Back to GetFilings.com

Table of Contents

UNITED STATES

FORM 10-K

Commission file number 0-23137

AT&T WIRELESS SERVICES, INC.

(425) 580-6000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered Pursuant to Section 12(g) of the Act:     None

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)     Yes x No o

      The aggregate market value of the common stock held by nonaffiliates of the registrant as of June 28, 2002 was approximately $13.1 billion. The number of shares of the registrant’s Common Stock outstanding at February 28, 2003 was 2,710,705,841.

DOCUMENTS INCORPORATED BY REFERENCE

      The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference to the Registrant’s definitive proxy statement to be filed in connection with the annual meeting of shareholders to be held on June 11, 2003.

Table of Contents

PART I

      This Annual Report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Annual Report are forward-looking. We use words such as “anticipates,” “believes,” “expects,” “future” and “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations, plans or projections and are inherently uncertain. Our actual results may differ significantly from management’s expectations, plans or projections. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Certain risks and uncertainties that could cause our actual results to differ significantly from management’s expectations are described in the section entitled “Business — Additional Factors That May Affect Our Business, Future Operating Results and Financial Condition.” This section along with other sections of this Annual Report, describes some, but not all, of the factors that could cause actual results to differ significantly from management’s expectations. We undertake no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are urged, however, to review the factors set forth in reports that we file from time to time with the Securities and Exchange Commission. Unless the context requires otherwise in this Annual Report the terms “AT&T Wireless,” the “Company,” “we,” “us” and “our” refer to AT&T Wireless Services, Inc. and its subsidiaries. “AT&T Corp.” and “AT&T” refer to AT&T Corp., our former parent.

Item 1.     Business

Overview

      We are the second largest wireless communications service provider in the U.S. based on revenues for 2002. Our goal is to be the premier provider of high quality wireless voice and data communication services to businesses and consumers in major markets of North America. We seek to expand our customer base and revenue stream by providing high-quality, innovative wireless voice and data services. As of December 31, 2002, we had 20.9 million consolidated subscribers. For the year ended December 31, 2002 we had $15.6 billion of total consolidated revenues.

      We currently provide wireless voice and data services over two separate, overlapping networks. One network uses time division multiple access, or TDMA, as its signal transmission technology. TDMA is often referred to as a second generation, or “2G” technology. As of December 31, 2002 our TDMA network covered an aggregate population, which we refer to as “POPS,” of approximately 203 million, or 70% of the U.S. population. We also provide voice and enhanced data services over a separate network that uses the signal transmission technology known as global system for mobile communications, or GSM, and general packet radio service, or GPRS. GSM/GPRS is often referred to as two and one-half generation, or “2.5G” technology. As of December 31, 2002, this network covered approximately 63% of the U.S. population, or 181 million POPS. As of December 31, 2002, our two networks covered an aggregate of approximately 213 million POPS, or 74% of the U.S. population, and operated in 83 of the 100 largest U.S. metropolitan areas. We refer to this area as our coverage footprint. We also provide voice service on our analog network, as mandated by the FCC, and data service over a network utilizing packet switched data technology, or CDPD, which we are phasing out in connection with our launch of GSM/GPRS service.

      We supplement our own networks with roaming agreements that allow our subscribers to use other providers’ wireless services in regions where we do not have network coverage. With these roaming agreements, as of December 31, 2002 we were able to offer our TDMA customers wireless services covering virtually the entire U.S. population and GSM/GPRS service covering approximately 67% of the U.S. population. We refer to this as our service area. We plan to continue to expand our coverage and service

1

Table of Contents

      Over the past two decades, our strategic focus has evolved from an emphasis on license acquisition, expanding our footprint coverage, and growing subscribers to, most recently, revenue, EBITDA (defined as our operating income excluding depreciation and amortization) and cash flow growth. Our disciplined approach to these operational and financial measures has put us in a position of strength within the industry. From this position, our strategic focus going forward will emphasize, in addition to revenue and EBITDA growth, generating free cash flow (defined as our cash flows from operating activities less capital expenditures).

      We believe the following are our competitive strengths:

	•	We have deployed our new GSM/ GPRS network, which uses a global standard technology.
	•	We are well-positioned to capitalize on growth opportunities.
	•	We are a leading wireless data provider.
	•	We are building on financial strength and a record of solid execution.

      We believe that our choice of the GSM/ GPRS global standard will deliver lower costs and higher performance. Our use of this standard allows our GSM/ GPRS customers to obtain voice service in 88 countries as of December 31, 2002 and positions us to provide roaming service in the U.S. to customers from those countries. Our network deployment advanced considerably in 2002 with the expansion of our GSM/ GPRS network to cover over 181 million POPS and the initiation of the GSM/ GPRS build-out in the markets we added to our coverage footprint through our acquisition of TeleCorp PCS in February 2002. As we expand our GMS/ GPRS network, we employ tough standards and objective measures to monitor our network quality and our efforts are positively reinforced through third party tests. We also believe our GSM/ GPRS network will produce cost savings due to lower cost of GSM/ GPRS handsets and network equipment.

