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UNITED STATES

FORM 10-K

Commission file number 0-23137

AT&T WIRELESS SERVICES, INC.

(425) 580-6000

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

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

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

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

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

      The aggregate market value of the common stock held by nonaffiliates of the registrant as of June 30, 2003 was approximately $18.4 billion. The number of shares of the registrant’s Common Stock outstanding at February 27, 2004 was 2,724,362,693.

DOCUMENTS INCORPORATED BY REFERENCE

      The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference to the Registrant’s definitive proxy statement to be filed in connection with the annual meeting of shareholders to be held in 2004.

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PART I

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

Item 1.     Business

Overview

      We are the second-largest wireless communications service provider in the United States based on revenues for 2003. We seek to expand our customer base and revenue stream by providing high-quality, innovative wireless voice and data services. As of December 31, 2003, we had 22.0 million consolidated subscribers. For the year ended December 31, 2003, we had $16.7 billion of total consolidated revenues.

      We currently provide wireless voice and data services principally over two separate, overlapping networks. One network uses time division multiple access, or TDMA, as its signal transmission technology. As of December 31, 2003, it covered an aggregate population, which the wireless industry refers to as “POPs,” of approximately 207 million, or 71 percent of the U.S. population. We also provide voice and enhanced data services over a separate network. This network uses the signal transmission technology known as global system for mobile communications, or GSM, for voice services and general packet radio service, or GPRS, and enhanced data rates for global evolution, or EDGE, for data services. As of December 31, 2003, this network covered approximately 220 million POPs, or 76 percent of the U.S. population. As of December 31, 2003, these two networks within our consolidated markets covered an aggregate of approximately 226 million POPs, or 78 percent of the U.S. population, and operated in 87 of the 100 largest U.S. metropolitan areas. We refer to this as our network footprint or service area. Our network footprint coverage is estimated using signal mapping technology and population data compiled by third parties. We also provide voice service on our analog network, as mandated by the Federal Communications Commission (FCC), and data service over a network utilizing packet switched data technology, or CDPD. We are phasing out our CDPD network as we increase data capabilities on our GSM/ GPRS/ EDGE network.

      We supplement our own networks with roaming agreements that allow our subscribers to use other providers’ wireless services in regions where we do not have network coverage. We refer to the area covered by our network footprint and roaming agreements as our coverage area. With these roaming agreements, as of December 31, 2003, we were able to offer our TDMA customers wireless services covering virtually the entire U.S. population and to provide voice and data services through our GSM and GPRS networks over

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      Over the past two decades, our strategic focus has evolved from an emphasis on license acquisition, expanding our footprint coverage, and growing subscribers to, most recently, revenue, OIBDA (defined as our operating income excluding depreciation and amortization) and cash flow growth. Our strategic focus going forward will emphasize, in addition to revenue and OIBDA growth, increasing free cash flow (defined as our cash flows from operating activities less capital expenditures).

      During 2003, we continued to grow our subscriber base and the profitability of our business. We grew our subscriber base 5 percent in 2003, with 1.1 million net consolidated wireless subscriber additions during the year. Services revenue increased by over 8 percent versus the prior year, to $15.7 billion. OIBDA grew by over 76 percent from the prior year, to $4.4 billion, while our OIBDA margin continued to expand. Additionally, 2003 marked the first-ever year of positive free cash flow, as we generated approximately $1.8 billion. We expanded our domestic GSM network which, along with affiliates and roaming partners, now covers more than 255 million POPs, while increasing our international roaming coverage to over 130 countries and jurisdictions. We launched our EDGE network, the fastest national wireless data network in North America. Also in 2003, we introduced many new products and services, including GoPhone® service, our pay-in-advance product, as well as enhanced mMode data services. And finally, our companywide initiative known as “Project Pinnacle” was launched in 2003 as a multi-year drive toward improved operating efficiency and margins.

      In the fourth quarter, we experienced significant difficulty implementing an upgrade to our GSM customer support systems, which had an adverse effect on subscriber activations and customer care. Our results were also affected by implementation of wireless Local Number Portability (LNP) in the fourth quarter, which resulted in an increase in our churn rate. We expect that higher churn and lower subscriber growth as a result of these issues, compounded by increased competition, will continue to impact our results of operations through the first half of 2004.

Merger Announcement

      On February 17, 2004, we entered into a merger agreement with Cingular Wireless LLC (Cingular) and certain of its affiliates. Under the terms of the agreement, which were approved by our board of directors and the boards of directors of BellSouth Corporation, SBC Communications Inc., and Cingular, our common shareholders will receive $15 cash per common share and our preferred shareholders will receive the then applicable liquidation preference of their preferred shares, for an aggregate of approximately $41 billion, upon consummation of the transaction. The transaction is subject to our shareholders’ approval, approval by regulatory authorities, and other closing conditions. The companies are seeking to close the transaction in the fourth quarter of 2004.

Operations

Network expansion

      We continued to expand our footprint in 2003. During the year, we expanded our GSM/ GPRS/ EDGE network to cover an additional 39 million POPs. As of December 31, 2003, our GSM/ GPRS/ EDGE network covered approximately 220 million POPs, or 76 percent of the U.S. population. Expansion consisted primarily of the overlay of markets acquired with our TeleCorp acquisition, the integration of several other smaller acquisitions, and targeted extensions of our footprint. In addition, in March 2003, we formed a 50/50 joint venture with Cingular to build out GSM/ GPRS service targeting rural highways in the Continental U.S. Through this joint venture and our ongoing network build-out, we expanded our network to cover over 5,000 interstate highway corridor miles in the Midwest, West, and Northeast.

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      We also continued to expand our coverage area through roaming agreements. In 2003, we signed roaming agreements with numerous carriers, including T-Mobile USA, Triton PCS, Cingular, and many other smaller carriers, adding approximately 36 million voice POPs and approximately 22 million GPRS data POPs to our coverage area through these agreements. At December 31, 2003, our coverage area totaled over 255 million POPs for voice services and over 241 million POPs for GPRS data services.

      We continued to increase our global coverage through roaming agreements with carriers in other countries. We entered into over 125 additional international roaming agreements in 45 countries and jurisdictions in 2003. Our GSM/ GPRS customers can now obtain voice service in over 130 countries and jurisdictions and can access data services in more than 45 countries and jurisdictions.

Acquisitions

      During 2003, we completed several transactions in which we acquired spectrum licenses and TDMA operating properties. These acquisitions filled in gaps in our nationwide TDMA network, allowed us to accelerate our GSM deployment in the acquired markets and reduced our roaming expenses in those markets.

      In June 2003, we completed an exchange transaction with a subsidiary of Dobson Communications Corp. We transferred to Dobson our TDMA operating properties in two Alaska markets and our shares of Dobson Series AA Preferred stock. In exchange we received Dobson’s TDMA operating properties in two markets in California.

      We completed an exchange transaction with United States Cellular Corporation (U.S. Cellular) in August 2003. We transferred cash and wireless licenses to U.S. Cellular and in exchange we received TDMA operating properties in northern Florida and southern Georgia. The operating properties serve 143,000 customers and reach a population of more than 1.5 million people. The acquisition of these operating properties expanded our network to cover virtually all major cities and travel routes in Florida and Georgia.

      In February 2004, we completed the purchase of U.S. Cellular’s TDMA operating properties in south Texas for $95 million in cash. The operating property we acquired serves 74,000 customers and covers a population of more than 1.3 million people. The acquisition expanded our presence in south central Texas by tying together existing networks in Houston, San Antonio, and Austin, and pushing coverage south to Corpus Christi and Laredo.

Network enhancement

      We have recently begun to shift our network-related capital investments away from footprint expansion and toward quality and capacity enhancements. Greater site density, technical adjustments on our towers, and the introduction of 850 megahertz GSM radios, are designed to enhance our service quality.

      During 2003, we upgraded over 4,000 cell sites with new 850 megahertz GSM equipment, with the majority being deployed in our largest markets including Los Angeles, north and south Florida, New York, Seattle, and the San Francisco Bay Area. These markets had been transmitting GSM signals at 1900 megahertz on towers that are spaced for TDMA systems at 850 megahertz. Due to the physical properties of signal propagation, we experienced a decreased level of network quality in these markets, primarily in the areas of accessibility and retainability. By implementing 850 megahertz GSM radios on towers that are spaced for signals transmitting at 850 megahertz, we enhanced network accessibility and retainability. Through December 31, 2003, we had completed nearly 40 percent of our total planned 850 megahertz overlays, and we will continue our implementation in 2004.

Operating cost improvements

      We continued to balance loading on our two networks during 2003, as we added new subscribers to both the TDMA and the GSM/ GPRS/ EDGE network. Through sales and migrations from the TDMA subscriber base, we increased the number of subscribers on our GSM/ GPRS/ EDGE network by over three and a half million in 2003 (up from less than one million at the end of 2002). At the same time, we continued to add new subscribers to the TDMA network, offsetting in part the effect of subscriber deactivations and migrations to

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      We increased use of direct channels for distribution of our services during 2003, shifting the mix of sales to approximately 60 percent from direct channels and 40 percent from indirect channels, from a mix that was closer to 55 percent direct and 45 percent indirect in 2002. We believe that customers acquired through our direct channels generate, on average, lower acquisition costs, lower churn rates, and higher monthly revenues than customers acquired through other channels. In 2003, we streamlined our consumer sales force, opened nearly 100 new stores and kiosks and closed others to end the year with 1,045 retail locations. Another factor contributing to the shift toward direct channel sales was a nearly 300 percent increase in sales through our website, which represented only one percent of gross subscriber additions in 2002. We restructured our online sales organization and redesigned our website to improve the online customer experience and drive more sales through this very low cost channel.

      In the second quarter of 2003, we launched a companywide initiative known as “Project Pinnacle” in an effort to improve operating efficiency and margins. Under Project Pinnacle, we have targeted operating margin improvements in every major function of our business. During 2003, we finalized plans for workforce reductions affecting approximately 3,900 employees, related to consolidating national corporate functions primarily in Redmond, Washington, and northern New Jersey, and other staffing reductions. In 2003, we continued to make significant progress in reducing the percentage of incollect expense to services revenue. The improvement in incollect expense was accomplished through a combination of lower negotiated rates paid to other carriers, expansion of our own network and an increase in the number of subscribers on GSM/ GPRS plans. We also took steps toward the consolidation of back office systems by upgrading our IT system that supports customer relationship management for all our GSM/ GPRS subscribers. The upgrade, which was needed to expand the capacity and functionality of the system, experienced difficulties, which led to significant delays in the activation of new GSM/ GPRS accounts and the servicing of existing ones. This in turn created backlogs in our customer service and receivables management areas. As a result of all these problems, the GSM system upgrade had an unfavorable impact on our operations in the fourth quarter, affecting gross subscriber additions, customer churn, customer care, retention costs, and bad debt expense. We are currently working to restore the trust of our customers and distributors. However, we expect the negative effects of the system transition to linger through the first half of 2004.

      In May 2003, we introduced GoPhone service, an innovative “pay as you go” product. We created GoPhone service to appeal to the under penetrated, so-called “third quartile” of the U.S. population, potential wireless customers who have been turned away in the past due to lack of creditworthiness, or deterred by the length or complexity of contracts or the high pricing of traditional prepaid minutes. GoPhone service is an on-network, GSM/ GPRS plan that combines low distribution, device, and customer service costs with streamlined payment-collection methods. It offers customers an automatic replenishment option, that deducts a set fee from a customer’s bank account, credit card, or debit card every 30 days or when the account balance is running low. We send a text message alerting the customer that the balance is running low and that a new payment will automatically be charged soon. Customers can track and manage their GoPhone accounts online or on their handset.

Expanded data services

      In November 2003, we launched our EDGE network, a national high-speed data network. EDGE is the fastest national wireless data service in North America and has been certified as 3G technology by the International Telecommunications Union (ITU).

      Also in November 2003, we enhanced mMode™, our consumer-focused wireless data service, to give customers faster, easier access to information and entertainment services. mMode now features a more user-friendly design and interface, improved personalization tools, and new navigation features and applications.

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      As of December 31, 2003, we had approximately 15 million SMS-enabled phones in use among our customer base. Customers with SMS-enabled phones can use their service in over 130 countries and jurisdictions around the world. Our sponsorship of the American Idol television show was the single largest text messaging event in world history with over 7.5 million text messages sent throughout the show’s season. We believe that our sponsorship advanced the awareness, use, and adoption of mobile messaging services. We are continuing our sponsorship of American Idol in 2004.

      Targeting the business segment, we and Microsoft Corp., together with Motorola, announced the first GSM/ GPRS compatible Windows Mobile®-based Smartphone for the North American market. A Smartphone combines the features of a cellular telephone with those of a personal digital assistant (PDA) in one device. Smartphone users can synchronize and access Outlook contacts, inbox, calendar and tasks; web browse using Pocket Internet Explorer; access instant messaging through MSN® Messenger service; and get our mMode(sm) service with one click. Businesses looking for a scalable and secure means of accessing information behind corporate firewalls benefit from our unique over-the-air provisioning solution for the Smartphone which simplifies and minimizes implementation efforts of corporate IT departments.

      We also expanded our portfolio of Research In Motion’s BlackBerry® devices to offer a new color-screen handheld device with international roaming capabilities, which runs on our GSM/ GPRS network, providing wireless phone, text messaging, email, Web browsing, and organizer access in dozens of countries across the globe.

      As part of our strategy to address the increasing demand for wireless data services for travelers throughout the U.S., we introduced AT&T Wireless Services Wi-Fi service. In 2003, we entered into an agreement with Wayport Inc., a leading Wi-Fi service provider, to allow roaming on that company’s Wi-Fi networks in airports and hundreds of hotels across the United States. Subsequently, we expanded the reach of our Wi-Fi service through wholesale and roaming agreements with StayOnline® Inc. and T-Mobile USA. Through either our own network deployment, wholesale, or roaming partners, we now offer customers access to Wi-Fi service at several international airports and Amtrak stations in the United States. In addition to airports and Amtrak stations, we offer Wi-Fi service through roaming agreements in over 500 major hotels across the U.S., and in over 100 other locations.

Marketing

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

      Targeted marketing. We target groups of customers who share common characteristics or have common needs. Common characteristics may be usage (frequent travelers), social group (families), age (youth market) or any other distinctive measures. We then attempt to create a compelling offer by combining rate plans, product promotions and features that meet the particular needs of that targeted group and that we believe we can provide at a competitive advantage. We have expanded our targeted marketing efforts to include new groups of customers. This may negatively impact our average revenue per user, churn, and bad

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      AT&T brand name. We prominently feature the AT&T brand name and logo on our products and services. We have benefited from AT&T’s brand awareness.

Customer care and support

      Customer care representatives are accessible from any point within the network on an AT&T Wireless Services handset at no charge or through any other telephone by calling a toll-free number. Customers can reach our customer care representatives for answers regarding their service, activation, changing service plans, and other service options. We provide individualized customer care to certain large enterprise customers who may also utilize a customized extranet for ease of customer service. Most of our subscribers can access their account, add or delete certain features, pay their invoice, and obtain answers to routine inquiries through our website.

      As part of our customer care program, we seek to identify customers who are at risk of changing service providers. In these cases, we have programs that assist customers in upgrading their equipment, in changing their rate plan so they are on a plan that is appropriate for their calling needs and in understanding how to get the full benefits from their service. We communicate these programs through individualized and general communications, and utilize these programs to minimize the risk of valuable customers switching to another service provider.

      We took steps toward the consolidation of back office systems by upgrading our IT system that supports customer relationship management for all our GSM/ GPRS subscribers. The upgrade, which was needed to expand the capacity and functionality of the system experienced difficulties, which led to significant delays in the activation of new GSM/ GPRS accounts and the servicing of existing ones. This in turn created backlogs in our customer service and receivables management areas. We are currently working to restore the trust of our customers and distributors. However, we expect the negative effects of the system transition to linger through the first half of 2004.

      On November 24, 2003, the government-mandated implementation of wireless LNP went into effect for the nation’s 100 largest wireless markets with the remainder of the country to be included on May 24, 2004. LNP permits consumers to keep their wireless telephone number if they choose another wireless carrier in the same market. LNP is a complex undertaking requiring extensive coordination between carriers, clearinghouse vendors, and a numbering administrator. As part of our preparation for LNP, in mid-2002, we were the first major wireless carrier to select a clearinghouse vendor. We chose our vendor based on factors, including an established relationship and the availability of the most complete porting solution at that time. Despite our extensive planning and efforts to ensure a smooth transition, we experienced difficulties initially in the implementation of LNP that resulted in significant delays in the completion of some early porting transactions, a large number of customer complaints, and an increase in our churn rate in the fourth quarter. These issues arose primarily as a result of problems with the clearinghouse vendor’s software. The problems have been addressed and our porting completion rate now appears to be in line with industry standards. LNP has presented a challenge for the entire wireless industry, and we are working with the rest of the industry to improve the porting process, including the validation of customer data, and the customer experience.

