT&T Wireless Group also
expects to incur substantial capital expenditures in future years. The actual
amount of the funds required to finance this network build out and other capital
expenditures may vary materially from management's estimate. AT&T Wireless Group
has entered into various contractual commitments associated with the development
of its third generation strategy totalling approximately $2.1 billion as of the
dates the agreements were executed. These include purchase commitments for
network equipment. Additionally, AT&T Wireless Group anticipates that it will
enter into material purchase commitments in the future.
AT&T Wireless Group also may require substantial additional capital for,
among other uses, acquisitions of providers of wireless services, spectrum
license or system acquisitions, system development and network capacity
expansion. AT&T Wireless Group has also entered into agreements for investments
and ventures which have required or will require substantial capital, including
its agreement to invest $2.6 billion in exchange for a combination of a
non-controlling equity interest in and debt securities issued by Alaska Native
Wireless, which was the successful bidder for licenses costing approximately
$2.9 billion in the recently concluded 1900 megahertz auction. These agreements
also may contain provisions potentially requiring substantial additional capital
in future circumstances, such as allowing the other investors to require AT&T
Wireless Group to purchase assets or investments.
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The actual amount of funds necessary to implement AT&T Wireless Group's
strategy and business plan may materially exceed current estimates, which could
have a material adverse effect on AT&T Wireless Group's financial condition and
results of operations
The actual amount of funds necessary to implement AT&T Wireless Group's
strategy and business plan may materially exceed AT&T Wireless current estimates
in the event of various factors including:
- departures from AT&T Wireless Group's current business plan,
- unforeseen delays,
- cost overruns,
- unanticipated expenses,
- regulatory developments,
- engineering design changes, and
- technological and other risks.
If actual costs do materially exceed AT&T Wireless Group's current estimates for
these or other reasons, this could have a material adverse effect on AT&T
Wireless Group's financial condition and results of operations.
AT&T Wireless Group's significant network build out requirements may not be
completed as planned
AT&T Wireless Group needs to complete significant remaining build-out
activities, including completion of regulatorily required build-out activities
in some of its existing wireless markets. Failure or delay to complete the build
out of the network and launch operations, or increased costs of this build out
and launch of operations, could have a material adverse effect on the operations
and financial condition of AT&T Wireless Group.
As AT&T Wireless Group continues to build out its network, it must, among
other things, continue to:
- lease, acquire or otherwise obtain rights to a large number of cell and
switch sites,
- obtain zoning variances or other local governmental or third-party
approvals or permits for network construction,
- complete the radio frequency design, including cell site design,
frequency planning and network optimization, for each of its markets,
- complete the fixed network implementation, which includes designing and
installing network switching systems, radio systems, interconnecting
facilities and systems, and operating support systems, and
- expand and maintain customer care, network management, billing and other
financial and management systems.
In addition, over the next several years, AT&T Wireless Group will be
implementing upgrades to its network to access the next generation of digital
technology.
These events may not occur in the time frame AT&T Wireless Group assumes or
that the FCC requires, or at the cost AT&T Wireless Group assumes, or at all.
Additionally, problems in vendor equipment availability, technical
resources or system performance could delay the launch of new or expanded
operations in new or existing markets or result in increased costs in all
markets. AT&T Wireless Group intends to rely on the services of various
companies that are experienced in design and build out of wireless networks in
order to accomplish its build out schedule. However, AT&T Wireless Group may not
be able to obtain satisfactory contractors on economically attractive terms or
ensure that the contractors obtained will perform as expected.
AT&T Wireless Group's business and operations would be adversely affected if it
fails to acquire adequate radio spectrum in FCC auctions or through other
transactions
AT&T Wireless Group's domestic business depends on the ability to use
portions of the radio spectrum licensed by the FCC. AT&T Wireless Group could
fail to obtain sufficient spectrum capacity in
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new and existing markets, whether through FCC auctions or other transactions, in
order to meet the expanded demands for existing services, as well as to enable
development of third generation services. This type of a failure would have a
material adverse impact on the quality of AT&T Wireless Group's services and its
ability to roll out such future services in certain markets. AT&T Wireless Group
intends to continue to acquire more spectrum through a combination of
alternatives, including participation in spectrum auctions, purchase of spectrum
licenses from companies that own them or purchase of these companies outright.
As required by law, the FCC periodically conducts auctions for licenses to
use certain parts of the radio spectrum. The decision to conduct auctions, and
the determination of what spectrum frequencies will be made available for
auction, are provided for by laws administered by the FCC. The FCC may not
allocate spectrum sufficient to meet the demands of all those wishing to obtain
licenses. Even if the FCC conducts further auctions in the future, AT&T Wireless
Group may not be successful in those future auctions in obtaining the spectrum
that it believes is necessary to implement its business and technology
strategies.
AT&T Wireless Group may also seek to acquire radio spectrum through
purchases and swaps with other spectrum licensees or otherwise, including by
purchases of other licensees outright. However, AT&T Wireless Group may not be
able to acquire sufficient spectrum through these types of transactions, and it
may not be able to complete any of these transactions on favorable terms.
See "Business of AT&T Wireless Group -- Regulatory Environment" for
additional information regarding the licensed radio frequency spectrum and the
regulatory environment in which we operate.
AT&T Wireless Group's business and operations could be hurt if it is unable to
establish new affiliates to expand its digital network or if its existing or
any new affiliates do not or cannot develop their systems in a manner
consistent with AT&T Wireless Group's
In order to accelerate the build out of widescale coverage of the United
States by a digital mobile wireless network operating on the technical standards
AT&T Wireless Group has adopted, AT&T Wireless Group has entered into
affiliation agreements with other entities that provide wireless service or hold
spectrum licenses. Through contractual arrangements between AT&T Wireless Group
and these affiliates, AT&T Wireless Group's customers are able to obtain service
in the affiliates' territories, and the affiliates' customers are able to obtain
service in AT&T Wireless Group's territory. In all markets where these
affiliates operate, AT&T Wireless Group is at risk because it does not control
the affiliates. As a result, these affiliates are not obligated to implement
AT&T Wireless Group's third generation strategy. AT&T Wireless Group's ability
to provide service on a nationwide level and to implement its third generation
strategy would be adversely affected if these affiliates decide not to
participate in the further development of AT&T Wireless Group's digital network.
AT&T Wireless Group may establish additional affiliate relationships to
accelerate build-out of its digital mobile network. If AT&T Wireless Group is
unable to establish such affiliate relationships, or if any such affiliates are
unable or do not develop their systems in a manner consistent with AT&T Wireless
Group's network, AT&T Wireless Group's ability to service its customers and
expand the geographic coverage of its digital network could be adversely
affected.
If the FCC denies Alaska Native Wireless' application to acquire licenses for
which it was the successful bidder in the recent spectrum auction, or, in the
future, revokes licenses awarded to Alaska Native Wireless, AT&T Wireless
Group's ability to implement its third generation strategy could be adversely
affected or AT&T Wireless Group could become obligated to repurchase other
investors' interests in Alaska Native Wireless
AT&T Wireless Group has agreed to invest $2.6 billion in exchange for a
combination of a non-controlling equity interest in and debt securities issued
by Alaska Native Wireless, which was the successful bidder for licenses costing
approximately $2.9 billion in the recently concluded 1900 megahertz auction. One
auction participant has challenged the qualifications of Alaska Native Wireless
to acquire "closed" licenses, which constituted most of the licenses for which
Alaska Native Wireless was the
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successful bidder. If the FCC determines that Alaska Native Wireless was not
qualified, the FCC could refuse to grant Alaska Native Wireless the closed
licenses. If this occurs, it could have a significant adverse impact on AT&T
Wireless Group's ability to provide or enhance services in key new and existing
markets.
The trustee in the Chapter 11 bankruptcy proceeding of Next Wave Telecom,
Inc. and the unsecured creditors of Next Wave have commenced litigation relating
to the 1900 megahertz auction that could delay the grant of licenses to
successful bidders and cause Alaska Native Wireless to postpone the development
and use of any licenses awarded to it. This litigation could result in a delay
of in the grant of licenses to successful bidders or revocation of any licenses,
including those won or acquired by Alaska Native Wireless. If this occurs, it
could have a significant adverse impact on AT&T Wireless Group's plans to
provide or enhance services in key new and existing markets.
In specified circumstances, if a winning bid of Alaska Native Wireless in
the recently concluded 1900 megahertz spectrum auction is rejected or if any
license granted to it is revoked, AT&T Wireless Group would become obligated to
compensate other investors for making capital available to the venture. In
specified circumstances, if the grant of those licenses is challenged, AT&T
Wireless Group may be obligated to purchase the interests of other investors.
If AT&T Wireless Group is unable to reach agreement with Alaska Native Wireless
regarding the development and use of licenses for which it was the successful
bidder in the recent spectrum auction, AT&T Wireless Group's ability to
implement its third generation strategy may be adversely affected
AT&T Wireless Group has not reached any agreements with Alaska Native
Wireless as to whether it will participate in AT&T Wireless Group's digital
mobile wireless network. Alaska Native Wireless is not obligated to use or
develop any spectrum it acquires in a manner which will further, or be
consistent with, AT&T Wireless Group's strategic objectives, although Alaska
Native Wireless is obligated to use technology that is compatible and
interoperable with AT&T Wireless Group's digital mobile wireless network. If
Alaska Native Wireless does not enter into agreements with AT&T Wireless Group
regarding the use and development of this spectrum similar to those AT&T
Wireless Group has entered into with its affiliates for its existing networks,
it could have a material adverse impact on the timing and cost of implementing
AT&T Wireless Group's third generation strategy.
Potential acquisitions may require AT&T Wireless Group to incur substantial
additional debt and integrate new technologies, operations and services, which
may be costly and time consuming
An element of AT&T Wireless Group's strategy is to expand its network,
which AT&T Wireless Group may do through the acquisition of licenses, systems
and wireless providers. These acquisitions may cause AT&T Wireless Group to
incur substantial additional indebtedness to finance the acquisitions or to
assume indebtedness of the entities that are acquired. In addition, AT&T
Wireless Group may encounter difficulties in integrating those acquired
operations into its own operations, including as a result of different
technologies, systems, services or service offerings. These actions could prove
costly or time consuming or divert management's attention from other business
matters.
Failure to develop future business opportunities may have an adverse effect on
AT&T Wireless Group's growth potential
AT&T Wireless Group intends to pursue a number of new growth opportunities,
which involve new services for which there are no proven markets. In addition,
the ability to deploy and deliver these services relies, in many instances, on
new and unproven technology. AT&T Wireless Group's existing technology may not
perform as expected and that AT&T Wireless Group may not be able to successfully
develop new technology to effectively and economically deliver these services.
In addition, these opportunities require substantial capital outlays and
spectrum availability to deploy on a large scale. This capital or spectrum may
not be available to support these services.
Furthermore, each of these opportunities entails additional specific risks.
For example, the delivery of fixed wireless services requires AT&T Wireless
Group to provide installation and maintenance services,
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which the AT&T Wireless Group has never provided previously. This will require
AT&T Wireless Group to hire, employ, train and equip technicians to provide
installation and repair in each market served, or rely on subcontractors to
perform these services. AT&T Wireless Group may not be able to hire and train
sufficient numbers of qualified employees or subcontract these services, or do
so on economically attractive terms. The success of wireless data services, on
the other hand, is substantially dependent on the ability of others to develop
applications for wireless devices and to develop and manufacture devices that
support wireless applications. These applications or devices may not be
developed or developed in sufficient quantities to support the deployment of
wireless data services.
These services may not be widely introduced and fully implemented at all or
in a timely fashion. These services may not be successful when they are in
place, and customers may not purchase the services offered. If these services
are not successful or costs associated with implementation and completion of the
roll out of these services materially exceed those currently estimated by AT&T
Wireless Group, AT&T Wireless Group's financial condition and prospects could be
materially adversely affected.
AT&T Wireless Group faces substantial competition
There is substantial competition in the wireless telecommunications
industry. AT&T Wireless Group expects competition to intensify as a result of
the entrance of new competitors and the development of new technologies,
products and services. Other two-way wireless providers, including other
cellular and personal communications services, operators and resellers, serve
each of the markets in which AT&T Wireless Group competes.
A majority of markets will have five or more commercial mobile radio
service providers, and all of the top 50 metropolitan markets have at least
four, and in some cases as many as seven or more, facilities-based wireless
service providers offering wireless services on cellular, personal
communications services or specialized mobile radio frequency. Competition also
may increase to the extent that smaller, stand-alone wireless providers transfer
licenses to larger, better capitalized and more experienced wireless providers.
Market prices for wireless services may decline in the future
AT&T Wireless Group anticipates that market prices for two-way wireless
services generally will decline in the future due to increased competition. We
expect significant competition among wireless providers, including from new
entrants, to continue to drive service and equipment prices lower. AT&T Wireless
Group also expects that there will be increases in advertising and promotional
spending, along with increased demands on access to distribution channels.
All of this may lead to greater choices for customers, possible consumer
confusion, and increasing movement of customers between competitors, which we
refer to as "churn." AT&T Wireless Group may also adopt customer policies or
programs to be more competitive, which policies or programs may also affect
churn. AT&T Wireless Group's ability to compete successfully also will depend on
marketing, and on its ability to anticipate and respond to various competitive
factors affecting the industry, including new services, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors.
Consolidation in the wireless communications industry may adversely affect
AT&T Wireless Group
The wireless communications industry has been experiencing significant
consolidation and AT&T Wireless Group expects that this consolidation will
continue. The previously announced mergers or joint ventures of Bell Atlantic
Corporation/GTE Corporation/Vodafone AirTouch, now called Verizon, and
SBC/BellSouth, now called Cingular, have created large, well-capitalized
competitors with substantial financial, technical, marketing and other resources
to respond to AT&T Wireless Group's offerings. In addition, in July 2000,
VoiceStream Communications and Deutsche Telekom publicly announced a planned
merger.
These mergers or ventures have caused AT&T Wireless Group's ranking to
decline to third in U.S. revenue and U.S. subscriber share. In terms of U.S.
population covered by licenses, AT&T Wireless Group, including partnerships and
affiliates, ranks third. As a result, these competitors may be able to offer
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nationwide services and plans more quickly and more economically than AT&T
Wireless Group, to obtain roaming rates that are more favorable than those
obtained by AT&T Wireless Group, and may be better able to respond to offers of
AT&T Wireless Group.
Significant changes in the wireless industry could materially adversely affect
AT&T Wireless Group
The wireless communications industry is experiencing significant
technological change. This change includes the increasing pace of digital
upgrades in existing analog wireless systems, evolving industry standards,
ongoing improvements in the capacity and quality of digital technology, shorter
development cycles for new products, enhancements and changes in end-user needs
and preferences and increased importance of data and broadband capabilities.
The pace and extent of customer demand may not continue to increase, and
airtime and monthly recurring charges may continue to decline. As a result, the
future prospects of the industry and of AT&T Wireless Group and the success of
its competitive services remain uncertain. Also, alternative technologies may
develop for the provision of services to customers that may provide wireless
communications service or alternative service superior to that available from
AT&T Wireless Group. Technological developments may therefore materially
adversely affect AT&T Wireless Group.
Termination or impairment of AT&T Wireless Group's relationship with a small
number of key suppliers could adversely affect AT&T Wireless Group's revenues
and results of operations
AT&T Wireless Group has developed relationships with a small number of key
vendors, including Nokia Mobile Phones, Inc., Telefonaktiebolaget LM Ericsson,
Mitsubishi Corporation and Motorola, Inc. for its supply of wireless handsets,
Lucent Technologies, Inc., Nortel Networks, Inc., Ericsson and Nokia Networks,
Inc. for its supply of telecommunications infrastructure equipment and Convergys
Information Management Group for its billing services. AT&T Wireless Group does
not have operational or financial control over its key suppliers, and has
limited influence with respect to the manner in which these key suppliers
conduct their businesses. If these key suppliers were unable to honor their
obligations to AT&T Wireless Group, it could disrupt the business of AT&T
Wireless Group and adversely impact its revenues and results of operations.
AT&T Wireless Group's technology may not be competitive with other
technologies or be compatible with next generation technology
There are three existing digital transmission technologies, none of which
is compatible with the others. AT&T Wireless Group selected time division
multiple access technology for its second generation network because it believes
that this technology offers several advantages over other second generation
technologies. However, a number of other wireless service providers chose code
division multiple access or global system for mobile communications as their
digital wireless technology. For its path to the next generation technology,
AT&T Wireless Group has chosen a global system for mobile communications
platform to make available enhanced data services using general packet radio
service technology, and third generation capabilities using enhanced data rates
for global evolution and ultimately universal mobile telecommunications systems
technologies.
These technologies may not provide the advantages AT&T Wireless Group
expects. Other wireless providers have chosen a competing wideband technology as
their third generation technology. If the universal mobile telecommunications
systems does not gain widespread acceptance, it would materially adversely
affect the business, financial condition and prospects of AT&T Wireless Group.
As AT&T Wireless Group implements its plans for deployment of technology
for third generation capabilities, it will continue to incur substantial costs
associated with maintaining its time division multiple access networks. Also,
these networks are not compatible, and customers with phones that operate on one
network will not initially be able to use those phones on the other network.
There are risks inherent in the development of new third generation equipment
and AT&T Wireless Group may face unforeseen costs, delays or problems that may
have a material adverse affect.
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AT&T Wireless Group relies on favorable roaming arrangements, which it may be
unable to continue to obtain
AT&T Wireless Group may not continue to be able to obtain or maintain
roaming agreements with other providers on terms that are acceptable to it. AT&T
Wireless Group's customers automatically can access another provider's analog
cellular or digital system only if the other provider allows AT&T Wireless
Group's customers to roam on its network. AT&T Wireless Group relies on
agreements to provide roaming capability to its customers in many areas of the
United States that AT&T Wireless Group's network does not serve. Some
competitors, because of their call volumes or their affiliations with, or
ownership of, wireless providers, however, may be able to obtain roaming rates
that are lower than those rates obtained by AT&T Wireless Group.
In addition, the quality of service that a wireless provider delivers
during a roaming call may be inferior to the quality of service AT&T Wireless
Group or an affiliated company provides, the price of a roaming call may not be
competitive with prices of other wireless providers for such call, and AT&T
Wireless Group's customer may not be able to use any of the advanced features,
such as voicemail notification, that the customer enjoys when making calls
within AT&T Wireless Group's network. Finally, AT&T Wireless Group may not be
able to obtain favorable roaming agreements for its third generation products
and services that it intends to offer using the technologies it plans to deploy
for interim enhanced data and third generation services.
AT&T Wireless Group's business is seasonal and it depends on fourth quarter
results, which may not continue to be strong
The wireless industry, including AT&T Wireless Group, has experienced a
trend of generating a significantly higher number of customer additions and
handset sales in the fourth quarter of each year as compared to the other three
fiscal quarters. A number of factors contribute to this trend, including the
increasing use of retail distribution, which is dependent upon the year-end
holiday shopping season, the timing of new product and service announcements and
introductions, competitive pricing pressures, and aggressive marketing and
promotions.
Strong fourth quarter results for customer additions and handset sales may
not continue for the wireless industry or for AT&T Wireless Group. In the
future, the number of customer additions and handset sales for AT&T Wireless
Group in the fourth quarter could decline for a variety of reasons, including
AT&T Wireless Group's inability to match or beat pricing plans offered by
competitors, failure to adequately promote AT&T Wireless Group's products,
services and pricing plans, or failure to have an adequate supply or selection
of handsets. If in any year fourth quarter results fail to significantly improve
upon customer additions and handset sales from the year's previous quarters,
this could adversely impact AT&T Wireless Group's results for the following
year.
Media reports have suggested radio frequency emissions may be linked to
various health concerns and interfere with various medical devices and AT&T
Wireless Group may be subject to potential litigation relating to these health
concerns
Media and other reports have linked radio frequency emissions from wireless
handsets to various health concerns, including cancer, and to interference with
various electronic medical devices, including hearing aids and pacemakers. These
concerns over radio frequency emissions may discourage the use of wireless
handsets or expose AT&T Wireless Group to potential litigation, which could have
a material adverse effect on AT&T Wireless Group's results of operations.
Additionally, research and studies are ongoing, and may demonstrate a link
between radio frequency emissions and health concerns.
The operations of AT&T Wireless Group are subject to government regulation,
which regulation could have adverse effects on its business
The licensing, construction, operation, sale, resale and interconnection
arrangements of wireless communications systems are regulated to varying degrees
by the FCC, and, depending on the jurisdiction, state and local regulatory
agencies. These regulations may include, among other things, required service
features and capabilities, such as number portability or emergency 911 service.
In addition, the FCC,
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together with the U.S. Federal Aviation Administration, regulates tower marking
and lighting. Any of these agencies having jurisdiction over AT&T Wireless
Group's business could adopt regulations or take other actions that could
adversely affect the business of AT&T Wireless Group.
FCC licenses to provide wireless services or personal communications
services are subject to renewal and revocation. There may be competition for
AT&T Wireless Group's licenses upon their expiration and we cannot assure you
that the FCC will renew them. FCC rules require all wireless and personal
communications services licensees to meet specified build-out requirements. AT&T
Wireless Group may not be able to meet these requirements in each market.
Failure to comply with these requirements in a given license area could result
in revocation or forfeiture of AT&T Wireless Group's license for that license
area or the imposition of fines on AT&T Wireless Group by the FCC.
State and local legislation restricting or prohibiting wireless phone use
while driving could cause subscriber usage to decline
Some state and local legislative bodies have proposed legislation
restricting or prohibiting the use of wireless phones while driving motor
vehicles. Similar laws have been enacted in other countries, and, to date, a
small number of communities in the United States have passed restrictive local
ordinances. If laws are passed prohibiting or restricting the use of wireless
phones while driving, it could have the effect of reducing subscriber usage,
which could cause a material adverse effect on AT&T Wireless Group's results of
operations.
AT&T Wireless Group may be subject to potential litigation relating to the use
of wireless phones while driving
Some studies have indicated that some aspects of using wireless phones
while driving may impair drivers' attention in certain circumstances, making
accidents more likely. These concerns could lead to potential litigation
relating to accidents, deaths or serious bodily injuries, which also could have
material adverse effects on AT&T Wireless Group's results of operations.
RISK FACTORS RELATING TO AT&T'S BUSINESS
In making your decision as to whether or not to exchange shares of AT&T
common stock for AT&T Wireless Group tracking stock in this exchange offer, you
should consider that AT&T's businesses other than AT&T Wireless Group also face
a number of risks and uncertainties. As a result, ownership of shares of AT&T
common stock involves a number of risks. Additional information about these
risks is set forth below and in AT&T's filings with the SEC which we incorporate
into this document by reference. See "Where You Can Find More Information."
AT&T's business units face intense competitive pressures
Communications Services
AT&T currently faces significant competition in each of its consumer and
business communications services business units and expects that the level of
competition in each of these businesses will continue to increase. In each of
these units, AT&T faces competition from numerous other national and regional
domestic and international companies, some of which have advantages over AT&T.
Competitive conditions create a risk of market share loss and the risk that
customers shift to less profitable, lower margin services. Competitive pressures
also create challenges for AT&T's ability to grow new businesses or introduce
new services successfully and execute on its business plan, including, most
significantly, the ability to purchase fairly priced access services. Each of
these business units faces the risk of potential price cuts by its competitors
that could materially adversely affect both market share and margins. We believe
that it is unlikely that we will sustain existing price or margin levels.
These business units also face the risk of increasing competition from
entities that own their own access facilities, including entities that have
access facilities across vast regions of the United States with the ability to
control cost, cycle time and functionality for most end-to-end services in their
regions. These entities can preserve large market share and high margins on
access services as they enter new markets, including long distance and
end-to-end services. This places them in a superior position vis-a-vis AT&T
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and other competitors which must purchase such high margin access services.
Additionally, each of these business units may initiate price cuts in order to
seek to retain market share or to seek to slow decline of market share.
The cost structure of AT&T's business units also affects its
competitiveness. Each of these business units faces the risk that it will not be
able to maintain a competitive cost structure if newer technologies favor newer
competitors who do not have legacy infrastructure and as technology substitution
continues. Each of these units' ability to make critical investments to improve
cost structure may also be impaired by AT&T's current significant debt
obligations.
Broadband Services
AT&T also faces competitive risks in its Broadband Services business. These
risks include the growth of satellite services, regional bell operating
companies services and/or companies providing digital subscriber lines which
compete directly for customers in most markets. They also include the emergence
of new combinations, such as AOL Time Warner, which seek both to commoditize
cable access and provide their own differentiated product, and escalating costs
for programming and other areas which may materially adversely affect margins.
In addition, AT&T's Broadband Services business faces risks relating to the
acceptance and costs of potential new services.
The regulatory and legislative environment creates challenges for AT&T's
business units
Communications Services
Each of AT&T's consumer and business communications services business units
faces the risk of the impact of the implementation of current regulations and
legislation, unfavorable changes in regulation or the introduction of new
onerous regulation. These risks include the impact of the following:
- current law has been implemented in a manner which has not allowed
effective entry into local markets due to non-competitive pricing of
access and local service and regional bell operating company systems that
do not permit rapid large-scale customer changes from the regional bell
operating companies to new service providers, and
- AT&T faces new head-on competition as regional bell operating companies
begin to enter the long distance business.
At present, AT&T does not believe that many market entry rules have been
applied or enforced to allow the economic viability of the various local market
access alternatives or effective large scale management of customers. Further,
few facilities-based competitors to the regional bell operating companies have
emerged and there is no significant alternate source of supply for most access
and local services. One consequence of this is that AT&T remains ultimately
dependent on the regional bell operating companies for supply as regional bell
operating companies still represent substantially all of the access and still
control, cost cycle times, and functionality.
This dependency on supply adversely impacts both AT&T's cost structure and
its ability to create and market desirable and competitive end-to-end products
for customers. Absent more effective application of rules and regulations, the
regional bell operating companies will be well-positioned to deter new entrants
to local service.
In addition, regional bell operating companies will be entering the long
distance business while they still control substantially all the access
facilities in their regions. This will likely result in an increased level of
competition for long distance or end-to-end services as the services offered by
regional bell operating companies expand.
Broadband Services
In the case of broadband services, the possibility of forced open access
for cable plant resulting in the commodization of high-speed data on cable could
materially adversely affect AT&T's business. Also, further cable regulation
regarding pricing, ownership limitations and other matters could impede growth
or raise costs.
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New legislation and/or new regulation may increase competition
In addition, there is the possibility that either new regulations or new
legislation will further erode the rules that apply to many of our largest
competitors and suppliers, including the regional bell operating companies.
These changes could give these companies more streamlined regulations that apply
to their access services. These changes could also exclude services, so-called
"advanced" or data services, from the market-opening rules of the applicable
legislation. The consequences of these changes could be to accelerate head-on
competition against AT&T from the regional bell operating companies in both the
communications services and broadband units.
AT&T may be adversely affected by its increased overall debt levels
AT&T currently is pursuing various measures to seek to reduce its debt
level. However, if these efforts cannot be completed successfully or at levels,
on the terms and within the time frame contemplated, or if AT&T's liquidity
needs increase as a result of further revenue or margin deterioration, AT&T's
financial condition would be materially adversely affected. AT&T would be
materially adversely affected by a weakening of the overall market for corporate
credit or ratings downgrades. AT&T's current debt level itself may materially
adversely affect the company and each of its business units by impairing its
financial flexibility, its ability to pursue acquisitions or make capital
expenditures and by otherwise impacting investment decisions that could
materially impair each unit's growth and ability to compete.
AT&T may not be able to obtain financing on terms that are acceptable to
it. AT&T's debt ratings have been under review by rating agencies. As a result
of this review, AT&T's ratings have been either downgraded and/or put on credit
watch with negative outlook. These actions will result in an increased cost of
future borrowings and can limit access to financing. AT&T's failure to complete
the restructuring plan as contemplated may impact its liquidity.
At December 31, 2000, AT&T had total indebtedness of approximately $65
billion, with the short term portion of that at $31.9 billion. AT&T's ability to
meet these obligations depends upon its credit ratings, market conditions and
business results. AT&T continues to investigate and negotiate other financing
alternatives including the monetization of publicly held securities, sales of
certain non-strategic assets and investments, and securitization of certain
accounts receivable, as well as a $6.5 billion debt offering by AT&T Wireless
Services in the first quarter 2001. AT&T has increased its $10 billion line of
credit to $25 billion, which was subsequently reduced to $18.3 billion following
the DoCoMo investment and the AT&T Wireless Services debt offering. In addition,
AT&T plans to retire a portion of the short-term debt with all or a part of the
funds from a planned 2001 offering of a security intended to reflect the
financial performance and economic value of AT&T's Broadband unit, although that
offering may not occur as expected.
AT&T may be adversely affected by further ratings downgrades
AT&T's senior debt ratings and two of its short-term debt ratings were
reduced in late 2000 by Standard & Poor's Rating Services to A and A1; by
Moody's Investors Service, Inc. to A2 and P1; and by Fitch, Inc. to A- and F1.
Both AT&T's short-term and long-term ratings remain under review for further
downgrade at Standard & Poor's and Moody's Investors Service.
Late last year, AT&T initiated a debt reduction plan, against which it has
continued to make progress. However, at the same time, AT&T has seen
deterioration in the results of its core communication services businesses. It
is unclear as to how the rating agencies will balance these developments in
their ratings assessment, but there is a material risk that AT&T could be
further downgraded. We expect to review with the rating agencies in the near
future the financial results and long-term financial projections of the AT&T
businesses to be separated. A ratings action could occur in advance of the
meetings, during the meeting period, or following the meetings.
If AT&T were to be further downgraded, access to capital could be disrupted
and the cost of capital would likely increase. AT&T has access to the commercial
paper market today which is sufficient to satisfy its short-term borrowing
needs. In the event of a further short-term rating downgrade or downgrades, the
level of issuance capacity available to AT&T would likely contract and could be
exceeded
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by our short-term borrowing needs. In this case, AT&T could access the $25
billion bank credit facility put in place on December 28, 2000 to serve as a
commercial paper back-up source of liquidity. The $25 billion bank credit
facility was reduced to $18.3 billion during March 2001 as we made progress in
our deleveraging efforts. The cost of any short-term borrowing under the bank
facility would likely be higher than the cost of commercial paper borrowings for
AT&T today, and could be even higher depending upon market conditions. In
addition, the access to this bank facility extends only until December 28, 2001
and could be reduced to as low as $10 billion if we continue to make progress in
our deleveraging efforts. To the extent that the combined outstanding short-term
borrowings under the bank credit facility and AT&T's commercial paper program
were to exceed the market capacity for such borrowings at the expiration of the
bank credit facility, AT&T's continued liquidity would depend upon our ability
to reduce such short-term debt through a combination of capital market
borrowings, asset sales, operational cash generation, capital expenditure
reduction and other means. Our ability to achieve such objectives is subject to
a risk of execution and such execution could materially impact AT&T's
operational results. In addition, the cost of any capital market financing could
be significantly in excess of AT&T's historical financing costs. Also, AT&T
could suffer negative banking, investor, and public relations repercussions if
we were to draw upon the bank facility, which is intended to serve as a back-up
source of liquidity only. Such impacts could cause further deterioration in our
cost and access to capital.
Furthermore, according to the terms of the bank credit facility, AT&T's
ability to split off AT&T Wireless Group is contingent upon AT&T's senior debt
rating, as determined by Standard and Poor's and Moody's Investors Service, not
falling below BBB+ and Baa1, respectively. Failure to split off AT&T Wireless
Group by early 2002 would permit DoCoMo to elect to require AT&T to repurchase
its interest in AT&T for an aggregate purchase price of $9.8 billion plus a
predetermined rate of interest, which could further limit the availability and
increase the cost of financing.
AT&T may not be able to attract and retain management
AT&T's business units face other risks, including risks related to the
difficulties in attracting, retaining and motivating key employees, particularly
in the consumer and business communications services units. There is also a risk
that it will be more difficult to attract, retain and motivate key employees as
growth declines and opportunities and compensation become limited and after the
restructuring is completed as desired hires may be less interested in working
for smaller companies.
AT&T faces uncertainty in connection with possible strategic transactions
AT&T from time to time explores strategic alternatives with respect to some
of its assets and businesses and may engage in discussions or negotiations with
third parties regarding these possible transactions.
For example, AT&T owns an approximately 25.5% interest in Time Warner
Entertainment, L.P., which AT&T has previously announced it intends to divest.
This interest is not part of or allocated to the AT&T Wireless Group. On
February 28, 2001, AT&T exercised registration rights it has under the Time
Warner Entertainment partnership agreement, to have Time Warner Entertainment
reconstitute itself as a corporation and then to register up to AT&T's full
interest for sale in an initial public offering. Under the Time Warner
Entertainment partnership agreement, Time Warner Entertainment may determine not
to effect a public offering but instead to allow AT&T certain put rights to have
Time Warner Entertainment buy back the shares that would have been sold in such
an offering at an appraised price. AT&T is simultaneously pursuing discussions
with AOL Time Warner concerning alternative potential arrangements for the
redemption of AT&T's partnership interest in Time Warner Entertainment as well
as certain commercial arrangements with AOL Time Warner. We cannot tell you
whether these discussions will continue, whether any of these transactions will
be completed or the timing or terms of any of these transactions.
AT&T and British Telecommunications are equal owners of the Concert global
joint venture which serves the communications needs of multinational companies
and the international calling needs of businesses around the world. AT&T and
British Telecommunications are currently engaged in discussions with respect to
a variety of strategic alternatives to their Concert joint venture. These
include a
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restructuring of the Concert joint venture, a transaction involving all or
portions of AT&T's and British Telecommunications' business communications
services units or other business structures or combinations. We cannot tell you
whether these discussions will continue, whether any of these transactions, or
other transactions, will be completed, or the timing or terms of any possible
transaction.
RISK FACTORS RELATING TO AT&T'S RESTRUCTURING PLAN
AT&T's restructuring plan requires fundamental changes to AT&T and AT&T's
businesses, including AT&T Wireless Group, that may be hard to implement
If we complete AT&T's restructuring plan, each of AT&T's four businesses
will need to make changes in its operations that will require substantial effort
and involve substantial risks and costs. If any of these businesses is unable to
make this transition smoothly or is not able to operate as effectively after the
restructuring, the financial position and results of operations of that business
could suffer and cause the trading value of securities intended to reflect the
financial performance and economic value of that business to decline materially.
The total value of the securities issued in AT&T's restructuring plan might be
less than the value of AT&T common stock without that plan
If we complete AT&T's restructuring plan as we currently contemplate,
holders of AT&T common stock who do not tender and exchange all of their shares
into this exchange offer or otherwise dispose of those shares of AT&T common
stock eventually will receive securities issued by or intended to reflect the
financial performance and economic value of four businesses: AT&T Business
Services, AT&T Consumer Services, AT&T Broadband and AT&T Wireless Services. The
aggregate value of these shares could be less than what the value of AT&T common
stock would be without AT&T's restructuring. The trading price of AT&T common
stock may decline as a result of the implementation of AT&T's restructuring plan
or as a result of other factors.
If we complete the restructuring, these new securities will begin trading
publicly for the first time. Until orderly trading markets develop for each of
these new securities, and after that time as well, there may be significant
fluctuations in price. Also, we have not yet determined many of the details of
AT&T's restructuring plan and these details could materially adversely impact
the value of AT&T common stock or AT&T Wireless Group tracking stock.
If we do not complete AT&T's restructuring plan as we plan, there may be
adverse consequences to AT&T and AT&T Wireless Group
AT&T's restructuring plan is complicated, and involves a substantial number
of steps and transactions. The implementation of AT&T's restructuring plan will
require various approvals and be subject to various conditions, including IRS
rulings. In addition, future financial conditions, superior alternatives or
other factors may arise or occur that make it inadvisable to proceed with part
or all of AT&T's restructuring plan. In addition, other events or circumstances,
including litigation, could occur that could affect the timing or terms of the
restructuring, or our ability to or plans to complete it. For example, several
large shareholders of AT&T associated with unions that represent AT&T employees
have publicly announced their opposition to AT&T's restructuring plan, and some
of these shareholders have commenced litigation seeking to require two-thirds
shareholder approval, rather than majority approval, for a charter amendment
proposed by AT&T for its upcoming annual meeting. The proposed charter amendment
would lower the shareholder approval required for any merger, consolidation,
dissolution or sale, lease, exchange or other disposition of all or
substantially all of the assets of AT&T from two-thirds to a majority.
If we are unable to complete AT&T's restructuring plan as we expect, or the
implementation of AT&T's restructuring plan is more complex than we expect, this
could have a material adverse effect on AT&T, its business or the trading prices
of its securities. Any or all of the elements of AT&T's restructuring plan may
not occur as we currently expect or in the time frames that we currently
contemplate, or at all. Alternative forms of restructuring, including sales of
interests in these businesses, would reduce what is available for distribution
to shareholders in the restructuring.
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AT&T's restructuring may adversely impact the competitive position of AT&T's
business units
In connection with the restructuring, there is a risk that AT&T's separated
business units may not be able to create effective intercompany agreements to
facilitate effective cost sharing or enter into mutually desirable bundling
arrangements. Competition between AT&T's units in overlapping markets, including
the consumer markets where cable telephone, fixed wireless, and digital
subscriber line solutions may all be available at the same time, although
generally not all under the AT&T brand, could result in more downward price
pressure. It is expected that the different businesses and companies will share
the AT&T brand after the restructuring, which will likely increase this level of
competition. In addition, any incremental costs associated with implementing
AT&T's restructuring plan may materially adversely affect the different
businesses and companies.
RISK FACTORS RELATING TO THE SPLIT-OFF
Shareholders will not have a vote on the split-off of AT&T Wireless Services
AT&T plans to complete the split-off without AT&T Wireless Services
shareholder approval. In deciding whether or not to tender in this exchange
offer, you should consider the risks related to the split-off because you will
not be able to vote on the split-off. Also, because AT&T's failure to complete
the split-off in the time frame contemplated may materially adversely affect
AT&T Wireless Group and the value of the AT&T Wireless Group tracking stock, you
should also consider the risks related to the failure to complete the split-off
in deciding whether or not to tender.
AT&T's intention to retain $3 billion of shares of AT&T Wireless Services for
sale, exchange or monetization after the split-off could adversely affect the
market value of AT&T Wireless Group tracking stock
AT&T currently intends to retain $3 billion of shares of AT&T Wireless
Services for its own account for sale, exchange or monetization within six
months of the split-off, subject to a satisfactory IRS ruling. If AT&T does so,
the sale of these shares could adversely affect the market price of AT&T
Wireless Services common stock. In addition, AT&T's retention of these shares
would reduce the number of shares of AT&T Wireless Services that we would
distribute to holders of AT&T common stock in the split-off.
If we do not complete the split-off as we plan, there may be adverse
consequences to AT&T and AT&T Wireless Group
We intend to separate AT&T Wireless Group from AT&T in the middle of 2001,
but the split-off is subject to a number of conditions. We must obtain a
favorable IRS ruling, which we may not receive. In addition, AT&T's new $18.3
billion credit facility includes as conditions to the split-off that it maintain
a public debt rating for its long-term senior debt of at least BBB+ by Standard
& Poor's Rating Services and Baa1 by Moody's Investors Services, Inc. and that
AT&T Wireless Group repay intercompany obligations to AT&T, including debt and
preferred equity, which totaled $5.4 billion as of December 31, 2000. See "The
Split-Off -- Separation and Distribution Agreement" for a further description of
these conditions. In order to facilitate the receipt of the IRS ruling, we have
undertaken a reorganization of our business structure which requires receipt of
various local franchise regulatory approvals. While we currently intend to
complete the split-off, we may not be able to satisfy these conditions to the
split-off. Even if we do satisfy these conditions, other events or
circumstances, including litigation, could occur that could affect the timing or
terms of the split-off or our ability or plans to complete the split-off. For
example, several large shareholders of AT&T associated with unions that
represent AT&T employees have publicly announced their opposition to AT&T's
restructuring plan, and some of these shareholders have commenced litigation
relating to AT&T's proposed charter amendment described above under "Risk
Factors Relating to AT&T's Restructuring Plan". As a result of these factors,
the split-off may not occur and, if it does occur, it may not occur on the terms
or in the manner described, or in the time frame contemplated. In this event,
there may be adverse consequences, such as the obligation to repurchase DoCoMo's
investment in AT&T, or limits on AT&T Wireless Group's capital funding as we
describe below.
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If we do not complete the split-off by early 2002 or if AT&T Wireless Group
does not meet specified technology benchmarks, AT&T or AT&T Wireless Services
may have to repurchase DoCoMo's $9.8 billion investment
In connection with DoCoMo's investment in AT&T, AT&T has agreed, if DoCoMo
so elects, to repurchase DoCoMo's interest in AT&T for an aggregate purchase
price of $9.8 billion plus a predetermined interest rate if AT&T does not
complete the split-off of AT&T Wireless Group by January 1, 2002, or March 15,
2002 if AT&T is trying to obtain an IRS ruling, or if by June 30, 2004 AT&T
Wireless Group either fails to commence service using an agreed technology in at
least 13 of the top 50 domestic markets or abandons wideband code division
multiple access as its primary technology for third generation services. Before
the split-off, AT&T Wireless Group would be required to fund its proportionate
share, consisting of $6.2 billion plus interest. After the split-off, AT&T
Wireless Services would be required to fund the entire repurchase obligation,
with AT&T being secondarily liable for $3.6 billion plus interest if AT&T
Wireless Services is unable to satisfy the entire obligation. For more
information, please see "DoCoMo Strategic Investment".
If we do not complete the split-off, AT&T Wireless Group may not be able to
meet its substantial capital needs that are key to its business strategy
AT&T's desire to reduce debt levels and maintain its overall credit rating
limits the ability of each of AT&T's business units, including AT&T Wireless
Group, to incur substantial indebtedness. As a result, if the split-off does not
occur in the time frame contemplated, and AT&T does not otherwise succeed in
deleveraging by disposition of assets and other debt restructuring, AT&T
Wireless Group may face significant capital constraints. These constraints would
make it difficult for AT&T Wireless Group to continue to pursue its growth
strategy in a capital intensive and highly competitive industry, including by
making it necessary to scale back plans for third generation services and
international investments. These constraints may have a material adverse effect
on AT&T Wireless Group's business.
If we complete the split-off, AT&T Wireless Services will need to obtain
financing on a stand-alone basis
Historically, all financing for AT&T Wireless Group was done by AT&T at the
parent level. AT&T was able to use its overall balance sheet to finance the
operations of AT&T Wireless Group. If we complete the split-off, AT&T Wireless
Services will have to raise financing on a stand-alone basis without reference
to AT&T's overall balance sheet. Following the split-off, AT&T Wireless Services
may not be able to secure adequate debt or equity financing on desirable terms.
If concerns generally affecting the wireless industry arise, AT&T Wireless
Services will lose the benefit of AT&T's current diverse business profile to
support its debt. The cost to AT&T Wireless Services of stand-alone financing
may be materially higher than the cost of financing that AT&T Wireless Group
incurred as part of AT&T.
The credit ratings of AT&T Wireless Services are currently and may continue
to be different than the historical ratings of AT&T. After the split-off, AT&T
Wireless Services' credit ratings may be different from what they are now.
Differences in credit ratings affect the interest rate charged on financings, as
well as the amounts of indebtedness, types of financing structures and debt
markets that may be available to AT&T Wireless Services. AT&T Wireless Services
may not be able to raise the capital it requires on desirable terms.
If we complete the split-off, AT&T Wireless Services may be unable to make the
changes necessary to operate as an independent entity and may incur greater
costs
AT&T Wireless Group historically has been part of an integrated
telecommunications provider since its acquisition by AT&T in 1994. If we
complete the split-off, the separation of AT&T Wireless Services from the other
telecommunications businesses of AT&T may adversely affect AT&T Wireless
Services.
In particular, following the split-off, AT&T will have no obligation to
provide financial, operational or organizational assistance to AT&T Wireless
Services other than limited services. AT&T Wireless Services may not be able to
implement successfully the changes necessary to operate independently. AT&T
Wireless Services may also incur additional costs relating to operating
independently that would cause its cash flow and results of operations to
decline materially. In addition, although AT&T Wireless Services
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may be able to participate in some of AT&T's supplier arrangements where those
arrangements permit this or the vendors agree to this, its supplier arrangements
may not be as favorable as has historically been the case.
Agreements to be entered into in connection with the split-off provide that
the business of AT&T Wireless Group will be conducted differently and that its
relationship with AT&T will be different from that which has historically been
the case. These differences may have a detrimental effect on the results of
operations or financial condition of AT&T or AT&T Wireless Services.
The historical financial information of AT&T Wireless Group may not be
representative of its results as an independent entity, and, therefore, may
not be reliable as an indicator of its historical or future results
The historical financial information we have included and incorporated in
this document may not reflect what the results of operations, financial position
and cash flows of AT&T Wireless Group would have been had it been an independent
entity during the periods presented. This is because the combined financial
statements reflect allocations for services provided to AT&T Wireless Group by
AT&T, which allocations may not reflect the costs AT&T Wireless Group will incur
for similar or incremental services as an independent entity. In addition, the
historical financial information we have included does not reflect transactions
that have occurred since December 31, 2001, or that are expected to occur in
connection with the split-off. See "Summary -- Consolidating Condensed Financial
Information."
This historical financial information also is not reliable as an indicator
of future results.
If we complete the split-off, AT&T Wireless Services' financing needs will
increase as a result of intercompany repayment obligations
Before the split-off, AT&T Wireless Services will repay all intercompany
indebtedness owed to AT&T and will redeem all of the AT&T Wireless Group
preferred equity held by AT&T. As of December 31, 2000, these amounts were
approximately $2.4 billion and $3.0 billion, respectively, or an aggregate of
approximately $5.4 billion.
If we complete the split-off, AT&T Wireless Services will generally be
responsible for tax liability if the split-off is taxable
Under the separation and distribution agreement to be entered into between
AT&T and AT&T Wireless Services, subject to limited exceptions, AT&T Wireless
Services will be responsible for any tax liability and any related liability
that results from the split-off failing to qualify as a tax-free transaction. If
the split-off failed to qualify as a tax-free transaction, this liability would
have a material adverse effect on AT&T Wireless Group.
AT&T Wireless Group may no longer receive tax sharing payments from AT&T when
it ceases to be a member of the AT&T consolidated tax return group, and AT&T
Wireless Group may incur other tax liabilities as a result of the split-off
and pre split-off transactions
As a result of the split-off, AT&T Wireless Services will cease to be a
member of the consolidated federal income tax return group of which AT&T is the
common parent. Consequently, taxable income and losses, and other tax attributes
of AT&T Wireless Group in post split-off taxable periods could generally no
longer offset taxable income or losses and other tax attributes of the AT&T
consolidated tax return group. For two taxable years after the split-off, under
federal income tax rules, AT&T Wireless Group would generally be able to carry
back any such tax losses, subject to limitations, against taxable income, if
any, of members of AT&T Wireless Group for pre split-off periods. Under the tax
sharing agreement between AT&T and AT&T Wireless Group, however, AT&T Wireless
Group generally may only carry back net operating losses (and not other tax
attributes) from post split-off taxable periods to pre split-off taxable
periods, and only if those losses are significant and with the consent of AT&T,
which consent AT&T has agreed not to withhold unreasonably. To the extent AT&T
Wireless Group has tax losses in post split-off taxable periods, it would
generally no longer receive current tax sharing payments with respect to those
losses. Instead, except where those losses can be carried back, it would benefit
from those
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losses only if and when AT&T Wireless Group generated sufficient taxable income
in future years to utilize those tax losses on a stand-alone basis.
In addition, there may be tax costs associated with the split-off that
result from AT&T Wireless Services ceasing to be a member of the AT&T
consolidated tax return group, as well as from pre split-off transactions. If
incurred, these costs could be material to AT&T Wireless Services' results.
If we complete the split-off, various factors may interfere with AT&T Wireless
Services' ability to engage in desirable strategic transactions and equity
issuances
AT&T Wireless Services may not be able to engage in some strategic
transactions after the split-off. The Internal Revenue Code restricts the
ability of a company which has undergone a tax-free split-off from certain
issuances of shares generally within a two-year period after the split-off. In
addition, the separation and distribution agreement prohibits AT&T Wireless
Services for a period of 30 months following the split-off, from entering into
certain transactions that could render the split-off taxable. This may
discourage, delay or prevent a merger, change of control, or other strategic or
capital raising transaction involving the issuance of equity by AT&T Wireless
Services. Provisions of AT&T Wireless Services charter and bylaws, its rights
plan, applicable law, and the DoCoMo agreements may also have the effect of
discouraging, delaying or preventing change of control transactions that its
shareholders find desirable.
If we complete the split-off, AT&T Wireless Services may lose rights under
agreements with AT&T if a change of control occurs
We expect that some of the agreements that AT&T and AT&T Wireless Services
expect to enter into in connection with the split-off, including the brand
license agreement, network services agreement and other commercial agreements,
will contain provisions that give one party rights in the event of a change of
control of the other party. These provisions may deter a change of control. In
the event of a change of control, the exercise of these rights could have a
material adverse effect on AT&T Wireless Services or AT&T.
The market price and trading volume of AT&T Wireless Services common stock may
be volatile and may face negative pressure
Before the split-off, there will be no trading market for the shares of
AT&T Wireless Services common stock that holders of AT&T common stock and AT&T
Wireless Group tracking stock will receive in the split-off. Investors' interest
may not lead to a liquid trading market and the market price of AT&T Wireless
Services common stock may be volatile. Also, after the split-off, the percentage
of AT&T Wireless Services represented by publicly held shares will increase
materially.
AT&T has announced its intention to retain $3 billion of shares of AT&T
Wireless Services for its own account for sale, exchange or monetization within
six months of the split-off, subject to receipt of a satisfactory IRS ruling.
These factors may result in short- or long-term negative pressure on the
trading price of shares of AT&T Wireless Services common stock. The market price
of AT&T Wireless Services common stock could fluctuate significantly for many
reasons, including in response to the risk factors listed in this document or
for specific reasons unrelated to the performance of AT&T Wireless Services.
Investors may consider AT&T Wireless Services common stock as a technology
stock. Technology stocks have recently experienced extreme price and volume
fluctuations. Therefore, the market price and trading volume of AT&T Wireless
Services common stock also may be extremely volatile.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements with respect to:
- AT&T's restructuring plan, including the split-off of AT&T Wireless
Group,
- financial condition,
- results of operations,
- cash flows,
- dividends,
- financing plans,
- business strategies,
- operating efficiencies or synergies,
- budgets,
- capital and other expenditures,
- network build out and upgrade,
- competitive positions,
- availability of capital,
- growth opportunities for existing products,
- benefits from new technologies,
- availability and deployment of new technologies,
- plans and objectives of management,
- markets for stock of AT&T, AT&T Common Stock Group and AT&T Wireless
Group, and
- other matters.
These forward-looking statements, including, without limitation, those relating
to the future business prospects, revenues, working capital, liquidity, capital
needs, network build out, interest costs and income, in each case, relating to
AT&T, AT&T Common Stock Group and AT&T Wireless Group, wherever they occur in
this document, are necessarily estimates reflecting the best judgment of senior
management and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking
statements. These forward-looking statements should, therefore, be considered in
light of various important factors, including those set forth in this document.
