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 AT&T Reports Third-Quarter Results
   Saturday, October 22, 2016 8:17:03 PM ET

--Consolidated revenues of $40.9 billion, up 4.6% with DIRECTV acquisition

--Operating income up 8.2%

--Net income attributable to AT&T up 11.2%

--Cash from operations of $11.0 billion

--Free cash flow of $5.2 billion

--Diluted EPS of $0.54 as reported and $0.74 as adjusted, compared to $0.50 and $0.74 in the year-ago quarter

--2.3 million wireless net adds driven by connected devices, Mexico and Cricket

--U.S. wireless postpaid churn of 1.05%, down 11 basis points year over year

--Strong U.S. wireless operating margin of 29.6%; best-ever U.S. wireless service EBITDA margin of 50.1%

--700,000 branded smartphones added to U.S. subscriber base

--323,000 U.S. DIRECTV net adds with TV subscriber base stable



--171,000 IP broadband net adds

--Full-year guidance on track to meet or exceed expectations

AT&T Inc. (T ) today reported growing revenues and net income with solid margins and earnings for the third quarter. Detailed results, including financial tables, are included in the accompanying Investor Briefing and SEC Form 8-K. These materials and associated slide presentation of third-quarter results are available on the AT&T Investor Relations website.

AT&T also announced that its board of directors has approved a 2.1% increase in the company’s quarterly dividend. AT&T’s quarterly dividend will increase from $0.48 to $0.49 per share. The annual dividend will increase from $1.92 to $1.96 per share. The dividend will be payable on Feb. 1, 2017 to common stockholders of record on Jan. 10, 2017.

AT&T will host a webcast presentation on Monday, October 24, 2016, at 8:30 a.m. ET to discuss the Time Warner transaction and third-quarter results. Links to the webcast and accompanying documents will be available on the AT&T Investor Relations website. The third-quarter earnings conference call previously scheduled for Tuesday, October 25, 2016, at 4:30 p.m. ET is cancelled.

AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc.

About AT&T

AT&T Inc. (T ) helps millions around the globe connect with leading entertainment, mobile, high speed internet and voice services. We’re the world’s largest provider of pay TV. We have TV customers in the U.S. and 11 Latin American countries. We offer the best global coverage of any U.S. wireless provider.* And we help businesses worldwide serve their customers better with our mobility and highly secure cloud solutions.

Additional information about AT&T products and services is available at http://about.att.com . Follow our news on Twitter at @ATT, on Facebook at http://www.facebook.com/att and YouTube at http://www.youtube.com/att .

(C) 2016 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.

*Global coverage claim based on offering discounted voice and data roaming; LTE roaming; voice roaming; and world-capable smartphone and tablets in more countries than any other U.S. based carrier. International service required. Coverage not available in all areas. Coverage may vary per country and be limited/restricted in some countries.

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.

This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s website at www.att.com/investor.relations.

The "quiet period" for FCC Spectrum Auction 1000 (also known as the 600 MHz incentive auction) is now in effect. During the quiet period, auction applicants are required to avoid discussions of bids, bidding strategy and post-auction market structure with other auction applicants.

Additional Information and Where to Find It

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication may be deemed to be solicitation material in respect of the proposed merger between AT&T Inc. and Time Warner Inc. In connection with the proposed merger, AT&T Inc. intends to file a registration statement on Form S-4, containing a proxy statement/prospectus with the Securities and Exchange Commission ("SEC"). STOCKHOLDERS OF TIME WARNER INC. ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Investors and security holders will be able to obtain copies of the proxy statement/prospectus as well as other filings containing information about AT&T Inc. and Time Warner Inc., without charge, at the SEC’s website, http://www.sec.gov . Copies of documents filed with the SEC by AT&T Inc. will be made available free of charge on AT&T’s Investor Relations website, www.att.com/investor.relations. Copies of documents filed with the SEC by Time Warner Inc. will be made available free of charge on Time Warner’s Investor Relations website, ir.timewarner.com.

Participants in Solicitation

AT&T Inc. and its directors and executive officers, and Time Warner Inc. and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Time Warner common stock in respect of the proposed merger. Information about the directors and executive officers of AT&T is set forth in the proxy statement for AT&T’s 2016 Annual Meeting of Stockholders, which was filed with the SEC on March 11, 2016. Information about the directors and executive officers of Time Warner is set forth in the proxy statement for Time Warner’s 2016 Annual Meeting of Stockholders, which was filed with the SEC on April 29, 2016. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement/prospectus regarding the proposed merger when it becomes available.

AT&T Q3 2016 INVESTOR BRIEFING

AT&T Reports Third-Quarter Results

Increases Quarterly Dividend by 2.1%, 33rd Consecutive Annual Increase

-- Consolidated revenues of $40.9 billion, up 4.6% with DIRECTV acquisition

-- Operating income up 8.2%

-- Net income attributable to AT&T up 11.2%

-- Cash from operations of $11.0 billion

-- Free cash flow of $5.2 billion

-- Diluted EPS of $0.54 as reported and $0.74 as adjusted, compared to $0.50 and $0.74 in the year-ago quarter

HIGHLIGHTS:

-- 2.3 million wireless net adds driven by connected devices, Mexico and Cricket

-- U.S. wireless postpaid churn of 1.05%, down 11 basis points year over year

-- U.S. wireless operating margin of 29.6%; best-ever U.S. wireless service EBITDA margin of 50.1%

-- 700,000 branded smartphones added to U.S. subscriber base

-- 323,000 U.S. DIRECTV net adds with TV subscriber base stable -- More than 1.2 million U.S. DIRECTV net adds since acquisition

-- 171,000 IP broadband net adds

-- More than 390 million North American 4G LTE POPs

-- Year-to-date cash from operations of $29.2 billion; free cash flow $13.3 billion year to date

-- Full-year guidance on track to meet or exceed expectations

CONSOLIDATED FINANCIAL RESULTS

AT&T’s consolidated revenues for the third quarter totaled $40.9 billion, up 4.6% versus the year-earlier period due to the July 24, 2015 acquisition of DIRECTV. Excluding the impact of the DIRECTV acquisition and foreign exchange, revenues were essentially flat, as growth in video and IP-based services mostly offset pressures from declines in wireless and legacy services. Compared with results for the third quarter of 2015, operating expenses were $34.5 billion versus $33.2 billion; operating income was $6.4 billion versus $5.9 billion; and operating income margin was 15.7% versus 15.2%. When adjusting for $0.14 of amortization, $0.03 in merger- and integration-related costs and $0.03 of employee-separation costs, operating income was $8.3 billion versus $7.9 billion; and operating income margin was 20.3%, consistent with the year-ago quarter.

Third-quarter net income attributable to AT&T totaled $3.3 billion, or $0.54 per diluted share, compared to $3.0 billion, or $0.50 per diluted share, in the year-ago quarter. Adjusting for $0.20 of amortization, merger- and integration-related costs and other expenses, earnings per diluted share was $0.74 compared to an adjusted $0.74 in the year-ago quarter.

Cash from operating activities was $11.0 billion in the third quarter, up 1.8%, and capital investment(1) totaled $5.9 billion. Free cash flow -- cash from operating activities minus capital expenditures -- was $5.2 billion for the quarter, down 6.5%, and $13.3 billion year to date, up 3.7%.

AT&T also announced that its board of directors has approved a 2.1%increase in the company’s quarterly dividend. AT&T’s quarterly dividend will increase from $0.48 to $0.49 per share. The annual dividend will increase from $1.92 to $1.96 per share. The dividend will be payable on Feb. 1, 2017 to common stockholders of record on Jan. 10, 2017.

____________________

(1)3Q16 includes $87 million in capital purchases in Mexico with favorable vendor payment terms.

Business Solutions

The Business Solutions segment provides both wireless and wireline services to business customers and to individual subscribers who purchase wireless services through employer-sponsored plans. AT&T’s wireless and wired networks provide complete communications solutions to these customers. AT&T’s business customer revenues include results from enterprise, public sector, wholesale and small/midsize customers.

FINANCIAL HIGHLIGHTS

Total third-quarter revenues from business customers were $17.8 billion, up 0.4% versus the year-earlier quarter. Growth in mobility and strategic business services offset declines in legacy services and a continuing low-growth economy. When adjusting for the transition of certain hosting operations, total revenues would have been even higher. Business Solutions service revenues were $15.6 billion, essentially stable year over year.

Third-quarter operating expenses were $13.5 billion, up 0.5% versus the third quarter of 2015. Operating income totaled $4.3 billion, up 0.1% year over year. Third-quarter operating income margin was 24.2%, stable year over year with declines in higher-margin legacy services offsetting growth in wireless and IP revenue and cost efficiencies.

BUSINESS WIRELESS FINANCIAL RESULTS

Business wireless revenues were up 4.0% year over year to $9.9 billion driven by wireless service revenue growth and higher equipment revenues. Wireless service revenues were up 4.1% year over year, reflecting smartphone and tablet gains and continued migration from consumer plans.

BUSINESS WIRELINE FINANCIAL RESULTS

In business wireline, declines in legacy products were partially offset by continued growth in strategic business services. Total business wireline revenues were $7.8 billion, down 3.7% year over year. When adjusting for the impact of the transition of certain hosting operations and foreign exchange pressures, wireline revenues would have decreased 2.5%. When adjusting for these same items, data revenues were stable. Data revenues make up nearly 60% of Business Solutions wireline revenues.

Revenues from strategic business services, the next-generation wireline capabilities that lead AT&T’s most advanced business solutions -- including VPNs, Ethernet, cloud, hosting, IP conferencing, voice over IP, dedicated internet, U-verse and security services -- grew by $242 million, or 9.1%, versus the year-earlier quarter. These services represent an annualized revenue stream of more than $11 billion.

SUBSCRIBER METRICS

At the end of the third quarter, AT&T had 79.4 million business wireless subscribers. The company added 191,000 postpaid subscribers and 1.3 million connected devices in the third quarter. Postpaid business wireless subscriber churn was 0.97% versus 1.05% in the year-ago quarter.

During the quarter, the company also added nearly 15,000 high-speed IP broadband business subscribers. Total business broadband had a loss of 18,000 subscribers in the quarter.

BUSINESS INNOVATION

Through its powerful global networks, AT&T provides integrated solutions to business customers and offers a wide variety of wired and wireless products and services to increase businesses’ productivity. AT&T serves millions of business customers, from the largest multinational corporations to small businesses, in all major industries. AT&T continually develops products and services to ensure that its business customers have access to the latest technology solutions. In recent business news, AT&T:

-- Announced a multiyear agreement between AT&T and Amazon Web Services (AWS) to deliver integrated solutions that combine the companies’ leading cloud and networking capabilities. The collaboration will help customers migrate to and use the AWS Cloud with the AT&T network. The solutions are intended to span cloud networking, mobility, IoT, security and analytics.

-- Teamed up with IBM to help businesses manage their networking services. IBM will take advantage of AT&T FlexWare, which makes it easy to set up and manage virtual network functions on a single device. AT&T will also be able to run applications on IBM’s cloud, cognitive, analytics and security infrastructure. In addition to making AT&T FlexWare available to clients, IBM is rolling out the solution in many of its own sites.

-- Introduced a trial with Qualcomm Technologies Inc. to test how drones can connect more safely and securely on commercial 4G LTE. The research will look at coverage, signal strength and how drones function in flight.

-- Collaborated with VeloCloud to deliver AT&T Software-defined Wide Area Network (AT&T SD-WAN), a key step in helping businesses evolve their networks from hardware to software. The AT&T SD-WAN portfolio will include a network-based solution combining hybrid networking with multiple types of network access. The network-based solution will be available in 2017. The AT&T SD-WAN premises-based, over-the-top solution will be available later this year.

-- Closed significant business deals with Live Nation, State of Wisconsin and Waste Management.

Entertainment Group

AT&T’s Entertainment Group provides entertainment, high-speed internet and communications services predominantly to residential customers in the United States.

FINANCIAL HIGHLIGHTS

Total revenues were $12.7 billion, up 17.1% versus the year-earlier quarter mostly due to the acquisition of DIRECTV. Also contributing to the gain was continued growth in consumer IP services.

Broadband revenues were up 5% in the quarter with IP broadband growing by 12%. AdWorks has grown to a $1.5 billion annualized revenue stream with double-digit revenue growth year to date and strong margins.

Third-quarter operating expenses were $11.2 billion, up 14.2% from a year ago due to the acquisition of DIRECTV and higher content costs. Operating income totaled $1.5 billion, up from the year-ago $1.0 billion. Third-quarter operating income margin was 11.7%, up from 9.4% in the year-earlier quarter with satellite and IP revenue growth and cost efficiencies offsetting TV content cost pressure and declines in legacy services. In the fourth quarter, on a sequential basis, margins will be pressured by a full quarter of NFL Sunday Ticket costs, annual content cost increases and start-up costs for DIRECTV NOW.

SUBSCRIBER METRICS

Total video subscribers were essentially flat in the quarter as competition increases. The company added 323,000 satellite subscribers in the third quarter. U-verse TV subscribers declined 326,000 as the company continued to focus on profitability and increasingly emphasized satellite sales. For the second straight quarter, gross additions increased on a year-over-year basis even when excluding IPTV customers transitioning to DIRECTV.