Sales and distribution

      We market our wireless services under the AT&T Wireless brand name. We market wireless services to business and residential customers through a direct sales force, through sales points of presence in 1,045 company-owned stores and kiosks as of December 31, 2003, and other customer points of presence, including the Internet and inbound call centers, and through local and national non-affiliated retailers and dealers across the U.S.

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

Rates and billing

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

International

      We own equity interests in wireless operations in Canada, the Caribbean, Asia, and Europe. We have been refocusing our international objectives on enlarging our North American footprint, as well as enhancing our ability to service the needs of global travelers and multinational enterprises outside North America through roaming agreements. In 2003, we continued our efforts to monetize our nonstrategic international minority investments. We may, from time to time, acquire interests in additional entities or dispose of or consolidate our existing international holdings.

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(1)	Amount of population covered by the entity’s network in its country, as of December 31, 2003.
(2)	As of January 31, 2004.
(3)	Our revenue from foreign countries was approximately $15.3 million during the year ended December 31, 2003 and approximately $2.1 million during the year ended December 31, 2002. Long-lived assets located in foreign countries have not been material in any of the last three years.
(4)	A joint venture agreement in Barbados with CLICO International Life Insurance Ltd. (30 percent) and BFF Communications Ltd. (5 percent) was signed in January 2004.
(5)	These entities hold licenses covering the following numbers of POPs: 41,000 in Cayman Islands; 135,000 in Curacao; 86,000 in French West Indies; and 89,000 in Grenada. These entities are currently building nationwide networks to cover these POPs.
(6)	Introduction of joint venture partners for each of the Cayman Islands, Dominica, and Grenada entities may reduce our equity investments by up to 40 percent for each venture.
(7)	Acquisition closed in January 2004.
(8)	AT&T Wireless Services owns its interest in EuroTel Bratislava a.s. through Atlantic West B.V., a 50/50 joint venture.

      In 2003, we divested our interests in several of our nonstrategic international unconsolidated subsidiaries.

      In November 2003, a 50/50 joint venture between Verizon Communications Inc. and AT&T Wireless Services sold its combined 49 percent interest in EuroTel Praha, spol. s.r.o. (EuroTel Praha), a wireless operator in the Czech Republic, to EuroTel Praha’s majority stakeholder, Cesky Telecom for $1.05 billion.

      In October 2003, we sold our ownership stake in Far EasTone Telecommunications, Ltd. (Far EasTone), a wireless operator in the Republic of China (Taiwan), to member companies of the carrier’s majority shareholder, Far Eastern Group, for net proceeds of $324 million.

      During the first quarter of 2004, we sold our interest in BPL Cellular Ltd., a wireless operator in the Indian states of Tamil Nadu, Kerala, and Maharastra, to Innovision Properties Private Limited for $3 million.

Mobile wireless technology

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

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

      None of the 2G standard technologies is compatible with either of the others, but TDMA and GSM are similar in that both enhance capacity by dividing a single radio channel into multiple time slots to support multiple calls. TDMA supports up to three calls per channel, GSM up to eight calls per channel, and GSM with adaptive multi-rate (AMR) up to sixteen. We expect to carry 45 percent of our GSM traffic on AMR channels in 2004.

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

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

      GSM/ GPRS/ EDGE network. Starting in the second half of 2001, we began to deploy a GSM/ GPRS network with enhanced global wireless voice and data capabilities. As of December 31, 2003, we had deployed this network in markets representing approximately 76 percent of the U.S. population. This network was deployed principally as an overlay on our TDMA network as a cost effective means for us to offer customers a wide range of voice and data service offerings. GSM provides significant advantages over TDMA. It is the leading worldwide standard enabling international roaming and offering economies of scale on both network equipment and subscriber devices, enabling reduced operating costs and a broader array of network equipment and customer devices. GPRS enables wireless packet data applications, including email and access to corporate data networks and the Internet. In 2002 we began deploying EDGE compatible equipment in our GSM/ GPRS cell sites. Third-generation EDGE technology is a faster version of GPRS, increasing data speed and data capacity. During 2003, we completed deploying EDGE equipment in virtually all our GSM/ GPRS cell sites. In November 2003, we launched EDGE service across our GSM/ GPRS network, making it the fastest national wireless data network in the country.

      UMTS. Third generation technologies such as UMTS have been developed in anticipation of consumer demand for higher speed data service. UMTS is a spread spectrum technology that will increase data speeds even further by transmitting both voice and data over a wider band of radio frequency. UMTS equipment for the U.S. market is currently under development, testing, and trial and we intend to launch UMTS service in at least four markets by the end of 2004.

Competition

      Competition for subscribers among wireless service providers is based principally upon service area, the services and features offered, call quality, customer service, and price. Our ability to compete successfully will depend, in part, on our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and pricing strategies. Increased competitive pressures, the introduction and popularity of new products and services, including prepaid phone products, could adversely affect our results, increase our churn and decrease our average revenue per user. Our primary national competitors are Cingular, Deutsche Telekom/ T-Mobile USA, Nextel Communications, Sprint PCS and Verizon Wireless.

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      We expect competitive pressures to increase as a result of the implementation of wireless LNP in the fourth quarter of 2003. Since the implementation of LNP, we have ported out more subscribers than we have ported in, and we expect that trend to continue into 2004. We also expect our competitors to attempt to capitalize on any uncertainty that may result from our pending transaction with Cingular.

Patents and Trademarks

      We own numerous patents in the U.S. and foreign countries. The foreign patents are generally counterparts to the U.S. patents. Many of these patents are licensed to others, and we license certain patents from others. We were a wholly owned subsidiary of AT&T Corp. from 1994 until July 2001. Upon our split-off from AT&T in July 2001, we and AT&T granted to each other royalty-free cross-licenses to the patents owned as of the time of the split-off as well as certain patents issuing from patent applications pending at the time of the split-off. Our U.S. patents and licensed patents have remaining lives generally ranging from one to 19 years.

      We are licensed to use, and are using, certain AT&T trademarks, including the AT&T brand name and globe logo. The license to the AT&T brand name and globe logo extends to the United States and other countries, and its initial term is five years from the split-off, with the right to renew the license for an additional five years, subject to certain conditions. The license is royalty free, but includes a brand maintenance fee computed as a percentage of our gross revenue on services using the licensed trademarks. That percentage during the initial term declines over one-or two-year increments, and, during the renewal term, the percentage remains at the percentage set for the final year of the initial term. This license is exclusive and worldwide for wide-area mobile wireless services, with the exception of certain countries in which AT&T has already licensed the brand for these services.

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

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

Employees

      As of February 27, 2004, we employed approximately 31,000 individuals in our operations, virtually all of whom are located in the U.S.

Seasonality

      The wireless industry, including AT&T Wireless Services, has experienced a trend of generating a significantly higher number of gross customer additions and handset sales in the fourth quarter of each year as compared to the other three fiscal quarters. A number of factors contribute to this trend, including the increasing use of retail distribution, which is dependent upon the year-end holiday shopping season, the timing of new product and service announcements and introductions, competitive pricing pressures, and aggressive marketing and promotions. We also typically have higher revenue and expenses from roaming in the third quarter of the year due to increased roaming minutes during the summer travel season.

Spectrum

      We provide mobile voice services using spectrum licenses in both the 850 megahertz cellular band and the 1900 megahertz PCS band. From a marketing and operational perspective, we define and manage our markets geographically, usually around an urban area or other geographic region. These geographic markets may use spectrum in either the 850 megahertz band, the 1900 megahertz band or both.

      The 850 megahertz wireless markets originally used analog based systems, but we have now introduced digital technology in 99 percent of our 850 megahertz markets. The 1900 megahertz markets all are digital.

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      We held 850 megahertz and 1900 megahertz licenses to provide wireless services covering approximately 96 percent of the U.S. population as of December 31, 2003. As shown in the table below, as of December 31, 2003, approximately 68 percent of the U.S. population was covered by at least 30 megahertz of wireless spectrum owned by us. Having more spectrum in a market allows us to provide better quality service.

*	Amount of U.S. population covered by licenses held by us.
**	Amount that “Licensed POPs” represents as a percentage of total U.S. population, based on total U.S. population of 291 million as of December 31, 2003.

POPs:

      POPs represents the number of people residing in a specified area. POPs information is compiled from third party data.

Service Area:

      Service area represents number of POPs for which service is available on AT&T Wireless Services’ owned and operated network. Service area is estimated using signal mapping technology and POPs data.

Coverage Area:

      Coverage area represents AT&T Wireless Services’ service area plus areas in which service is provided by wireless carriers with which AT&T Wireless Services has roaming agreements.

Regulatory Environment

      The FCC regulates the licensing, construction, operation, acquisition, sale and resale of wireless systems in the U.S. pursuant to the Communications Act of 1934 and the associated rules, regulations and policies promulgated by the FCC. FCC terminology distinguishes between “cellular” licenses, which utilize frequencies in the 850 megahertz band, and “broadband PCS” licenses, which utilize frequencies in the 1900 megahertz band. Cellular and PCS services are both classified by law as commercial mobile radio service (CMRS), but their associated systems may be subject to differing technical and operational requirements. For instance, while PCS systems operate exclusively and cellular systems operate predominantly in digital mode, current FCC rules require cellular systems to maintain some analog capacity until February 18, 2008, unless the FCC decides to extend the deadline.

Licensing of wireless services systems

      We own protected geographic service area licenses granted by the FCC to provide cellular and broadband PCS services. We also own licenses granted by the FCC to provide point-to-multi-point and point-to-point communications services in various bands.

      A cellular system operates on one of two 25 megahertz frequency blocks that the FCC allocates for cellular radio service. Cellular systems generally are used for two-way mobile voice and data applications, although they may be used for fixed wireless services as well. Cellular licenses are issued for either metropolitan service areas (MSA) (of which there are 306) or rural service areas (RSA) (of which there are 427). Initially, one of the two cellular licenses available in each metropolitan service area or rural service area was reserved for and awarded to a local exchange telephone company (wireline company), while the other

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      A broadband PCS system operates on one of six frequency blocks allocated for personal communications services. Broadband PCS systems generally are used for two-way mobile voice and data applications, although they may be used for fixed wireless services as well. For the purpose of awarding broadband PCS licenses, the FCC has segmented the U.S. into 51 large regions called major trading areas (MTAs), which are comprised of 493 smaller regions called basic trading areas (BTAs). The FCC initially awarded two broadband PCS licenses for each MTA and four licenses for each BTA. The two MTA licenses (the “A” and “B” block licenses) authorize the use of 30 megahertz of spectrum. One of the BTA licenses (the “C” block license) was initially for 30 megahertz of spectrum, and the other three (the “D,” “E,” and “F” block licenses) were for 10 megahertz each. In March 1998, the C block licensees were permitted to disaggregate their licenses and return 15 megahertz of spectrum to the FCC. Subject to some conditions, the FCC now permits all licensees to split their licenses and assign a portion, on either a geographic or frequency basis or both, to a third party. As a result, some BTAs now have seven or more broadband PCS licensees. Effective February 2, 2004, the FCC also allows cellular and PCS licensees to lease all or part of their spectrum in all or part of their license areas to third parties.

      The FCC awarded initial broadband PCS licenses by auction. Auctions began with the 30 megahertz MTA licenses and concluded in 1998 with the last of the original BTA licenses. In April 1999, the FCC reauctioned the 15 megahertz C block licenses that had been returned by the original licensees.

      CMRS licenses are issued for a 10-year term, at the end of which they may be renewed. A CMRS licensee has a “renewal expectancy,” which means that if it has provided “substantial service” during its past license term and has substantially complied with applicable FCC rules and policies and the Communications Act, it will have its licenses renewed as a matter of course. CMRS licenses may be revoked for cause and license renewal applications denied if the FCC determines that a renewal would not serve the public interest. FCC rules provide that competing renewal applications for licenses will be considered in comparative hearings.

      All CMRS wireless licensees must satisfy specified coverage requirements as a condition of their licenses. Cellular licensees were required, during the five years following the initial grant of their respective licenses, to construct their systems throughout the MSA or RSA, as applicable. The geographic area in which a cellular licensee was given protection against interference and competing applications was limited to the area constructed at a specified signal strength in that initial five-year period. Failure to provide coverage at the specified signal strength at the end of the initial five-year period opened up the remainder of the MSA or RSA to competing applicants. All 30 megahertz A, B and C block broadband PCS licensees must construct facilities that provide coverage to one third of the population of the service area within five years of the initial license grant date and to two thirds of the population within ten years of the original license grant date. All D, E and F block broadband PCS licensees and certain 10 and 15 megahertz C block licensees must construct facilities that provide coverage to one fourth of the population of the licensed area or “make a showing of substantial service in their license area” within five years of the original license grant date. Licensees holding these licenses do not have a 10-year construction requirement. Other licenses issued by the FCC that we hold are subject to different construction and renewal requirements. Licensees that fail to meet the coverage requirements may be subject to forfeiture of the license.

      In an effort to balance the competing interests of existing microwave users in the PCS bands and newly authorized PCS licensees, the FCC adopted a transition plan to relocate such incumbent microwave operators to other spectrum blocks and a cost sharing plan so that if the relocation of an incumbent benefits more than one PCS licensee, those licensees will share the cost of the relocation. The transition period contemplates negotiations between microwave licensees and PCS licensees to accomplish the transition and to govern the terms and conditions of the transition of microwave licensees from the PCS spectrum. Generally, there is a

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      Wireless systems are subject to certain Federal Aviation Administration and FCC regulations governing the location, lighting and construction of transmitter towers and antennas and are subject to regulation under federal environmental laws and the FCC’s environmental regulations. State or local zoning and land use regulations also apply to tower siting and construction activities. We expect to use common carrier point-to-point microwave facilities to connect certain wireless cell sites, and to link them to the main switching office. The FCC licenses these facilities separately and they are subject to regulation as to technical parameters and service.

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

      Except for transfers of control or assignments that are considered “pro forma,” and are subject to certain post-closing notification under forbearance procedures adopted by the FCC, the Communications Act and FCC rules require the FCC’s prior approval for the assignment of a license or transfer of control of a licensee of a PCS or cellular system and other types of wireless licenses. In addition, the FCC has established transfer disclosure requirements that require licensees who assign or transfer control of licenses won at auction within the first three years of their license terms to file associated sale contracts, option agreements, management agreements or other documents disclosing the total consideration that the licensee would receive in return for the transfer or assignment of its license. Noncontrolling, minority interests in an entity that holds an FCC license generally may be bought or sold without FCC approval. However, notification and expiration or earlier termination of the applicable waiting period under Section 7A of the Clayton Act by either the Federal Trade Commission or the Department of Justice may be required if interests over a certain size are sold or acquired. Approval by state or local regulatory authorities having competent jurisdiction may also be required in some circumstances.

      The FCC’s former spectrum aggregation rules were eliminated on January 1, 2003. As a result, there is currently no express limitation on the amount of CMRS spectrum that any one entity may hold. The FCC, however, still reviews applications proposing to assign or transfer spectrum licenses on a case-by-case basis to determine what impact the acquisition of spectrum will have on competition in the marketplace.

      Since February 2004, the FCC has allowed licensees in many of the “wireless services,” including cellular and PCS, to lease their spectrum to third parties. Licensees may lease any amount of spectrum they hold in any geographic area in which they are licensed to provide service. Certain leases require the FCC’s prior approval, while others can be implemented by notification to the FCC within a certain amount of time prior to the time the lease is expected to become effective. The FCC’s leasing rules require the lessee to be qualified under the Communications Act to render communications services. In addition, the spectrum leasing rules

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      Under existing law, no more than 20 percent of an FCC licensee’s capital stock may be owned, directly or indirectly, or voted by non-U.S. citizens or their representatives, by a foreign government or its representatives or by a foreign corporation. If an FCC licensee is controlled by another entity, up to 25 percent of that entity’s capital stock may be owned or voted by non-U.S. citizens or their representatives, by a foreign government or its representatives or by a foreign corporation. Foreign ownership above the 25 percent level may be allowed should the FCC find such higher levels not inconsistent with the public interest. The FCC has ruled that higher levels of foreign ownership, even up to 100 percent, are presumptively consistent with the public interest with respect to investors from certain nations. If our foreign ownership were to exceed permitted levels, the FCC could revoke our FCC licenses or request that the ownership be restructured to comply with foreign ownership rules. Recently, we obtained a declaratory ruling from the FCC that affirmatively approves the level of ownership in us held by non-U.S. citizens or foreign corporations. The same declaratory ruling allows non-U.S. citizens or foreign corporations to increase the level of ownership held in us by an additional 25 percent, subject to certain qualifications, including a requirement that the equity held is “noncontrolling” equity.