Important factors that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include,
without limitation:
- the risks associated with the implementation of a third generation
network and business strategy, including risks relating to the operations
of new systems and technologies, substantial required expenditures and
potential unanticipated costs, the need to enter into roaming agreements
with third parties, uncertainties regarding the adequacy of suppliers on
whom these groups must rely to provide both network and consumer
equipment and consumer acceptance of the products and services to be
offered,
- the potential impact of DoCoMo's investment in AT&T, including provisions
of the agreements that restrict AT&T Wireless Group's future operations,
and provisions that may require the repurchase of DoCoMo's investment if
AT&T or AT&T Wireless Group fail to meet specified conditions,
- the risks associated with the implementation of AT&T's restructuring
plan, which is complicated and which involves a substantial number of
different transactions each with separate conditions, any or all of which
may not occur as we currently intend, or which may not occur in the
timeframe we currently expect,
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- the risks associated with each of AT&T's main business units, including
AT&T Wireless Group, operating as an independent entity as opposed to as
part of an integrated telecommunications provider following completion of
AT&T's restructuring plan, including the inability of these groups to
rely on the financial and operational resources of the combined company
and these groups having to provide services that were previously provided
by a different part of the combined company,
- the impact of existing and new competitors in the markets in which these
groups compete, including competitors that may offer less expensive
products and services, desirable or innovative products, technological
substitutes, or have extensive resources or better financing,
- the introduction or popularity of new products and services, including
pre-paid phone products, which could increase churn,
- the impact of oversupply of capacity resulting from excessive deployment
of network capacity,
- the ongoing global and domestic trend towards consolidation in the
telecommunications industry, which trend may have the effect of making
the competitors larger and better financed and afford these competitors
with extensive resources and greater geographic reach, allowing them to
compete more effectively,
- the effects of vigorous competition in the markets in which these groups
operate and for each group's more valuable customers, which may decrease
prices charged, increase churn and change the group's customer mix,
profitability and average revenue per user,
- the ability to enter into agreements to provide, and the cost of entering
new markets necessary to provide, nationwide services,
- the ability to establish a significant market presence in new geographic
and service markets,
- the availability and cost of capital and the consequences of increased
leverage,
- the successful execution of plans to dispose of non-strategic assets as
part of an overall corporate deleveraging plan,
- the impact of any unusual items resulting from ongoing evaluations of the
business strategies of these groups,
- the requirements imposed on these groups or latitude allowed to
competitors by the FCC or state regulatory commissions under the
Telecommunications Act of 1996 or other applicable laws and regulations,
- the risks and costs associated with the need to acquire additional
spectrum for current and future services,
- the risks associated with technological requirements, technology
substitution and changes and other technological developments,
- the results of litigation filed or to be filed against these groups,
- the possibility of one or more of the markets in which these groups
compete being impacted by changes in political, economic or other
factors, such as monetary policy, legal and regulatory changes or other
external factors over which these groups have no control,
- the risks related to AT&T's investments in Liberty Media Group and joint
ventures, and
- those factors listed under "Risk Factors."
The words "estimate," "project," "intend," "expect," "believe," "plan" and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this document
and throughout the other documents incorporated into this document by reference,
including, but not limited to, AT&T's 1999 Annual Report on Form 10-K, including
any amendments to the annual report. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this document. Moreover, in the future, AT&T, through its senior management
team, may make forward-looking statements about the matters described in this
document or other matters concerning AT&T, AT&T Wireless Group or AT&T Common
Stock Group.
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THIS EXCHANGE OFFER
BACKGROUND AND PURPOSE
This exchange offer, if completed, will provide you with a mechanism to
shift all or a part of your investment from one intended to reflect AT&T Common
Stock Group to one intended to reflect AT&T Wireless Group without many of the
tax and other costs normally associated with changing investments. It also will
give you the opportunity, if we complete the split-off of AT&T Wireless
Services, to receive more shares in that separate company than you would receive
if you did not exchange your shares of AT&T common stock.
Most holders with unrealized gains on their AT&T common stock will
generally be able to exchange their appreciated AT&T common stock for AT&T
Wireless Group tracking stock without the U.S. federal income tax consequences
associated with selling their AT&T common stock and purchasing AT&T Wireless
Group tracking stock. More information about the tax consequences of this
exchange offer are provided below under "Material U.S. Federal Income Tax
Consequences." However, the tax consequences to individual shareholders may
differ and you should check with your own tax adviser for a determination of the
tax effects of accepting this offer.
You may also be able to avoid brokerage commissions and other fees by
exchanging your securities in this offer rather than selling your shares of AT&T
common stock in the market and purchasing AT&T Wireless Group tracking stock in
the market. If you hold share certificates and tender the shares yourself, you
will avoid these fees and commissions. However, if you hold your shares with a
broker or investment adviser, you should check with that broker or investment
adviser as to the costs associated with tendering your shares of AT&T common
stock in this offer. We decided to make this exchange offer because we wanted to
give those shareholders who would prefer a more concentrated investment in the
economic value of our wireless services business the ability to shift some or
all of their investment from AT&T common stock to AT&T Wireless Group tracking
stock without incurring these tax and other costs. We also believe that, by
moving more shares of AT&T Wireless Group tracking stock into the hands of
investors who want a more concentrated investment in the economic value of our
wireless services business, we may issue fewer shares of AT&T Wireless Services
in the split-off to AT&T shareholders who do not want to hold an investment in
our wireless services business. This, in turn, may reduce the number of AT&T
Wireless Services shares that are sold by AT&T shareholders shortly after the
split-off.
Because we are making this exchange offer to facilitate the preferences of
our shareholders, none of AT&T, the exchange agent or the information agent, the
dealer manager or the marketing manager or any of their respective officers or
directors is making any recommendation as to whether it is in your best interest
to tender your shares in this exchange offer investment. You should carefully
consider your own investment situation and the risks we describe in this
document.
EXCHANGE OFFER
The issuance of shares of AT&T Wireless Group tracking stock in this
exchange offer will increase the number of shares of AT&T Wireless Group
tracking stock outstanding and reduce AT&T Common Stock Group's retained portion
of the value of AT&T Wireless Group. Before this exchange offer, AT&T Common
Stock Group's retained portion of the value of AT&T Wireless Group was
approximately 69.7%. Assuming that this exchange offer is fully subscribed, we
expect to issue a total of approximately new shares of AT&T Wireless
Group tracking stock. After these shares of AT&T Wireless Group tracking stock
are issued, we expect that AT&T Common Stock Group's retained portion of the
value of AT&T Wireless Group would represent approximately %, or
approximately %, assuming the exercise by DoCoMo of warrants convertible
into AT&T Wireless Group tracking stock.
Regardless of whether you participate in this exchange offer, this exchange
offer will have consequences to you as a holder of AT&T common stock. AT&T's
restructuring plan, including the split-off of AT&T Wireless Services, which we
describe below, will also have consequences to you as a holder of AT&T common
stock. The consequences differ depending on whether, and to what extent, you
participate in this exchange offer.
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To the extent you tender shares of AT&T common stock in exchange for shares
of AT&T Wireless Group tracking stock, then following completion of this
exchange offer:
- you will have shares of AT&T Wireless Group tracking stock intended to
reflect the financial performance and economic value of AT&T Wireless
Group,
- you will no longer have shares intended to reflect the financial
performance and economic value of AT&T's other communications and
broadband businesses,
- if we complete the split-off in the manner we contemplate, you will
receive shares of AT&T Wireless Services common stock in exchange for
your shares of AT&T Wireless Group tracking stock. This means that you
will no longer be a shareholder of AT&T, but instead will be a
shareholder of AT&T Wireless Services, a completely separate legal entity
whose business is focused on wireless communications services, and
- you will not be eligible to participate in the rest of AT&T's
restructuring plan.
To the extent you do not tender shares of AT&T common stock in exchange for
shares of AT&T Wireless Group tracking stock and do not sell those shares, then
following completion of this exchange offer:
- you will have shares intended to reflect the financial performance and
economic value of AT&T Common Stock Group. These shares are intended to
reflect the value of the AT&T Wireless Group only to extent of the
retained portion of the value of AT&T Wireless Group,
- the portion of the value of AT&T Wireless Group that is retained by the
AT&T Common Stock Group and that is intended to be reflected in each of
your shares of AT&T common stock will decrease,
- if the split-off of AT&T Wireless Services is completed as planned, you
will receive some shares of AT&T Wireless Services without being required
to surrender any of your shares of AT&T common stock. However, you will
not receive as many shares of AT&T Wireless Services common stock as you
would have received if you had tendered your shares of AT&T common stock
in this exchange offer, and
- you will be eligible to participate in the rest of AT&T's restructuring
plan and if AT&T's restructuring plan is completed will receive other
securities relating to AT&T's other business units issued to holders of
AT&T common stock in AT&T's restructuring plan.
You should consider these consequences in making your decision as to
whether to tender shares of AT&T common stock in this exchange offer. The
securities you would own if you tendered your shares of AT&T common stock in
this exchange offer may be worth more or less at any point in the future than
the securities you would own if you did not tender your shares of AT&T common
stock in this exchange offer.
All shares of AT&T common stock tendered in this exchange offer will be
cancelled and become authorized and unissued shares of AT&T common stock. This
means that these shares of AT&T common stock generally will be available for
issuance by AT&T without further shareholder action, except as may be required
by applicable law or the rules of the NYSE, for general or other corporate
purposes, including stock splits and dividends, acquisitions, the raising of
additional capital for use in AT&T's businesses and pursuant to AT&T's employee
benefit plans.
NO APPRAISAL RIGHTS
Appraisal is a statutory remedy available to shareholders of corporations
that object to certain mergers and other extraordinary and statutorily specified
corporate actions. No appraisal rights are or will be available to holders of
AT&T common stock or AT&T Wireless Group tracking stock in connection with this
exchange offer.
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REGULATORY APPROVALS
No filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, are required in connection with this exchange offer generally. If a
shareholder decides to participate in this exchange offer and consequently
acquires enough shares of AT&T Wireless Group tracking stock to exceed any
threshold stated in the regulations under the HSR Act, and if an exemption under
those regulations does not apply, that shareholder and AT&T could be required to
make filings under the HSR Act, and the waiting period under the HSR Act would
have to expire or be terminated before any exchanges of shares with that
stockholder could be effected. A filing requirement could delay exchanges with
that shareholder for several months or more.
ACCOUNTING TREATMENT
The shares of AT&T common stock that we receive in this exchange offer will
be recorded as a decrease in AT&T's shareholders' equity in an amount equal to
the market value, as of the expiration date, of the shares of AT&T Wireless
Group tracking stock issued in this exchange offer. This issuance of AT&T
Wireless Group tracking stock will be recorded as an equal and offsetting
increase in AT&T's shareholders' equity. Accordingly, except for the direct
costs of this exchange offer, this exchange offer will not affect the financial
position of AT&T. As a result of this exchange offer, basic and diluted earnings
per share calculations for the AT&T common stock after the expiration date will
reflect the lower number of outstanding shares of AT&T common stock and AT&T
common shareholders' decreased interest in the available separate combined net
income of AT&T Wireless Group. While the earnings per share for AT&T Wireless
Group tracking stock will not change, basic and diluted earnings per share
calculations for AT&T Wireless Group tracking stock after the expiration date
will reflect AT&T Wireless Group tracking shareholders' increased interest in
the available separate combined net income of AT&T Wireless Group and the
proportionate increase in the number of shares of AT&T Wireless Group tracking
stock outstanding.
AT&T's issuance of shares of AT&T Wireless Group tracking stock in this
exchange offer will not, in and of itself, affect the financial position or
results of operations of AT&T Wireless Group.
TERMS OF THIS EXCHANGE OFFER
AT&T is offering to exchange shares of AT&T Wireless Group
tracking stock for each share of AT&T common stock that is validly tendered on
the terms and subject to the conditions described below by 5:00 p.m., New York
City time, on , 2001. AT&T may extend this deadline for any reason,
including under those circumstances specified below. The last day on which
tenders will be accepted, whether on , 2001 or any later date to which
this exchange offer may be extended, is sometimes referred to in this document
as the "expiration date." This is a voluntary exchange offer, which means that
holders of AT&T common stock may tender all, some or none of their shares of
AT&T common stock in this exchange offer, subject to proration. All persons
holding AT&T common stock are eligible to participate in this exchange offer if
they validly tender their shares of AT&T common stock during the exchange offer
period in a jurisdiction where this exchange offer is permitted under the laws
of that jurisdiction.
AT&T will accept up to shares of AT&T common stock for exchange
and will issue up to shares of AT&T Wireless Group tracking stock in
this exchange offer. If more than shares of AT&T common stock are
validly tendered, the tendered shares will be subject to proration when this
exchange offer expires. AT&T's obligation to complete this exchange offer is
subject to important conditions that are described under "-- Conditions for
Completion of this Exchange Offer".
In determining the exchange ratio, AT&T considered, among other things:
- recent market prices and volatility on the NYSE for shares of AT&T common
stock and AT&T Wireless Group tracking stock; and
- advice from the dealer manager as to what exchange ratio might attract
holders of AT&T common stock to consider participating in this exchange
offer without payment of any significant premium.
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AT&T will furnish this document and related documents to brokers, banks and
similar persons whose names or the names of whose nominees appear on AT&T's
shareholder list or, if applicable, that are listed as participants in a
clearing agency's security position listing for subsequent transmittal to
beneficial owners of shares of AT&T common stock.
The terms and conditions of this exchange offer are set forth in this
document, the letter of transmittal and the instructions to the letter of
transmittal. Each holder of AT&T common stock that tenders shares of AT&T common
stock in this exchange offer will be agreeing to the terms and conditions of
this exchange offer and will be making certain representations and warranties to
and agreements with AT&T, as described in these documents. We urge you to read
these documents carefully before deciding whether to participate in this
exchange offer.
NO RECOMMENDATION
None of AT&T, the exchange agent, the information agent, the dealer manager
or the marketing manager or any of their respective officers or directors makes
any recommendation as to whether you should participate in this exchange offer.
PRORATION; TENDERS FOR EXCHANGE BY HOLDERS OF FEWER THAN 100 SHARES OF AT&T
COMMON STOCK
If, upon the expiration date, holders of AT&T common stock have validly
tendered more than shares of AT&T common stock so that more than
shares of AT&T Wireless Group tracking stock would be issued in this
exchange offer, we will accept, on a pro rata basis, all shares of AT&T common
stock validly tendered and not withdrawn, with appropriate adjustments to avoid
the return of fractional shares of AT&T common stock, except as described below.
Except as otherwise provided in this paragraph, holders of an aggregate of
less than 100 shares of AT&T common stock at the close of business one trading
day before the date the exchange ratio is established that validly tender all of
their shares of AT&T common stock will not be subject to proration if this
exchange offer is oversubscribed. Shares of AT&T common stock held in an AT&T
savings plan are not eligible for this preferential treatment. Beneficial
holders of 100 or more shares of AT&T common stock are not eligible for this
preferential treatment, even if these holders have separate stock certificates
or accounts representing fewer than 100 shares of AT&T common stock. If you own
fewer than 100 shares of AT&T common stock and wish to take advantage of the
preferential treatment of odd-lot shares in the event of proration, you must
tender all of your shares of AT&T common stock in this exchange offer.
We expect to announce preliminary results of this exchange offer by press
release promptly after the expiration date. However, because of the time
required and difficulty involved in determining the number of shares of AT&T
common stock validly tendered for exchange, AT&T expects that the final results,
including proration, if any, will not be determined until up to about ten
business days after the expiration date. We will announce the final results of
this exchange offer by press release promptly after such results have been
determined.
EXCHANGE OF SHARES OF AT&T COMMON STOCK
If all of the conditions of this exchange offer are satisfied or waived,
AT&T will exchange shares of AT&T Wireless Group tracking stock for
each validly tendered share of AT&T common stock that was not properly withdrawn
before the expiration date, except as described under "-- Proration; Tenders for
Exchange by Holders of Fewer Than 100 Shares of AT&T Common Stock" and
"-- Extension of Tender Period; Termination; Amendment." AT&T may, subject to
the rules under the Securities Exchange Act, delay accepting or exchanging any
shares of AT&T common stock in order to comply, in whole or in part, with any
applicable law. For a description of AT&T's right to delay, terminate or amend
this exchange offer, see "-- Extension of Tender Period; Termination;
Amendment."
If AT&T notifies the exchange agent, either orally or in writing, that it
has accepted the tenders of shares of AT&T common stock for exchange, the
exchange of these shares of AT&T common stock will
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be complete. Promptly following the announcement by AT&T of the final results of
this exchange offer, including proration, if any, the exchange agent will
deliver the tendered shares of AT&T common stock to AT&T. Simultaneously, the
exchange agent, as agent for the tendering shareholders, will receive from AT&T
the shares of AT&T Wireless Group tracking stock that correspond, based on the
exchange ratio and taking into account proration, to the number of shares of
AT&T common stock accepted. The exchange agent then will credit the shares of
AT&T Wireless Group tracking stock, including fractional shares, to book-entry
accounts maintained by AT&T's transfer agent for the benefit of the tendering
holders.
If any tendered shares of AT&T common stock are not exchanged for any
reason, or if fewer shares of AT&T common stock are exchanged due to proration,
these unexchanged or untendered shares of AT&T common stock will be returned to
the tendering holders through a credit to book-entry accounts maintained by
AT&T's transfer agent for the benefit of the holders.
As soon as reasonably practicable following the crediting of shares to your
respective book-entry accounts, AT&T's transfer agent will send you an account
statement evidencing your holdings.
AT&T will not pay any interest in connection with this exchange offer,
regardless of any delay in making the exchange or crediting or delivering
shares.
No alternative, conditional or contingent tenders will be accepted in this
exchange offer. Tendering shareholders waive any right to receive notice of the
acceptance by AT&T of their shares of AT&T common stock for exchange.
PROCEDURES FOR TENDERING SHARES OF AT&T COMMON STOCK
To tender your shares of AT&T common stock, you must complete the following
procedures so that your tender is received by the exchange agent before the
expiration date:
If you have stock certificates representing your shares of AT&T common
stock, you should send the following documents to the exchange agent by one of
the mailing methods described in the letter of transmittal, at the applicable
address set forth on the back cover of this document sufficiently in advance of
the expiration date for them to be received by the exchange agent before the
expiration date:
- a properly completed and executed letter of transmittal indicating the
number of shares of AT&T common stock to be tendered and any other
documents required by the instructions to the letter of transmittal; and
- the physical stock certificates representing the shares of AT&T common
stock to be tendered.
In addition, the stock certificates representing shares of AT&T common
stock to be tendered must be endorsed or you must enclose an appropriate stock
power if:
- a stock certificate representing shares of AT&T common stock to be
tendered is registered in the name of a person other than the signer of a
letter of transmittal;
- delivery of shares of AT&T Wireless Group tracking stock is to be made to
the exchange agent on behalf of a person other than the registered owner
of the shares of AT&T common stock being tendered; or
- shares of AT&T common stock not accepted for exchange are to be delivered
to AT&T's transfer agent on behalf of a person other than the registered
owner.
The signature on the letter of transmittal must be guaranteed by an
eligible institution unless the shares of AT&T common stock tendered under the
letter of transmittal are tendered in one of the following ways:
- by the registered holder of the shares of AT&T common stock tendered if
the holder has not requested special issuance as described in "Special
Issuance Instructions" of the instructions to the letter of transmittal;
or
- for the account of an eligible institution.
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An eligible institution is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or a correspondent in the
United States. Most banks and financial institutions are eligible institutions.
If your stock certificate representing shares of AT&T common stock has been
lost, destroyed, mutilated or stolen, see "-- Lost, Destroyed, Mutilated or
Stolen Certificates" for information regarding certain special procedures that
must be followed.
The exchange agent's addresses are set forth on the back cover of this
document.
If you hold your shares of AT&T common stock through a broker, you should
follow the instructions sent to you separately by your broker. You should not
use the letter of transmittal to direct the tender of your shares of AT&T common
stock. Your broker must notify The Depository Trust Company and cause it to
transfer the shares into the exchange agent's account in accordance with The
Depository Trust Company's procedures. The broker must also ensure that the
exchange agent receives an agent's message from The Depository Trust Company
confirming the book-entry transfer of your shares of AT&T common stock. An
agent's message is a message, transmitted by The Depository Trust Company and
received by the exchange agent, that forms a part of a book-entry confirmation,
which states that The Depository Trust Company has received an express
acknowledgment from the participant in The Depository Trust Company tendering
the shares that such participant has received and agrees to be bound by the
terms of the letter of transmittal and the instructions to the letter of
transmittal.
If you are an institution that is a participant in The Depository Trust
Company's book-entry transfer facility, you should follow the same procedures
that are applicable to persons holding shares through a broker as described in
the immediately preceding paragraph.
If you hold your shares of AT&T common stock as a participant in AT&T's
dividend reinvestment plan or in book-entry form with AT&T's transfer agent
through the direct registration system, you should send a properly completed and
executed letter of transmittal indicating the number of shares of AT&T common
stock to be tendered and any other documents required by the instructions to the
letter of transmittal to the exchange agent by one of the mailing methods
described on the letter of transmittal at the applicable address set forth on
the back cover of this document sufficiently in advance of the expiration date
for them to be received by the exchange agent before the expiration date. If you
tender all of your shares of AT&T common stock that you hold in AT&T's dividend
reinvestment plan, that tender will constitute termination of your participation
in AT&T's dividend reinvestment plan.
If you hold your shares of AT&T common stock as a participant in an AT&T or
an AT&T affiliated company savings plan, you should follow the instructions sent
to you separately by the plan trustees or administrator of the plan. You should
not use the letter of transmittal to direct the tender of your shares of AT&T
common stock held in that plan.
The AT&T savings plans eligible to participate in this exchange offer
include:
- AT&T employee stock purchase plan
- AT&T stock ownership plan
- MediaOne Group 401(k) plan
- AT&T long term savings plan for management employees
- AT&T long term savings and security plan
- AT&T long term savings plan
- AT&T long term savings plan -- San Francisco
- AT&T Wireless Services, Inc. 401(k) retirement plan
- AT&T of Puerto Rico, Inc. long term savings plan for management employees
- AT&T of Puerto Rico, Inc. long term savings and security plan
- AT&T retirement savings and profit sharing plan
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Trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity who
sign the letter of transmittal, notice of guaranteed delivery or any stock
certificates representing shares of AT&T common stock to be tendered or stock
powers must indicate the capacity in which they are signing, and must submit
evidence, which is current as of a date within 180 days before the date that the
letter of transmittal is delivered to the exchange agent, of their power to act
in that capacity, unless this requirement is waived by AT&T.
If you validly tender your shares of AT&T common stock and those shares are
accepted by AT&T, there will be a binding agreement between you and AT&T on the
terms and subject to the conditions set forth in this document and in the letter
of transmittal and the instructions to the letter of transmittal. A person who
tenders shares of AT&T common stock for their own account violates U.S. federal
securities law unless the person owns:
- those shares of AT&T common stock;
- other securities convertible into or exchangeable for those shares of
AT&T common stock and intends to acquire shares of AT&T common stock for
tender by conversion or exchange of those securities; or
- an option, warrant or right to purchase those shares of AT&T common stock
and intends to acquire shares of AT&T common stock for tender by exercise
of that option, warrant or right.
U.S. federal securities law provides a similar restriction applicable to the
tender or guarantee of a tender on behalf of another person.
Do not send letters of transmittal, certificates representing shares of
AT&T common stock or other exchange offer documents to AT&T, AT&T Wireless
Group, the dealer manager, the marketing manager or the information agent. These
materials must be submitted to the exchange agent at one of the addresses set
forth on the back cover of this document as described above and in the
instructions to the letter of transmittal in order for you to participate in
this exchange offer.
It is up to you to decide how to deliver your shares of AT&T common stock
and all other required documents to the exchange agent. It is your
responsibility to ensure that all necessary materials are received by the
exchange agent before the expiration date. If the exchange agent does not
receive all of the materials required by this section at one of the addresses
set forth on the back cover of this document before the expiration date, your
shares of AT&T common stock will not be validly tendered in this exchange offer.
AT&T'S INTERPRETATIONS ARE BINDING
AT&T will determine, in its sole and absolute discretion, all questions as
to the form of documents, including notices of withdrawal, and the validity,
form, eligibility, including time of receipt, and acceptance for exchange of any
tender of shares of AT&T common stock in this exchange offer. This determination
will be final and binding on all tendering shareholders.
AT&T reserves the absolute right to:
- determine whether a tendering shareholder is eligible;
- reject any and all tenders of any shares of AT&T common stock not validly
tendered or the acceptance of which, in the opinion of AT&T's counsel,
may be unlawful;
- waive any defects or irregularities in the tender of shares of AT&T
common stock or any conditions of this exchange offer either before or
after the expiration date; and
- request any additional information from any record or beneficial owner of
shares of AT&T common stock that AT&T deems necessary or appropriate.
None of AT&T, the information agent, the exchange agent, the dealer manager, the
marketing manager, the soliciting dealers or any other person will be under any
duty to notify tendering shareholders of any defect or irregularity in tenders
or notices of withdrawal or incur any liability for failure to give such
notification. It is your responsibility to ensure that your shares of AT&T
common stock are validly
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tendered in accordance with the procedures described in this document and the
related documents before the expiration date.
LOST, DESTROYED, MUTILATED OR STOLEN CERTIFICATES
If your stock certificate representing shares of AT&T common stock has been
lost, destroyed, mutilated or stolen and you wish to tender your shares of AT&T
common stock, please complete Box A of the accompanying letter of transmittal.
You will need to enclose a check payable to the surety company in the amount
needed to pay for a surety bond for your lost, destroyed, mutilated or stolen
certificates representing your shares of AT&T common stock and any other
applicable procedures. The surety bond amount will be $0.50 per share. Upon
receipt of the surety bond payment and a properly completed letter of
transmittal, including Box A, your shares of AT&T common stock will be validly
tendered in this exchange offer.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your shares of AT&T common stock but the shares of
AT&T common stock are not immediately available, or time will not permit the
shares of AT&T common stock or other required documentation to reach the
exchange agent before the expiration date, you may still tender your shares of
AT&T common stock if:
- the tender is made through an eligible institution;
- the exchange agent receives from the eligible institution before the
expiration date, a properly completed and duly executed notice of
guaranteed delivery, substantially in the form provided by AT&T; and
- the exchange agent receives the stock certificates representing all
physically tendered shares of AT&T common stock, in proper form for
transfer and a properly completed letter of transmittal, or a facsimile
of a letter of transmittal and all other documents required by the letter
of transmittal and the instructions to the letter of transmittal, within
three NYSE trading days after the date of execution of the notice of
guaranteed delivery.
You may deliver the notice of guaranteed delivery by hand, facsimile
transmission or mail to the exchange agent at the applicable address set forth
on the back cover of this document and you must include a guarantee by an
eligible institution in the form set forth in the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of shares of AT&T common stock at any time before
the expiration date, and, unless AT&T has accepted your tender as provided in
this document and the accompanying documents, after the expiration of 40
business days from the commencement of this exchange offer. If AT&T:
- delays its acceptance of shares of AT&T common stock for exchange,
- extends this exchange offer, or
- is unable to accept shares of AT&T common stock for exchange under this
exchange offer for any reason,
then, without prejudice to AT&T's rights under this exchange offer, the exchange
agent may, on behalf of AT&T, retain shares of AT&T common stock tendered, and
these shares of AT&T common stock may not be withdrawn, except as otherwise
provided in this document and the accompanying documents, subject to provisions
under the Exchange Act that provide that an issuer making an exchange offer
shall either pay the consideration offered or return tendered securities
promptly after the termination or withdrawal of this exchange offer.
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For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of its addresses set forth on the back
cover of this document. The notice of withdrawal must:
- specify the name of the person having tendered the shares of AT&T common
stock to be withdrawn;
- identify the number of shares of AT&T common stock to be withdrawn; and
- specify the name in which physical AT&T common stock certificates are
registered, if different from that of the withdrawing holder.
If stock certificates representing the shares of AT&T common stock have
been delivered or otherwise identified to the exchange agent, then, before the
release of these certificates, the withdrawing holder must also submit the
serial numbers of the particular stock certificates to be withdrawn.
If the shares of AT&T common stock have been tendered pursuant to the
procedures for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at The Depository Trust Company to be credited
with the withdrawn shares of AT&T common stock and otherwise comply with the
procedures of The Depositary Trust Company.
If the shares of AT&T common stock have been tendered pursuant to the
procedures applicable to participants in AT&T's dividend reinvestment plan or
through book-entry transfer under the direct registration system, any notice of
withdrawal must specify the name and number of the account with AT&T's transfer
agent.
Any shares of AT&T common stock withdrawn will be deemed not to have been
validly tendered for exchange for purposes of this exchange offer. Properly
withdrawn shares of AT&T common stock may be retendered by following one of the
procedures described under "-- Procedures for Tendering Shares of AT&T Common
Stock" at any time on or before the expiration date.
If you withdraw your tender of any shares of AT&T common stock, these
shares of AT&T common stock will be credited to a book-entry account maintained
by AT&T's transfer agent on your behalf. However, any shareholder that wishes to
receive a physical stock certificate evidencing that shareholder's shares of
AT&T common stock will be able to obtain a certificate at no charge by
contacting AT&T's transfer agent.
Except as otherwise provided above, any tender of shares of AT&T common
stock made under this exchange offer is irrevocable. No alternative, conditional
or contingent tenders will be accepted in this exchange offer.
BOOK-ENTRY ACCOUNTS
Physical stock certificates representing shares of AT&T Wireless Group
tracking stock or AT&T common stock will not be issued as a result of this
exchange offer. Rather than issuing physical stock certificates representing
either shares of AT&T common stock returned due to proration or withdrawal or
shares of AT&T Wireless Group tracking stock issued in exchange for shares of
AT&T common stock tendered in this exchange offer, the exchange agent will
credit these shares to book-entry accounts maintained by AT&T's transfer agent
for the benefit of the respective holders. This method of holding stock
eliminates the need for actual stock certificates to be issued and eliminates
the requirements for physical movement of stock certificates at the time of
sale. As soon as reasonably practicable following the crediting of shares to
your respective book-entry accounts, you will receive an account statement from
AT&T's transfer agent evidencing your holdings, as well as general information
on the book-entry form of ownership through AT&T's direct registration system.
You are not required to maintain a book-entry account and you may at any
time obtain a physical stock certificate for all or a portion of your shares of
AT&T Wireless Group tracking stock received as part of this exchange offer at no
cost to you. Instructions describing how you can obtain stock certificates will
be included with the account statement mailed to you and can also be obtained
upon request from AT&T's transfer agent.
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EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
AT&T expressly reserves the right, in its sole and absolute discretion, for
any reason, including the non-satisfaction of any of the conditions for
completion set forth below, at any time and from time to time, to extend the
period of time during which this exchange offer is open or to amend this
exchange offer in any respect, including changing the exchange ratio. AT&T also
expressly reserves the right to extend the period of time during which this
exchange offer is open in the event this exchange offer is undersubscribed
-- that is, fewer than shares of AT&T common stock are tendered. In any of
these cases, AT&T will make a public announcement of the extension or amendment.
If AT&T materially changes the terms of or information concerning this
exchange offer, AT&T will extend this exchange offer. Depending on the substance
and nature of the change, we will extend the offer for at least five to ten
business days following the announcement if this exchange offer would have
otherwise expired within such five to ten business days.
If any condition for completion of this exchange offer described below is
not satisfied, AT&T reserves the right to choose to delay acceptance for
exchange of any shares of AT&T common stock or to terminate this exchange offer
and not accept for exchange any shares of AT&T common stock. For more
information, see "-- Conditions for Completion of this Exchange
Offer -- Consequences of Unsatisfied Conditions."
If AT&T extends this exchange offer, is delayed in accepting any shares of
AT&T common stock or is unable to accept for exchange any shares of AT&T common
stock under this exchange offer for any reason, then, without affecting AT&T's
rights under this exchange offer, the exchange agent may, on behalf of AT&T,
retain all shares of AT&T common stock tendered. These shares of AT&T common
stock may not be withdrawn except as provided under "-- Withdrawal Rights."
AT&T's reservation of the right to delay acceptance of any shares of AT&T common
stock is subject to applicable law, which requires that AT&T pay the
consideration offered or return the shares of AT&T common stock deposited
promptly after the termination or withdrawal of this exchange offer. Any shares
of AT&T common stock to be returned to you will be credited to a book-entry
account in your name maintained by AT&T's transfer agent. However, any
shareholder that wishes to receive a physical stock certificate representing
that shareholder's shares will be able to obtain a certificate at no charge by
contacting AT&T's transfer agent. Fractional shares will not be issued.
AT&T will issue a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day following any extension,
amendment, non-acceptance or termination of the previously scheduled expiration
date.
CONDITIONS FOR COMPLETION OF THIS EXCHANGE OFFER
AT&T will not be obligated to complete this exchange offer unless at least
shares of AT&T common stock are validly tendered and not withdrawn and
all of the other conditions to this exchange offer described below have been
satisfied. This condition, which we sometimes refer to in this document as the
"minimum condition" is designed to ensure that at least shares of AT&T
Wireless Group tracking stock are issued under this exchange offer.
Even if the minimum condition is satisfied, before the expiration date AT&T
may choose not to accept shares of AT&T common stock for exchange and not to
complete this exchange offer if:
- AT&T or AT&T Wireless Group does not receive or obtain any consent,
authorization, approval or exemption of or from any governmental
authority that may be advisable in connection with the completion of this
exchange offer;
- any action, proceeding or litigation seeking to enjoin, make illegal or
delay completion of this exchange offer or otherwise relating in any
manner to this exchange offer is instituted or threatened;
- any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect, or any statute, rule, regulation,
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governmental order or injunction shall have been proposed, enacted, enforced or
deemed applicable to this exchange offer, any of which would or might restrain,
prohibit or delay completion of this exchange offer or impair the contemplated
benefits of this exchange offer to AT&T or AT&T Wireless Group;
- any of the following occurs and the adverse effect of such occurrence
shall, in the judgment of AT&T, be continuing:
-- any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the
over-the-counter market in the United States;
-- any extraordinary or material adverse change in U.S. financial
markets generally, including, without limitation, a decline of at
least 20% in any of the Dow Jones Average of Industrial Stocks, the
Nasdaq Stock Market Composite Index or the Standard & Poor's 500
Index from the close of the markets on April , 2001;
-- a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States;
-- any limitation, whether or not mandatory, by any governmental
authority on, or any other event that would reasonably be expected to
materially adversely affect, the extension of credit by banks or
other lending institutions;
-- a commencement of a war or other national or international calamity,
directly or indirectly, involving the United States, which would
reasonably be expected to affect materially and adversely, or to
delay materially, the completion of this exchange offer; or
-- if any of the situations described above existed at the time of
commencement of this exchange offer and AT&T determines that the
situation has deteriorated materially subsequent to the time of
commencement;
- any tender or exchange offer, other than this exchange offer by AT&T,
with respect to some or all of the outstanding AT&T Wireless Group
tracking stock or AT&T common stock, or any merger, acquisition or other
business combination proposal involving AT&T or AT&T Wireless Group or a
substantial portion of their respective assets, shall have been proposed,
announced or made by any person or entity;
- any event or events shall have occurred that have resulted or may result,
in AT&T's judgment, in an actual or threatened change in the business
condition, income, operations, stock ownership or prospects of AT&T and
its subsidiaries, taken as a whole, or of AT&T Wireless Group and its
subsidiaries, taken as a whole or that otherwise affects AT&T or AT&T
Wireless Group or the trading prices of AT&T common stock or AT&T
Wireless Group tracking stock; or
- as the terms "group" and "beneficial owner" are used in Section 13(d) of
the Exchange Act and SEC rules thereunder:
-- any person, entity or group shall have become, directly or
indirectly, the beneficial owner of more than 5% of the outstanding
shares of AT&T common stock or AT&T Wireless Group tracking stock,
other than a person, entity or group that had publicly disclosed
that beneficial ownership by an appropriate filing with the SEC
prior to April , 2001; or
-- any such person, entity or group that had publicly disclosed such
beneficial ownership prior to that date shall have become, directly
or indirectly, the beneficial owner of additional AT&T common stock
and AT&T Wireless Group tracking stock, the ownership of which was
not publicly disclosed in such filing, constituting more than 2% of
the outstanding shares of AT&T common stock and AT&T Wireless Group
tracking stock; or
-- any new group shall have been formed that beneficially owns more
than 5% of the outstanding shares of AT&T common stock or AT&T
Wireless Group tracking stock; or
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-- any one or more of the foregoing events relating to beneficial
ownership would occur as a result of the issuance of AT&T Wireless
Group tracking stock in exchange for any shares of AT&T common
stock that have been tendered in this exchange offer;
the occurrence of which event, in the judgment of AT&T, in any case and
regardless of the circumstances, makes it inadvisable to proceed with this
exchange offer or with the acceptance of shares of AT&T common stock tendered
for exchange.
Consequences of Unsatisfied Conditions
If any condition to this exchange offer is not satisfied, subject to
applicable rules and regulations, AT&T may, in its sole and absolute discretion:
- terminate this exchange offer and promptly return in book-entry form all
tendered shares of AT&T common stock to tendering shareholders;
- delay acceptance for exchange of any shares of AT&T common stock, extend
this exchange offer, and, subject to the withdrawal rights described
under "-- Withdrawal Rights," retain all tendered shares of AT&T common
stock until the expiration date;
- amend the terms and conditions of this exchange offer; or
- waive the unsatisfied condition and, subject to any requirement to extend
the period of time during which this exchange offer is open, complete
this exchange offer.
These conditions are for the sole and exclusive benefit of AT&T. AT&T may
assert these conditions with respect to all or any portion of this exchange
offer regardless of the circumstances giving rise to them. AT&T may waive any
condition, in whole or in part at any time prior to the expiration date in its
sole and absolute discretion, subject to applicable rules and regulations.
AT&T's failure to exercise its rights under any of the conditions described
above does not represent a waiver of these rights. Each right is an ongoing
right which may be asserted at any time prior to the expiration date. Any
determination by AT&T concerning the conditions described above will be final
and binding upon all parties.
If a stop order issued by the SEC is in effect at any time after the
commencement of this exchange offer with respect to the registration statement
of which this document is a part, AT&T will not accept any shares of AT&T common
stock tendered and will not exchange shares of the AT&T Wireless Group tracking
stock for any shares of AT&T common stock.
LEGAL LIMITATION
This document is not an offer to sell, and is not soliciting any offer to
buy, any AT&T Wireless Group tracking stock in any jurisdiction in which the
offer or sale is not permitted. If AT&T learns of any jurisdiction in the United
States where making this exchange offer or its acceptance would not be
permitted, AT&T intends to make a good faith effort to comply with the relevant
law of that jurisdiction. If, after a good faith effort, AT&T cannot comply with
that law, AT&T will determine whether this exchange offer will be made to, and
whether tenders will be accepted from or on behalf of, persons that are holders
of shares of AT&T common stock residing in the jurisdiction.
FEES AND EXPENSES
Dealer Manager
Credit Suisse First Boston Corporation is acting as the dealer manager in
connection with this exchange offer. Credit Suisse First Boston Corporation will
receive a fee of $ for its services as dealer manager, in addition to being
reimbursed by AT&T for its reasonable out-of-pocket expenses, including
attorneys' fees, in connection with this exchange offer. The foregoing fees will
be payable if and when this exchange offer is completed. Credit Suisse First
Boston Corporation has in the past provided and is currently providing
investment banking services to AT&T and AT&T Wireless Group, including financial
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advisory services to AT&T in connection with its restructuring, for which it has
received and will receive customary compensation.
AT&T has agreed to indemnify Credit Suisse First Boston Corporation against
specified liabilities related to this transaction, including civil liabilities
under the U.S. federal securities laws, and to contribute to payments that
Credit Suisse First Boston Corporation may be required to make in respect
thereof. Credit Suisse First Boston Corporation may from time to time hold
shares of AT&T common stock in its proprietary accounts, and, to the extent it
owns shares of AT&T common stock in these accounts at the time of this exchange
offer, it may tender these shares of AT&T common stock in this exchange offer.
Marketing Manager
Lehman Brothers Inc. is acting as marketing manager for AT&T in connection
with this exchange offer. In its role as marketing manager, Lehman Brothers Inc.
will participate in the marketing efforts related to this exchange offer. Lehman
Brothers Inc. will receive a fee of $ for its services as marketing
manager, in addition to being reimbursed by AT&T for its reasonable
out-of-pocket expenses, including attorneys' fees. The foregoing fees will be
payable if and when this exchange offer is completed. Lehman Brothers Inc. has
in the past provided and is currently providing investment banking services to
AT&T and AT&T Wireless Group, including financial advisory services to AT&T in
connection with its restructuring, for which it has received and will receive
customary compensation.
AT&T has agreed to indemnify Lehman Brothers Inc. against specified
liabilities related to this exchange offer, including civil liabilities under
the U.S. federal securities laws, and to contribute to payments that Lehman
Brothers Inc. may be required to make in respect thereof. Lehman Brothers Inc.
may from time to time hold shares of AT&T common stock in its proprietary
accounts, and, to the extent it owns shares of AT&T common stock in these
accounts at the time of this exchange offer, it may tender these shares of AT&T
common stock in this exchange offer.
Soliciting Dealers
AT&T will pay each soliciting dealer a solicitation fee of $ per share,
for up to 1,000 shares per tendering stockholder, for each share of AT&T common
stock tendered and accepted for exchange under this exchange offer if that
soliciting dealer has affirmatively solicited and obtained the tender. AT&T will
not pay a solicitation fee in connection with a tender of AT&T common stock by a
shareholder that tenders:
- more than 1,000 shares of AT&T common stock; or
- from a country outside the United States.
"Soliciting dealer" includes the following organizations:
- any broker or dealer in securities that is a member of any national
securities exchange in the United States or of the National Association
of Securities Dealers, Inc.; or
- any bank or trust company located in the United States.
In order for a soliciting dealer to receive a solicitation fee with respect
to the valid tender of shares of AT&T common stock held in registered form, the
exchange agent must have received, by three NYSE trading days after the
expiration date, a properly completed and duly executed letter of transmittal.
If a letter of transmittal is not received by the exchange agent within three
NYSE trading days after the expiration date, no solicitation fee will be paid to
such soliciting dealer.
In order for a soliciting dealer to receive a solicitation fee with respect
to the valid tender of shares of AT&T common stock held beneficially, the
exchange agent must have received, by three NYSE trading days after the
expiration date, an agent's message. If an agent's message is not received by
the exchange agent within three NYSE trading days after the expiration date, no
solicitation fee will be paid to that soliciting dealer.
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Under no circumstances shall a fee be paid to a soliciting dealer more than
once with respect to any one share of AT&T common stock. No soliciting dealer is
required to make a recommendation to holders of shares of AT&T common stock as
to whether to tender or refrain from tendering in this exchange offer.
Soliciting dealers should take care to ensure proper record-keeping to
document their entitlement to any solicitation fee. AT&T and the exchange agent
reserve the right to require additional information, as deemed warranted in
their sole discretion.
All questions as to the validity, form, and eligibility, including time of
receipt of notices of solicited tenders will be determined by the exchange agent
and AT&T, in their sole discretion, which determination will be final and
binding. Neither AT&T, the exchange agent nor any other person will be under any
duty to give notification of any defects or irregularities in a notice of
solicited tender or incur any liability for failure to give such notification.
AT&T will not pay a solicitation fee to a soliciting dealer that for any
reason must transfer the fee to a tendering stockholder. Soliciting dealers are
not entitled to a solicitation fee with respect to shares of AT&T common stock
beneficially owned by them or with respect to any shares of AT&T common stock
that are registered in the name of a soliciting dealer unless the shares are
held by that soliciting dealer as nominee and are tendered for the benefit of
beneficial holders. No broker, dealer, bank, trust company or fiduciary shall be
deemed to be the agent of AT&T, the exchange agent, the information agent or the
dealer manager for purposes of this exchange offer.
AT&T will not pay any fees or commissions to any broker or dealer or any
other person, other than Credit Suisse First Boston, Lehman Brothers Inc. and
the soliciting dealers, for soliciting tenders of shares of AT&T common stock
under this exchange offer. Brokers, dealers, commercial banks and trust
companies will, upon request made within a reasonable period of time, be
reimbursed by AT&T for reasonable and necessary costs and expenses incurred by
them in forwarding materials to their customers.
INFORMATION AGENT AND EXCHANGE AGENT
AT&T has retained Georgeson Shareholder Communications to act as the
information agent and Equiserve to act as the exchange agent in connection with
this exchange offer. Equiserve also currently serves as AT&T's transfer agent.
The information agent may contact holders of shares of AT&T common stock by
mail, telephone, facsimile transmission and personal interviews and may request
brokers, dealers and other nominee shareholders to forward materials relating to
this exchange offer to beneficial owners. The information agent and the exchange
agent each will receive reasonable compensation for their respective services,
will be reimbursed for reasonable out-of-pocket expenses and will be indemnified
against liabilities in connection with their services.
Neither the information agent nor the exchange agent has been retained to
make solicitations or recommendations. The fees they receive will not be based
on the number of shares of AT&T common stock tendered under this exchange offer;
however, the exchange agent will be compensated in part on the basis of the
number of letters of transmittal received and the number of account statements
distributed.
AT&T has retained certain other persons to serve as local exchange agents
in connection with this exchange offer in jurisdictions outside the United
States. These local exchange agents will receive reasonable compensation and
other rights in connection with their services.
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PRICE RANGE AND DIVIDENDS FOR AT&T COMMON STOCK
AT&T common stock is listed on the NYSE under the symbol "T". The following
table contains, for the periods indicated, the high and low sale price per share
of AT&T common stock as reported on the NYSE composite tape, and the cash
dividends paid per share of AT&T common stock, as adjusted for our three for two
stock split effective April 16, 1999:
CASH DIVIDEND
CALENDAR YEAR HIGH LOW PER SHARE
------------- ---- --- -------------
1998
First Quarter................................... $45 171/256 $38 1/4 $0.22
Second Quarter.................................. 44 235/256 37 107/256 0.22
Third Quarter................................... 40 235/256 32 1/4 0.22
Fourth Quarter.................................. 52 171/256 37 117/256 0.22
1999
First Quarter................................... 64 21/256 50 149/256 0.22
Second Quarter.................................. 63 50 1/16 0.22
Third Quarter................................... 59 41 13/16 0.22
Fourth Quarter.................................. 61 41 1/2 0.22
2000
First Quarter................................... 61 44 5/16 0.22
Second Quarter.................................. 58 13/16 31 1/4 0.22
Third Quarter................................... 35 3/16 27 1/4 0.22
Fourth Quarter.................................. 30 16 1/2 0.22
2001
First Quarter................................... 25.10 18.25 0.0375
Second Quarter (through April , 2001)......
There were holders of record of AT&T common stock as of April , 2001.
On October 24, 2000, the last full day of trading before the public
announcement AT&T's intention to commence this exchange offer, the closing
trading price per share of AT&T common stock as reported on the NYSE composite
tape was $26 7/8.
On April , 2001, the last full day of trading before the announcement of
the exchange ratio, the closing trading price per share of AT&T common stock as
reported on the NYSE composite tape was $ . You should obtain current market
quotations for the shares of AT&T common stock before deciding whether to tender
your shares of AT&T common stock.
On December 20, 2000, AT&T announced that it had reduced the quarterly
dividend on AT&T common stock to $.0375 per share. If AT&T's board of directors
declares a quarterly dividend on the AT&T common stock after commencement of
this exchange offer but before the expiration date, it is possible that the
record date for determining holders of AT&T common stock entitled to receive the
dividend would be a date before the expiration date. Tendering your shares of
AT&T common stock in this exchange offer will not change your status as a record
holder of AT&T common stock, except with respect to those of your shares of AT&T
common stock that are accepted for exchange upon completion of this exchange
offer. This means that, if you tender shares of AT&T common stock before the
record date for a dividend, you will continue to be the record holder of those
shares of AT&T common stock on the record date and you will be entitled to
receive payment of the dividend if the record date is a date before the
expiration date. In this event, the quarterly dividend would be paid to you in
the normal manner and would be separate from any shares of AT&T Wireless Group
tracking stock, and cash instead of fractional shares, issued to you in this
exchange offer.
Shareholders that exchange shares of AT&T common stock pursuant to this
exchange offer will not be entitled to any dividends on those shares of AT&T
common stock with a record date after the date on which AT&T accepts those
tendered shares. Shareholders will continue to receive the regular quarterly
dividend with respect to any shares of AT&T common stock that are not exchanged
pursuant to this exchange offer.
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PRICE RANGE FOR AT&T WIRELESS GROUP TRACKING STOCK
AT&T Wireless Group tracking stock is listed on the NYSE under the symbol
"AWE". The following table contains, for the periods indicated, the high and low
sale prices per share of AT&T Wireless Group tracking stock as reported on the
NYSE composite tape.
CALENDAR YEAR HIGH LOW
------------- ------ ------
2000
Second Quarter (from April 28)....................... $ 36 $ 23 9/16
Third Quarter........................................ 29 9/16 20 1/2
Fourth Quarter....................................... 24 15/16 16 3/8
2001
First Quarter........................................ 27.07 17.13
Second Quarter (through April , 2001)...........
There were holders of record of AT&T Wireless Group tracking stock as of
April , 2001.
On October 24, 2000, the last full day of trading before the public
announcement AT&T's intention to commence this exchange offer, the closing
trading price per share of AT&T Wireless Group tracking stock as reported on the
NYSE composite tape was $21 5/8.
On April , 2001, the last full day of trading before the announcement of
the exchange ratio, the closing trading price per share of AT&T Wireless Group
tracking stock as reported on the NYSE composite tape was $ . You
should obtain current market quotations for the shares of AT&T Wireless Group
tracking stock before deciding whether to tender your shares of AT&T common
stock.
Since the completion of the public offering on April 28, 2000, AT&T has not
paid dividends on AT&T Wireless Group tracking stock. AT&T's board of directors
currently does not expect to pay dividends on the AT&T Wireless Group tracking
stock in the foreseeable future.
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CAPITALIZATION OF AT&T
The following table sets forth as of December 31, 2000 the historical
combined cash and capitalization of AT&T and the combined cash and
capitalization of AT&T on a pro forma basis to give effect to this exchange
offer, the DoCoMo investment and the AT&T Wireless Group distribution. This
table should be read in conjunction with the historical and pro forma financial
information included or incorporated by reference into this document.