The Entertainment Group ended the quarter with 25.3 million video subscribers. While the company expects positive video net adds in the fourth quarter, it expects total video net adds for the year to decline slightly. At the end of the third quarter, about 100,000 pending video customers had the capability to watch TV on their mobile devices; however, these customers were not included in third-quarter subscriber numbers since the video service had not yet been installed at their homes.

The Entertainment Group had a net gain of 156,000 IP broadband subscribers in the third quarter. Total Entertainment Group broadband subscribers decreased 5,000 in the quarter. IP broadband subscribers at the end of the quarter totaled 12.8 million.

ENTERTAINMENT GROUP INNOVATION

In recent news, the company:

-- Launched an updated DIRECTV App that allows customers to watch live and recorded programs virtually anywhere.

-- Premiered a new "Data Free TV" feature that lets AT&T wireless customers stream AT&T DIRECTV and U-verse(SM) content without counting it against their data allowance.

-- Entered into 10 key DIRECTV NOW content agreements with program providers whose premium brands will be part of the company’s new streaming platform, planned to launch in the fourth quarter of 2016. As publicly announced HBO, , Disney, Turner, Discovery Networks, NBCU, Scripps Networks, STARZ, AMCN (AMC Networks), AETN (A+E Networks) and Viacom will be among the more than 100 channels included on DIRECTV NOW.

-- Since the end of the second quarter, announced the launch of our 100% fiber network under the AT&T Fiber brand in 14 additional metro areas -- Augusta, Ga.; Bakersfield, Calif.; Cleveland; Columbus, Ohio; Detroit; Greater New Orleans; Huntsville, Ala.; Indianapolis; Louisville, Ky.; Lubbock, Texas; Memphis, Tenn.; Mobile, Ala.; Sacramento, Calif. and St. Louis -- bringing the total to 39 major metros where AT&T’s gigabit connection is available.

-- Expanded live 4K broadcast offerings with premier content from the Olympics, MLB, UFC, PGA, College Football and the World Series of Beach Volleyball.

-- Received top honors in several J.D. Power studies: -- AT&T outscored all other full-service wireless providers for the top overall ranking in the J.D. Power 2016 Full-Service Wireless Purchase Experience Study(SM) Volume 2.

-- AT&T also earned the top ranking among full-service wireless providers in the J.D. Power 2016 Full Service Wireless Customer Performance Care Study(SM) Volume 2. AT&T scored significantly higher than the industry average -- by 16 points -- and increased its overall score by 20 points over the prior 6-month period.

-- AT&T ranked "Highest In Customer Satisfaction with Small/Medium Business Wireline Service, 2 Years in a Row" in the J.D. Power 2016 Business Wireline Satisfaction Study.

Consumer Mobility

The Consumer Mobility segment provides nationwide wireless service to consumer and wholesale subscribers located in the United States or in U.S. territories. The company’s wireless network powers voice and data services, including high-speed internet, video entertainment and home monitoring services.

FINANCIAL HIGHLIGHTS

Total revenues from Consumer Mobility customers totaled $8.3 billion, down 5.9% versus the year-earlier quarter, reflecting declines in equipment revenues from lower handset sales and in postpaid service revenues due to the success of Mobile Share plans and migrations to business plans. Third-quarter operating expenses were $5.7 billion, down 5.7% versus the third quarter of 2015, reflecting lower equipment and commission costs as well as increased operational efficiencies.

AT&T’s Consumer Mobility operating income totaled $2.6 billion, down 6.2% versus the third quarter of 2015. Third-quarter operating income margin was 31.1%, down slightly from the year-earlier quarter with lower volumes, fewer subsidized sales and cost efficiencies mostly offsetting service-revenue pressure from customers choosing Mobile Share plans. Consumer Mobility EBITDA margin was 42.5%, compared to 42.3% in the third quarter of 2015. (EBITDA margin is operating income before depreciation and amortization, divided by total wireless revenues.) EBITDA service margin was 50.9%, up from 50.5% in the year-ago quarter. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

SUBSCRIBER METRICS

At the end of the third quarter, AT&T had 53.9 million Consumer Mobility subscribers. In the quarter, Consumer Mobility gained 50,000 total subscribers with 21,000 postpaid, 304,000 prepaid and 41,000 connected device net adds offsetting a loss of 316,000 reseller subscribers. Consumer Mobility postpaid churn was 1.19%, compared to 1.33% in the year-ago quarter.

CONSUMER MOBILITY INNOVATION

AT&T is a leader in mobile internet, delivering expanded choice in devices, services and applications. In recent weeks, AT&T:

-- Introduced Mobile Share Advantage (MSA) plans, which offer more data at a lower cost per megabyte than some of the plans previously offered by AT&T. With the new MSA plans, customers get unlimited talk and text, rollover data and shareable data with no overage charges. In place of overage charges, once a customer uses the data in a plan, data speeds are reduced for the remainder of the billing cycle.

-- Reached agreements with Empresa De Telecomunicaciones De Cuba to allow AT&T wireless customers to roam in Cuba and to enable direct interconnection between the U.S. and Cuba. The deal continues to enhance AT&T’s global coverage for customers.

-- Enhanced the AT&T THANKS program by adding priority presale ticket access to popular Live Nation concerts. The first two presales gave customers early access to tickets to see Panic! At the Disco and Thomas Rhett. The company also introduced new tiers with benefits and offers to complement customers’ needs.

-- Launched a new smartphone plan for Cricket customers starting at $30/month that includes unlimited talk and text, plus 1GB of high-speed data.

International

The International segment includes wireless services in Mexico and satellite entertainment services in Latin America.

Total International revenues totaled $1.9 billion. Third-quarter operating expenses were $1.9 billion. AT&T’s International operating loss totaled $54 million. Third-quarter operating income margin was (2.9)%.

MEXICO

AT&T owns and operates a wireless network in Mexico. AT&T covered about 74 million people in Mexico with 4G LTE at the end of the third quarter and expects to cover 100 million POPs by the end of 2018.

Total wireless revenues from Mexico totaled $582 million, up 0.2% versus the year-earlier quarter, largely due to subscriber growth offset by foreign exchange and competitive pressures. Third-quarter operating loss was $148 million compared to a loss of $134 million in the year-ago quarter, reflecting continued investment in operations, network and subscriber acquisition. Third-quarter operating expenses benefitted from a few one-time items. Margins in the fourth quarter are expected to be consistent with prior quarters.

In the quarter, AT&T added 163,000 postpaid subscribers and 606,000 prepaid subscribers to reach 10.7 million total wireless subscribers in Mexico, a 32% increase from a year ago.

DIRECTV LATIN AMERICA

AT&T is a leading provider of pay television services in Latin America with satellite operations serving Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay, Venezuela and parts of the Caribbean. It also owns 41% of Sky Mexico. Sky Mexico financial results are accounted for as an equity method investment.

DIRECTV Latin America revenues reflect macroeconomic pressure with weakening local currencies. Total revenues from Latin America were $1.3 billion. Operating income was $94 million.

Third-quarter subscriber net losses were 48,000, driven by declines in Colombia, Argentina and Brazil. Total subscribers at the end of the quarter were 12.5 million. Sky Mexico had approximately 7.8 million subscribers as of June 30, 2016.

INTERNATIONAL HIGHLIGHTS

In recent weeks AT&T:

-- Continued to make significant progress in building the company’s customer base and deploying a 4G LTE network in Mexico, while expanding distribution to match this expanded network reach.

-- Opened additional points of sale throughout the country. The company also completed the rebrand of nearly 2,900 Nextel and Iusacell points of sale to AT&T.

AT&T Mobility

AT&T’s U.S. mobility operations are divided between the Business Solutions and Consumer Mobility segments. For comparison purposes, the company is providing supplemental information for its total domestic mobility operations.

FINANCIAL HIGHLIGHTS

Wireless revenues reflected lower service revenues from the continued adoption of Mobile Share plans and lower equipment revenues primarily from fewer handset upgrades and higher bring-your-own-device subscribers.

-- Total wireless revenues were $18.2 billion, down 0.7% year over year, due to decreases in service and equipment revenues. Wireless service revenues of $15.0 billion were down 0.9% year over year but were up sequentially. Continued growth of smartphones and tablets partially offset adoption of Mobile Share plans. Wireless equipment revenues decreased 0.2% to $3.2 billion.

-- Third-quarter wireless operating expenses totaled $12.8 billion, down 0.8% year over year, reflecting operating efficiencies and lower sales volumes, which offset higher promotional costs. Wireless operating income was $5.4 billion, down 0.5% year over year, reflecting continued adoption of Mobile Share plans and increased promotional activity.

-- Wireless margins reflect adoption of AT&T Next(SM), increases in BYOD customers, lower smartphone upgrade volumes and continued efforts to drive operating costs out of the business. AT&T’s reported third-quarter wireless operating income margin was 29.6%, consistent with the year-earlier quarter.

-- Wireless EBITDA margin was 41.2%, compared to 40.7% in the third quarter of 2015. Wireless EBITDA service margin was a best-ever 50.1%, up from 49.4% in the year-ago quarter.

ARPU

The continued adoption of AT&T Next is reflected in postpaid service ARPU (average revenues per user).

-- Phone-only postpaid ARPU decreased 1.9% versus the year-earlier quarter; however, phone-only postpaid ARPU with AT&T Next monthly billings increased 1.7% year over year. This growth comes even with lower upgrade volumes, promotional offers and an increasing number of customers holding onto their devices after completing Next payments.

SUBSCRIBER METRICS

In the third quarter, AT&T posted a net increase in total wireless subscribers of 1.5 million to reach more than 133 million in service, up 6.9 million over the past year.

-- The company added 212,000 postpaid subscribers and 304,000 prepaid subscribers with gains in both Cricket and GoPhone.

-- AT&T also added 1.3 million connected devices. It lost 315,000 reseller subscribers in the quarter, largely due to disconnects from the company’s 2G network. The company added 299,000 postpaid tablet and computing devices in the quarter and lost 268,000 postpaid phone subscribers with the majority of the losses in lower-ARPU feature phones.

-- The company had 516,000 branded net adds (both postpaid and prepaid) in the quarter, including 165,000 branded smartphone net adds. About 700,000 total branded smartphones were added to the base.

-- The company expects to shut down its 2G network on or around Jan. 1, 2017. At the end of the third quarter, the company had about 4 million 2G subscribers. This includes 2.8 million connected devices, 673,000 reseller, 335,000 postpaid and 210,000 prepaid. This compares to more than 6 million 2G subscribers at the end of the second quarter. The company has had success migrating these subscribers and will continue those efforts in the fourth quarter; however, the 2G shutdown is expected to impact net adds and churn in the fourth quarter.

CHURN

Improvements in postpaid and prepaid churn helped offset higher connected device and reseller churn.

-- Postpaid churn was 1.05%, compared to 1.16% in the year-ago quarter, an 11 basis point improvement. That includes about 2 basis points of pressure from the 2G network shutdown. Postpaid phone churn was 0.90%, a 14 basis point improvement from the year-ago quarter. Branded churn was 1.63%, compared to 1.68% in the year-ago quarter. Total churn was 1.45%, up from 1.33% in the year-ago quarter driven by churn from the shutdown of the 2G network. The planned shutdown of the 2G network contributed more than 20 basis points of pressure to total churn.

SMARTPHONES

The company’s branded smartphone base continued to grow in the quarter, and even more customers moved off the subsidy model -- either choosing AT&T Next or bringing their own devices.

-- The company had 7.0 million branded smartphone gross adds and upgrades in the quarter, including 1.9 million from prepaid. The postpaid upgrade rate in the quarter was 5.1%.

-- Sales on AT&T Next were 4.3 million, or 83% of all postpaid smartphone gross adds and upgrades. The company also had 595,000 BYOD gross adds, the second most ever. That means about 94% of postpaid smartphone transactions in the quarter were non-subsidy. -- About 50% of the company’s postpaid smartphone base is currently on AT&T Next, with almost 80% of postpaid smartphone subscribers on no-device-subsidy plans.

-- At the end of the quarter, 90%, or 58.7 million, of AT&T’s postpaid phone subscribers had smartphones. Smartphones accounted for 96% of postpaid phone sales during the quarter.

DATA PLANS

Customers continue to choose Mobile Share and unlimited wireless with TV plans.

-- The total number of Mobile Share connections was 57.1 million with an average of about 3 devices per account. Nearly 40% of Mobile Share accounts are on 15 gigabyte or larger data plans.

-- About 6.7 million postpaid subscribers are on unlimited wireless with TV plans.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

____________

FORM 8-K

CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported) October 22, 2016

AT&T INC.

(Exact Name of Registrant as Specified in Charter)

                   Delaware                               1-8610                        43-1301883
----------------------------------------------                      ------------------------                      ---------------------------------
(State or Other Jurisdiction of Incorporation)                      (Commission File Number)                       (IRS Employer Identification No.)
                                                                                                                   
     208 S. Akard St., Dallas, Texas                   75202
----------------------------------------                                                                --------------------
(Address of Principal Executive Offices)                                                                     (Zip Code)
                                                                                                         

Registrant’s telephone number, including area code (210) 821-4105

__________________________________

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

__ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

__ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

__ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))

__ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01 Other Events.

Throughout this document, AT&T Inc. is referred to as "we" or "AT&T." We are a holding company whose subsidiaries and affiliates operate in the communications and digital entertainment services industry. Our subsidiaries and affiliates provide services and equipment that deliver wireless, video and broadband services both domestically and internationally, as well as traditional telephony services.