      On November 24, 2003, the FCC’s rules on wireless LNP went into effect for the nation’s 100 largest wireless markets. The rules allow customers to change CMRS providers but keep their telephone numbers. In addition, the rules allow landline customers to migrate their telephone numbers to a CMRS carrier. Complying with the wireless LNP rules requires the dedication of significant personnel resources, which increases our costs of providing service.

      E911. The FCC has established rules for making emergency 911 services available by cellular, PCS and other CMRS providers, including enhanced 911 (E911) services that provide the caller’s telephone number, location and other useful information. CMRS providers are required to take actions enabling them to relay a caller’s automatic number identification and location (initially by the location of the cell site first transmitting the call, and ultimately by an approximation of the caller’s actual location) if requested to do so by a public safety agency. CMRS providers may use either network or handset-based technologies to provide the approximation of the caller’s actual location. There is no requirement that public safety agencies reimburse the CMRS provider for their costs of deploying such technologies. E911 service must be made available to users with speech or hearing disabilities. Wireless handsets capable of receiving analog signals, when operating in the analog mode, must be able to complete 911 calls using the strongest analog signal available to the caller, even if the caller does not subscribe to the carrier providing the strongest signal. State actions incompatible with the FCC rules are subject to preemption by the FCC. We have negotiated consent decrees with the FCC that govern our compliance with the FCC’s E911 location rules for our TDMA and GSM networks.

      Interconnection and intercarrier compensation. On August 8, 1996, the FCC released its order implementing the interconnection provisions of the Telecommunications Act of 1996. Although many of the provisions of this order were struck down by the U.S. Court of Appeals for the Eighth Circuit, on January 25, 1999, the U.S. Supreme Court reversed the Eighth Circuit and upheld the FCC in all respects material to our operations. The rationale of the FCC’s order was adopted by many states’ public utility commissions, with the result that the charges that CMRS operators pay to interconnect their traffic to the public switched telephone network have declined significantly from pre-1996 levels. In May 2002, the U.S. Supreme Court upheld the FCC’s pricing regime. However, the FCC is currently reviewing whether this pricing regime continues to be appropriate. This proceeding could affect the charges that CMRS operators incur to terminate calls on other carriers’ networks. In a related proceeding, the FCC recently modified certain of its rules governing how carriers compensate each other for the exchange of traffic on their networks. The FCC ruled that incumbent

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      Unbundled network elements. In August 2003, the FCC released an order that, among other things, confirmed that CMRS carriers are entitled to purchase certain elements of the incumbent telephone carriers’ networks at cost-based rates. The incumbent telephone carriers appealed the FCC’s decision to the D.C. Circuit in late 2003, and the court’s ruling is expected in mid to late 2004. In addition, we and certain other CMRS carriers have asked the FCC to clarify that CMRS carriers are entitled to purchase, at cost-based rates, the transmission facilities linking our cell sites to the incumbents’ networks, as well as other transmission facilities within the incumbents’ networks. If the FCC makes this clarification and if its overall decision regarding CMRS access to unbundled elements is upheld by the D.C. Circuit, the amount of money CMRS carriers pay to incumbent local exchange carriers for use of their networks could decline significantly.

      Universal service. In its implementation of the Telecommunications Act, the FCC established federal universal service requirements that affect CMRS operators. Under the FCC’s rules, CMRS providers are potentially eligible to receive universal service subsidies for the first time; however, they are also required to contribute to the federal universal service fund and can be required to contribute to state universal service funds. We have qualified to receive universal service funding in Puerto Rico and have applications pending in several other jurisdictions. Many states also are moving forward to develop state universal service fund programs. A number of these state funds require contributions, varying greatly from state to state, from CMRS providers. The FCC’s universal service order was modified on appeal in the U.S. Court of Appeals for the Fifth Circuit. The court’s ruling has had the effect of reducing CMRS provider support payments required for the federal universal service programs. In January 2003, the FCC raised from 15 percent to 28.5 percent the “safe harbor” for determining what percentage of wireless carriers’ revenues are interstate and subject to federal universal service contributions, and it is currently considering proposals to further modify its rules governing universal service contributions. Some of these proposals could increase the amount of support payments required of commercial mobile radio service providers, and could limit the ability of CMRS carriers to obtain universal service subsidies. We cannot predict at this time which if any of these proposals will be adopted and what effect they would have on our contribution obligation and subsidy rights.

      CALEA. The Communications Assistance for Law Enforcement Act (CALEA) requires telecommunications carriers to ensure that their equipment, facilities, and services are able to comply with lawfully authorized electronic surveillance. The FCC has adopted rules implementing CALEA that require cellular and PCS providers to provide certain technical capabilities to facilitate electronic surveillance by law enforcement officials by June 30, 2002 and January 30, 2004. We have met the deadlines for our wireless services that are clearly covered by CALEA. Because it is unclear whether certain data services are covered by CALEA, we have petitioned the FCC for a determination and sought an extension of the CALEA deadline if CALEA is determined to apply to these services. The FCC has not ruled on the petition and there can be no assurance that the FCC will grant the request. Various other petitions are pending before the FCC seeking similar determinations, suspension of the rules, or further extensions of the deadlines applicable to providing surveillance capabilities. The FCC has announced its intention to conduct an industry-wide rulemaking regarding CALEA applicability to such services in 2004. It is not known whether the FCC will apply CALEA to such services, how the FCC will revise its rules, whether it will extend any of the compliance deadlines, or what the scope of penalties for failing to comply may be.

      Rate integration. In 1997, the FCC determined that the rate integration requirement of the Communications Act of 1934 applies to the interstate, interexchange services of CMRS providers. Rate integration requires a carrier to provide service between the continental U.S. and offshore U.S. states and territories under the same rate structure applicable to service between two points in the continental U.S. The FCC delayed implementation of the rate integration requirements with respect to the wide area rate plans we offer pending

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      CPNI. Under FCC rules, CMRS carriers can use and disclose customer proprietary network information (CPNI) without a customer’s approval to provide CMRS services. CMRS carriers can also use CPNI to provide services “necessary to or used in” providing CMRS service. Thus, the carriers can use CPNI to market other CMRS services, information services, and CMRS handsets without customer approval. For other uses or disclosures of CPNI, CMRS providers need customers’ “opt-out” or “opt-in” approval. Recently adopted FCC rules require customers’ “opt-in” approval for certain carrier uses of CPNI, such as sharing CPNI with affiliates who provide services that are not communications-related.

      Telemarketing. In 2003, the Federal Trade Commission (FTC) established a National Do-Not-Call Registry and both the FTC and the FCC have adopted rules to enforce restrictions on companies marketing their goods or services to consumers by telephone. Subject to certain exemptions (such as an existing business relationship with the called party), telemarketers may not initiate telephone solicitations to individuals that have registered their numbers on the National Do-Not-Call Registry. Companies are also required to maintain their own lists of consumers that have stated that they do not wish to receive future marketing calls, and must not solicit such consumers by telephone even if the call falls within the scope of one of the exemptions to the national Do-Not-Call rules. In addition, it is unlawful to make any calls to wireless telephone numbers using an automatic dialing system or artificial or prerecorded voice messages. A number of states have adopted telemarketing rules and do-not-call registries, but while states may impose more restrictive requirements on intrastate calls, they may not regulate interstate calling in a manner inconsistent with the federal regulations.

      CAN-SPAM Act. In December 2003, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) became law. Under the CAN-SPAM Act, commercial electronic mail messages must be identified as an advertisement or solicitation, contain a valid physical postal address for the sender, and contain a clearly and conspicuously displayed functioning return e-mail address or other Internet-based mechanism that the recipient may use to opt-out of receiving further such messages. While the FTC and the FCC are given the authority to adopt rules to implement the CAN-SPAM Act, they have not yet done so. The CAN-SPAM Act specifically requires the FCC to adopt rules to apply the Act’s requirements to commercial electronic mail messages sent directly to wireless phones and other wireless devices. These rules must give CMRS subscribers the ability to avoid receiving commercial electronic mail unless the subscriber provides express prior authorization to the sender. The FCC may establish an exception to this requirement for messages sent by a CMRS carrier to its subscribers, but the FCC is not required to establish such an exception and there is no assurance that it will.

      Numbering issues. The FCC has adopted a number of rules designed to optimize the use of telephone numbering resources, including a requirement that carriers in the top markets be capable of sharing blocks of 10,000 numbers among themselves in blocks of 1000 numbers (1000s-block number pooling). CMRS carriers in the top 100 markets were required to be 1000s-block number pooling capable as of November 26, 2002, and all other CMRS carriers must be able to support roaming on their systems by users with pooled numbers. The FCC also has imposed a variety of other requirements, such as utilization thresholds, reporting rules, and audit regimes. In addition, the FCC has ruled that state commissions may adopt “technology specific” overlays that would require wireless providers to obtain telephone numbers out of a separate area code. Some states have asked for approval to implement such overlays and, at the same time, require wireless providers to change their existing customers’ telephone numbers. These efforts, if approved, may impact wireless service providers by imposing additional costs or limiting access to numbering resources.

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      Billing issues. The FCC has adopted detailed billing rules for landline telecommunications service providers and applied a number of these rules to CMRS providers. The FCC has also ruled that, beginning April 1, 2003, carriers may not mark up universal service line-item charges on customer bills above the amount of the mandatory customer contributions.

      Disability access issues. The FCC has adopted an order that determines the obligations of telecommunications carriers to make their services accessible to individuals with disabilities. The order requires telecommunications services providers to offer equipment and services that are accessible to and useable by persons with disabilities. While the rules exempt telecommunications carriers from meeting general disability access requirements if such results are not readily achievable, it is not clear how liberally the FCC will construe this exemption. Accordingly, the rules could require us to make material changes to our network, product line, or services at our expense.

      Hearing aid compatibility. On August 14, 2003, the FCC released a decision that modified the exemption for wireless phones under the Hearing Aid Compatibility Act to require digital wireless phones to be capable of being effectively used with hearing aids. Among other things, the order requires digital handset manufacturers to make available to carriers, and carriers to make available to consumers, within two years, at least two handset models for each air interface they offer that provide reduced radio frequency emissions (larger wireless carriers like us must provide reduced radio frequency emissions on 25 percent of their total phone models if that number is greater than two models). Within three years, digital handset manufacturers must make available to carriers, and carriers must make available to consumers, at least two handset models for each air interface they offer that provide telecoil coupling. Finally, 50 percent of all digital handsets offered by a manufacturer or carrier are required to be compliant with the reduced radio frequency emissions standards by February 18, 2008. Some wireless carriers have asked the FCC to reconsider these rules, including the more stringent requirements that were imposed on larger carriers.

      Radio frequency emissions. The FCC has adopted rules specifying standards and the methods to be used in evaluating radio frequency emissions from radio equipment, including network equipment and handsets used in connection with CMRS. These rules were upheld on appeal by the U.S. Court of Appeals for the Second Circuit. The U.S. Supreme Court declined to review the Second Circuit’s ruling. Our network facilities and the handsets we sell to customers comply with these standards.

      Media reports have suggested that some radio frequency emissions from wireless handsets may be linked to health concerns, including the incidence of cancer. Although some studies have suggested that radio frequency emissions may cause certain biological effects, virtually all of the expert reviews conducted to date have concluded that the evidence does not support a finding of adverse health effects but that further research is appropriate. The Cellular Telecommunications and Internet Association has entered into a Cooperative Research and Development Agreement to sponsor such research.

      Studies have shown that some hand-held digital telephones may interfere with some medical devices, including hearing aids and pacemakers. The Food and Drug Administration has issued guidelines for the use of wireless phones by pacemaker wearers. Additional studies are underway to evaluate and improve the compatibility of hearing aids and digital wireless phones.

      State and local governments are preempted from regulating either market entry by, or the rates of, wireless providers. However, state governments can regulate other terms and conditions of wireless service and several states have imposed, or have proposed legislation or regulations that could impose, various consumer protection and service quality regulations on the wireless industry. Some of these proposals, such as California’s draft consumer protection rules, are burdensome and could increase our costs of providing service if they become effective. As noted above, states also may impose their own universal service support regimes on wireless and other telecommunications carriers, similar to the requirements that have been established by the FCC, and have been delegated certain authority by the FCC in the area of number allocation and administration. At the local level, wireless facilities typically are subject to zoning and land use regulation. However, under the Telecommunications Act, neither local nor state governments may categorically prohibit

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Our Relationship with AT&T Corp.

      On July 9, 2001, we split off from AT&T Corp. and became an independent public company. Prior to the split-off, our business was run as a division of AT&T referred to as AT&T Wireless Group. We entered into a number of agreements with AT&T in connection with the split-off, which are summarized below. The summaries of these documents that follow are qualified in their entirety by reference to the full text of these documents, which are incorporated into this document by reference.

      In connection with the split-off, AT&T transferred to us the assets and liabilities of the AT&T Wireless Group. We have agreed to indemnify AT&T for liabilities we assumed in the split-off, any breach by us of the separation and distribution agreement or any of the related agreements, and specified disclosure liabilities. AT&T has agreed to indemnify us for liabilities of AT&T, other than liabilities we assumed in the split-off; any breach by AT&T of the separation and distribution agreement or any of the related agreements; and specified disclosure liabilities.

      Under the separation and distribution agreement, we are responsible for any tax liability and any related liability (e.g., interest, penalties, accounting, legal and other professional fees, etc.) that results from the split-off failing to qualify as a tax-free transaction, unless any such liability was caused by:

	•	the inaccuracy of certain factual representations made by AT&T in connection with obtaining a private letter ruling from the IRS (or in connection with obtaining a tax opinion); or
	•	a post-split-off transaction with respect to the stock or assets of AT&T.

      This agreement gives us rights to continue to use specified AT&T brands, including the AT&T globe design and the AT&T trade dress. The rights are granted royalty free, although we are required to pay a maintenance fee. The brand license agreement allows us to use these AT&T brands, alone or in combination with our other marks, for provision of our mobile wireless services (including so-called third-generation services).

      We have these rights for five years following the completion of the split-off. After the initial five-year period, we may renew our rights to these AT&T brands for an additional five-year period. During the initial or renewal period, we may terminate the brand license agreement on 12 months’ prior notice. In addition, we may continue to use these AT&T brands during a transition period after the brand license agreement expires or is terminated by AT&T.

      We have an exclusive right to use these AT&T brands in connection with the following:

	•	wide-area mobile cellular services,
	•	specified ancillary wireless services; and
	•	certain wireless devices and portals.

      We have a non-exclusive right to use these AT&T brands in connection with the following:

	•	specified content, equipment and software associated with our services; and
	•	some wireless devices, portals and promotional products.

      We can generally use these AT&T brands worldwide except where AT&T has already granted exclusive brand licenses or where another AT&T unit has exclusive rights. AT&T also has granted a non-exclusive

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      To maintain our rights, we must comply with specified quality, customer care, graphics and marketing standards in connection with our use of these AT&T brands. AT&T may terminate the brand license agreement in the event we materially breach the agreement and fail to cure that breach or we experience a change of control involving certain types of defined entities.

          Master Carrier Agreement

      This agreement requires AT&T to provide voice and data telecommunications services until July 31, 2007. AT&T will provide both wholesale telecommunication services, which we will use as a component of wireless services we provide to our customers, and administrative telecommunications services, which we will use ourselves for corporate purposes.

      We are required to purchase in each year specific amounts of minutes of wholesale domestic voice services, escalating over the term of the agreement. The pricing at which AT&T provides these services is subject to AT&T internal pricing reviews and external benchmarking.

      We are also required to purchase specific amounts of international voice services from AT&T through October 2004.

      We are required to purchase administrative data and voice services at specified amounts through July 2004 for domestic services. We may purchase our local connectivity and business needs from AT&T if AT&T meets committed levels of performance, and offers price and performance terms at least as favorable as those offered by other providers.

      Upon either party being acquired, the party not being acquired has a right to terminate the master carrier agreement. Alternatively, the party not being acquired may elect to keep the master carrier agreement in effect with certain modifications. If we are acquired, those modifications include changing the domestic voice purchase requirement to 90 percent of the past twelve months’ usage, eliminating internal benchmarking, and increasing the frequency of external benchmarking.