AT DECEMBER 31, 2000
-----------------------
HISTORICAL PRO FORMA
---------- ---------
Cash and cash equivalents................................... 126 64
======== ========
Debt maturing within one year (including current maturities
of long-term debt)........................................ 31,947 23,386
Long-term debt.............................................. 33,092 33,089
Common Stock:
AT&T Common Stock, $1 par value, authorized
6,000,000,000 shares; issued and outstanding
3,760,151,185 shares; 3,332,151,185 shares
issued and outstanding, as adjusted............. 3,760 3,332
AT&T Wireless Group Common Stock, $1 par value,
authorized 6,000,000,000 shares; issued and
outstanding 361,802,200 shares; no shares issued
and outstanding, as adjusted.................... 362 --
Liberty Media Group Class A Common Stock, $1 par
value, authorized 4,000,000,000 shares; issued
and outstanding 2,363,738,198 shares............ 2,364 2,364
Liberty Media Group Class B Common Stock, $1 par
value, authorized 400,000,000 shares; issued and
outstanding 206,221,288 shares.................. 206 206
Additional paid-in capital.................................. 90,496 79,638
Retained earnings........................................... 7,408 2,984
Accumulated other comprehensive income...................... (1,398) (550)
Total shareholders' equity.................................. 103,198 87,974
Total capitalization........................................ 168,237 144,449
======== ========
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DOCOMO STRATEGIC INVESTMENT
On January 22, 2001, NTT DoCoMo, Inc., a leading Japanese wireless
communications company, invested approximately $9.8 billion for shares of a new
class of AT&T preferred stock that are convertible into 406,255,889 shares of
AT&T Wireless Group tracking stock and that are intended to reflect
approximately 16% of the financial performance and economic value of AT&T
Wireless Group. As part of this investment, DoCoMo also received five-year
warrants to purchase the equivalent of an additional 41,748,273 shares of AT&T
Wireless Group tracking stock at $35 per share, and DoCoMo and AT&T Wireless
Services formed a strategic alliance to develop the next generation of mobile
multimedia services on a global-standard, high-speed wireless network. Of the
406,255,889 AT&T Wireless Group tracking stock share equivalents issued to
DoCoMo, 228,128,307 shares represented new share equivalents at $27.00 each, and
the remaining 178,127,582 share equivalents represented a reduction of AT&T
Common Stock Group's retained portion of the value of AT&T Wireless Group at
$20.50 each. Accordingly, AT&T Common Stock Group retained $3,651,615,431 of the
proceeds of the DoCoMo investment and allocated $6,159,464,289 to AT&T Wireless
Group.
The following is a summary of the material provisions of the agreements
among DoCoMo, AT&T and AT&T Wireless Services, and the terms of the DoCoMo
Wireless Tracking Stock. This summary is qualified in its entirety by reference
to the full text of these documents, which have been filed as exhibits to the
registration statement of which this document is a part and are incorporated
into this document by reference.
New Class of AT&T Wireless Group Tracking Stock
DoCoMo purchased 812,511.778 shares of a new class of AT&T preferred stock,
par value $1.00, that we call "DoCoMo wireless tracking stock." Each share of
DoCoMo wireless tracking stock is convertible at any time into 500 shares of
AT&T Wireless Group tracking stock and has the same voting and dividend rights
as 500 shares of AT&T Wireless Group tracking stock. The DoCoMo wireless
tracking stock also has some additional rights not available to holders of AT&T
Wireless Group tracking stock. The following is a description of some of the
rights and features of the DoCoMo wireless tracking stock.
- Conversion. DoCoMo can convert all, and not less than all, of its shares
of DoCoMo wireless tracking stock into AT&T Wireless Group tracking stock
at a ratio of 500 shares of AT&T Wireless Group tracking stock for each
share of DoCoMo wireless tracking stock, subject to anti-dilution
protection. If the split-off occurs, then, immediately before the
completion of the split-off, each share of DoCoMo wireless tracking stock
automatically will be converted into 500 shares of AT&T Wireless Group
tracking stock, subject to anti-dilution protection, and thereafter be
exchanged on the same terms as all other shares of AT&T Wireless Group
tracking stock in the split-off.
- Liquidation Preference. The DoCoMo wireless tracking stock carries an
aggregate liquidation preference of $3.65 billion in the event of an
involuntary liquidation or dissolution of AT&T, and holders of DoCoMo
wireless tracking stock are entitled to participate in this preference in
proportion to the number of shares they hold. The holders of shares of
DoCoMo wireless tracking stock also will be entitled to participate, on
an as-converted basis, in any additional liquidation payments made to
holders of AT&T Wireless Group tracking stock, less any amounts received
out of the $3.65 billion liquidation preference. The DoCoMo wireless
tracking stock has no preference in the event of a voluntary liquidation
or dissolution of AT&T, but automatically would convert into shares of
AT&T Wireless Group tracking stock and participate in any liquidation
payments made to holders of AT&T Wireless Group tracking stock.
- Dividends. Holders of DoCoMo wireless tracking stock are entitled to
participate, on an as-converted basis, in any dividends or distributions
paid to holders of AT&T Wireless Group tracking stock.
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- Voting Rights. Holders of DoCoMo wireless tracking stock are entitled to
vote together with holders of AT&T common shares and not as a separate
class. Each share of DoCoMo wireless tracking stock is entitled to the
number of votes that could be cast by the shares of AT&T Wireless Group
tracking stock into which the DoCoMo wireless tracking stock is
convertible. Initially, each share of DoCoMo wireless tracking stock will
be entitled to 250 votes.
- Redemption at the Option of AT&T. There are two instances in which AT&T
may redeem all, and not less than all, of the shares of DoCoMo wireless
tracking stock and warrants owned by DoCoMo at DoCoMo's original purchase
price plus a predetermined rate. First, if the proposed split-off does
not occur before April 26, 2002 and thereafter AT&T redeems all AT&T
Wireless Group tracking stock, AT&T may concurrently redeem the DoCoMo
wireless tracking stock. In this case, if AT&T announces a sale of all or
substantially all the assets of AT&T Wireless Group within a year of
redemption and then completes the sale, DoCoMo will be entitled to
receive a payment equal to the excess of the value from that sale that
would have been attributable to the DoCoMo wireless tracking stock over
the redemption price. Second, if specified adverse tax events occur
before the split-off and, thereafter, all AT&T Wireless Group tracking
stock is redeemed, AT&T may concurrently redeem the DoCoMo wireless
tracking stock on the same terms as described above. In either case, if
AT&T splits-off all or substantially all of the assets of AT&T Wireless
Group within a year of redeeming the DoCoMo wireless tracking stock,
DoCoMo will be entitled to reinvest in the spun off entity at the
redemption price and otherwise on terms comparable to those set forth in
the letter agreement.
- Transfer. Shares of DoCoMo wireless tracking stock are not transferable
other than by conversion into AT&T Wireless Group tracking stock or
redemption by AT&T.
Warrants
DoCoMo acquired 83,496.546 warrants, each of which initially represents the
right to purchase one share of DoCoMo wireless tracking stock at an exercise
price of $17,500 per share, or $35 per AT&T Wireless Group tracking stock share
equivalent, subject to customary anti-dilution adjustments. These warrants may
be exercised in any amount and at any time until the fifth anniversary of the
issuance of the warrants. Upon transfer by DoCoMo to a third party, or if DoCoMo
converts its DoCoMo wireless tracking stock into AT&T Wireless Group tracking
stock, each of the warrants will be exercisable for 500 shares of AT&T Wireless
Group tracking stock at an exercise price of $35 per share, and will no longer
be exercisable for DoCoMo wireless tracking stock. After the split-off, each
warrant will be exercisable for 500 shares of the AT&T Wireless Services common
stock at an exercise price of $35 per share, subject to adjustments to reflect
the exchange ratio and customary anti-dilution adjustments. The warrants are
subject to the transfer restrictions described below. The shares of DoCoMo
wireless tracking stock issuable upon exercise of the warrants, and any shares
of AT&T Wireless Group tracking stock into which they are convertible, will
represent new share equivalents.
DoCoMo Investment Rights and Obligations
In addition to the rights inherent in the shares of DoCoMo wireless
tracking stock, under the agreements, DoCoMo has additional rights and
obligations with respect to its investment in AT&T Wireless Group that will
continue even if DoCoMo converts its shares of DoCoMo wireless tracking stock
into AT&T Wireless Group tracking stock or if the split-off is completed.
- Transfer Restrictions. Without the consent of AT&T before the split-off,
or AT&T Wireless Services after the split-off, for 18 months following
the investment, DoCoMo may not transfer any warrants or any shares of
AT&T Wireless Group tracking stock or AT&T Wireless Services
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common stock that it receives on conversion of DoCoMo wireless tracking
stock, except if specified events occur. Those events are:
-- a sale of all or substantially all of AT&T Wireless Group's assets or
business through merger or other business combination unless AT&T
Wireless Group shareholders continue to own two-thirds of the
successor corporation;
-- the acquisition or acquisitions of business or assets, other than
radio spectrum rights, by AT&T Wireless Group totaling more than $25
billion; or
-- a tender offer or exchange offer approved by AT&T's board of
directors or AT&T Wireless Services board of directors, as
applicable.
In addition, subject to a limited exception, without AT&T's or AT&T
Wireless Group's consent, as the case may be, DoCoMo may not transfer any AT&T
Wireless Group securities to any person if after the transfer the recipient's
interest in AT&T Wireless would exceed 6%, or in the case of recipients,
principally financial institutions, who are eligible to report their interest on
Schedule 13G under the Securities Exchange Act, 10%.
None of DoCoMo's special rights are transferable by DoCoMo along with the
shares, except that DoCoMo may transfer its demand registration rights described
below to any transferee of more than $1 billion of AT&T Wireless Group
securities, and DoCoMo may transfer one demand registration right to a
transferee of the warrants. Any transfer of registration rights will be subject
to overall limitations on the registration rights and will not increase AT&T's
or AT&T Wireless Group's aggregate registration obligations.
- Repurchase Obligations.
-- Failure to complete split-off within specified time frame. If the
split-off is not completed by January 1, 2002, or March 15, 2002 if
the reason it was not completed by January 1, 2002 was that the
requisite IRS ruling had not been received and AT&T reasonably
believes that it is possible to obtain such a ruling by, or effect
the split-off without a ruling by, March 15, 2002 and is continuing
to seek such a ruling or to effect the split-off without a ruling,
then DoCoMo may require AT&T to repurchase DoCoMo wireless tracking
stock, or AT&T Wireless Group tracking stock, and warrants, that
DoCoMo still holds at that time. DoCoMo must exercise this right
within 30 days of the January 1 or March 15, 2002 trigger date,
whichever is applicable. The repurchase price will be DoCoMo's
original purchase price plus a predetermined rate. This repurchase
obligation will be allocated between AT&T and AT&T Wireless Group in
proportion to the allocation of the proceeds received from the
investment. Consequently, AT&T Wireless Group will be obligated to
fund $6.2 billion of the repurchase price, plus interest. In lieu of
receiving this repurchase price from AT&T, DoCoMo will have the right
to cause AT&T to register for public sale all of the shares of AT&T
Wireless Group tracking stock (including shares that DoCoMo would
hold if it exercised its warrants and converted its shares of DoCoMo
wireless tracking stock), and thereafter DoCoMo will be able to sell
those shares and retain the proceeds from that sale or sales.
-- Failure to meet primary third generation technology benchmarks within
specified time frame. In some circumstances, if by June 30, 2004 (1)
AT&T Wireless Group fails to launch service based on a wireless
communications technology known as universal mobile
telecommunications systems, or wideband code division multiple
access, in at least 13 of the top 50 U.S. markets or (2) abandons
wideband code division multiple access as its primary technology for
third generation services, DoCoMo may require AT&T before the
split-off, or AT&T Wireless Services after the split-off, to
repurchase the DoCoMo wireless tracking stock, or AT&T Wireless Group
tracking stock, and the warrants that DoCoMo still holds (or the AT&T
Wireless Services common stock and related warrants if post
split-off). The repurchase price will be DoCoMo's original purchase
price plus interest of a predetermined rate. Before the split-off,
the repurchase obligation will be allocated between AT&T and AT&T
Wireless
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Group in proportion to the allocation of the proceeds received from
the investment, which was approximately $3.6 billion for AT&T and
$6.2 billion for AT&T Wireless Group. After the split-off, if DoCoMo
requires repayment because of AT&T Wireless Services' failure to
commence service using an agreed technology as described above, AT&T
Wireless Services will be obligated to fund the entire amount of the
repurchase obligation, which is $9.8 billion, plus interest, with
AT&T being secondarily liable for up to $3.6 billion, plus interest
if AT&T Wireless Services is unable to satisfy the entire obligation.
In lieu of paying all or a portion of the repurchase price, AT&T or
AT&T Wireless Services, as the case may be, will have the right to
cause DoCoMo to sell any portion of its shares in a registered sale,
and to pay DoCoMo the difference between the repurchase price and the
proceeds from the registered sales.
- Standstill. Until the fifth anniversary of the closing of the
investment, DoCoMo, its controlled subsidiaries, when acting on behalf of
DoCoMo, its officers, directors or agents, or any subsidiary to which
DoCoMo has disclosed confidential information regarding its investment
may not take a number of actions, including the following, without AT&T's
consent before the split-off or AT&T Wireless Services' consent after the
split-off:
-- acquire or agree to acquire any voting securities of AT&T or AT&T
Wireless Services, except in connection with DoCoMo's exercise of its
preemptive rights, conversion rights or warrants;
-- solicit proxies with respect to AT&T's or AT&T Wireless Services'
voting securities or become a participant in any election contest
relating to the election of the directors of AT&T or AT&T Wireless
Services;
-- call or seek to call a meeting of the AT&T or AT&T Wireless Services
shareholders or initiate a shareholder proposal;
-- contest the validity of the standstill in a manner that would lead to
public disclosure;
-- form or participate in a group that would be required to file a
Schedule 13D with the SEC as a "person" within the meaning of the
Section 13(d)(3) of the Securities Exchange Act; or
-- act in concert with any person for the purpose of effecting a
transaction that would result in a change of control of AT&T or AT&T
Wireless Services.
After the fifth year anniversary of the investor agreement, DoCoMo will
continue to be subject to the standstill for so long as DoCoMo has the right to
nominate at least one director. However, DoCoMo will be released from the
standstill 91 days after the resignations of all of its representatives on
AT&T's and AT&T Wireless Services' board of directors, as the case may be, all
of DoCoMo's nominated AT&T Wireless Services committee members and all of
DoCoMo's nominated management. After these resignations, AT&T Wireless may take
steps to terminate or sequester all of the other DoCoMo nominated employees.
If NTT, which owns approximately two-thirds of DoCoMo, or any of NTT's
subsidiaries other than DoCoMo takes any action contrary to the standstill
restrictions and the action leads to any vote of shareholders of AT&T before the
split-off or AT&T Wireless Services after the split-off, then DoCoMo either must
vote its shares as the board of directors of AT&T or AT&T Wireless Services
directs, or must vote its shares in proportion to the votes cast by the
shareholders that are not affiliated with either DoCoMo or NTT. In addition, if
NTT or any of its subsidiaries commences a tender offer for AT&T or AT&T
Wireless Services securities, DoCoMo cannot tender or transfer any of its
securities into that offer until all of the conditions to that offer have been
satisfied.
The standstill provisions described above will terminate in the following
circumstances:
-- a third party unaffiliated with AT&T Wireless commences a tender or
exchange offer of 15% of AT&T Wireless Services' outstanding voting
securities and AT&T Wireless Services does not publicly recommend
that its shareholders reject the offer;
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-- AT&T Wireless Services enters into a definitive agreement to merge
into or sell all or substantially all of its assets to a third party
unless AT&T Wireless Services shareholders retain at least 50% of the
economic and voting power of the surviving corporation; or
-- AT&T Wireless Services enters into a definitive agreement that would
result in any one person or groups of persons acquiring more than 35%
of the voting power of AT&T Wireless Services, unless, among other
things, this person or group agrees to a standstill.
The standstill provisions terminate with respect to AT&T two years after
the split-off (or, if sooner, upon any of the foregoing three events as applied
to AT&T).
- Registration Rights. Subject to certain exceptions and conditions,
DoCoMo is entitled to require AT&T before the split-off, and AT&T
Wireless Services after the split-off, to register shares of AT&T
Wireless Group tracking stock or AT&T Wireless Services common stock on
up to six occasions, with each demand involving not less than $500
million worth of shares. DoCoMo cannot exercise more than one demand
right in any seven and a half month period. DoCoMo also is entitled to
require AT&T or AT&T Wireless Services, as the case may be, to register
securities for resale in an unlimited number of incidental registrations,
commonly known as piggy-back registrations. DoCoMo will cease to be
entitled to these registration rights if it owns less than $1 billion of
AT&T or AT&T Wireless Services securities, as the case may be, and
securities reflecting less than 2% of the financial performance and
economic value of AT&T Wireless Services.
- Board Representation. Until the split-off, DoCoMo is entitled to
nominate one representative to the AT&T board of directors, and that
representative also will be a member of the AT&T Wireless Group capital
stock committee. DoCoMo's nominee was elected to AT&T's Board of
Directors on March 21, 2001. After the split-off, DoCoMo will be entitled
to nominate a number of representatives on the AT&T Wireless Services
board of directors proportional to its economic interest acquired as a
result of this investment. The DoCoMo nominees for these board seats must
be senior officers of DoCoMo that are reasonably acceptable to AT&T or
AT&T Wireless Services, as the case may be. DoCoMo will lose these board
representation rights if its economic interest in AT&T Wireless Services
falls below 10% for 60 consecutive days. However, as long as it retains
62.5% of the shares of its original investment or shares of AT&T Wireless
Group tracking stock into which such shares are convertible, DoCoMo will
lose its board representation rights only if its economic interest in
AT&T Wireless Services falls below 8% for 60 consecutive days.
- Management Rights. Before the split-off, DoCoMo is entitled to appoint
one of its senior executives that is reasonably acceptable to AT&T
Wireless Group to AT&T Wireless Group's senior leadership team. In
addition, subject to AT&T Wireless Group's reasonable approval, DoCoMo
can appoint between two and five of its employees as employees of AT&T
Wireless Group, including the Manager-Finance and Director of Technology.
DoCoMo will lose these rights under the same circumstances as it would
lose board representation rights.
- Right to Approve Specified Actions. Before the split-off, AT&T may not
take any of the following actions without DoCoMo's prior approval:
-- sell all or substantially all of AT&T Wireless Group's assets;
-- sell all or substantially all of AT&T Wireless Group's business
through merger or other business combination, unless AT&T Wireless
Group shareholders retain two-thirds of the successor corporation;
-- acquire business or assets for AT&T Wireless Group, other than radio
spectrum rights, in excess of $17 billion;
-- subject to some exceptions, issue any further economic interests or
rights to AT&T Wireless over 15% of AT&T Wireless Group's market
capitalization as of the date of the letter agreement;
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-- subject to some exceptions, pay cash dividends to or repurchase AT&T
Wireless Group tracking stock;
-- amend AT&T's charter or by-laws so that the rights of the holders of
DoCoMo wireless tracking stock would be adversely affected; or
-- change the split-off related agreements so that AT&T Wireless
Services would be materially adversely affected or enter into new,
material contracts among affiliated parties that do not have
arm's-length terms.
After the split-off, AT&T Wireless Services may not take any of the
following actions without DoCoMo's prior approval:
-- change the scope of its business such that AT&T Wireless Group's
businesses (including those in its business plan) cease to constitute
the primary businesses of AT&T Wireless Services; or
-- enter into a strategic alliance with another wireless operator so
that the wireless operator would own more than 15% but less than 50%
of the economic interest in AT&T Wireless Services.
DoCoMo will lose these approval rights under the same circumstances as it
would lose board representation rights.
- Preemptive Rights. DoCoMo has limited preemptive rights that entitle it
to maintain its ownership interest by purchasing shares in some new
equity issuances by AT&T or AT&T Wireless Services. In the event of a new
equity issuance of the type covered by the preemptive right, then:
-- if DoCoMo holds 12% or more of the economic interest of AT&T Wireless
Services at the time of the new issuance, DoCoMo may purchase a
number of additional shares that would bring DoCoMo's economic
interest back up to 16%; and
-- if DoCoMo holds less than 12% of the economic interest of AT&T
Wireless Services at the time of the new issuance, DoCoMo may
purchase a number of additional shares that would maintain DoCoMo's
economic interest at the level it was at just before the new
issuance.
In most cases, the purchase price for these additional shares will be the
issuance price. DoCoMo will lose these preemptive rights under the same
circumstances as it would lose board representation rights.
Strategic Alliance
In connection with DoCoMo's investment, AT&T Wireless Services and DoCoMo
formed a strategic alliance to develop the next generation of mobile multimedia
services on a global-standard, high-speed wireless network. AT&T Wireless
Services will create a new, wholly owned subsidiary to develop and encourage the
development of multimedia content, applications and services offerable over AT&T
Wireless Services' current network, as well as on new, high-speed wireless
networks built to global standards for third generation services. AT&T Wireless
Services will contribute, among other things, its rights to content and
applications used in its PocketNet service to the new multimedia subsidiary.
Both AT&T Wireless Services and DoCoMo plan to provide technical resources and
support staffing. In addition, AT&T Wireless Services will be able to license
from DoCoMo, without additional payment, certain rights to DoCoMo's "i-mode"
service, which provides access to the Internet from wireless telephones, and
related technology.
The strategic alliance is expected to enable each of AT&T Wireless Services
and DoCoMo to offer market-appropriate wireless services to customers throughout
the United States and Japan, respectively. In addition, each has agreed, subject
to technical and commercial feasibility, to recognize the other as its primary
and preferred roaming partner in the other party's home territory.
AT&T and AT&T Wireless Services on the one hand, and DoCoMo on the other
hand, have agreed to certain non-competition commitments that restrict each
other's ability to provide mobile wireless services in Japan and the United
States, respectively. They have also agreed to limit the extent to which
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AT&T or AT&T Wireless Services on the one hand, and DoCoMo on the other hand,
will be able to participate in certain mobile multimedia activities and
investments in each other's home territory. Any such restrictions on AT&T would
terminate upon the earlier of a split-off of AT&T Wireless Services or exercise
by DoCoMo of any put, liquidation or registration right as a result of the
non-occurrence of such a split-off. AT&T Wireless Services and DoCoMo will
generally be bound by the non-competition commitments until DoCoMo loses its
board representation and management rights, either due to any of the events
described under "-- DoCoMo Investment Rights and Obligations -- Board
Representation" and "-- DoCoMo Investment Rights and Obligations -- Management
Rights", or due to voluntary relinquishment of such rights by DoCoMo.
Potential Effects of DoCoMo's Investment
Until the split-off, AT&T will record a non-cash carrying cost on the
DoCoMo wireless tracking stock of just under 7%, relating to DoCoMo's right to
require AT&T to repurchase the DoCoMo wireless tracking stock as described
above. This non-cash carrying cost is expected to result in a $0.03 to $0.04 net
reduction of AT&T common stock 2001 per share earnings, assuming AT&T Wireless
Group is split-off to shareholders by June 30, 2001. This excludes any non-cash
charges that AT&T may be required to incur with respect to the warrants, but
does include interest expense savings AT&T is expected to realize by reducing
its debt.
Some of DoCoMo's rights under the investment agreement, including the
repurchase rights and veto rights, could limit the flexibility of AT&T Wireless
Group, before the split-off, or AT&T Wireless Services, after the split-off, to
finance its operations or engage in some types of strategic transactions that
AT&T Wireless Group or AT&T Wireless Services might otherwise pursue.
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BUSINESS OF AT&T
AT&T is among the world's communications leaders, providing voice, data and
video communications services to large and small businesses, consumers and
government entities. AT&T and its subsidiaries furnish domestic and
international long distance, regional, local and wireless communications
services, cable television and Internet communications services. AT&T also
provides billing, directory assistance, and calling card services to support its
communications business.
AT&T's primary lines of business are business communications services,
consumer communications services, broadband services, and wireless services. In
addition, AT&T's other lines of business include network management and
professional services through AT&T Solutions and international operations and
ventures.
As described elsewhere in this document, AT&T has announced plans to
restructure itself into a number of separate companies or separately tracked
business units.
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BUSINESS OF AT&T WIRELESS GROUP
OVERVIEW
AT&T Wireless Group is one of the largest wireless service providers in the
United States. AT&T Wireless Group seeks to provide high quality, innovative
wireless services and to expand its customer base and revenue stream by
attracting subscribers who are heavy users of communication services. As of, or
for the year ended, December 31, 2000 AT&T Wireless Group had:
- 15.2 million consolidated subscribers,
- $10.4 billion of combined revenues, and
- $1.6 billion of combined operational earnings before interest, taxes,
depreciation and amortization, excluding other income.
AT&T Wireless Group operates one of the largest U.S. digital wireless
networks. As of December 31, 2000, AT&T Wireless Group and its affiliates and
partners held 850 megahertz and 1900 megahertz licenses to provide wireless
services covering 98% of the U.S. population. As of December 31, 2000,
approximately 77% of the U.S. population was covered by at least 30 megahertz of
wireless spectrum owned by AT&T Wireless Group, its affiliates or its partners.
At the end of 2000, AT&T Wireless Group's networks and those of its affiliates
and partners operated in markets including over 76% of the U.S. population and
in 49 of the 50 largest U.S. metropolitan areas. AT&T Wireless Group supplements
its operations with roaming agreements that allow its subscribers to use other
providers' wireless services in regions where AT&T Wireless Group does not have
operations. With these roaming agreements, AT&T Wireless Group is able to offer
customers wireless services covering over 95% of the U.S. population. AT&T
Wireless Group plans to continue to increase its coverage and the quality of its
services by expanding its footprint and the capacity of its network through new
network construction, acquisitions, and partnerships with other wireless
providers.
AT&T Wireless Group currently provides its wireless voice and data services
using time division multiple access, analog and cellular digital packet data
technologies. AT&T Wireless Group has focused on building its digital network
and on migrating its customer base from analog to digital service. AT&T Wireless
Group has already upgraded its analog systems to digital in 99% of its markets.
AT&T Wireless Group believes that digitalization improves capital efficiency,
lowers network operating costs and allows it to offer higher quality services.
Over 90% of AT&T Wireless Group's consolidated subscribers use digital services
and account for over 94% of its traffic. AT&T Wireless Group believes that these
percentages are substantially greater than the industry average excluding AT&T
Wireless Group.
To accelerate the availability of enhanced data services offerings, AT&T
Wireless Group recently announced plans to deploy a global system for mobile
communications platform for interim improvement in wireless data capabilities on
the evolutionary path to third generation services, as well as associated voice
services. AT&T Wireless Group plans to begin deploying a global system for
mobile communications platform in the second half of 2001. This platform is
expected to be deployed as an overlay on AT&T Wireless Group's current second
generation voice network. AT&T Wireless Group's chosen third generation
technology standard, known as universal mobile telecommunications systems, is
the same global standard that has been selected by operators throughout Europe,
Japan and other parts of the world. Third generation standards should provide
the speed and capacity necessary to support innovative mobile multimedia
applications, including broader and more efficient access to e-mail systems,
high-speed web browsing, e-commerce applications, on-line games and music
downloads.
AT&T Wireless Group markets its products and services primarily under the
AT&T brand and expects to be able to continue to do so for some time under
agreements expected to become effective in connection with the split-off. AT&T
Wireless Group believes that AT&T's widely recognized brand increases consumer
awareness of and confidence in, its products and services.
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This section describes primarily the business of AT&T Wireless Group before
the implementation of AT&T's restructuring plan announced on October 25, 2000.
In this document, we use the term AT&T Wireless Group to refer to the
businesses, assets and liabilities whose financial performance and economic
value we intend to reflect in AT&T Wireless Group tracking stock. We also refer
to AT&T Wireless Group as though it conducts those businesses. We do this solely
for ease of reference, and we do not intend to imply that AT&T Wireless Group
conducts those businesses as an entity separate from AT&T. In reading this
document, you should keep in mind that AT&T Wireless Group is an integrated set
of businesses and assets of AT&T and is not a separate legal entity.
AT&T Wireless Group includes:
- all of AT&T's mobile and fixed wireless licenses,
- all of AT&T's wireless networks, operations, sites on which cellular
transmitters are located, wireless customer care facilities and customer
location assets, and
- AT&T's interests in partnerships and affiliates providing wireless mobile
communications in the United States and internationally.
It does not include:
- AT&T's existing and future wireless activities that stem from
country-specific joint venture relationships that predominately are
non-wireless, and
- incidental wireless capabilities of AT&T or links in any backbone or
other communications network of AT&T that predominately are non-wireless.
Before the split-off, we currently intend to include all future wireless
activities in AT&T Wireless Group. Our board of directors may, however, in its
discretion, but subject to the AT&T Wireless Group policy statement, direct new
businesses and assets to AT&T Wireless Group or to the rest of AT&T or dispose
of or transfer businesses or assets of either group. Following the split-off, we
expect AT&T Wireless Services to own substantially the same assets that were
attributed to the AT&T Wireless Group immediately before the split-off.
AT&T Common Stock Group currently offers and is expected to continue to be
able to offer wireless services under sales agency or other arrangements with
AT&T Wireless Group. These transactions are described in more detail below and,
up to now, have been implemented under AT&T Wireless Group policy statement. We
expect to enter into new arrangements between AT&T and AT&T Wireless Services in
connection with the split-off.
RECENT DEVELOPMENTS
On March 23, 2001, AT&T Wireless Group, through AT&T Wireless Services,
entered into Competitive Advance and Revolving Credit Facilities in the
aggregate amount of $2.5 billion consisting of an up to $1.25 billion 364-day
Competitive Advance and Revolving Credit Facility and up to $1.25 billion
Five-Year Competitive Advance and Revolving Credit Facility. These facilities
are subject to a facility fee and utilization fee and bear interest at variable
rates based upon, in various cases, LIBOR, the prime rate or the rates on
overnight Federal funds transactions. These facilities may be used for general
corporate purposes and are subject to customary covenants, representations and
warranties and events of default. In addition, these facilities contain
financial covenants providing for a maximum total debt to total consolidated
operational EBITDA ratio (as defined in these facilities) not to exceed 4:0 to
1:0 for AT&T Wireless Services and a minimum interest coverage ratio of 3.5:1.0.
These facilities also specify limitations on AT&T's and AT&T Wireless Group's
ability to consummate the split-off, including a provision that it will
constitute an event of default if the split-off is consummated without obtaining
a favorable tax ruling from the IRS or unqualified tax opinion that the
split-off will qualify as a tax-free transaction. In addition,
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the existence of an obligation by AT&T Wireless Services to repurchase equity
interests from DoCoMo may under certain circumstances constitute an event of
default.
On March 1, 2001, AT&T Wireless Services completed a private placement of
$6.5 billion in Senior Notes with maturity dates from 2006 to 2031. The notes
pay interest at rates ranging from 7.350% to 8.750% per annum, and include
customary covenants. The notes include registration rights such that AT&T
Wireless Services is required to exchange the notes for a new issue of notes
registered under the Securities Act of 1933 and are to be declared effective no
later than 240 days after the issue date.
On February 26, 2001, AT&T agreed to sell its entire interest in Japan
Telecom for approximately $1.35 billion. The net after-tax proceeds are expected
to be approximately $1 billion. AT&T has indicated that the net after-tax
proceeds will be split evenly between AT&T and AT&T Wireless Group. AT&T
Wireless Group anticipates that it will recognize a significant gain on the
transaction.
In December 2000 and January 2001, AT&T Wireless Group executed agreements
with certain network equipment vendors, related to the development of its next
generation network strategy. These agreements require AT&T Wireless Group to buy
equipment from these vendors totaling approximately $2.1 billion in aggregate
through December 31, 2004.
Effective January 1, 2001, AT&T Wireless Group implemented the results of a
review of the estimated useful lives of certain wireless communications
equipment, primarily electronics. Lives were shortened to fully depreciate all
such equipment within seven years. Similar equipment acquired after January 1,
2001 will have useful lives no longer than seven years.
On November 17, 2000, AT&T Wireless Group announced that AT&T's board of
directors had approved an agreement under which AT&T Wireless Group will
purchase $200 million in Series AA preferred stock from Dobson Communications
Corporation. AT&T Wireless Group completed this transaction on February 8, 2001.
The Series AA preferred stock acquired has a liquidation preference of $1,000
per share and is exchangeable into Series A convertible preferred stock. Upon
completion of the exchange from Series AA preferred stock to Series A
convertible preferred stock, AT&T Wireless Group's ownership interest in Dobson
will increase, on an as converted to common stock basis, from its current
ownership of 4.6% to approximately 11.6%.
During November 2000, AT&T Wireless Group joined with others in the
formation of a venture, Alaska Native Wireless, which participated in the
Federal Communication Commission's recent auction of license spectrum in the
1900 megahertz band, which is used to provide wireless services. In January
2001, the auction was completed, and Alaska Native Wireless was the high bidder
on approximately $2.9 billion in licenses. AT&T Wireless Group has committed to
fund $2.6 billion to Alaska Native Wireless to fund Alaska Native Wireless'
purchase of licenses. As of December 31, 2000, AT&T Wireless Group funded
approximately $229 million of the commitment through a combination of a
non-controlling equity interest and debt securities of Alaska Native Wireless.
Additionally, in February 2001, AT&T Wireless Group funded an additional $80
million. The remaining approximately $2.3 billion of additional funding will be
made when such licenses are granted, and will take the form of non-convertible
notes of Alaska Native Wireless. At the fifth anniversary of the first date on
which licenses won in the auction are granted to Alaska Native Wireless, and in
addition to other means by which they may transfer their interests, the other
owners of Alaska Native Wireless have the right to require AT&T Wireless Group
to purchase their equity interests. If this right were exercised five years
after license grant, the purchase price could be as much as approximately $950
million and would be payable, at AT&T Wireless Group's option, in cash or
marketable securities. The right to require AT&T Wireless Group to purchase
these interests may be exercised before the five-year anniversary of the license
grant if the conditions of certain FCC regulations restricting the free
transferability of certain licenses offered in this auction are met earlier. If
the right were exercised earlier, the purchase price would be calculated in
generally the same way as if exercised at five years, except that a discount
would be applied. In certain circumstances, if a winning bid of Alaska Native
Wireless is rejected or if any license granted to it is revoked, AT&T Wireless
Group would be obligated to compensate other owners for making capital available
to the venture. In certain circumstances, if the grant of the licenses is
challenged, AT&T Wireless Group may be obligated to purchase the interests
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of other owners. Depending on when such revocation or challenge takes place, the
amount may be material but will be less than the $950 million purchase price
described above.
INDUSTRY OVERVIEW
General
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as cellular telephone, enhanced specialized
mobile radio services, personal communications services and fixed wireless
services. The FCC licenses the radio frequency used to provide each of these
applications.
Since its introduction in 1983, wireless service has grown dramatically. As
illustrated by the following chart, domestic cellular, enhanced specialized
mobile radio and personal communications services providers experienced average
annual rates of growth of 23% and 29% in revenues and subscribers, respectively,
over the five-year period from 1994 to 1999.
WIRELESS INDUSTRY STATISTICS*
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
Total service revenues (in
billions).......................... $14.2 $19.1 $23.6 $27.5 $33.1 $ 40.0
Ending subscribers (in millions)..... 24.1 33.8 44.0 55.3 69.2 86.0
Subscriber growth.................... 50.8 % 40.0 % 30.4 % 25.6 % 25.1 % 24.3%
Average monthly service revenue per
subscriber, including roaming
revenue............................ $59.08 $54.91 $50.61 $46.11 $44.35 $42.96
Average monthly service revenue per
subscriber, excluding roaming
revenue............................ $51.48 $47.59 $44.66 $41.12 $39.66 $38.50
Ending penetration................... 9.4 % 13.0 % 16.3 % 20.2 % 25.1 % 30.9%
---------------
* Source: Cellular Telecommunications Industry Association and Paul Kagan
Associates.
Recent industry trends
The growth in the wireless communications industry has been shaped by a
number of industry trends that are likely to continue in the near future.
Expanding penetration fuels network optimization. The U.S. wireless
industry has experienced an increase in absolute subscriber additions and
wireless penetration levels. For example, the number of ending subscribers
increased by 8.1 million in 1994 and by 16.8 million in 1999 at the same time as
penetration grew from 9.4% to 30.9%, respectively. Increased penetration allows
wireless providers to distribute the fixed costs of a wireless network over
greater numbers of users, thereby optimizing network usage. Wireless penetration
in other developed nations, particularly in Western Europe and Japan, is
currently substantially higher than in the United States. The experience of
wireless providers in these developed nations has shown that the market for
wireless services has an inflection point with regard to subscriber penetration
whereby the number of subscribers and penetration accelerates as wireless
service usage becomes more ubiquitous. In addition, those same international
wireless providers have experienced growth in earnings before interest, taxes,
depreciation and amortization, or EBITDA, at a greater rate than subscriber
growth as network usage increases. AT&T Wireless Group believes that the U.S.
wireless industry is approaching a similar inflection point in subscriber
penetration and is likely to develop along the same path as international
wireless industries have developed.
Rate simplification eases customer choice and drives consolidation. AT&T
Wireless Group has led the industry in simplifying customer choice through
pricing plans. In May 1998, AT&T Wireless Group revolutionized the industry by
offering AT&T Digital One Rate service, which, for the first time, charged
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one rate with no separate roaming or long distance fees for domestic calls
across the United States. In addition, AT&T Wireless Group has introduced a
simplified national prepaid wireless service that provides wireless
communications to customers with no long-term contract, credit check, deposit or
bill. AT&T Digital One Rate, prepaid wireless, and similar plans by other
service providers have increased wireless penetration in the United States. AT&T
Wireless Group believes that the introduction of other simplified, targeted rate
plans, including prepaid products, will continue to increase wireless
penetration. In addition, because roaming costs to the wireless provider can
exceed the amount charged to the subscriber under these single rate plans,
wireless providers have been attempting to establish national coverage through
acquisitions, thus driving consolidation.
Declining costs of service results in mass market availability. As the
cost of wireless service has declined, it has become, in an extremely short
period of time, a mass market product rather than a luxury good. AT&T Wireless
Group expects that competition in each wireless market will continue to lead to
further price declines, which should make wireless service available to an even
greater number of potential users. Experience indicates that this widespread
usage will in turn cause even more people to use wireless services, especially
as the price of wireless service declines relative to the price of wireline
service. AT&T Wireless Group believes that these developments are likely to
drive continued growth in the wireless communications industry.
Digital service increases utility and functionality of wireless
services. Technological advancements, from longer battery life to improved
voice quality, have begun to make wireless service increasingly comparable to
wireline communications. Additionally, customers have begun to expect custom
calling features that are similar to those available on a wireline network.
Digital service, as opposed to analog service, permits wireless providers to
offer these types of enhanced services to users. Wireless providers will need to
continue to invest in network upgrades to offer advanced services in order to
attract and retain subscribers.
Wireless data applications will drive expanded wireless usage. Existing
and new wireless data technologies, coupled with the widespread use of the
Internet, have caused wireless providers to focus on wireless data services
offerings. Historically, these services predominantly have been used to date to
carry corporate data applications. AT&T Wireless Group has been a leader in this
emerging market. Data network coverage is now available using its packet data
network in over 60% of AT&T Wireless Group's voice network footprint, which AT&T
Wireless Group believes provides a critical advantage in the cost-effective
provision of wireless data services. In addition to its current packet-switched
technology, AT&T Wireless Group has announced plans to deploy enhanced data and
third generation communications technologies capable of greater data speeds.
The introduction of new applications for corporate and consumer users, such
as mobile originated short message services, access to email, news, sports,
weather summaries, travel services, financial information and services and
comparison shopping applications, will drive the growth for wireless data
network services. To this end, enabling technologies, such as the
industry-acknowledged wireless application protocol provide an environment that
encourages developers to create innovative data services for wireless networks.
In addition, applications, such as email, instant messages, banking, wireless
portals and web services, are being developed and marketed. AT&T Wireless Group
believes that the development and deployment of so called "third generation"
wireless networks will drive further growth in wireless data services and
applications due to increased capacity, speed and lower costs.
SPECTRUM AND TECHNOLOGY
AT&T Wireless Group has licenses to use four portions of the radio spectrum
that the FCC has made available for the transmission of voice and data signals:
850 megahertz, 1900 megahertz, 2.3 gigahertz and 38 gigahertz. FCC terminology
distinguishes between "cellular" licenses, which are for 850 megahertz
frequency, and "PCS" licenses, which are for 1900 megahertz frequency.
AT&T Wireless Group provides its mobile voice services using both 850
megahertz cellular and 1900 megahertz PCS licenses. AT&T Wireless Group does not
manage its business for these spectrums
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separately. Rather, AT&T Wireless Group manages its business to provide network
coverage irrespective of the spectrum. From a marketing and operational
perspective, AT&T Wireless Group defines and manages its markets geographically,
usually around an urban area or other geographic region. These geographic
markets may use either 850 megahertz or 1900 megahertz spectrum or both.
Geographic markets that use predominantly 850 megahertz spectrum have been in
operation longer and therefore are more mature than those markets that
exclusively use 1900 megahertz spectrum.
The 850 megahertz wireless markets originally used analog based systems,
although digital technology has been introduced in most markets. As of December
31, 2000, AT&T Wireless Group had upgraded 99% of its 850 megahertz markets to
digital based systems. The 1900 megahertz markets all are digital based.
AT&T Wireless Group, including its partnership and affiliate markets, held
850 megahertz and 1900 megahertz licenses to provide wireless services covering
98% of the U.S. population as of December 31, 2000. As shown in the table below,
as of December 31, 2000, approximately 77% of the U.S. population were covered
by at least 30 megahertz of wireless spectrum:
NUMBER OF
LICENSED TOP 50 U.S.
POPS % OF TOTAL LICENSED
SPECTRUM (IN MILLIONS)* U.S. POPS** MARKETS
-------- -------------- ----------- -----------
10-15 megahertz............................... 24 8.6% 1
20-25 megahertz............................... 37 13.2% 4
30 megahertz or greater....................... 213 76.5% 45
Total............................... 274 98.3% 50
---------------
* Amount of U.S. population covered by licenses held by AT&T Wireless Group,
including partnership and affiliate markets.
** Amount that "Licensed POPs" represents as a percentage of total U.S.
population, based on total U.S. population of 278 million.
Analog systems currently have several limitations, including comparative
lack of privacy and limited capacity. However, analog handsets are compatible
with all analog systems in all markets within the United States.
Second generation digital systems in the U.S., whether in the 850 megahertz
or 1900 megahertz spectrum, convert voice or data signals into a stream of
digits that is compressed before transmission, enabling a single radio channel
to carry multiple simultaneous signal transmissions. AT&T Wireless Group
believes that digital technology offers many advantages over analog technology,
including substantially increased network capacity, greater call privacy,
enhanced services and features, lower operating costs, reduced susceptibility to
fraud and the opportunity to provide improved data transmissions.
Second generation digital systems use one of three principal signal
transmission technologies, or standards, none of which is compatible with the
others:
- TDMA, or time division multiple access,
- CDMA, or code division multiple access, or
- GSM, or global system for mobile communications.
AT&T Wireless Group believes that three of the five recognized advanced
digital signal transmission technologies, or standards, which are in various
stages of development, have more commercial momentum than the remaining two.
These three are:
- EDGE, or enhanced data rates for global evolution,
- CDMA 2000, and
- UMTS, or universal mobile telecommunications systems.
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These so-called "third generation" technologies will allow high-speed wireless
packet data services and ultimately voice services using Internet Protocol.
Widespread deployment of third generation technology is expected to occur in the
industry beginning in 2002. A fourth technology, GPRS, or general packet radio
service, is generally considered to be an interim step between current and third
generation technologies. GPRS standards have been developed by recognized
standards-setting bodies, and there has been some commercial deployment by
carriers outside the U.S. and some U.S. carriers have announced plans to deploy
this technology. Third generation EDGE standards also are complete but equipment
is still under development and AT&T Wireless Group is not aware of any
commercial deployment. UMTS standards address more complex data applications and
are not yet complete, but equipment development has begun. UMTS is expected to
be initially available in Japan in 2001, in Europe in 2002 and subsequently in
North America. Some carriers have selected CDMA 2000 as their path to wideband
data applications, as an alternative to the sequence of GPRS, EDGE, and UMTS
technologies selected by AT&T Wireless Group as its path. UMTS is also known as
W-CDMA, or wideband code division multiple access. Despite the similarity of the
acronyms, CDMA 2000 and W-CDMA are not compatible.
AT&T Wireless Group selected TDMA as its second generation digital wireless
standard, although it does continue to operate a small number of markets that
were operating with CDMA technology when AT&T Wireless Group acquired them. AT&T
Wireless Group offers its subscribers tri-mode handsets that permit the user to
access its analog system and its digital systems, the latter whether operating
in 850 megahertz or 1900 megahertz spectrum. AT&T Wireless Group also has plans
to deploy third generation technologies to enhance both voice and data services.
AT&T Wireless Group also has licenses to provide communications services
utilizing 38 gigahertz digital spectrum in 156 geographic areas covering a total
population of approximately 220 million and including more than 80 of the
largest 100 metropolitan markets. These licenses were acquired in large part
through AT&T's acquisition of Teleport Communications Group Inc.
AT&T Wireless Group has also acquired licenses for radio spectrum in the
2.3 gigahertz range. AT&T Wireless Group expects to use this spectrum for its
fixed wireless operations.
STRATEGY
AT&T Wireless Group's goal is to be the premier provider of high-quality
wireless communication services, whether mobile or fixed, voice or data, to
businesses or consumers, in the United States and internationally. AT&T Wireless
Group believes that the following are the key elements to enable it to meet its
goal:
- continue the expansion of its digital network to add capacity, improve
quality and provide consistent features regardless of location,
- continue to lower its operating costs and improve capital efficiency by
expanding its digital, mobile wireless network and increasing the use of
more efficient channels of distribution,
- deploy a GSM technology platform as the basis for implementation of
enhanced data and third generation services,
- target distinct consumer and business customer segments with wireless
offers that match their needs for voice and data services in order to
increase its subscriber base and revenue,
- benefit from AT&T Wireless Group's relationship with and use of the
resources of AT&T, including the use of the AT&T brand and, when
appropriate, AT&T's distribution channels and cross marketing
opportunities, and
- take advantage of its existing wireless spectrum, digital network,
customer base and with new growth initiatives, including wireless data
and fixed wireless opportunities.
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Continue the expansion of its digital network
AT&T Wireless Group believes it is competitively critical to expand and
improve its network coverage footprint, as well as to increase capacity in its
existing voice network, in order to provide coverage throughout the nation, and
offer consistent features regardless of location. AT&T Wireless Group regularly
monitors quality and identifies specific areas in existing markets where calls
may be dropped or transmission quality is sub-optimal. As a result, AT&T
Wireless Group has taken a number of steps to increase its network coverage,
including the purchase of 1900 megahertz licenses, to accelerate digital build
outs in 850 megahertz and 1900 megahertz markets, to increase the capacity of
its existing voice network, and to acquire or partner with other wireless
providers. AT&T Wireless Group, including its partnership and affiliate markets,
has licenses covering 98% of the U.S. population, with approximately 77% of the
U.S. population covered by at least 30 megahertz of wireless spectrum, as of
December 31, 2000. In addition, in many of its markets, AT&T Wireless Group
possesses licenses for both 850 megahertz and 1900 megahertz spectrum. In each
market in which AT&T Wireless Group is not currently operating, AT&T Wireless
Group evaluates the benefits and costs of building out its license versus
acquiring or partnering with other experienced wireless providers before it
decides on the appropriate method of expanding into that market. The timing of
these decisions depends upon a variety of factors, including the size of the
prospective market, the location of the market relative to other AT&T Wireless
Group markets, the economics of existing roaming agreements and anticipated
industry developments.
Digital build out. AT&T Wireless Group has aggressively pursued the build
out of its digital network. In the years ended December 31, 1997, 1998 and 1999,
capital expenditures for build out of owned and operated 1900 megahertz licenses
and to increase capacity, improve quality and upgrade to digital in 850
megahertz markets totaled $1,514 million, $1,029 million and $2,333 million,
respectively. As of December 31, 2000, AT&T Wireless Group had upgraded 99% of
its markets to digital based systems. As of December 31, 2000, AT&T Wireless
Group's 1900 megahertz licenses covered 164 million of the U.S. population; 65%
of that population were in markets served by digital transmission systems,
including those of affiliates.
Acquisitions. AT&T Wireless Group has and will expand its digital mobile
wireless network through acquisitions when it is economic to do so. For example,
in February 2000, AT&T and Dobson Communications Corporation, through a joint
venture entered into by one of AT&T's wireless business subsidiaries, acquired
American Cellular Corporation. AT&T included its interest in the joint venture
among the assets included in AT&T Wireless Group as of the date of the
acquisition. This acquisition increased AT&T Wireless Group's coverage in New
York State and several mid-west markets by adding approximately 450 thousand
subscribers as of the acquisition date. Further, in June 2000, AT&T Wireless
Group purchased the assets of Wireless One Network, L.P., including wireless
systems in northwest and southwest Florida covering a population base of 1.6
million potential customers and serving approximately 190 thousand subscribers
as of the acquisition date.
In June 2000, AT&T Wireless Group announced that it had agreed to acquire
wireless systems in Houston and San Diego, as well as the remaining 50% interest
that it did not own in CMT Partners, which operates a wireless system in the San
Francisco Bay Area. On December 29, 2000, AT&T Wireless Group completed the
acquisition of the wireless system in Houston, which covers a population base of
approximately 5 million potential customers and served approximately 180
thousand subscribers as of the acquisition date. AT&T Wireless Group closed the
CMT Partners transaction on June 29, 2000. CMT Partners covers a population base
exceeding 7 million potential customers and, as of the acquisition date, served
nearly 1 million subscribers. On September 29, 2000, AT&T Wireless Group closed
the acquisition of the San Diego wireless system, which covers a population base
of 3 million potential customers. Also, during the third quarter of 2000, AT&T
Wireless Group acquired a wireless system on the big island of Hawaii. Combined,
the San Diego and Hawaii markets served more than 180 thousand subscribers as of
their acquisition dates.
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On October 2, 2000, AT&T Wireless Group acquired a wireless system in
Indianapolis, Indiana. On November 13, 2000, AT&T Wireless Group acquired
wireless systems in several New England markets. Combined, the New England and
Indianapolis wireless systems acquired cover a population base of approximately
4 million potential customers and served approximately 145 thousand subscribers
as of their acquisition dates.
On December 29, 2000, AT&T Wireless Group's equity interest in AB Cellular,
an entity which owned cellular properties in Los Angeles, Houston and Galveston,
was redeemed. In consideration for its equity interest, AT&T Wireless Group
received 100% of the net assets of the Los Angeles property. The Los Angeles
property covers a population of approximately 15 million potential customers and
had approximately 1.3 million subscribers as of December 31, 2000.