      We believe significant growth opportunities remain in the wireless industry. The U.S. wireless penetration rate continues to climb. With a penetration rate only slightly greater than 50%, a significant source of potential customers is represented in the un-penetrated portion of the U.S. population. We believe our GSM/ GPRS network and brand recognition provide us with a competitive advantage in marketing new products to these segments. Another opportunity for growth lies in the substitution of wireless for wireline minutes. The wireless share of outbound minutes grew from approximately 11% in 2001 to an estimated 15% in 2002. We believe our lack of affiliation with wireline providers gives us greater flexibility to pursue the wireline to wireless migration.

      We believe that we are the industry’s leader in offering wireless data to consumers. As of December 31, 2002, we had 3 million active, paying users of short messaging service (SMS) and 16 million SMS-enabled phones among our customer base. During 2002, we introduced our consumer data offer, called mMode. All of our GSM/ GPRS customers can access mMode data content. We also offer consumers the ability to purchase different packages of data depending upon the amount of data they expect to use. Over one third of our GSM/ GPRS customers in 2002 elected to subscribe for these data packages. For the enterprise customer, we are poised with the capabilities to create multimedia services and business solutions. We have reliable data transport in place, the ability to offer service beyond the U.S. due to our international GSM/ GPRS roaming agreements, and an impressive array of enterprise partners.

2

Table of Contents

      We have developed and maintained a solid balance sheet and had cash and committed liquidity of approximately $6.1 billion at December 31, 2002, including our credit facilities and accounts receivable securitization program. Our operating metrics support our investment grade rating. Our strong financial position has resulted from conscious planning and purposeful decision-making. A major contributor to delivering solid financial results has been our disciplined financial philosophy and principles. We accomplish this through conservative financial execution, and securing and maintaining ample liquidity. Our investment decisions are based on business case analyses, assessing each opportunity based on its net present value.

Corporate Information

      We were incorporated in 1987 as a Delaware corporation. From 1994 until our split-off in July 2001 we were a wholly owned subsidiary of AT&T Corp. Our principal executive offices are located at 7277 164th Avenue NE, Building 1, Redmond, Washington 98052. The telephone number is (425) 580-6000. We make our periodic and current reports available, free of charge, on our website (http://www.attwireless.com) under “Investor Relations — Financials and SEC Filings” as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission.

Business and Strategy

      Our goal is to be the premier provider of high quality wireless voice and data communication services to businesses and consumers in major markets of North America. We believe the following are key elements necessary to enable us to execute on our goal:

	•	expand our GSM/ GPRS network and deploy next-generation technology to provide enhanced data services;
	•	continue the expansion of our domestic mobile wireless networks to add capacity, enhance quality and increase our service area;
	•	continue to lower our operating costs and improve capital efficiency by optimizing use of our dual networks, and increasing the use of more efficient channels of distribution;
	•	target distinct consumer and business customer segments with wireless offers that match their needs for voice and data services in order to increase our subscriber base and revenue; and
	•	take advantage of our wireless spectrum portfolio, digital networks, customer base and AT&T brand recognition with new growth initiatives including data services, and capitalize on wireline-to-wireless migration opportunities.

      In July 2001, we became the first wireless carrier in the U.S. to offer advanced wireless data services, when we launched our GSM/ GPRS network in Seattle, Washington. In 2001, we deployed our GSM/ GPRS network as an overlay on our TDMA network in markets representing approximately 73 million POPS, or 26% of the U.S. population. We continued our overlay deployment in 2002. As of December 31, 2002, we had expanded our GSM/ GPRS network to cover approximately 181 million POPS, or 63% of the U.S. population. We expect to expand our GSM/ GPRS network to cover 74% of the U.S. population in 2003. As of December 31, 2002, we offered GSM/ GPRS services in 67 of the top 100 markets.

      GPRS provides faster data speeds than our previous data network technology. In 2002 we continued the installation of equipment necessary to provide multi-media services using the signal transmission technology known as enhanced data rates for global evolution, or EDGE. As of December 31, 2002 EDGE equipment was installed in 75% of our cell sites. We intend to be positioned to launch EDGE service throughout our GSM/ GPRS network by the end of 2003. The higher data speeds and increased capacity should enable us to provide more attractive products to our customers, and reduce the need to further increase network capacity.

3

Table of Contents

      In 2002, we began selling phones combining our TDMA voice capability and GSM/ GPRS voice and data technologies, known as GAIT phones. These phones provide customers the benefit of access to our broader combined TDMA/ GSM/ GPRS coverage footprint as well as the new high speed data services. Customers with GAIT phones are also able to obtain service over TDMA networks of our roaming partners where we do not have network coverage or GSM/ GPRS roaming agreements. We are also selling GSM/ GPRS devices in a variety of forms (e.g., phones, handheld devices called personal digital assistants, or PDAs, and laptops), to address a broad range of customer needs. Telefonaktiebolaget LM Ericsson, Nokia Networks, Inc. and Nortel Networks, Inc. are providing our GSM/ GPRS network equipment. Motorola, Inc., Nokia Mobile Phones, Inc., Sony Ericsson Mobile Communications, Siemens Aktiengesellschaft and Novatel Wireless, Inc. are providing our GSM/ GPRS customer devices.