Overview

We announced on October 22, 2016, that third-quarter 2016 net income attributable to AT&T totaled $3.3 billion, or $0.54 per diluted share, compared to $3.0 billion, or $0.50 per diluted share in the third quarter of 2015.

Our third-quarter 2016 results include 24 days of DIRECTV-related operations that were not reported in the comparable period in 2015, contributing to higher revenues and expenses when compared to the same period of the prior year. Third-quarter 2016 revenues were $40.9 billion, up 4.6 percent from the third-quarter 2015. Third quarter revenues reflect increased revenues primarily from our acquisition of DIRECTV. Compared with results for the third quarter of 2015, operating expenses were $34.5 billion versus $33.2 billion; operating income was $6.4 billion, up from $5.9 billion; and AT&T’s operating income margin was 15.7 percent, compared to 15.2 percent. Third-quarter 2016 cash from operating activities was $11.0 billion, up from $10.8 billion in the year-ago quarter primarily due to the acquisition of DIRECTV partially offset by the timing of working capital payments.

Many of our products, including AT&T Mobility and AT&T U-verse(R) (U-verse), are offered to subscribers in multiple segments. Accordingly, to aid in understanding subscriber trends, we are presenting an overall discussion of these customer metrics. We reported a net gain of 2.3 million North American wireless subscribers in the third quarter of 2016, of which 1.5 million were in the U.S. At September 30, 2016, our North American wireless customer base was approximately 144.0 million compared to 134.5 million in the prior year, and our domestic wireless subscribers totaled 133.3 million compared to 126.4 million. During the third quarter, net adds were as follows:

-- North American branded net adds (combined postpaid and prepaid) were 1.3 million, of which 516,000 were domestic. North American prepaid subscriber net adds were 910,000, of which 304,000 were domestic. North American postpaid subscriber net adds were 375,000, of which 212,000 were domestic. Total domestic postpaid tablet and computing device net adds were 299,000.

-- Connected devices were 1.3 million; 1.1 million attributable to connected cars.

-- North American reseller had a net loss of 341,000, with 315,000 in the U.S. primarily attributable to the expected year-end 2016 shutdown of our 2G U.S. network.

We no longer offer subsidized device purchases for the majority of our U.S. customers, instead allowing subscribers to purchase devices on installment (AT&T Next) or to bring their own device (BYOD). During the first quarter of 2016, we also introduced an integrated offer that allows for unlimited wireless data when combined with our video services, ending the third quarter with more than 6.7 million subscribers to this offer. At September 30, 2016, Mobile Share plans represented nearly 57.1 million domestic wireless connections and about 80 percent of our domestic wireless postpaid smartphone base was on a no-device-subsidy Mobile Share plans.

Sales under our equipment installment programs, including AT&T Next, represented 83 percent of all postpaid smartphone gross adds and upgrades, compared to 71 percent in the third quarter of 2015. During the third quarter of 2016, we sold 4.3 million smartphones under our AT&T Next program and had BYOD gross adds of 595,000. More than 94 percent of smartphone transactions in the quarter were no-subsidy compared to 80 percent in the year-ago quarter. At September 30, 2016, about 50 percent of the postpaid smartphone base is on AT&T Next compared to approximately 40 percent at September 30, 2015.

At September 30, 2016, we had 37.8 million video subscribers compared with 38.0 million at September 30, 2015. Total video subscribers decreased by 50,000 in the third quarter of 2016.

Our total broadband connections were 15.6 million at September 30, 2016, and 15.8 million at September 30, 2015. During the third quarter, we added 171,000 IP broadband subscribers, for a total of 13.7 million at September 30, 2016. Total broadband subscribers declined by 23,000 in the quarter.

At September 30, 2016, our total switched access lines were 14.6 million compared with 17.4 million at September 30, 2015. The number of U-verse voice connections (which use VoIP technology and therefore are not included in the access line total) increased by 114,000 in the quarter to reach 5.7 million at September 30, 2016, compared to 5.4 million at September 30, 2015.

Segment Summary

Business Solutions

Revenues from our Business Solutions (ABS) segment for the third quarter of 2016 were $17.8 billion, up 0.4 percent versus the year-ago quarter primarily due to growth in strategic business services and higher wireless service revenues, largely due to migrations from our Consumer Mobility segment. These revenue increases were mostly offset by continued declines in our legacy voice and data products, lower equipment revenues and foreign exchange pressures. Third-quarter 2016 ABS operating expenses totaled $13.5 billion, up 0.5 percent versus the third quarter of 2015. The ABS operating margin was 24.2 percent, compared to 24.3 percent in the year-earlier quarter with declines in higher-margin legacy services mostly offset by wireless and IP revenue growth and cost efficiencies.

We had approximately 79.4 million business wireless subscribers at September 30, 2016, compared to 71.6 million at September 30, 2015. During the third quarter of 2016, business wireless net adds for connected devices were 1.3 million and postpaid net adds were 191,000. Postpaid business wireless subscriber churn was 0.97 percent, compared to 1.05 percent in the year-ago quarter.

During the third quarter of 2016, we added 15,000 high-speed Internet business subscribers, bringing total business IP broadband to 963,000 subscribers. Total business broadband connections had a loss of 18,000 subscribers in the quarter.

Entertainment Group

Our Entertainment Group (Entertainment) segment includes the results of the U.S. satellite-based DIRECTV operations as well as broadband and wired voice services to domestic residential customers. Entertainment revenues for the third quarter of 2016 were $12.7 billion, up 17.1 percent versus the year-ago quarter due to the acquisition of DIRECTV as well as strong growth in consumer IP broadband. Revenues from legacy voice and data products continue to decline. Third-quarter 2016 Entertainment operating expenses totaled $11.2 billion compared to $9.8 billion in the third quarter of 2015, largely due to the acquisition of DIRECTV and higher content costs. The Entertainment operating margin was 11.7 percent, compared to 9.4 percent in the year-earlier quarter with satellite video and IP revenue growth and cost efficiencies offsetting programming content cost pressure and declines in legacy services.

At September 30, 2016, Entertainment had approximately 51.0 million revenue connections, compared to 52.6 million at September 30, 2015, which included:

-- Approximately 25.3 million video connections at September 30, 2016, compared to 25.4 million at September 30, 2015. During the third quarter of 2016, we added 323,000 satellite subscribers; however, U-verse subscribers declined 326,000 as we focused on profitability and increasingly emphasized satellite sales, including U-verse subscribers choosing to switch to satellite. At September 30, 2016, more than 80 percent of our domestic video subscribers are on the DIRECTV platform.

-- Approximately 14.2 million broadband connections at September 30, 2016, compared to 14.3 million at September 30, 2015. During the third quarter, we added 156,000 IP broadband subscribers, for a total of 12.8 million at September 30, 2016. Total broadband subscribers declined 5,000 in the quarter.

-- Approximately 11.5 million wired voice connections at September 30, 2016, compared to 12.9 million at September 30, 2015. Voice connections include switched access lines and VoIP connections.

Consumer Mobility

Revenues from our Consumer Mobility segment, which consist of consumer, wholesale and resale subscribers located in the U.S., for the third quarter of 2016 were $8.3 billion, down 5.9 percent versus the year-ago quarter, reflecting a $632 million decline in postpaid service revenues due to the popularity of Mobile Share plans, migrations of customers to our ABS segment and lower equipment revenues, reflecting lower smartphone upgrade volumes and an increase in BYOD. This decline was partially offset by an increase of $250 million in prepaid service revenues. Third-quarter 2016 Consumer Mobility operating expenses totaled $5.7 billion, down 5.7 percent versus the third quarter of 2015 reflecting lower equipment and commission costs as well as increased operational efficiencies. The Consumer Mobility operating margin was 31.1 percent, compared to 31.2 percent in the year-earlier quarter with the pressure from customers choosing our lower service rate Mobile Share plans offset by lower volumes, fewer subsidized sales and cost efficiencies.

We had approximately 53.9 million Consumer Mobility subscribers at September 30, 2016, compared to 54.8 million at September 30, 2015. During the third quarter of 2016, we had branded net adds of 325,000 (prepaid net adds were 304,000 and consumer postpaid net adds were 21,000). Consumer reseller had a net loss of 316,000. Our business wireless offerings allow for individual subscribers to purchase wireless services through employer-sponsored plans for a reduced price. The migration of these subscribers to the ABS segment negatively impacted Consumer postpaid subscriber and service revenues growth.

Total customer churn of Consumer Mobility subscribers was 2.11 percent versus 1.90 percent in the third quarter of 2015, including postpaid churn of 1.19 percent, compared to 1.33 percent in the year-ago quarter.

International

Our International segment consists of the Latin American operations acquired in our July 2015 acquisition of DIRECTV as well as the Mexican wireless operations acquired earlier in 2015. Third quarter 2016 operating revenues were $1.9 billion, up 23.1 percent versus the prior year, with $1.3 billion attributable to video services in Latin America and $582 million of wireless revenues in Mexico. Our international segment revenues reflect foreign exchange pressures in our DIRECTV Latin America and Mexican wireless results. Operating expenses were $1.9 billion compared to $1.6 billion in the third quarter of 2015, largely due to our acquisition of DIRECTV. The International operating margin was (2.9) percent, compared to (5.4) percent in the year-earlier quarter.

At September 30, 2016, we had approximately 10.7 million wireless subscribers in Mexico and 12.5 million video connections in Latin America, including 5.3 million in Brazil. During the third quarter of 2016, our Mexico wireless business had net adds of 743,000 subscribers and our Latin America video connections declined by 48,000.

Supplemental Discussion

As a supplemental discussion of our operating results, for comparison purposes, we are providing a view of our combined AT&T Mobility operations (domestic only). AT&T Mobility revenues for the third quarter of 2016 were $18.2 billion, down 0.7 percent versus the third quarter of 2015, and AT&T Mobility’s operating income margin was 29.6 percent compared to 29.6 percent in the year-ago quarter reflecting continuing adoption of AT&T Next, an increase in BYOD customers, lower smartphone upgrade volumes and continued efforts to drive operating costs out of the business.

For the quarter ended September 30, 2016, postpaid phone-only ARPU decreased 1.9 percent versus the year-earlier quarter and 0.3 percent sequentially. Postpaid phone-only ARPU plus AT&T Next increased 1.7 percent versus the year earlier quarter and was flat sequentially.

Postpaid churn was 1.05 percent, compared to 1.16 percent in the year-ago. Total customer churn was 1.45 percent versus 1.33 percent in the third quarter of 2015.

Repurchases of our common stock under our previously announced share repurchase authorization by our Board of Directors totaled 6 million shares, or $247 million during the third quarter of 2016. At September 30, 2016, about 396 million shares remain available under approved share repurchase authorizations.

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this filing contains financial estimates and other forward-looking statements that are subject to risks and uncertainties. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this filing based on new information or otherwise.

Item 9.01 Financial Statements and Exhibits.

The following exhibits are filed as part of this report:

(d) Exhibits

99.1 AT&T Inc. selected financial statements and operating data.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

                                                   AT&T INC.
                                                                                                                                                                           
Date: October 22, 2016                                                                                                                                                    By: /s/ Debra L. Dial
                                                                                                                                                                          Debra L. Dial
                                                                                                                                                                          Senior Vice President and Controller
                                                                                                                                                                          ------------------------------------
                                                                                                                                                                           