          Agency and Referral Agreement

      This agreement covers AT&T’s acting as an agent on our behalf to assist us in obtaining business with AT&T’s business customers. Upon either party being acquired by a significant competitor of the other, the party not being acquired has the right to terminate this agreement.

          Intellectual Property Agreements

      The intellectual property agreement specifies the ownership and license rights in patents, software, copyrights, and trade secrets, but not the AT&T brands. Under the terms of the intellectual property agreement, we and AT&T granted each other a non-exclusive, fully paid-up, worldwide, perpetual and irrevocable license under each other’s patents (those owned as of the time of the split-off as well as certain patents issuing from patent applications pending at the time of the split-off) to make, use and sell any and all products and services. The parties also grant special rights under certain of each other’s patents for defensive protection, special affiliate licensing, and supplier licensing. In addition, AT&T will refrain from licensing some of its patents to our ten largest domestic mobile service competitors for a period of five years and will grant us a non-exclusive right to direct the licensing of certain AT&T patents to certain third parties and to receive half of the net royalties.

      We and AT&T each own all the software, trade secrets, and copyrights created by each one of us before the split-off. We and AT&T granted each other a non-exclusive, fully paid-up, worldwide, perpetual and irrevocable license to use each party’s software, trade secrets, and copyrights that were in the possession of the other party at the time of the split-off. The intellectual property agreement also protects proprietary

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          Tax Sharing Agreement

      The tax sharing agreement provides among other things that:

	•	AT&T is responsible for any tax item resulting from certain asset transfers from AT&T Wireless Group to AT&T Common Stock Group before the split-off;
	•	AT&T Wireless is responsible for any tax item resulting from certain asset transfers from AT&T to AT&T Wireless before the split-off;
	•	the accounts between AT&T and AT&T Wireless Group were adjusted for unpaid amounts under the tax sharing agreement before the split-off; and
	•	no tax sharing payments were made with respect to taxable periods (or portions thereof) beginning after the split-off date.

      The tax sharing agreement also contains provisions that govern tax contests and other related matters with respect to tax periods before the split-off date.

DoCoMo Strategic Investment

      On January 22, 2001 NTT DoCoMo, Inc. (DoCoMo), a leading Japanese wireless communications company, invested approximately $9.8 billion for shares of a new class of AT&T Corp. preferred stock which were convertible into 406,255,889 shares of AT&T Wireless Group tracking stock, which were called “DoCoMo wireless tracking stock,” and that were intended to reflect approximately 16 percent of the financial performance and economic value of AT&T Wireless Group. As part of this investment, DoCoMo also received five-year warrants to purchase the equivalent of an additional 41,748,273 shares of AT&T Wireless Group tracking stock at $35 per share, and AT&T Wireless and DoCoMo formed a strategic alliance to develop the next generation of mobile multimedia services on a global-standard, high-speed wireless network. Of the 406,255,889 AT&T Wireless Group tracking stock share equivalents issued to DoCoMo, 228,128,307 shares represented new share equivalents at $27.00 each, and the remaining 178,127,582 share equivalents represented a reduction of the retained portion of the value of AT&T Wireless Group by the AT&T Common Stock Group (which consisted of the operations of AT&T other than those attributed to AT&T tracking stocks) at $20.50 each. Accordingly, AT&T Common Stock Group retained $3,651,615,431 of the proceeds of the DoCoMo investment and allocated $6,159,464,289 to AT&T Wireless Group.

      Immediately before the completion of the split-off, each share of DoCoMo wireless tracking stock automatically was converted into AT&T Wireless Group tracking stock, subject to anti-dilution protection, and was redeemed in exchange for 406,255,889 shares of our common stock on the same terms as all other shares of AT&T Wireless Group tracking stock in the split-off.

      Pursuant to the exercise of preemptive rights as described below, DoCoMo acquired an additional 26,734,557 shares of our common stock for an aggregate purchase price of $381,769,474 in February 2002. As of December 2003, DoCoMo owned 432,990,446 shares of our common stock and could acquire an additional approximately 41,748,273 shares of our common stock upon exercise of the warrants.

      In December 2002 the terms of the relationship were amended, to increase DoCoMo’s representation on our board of directors, and to revise our technology commitment, among other things. The following is a summary of the material provisions of the agreements among DoCoMo, AT&T Corp. and us that apply to us now. This summary is qualified in its entirety by reference to the full text of these documents.

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      DoCoMo acquired 83,496.546 warrants, each of which is exercisable for 500 shares of our common stock, or a total of 41,748,273 shares, at an exercise price of $35 per share, subject to customary anti-dilution adjustments. The warrants are subject to the transfer restrictions described under “DoCoMo Investment Rights and Obligations.”

      In addition to the rights inherent in the shares of our common stock, under the agreements, DoCoMo has additional rights and obligations with respect to its investment in us.

      We need to obtain DoCoMo’s consent to change the scope of our business such that our current businesses, including businesses that are part of our business plan and natural evolutions of those businesses, taken as a whole no longer constitute our primary business, or to allow another wireless operator to acquire more than 15 percent but less than 50 percent of our equity in connection with the formation of a strategic alliance, with certain exceptions specified in the Investor Agreement.

      Transfer Restrictions. Subject to a limited exception, without our consent, DoCoMo may not transfer any of our securities to any person if after the transfer the recipient’s interest in us would exceed 6 percent, or exceed 10 percent in the case of recipients, principally financial institutions, who are eligible to report their interest on Schedule 13G under the Securities Exchange Act.

      None of DoCoMo’s special rights are transferable by DoCoMo along with the shares, except that DoCoMo may transfer its demand registration rights described below to any transferee of more than $1 billion of our securities, and DoCoMo may transfer one demand registration right to a transferee of the warrants. Any transfer of registration rights will be subject to overall limitations on the registration rights and will not increase our aggregate registration obligations.

      DoCoMo may require us to repurchase the warrants and the stock that DoCoMo still holds if, prior to December 31, 2004:

	•	We abandon W-CDMA as our primary technology for third-generation services, or
	•	We fail to launch service based on W-CDMA, in certain areas of Dallas, San Diego, San Francisco, and Seattle, or agreed upon alternate cities, unless:

	—	DoCoMo ceases to actively support and promote wireless services using W-CDMA technology as its standard for wireless third-generation services;
	—	such failure is due to factors outside our reasonable power to affect or control, including due to the unavailability, or a delay in the availability, of equipment, software, spectrum, or cell sites;
	—	such failure is due to our inability to obtain regulatory approvals, permits, or licenses without the imposition of burdensome conditions or restrictions; or
	—	our board of directors determines that, due to regulatory or legal issues, or other external factors, deployment of such a system is no longer advisable from a business perspective.

Corporate Information

      We were incorporated in 1982 in Washington and in 1987, became a Delaware corporation. From 1994 until our split-off in July 2001, we were a wholly owned subsidiary of AT&T Corp. Our principal executive offices are located at 7277 164th Avenue NE, Building 1, Redmond, Washington 98052. The telephone number is (425) 580-6000. We make our periodic and current reports available, free of charge, on our website

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Additional Factors That May Affect Our Business, Future Operating Results, And Financial Condition

      You should carefully consider the following factors that may affect our business, future operating results, and financial condition, as well as other information included in this report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, that we have not identified as risks, or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition, and operating results could be materially adversely affected.

Our stock price would likely be adversely affected if we do not consummate our transaction with Cingular.

      The merger agreement we entered into with Cingular and certain of its affiliates contains numerous conditions to Cingular’s obligation to close. These conditions include:

	•	approval of our shareholders;
	•	obtaining approval of the FCC, antitrust clearance, and certain other governmental approvals;
	•	compliance with the technology commitments under our Investor Agreement with DoCoMo (or waiver by DoCoMo);
	•	operating our business in compliance with the covenants set forth in the merger agreement; and
	•	continued accuracy of our representations and warranties, including the absence of any material adverse effect on our business.

      We cannot be certain we will obtain the necessary regulatory approvals, or that we will satisfy other closing conditions. If the transaction were terminated, or if it appeared reasonably likely to be terminated, this would likely have a significant adverse effect on our stock price.

Our business could be adversely impacted by our pending transaction with Cingular.

      Uncertainty about the effect of our pending transaction with Cingular could adversely affect our business. This uncertainty could increase churn and have a negative impact on subscriber growth, revenue, and our results of operations.

We operate in a highly competitive industry.

      There is substantial competition in the wireless telecommunications industry. We expect competition to intensify as a result of the development of new technologies, products and services, wireless number portability, and as market penetration increases. Other wireless providers, including resellers, serve each of the markets in which we compete. Some of the indirect retailers who sell our services also sell our competitors’ services. There are six national facilities-based mobile wireless service providers, many start-up providers of Wi-Fi and other fixed wireless solutions, and numerous regional competitors. This competition puts downward pressure on subscriber and revenue growth and profit margins, and we expect this trend to continue. Carriers compete principally on service area, price, service quality, and features. Our ability to compete successfully will depend on our ability to anticipate and respond to various competitive factors, including service quality, coverage area, new services, service features and enhancements, changes in consumer preferences, demographic trends, economic conditions and competitors’ pricing strategies.

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Wireless local number portability could negatively impact our business.

      On November 24, 2003, the FCC rules on wireless LNP became effective in the nation’s 100 largest wireless markets. The rules are scheduled to become effective for the entire country on May 24, 2004. These rules allow subscribers to keep their wireless phone number when switching to a different wireless service provider. Number portability has increased competition for existing customers, which has put downward pressure on our subscriber growth, increased our churn, and increased our costs. A high rate of churn adversely affects our results of operations because of loss of revenue and because the cost of adding a new subscriber, which generally includes a commission expense and/or significant handset discounts, is a significant factor in income and profitability for participants in the wireless industry. We may be required to subsidize product upgrades and/or reduce pricing to match competitors’ initiatives and retain customers, which could adversely impact our revenue and profitability.

If our wireless service offerings do not meet customer expectations, it could limit our ability to attract and retain customers.

      Customer acceptance of the services we offer is and will continue to be affected by technology-based differences and by the operational performance, quality, reliability, and coverage of our wireless networks. We may have difficulty attracting and retaining customers if we are unable to meet customer expectations for, or otherwise unable to resolve quality issues relating to, our wireless networks, billing systems, or customer care or if those issues limit our ability to expand our network capacity or subscriber base, or otherwise place us at a competitive disadvantage to other wireless service providers in our markets. We experienced difficulty transferring wireless phone numbers on a timely basis in connection with the implementation of wireless LNP. We also experienced disruptions to our GSM/ GPRS order entry, customer care, and collections processes in connection with implementation of our upgrade to our customer care support system. These events have affected and may continue to affect adversely customer perception of our service, which has affected and may continue to affect our ability to attract and retain customers. The level of consumer demand for our next-generation products is uncertain. Consumer demand could be impacted by differences in technology, footprint and service areas, network quality, consumer perceptions, customer care levels and rate plans.

We need to complete significant GSM/ GPRS/ EDGE network build-out and system implementation as part of our plans to improve the quality and capacity of our GSM/ GPRS/ EDGE network.

      We need to complete significant build-out activities and enhancements to our GSM/ GPRS/ EDGE network, including:

	•	completion of build-out activities in some of our existing wireless markets; and
	•	enhancement of our GSM/ GPRS/ EDGE network.

      Failure to successfully build out and enhance our GSM/ GPRS/ EDGE network and necessary support facilities and systems in a cost effective manner, and in a manner that satisfies customer expectations for quality and coverage, could have a material adverse effect on our operations, financial condition, performance, and growth. As we deploy, expand, and enhance our GSM/ GPRS/ EDGE network, we may need to acquire additional spectrum or reallocate spectrum previously utilized by our TDMA network in certain markets. Reallocation could result in disruptions to, or decreased quality of service to TDMA customers in those markets, or may result in our TDMA customers roaming on another wireless service provider’s system in that market, which could increase our roaming costs. Although we plan to build out our GSM/ GPRS/ EDGE network over virtually all of our TDMA footprint, the actual coverage area may vary in certain markets, which could adversely affect consumer demand for and satisfaction with our GSM/ GPRS service. As we continue to build out and enhance our GSM/ GPRS/ EDGE network, we must, among other things, continue to:

	•	lease, acquire or otherwise obtain rights to a large number of cell and switch sites;
	•	obtain zoning variances or other local governmental or third-party approvals or permits for network construction;

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	•	complete the radio frequency design, including cell site design, frequency planning and network optimization, for each of our markets; and
	•	improve, expand and maintain customer care, network management, billing and other financial and management systems.

      In addition, problems in vendor equipment availability, technical resources, system performance or system adequacy could delay the launch of new or expanded operations in new or existing markets or result in increased costs in all markets. We intend to rely on the services of various companies in order to build-out and enhance our GSM/ GPRS/ EDGE network. However, we may not be able to obtain satisfactory contractors on economically attractive terms or ensure that our contractors or the systems they install will perform as we expect.

If we fail to successfully develop, implement, integrate, and install upgraded information technology systems to support our network expansion and technology migration strategy it could adversely impact our subscriber base, revenue growth, and cost control efforts.

      Many of the customer care and infrastructure support systems for our GSM/ GPRS and EDGE subscribers are not fully implemented. We have encountered delays implementing and upgrading some of these systems. In connection with our implementation of an upgrade to our customer care support system, we experienced a significant multi-day disruption in our ability to activate, or access customer care databases for, our GSM/ GPRS subscribers. Although we have improved performance of this system, our ability to activate and service subscribers on our GSM/ GPRS/ EDGE network on a timely basis, and the efficiency of our customer care operations, could be disrupted again until our upgrade is complete. This has, and could continue, to put pressure on our subscriber growth, particularly through our indirect channels. If we are unable to enhance these new systems in order to handle additional volume as our customer base grows and as customers migrate from TDMA to GSM, or we experience further implementation delays or disruptions, our service levels, operating efficiency, and our profitability could be adversely impacted. We are relying on the services of various companies in order to develop, install, and upgrade necessary support systems. However, the systems they install may not perform as we expect. A delay in the full implementation of support systems for our GSM/ GPRS/ EDGE subscribers could also have an adverse effect on our ability to add or service GSM/ GPRS/ EDGE subscribers.

We may encounter difficulties implementing our GSM/ GPRS/ EDGE deployment strategy, which could have a negative impact on subscriber growth and retention, and our financial results.

      Our technology strategy involves operating our GSM/ GPRS/ EDGE network separately from our TDMA network. We may not be able to achieve or maintain the balanced loading on each network necessary to optimize capital spending, operational expenses, or service quality. Failure to achieve the proper balance could require us to invest additional capital in our TDMA network to avoid service degradation in certain markets. It could also lead to customer dissatisfaction with network quality on one or both networks. We initially deployed our GSM/ GPRS equipment at our existing TDMA sites, to the extent possible. Due to the different operating characteristics of TDMA and GSM/ GPRS equipment, although we have deployed additional GSM/ GPRS sites within our TDMA footprint, the actual coverage area of our GSM/ GPRS/ EDGE network will vary from our TDMA network, particularly where we have deployed a GSM/ GPRS system utilizing 1900 megahertz spectrum over a TDMA system using 850 megahertz spectrum. This may result in customer dissatisfaction.

      We may have difficulty maintaining our TDMA network and our TDMA handsets as our suppliers shift resources to next-generation technology development, decreasing their incentives to develop enhancements or upgrades to their TDMA product lines because of decreased economies of scale. As a result, the cost structure for our TDMA offerings might increase, or the attractiveness of our TDMA service offerings could be impaired, resulting in increased churn of TDMA customers, failure to achieve the proper balance between our two networks and reduced profitability.

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      Our strategy assumes a portion of our customers will prefer the flexibility and broader service area offered by dual-mode handsets, referred to as “GAIT” phones that operate on both our TDMA and GSM/ GPRS networks. GAIT handset are more expensive than TDMA handsets and may have operational limitations, which could impede our efforts to sell GSM/ GPRS services and lead to increased churn. Because GAIT phones are required by only a limited number of carriers that operate both TDMA and GSM/ GPRS networks, they may not be produced in sufficient quantities when needed, and their limited use may be insufficient to achieve high economies of scale. These handsets are new products that may have operational limitations or sub-optimal features that may discourage customer use. If these handsets are not economical or attractive to customers, we may experience increased churn, our costs could increase, and our profitability could be reduced.

Our business and operations would be adversely affected if we fail to acquire adequate radio spectrum.