      The eventual deployment of wide-band third-generation technology in our network is expected to enable the transmission of increasingly advanced multimedia services (e.g., streaming audio and video) to customer devices. We believe third-generation networks that achieve global economies of scale and allow for global roaming will have a significant advantage.

      In December 2002 we revised our agreement with NTT DoCoMo, Inc. to alter the timing of our planned UMTS deployment. We now plan to launch UMTS in certain areas of four cities, covering approximately 8 million POPS prior to the end of 2004. UMTS has generally been accepted as the successor technology to the second-generation digital technology, GSM. UMTS is also known as W-CDMA, or wideband code division multipleband access.

      We believe it is competitively critical to expand our coverage footprint and improve the capacity of our networks in major markets throughout the nation. We have taken a number of steps to increase our network coverage, to increase the capacity and quality of our TDMA and GSM/ GPRS networks, and to acquire or affiliate with other wireless providers to increase our service area. Our objective is to have our own network coverage over approximately 75% of the U.S. population, and in high-traffic, but low-density areas, such as freeway corridors. We intend to provide service to the remainder of the country through roaming agreements, affiliations, and joint ventures.

      As part of our rollout of GSM/ GPRS technology in 2002, we launched our GSM/ GPRS networks in markets representing approximately 9 million POPS that previously were not within our coverage footprint. By expanding our coverage area, we increased the service area for our GSM/ GPRS service, reduced our roaming expenses and increased our opportunity to generate roaming revenue.

      In 2002, in addition to our GSM/ GPRS rollout, we completed a major enhancement to our New York area TDMA network. As a result we substantially increased calling capacity and improved service quality. This enhancement included installation of new switches, replacement of base stations in a number of cell sites and the commission of a new transport network.

      In each market in which we are not currently operating, we evaluate the costs and benefits of building out our licenses versus acquiring or affiliating with other wireless providers before we decide on the appropriate method of providing service in 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 our other markets, the demographics of the population in that market, and the economics of our existing roaming agreements.

      Acquisitions and Joint Ventures. An element of our strategy is to expand our network through acquisitions of operating systems and wireless providers. In evaluating potential acquisitions, we consider a number of factors, including the following: strategic footprint, price, the extent to which we believe we can improve a target’s operating metrics, and the expected impact on our balance sheet.

      On February 15, 2002 we completed the acquisition of TeleCorp PCS, Inc., previously our largest affiliate, by acquiring the 77 percent of TeleCorp PCS we did not already own. This transaction increased our

4

Table of Contents

      In March 2003 we formed a joint venture with Cingular Wireless to provide GSM/ GPRS network coverage along approximately 4,000 miles of interstate highways in the Midwest, West and Northeast. We and Cingular contributed licenses and cash to the venture and are also selling assets to the venture. The joint venture began limited operations in March 2003. We and Cingular buy network services from the venture and provide service to our customers under our own brand names.

      In December 2002, we entered into an agreement with Dobson to exchange operations in two markets. Dobson agreed to exchange two of its wireless properties in California covering 643 thousand POPS for two of our properties in Alaska, and shares of Dobson Series AA preferred stock.

      On March 10, 2003, we entered into an agreement with US Cellular Corporation to transfer cash and wireless licenses in the Midwest and Northeast in exchange for wireless properties in northern Florida and southern Georgia, including a TDMA network serving 141,000 customers and covering approximately 1.5 million POPS.

      Establish affiliates. We also consider establishing affiliate relationships with other wireless providers to accelerate the expansion of our digital mobile wireless network. We have entered into a number of joint ventures and affiliations to expand our service area. Significant domestic non-consolidated affiliates with current operations include the following:

*	Amount of U.S. population covered by licenses held by entity as of December 31, 2002.
**	As of December 31, 2002. Ownership percentage for Triton reflects our ownership of common stock, assuming conversion of all currently convertible preferred shares to common stock.

      American Cellular Corporation (ACC) reported in its quarterly report on Form 10-Q filed November 14, 2002 that its lenders could accelerate the repayment of outstanding debt. This could adversely affect ACC’s ability to continue to provide wireless services. This could result in a reduction of our service area where we do not have other roaming arrangements, and a degradation in service quality in markets where ACC is our preferred roaming provider.

5

Table of Contents

      We believe that our success also will depend in large part on our ability to continue to lower our operating costs, to have the flexibility to offer various pricing plans and to be cost competitive. We already have taken a number of steps to lower our operating costs associated with providing network service, and are taking a number of initiatives to lower our marketing and sales costs.

      Lower unit network costs and capital requirements. As described above, we are expanding our footprint across the U.S. We pay other wireless providers negotiated roaming rates when our customers make or receive wireless calls outside our coverage area and in other approved wireless providers’ coverage areas. As we build out our network to achieve these roaming savings, we purchase equipment from multiple vendors and aggressively negotiate with each vendor for volume discounts to reduce cost.

