Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

Consumer Wireline Results
												First Quarter
																																				Percent
																								2023						2022						Change
Operating revenues
Broadband																								$	2,527					$	2,355					7.3		%
Legacy voice and data services																								396						460						(13.9)
Other service and equipment																								316						346						(8.7)
Total Operating Revenues																								3,239						3,161						2.5
Operating expenses
Operations and support																								2,284						2,236						2.1
Depreciation and amortization																								861						766						12.4
Total Operating Expenses																								3,145						3,002						4.8
Operating Income																								$	94					$	159					(40.9)		%

The following tables highlight other key measures of performance for Consumer Wireline:

Connections
																								March 31,												Percent
(in 000s)																								2023						2022						Change
Broadband Connections
Total Broadband and DSL Connections																								13,949						14,148						(1.4)		%
Broadband																								13,730						13,850						(0.9)
Fiber Broadband Connections																								7,487						6,281						19.2
Voice Connections
Retail Consumer Switched Access Lines																								1,921						2,324						(17.3)
U-verse Consumer VoIP Connections																								2,212						2,628						(15.8)
Total Retail Consumer Voice Connections																								4,133						4,952						(16.5)		%

Broadband Net Additions
																		First Quarter
																																				Percent
(in 000s)																								2023						2022						Change
Total Broadband and DSL Net Additions																								(42)						(12)						—		%
Broadband Net Additions																								(23)						5						—
Fiber Broadband Net Additions																								272						289						(5.9)		%

Broadband revenues increased in the first quarter of 2023, driven by an increase in fiber customers, which we expect to continue as we invest further in building our fiber footprint, partially offset by declines in copper-based broadband services.

Legacy voice and data service revenues decreased in the first quarter of 2023, reflecting the continued decline in the number of customers.

Other service and equipment revenues decreased in the first quarter of 2023, reflecting the continued decline in the number of VoIP customers.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

Operations and support expenses increased in the first quarter, primarily driven by higher network and customer support costs and higher amortization of deferred acquisition costs and favorable compensation true-ups in the first quarter of 2022. Expense increases were offset by lower sales and advertising costs and lower HBO Max licensing fees.

Depreciation expense increased in the first quarter of 2023, primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades and expansion.

Operating income decreased in the first quarter of 2023. Our Consumer Wireline operating income margin in the first quarter decreased from 5.0% in 2022 to 2.9% in 2023. Our Consumer Wireline EBITDA margin in the first quarter increased from 29.3% in 2022 to 29.5% in 2023.

LATIN AMERICA SEGMENT												First Quarter
																								2023						2022						Percent Change
Segment Operating Revenues
Service																								$	591					$	490					20.6		%
Equipment																								292						200						46.0
Total Segment Operating Revenues																								883						690						28.0
Segment Operating Expenses
Operations and support																								738						631						17.0
Depreciation and amortization																								175						161						8.7
Total Segment Operating Expenses																								913						792						15.3
Operating Income (Loss)																								$	(30)					$	(102)					70.6		%

The following tables highlight other key measures of performance for Mexico:

Subscribers
																								March 31,												Percent
(in 000s)																								2023						2022						Change
Mexico Wireless Subscribers
Postpaid																								4,973						4,810						3.4		%
Prepaid																								16,146						15,235						6.0
Reseller																								494						458						7.9
Total Mexico Wireless Subscribers																								21,613						20,503						5.4		%
Mexico Wireless Net Additions
												First Quarter
																																				Percent
(in 000s)																								2023						2022						Change
Mexico Wireless Net Additions
Postpaid																								49						3						—		%
Prepaid																								(58)						178						—
Reseller																								19						(40)						—
Total Mexico Wireless Net Additions																								10						141						(92.9)		%

Service revenues increased in the first quarter of 2023 reflecting favorable foreign exchange, higher wholesale revenues and growth in subscribers.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

Equipment revenues increased in the first quarter of 2023 driven by higher equipment sales and favorable foreign exchange impacts.

Operations and support expenses increased in the first quarter of 2023 driven by unfavorable impact of foreign exchange, increased equipment costs resulting from higher sales, and increased bad debt expense. Approximately 5% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.

Depreciation and amortization expense increased in the first quarter of 2023, driven by unfavorable impact of foreign exchange.

Operating income improved in the first quarter of 2023. Our Mexico operating income margin in the first quarter increased from (14.8)% in 2022 to (3.4)% in 2023. Our Mexico EBITDA margin in the first quarter increased from 8.6% in 2022 to 16.4% in 2023.

COMPETITIVE AND REGULATORY ENVIRONMENT

Overview AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is provided.