      Our domestic business depends on the ability to use portions of the radio spectrum licensed by the FCC. We could fail to obtain sufficient spectrum capacity in new and existing markets, whether through FCC auctions or other transactions, in order to meet the expanded demands for our existing services in critical markets, and to enable deployment of next-generation services. Such a failure could have a material adverse impact on the quality of our services or our ability to roll out such future services in some markets, or could require that we curtail existing services in order to make spectrum available for our next-generation services. We may acquire more spectrum through a combination of alternatives, including participation in spectrum auctions. As required by law, the FCC periodically conducts auctions for licenses to use some parts of the radio spectrum. The decision to conduct auctions, and the determination of what spectrum frequencies will be made available for auction, are provided for by laws administered by the FCC. The FCC may not allocate spectrum sufficient to meet the demands of all those wishing to obtain licenses. Even if the FCC determines to conduct further auctions in the future, we may not be successful in those future auctions in obtaining the spectrum that we believe is necessary to implement our business and technology strategies. We may also seek to acquire radio spectrum through purchases and swaps with other spectrum licensees or otherwise, including by purchases of other licensees outright. However, we may not be able to acquire sufficient spectrum through these types of transactions, and we may not be able to complete any of these transactions on favorable terms.

Our technology may not be competitive with other technologies or be compatible with next-generation technology.

      There are three principal digital transmission technologies, none of which is compatible with the others. We and other carriers selected TDMA technology for our second-generation network. We believe that this technology offers several advantages over other second-generation technologies. However, a number of other wireless service providers chose code division multiple access (CDMA) as their digital wireless technology. We have chosen a GSM platform to lower costs and to make available, among other things, enhanced data services using GPRS technology, and next-generation capabilities using enhanced data rates for global evolution (EDGE) and ultimately universal mobile telecommunications systems (UMTS) technologies. These technologies may not provide the advantages we expect and may increase the cost and complexity of complying with regulatory mandates, such as emergency 911 services. Download speeds and coverage provided by our EDGE network may be impacted by signal strength, end user location, and network loading.

      Some other wireless providers have chosen a competing wideband technology as their next-generation technology. As we implement our plans for deployment of technology for next-generation capabilities, we will continue to incur substantial costs associated with maintaining our expanding networks. Also, these networks are not compatible, and only customers with phones that operate on more than one network will be able to use those phones on more than one network. There are risks inherent in the development of new next-generation equipment and we may face unforeseen costs, delays or problems that may have a material adverse effect on us.

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In many areas, we rely on roaming agreements with affiliates or other carriers to provide service to our customers outside our service area. Our business and operations could be adversely affected if we are unable to establish new relationships to expand our GSM/ GPRS/ EDGE service area or if our affiliates do not or cannot develop or expand their network in a manner consistent with ours.

      To accelerate the build-out of wide scale coverage of the U.S. by a digital mobile wireless network operating on the technical standards we have adopted, we have entered into affiliation agreements with other entities that provide wireless services or hold spectrum licenses. Through roaming arrangements between these affiliates and us, our customers are able to obtain service in the affiliates’ territories, and the affiliates’ customers are able to obtain service in our territory. In all markets where these affiliates operate, we are at risk because we do not control the affiliates. As a result, we may not be able to compel these affiliates to participate in our technology migration strategy or to expand their coverage areas. Our ability to provide service on a nationwide level and to implement our next-generation strategy could be adversely affected if these affiliates are unable or unwilling to participate in the further development of our digital network, or if they cease to provide services comparable to those we offer on our networks.

      Our customers are not able to obtain GSM/ GPRS/ EDGE service in many parts of the country, either because there is no GSM/ GPRS/ EDGE network in that area, or because we do not have a GSM/ GPRS/ EDGE roaming agreement with a service provider in that area. In order to effectively compete with carriers offering a larger service area, we need to expand our GSM/ GPRS/ EDGE coverage area. We intend to establish new relationships to accelerate build-out of GSM/ GPRS/ EDGE networks outside our service area, and enter into new or expanded roaming agreements with other carriers. If we are unable to establish such relationships, or if any of our affiliates, or other carriers with whom we have GSM/ GPRS/ EDGE roaming relationships are unable to or do not successfully develop or expand their systems in a manner consistent with our network, our ability to service our customers and increase the quality and coverage area of our GSM/ GPRS/ EDGE network could be adversely affected. In addition, to the extent our affiliates or roaming partners that have developed GSM/ GPRS do not deploy EDGE technology, our ability to expand our EDGE service area beyond our own network will be limited, which could adversely affect demand for the service.

We rely on roaming arrangements with other carriers, which we may be unable to obtain or maintain in the future.

      We may not continue to be able to obtain or maintain roaming agreements with other wireless providers on terms that are acceptable to us. Our customers automatically can access another provider’s analog cellular or digital system only if the other provider allows our customers to roam on its network. We rely on agreements to provide roaming capability to our customers in many areas of the U.S. outside our service area and to improve coverage within our network footprint. Some competitors may be able to obtain lower roaming rates than we do because they have larger call volumes or because of their affiliations with, or ownership of, wireless providers, or may be able to reduce roaming charges by providing service principally over their own network. In addition, the quality of service that a wireless provider delivers during a roaming call may be inferior to the quality of service we or our affiliates provide, the price of a roaming call may not be competitive with prices of other wireless providers for such call, and our customers may not be able to use some of the advanced features, such as voicemail notification, that the customers enjoy when making calls within our network. Finally, we may not be able to obtain roaming agreements for our GSM/ GPRS, EDGE, and other next-generation products and services with pricing or coverage we desire.

If the demand for wireless data services does not grow, or if we fail to capitalize on such demand, it could have an adverse effect on our growth potential.

      We have committed significant resources to develop and market wireless data services, in anticipation of a growth in demand for those services. That demand may not materialize. Even if such demand does develop, our ability to deploy and deliver wireless data services relies, in many instances, on new and unproven technology. Existing technology, including GPRS and EDGE, may not perform as expected and may be more capital intensive than planned. We may not be able to successfully develop or obtain new technology to effectively and economically deliver these services. The success of wireless data services is substantially dependent on the ability of others to develop applications for wireless data devices and to develop and

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Market prices for wireless services may decline in the future.

      We anticipate that market prices for mobile wireless voice and data services generally will continue to decline. We expect significant competition among wireless providers to continue to drive service and equipment prices lower. We also expect that there will be increases in advertising and promotional spending, along with increased demands on access to distribution channels. All of this may lead to greater choices for customers, possible consumer confusion, and increasing movement of customers between competitors, which we refer to as “churn.” If market prices continue to decline, it could adversely affect our ability to grow revenue, which would have a material adverse effect on our financial condition and results of operations.

Significant changes in wireless industry technology or demand for wireless service could materially adversely affect us.

      The wireless communications industry is experiencing significant technological change. This change includes:

	•	evolving industry standards;
	•	ongoing improvements in the capacity and quality of digital technology;
	•	shorter development cycles for new products, enhancements and changes in end-user needs and preferences;
	•	development of data and high bandwidth network capabilities;
	•	migration to next-generation services; and
	•	expanded availability and functionality of Wi-Fi services and other new wireless technologies.

      The pace and extent of customer demand may not continue to increase, and airtime and monthly recurring charges may continue to decline. As a result, the future prospects of the industry and of our company and the success of our competitive services remain uncertain. Also, alternative technologies may develop that may provide wireless communications service or alternative service superior to that available from us, or that enable voice communication over unregulated frequencies. Such developments could have a material adverse affect on us.

We may not be able to fund future capital requirements.

      Our strategy and business plan will continue to require capital investment, which we may not be able to obtain on favorable terms or at all. If we failed to obtain capital necessary to fund our business plan, we would have to delay, change or abandon those plans. We expect to incur significant capital expenditures in 2004 and future years. The actual amount of the funds required to finance our network build-out and other capital expenditures in future periods may vary materially from management’s estimate. Our purchase commitments for network equipment and handsets totaled $822 million as of December 31, 2003. In addition, we anticipate that we will enter into material purchase commitments in the future. We also may require substantial additional capital for, among other uses, acquisitions of providers of wireless services, spectrum license or system acquisitions, system development and network capacity expansion. If we were unable to finance our

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The actual amount of funds necessary to implement our strategy and business plan may materially exceed current estimates, which could have a material adverse effect on our financial condition and results of operations.

      The actual amount of funds necessary to implement our strategy and business plan may materially exceed our current estimates in the event of various factors including: departures from our current business plan, unforeseen delays, cost overruns, unanticipated expenses, regulatory developments, engineering design changes, and technological and other risks. If actual costs do materially exceed our current estimates for these or other reasons or we are unable to control or reduce costs, this could have a material adverse effect on our financial condition and results of operations.

Our relationship with DoCoMo contains features that could adversely affect our financial condition or the way in which our business is conducted.

      DoCoMo, a leading Japanese wireless communications company, is our largest shareholder, and the agreements relating to DoCoMo’s investment contain requirements and contingencies that could materially adversely affect our financial condition and technology strategies. Pursuant to the Investor Agreement, as amended, between AT&T Wireless Services, AT&T Corp. and DoCoMo, DoCoMo may require us to repurchase its investment at DoCoMo’s original purchase price, plus interest, if under certain circumstances, and subject to the exceptions identified in the Investor Agreement:

	•	We fail to launch service based on W-CDMA technology in certain areas of Dallas, San Diego, San Francisco, and Seattle, or permitted alternate cities by December 31, 2004; or
	•	Our board of directors approves changes prior to December 31, 2004, in our use of W-CDMA technology as our primary standard for delivery of services based on third-generation technology.

      Two other provisions of the Investor Agreement limit our ability to take certain actions without DoCoMo’s consent. We need to obtain DoCoMo’s consent to change the scope of our business such that our current businesses, including businesses that are part of our business plan and natural evolutions of those businesses, taken as a whole no longer constitute our primary business, or to allow another wireless operator to acquire more than 15 percent but less than 50 percent of our equity in connection with the formation of a strategic alliance, with certain exceptions specified in the Investor Agreement. These limitations could prevent us from taking advantage of some business opportunities or relationships that we might otherwise pursue.

Termination or impairment of our relationship with a small number of key suppliers or vendors could adversely affect our revenues and results of operations.

      We have developed relationships with a small number of key vendors, including Nokia Mobile Phones, Inc., Sony Ericsson Mobile Communications, Siemens AG, LG InfoComm U.S.A., Inc., Motorola, Inc., NEC Corporation, and Samsung Electronics Co., Ltd. for our supply of wireless handsets and devices; Nortel Networks, Inc., Telefonaktiebolaget LM Ericsson, Nokia Networks, Inc., and Hewlett Packard Company for our supply of telecommunications infrastructure equipment; Convergys Information Management Group and StarTek, Inc. for billing or customer care services; Bechtel Corporation for build-out of our networks; and Siebel Systems, Inc., Sun Microsystems, Inc., and Cisco Systems, Inc. for information systems. We do not have operational or financial control over our key suppliers and have limited influence with respect to the manner in which these key suppliers conduct their businesses. If these key suppliers were unable to honor, or otherwise failed to honor their obligations to us, we could experience disruptions of our business and adverse effects on our revenues and results of operations.

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Political or economic changes, or other factors, in a specific country or region could harm our operations and financial condition.

      We conduct some customer care operations outside of the United States. International roaming is becoming a larger part of our services revenue. Additionally, we hold equity interests in several foreign entities. Accordingly, our future results could be materially adversely affected by a variety of uncontrollable and changing factors including, among others, foreign currency exchange rates; political or social unrest or economic instability in a specific country or region; difficulties in staffing and managing international operations; and increased difficulty in identifying and preventing consumer fraud. Any or all of these factors could have a material adverse impact on our costs, expenses, and financial condition.

We may substantially increase our debt in the future, which could subject us to various restrictions and higher interest costs and decrease our cash flow and earnings.

      We may substantially increase our debt in the future, which could subject us to various restrictions and higher interest costs and decrease our cash flow and earnings. We may also encounter difficulties in obtaining all the financing we need to fund our business and growth strategy on desirable terms. We may require substantial additional financing to fund capital expenditures, license purchases and costs and expenses in connection with our operations, domestic and international investments, and growth strategy. We currently rely on our committed credit facilities and receivables securitization program to meet any additional financing needs. We are exploring and evaluating the relative advantages and disadvantages of various funding mechanisms. Other funding mechanisms that still may be considered include other forms of public and private debt facilities. The decision on debt composition is dependent on, among other things, our business and financial plans and the market conditions at the time of financing. The agreements governing this indebtedness may contain financial and other covenants that could impair our flexibility and restrict our ability to pursue growth opportunities. We may also need to utilize other funding sources, including issuance of public equity or debt securities, or issuance of commercial paper.

Our operating results, including our profit or loss, margins, and cash flow generation, may fluctuate on a quarterly basis, and may not be representative of our results for the full year.

      The wireless industry, including our company, has experienced a trend of generating a significantly higher number of customer additions in the fourth quarter of each year as compared to the other three fiscal quarters. A number of factors contribute to this trend, including the increasing use of retail distribution, which is dependent upon the year-end holiday shopping season, the timing of new product and service announcements and introductions, competitive pricing pressures, and aggressive marketing and promotions. Strong fourth quarter results for customer additions may not continue for the wireless industry or for us. The number of our customer additions in the fourth quarter could decline for a variety of reasons, including our inability to match or beat pricing plans offered by competitors, failure to adequately promote our products, services and pricing plans, failure to have an adequate supply or selection of handsets, or lower demand for wireless services. If in any year fourth quarter results fail to significantly improve upon customer additions from the year’s previous quarters, this could adversely impact the growth of our subscriber base, which could limit revenue growth in subsequent periods.

      The revenues we generate from subscribers roaming on our network, as well as the expenses we incur related to our subscribers roaming on other carriers’ networks, fluctuate on a quarterly basis, with increases typically occurring during the summer months due to an increase in travel during these periods. These fluctuations may result in higher or lower roaming revenues and expenses in any given quarter, thereby increasing or decreasing our profit or loss for that quarter. Our capital expenditures vary due to the timing of network expansion, network upgrades and market launches. The timing of our capital expenditures will impact the cash flow we generate in any given quarter, and may not be representative of our cash flow for the full year. Our churn levels may fluctuate from quarter to quarter depending on the number of expiring contracts, or other factors. Our OIBDA and OIBDA margins could fluctuate from quarter to quarter, depending on marketing expenses, significant fluctuations in the number of new subscribers, and our customer retention efforts.

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Equipment failure, power outages, natural disasters, terrorist acts, or other breaches of network or IT security may adversely affect our business.

      A major equipment failure, power outage, natural disaster, terrorist act, or other breach of network or IT security that affects our mobile telephone switching offices, information systems, microwave links, third-party owned local and long distance networks on which we rely, our cell sites or other equipment or the networks of other providers on which our subscribers roam could have a material adverse effect on our operations. While we have insurance coverage for some of these events, our inability to operate our wireless system or access our information systems even for a limited time period, or the loss of subscriber data, may result in a loss of subscribers or impair our ability to serve our subscribers or attract new subscribers, which would have a material adverse effect on our business, results of operations and financial condition.

Our future financial results could be adversely impacted by asset impairments or other charges.

      Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” As a result, we are required to test both acquired goodwill and other indefinite-lived intangible assets, consisting of our U.S. licensing costs, for impairment on an annual basis based upon a fair value approach, rather than amortizing them over time. We have chosen to perform our annual impairment reviews of both goodwill and U.S. licensing costs during the third quarter of each fiscal year. We are also required to test goodwill for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors. If our market value is less than our book value for an extended period of time, we could be required to record an impairment charge. Additionally, our U.S. licensing costs must be tested between annual tests if events or changes in circumstances indicate that the asset might be impaired. We may also be required to record an earnings charge or incur unanticipated expenses if, due to a change in strategy or other reason, we determine that the value of other assets has been impaired or we terminate a contractual commitment. The amount of any such annual or interim impairment or other charge could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken.

Media and other reports have suggested radio frequency emissions may be linked to various health concerns and interfere with various medical devices, and we may be subject to potential litigation relating to these health concerns.

      Media and other reports have linked radio frequency emissions from wireless handsets to various health concerns, including cancer, and to interference with various electronic medical devices, including hearing aids and pacemakers. Research and studies are ongoing. Whether or not such research or studies conclude there is a link between radio frequency emissions and health, these concerns over radio frequency emissions may discourage the use of wireless handsets or service or expose us to potential litigation, which could have a material adverse effect on our results of operations. Several class-action lawsuits have been filed against us, several other wireless service providers and several wireless phone manufacturers asserting products liability, breach of warranty and other claims relating to radio frequency transmissions to and from wireless phones. The complaints seek damages for personal injuries and the costs of headsets for wireless phone users as well as injunctive relief.