      We have focused on significantly reducing roaming charges. We have been able to negotiate reduced roaming rates for TDMA and GSM/ GPRS traffic. The joint venture agreement we entered into with Cingular Wireless, LLC is an example of our efforts to reduce roaming costs and capital expenditures for our GSM/GPRS network. In addition, our proprietary intelligent roaming database, or IRDB, directs TDMA wireless subscribers to preferred service providers whenever they travel outside their wireless home-coverage area. The database maintains a list of wireless carriers that we have roaming agreements with and their frequency bands, ranked by priority. This is designed to provide service at most favorable roaming rates available. The updated database is periodically downloaded over the air into each digital multi-network phone. When the database is triggered 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 that our service is sufficiently strong, which is the top priority. If we do not offer service in the area over our network, the database instructs the phone to search for an affiliate service provider. When an affiliate is not available, the phone scans for a “favored” service provider, one that is preferred over a carrier not categorized in the IRDB. The phone then scans for other roaming partners, on a frequency-by-frequency basis.

      In January 2003, we entered into an agreement with Sprint PCS, Inc., which is intended to reduce costs and improve network efficiency by facilitating cooperation in the construction of new wireless towers. In addition to coordinating tower construction activities, the agreement calls for us and Sprint to cooperatively make the best use of our current tower inventories, including co-location when it is appropriate. The agreement will enable us to reduce the number of towers we build and operate and the capital expenditures and operating expenses associated with this activity.

      We also entered into an agreement with Bechtel Corporation in January 2003 that establishes pricing schedules for all phases of cell-site development, allowing us to better manage costs and reduce build cycle times associated with network expansion.

      Lower marketing and sales expense. We continue to focus our efforts on lowering our customer acquisition costs and our customer care expenses. In 2003 our efforts to reduce our cost per gross subscriber addition, or CPGA, include optimizing channel distribution through emphasis on our retail stores and direct marketing, capitalizing on GSM/ GPRS device cost reduction opportunities and introducing new offers with reduced acquisition support requirements. We have increased the number of our company-owned stores, which are one of our lowest cost distribution channels. As of December 31, 2002, we had 896 company-owned stores throughout the U.S. We are 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 low cost acquisition, most subscribers can access their account online and obtain answers to routine inquiries that would otherwise require a customer care representative.

      We believe 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

6

Table of Contents

      When creating marketing programs and pricing plans for various customer segments we consider many different attributes of wireless service. First, we consider the coverage area where the customer will be able to use any minutes included in their calling plan without incurring roaming charges. We have plans that range from the inclusion of a small local geography to the entire nation. We also consider how customers wish to pay for their service. Currently, we offer two main payment methods: prepaid and postpaid. In addition, we consider whether domestic long distance charges should be included in the plan and whether we should provide value added features or make features available for additional cost. We consider the type of equipment a customer may want to purchase and work on having a wide range of equipment available, from phones, to PDAs and modems. We also consider if there is a group of users that may want to share minutes or receive discounted calling within a defined group. In addition to these elements, we develop features to allow customers to get the most out of their service. We continue to focus on mobile multimedia services the customer may want so they can use the wireless internet to access relevant information like stock quotes, directions, weather and the news. We provide customers options that allow them to send and receive e-mail and text messages from their wireless devices. Personalization is important to some customers so we allow customers to add customized ring tones or graphics to compatible wireless phones. We offer a program for our middle and large-sized businesses to simplify the wireless purchasing and management process. With all of these variables we can create promotions and offers for distinct customer segments.

      We have been an industry leader in developing new growth initiatives that take advantage of our existing wireless spectrum, digital networks, customer base and brand. We have targeted wireless data services and wireline-to-wireless migration as growth areas for expansion.

      Data services. The development of compelling data applications will be critical to the growth in usage of wireless data network services. We are developing such applications as well as supporting applications developed by third parties. For consumers, we have created a wireless data service, mMode^SM, which permits customers to have access to content provided by various content partners such as news, weather and sports agencies, travel information services, entertainment sources and Internet portal providers. We also offer a broad portfolio of messaging services including wireless email, text messaging, and instant messaging. For our corporate customers, we are working with application providers and device manufacturers to bring to market wireless data transport and application services to fit both vertical segments, such as fleet management, field service automation, sales force automation, as well as horizontal solutions that have utility across industries, such as access to corporate e-mail.

      A major area of focus for the company was driving adoption of our SMS Platform. With compatible phones, customers can send and receive text messages to each other and can receive short e-mail messages from a personal computer. At year end, we had 16 million subscribers with SMS enabled phones. The 3 million subscribers who used our SMS services generated an average of $3 of revenue in December 2002. We were the first U.S. wireless carrier to provide our customers with the ability to send text messages in this fashion to the phones of subscribers of other wireless carriers. We have introduced a service which affords our customers, with compatible phones, the ability to order and download ring tones and graphics to their phones. We have also introduced interactive services, such as polling and voting in connection with major television programming. Using this service, our customers are able to begin using their wireless phones for more than making phone calls.