AT&T Inc.                                                                                                                                                                                                                                                                                                                                                                                
Financial Data
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                    
---------------------------------------------------------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ----------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                     Consolidated Statements of Income
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions except per share amounts                                                                                                      Three Months Ended                                                                                                                                                                                        Nine Months Ended
Unaudited                                                                                                                                            September 30,                                                                           Percent                                                                                                          September 30,                                                        Percent
                                                                                                                 -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------------------------------------------------
                                                              2016           2015                       Change                              2016            2015            Change           
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- --------------------- ---------- -------------------- -------------------- -------------------- -------------------- --------------------
Operating Revenues
  Service                                                                                                      $     37,272                                         $     35,539                                                            4.9                      %                                                            $    111,515                       $     94,042                                                           18.6                      %
  Equipment                                                                     3,618          3,552                                         1.9                      %                                               10,430          10,640                     -2.0                      %
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
    Total Operating Revenues                                                   40,890         39,091                                         4.6                      %                                              121,945         104,682                     16.5                      %
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
Operating Expenses
   Cost of services and sales
    Equipment                                                                                                         4,455                                                4,501                                                           -1.0                      %                                                                  13,090                                                13,400                                                           -2.3                      %
    Broadcast, programming and operations                                                                             4,909                                                4,081                                                           20.3                      %                                                                  14,239                                                 6,351                                                              -                      %
                                                                                                                      9,526                                                9,214                                                            3.4                      %                                                                  28,436                                                27,604                                                            3.0                      %
    Other cost of services (exclusive of depreciation and amortization
    shown separately below)
   Selling, general and administrative                                                                                9,013                                                9,107                                                           -1.0                      %                                                                  26,363                                                24,535                                                            7.5                      %
   Depreciation and amortization                                                6,579          6,265                                         5.0                      %                                               19,718          15,539                     26.9                      %
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
    Total Operating Expenses                                                   34,482         33,168                                         4.0                      %                                              101,846          87,429                     16.5                      %
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
Operating Income                                                                6,408          5,923                                         8.2                      %                                               20,099          17,253                     16.5                      %
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
Interest Expense                                                                                                      1,224                                                1,146                                                            6.8                      %                                                                   3,689                                                 2,977                                                           23.9                      %
Equity in Net Income of Affiliates                                                                                       16                                                   15                                                            6.7                      %                                                                      57                                                    48                                                           18.8                      %
Other Income (Expense) - Net                                                       (7 )                             (57 )                                                         87.7                      %                                                  154              61                        -                      %
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
Income Before Income Taxes                                                                                            5,193                                                4,735                                                            9.7                      %                                                                  16,621                                                14,385                                                           15.5                      %
Income Tax Expense                                                              1,775          1,657                                         7.1                      %                                                5,803           4,784                     21.3                      %
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
Net Income                                                                      3,418          3,078                                        11.0                      %                                               10,818           9,601                     12.7                      %
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
                                                                                  (90 )                             (84 )                                                         -7.1                      %                                                 (279 )                             (262 )                                      -6.5                      %
 Less: Net Income Attributable to Noncontrolling Interest
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------                                                                                                          -------------------- ---------- -------------------- --------------------- ---------- -------------------- --------------------
Net Income Attributable to AT&T                                                             $      3,328                      $      2,994                                        11.2                      %                                                            $     10,539                       $      9,339                     12.8                      %
====================================================================== ==================== ==================== ========== ==================== ==================== ========== ====================                                                                                                          ==================== ========== ==================== ===================== ========== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
Basic Earnings Per Share Attributable to AT&T                                                                  $       0.54                                         $       0.50                                                            8.0                      %                                                            $       1.70                                          $       1.71                                                           -0.6                      %
                                                                                                                      6,168                                                5,924                                                            4.1                      %                                                                   6,171                                                 5,447                                                           13.3                      %
   Weighted Average Common Shares Outstanding (000,000)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
Diluted Earnings Per Share Attributable to AT&T                                                                $       0.54                                         $       0.50                                                            8.0                      %                                                            $       1.70                                          $       1.71                                                           -0.6                      %
                                                                                6,189          5,943                      4.1   %                                                6,191           5,463                     13.3   %
   Weighted Average Common Shares Outstanding with Dilution (000,000)
---------------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- ----------------------------------------  -------------------- ---------- -------------------- --------------------- ---------- -------------------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
AT&T Inc.                                                                                                                
Financial Data
                                                                                                                                                                                      
                                                                    
---------------------------------------------------------------- -------------------- -------------------- ---------------------------------------------------- -------------------- --------------------------------
                                                                                             Consolidated Balance Sheets
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions
Unaudited                                                                                                              Sep. 30,                                                                  Dec. 31,
                                                     2016             2015     
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Assets
Current Assets
Cash and cash equivalents                                                                                $      5,895                                                              $      5,121
Accounts receivable - net of allowances for doubtful accounts of                                               16,855                                                                    16,532
$650 and $704
Prepaid expenses                                                                                                1,333                                                                     1,072
Other current assets                                                     13,291           13,267  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Total current assets                                                     37,374           35,992  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Property, Plant and Equipment - Net                                                                           123,922                                                                   124,450
Goodwill                                                                                                      105,271                                                                   104,568
Licenses                                                                                                       94,241                                                                    93,093
Customer Lists and Relationships - Net                                                                         15,227                                                                    18,208
Other Intangible Assets - Net                                                                                   8,734                                                                     9,409
Investments in Equity Affiliates                                                                                1,679                                                                     1,606
Other Assets                                                             16,527           15,346  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Total Assets                                                                          $    402,975                        $    402,672  
================================================================ ==================== ==================== ========== ==================== ==================== ==================== ========== ====================
                                                                                                                                                                                      
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year                                                                            $      7,982                                                              $      7,636
Accounts payable and accrued liabilities                                                                       28,849                                                                    30,372
Advanced billing and customer deposits                                                                          4,637                                                                     4,682
Accrued taxes                                                                                                   2,686                                                                     2,176
Dividends payable                                                         2,948            2,950  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Total current liabilities                                                47,102           47,816  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Long-Term Debt                                                          117,239          118,515  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes                                                                                          59,649                                                                    56,181
Postemployment benefit obligation                                                                              33,483                                                                    34,262
Other noncurrent liabilities                                             20,899           22,258  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Total deferred credits and other noncurrent liabilities                 114,031          112,701  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Stockholders’ Equity
Common stock                                                                                                    6,495                                                                     6,495
Additional paid-in capital                                                                                     89,536                                                                    89,763
Retained earnings                                                                                              35,319                                                                    33,671
Treasury stock                                                                                                (12,589 )                                                                 (12,592 )
Accumulated other comprehensive income                                                                          4,850                                                                     5,334
Noncontrolling interest                                                     992              969  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Total stockholders’ equity                                              124,603          123,640  
---------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Total Liabilities and Stockholders’ Equity                                            $    402,975                        $    402,672  
================================================================ ==================== ==================== ========== ==================== ==================== ==================== ========== ====================
                                                                                                                                                                                      
AT&T Inc.                                                                                                             
Financial Data
                                                                                                                                                                
                                                                 
--------------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- --------------------------------
                                                                             Consolidated Statements of Cash Flows
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                                            Nine Months Ended
Unaudited                                                                                                                           September 30,
                                                                                     ----------------------------------------------------------------------------------------------------------
                                                  2016             2015     
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Operating Activities
Net income                                                                         $     10,818                                                              $      9,601
Adjustments to reconcile net income to net cash provided by
operating activities:
   Depreciation and amortization                                                         19,718                                                                    15,539
   Undistributed earnings from investments in equity affiliates                             (22 )                                                                     (36 )
   Provision for uncollectible accounts                                                   1,036                                                                       895
   Deferred income tax expense                                                            3,011                                                                     1,539
   Net gain from sale of investments, net of impairments                                    (88 )                                                                     (46 )
Changes in operating assets and liabilities:
   Accounts receivable                                                                   (1,108 )                                                                     737
   Other current assets                                                                   1,805                                                                       546
   Accounts payable and accrued liabilities                                              (1,173 )                                                                   1,332
   Equipment installment plan receivables and securitizations                               207                                                                    (1,682 )
   Deferred fulfillment costs                                                            (1,883 )                                                                    (884 )
Retirement benefit funding                                                                 (770 )                                                                    (595 )
Other - net                                                           (2,349 )                              (251 )
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Total adjustments                                                     18,384           17,094  
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Net Cash Provided by Operating Activities                             29,202           26,695  
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                
Investing Activities
Capital expenditures:
   Purchase of property and equipment                                                   (15,283 )                                                                 (13,356 )
   Interest during construction                                                            (669 )                                                                    (566 )
Acquisitions, net of cash acquired                                                       (2,922 )                                                                 (30,694 )
Dispositions                                                                                184                                                                        79
Sales of securities, net                                                 501            1,490  
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Net Cash Used in Investing Activities                                (18,189 )                           (43,047 )
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                
Financing Activities
Net change in short-term borrowings with original maturities of                               -                                                                        (1 )
three months or less
Issuance of long-term debt                                                               10,140                                                                    33,967
Repayment of long-term debt                                                             (10,688 )                                                                  (9,962 )
Purchase of treasury stock                                                                 (444 )                                                                       -
Issuance of treasury stock (excluding acquisition of DIRECTV)                               137                                                                       133
Dividends paid                                                                           (8,850 )                                                                  (7,311 )
Other                                                                   (534 )                            (2,875 )
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Net Cash (Used in) Provided by Financing Activities                  (10,239 )                            13,951  
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Net increase (decrease) in cash and cash equivalents                                        774                                                                    (2,401 )
Cash and cash equivalents beginning of year                            5,121            8,603  
--------------------------------------------------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- --------------------
Cash and Cash Equivalents End of Period                                            $      5,895                        $      6,202  
=============================================================== ==================== ========== ==================== ==================== ==================== ========== ====================
                                                                                                                                                                           
AT&T Inc.                                                                                                                                                                                                                                                                                                            
Consolidated Supplementary Data
                                                                                                                                                                                                                                                                                                                                                                                                     
                                                                                                        
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
                                                                                                                                                                                              Supplementary Financial Data
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions except per share amounts                                                            Three Months Ended                                                                                                                                                          Nine Months Ended
Unaudited                                                                                                  September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                                       -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                                       2016           2015            Change                    2016           2015            Change         
------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Capital expenditures
   Purchase of property and equipment                                $      5,581                                         $      5,028                                                           11.0                      %                                       $     15,283                                         $     13,356                                                           14.4           %
   Interest during construction                                      $        232                                         $        227                                                            2.2                      %                                       $        669                                         $        566                                                           18.2           %
                                                                                                                                                                                                                                                                                                                                                                                                     
Dividends Declared per Share                                         $       0.48                                         $       0.47                                                            2.1                      %                                       $       1.44                                         $       1.41                                                            2.1           %
                                                                                                                                                                                                                                                                                                                                                                                                     
End of Period Common Shares Outstanding (000,000)                                                                                                                                                                                                                         6,141                                                6,152                                                           -0.2           %
Debt Ratio                                                                                                                                                                                                                                                                 50.1 %                                               50.8 %                                                          -70                   BP
Total Employees                                                                              273,140        281,240                     -2.9           %
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                     
                                                                                                                                                                                                                                                                                                                                                                                                     
                                                                                                        
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
           Supplementary Operating Data                                                                                    
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
Subscribers and connections in thousands
Unaudited                                                                                                                                                                                                                                                                                                September 30,                                                                Percent
                                                                                                                                                                                                                                                                     -------------------------------------------------------------------------------------
                                                                             2016           2015            Change         
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Wireless Subscribers
   Domestic                                                                                                                                                                                                                                                             133,338                                              126,406                                                            5.5           %
   Mexico                                                                                     10,698          8,091                     32.2           %
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Wireless Subscribers                                                                   144,036        134,497                      7.1           %
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                     
Total Branded Wireless Subscribers                                                                                                                                                                                                                                      100,821                                               95,305                                                            5.8           %
                                                                                                                                                                                                                                                                                                                                                                                                     
Video Connections
   Domestic                                                                                                                                                                                                                                                              25,321                                               25,450                                                           -0.5           %
   PanAmericana                                                                                                                                                                                                                                                           7,139                                                7,006                                                            1.9           %
   Brazil                                                                                      5,337          5,538                     -3.6           %
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Video Connections                                                                       37,797         37,994                     -0.5           %
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                     
Broadband Connections
   IP                                                                                                                                                                                                                                                                    13,715                                               13,076                                                            4.9           %
   DSL                                                                                         1,903          2,756                    -31.0           %
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Broadband Connections                                                                   15,618         15,832                     -1.4           %
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                     
Voice Connections
   Network Access Lines                                                                                                                                                                                                                                                  14,603                                               17,352                                                          -15.8           %
   U-verse VoIP Connections                                                                    5,707          5,443                      4.9           %
------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Retail Consumer Voice Connections                                                       20,310         22,795                    -10.9           %
================================================= ==================== ==================================================== ==================================================== ==================== ==================== ==================== ==================== ========== ==================== ==================== ========== ==================== ==================== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                                     
                                                                                                                                                                                                                                                                                                                                                                                                     
                                                                                                                                                                                                                                                                                                                                                                                                     
                                                                                                                                                                                                                                                                                                                                                                                                     
                                                                                                        Three Months Ended                                                                                                                                                                             Nine Months Ended
                                                                                                           September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                                       -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                                       2016           2015            Change                    2016           2015            Change         
------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Wireless Net Additions
   Domestic                                                                 1,532                                                2,513                                                          -39.0                      %                                              4,674                                                5,825                                                          -19.8           %
   Mexico                                                  743           (231 )                                         -                      %                                              2,014           (689 )                                         -           %
------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                                     ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Wireless Net Additions                             2,275          2,282                     -0.3                      %                                              6,688          5,136                     30.2           %
------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                                     ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                     
Total Branded Wireless Net Additions                                        1,285                                                  125                                                              -                      %                                              3,881                                                1,405                                                              -           %
                                                                                                                                                                                                                                                                                                                                                                                                     
Video Net Additions
   Domestic                                                                    (2 )                                                (65 )                                                         96.9                      %                                               (103 )                                                (37 )                                                            -           %
   PanAmericana                                                               (36 )                                                 16                                                              -                      %                                                 73                                                   16                                                              -           %
   Brazil                                                  (12 )                            (129 )                                      90.7                      %                                               (107 )                            (129 )                                      17.1           %
------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                                     ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Video Net Additions                                  (50 )                            (178 )                                      71.9                      %                                               (137 )                            (150 )                                       8.7           %
------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                                     ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                     
Broadband Net Additions
   IP                                                                         171                                                  192                                                          -10.9                      %                                                447                                                  871                                                          -48.7           %
   DSL                                                    (194 )                            (321 )                                      39.6                      %                                               (607 )                          (1,067 )                                      43.1           %
------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                                     ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Broadband Net Additions                              (23 )                            (129 )                                      82.2                      %                            (160 )                            (196 )                                      18.4           %
------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------------------------------------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                     

BUSINESS SOLUTIONS

The Business Solutions segment provides services to business customers, including multinational companies; governmental and wholesale customers; and individual subscribers who purchase wireless services through employer-sponsored plans. We provide advanced IP-based services including Virtual Private Networks (VPN); Ethernet-related products and broadband, collectively referred to as strategic business services; as well as traditional data and voice products. We utilize our wireless and wired networks (referred to as "wired" or "wireline") to provide a complete communications solution to our business customers.