Our operations are subject to government regulation that could have adverse effects on our business.

      The licensing, construction, operation, sale, resale and interconnection arrangements of wireless communications systems are regulated to varying degrees by the FCC and, depending on the jurisdiction, by state and local regulatory agencies. These regulations include, among other things, required service features and capabilities, such as wireless LNP or emergency 911 service. We have entered into consent decrees with the FCC relating to our implementation of emergency 911 services for our TDMA and GSM/ GPRS/ EDGE networks. In addition, the FCC, together with the U.S. Federal Aviation Administration, regulates tower

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      FCC licenses to provide wireless services or personal communications services are subject to renewal and revocation. There may be competition for our licenses upon their expiration and it is possible that the FCC will not renew them. FCC rules require all wireless and personal communications services licensees to meet specified build-out requirements. We may not be able to meet these requirements in each market. Failure to comply with these requirements in a given license area could result in revocation or forfeiture of our license for that license area or the imposition of fines on us by the FCC.

We may be subject to potential litigation relating to the use of wireless phones while driving.

      Some studies have indicated that some aspects of using wireless phones while driving may impair drivers’ attention in some circumstances, making accidents more likely. These concerns could lead to potential litigation alleging accidents, deaths or serious bodily injuries, or to new restrictions or regulations on wireless phone use, any of which also could have material adverse effects on our results of operations.

State and local legislation restricting or prohibiting wireless phone use while driving could cause subscriber usage to decline.

      Numerous state and local legislative bodies have proposed legislation restricting or prohibiting the use of wireless phones while driving motor vehicles. Similar laws have been enacted in other countries. On June 28, 2001, New York State enacted a law prohibiting the use of handheld wireless phones while driving motor vehicles other than through the use of hands-free equipment. Since then, New Jersey and the District of Columbia have enacted similar laws. To date, a small number of communities in the U.S. have also passed restrictive local ordinances. These laws or, if passed, other laws prohibiting or restricting the use of wireless phones while driving, could have the effect of reducing subscriber usage, which could cause a material adverse effect on our results of operations.

The historical financial information of AT&T Wireless Group may not be representative of our results as an independent entity and, therefore, may not be reliable as an indicator of our historical or future results.

      The historical financial information of AT&T Wireless Group may not reflect what our results of operations, financial position, and cash flows would have been had we been an independent entity during the periods prior to the split-off. This is because the financial information reflects allocations for services provided to AT&T Wireless Group by AT&T, and these allocations may not reflect the costs we incur for similar or incremental services as an independent entity.

We will generally be responsible for tax liability if the split-off is taxable.

      Under the separation and distribution agreement between us and AT&T, subject to limited exceptions, we will be responsible for any tax liability and any related liability that results from the split-off failing to qualify as a tax-free transaction. If the split-off failed to qualify as a tax-free transaction, this liability would have a material adverse effect on us.

We no longer receive tax sharing payments from AT&T since we ceased to be a member of the AT&T consolidated tax return group, and we may incur other tax liabilities as a result of the split-off and pre-split-off transactions.

      As a result of the split-off, we ceased to be a member of the consolidated federal income tax return group of which AT&T is the common parent. Consequently, taxable income and losses, and our other tax attributes

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We may lose rights under agreements with AT&T under certain circumstances.

      Some of the agreements that we have entered into with AT&T in connection with the split-off, including the brand license agreement, master carrier agreement and other commercial agreements, contain provisions that give one party rights in the event of a change of control of the other party. These provisions may deter a change of control. In the event of a change of control, the exercise of these rights could have a material adverse effect on us. To maintain our rights under the brand license agreement, we must comply with specified quality, privacy, customer care, graphics and marketing standards in connection with our use of these AT&T brands. While we are using the AT&T brands, we must also pay AT&T a brand maintenance fee. Under certain circumstances, AT&T may terminate the brand license agreement in the event we materially breach the agreement or we experience a change of control. AT&T may also choose not to extend the agreement beyond the end of its term.

The value to us of our right to use the AT&T brand could be adversely impacted by AT&T Corp. or others.

      Our license from AT&T Corp. of the AT&T brand grants us limited exclusivity. Our ability to control who is licensed to use the AT&T brand is limited. We may not be able to prevent AT&T Corp. from licensing the brand for uses that we feel could adversely impact the value of the brand to us. The value of the brand could be adversely impacted by actions of AT&T Corp, or any licensee, or the public perception of companies using the brand or if it is no longer used by companies other than us.

Item 2.     Properties

      Our corporate headquarters consists of leased office space in six buildings in Redmond, Washington occupying approximately 582,000 combined square feet. We also have additional administrative office space in approximately 150 buildings throughout the U.S. and maintain 22 customer service centers. Our customer service centers are located in the following cities:

	•	Anaheim, California
	•	Austin, Texas
	•	Bothell, Washington
	•	Cerritos, California
	•	Greensboro, North Carolina
	•	Harrisburg, Pennsylvania
	•	Jackson, Mississippi
	•	Lebanon, Virginia
	•	Memphis, Tennessee
	•	Mililani, Hawaii
	•	Minneapolis, Minnesota

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	•	Oklahoma City, Oklahoma
	•	Orlando, Florida
	•	Paramus, New Jersey
	•	Portland, Oregon
	•	Sacramento, California
	•	West Palm Beach, Florida

      We lease all of our office space, with the exception of one building in Hawaii, which we own. Our total national office space, including our corporate headquarters, administrative office space and customer service centers, totals approximately 6,300,000 square feet. We also operate over 1,000 stores and kiosks, almost all of which are leased.

      We also have numerous properties consisting of cell and switching equipment sites, and other plant and equipment used to provide wireless communications services. The majority of these sites are leased. These leases typically have an initial term of five years with four options to renew for another five years each, although in some cases as many as eight additional renewal options exist. We have recently extended the lease terms for approximately 1,900 of our cell sites by an average of forty-five years. These properties are located throughout the U.S. These properties include land, interior and rooftop space, and space on existing structures of various types used to support equipment used to provide wireless communications services. Most of the leased properties are owned by private entities and the balance is owned by municipal entities.

      Plant and equipment used to provide wireless services consist of:

	•	switching, transmission and receiving equipment,
	•	connecting lines (cables, wires, poles and other support structures, conduits, etc.),
	•	land and buildings,
	•	easements, and
	•	other miscellaneous properties (work equipment, furniture and plants under construction).

      The majority of the lines connecting our services to other telecommunications services and power sources are on or under public roads, highways and streets. The remainder is on or under private property. As of December 31, 2003, our expected minimum obligation associated with these leases was approximately $3.4 billion.

Item 3.     Legal Proceedings

      AT&T Wireless Services is defending two class-action or representative lawsuits challenging the quality of its wireless service. These cases include allegations of breach of contract, statutory consumer fraud, and similar claims. In one case filed in Texas, the named plaintiffs have asserted claims for compensatory and punitive damages totaling $100 million. That case was dismissed, and then reversed by the court of appeals; AT&T Wireless Services is seeking review in the Texas Supreme Court. In a case filed in California, the court denied class certification and also denied all remaining claims for monetary relief, although claims for injunctive relief remain pending.

      A series of class-action cases have been filed against AT&T Wireless Services as well as its major competitors, alleging that defendants have violated federal antitrust laws by allegedly restricting the portability of wireless handsets between carriers. Plaintiffs assert both tying and monopolization claims, but have not asserted specific claims for damages. The court has dismissed the monopolization claims and the per-se tying claim against all defendants.

      Various class-action or representative lawsuits are pending against AT&T Wireless Services that challenge a variety of billing practices and the adequacy of AT&T Wireless Services’ disclosures concerning

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      Numerous class-action lawsuits were filed against AT&T and several wireless phone manufacturers and carriers asserting products liability and similar claims relating to radio-frequency transmissions to and from wireless phones. The court dismissed all but one of these cases on preemption grounds; plaintiffs have appealed.

      In 1993, shareholders of a former competitor of AT&T Wireless Services’ air-to-ground business sued AT&T Wireless Services, alleging breach of a confidentiality agreement, misappropriation of trade secrets, and tortious interference with the competitor’s business. The jury returned a verdict in favor of AT&T Wireless Services on all claims. During a trial, which concluded in October 2003, the plaintiff asserted damages totaling up to $438 million, but the jury returned a verdict in favor of AT&T Wireless Services on all claims. Plaintiff has filed certain motions challenging the verdict.

      Several class-action lawsuits have been filed against AT&T, certain executives of AT&T and AT&T Wireless Services, and a group of investment banking firms asserting claims under federal securities laws. The complaints assert claims that AT&T made material misstatements concerning earnings and financial condition, while omitting other material information, allegedly to maximize proceeds from the offering of AT&T Wireless Group tracking stock in April 2000 and/or to avoid paying a cash guarantee in connection with the MediaOne acquisition. The plaintiffs have demanded damages in excess of $2.1 billion related to the offering of AT&T Wireless Group tracking stock. In connection with the split-off, certain provisions of the Separation Agreement between AT&T Wireless Services and AT&T may result in AT&T Wireless Services being allocated a portion of the liabilities, if any, arising out of these actions to the extent they relate to AT&T Wireless Group tracking stock.

      A former executive and shareholder of Tritel, Inc. (which, as a subsidiary of TeleCorp, was acquired by AT&T Wireless Services as part of its acquisition of TeleCorp) filed a lawsuit against Tritel, Inc., Tritel Communications, Inc., and two board members seeking to rescind an earlier settlement agreement. The plaintiff alleged that the defendants withheld material information about an initial public offering that occurred after he settled his prior claims, and asserted claims for fraud, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. The plaintiff sought $60 million in damages and/or restitution, and $450 million in punitive damages. An arbitration panel awarded the plaintiff $57 thousand. An appeal is pending that challenges the referral of the case to arbitration.

      AT&T Wireless Services has been named as a defendant, along with another wireless carrier and several wireless phone manufacturers, in three class-action lawsuits alleging that existing phone equipment does not meet FCC requirements for 911 emergency call processing. Damages have not been specified, although plaintiffs are seeking injunctive and equitable relief.

      AT&T Wireless Services is currently a party to various claims and legal proceedings, including those noted above. AT&T Wireless Services also makes routine filings with the FCC and state regulatory authorities, as well as federal, state, and local tax authorities. If management believes that a loss arising from these actions and/or filings is probable and can reasonably be estimated, an amount is recorded for the estimated loss. As additional information becomes available, the potential liability related to the actions is assessed and the estimates are revised, if necessary. Based upon currently available information, management does not believe that the ultimate outcome of these actions beyond that provided for as of December 31, 2003, individually and in the aggregate, will have a material adverse effect on AT&T Wireless Services’ Consolidated Financial Statements. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. If so, it could have a material adverse impact on AT&T Wireless Services’ Consolidated Financial Statements in future periods. While it is not possible to predict the ultimate outcome of the matters discussed above, historically, AT&T Wireless Services has been successful in defending itself against claims

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Item 4.     Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of our shareholders during the fourth quarter of the fiscal year ended December 31, 2003.

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PART II

Item 5.     Market for the Company’s Common Stock and Related Shareholder Matters

      Our common stock is traded on the New York Stock Exchange (symbol “AWE”). As a result of the split-off on July 9, 2001, each share of AT&T Wireless Group tracking stock was converted into one share of our common stock and each holder of AT&T common stock received .3218 of a share of our common stock for each share of AT&T common stock held.

      The number of shareholders of record of our common stock at February 27, 2004, was 1,134,969.

      The table below shows the range of reported per share sales prices on the New York Stock Exchange for our common stock for the periods indicated:

      We currently do not pay any dividends on our common stock, and we do not intend to pay any dividends on our common stock in the foreseeable future.

Item 6.     Selected Financial Data

      The following selected financial data should be read in conjunction with the consolidated financial statements and the notes thereto contained herein in “Item 8. Financial Statements and Supplementary Data” and the information contained herein in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Historical results are not necessarily indicative of future results.

      In the table below you are provided with selected historical consolidated financial data of AT&T Wireless Services, Inc. and subsidiaries. For periods prior to AT&T Wireless Services’ split-off from AT&T Corp. (AT&T) on July 9, 2001, this selected historical financial data reflects the results of operations, balance sheet data, and cash flow data for the AT&T Wireless Group of AT&T. Prior to the split-off from AT&T, the financial statements of AT&T Wireless Services reflected an assumed capital structure allocated from AT&T, as well as allocated costs associated with AT&T’s common support divisions. In the split-off, AT&T contributed to AT&T Wireless Services all of the businesses and assets, and AT&T Wireless Services assumed all of the liabilities, that constituted the AT&T Wireless Group. These contributions have been accounted for in a manner similar to a pooling of interests and AT&T Wireless Services has assumed that these transfers were completed in historical periods by the legal entity AT&T Wireless Services.

      The following financial information was derived using the consolidated financial statements of AT&T Wireless Services at and for each of the fiscal years in the five-year period ended December 31, 2003. The consolidated statement of operations and cash flow data below for each of the years in the three-year period ended December 31, 2003, and the consolidated balance sheet data at December 31, 2003 and 2002, were derived from audited consolidated financial statements, which are included in this document. The consolidated statement of operations and cash flow data below for the years ended December 31, 2000 and 1999, and the consolidated balance sheet data at December 31, 2001 and 2000, were derived from audited consolidated

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      The statement of operations data and balance sheet data presented below is not necessarily comparable from period to period as a result of several transactions by AT&T Wireless Services, such as the following:

	•	Recording of business restructuring reserves during 2003 totaling $88 million in conjunction with AT&T Wireless Services’ companywide initiative to improve operating efficiency and margins.
	•	Acquisition of TeleCorp PCS, Inc. on February 15, 2002. AT&T Wireless Services also completed several other significant strategic acquisitions during the years ended December 31, 2000 and 1999. Additionally, AT&T Wireless Services sold and exchanged equity interests in several unconsolidated subsidiaries resulting in net pretax gains of $170 million, $462 million, and $939 million in the statement of operations for the years ended December 31, 2003, 2001, and 2000, respectively.
	•	Recognition of pretax impairments of licensing costs totaling $83 million and $1,329 million during the third quarters of 2003 and 2002, respectively, resulting from an annual assessment of U.S. licensing costs and goodwill, as required by Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” AT&T Wireless Services recognized a $528 million pretax asset impairment charge primarily associated with the planned disposal of certain wireless communications equipment during the year ended December 31, 1999.
	•	Recognition of pretax impairments of unconsolidated subsidiaries, totaling $62 million, $1,184 million, and $107 million during 2003, 2002, and 2001, respectively, resulting from assessments of the recoverability of cost and equity method unconsolidated subsidiaries, as well as AT&T Wireless Services’ proportionate share of its equity method unconsolidated subsidiaries’ SFAS No. 142 impairment charges.
	•	Establishment of deferred tax valuation allowances of $970 million during 2002, in accordance with SFAS No. 109, “Accounting For Income Taxes.” AT&T Wireless Services no longer required a full valuation allowance on its deferred tax assets effective during the second quarter of 2003.
	•	Exit from the fixed wireless business in the fourth quarter of 2001, resulting in a pretax charge of $1,318 million, reflecting a write-down of assets and the impact of phased exit charges. AT&T Wireless Services recognized $76 million of pretax gains during 2002, reflecting adjustments to the original pretax charge recorded during the fourth quarter of 2001. In accordance with Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions,” the consolidated financial statements of AT&T Wireless Services reflect the fixed wireless business as discontinued operations for all periods presented.

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      For these and other reasons, you should read the selected historical financial data provided below in conjunction with AT&T Wireless Services’ consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations, which are included in this document.

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(1)	All periods reflect the fixed wireless business as discontinued operations.
(2)	In accordance with the adoption of SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” on July 1, 2003, AT&T Wireless Services reclassified its mandatorily redeemable preferred stock to other long-term liabilities. Additionally, on a prospective basis, the interest accretion is classified as interest expense.
(3)	OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA margin is calculated as OIBDA divided by services revenue. OIBDA and OIBDA margin are non-generally accepted accounting principles (GAAP) financial measures. They differ from operating income (loss), as calculated in accordance with GAAP in that they exclude depreciation and amortization, and differ from net income (loss) as calculated in accordance with GAAP in that they exclude (i) depreciation and amortization, (ii) other income (expense), (iii) interest expense, (iv) provision for income taxes, (v) net equity earnings (losses) from investments in unconsolidated subsidiaries, (vi) income (loss) from discontinued operations, and (vii) cumulative effect of change in accounting principle. We believe OIBDA and OIBDA margin to be relevant and useful information to our investors as these measures are an integral part of our internal management reporting and planning process and are the primary measures used by our management to evaluate the operating performance of our consolidated operations. They are used by management as a measurement of our success in acquiring, retaining, and servicing customers because we believe these measures reflect our 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 our performance with that of many of our competitors. The components of OIBDA include the key revenue and expense items for which our operating managers are responsible and upon which we evaluate their performance. Additionally, our $2.5 billion credit facility (under which no amounts are currently outstanding) requires us to maintain certain financial ratios, including a specified ratio of net-debt-to-operating income excluding depreciation and amortization expenses and impairment charges. Lastly, we use OIBDA for planning purposes, and in presentations to our board of directors, and we use multiples of current or projected OIBDA in our discounted cash flow models to determine the value of our licensing costs and our overall enterprise valuation.