      In April 2002 we launched mMode, our package of enhanced data services available on our GSM/ GPRS network. The mMode experience is organized into three broad functions — “connect,” “manage,” and “entertain” — that makes it easy for people to find and do what they want. “Connect” includes such

7

Table of Contents

      Wireline-to-Wireless Migration. We believe there continues to be a significant growth opportunity in the increasing wireline to wireless migration. Wireless voice minutes as a percentage of all voice minutes increased from approximately 11% in 2001 to approximately 15% in 2002. However, well over 80% of all voice calls, representing more than 2 trillion minutes, are still carried over wireline services. Approximately 50% of these are residential calls. As we lower our costs, we believe we will be able to compete even more effectively for these minutes. As we expand the scope and coverage of our data services, we expect to migrate data traffic from wireline service to our wireless offerings. Many of our data offerings target Fortune 500 companies, which present a significant opportunity. We feel we are well positioned to pursue these opportunities, as our independence from wireline carriers will provide a significant competitive advantage.

      We develop customer awareness through our marketing and promotional efforts and have been a leader in differentiating our products through our use of targeted pricing plans and the introduction of new products and services.

      Targeted marketing. We target 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 measures. We then attempt to create a compelling offer by combining rate plans, product promotions and features that meet the particular needs of that targeted group and that we believe we can provide at a competitive advantage. We have expanded our targeted marketing efforts to include new groups of customers. This may exert downward pressure on our average revenue per user. We have also identified our high and low value customers, and have adjusted our customer retention efforts accordingly. As a result we may experience upward pressure on our churn rate.

      AT&T brand name. We prominently feature the AT&T brand name and logo on our products and services. We have benefited from AT&T’s brand awareness. We believe that the use of the AT&T brand name, one of the most well known in the U.S., will continue to be a distinct marketing advantage.

      In January 2002, we launched our new brand advertising and marketing program using the theme “mLife.” We continue to use the mLife theme in our advertising. Overall, the campaign emphasizes the ability of wireless communications to keep people connected while letting them be free of the limitations inherent in wired communication.

      We place a high priority on providing our customers with excellent customer care and support. Most of our subscribers can access their account, add or delete certain features, pay their invoice and obtain answers to routine inquiries through our website. In addition, customers can reach our customer care representatives 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 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.

8

Table of Contents

      As part of our customer care program, we seek to identify customers who are at risk of changing service providers. In these cases, we have programs that assist customers in upgrading their equipment, 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. We communicate these programs through individualized and general communications, and utilize these programs to minimize the risk of valuable customers switching to another service provider.

      We market our wireless services under the AT&T Wireless brand name. We market wireless services to business and residential customers through a direct sales force, through sales points of presence in 896 company-owned stores as of December 31, 2002, and kiosks and other customer points of presence, including the Internet and inbound call centers, and through local and national non-affiliated retailers and dealers across the U.S.

      Dealers are independent contractors that solicit customers for our service, and, typically, include specialized wireless stores, specialized electronics stores and department stores. We generally pay our dealers a commission for each customer that uses our service for a specified period, and may make residual or account management payments to the dealer based on the customer’s ongoing service charges.

      Our charges may include fees for service activation, monthly access, per-minute airtime, data usage, customer-calling features, regulatory compliance costs, taxes and surcharges. We manage our exposure to bad debt by reviewing prospective customers for creditworthiness, by imposing deposit requirements for certain customers, and by deactivating accounts that reach a specific date past due.

      We own equity interests in wireless operations in Canada, the Caribbean, India, Europe, and Taiwan. We also hold an interest in a wireline operation in Indonesia. We have been refocusing our international objectives on enlarging our North American footprint, as well as enhancing our ability to service the needs of global travelers and multinational enterprises. In 2002, we continued our efforts to monetize our non-strategic international minority investments. We may, from time to time, acquire interests in additional entities or dispose of or consolidate our existing international holdings.

9

Table of Contents

(1)	Amount of population covered by the entity’s network in its country, as of December 31, 2002.
(2)	As of December 31, 2002.
(3)	Our revenue from foreign countries during the year ended December 31, 2002 was approximately $2.1 million. Long-lived assets located in foreign countries have not been material in any of the last three years.
(4)	Bermuda represents a British dependency.
(5)	These entities hold licenses covering the following numbers of POPS: 60,000 in Dominica, 150,000 in St. Lucia and 110,000 in St. Vincent. These entities are currently building nationwide networks to cover these POPS.
(6)	We are currently in the process of creating separate joint ventures for St. Vincent and Dominica that will reduce our equity interest to 60% in each entity.
(7)	In 2001, the Indian wireless operator in which we originally held a 49% stake, Birla AT&T Communications Ltd., merged with the wireless operations of Tata Cellular, Ltd., yielding us a 33% equity interest in the merged entity, Birla Tata AT&T Ltd., now known as IDEA Cellular Ltd. In addition, through June 2002 we were a party to a preliminary agreement to consolidate IDEA Cellular Ltd. with BPL Mobile Communications Ltd. and some portions of BPL Cellular Ltd. BPL Mobile Communications Ltd. owns and operates a cellular business in the city of Mumbai, India. It is currently owned by BPL Communications Ltd. (74%) and France Telecom (26%). BPL Cellular Ltd., a company owned by BPL Communications Ltd. (51%) and AT&T Wireless (49%), owns and operates cellular businesses in the Indian states of Maharashtra, Kerala and Tamil Nadu. In connection with the planned consolidation, BPL Cellular Ltd. was to separate its Maharashtra cellular business and only combine its Kerala and Tamil Nadu cellular businesses with those of IDEA Cellular Ltd. and BPL Mobile Communications Ltd. Since the expiration of the agreement, BPL Communications Ltd. has sought to enforce it, including taking action to instigate an arbitration claim in India against the shareholders of IDEA Cellular. To date, no statement of claim has been filed in the matter.