                                                                                                                                                                                                    Segment Results
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                                   Three Months Ended                                                                                                                    Nine Months Ended                                   
Unaudited                                                                                                September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                                     -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                                     2016           2015            Change                    2016           2015            Change         
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Segment Operating Revenues
   Wireless service                                                $      8,049                                         $      7,732                                                            4.1                      %                                       $     23,867                                         $     23,003                                                            3.8           %
   Fixed strategic services                                               2,888                                                2,646                                                            9.1                      %                                              8,447                                                7,745                                                            9.1           %
   Legacy voice and data services                                         4,046                                                4,616                                                          -12.3                      %                                             12,567                                               14,081                                                          -10.8           %
   Other service and equipment                                              908                                                  885                                                            2.6                      %                                              2,652                                                2,585                                                            2.6           %
   Wireless equipment                                  1,876          1,813                      3.5                      %                           5,422          5,499                     -1.4           %
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
   Total Segment Operating Revenues                   17,767         17,692                      0.4                      %                          52,955         52,913                      0.1           %
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                   
Segment Operating Expenses
Operations and support expenses                                          10,925                                               10,921                                                              -                      %                                             32,584                                               32,966                                                           -1.2           %
Depreciation and amortization                          2,539          2,474                      2.6                      %                           7,568          7,276                      4.0           %
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
   Total Segment Operating Expenses                   13,464         13,395                      0.5                      %                          40,152         40,242                     -0.2           %
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Segment Operating Income                                                  4,303                                                4,297                                                            0.1                      %                                             12,803                                               12,671                                                            1.0           %
Equity in Net Income of Affiliates                         -              -                        -                      %                               -              -                        -           %
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Segment Contribution                                               $      4,303                      $      4,297                      0.1                      %                                       $     12,803                      $     12,671                      1.0           %
=============================================== ==================== ========== ==================== ==================== ========== ==================== ====================                                                                ==================== ========== ==================== ==================== ========== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                                   
Segment Operating Income Margin                         24.2             %                24.3   %                                                     24.2             %                23.9   %                                          
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                   
                                                                                                                                                                                                                                                                                                                                                                                                   
                                                                                                      
----------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
          Supplementary Operating Data                                                                                   
----------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
Subscribers and connections in thousands
Unaudited                                                                                                                                                                                                                                                                                              September 30,                                                                Percent
                                                                                                                                                                                                                                                                   -------------------------------------------------------------------------------------
                                                                           2016           2015            Change         
----------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Business Solutions Wireless Subscribers
   Postpaid/Branded                                                                                                                                                                                                                                                    50,014                                               47,414                                                            5.5           %
   Reseller                                                                                                                                                                                                                                                                58                                                   83                                                          -30.1           %
   Connected Devices                                                                        29,355         24,064                     22.0           %
----------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Business Solutions Wireless Subscribers                                               79,427         71,561                     11.0           %
----------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                   
Business Solutions IP Broadband Connections                                                    963            891                      8.1           %
=============================================== ==================== ==================================================== ==================================================== ==================== ==================== ==================== ==================== ========== ==================== ==================== ========== ==================== ==================== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                                   
                                                                                                                                                                                                                                                                                                                                                                                                   
                                                                                                                                                                                                                                                                                                                                                                                                   
                                                                                                      Three Months Ended                                                                                                                                                                             Nine Months Ended
                                                                                                         September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                                     -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                                     2016           2015            Change                    2016           2015            Change         
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Business Solutions Wireless Net Additions
   Postpaid/Branded                                                         191                                                  265                                                          -27.9                      %                                                509                                                  850                                                          -40.1           %
   Reseller                                                                   1                                                    8                                                          -87.5                      %                                                (34 )                                                 14                                                              -           %
   Connected Devices                                   1,290          1,602                    -19.5                      %                           4,067          4,104                     -0.9           %
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Business Solutions Wireless Net Additions        1,482          1,875                    -21.0                      %                           4,542          4,968                     -8.6           %
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                   
Business Solutions Wireless Postpaid Churn              0.97 %                            1.05 %                                        -8                     BP                            0.97 %                            0.95 %                                         2          BP
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                   
Business Solutions IP Broadband Net Additions             15             20                    -25.0                      %                              52             70                    -25.7           %
----------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------------------  -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                   

ENTERTAINMENT GROUP

The Entertainment Group segment provides video, internet, voice communication, and interactive and targeted advertising services to customers located in the U.S. or in U.S. territories. We utilize our copper and IP-based wired network and/or our satellite technology.

                                                                                                                                                                                                 Segment Results
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                             Three Months Ended                                                                                                                                       Nine Months Ended                                   
Unaudited                                                                                          September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                               -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                               2016           2015            Change                    2016           2015            Change         
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Segment Operating Revenues
   Video entertainment                                       $      9,026                                         $      7,162                                                           26.0                      %                                       $     26,893                                         $     11,024                                                              -           %
   High-speed internet                                              1,892                                                1,685                                                           12.3                      %                                              5,562                                                4,861                                                           14.4           %
   Legacy voice and data services                                   1,168                                                1,419                                                          -17.7                      %                                              3,725                                                4,547                                                          -18.1           %
   Other service and equipment                     634            592                      7.1                      %                           1,909          1,868                      2.2           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
   Total Segment Operating Revenues             12,720         10,858                     17.1                      %                          38,089         22,300                     70.8           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                             
Segment Operating Expenses
Operations and support expenses                                     9,728                                                8,450                                                           15.1                      %                                             28,875                                               18,222                                                           58.5           %
Depreciation and amortization                    1,504          1,389                      8.3                      %                           4,481          3,519                     27.3           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
   Total Segment Operating Expenses             11,232          9,839                     14.2                      %                          33,356         21,741                     53.4           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Segment Operating Income                                            1,488                                                1,019                                                           46.0                      %                                              4,733                                                  559                                                              -           %
Equity in Net Income (Loss) of Affiliates            -              2                        -                      %                               1            (16 )                                         -           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Segment Contribution                                         $      1,488                      $      1,021                     45.7                      %                                       $      4,734                      $        543                        -           %
========================================= ==================== ========== ==================== ==================== ========== ==================== ====================                                                                ==================== ========== ==================== ==================== ========== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                             
Segment Operating Income Margin                   11.7             %                 9.4                        %                                12.4             %                 2.5                        %                     
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                
----------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
       Supplementary Operating Data                                                                                
----------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
Subscribers and connections in thousands
Unaudited                                                                                                                                                                                                                                                                                        September 30,                                                                Percent
                                                                                                                                                                                                                                                             -------------------------------------------------------------------------------------
                                                                     2016           2015            Change         
----------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Video Connections
   Satellite                                                                                                                                                                                                                                                     20,777                                               19,570                                                            6.2           %
   U-verse                                                                             4,515          5,854                    -22.9           %
----------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Video Connections                                                               25,292         25,424                     -0.5           %
----------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                             
Broadband Connections                                                                                                                               `
   IP                                                                                                                                                                                                                                                            12,752                                               12,185                                                            4.7           %
   DSL                                                                                 1,424          2,137                    -33.4           %
----------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Broadband Connections                                                           14,176         14,322                     -1.0           %
----------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                             
Voice Connections
   Retail Consumer Switched Access Lines                                                                                                                                                                                                                          6,155                                                7,675                                                          -19.8           %
   U-verse Consumer VoIP Connections                                                                                         5,378          5,216                      3.1           %
------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Retail Consumer Voice Connections                                               11,533         12,891                    -10.5           %
========================================= ==================== ==================================================== ==================================================== ==================== ==================== ==================== ==================== ========== ==================== ==================== ========== ==================== ==================== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                Three Months Ended                                                                                                                                                                             Nine Months Ended
                                                                                                   September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                               -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                               2016           2015            Change                    2016           2015            Change         
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Video Net Additions
   Satellite                                                          323                                                   26                                                              -                      %                                                993                                                   26                                                              -           %
   U-verse                                        (326 )                             (92 )                                         -                      %                                             (1,099 )                             (66 )                                         -           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                                     ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Video Net Additions                           (3 )                             (66 )                                      95.5                      %                                               (106 )                             (40 )                                         -           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                                     ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                             
Broadband Net Additions
   IP                                                                 156                                                  172                                                           -9.3                      %                                                396                                                  802                                                          -50.6           %
   DSL                                            (161 )                            (278 )                                      42.1                      %                                               (506 )                            (922 )                                      45.1           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                                     ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Broadband Net Additions                       (5 )                            (106 )                                      95.3                      %                            (110 )                            (120 )                                       8.3           %
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------------------------------------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                             

CONSUMER MOBILITY

The Consumer Mobility segment provides nationwide wireless service to consumers and wholesale and resale wireless subscribers located in the U.S. or in U.S. territories. We utilize our U.S. wireless network to provide voice and data services, including high-speed internet, video, and home monitoring services.

                                                                                                                                                                           Segment Results
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                 Three Months Ended                                                                                              Nine Months Ended                        
Unaudited                                                                              September 30,                                                     Percent                                                                                               September 30,                                                     Percent
                                                              ---------------------------------------------------------------                                                                                                         ---------------------------------------------------------------
                                        2016                   2015          Change                              2016                   2015          Change         
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Segment Operating Revenues
   Service                                                  $                6,914                    $                7,363                                      -6.1                      %                                       $               20,805                    $               22,019                                      -5.5           %
   Equipment                                              1,353                  1,421                   -4.8                      %                                     3,976                  4,298                   -7.5           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- --------------------                                                                -------------------- -------------------- -------------------- -------------------- --------------------
   Total Segment Operating Revenues                       8,267                  8,784                   -5.9                      %                                    24,781                 26,317                   -5.8           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- --------------------                                                                -------------------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                
Segment Operating Expenses
Operations and support expenses                                              4,751                                     5,065                                      -6.2                      %                                                       14,343                                    15,808                                      -9.3           %
Depreciation and amortization                               944                    976                   -3.3                      %                                     2,798                  2,912                   -3.9           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- --------------------                                                                -------------------- -------------------- -------------------- -------------------- --------------------
   Total Segment Operating Expenses                       5,695                  6,041                   -5.7                      %                                    17,141                 18,720                   -8.4           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- --------------------                                                                -------------------- -------------------- -------------------- -------------------- --------------------
Segment Operating Income                                                     2,572                                     2,743                                      -6.2                      %                                                        7,640                                     7,597                                       0.6           %
Equity in Net Income of Affiliates                            -                      -                      -                      %                                         -                      -                      -           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- --------------------                                                                -------------------- -------------------- -------------------- -------------------- --------------------
Segment Contribution                                        $                2,572                    $                2,743                   -6.2                      %                                       $                7,640                    $                7,597                    0.6           %
======================================== ==================== ==================== ==================== ==================== ====================                                                                ==================== ==================== ==================== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                
Segment Operating Income Margin                            31.1           %                          31.2                      %                                          30.8           %                          28.9                      %                     
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------------------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                                                
                                                   
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
      Supplementary Operating Data                                    
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Subscribers and connections in thousands
Unaudited                                                                                                                                                                                                                                                      September 30,                                                     Percent
                                                                                                                                                                                                                                      ---------------------------------------------------------------
                                                        2016                   2015          Change         
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Consumer Mobility Subscribers
  Postpaid                                                                                                                                                                                                                                          27,374                                    29,257                                      -6.4           %
  Prepaid                                                                13,035                 10,988                   18.6           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Branded                                                                                                                                                                                                                                             40,409                    #               40,245                                       0.4           %
Reseller                                                                                                                                                                                                                                            12,566                                    13,647                                      -7.9           %
Connected Devices                                                           936                    953                   -1.8           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Total Consumer Mobility Subscribers                                      53,911                 54,845                   -1.7           %
======================================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                                                
                                                                                    Three Months Ended                                                                                                                                                       Nine Months Ended
                                                                                       September 30,                                                     Percent                                                                                               September 30,                                                     Percent
                                                              ---------------------------------------------------------------                                                                                                         ---------------------------------------------------------------
                                        2016                   2015          Change                              2016                   2015          Change         
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Consumer Mobility Net Additions
  Postpaid                                                                      21                                        23                                      -8.7                      %                                                           89                                       289                                     -69.2           %
  Prepaid                                                   304                    466                  -34.8                      %                                     1,169                    895                   30.6           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- --------------------                                                                -------------------- -------------------- -------------------- -------------------- --------------------
Branded                                                                        325                                       489                                     -33.5                      %                                                        1,258                                     1,184                                       6.3           %
Reseller                                                                     (316)                                       149                                         -                      %                                                      (1,140)                                     (218)                                         -           %
Connected Devices                                            41                      -                      -                      %                                        14                  (109)                      -           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- --------------------                                                                -------------------- -------------------- -------------------- -------------------- --------------------
Total Consumer Mobility Net Additions                        50                    638                  -92.2                      %                                       132                    857                  -84.6           %
---------------------------------------- -------------------- -------------------- -------------------- -------------------- --------------------                                                                -------------------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                
Total Churn                                                                  2.11%                                     1.90%                                        21                     BP                                                        2.06%                                     1.93%                                        13          BP
Postpaid Churn                                            1.19%                  1.33%                    -14                     BP                                     1.17%                  1.23%                     -6          BP
---------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------------------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                

INTERNATIONAL

The International segment provides entertainment services in Latin America and wireless services in Mexico. Video entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional and national wireless networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates.