Establish partnerships and affiliates. AT&T Wireless Group also will
continue to establish local market partnerships and affiliates with other
wireless operators in order to accelerate the build out of its digital mobile
wireless network. In addition to existing partnership arrangements for its 850
megahertz markets, AT&T Wireless Group has entered into a number of joint
ventures and affiliations to expand its 1900 megahertz digital coverage. Key
non-consolidated partnerships and affiliates with current operations include the
following:
850 OR 1900
MEGAHERTZ LICENSED POPS OWNERSHIP
ENTITY PARTNER OR AFFILIATE MARKETS COVERED* MARKET (IN MILLIONS)* PERCENTAGE**
------ -------------------- ---------------- ----------- -------------- ------------
PARTNERSHIPS
American Cellular Dobson Rural service areas in Minnesota, 850 5.3 50.0%
Corporation Communications New York, Wisconsin, Kentucky,
Corporation Ohio, Michigan, Pennsylvania,
Tennessee and West Virginia;
metropolitan service areas of
Duluth, Minnesota; Orange County
and Poughkeepsie, New York; Eau
Claire and Wausau, Wisconsin; and
Alton, Illinois
AFFILIATES
Cincinnati Bell Cincinnati Bell Cincinnati and Dayton, Ohio 1900 3.4 19.9%
Wireless, LLC Wireless, LLC
TeleCorp PCS, Telecorp PCS Inc. Markets in Puerto Rico and the 1900 21.2 22.9%
Inc. *** U.S. Virgin Islands, Louisiana,
Arkansas, Tennessee,
Massachusetts, New Hampshire,
Missouri and Kentucky, including
San Juan, New Orleans, Baton
Rouge, Memphis, Little Rock,
Manchester, Concord, Nashua,
Worcester, Cape Cod, Martha's
Vineyard, Mississippi, Kentucky,
Tennessee, Alabama and Georgia,
including Jackson, Vicksburg,
Nashville, Knoxville, Clarksville,
Chattanooga, Dalton, Huntsville,
Mobile, Montgomery, Birmingham,
Louisville and Lexington.
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850 OR 1900
MEGAHERTZ LICENSED POPS OWNERSHIP
ENTITY PARTNER OR AFFILIATE MARKETS COVERED* MARKET (IN MILLIONS)* PERCENTAGE**
------ -------------------- ---------------- ----------- -------------- ------------
Triton PCS, Inc. Triton PCS, Inc. Markets in North Carolina, South 1900 13.2 16.7%
Carolina, Georgia, Virginia,
Tennessee and Kentucky, including
Fayetteville, Hickory, Wilmington,
Myrtle Beach, Charleston,
Columbia, Hilton Head, Florence,
Augusta, Savannah, Athens,
Norfolk, Richmond and Roanoke
---------------
* Amount of U.S. population covered by licenses held by entity, as of December
31, 2000.
** As of December 31, 2000. Ownership percentages for Telecorp and Triton
reflect AT&T Wireless Group's ownership of common stock, assuming conversion
of all currently convertible preferred stock to common stock.
*** In November 2000, TeleCorp PCS, Inc. announced completion of its acquisition
of Tritel, Inc. As a result of completion of the transaction and certain
additional investments by AT&T Wireless Group, AT&T Wireless Group owns
approximately 22.9% of the combined entity.
Continue to lower its operating costs and improve capital efficiency by
expanding its digital mobile wireless network and increasing the use of more
efficient channels of distribution
AT&T Wireless Group believes that its success also will depend in large
part on its ability to continue to lower its operating costs in order to have
the flexibility to offer various pricing plans and to be cost competitive. AT&T
Wireless Group already has taken a number of steps to lower its operating costs
associated with providing network service, and is taking a number of initiatives
to lower its marketing and sales costs.
Lower unit network costs and capital requirements. As described above,
AT&T Wireless Group is expanding its footprint across the United States. AT&T
Wireless Group pays other wireless providers negotiated roaming rates when AT&T
Wireless Group customers make or receive wireless calls when located in other
approved wireless providers' coverage areas. Because roaming costs to the
wireless provider can be significant or exceed the amount charged to the
subscriber, it is extremely advantageous to be able to provide services on AT&T
Wireless Group's network. As it builds out its network to achieve these roaming
savings, AT&T Wireless Group purchases equipment from multiple vendors and
aggressively negotiates with each vendor for volume discounts, in order to
reduce cost.
In the interim, AT&T Wireless Group has been able to reduce roaming charges
significantly. The AT&T Wireless Group has been able to negotiate favorable
roaming rates with most wireless providers across the United States based upon
volume and growth. In addition, the AT&T Wireless Group's proprietary
intelligent roaming data base, or IRDB, directs wireless subscribers to
preferred service providers whenever they travel outside their wireless
home-coverage area. The data base maintains a list of wireless carriers and
their frequency bands, ranked by priority. This is designed to provide service
in more areas at favorable roaming rates. The updated data base is downloaded
over the air into each digital multi-network phone periodically. When the data
base is implemented during a call, the wireless phone scans all bands to
determine which service providers are available. The phone registers, or "locks
on," immediately if it finds sufficiently strong AT&T Wireless Group service,
the top priority. If AT&T Wireless Group does not offer service in the area, the
data base instructs the phone to search for an affiliate or a partner service
provider. When an affiliate or a partner is not available, the phone scans for a
"favored" service provider, one that is preferred over a carrier not categorized
in the IRDB.
Lower marketing and sales expense. AT&T Wireless Group has begun a number
of initiatives designed to lower its customer acquisition cost, as well as its
customer care expenses. For example, AT&T Wireless Group has been actively
seeking lower cost distribution channels for its products and services. AT&T
Wireless Group is increasing the number of its company-owned stores, which are
one of the lowest
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cost channels for distributing and signing up customers. As of December 31,
2000, there were approximately 520 company-owned stores throughout the United
States. In addition, in June 1999, AT&T Wireless Group began using the Internet
as a vehicle for customer acquisition, as well as for customer care. In addition
to allowing customers to sign up for wireless services over the Internet,
resulting in a lower cost to add a new subscriber to AT&T Wireless Group than
other channels, subscribers can access their account and obtain answers to
routine inquiries that would otherwise require a customer care representative.
Since its introduction, the number of visits to the AT&T Wireless Group's
Internet site has grown to approximately 2.7 million per month as of October
2000.
Deploy a GSM Platform to Implement Third Generation Services
Third generation technologies will allow high-speed wireless packet data
services and ultimately voice services using Internet Protocol. In order to be
successful, any third generation strategy must allow the wireless provider to
achieve a pervasive footprint quickly and cost effectively. In addition, third
generation networks that achieve global economies of scale and allow for global
roaming will have a significant advantage. These third generation systems are
expected to provide the speed and capacity necessary to support innovative
mobile multimedia applications including broader and more efficient access to
e-mail systems, high speed web browsing, e-commerce applications, on-line games
and music downloads.
The fundamental technology standard that AT&T Wireless Group has selected
for its eventual third generation services is the same global standard that has
been selected by service providers throughout Europe, in Japan and in other
parts of the world. This standard, known as UMTS, for universal mobile
telecommunications system, has generally been accepted as the successor
technology to the second generation digital technology known as GSM, for global
system for mobile communications. UMTS is also known as wideband code division
multiple access.
Starting in the second half of 2001, AT&T Wireless Group plans to deploy a
GSM platform for interim improvements in wireless data capabilities on the
evolutionary path to third generation data services, as well as associated voice
services. This platform, which will be deployed as an overlay on AT&T Wireless
Group's second generation voice network, will provide a cost-effective means for
AT&T Wireless Group to offer customers a wide range of data service offerings
earlier than previously planned using the interim enhanced wireless data
standards GPRS, which stands for general packet radio service, and EDGE, which
stands for enhanced data rates for global evolution. These interim standards are
expected to provide faster data speeds than AT&T Wireless Group's current data
network technology. Much of the GSM and GPRS equipment for this overlay network
is technologically mature and readily available in the market today from a
highly competitive source of supply. Similarly, customer data devices based on
GPRS technology are also readily available. In the longer term, this platform is
expected to provide multi-media services using the anticipated global standard
of UMTS.
AT&T Wireless Group plans to sell phones combining its current digital
voice technology and voice and interim enhanced data technologies it expects to
deploy in the next few years, which would provide customers the benefit of
access to AT&T Wireless Group's current voice network as well as the new
higher-speed data services. AT&T Wireless Group is in discussions with
manufacturers to develop phones compatible with such services, based on industry
specifications. When these new data services become available, AT&T Wireless
Group will be able to sell data service devices in a variety of forms (e.g.,
phones, handheld scheduling devices called personal digital assistants, or PDAs,
laptops), to address a broad range of customer needs. The eventual deployment of
third generation technology in AT&T Wireless Group's network is expected to
enable the transmission of multimedia services (e.g., streaming audio and video)
to customer devices.
AT&T Wireless Group plans to make interim enhanced data capabilities
available on GPRS technology available starting in 2001, and third generation
capabilities available on EDGE technology starting in 2002. AT&T Wireless Group
currently plans to deploy third generation UMTS technology beginning in 2003,
depending on the availability of network equipment and customer devices.
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Due to its broad international acceptance, the network equipment needed to
deploy a GSM technology platform is readily available in the market. The overlay
strategy also will allow AT&T Wireless Group to utilize its existing cell site
facilities and spectrum. Because of these efficiencies, the AT&T Wireless Group
expects that its network capital expenditures over the period of deployment
associated with the high speed data technology in its third generation plans
will be only modestly greater than its earlier third generation migration plan,
but may occur in earlier periods.
The customer benefits of this strategy include earlier availability of a
broad array of enhanced and high-speed data services and devices, and enhanced
international roaming capability. Overall, this strategy provides AT&T Wireless
Group an opportunity for more rapid and greater penetration of the wireless data
market than previously planned.
Target distinct consumer and business customer segments with wireless offers
that match their needs for voice and data services in order to increase its
subscriber base and revenue
AT&T Wireless Group believes that one key to success in the wireless
industry is the ability to target customer segments and provide offers that
match the needs of those segments. Certain segments respond to pricing plans
tailored to their usage patterns while other segments are more attuned to
customized service features. AT&T Wireless Group has been a leader in
differentiating its services through its use of targeted offerings and its
introduction of new features and services.
AT&T Digital One Rate service. In May 1998, AT&T Wireless Group introduced
its AT&T Digital One Rate service, which targets high value customers (i.e.,
customers that spend over $60 per month on wireless services) who travel
frequently and make frequent long distance calls. In August 2000, AT&T Wireless
Group introduced six new AT&T Digital One Rate calling plans, giving customers
more minutes for the same monthly charge. The introduction of AT&T Digital One
Rate service redefined the industry by charging one rate with no roaming or long
distance fees for domestic calls across the United States.
AT&T Regional Advantage and AT&T Digital Advantage services. AT&T Wireless
Group has created other service plans because it believes there are other
opportunities to segment the market with simplified pricing plans. AT&T Regional
Advantage is designed for mobile individuals who travel across a multi-state,
regional calling area. When traveling in the regional area customers pay no
roaming or domestic long distance charges. This program addresses customers that
frequently travel to neighboring states, but do not travel across the nation.
AT&T Wireless Group also offers AT&T Digital Advantage for customers that spend
most of their time within a local area. AT&T Digital Advantage offers these
customers a large number of local minutes to use in their home calling area.
AT&T group plans. AT&T has developed offers for groups that are in
frequent contact with a predetermined number of other wireless subscribers. For
consumers, AT&T Wireless Group developed the AT&T Family Plan. With the AT&T
Family Plan, each family member has his or her own wireless number that allows
for unlimited calls between wireless numbers on the account within the defined
family calling area. The family's charges are then provided on a single wireless
bill. For businesses, AT&T Wireless Group offers AT&T Group Calling, the
wireless industry's first business offer with unlimited calling among a wireless
group of five to 200 subscribers and to as many as five wireline numbers within
a designated group calling area. AT&T Group Calling is designed for local,
mobile businesses, such as sales and service, delivery and distribution,
dispatch and contractors, that operate within a specific geographic area.
Wireless Office Service. Wireless Office Service integrates wireless
phones into a company's office, campus or plant telephone network. Calls to and
from the wireless phone can be routed through a company's network as if the
calls were being made from or received on a desk phone. Users can receive calls
dialed to their desk phone on their wireless phone when the user is within the
expanded AT&T Wireless Group's network. Wireless Office Service provides one
number call delivery, four-digit dialing, enhanced radio frequency coverage and
low flat-rate billing for airtime usage within a customer's office, campus or
plant.
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AT&T Corporate Digital Advantage program. The AT&T Corporate Digital
Advantage program was created for large and middle sized businesses. This
program combines simplified wireless purchasing and management with nationally
consistent service, airtime, and equipment pricing in all AT&T Wireless Group
markets.
Prepaid Wireless Services. AT&T Wireless Group recently launched a new and
improved prepaid wireless program. AT&T Wireless Group markets the prepaid
program under two product names, depending upon the target segment. Free2Go
Wireless from AT&T Wireless Group targets the youth market, while AT&T Prepaid
Advantage targets the mass market. Both offer digital prepaid wireless service
as a pay-in-advance wireless product that provides wireless communications to
customers with no annual contract, no credit check, no deposit and no monthly
bill. In addition, both offer customers the choice of a Local or National
Calling Plan, the ability to use any compatible digital multi-network phone,
access to enhanced digital PCS features, and both plans include domestic long
distance for all calls placed in the United States. AT&T Wireless Group prepaid
wireless service is designed to meet the needs of customers that want to manage
their expenses, prefer to pay in cash, lack credit or have difficulty obtaining
credit.
Enhanced features. AT&T Wireless Group has been an industry leader in the
migration of subscribers from analog to digital service. At December 31, 2000,
over 94% of AT&T Wireless Group's traffic is digital, which AT&T Wireless Group
believes is substantially greater than the industry average, excluding AT&T
Wireless Group. The ability to migrate customers to digital service has
permitted AT&T Wireless Group to further differentiate its wireless offerings
through enhanced features. During October 2000, AT&T Wireless Group announced
the launch of AT&T Text Messaging service. AT&T Text Messaging service allows
subscribers to send and receive short text messages from their compatible
phones. AT&T Wireless Group offers custom calling services, such as voice mail,
call forwarding, call waiting and three-way calling to all of its customers. The
digital network allows AT&T Wireless Group to offer enhanced features to its
customers, including extended battery life, message waiting indicator, text
messaging and caller ID. It also offers a variety of other enhanced features,
including enhanced directory assistance, which enables callers to be connected
to the party whose number is sought without hanging up and redialing.
Benefit from AT&T Wireless Group's relationship with AT&T
AT&T Wireless Group believes that its relationship with AT&T has provided
it with significant competitive advantages. As part of the split-off, AT&T and
AT&T Wireless Group expect to enter into certain contracts and other
arrangements which after the split-off will be intended to continue many of the
advantages enjoyed by AT&T Wireless Group before the split-off. For more
information, please see "The Split-Off" and "Relationship between AT&T and AT&T
Wireless Services following the Split-Off." These continued advantages may
include:
- use of the powerful AT&T brand name substantially in the same manner as
has been used by AT&T Wireless Group up to now,
- an opportunity to use AT&T sales force through cross marketing
arrangements and, where appropriate, through bundled offers, as may be
agreed by AT&T and AT&T Wireless Group, of wireless with services of
other AT&T businesses,
- use of specified AT&T intellectual property and technology on license
terms as of the time of the split-off,
- use of the AT&T network on contractual terms, and
- potential benefits from certain of AT&T's purchasing contracts with
suppliers where already permitted by existing contracts or where
arrangements can be made with such suppliers.
AT&T brand. The AT&T brand is one of the best known and respected brand
names in the United States. AT&T Wireless Group believes that the AT&T brand
positively impacts consumer awareness of,
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and confidence in, AT&T Wireless Group's products and services. In addition, as
competition in the wireless communications industry intensifies, AT&T Wireless
Group believes that the power of a strong national brand plays an increasingly
important role in consumers' purchasing decisions.
Marketing. AT&T Wireless Group believes that its relationship with AT&T
Common Stock Group has and can continue to provide substantial marketing
advantages. AT&T Wireless Group will be able to enter into cross marketing
relationships with the AT&T sales force whereby AT&T's customers can be
solicited for wireless services. In addition, both AT&T Common Stock Group and
AT&T Wireless Group will have the opportunity to cooperate in bundled offers of
services designed for targeted markets.
Technology. AT&T Wireless Group will continue to have the advantage of
being able to use not only its intellectual property and technology but also,
under license terms as of the time of the split-off, specified AT&T's
proprietary intellectual property and technology as well as specified
intellectual property that AT&T has the right to use through licensing or other
arrangements.
Purchasing power. AT&T is one of the largest communications carriers in
the world, and, as such, has substantial leverage in the industry with major
equipment and other suppliers. AT&T's ability to purchase large amounts of goods
has enabled it to obtain favorable pricing and other terms with those suppliers.
Through contractual and other arrangements, AT&T Wireless Group may be able to
participate in certain of AT&T's supplier arrangements either directly or in
making its own purchasing arrangements where those arrangements allow for this
and the vendors agree to this. In addition, AT&T Wireless Group has already
developed its own relationships with many of these vendors and believes that it
will be able to effectively negotiate independent agreements where necessary or
appropriate.
Take advantage of wireless spectrum, digital networks, customer base and brand
with new growth initiatives, including wireless data and fixed wireless
opportunities
AT&T Wireless Group has been an industry leader in developing new growth
initiatives that take advantage of its existing wireless spectrum, digital
networks, customer base and brand. Working with AT&T Labs and outside vendors,
AT&T Wireless Group has targeted two growth areas for near-term expansion:
wireless data and fixed wireless.
Wireless Data
AT&T Wireless Group has been an industry leader in wireless data services
since it introduced the first packet-switched data network in March 1995, using
cellular digital packet data technology. AT&T Wireless Group's packet data
network currently covers a population of 104 million. AT&T Wireless Group's
customers of this data network can also roam on the data networks of other
wireless providers. Cellular digital packet data is an industry standard using
Internet Protocol, which allows most applications written for the Internet as
well as many corporate applications to run efficiently over the network without
modification. Relative to data services carried over circuit-switched analog or
digital wireless networks, AT&T Wireless Group's packet-switched data service is
a significantly more cost effective means of sending data for the majority of
applications because it allows a channel to be shared by many users. AT&T
Wireless Group believes that its early introduction of packetized wireless data
services provided it with a first mover advantage that significantly contributed
to its current leadership position. AT&T Wireless Group also believes that its
successful deployment and operation of a wireless data network, and its
competitive position in that market, will provide it significant advantages in
the deployment of interim and third generation technology networks and advanced
data applications and services.
The development of compelling data applications will be critical to the
growth in usage of wireless data network services. AT&T Wireless Group is
developing such applications as well as supporting applications developed by
third parties. AT&T Wireless Group expends considerable effort to sign up
corporate customers to carry its applications because these customers exhibit
lower churn and often provide relatively high revenue per subscriber. Examples
of these applications include those for public safety, dispatch, wireless credit
card validation and automated vehicle location. In addition, AT&T Wireless Group
has launched its consumer data service known as "AT&T Digital PocketNet(SM)"
service.
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This service provides customers with access to the wireless Internet, including
wireless web sites providing content, shopping services and other Internet-based
services such as email and personal calendars. Because of the efficiencies in
using its packet-based data network, AT&T Wireless Group has been able to offer
this service at flat rates to customers who also subscribe to a certain wireless
voice calling plan.
New devices are now driving the development of applications targeted more
broadly to consumers. These include applications involving hand held devices,
like the Palm(TM) Vx units, as well as those involving phones and laptop
computers. Applications that are currently available allow users to access their
personal information, including contact lists and calendars, as well as email,
Internet content and two-way messaging services. AT&T Wireless Group may
collaborate with Internet service providers or other content providers to
develop devices and applications suitable for wireless customers, as well as
access to the Internet service providers' communications services and online
distribution channels. Additionally, AT&T Wireless Group has introduced new
applications including e-commerce and shopping services. By providing or
facilitating these applications, AT&T Wireless Group believes it can generate
new revenue streams and develop personalized relationships with its customers.
AT&T Wireless Group expects that the development and introduction of third
generation networks will drive wireless data usage growth by offering greater
bandwidth and network coverage at lower costs. For its third generation
strategy, AT&T Wireless Group has decided to deploy another digital technology
platform that will facilitate the implementation of enhanced interim and third
generation data services.
In the fourth quarter of 2000, AT&T Wireless Services and AT&T entered into
a binding letter agreement with DoCoMo, a leading Japanese wireless
communications company, for DoCoMo's investment in AT&T reflecting the financial
performance and economic value of AT&T Wireless Group and for the formation of a
strategic alliance. The parties completed this investment on January 22, 2001.
For more information, please see "DoCoMo Strategic Investment." AT&T Wireless
Services and DoCoMo formed a strategic alliance to develop the next generation
of mobile multimedia services on a global-standard, high-speed wireless network.
AT&T Wireless Group will create a new, wholly owned subsidiary to develop and
encourage the development of multimedia content, applications and services
offerable over AT&T Wireless Services' current network and a new, high-speed
wireless network built to global standards for third generation services, such
as graphic presentation of data, video e-mail, high quality music downloads and
streaming audio and video. Both AT&T Wireless Services and DoCoMo will share
technical resources and support staffing of the new subsidiary. In addition,
AT&T Wireless Group will be able to license from DoCoMo, without additional
payment, rights to DoCoMo's "i-mode" technology and related technology as long
as the relationship is in effect and for 18 months thereafter. AT&T Wireless
Services and DoCoMo will also become partners in the U.S. and Japan for handling
the roaming traffic in each other's network. Subject to some exceptions, DoCoMo
has agreed that in the U.S., Mexico or Canada, other than through AT&T Wireless
Services, it will not undertake certain activities itself or form certain
relationships with third parties. AT&T Wireless Group has made the same
agreements with respect to DoCoMo in Japan.
Fixed Wireless
AT&T Wireless Group believes there is a significant business opportunity to
use wireless technology to provide residential and small business customers with
high-speed broadband access coupled with wireline quality voice access. Fixed
wireless service provides customers with a high-speed packet data channel that
can be used by up to five data devices simultaneously (for example, five
personal computers simultaneously accessing the Internet) at download speeds of
up to 512 kilobits per second. The service became capable of speeds of up to one
megabit per second in the fourth quarter of 2000. In addition, the offering
provides up to four lines of wireline quality voice telephony, including custom
calling features currently available over wireline networks (e.g., call waiting,
caller ID, three-way calling). AT&T Wireless Group believes that it enjoys a
time-to-market advantage with this fixed wireless solution. The technology is
currently serving customers in Anchorage, Alaska, Dallas/Fort Worth and Houston,
Texas and in San Diego, California, and as of December 31, 2000 was serving more
than 10,000 customers in the Dallas/
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Fort Worth and San Diego markets. AT&T Wireless Group initially has focused its
deployment of fixed wireless in markets not covered by AT&T's or its affiliates'
broadband properties.
BUSINESS OF AT&T WIRELESS GROUP
AT&T Wireless Group offers wireless mobile and fixed voice and data
communications service to consumers and businesses in the United States,
provides air-to-ground wireless services and has interests in wireless providers
in the United States and internationally. AT&T Wireless Group's wireless voice
services are capable of operating in virtually all of the United States over its
own network or its partners' networks or through roaming agreements.
Services and products
Basic Services
AT&T Wireless Group offers a variety of services for both voice and data
communications. Service can include wireless voice transmission as well as
custom calling services for digital services, such as extended battery life,
message waiting indicator, text messaging and caller ID. AT&T Wireless Group
also offers a variety of other enhanced features, including enhanced directory
assistance, which enables callers to be connected to the party whose number was
sought without hanging up and redialing.
Specialized Wireless Offers and Services
AT&T Wireless Group has developed a number of specialized wireless offers
and services to target distinct customer segments:
- AT&T Digital One Rate(SM)
- AT&T Regional Advantage and AT&T Digital Advantage services
- AT&T group plans
- Wireless Office Service
- AT&T Corporate Digital Advantage program
- Prepaid Wireless Services
- AT&T WorldConnect(R) service
The AT&T WorldConnect(R) service program allows AT&T Wireless Group's
customers to make and receive wireless calls for a flat roaming rate plus long
distance charges in over 100 countries across Europe, Australia, Asia, Latin
America, Africa and the Middle East, all while using their existing wireless
phone number. AT&T WorldConnect(R) service enables customers to enjoy the
convenience of wireless service at rates less than those charged by many
international hotels. A customer using a GSM wireless phone with AT&T
WorldConnect(R) service and a laptop computer with a GSM compatible modem card
is able to send and receive email and originate faxes, check a calendar, browse
the Internet and carry out other online transactions. AT&T WorldConnect(R)
service also provides discounted international calling from AT&T Wireless Group
markets in the U.S. and roaming with its U.S. digital multi-network phone in
select countries. For simplicity, international and domestic wireless charges
are both included on the customer's regular monthly AT&T Wireless bill. We
describe each of the other specialized wireless offers and services under
"-- Strategy."
Data Services
Cellular digital packet data network service. As a packet-switched data
network, AT&T Wireless Group's current data network takes advantage of the fact
that with many data applications, data is sent in bursts with intermittent quiet
periods, which allows many users to share the network channel. As a result,
relative to data services carried over circuit-switched analog or digital
wireless networks, AT&T Wireless Group's packet-switched data service is a
significantly more cost-effective means of sending data for the
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majority of applications because it allows a channel to be shared by many users.
For example, for many applications, AT&T Wireless Group's packet-switched data
network allows it to offer its customers unlimited usage, most often for a flat
monthly fee. This makes the data service on this network service attractive for
a variety of new applications. AT&T Wireless Group has created applications and
offers using the cellular digital packet data network for businesses, public
agencies and consumers.
To date, corporations and public agencies have been significant users of
AT&T Wireless Group's packet data service. These customers typically use this
service to carry industry-specific applications. Examples of such applications
include public safety applications, dispatch applications, wireless credit card
validation and automated vehicle location services.
New devices are driving the development of broader applications targeted to
consumers. Users may access these applications with hand held devices, like the
Palm Vx, as well as phones and laptop computers.
Applications on hand held devices. For hand held devices, AT&T Wireless
Group now has access to new CDPD-standard modems that work with the Palm Vx
device. Users can access Internet-based information from devices equipped with
these modems. A leading example of this is the OmniSky service available for the
Palm Vx. With a Palm Vx equipped with a modem that connects to AT&T Wireless
Group's current packet data network, an OmniSky subscriber can access email as
well as several hundred content providers that have created information
specifically for hand held devices.
Applications on phones. AT&T Wireless Group has been instrumental in the
formation of a worldwide standard called the Wireless Application Protocol. This
standard allows a micro "browser" in a wireless phone to link into a gateway
service in AT&T Wireless Group's network in such a way that web developers can
easily develop new services available to wireless phone users.
In the second quarter of 2000, AT&T Wireless Group launched AT&T Digital
PocketNet service and two new phones that combine AT&T Wireless Group's tri-mode
voice capability, in analog and digital, the latter in both 850 and 1900
megahertz, with a CDPD-standard modem and a micro browser in a single package.
AT&T Wireless Group first developed its own wireless data applications for
phones three years ago with the introduction of AT&T PocketNet service. AT&T
Wireless Group believes that the introduction of these new phones has and will
continue to accelerate the adoption of AT&T Digital PocketNet service as well as
drive the introduction of new applications.
AT&T Digital PocketNet service for businesses. In the first quarter of
2000, AT&T Wireless Group introduced AT&T Digital PocketNet service for
businesses. This service allows corporations to build applications that provide
access to corporate intranet information to employees who are out of their
offices. Two key applications illustrate this service. The first is Mobile
Services for Domino, which is available from International Business Machines
Corporation/Lotus Development Corporation. This application provides for real
time access to Lotus Notes email, calendar and contacts from compatible phones
available from AT&T Wireless Group via AT&T Digital PocketNet service. The
second application provides similar capabilities using Microsoft Exchange email
and Outlook calendar/contacts information. AT&T Wireless Group is offering this
service in cooperation with Wireless Knowledge LLC. These applications open up
the ability for Lotus Notes and Microsoft Exchange users to have real time and
easy control of their email and other corporate information when away from their
offices. All of these are currently available at flat monthly rates, and can be
bundled with AT&T Digital One Rate service or any of AT&T Wireless Group's other
wireless voice rate plans.
AT&T Digital PocketNet service for the consumer. In May 2000, AT&T
Wireless Group announced the launch of a version of AT&T Digital PocketNet
service for the consumer. As with AT&T Digital PocketNet service for businesses,
these services provide unlimited usage at flat monthly rates. With the consumer
offer customers can browse a variety of consumer oriented branded and nonbranded
content including news, sports, financial information, directories, directions,
travel reservations and weather. In addition, applications that allow consumer
users to shop, access their personal information, including contact lists and
calendars, and read, write and respond to emails are also available. AT&T
Wireless
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Group currently offers applications and services from over 70 content providers.
In the third quarter of 2000, AT&T Wireless Group announced that it has chosen
Qpass to provide AT&T Digital PocketNet subscribers the ability to easily and
securely buy content, goods and services via their Internet enabled phones.
In the future, AT&T Wireless Group expects a number of additional
applications will be developed, including instant messaging shopping services
and services that are enhanced by information about the user's location. By
providing or facilitating such applications, AT&T Wireless Group believes it can
generate new revenue streams, as well as develop personalized relationships with
its customers.
AT&T Text Messaging service. For the last several years, AT&T Wireless
Group has offered digital customers the ability to receive and store short
alphanumeric messages and pages right on their wireless phones. In October 2000,
AT&T Wireless Group launched AT&T Text Messaging service which allows customers
to send, receive and reply to short text messages from any compatible digital
wireless phone. AT&T Wireless Group provides customers the choice to either pay
on a per message basis or purchase a bucket of messages for use each month. AT&T
Text Messaging service also allows customers to receive updated news, sports,
weather and other relevant information in the form of short text messages.
Two-way text messaging is extremely popular in Europe and Asia and AT&T Wireless
Group views AT&T Text Messaging as an important part of its overall offer
portfolio in the future.
Products
AT&T Wireless Group offers a variety of products as complements to its
wireless service, including handsets and accessories, such as chargers,
headsets, belt clips, faceplates and batteries. As part of its basic service
offering, AT&T Wireless Group provides easy-to-use, interactive menu-driven
handsets that can be activated over the air. These handsets primarily feature
word prompts and menus rather than numeric codes to operate handset functions.
Some handsets allow mobile access to the Internet.
In addition, AT&T Wireless Group offers tri-mode handsets, which are
handsets compatible with analog and digital networks, the latter with 850 and
1900 megahertz frequencies and service modes. Tri-mode handsets permit customers
to roam across a variety of wireless networks and incorporate AT&T Wireless
Group's proprietary intelligent roaming data base system, which is designed to
provide service in more areas at favorable roaming rates. AT&T Wireless Group
offers its customers use of Nokia, Ericsson, Mitsubishi and Motorola handsets.
Tri-mode handsets offer significantly extended battery life over earlier
technologies, providing up to 14 days of stand-by battery life. Handsets
operating on a digital system are capable of sleep-mode while turned on but not
in use, thus improving efficiency for incoming calls, as users will be able to
leave these phones on for significantly longer periods than they can with
wireless phones using an earlier technology. The use of tri-mode handsets
further extends battery life by using a digital system for roaming when in areas
covered by digital systems.
Marketing
AT&T Wireless Group develops customer awareness through its marketing and
promotion efforts and has been a leader in differentiating its products through
its use of targeted pricing plans and the introduction of new products and
services. AT&T Wireless Group also uses the AT&T brand name, provides superior
customer care and may continue to be able to engage in cross marketing
arrangements with the AT&T sales force and, when appropriate, to bundle its
service with the communications services offered by AT&T under the terms of
agreements to take effect at the split-off.
Targeted marketing. AT&T Wireless Group targets groups of customers who
share common characteristics or have common needs. Common characteristics may be
usage (frequent travelers), social group (families), age (youth market) or any
other distinctive measure. AT&T Wireless Group then attempts to create a
compelling offer by combining rate plans, products promotions and features that
meet the particular needs of that targeted group and that AT&T Wireless Group
can provide at a competitive advantage. AT&T Wireless Group has expanded its
targeted marketing efforts to include groups of customers who are more casual or
lower-minute users, and as a result expects to experience upward
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pressure on churn rates. Also consistent with this strategic initiative, AT&T
Wireless Group expects to continue to experience a decrease in average revenue
per user.
The AT&T brand name. AT&T Wireless Group prominently features the AT&T
brand name and logo on its products and services. AT&T Wireless Group has
benefited from AT&T's national advertising to build its brand awareness. AT&T
Wireless Group believes that the use of the AT&T brand name, one of the most
well known in the United States, will continue to be a distinct marketing
advantage.
Customer care and support. AT&T Wireless Group places a high priority on
providing its customers with the best customer care and support. J.D. Power and
Associates' 2000 U.S. Wireless Customer Satisfaction Survey rated AT&T Wireless
Group highest in overall customer satisfaction in nine out of 12 markets
studied. In two of the nine markets, AT&T Wireless Group was tied for first
place. AT&T Wireless Group employs approximately 8,300 customer care
representatives located in 14 call centers and contracts for outsourced customer
care service with approximately 3,000 additional representatives in nine
locations. In addition, subscribers can access their account and obtain answers
to routine inquiries through its website, www.att.com/wireless. Customers can
reach AT&T Wireless Group's customer care representatives or access its website
on a 24 hour/seven day a week basis for answers regarding their service,
activation, changing service plans and other service options. Customer care
representatives are accessible from any point within the network on an AT&T
Wireless Group handset at no charge or through any other telephone by calling a
toll-free number. In addition, certain large enterprise customers may utilize a
customized extranet for ease of customer service.
As part of its customer care program, AT&T Wireless Group seeks to identify
customers who are at risk of changing service providers. In these cases, AT&T
Wireless Group has programs that assist customers in upgrading their equipment
to the latest technology, in changing their rate plan so they are on a plan that
is appropriate for their calling needs and in understanding how to get the full
benefits from their service. AT&T Wireless Group communicates these programs
through individualized and general communications, and utilizes these programs
to minimize the risk of customers switching to another service provider.
Marketing with AT&T. AT&T Wireless Group has had the opportunity to cross
market with AT&T's other divisions and capitalize on the size and breadth of
AT&T's customer base in long distance and broadband service. In the event of the
split-off, AT&T Wireless Services may continue to have certain marketing
opportunities with AT&T, as set forth in the terms of agreements to become
effective at the time of the split-off.
Sales and distribution
AT&T Wireless Group markets its wireless services in its managed markets
under the AT&T brand name. It markets wireless services to business and
residential customers through a direct sales force of 2,100, through sales
points of presence in approximately 520 AT&T Wireless Group company-owned stores
located in 37 states, and kiosks and other customer points of presence,
including the Internet and inbound call centers, and through local and national
non-affiliated retailers throughout the United States. AT&T's sales force may
sell wireless services to customers as part of bundled offerings with services
of AT&T when agreed upon by the companies.
AT&T Wireless Group also relies upon dealers to market its services in some
locations. Dealers are independent contractors that solicit customers for AT&T
Wireless Group service, and, typically, include specialized wireless stores,
specialized electronics stores and department stores. AT&T Wireless Group
generally pays its dealers a commission for each customer that uses its service
for a specified period, and may make residual or account management payments to
the dealer based on the customer's ongoing service charges.
AT&T Wireless Group has begun a number of initiatives designed to lower its
costs of adding subscribers as well as its customer care expenses.
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Rates and billing
AT&T Wireless Group charges may include fees for service activation,
monthly access, per-minute airtime and customer-calling features, which may
include a fixed number of minutes or packets of data per month at a set price
and generally offers a variety of pricing options, most of which combine a fixed
monthly access fee for a fixed number of minutes or packets of data and
additional charges for usage in excess of those allotted. Customers may also
incur long distance and roaming fees. AT&T Wireless Group manages its exposure
to bad debt by reviewing prospective customers for creditworthiness and by
deactivating accounts that reach a specific date past due. In calendar year
2000, AT&T Wireless Group adjusted its credit policies to be more competitive,
thereby increasing the number of customers with lower credit ratings. AT&T
Wireless Group expects that this may result in an increase in the number of
deactivations and, consequently, churn.
Other assets
AT&T Wireless Group also possesses certain other assets not described
above. The most significant of these assets include a number of equity interests
in international wireless operations and an air-to-ground wireless operation.
International
AT&T Wireless Group owns minority interests in wireless carriers in a
number of countries including Canada, India, Europe, Southeast Asia and Taiwan.
AT&T Wireless Group's international objectives include enlarging its footprint
to extend throughout North America as well as enhancing its ability to service
the global needs of its multinational customers.
POPS COVERED
COUNTRY ENTITY DESCRIPTION (IN MILLIONS)(1) OWNERSHIP(2)
-------------- -------------------------- -------------------------- ---------------- ------------
Canada Rogers Wireless Nationwide TDMA network 28 16.7%(3)
Communications, Inc.
Czech Republic EuroTel Praha, spol. Nationwide NMT 450 and 10 24.5%(4)
s.r.o. GSM 900 networks
India Birla AT&T GSM networks in Goa, 37 49%(5)
Communications Ltd. Gujarat and Maharashtra,
India
India BPL Cellular Ltd. GSM networks in Tamil 52 49%(4)
Nadu, Kerala, and
Maharashtra
Indonesia PT AriaWest Fixed line local network NA 35%(4)
International and unbuilt PCS license
in West Java
Malaysia Maxis Communications Bhd GSM 900 wireless and 16 12.6%(4)
fixed domestic &
international networks
Slovakia EuroTel Bratislava a.s. Nationwide NMT 450 and 5 24.5%(4)
GSM 900 networks
Taiwan Far EasTone Nationwide GSM 900 and 22 22.7%(6)
Communications Ltd. 1800 networks
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(1) Amount of population covered by the entity's network in its country, as of
December 31, 2000.
(2) As of December 31, 2000.
(3) AT&T Wireless Group's long-standing relationship with Rogers Wireless allows
two of North America's largest providers of service based on time division
multiple access technology to offer cross-border capabilities. Wireless
customers throughout Canada can enjoy wireless services under the
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Rogers AT&T Wireless name. This arrangement increases AT&T Wireless Group's
built network North American population coverage by 28 million. In February
2001, AT&T Wireless Group agreed with Rogers Wireless' majority shareholder
to make unsecured term loans available to Rogers Wireless to pay for
spectrum it successfully bid upon in recently completed Canadian spectrum
auctions. Rogers Wireless plans to effect a rights offering of its equity
securities equal to the unsecured loans and all costs and fees associated
with them. The majority shareholder of Rogers Wireless and our joint venture
entity with British Telecommunications are both obligated to subscribe to
their pro rata portions of the rights offering, along with any portion not
subscribed by Rogers Wireless' minority public shareholders. We will fund
the commitment of the joint venture entity by offsetting it against the
unsecured, interest bearing note we will receive from Rogers Wireless in
respect of the loan described above, together with interest and related
fees. This transaction will increase our interest in the joint venture
entity with British Telecommunications, in proportion to the equities
received. This transaction will not result in a transfer of control of
Rogers Wireless to our joint venture with British Telecommunications.
(4) In October 2000, AT&T Wireless Group completed its acquisition of several
equity interests in international ventures acquired by AT&T as a result of
its acquisition of MediaOne in June 2000. AT&T Wireless Group paid
approximately $1 billion to AT&T for these properties, which was based upon
a third party valuation. In March 2001, AT&T Wireless Group entered into an
agreement with other shareholders of Maxis Communications Bhd for the sale
of AT&T Wireless Group's entire interest in that entity and the resolution
of claims asserted by these shareholders in an arbitration proceeding. AT&T
Wireless Group does not expect the transactions to have a material impact on
the financial position, results of operations or cash flows of AT&T Wireless
Group.
(5) In the fourth quarter of 2000, Birla AT&T executed definitive documents for
two transactions that will expand its coverage area in India. First, Birla
AT&T entered into an agreement to merge with the wireless operations of Tata
Cellular, Ltd. Tata Cellular, Ltd. owns and operates a cellular business in
the Indian state of Andhra Pradesh. The completion of the transaction is
awaiting governmental approval, which Birla AT&T expects to receive in the
first half of 2001. When completed AT&T Wireless Group will own a 33% stake
in the new merged entity. In a second transaction, AT&T Wireless Group,
Birla AT&T and Tata Cellular, Ltd. completed a cash acquisition of cellular
operations in the Indian state of Madhya Pradesh. Each acquiror will
contribute their interest to the new merged Birla AT&T/Tata Cellular, Ltd.
entity concurrent with the completion of the merger. Subsequent to the
contribution, the new merged entity will have covered population of
approximately 57 million.
(6) In September 2000, AT&T Wireless Group signed an agreement to exercise its
options to purchase additional shares of stock in Far EasTone. In December
2000, AT&T Wireless Group completed this transaction, investing an
additional $205 million, resulting in a total ownership interest of 22.7%.
In the first quarter of 2000, AT&T Wireless Group was allocated a portion
of AT&T's interest in Japan Telecom, which provides local, long distance,
Internet and mobile wireless communications to businesses and consumers in
Japan. AT&T's interest in Japan Telecom is held through a joint venture with
British Telecommunications. On February 26, 2001, AT&T agreed to sell its
interest in Japan Telecom for approximately $1.35 billion. The net after-tax
proceeds are expected to be approximately $1 billion. AT&T has indicated that
the net after-tax proceeds will be allocated evenly between AT&T and AT&T
Wireless Group. In the fourth quarter of 2000, AT&T Wireless Services and AT&T
entered into a binding letter agreement with DoCoMo, a Japanese wireless
communications company, for DoCoMo's investment in AT&T reflecting the financial
performance and economic value of AT&T Wireless Group and for the formation of a
strategic alliance. The parties completed this investment on January 22, 2001.
For more information, please see "DoCoMo Strategic Investment."
Air-to-ground
The Aviation Communications Division of AT&T Wireless Group provides
air-to-ground communications services. A minority ownership interest in this
division is held by Rogers Wireless.
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The Aviation Communications Division owns and operates a network of
ground-based and airborne telecommunications equipment and related assets that
deliver digital telephone service to commercial and private aircraft in North
America. The Aviation Communications Division's North American installed
customer base represents over 1,500 commercial aircraft. Its North American
Terrestrial System network of ground stations provides coverage on substantially
all major routes flown by its commercial airlines customers equipped with the
Aviation Communications Division's telephony equipment. Outside the United
States, the Aviation Communications Division is a supplier of airborne
telecommunications equipment and product support to airlines and other service
providers, with a current installed customer base of over 300 commercial
aircraft. The Aviation Communications Division also serves general aviation
aircraft.
Wireless network
AT&T Wireless Group's ownership position in U.S. markets was obtained
through FCC comparative hearings, FCC auctions and the FCC lottery and
settlement process as well as through acquisitions of, and purchases and
exchanges of, operating systems and licenses from or with other wireless service
licensees. AT&T Wireless Group continues to participate in FCC spectrum auctions
or other acquisitions of licenses when commercially and strategically reasonable
to do so. It may enter into agreements with third parties with regard to their
participation in such auctions, within the parameters legally permitted and
disclosed to the extent required by law. AT&T Wireless Group has made certain
commitments to provide funding for successful bids of Alaska Native Wireless,
L.L.C. for the C and F Block reauction (FCC Auction 35) which ended January 26,
2001. At the conclusion of the auction, Alaska Native Wireless was the high
bidder on approximately $2.9 billion in licenses. One auction participant has
challenged the qualifications of Alaska Native Wireless to acquire "closed"
licenses, which constituted most of the licenses for which Alaska Native
Wireless was the successful bidder. In addition, the trustee in NextWave
Telecom, Inc.'s Chapter 11 bankruptcy proceeding and the unsecured creditors of
NextWave are challenging the right of the FCC to re-auction the 1900 megahertz
licenses that NextWave acquired in prior FCC auctions but which were later
reclaimed by the FCC. Either of these proceedings could result in a delay in the
grant of licenses to successful bidders or revocation of any licenses, including
those won or acquired by Alaska Native Wireless. AT&T Wireless Group has
committed to provide funding of $2.6 billion in exchange for a combination of a
non-controlling equity interest and debt securities of Alaska Native Wireless to
fund its purchase of these licenses. AT&T Wireless Group's own spectrum,
together with the spectrum of its affiliates and the spectrum on which Alaska
Native Wireless was high bidder in the recently completed FCC spectrum auction,
would be sufficient to serve over 85 of the top 100 markets with AT&T Wireless
Group's selected third generation technology, UMTS. Although Alaska Native
Wireless is obligated to use technology that is compatible and interoperable
with AT&T Wireless Group's digital mobile wireless network, no commitments have
been made by Alaska Native Wireless concerning the deployment of the licenses
for which it was high bidder and not all affiliates may be obligated to
implement AT&T Wireless Group's third generation technology strategy. Under
certain conditions, and in addition to other means by which they may transfer
their interests, the other owners of Alaska Native Wireless have the right to
require AT&T Wireless Group to purchase their equity interests. If this right
were exercised five years after license grant, the price could be as much as
approximately $950 million and would be payable, at AT&T Wireless Group's
option, in cash or marketable securities. The amount would be less if the right
were exercised earlier. Formal grant to Alaska Native Wireless of the licenses
successfully bid upon in the auction has not yet occurred and is subject to
administrative procedures.
Mobile wireless network
Coverage. As of December 31, 2000, AT&T Wireless Group's built network,
including partnership and affiliate markets, covered 98% of the U.S. population,
including operations in 49 of the 50 largest U.S. metropolitan areas. AT&T
Wireless Group's wireless network operates using both 850 megahertz and 1900
megahertz licenses. Where agreements are in place, AT&T Wireless Group is able
to offer service to customers of other wireless providers when they travel
through its service area, and AT&T Wireless Group subscribers can roam through
other wireless providers' service areas.
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Analog and digital technologies. AT&T Wireless Group offers both analog
and digital service in its 850 megahertz markets and digital service in its 1900
megahertz markets. AT&T Wireless Group believes that digital technology offers
many advantages over analog technology, including substantially increased
network capacity, greater call privacy, enhanced services and features, lower
operating costs, reduced susceptibility to fraud and the opportunity to provide
improved data transmissions. Moving customers to digital service has been a key
component of AT&T Wireless Group's overall wireless strategy. Digital service
enables AT&T Wireless Group to provide added benefits and services to its
customers, including extended battery life, caller ID, text messaging and
voicemail with message waiting indicator.
AT&T Wireless Group has pursued a strategy to convert its analog networks
and subscriber base to digital. The primary goals of this program are capacity
expansion, cost reduction, and product improvement. As of December 31, 2000,
over 90% of AT&T Wireless Group's consolidated subscribers use digital service,
accounting for over 94% of its traffic.
As AT&T Wireless Group grows its customer base and adds new services and
applications, such as data services, it will need to increase its capacity in
order to support higher network traffic. Digital voice paths require less radio
frequency spectrum capacity than do analog voice paths. Further capacity
improvements are possible using other digital techniques and AT&T Wireless Group
believes that it is currently yielding from its digital mobile systems as much
as four times the capacity of an analog system using equivalent spectrum.
Further capacity improvements are possible using other digital techniques that
would yield as much as or more than six times analog capacity. AT&T Wireless
Group and its suppliers currently are developing and intend to deploy such
additional capacity-enhancing technology within its existing spectrum.
AT&T Wireless Group intends to deploy its national GSM digital technology
platform, adding interim enhanced wireless data services using GPRS technology
as well as third generation EDGE technology within its existing spectrum
resources, and eventually including third generation capabilities using UMTS
technology largely using its existing spectrum resources. The deployment of new
technology is expected to be one factor that increases the spectrum efficiency
of AT&T Wireless Group's existing digital mobile network, in combination with
increased network capacity through cell site construction. AT&T Wireless Group
believes that its competitors that have not converted to digital will not have
the same flexibility in deploying high-speed data services.
AT&T Wireless Group believes that its continued success depends on having a
competitive cost structure. In addition to enhancing capacity, digital
technology allows AT&T Wireless Group to produce network minutes with less
capital and operating expense than analog technology. Not only is the cost of
digital network equipment lower per voice path than analog network equipment,
but also fixed costs, such as towers, shelters and other common equipment, are
reduced by spreading them over a larger number of minutes. Digital has also
allowed AT&T Wireless Group to improve its roaming costs substantially using
over-the-air programming, which enables phones to select the most cost-effective
roaming partners. AT&T Wireless Group believes that its prompt implementation of
digital technology gives it a cost advantage over its competitors that are more
dependent on analog.
Moving customers to digital service is a key component of AT&T Wireless
Group's overall wireless strategy. Digital technology provides a host of feature
improvements to AT&T Wireless Group's customers. To date, AT&T Wireless Group
has delivered on its digital networks such features as caller ID, voicemail with
message waiting indicator, short alphanumeric message service, and Wireless
Office Service.
TDMA network. AT&T Wireless Group chose time division multiple access, or
TDMA, technology for its second generation voice digital network, although it
does operate a small number of markets utilizing code division multiple access,
or CDMA, that were operating that technology when AT&T Wireless Group acquired
them. TDMA permits the use of advanced tri-mode handsets that allow for roaming
across analog and digital systems and across 850 megahertz and 1900 megahertz
spectrums. This digital technology allows for enhanced services and features,
such as short alphanumeric message service, extended battery life, added call
security and improved voice quality. TDMA's hierarchical cell structure enables
AT&T Wireless Group to enhance network coverage with lower incremental
investment through
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the deployment of smaller, lower range cell sites than are generally used. This
enables AT&T Wireless Group to offer customized billing options and to track
billing information per individual cell site, which is practical for advanced
wireless applications such as fixed wireless and wireless office applications.
TDMA technology served an estimated 54 million subscribers worldwide and 27
million subscribers in North America as of September 30, 2000, according to the
Universal Wireless Communications Consortium, an association of TDMA service
providers and manufacturers. TDMA equipment is available from leading
telecommunication vendors such as Lucent, Ericsson and Nortel Networks Inc. A
number of other wireless service providers have chosen CDMA or GSM as their
current digital wireless technology. The AT&T Wireless Group intends to deploy
an overlay of GSM technology to its TDMA network, as part of its third
generation development strategy.
Cellular digital packet data network
AT&T Wireless Group's existing network utilizing packet-switched data
technology, called CDPD, covers U.S. population of 104 million as of December
31, 2000, which represents over 60% of its built network. The AT&T Wireless
Group customers on this data network can roam on the data networks of other
wireless providers who use the same cellular digital packet data technology,
which, together, cover an additional U.S. population of 74 million. Cellular
digital packet data is an industry standard using Internet Protocol, which
allows most applications written for the Internet as well as many corporate
applications to run efficiently over the network without modification. Using
this technology, data files and transactions are divided into small packets and
sent on a dedicated wireless channel. In many data applications, data is sent in
bursts with intermittent quiet periods. Packet transmission technologies take
advantage of this fact and allow user data to be efficiently carried on the same
network channel. As a result, relative to data services carried over
circuit-switched analog or digital wireless networks, AT&T Wireless Group's
packet-switched data service is a significantly more cost-effective means of
sending data for the majority of applications because it allows many users to
share the same channel.
Third generation development strategy
Third generation technologies will allow carriers to provide high-speed
wireless packet data services and ultimately voice services using Internet
Protocol. AT&T Wireless Group believes that a sound third generation strategy
should allow the wireless provider to achieve a pervasive footprint quickly and
cost effectively. In addition, AT&T Wireless Group believes third generation
networks that achieve global economies of scale and allow for global roaming
will have a significant advantage. AT&T Wireless Group had previously chosen
TDMA-EDGE as its next generation wireless architecture, to be deployed on its
TDMA network platform, as a means of accomplishing all of these goals. With this
strategy, the AT&T Wireless Group expected to be able to offer initial TDMA-EDGE
services sometime in 2002, with substantial deployment continuing into 2003.