      OIBDA excludes other income (expense) and net equity earnings (losses) from investments in our unconsolidated subsidiaries, as these do not reflect the operating results of our subscriber base and our national footprint that we utilize to obtain and service our subscribers. Net equity earnings (losses) from investments in unconsolidated subsidiaries represent our proportionate share of the net income (loss) of equity investments in which we exercise significant influence, but do not control. As we do not control these entities, our management excludes these results when evaluating the performance of our primary operations. Although excluded, net equity earnings (losses) from investments in unconsolidated subsidiaries may include results that are material to our overall net income (loss). During 2002, net equity earnings (losses) from investments in unconsolidated subsidiaries included $939 million representing our

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      We believe OIBDA as a percentage of services revenue to be a more relevant measure of our operating margin than OIBDA as a percentage of total revenue. We generally subsidize a portion of our handset sales, all of which is recognized in the period in which we sell the handset. This results in a disproportionate impact on our margin in that period. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing services revenue that is generated by the subscriber. We also use services revenue to calculate margin to facilitate comparison, both internally and externally, with our competitors, as they calculate their margins using services revenue as well.

      There are material limitations to using measures such as OIBDA and OIBDA margin, including the difficulty associated with comparing these performance measures as we calculate them to similar performance measures presented by other companies, and the fact that these performance measures do not take into account certain significant items, including depreciation and amortization, interest, and tax expense and net equity earnings (losses) from investments in unconsolidated subsidiaries, that directly affect our net income or loss. Management compensates for these limitations by carefully analyzing how our competitors present performance measures that are similar in nature to OIBDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with their analysis of net income (loss) as calculated in accordance with GAAP. OIBDA and OIBDA margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the United States of America. OIBDA and OIBDA margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. See “OIBDA Discussion” within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a reconciliation of OIBDA and OIBDA margin to their most comparable measures under GAAP.

      You should read the following discussion and analysis in conjunction with the Consolidated Financial Statements and accompanying notes included elsewhere in this report. Except for the historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, such as our objectives, expectations, and intentions. Actual results could differ materially from results that may be anticipated by such forward-looking statements and discussed elsewhere in this report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section below, and those discussed under “Additional Factors That May Affect Our Business, Future Operating Results and Financial Condition.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other filings made with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects, and results of operations. We make our periodic and current reports available, free of charge, on our website as soon as reasonably practicable after such material is electronically filed with the Commission.

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OVERVIEW

      We are the second-largest wireless communications service provider in the United States based on revenues for 2003. We seek to expand our customer base and revenue stream by providing high-quality, innovative wireless voice and data services. As of December 31, 2003, we had 22.0 million consolidated subscribers. For the year ended December 31, 2003, we had $16.7 billion of total consolidated revenues.

      We currently provide wireless voice and data services principally over two separate, overlapping networks. One network uses time division multiple access, or TDMA, as its signal transmission technology. As of December 31, 2003, it covered an aggregate population, which the wireless industry refers to as “POPs,” of approximately 207 million, or 71 percent of the U.S. population. We also provide voice and enhanced data services over a separate network. This network uses the signal transmission technology known as global system for mobile communications, or GSM, for voice services and general packet radio service, or GPRS, and enhanced data rates for global evolution, or EDGE, for data services. As of December 31, 2003, this network covered approximately 220 million POPs, or 76 percent of the U.S. population. As of December 31, 2003, these two networks within our consolidated markets covered an aggregate of approximately 226 million POPs, or 78 percent of the U.S. population, and operated in 87 of the 100 largest U.S. metropolitan areas. We refer to this as our network footprint or service area. Our network footprint coverage is estimated using signal mapping technology and population data compiled by third parties. We also provide voice service on our analog network, as mandated by the Federal Communications Commission (FCC), and data service over a network utilizing packet switched data technology, or CDPD. We are phasing out our CDPD network as we increase data capabilities on our GSM/ GPRS/ EDGE network.

      We supplement our own networks with roaming agreements that allow our subscribers to use other providers’ wireless services in regions where we do not have network coverage. We refer to the area covered by our network footprint and roaming agreements as our coverage area. With these roaming agreements, as of December 31, 2003, we were able to offer our TDMA customers wireless services covering virtually the entire U.S. population and to provide voice and data services through our GSM and GPRS networks over approximately 88 percent and 83 percent, respectively, of the U.S. population. We also offer multi-mode devices that allow our customers to access analog, TDMA, and GSM/ GPRS networks, providing them access to wireless service across the U.S., or to access TDMA and GSM/ GPRS both in the U.S. and abroad, providing them access to wireless services around much of the world. We plan to continue to expand our service and coverage area and increase the capacity and quality of our GSM/ GPRS/ EDGE network through new network construction, acquisitions, joint ventures, and roaming arrangements with other wireless providers.

      During 2003, we continued to grow our subscriber base and the profitability of our business. We grew our subscriber base 5 percent in 2003, with 1.1 million net consolidated wireless subscriber additions during the year. Services revenue increased by over 8 percent versus the prior year, to $15.7 billion. OIBDA (defined as operating income excluding depreciation and amortization) grew by over 76 percent from the prior year, to $4.4 billion, while our OIBDA margin continued to expand. Additionally, 2003 marked the first-ever year of positive free cash flow (defined as our cash flows from operating activities less capital expenditures), as we generated approximately $1.8 billion. We expanded our domestic GSM network which, along with affiliates and roaming partners, now covers more than 255 million POPs, while increasing our international roaming coverage to over 130 countries and jurisdictions. We launched our EDGE network, the fastest national wireless data network in North America. Also in 2003, we introduced many new products and services, including GoPhone® service, our pay-in-advance product, as well as enhanced mMode data services. And finally, our companywide initiative known as “Project Pinnacle” was launched in 2003 as a multi-year drive toward improved operating efficiency and margins.

      Subscriber growth was 5 percent for 2003 as we ended the year with 22 million subscribers. The rate of subscriber growth declined relative to prior year rates due to slower growth within the wireless industry, a slight decrease in our gross subscriber additions, and higher levels of subscriber deactivations.

      During 2003, we launched GoPhone service, our pay-in-advance product, which targets those consumers who do not want or have the ability to sign a long-term contract. We had over 500 thousand gross subscriber

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      Our churn rate for 2003 was 2.6 percent, consistent with the prior year. Subscriber deactivations during 2003 were unfavorably impacted by various factors including increased competition within the wireless industry, higher levels of contract expirations, the launch of wireless Local Number Portability (LNP), and difficulties we experienced implementing an upgrade to our GSM customer support systems, which had an adverse effect on subscriber activations and customer care. Subscriber churn was favorably impacted by a decline in our postpaid churn levels versus the prior year, which was benefited by implementation of our policy requiring deactivating customers to remain in service until the end of their billing cycle. The launch of LNP, which allows customers to leave a wireless carrier and take their phone number with them, and our system challenges negatively affected our net subscriber additions and churn during the fourth quarter, which is typically our highest net subscriber addition quarter of the year. Subsequent to the launch of LNP in late November, we ported out more customers than we ported in. We expect elevated churn rates to exert negative pressure on subscriber growth rates through the first half of 2004.

      Our ability to grow our subscriber base will be impacted by fluctuations in the rate of industry growth and continued competition within the industry. Our subscriber deactivations and churn levels will continue to be affected in future quarters by the impact of LNP and further competition within the industry. Our net subscriber growth has been impacted by adverse publicity concerning our network quality, customer care issues arising out of difficulties we experienced upgrading our customer care systems, and publicity surrounding numerous complaints arising out of difficulties we experienced implementing LNP in late 2003. This trend is likely to negatively affect revenue, OIBDA, and cash flow growth through the first half of 2004.

      Our services revenue grew over 8 percent during 2003. Average monthly revenue per user, or ARPU, was $59.80 for 2003, which represented a decline of 0.7 percent from the prior year ARPU of $60.20. Our ARPU during 2003 was impacted by a lower average revenue per minute, as more wireless minutes were offered within customers’ monthly recurring charges. Offsetting the lower average revenue per minute were increases in per user contributions from wireless data revenues, international revenues, Universal Service Fund (USF) fees, and regulatory program fees.

      To continue to grow our services revenue and maintain our ARPU, we will need to grow our subscriber base and increase our ability to offer and sell new services to our existing subscriber base, as well as to new subscribers. Our ability to grow services revenue will be limited by our elevated churn rates, negative trends in net subscriber additions, and increased credits and adjustments provided to our subscribers associated with customer retention efforts.

      During 2003, we launched our companywide initiative known as “Project Pinnacle” in an effort to improve operating efficiency and margins. We recorded restructuring related charges totaling $88 million during 2003 related to workforce reductions. In order to be successful at increasing our margins, we will need to continue to reduce our operating costs. In order to lower costs, we will need to reduce our churn levels, as the cost of retaining existing subscribers is generally much lower than the cost of acquiring new customers. Customer acquisition costs must also be lowered, in part through continuing to increase the percentage of sales through our lower cost direct distribution channels and increasing our GoPhone sales. Additionally, we must continue to lower incollect expenses and streamline our operations while reengineering our back-office functions, including IT, customer care, and billing. The expansion of, and continued migration of our customer base to, our GSM network will also be necessary for reducing our overall cost structure. Increased use of the GSM network will provide cost benefits, including reduced incollect expenses due to lower incollect rates, and lower equipment costs for GSM handsets.

      2003 was our first-ever year of generating positive free cash flow. Our free cash flow for 2003 was approximately $1.8 billion, which included $511 million of an income tax refund and $245 million related to the termination of interest rate swap agreements during 2003. In addition to these items, our ability to

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MERGER ANNOUNCEMENT

      On February 17, 2004, we entered into a merger agreement with Cingular Wireless LLC (Cingular) and certain of its affiliates. Under the terms of the agreement, which were approved by our board of directors and the boards of directors of BellSouth Corporation, SBC Communications Inc., and Cingular, our common shareholders will receive $15 cash per common share and our preferred shareholders will receive the then applicable liquidation preference of their preferred shares, for an aggregate of approximately $41 billion, upon consummation of the transaction. The transaction is subject to our shareholders’ approval, approval by regulatory authorities, and other closing conditions. The companies are seeking to close the transaction in the fourth quarter of 2004.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and revenues and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

      There are certain critical estimates that we believe require significant judgment in the preparation of our Consolidated Financial Statements. We consider an accounting estimate to be critical if:

	•	It requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate, and
	•	Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

      The table below presents information about the nature of and rationale for our critical accounting estimates:

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      We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors and the Audit Committee has reviewed our disclosure relating to them, as presented above.

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NEW ACCOUNTING POLICIES

      In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Specifically, it requires that financial instruments within the scope of the statement be classified as liabilities because they embody an obligation of the issuer. Under previous guidance, many of these instruments could be classified as equity or be reflected as mezzanine equity between liabilities and equity on the balance sheet. As a result of the adoption of this statement on July 1, 2003, we reclassified our mandatorily redeemable preferred stock to long-term liabilities within our Consolidated Balance Sheet. Additionally, effective with the adoption and on a prospective basis, the accretion relating to our mandatorily redeemable preferred stock is classified as interest expense within our Consolidated Statements of Operations.

      In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Our initial adoption of this statement on July 1, 2003, did not have a material impact on our results of operations, financial position, or cash flows.

      In November 2002, the Emerging Issues Task Force (EITF) reached consensus on EITF No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This consensus requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative fair values, with certain limitations. In certain cases, the sale of wireless service with an accompanying handset constitutes a revenue arrangement with multiple deliverables. As a result, certain activation revenues (which were previously classified as services revenue) are no longer deferred and are instead recognized as equipment revenue. We adopted this statement on July 1, 2003, and are applying it on a prospective basis. Our initial adoption of this consensus did not have a material impact on our results of operations, financial position, or cash flows.

      In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,” which was further revised in December 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 also requires disclosure of significant variable interests in variable interest entities for which a company is not the primary beneficiary. For variable interest entities created or acquired on or prior to January 31, 2003, we elected to early adopt FIN 46 effective April 1, 2003. We are required to apply the revised provisions of FIN 46 as of January 1, 2004. The application of the revised Interpretation as of January 1, 2004 did not have a material impact on our results of operations, financial position, or cash flows.

      We have significant variable interests in several of our unconsolidated subsidiaries for which we are deemed to be the primary beneficiary. These variable interests typically consist of a combination of any or all of voting equity interests, nonvoting equity interests, loans, and put options that provide the other owners the right to require us to purchase their ownership interest if and when certain events occur. These entities were formed to acquire licenses that were restricted by FCC rules to businesses with limited assets and revenues, and to provide a means through which we could invest in these licenses. To date, the activity of these entities has consisted primarily of acquiring licenses through acquisitions and FCC auctions, and network construction. We previously accounted for these ventures under the equity method of accounting as we do not have voting control, and we have recognized virtually 100 percent of the entities’ operating losses due to our significant variable interests. Our maximum loss exposure related to these entities as of December 31, 2003, was approximately $145 million, which represented the value of the put options that provide the other owners the right to require us to purchase their ownership interest under certain circumstances. As a result of the adoption of FIN 46, we consolidated these entities at their carrying values effective April 1, 2003.

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      At adoption, the cumulative effect of change in accounting principle and consolidation of the entities were not material to our results of operations. Effective with the adoption of FIN 46 on April 1, 2003, we removed $239 million of outside basis deferred tax assets, which had full valuation allowances, associated with the unconsolidated subsidiaries for which we are deemed to be the primary beneficiary.

      We have no material variable interests for which we are not deemed to be the primary beneficiary.

      In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement provides accounting and reporting standards for costs associated with the retirement of long-lived assets. This statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.

      Asset retirement obligations associated with our cell site, switch site, retail, and administrative location operating leases are subject to the provisions of this statement. These lease agreements may contain clauses requiring restoration of the leased site at the end of the lease term, creating an asset retirement obligation. Our initial adoption of this statement on January 1, 2003, did not have a material impact on our results of operations, financial position, or cash flows.

      In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This statement requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. Our initial adoption of this statement on January 1, 2003, did not have a material impact on our results of operations, financial position, or cash flows.

      In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others — an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34.” This Interpretation expands on the existing accounting guidance and disclosure requirements for most guarantees, including indemnifications. It requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee if that amount is reasonably estimable, and must disclose that information in its interim and annual financial statements. The provisions for initial recognition and measurement of the liability are to be applied on a prospective basis to guarantees issued or modified on or after January 1, 2003. Our initial adoption of this statement on January 1, 2003, did not have a material impact on our results of operations, financial position, or cash flows. Guarantees issued or modified after January 1, 2003, will be recognized at their fair value in our financial statements. See “Off-Balance Sheet Arrangements” for additional disclosures related to indemnifications made by us.

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RESULTS OF OPERATIONS

      The following discussion describes the financial condition and results of operations of AT&T Wireless Services. This discussion includes the effect of certain other subsidiaries, assets, and liabilities of AT&T that constituted AT&T Wireless Group. AT&T contributed to us all of the subsidiaries, assets, and liabilities that constituted AT&T Wireless Group. Consistent with our historical financial statements, we have treated these contributions and related transactions in a manner similar to a pooling of interests and we have assumed that these contributions and related transactions were completed in historical periods prior to the split-off by the legal entity AT&T Wireless Services.