                                                                                                                                                                                                  Segment Results
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                               Three Months Ended                                                                                                                    Nine Months Ended                                   
Unaudited                                                                                            September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                                 -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                                 2016           2015            Change                    2016           2015            Change         
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Segment Operating Revenues
   Video entertainment                                         $      1,297                                         $        945                                                           37.2                      %                                       $      3,649                                         $        945                                                              -           %
   Wireless service                                                     484                                                  494                                                           -2.0                      %                                              1,428                                                1,153                                                           23.9           %
   Wireless equipment                                 98             87                     12.6                      %                             297            155                     91.6           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
   Total Segment Operating Revenues                1,879          1,526                     23.1                      %                           5,374          2,253                        -           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                               
Segment Operating Expenses
Operations and support expenses                                       1,640                                                1,384                                                           18.5                      %                                              4,951                                                2,131                                                              -           %
Depreciation and amortization                        293            225                     30.2                      %                             868            346                        -           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
   Total Segment Operating Expenses                1,933          1,609                     20.1                      %                           5,819          2,477                        -           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Segment Operating Income (Loss)                                         (54 )                                                (83 )                                                         34.9                      %                                               (445 )                                               (224 )                                                        -98.7           %
Equity in Net Income (Loss) of Affiliates              1             (4 )                                         -                      %                              24             (4 )                                         -           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Segment Contribution                                           $        (53 )                                       $        (87 )                                      39.1                      %                                       $       (421 )                                       $       (228 )                                     -84.6           %
=========================================== ==================== ========== ==================== ==================== ========== ==================== ====================                                                                ==================== ========== ==================== ==================== ========== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                               
Segment Operating Income Margin                     (2.9 )                    %                          (5.4 )                                         %                                (8.3 )                              %                (9.9 )                                         %                     
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                               
                                                                                                                                                                                                                                                                                                                                                                                               
                                                                                                  
------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
        Supplementary Operating Data                                                                                 
------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
Subscribers and connections in thousands
Unaudited                                                                                                                                                                                                                                                                                          September 30,                                                                Percent
                                                                                                                                                                                                                                                               -------------------------------------------------------------------------------------
                                                                       2016           2015            Change         
------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Mexican Wireless Subscribers
   Postpaid                                                                                                                                                                                                                                                         4,733                                                4,159                                                           13.8           %
   Prepaid                                                                               5,665          3,487                     62.5           %
------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Branded                                                                                                                                                                                                                                                            10,398                                                7,646                                                           36.0           %
Reseller                                                                                   300            445                    -32.6           %
------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Mexican Wireless Subscribers                                                      10,698          8,091                     32.2           %
------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                               
Latin America Satellite Subscribers
   PanAmericana                                                                                                                                                                                                                                                     7,139                                                7,006                                                            1.9           %
   SKY Brazil                                                                            5,337          5,538                     -3.6           %
------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Latin America Satellite Subscribers                                               12,476         12,544                     -0.5           %
=========================================== ==================== ==================================================== ==================================================== ==================== ==================== ==================== ==================== ========== ==================== ==================== ========== ==================== ==================== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                               
                                                                                                                                                                                                                                                                                                                                                                                               
                                                                                                                                                                                                                                                                                                                                                                                               
                                                                                                  Three Months Ended                                                                                                                                                                             Nine Months Ended
                                                                                                     September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                                 -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                                 2016           2015            Change                    2016           2015            Change         
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Mexican Wireless Net Additions
   Postpaid                                                             163                                                   15                                                              -                      %                                                444                                                   47                                                              -           %
   Prepaid                                           606           (210 )                                         -                      %                           1,670           (677 )                                         -           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Branded                                                                 769                                                 (195 )                                                            -                      %                                              2,114                                                 (630 )                                                            -           %
Reseller                                             (26 )                             (36 )                                      27.8                      %                            (100 )                             (59 )                                     -69.5           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Mexican Wireless Net Additions                 743           (231 )                                         -                      %                           2,014           (689 )                                         -           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                               
Latin America Satellite Net Additions
   PanAmericana                                                         (36 )                                                 16                                                              -                      %                                                 73                                                   16                                                              -           %
   SKY Brazil                                        (12 )                            (129 )                                      90.7                      %                            (107 )                            (129 )                                      17.1           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total Latin America Satellite Net Additions          (48 )                            (113 )                                      57.5                      %                             (34 )                            (113 )                                      69.9           %
------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------------------------------------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                               

SUPPLEMENTAL OPERATING INFORMATION - AT&T MOBILITY

As a supplemental discussion of our operating results, for comparison purposes, we are providing a view of our combined domestic wireless operations (AT&T Mobility).

                                                                                                                                                                                                        Operating Results
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                                             Three Months Ended                                                                                                                    Nine Months Ended                                   
Unaudited                                                                                                          September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                                               -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                                               2016           2015            Change                    2016           2015            Change         
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
Operating Revenues
  Service                                                                    $     14,963                                         $     15,095                                                           -0.9                      %                                       $     44,673                                         $     45,022                                                           -0.8           %
  Equipment                                                      3,229          3,234                     -0.2                      %                           9,398          9,797                     -4.1           %
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
  Total Operating Revenues                                      18,192         18,329                     -0.7                      %                          54,071         54,819                     -1.4           %
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                             
Operating Expenses
Operations and support expenses                                                    10,696                                               10,865                                                           -1.6                      %                                             31,822                                               33,310                                                           -4.5           %
Depreciation and amortization                                    2,107          2,046                      3.0                      %                           6,244          6,082                      2.7           %
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
  Total Operating Expenses                                      12,803         12,911                     -0.8                      %                          38,066         39,392                     -3.4           %
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Operating Income                                                                    5,389                                                5,418                                                           -0.5                      %                                             16,005                                               15,427                                                            3.7           %
Equity in Net Income of Affiliates                                   -              -                        -                      %                               -              -                        -           %
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Operating Contribution                                                       $      5,389                      $      5,418                     -0.5                      %                                       $     16,005                      $     15,427                      3.7           %
========================================================= ==================== ========== ==================== ==================== ========== ==================== ====================                                                                ==================== ========== ==================== ==================== ========== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                                             
Operating Income Margin                                           29.6             %                29.6   %                                                     29.6             %                28.1   %                                          
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------------------------------------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                                
--------------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
               Supplementary Operating Data                                                                                        
--------------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- --------------------
Subscribers and connections in thousands
Unaudited                                                                                                                                                                                                                                                                                                        September 30,                                                                Percent
                                                                                                                                                                                                                                                                             -------------------------------------------------------------------------------------
                                                                                     2016           2015            Change         
--------------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
AT&T Mobility Subscribers
  Postpaid                                                                                                                                                                                                                                                                       77,388                                               76,671                                                            0.9           %
  Prepaid                                                                                             13,035         10,988                     18.6           %
--------------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Branded                                                                                                                                                                                                                                                                          90,423                                         #     87,659                                                            3.2           %
Reseller                                                                                                                                                                                                                                                                         12,624                                               13,729                                                           -8.0           %
Connected Devices                                                                                     30,291         25,018                     21.1           %
--------------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total AT&T Mobility Subscribers                                                                      133,338        126,406                      5.5           %
--------------------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                             
Domestic Licensed POPs (000,000)                                                                         323            321                      0.6           %
========================================================= ==================== ==================================================== ==================================================== ==================== ==================== ==================== ==================== ========== ==================== ==================== ========== ==================== ==================== ==================== ====================
                                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                                                                                                                                                                                                                                                                                                                             
                                                                                                                Three Months Ended                                                                                                                                                                             Nine Months Ended
                                                                                                                   September 30,                                                                Percent                                                                                                          September 30,                                                                Percent
                                                                               -------------------------------------------------------------------------------------                                                                                                         -------------------------------------------------------------------------------------
                                               2016           2015            Change                    2016           2015            Change         
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
AT&T Mobility Net Additions
  Postpaid                                                                            212                                                  289                                                          -26.6                      %                                                598                                                1,140                                                          -47.5           %
  Prepaid                                                          304            466                    -34.8                      %                           1,169            895                     30.6           %
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Branded                                                                               516                                                  755                                                          -31.7                      %                                              1,767                                         #      2,035                                                          -13.2           %
Reseller                                                                             (315 )                                                156                                                              -                      %                                             (1,174 )                                               (205 )                                                            -           %
Connected Devices                                                1,331          1,602                    -16.9                      %                           4,081          3,995                      2.2           %
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
Total AT&T Mobility Net Additions                                1,532          2,513                    -39.0                      %                           4,674                      #      5,825                    -19.8           %
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------                                                                -------------------- ---------- -------------------- -------------------- ---------- -------------------- --------------------
M&A Activity, Partitioned Customers and Other Adjustments                               1                                                   (9 )                                                            -                      %                                                 24                                                   27                                                          -11.1           %
                                                                                                                                                                                                                                                                                                                                                                                                             
Total Churn                                                                          1.45 %                                               1.33 %                                                           12                     BP                                               1.41 %                                               1.35 %                                                            6          BP
Postpaid Churn                                                    1.05 %                            1.16 %                                       -11                     BP                            1.04 %                            1.06 %                                        -2          BP
--------------------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------------------------------------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                             
SUPPLEMENTAL SEGMENT RECONCILIATION
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                    
                                                                                                                              
------------------------- -------------------- ---------------------------------------------------- -------------------- --------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------- -------------------- -------------------- ----------------------------------------------------- -------------------- -------------------------------------------------------------- -------------------- --------------------------------
                                                                                                                                                                                                                                     Three Months Ended
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions
Unaudited
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
September 30, 2016                                                                                                                                                  
------------------------- ------------------------------------------------------------------------- -------------------- --------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------- -------------------- -------------------- ----------------------------------------------------- -------------------- -------------------------------------------------------------- -------------------- --------------------------------
                     Revenues                   Operations and Support Expenses                                       EBITDA                  Depreciation and Amortization                            Operating Income (Loss)                             Equity in Net Income (Loss) of Affiliates                             Segment Contribution
------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------------------------------------------------------------------------------------------------------------- -------------------- ----------------------------- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Business Solutions                           $     17,767                                                              $          10,925                                                              $      6,842                                                              $                         2,539                                         $       4,303                                                              $                    -                                                              $      4,303
Entertainment Group                                12,720                                                                          9,728                                                                     2,992                                                                                        1,504                                                 1,488                                                                                   -                                                                     1,488
Consumer Mobility                                   8,267                                                                          4,751                                                                     3,516                                                                                          944                                                 2,572                                                                                   -                                                                     2,572
International                    1,879                 1,640              239                                 293             (54 )                                           1              (53 )
------------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- --------------------
Segment Total                   40,633                27,044           13,589                               5,280           8,309                        $                    1                        $      8,310  
========================= ==================== ========== ==================== ==================== ==================== =============== ==================== ==================== ==================== ========== ==================== ==================== ==================== ============================= ==================== ==================== =========== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ========== ====================
Corporate and Other                                   270                                                                            270                                                                         -                                                                                           17                                                   (17 )
Acquisition-related items                               -                                                                            290                                                                      (290 )                                                                                      1,282                                                (1,572 )
Certain Significant items          (13 )                                    299             (312 )                                                    -            (312 )
------------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------- -------------------- -------------------- ----------- --------------------
AT&T Inc.                                    $     40,890                        $          27,903                        $     12,987                        $                         6,579                      $       6,408  
========================= ==================== ========== ==================== ==================== ==================== =============== ==================== ==================== ==================== ========== ==================== ==================== ==================== ============================= ==================== ==================== =========== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
September 30, 2015                                                                                                                               
------------------------- -------------------- ---------------------------------------------------- -------------------- --------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------- -------------------- -------------------- ----------------------------------------------------- -------------------- -------------------------------------------------------------- -------------------- --------------------------------
                               Revenues                            Operations and Support Expenses                                       EBITDA                  Depreciation and Amortization                            Operating Income (Loss)                             Equity in Net Income (Loss) of Affiliates                             Segment Contribution
------------------------- -------------------- ------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- -------------------- ----------------------------- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Business Solutions                           $     17,692                                                              $          10,921                                                              $      6,771                                                              $                         2,474                                         $       4,297                                                              $                    -                                                              $      4,297
Entertainment Group                                10,858                                                                          8,450                                                                     2,408                                                                                        1,389                                                 1,019                                                                                   2                                                                     1,021
Consumer Mobility                                   8,784                                                                          5,065                                                                     3,719                                                                                          976                                                 2,743                                                                                   -                                                                     2,743
International                    1,526                 1,384              142                                 225             (83 )                                          (4 )                               (87 )
------------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- --------------------
Segment Total                   38,860                25,820           13,040                               5,064           7,976                        $                   (2 )                                         $      7,974  
========================= ==================== ========== ==================== ==================== ==================== =============== ==================== ==================== ==================== ========== ==================== ==================== ==================== ============================= ==================== ==================== =========== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ========== ====================
Corporate and Other                                   316                                                                            315                                                                         1                                                                                            3                                                    (2 )
Acquisition-related items                             (85 )                                                                          611                                                                      (696 )                                                                                      1,198                                                (1,894 )
Certain Significant items            -                   157             (157 )                                                    -            (157 )
------------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------- -------------------- -------------------- ----------- --------------------
AT&T Inc.                                    $     39,091                        $          26,903                        $     12,188                        $                         6,265                      $       5,923  
========================= ==================== ========== ==================== ==================== ==================== =============== ==================== ==================== ==================== ========== ==================== ==================== ==================== ============================= ==================== ==================== =========== ====================
                                                                                                                              