10

Table of Contents

      In 2001, we acquired a combination of a non-controlling equity interest in and debt securities issued by Alaska Native Wireless, LLC, in connection with our commitment to fund Alaska Native Wireless’ successful bids in the C and F Block reauction, which ended January 26, 2001. The trustee in NextWave Telecom, Inc.’s Chapter 11 bankruptcy proceeding and the unsecured creditors of NextWave commenced litigation that challenged 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. On June 22, 2001, a federal appeals court ruled that the FCC had acted improperly in repossessing from NextWave the spectrum sold in the reauction. The FCC subsequently reissued the licenses in NextWave’s name. On March 4, 2002, the U.S. Supreme Court agreed to review the case. In November 2002 we restructured our relationship with Alaska Native Wireless to significantly reduce our financial obligations to the other owners of ANW. In November 2002, the FCC allowed parties that won certain licenses in Auction 35 to opt-out of their auction obligations, obtain refunds of all down payments made for pending licenses and have their license applications dismissed without penalty. ANW subsequently opted-out of Auction 35. In January 2003 the U.S. Supreme Court ruled in favor of NextWave.

      Mobile wireless technology is most often spoken of in terms of technology “generations,” or “G’s”. The first generation wireless technology, or 1G, was analog. Second-generation, or 2G, networks are, by contrast, digital, and use one of three principal signal transmission technologies, or standards: TDMA (time division multiple access); CDMA (code division multiple access); or GSM (global system for mobile communications). As a packet data enhancement to GSM, GPRS (general packet radio service) is referred to as a 2.5G technology. Third generation technologies offer enhanced data rates beyond GPRS and include EDGE, or enhanced data rates for global evolution, CDMA 2000, and UMTS, or universal mobile telecommunications systems.

      Digital systems, which convert voice and data into a compressed digital stream, offer clear benefits over analog technology. The most important benefit is added network capacity which digital technology enables by permitting a single radio channel to carry multiple transmissions simultaneously. In addition to other benefits, such as improved voice quality, extended battery life, and added call security, digital service enables enhanced features and services such as short messaging services (SMS), email, and wireless connections to corporate data networks and the Internet.

      Although none of the 2G standard technologies are compatible with each other, TDMA and GSM are similar in that both enhance capacity by dividing a single radio channel into multiple time slots to support multiple calls. TDMA supports up to three calls per frequency and GSM up to eight.

      Although we maintain limited analog service as mandated by the FCC, and provide limited data service over a CDPD network, we serve the vast majority of our customers over our digital TDMA and GSM/ GPRS networks.

      TDMA network. We chose time division multiple access, or TDMA, technology for our second-generation voice digital network. TDMA takes advantage of tri-mode handsets that allow for roaming across analog and digital systems and across 850 megahertz and 1900 megahertz spectrums. TDMA network equipment is available from leading telecommunication vendors such as Lucent, Ericsson and Nortel Networks Inc.

      GSM/ GPRS network. Starting in the second half of 2001, we began to deploy a GSM/ GPRS network with enhanced global wireless voice and data capabilities. As of December 31, 2002, we had deployed our GSM/ GPRS network in markets representing approximately 63% of the U.S. population. This network was deployed principally as an overlay on our TDMA network as a cost effective means for us to offer customers a wide range of voice and data service offerings. GSM provides significant advantages over TDMA. It is the leading worldwide standard enabling international roaming and offering economies of scale on both network equipment and subscriber devices, enabling reduced operating cost and a broader array of network equipment

11

Table of Contents

      EDGE and UMTS. Third generation technologies such as EDGE and UMTS have been developed in anticipation of consumer demand for higher speed data service. EDGE technology is a faster version of GPRS, tripling data speed and doubling data capacity. UMTS is a spread spectrum technology that will increase data speeds even further by transmitting both voice and data over a wider band of radio frequency. By the end of 2002, we had deployed EDGE equipment in 75% of our cell sites. We intend to be positioned to commence EDGE service throughout our network by the end of 2003. UMTS equipment for the U.S. market is currently under development, testing, and trial and we intend to launch UMTS service in four markets by the end of 2004.