      The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and accompanying notes included within “Item 8. Financial Statements and Supplementary Data” of this report and provides information that management believes is material and relevant to an assessment and understanding of our consolidated results of operations for the years ended December 31, 2003, 2002, and 2001, and financial condition as of December 31, 2003 and 2002. As discussed below, we recorded several impairment charges and deferred tax valuation allowances during the years ended December 31, 2003, 2002, and 2001. The comparison of the 2002 results with 2001 was affected by the closing of the TeleCorp PCS, Inc. (TeleCorp) acquisition. On February 15, 2002, we acquired the remaining 77 percent of TeleCorp that we did not previously own by issuing 146 million AT&T Wireless Services common shares and assuming a fair value of $2.5 billion in net debt and $133 million in preferred securities. The results of TeleCorp have been included in our consolidated financial results since that date. The results of our discontinued fixed wireless business are discussed below within “Income (loss) from discontinued operations per share.” As a result of our discontinuation of the fixed wireless business, we operate in a single line of business.

Restructuring Charge

      During 2003, we launched a companywide initiative known as “Project Pinnacle” in an effort to improve operating efficiency and margins. As part of this initiative and in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits — an Amendment of FASB Statements No. 5 and 43,” we recorded business restructuring charges for workforce reductions, including reductions resulting from our plans to consolidate national corporate functions primarily in Redmond, Washington, and northern New Jersey. These charges totaled $88 million, including $31 million recorded during the fourth quarter, related to employee separation costs, and are reflected in the Consolidated Statements of Operations as $83 million in selling, general, and administrative expenses and $5 million in costs of services. As of December 31, 2003, approximately 3,900 employees were expected to be separated in conjunction with these plans, of which approximately 60 percent were exempt employees and 40 percent were nonexempt employees. The majority of the employee separations will be involuntary, although approximately 20 percent of the workforce reductions are anticipated to be the result of employees who decline the opportunity to relocate. Several hundred of those positions will be filled in our consolidated headquarters. The employee separation number is not adjusted for anticipated hiring to fill these positions. Approximately 1,200 employees had left their positions as of December 31, 2003. Additional restructuring charges or adjustments to prior restructuring charges may occur during 2004 as we reevaluate our business plan in light of the pending acquisition by Cingular (see “Merger Announcement” above).

      The following table displays the activity and balances of the restructuring reserve, which is reflected in payroll and benefit-related liabilities on the Consolidated Balance Sheet:

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Impairment Charges

Goodwill and Licensing Costs

      As of December 31, 2003 and 2002, we had goodwill totaling $7,390 million and $7,199 million, respectively, and U.S. licensing costs totaling $14,492 million and $13,949 million, respectively. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 established new standards related to how acquired goodwill and other intangible assets are to be recorded upon their acquisition, as well as how they are to be accounted for after they have been initially recognized in the financial statements. SFAS No. 142 required a transitional impairment test using a fair value approach for acquired goodwill and other intangibles deemed to have indefinite lives. Additionally, SFAS No. 142 requires that goodwill and other indefinite-lived intangible assets, consisting of U.S. licensing costs, be tested for impairment annually based upon a fair value approach. Furthermore, goodwill must be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an entity below its carrying value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale, or disposition of a significant portion of the business, or other factors. If our market value is less than our book value for an extended period of time, it could trigger the need for impairment tests of acquired goodwill between annual tests. Other indefinite-lived intangible assets must be tested between annual tests if events or changes in circumstances indicate that the asset might be impaired.

      In the absence of a current transaction for the sale of our business enterprise, we believe a discounted cash flow (DCF) model, rather than the market price of our common stock, is the best technique with which to estimate the fair value of our business enterprise. As such, we utilized a DCF model to estimate the fair value of our business enterprise for our transitional impairment test as of January 1, 2002 and our annual impairment tests performed during the third quarters of 2002 and 2003. The closing price of our common stock as of the last business day of the month was $5.65, $6.60, $8.21, $8.18, and $7.99 for the quarters ended December 31, 2002, March 31, 2003, June 30, 2003, September 30, 2003, and December 31, 2003, respectively, reflecting market capitalizations that were significantly lower than our fair values as determined using discounted cash flows. If market prices (adjusted for items that may affect the fair value of the reporting unit, such as a control premium) were used to derive the fair value of our business enterprise instead of a DCF model, it could result in a lower fair value of our business enterprise. This lower fair value might result in an impairment charge that might not otherwise result from using a DCF model. While we do not use our market price to determine the fair value of our reporting unit, we expect convergence between our market capitalization and DCF valuation to occur over time. This convergence was evidenced during the first quarter of 2004.

      On January 22, 2004, we announced that our board of directors was exploring strategic alternatives. On February 17, 2004, Cingular and certain of its affiliates and AT&T Wireless Services signed an agreement such that, subject to certain conditions, Cingular would acquire AT&T Wireless Services for approximately $41 billion, which we deem to reflect fair value. The announcement in January, along with the agreement signed in February, constituted triggering events under SFAS No. 142 requiring us to perform impairment tests for both our goodwill and strategic licensing costs. We determined the fair value of our business enterprise based upon the fair value of $41 billion reflected by the agreement. As the business enterprise fair value of $41 billion exceeded our net book value, the first step of the goodwill impairment test was passed and no impairment was recorded. We determined the fair value of our strategic licensing costs, using DCF models that took into consideration our business enterprise fair value. This test resulted in no impairment charges for our strategic licensing costs.

Impairment of Licensing Costs of Consolidated Subsidiaries

      We completed our annual impairment tests for both goodwill and U.S. licensing costs during the third quarters of 2003 and 2002, using methodologies consistent with those applied at the time of the initial adoption of SFAS No. 142 on January 1, 2002. Such testing resulted in no impairment charge to goodwill in the third

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Investments In and Advances to Unconsolidated Subsidiaries

      As of December 31, 2003 and 2002, we had investments in and advances to unconsolidated subsidiaries totaling $1,169 million and $2,225 million, respectively. Virtually all these investments are accounted for under the equity method. We review our significant cost and equity method investments annually during the third quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, to determine whether a decline in the fair value of our investment below its carrying value is deemed to be other than temporary. We employ a systematic methodology that considers available evidence in evaluating potential impairment of our investments. In the event that the carrying value of an investment exceeds its fair value, we evaluate, among other factors, the duration and extent to which the fair value is less than the carrying value; the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors; and our intent and ability to hold the investment. We may record impairment charges in the future if there are further declines in the fair values of our investments, which we deem to be other than temporary.

Impairment of Licensing Costs of Equity Method Unconsolidated Subsidiaries

      We recognized pretax losses of $349 million in the third quarter of 2002 associated with our portion of impairment charges recognized by our equity method unconsolidated subsidiaries as a result of their annual impairment tests of U.S. licensing costs as required by SFAS No. 142. These pretax charges consisted of $240 million, $84 million, and $25 million for our proportionate share of impairments of licensing costs recognized by Cascade Wireless, LLC (Cascade), Alaska Native Wireless, LLC (ANW), and Lewis and Clark Communications, LLC (Lewis and Clark), respectively. These charges are included in net equity earnings (losses) from investments in unconsolidated subsidiaries for the year ended December 31, 2002. Effective with the adoption of FIN 46 (see New Accounting Policies above) in April 2003, these entities were consolidated and therefore, the licenses of these entities are now reviewed in conjunction with our annual review of licensing costs of consolidated subsidiaries.

Impairment Charges of Equity Method Unconsolidated Subsidiaries

      During the third quarter of 2003, we recognized a pretax impairment charge of $62 million within net equity earnings (losses) from investments in unconsolidated subsidiaries associated with our nonstrategic investment in Far EasTone Telecommunications, Ltd (Far EasTone). This impairment charge was recognized due to a decline in the fair value of the investment that management deemed to be other than temporary. See “Investments in and Advances to Unconsolidated Subsidiaries” below for a discussion of the sale of our equity interest in Far EasTone during the fourth quarter of 2003.

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      During the third quarter of 2002, we recognized $464 million of pretax impairment charges due to declines in the fair values of several equity method unconsolidated subsidiaries that management deemed to be other than temporary. The majority of the total pretax charge represented impairments of our investments in Rogers Wireless Communications Inc. (Rogers Wireless), EuroTel Praha, spol. s.r.o. (EuroTel Praha), BPL Cellular Ltd. (BPL), and Cascade of $232 million, $185 million, $24 million, and $20 million, respectively. These charges were included in net equity earnings (losses) from investments in unconsolidated subsidiaries for the year ended December 31, 2002. See “Investments in and Advances to Unconsolidated Subsidiaries” below for a discussion of the sales of our equity interests in EuroTel Praha and BPL.

      During the second quarter of 2002, we recognized a $120 million pretax impairment charge in net equity earnings (losses) from investments in unconsolidated subsidiaries associated with our investment in ACC Acquisition LLC, which is the parent company of American Cellular Corporation (ACC). This impairment represented a write-off of our remaining investment balance. The impairment charge was recognized due to a reassessment of the fair value of our investment following ACC’s failure to comply with the total debt leverage ratio covenant contained in ACC’s bank credit facility. See “Investments in and Advances to Unconsolidated Subsidiaries” below for discussion of our withdrawal from ACC during 2003.

      During the fourth quarter of 2001, we recognized $107 million of pretax impairment charges in net equity earnings (losses) from investments in unconsolidated subsidiaries associated with declines in the fair values of our equity method unconsolidated investments in Rogers Wireless and BPL of $63 million and $44 million, respectively, as management deemed these declines to be other than temporary.

Impairment Charges of Cost Method Unconsolidated Subsidiaries

      During the third quarter of 2002, we recognized a $187 million pretax impairment charge related to our cost method investment in Dobson Communications Corporation (Dobson) due to a decline in the fair value of the investment that management deemed to be other than temporary. Of the total pretax charge, $173 million related to our investment in Dobson’s Series AA preferred stock and $14 million to our remaining investment in Dobson’s common stock. Additionally, in the first quarter of 2002, we recorded a pretax impairment charge of $57 million related to our common stock investment in Dobson due to a decline in the quoted market price of Dobson’s common stock that management deemed to be other than temporary. These charges were included in other income (expense) for the year ended December 31, 2002. See “Investments in and Advances to Unconsolidated Subsidiaries” below for a discussion of the transaction involving our investment in Dobson’s Series AA preferred stock and sale of our shares in Dobson common stock during 2003.

Tax Valuation Allowances

      Due to the adoption of SFAS No. 142 effective January 1, 2002, the period of reversal for deferred tax liabilities related to licensing costs and goodwill can no longer be reasonably estimated. As a result, we may not rely on the reversal of deferred tax liabilities associated with licensing costs and goodwill as a means to realize our deferred tax assets, which primarily represent tax net operating losses. Additionally, due to the lack of earnings history as an independent company and impairment charges recognized on our licensing costs and unconsolidated subsidiaries, we cannot rely on forecasts of future earnings as a means to realize our deferred tax assets. During the third quarter of 2002, our deferred tax assets exceeded our deferred tax liabilities, excluding those deferred tax liabilities associated with licensing costs and goodwill. Accordingly, we determined that, pursuant to the provisions of SFAS No. 109, “Accounting For Income Taxes,” deferred tax valuation allowances were required on those deferred tax assets. In 2002, we recorded deferred tax valuation allowances of $970 million. The valuation allowances included $524 million related to deferred tax assets associated with our equity method unconsolidated subsidiaries, which was recorded in net equity earnings (losses) from investments in unconsolidated subsidiaries. The valuation allowances also included $446 million related to our continuing operations, excluding net equity earnings (losses) from investments in unconsolidated subsidiaries, which was recorded in provision for income taxes.

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      Effective during the second quarter of 2003, our deferred tax liabilities, excluding those deferred tax liabilities associated with licensing costs and goodwill, exceeded our deferred tax assets. Therefore, we determined that we no longer required a valuation allowance against our deferred tax assets, other than those deferred tax assets associated with actual and potential capital losses, credits, and state NOLs that were deemed more likely than not to expire unused. We continually evaluate the need for deferred tax valuation allowances and may require additional valuation allowances in future periods.

Year Ended December 31, 2003, Compared with the Year Ended December 31, 2002

Operating Metrics

(1)	Net subscriber additions reflect gross subscriber additions (new customers who activate service) less subscriber deactivations.
(2)	Ending subscribers include customers in the U.S. and Caribbean on post-paid, prepaid, or pay-in-advance rate plans. Additionally, ending subscribers include subscribers that are sold through our resale agreements. A subscriber is counted based upon a Mobile Identification Number (MIN) or a Subscriber Identity Module (SIM) if the subscriber has data-only services (e.g., no voice service). The following table summarizes the activity in our subscriber base during 2003:

      As of December 31, 2003, we had 22.0 million consolidated subscribers, an increase of 5.4 percent from December 31, 2002. Total consolidated subscribers reflected our 1,060 thousand net subscriber additions for the year and a net increase of 61 thousand associated with market acquisitions (dispositions) and other subscriber adjustments. Subscriber adjustments during 2003 included the release of the remaining TeleCorp subscriber reserve taken at the time of the TeleCorp acquisition, the removal of certain inactive reseller subscribers as part of our ongoing subscriber reconciliation efforts, and an adjustment for certain migrating subscribers treated as new customers in previous quarters.

(3)	Churn is calculated by dividing the aggregate number of subscribers who cancel service during each month in a period by the total number of subscribers as of the beginning of the month.
(4)	ARPU is used to measure the average monthly services revenue on a per subscriber basis. ARPU is calculated as services revenue generated by subscribers, including both our subscribers’ revenue and the roaming revenues generated from other wireless carriers, divided by our average subscribers for the period. See “Operating Metric Calculations” below for calculations of our ARPU.
(5)	CPGA is used to measure the average cost of adding a new subscriber. CPGA is calculated as our sales and marketing expenses (included within selling, general, and administrative expenses on our Consoli-

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	dated Statements of Operations) and equipment subsidies (included within costs of equipment sales on our Consolidated Statements of Operations) related to new customer acquisitions, divided by the number of new gross subscribers added in the period. See “Operating Metric Calculations” below for calculations of our CPGA.

      Services revenue consists primarily of monthly recurring charges, airtime and toll usage charges (domestic and international), roaming charges (domestic and international) billed to both our customers and other wireless service providers, and regulatory fees we pass on to our subscribers. Services revenue is derived primarily from these voice services and also includes increasing revenue from data services. Services revenue also includes revenues not generated from wireless users, which consists primarily of sublease rents, revenues we collect from local exchange carriers for call termination charges, and revenues received from Public Safety Answering Points and the governmental oversight agency for Enhanced 911 Service. Services revenue is recognized based upon minutes of use processed and contracted fees, and is net of credits and adjustments for service discounts. Amounts collected in advance of the service period, primarily related to our prepaid and pay-in-advance customers, are recorded as unearned revenue and are recognized when earned. In certain cases, customer activation fees, along with the related costs up to but not exceeding these fees, are deferred and amortized over the estimated customer relationship period. In order to grow services revenue and maintain current ARPU levels, growth in data and other revenue sources will need to offset the expected continued decline in our average revenue per minute related to our monthly recurring and airtime usage charges. Equipment revenue is generated primarily from the sale of wireless handsets and accessories. We generally subsidize all or a portion of handset sales in connection with longer-term contracts or other promotional offers. The revenue and related expenses associated with the sale of wireless handsets and accessories are recognized when the products are delivered to and accepted by the customer or distributor, as this is considered to be a separate earnings process from the sale of wireless services. Effective with the adoption of EITF No. 00-21, “Revenue Arrangements with Multiple Deliverables” in the third quarter of 2003, we changed the way we account for certain wireless service sales with an accompanying handset (see “New Accounting Policies” above for further information regarding this consensus).

      Total revenue grew 6.8 percent to $16,695 million, an increase of $1,064 million, for the year ended December 31, 2003, compared with the prior year.

      Services revenue for the year ended December 31, 2003 was $15,659 million, an increase of $1,176 million, or 8.1 percent, compared with 2002. The increase in services revenue in the current year was driven by growth in the subscriber base, including higher roaming, international, and data revenues and an increase in Universal Service Fund (USF) fees and regulatory program fees passed on to more of our customer base.

      Our ARPU for the year ended December 31, 2003, was $59.80, compared to $60.20 in 2002. The decline in ARPU in the current year reflects a lower average revenue per minute, driven by continued pricing pressures and a shift in the mix of subscribers. Partially offsetting the lower average revenue per minute were higher minutes of use per subscriber and higher average per-user contributions from data revenues, international revenues, USF fees, and regulatory program fees. Average minutes of use per subscriber per month were 541 and 477 for 2003 and 2002, respectively. The increase in the current year is consistent with the recent trend in the growth of wireless minutes, as subscribers continue to shift toward calling plans that include larger buckets of minutes.

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      Equipment revenue for the year ended December 31, 2003, was $1,036 million, a decrease of $112 million, or 9.8 percent, compared with 2002. The decline in the current year was due to a decrease in the average revenue per unit sold, partially offset by an increase in units sold.