------------------------- -------------------- ---------------------------------------------------- -------------------- --------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------- -------------------- -------------------- ----------------------------------------------------- -------------------- -------------------------------------------------------------- -------------------- --------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                              
------------------------- -------------------- ---------------------------------------------------- -------------------- --------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------- -------------------- -------------------- ----------------------------------------------------- -------------------- -------------------------------------------------------------- -------------------- --------------------------------
     Nine Months Ended                                                                                                                           
------------------------- -------------------- ---------------------------------------------------- -------------------- --------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------- -------------------- -------------------- ----------------------------------------------------- -------------------- -------------------------------------------------------------- -------------------- --------------------------------
Dollars in millions
Unaudited
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
September 30, 2016                                                                                                                                                  
------------------------- ------------------------------------------------------------------------- -------------------- --------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------- -------------------- -------------------- ----------------------------------------------------- -------------------- -------------------------------------------------------------- -------------------- --------------------------------
                     Revenues                   Operations and Support Expenses                                       EBITDA                  Depreciation and Amortization                            Operating Income (Loss)                             Equity in Net Income (Loss) of Affiliates                             Segment Contribution
------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------------------------------------------------------------------------------------------------------------- -------------------- ----------------------------- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Business Solutions                           $     52,955                                                              $          32,584                                                              $     20,371                                                              $                         7,568                                         $      12,803                                                              $                    -                                                              $     12,803
Entertainment Group                                38,089                                                                         28,875                                                                     9,214                                                                                        4,481                                                 4,733                                                                                   1                                                                     4,734
Consumer Mobility                                  24,781                                                                         14,343                                                                    10,438                                                                                        2,798                                                 7,640                                                                                   -                                                                     7,640
International                    5,374                 4,951              423                                 868            (445 )                                          24             (421 )
------------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- --------------------
Segment Total                  121,199                80,753           40,446                              15,715          24,731                        $                   25                        $     24,756  
========================= ==================== ========== ==================== ==================== ==================== =============== ==================== ==================== ==================== ========== ==================== ==================== ==================== ============================= ==================== ==================== =========== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ========== ====================
Corporate and Other                                   759                                                                            940                                                                      (181 )                                                                                         54                                                  (235 )
Acquisition-related items                               -                                                                            818                                                                      (818 )                                                                                      3,949                                                (4,767 )
Certain Significant items          (13 )                                   (383 )                               370                                   -             370  
------------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------- -------------------- -------------------- ----------- --------------------
AT&T Inc.                                    $    121,945                        $          82,128                        $     39,817                        $                        19,718                      $      20,099  
========================= ==================== ========== ==================== ==================== ==================== =============== ==================== ==================== ==================== ========== ==================== ==================== ==================== ============================= ==================== ==================== =========== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
September 30, 2015                                                                                                                               
------------------------- -------------------- ---------------------------------------------------- -------------------- --------------------------------------------------------- -------------------- ---------------------------------------------------- -------------------- ----------------------------- -------------------- -------------------- ----------------------------------------------------- -------------------- -------------------------------------------------------------- -------------------- --------------------------------
                               Revenues                            Operations and Support Expenses                                       EBITDA                  Depreciation and Amortization                            Operating Income (Loss)                             Equity in Net Income (Loss) of Affiliates                             Segment Contribution
------------------------- -------------------- ------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- -------------------- ----------------------------- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Business Solutions                           $     52,913                                                              $          32,966                                                              $     19,947                                                              $                         7,276                                         $      12,671                                                              $                    -                                                              $     12,671
Entertainment Group                                22,300                                                                         18,222                                                                     4,078                                                                                        3,519                                                   559                                                                                 (16 )                                                                     543
Consumer Mobility                                  26,317                                                                         15,808                                                                    10,509                                                                                        2,912                                                 7,597                                                                                   -                                                                     7,597
International                    2,253                 2,131              122                                 346            (224 )                                          (4 )                              (228 )
------------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- ---------- --------------------
Segment Total                  103,783                69,127           34,656                              14,053          20,603                        $                  (20 )                                         $     20,583  
========================= ==================== ========== ==================== ==================== ==================== =============== ==================== ==================== ==================== ========== ==================== ==================== ==================== ============================= ==================== ==================== =========== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ========== ====================
Corporate and Other                                   984                                                                            785                                                                       199                                                                                           47                                                   152
Acquisition-related items                             (85 )                                                                        1,604                                                                    (1,689 )                                                                                      1,439                                                (3,128 )
Certain Significant items            -                   374             (374 )                                                    -            (374 )
------------------------- -------------------- ---------- -------------------- -------------------- -------------------- --------------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ----------------------------- -------------------- -------------------- ----------- --------------------
AT&T Inc.                                    $    104,682                        $          71,890                        $     32,792                        $                        15,539                      $      17,253  
========================= ==================== ========== ==================== ==================== ==================== =============== ==================== ==================== ==================== ========== ==================== ==================== ==================== ============================= ==================== ==================== =========== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Exhibit 99.3

Discussion and Reconciliation of Non-GAAP Measures

We believe the following measures are relevant and useful information to investors as they are part of AT&T’s internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors.

Free Cash Flow

Free cash flow is defined as cash from operations minus Capital expenditures. Free cash flow after dividends is defined as cash from operations minus Capital expenditures and dividends. Free cash flow dividend payout ratio is defined as the percentage of dividends paid to free cash flow. We believe these metrics provide useful information to our investors because management views free cash flow as an important indicator of how much cash is generated by routine business operations, including Capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

                                                                                                                   Free Cash Flow and Free Cash Flow Dividend Payout Ratio
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                           Three Months Ended                                                                           Nine Months Ended
                                                                                                                    September 30,                                                                                                             September 30,
                                                                                    -----------------------------------------------------------------------------                                          ----------------------------------------------------------------------------------
                             2016       2015          2016           2015  
----------------------------------------- -------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- -------------------- -------------------- ------- -------------------- -------------------- ---------- --------------------
Net cash provided by operating activities                                         $ 10,995                                         $ 10,797                                                              $  29,202                                         $     26,695
Less: Capital expenditures                    (5,813 )                      (5,255 )                        (15,952 )                         (13,922 )
----------------------------------------- -------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- -------------------- -------------------- ------- -------------------- -------------------- ---------- --------------------
Free Cash Flow                                 5,182      5,542        13,250         12,773  
----------------------------------------- -------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- -------------------- -------------------- ------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                                              
Less: Dividends paid                          (2,951 )                      (2,438 )                         (8,850 )                          (7,311 )
----------------------------------------- -------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- -------------------- -------------------- ------- -------------------- -------------------- ---------- --------------------
Free Cash Flow after Dividends                                 $  2,231                      $  3,104                        $   4,400                      $      5,462  
----------------------------------------- -------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- -------------------- -------------------- ------- -------------------- -------------------- ---------- --------------------
Free Cash Flow Dividend Payout Ratio            56.9 %                        44.0 %                           66.8 %                            57.2 %
========================================= ==================== ==================== ====== ==================== ==================== ====== ==================== ==================== ==================== ======= ==================== ==================== ========== ====================
                                                                                                                                                                                                                                                                         

Capital Investment

Capital Investment is a non-GAAP financial measure that adds to Capital expenditures the amount of vendor financing arrangements for capital improvements to our wireless network in Mexico. These favorable payment terms are considered vendor financing arrangements and are reported as repayments of debt instead of Capital expenditures. Management believes that Capital Investment provides relevant and useful information to investors and other users of our financial data in evaluating long-term investment in our business.

                                                                                     Capital Investment
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                 Three Months Ended                                      Nine Months Ended
                                                                September 30,                                                                       September 30,
                                          --------------------------------------------------------                     ----------------------------------------------------------------------
        2016     2015       2016                   2015
-------------------- -------------------- -------------------- ------ -------------------- ------ -------------------- -------------------- ------ -------------------- --------------------
Capital Expenditures                                         $  5,813                    $  5,255                                         $ 15,952                    $               13,922
Vendor Financing             87        -        225                      -
-------------------- -------------------- -------------------- ------ -------------------- ------ -------------------- -------------------- ------ -------------------- --------------------
Capital Investment                        $  5,900                    $  5,255                      $ 16,177                    $               13,922
==================== ==================== ==================== ====== ==================== ====== ==================== ==================== ====== ==================== ====================
                                                                                                                                                                         

EBITDA

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) - net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).

EBITDA service margin is calculated as EBITDA divided by service revenues.

When discussing our segment results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from segment contribution. For our supplemental presentation of our combined domestic wireless operations (AT&T Mobility), EBITDA excludes depreciation and amortization from Operating Income.

These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T’s ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing segment performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which segment managers are responsible and upon which we evaluate their performance.

We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Consumer Mobility segment operating margin and our supplemental AT&T Mobility operating margin. For the periods covered by this report, we subsidized a portion of some of our wireless handset sales, which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.

There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

                                                                                                                      EBITDA, EBITDA Margin and EBITDA Service Margin
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                                  Three Months Ended                                                                                     Nine Months Ended
                                                                                                        September 30,                                                                                                                       September 30,
                                                             --------------------------------------------------------------------------------------------------                                          ----------------------------------------------------------------------------------
                         2016       2015            2016           2015  
--------------------------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- -------------------- -------------------- -------------------- ------- -------------------- -------------------- ---------- --------------------
Net Income                                                 $  3,418                                         $  3,078                                                                                   $  10,818                                         $      9,601
Additions:
   Income Tax Expense                                         1,775                                            1,657                                                                                       5,803                                                4,784
   Interest Expense                                           1,224                                            1,146                                                                                       3,689                                                2,977
   Equity in Net (Income) of Affiliates                         (16 )                                            (15 )                                                                                       (57 )                                                (48 )
   Other (Income) Expense - Net                                   7                                               57                                                                                        (154 )                                                (61 )
   Depreciation and amortization           6,579      6,265          19,718         15,539  
--------------------------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- -------------------- -------------------- -------------------- ------- -------------------- -------------------- ---------- --------------------
EBITDA                                    12,987     12,188          39,817         32,792  
--------------------------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- -------------------- -------------------- -------------------- ------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                                            
Total Operating Revenues                                     40,890                                           39,091                                                                                     121,945                                              104,682
Service Revenues                                             37,272                                           35,539                                                                                     111,515                                               94,042
                                                                                                                                                                                                                                                            
EBITDA Margin                                                  31.8 %                                           31.2 %                                                                                      32.7 %                                               31.3 %
EBITDA Service Margin                       34.8 %                        34.3 %                             35.7 %                            34.9 %
======================================= ==================== ====== ==================== ==================== ====== ==================== ==================== ==================== ==================== ======= ==================== ==================== ========== ====================
                                                                                                                                                                                                                                                            
                                                                                                            Segment EBITDA, EBITDA Margin and EBITDA Service Margin
====================================================================================================================================================================================================================================
Dollars in millions                                                                        Three Months Ended                                                                                 Nine Months Ended
                                                                                              September 30,                                                                                                                  September 30,
                                                          -------------------------------------------------------------------------------------                                          -------------------------------------------------------------------------------------
                          2016           2015             2016           2015  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Business Solutions Segment                                                             
------------------------------------ -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
Segment Contribution                                    $      4,303                                         $      4,297                                                              $     12,803                                         $     12,671
Additions:
Depreciation and amortization               2,539          2,474            7,568          7,276  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
EBITDA                                      6,842          6,771           20,371         19,947  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                               
Total Segment Operating Revenues                              17,767                                               17,692                                                                    52,955                                               52,913
                                                                                                                                                                                                                                               
Segment Operating Income Margin                                 24.2 %                                               24.3 %                                                                    24.2 %                                               23.9 %
EBITDA Margin                                                   38.5 %                                               38.3 %                                                                    38.5 %                                               37.7 %
                                                                    
------------------------------------ -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
Entertainment Group Segment                                                            
------------------------------------ -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
Segment Contribution                                    $      1,488                                         $      1,021                                                              $      4,734                                         $        543
Additions:
Equity in Net (Income) of Affiliates                               -                                                   (2 )                                                                      (1 )                                                 16
Depreciation and amortization               1,504          1,389            4,481          3,519  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
EBITDA                                      2,992          2,408            9,214          4,078  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                               
Total Segment Operating Revenues                              12,720                                               10,858                                                                    38,089                                               22,300
                                                                                                                                                                                                                                               
Segment Operating Income Margin                                 11.7 %                                                9.4 %                                                                    12.4 %                                                2.5 %
EBITDA Margin                                                   23.5 %                                               22.2 %                                                                    24.2 %                                               18.3 %
                                                                    
------------------------------------ -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
Consumer Mobility Segment                                                              
------------------------------------ -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
Segment Contribution                                    $      2,572                                         $      2,743                                                              $      7,640                                         $      7,597
Additions:
Depreciation and amortization                 944            976            2,798          2,912  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
EBITDA                                      3,516          3,719           10,438         10,509  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                               
Total Segment Operating Revenues                               8,267                                                8,784                                                                    24,781                                               26,317
Service Revenues                                               6,914                                                7,363                                                                    20,805                                               22,019
                                                                                                                                                                                                                                               