Competition

      Competition for subscribers among wireless service providers is based principally upon service area, the services and features offered, call quality, customer service, and price. Our ability to compete successfully will depend, in part, on our 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 and popularity of new products and services, including prepaid phone products, as well as a general softening of the economy, could adversely affect our results, increase our churn and decrease our average revenue per user. Our primary national competitors are Cingular, Deutsche Telekom/ T-Mobile Wireless, Nextel Communications, Sprint PCS and Verizon Wireless.

      In addition, the wireless communications industry has experienced significant consolidation and this consolidation may continue. The mergers or joint ventures of Bell Atlantic Corporation/ GTE Corporation/ Vodafone AirTouch, now called Verizon, SBC/ BellSouth, now called Cingular, and Deutsche Telekom/ VoiceStream Wireless, now called T-Mobile, have created large, well-capitalized competitors with substantial financial, technical, marketing and other resources to respond to our offerings. As a result of these combinations, these competitors have enhanced their ability to offer larger service areas, quickly and economically introduce new rate plans, obtain more favorable roaming rates, and respond to consumer needs.

Patents and Trademarks

      We own numerous patents in the U.S. and foreign countries. The foreign patents are generally counterparts to the U.S. patents. Many of these patents are licensed to others, and we license certain patents from others. Upon our split-off from AT&T, we and AT&T granted to each other royalty-free cross-licenses to the 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. Our U.S. patents and licensed patents have remaining lives generally ranging from one to 19 years

      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. We currently have access to these trademarks, including the AT&T brand name and globe logo, in the U.S. and other countries. Since the split-off, we have been licensed by AT&T to use a number of AT&T’s trademarks that we have been using to date, including the AT&T brand name and globe logo. The initial term of the license is five years from the split-off, with the right to renew the license for an additional five years, subject to certain conditions. The license is royalty free, but includes a brand maintenance fee computed as a percentage of our 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 worldwide for wide-area mobile wireless services, with the exception of certain countries in which AT&T has already licensed the brand for these services.

      In addition to the trademarks we license from AT&T, we own trademarks we have developed since our split-off from AT&T Corp. The trademarks we own include “mlife” and “mMode.”

12

Table of Contents

      In total, these patents, patent applications, trademarks and licenses are material to our business.

Employees

      As of February 28, 2003, we employed approximately 31,000 individuals in our operations, virtually all of whom are located in the U.S.

Seasonality

      The wireless industry, including us, 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. We also typically have higher revenue from roaming in the third quarter of the year due to increased roaming minutes during the summer travel season.

Spectrum

      We provide mobile voice services using both 850 megahertz cellular and 1900 megahertz PCS licenses. We do not manage our business for these spectrums separately. Rather, we manage our business to provide network coverage irrespective of the spectrum. From a marketing and operational perspective, we define and manage our 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, but we have now introduced digital technology in 99% of our 850 megahertz markets. The 1900 megahertz markets all are digital.

      We held 850 megahertz and 1900 megahertz licenses to provide wireless services covering approximately 95% of the U.S. population as of December 31, 2002. As shown in the table below, as of December 31, 2002, approximately 73% of the U.S. population was covered by at least 30 megahertz of wireless spectrum owned by us:

*	Amount of U.S. population covered by licenses held by us.
**	Amount that “Licensed POPS” represents as a percentage of total U.S. population, based on total U.S. population of 288 million as of December 31, 2002.

Regulatory Environment

      The FCC regulates the licensing, construction, operation, acquisition, sale and resale of wireless systems in the U.S. 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 frequencies in the 850 megahertz band, and “broadband PCS” licenses, which utilize frequencies in the 1900 megahertz band. Cellular and PCS services are both classified by law as commercial mobile radio service (“CMRS”), but their associated systems may have differing technical characteristics. For instance, while

13

Table of Contents

      We own protected geographic service area licenses granted by the FCC to provide cellular and broadband PCS services. We also own licenses granted by the FCC to provide point-to-multi-point and point-to-point communications services in various 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 licenses are issued for either metropolitan service areas (of which there are 306) or rural service areas (of which there are 427). Initially, one of the two cellular licenses available in each metropolitan service area or rural service area was reserved for and awarded to a local exchange telephone company (“wireline company”), while the other license was reserved for and awarded to an entity that was not a local exchange telephone company (“non-wireline company”). In both situations, initial cellular licenses were awarded either through the comparative hearing process or by the conduct of lotteries. Licenses were issued beginning in 1983, and over the years, as a result of changes in the FCC’s rules and numerous license transfers and corporate reorganizations, there is no longer a distinction between “wireline” and “non-wireline” cellular licenses.

      A broadband PCS system operates on one of six frequency blocks allocated for personal communications services. Broadband PCS systems are used for two-way voice applications as well as data and other types of communications. For the purpose of awarding broadband PCS licenses, the FCC has segmented the U.S. into 51 large regions called major trading areas (“MTAs”), which are comprised of 493 smaller regions called basic trading areas (“BTAs”). The FCC initially awarded two broadband PCS licenses for each MTA and four licenses for each BTA. The two MTA licenses (the “A” and “B-block” licenses) authorize the use of 30 megahertz of spectrum. One of the BTA licenses (the “C-block” license) was initially for 30 megahertz of spectrum, and the other three (the “D,” “E,” and “F-block” licenses) are for 10 megahertz each. In March 1998, the C-block licensees were permitted to disaggregate their licenses and return 15 megahertz of spectrum to the FCC. Subject to some conditions, the FCC now permits all licensees to split their licenses and assign a portion, on either a geographic or frequency basis or both, to a third party. As a result, some BTAs now have seven or more broadband PCS licensees.