However, in November 2000, AT&T Wireless Group announced that it has
selected for its eventual third generation services the technological standard
that is the same global standard that has been selected by service providers
throughout Europe, in Japan and in other parts of the world. This standard,
known as UMTS (for universal mobile telecommunications system), has generally
been accepted as the successor technology to the second generation digital
technology known as GSM (for global system for mobile communications). UMTS is
also known as W-CDMA, or wideband code division multiple access. Despite the
similarity of the acronyms, CDMA 2000 and W-CDMA are not compatible.
To accelerate the availability of enhanced data services offerings, AT&T
Wireless Group recently announced plans to deploy a GSM platform for interim
improvements in wireless data capabilities on the evolutionary path to third
generation services, as well as associated voice services. This platform will be
deployed as an overlay on AT&T Wireless Group's second generation voice network.
GSM platform deployment is planned to begin in the second half of 2001. AT&T
Wireless Group plans to make interim enhanced data services using GPRS
technology deployed on the GSM network available starting in 2001. Third
generation EDGE technology service is expected to be available in 2002. AT&T
Wireless Group currently plans to deploy third generation UMTS technology
beginning in 2003, depending on the
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availability of network equipment and customer devices. By making services on
GPRS technology available in 2001, AT&T Wireless Group expects to be able to
make enhanced data services available to customers earlier than its originally
planned deployment of TDMA-EDGE in 2002.
Due to its broad international acceptance, the GSM platform equipment
needed is readily available in the market. The overlay strategy also will allow
AT&T Wireless Group to utilize its existing cell site facilities and spectrum.
Because of these efficiencies, the AT&T Wireless Group expects that its network
capital expenditures associated with the high-speed data technology included in
its third generation plans over the period of deployment will be only modestly
greater than its earlier third generation migration plan, but may occur in
earlier periods.
Like AT&T Wireless Group's current packet data network, the technology
standards AT&T Wireless Group has selected for its enhanced and third generation
data services strategy are also Internet Protocol based. As a result, AT&T
Wireless Group expects that its near term use of its existing packet data
network to develop innovative solutions will provide migration for its data
customers. AT&T Wireless Group expects that all the applications developed and
deployed today will migrate to GPRS-based and eventually to EDGE-based network
services as customers upgrade their equipment to the new technologies to be
deployed. However, when deployed using GPRS and EDGE technologies, these
applications are expected to operate at higher speeds where deployed.
This plan is expected to enable AT&T Wireless Group to provide customers
with earlier availability of a wide range of data service offerings on a broad
array of devices (phones, personal data assistants, or PDA's, laptops, etc.).
AT&T Wireless Group plans to sell handsets combining its current TDMA
transmission technology and the GSM technology platform it plans to deploy with
enhanced and third generation GPRS and EDGE technologies, which would provide
customers the benefit of access to AT&T Wireless Group's current voice network
as well as the new enhanced and high-speed data services when available.
Industry specifications for the combined technology handsets were jointly
developed by the Universal Wireless Communications Consortium and the North
American GSM Alliance. AT&T Wireless Group is in discussions with manufacturers
to develop such devices.
In November 2000, AT&T announced nonbinding letters of intent with
Ericsson, Lucent Technologies, Nokia and Nortel Networks for third generation
network equipment and, in the case of Nokia and Ericsson, for future generation
wireless customer terminals. AT&T Wireless Group began negotiating definitive
agreements with these and other vendors during the fourth quarter of 2000 and
has executed several of these agreements.
Fixed Wireless
Fixed wireless service provides customers with a high-speed packet data
channel that can be used by up to five data devices simultaneously (for example,
five personal computers simultaneously accessing the Internet) at download
speeds of up to 512 kilobits per second. The service became capable of speeds of
up to one megabit per second in the fourth quarter of 2000. In the future, the
fixed wireless technology may evolve to provide higher than one megabit of
bandwidth per second. Currently, the offering provides expansion up to four
lines of wireline quality voice telephony, including custom calling features
available today over wireline networks (e.g., call waiting, caller ID, three-way
calling).
Both the data and voice channels are delivered over the existing telephone
wiring within the residence or small business premises, allowing customers to
utilize their existing telephones. No separate modem is required in order to
connect a customer's personal computer to the data channel. Once connected to
the existing telephone wiring within the premises, the fixed wireless equipment
(in combination with installation of third party hardware) supports multiple
simultaneous PC connections to the Internet within the premises. Data and
telephone equipment is connected within the premises using the standard jacks
that already exist on the premises. All data transmissions are secured for
customer privacy and fraud protection by use of proprietary protocols. Voice
transmissions are encrypted for customer privacy and fraud protection.
The data aspect of fixed wireless service will be further developed to
create an environment in which customers may select and easily change their
third party Internet service provider.
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In order to install fixed wireless service in a customer's premises, AT&T
Wireless Group must mount a flat panel antenna on the outside of a customer's
premises and certain electronic equipment, including a backup battery supply,
inside the premises. Once installed, the antenna on the customer's premises
communicates with a neighborhood antenna and base station that, in the majority
of cases, shares its physical location with an antenna and base station site
used to serve AT&T Wireless Group's mobile wireless service. Thus, in many cases
the mobile and fixed wireless networks will share a common infrastructure for
towers, base station sites and backhaul transmission to a digital switching
center.
AT&T believes that AT&T Wireless Group is the most appropriate group to
take advantage of the fixed wireless opportunity for a number of reasons. First,
the fixed wireless network will share equipment and facilities with the mobile
wireless network, lowering the level of capital required to roll out the fixed
wireless service. Second, AT&T Wireless Group will take charge of the management
and sharing of wireless spectrum across business opportunities such as the core
mobility business, fixed wireless and the wireless data opportunity. Finally,
AT&T Wireless Group's management team has more experience to take advantage of
the opportunity, given the technical expertise and knowledge it has accumulated
building the mobile wireless network.
COMPETITION
Competition for subscribers among wireless service providers is based
principally upon the services and features offered, call quality, customer
service, system coverage and price. AT&T Wireless Group's ability to compete
successfully will depend, in part, on its ability to anticipate and respond to
various competitive factors affecting the industry, including new services that
may be introduced, changes in consumer preferences, demographic trends, economic
conditions and pricing strategies. Increased competitive pressures, the
introduction of popularity of new products and services, including prepaid phone
products, as well as a general softening of the economy, could adversely affect
AT&T Wireless Group's results, increase its churn and decrease its average
revenue per user. AT&T Wireless Group's primary national competitors are
Cingular, Verizon Wireless, Nextel Communications, Inc., VoiceStream
Communications and Sprint PCS.
In addition, the wireless communications industry has been experiencing
significant consolidation and the AT&T Wireless Group expects that this
consolidation will continue. The previously announced, or recently completed,
mergers or joint ventures of Bell Atlantic/GTE/Vodafone AirTouch (now called
Verizon), SBC/Bell South/Ameritech (now called Cingular) have created large,
well-capitalized competitors with substantial financial, technical, marketing
and other resources to respond to AT&T Wireless Group's offerings. In addition,
in July 2000, VoiceStream Communications and Deutsche Telekom announced a
proposed transaction. These mergers or ventures have caused AT&T Wireless
Group's ranking to decline to third in U.S. revenue and U.S. subscriber share.
In terms of U.S. population covered by licenses, or POPs, AT&T Wireless Group,
including partnerships and affiliates, ranks third. As a result, these
competitors may be able to offer nationwide services and plans more quickly and
more economically than the AT&T Wireless Group and to obtain roaming rates that
are more favorable than those obtained by AT&T Wireless Group, and may be better
able to respond to offers of AT&T Wireless Group.
AT&T Wireless Group's cellular operations have always experienced direct
competition from the second cellular licensee in each market. Beginning in 1997,
AT&T Wireless Group began experiencing competition from as many as six license
holders in certain markets. Competition from new providers in AT&T Wireless
Group's markets will continue to increase as the networks of license holders are
built out over the next several years. In addition, the FCC is likely to offer
additional spectrum for wireless mobile licenses in the future using existing or
new technologies. See "Risk Factors -- Risks Relating to AT&T's Restructuring
Plan -- AT&T's restructuring may adversely impact the competitive position of
AT&T's business units."
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PATENTS AND TRADEMARKS
AT&T and AT&T Wireless Group and their subsidiaries own numerous patents in
the United States and foreign countries. The foreign patents are generally
counterparts of the U.S. patents. Many of these patents are licensed to others
and AT&T, the AT&T Wireless Group and their subsidiaries are licensed to use
certain patents licensed from others. Until now, patents sometimes have been
managed by the AT&T group originating or utilizing the patent, and sometimes
have been managed by a different AT&T group; patents utilized by AT&T Wireless
Group have been managed by the group that has managed it historically. In the
event of a split-off, AT&T Common Stock Group and AT&T Wireless Services will
cross-license to each other their patents owned as of the time of the split-off
as well as certain patents issuing from patent applications pending at the time
of the split-off. This arrangement is intended to preserve each group's right to
use the patents managed by the other group, or with respect to which either has
the power to grant such rights, for appropriate business activities. We expect
there will be no royalty or licensing fees related to these arrangements for
patents owned by the respective group.
The groups have collaborated to achieve enterprise objectives with respect
to the licensing or sale of patents to third parties. The policy of AT&T
Wireless Group capital stock committee has been not to sell or license any
patents that are predominantly used by AT&T Wireless Group if that sale or
license would result in a material competitive disadvantage to AT&T Wireless
Group. Any fees obtained through such sales or licensing would be allocated to
the group that predominantly uses the patents sold or licensed, or if no
specific patent can be associated with a fee or such patent is not predominantly
used by any one group, then allocated using the same general allocation as
overhead expenses. AT&T Wireless Group does not consider any individual patents
to be material to its business operation. For avoidance of doubt, in the event
of a split-off this paragraph shall have no prospective effect.
AT&T has numerous trademarks registered throughout the world. AT&T
considers many of its trademarks to be valuable assets, particularly the AT&T
brand name and globe logo. AT&T Wireless Group currently has access to these
trademarks, including the AT&T brand name and globe logo, in the United States
and other countries. In the event of a split-off, AT&T Wireless Services will be
licensed by AT&T to use a number of AT&T's trademarks that it has been using to
date, including the AT&T brand name and globe logo. It is expected that the
initial term of the license will be five years, with the right by AT&T Wireless
Services to renew the license for an additional five years. The license will be
royalty free, but will include a brand maintenance fee computed as a percentage
of AT&T Wireless Services' gross revenue on services using the licensed
trademarks. That percentage during the initial term declines over one or two
year increments; and, during the renewal term, the percentage remains at the
percentage set for the final year of the initial term. This license will be
exclusive and world-wide for wide-area mobile cellular wireless services, with
the exception of certain countries in which AT&T has already licensed the brand
for these services. The license to use the brand for fixed wireless is
non-exclusive and is limited to residential markets, and if certain
preconditions are met, the license may be extended to small business markets;
but in neither case does the license extend to the service areas of cable
systems currently owned and operated by AT&T (other than in certain areas of
Dallas, Texas) or in which AT&T currently has an attributable ownership
interest, or to certain designated market areas.
In total, these patents, patent applications, trademarks and licenses are
material to AT&T Wireless Group's business.
EMPLOYEES
As of December 31, 2000, AT&T Wireless Group employed approximately 29,000
individuals in its operations, including its fixed wireless operations,
virtually all of whom are located in the United States.
PROPERTIES
AT&T Wireless Group owns, or controls through long-term leases or licenses,
properties consisting of plant and equipment used to provide wireless
communications services. In addition, it owns, or controls through leases,
properties used as administrative office buildings and/or retail sales
locations, customer
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care centers, and other facilities, such as research and development facilities.
These properties include land, interior and rooftop office space, and space on
existing structures of various types used to support equipment used to provide
wireless communications services. Most of the leased properties are owned by
private entities and the balance is owned by municipal entities. As of December
31, 2000, AT&T Wireless Group's estimated commitments associated with these
leases was approximately $1.4 billion.
Plant and equipment used to provide wireless communications services
consist of:
- switching, transmission and receiving equipment,
- connecting lines (cables, wires, poles and other support structures,
conduits, etc.),
- land and buildings,
- easements, and
- other miscellaneous properties (work equipment, furniture and plants
under construction).
The majority of the lines connecting AT&T Wireless Group services to other
telecommunications services and power sources are on or under public roads,
highways and streets. The remainder are on or under private property.
REGULATORY ENVIRONMENT
The FCC regulates the licensing, construction, operation, acquisition, sale
and resale of wireless systems in the United States pursuant to the
Communications Act of 1934 and the associated rules, regulations and policies
promulgated by the FCC. FCC terminology distinguishes between "cellular"
licenses, which utilize a frequency of 850 megahertz, and "PCS" licenses, which
utilize a frequency of 1900 megahertz. The different types of licenses and their
associated systems may have differing technical characteristics.
Licensing of wireless services systems
AT&T Wireless Group owns protected geographic service area licenses granted
by the FCC to provide cellular service and PCS. It also owns licenses granted by
the FCC to provide point-to-multi-point communications services in various
bands, including significant licenses in the 37 to 39 gigahertz bands.
A cellular system operates on one of two 25 megahertz frequency blocks that
the FCC allocates for cellular radio service. Cellular systems generally are
used for two-way mobile voice applications, although they may be used for data
applications and fixed wireless services as well. Cellular license areas are
issued for either metropolitan service areas or rural service areas. Initially,
one of the two cellular licenses available in each metropolitan service area or
rural service area was awarded to a local exchange telephone company by the FCC,
while the other license was awarded either through competitive processes or
lotteries. Licenses were issued beginning in 1983, and over the years numerous
license transfers and corporate reorganizations have obscured the original
pattern of distributing one set of licenses to local telephone company
affiliates and the other to companies that do not have local exchange service in
the license area.
A PCS system operates on one of six frequency blocks allocated for personal
communications services. PCS systems generally are used for two-way voice
applications although they may carry two-way data communications as well. For
the purpose of awarding PCS licenses, the FCC has segmented the United States
into 51 large regions called major trading areas, which are comprised of 493
smaller regions called basic trading areas. The FCC awarded two PCS licenses for
each major trading area and four licenses for each basic trading area. The two
major trading area licenses authorize the use of 30 megahertz of spectrum. One
of the basic trading area licenses is for 30 megahertz of spectrum, and the
other three are for 10 megahertz each. The FCC permits licensees to split their
licenses and assign a portion, on either a geographic or frequency basis or
both, to a third party.
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The FCC awarded initial PCS licenses by auction. Auctions began with the 30
megahertz major trading area licenses and concluded in 1998 with the last of the
basic trading area licenses. However, in March 1998, the FCC adopted an order
that allowed financially troubled entities that won PCS 30 megahertz C-Block
licenses at auction to obtain financial relief from their payment obligations
and to return some or all of their C-Block licenses to the FCC for reauctioning.
The FCC completed the reauction of the returned licenses in April 1999. In
addition, certain of the C-block licenses are currently in bankruptcy
proceedings. The FCC cancelled some of these licenses, and completed the
reauction of the licenses in January 2001. The FCC's cancellation of the
licenses has been challenged by one of the bankrupt licensees, and there is no
guarantee that the reauction or the award of any licenses pursuant to the
reauction will not be affected by this challenge.
Under the FCC's current spectrum aggregation rules, no entity may hold
attributable interests, generally 20% or more of the equity of, or an officer or
director position with, the licensee, in licenses for more than 45 megahertz of
PCS, cellular and certain specialized mobile radio services where there is
significant overlap in any geographic area. Significant overlap will occur when
at least 10% of the population of the PCS licensed service area is within the
cellular and/or specialized mobile radio service area(s). The FCC recently
increased this limit to 55 megahertz for rural areas. These spectrum aggregation
rules are subject to a pending FCC proceeding that could revise or eliminate
them.
All wireless licenses have a 10-year term, at the end of which term they
must be renewed. The FCC will award a renewal expectancy to a wireless licensee
that has provided substantial service during its past license term, and has
substantially complied with applicable FCC rules and policies and the
Communications Act. Licenses may be revoked for cause and license renewal
applications denied if the FCC determines that a renewal would not serve the
public interest. FCC rules provide that competing renewal applications for
licenses will be considered in comparative hearings, and establish the
qualifications for competing applications and the standards to be applied in
hearings.
All wireless licenses must satisfy specified coverage requirements.
Cellular licenses were required, during the five years following the grant of
the initial license, to construct their systems to provide service (at a
specified signal strength) to the territory encompassed by their service area.
Failure to provide such coverage resulted in reduction of the relevant license
area by the FCC. All A, B and C block PCS licensees must construct facilities
that offer coverage to one-third of the population of the service area within
five years of the initial license grants and to two-thirds of the population
within ten years. All D, E and F block PCS licensees must construct facilities
that offer coverage to one-fourth of the population of the licensed area or
"make a showing of substantial service in their license area" within five years
of the original license grants. Other point-to-multi-point licenses require a
showing of substantial service at renewal. Licensees that fail to meet the
coverage requirements may be subject to forfeiture of the license.
In an effort to balance the competing interests of existing microwave users
in the PCS bands and newly authorized PCS licensees, the FCC has adopted a
transition plan to relocate such microwave operators to other spectrum blocks
and a cost sharing plan so that if the relocation of an incumbent benefits more
than one PCS licensee, those licensees will share the cost of the relocation.
The transition period contemplates negotiations between microwave licensees and
PCS licensees to accomplish the transition and to govern the terms and
conditions of the transition of microwave licensees from the PCS spectrum.
Generally, there is a "voluntary" negotiation period during which incumbent
microwave licensees can, but do not have to negotiate with PCS licensees. This
is followed by a "mandatory" negotiation period during which incumbent microwave
licensees must negotiate in good faith with PCS licensees.
Wireless systems are subject to certain FAA regulations governing the
location, lighting and construction of transmitter towers and antennas and are
subject to regulation under federal environmental laws and the FCC's
environmental regulations. State or local zoning and land use regulations also
apply to tower siting and construction activities. We expect to use common
carrier point-to-point microwave facilities to connect certain wireless cell
sites, and to link them to the main switching office. The FCC licenses these
facilities separately and they are subject to regulation as to technical
parameters and service.
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The Communications Act preempts state and local regulation of the entry of,
or the rates charged by, any provider of private mobile radio service or of
commercial mobile radio service, which includes PCS and cellular service. The
FCC does not regulate commercial mobile radio service or private mobile radio
service rates. However, commercial mobile radio service providers are common
carriers and are required under the Communications Act to offer their services
to the public without unreasonable discrimination. The FCC's rules currently
require providers to permit others to resell their services for a profit;
however, these rules will expire in 2002.
Transfers and assignments of spectrum licenses
Except for transfers of control or assignments that are considered "pro
forma," the Communications Act and FCC rules require the FCC's prior approval
for the assignment of a license or transfer of control of a licensee for a PCS
or cellular system and other types of wireless licenses. In addition, the FCC
has established transfer disclosure requirements that require licensees who
assign or transfer control of a PCS license within the first three years of
their license terms to file associated sale contracts, option agreements,
management agreements or other documents disclosing the total consideration that
the licensee would receive in return for the transfer or assignment of its
license. Non-controlling interests in an entity that holds an FCC license
generally may be bought or sold without FCC approval subject to the FCC's
spectrum aggregation limits. However, notification and expiration or earlier
termination of the applicable waiting period under Section 7A of the Clayton Act
by either the Federal Trade Commission or the Department of Justice may be
required if we sell or acquire interests over a certain size. Approval by state
or local regulatory authorities having competent jurisdiction may also be
required in some circumstances.
Foreign ownership
Under existing law, no more than 20% of an FCC licensee's capital stock may
be owned, directly or indirectly, or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives or by a foreign
corporation. If an FCC licensee is controlled by another entity, as is the case
with our ownership structure, up to 25% of that entity's capital stock may be
owned or voted by non-U.S. citizens or their representatives, by a foreign
government or its representatives or by a foreign corporation. Foreign ownership
above the 25% level may be allowed should the FCC find such higher levels not
inconsistent with the public interest. The FCC has ruled that higher levels of
foreign ownership, even up to 100%, are presumptively consistent with the public
interest with respect to investors from certain nations. If our foreign
ownership were to exceed the permitted level, the FCC could revoke our FCC
licenses, although we could seek a declaratory ruling from the FCC allowing the
foreign ownership or take other actions to reduce our foreign ownership
percentage in order to avoid the loss of our licenses. We have no knowledge of
any present foreign ownership in violation of these restrictions.
Recent regulatory developments
The FCC has announced rules for making emergency 911 services available by
cellular, PCS and other commercial mobile radio service providers, including
enhanced 911 services that provide the caller's telephone number, location and
other useful information. Commercial mobile radio service providers are required
to take actions enabling them to relay a caller's automatic number
identification and location (initially the location of the cell site first
transmitting the call, and ultimately by an approximation of the caller's actual
location) if requested to do so by a public safety dispatch agency. Providers
may use either network or handset-based technologies to provide the
approximation of the caller's actual location. There is no requirement that
dispatch agencies reimburse the provider for their costs of deploying such
technologies. 911 service must be made available to users with speech or hearing
disabilities, but this requirement does not apply to providers of digital
wireless services until 2002. Finally, wireless handsets capable of receiving
analog signals must be able to complete 911 calls using the strongest analog
signal available to the caller, even if the caller does not subscribe to the
carrier providing the strongest signal. State actions incompatible with the FCC
rules are subject to preemption by the FCC.
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On August 8, 1996, the FCC released its order implementing the
interconnection provisions of the Telecommunications Act. Although many of the
provisions of this order were struck down by the U.S. Court of Appeals for the
Eighth Circuit, on January 25, 1999, the U.S. Supreme Court reversed the Eighth
Circuit and upheld the FCC in all respects material to our operations. On June
10, 1999, the Eighth Circuit issued an order requesting briefs on certain issues
it did not address in its earlier order, including the pricing regime for
interconnection. While appeals have been pending, the rationale of the FCC's
order has been adopted by many states' public utility commissions, with the
result that the charges that cellular and PCS operators pay to interconnect
their traffic to the public switched telephone network have declined
significantly from pre-1996 levels. In July 2000, the Eighth Circuit rejected
certain aspects of the FCC's pricing methodology, but stayed its order pending
appeal by affected parties to the U.S. Supreme Court. The U.S. Supreme Court has
agreed to review this case.
In its implementation of the Telecommunications Act, the FCC established
federal universal service requirements that affect commercial mobile radio
service operators. Under the FCC's rules, commercial mobile radio service
providers are potentially eligible to receive universal service subsidies for
the first time; however, they are also required to contribute to the federal
universal service fund and can be required to contribute to state universal
funds. Many states are moving forward to develop state universal service fund
programs. A number of these state funds require contributions, varying greatly
from state to state, from commercial mobile radio service providers. The FCC's
universal service order was modified on appeal in the U.S. Court of Appeals for
the Fifth Circuit. The court's ruling has had the effect of reducing commercial
mobile radio service provider support payments required for the federal
universal service programs. The U.S. Supreme Court has agreed to address the
constitutionality of the FCC's universal service order, in particular as it
affects the amount of funds to which telephone companies are entitled to help
defray the costs of providing basic telephone service. The Court's determination
may also affect the FCC's interconnection pricing methodology.
On August 1, 1996, the FCC released a report and order expanding the
flexibility of cellular, PCS and other commercial mobile radio service providers
to provide fixed as well as mobile services. These fixed services include, but
need not be limited to, wireless local loop services, for example, to apartment
and office buildings, and wireless backup services to private branch exchange or
switchboards and local area networks, to be used in the event of interruptions
due to weather or other emergencies. If the fixed services are provided as an
ancillary service to a carrier's mobility services, the FCC has decided that
such fixed services should be regulated as commercial mobile radio services. The
FCC declined to render a prospective ruling on how fixed services provided on a
co-primary basis with mobility services should be regulated or if they should be
subjected to universal service obligations. Rather, it has announced its
intention to decide such matters on a case-by-case basis depending on the
characteristics of a provider's fixed service offering. The FCC has been
presented with one such case, but has not yet ruled on it. It is unclear what
effect, if any, such a ruling would have on the business of AT&T Wireless Group.
The FCC has adopted rules on telephone number portability that will enable
customers to migrate their landline and cellular telephone numbers to cellular
or PCS providers and from a cellular or PCS provider to another service
provider. On February 8, 1999, the FCC extended the deadline for compliance with
this requirement to November 24, 2002, subject to any later determination that
number portability is necessary to conserve telephone numbers. The FCC has also
adopted rules requiring cellular and PCS providers to provide certain functions
to facilitate electronic surveillance by law enforcement officials by June 30,
2000. Carriers must be able to provide additional surveillance capabilities by
September 30, 2001. AT&T Wireless Group has sought permission for a flexible
deployment schedule from the FCC. The FCC has not ruled on the request and there
can be no assurance that the FCC will grant the request. In addition, in August
2000, the U.S. Court of Appeals for the District of Columbia Circuit invalidated
some of these rules and remanded them to the FCC for further consideration.
Various other petitions are pending before the FCC seeking suspension or further
extensions of the deadlines applicable to providing surveillance capabilities.
It is not known how the FCC will revise its rules or whether it will extend
either or both of the compliance deadlines or what the scope of penalties for
failing to comply may be.
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In 1997, the FCC determined that the rate integration requirement of the
Communications Act applies to the interstate, interexchange services of
commercial mobile radio service providers. Rate integration requires a carrier
to provide service between the continental U.S. and offshore U.S. states and
territories under the same rate structure applicable to service between two
points in the continental U.S. The FCC delayed implementation of the rate
integration requirements with respect to wide area rate plans we offer pending
further reconsideration of its rules. The FCC also delayed the requirement to
integrate commercial mobile radio service long distance rates among commercial
mobile radio service affiliates. On December 31, 1998, the FCC reaffirmed, on
reconsideration, that its interexchange rate integration rules apply to
interexchange commercial mobile radio service services. The FCC announced it
would initiate a further proceeding to determine how integration requirements
apply to typical commercial mobile radio service offerings, including one-rate
plans. In July 2000, the U.S. Court of Appeals for the District of Columbia
Circuit reversed the FCC's holding that the Communications Act unambiguously
extends rate integration to providers of commercial mobile services. The court
remanded the matter to the FCC for further consideration. Pending conclusion of
this further proceeding, the rate integration requirement does not apply to
commercial mobile services. To the extent that AT&T Wireless Group is required
to offer services subject to the FCC's rate integration requirements, its
pricing flexibility will be reduced. We cannot assure you that the FCC will
decline to impose rate integration requirements on AT&T Wireless Group or
decline to require it to integrate its commercial mobile radio service long
distance rates across its commercial mobile radio service affiliates.
In 1998, the FCC adopted new rules limiting the use of customer proprietary
network information by telecommunications carriers in marketing a broad range of
telecommunications and other services to their customers and the customers of
affiliated companies. The rules were struck down by the U.S. Court of Appeals
for the Tenth Circuit in 1999, and their effectiveness has been stayed pending
the court's review of a petition to the FCC for reconsideration. Even if the
rules are reinstated, AT&T Wireless Group does not anticipate that they will
result in a significant adverse impact on its financial position, results of
operation or liquidity.
State commissions have become increasingly aggressive in their efforts to
conserve numbering resources. Examples of state conservation methods include:
number pooling, number rationing and code sharing. A number of states have
petitioned the FCC for authority to adopt "technology specific" overlays that
would require wireless providers to obtain telephone numbers out of a separate
area code and may require wireless providers to change their customers'
telephone numbers. These efforts may impact wireless service providers by
imposing additional costs or limiting access to numbering resources.
The FCC has adopted detailed billing rules for landline telecommunications
service providers and applied a number of these rules to commercial mobile radio
services providers. The FCC is considering whether carriers that decide to pass
through their mandatory universal service contributions to their customers
should be required to provide a full explanation of the program, and whether to
ensure that the carriers that pass through their contribution do not recover
amounts greater than their mandatory contributions from their customers.
Adoption of some of the FCC's proposals could increase the complexity of our
billing processes and restrict our ability to bill customers for services in the
most commercially advantageous way.
The FCC has adopted an order that determines the obligations of
telecommunications carriers to make their services accessible to individuals
with disabilities. The order requires telecommunications services providers to
offer equipment and services that are accessible to and useable by persons with
disabilities. While the rules exempt telecommunications carriers from meeting
general disability access requirements if such results are not readily
achievable, it is not clear how liberally the FCC will construe this exemption.
Accordingly, the rules could require us to make material changes to our network,
product line, or services at our expense.
In June 1999, the FCC initiated an administrative rulemaking proceeding to
help facilitate the offering of calling party pays as an optional wireless
service. Under the calling party pays service, the party placing the call to a
wireless customer pays the wireless airtime charges. Most wireless customers in
the
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United States now pay both to place calls and to receive them. Adoption of a
calling party pays system on a widespread basis could make commercial mobile
radio service providers more competitive with traditional landline
telecommunications providers for the provision of regular telephone service.
The FCC has adopted rules specifying standards and the methods to be used
in evaluating radiofrequency emissions from radio equipment, including network
equipment and handsets used in connection with commercial mobile radio service.
These rules were upheld on appeal by the U.S. Court of Appeals for the Second
Circuit. The U.S. Supreme Court declined to review the Second Circuit's ruling.
AT&T Wireless Group's network facilities and the handsets it sells to customers
comply with these standards.
Media reports have suggested that some radio frequency emissions from
wireless handsets may be linked to health concerns, including the incidence of
cancer. Although some studies have suggested that radio frequency emissions may
cause certain biological effects, all of the expert reviews conducted to date
have concluded that the evidence does not support a finding of adverse health
effects but that further research is appropriate. Earlier this year, CTIA
entered into a Cooperative Research and Development Agreement to sponsor such
research.
Studies have shown that some hand-held digital telephones may interfere
with some medical devices, including hearing aids and pacemakers. The FDA has
recently issued guidelines for the use of wireless phones by pacemaker wearers.
Additional studies are underway to evaluate and improve the compatibility of
hearing aids and digital wireless phones.
State and local regulation
State and local governments are preempted from regulating either market
entry by, or the rates of, wireless operators. However, state governments can
regulate other terms and conditions of wireless service and several states have
imposed, or have proposed legislation that will impose, various consumer
protection regulations on the wireless industry. As noted above, States also may
impose their own universal service support regimes on wireless and other
telecommunications carriers, similar to the requirements that have been
established by the FCC and have been delegated certain authority by the FCC in
the area of number allocation and administration. At the local level, wireless
facilities typically are subject to zoning and land use regulation. However,
under the federal Telecommunications Act, neither local nor state governments
may categorically prohibit the construction of wireless facilities in any
community or unreasonably discriminate against a carrier. Numerous State and
local jurisdictions have considered imposing conditions on a driver's use of
wireless technology while operating a motor vehicle, and a few have actually
done so.
LEGAL PROCEEDINGS
Several lawsuits have been filed asserting claims that AT&T Wireless Group
collected charges for local government taxes from customers that were not
properly subject to those charges. AT&T Wireless Group has entered into a
settlement of one of these cases, although the settlement has been challenged on
appeal. AT&T Wireless Group has asserted in those cases that any recovery should
come from the municipalities to which the taxes were paid.
Several class action lawsuits have been filed in which claims have been
asserted that AT&T Wireless Group did not have sufficient network capacity to
support the influx of new subscribers who signed up for AT&T Digital One Rate
service beginning in May 1998 and therefore has failed to provide service of a
quality allegedly promised to subscribers. The plaintiffs in these cases have
not asserted specific claims for damages, with the exception of one case filed
in Texas in which the named plaintiffs have asserted claims for compensatory and
punitive damages totaling $100 million.
Several other class action or representative lawsuits have been filed
against AT&T Wireless Group that allege, depending on the case, breach of
contract, misrepresentation or unfair practice claims relating to AT&T Wireless
Group's billing practices (including rounding up of partial minutes of use to
full minute increments and billing send to end), coverage, dropped calls, price
fixing and/or mistaken bills. Although
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the plaintiffs in these cases have not specified alleged damages, the damages in
two of the cases are alleged to exceed $100 million. One of these two cases was
dismissed and the dismissal was affirmed in part on appeal. Settlement
negotiations are ongoing in both cases.
AT&T Wireless Group is involved in litigation in which the Cellular One
Group claims that use of the name "AT&T Digital One Rate" infringes a
trademarked name, "DIGITALONE" for which the Cellular One Group has obtained
trademark registration. The Cellular One Group has not specified amounts of
claimed damages.
AT&T Wireless Group is involved in a patent infringement action against GTE
in the U.S. District Court in Seattle, Washington. GTE claims that the Nokia
phones manufactured for AT&T Wireless Group infringe a GTE patent for
over-the-air activation and over-the-air programming. AT&T Wireless Group is
seeking a declaratory judgment that its use of over-the-air activation does not
infringe GTE's patent. GTE has not specified amounts of claimed damages.
AT&T Wireless Group is involved in an international arbitration proceeding
concerning interests in a Malaysian telecommunications joint venture, Maxis
Communications Bhd, a former MediaOne business acquired by AT&T and sold to AT&T
Wireless Group in the fourth quarter of 2000. In the arbitration, a group of
Malaysian shareholders claim that MediaOne breached fiduciary duties and
contractual obligations owed to the joint venture. The arbitration claim asserts
damages of $400 million. AT&T Wireless Group, or if the split-off is completed
AT&T Wireless Services, will assume a portion of the liabilities, if any,
relating to this action, subject to certain adjustments. In March 2001, AT&T
Wireless Group entered into an agreement with other shareholders of Maxis
Communications Bhd who are the claimants in this arbitration, for the sale of
AT&T Wireless Group's entire interest in that entity and the resolution of the
claims asserted in the arbitration proceeding. The parties agreed to suspend the
arbitration proceeding pending closing of this transaction, and expect to
terminate the arbitration proceeding when the sale has been completed.
Stockholders of a former competitor of AT&T Wireless Group air-to-ground
business are plaintiffs in a lawsuit filed in 1993, alleging that AT&T Wireless
Group breached a confidentiality agreement, used trade secrets to unfairly
compete, and tortiously interfered with the business and potential business of
the competitor. Plaintiffs sought damages in an unspecified amount in excess of
$3.5 billion. AT&T Wireless Group obtained partial summary judgment and then
prevailed on the remainder of the claims at a trial on the validity of a release
of plaintiffs' claims. Final judgment was entered against plaintiffs on their
claims, and plaintiffs appealed. On appeal, the Appellate Court of Illinois,
Second District, reversed and remanded the case for trial indicating that
certain issues decided by the judge needed to be resolved by a jury.
AT&T Wireless Group is vigorously defending each of these claims. AT&T
Wireless Group cannot predict the final outcome of these disputes.
Several lawsuits have been filed against AT&T, certain executives of AT&T
and AT&T Wireless Group and a group of investment banking firms, seeking class
certification and asserting claims under federal securities laws. The complaints
assert claims that AT&T made material misstatements concerning the company's
earnings and financial condition, while omitting other material information,
allegedly to maximize proceeds from the public offering of AT&T Wireless Group
tracking stock in April 2000 and/or to avoid paying a cash guarantee in
connection with the MediaOne acquisition. The complaints do not specify amounts
of damages claimed, although the plaintiffs are seeking to recover for declines
in stock prices of AT&T securities, including the AT&T Wireless Group tracking
stock. In connection with the split-off, AT&T Wireless Group is expected to be
allocated a portion of the liabilities, if any, arising out of these actions to
the extent relating to AT&T Wireless Group tracking stock.
AT&T Wireless Group also is a defendant in other legal actions involving
claims incidental to the normal conduct of the running of its business. AT&T
Wireless Group believes that the amounts that may be paid in these actions will
not be material to its financial position, or its results of operations or cash
flow.
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RELATIONSHIP BETWEEN AT&T COMMON STOCK GROUP
AND AT&T WIRELESS GROUP BEFORE THE SPLIT-OFF
The description of the AT&T Wireless Group capital stock committee and the
AT&T Wireless Group policy statement below is not complete and is qualified in
its entirety by reference to AT&T's by-laws and the AT&T Wireless Group policy
statement, each of which is filed as an exhibit to the registration statement of
which this document is a part. For information on how to obtain these documents,
see "Where You Can Find More Information."
AT&T WIRELESS GROUP CAPITAL STOCK COMMITTEE
The AT&T Wireless Group capital stock committee of AT&T's board of
directors oversees the interaction between the businesses of AT&T Common Stock
Group and AT&T Wireless Group. The members of the AT&T Wireless Group capital
stock committee are selected by AT&T's board of directors. AT&T's by-laws
provide that AT&T's board of directors has delegated to the AT&T Wireless Group
capital stock committee authority to:
- interpret, make determinations under and oversee the implementation of
the policies described in the Policy Statement Regarding AT&T Wireless
Group Tracking Stock Matters described under "-- AT&T Wireless Group
Policy Statement,"
- review the policies, programs and practices of AT&T relating to:
-- the business and financial relationships between AT&T or any of its
units, other than Liberty Media Group, with AT&T Wireless Group,
-- dividends in respect of, disclosures to shareholders and the public
concerning, and transactions by AT&T or any of its subsidiaries,
other than subsidiaries included in Liberty Media Group, in shares of
AT&T Wireless Group tracking stock, and
-- any matters arising in connection with any of the foregoing, all to
the extent the AT&T Wireless Group capital stock committee may deem
appropriate, and
- recommend changes in the policies, programs and practices that the AT&T
Wireless Group capital stock committee may deem appropriate.
The AT&T Wireless Group capital stock committee will have and may exercise
such other powers, authority and responsibilities as AT&T's board of directors
may determine from time to time.
However, as with all classes of AT&T's tracking stock, there is not a
separate board of directors for the AT&T Wireless Group tracking stock, and the
AT&T Wireless Group capital stock committee does not function as a board of
directors for the tracking stock. Under existing law, neither AT&T's board of
directors nor AT&T Wireless Group capital stock committee owes a separate
fiduciary duty to the holders of AT&T Wireless Group tracking stock separate
from the general duty that is owed to all AT&T shareholders.
Although AT&T's board of directors has no present intention to do so, it
may modify, suspend or rescind AT&T's by-laws or adopt additional by-laws, at
any time, without the approval of our shareholders, subject to fiduciary duties
of AT&T's board of directors. Pursuant to the terms of the DoCoMo investment,
before the split-off, DoCoMo has the right to appoint one member of AT&T's board
of directors, who will also be entitled to serve as a member of the AT&T
Wireless Group capital stock committee.
AT&T WIRELESS GROUP POLICY STATEMENT
General policy
AT&T's board of directors has determined that all material matters in which
holders of AT&T common stock and AT&T Wireless Group tracking stock may have
divergent interests will be generally resolved in a manner that is in the best
interests of AT&T and all of its common shareholders after giving fair
consideration to the potentially divergent interests and all other relevant
interests of the holders of the separate classes of AT&T common shares. Under
the AT&T Wireless Group policy statement, the
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relationship between AT&T Common Stock Group and AT&T Wireless Group and the
means by which the terms of any material transaction between them are determined
and governed by a process of fair dealing.
Relationship between AT&T Common Stock Group and AT&T Wireless Group
The AT&T Wireless Group policy statement provides that AT&T is to seek to
manage AT&T Common Stock Group and AT&T Wireless Group in a manner designed to
maximize the operations, unique assets and value of both groups, and with
complementary deployment of capital and facilities. The operating relationship
between the two groups includes the coordination and use of bundled offers,
network services, marketing, sales, branding, and other intellectual property
and technology. AT&T and AT&T Wireless Group use common platforms and technology
across their services where possible. In addition, there are various financial
arrangements between the two groups, including with respect to debt, other
financings and taxes.
General. The AT&T Wireless Group policy statement provides that, except as
otherwise provided in the AT&T Wireless Group policy statement, all material
commercial transactions between AT&T Common Stock Group and AT&T Wireless Group
are to be on commercially reasonable terms taken as a whole, and are subject to
the review and approval of the AT&T Wireless Group capital stock committee.
Allocation of corporate overhead and support services. Each group has
access to the support services of the other group, including customer care and
billing platforms.
For shared corporate services that arise as a result of being part of a
combined entity, including securities filing and financial reporting services,
costs relating to these services are:
- allocated directly to the group utilizing those services, and
- if not directly allocable to a group, allocated between the groups on a
fair and reasonable basis as AT&T's board of directors determines.
For other support services, for example, billing and purchasing services,
the AT&T Wireless Group policy statement provides that the groups are to seek to
achieve enterprise efficiencies to minimize the aggregate costs incurred by the
two groups combined, although each group also will be entitled to negotiate and
procure support services on their own either from the other group or from third
parties.
Sourcing and provision of other services. Each group has exclusively
agreed to use the services that the other group offers for use in their
respective packaged, bundled, combined or integrated offerings. This would, for
example, require AT&T Wireless Group to procure long distance services for its
wireless service bundles exclusively from AT&T Common Stock Group and require
AT&T Common Stock Group to procure wireless services for its bundled offerings
exclusively from AT&T Wireless Group. The AT&T Wireless Group policy statement
further provides that each group will provide these services to the other group
at the best price offered by that group to third parties in similar situations
when taking into account all relevant factors, including the availability of
wholesale pricing, volume, peak/off-peak usage and length of commitment. The
establishment of this price should also give consideration to other factors, as
appropriate, such as avoided costs and synergies to be shared between the
groups. In addition, each group cooperates in good faith to develop offers that
reflect such other factors.
Marketing of services. The AT&T Wireless Group policy statement provides
that, as a general matter, each group is to design, develop, deploy, produce,
market, sell and service their own service offerings and choose their own sales
channels. In addition, each group is able to negotiate for the use of the sales
channels of the other group to offer their services. With respect to fixed
wireless services, however, currently it is intended that AT&T Wireless Group
will not develop, deploy, produce, market or sell:
- fixed wireless voice and data services to residences located in AT&T
Common Stock Group's currently owned and operated broadband service areas
or after acquired owned and operated broadband service areas in which
fixed wireless has not begun deployment at the time of acquisition,
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- fixed wireless voice and data services to businesses that are otherwise
connected by AT&T fiber or broadband, and
- fixed wireless voice services to residences located in broadband service
areas served by a cable operator in which AT&T Common Stock Group
currently has or has contracted for, as of the initial issuance of AT&T
Wireless Group tracking stock, a substantial equity interest if such
operator offers AT&T branded residential telephony services within a
commercially reasonable time unless prior thereto AT&T Wireless Group has
received the approval of AT&T's board of directors. This approval will be
based on the value and likelihood, considering all terms and conditions,
of any actual or prospective AT&T branded telephony offers by that cable
operator.
Furthermore, AT&T Wireless Group is subject to all existing agreements and
arrangements (including reasonable amendments thereto) entered into by AT&T with
third parties.
With respect to residences located in the same marketing areas as AT&T's
broadband service areas, AT&T Wireless Group is to, to the extent practical,
conform its voice and data offers to those of AT&T Common Stock Group and AT&T
Common Stock Group will have the non-exclusive right to market AT&T Wireless
Group's fixed wireless services for which it will receive a sales agency fee.
Marketing areas may include those markets in which AT&T has significant cable
licenses and in which geographic proximity, marketing overlap or other factors
support coordinated marketing and sales activities, including development of
specific consumer and business service offers. In addition, the AT&T Wireless
Group policy statement provides that the groups will work collaboratively with
each other to understand and take into account the other's expansion,
acquisition, deployment, marketing and sales plans, with the goal of minimizing
overlaps and conflicts between the groups.
When the combined services of the two groups are bundled or offered
together and the total cost to consumers of each of those services are
separately identified on a billing statement, each of AT&T Common Stock Group
and AT&T Wireless Group controls the pricing of its respective services and
receives the associated revenues. The group that sells the service to the public
receives an appropriate fee from the other group for selling the service.
In a bundled product offering where the services of the two groups are
integrated and the total cost to consumers of each of those services are not
separately identified on a billing statement, the groups work collaboratively to
determine the nature of their arrangements and are also permitted to source the
services of the other group as described above; provided, however, that neither
group may offer a bundle of services comprised primarily of the services of the
other group without that other group's agreement.
Inter-Group Portion of Value. The AT&T Wireless Group policy statement
provides that AT&T Wireless Group will not be allocated any portion of the value
of AT&T Common Stock Group.
Corporate opportunities
The AT&T Wireless Group policy statement provides that AT&T's board of
directors is to allocate any business opportunities and operations, any acquired
assets and businesses and any assumed liabilities between the two groups, in
whole or in part, as it considers to be in the best interests of AT&T and its
shareholders as a whole and as contemplated by the other provisions of the AT&T
Wireless Group policy statement. If a business opportunity or operation, an
acquired asset or business, or an assumed liability would be suitable to be
undertaken by or allocated to either group, AT&T's board of directors is to
allocate it using its business judgment or in accordance with procedures that
AT&T's board of directors adopts from time to time to ensure that decisions will
be made in the best interests of AT&T and its shareholders as a whole. Any
allocation of this type may involve the consideration of a number of factors
that AT&T's board of directors determines to be relevant, including, without
limitation, whether the business opportunity or operation, the acquired asset or
business, or the assumed liability is principally within the existing scope of a
group's business and whether a group is better positioned to undertake or have
allocated to it such business opportunity or operation, acquired asset or
business or assumed liability. AT&T's board of directors currently intends,
however, subject to and without limiting these provisions, and subject to
pre-existing agreements relating to international markets, to allocate future
mobile and fixed wireless opportunities to AT&T Wireless Group.
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Except under the AT&T Wireless Group policy statement and any other
policies adopted by AT&T's board of directors, which policies will be designed
to minimize conflicts between the groups, harmonize capital spending and promote
the use by each group of services of the other group, neither AT&T Wireless
Group nor AT&T Common Stock Group has any duty, responsibility or obligation to
refrain from:
- engaging in the same or similar activities or lines of business as any
member of the other group,
- doing business with any potential or actual supplier, competitor or
customer of any member of any other group, or
- engaging in, or refraining from, any other activities whatsoever relating
to any of the potential or actual suppliers or customers of any member of
the other group.
In addition, except under the AT&T Wireless Group policy statement and any
other policies adopted by AT&T's board of directors, neither AT&T Wireless Group
nor AT&T Common Stock Group has any duty, responsibility or obligation:
- to communicate or offer any business or other corporate opportunity to
any other person, including any business or other corporate opportunity
that may arise that more than one group may be financially able to
undertake, and that are, from their nature, in the line of more than one
group's business and are of practical advantage to more than one group,
- to provide financial support to another group, or any member of that
group, except as described under "-- Relationship with AT&T before the
Split-Off -- Financing arrangements," or
- otherwise to assist any other group.
Under no circumstances are any members of AT&T Wireless Group or AT&T
Common Stock Group prevented from entering into written agreements with another
group to define or restrict any aspect of the relationship between the groups.
Dividend policy
The AT&T Wireless Group policy statement provides that, subject to the
limitations on dividends set forth in AT&T's charter, including any preferential
rights of any series of preferred stock of AT&T, and to the limitations of
applicable law, holders of shares of AT&T Wireless Group tracking stock are
entitled to receive dividends on AT&T Wireless Group tracking stock when, as and
if AT&T's board of directors authorizes and declares dividends on AT&T Wireless
Group tracking stock.
Since AT&T Wireless Group is expected to require significant capital
commitments to finance its operations and fund its future growth, the AT&T
Wireless Group policy statement provides that AT&T does not expect to pay any
dividends on shares of AT&T Wireless Group tracking stock. If and when AT&T's
board of directors determines to pay any dividends on shares of AT&T Wireless
Group tracking stock, the AT&T Wireless Group policy statement provides that
this determination will be a business decision that AT&T's board of directors
makes from time to time based upon the results of operations, financial
condition and capital requirements of AT&T and other factors that AT&T's board
of directors considers relevant. Payment of dividends on AT&T Wireless Group
tracking stock also may be restricted by loan agreements, indentures and other
transactions that AT&T enters into from time to time.
Financial reporting
The AT&T Wireless Group policy statement provides that AT&T is to prepare
and include in its filings with the SEC financial statements of AT&T and AT&T
Wireless Group for so long as AT&T Wireless Group tracking stock is outstanding.
AT&T Wireless Group capital stock committee
AT&T's by-laws provide for the AT&T Wireless Group capital stock committee
of AT&T's board of directors.
In making determinations in connection with the policies set forth in the
AT&T Wireless Group policy statement, the members of AT&T's board of directors
and the AT&T Wireless Group capital stock
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committee act in a fiduciary capacity and in accordance with legal guidance
concerning their respective obligations under applicable law. The delegation of
responsibilities to the AT&T Wireless Group capital stock committee is subject
to changes AT&T's board of directors may determine.
Amendment and modification to the AT&T Wireless Group policy statement
AT&T's board of directors may modify, suspend or rescind the policies set
forth in the AT&T Wireless Group policy statement, including any resolution
implementing the provisions of the AT&T Wireless Group policy statement. AT&T's
board of directors may also adopt additional or other policies or make
exceptions with respect to the application of the policies described in the AT&T
Wireless Group policy statement in connection with particular facts and
circumstances, all as AT&T's board may determine, consistent with its fiduciary
duties to AT&T and all of its shareholders.
RELATIONSHIP WITH AT&T BEFORE THE SPLIT-OFF
Branding
AT&T Wireless Group is permitted, on the same discretionary basis as other
businesses that AT&T wholly owns, or substantially owns in excess of a majority
of the economic interest in, to operate under the AT&T service mark for
appropriate business activities in its capacity as a division or subsidiary of
AT&T. There are no royalty or licensing fees related to the use of branding.
AT&T's divisions' or subsidiaries' use of the brand is limited in certain
respects, including requiring compliance with AT&T's corporate brand strategy,
policies, graphics standards, advertising policies, quality control and
restrictions on certain activities relating to the brand, including a
prohibition on licensing and sublicensing without corporate approval.
Intellectual Property
Intellectual property is to be managed by the group that has managed it
historically. AT&T Common Stock Group and AT&T Wireless Group, on the same basis
they have enjoyed historically, have the right to use the intellectual property
managed by the other group, or with respect to which either has the power to
grant these rights, for appropriate business activities. The groups also
collaborate to achieve enterprise objectives with respect to the licensing or
sale of intellectual property to third parties. The policy of the AT&T Wireless
Group capital stock committee is not to sell or license any intellectual
property that is predominantly used by AT&T Wireless Group if that sale of
license would result in a material competitive disadvantage to AT&T Wireless
Group. Any fees obtained through such sales or licensing are allocated to the
group that predominantly uses the intellectual property sold or licensed, or if
no specific intellectual property can be associated with a fee or the
intellectual property is not predominantly used by any one group, then allocated
using the same general allocation as overhead expenses.
Commercial transactions between groups
All commercial transactions between AT&T Common Stock Group and AT&T
Wireless Group are intended to be on commercially reasonable terms taken as a
whole. The groups have negotiated and developed their arrangements over time and
these arrangements have been subject to the review and approval of the AT&T
Wireless Group capital stock committee.
In the future, AT&T may reallocate assets between AT&T Common Stock Group
and AT&T Wireless Group in exchange for an increase or decrease in AT&T Common
Stock Group's retained portion of the value of AT&T Wireless Group. Any
reallocations of assets between the groups that do not result in an adjustment,
other than reallocations made under a contract for the provision of goods or
services between the groups, will be accompanied by:
- the reallocation by the transferee group to the transferor group of other
assets or consideration,
- the creation of inter-group debt owed by the transferee group to the
transferor group, or
- the reduction of inter-group debt owed by the transferor group to the
transferee group,
- in each case, in an amount having a fair market value, in the judgment of
AT&T's board of directors, equivalent to the fair market value of the
assets reallocated by the transferor group.