Segment Operating Income Margin                                 31.1 %                                               31.2 %                                                                    30.8 %                                               28.9 %
EBITDA Margin                                                   42.5 %                                               42.3 %                                                                    42.1 %                                               39.9 %
EBITDA Service Margin                                           50.9 %                                               50.5 %                                                                    50.2 %                                               47.7 %
                                                                    
------------------------------------ -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
International Segment                                                                  
------------------------------------ -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
Segment Contribution                                    $        (53 )                                       $        (87 )                                                            $       (421 )                                       $       (228 )
Additions:
Equity in Net (Income) of Affiliates                              (1 )                                                  4                                                                       (24 )                                                  4
Depreciation and amortization                 293            225              868            346  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
EBITDA                                        239            142              423            122  
------------------------------------ -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                               
Total Segment Operating Revenues                               1,879                                                1,526                                                                     5,374                                                2,253
                                                                                                                                                                                                                                               
Segment Operating Income Margin                                 -2.9 %                                               -5.4 %                                                                    -8.3 %                                               -9.9 %
EBITDA Margin                                12.7 %                             9.3 %                               7.9 %                             5.4 %
==================================== ==================== ========== ==================== ==================== ========== ==================== ==================== ==================== ========== ==================== ==================== ========== ====================
                                                                                                                                                                                                                                               
                                                                                                          Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA
                                                                                                                                Service Margin
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                                    Three Months Ended                                                                                         Nine Months Ended
                                                                                                          September 30,                                                                                                       September 30,
                                                           ----------------------------------------------------------------------------------------------------------                     -------------------------------------------------------------------------------------
                           2016           2015             2016           2015  
------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
AT&T Mobility                                                                           
------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
Operating Contribution                                   $      5,389                                         $      5,418                                                              $     16,005                                         $     15,427
   Add: Depreciation and amortization        2,107          2,046            6,244          6,082  
------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
EBITDA                                       7,496          7,464           22,249         21,509  
------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                                
Total Segment Operating Revenues                               18,192                                               18,329                                                                    54,071                                               54,819
Service Revenues                                               14,963                                               15,095                                                                    44,673                                               45,022
                                                                                                                                                                                                                                                
Segment Operating Income Margin                                  29.6 %                                               29.6 %                                                                    29.6 %                                               28.1 %
EBITDA Margin                                                    41.2 %                                               40.7 %                                                                    41.1 %                                               39.2 %
EBITDA Service Margin                         50.1 %                            49.4 %                              49.8 %                            47.8 %
===================================== ==================== ========== ==================== ==================== ========== ==================== ==================== ==================== ========== ==================== ==================== ========== ====================
                                                                                                                                                                                                                                                

Adjusting Items

Adjusting items include revenues and costs we consider nonoperational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often significant impact on our fourth-quarter results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses.) Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.

The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for (1) adjustments related to Mexico operations, which are taxed at the 30% marginal rate for Mexico and (2) adjustments that, given their magnitude can drive a change in the effective tax rate, reflect the actual tax expense or combined marginal rate of approximately 38%.

                                                                                                           Adjusting Items
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                              Three Months Ended                                                 Nine Months Ended
                                                                                                    September 30,                                                                                   September 30,
                                                                               ------------------------------------------------------                                          ------------------------------------------------------
                                          2016    2015        2016      2015
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
Operating Revenues
   Merger related deferred revenue                                           $     -                    $    85                                                              $     -                                         $    85
   Storm revenue credits                                       13       -          13         -
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
Adjustments to Operating Revenues                              13      85          13        85
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
Operating Expenses
   DIRECTV and other video merger integration costs                              189                        173                                                                  495                                             337
   Mexico merger integration costs                                                84                         42                                                                  231                                              83
   Wireless merger integration costs                                              17                        146                                                                   92                                             570
   Leap network decommissioning                                                    -                        250                                                                    -                                             614
   New cell site abandonment                                                       -                         35                                                                    -                                              35
   Storm costs                                                                    17                          -                                                                   17                                               -
   Employee separation costs                                                     260                        122                                                                  314                                             339
   (Gain) loss on transfer of wireless spectrum                22       -        (714 )                          -
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
Adjustments to Operations and Support Expenses                589     768         435     1,978
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
   Amortization of intangible assets                        1,282   1,171       3,949     1,284
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
Adjustments to Operating Expenses                           1,871   1,939       4,384     3,262
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
Other
   DIRECTV-related interest expense and exchange fees (1)                          -                         38                                                                   16                                             142
   (Gain) loss on sale of investments (2)                       -       -           4         -
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
Adjustments to Income Before Income Taxes                   1,884   2,062       4,417     3,489
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
   Tax impact of adjustments                                                     640                        705                                                                1,521                                           1,202
   Tax-related items                                            -     (34 )                            -       228
--------------------------------------------------------- -------------------- ----- -------------------- ----- -------------------- -------------------- -------------------- ----- -------------------- -------------------- -----
Adjustments to Net Income                                                    $ 1,244                    $ 1,391                        $ 2,896                      $ 2,059
========================================================= ==================== ===== ==================== ===== ==================== ==================== ==================== ===== ==================== ==================== =====

(1)Includes interest expense incurred on the debt issued prior to the close of the DIRECTV transaction and fees associated with the exchange of DIRECTV notes for AT&T notes. (2)Residual effect of previously adjusted item.

Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T’s calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.

                                                                                                              Adjusted Operating Income, Adjusted Operating Income Margin,
                                                                                                               Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA
                                                                                                                                     Service Margin
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                                  Three Months Ended                                                                                 Nine Months Ended
                                                                                                        September 30,                                                                                                                  September 30,
                                                                    -------------------------------------------------------------------------------------                                          -------------------------------------------------------------------------------------
                                    2016           2015             2016           2015  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Operating Income                                                  $      6,408                                         $      5,923                                                              $     20,099                                         $     17,253
Adjustments to Operating Revenues                                           13                                                   85                                                                        13                                                   85
Adjustments to Operating Expenses                     1,871          1,939            4,384          3,262  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Adjusted Operating Income                             8,292          7,947           24,496         20,600  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
                                                                              
---------------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- ---------------------------------------------------- --------------------------------
EBITDA                                                                  12,987                                               12,188                                                                    39,817                                               32,792
Adjustments to Operating Revenues                                           13                                                   85                                                                        13                                                   85
Adjustments to Operations and Support Expenses          589            768              435          1,978  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Adjusted EBITDA                                      13,589         13,041           40,265         34,855  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                                         
Total Operating Revenues                                                40,890                                               39,091                                                                   121,945                                              104,682
Adjustments to Operating Revenues                        13             85               13             85  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Total Adjusted Operating Revenues                    40,903         39,176          121,958        104,767  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Service Revenues                                                        37,272                                               35,539                                                                   111,515                                               94,042
Adjustments to Operating Revenues                        13             85               13             85  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Adjusted Service Revenues                            37,285         35,624          111,528         94,127  
---------------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
                                                                                                                                                                                                                                                         
Operating Income Margin                                                   15.7 %                                               15.2 %                                                                    16.5 %                                               16.5 %
Adjusted Operating Income Margin                                          20.3 %                                               20.3 %                                                                    20.1 %                                               19.7 %
Adjusted EBITDA Margin                                                    33.2 %                                               33.3 %                                                                    33.0 %                                               33.3 %
Adjusted EBITDA Service Margin                         36.4 %                            36.6 %                              36.1 %                            37.0 %
============================================== ==================== ========== ==================== ==================== ========== ==================== ==================== ==================== ========== ==================== ==================== ========== ====================
                                                                                                                                                                                                                                                         
                                                                                                                            Adjusted Diluted EPS
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Three Months Ended                                                                      Nine Months Ended
                                                                                                          September 30,                                                                                                        September 30,
                                                                              ---------------------------------------------------------------------                                          --------------------------------------------------------------------------------
                                         2016                     2015      2016           2015  
-------------------------------------------------------- -------------------- ----- -------------------- -------------------- -------------------- -------------------- -------------------- ----- -------------------- -------------------- ---------- --------------------
Diluted Earnings Per Share (EPS)                                            $  0.54                                         $                 0.50                                         $  1.70                                         $       1.71
   Amortization of intangible assets                                           0.14                                                           0.13                                            0.42                                                 0.16
   Merger integration and other costs(1)                                       0.03                                                           0.09                                            0.09                                                 0.22
   Employee separations                                                        0.03                                                           0.01                                            0.03                                                 0.04
   Gain (loss) on transfer of wireless spectrum                                   -                                                              -                                           (0.07 )                                                  -
   Tax-related items                                           -                     0.01         -          (0.04 )
-------------------------------------------------------- -------------------- ----- -------------------- -------------------- -------------------- -------------------- -------------------- ----- -------------------- -------------------- ---------- --------------------
Adjusted EPS                                                                $  0.74                      $                 0.74                      $  2.17                      $       2.09  
-------------------------------------------------------- -------------------- ----- -------------------- -------------------- -------------------- -------------------- -------------------- ----- -------------------- -------------------- ---------- --------------------
Year-over-year growth - Adjusted                             0.0 %                              3.8 %                       
-------------------------------------------------------- -------------------- ----- -------------------- -------------------- -------------------- -------------------- -------------------- ----- -------------------- -------------------- --------------------------------
Weighted Average Common Shares Outstanding with Dilution   6,189                    5,943     6,191          5,463  
(000,000)
======================================================== ==================== ===== ==================== ==================== ==================== ==================== ==================== ===== ==================== ==================== ========== ====================

(1)Includes combined merger integration costs, Leap network decommissioning, DIRECTV-related interest expense and exchange fees, abandonments and other costs.

Entertainment Group Segment

Adjusted Operating Revenues includes the external operating revenues from DIRECTV U.S. as reported in the DIRECTV Form 10-Q/A dated June 30, 2015 adjusted to (1) include operations reported in other DIRECTV operating segments that AT&T has chosen to manage in our Entertainment Group segment, (2) conform DIRECTV’s practice of recognizing revenue to be received under contractual commitments on a straight line basis over the minimum contract period to AT&T’s method of limiting the revenue recognized to the monthly amounts billed and (3) eliminate intercompany transactions from DIRECTV U.S. and the Entertainment Group segment. Adjusting Entertainment Group segment operating revenues provides for comparability between periods.

                                                                                                               Entertainment Group Adjusted Operating Revenues
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                       Three Months Ended                                                                                 Nine Months Ended
                                                                                             September 30,                                                                                                                  September 30,
                                                         -------------------------------------------------------------------------------------                                          -------------------------------------------------------------------------------------
                         2016           2015             2016           2015  
----------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Segment Operating Revenues                             $     12,720                                         $     10,858                                                              $     38,089                                         $     22,300
DIRECTV Operating Revenues(1)                                                                                      1,700                                                                                                                         14,864
Adjustments:
   Other DIRECTV operations                                                                                            -                                                                                                                            182
   Revenue recognition                                                                                                35                                                                                                                            229
   Intercompany eliminations                                 (6 )                                              (40 )
----------------------------------- -------------------- ---------------------------------------------------- ---------- -------------------- -------------------- -------------------- ---------------------------------------------------- ---------- --------------------
Adjusted Segment Operating Revenues                    $     12,720                      $     12,587                        $     38,089                      $     37,535  
----------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- --------------------
Year-over-year growth - Adjusted             1.1 %                                              1.5 %                       
=================================== ==================== ========== ==================== ==================== ==================================================== ==================== ========== ==================== ==================== ================================
(1)Includes results from July 1, 2015 through July 24, 2015
acquisition date.
                                                                                                                                               

Net Debt to Adjusted EBITDA

Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by annualized Net Debt Adjusted EBITDA. Annualized Net Debt Adjusted EBITDA excludes severance-related adjustments as described in our credit agreements. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized Adjusted EBITDA is calculated by annualizing the year-to-date Net Debt Adjusted EBITDA.

                                                                                                                                       Net Debt to Adjusted EBITDA
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions                                                                                                                                                                                         
                                                                                                                           Three Months Ended
                                                               ------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Mar. 31,                                              Jun. 30                                              Sep. 30                                                                                       YTD 2016
                               2016           2016           2016        
----------------------------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- ---------- -------------------- -------------------- -------------------- -------------------- ------------------------------
Adjusted EBITDA                                              $     13,279                                         $     13,397                                         $     13,589                                                                                   $     40,265
   Add back severance                                                 (25 )                                                (29 )                                               (260 )                                                                                         (314 )
Net Debt Adjusted EBITDA                                           13,254                                               13,368                                               13,329                                                                                         39,951
Annualized Net Debt Adjusted EBITDA                                                                                                                                                                                                                                         53,268
   End-of-period current debt                                                                                                                                                                                                                                                7,982
   End-of-period long-term debt                                                                                                                                                                                                                                            117,239
Total End-of-Period Debt                                                                                                                                                                                                                                                   125,221
   Less: Cash and Cash Equivalents                                                                                                                                                                                                                                           5,895
Net Debt Balance                                                                                119,326  
----------------------------------------- -------------------- ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- -------------------- -------------------- ---------- --------------------
Annualized Net Debt Adjusted EBITDA Ratio                                                          2.24  
========================================= ==================== ==================================================== ==================================================== ==================================================== ==================== ==================== ========== ====================
                                                                                                                                                                                                                                                                         

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20161022005016r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20161022005016/en/

SOURCE: AT&T Inc.

AT&T Corporate Communications 
Fletcher Cook, 214-757-7629 
fletcher.cook@att.com


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