      The FCC awarded initial broadband PCS licenses by auction. Auctions began with the 30 megahertz MTA licenses and concluded in 1998 with the last of the original BTA licenses. In April 1999, the FCC reauctioned the 15 megahertz C block licenses that had been returned by the original licensees. In addition, certain of the original C-Block licenses are currently in bankruptcy proceedings. The FCC cancelled some of these licenses, reconfigured them into three 10 megahertz licenses, and reauctioned them in January 2001 in an auction referred to as “Auction 35.” The FCC’s cancellation of the licenses was subsequently overturned by the U.S. Court of Appeals for the District of Columbia Circuit, in response to a challenge by one of the bankrupt licensees. The U.S. Supreme Court upheld the appeals court decision in January 2003. In November 2002, the FCC allowed parties that won certain licenses in Auction 35 to opt-out of their auction obligations, obtain refunds of all down payments made for pending licenses and have their license applications dismissed without penalty. ANW subsequently opted-out of Auction 35.

      CMRS licenses are issued for a 10-year term, at the end of which they must be renewed. A CMRS licensee has a “renewal expectancy,” which means that if it has provided “substantial service” during its past license term and has substantially complied with applicable FCC rules and policies and the Communications Act, it will have its licenses renewed as a matter of course. CMRS 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.

      All CMRS wireless licensees must satisfy specified coverage requirements. Cellular licensees were required, during the five years following the initial grant of their respective licenses, to construct their systems

14

Table of Contents

      In an effort to balance the competing interests of existing microwave users in the PCS bands and newly authorized PCS licensees, the FCC adopted a transition plan to relocate such incumbent 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. Under the FCC’s cost sharing plan, when PCS licensees turn up new base stations, they can become subject to cost sharing obligations with other PCS licensees in the band that previously paid for microwave relocation.

      Wireless systems are subject to certain Federal Aviation Administration and FCC 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.

      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 CMRS, which includes PCS and cellular service. The FCC does not regulate CMRS or private mobile radio service rates. However, CMRS providers are common carriers and are required under sections 201(b) and 202(a) of the Communications Act to provide service on just and reasonable terms and without unreasonable discrimination. The FCC’s rule requiring CMRS providers to permit others to resell their services for a profit expired on November 24, 2002, but resellers may file complaints under section 208 of the Communications Act alleging that restrictions on the resale of CMRS violate sections 201(b) and 202(a).

      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 of 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 licenses won at auction 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, minority interests in an entity that holds an FCC license generally may be bought or sold without FCC approval. 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

15

Table of Contents

      The FCC’s former spectrum aggregation rules were eliminated on January 1, 2003. As a result, there is currently no express limitation on the amount of CMRS spectrum that any one entity may hold. Applications proposing to assign or transfer spectrum licenses are still subject to FCC review, however, and FCC staff has indicated that it will conduct such review on a case-by-case basis. The analysis of whether the transaction should be approved will be based on the impact the acquisition of spectrum will have on competition in the marketplace.

      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, 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 permitted levels, the FCC could revoke our FCC licenses or request that the ownership be re-structured to comply with foreign ownership rules. Recently, we obtained a declaratory ruling from the FCC that affirmatively approves the level of ownership in us held by non-U.S. citizens or foreign corporations. The same declaratory ruling allows non-U.S. citizens or foreign corporations to increase the level of ownership held in us by an additional 25%, subject to certain qualifications, including a requirement that the equity held is “non-controlling” equity.

      The FCC has announced rules for making emergency 911 services available by cellular, PCS and other CMRS providers, including enhanced 911 services that provide the caller’s telephone number, location and other useful information. CMRS 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 agency. CMRS providers may use either network or handset-based technologies to provide the approximation of the caller’s actual location. There is no requirement that public safety agencies reimburse the CMRS provider for their costs of deploying such technologies. E911 service must be made available to users with speech or hearing disabilities. Finally, wireless handsets capable of receiving analog signals, when operating in the analog mode, 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. We have negotiated consent decrees with the FCC that govern our compliance with the FCC’s E911 location rules for our TDMA and GSM networks.

      On August 8, 1996, the FCC released its order implementing the interconnection provisions of the Telecommunications Act of 1996. 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 the appeals were pending, the rationale of the FCC’s order was adopted by many states’ public utility commissions, with the result that the charges that CMRS 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. In May 2002, the U.S. Supreme Court upheld the FCC’s pricing regime. However, the FCC has indicated that it plans to undertake a comprehensive review of this regime in 2003. This proceeding could effect the charges that CMRS operators currently incur. In a separate proceeding, several carriers appealed the FCC’s unbundling rules, which dictate which parts of

16

Table of Contents