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Financing arrangements
Loans from AT&T or any member of AT&T Common Stock Group to any member of
AT&T Wireless Group are to be made at interest rates, fees and on other terms
and conditions designed to be substantially equivalent to the interest rates,
fees and other terms and conditions that AT&T Wireless Group would be able to
obtain from third parties, including the public markets, as a non-affiliate of
AT&T without the benefit of any guaranty by AT&T or any member of AT&T Common
Stock Group. This policy contemplates that these loans are to be made on the
basis set forth above regardless of the interest rates and other terms and
conditions on which AT&T or members of the AT&T Common Stock Group may have
acquired the funds. If, however, AT&T incurs any fees or charges in order to
keep available funds for use by AT&T Wireless Group, those fees or charges are
to be allocated to AT&T Wireless Group.
An entity within AT&T Wireless Group has issued to AT&T $3.0 billion of 9%
cumulative preferred stock that, subject to the approval of AT&T Wireless Group
capital stock committee, is redeemable at the option of AT&T. This preferred
stock is held by AT&T on behalf of AT&T Common Stock Group. AT&T Common Stock
Group also had $2.4 billion of AT&T Wireless Group indebtedness at December 31,
2000.
Accounting matters
AT&T prepares financial statements in accordance with generally accepted
accounting principles, consistently applied, for AT&T Wireless Group, and pro
forma financial information for AT&T, as well as full consolidated financial
statements of AT&T. The financial statements and information for each of the
groups principally reflect the financial position, results of operations and
cash flows of the businesses included in those groups. Notwithstanding any
allocation of assets or liabilities for dividend purposes or the purpose of
preparing group financial statements, holders of AT&T common stock and holders
of AT&T Wireless Group tracking stock are subject to risks associated with an
investment in a single corporation and all of AT&T's businesses, assets and
liabilities.
Tax sharing agreement
AT&T Common Stock Group and AT&T Wireless Group have entered into a tax
sharing agreement dated as of May 2, 2000 that provides for tax sharing payments
between AT&T Common Stock Group and AT&T Wireless Group based on the taxes or
tax benefits of a hypothetical affiliated group consisting of AT&T Common Stock
Group and AT&T Wireless Group with respect to taxable periods ending after the
issuance of the shares of AT&T Wireless Group tracking stock. This hypothetical
group does not include Liberty Media Group. A separate tax sharing agreement
exists between AT&T Common Stock Group and Liberty Media Group under which tax
sharing payments are made between AT&T and Liberty Media Group to the extent
that the taxes of the actual affiliated group of which AT&T is the common parent
are increased or decreased as a result of the inclusion of the Liberty Media
Group in that affiliated group.
Under the tax sharing agreement between AT&T Common Stock Group and AT&T
Wireless Group, the consolidated tax liability before credits of the
hypothetical group consisting of AT&T Common Stock Group and AT&T Wireless Group
is allocated between AT&T Common Stock Group and the AT&T Wireless Group based
on each group's contribution to consolidated taxable income of the hypothetical
group. This allocation takes into account losses, deductions and other tax
attributes, such as capital losses or charitable deductions, that are utilized
by the hypothetical group even if these attributes could not be utilized on a
stand-alone basis. For purposes of the tax sharing agreement, the $3.0 billion
of 9% cumulative preferred stock issued by an entity within AT&T Wireless Group
to AT&T, and $2.4 billion of AT&T Wireless Group indebtedness as of December 31,
2000 held by AT&T Common Stock Group are treated as intercompany debt
instruments, each with an issue price equal to its face amount, for U.S.
federal, state and local income tax purposes. Accordingly, tax sharing payments
are calculated by treating coupon payments on the preferred stock and debt as
interest expense to AT&T Wireless Group and interest income to AT&T Common Stock
Group. Tax sharing payments in respect of the consolidated tax liability of the
hypothetical group, after allocation of consolidated tax credits, are made
between AT&T
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Common Stock Group and AT&T Wireless Group consistent with the allocations under
the tax sharing agreement.
In addition, under the tax sharing agreement, AT&T Wireless Group is
responsible for all tax items resulting from the attribution to AT&T Wireless
Group, or transfer to a legal entity that is a member of AT&T Wireless Group, of
certain international wireless investments formerly owned by MediaOne as well as
any tax items resulting from the distribution of the stock of any company the
assets of which are tracked by AT&T Wireless Group tracking stock.
The tax sharing payments under the tax sharing agreement assume that the
members of AT&T Common Stock Group and AT&T Wireless Group are members of the
same affiliated, consolidated, combined or unitary group for the relevant U.S.
federal, state, local or foreign income tax purposes with respect to taxable
periods ending after the issuance of the shares of AT&T Wireless Group tracking
stock. It is possible, however, that the IRS may assert that AT&T Wireless Group
tracking stock is not stock of AT&T, in which case the members of AT&T Common
Stock Group and AT&T Wireless Group may not be members of the same U.S. federal
income tax affiliated group filing consolidated returns. AT&T believes that it
is unlikely that the IRS would prevail on that view, but no assurance can be
given in that regard. AT&T Wireless Group would be responsible under the tax
sharing agreement for any corporate-level taxes resulting from the treatment of
AT&T Wireless Group tracking stock as not stock of AT&T, and any corporate-level
taxes on the actual or deemed disposition of AT&T Wireless Group caused by the
issuance of AT&T Wireless Group tracking stock.
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DESCRIPTION OF AT&T CAPITAL STOCK
The following description of the material terms of the capital stock of
AT&T does not purport to be complete, and is qualified in its entirety by
reference to AT&T's charter. The terms of the Class A Liberty Media Group
tracking stock and the Class B Liberty Media Group tracking stock can be found
in AT&T's charter. AT&T's charter is filed as an exhibit to the registration
statement of which this document is a part. For more information on how you can
obtain AT&T's charter, see "Where You Can Find More Information." You are urged
to read AT&T's charter in its entirety.
GENERAL
AT&T's charter currently provides that AT&T is authorized to issue 16.50
billion shares of capital stock, consisting of 100 million shares of AT&T
preferred stock and 16.4 billion shares of common stock, of which 6.0 billion
are shares of AT&T common stock, 4.0 billion are shares of Class A Liberty Media
Group tracking stock, 400 million are shares of Class B Liberty Media Group
tracking stock and 6.0 billion are shares of AT&T Wireless Group tracking stock.
As of January 1, 2001, 3,760,174,834 shares of AT&T common stock, 812,511.788
shares of AT&T preferred stock issued as DoCoMo wireless tracking stock,
2,363,738,170 shares of Class A Liberty Media Group tracking stock and
206,221,288 shares of Class B Liberty Media Group tracking stock and 361,814,400
shares of AT&T Wireless Group tracking stock were issued and outstanding.
AT&T PREFERRED STOCK
AT&T preferred stock may be issued from time to time in one or more series.
All shares of AT&T preferred stock of all series will rank equally and be
identical in all respects, except that our board of directors is authorized to
fix the number of shares in each series, the designation thereof, and, subject
to the provisions of Article Third of AT&T's charter, the relative rights,
preferences and limitations of each series and the variations in those rights,
preferences and limitations as between series and specifically is authorized to
fix with respect to each series:
- the dividend rate on the shares of the series and the date or dates from
which dividends will be cumulative; the times when, the prices at which,
and all other terms and conditions upon which, shares of the series will
be redeemable;
- the amounts that the holders of shares of the series will be entitled to
receive upon the liquidation, dissolution or winding up of AT&T, which
amounts may vary depending on whether such liquidation, dissolution or
winding up is voluntary or involuntary and, if voluntary, may vary at
different dates;
- whether or not the shares of the series will be subject to the operation
of a purchase, retirement or sinking fund and, if so, the extent to and
manner in which such purchase, retirement or sinking fund will be applied
to the purchase or redemption of the shares of the series for retirement
or for other corporate purposes and the terms and provisions relative to
the operation of the said fund or funds;
- whether or not the shares of the series will be convertible into or
exchangeable for shares of any other class or series or for any class of
common shares and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same;
- the restrictions, if any, upon the payment of dividends or making of
other distributions on, and upon the purchase or other acquisition of,
common shares;
- the restrictions, if any, upon the creation of indebtedness, and the
restrictions, if any, upon the issue of any additional shares ranking on
a parity with or before the shares of the series in addition to the
restrictions provided for in Article Third of AT&T's charter;
- the voting powers, if any, of the shares of the series in addition to the
voting powers provided for in Article Third of AT&T's charter; and
- such other rights, preferences and limitations as will not be
inconsistent with Article Third of AT&T's charter.
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All shares of any particular series will rank equally and be identical in
all respects, except that shares of any one series issued at different times may
differ as to the date from which dividends will be cumulative.
Dividends on shares of AT&T preferred stock of each series will be
cumulative from the date or dates fixed with respect to that series, and will be
paid or declared or set apart for payment for all past dividend periods and for
the current dividend period before any dividends (other than dividends payable
in common shares) will be declared or paid or set apart for payment on common
shares. Whenever, at any time, full cumulative dividends for all past dividend
periods and for the current dividend period will have been paid or declared and
set apart for payment on all then-outstanding shares of AT&T preferred stock and
all requirements with respect to any purchase, retirement or sinking fund or
funds for all series of AT&T preferred stock will have been complied with, our
board of directors may declare dividends on the common shares and the shares of
AT&T preferred stock will not be entitled to share therein.
Upon any liquidation, dissolution or winding up of AT&T, the holders of
shares of AT&T preferred stock of that series will be entitled to receive the
amounts to which such holders are entitled as fixed with respect to that series,
including all dividends accumulated to the date of final distribution, before
any payment or distribution of assets of AT&T will be made to or set apart for
the holders of common shares, and, after these payments will have been made in
full to the holders of shares of AT&T preferred A stock, the holders of common
shares will be entitled to receive any and all assets remaining to be paid or
distributed to shareholders and the holders of shares of AT&T preferred stock
will not be entitled to share therein. For the purposes of this paragraph, the
voluntary sale, conveyance, lease, exchange or transfer of all or substantially
all the property or assets of AT&T or a consolidation or merger of AT&T with one
or more other corporations (whether or not AT&T is the surviving corporation of
such consolidation or merger) will not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary.
The aggregate amount that all shares of AT&T preferred stock outstanding at
any time will be entitled to receive on involuntary liquidation, dissolution or
winding up will not exceed $8 billion.
So long as any shares of AT&T preferred stock are outstanding, AT&T will
not:
- authorize shares of stock ranking prior to shares of AT&T preferred stock
or change any provision of Article Third of AT&T's charter so to affect
adversely shares of AT&T preferred stock without the affirmative vote or
consent of the holders of at least 66 2/3% of all the shares of AT&T
preferred stock at the time outstanding;
- change any of the provisions of any series of AT&T preferred stock at the
time outstanding so as to affect adversely shares of that series without
the affirmative vote or consent of the holders of at least 66 2/3% of
such series of AT&T preferred stock; or
- increase the authorized number of shares of AT&T preferred stock or
increase the authorized number of shares of any class of stock ranking on
a parity with the AT&T preferred stock without the affirmative vote or
consent of the holders of at least a majority of all the shares of AT&T
preferred stock at the time outstanding.
Whenever, at any time or times, dividends payable on shares of AT&T
preferred stock will be in default in an aggregate amount equivalent to six full
quarterly dividends on any series of AT&T preferred stock at the time
outstanding, the number of directors then constituting our board of directors
will be increased by two, and the outstanding shares of AT&T preferred stock
will, in addition to any other voting rights, have the exclusive right, voting
separately as a class and without regard to series, to elect two directors of
AT&T to fill these newly created directorships, and this right will continue
until such time as all dividends accumulated on all shares of AT&T preferred
stock to the latest dividend payment date will have been paid or declared and
set apart for payment.
No holder of shares of AT&T preferred stock of any series, irrespective of
any voting or other right of shares of that series, will have, as the holder,
any preemptive right to purchase any other shares of AT&T or any securities
convertible into or entitling the holder to purchase these other shares.
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If, in any case, the amounts payable with respect to any requirements to
retire shares of AT&T preferred stock are not paid in full in the case of all
series with respect to which these requirements exist, the number of shares to
be retired in each series will be in proportion to the respective amounts that
would be payable on account of such requirements if all amounts payable were
paid in full.
DoCoMo purchased 812,511.778 shares of DoCoMo wireless tracking stock. Each
share of DoCoMo wireless tracking stock is intended to be the economic and
voting equivalent of 500 shares of AT&T Wireless Group tracking stock, and is
convertible at any time, into 500 shares of AT&T Wireless Group tracking stock.
DoCoMo wireless tracking stock also has some additional rights not available to
holders of AT&T Wireless Group tracking stock. See "DoCoMo Strategic
Investment -- New Class of AT&T Wireless Group Tracking Stock."
AT&T WIRELESS GROUP TRACKING STOCK
AT&T Wireless Group
AT&T Wireless Group tracking stock is a class of common stock of AT&T. AT&T
Wireless Group tracking stock does not represent a direct interest in the
business, assets or liabilities of AT&T Wireless Group.
We intend AT&T Wireless Group tracking stock to reflect the financial
performance and economic value of AT&T Wireless Group. "AT&T Wireless Group"
consists of, generally, the interest of AT&T or any of its subsidiaries in all
of the businesses, assets and liabilities reflected in the audited combined
financial statements of AT&T Wireless Group, as of December 31, 2000, including
any successor to AT&T Wireless Group by merger, consolidation or sale of all or
substantially all of its assets. AT&T's charter contains adjustments to the
definition of AT&T Wireless Group to reflect, among other things, related assets
and liabilities, including contingent liabilities, net income and net losses
arising after the date of such financial statements, contributions and
allocations of assets, liabilities and businesses between the groups and
acquisitions and dispositions.
"AT&T Common Stock Group" consists of, generally, the interest of AT&T or
any of its affiliates in all of the businesses in which AT&T or any of its
affiliates, including any of their predecessors or successors, is or has been
engaged, directly or indirectly, and the respective assets and liabilities of
AT&T or any of its affiliates, other than:
- the portion of AT&T Wireless Group intended to be reflected by the
outstanding shares of AT&T Wireless Group tracking stock or shares of
DoCoMo wireless tracking stock, and
- any businesses, assets or liabilities of Liberty Media Group.
We created Liberty Media Group at the time of the TCI merger and defined it
to consist primarily of TCI's programming assets and businesses, TCI's principal
international assets and businesses, and substantially all of TCI's non-cable
and non-programming assets and businesses other than its interest in At Home
Corporation.
AT&T Wireless Group Allocation Fraction
AT&T's charter defines the "AT&T Wireless Allocation Fraction" to represent
the portion of the financial performance and economic value of AT&T Wireless
Group intended to be reflected by AT&T Wireless Group tracking stock issued,
including the DoCoMo wireless tracking stock. At any time that all of the
portion of the financial performance and economic value of AT&T Wireless Group
is not intended to be reflected by these securities, this fraction will be used,
in effect, to allocate to the AT&T Common Stock Group the right to participate
in any dividend, distribution or liquidation payment made to holders of AT&T
Wireless Group tracking stock. This right to participate will reflect the AT&T
Common Stock Group's retained portion of the financial performance and economic
value of AT&T Wireless Group.
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Subject to the criteria we describe below, this fraction is subject to
adjustment from time to time as our board of directors deems appropriate:
- to reflect subdivisions, by stock split or otherwise, and combinations,
by reverse stock split or otherwise, of AT&T Wireless Group tracking
stock and stock dividends payable in shares of AT&T Wireless Group
tracking stock,
- to reflect the fair market value of contributions or allocations by AT&T
of cash, property or other assets or liabilities from the AT&T Common
Stock Group to AT&T Wireless Group, or vice versa, or of cash or property
or other assets or liabilities of the AT&T Common Stock Group to, or for
the benefit of, employees of AT&T Wireless Group in connection with
employee benefit plans or arrangements of AT&T or any of its subsidiaries
or vice versa,
- to reflect the number of shares of capital stock of AT&T contributed to,
or for the benefit of, employees of AT&T Wireless Group in connection
with benefit plans or arrangements of AT&T or any of its subsidiaries,
- to reflect repurchases by AT&T of shares of AT&T Wireless Group tracking
stock for the account of AT&T Wireless Group,
- to reflect issuances of AT&T Wireless Group tracking stock for the
account of AT&T Wireless Group,
- to reflect dividends or other distributions to holders of AT&T Wireless
Group tracking stock, to the extent no payment is made to the AT&T Common
Stock Group, and
- under such other circumstances as our board of directors determines
appropriate to reflect the economic substance of any other event or
circumstance.
In addition, in determining the share that holders of AT&T Wireless Group
tracking stock will receive of any particular dividend or other distribution, we
will adjust this fraction to reflect dilution arising from shares of AT&T
Wireless Group tracking stock reserved for issuance upon conversion, exercise or
exchange of other securities that are entitled to participate in such dividend
or other distribution.
AT&T's charter provides that any such adjustment must be made in a manner
that our board of directors determines to be fair and equitable to holders of
AT&T common stock and AT&T Wireless Group tracking stock. In the event that any
assets or other property are acquired by the AT&T Common Stock Group and
allocated or contributed to AT&T Wireless Group, the consideration paid by the
AT&T Common Stock Group to acquire these assets or other property will be
presumed to be its "fair market value" as of its acquisition. Any adjustment to
AT&T Wireless Group Allocation Fraction made by our board of directors in
accordance with these principles will be at the sole discretion of our board of
directors and will be final and binding on all shareholders.
Voting Rights
Each outstanding share of AT&T Wireless Group tracking stock has one-half
of a vote per share. The voting rights of AT&T Wireless Group tracking stock
will be subject to adjustments to reflect stock splits, reverse stock splits,
stock dividends or certain stock distributions with respect to AT&T common
stock, AT&T Wireless Group tracking stock or Liberty Media Group tracking stock.
Each share of DoCoMo wireless tracking stock is entitled to the number of votes
that could be cast by the shares of AT&T Wireless Group tracking stock into
which it is convertible. Initially, each share of DoCoMo wireless tracking stock
will have 250 votes.
Holders of AT&T common stock are entitled to one vote on all matters voted
on by shareholders. Holders of Class B Liberty Media Group tracking stock are
entitled to 0.375 of a vote per share and holders of Class A Liberty Media Group
tracking stock have 0.0375 of a vote per share on all matters voted on by
shareholders. The voting rights of AT&T common stock, Class B Liberty Media
Group tracking stock and Class A Liberty Media Group tracking stock and DoCoMo
wireless tracking stock will be subject to adjustments to reflect stock splits,
reverse stock splits, stock dividends or certain stock distributions with
respect to AT&T common stock, AT&T Wireless Group tracking stock or Liberty
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Media Group tracking stock, including any distribution of AT&T Wireless Group
tracking stock to holders of AT&T common stock.
Except as otherwise required by New York law or any special voting rights
of any class or series of AT&T preferred stock, Liberty Media Group tracking
stock or any other class of AT&T common shares, holders of shares of AT&T common
stock, AT&T Wireless Group tracking stock, DoCoMo wireless tracking stock, each
other class of common shares, if any, that is entitled to vote, Class A Liberty
Media Group tracking stock and Class B Liberty Media Group tracking stock, and
holders of shares of each other class or series of AT&T preferred stock, if any,
that is entitled to vote, will vote as one class with respect to all matters to
be voted on by shareholders of AT&T.
No separate class vote of AT&T Wireless Group tracking stock will be
required, except as required by the NYBCL.
Dividends
General. If AT&T has sufficient assets to pay a dividend under applicable
law, after excluding the available dividend amount relating to Liberty Media
Group and the preference payable to holders of DoCoMo wireless tracking stock,
dividends on AT&T Wireless Group tracking stock are limited to an available
dividend amount that is designed to be equivalent to the amount that would
legally be available for dividends on that stock if AT&T Wireless Group were a
stand-alone corporation. Dividends on AT&T common stock are limited to the
amount of legally available funds for all of AT&T less the sum of the available
dividend amount for AT&T Wireless Group tracking stock and the available
dividend amount for Liberty Media Group tracking stock. AT&T does not expect to
pay dividends on shares of AT&T Wireless Group tracking stock.
Discrimination among classes of common shares. Our charter does not
provide for mandatory dividends. If there are sufficient assets to pay a
dividend on a class of stock as described under " -- General," our board of
directors will have the sole authority and discretion to declare and pay
dividends (or to refrain from declaring or paying dividends), in equal or
unequal amounts, on AT&T common stock, AT&T Wireless Group tracking stock,
Liberty Media Group tracking stock, any other class of common shares or any two
or more of these classes. Subject to not exceeding the applicable available
dividend amount, our board of directors has this power regardless of the
relative available dividend amounts, prior dividend amounts declared,
liquidation rights or any other factor. Our board of directors has adopted a
policy with respect to Liberty Media Group tracking stock that it will
distribute to the holders of Liberty Media Group tracking stock any dividends it
receives from any entity included in Liberty Media Group.
Share Distributions
Subject to the provisions of Liberty Media Group tracking stock, AT&T may
declare and pay a distribution consisting of shares of AT&T common stock, AT&T
Wireless Group tracking stock or any other securities of AT&T or any other
person to holders of AT&T Wireless Group tracking stock only in accordance with
the provisions described below. We refer to this type of distribution as a
"share distribution."
Distributions on AT&T common stock or AT&T Wireless Group tracking
stock. Subject to any limitations imposed by the terms of Liberty Media Group
tracking stock, AT&T may declare and pay a share distribution to holders of AT&T
common stock, AT&T Wireless Group tracking stock or any other class of common
shares consisting of any securities of AT&T, any subsidiary of AT&T, or any
other person. However, securities attributable to a group may be distributed to
holders of another group only for consideration. The limitations imposed by the
terms of the Liberty Media Group tracking stock will not survive if the
split-off of Liberty Media Corporation is completed.
Discrimination among classes of common shares. AT&T's charter does not
provide for mandatory share distributions. Subject to the restrictions described
above or that are in effect regarding Liberty Media Group tracking stock, our
board of directors will have the sole authority and discretion to declare and
pay share distributions (or to refrain from declaring or paying share
distributions), in equal or unequal amounts, on AT&T common stock, AT&T Wireless
Group tracking stock, Liberty Media Group tracking
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stock, any other class of common shares or any two or more of these classes.
Subject to not exceeding the applicable available dividend amounts, our board of
directors has this power regardless of the relative available dividend amounts,
prior share distributions amounts declared, liquidation rights or any other
factor.
Redemption
Redemption in exchange for shares of AT&T common stock at option of our
board of directors. At any time following either the occurrence of tax-related
events or May 2, 2002, our board of directors, in its sole discretion, may
redeem all outstanding shares of AT&T Wireless Group tracking stock for shares
of AT&T common stock. In this event, each share of AT&T Wireless Group tracking
stock will be redeemed in exchange for that number of shares of AT&T common
stock, calculated to the nearest 1/10,000, equal to 110% of the ratio of the
average market price per share of AT&T Wireless Group tracking stock to the
average market price per share of AT&T common stock.
In this case, the average market price per share of AT&T common stock or
AT&T Wireless Group tracking stock, as the case may be, means the average of the
daily market value per share for AT&T common stock or AT&T Wireless Group
tracking stock for the 40 consecutive trading days ending on the 15th trading
day before the date notice of the redemption is mailed to holders of AT&T
Wireless Group tracking stock.
In order to redeem AT&T Wireless Group tracking stock on the basis of a tax
event, AT&T must obtain the opinion of counsel that, as a result of an amendment
to or change, or prospective change, in a law or an interpretation of the law
that takes place after AT&T Wireless Group tracking stock is issued, there is
more than an insubstantial risk that:
- any issuance of AT&T Wireless Group tracking stock would be treated as a
sale or other taxable disposition by AT&T or any of its subsidiaries of
any of the assets, operations or relevant subsidiaries underlying AT&T
Wireless Group tracking stock,
- the existence of AT&T Wireless Group tracking stock would subject AT&T,
its subsidiaries or its affiliates, or any of their respective successors
to the imposition of tax or other adverse tax consequences, or
- either AT&T common stock or AT&T Wireless Group tracking stock would not
be treated solely as common stock of AT&T.
Redemption in exchange for stock of qualifying subsidiaries at option of
our board of directors. AT&T's charter also provides that AT&T may, at any time,
redeem all outstanding shares of AT&T Wireless Group tracking stock in exchange
for a specified number of outstanding shares of common stock of a subsidiary of
AT&T that satisfies certain requirements under the Internal Revenue Code and
that directly or indirectly holds all of the assets and liabilities of AT&T
Wireless Group. We refer to a subsidiary that satisfies these requirements as a
"qualifying subsidiary." This type of redemption may only be made on a pro rata
basis, and must be tax free to the holders of AT&T Wireless Group tracking
stock, except with respect to any cash that holders receive in lieu of
fractional shares.
In this case, we would exchange each share of AT&T Wireless Group tracking
stock, on a pro rata basis, for an aggregate number of shares of common stock of
the qualifying subsidiary equal to the number of outstanding shares of common
stock of the qualifying subsidiary held by AT&T.
It is AT&T's intention partially to effect the split-off of AT&T Wireless
Services using this redemption power provided for in AT&T's charter authority.
As more fully described below, assuming the conditions to the split-off are met,
AT&T intends to complete a mandatory exchange of the then outstanding shares of
AT&T Wireless Group tracking stock for shares of AT&T Wireless Services, which
is expected to be a qualifying subsidiary. In the split-off, AT&T will also
distribute most of the shares of AT&T Wireless Services to holders of AT&T
common stock. AT&T has announced its intention to retain $3 billion of the
shares of AT&T Wireless Services for its own account, for sale, exchange or
monetization within six months of the split-off, subject to a satisfactory IRS
ruling.
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Redemption in connection with certain significant transactions. In the
event of a sale, transfer, assignment or other disposition by AT&T in a
transaction or series of related transactions, of all or substantially all of
the properties and assets of AT&T Wireless Group, AT&T generally is required to
take one of the following actions, which action will be selected in the sole
discretion of our board of directors:
- AT&T may redeem each outstanding share of AT&T Wireless Group tracking
stock in exchange for a number of shares of AT&T common stock (calculated
to the nearest 1/10,000) equal to 110% of the ratio of the average market
price per share of AT&T Wireless Group tracking stock to the average
market price per share of AT&T common stock. For this purpose, the
"average market price per share" of AT&T common stock or AT&T Wireless
Group tracking stock, as the case may be, means the average of the daily
market value per share for such AT&T common stock or AT&T Wireless Group
tracking stock during the ten trading-day period beginning on the 15th
trading day following completion of that transaction.
- Subject to limitations, AT&T may declare and pay a dividend in cash
and/or in securities (other than AT&T common stock) or other property to
holders of the outstanding shares of AT&T Wireless Group tracking stock
equally on a share-for-share basis in an aggregate amount equal to the
net proceeds of the disposition allocable to AT&T Wireless Group tracking
stock.
- Subject to limitations, if the disposition involves the disposition of
all, not merely substantially all, of the properties and assets of AT&T
Wireless Group, AT&T may redeem all outstanding shares of AT&T Wireless
Group tracking stock in exchange for cash and/or securities or other
property in an aggregate amount equal to the net proceeds of such
disposition allocable to AT&T Wireless Group tracking stock.
- Subject to limitations, if the disposition involves substantially all,
but not all, of the properties and assets of AT&T Wireless Group, AT&T
may redeem a number of outstanding shares of AT&T Wireless Group tracking
stock in exchange for a redemption price equal to the net proceeds of
that disposition. The number of shares of AT&T Wireless Group tracking
stock to be redeemed would be equal to the lesser of
-- a number determined by dividing the aggregate amount allocated to the
redemption of these shares by the average market value of one share of
AT&T Wireless Group tracking stock during the ten trading-day period
beginning on the 15th trading day following the completion of that
disposition and
-- the total number of outstanding shares of AT&T Wireless Group tracking
stock.
- Subject to limitations, AT&T may take a combination of the actions
described in the preceding bullet points whereby AT&T may redeem some
shares of AT&T Wireless Group tracking stock in exchange for shares of
AT&T common stock at the exchange rate described in the first bullet
point above, and use an amount equal to a portion of the net proceeds of
the disposition allocable to AT&T Wireless Group tracking stock to either
-- declare and pay a dividend as described in the second bullet point
above, or
-- redeem part or all of the remaining shares of AT&T Wireless Group
tracking stock as described in the third or fourth bullet point above.
For purposes of these provisions, "substantially all of the properties and
assets" of AT&T Wireless Group as of any date means a portion of such properties
and assets that represents at least 80% of the fair value of the properties and
assets attributed to AT&T Wireless Group as of such date.
Certain exceptions. The provisions described under "-- Redemption in
connection with certain significant transactions" will not apply, and AT&T will
not be required to redeem any securities or make any dividend or other
distribution it would otherwise be required to make, in some circumstances,
including the following:
- if the underlying disposition is conditioned upon the affirmative vote of
a majority of holders of AT&T Wireless Group tracking stock, voting as a
separate class,
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- if the disposition is in connection with a liquidation of AT&T,
- if the disposition is to a person or group of which AT&T is the majority
owner and AT&T Wireless Group receives in exchange primarily equity
securities of that person or group as consideration,
- in connection with a split-off or similar distribution of AT&T's entire
interest in AT&T Wireless Group to the holders of AT&T Wireless Group
tracking stock, including a distribution that is made in connection with
a mandatory redemption as described under "-- Redemption in exchange for
shares of AT&T common stock at option of our board of directors" or
"-- Redemption in exchange for stock of qualifying subsidiaries at option
of our board of directors," and
- in connection with a "related business transaction," which generally
means a disposition of all or substantially all of the assets attributed
to AT&T Wireless Group in which AT&T receives equity securities of an
entity that engages or proposes to engage primarily in one or more
businesses similar or complementary to the businesses conducted by AT&T
Wireless Group before the transaction.
General Procedures
Public announcements; notices. In the case of specified dispositions or a
redemption, AT&T will publicly announce or otherwise provide specified
information to holders of AT&T Wireless Group tracking stock.
Fractional shares. Our board of directors will not have to issue or
deliver any fractional shares to any holder of AT&T Wireless Group tracking
stock upon any redemption, dividend or other distribution under the provisions
described under "-- Redemption." Instead of issuing fractional shares, AT&T will
pay cash for the fractional share in an amount equal to the fair market value of
the fractional share, without interest.
No adjustments for dividends or other distributions. No adjustments for
dividends will be made upon the exchange of any shares of AT&T Wireless Group
tracking stock; except that, if a redemption date with respect to AT&T Wireless
Group tracking stock comes after the record date for the payment of a dividend
or other distribution to be paid on that stock but before the payment or
distribution, the registered holders of those shares at the close of business on
such record date will be entitled to receive the dividend or other distribution
on the payment date, notwithstanding the redemption of those shares or AT&T's
default in payment of the dividend or distribution.
Payment of taxes. If any person exchanging a certificate representing
shares of AT&T Wireless Group tracking stock wants us to issue a stock
certificate in a different name than the registered name on the old stock
certificate, that person must pay any transfer or other taxes required by reason
of the issuance of the stock certificate in another name or establish, to the
satisfaction of AT&T or its agent, that the tax has been paid or is not
applicable.
Liquidation Rights
In the event of a liquidation, dissolution or winding up of AT&T, whether
voluntary or involuntary, AT&T will first pay or provide for payment of debts
and other liabilities of AT&T, including the liquidation preferences of any
class or series of AT&T preferred stock. Thereafter, holders of the shares of
AT&T common stock, Liberty Media Group tracking stock, AT&T Wireless Group
tracking stock, including DoCoMo wireless tracking stock on an as converted
basis, and any other class of AT&T common shares will share in the funds of AT&T
remaining for distribution to its common shareholders in proportion to the
aggregate market capitalization of the outstanding shares of each class of
stock, as applicable, to the aggregate market capitalization of all the classes
of AT&T common stock. The holders of DoCoMo wireless tracking stock are entitled
to a $3.65 billion preference in the event of an involuntary liquidation,
dissolution or winding up of AT&T, but any amount paid in preference will reduce
the proportionate share payable in respect of that security. AT&T will calculate
the market capitalizations based on the 20 trading-day period ending on the
trading day before the date of the public announcement of the liquidation,
dissolution or winding up of AT&T.
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None of the following, by itself, will constitute a liquidation,
dissolution or winding up of AT&T:
- the consolidation or merger of AT&T with or into any other corporation or
corporations or the sale, transfer or lease of all or substantially all
of the assets of AT&T,
- any transaction or series of related transactions that results in all of
the assets and liabilities included in AT&T Wireless Group being held by
one or more AT&T Wireless Group subsidiaries and the distribution of such
AT&T Wireless Group subsidiaries, and no other material assets or
liabilities, to the holders of the outstanding AT&T Wireless Group
tracking stock, and
- any transaction or series of related transactions that results in all of
the assets and liabilities included in the Liberty Media Group being held
by one or more Liberty Media Group subsidiaries and the distribution of
such Liberty Media Group subsidiaries, and no other material assets or
liabilities, to the holders of the outstanding Liberty Media Group
tracking stock (but this will be subject to the provisions relating to
the redemption of shares of Liberty Media Group tracking stock described
in our charter).
Determinations by Our Board of Directors
Any determinations made by our board of directors under any provision
described in AT&T's charter will be final and binding on all AT&T shareholders,
except as may otherwise be required by law. AT&T will prepare a statement of any
determination by our board of directors respecting the fair market value of any
properties, assets or securities, and will file the statement with our Corporate
Secretary.
ANTI-TAKEOVER CONSIDERATIONS
The NYBCL, AT&T's charter and by-laws contain provisions which could serve
to discourage or make more difficult a change in control of AT&T without the
support of AT&T's board of directors or without meeting various other
conditions.
Business Combinations
Under the NYBCL, a plan of merger or consolidation, a plan of share
exchange or the sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation is required to be approved in
the case of corporations like AT&T that were in existence on February 22, 1998
and that do not expressly provide in their charter for majority approval of such
transactions, by two-thirds of the votes of all outstanding shares entitled to
vote thereon. AT&T's charter does not contain a provision expressly providing
for majority approval of such transactions. At AT&T's 2001 annual meeting of
shareholders, AT&T intends to ask its shareholders to amend AT&T's charter to
reduce the vote required for those matters to a majority.
State Takeover Legislation
Section 912 of the NYBCL prohibits any business combination (defined to
include a variety of transactions, including mergers, sales or dispositions of
assets, issuances of stock, liquidations, reclassifications and benefits from a
corporation, including loans or guarantees) with, involving or proposed by any
interested shareholder (defined generally as any person that, directly or
indirectly, beneficially owns 20% or more of the outstanding voting stock of the
corporation) for a period of five years after the date on which the interested
shareholder became an interested shareholder. After this five-year period, a
business combination between the corporation and the interested shareholder is
prohibited unless either certain "fair price" provision are complied with or the
business combination is approved by a majority of the outstanding voting stock
not beneficially owned by the interested shareholder or its affiliates and
associates. The restrictions of the NYBCL do not apply, however, to any business
combination with an interested shareholder if the business combination, or the
purchase of stock by the interested shareholder that cause that shareholder to
become an interested shareholder, was approved by the board of directors of the
corporation before the date on which the interested shareholder became an
interested shareholder.
A corporation may adopt an amendment to its by-laws, approved by the
affirmative vote of a majority of votes of the outstanding voting stock,
excluding the voting stock of interested shareholders and their affiliates and
associates, expressly electing not to be governed by Section 912 of the NYBCL.
Such
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amendment will not, however, be effective until 18 months after the shareholder
vote and will not apply to any business combination's with an interested
shareholder who was an interested shareholder on or before the effective date of
that amendment. AT&T's by-laws contain no provision electing not to be governed
by Section 912 of the NYBCL.
Shareholder Action
Under the NYBCL, any action required or permitted to be taken by a vote at
a meeting of shareholders may be taken without a meeting by written consent,
setting forth the action so taken, signed by the holders of all outstanding
shares entitled to vote thereon or, if the charter so permits, signed by holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. AT&T's charter does not
contain such a provision.
Shareholder Proposals
The AT&T by-laws require that, for business to be properly brought before
an annual meeting by a shareholder, or for shareholder nominations to be made at
an annual meeting, the shareholder must have delivered notice thereof to AT&T
(containing certain information specified in AT&T's by-laws) not less than 90
nor more than 120 days before the first anniversary of the preceding year's
annual meeting.
Meetings of Shareholders
AT&T's by-laws provide that special meetings of the shareholders may be
called at any time by the Chairman of the Board or by AT&T's board of directors.
Cumulative Voting
Under the NYBCL, the charter of a corporation may provide that in all
elections of directors each shareholder is entitled to cumulate that
shareholder's votes. AT&T's charter does not contain such a provision.
Removal of Directors
The NYBCL provides that any or all of the directors may be removed for
cause by vote of the shareholders, and, if the charter of a corporation or the
specific provisions of a by-law adopted by the shareholders provide, directors
may be removed for cause by action of the board of directors. If the charter or
the by-laws so provide, any or all of the directors may be removed without cause
by vote of the shareholders.
Neither AT&T's charter nor AT&T's by-laws provide that directors may be
removed without cause by action of the shareholders or that directors may be
removed by our board of directors.
Vacancies
Under the NYBCL, the charter or by-laws of a corporation may provide that
newly created directorships or vacancies are to be filled by vote of the
shareholders. Unless the charter or the specific provisions of a by-law adopted
by the shareholders provide that the board of directors may fill vacancies
occurring on the board of directors by reason of the removal of directors
without cause, those vacancies may be filled only by vote of the shareholders. A
director elected to fill a vacancy, unless elected by the shareholders, will
hold office until the next meeting of shareholders at which the election of
directors is in the regular order of business and until his or her successor has
been elected and qualified.
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COMPARISON OF RIGHTS OF HOLDERS OF
AT&T COMMON STOCK AND AT&T WIRELESS GROUP TRACKING STOCK
BEFORE THE SPLIT-OFF
We summarize below the material differences between the rights of holders
of AT&T common stock and holders of AT&T Wireless Group tracking stock. We do
not intend for this summary to be a complete statement of the rights of holders
of shares of AT&T Wireless Group tracking stock or a comprehensive comparison
with the rights of the holders of shares of AT&T common stock, or a complete
description of the specific provisions referred to in this summary. For more
information on AT&T's capital stock, see "Description of AT&T Capital Stock."
This summary is qualified in its entirety by reference to AT&T's charter
and by-laws, copies of which have been filed as exhibits to the registration
statement of which this document is a part. For more information on how you can
obtain these documents, see "Where You Can Find More Information."
If you exchange your shares of AT&T common stock for shares of AT&T
Wireless Group tracking stock, unless the split-off is completed, you will
remain a common shareholder of AT&T, but you will have different rights as a
result of AT&T's corporate structure. The rights of holders of AT&T common stock
and holders of AT&T Wireless Group tracking stock are defined and governed by
AT&T's charter, AT&T's by-laws and the NYBCL.
VOTING RIGHTS
Currently, holders of AT&T common stock have one vote per share, holders of
Class B Liberty Media Group tracking stock have 0.375 of a vote per share,
holders of Class A Liberty Media Group tracking stock have 0.0375 of a vote per
share, holders of AT&T Wireless Group tracking stock have 0.5 of a vote per
share and holders of DoCoMo wireless tracking stock have 250 votes per share.
This voting power is subject to adjustment for stock splits, stock dividends and
combinations, including any distribution of AT&T Wireless Group tracking stock
to holders of AT&T common stock. Except as otherwise required by New York law or
any special voting rights of any class or series of AT&T preferred stock,
Liberty Media Group tracking stock or any other class of AT&T common shares,
holders of shares of AT&T common stock, AT&T Wireless Group tracking stock,
DoCoMo wireless tracking stock, each other class of AT&T common shares, if any,
that is entitled to vote, Class A Liberty Media Group tracking stock and Class B
Liberty Media Group tracking stock, and holders of shares of each other class or
series of AT&T preferred stock, if any, that is entitled to vote, will vote as
one class with respect to all matters to be voted on by shareholders of AT&T. No
separate class vote of AT&T Wireless Group tracking stock will be required,
except as required by the NYBCL.
DIVIDENDS
If AT&T has sufficient assets to pay a dividend under applicable law, after
excluding the available dividend amount relating to the Liberty Media Group,
dividends on AT&T Wireless Group tracking stock are limited to an available
dividend amount that is designed to be equivalent to the amount that would
legally be available for dividends on that stock if the AT&T Wireless Group were
a stand-alone corporation. Dividends on AT&T common stock are limited to the
amount of legally available funds for all of AT&T less the sum of the available
dividend amount for AT&T Wireless Group tracking stock and the available
dividend amount for Liberty Media Group tracking stock.
If there are sufficient assets to pay a dividend on a class of stock, our
board of directors will have the sole authority and discretion to declare and
pay dividends (or to refrain from declaring or paying dividends), in equal or
unequal amounts, on AT&T common stock, AT&T Wireless Group tracking stock,
Liberty Media Group tracking stock, any other class of AT&T common shares or any
two or more of these classes. Subject to not exceeding the applicable available
dividend amount, our board of directors has this power regardless of the
relative available dividend amounts, prior dividend amounts declared,
liquidation rights or any other factor. Our board of directors has adopted a
policy with respect to Liberty Media Group tracking stock that it will
distribute to the holders of Liberty Media Group tracking stock,
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subject to legal restrictions, any dividends and distributions it receives from
any entity included in Liberty Media Group.
REDEMPTION
AT&T common stock is not subject to redemption. At any time following
either the occurrence of tax-related events or May 2, 2002 and in the event of
certain significant transactions, our board of directors, in its sole
discretion, may redeem all outstanding shares of AT&T Wireless Group tracking
stock for shares of AT&T common stock. In addition, AT&T Wireless Group tracking
stock may be mandatorily exchanged for shares of a subsidiary holding
substantially all of the assets of the AT&T Wireless Group. We expect to use
this mandatory exchange provision in connection with the proposed split-off of
AT&T Wireless Group. For more information on redemption of AT&T Wireless Group
tracking stock, see "Description of AT&T Capital Stock -- AT&T Wireless Group
Tracking Stock -- Redemption."
LIQUIDATION
In the event of a liquidation, dissolution or winding up of AT&T, whether
voluntary or involuntary, AT&T will first pay or provide for payment of debts
and other liabilities of AT&T, including the liquidation preferences of any
class or series of AT&T preferred stock. Thereafter, holders of the shares of
AT&T common stock, Liberty Media Group tracking stock, AT&T Wireless Group
tracking stock and any other class of AT&T common shares will share in the funds
of AT&T remaining for distribution to its common shareholders in proportion to
the aggregate market capitalization of the outstanding shares of each class of
stock, as applicable, to the aggregate market capitalization of all the classes
of AT&T common stock. AT&T will calculate the market capitalizations based on
the 20 trading-day period ending on the trading day before the date of the
public announcement of the liquidation, dissolution or winding up of AT&T.
As of April , 2001, the proportional aggregate market capitalization of
all outstanding classes of AT&T common stock were as follows:
ENDING SHARE MARKET
NUMBER OF PRICE ON CAPITALIZATION
SHARES OUTSTANDING 1/31/01 ($ IN BILLIONS) PERCENTAGE
------------------ ------------ --------------- ----------
AT&T Common Stock Group............... $ $ %
AT&T Wireless Group(1)................ $ $ %
Liberty Media Group................... $ $ %
--------
Total Market Capitalization........... $
========
These percentages will vary over time.
---------------
(1) Assumes conversion of outstanding shares of DoCoMo wireless tracking stock
into shares of AT&T Wireless Group tracking stock.
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THE SPLIT-OFF
AT&T Wireless Group will continue to be a part of AT&T following completion
of this exchange offer. However, subject to a number of conditions and
circumstances that are described below, AT&T intends to split-off AT&T Wireless
Services from AT&T as an independent company.
We expect that this split-off would be accomplished through the following
steps, any or all of which may be effected simultaneously:
- Transfer all of the assets and liabilities of AT&T Wireless Group to
AT&T Wireless Services, a subsidiary of AT&T that currently holds a
substantial amount of the assets of AT&T Wireless Group.
- Mandatorily exchange, in accordance with the terms of AT&T's charter,
all issued and outstanding shares of AT&T Wireless Group tracking stock,
including the shares of AT&T Wireless Group tracking stock issued in
this exchange offer for shares of AT&T Wireless Services common stock.
- Mandatorily convert DoCoMo's interest in AT&T into shares of AT&T
Wireless Services common stock, or in the case of the warrants, into
warrants to purchase AT&T Wireless Services common stock.
- Distribute on a pro rata basis to holders of AT&T common stock all
shares of AT&T Wireless Services held by AT&T other than any shares
retained by AT&T. AT&T has announced its intention to retain a portion
of the equity of AT&T Wireless Services for its own account for sale,
exchange or monetization within six months of the split-off, subject to
the receipt of a satisfactory IRS ruling.
After the mandatory exchange is completed, holders of AT&T Wireless Group
tracking stock who do not hold shares of AT&T common stock will no longer be
shareholders of AT&T. In the mandatory exchange, those holders of AT&T Wireless
Group tracking stock will receive shares of common stock of AT&T Wireless
Services.
The specific terms and conditions of the split-off of AT&T Wireless
Services are expected to be governed by a separation and distribution agreement
to be entered into among AT&T and AT&T Wireless Services. The material expected
terms of the separation and distribution agreement are summarized below.
In addition, we expect that AT&T and AT&T Wireless Services will enter into
a number of other agreements in connection with the split-off. We expect these
agreements to include:
- asset transfer agreement,
- brand license agreement,
- network services agreements,
- agency and referral agreement,
- employee benefits agreement,
- intellectual property agreement,
- tax sharing agreement, and
- interim and other services agreements.
The material expected terms of these agreements are described below or under
"Relationship between AT&T and AT&T Wireless Services following the Split-Off".
However, we do not expect that any of these agreements, other than the asset
transfer agreement, will be entered into until immediately before the split-off,
and each of AT&T and AT&T Wireless Services reserves the right to materially
change the terms of these agreements.
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SEPARATION AND DISTRIBUTION AGREEMENT
The separation and distribution agreement will set forth the agreements
among AT&T and AT&T Wireless Services with respect to the principal corporate
transactions required to effect the split-off, and a number of other agreements
governing the relationship between AT&T Wireless Services and AT&T following the
split-off. The asset transfer agreement, which will be incorporated into, and
superseded by, the separation and distribution agreement, relates to the assets
to be transferred in connection with the separation. We expect to execute the
separation and distribution agreement and to finalize the transfers called for
under the asset transfer agreement immediately before the split-off. We only
expect to enter into the separation and distribution agreement, and to complete
the split-off, if specified conditions are met. These conditions include, among
others, receipt of a favorable ruling on the split-off from the IRS, the
satisfaction by AT&T of a number of conditions in its new $18.3 billion credit
facility, including the repayment of AT&T Wireless Group's intercompany
obligations to AT&T. In order to facilitate the receipt of the IRS ruling, we
have undertaken a reorganization of our business structure which requires
receipt of various local franchise regulatory approvals.
Specifically, this credit agreement provides that AT&T cannot effect
specified transactions, including the distribution of AT&T Wireless Group in the
split-off, unless:
- AT&T's public debt rating for its long-term senior debt is at least BBB+
by Standard & Poor's Ratings Services and Baa1 by Moody's Investors
Service, Inc.;
- there are no defaults or events of default under the credit agreement;
- the preferred equity interest in AT&T Wireless Group held by, and
intercompany indebtedness owed by AT&T Wireless Group to, AT&T is repaid;
and
- required prepayments of the credit facility are made.
AT&T's current long-term debt ratings are A on CreditWatch with negative
implications by Standard and Poor's and A2 under review for possible downgrade
by Moody's.
We do not plan to seek any vote of holders of AT&T common stock or AT&T
Wireless Group tracking stock for the split-off.
While we currently intend to complete the split-off, these conditions may
not be satisfied. Even if these conditions are satisfied, other events or
circumstances, including litigation, could occur that could impact the timing or
terms of the split-off or our ability or plans to complete the split-off. For
example, several large shareholders of AT&T associated with unions that
represent AT&T employees have publicly announced their opposition to AT&T's
restructuring plan, and some of these shareholders have commenced litigation
relating to AT&T's proposed charter amendment described above under "Risk
Factors Relating to AT&T's Restructuring Plan." As a result of these factors,
the split-off may not occur, and, if it does occur, it may not occur on the
terms or in the manner described, or in the time frame contemplated.
The Separation
We have agreed pursuant to an asset transfer agreement and will agree
pursuant to the separation and distribution agreement to transfer, or to cause
its subsidiaries to transfer, to AT&T Wireless Services:
- all assets allocated to AT&T Wireless Group by AT&T's charter that are
not then held by AT&T Wireless Services;
- all assets reflected in the most recent balance sheet of AT&T Wireless
Group that are not then held by AT&T Wireless Services;
- specified contracts which relate to AT&T Wireless Group; and
- other specified assets.
These assets are referred to as the "additional wireless group assets."
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AT&T Wireless Services will also agree to assume or fulfill:
- all liabilities allocated to AT&T Wireless Group by AT&T's charter to
which AT&T Wireless Services or its subsidiaries are not then subject;
- all liabilities reflected in the most recent balance sheet of AT&T
Wireless Group to which AT&T Wireless Services is not then subject;
- all liabilities to the extent arising out of, relating to or resulting
from the operations of AT&T Wireless Group including its contracts and
assets;
- all liabilities to the extent arising out of, relating to or resulting
from terminated, divested or discontinued businesses and operations that
were part of AT&T Wireless Group immediately before termination,
divestiture or discontinuation;
- all liabilities to the extent arising out of, relating to or resulting
from, a specified list of litigations;
- all liabilities to the extent arising out of, relating to or resulting
from the provision, or failure to provide, telecommunications services by
AT&T Wireless Group;
- a portion of the liabilities, if any, resulting out of an action relating
to AT&T Wireless Group's assets in Malaysia, subject to certain
adjustments;
- a portion of the liabilities, if any, arising out of specified purported
securities class actions litigations to the extent relating to AT&T
Wireless Group tracking stock;
- specified liabilities resulting from the split-off;
- obligations and commitments under specified contracts; and
- other specified liabilities.
These liabilities are referred to as "additional wireless group liabilities."
Generally, neither AT&T nor AT&T Wireless Services will make any
representation or warranty as to:
- the assets, businesses or liabilities transferred or assumed;
- any consents or approvals required in connection with that transfer or
assumption;
- the value or freedom from any lien or other security interest of any of
the additional wireless group assets; and
- the absence of any defenses or freedom from counterclaim relating to any
claim of any person, or as to the legal sufficiency of any assignment,
document or instrument delivered to convey title to any asset
transferred.
In addition, the wireless group assets are being transferred on an "as is,"
"where is" basis, and AT&T Wireless Services will agree to bear the economic and
legal risks that the conveyance is insufficient to vest good and marketable
title, free and clear of any lien or other security interest.