In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare. Nonetheless, over the ensuing two decades, the FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. More recently, the FCC has pursued a more deregulatory agenda, eliminating a variety of antiquated and unnecessary regulations and streamlining its processes in a number of areas. We continue to support regulatory and legislative measures and efforts, at both the state and federal levels, to reduce inappropriate regulatory burdens that inhibit our ability to compete effectively and offer needed services to our customers, including initiatives to transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.

Communications Segment

Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. The D.C. Circuit upheld the FCC’s current classification, although it remanded three discrete issues to the FCC for further consideration. These issues related to the effect of the FCC’s decision to classify broadband services as information services on public safety, the regulation of pole attachments, and universal service support for low-income consumers through the Lifeline program. Because no party sought Supreme Court review of the D.C. Circuit’s decision to uphold the FCC’s classification of broadband as an information service, that decision is final.

In October 2020, the FCC adopted an order addressing the three issues remanded by the D.C. Circuit for further consideration. After considering those issues, the FCC concluded they provided no grounds to depart from its determination that fixed and mobile consumer broadband services should be classified as information services. An appeal of the FCC’s remand decision is pending.

Some states have adopted legislation or issued executive orders, including California, that would reimpose net neutrality rules similar to those repealed by the FCC. The California statute is now in effect, and challenges regarding other states’ net neutrality laws are pending. We expect that going forward additional states may seek to impose net neutrality requirements.

On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (IIJA) into law. The legislation appropriates $65,000 to support broadband deployment and adoption, including $42,500 administered by the National Telecommunications and Information Agency (NTIA) in state grants for broadband deployment projects, $1,000 for middle mile broadband infrastructure, and $1,500 for digital equity programs. The IIJA also appropriated $14,200 for establishment of the Affordable Connectivity Program (ACP), an FCC-administered monthly, low-income broadband benefit program. The ACP provides qualifying customers up to thirty dollars per month (or seventy-five dollars per month for those on Tribal lands) to

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

assist with their internet bill. These funds are in addition to or replacements for other significant pandemic-related funds designated or that could be used for broadband deployment and subscription. AT&T is a participating provider in the ACP program and is participating in deployment programs where appropriate. Absent additional funding, at present pace the ACP fund will likely exhaust in 2024.

Privacy-related legislation continues to be adopted or considered in a number of jurisdictions, including at the federal level. Legislative, regulatory and litigation actions could result in increased costs of compliance, further regulation or claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data.

Wireless Industry-wide network densification and 5G technology expansion efforts, which are needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment. This increases the importance of local permitting processes that allow for the placement of small cell equipment in the public right-of-way on reasonable timelines and terms. Between 2018 and 2020, the FCC adopted multiple Orders streamlining federal, state, and local wireless structure review processes that had the tendency to delay and impede deployment of small cell and related infrastructure used to provide telecommunications and broadband services. The key elements of these orders have been affirmed on judicial review. During 2020-2021, we deployed 5G nationwide on “low band” spectrum on macro towers. Executing on the recent spectrum purchase, we announced on-going construction and continuing deployment of 5G on C-band spectrum in 2022 and beyond. Additional spectrum will be needed industrywide for 5G and future services. The federal government is developing a national spectrum strategy but its ability and intent to make sufficient spectrum available to the industry in needed timeframes remains uncertain.

LIQUIDITY AND CAPITAL RESOURCES

Continuing operations for three months ended March 31,			2023						2022
Cash provided by operating activities			$	6,678					$	7,630
Cash used in investing activities			(3,818)						(12,458)
Cash used in financing activities			(3,711)						(5,550)

			March 31,						December 31,
			2023						2022
Cash and cash equivalents			$	2,821					$	3,701
Total debt			137,484						135,890

We had $2,821 in cash and cash equivalents available at March 31, 2023, decreasing $880 since December 31, 2022. Cash and cash equivalents included cash of $1,034 and money market funds and other cash equivalents of $1,787. Approximately $1,078 of our cash and cash equivalents were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.

For the first three months of 2023, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, issuance of commercial paper and long-term debt and distributions from DIRECTV. These inflows were exceeded by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, funding capital expenditures and vendor financing payments, repayment of short-term borrowings and long-term debt, and dividend payments to stockholders. We maintain availability under our credit facilities and our commercial paper program to meet our short-term liquidity requirements.

Cash Provided by Operating Activities from Continuing Operations

During the first three months of 2023, cash provided by operating activities was $6,678, compared to $7,630 for the first three months of 2022, reflecting timing of working capital, including fewer receivable sales.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

We actively manage the timing of our supplier payments for operating items to optimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost (referred to as supplier financing program). In addition, for payments to suppliers of handset inventory, as part of our working capital initiatives, we have arrangements that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (referred to as direct supplier financing). The net impact of direct supplier financing was to decrease cash from operating activities $432 and $95 for the three months ended March 31, 2023 and 2022, respectively. All direct supplier financing payments are due within one year. (See Note 11)

Cash Used in or Provided by Investing Activities from Continuing Operations

For the first three months of 2023, cash used in investing activities totaled $3,818 and consisted primarily of $4,335 (including interest during construction) for capital expenditures. During the first three months of 2023, we received a return of investment of $774 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 10).