AT&T and AT&T Wireless Services generally also will agree to terminate all
agreements, understandings and arrangements among AT&T and AT&T Wireless
Services with specified exceptions. AT&T Wireless Services will agree, upon
completion of the split-off, to repay the full amount of the principal and
accrued but unpaid interest of all outstanding indebtedness owed by AT&T
Wireless Group to AT&T and the face value and accrued but unpaid dividends on
all preferred stock in AT&T Wireless Group held by AT&T.
The Mandatory Exchange and the Distribution
Following completion of the transactions described under "-- The
Separation," AT&T would deliver to an exchange agent a stock certificate
representing the shares of AT&T Wireless Services common stock
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that will be delivered in exchange for shares of AT&T Wireless Group tracking
stock. AT&T would then deliver to the exchange agent a stock certificate
representing the shares of AT&T Wireless Services common stock issued to AT&T in
respect of AT&T Common Stock Group's retained portion of the value of AT&T
Wireless Group, other than any shares to be retained by AT&T, to be distributed
pro rata to holders of AT&T common stock.
AT&T will issue no fractional shares in either the mandatory exchange or
the distribution, and, instead, will issue cash to holders of AT&T common stock
and AT&T Wireless Group common stock in lieu of those fractional shares.
Reduction in AT&T Common Stock Group's Retained Portion of the Value of AT&T
Wireless Group
AT&T Wireless Services will assume specified employee related obligations
and liabilities, including the obligation to assume a portion of AT&T's employee
stock options. In connection with this assumption, AT&T will, effective
immediately before the split-off, reduce AT&T Common Stock Group's retained
portion of the value of AT&T Wireless Group by the equivalent of 12,577,650
shares of AT&T Wireless Group tracking stock. This will have the effect of
reducing the total number of shares of AT&T Wireless Services common stock
distributed to holders of AT&T common stock in the split-off. As of April ,
based on the closing trading price of AT&T Wireless Group tracking stock, this
reduction had a value of approximately $ million. For more information on
the liabilities and obligations that AT&T Wireless Services will assume in the
employee benefits agreement, please see "Relationship between AT&T and AT&T
Wireless Services following the Split-Off -- Employee Benefits Agreement."
Releases and Indemnification
The separation and distribution agreement generally will provide for a full
and complete release and discharge as of the date of the completion of the
mandatory exchange of all liabilities existing or arising from all acts and
events occurring or failing to occur or alleged to have occurred or to have
failed to occur and all conditions existing or alleged to have existed on or
before the date of the completion of the mandatory exchange between or among
AT&T and its affiliates, on the one hand, and AT&T Wireless Services and its
affiliates, on the other hand, including any contractual agreements or
arrangements existing or alleged to exist between or among those parties on or
before that date.
AT&T Wireless Services will agree to indemnify, defend and hold harmless
AT&T and its affiliates, and each of their directors, officers and employees,
from and against all liabilities relating to, arising out of or resulting from:
- the failure of AT&T Wireless Services or its affiliates, or any other
person to pay, perform or otherwise promptly discharge any of the
liabilities of the AT&T Wireless Group or additional wireless group
liabilities;
- any liabilities of AT&T Wireless Group or additional wireless group
liabilities;
- any breach by AT&T Wireless Services or its affiliates of the separation
and distribution agreement or any of the ancillary agreements entered
into in connection with the separation and distribution agreement; and
- specified disclosure liabilities.
AT&T will agree to indemnify, defend and hold harmless AT&T Wireless
Services and its affiliates, and each of their directors, officers and
employees, from and against all liabilities relating to, arising out of or
resulting from:
- the failure of AT&T or its affiliates or any other person to pay, perform
or otherwise promptly discharge any liabilities of AT&T, other than
liabilities of AT&T Wireless Group or additional wireless group
liabilities;
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- any liabilities of AT&T, other than liabilities of AT&T Wireless Group or
additional wireless group liabilities;
- any breach by AT&T or its affiliates of the separation and distribution
agreement or any of the ancillary agreements entered into in connection
with the separation and distribution agreement; and
- specified disclosure liabilities.
The separation and distribution agreement also specifies procedures for
claims for indemnification made under the provisions described above.
Agreement on Split-Off Taxes and Limitations on Future Transactions
Under the separation and distribution agreement, AT&T Wireless Services
will be responsible for any tax liability and any related liability (e.g.
interest, penalties, accounting, legal and other professional fees, etc.) that
results from the split-off failing to qualify as a tax-free transaction, unless
any such liability was caused by:
- the inaccuracy of certain factual representations made by AT&T in
connection with obtaining a private letter ruling from the IRS (or in
connection with obtaining a tax opinion), or
- a post split-off transaction with respect to the stock or assets of AT&T.
In addition, AT&T Wireless Services will agree that, for a period of 30
months from the date of the distribution:
- it will continue to be a company engaged in the active conduct of a trade
or business as defined in Section 355(b) of the Internal Revenue Code;
- it will not enter into any transaction or transactions as a result of
which any person or group of related persons would acquire, or have the
right to acquire, AT&T Wireless Services stock that represents more than
5% of the vote or value of all outstanding shares of AT&T Wireless
Services stock and it will not take any other action (including any
action inconsistent with the representations made to the IRS or counsel
in connection with split-off rulings or opinions) which could be
reasonably likely (taken together with other relevant transactions) to
jeopardize the tax-free status of the split-off to AT&T or its
stockholders, in each case, unless
-- AT&T determines that the transaction or transactions would not render
the split-off taxable, or
-- AT&T or AT&T Wireless Services, at AT&T's election, obtains a tax
opinion or private letter ruling from the IRS confirming that the
subsequent transaction will not render the split-off taxable.
Termination
The separation and distribution agreement will provide that it may be
terminated at any time before the completion of the distribution by AT&T in its
sole discretion. If AT&T terminates the separation and distribution agreement,
neither party will have any liability or further obligation to any other party.
Amendments and Waivers
The separation and distribution agreement will provide that no provisions
of it or any ancillary agreement will be deemed waived, amended, supplemented or
modified by any party unless the waiver, amendment, supplement or modification
is in writing and signed by the authorized representative of the party against
whom that waiver, amendment, supplement or modification is sought to be
enforced.
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RELATIONSHIP BETWEEN AT&T AND AT&T WIRELESS
SERVICES FOLLOWING THE SPLIT-OFF
The following is a description of the material expected terms of the
material agreements to be entered into between AT&T and AT&T Wireless Services
in connection with the split-off, other than the separation and distribution
agreement, which is described above under "The Split-Off." However, we do not
expect that any of these agreements will be entered into until immediately
before the split-off, and each of AT&T and AT&T Wireless Services reserves the
right to materially change the terms of these agreements.
BRAND LICENSE AGREEMENT
AT&T and AT&T Wireless Services expect to enter into a brand license
agreement. This agreement will give AT&T Wireless Services rights to continue to
use specified AT&T brands, including the AT&T globe design and the AT&T trade
dress. The rights will be granted royalty free, although AT&T Wireless Services
will be required to pay a maintenance fee. The brand license agreement will
allow AT&T Wireless Services to use these AT&T brands, alone or in combination
with AT&T Wireless Services' other marks, for the following:
- provision of its mobile cellular services (including so-called third
generation services),
- residential fixed wireless services, and
- certain ancillary products and services.
AT&T Wireless Services will have these rights for five years following the
completion of the split-off. After the initial five-year period, AT&T Wireless
Services may renew its rights to these AT&T brands for an additional five-year
period. During the renewal period, AT&T Wireless Services may terminate the
brand license agreement on 12 months prior notice. In addition, AT&T Wireless
Services may continue to use these AT&T brands after the brand license agreement
is terminated during a one-year transition period.
AT&T Wireless Services will be able to use these AT&T brands exclusively in
connection with the following:
- wide-area mobile cellular services,
- aircraft to ground services,
- specified ancillary wireless services, and
- certain wireless devices and portals.
AT&T Wireless Services will be able to use these AT&T brands
non-exclusively in connection with the following:
- residential fixed wireless services in some territories,
- specified content, equipment and software associated with the AT&T
Wireless Services' services, and
- some wireless devices, portals and promotional products.
During the term of the brand license and within certain areas, AT&T would not
license these brands to third parties for providing residential local telephony
or high speed internet access services through services that directly compete
with AT&T Wireless Services' residential fixed wireless services, unless AT&T,
or its present or future affiliates, has an equity interest in the third party,
provides a core component of those services or has a direct relationship with
the end-user customers.
In the two years following the split-off, AT&T Wireless Services can obtain
a non-exclusive license to use these AT&T brands for specified small business
fixed wireless services if it enters into a distribution agreement with AT&T
relating to fixed wireless services.
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AT&T Wireless Services can generally use these AT&T brands worldwide except
where AT&T has already granted exclusive brand licenses or where another AT&T
unit has exclusive rights. AT&T also has granted a nonexclusive brand license in
the Republic of China, and accordingly AT&T Wireless Services cannot have
exclusive use of the AT&T brands in that area. With some conditions, AT&T
Wireless Services can extend some rights to use these AT&T brands to authorized
dealers.
In order for AT&T Wireless Services to maintain its rights, it must comply
with specified quality, customer care, graphics and marketing standards in
connection with its use of these AT&T brands. While AT&T Wireless Services is
using the AT&T brands, it must also pay AT&T a brand maintenance fee. AT&T may
terminate the brand license agreement in the event of a significant breach or
change of control of AT&T Wireless Services.
NETWORK SERVICE AGREEMENTS
AT&T and AT&T Wireless Services expect to enter into a network services
agreement. This agreement will require AT&T to provide voice and data
telecommunications services to AT&T Wireless Services for five years. AT&T will
provide both wholesale services, which AT&T Wireless Services will use as a
component of wireless services it provides to its customers, and administrative
services, for example corporate usage which AT&T Wireless Services will use
itself.
AT&T Wireless Services will be required to purchase in each year an amount
of wholesale domestic voice services equal to AT&T Wireless Services actual
usage in 2001. The pricing at which AT&T provides these services will be subject
to internal and external benchmarking. AT&T Wireless Services is not required to
purchase from AT&T wholesale domestic voice services in excess of this
commitment, although AT&T has a right to match any third party offers until 2003
for 80% of any excess. From 2003 until the agreement ends, AT&T Wireless
Services may purchase such service in excess of the commitment from any carrier.
AT&T Wireless Services will also be required to purchase all international
voice services from AT&T. AT&T will provide these services at the price AT&T
receives from Concert, its joint venture with British Telecommunications.
AT&T Wireless Services will be required each year to purchase domestic
administrative services, data and voice, at a level equal to 80% of its
purchases in 2000. AT&T Wireless Services will purchase its local connectivity,
business needs from AT&T if AT&T meets committed levels of performance, and
offers price and performance terms at least as favorable as those offered by
other providers.
AT&T and AT&T Wireless Services also expect to enter into other commercial
agreements. These agreements include agreements:
- governing the physical interconnection of their networks and other
intercarrier arrangements,
- SS7 signaling services to be provided by AT&T Wireless Services to AT&T's
business services unit,
- a 38 GHz license to be provided by AT&T Wireless Services to AT&T's
business services unit,
- agreements under which AT&T will provide space and power in various AT&T
locations for AT&T Wireless Services' equipment and
- an agreement under which AT&T Wireless Services will provide wireless
services to AT&T for administrative purposes.
Upon either party being acquired by a significant competitor of the other,
the party not being acquired will have a right to terminate certain of the
agreements, including the network service agreement. Alternatively, the party
not being acquired may elect to keep the network service agreement in effect
with certain modifications. These modifications will include eliminating AT&T's
right to match third party offers, and, if AT&T Wireless Services is acquired,
changing the domestic voice purchase requirement to 90% of the past 12 months'
usage, eliminating internal benchmarking, and increasing the frequency of
external benchmarking.
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AGENCY AND REFERRAL AGREEMENT
AT&T and AT&T Wireless Services also expect to enter into an agency and
referral agreement. This agreement covers AT&T's acting as an agent on AT&T
Wireless Services' behalf to assist AT&T Wireless Services in obtaining business
with AT&T's business customers. Upon either party being acquired by a
significant competitor of the other, the party not being acquired will have the
right to terminate this agreement.
EMPLOYEE BENEFITS AGREEMENT
AT&T and AT&T Wireless Services expect to enter into an employee benefits
agreement which will cover a wide range of compensation and benefit issues. In
general, AT&T Wireless Services will be responsible for all obligations and
liabilities relating to employees and former employees of AT&T Wireless Services
and their dependents and beneficiaries after the split-off date, and AT&T will
be responsible for the obligations and liabilities before the split-off date. We
refer to individuals who were employees of AT&T or its affiliates and were
transferred to AT&T Wireless Services or its affiliates as transferred
individuals.
The AT&T Wireless Services' plans will fully recognize and fully credit
transferred individuals with their full service with AT&T or its affiliates.
Transferred individuals account balances under AT&T defined contribution plans
will vest on the split-off date and they will be allowed to make a one-time
election to transfer their accounts to the AT&T Wireless Services 401(k) Plan.
Each transferred individual will vest in his accrued benefit under the AT&T
pension plans on the split-off date. Transferred individuals will also be
entitled to a distribution of their accounts under the AT&T Employee Stock
Ownership Plan.
Employee options to purchase AT&T common stock or AT&T Wireless Group
tracking stock will be adjusted as part of the split-off. The nature of the
adjustment will depend upon whether the option was granted for AT&T common stock
or AT&T Wireless Group tracking stock. Options to purchase AT&T Wireless Group
tracking stock will be converted into options to purchase AT&T Wireless Services
common stock. Options to purchase AT&T common stock granted before January 1,
2001 will be converted into two separate options, one to purchase AT&T common
stock and another to purchase AT&T Wireless Services common stock. Options to
purchase AT&T common stock granted on or after January 1, 2001 will be adjusted
to increase the number of shares subject to the option, based on the relative
market price of AT&T common stock immediately before and immediately after the
split-off. In all cases, however, the intrinsic value of the options is intended
to remain the same immediately before and after the adjustment. AT&T options
held by employees of AT&T Wireless Services and AT&T Wireless Services options
held by employees of AT&T after the split-off will be fully vested and continue
to be exercisable for the scheduled option term. In all other respects, options
to purchase AT&T Wireless Services common stock and options to purchase AT&T
common stock held by transferred individuals and current and former AT&T
employees, will be subject to the same terms and conditions as set forth
respectively in the original AT&T Wireless Group tracking stock option grant and
the AT&T stock option grant. Similar adjustments will be made to grants of
restricted shares, restrict stock units, and performance shares under the AT&T
plans.
INTELLECTUAL PROPERTY AGREEMENTS
AT&T and AT&T Wireless Services expect to enter into an intellectual
property agreement. The intellectual property agreement will specify the
ownership and license rights in patents, software, copyrights, and trade
secrets, but not the AT&T brands. Under the terms of the intellectual property
agreement, AT&T and AT&T Wireless Services will grant each other a
non-exclusive, fully paid-up, worldwide, perpetual and irrevocable license under
its patents to make, use and sell any and all products and services in the
conduct of its present and future business. The parties also grant special
rights under certain of each other's patents for defensive protection, special
affiliate licensing, and supplier sublicensing. In addition, AT&T will refrain
from licensing some of its patents to AT&T Wireless Services' ten largest
domestic mobile service competitors for a period of five years.
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AT&T and AT&T Wireless Services will each own all the software, trade
secrets, and copyrights created by it before the split-off of AT&T Wireless
Services. AT&T and AT&T Wireless Services will grant each other a non-exclusive,
fully paid-up, worldwide, perpetual license to use each other's software, trade
secrets, and copyrights that it currently possesses for use in its present and
future business. The agreement also protects proprietary information related to
customers. In the event of a change in control of AT&T Wireless Services, the
scope of the intellectual property rights granted to AT&T Wireless Services
would automatically narrow, AT&T Wireless Services' special rights would
terminate, and AT&T's agreement not to license to competitors of AT&T Wireless
Services would terminate.
TAX SHARING AGREEMENT
AT&T and AT&T Wireless Services also amended their existing tax sharing
agreement. The amended tax sharing agreement provides that:
- AT&T will be responsible for any tax item resulting from asset transfers
from AT&T Wireless Group to AT&T Common Stock Group before the split-off;
- the accounts between AT&T and AT&T Wireless Group will be adjusted for
unpaid amounts under the tax sharing agreement as of the time of the
split-off; and
- no tax sharing payments will be made with respect to taxable periods (or
portions thereof) beginning after the split-off date.
The tax sharing agreement also contains provisions that govern tax contests
and other related matters with respect to tax periods before the split-off date.
SERVICES AGREEMENT
AT&T and AT&T Wireless Services expect to enter into a Services Agreement.
This agreement will govern the following corporate support services
- common support services;
- inter-unit services; and
- systems replication and systems services.
The agreement will generally run for 18 months and the individual services
are generally terminable on 90 to 180 days' notice.
Common support services. Common support services include services
historically provided at a corporate headquarters level, such as financial
management, tax, media relations, human resources administration, procurement,
real estate management and other administrative functions. It is expected that
the charges for these services will allow the provider to recover the costs of
such service, plus all out-of-pocket costs and expenses, but without any profit.
Inter-unit services. Inter-unit services include services historically
provided by one business unit to another, such as billing, systems development
and customer care. It is expected that the charges for these services will allow
the provider to recover the cost of such service, plus all out-of-pocket costs
and expenses. In some instances it is expected that the company providing the
service will recover a profit.
Systems Replication and Systems Service. AT&T will supply to AT&T Wireless
Services technology systems and support services. For example AT&T will provide
information linkages between AT&T Wireless Services's web site and att.com. The
charges for these services will be based on a "cost plus" formula intended to
allow AT&T to recover its fully-allocated cost, plus a profit.
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DESCRIPTION OF AT&T WIRELESS SERVICES CAPITAL STOCK FOLLOWING THE SPLIT-OFF
The following is a description of the material expected terms of the
capital stock of AT&T Wireless Services. The final terms which will be contained
in AT&T Wireless Services' charter, bylaws and rights agreement as those
documents are in effect at the time of the split-off. However, AT&T Wireless
Services does not expect to finalize any of these documents until closer to the
time of the split-off, and some of the terms of these documents may change
before that time. The final forms of these documents will be included as
exhibits to future public filings to be made by AT&T Wireless Services in
connection with the split-off.
GENERAL
Immediately after the split-off, we expect AT&T Wireless Services'
authorized capital stock to consist of shares of preferred stock, par
value $.01, and shares of common stock, par value $0.01. Immediately
following the split-off, we expect approximately shares of AT&T
Wireless Services common stock and no shares of AT&T Wireless Services preferred
stock would be outstanding.
AT&T Wireless Services Common Stock
The holders of AT&T Wireless Services common stock will be entitled to one
vote for each share on all matters voted on by shareholders, including elections
of directors, and, except as otherwise required by law or provided in any
resolution adopted by AT&T Wireless Services' board of directors with respect to
any series of preferred stock (a "preferred stock designation"), the holders of
AT&T Wireless Services common stock will possess all of the voting power of AT&T
Wireless Services. AT&T Wireless Services' charter will not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of AT&T Wireless Services preferred stock
created by AT&T Wireless Services' board of directors from time to time, the
holders of AT&T Wireless Services common stock will be entitled to the dividends
as may be declared from time to time by the AT&T Wireless Services' board of
directors from funds legally available for dividends, and, upon liquidation,
will be entitled to receive pro rata all assets available for distribution to
the holders of AT&T Wireless Services common stock. For a more complete
discussion of AT&T Wireless Services' dividend policy, see "-- Dividend Policy".
AT&T Wireless Services Preferred Stock
AT&T Wireless Services' charter will authorize AT&T Wireless Services'
board of directors to establish one or more series of preferred stock and to
determine, with respect to any series of preferred stock, the terms and rights
of such series, including, but not limited to:
- the designation of the series;
- the number of shares of the series, which number AT&T Wireless Services'
board of directors may later, except where otherwise provided in the
preferred stock designation, increase or decrease, but not below the
number of shares thereof then outstanding;
- whether dividends, if any, will be cumulative or noncumulative, and, in
the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which
dividends on the shares of the series having cumulative dividend rights
shall be cumulative;
- the rate of any dividends, or method of determining the dividends,
payable to the holders of the shares of the series, any conditions upon
which the dividends will be paid and the date or dates or the method for
determining the date or dates upon which the dividends will be payable;
- the redemption rights and price or prices, if any, for shares of the
series;
- the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series;
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- the amounts payable on and the preferences, if any, of shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of AT&T Wireless Services' affairs;
- whether the shares of the series will be convertible or exchangeable into
shares of any other class or series, or any other security, of AT&T
Wireless Services or any other corporation, and, if so, the specification
of the other class or series or the other security, the conversion or
exchange price or prices or rate or rates, any adjustments thereof, the
date or dates as of which the shares will be convertible or exchangeable
and all other terms and conditions upon which the conversion or exchange
may be made;
- restrictions on the issuance of shares of the same series or of any other
class or series; and
- the voting rights, if any, of the holders of the shares of the series.
We believe that the ability of AT&T Wireless Services' board of directors
to issue one or more series of preferred stock will provide AT&T Wireless
Services with flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might arise. The
authorized shares of AT&T Wireless Services preferred stock, as well as shares
of AT&T Wireless Services common stock, will be available for issuance without
further action by AT&T Wireless Services shareholders unless required by
applicable law or the rules of any stock exchange or automated quotation system
on which AT&T Wireless Services securities may be listed or traded. The NYSE
currently requires shareholder approval as a prerequisite to listing shares in
several instances, including where the present or potential issuance of shares
could result in an increase of at least 20% in the number of outstanding shares
of common stock, or in the amount of voting securities, outstanding. If the
approval of AT&T Wireless Services shareholders is not required for the issuance
of shares of AT&T Wireless Services preferred stock or common stock, AT&T
Wireless Services' board of directors may determine not to seek stockholder
approval.
Although we believe AT&T Wireless Services' board of directors will have no
intention of immediately doing so, it could issue a series of preferred stock
that could, depending on the terms of the series, impede the completion of a
merger, tender offer or other takeover attempt. AT&T Wireless Services' board of
directors will make any determination to issue the shares of preferred stock
based on its judgment as to the best interests of AT&T Wireless Services and its
shareholders. AT&T Wireless Services' board of directors, in so acting, could
issue preferred stock having terms that could discourage an acquisition attempt
through which an acquiror may be able to change the composition of AT&T Wireless
Services' board of directors, including a tender offer or other transaction that
some, or a majority, of AT&T Wireless Services shareholders might believe to be
in their best interests or in which AT&T Wireless Services shareholders might
receive a premium for their stock over the then current market price of AT&T
Wireless Services common stock.
We expect that, as of the completion split-off, shares of AT&T
Wireless Services Series A junior participating preferred stock will be reserved
for issuance upon exercise of the rights issued under AT&T Wireless Services'
rights agreement. For a more complete discussion of AT&T Wireless Services'
rights plan, see "-- Rights Agreement."
Dividend Policy
We currently do not expect that AT&T Wireless Services will pay dividends
on shares of AT&T Wireless Services common stock following completion of the
split-off in the foreseeable future.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF AT&T WIRELESS SERVICES' CHARTER
AND BY-LAWS
Board of Directors
AT&T Wireless Services' charter will provide that, except as otherwise
provided in any preferred stock designation relating to the rights of the
holders of any class or series of preferred stock to elect additional directors
under specified circumstances, the number of directors will be fixed from time
to time exclusively by a resolution adopted by a majority of the total number of
directors which AT&T Wireless
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Services would have if there were no vacancies, or the whole board, but shall
not be less than three. AT&T Wireless Services' directors, other than those who
may be elected by the holders of any class or series of our preferred stock
having the right under a preferred stock designation to elect additional
directors under specified circumstances, will be classified into three classes,
as nearly equal in number as possible, one class originally to be elected for a
term expiring at the annual meeting of shareholders to be held in 2002, another
class to be originally elected for a term expiring at the annual meeting of
shareholders to be held in 2003 and another class to be originally elected for a
term expiring at the annual meeting of shareholders to be held in 2004, with
each director to hold office until his or her successor is duly elected and
qualified. Commencing with the 2002 annual meeting of shareholders, directors
elected to succeed directors whose terms then expire will be elected for a term
of office to expire at the third succeeding annual meeting of shareholders after
their election, with each director to hold office until such person's successor
is duly elected and qualified.
AT&T Wireless Services' charter will provide that, except as otherwise
provided in any preferred stock designation relating to the rights of the
holders of any class or series of preferred stock to elect directors under
specified circumstances, newly created directorships resulting from any increase
in the number of directors and any vacancies on AT&T Wireless Services' board of
directors resulting from death, resignation, disqualification, removal or other
cause will be filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the board of
directors, and not by the shareholders. Any director elected in accordance with
the preceding sentence will hold office for the remainder of the full term of
the class of directors in which the new directorship was created or the vacancy
occurred and until the director's successor shall have been duly elected and
qualified. No decrease in the number of directors constituting AT&T Wireless
Services' board of directors will shorten the term of any incumbent director.
Subject to the rights of any class or series of preferred stock having the right
under a preferred stock designation to elect directors under specified
circumstances, any director may be removed from office only for cause by the
affirmative vote of the holders of at least a majority of the voting power of
all voting stock then outstanding, voting together as a single class.
These provisions would preclude a third party from removing incumbent
directors and simultaneously gaining control of AT&T Wireless Services' board by
filling the vacancies created by removal with its own nominees. Under the
classified board provisions described above, it would take at least two
elections of directors for any individual or group to gain control of AT&T
Wireless Services' board of directors. Accordingly, these provisions could
discourage a third party from initiating a proxy contest, making a tender offer
or otherwise attempting to gain control of AT&T Wireless Services.
No Stockholder Action by Written Consent; Special Meetings
We expect AT&T Wireless Services' charter and by-laws to provide that
shareholders must effect any action required or permitted to be taken at a duly
called annual or special meeting of shareholders and that those actions may not
be effected by any consent in writing by the shareholders. Except as otherwise
required by law or by any preferred stock designation, special meetings of
shareholders may be called only by a majority of the whole board or by AT&T
Wireless Services' chairman. No business other than that stated in the notice of
meeting may be transacted at any special meeting. These provisions may have the
effect of delaying consideration of a shareholder proposal until the next annual
meeting unless a special meeting is called by AT&T Wireless Services' board or
the chairman of the board of directors.
Advance Notice Procedures
We expect AT&T Wireless Services' by-laws to establish an advance notice
procedure for shareholders to make nominations of candidates for election as
directors or to bring other business before an annual meeting of shareholders.
These shareholder notice procedures will provide that only persons who are
nominated by AT&T Wireless Services' board of directors, or by a shareholder who
was a shareholder of record at the time of giving notice and has given timely
written notice to AT&T Wireless Services' secretary before the meeting at which
directors are to be elected, will be eligible for election as directors. These
shareholder notice procedures will also provide that at an annual meeting only
the business as has
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been brought before the meeting by AT&T Wireless Services' board of directors,
or by a shareholder who has given timely written notice to AT&T Wireless
Services' secretary of the shareholder's intention to bring the business before
the meeting, may be conducted. Under these shareholder notice procedures, for
notice of shareholder nominations to be made at an annual meeting to be timely,
the notice must be received by AT&T Wireless Services' secretary not later than
the close of business on the 90th calendar day nor earlier than the close of
business on the 120th calendar day before the first anniversary of the preceding
year's annual meeting, except that, if the date of the annual meeting is more
than 30 calendar days before or more than 60 calendar days after such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the 120th calendar day before the
annual meeting and not later than the close of business on the later of the 90th
calendar day before the annual meeting or the tenth calendar day following the
day on which public announcement of a meeting date is first made by us.
Nevertheless, if the number of directors to be elected to AT&T Wireless
Services' board of directors is increased and there is no public announcement by
AT&T Wireless Services naming all of the nominees for director or specifying the
size of our increased board of directors at least 100 calendar days before the
first anniversary of the preceding year's annual meeting, a shareholder's notice
also will be considered timely, but only with respect to nominees for any new
positions created by the increase, if it shall be delivered not later than the
close of business on the 10th calendar day following the day on which the public
announcement is first made by AT&T Wireless Services. Under these shareholder
notice procedures, for notice of a shareholder nomination to be made at a
special meeting at which directors are to be elected to be timely, the notice
must be received by AT&T Wireless Services not earlier than the close of
business on the 120th calendar day before the special meeting and not later than
the close of business on the later of the 90th calendar day before the special
meeting or the 10th calendar day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
AT&T Wireless Services' board to be elected at the meeting.
In addition, under these shareholder notice procedures, a shareholder's
notice to us proposing to nominate a person for election as a director or
relating to the conduct of business other than the nomination of directors will
be required to contain some specified information. If the chairman of a meeting
determines that an individual was not nominated, or other business was not
brought before the meeting, in accordance with AT&T Wireless Services
shareholder notice procedure, the individual will not be eligible for election
as a director, or the business will not be conducted at the meeting, as the case
may be.
Amendment
We expect that AT&T Wireless Services' charter will provide that the
affirmative vote of the holders of at least 80% of AT&T Wireless Services'
voting stock then outstanding, voting together as a single class, is required to
amend provisions of AT&T Wireless Services charter relating to shareholder
action; the number, election and tenure of directors; the nomination of director
candidates and the proposal of business by shareholders; the filling of
vacancies; and the removal of directors. We expect AT&T Wireless Services'
charter to further provide that the related by-laws described above, including
the shareholder notice procedure, may be amended only by the affirmative vote of
a majority of the whole board or by the affirmative vote of the holders of at
least 80% of the voting power of the outstanding shares of voting stock, voting
together as a single class. We expect that the affirmative vote of holders of at
least % of the voting power of outstanding shares of voting stock, voting
as a single class, will be required to amend AT&T Wireless Services' by-laws.
RIGHTS AGREEMENT
We expect that AT&T Wireless Services' board of directors will adopt a
rights agreement on or before the completion of the split-off. Under the rights
agreement, AT&T Wireless Services expects to issue one preferred share purchase
right for each outstanding share of AT&T Wireless Services common stock. Each
right will entitle the registered holder to purchase from AT&T Wireless Services
one one-
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hundredth of a share of Series A junior participating preferred stock, par value
$.01 per share, of AT&T Wireless Services at a price of $ , subject to
adjustment in some circumstances. The description and terms of the rights will
be set forth in a rights agreement between AT&T Wireless Services and the
designated rights agent. The description set forth below is intended as a
summary only and is qualified in its entirety by reference to the form of the
rights agreement, which is filed as an exhibit to the registration statement of
which this document is a part.
The rights will be evidenced by the certificates representing AT&T Wireless
Services common stock until the earlier to occur of:
- ten days following a public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership of at
least % or more of the outstanding shares of AT&T Wireless Services
common stock, or
- ten business days or a later date determined by AT&T Wireless Services'
board of directors following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of
% or more of such outstanding shares of AT&T Wireless Services common
stock (the "distribution date").
We expect the rights agreement to provide that, until the distribution date
or earlier redemption or expiration of the rights, the rights will be
transferred with and only with AT&T Wireless Services common stock. Until the
distribution date or earlier redemption or expiration of the rights, AT&T
Wireless Services common stock certificates will contain a notation
incorporating the rights agreement by reference. As soon as practicable
following the distribution date, separate certificates evidencing the rights
will be mailed to holders of record of AT&T Wireless Services common stock as of
the close of business on the distribution date and the separate right
certificates alone will evidence the rights.
The rights will not be exercisable until the distribution date. The rights
will expire on the 10th anniversary of the rights agreement, unless the final
expiration date is extended or unless the rights are earlier redeemed or
exchanged by us, in each case, as summarized below.
In the event that any person or group of affiliated or associated persons
becomes an acquiring person, proper provision shall be made so that each holder
of a right, other than rights beneficially owned by the acquiring person, which
will thereafter be void, will later have the right to receive upon exercise that
number of shares of AT&T Wireless Services common stock having a market value of
two times the exercise price of the right. If AT&T Wireless Services is acquired
in a merger or other business combination transaction or 50% or more of our
consolidated assets or earning power are sold after a person or group of
affiliated or associated persons becomes an acquiring person, proper provision
will be made so that each holder of a right will thereafter have the right to
receive, upon the exercise thereof at the then-current exercise price of the
right, that number of shares of common stock of the acquiring company which at
the time of the transaction will have a market value of two times the exercise
price of the right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of % or more of outstanding AT&T
Wireless Services common stock and before the acquisition by the person or group
of % or more of AT&T Wireless Services' outstanding common stock, AT&T
Wireless Services' board of directors may exchange the rights, other than rights
owned by the person or group which, have become void, in whole or in part, at an
exchange ratio of one share of AT&T Wireless Services common stock, or one
one-hundredth of one of AT&T Wireless Services' junior preferred shares, or of a
share of a class or series of preferred stock having equivalent rights,
preferences and privileges, per right subject to adjustment.
At any time before the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of % or more of AT&T Wireless
Services' outstanding common stock, AT&T Wireless Services' board of directors
may redeem the rights in whole, but not in part, at a price of $.01 per right,
as adjusted. The redemption of the rights may be made effective at such time on
such basis and with such conditions as AT&T Wireless Services' board of
directors, in its sole discretion, may establish.
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Immediately upon any redemption of the rights, the right to exercise the rights
will terminate and the only right that the holders of the rights will be
eligible to receive will be the redemption price.
The terms of the rights may be amended by AT&T Wireless Services' board of
directors without the consent of the holders of the rights; provided, however,
that, AT&T Wireless Services' board may not reduce the threshold at which a
person or group becomes an acquiring person to below % of AT&T Wireless
Services' outstanding common stock and from and after such time as any person or
group of affiliated or associated persons becomes an acquiring person, no
amendment may adversely affect the interests of the holders of the rights.
Until a right is exercised, the holder of that right, as a holder, will
have no additional rights as an AT&T Wireless Services shareholder solely by
virtue of holding that right, including, without limitation, the right to vote
or to receive dividends.
The number of outstanding rights and the number of one one-hundredths of
AT&T Wireless Services junior preferred shares issuable upon exercise of each
right also will be subject to adjustment in the event of a stock split of AT&T
Wireless Services' common stock or a stock dividend on AT&T Wireless Services
common stock payable in AT&T Wireless Services common stock or subdivisions,
consolidations or combinations of AT&T Wireless Services common stock occurring,
in any case, before the distribution date.
The purchase price payable, and the number of AT&T Wireless Services junior
preferred shares or other securities or property issuable, upon exercise of the
rights will be subject to adjustment from time to time to prevent dilution:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, AT&T Wireless Services junior preferred shares;
- upon the grant to holders of AT&T Wireless Services junior preferred
shares of some rights or warrants to subscribe for or purchase our junior
preferred shares at a price, or securities convertible into AT&T Wireless
Services junior preferred shares with a conversion price, less than the
then-current market price of AT&T Wireless Services junior preferred
shares; or
- upon the distribution to holders of AT&T Wireless Services junior
preferred shares of evidences of indebtedness or assets excluding regular
periodic cash dividends paid out of earnings or retained earnings or
dividends payable in AT&T Wireless Services junior preferred shares or of
subscription rights or warrants other than those referred to above.
With some exceptions, no adjustment in the purchase price will be required
until cumulative adjustments require an adjustment of at least 1% in the
purchase price. No fractional junior preferred shares will be issued, other than
fractions which are integral multiples of one one-hundredth of one of AT&T
Wireless Services junior preferred shares, which may, at our election, be
evidenced by depositary receipts and instead, an adjustment in cash will be made
based on the market price of AT&T Wireless Services junior preferred shares on
the last trading day before the date of exercise.
AT&T Wireless Services junior preferred shares purchasable upon exercise of
the rights will not be redeemable. Each of AT&T Wireless Services' junior
preferred shares will be entitled to a minimum preferential quarterly dividend
payment of $1.00 per share but will be entitled to an aggregate dividend of 100
times the dividend declared per share of AT&T Wireless Services common stock. In
the event of liquidation, the holders of AT&T Wireless Services' junior
preferred shares will be entitled to a minimum preferential liquidation payment
of $100 per share but will be entitled to an aggregate payment of 100 times the
payment made per share of common stock. Each of AT&T Wireless Services junior
preferred shares will have 100 votes voting together with our common stock.
Finally, in the event of any merger, consolidation or other transaction in which
shares of common stock are exchanged, each one of AT&T Wireless Services' junior
preferred shares will be entitled to receive 100 times the amount received per
one share of common stock. These rights are protected by customary anti-dilution
provisions.
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Due to the nature of AT&T Wireless Services junior preferred shares'
dividend, liquidation and voting rights, the value of the one one-hundredth
interest in one of AT&T Wireless Services junior preferred shares purchasable
upon exercise of each right should approximate the value of one share of common
stock.
The rights have anti-takeover effects. The rights will cause substantial
dilution to a person or group of persons that attempts to acquire us on terms
not approved by AT&T Wireless Services board of directors. The rights should not
interfere with any merger or other business combination approved by AT&T
Wireless Services' board before the time that a person or group has acquired
beneficial ownership of % percent or more of the common stock since the rights
may be redeemed by us at the redemption price until such time.
We expect the terms of the rights agreement to contain certain exceptions
for DoCoMo's investment in AT&T.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporation Law provides that, subject
to some exceptions, an interested stockholder of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the date that the stockholder becomes an interested
stockholder unless:
- before the date of the business combination, the board of directors of
the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding some shares; or
- on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder. Except as otherwise specified in Section 203, an
interested stockholder is defined to include:
- any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately
before the date of determination; and
- the affiliates and associates of the stockholder.
Under some circumstances, Section 203 makes it more difficult for a person
that would be an interested stockholder to effect various business combinations
with a corporation for a three-year period. AT&T Wireless Services is not
expected to elect to be exempt from the restrictions imposed under Section 203.
However AT&T and its affiliates are excluded from the definition of interested
stockholder for purposes of Section 203. The provisions of Section 203 may
encourage persons interested in acquiring us to negotiate in advance with our
board, since the stockholder approval requirement would be avoided if a majority
of the directors then in office approves either the business combination or the
transaction that results in any person becoming an interested stockholder. These
provisions also may have the effect of preventing changes in our management. It
is possible that these provisions could make it more difficult to accomplish
transactions which our stockholders may otherwise deem to be in their best
interests.
OTHER COMPANIES RESULTING FROM AT&T'S RESTRUCTURING PLAN
You should also note, although we have not yet made any determination, it
is possible that the charter, by-laws and other constituent documents of the
other companies created by AT&T's restructuring plan will also contain
provisions that could delay or prevent a change of control that you may favor.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
IN GENERAL
All shareholders should consult their own tax advisors concerning the tax
consequences of this exchange offer and of the mandatory exchange of AT&T
Wireless Services common stock for AT&T Wireless Group tracking stock in light
of their particular circumstances. This summary is of a general nature only and
is not intended to be, nor should it be construed to be, legal or tax advice to
any particular investor.
We summarize below the material U.S. federal income tax consequences
relating to this exchange offer. The summary is based on the Internal Revenue
Code, the Treasury regulations promulgated thereunder and interpretations of the
Code and Treasury regulations by the courts and the IRS, all as they exist as of
the date of this document and all of which are subject to change at any time,
possibly with retroactive effect. Any such change could alter the tax
consequences to AT&T or the holders of AT&T common stock as described below. See
"Risk Factors -- Risk Factors Relating to the Fact that AT&T Wireless Group
Tracking Stock is a Tracking Stock -- Changes in the tax law or in the
interpretation of current tax law may result in redemption of AT&T Wireless
Group tracking stock or may prevent us from issuing further shares."
It is a non-waivable condition to the currently contemplated split-off that
AT&T has obtained a private letter ruling from the IRS, which confirms, among
other things, that the distribution by AT&T of the common stock of AT&T Wireless
Services to holders of AT&T Wireless Group tracking stock will qualify as a
tax-free split-off to AT&T and its shareholders under Section 355 of the Code.
To the extent this summary describes the federal income tax consequences of the
mandatory exchange to AT&T and its shareholders, such consequences are expected
to be set forth in the IRS ruling.
This summary does not discuss all tax considerations that may be relevant
to shareholders in light of their particular circumstances, nor does it address
the consequences to shareholders subject to special treatment under the U.S.
federal income tax laws, such as tax-exempt entities, non-resident alien
individuals, foreign entities, foreign trusts and estates and beneficiaries
thereof, persons who acquire such AT&T common stock pursuant to the exercise of
employee stock options or otherwise as compensation, insurance companies, and
dealers in securities. In addition, this summary does not address the U.S.
federal income tax consequences to shareholders who do not hold their common
stock or AT&T Wireless Group tracking stock as a capital asset. This summary
does not address any state, local or foreign tax consequences.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The exchange and mandatory exchange will have the U.S. federal income tax
consequences set forth below to holders of AT&T common stock, holders of AT&T
Wireless Group tracking stock, and AT&T only if AT&T Wireless Group tracking
stock is treated as stock of AT&T for U.S. federal income tax purposes and the
following discussions assumes the tracking stock is so treated. If the exchange
of AT&T Wireless Group tracking stock for AT&T common stock or the mandatory
exchange of AT&T Wireless Services common stock for AT&T Wireless Group tracking
stock were held to be taxable, AT&T and the exchanging shareholders potentially
would incur material tax liabilities.
Exchange Offer
In the opinion of Wachtell, Lipton, Rosen & Katz, subject to the discussion
below relating to the receipt of cash instead of fractional shares, the
following constitutes the expected material U.S. federal
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income tax consequences of the exchange of AT&T Wireless Group tracking stock
for AT&T common stock:
- no gain or loss will be recognized by, and no amount will be included in
the income of, shareholders upon their receipt of shares of AT&T Wireless
Group tracking stock in this exchange offer;
- for shareholders that surrender shares of AT&T common stock in this
exchange offer, the aggregate tax basis of the shares of AT&T Wireless
Group tracking stock received by the shareholders pursuant to this
exchange offer will be the same as the aggregate tax basis of the shares
of AT&T common stock exchanged in this exchange offer;
- the aggregate tax basis of the shares of AT&T common stock retained by
such shareholders will remain unchanged;
- the holding period of the shares of AT&T Wireless Group tracking stock
received by the shareholders in this exchange offer will include the
holding period of the shares of AT&T common stock with respect to which
the shares of AT&T Wireless Group tracking stock were received; and
- no gain or loss will be recognized by, and no amount will be included in
the income of, AT&T upon issuance of the shares of AT&T Wireless Group
tracking stock in exchange for shares of AT&T common stock in this
exchange offer.
Mandatory Exchange
Subject to the discussion below relating to the receipt of cash instead of
fractional shares, and assuming receipt of the private letter ruling from the
Internal Revenue Service for U.S. federal income tax purposes the tax
consequences of the mandatory exchange are as follows:
- no gain or loss will be recognized by, and no amount will be included in
the income of, shareholders upon their receipt of shares of AT&T Wireless
Services common stock in the mandatory exchange;
- the aggregate tax basis of the shares of AT&T Wireless Services common
stock received by shareholders in the mandatory exchange will be the same
as the aggregate tax basis of the shares of AT&T Wireless Group tracking
stock exchanged therefor;
- the holding period of the shares of AT&T Wireless Services common stock
received by shareholders in the mandatory exchange will include the
holding period of the shares of AT&T Wireless Group tracking stock with
respect to which the shares of AT&T Wireless Services common stock were
received;
- no gain or loss will be recognized by, and no amount will be included in
the income of, AT&T upon the issuance of AT&T Wireless Services common
stock in exchange for AT&T Wireless Group tracking stock; and
- current Treasury Regulations require each holder of AT&T Wireless Group
tracking stock who receives AT&T Wireless Services, Inc. common stock
pursuant to the mandatory exchange to attach to his or her federal income
tax return for the year in which the mandatory exchange occurs, a
detailed statement setting forth such data as may be appropriate in order
to show the applicability of Section 355 of the Code to the mandatory
exchange. AT&T will provide the appropriate information to each
shareholder of record.
Receipt of Cash Instead of Fractional Shares
No fractional shares of AT&T Wireless Group tracking stock will be issued
to shareholders who participate in this exchange offer and no fractional shares
of AT&T Wireless Services common stock will be issued in the mandatory exchange.
All fractional shares resulting from this exchange offer or from the mandatory
exchange will be aggregated and sold by the exchange agent and the proceeds will
be distributed to the owners of such fractional shares.
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Cash received by an exchanging stockholder instead of a fractional share
interest will be treated as having been received in exchange for such fractional
share interest, and gain or loss will generally be recognized for U.S. federal
income tax purposes. This gain or loss will be measured by the difference
between the amount of cash received and the portion of such stockholder's tax
basis allocable to such fractional share interest. Such gain or loss will be
treated as capital gain or loss. For taxpayers who are individuals, if their
fractional share interest has a holding period for U.S. federal income tax
purposes of more than one year, any gain will generally be subject to a stated
maximum rate of 20%. In general, for purposes of the exchange offer, a person's
holding period for a fractional share interest will include the period during
which such person held the AT&T common stock with respect to which such
fractional share interest was received. For purposes of the mandatory exchange,
a person's holding period for a fractional share interest will include the
period during which such person held the AT&T common stock and the period during
which such person held the AT&T Wireless Group tracking stock with respect to
which such fractional share interest was received.
Under the Code, if you receive cash in lieu of a fractional share interest,
you may be subject, under certain circumstances, to backup withholding at a 31%
rate with respect to such cash unless you provide proof of an applicable
exemption or a correct taxpayer identification number, and otherwise comply with
applicable requirements of the backup withholding rules. The letter of
transmittal provides instructions on how to provide us with information to
prevent backup withholding with respect to cash received in the exchange offer
in lieu of a fractional share interest. Any amounts withheld under the backup
withholding rules are not an additional tax and may be refunded or credited
against your U.S. federal income tax liability, provided you furnish the
required information to the IRS.
Holders who have blocks of AT&T common stock with different per share tax
bases are urged to consult their tax advisors regarding the possible tax basis
consequences to them of this exchange offer and mandatory exchange.
LEGAL MATTERS
The validity of the AT&T Wireless Group tracking stock offered in this
exchange offer will be passed upon for AT&T by Robert S. Feit, Esq., General
Attorney and Assistant Secretary of AT&T. As of , 2001, Mr. Feit
was the beneficial owner of approximately shares of AT&T common stock and
had options to purchase additional shares. Certain legal matters with respect to
this exchange offer will be passed upon for AT&T by Wachtell, Lipton, Rosen &
Katz. Wachtell, Lipton, Rosen & Katz has in the past represented AT&T in
connection with various matters.
EXPERTS
The consolidated financial statements incorporated in this Registration
Statement by reference to the Annual Report on Form 10-K of AT&T Corp. and the
Current Report on Form 8-K, filed on March 29, 2001, for the year ended December
31, 2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The combined financial statements of AT&T Wireless Group incorporated in
this Registration Statement by reference to the Annual Report on Form 10-K of
AT&T Corp. and the Current Report on Form 8-K, filed on March 29, 2001, for the
year ended December 31, 2000 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The combined balance sheets of Liberty Media Group ("New Liberty or
Successor") as of December 31, 2000 and 1999, and the related combined
statements of operations and comprehensive earnings, net attributed assets, and
cash flows for the year ended December 31, 2000 and for the period from March 1,
1999 to December 31, 1999 (Successor periods) and from January 1, 1999 to
February 28, 1999 and for the year ended December 31, 1998 (Predecessor
periods), which appear as an exhibit to the
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Annual Report on Form 10-K, dated April 2, 2001, of AT&T Corp., have been
incorporated by reference herein in reliance upon the report, dated February 26,
2001, of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The KPMG LLP report dated February 26, 2001 refers to the fact that the
financial statements should be read in conjunction with the consolidated
financial statements of AT&T Corp.
In addition the KPMG LLP report contains an explanatory paragraph that
states that effective March 9, 1999, AT&T Corp., the owner of the assets
comprising New Liberty, acquired Tele-Communications, Inc., the owner of the
assets comprising Old Liberty, in a business combination accounted for as a
purchase. As a result of the acquisition, the combined financial information for
the periods after the acquisition is presented on a different cost basis than
that for the periods before the acquisition and, therefore, is not comparable.
The consolidated balance sheets of TCI and its subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of operations and
comprehensive earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998, which appear in the
Current Report on Form 8-K, dated March 28, 2001, of AT&T Corp. have been
incorporated by reference herein in reliance upon the report dated March 9,
1999, of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The consolidated balance sheets of MediaOne Group, Inc. as of December 31,
1999 and 1998, and the related consolidated statements of operations,
shareowners' equity and cash flows for each of the three years in the period
ended December 31, 1999, filed in AT&T Corp.'s Form 8-K dated March 28, 2001,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
143
147
WHERE YOU CAN FIND MORE INFORMATION
AT&T files annual, quarterly and special reports, prospectuses and other
information with the SEC. You may read and copy any reports, statements or other
information AT&T files at the SEC's public reference rooms at 450 Fifth Street,
N.W., Washington, D.C. 20549, 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. AT&T's SEC filings are also available to the public
from commercial document retrieval services and at the website maintained by the
SEC at www.sec.gov.
AT&T filed a registration statement on Form S-4 to register with the SEC
the AT&T Wireless Group tracking stock offered in this exchange offer. This
document is a part of that registration statement and constitutes a prospectus
of AT&T.
As allowed by SEC rules, this document does not contain all the information
you can find in the registration statement or the exhibits to the registration
statement.
The SEC allows us to "incorporate by reference" information into this
document, which means that we can disclose important information to you by
referring you to another document we have filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information contained directly in this
document. This document incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about AT&T and its financial condition.
AT&T SEC FILINGS (FILE NO. 1-1105) PERIOD
---------------------------------- ------
Annual Report on Form 10-K...... Year ended December 31, 2000, filed on April
2, 2001
Current Reports on Form 8-K..... Filed on February 16, 2001, March 1, 2001,
March 28, 2001 and March 29, 2001
Registration Statement on Form Filed on April 24, 2000
8-A...........................
AT&T also incorporates by reference into this document additional documents
that may be filed with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act from the date of this document before the termination of this
exchange offer. These include periodic reports, such as Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as
prospectuses. Any statements contained in a previously filed document
incorporated by reference into this document is deemed to be modified or
superseded for purposes of this document to the extent that a statement
contained in this document (or in a subsequently filed document that also is
incorporated by reference herein) modifies or supersedes that statement.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us, the SEC or
the SEC's website as described above. Documents incorporated by reference are
available from us without charge, excluding exhibits thereto unless we have
specifically incorporated by reference such exhibits in this document. Any
person, including any beneficial owner, to whom this document is delivered may
obtain documents incorporated by reference into, but not delivered with, this
document by requesting them in writing or by telephone at the following address:
AT&T Corp.