For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first three months of 2023, vendor financing payments were $2,113, compared to $1,566 for the first three months of 2022. Capital expenditures for the first three months of 2023 were $4,335, and when including $2,113 cash paid for vendor financing, capital investment was $6,448 ($314 higher than the prior-year comparable period).

The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first three months of 2023, we placed $1,021 of equipment in service under vendor financing arrangements (compared to $954 in the prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.

Cash Provided by or Used in Financing Activities from Continuing Operations

For the first three months of 2023, cash used in financing activities totaled $3,711 and was comprised of debt issuances and repayments, vendor financing payments, and payments of dividends.

A tabular summary of our debt activities for the three months ended March 31, 2023 is as follows:

												Three months ended March 31, 2023
Net commercial paper borrowings												$	2,341
Issuance of Notes and Debentures:
USD notes												$	1,750
Euro notes												1,321
Other												1,045
Debt Issuances												$	4,116
Repayments:
USD notes												$	(376)
Euro notes												(1,626)
2025 Term Loan												(2,500)
Other												(1,443)
Repayments of long-term debt												$	(5,945)

The weighted average interest rate of our long-term debt portfolio, including the impact of derivatives, was approximately 4.1% as of March 31, 2023 and as of December 31, 2022. We had $132,260 of total notes and debentures outstanding at March 31, 2023. This also included Euro, British pound sterling, Canadian dollar, Australian dollar, and Swiss franc denominated debt that totaled approximately $34,765.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

At March 31, 2023, we had $13,757 of debt maturing within one year, consisting of $3,258 of commercial paper borrowings, $750 of credit agreement borrowings and $9,749 of long-term debt issuances. The weighted average interest rate on our outstanding short-term borrowings was approximately 5.7% as of March 31, 2023 and 4.8% as of December 31, 2022.

For the first three months of 2023, we paid $2,113 of cash under our vendor financing program, compared to $1,566 in the prior-year comparable period. Total vendor financing payables included in our March 31, 2023 consolidated balance sheet were $5,003, with $3,531 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”).

At March 31, 2023, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.

We paid dividends on common and preferred shares of $2,014 during the first three months of 2023, compared with $3,749 for the first three months of 2022.

Dividends on common stock declared by our Board of Directors totaled $0.2775 per share in the first three months of 2023 and 2022. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities.

In April 2023, we expanded our September 2020 sale of Telco LLC cumulative preferred interests and issued an additional $5,250 of nonconvertible cumulative preferred interests (April preferreds). The April preferreds pay an initial preferred distribution of 6.85% annually, subject to declaration, and subject to reset on November 1, 2027, and every seven years thereafter. (See Note 13)

In April 2023, we also accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining 213 million Mobility preferred interests for a purchase price, including accrued and unpaid distributions, of $5,414. At March 31, 2023, the Mobility preferred interests had a redemption value of $5,320, with approximately $2,650 recorded in “Accounts payable and accrued liabilities” and $2,670 recorded in “Other noncurrent liabilities.” The repurchase was primarily funded with proceeds from the April 2023 issuances of Telco LLC preferred interests. (See Note 13)

Credit Facilities

The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K.

We use credit facilities as a tool in managing our liquidity status. We currently have one $12,000 revolving credit agreement that terminates on November 18, 2027 (Revolving Credit Agreement). No amount was outstanding under the Revolving Credit Agreement as of March 31, 2023.

In November 2022, we entered into and drew on a $2,500 term loan agreement due February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent. On March 30, 2023, the 2025 Term Loan was paid off and terminated.

We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases as well as a commercial paper program.

Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating. Our Revolving Credit Agreement includes a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.75-to-1. Other loan agreements include a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter through June 30, 2023 a ratio of not more than 4.0-to-1, and a ratio of not more than 3.5-to-1 for any fiscal quarter thereafter. As of March 31, 2023, we were in compliance with the covenants for our credit facilities.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

Collateral Arrangements

Most of our counterparty collateral arrangements require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover the majority of our approximate $40,300 derivative portfolio, counterparties are still required to post collateral. During the first three months of 2023, we received approximately $840 of cash collateral, on a net basis. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)

Other

Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At March 31, 2023, our debt ratio was 55.9%, compared to 48.5% at March 31, 2022 and 56.1% at December 31, 2022. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances, repayments and reclassifications related to redemption of noncontrolling interests.