32 Avenue of the Americas
New York, New York 10013-2412
Tel: (212) 387-5400
Attn: Corporate Secretary's Department
144
148
INDEX TO FINANCIAL STATEMENTS
PRO FORMA FINANCIAL STATEMENTS
AT&T
Unaudited Pro Forma Condensed Combined Financial
Statements............................................ F-2
Unaudited Pro Forma Condensed Combined Balance Sheet as
of December 31, 2000.................................. F-4
Unaudited Pro Forma Condensed Combined Statement of
Income for the Year ended December 31, 2000........... F-6
Unaudited Pro Forma Condensed Combined Statement of
Income for the Year ended December 31, 1999........... F-7
Unaudited Pro Forma Condensed Combined Statement of
Income for the Year ended December 31, 1998........... F-8
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.................................. F-9
F-1
149
AT&T
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements set forth
below for AT&T give effect to
- The AT&T Wireless Group Exchange Offer,
- the DoCoMo investment,
- the AT&T Wireless Group distribution
(collectively, the AT&T wireless events), as if such events had been completed
on January 1, 1998 for income statement purposes, and at December 31, 2000 for
balance sheet purposes, subject to the assumptions and adjustments in the
accompanying notes to the pro forma financial statements. The unaudited pro
forma condensed combined financial statements set forth below for AT&T also give
effect to the TCI and MediaOne mergers as if they had been completed on January
1, 1998 for income statement purposes. Upon receipt of necessary approvals, AT&T
will report the AT&T Wireless Group as a Discontinued Operation, in accordance
with APB Opinion No. 30 "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" (APB 30). For accounting
purposes, the spin-off/split-off (the "distribution") of the AT&T Wireless Group
is a non-pro rata distribution and is to be recorded at fair value resulting in
the recognition of a gain on the remaining AT&T entity upon the distribution
date. Such gain is reflected in AT&T's equity in the unaudited pro forma
condensed combined balance sheet at December 31, 2000. See the Notes to the
Unaudited Pro Forma Condensed Combined Financial Statements for additional
disclosure of potential material nonrecurring charges and credits directly
attributable to the events as noted above which are not reflected in the pro
forma financial statements.
Upon receipt of the necessary approvals, AT&T will split-off the Liberty
Media Group. The split-off is a pro rata distribution and will therefore be
accounted for at historical cost. See Note 11 for a description of the impact of
the distribution of the Liberty Media Group on the unaudited condensed combined
pro forma financial statements of AT&T.
The pro forma adjustments included herein are based on available
information and certain assumptions that management believes are reasonable and
are described in the accompanying notes to the pro forma financial statements.
The unaudited pro forma condensed combined financial statements do not
necessarily represent what AT&T's financial position or results of operations
would have been had the TCI or MediaOne mergers or the AT&T wireless events
occurred on such dates or to project AT&T's financial position or results of
operations at or for any future date or period. In the opinion of management,
all adjustments necessary to present fairly the unaudited pro forma financial
information have been made. The unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical financial
statements of AT&T and the AT&T Wireless Group, both incorporated by reference
herein.
On January 22, 2001, DoCoMo invested approximately $9.8 billion for shares
of a new class of AT&T preferred stock that are generally economically
equivalent to 406,255,889 shares of AT&T Wireless Group tracking stock, and are
intended to reflect approximately 16% of the financial performance and economic
value of AT&T Wireless Group. As part of this investment, DoCoMo also received
five-year warrants to purchase the equivalent of an additional 41,748,273 shares
of AT&T Wireless Group tracking stock at $35 per share, and DoCoMo and AT&T
Wireless Services formed a strategic alliance to develop the next generation of
mobile multimedia services on a global-standard, high-speed wireless network. Of
the 406,255,889 AT&T Wireless Group tracking stock share equivalents issued to
DoCoMo, 228,128,307 shares represented new share equivalents at $27.00 each, and
the remaining 178,127,582 share equivalents represented a reduction of AT&T
Common Stock Group's retained portion of the value of AT&T Wireless Group at
$20.50 each. Accordingly, AT&T Common Stock Group retained $3.6 billion of the
proceeds
F-2
150
of the DoCoMo investment and allocated $6.2 billion to AT&T Wireless Group. The
DoCoMo tracking stock will convert into AT&T Wireless Group tracking stock
immediately prior to the split-off at a rate of 500 to 1.
AT&T closed its merger with MediaOne on June 15, 2000, therefore, MediaOne
is reflected in the December 31, 2000 balance sheet. The merger was accounted
for using the purchase method of accounting. Accordingly, AT&T has established a
new basis for MediaOne Group's assets and liabilities using their preliminarily
assigned fair values based on the allocation of the purchase price including the
costs of the merger. We may make refinements to the allocation of the purchased
price in future periods as the related fair value appraisals of certain assets
and liabilities are finalized.
AT&T closed its merger with TCI on March 9, 1999, therefore, TCI is
reflected in the December 31, 2000 balance sheet. The merger was accounted for
using the purchase method of accounting. Accordingly, AT&T has established a new
basis for TCI's assets and liabilities using their assigned fair values based on
the allocation of the purchase price including the costs of the merger. In
connection with the merger, AT&T issued a separate tracking stock to reflect the
economic performance of Liberty Media Group, TCI's former programming and
technology investment businesses.
On April 27, 2000, AT&T completed the sale of a tracking stock (AT&T
Wireless Group tracking stock) intended to reflect 15.6% of the financial
performance and economic value of AT&T Wireless Group. The results of AT&T
Wireless Group are included in their entirety in the consolidated results of
AT&T. The earnings available to Common Shareholders are (reduced) increased by
the 15.6% of (income) loss from the AT&T Wireless Group beginning on April 27,
2000, the date of formation of the AT&T Wireless Group Tracking Stock.
Upon the distribution, AT&T Wireless Services will assume a portion of
AT&T's outstanding employee stock options. In connection with this assumption,
AT&T will, effective immediately prior to the distribution, reduce the AT&T
Common Stock Group's retained portion of the value of the AT&T Wireless Group by
the equivalent of 12,577,650 shares of AT&T Wireless Group tracking stock. This
will have the effect of reducing the total number of shares of AT&T Wireless
Services common stock distributed to holders of AT&T common stock in the
spin-off.
F-3
151
AT&T
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 2000
(IN MILLIONS)
DOCOMO & PRO FORMA
AWE EXCHANGE AT&T AFTER PRO FORMA
HISTORICAL PRO FORMA DOCOMO & AWE OTHER AT&T EXCLUDING
AT&T(1) ADJUSTMENTS AWE EXCHANGE DISPOSITION(8) ADJUSTMENTS(10) AWE
---------- ------------ ------------ -------------- --------------- --------------
ASSETS
Cash and cash equivalents.......... $ 126 $ 9,811(6) $ 6,285 $ (62) $(4,800)(9) $ 64
(3,652)(6) (6,159)
4,800(9)
Receivables-net.................... 12,847 -- 12,847 (1,891) 741 11,697
Deferred income taxes.............. 812 -- 812 (93) -- 719
Other current assets............... 3,302 -- 3,302 (418) -- 2,884
-------- ------- -------- -------- ------- --------
Total current assets........... 17,087 6,159 23,246 (3,823) (4,059) 15,364
Property, plant and
equipment-net.................... 51,161 -- 51,161 (9,892) -- 41,269
Franchise costs-net................ 48,218 -- 48,218 -- -- 48,218
Licensing cost-net................. 13,626 -- 13,626 (13,626) -- --
Goodwill-net....................... 31,478 -- 31,478 (4,696) -- 26,782
Investment in Liberty Media Group
and related receivables, net..... 34,290 -- 34,290 -- -- 34,290
Other investments and related
advances......................... 34,261 -- 34,261 (385) 3,000 33,876
(3,000)(9)
Prepaid pension costs.............. 3,003 -- 3,003 -- -- 3,003
Other assets....................... 9,099 -- 9,099 (1,121) 1,803 7,981
(1,800)(9)
(16,036)
16,036(7)
-------- ------- -------- -------- ------- --------
TOTAL ASSETS................... $242,223 $ 6,159 $248,382 $(38,343) $ 744 $210,783
======== ======= ======== ======== ======= ========
LIABILITIES
Accounts payable................... $ 6,455 $ -- $ 6,455 $ (1,080) $ 106 $ 5,481
Payroll and benefit-related
liabilities...................... 2,423 -- 2,423 (432) -- 1,991
Debt maturing within one year...... 31,947 (3,652)(6) 28,295 (747) 638 23,386
(4,800)(9)
Other current liabilities.......... 10,042 -- 10,042 (1,278) -- 8,764
-------- ------- -------- -------- ------- --------
Long-term debt..................... 33,092 -- 33,092 (1,803) 1,800 33,089
Long-term benefit-related
liabilities...................... 3,670 -- 3,670 -- -- 3,670
Deferred income taxes.............. 36,713 -- 36,713 (4,659) -- 32,054
Other long-term liabilities and
deferred credits................. 5,090 305(6) 5,395 (268) -- 4,822
(305)
-------- ------- -------- -------- ------- --------
TOTAL LIABILITIES.......... $129,432 $(3,347) $126,085 $(10,572) $(2,256) $113,257
Minority interest.................. 4,883 -- 4,883 (41) -- 4,842
Company-obligated convertible
quarterly income preferred
securities of subsidiary trust
holding solely subordinated debt
securities of AT&T............... 4,710 -- 4,710 -- -- 4,710
Convertible preferred stock........ -- 9,506(6) 9,506 (9,506) -- --
(continued)
See Notes To Unaudited AT&T Condensed Combined
Pro Forma Financial Statements
F-4
152
(continued)
AT&T
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 2000
(IN MILLIONS)
DOCOMO & PRO FORMA
AWE EXCHANGE AT&T AFTER PRO FORMA
HISTORICAL PRO FORMA DOCOMO & AWE OTHER AT&T EXCLUDING
AT&T(1) ADJUSTMENTS AWE EXCHANGE DISPOSITION(8) ADJUSTMENTS(10) AWE
---------- ------------ ------------ -------------- --------------- --------------
SHAREOWNERS' EQUITY
Common Stock:
AT&T common stock, $1 par value,
authorized 6,000,000,000 shares;
issued and outstanding
3,760,151,185 shares............. 3,760 (428)(5) 3,332 -- -- 3,332
AT&T Wireless Group Preferred
Stock............................ -- -- -- (3,000) 3,000 --
AT&T Wireless Group Common Stock,
$1 par value, authorized
6,000,000,000 shares; issued and
outstanding 361,802,200.......... 362 529(5) 891 406 -- --
(1,297)
Liberty Media Group Class A Common
Stock, $1 par value, authorized
4,000,000,000 shares; issued and
outstanding 2,363,738,198
shares........................... 2,364 -- 2,364 -- -- 2,364
Liberty Media Group Class B Common
Stock, $1 par value, authorized
400,000,000 shares; issued and
outstanding 206,221,288 shares... 206 -- 206 -- -- 206
Total Additional Paid-In Capital... 90,496 (9,572)(5) 90,395 9,100 -- 79,638
9,471(5) (19,857)
Retained earnings.................. 7,408 --(5) 7,408 16,036(7) -- 2,984
(20,460)
Accumulated other comprehensive
income........................... (1,398) -- (1,398) 848 -- (550)
-------- ------- -------- -------- ------- --------
TOTAL SHAREOWNERS' EQUITY...... $103,198 $ -- $103,198 $(18,224) $ 3,000 $ 87,974
TOTAL LIABILITIES &
EQUITY................... $242,223 $ 6,159 $248,382 $(38,343) $ 744 $210,783
======== ======= ======== ======== ======= ========
See Notes To Unaudited AT&T Condensed Combined
Pro Forma Financial Statements
F-5
153
AT&T
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS)
PRO FORMA DOCOMO & PRO FORMA
MEDIAONE AT&T AWE EXCHANGE AT&T AFTER
HISTORICAL HISTORICAL PRO FORMA WITH PRO FORMA DOCOMO &
AT&T(1) MEDIAONE(1) ADJUSTMENTS(4) MEDIAONE ADJUSTMENTS AWE EXCHANGE
---------- ----------- -------------- --------- ------------ ------------
Revenue........................... $65,981 $1,325 $ -- $67,306 $ -- $67,306
OPERATING EXPENSES
Costs of services and products.... 17,587 554 -- 18,141 -- 18,141
Access and other connection....... 13,518 -- -- 13,518 -- 13,518
Selling, general and
administrative.................. 13,303 342 -- 13,645 -- 13,645
Depreciation and amortization..... 10,267 706 156 11,129 -- 11,129
Net restructuring and other
charges......................... 7,029 -- -- 7,029 -- 7,029
------- ------ ----- ------- ----- -------
Total operating expenses.......... 61,704 1,602 156 63,462 -- 63,462
Operating income (loss)........... 4,277 (277) (156) 3,844 -- 3,844
Other income (expense)............ 1,514 3,341 243 5,098 -- 5,098
Interest expense.................. 3,183 312 712 4,207 (194)(6) 4,013
Income from continuing operations
before income taxes and earnings
(losses) from equity
investments..................... 2,608 2,752 (625) 4,735 194 4,929
Provision (benefit) for income
taxes........................... 3,342 1,189 (196) 4,335 74(6) 4,409
Minority interest income
(expense)....................... 4,120 -- (48) 4,072 -- 4,072
Equity earnings (losses) from
Liberty Media Group............. 1,488 -- -- 1,488 -- 1,488
Net earnings (losses) from other
equity investments.............. (205) -- (138) (343) -- (343)
Income (loss) from continuing
operations...................... 4,669 1,563 (615) 5,617 120 5,737
Dividend Requirements on Preferred
Stock........................... -- -- -- -- -- --
------- ------ ----- ------- ----- -------
Net income (loss) attributable to
common shareowners.............. $ 4,669 $1,563 $(615) $ 5,617 $ 120 $ 5,737
======= ====== ===== ======= ===== =======
AT&T COMMON STOCK GROUP:
Net income........................ $ 3,105 $ 4,053 $(112)(5) $ 4,061
120(6)
Weighted average shares
outstanding (basic)............. 3,486 3,762 (428)(5) 3,334
Basic EPS......................... 0.89 1.08 1.22
Net income........................ 3,137 4,085 (112)(5) 4,093
120(6)
Weighted average shares
outstanding (diluted)........... 3,545 3,821 (428)(5) 3,393
Diluted EPS....................... 0.88 1.07 1.21
AT&T WIRELESS GROUP:
Income............................ $ 76 $ 76 $ 112(5) $ 188
Basic and diluted EPS............. $ 0.21 $ 0.21 $0.21(5) $ 0.21
LIBERTY MEDIA GROUP:
Basic and diluted EPS............. $ 0.58 $ 0.58 $ 0.58
PRO FORMA
AWE OTHER AT&T EXCLUDING
DISPOSITION(8) ADJUSTMENTS(10) AWE
--------------- --------------- --------------
Revenue........................... $(10,447) 321 $57,180
OPERATING EXPENSES
Costs of services and products.... (4,827) 321 13,635
Access and other connection....... (378) -- 13,140
Selling, general and
administrative.................. (3,590) -- 10,055
Depreciation and amortization..... (1,678) -- 9,451
Net restructuring and other
charges......................... -- -- 7,029
-------- ----- -------
Total operating expenses.......... (10,473) 321 53,310
Operating income (loss)........... 26 -- 3,870
Other income (expense)............ (1,779) 353 3,672
Interest expense.................. 12 242 4,013
(254)(9)
Income from continuing operations
before income taxes and earnings
(losses) from equity
investments..................... (1,765) 365 3,529
Provision (benefit) for income
taxes........................... (662) 97(9) 3,844
Minority interest income
(expense)....................... -- -- 4,072
Equity earnings (losses) from
Liberty Media Group............. -- -- 1,488
Net earnings (losses) from other
equity investments.............. 382 -- 39
Income (loss) from continuing
operations...................... (721) 268 5,284
Dividend Requirements on Preferred
Stock........................... 111 (111) --
-------- ----- -------
Net income (loss) attributable to
common shareowners.............. $ (610) 157 $ 5,284
======== ===== =======
AT&T COMMON STOCK GROUP:
Net income........................ $ 3,796
Weighted average shares
outstanding (basic)............. 3,334
Basic EPS......................... 1.14
Net income........................ 3,828
Weighted average shares
outstanding (diluted)........... 3,393
Diluted EPS....................... 1.13
AT&T WIRELESS GROUP:
Income............................
Basic and diluted EPS.............
LIBERTY MEDIA GROUP:
Basic and diluted EPS............. $ 0.58
See Notes To Unaudited AT&T Condensed Combined Pro Forma Financial Statements
F-6
154
AT&T
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS)
PRO FORMA
LIBERTY
VENTURES OTHER TCI PRO FORMA HISTORICAL
HISTORICAL HISTORICAL GROUP PRO FORMA AT&T MEDIAONE
AT&T(1) TCI(1) ADJUSTMENTS(2) ADJUSTMENTS WITH TCI GROUP(1)
---------- ---------- -------------- ----------- --------- ----------
Revenue.............................. $62,600 $1,145 $(204) $ -- $63,541 $2,695
OPERATING EXPENSES
Costs of services and products....... 14,594 543 (79) -- 15,058 1,069
Access and other connection.......... 14,686 -- -- -- 14,686 --
Selling, general and
administrative...................... 13,516 677 (260) -- 13,933 749
Depreciation and amortization........ 7,439 277 (22) 120 7,814 1,248
Net restructuring and other
charges............................. 1,506 -- -- -- 1,506 --
------- ------ ----- ----- ------- ------
Total operating expenses............. 51,741 1,497 (361) 120 52,997 3,066
Operating income (loss).............. 10,859 (352) 157 (120) 10,544 (371)
Other income (expense)............... 931 356 (321) 142 1,108 7,551
Interest expense..................... 1,765 161 (25) 82 1,983 449
Income from continuing operations
before income taxes and earnings
(losses) from equity investments.... 10,025 (157) (139) (60) 9,669 6,731
Provision (benefit) for income
taxes............................... 3,695 119 (207) (49) 3,558 3,217
Minority interest income (expense)... (115) -- -- (26) (141) --
Equity earnings (losses) from Liberty
Media Group......................... (2,022) -- (68) (156) (2,246) --
Net earnings (losses) from other
equity investments.................. (765) -- -- (99) (864) --
Income (loss) from continuing
operations.......................... 3,428 (276) -- (292) 2,860 3,514
Dividend Requirements on preferred
stocks.............................. -- (4) -- -- (4) (77)
------- ------ ----- ----- ------- ------
Net income (loss) attributable to
common shareowners.................. $ 3,428 $ (280) $ -- $(292) $ 2,856 $3,437
======= ====== ===== ===== ======= ======
AT&T COMMON STOCK GROUP:
Net income........................... $ 5,450 $ 5,102
Weighted average shares outstanding
(basic)............................. 3,082 3,181
Basic EPS............................ 1.77 1.60
Net income........................... 5,476 5,128
Weighted average shares outstanding
(diluted)........................... 3,152 3,299
Diluted EPS.......................... 1.74 1.55
LIBERTY MEDIA GROUP:
Basic and diluted EPS................ $ (0.80) $ (0.89)
MEDIAONE PRO FORMA DOCOMO &
GROUP AT&T W/TCI AWE EXCHANGE PRO FORMA
PRO FORMA AND MEDIAONE PRO FORMA AT&T AFTER AWE
ADJUSTMENTS(4) GROUP ADJUSTMENTS EXCHANGE DISPOSITION(8)
-------------- ------------ ------------ ---------- ---------------
Revenue.............................. $ -- $66,236 $ -- $66,236 $(7,627)
OPERATING EXPENSES
Costs of services and products....... -- 16,127 -- 16,127 (3,606)
Access and other connection.......... -- 14,686 -- 14,686 (247)
Selling, general and
administrative...................... -- 14,682 -- 14,682 (2,663)
Depreciation and amortization........ 414 9,476 -- 9,476 (1,245)
Net restructuring and other
charges............................. -- 1,506 -- 1,506 (530)
------ ------- ----- ------- -------
Total operating expenses............. 414 56,477 -- 56,477 (8,291)
Operating income (loss).............. (414) 9,759 -- 9,759 664
Other income (expense)............... 1,918 10,577 -- 10,577 (259)
Interest expense..................... 1,554 3,986 (194)(6) 3,792 (10)
Income from continuing operations
before income taxes and earnings
(losses) from equity investments.... (50) 16,350 194 16,544 415
Provision (benefit) for income
taxes............................... (538) 6,237 74(6) 6,311 88
Minority interest income (expense)... (217) (358) -- (358) --
Equity earnings (losses) from Liberty
Media Group......................... -- (2,246) -- (2,246) --
Net earnings (losses) from other
equity investments.................. (158) (1,022) -- (1,022) (10)
Income (loss) from continuing
operations.......................... 113 6,487 120 6,607 317
Dividend Requirements on preferred
stocks.............................. 46 (35) -- (35) --
------ ------- ----- ------- -------
Net income (loss) attributable to
common shareowners.................. $ 159 $ 6,452 $ 120 $ 6,572 $ 317
====== ======= ===== ======= =======
AT&T COMMON STOCK GROUP:
Net income........................... $ 8,698 $ 120(6) $ 8,818
Weighted average shares outstanding
(basic)............................. 3,784 (428)(5) 3,356
Basic EPS............................ 2.30 2.63
Net income........................... 8,724 $ 120(6) 8,844
Weighted average shares outstanding
(diluted)........................... 3,906 (428)(5) 3,478
Diluted EPS.......................... 2.23 2.54
LIBERTY MEDIA GROUP:
Basic and diluted EPS................ $ (0.89) $ (0.89)
PRO FORMA
AT&T
OTHER EXCLUDING
ADJUSTMENTS(10) AWE
--------------- ---------
Revenue.............................. $ 227 $58,836
OPERATING EXPENSES
Costs of services and products....... 227 12,748
Access and other connection.......... -- 14,439
Selling, general and
administrative...................... -- 12,019
Depreciation and amortization........ -- 8,231
Net restructuring and other
charges............................. -- 976
----- -------
Total operating expenses............. 227 48,413
Operating income (loss).............. -- 10,423
Other income (expense)............... -- 10,318
Interest expense..................... (254)(9) 3,528
Income from continuing operations
before income taxes and earnings
(losses) from equity investments.... 254 17,213
Provision (benefit) for income
taxes............................... 97(9) 6,496
Minority interest income (expense)... -- (358)
Equity earnings (losses) from Liberty
Media Group......................... -- (2,246)
Net earnings (losses) from other
equity investments.................. -- (1,032)
Income (loss) from continuing
operations.......................... 157 7,081
Dividend Requirements on preferred
stocks.............................. -- (35)
----- -------
Net income (loss) attributable to
common shareowners.................. $ 157 $ 7,046
===== =======
AT&T COMMON STOCK GROUP:
Net income........................... $ 9,292
Weighted average shares outstanding
(basic)............................. 3,356
Basic EPS............................ 2.77
Net income........................... 9,318
Weighted average shares outstanding
(diluted)........................... 3,478
Diluted EPS.......................... 2.68
LIBERTY MEDIA GROUP:
Basic and diluted EPS................ $ (0.89)
See Notes To Unaudited AT&T Condensed Combined Pro Forma Financial Statements
F-7
155
AT&T
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS)
PRO FORMA
LIBERTY PRO
VENTURES OTHER TCI FORMA HISTORICAL
HISTORICAL HISTORICAL GROUP PRO FORMA AT&T MEDIAONE
AT&T(1) TCI(1) ADJUSTMENTS(2) ADJUSTMENTS(3) WITH TCI GROUP(1)
---------- ---------- -------------- -------------- --------- ----------
Revenue.............................. $53,223 $ 7,351 $(1,148) $ -- $59,426 $2,882
OPERATING EXPENSES
Costs of services and products....... 10,495 3,087 (495) -- 13,087 1,013
Access and other connection.......... 15,328 -- -- -- 15,328 --
Selling, general and
administrative...................... 12,770 2,583 (943) -- 14,410 926
Depreciation and amortization........ 4,629 1,735 (135) 719 6,948 1,182
Net restructuring and other
charges............................. 2,514 5 (5) 2,514 --
------- ------- ------- ------- ------- ------
Total operating expenses............. 45,736 7,410 (1,578) 719 52,287 3,121
Operating income (loss).............. 7,487 (59) 430 (719) 7,139 (239)
Other income (expense)............... 1,281 4,658 (1,631) (1,343) 2,965 3,368
Interest expense..................... 427 1,061 (103) 489 1,874 491
Income from continuing operations
before income taxes and earnings
(losses) from equity investments.... 8,341 3,538 (1,098) (2,551) 8,230 2,638
Provision (benefit) for income
taxes............................... 3,049 1,595 (472) (1,087) 3,085 1,208
Minority interest income (expense)... 21 -- -- (88) (67) --
Equity earnings (losses) from Liberty
Media Group......................... -- -- 626 (928) (302) --
Net earnings (losses) from other
equity investments.................. (78) -- -- (859) (937) --
Income (loss) from continuing
operations.......................... 5,235 1,943 -- (3,339) 3,839 1,430
Dividend Requirements on preferred
stocks.............................. -- (24) -- 14 (10) (108)
------- ------- ------- ------- ------- ------
Net income (loss) attributable to
common shareowners.................. $ 5,235 $ 1,919 $ -- $(3,325) $ 3,829 $1,322
======= ======= ======= ======= ======= ======
AT&T COMMON STOCK GROUP:
Net income........................... $ 5,235 $ 4,131
Weighted average shares outstanding
(basic)............................. 2,676 3,146
Basic EPS............................ 1.96 1.31
Net income........................... 5,235 4,131
Weighted average shares outstanding
(diluted)........................... 2,700 3,251
Diluted EPS.......................... 1.94 1.27
LIBERTY MEDIA GROUP:
Basic and diluted EPS................ $ (0.13)
MEDIAONE PRO FORMA DOCOMO &
GROUP AT&T W/ TCI AWE EXCHANGE PRO FORMA
PRO FORMA AND MEDIA PRO FORMA AT&T AFTER AWE OTHER
ADJUSTMENTS(4) ONE GROUP ADJUSTMENTS EXCHANGE DISPOSITION(8) ADJUSTMENTS(10)
-------------- ----------- ------------ ---------- --------------- ---------------
Revenue.............................. $ -- $62,308 $ -- $62,308 $(5,406) $ 73
OPERATING EXPENSES
Costs of services and products....... -- 14,100 -- 14,100 (2,217) --
Access and other connection.......... -- 15,328 -- 15,328 (211) 66
Selling, general and
administrative...................... -- 15,336 -- 15,336 (2,123) 7
Depreciation and amortization........ 414 8,544 -- 8,544 (1,050) --
Net restructuring and other
charges............................. -- 2,514 -- 2,514 -- --
------- ------- ----- ------- ------- -----
Total operating expenses............. 414 55,822 -- 55,822 (5,601) 73
Operating income (loss).............. (414) 6,486 -- 6,486 195 --
Other income (expense)............... 436 6,769 -- 6,769 (721) --
Interest expense..................... 1,554 3,919 (194)(6) 3,725 86 (254)(9)
Income from continuing operations
before income taxes and earnings
(losses) from equity investments.... (1,532) 9,336 194 9,530 (612) 254
Provision (benefit) for income
taxes............................... (487) 3,806 74(6) 3,880 (295) 97(9)
Minority interest income (expense)... (74) (141) -- (141) -- --
Equity earnings (losses) from Liberty
Media Group......................... -- (302) -- (302) -- --
Net earnings (losses) from other
equity investments.................. (268) (1,205) -- (1,205) 30 --
Income (loss) from continuing
operations.......................... (1,387) 3,882 120(6) 4,002 (287) 157(9)
Dividend Requirements on preferred
stocks.............................. 46 (72) -- (72) -- --
------- ------- ----- ------- ------- -----
Net income (loss) attributable to
common shareowners.................. $(1,341) $ 3,810 $ 120 $ 3,930 $ (287) $ 157
======= ======= ===== ======= ======= =====
AT&T COMMON STOCK GROUP:
Net income........................... $ 4,112 $ 120(6) $ 4,232
Weighted average shares outstanding
(basic)............................. 3,760 (428)(5) 3,332
Basic EPS............................ 1.09 1.27
Net income........................... 4,112 $ 120(6) 4,232
Weighted average shares outstanding
(diluted)........................... 3,874 (428)(5) 3,446
Diluted EPS.......................... 1.06 1.23
LIBERTY MEDIA GROUP:
Basic and diluted EPS................ $ (0.13) $ (0.13)
PRO
FORMA
AT&T
EXCLUDING
AWE
---------
Revenue.............................. $56,975
OPERATING EXPENSES
Costs of services and products....... 11,883
Access and other connection.......... 15,183
Selling, general and
administrative...................... 13,220
Depreciation and amortization........ 7,494
Net restructuring and other
charges............................. 2,514
-------
Total operating expenses............. 50,294
Operating income (loss).............. 6,681
Other income (expense)............... 6,048
Interest expense..................... 3,557
Income from continuing operations
before income taxes and earnings
(losses) from equity investments.... 9,172
Provision (benefit) for income
taxes............................... 3,682
Minority interest income (expense)... (141)
Equity earnings (losses) from Liberty
Media Group......................... (302)
Net earnings (losses) from other
equity investments.................. (1,175)
Income (loss) from continuing
operations.......................... 3,872
Dividend Requirements on preferred
stocks.............................. (72)
-------
Net income (loss) attributable to
common shareowners.................. $ 3,800
=======
AT&T COMMON STOCK GROUP:
Net income........................... $ 4,102
Weighted average shares outstanding
(basic)............................. 3,332
Basic EPS............................ 1.23
Net income........................... 4,102
Weighted average shares outstanding
(diluted)........................... 3,446
Diluted EPS.......................... 1.19
LIBERTY MEDIA GROUP:
Basic and diluted EPS................ $ (0.13)
See Notes To Unaudited AT&T Condensed Combined Pro Forma Financial Statements
F-8
156
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. These columns reflect the historical results of operations and financial
position of the respective companies.
2. This column reflects the deconsolidation of the historical results of
operations for the interests represented by the shares of Liberty Media Group
tracking stock for the period January 1, 1998 through February 28, 1999. AT&T
accounts for the Liberty Media Group under the equity method because it does not
possess a "controlling financial interest" for financial accounting purposes in
the Liberty Media Group.
3. This column reflects the TCI merger purchase accounting adjustments.
These adjustments include the amortization of the excess of the purchase price
over the net assets acquired and incremental interest expense on additional
borrowings for the period January 1, 1998 through February 28, 1999.
4. This column reflects the MediaOne merger purchase accounting
adjustments. These adjustments include the amortization of the excess of the
purchase price over the net assets acquired, incremental interest expense on
additional borrowings for the period January 1, 1998 through June 15, 2000 and
the elimination of a non-recurring charge related to the termination of
MediaOne's merger with Comcast Corp. included in 1999.
5. These entries give effect to an assumed approximate $10 billion exchange
of 529 million shares of AT&T Wireless Group tracking stock for 428 million
shares of AT&T common stock offered to existing AT&T common stock shareholders.
The number of shares exchanged is calculated based on the relative fair values
as of March 15, 2001, for pro forma purposes, in order to effectuate an equal
market value exchange. The exchange offer, as presented, reflects a reduction of
22.9% in the AT&T Common Stock Group's portion of the value of AT&T Wireless
Group. Each $1 billion decrease in the assumed exchange amount would result in a
reduction to the diluted earnings per share attributable to the AT&T Common
Stock Group of approximately $.01, $.03 and $.02, for the years ended December
31, 2000, 1999 and 1998, respectively. As a result of the exchange offer, the
earnings per share calculation of the AT&T Common Stock Group reflects a
decrease in the number of outstanding shares of AT&T common stock and decrease
in net income attributable to the AT&T Common Stock Group as a result of the
decrease in the portion of the value of AT&T Wireless Group retained by the AT&T
Common Stock Group (for the period subsequent to April 27, 2000). The effect of
the exchange offer on the balance sheet would include: 1) a decrease in the par
and additional paid-in-capital of AT&T common stock and 2) an increase in the
par and additional paid-in-capital of AT&T Wireless Group tracking stock. Since
the number of shares of AT&T Wireless Group tracking stock and the net income
attributable to AT&T Wireless Group will increase proportionally, there will be
no change to the calculated earnings per share for AT&T Wireless Group. For
purposes of these pro forma financial statements, it is assumed that the fair
value of the exchange is based on the closing price of AT&T Wireless Group
tracking stock on March 15, 2001. There is no gain or loss on the exchange
offer. The pro forma financial statements do not reflect any premium on the
exchange as the Board of Directors of AT&T has not approved a fixed premium at
this time for this exchange offer. However, if a premium is necessary to
facilitate the exchange, such premium will be recorded as a reduction to net
income attributable to the AT&T Common Stock Group and result in an additional
decrease in the retained portion of the value of AT&T Wireless Group held by the
AT&T Common Stock Group. Assuming a 5% premium in connection with the exchange
offer, the diluted earnings per share attributable to the AT&T Common Stock
Group would be $1.09, $2.43 and $1.11 for the years ended December 31, 2000,
1999 and 1998, respectively. Each 1% change in the premium would result in an
impact to diluted earnings per share of approximately $.03.
6. These entries reflect the sale of the DoCoMo wireless tracking stock for
$9.811 billion. The preferred stock is characterized as a mandatorily redeemable
preferred security, as defined by the SEC in Accounting Series Release (ASR) No.
268, and is classified outside of stockholders' equity on the balance sheet. The
value of the warrants is recorded as a liability and will be marked to market in
subsequent periods through its period of expiration. The values assigned to the
preferred stock ($9.506 billion) and the warrants ($305 million) are based upon
an allocation of the relative fair values of each instrument as of January 22,
2001. The allocation of the relative fair values has resulted in a beneficial
conversion feature
F-9
157
of approximately $300 million and an accretion to the face value of
approximately $40 million. The proceeds from the sale will be allocated among
AT&T and the AT&T Wireless Group with $3.652 billion being utilized by AT&T to
pay down short-term debt and the remaining $6.159 billion allocated to the AT&T
Wireless Group. The pay down in short-term debt would result in a reduction in
interest expense, of $194 million ($120 million, net of taxes) for the year
ended December 31, 2000, 1999 and 1998. The reduction in interest expense was
calculated using an interest rate of 5.3%, which reflects the current 90-day
commercial paper rate.
7. This entry reflects the fair value adjustment for accounting purposes
that result in a gain which will be recorded upon the distribution of the AT&T
Wireless Group. This distribution is non pro-rata due to the alteration of
shareowner interests in the AT&T Wireless Group as a result of the exchange
offer. For this reason, the distribution will be accounted for at fair value and
will result in a nonrecurring gain upon distribution equal to the excess of the
fair value of the securities issued over AT&T's carrying value of the net assets
of the AT&T Wireless Group adjusted for the AT&T Wireless Group shares retained
by AT&T at the time of the distribution. The actual gain will be determined upon
distribution. Due to the fact that the gain is a one-time event, its effects
have not been included as a pro forma adjustment to the income statement;
however, it has been included as a pro forma adjustment to retained earnings on
the pro forma balance sheet. The estimated gain is calculated as follows
(numbers in millions):
Fair value of AT&T's retained portion prior to distribution
(assumed to represent 2,151 million shares of AT&T
Wireless Group Tracking Stock at $18.90 per share as of
March 15, 2001)........................................... $40,659
Fair value of 228 million new primary shares of AT&T
Wireless Group Tracking Stock issued to DoCoMo upon
conversion of the preferred stock at $18.90 per share as
of March 15, 2001......................................... 4,309
Fair value of AT&T Wireless Group to be distributed......... $44,968
Carrying Value of net assets of AT&T Wireless Group to be
distributed............................................... 28,932
Gain on distribution........................................ $16,036
8. The adjustments presented deduct the historical results of operations
and the historical financial position of the AT&T Wireless Group to reflect the
distribution of the AT&T Wireless Group from AT&T. The distribution is a fair
value transaction and as such the fair value of the net assets has been recorded
as a reduction to retained earnings for the dividend of AT&T's retained portion
of the value of AT&T Wireless Group and par and additional paid-in-capital for
the distribution to the AT&T Wireless Group tracking stock Shareholders. The
reduction to retained earnings and the reduction to additional paid in capital
is calculated as follows: (Amounts in millions)
AT&T Wireless Group tracking stock shares which represents
AT&T's retained portion prior to distribution............. 2,151
Issuance of new primary shares of AT&T Wireless Group
tracking stock to DoCoMo wireless tracking preferred stock
(beyond AT&T's retained portion).......................... 228
---------
Total pro forma AT&T Wireless Group tracking stock shares
outstanding after conversion of the DoCoMo wireless
tracking and distribution of AT&T's retained portion...... 2,379
AT&T Wireless Group tracking stock shares outstanding as of
March 15, 2001 which reflect 15.6% of AT&T's retained
portion of the AT&T Wireless Group prior to
distribution.............................................. 362
Pro forma AT&T Wireless Group tracking stock issued for the
exchange offer............................................ 529
AT&T Wireless Group tracking stock shares issued to DoCoMo
upon conversion of DoCoMo wireless tracking stock
(including 228 million new primary issued and 178 million
shares issued out of AT&T's retained portion)............. 406
---------
Total pro forma AT&T Wireless Group tracking stock shares
outstanding after conversion of preferred stock held by
DoCoMo, and exchange, prior to distribution of AT&T's
retained portion.......................................... 1,297
Split-Off% of AT&T Wireless Group tracking stock shares
(1,297/2,379)............................................. 54.5%
Spin-Off% of AT&T Wireless Group (1-54.5%).................. 45.5%
F-10
158
Fair value of AT&T Wireless Group associated with the
split-off (44,963 x 54.5%)................................ 24,508
AT&T Wireless preferred stock............................... (3,000)
AT&T Wireless Group tracking stock par...................... (1,297)
DoCoMo warrants............................................. (305)
Other....................................................... (49)
---------
Reduction to Additional Paid in Capital..................... 19,857
Fair value of AT&T Wireless Group associated with the
spin-off (44,963 x 45.5%) (Reduction to Retained
Earnings)................................................. 20,460
In addition, to the historical adjustments, other adjustments relating to
the DoCoMo transaction have been presented. These adjustments reflect that $6.2
billion of cash associated with the transaction has been allocated to the AT&T
Wireless Group, the preferred stock associated with the transaction is converted
to 406 million shares of AT&T Wireless Group tracking stock and the warrants
associated with the transaction are converted to warrants in AT&T Wireless
Services.
On February 15, 2001, AT&T announced that they would retain $3 billion
worth of AT&T Wireless Services shares subject to an IRS Ruling (represents 159
million shares as of March 15, 2001) after distribution. The retained shares
will be accounted for as a cost method investment under SFAS 115, and therefore
any differences between historical cost and fair value (on a periodic basis)
will be recorded, net of applicable taxes, as a component of Other Comprehensive
Income.
9. These adjustments reflect the cash received by AT&T from AT&T Wireless
Group in connection with the repayment of the $1.8 billion intercompany loan and
the $3.0 billion preferred stock (together, "intercompany indebtedness"). The
repayment of intercompany indebtedness is contained in the preliminary
Separation and Distribution Agreement between AT&T and AT&T Wireless Group. It
is assumed that AT&T utilized the proceeds it received from AT&T Wireless Group
to pay down its short-term debt in the pro forma balance sheet. The paydown in
short-term debt would result in a reduction in interest expense of $254 million
($157 million net of taxes), for the years ended December 31, 2000, 1999 and
1998, respectively. The reduction in interest expense was calculated using an
interest rate of 5.3% which reflects the current 90-day commercial paper rate.
10. Reflects certain Inter-Group transactions appropriately reflected in
the separate financial statements of AT&T after excluding the AT&T Wireless
Group on a pro forma basis that were eliminated in the AT&T consolidated
financial statements and were therefore not reflected in AT&T's historical
results and financial position.
11. The following table reflects what the impact would be of the
distribution of the Liberty Media Group on the pro forma financial statements of
AT&T.
BALANCE SHEET AS OF DECEMBER 31, 2000
-------------------------------------
Decrease in Total Assets*................................... $(34,290)
Decrease in Liability and Shareowners' Equity............... (34,290)
INCOME STATEMENT 12/31/00 12/31/99 12/31/98
---------------- -------- -------- --------
Elimination of Equity (earnings)/losses from Liberty Media
Group................................................... $(1,488) $2,246 $302
(Decrease)/increase in Income from Continuing
Operations.............................................. $(1,488) $2,246 $302
---------------
* Total Assets represents AT&T's Investment in Liberty Media Group.
F-11
159
We will accept manually signed facsimile copies of the letter of
transmittal. The letter of transmittal, stock certificates representing shares
of AT&T common stock and any other required documents should be sent or
delivered by each holder of AT&T common stock or that holder's broker, dealer,
commercial bank, trust company or other nominee to the exchange agent before the
expiration date.
The exchange agent for this exchange offer is:
EQUISERVE TRUST COMPANY
If delivered by If delivered by If delivered by
mail, to: hand, to: overnight courier, to:
EquiServe Securities Transfer & Reporting EquiServe
Attn: Corporate Actions Services, Inc. Attn: Corporate Actions
PO Box 43021 c/o EquiServe 40 Campanelli Drive
Providence, RI 02940-3021 100 William Street, Galleria Braintree, MA 02184
New York, NY 10038
The Marketing Manager for this exchange offer is:
LEHMAN BROTHERS INC.
You may direct any questions and requests for assistance to the information
agent or the dealer manager at their respective addresses and telephone numbers
listed below. You can obtain additional copies of this document, the letter of
transmittal, the instructions to the letter of transmittal and other exchange
offer materials from the information agent or the dealer manager listed below.
You may also contact your broker, dealer, commercial bank or trust company for
assistance concerning this exchange offer.
The information agent for this exchange offer is:
GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
The Dealer Manager for this exchange offer is:
CREDIT SUISSE FIRST BOSTON CORPORATION
Call (877) 355-7046
160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the statutes of the State of New York, a director or officer of
a corporation is entitled, under specified circumstances, to indemnification by
the corporation against reasonable expenses, including attorneys' fees, incurred
by him or her in connection with the defense of a civil or criminal proceeding
to which he or she has been made, or threatened to be made, a party by reason of
the fact that he or she was such a director or officer. In certain
circumstances, indemnity is provided against judgments, fines and amounts paid
in settlement. In general, indemnification is available where the director or
officer acted in good faith, for a purpose such director or officer reasonably
believed to be in the best interests of the corporation. Specific court approval
is required in some cases. The foregoing statement is qualified in its entirety
by reference to Sections 715, 717 and 721 through 725 of the New York Business
Corporation Law (the "NYBCL").
The by-laws of AT&T Corp. (the "Registrant") provide that the Registrant is
authorized, by (i) a resolution of shareholders, (ii) a resolution of directors
or (iii) an agreement providing for such indemnification, to the fullest extent
permitted by applicable law, to provide indemnification and to advance expenses
to its directors and officers in respect of claims, actions, suits, or
proceedings based upon, arising from, relating to, or by reason of the fact that
any such director or officer serves or served in such capacity with the
Registrant or at the request of the Registrant in any capacity with any other
enterprise.
The Registrant has entered into contracts with its officers and directors,
pursuant to the provisions of Section 721 of the NYBCL, by which it will be
obligated to indemnify such persons, to the fullest extent permitted by the
NYBCL, against expenses, fees, judgments, fines, and amounts paid in settlement
in connection with any present or future threatened, pending or completed
action, suit or proceeding based in any way upon or related to the fact that
such person was an officer or director of the Registrant or, at the request of
the Registrant, an officer, director or other partner, agent, employee, or
trustee of another enterprise. The contractual indemnification so provided will
not extend to any situation where a judgment or other final adjudication adverse
to such person establishes that his acts were committed in bad faith or were the
result of active and deliberate dishonesty or that there inured to such person a
financial profit or other advantage.
The directors and officers of the Registrant are covered by insurance
policies indemnifying them against certain liabilities, including certain
liabilities arising under the Securities Act of 1933, as amended, which might be
incurred by them in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
1.1 Form of Dealer Manager Agreement*
3(a) Restated Certificate of Incorporation of the Registrant
filed January 10, 1989, Certificate of Correction of the
registrant filed June 8, 1989, Certificate of Change of the
Registrant filed March 18, 1992, Certificate of Amendment of
the Registrant filed June 1, 1992, Certificate of Amendment
of the Registrant filed April 20, 1994, Certificate of
Amendment of the Registrant filed June 8, 1998, Certificate
of Amendment of the Registrant filed March 9, 1999,
Certificate of Amendment of the Registrant filed April 12,
2000, Certificate of Amendment of the Registrant filed June
2, 2000 (Exhibit 3(a) to Form 10-Q for the Quarter ended
June 30, 2000, File No. 1-1105 and incorporated herein by
reference) and Certificate of Amendment of the Registrant
filed January 19, 2001.
II-1
161
EXHIBIT DESCRIPTION
------- -----------
3(b) By-Laws of the Registrant, as amended October 23, 2000
(filed as Exhibit 3.1 to Form 8-K filed October 25, 2000 and
incorporated herein by reference).
4.1 The Policy Statement Regarding Wireless Group Tracking Stock
Matters of AT&T Corp. (filed as Exhibit B to the Proxy
Statement on Schedule 14A, dated January 26, 2000 and
incorporated herein by reference)
5.1 Form of Opinion of Robert S. Feit, General Attorney and
Assistant Secretary of the Registrant, as to the legality of
the securities being registered*
8.1 Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax
matters*
10.1 Securities Purchase Agreement by and among AT&T Corp., AT&T
Wireless Services, Inc. and NTT DoCoMo, Inc., dated December
20, 2000 (filed as Exhibit 10.1 to the Current Report on
Form 8-K filed December 22, 2000 and incorporated herein by
reference).
10.2 Investor Agreement by and among AT&T Corp., AT&T Wireless
Services, Inc. and NTT DoCoMo, Inc., dated December 20, 2000
(filed as Exhibit 10.2 to the Current Report on Form 8-K
filed December 22, 2000 and incorporated herein by
reference).
10.3 Warrant Agreement by and among AT&T Wireless Services, Inc.,
NTT DoCoMo, Inc. and AT&T Corp. dated December 20, 2000
(filed as Exhibit 10.3 to the Current Report on Form 8-K
filed December 22, 2000 and incorporated herein by
reference).
23.1 Consent of Robert S. Feit, General Attorney and Assistant
Secretary of the Registrant (included in opinion of counsel
filed as Exhibit 5.1)*
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of KPMG LLP
23.5 Consent of KPMG LLP
23.6 Consent of Arthur Andersen LLP
23.7 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 8.1)*
24.1 Powers of attorney executed by the officers and directors of
the Registrant who signed this Registration Statement**
99.1 Letter of Transmittal
99.2 Brochure for Shareholders of the Registrant, including
Notice of Guaranteed Delivery**
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees**
99.4 Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees**
(b) Financial Statement Schedules
None.
------------------
* To be filed by amendment.
** Previously filed.
II-2
162
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20, or otherwise, the
Registrant has been advised that in the opinion of the SEC, such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request. The undersigned Registrant hereby further
undertakes to supply by means of a post-effective amendment all information
concerning a transaction and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table if the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration
II-3
163
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
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164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 4th day of April, 2000.
AT&T CORP.
By: /s/ MARILYN J. WASSER
------------------------------------
Name: Marilyn J. Wasser
Title: Vice President -- Law and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE
--------- -----
Principal Executive Officer:
* Chairman of the Board and
----------------------------------------------------- Chief Executive Officer
C. Michael Armstrong
Principal Financial Officer:
* Senior Executive Vice President and
----------------------------------------------------- Chief Financial Officer
Charles Noski
Principal Accounting Officer:
* Vice President and Controller
-----------------------------------------------------
Nicholas S. Cyprus
Directors:
* Director
-----------------------------------------------------
Kenneth T. Derr
* Director
-----------------------------------------------------
M. Kathryn Eickhoff
* Director
-----------------------------------------------------
Walter Y. Elisha
* Director
-----------------------------------------------------
George M.C. Fisher
* Director
-----------------------------------------------------
Donald V. Fites
II-5
165
SIGNATURE TITLE
--------- -----
* Director
-----------------------------------------------------
Amos B. Hostetter, Jr.
* Director
-----------------------------------------------------
Ralph S. Larsen
* Director and Chairman of the Board, Liberty Media
----------------------------------------------------- Corporation
John C. Malone
* Director
-----------------------------------------------------
Donald F. McHenry
* Director
-----------------------------------------------------
Louis A. Simpson
* Director
-----------------------------------------------------
Michael I. Sovern
* Director
-----------------------------------------------------
Sanford I. Weill
* Director and Chairman and Chief Executive Officer, AT&T
----------------------------------------------------- Wireless Group
John D. Zeglis
*By: /s/ MARILYN J. WASSER
------------------------------------------------
Marilyn J. Wasser
(Attorney-in-Fact)
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166
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
1.1 Form of Dealer Manager Agreement*...........................
3(a) Restated Certificate of Incorporation of the Registrant
filed January 10, 1989, Certificate of Correction of the
Registrant filed June 8, 1989, Certificate of Change of the
Registrant filed March 18, 1992, Certificate of Amendment of
the Registrant filed June 1, 1992, Certificate of Amendment
of the Registrant filed April 20, 1994, Certificate of
Amendment of the Registrant filed June 8, 1998, Certificate
of Amendment of the Registrant filed March 9, 1999,
Certificate of Amendment of the Registrant filed April 12,
2000, Certificate of Amendment of the Registrant filed June
2, 2000 (Exhibit 3(a) to Form 10-Q for the Quarter ended
June 30, 2000, File No. 1-1105 and incorporated herein by
reference) and Certificate of Amendment of the Registrant
filed January 19, 2001......................................
3(b) By-Laws of the registrant, as amended October 23, 2000
(Exhibit 3.1 to Form 8-K Filed October 25, 2000)............
4.1 The Policy Statement Regarding Wireless Group Tracking Stock
Matters of AT&T Corp. (filed as Exhibit B to the Proxy
Statement on Schedule 14A, dated January 26, 2000 and
incorporated herein by reference)...........................
5.1 Form of Opinion of Robert S. Feit, General Attorney and
Assistant Secretary of the Registrant, as to the legality of
the securities being registered*............................
8.1 Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax
matters*....................................................
10.1 Securities Purchase Agreement by and among AT&T Corp., AT&T
Wireless Services, Inc. and NTT DoCoMo, Inc., dated December
20, 2000 (filed as Exhibit 10.1 to the Current Report on
Form 8-K filed December 22, 2000 and incorporated herein by
reference)..................................................
10.2 Investor Agreement by and among AT&T Corp., AT&T Wireless
Services, Inc. and NTT DoCoMo, Inc., dated December 20, 2000
(filed as Exhibit 10.2 to the Current Report on Form 8-K
filed December 22, 2000 and incorporated herein by
reference)..................................................
10.3 Warrant Agreement by and among AT&T Wireless Services, Inc.,
NTT DoCoMo, Inc. and AT&T Corp. dated December 20, 2000
(filed as Exhibit 10.3 to the Current Report on Form 8-K
filed December 22, 2000 and incorporated herein by
reference)..................................................
23.1 Consent of Robert S. Feit, General Attorney and Assistant
Secretary of the Registrant (included in opinion of counsel
filed as Exhibit 5.1)*......................................
23.2 Consent of PricewaterhouseCoopers LLP.......................
23.3 Consent of PricewaterhouseCoopers LLP.......................
23.4 Consent of KPMG LLP.........................................
23.5 Consent of KPMG LLP.........................................
23.6 Consent of Arthur Andersen LLP..............................
23.7 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 8.1)*...............................................
24.1 Powers of attorney executed by the officers and directors of
the Registrant who signed this Registration Statement**.....
99.1 Letters of Transmittal......................................
99.2 Brochure for Shareholders of the Registrant, including
Notice of Guaranteed Delivery**.............................
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees**..............................
99.4 Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees**.................
------------------
* To be filed by amendment.
** Previously filed.