Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number 001-31673

Cingular Wireless LLC

Formed under the laws of the State of Delaware

5565 Glenridge Connector, Atlanta, Georgia 30342

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 þ          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 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.     þ

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

The limited liability company ownership interests of the registrant are not publicly traded. Therefore, there is no aggregate market value for the registrant’s outstanding equity that is readily determinable.

TABLE OF CONTENTS

1

Table of Contents

Item 1.     Business

Overview

Throughout this document, Cingular Wireless LLC and its subsidiaries are referred to as “we” or “Cingular”.

We provide a wide array of wireless services for individual, business and governmental users. We are the largest provider of wireless voice and data communications services in the United States (U.S.) in terms of customers. We recently reported:

•	U.S. wireless cellular service and personal communication services (PCS) customers totaling 49.1 million at December 31, 2004;
•	over 17 million active users of our data services at December 31, 2004;
•	revenues of $19.4 billion in 2004; and
•	net income of $201 million in 2004.

We have access to licenses, either through owned or leased licenses or licenses owned by joint ventures and affiliates, to provide cellular or PCS wireless communications services covering an aggregate of 290 million in population (POPs) or approximately 98% of the U.S. population, including all of the 100 largest U.S. metropolitan areas.

Our primary digital networks utilize Global System for Mobile Communication (GSM) technology and Time Division Multiple Access (TDMA) technology. As of December 31, 2004, 65% of our subscriber base was GSM-equipped and 79% of our total minutes were carried on our GSM network. We also provide voice service on our analog network, as mandated by the Federal Communications Commission (FCC). 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, 2004, we were able to offer our customers digital wireless services covering 95% of the U.S. population.

We also offer multi-band devices that allow our customers to access networks using both the cellular and PCS frequencies across the U.S. as well as international networks around the world. Through roaming agreements with foreign carriers, we provide our customers equipped with multi-band devices the largest global coverage of any U.S. wireless carrier, with service available in over 170 countries. We plan to continue to expand our service and coverage area and increase the capacity and quality of our digital network through new network construction, acquisitions, joint ventures, and roaming arrangements with other wireless providers.

In October 2004, we consummated the acquisition of AT&T Wireless Services, Inc. (AT&T Wireless) for an aggregate consideration of approximately $41 billion in cash. AT&T Wireless, which has been renamed New Cingular Wireless Services, Inc. but will continue to be referred to herein as AT&T Wireless, is now our direct wholly owned subsidiary. Immediately following the acquisition of AT&T Wireless, we repositioned the Cingular brand with RAISING THE BAR^SM. Under that umbrella we also branded our network as the ALLOVER^SM network, utilizing the slogan MORE BARS IN MORE PLACES^SM. Along with the integration of AT&T Wireless, our primary business initiatives in 2005 include the creation of a Business Markets Group, expansion of our voice and data network and the deployment of high-speed Universal Mobile Telephone System (UMTS) third-generation (3G) service.

2

Table of Contents

Organizational Structure

Cingular Wireless LLC is a Delaware limited liability company and has its principal executive offices at Glenridge Highlands Two, 5565 Glenridge Connector, Atlanta, Georgia 30342 (telephone number 404-236-6000). We were formed in April 2000 by SBC Communications Inc. (SBC) and BellSouth Corporation (BellSouth), whose membership interests in us are held by their wholly owned subsidiaries. In October 2000, SBC and BellSouth contributed substantially all of their U.S. wireless businesses to us in exchange for economic ownership interests in us of approximately 60% and 40%, respectively. We began doing business under the “Cingular” brand name in January 2001.

Our Internet website is http://www.cingular.com. (This web site address is an inactive textual reference included for information only and is not intended to be an active link or to incorporate any web site information into this document.) We make available, free of charge, through our website our annual report to the Securities and Exchange Commission (SEC) on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with the SEC.

We have adopted a written code of conduct applicable to all directors, officers and employees. In addition, we have a separate Code of Ethics that is applicable to our principal executive, financial and accounting officers, or our “Senior Financial Officers”, responsive to Section 406 of the Sarbanes-Oxley Act of 2002 and the rules of the SEC. The Senior Financial Officer Code of Ethics is available on our website. In the event that we make any substantive changes in, or provide any material waivers from, the provisions of this Code of Ethics, we intend to disclose such events on our website.

SBC and BellSouth jointly control Cingular Wireless Corporation, a holding company with no material assets of its own other than a de minimis economic interest in us. Its main purpose is to act as our manager and thereby control our management and operations. We refer to Cingular Wireless Corporation as our “Manager”. Our officers are appointed by its board of directors.

Restatement of Financial Results

On February 18, 2005, our management and the Audit Committee of the board of directors of our Manager concluded that our financial statements for fiscal periods ending December 31, 2000 through December 31, 2003 and the first three interim periods of 2004 should be restated to correct certain errors relating to accounting for operating leases and that such previously filed financial statements should no longer be relied upon. Ernst & Young LLP, our independent registered public accounting firm, has advised us that it concurs with our conclusion. While management believes that the impact of this error is not material to any previously issued financial statements, we determined that the cumulative adjustment required to correct this error was too large to record in 2004. We have included restated financial statements for the years ending December 31, 2003 and 2002 and the quarterly results for 2003 and the first three quarters of 2004 in Item 8, “Financial Statements and Supplementary Data” in this Form 10-K. We have included restated amounts for the periods ending December 31, 2001 and 2000 within Item 6, “Selected Financial Data”.

Our network infrastructure venture with T-Mobile USA, Inc. (T-Mobile), GSM Facilities LLC (GSMF), accounted for under the equity method, reached a similar conclusion with respect to operating leases, requiring correction and restatement of the venture’s previously issued financial statements for the years

3

Table of Contents

ended December 31, 2003 and 2002. These financial statements were included in our 2003 Form 10-K and also should no longer be relied upon. Accordingly, we also revised and restated our equity accounting for the venture. Due to the significance of this joint venture to us, the GSMF financial statements have been included in this document and have been restated for the periods ending December 31, 2003 and 2002.

See Note 2 to the accompanying consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” for additional information on the restatement.

Our Business

Voice Services. We offer a comprehensive range of high-quality wireless voice communications services in a variety of pricing plans, including national and regional rate plans as well as prepaid service plans. Our voice offerings are tailored to meet the communications needs of targeted customer segments, including youth, family, active professionals, local and regional businesses and major national corporate accounts. The marketing and distribution plans for our voice services are further targeted to the specific geographic and demographic characteristics of each of our markets.

Data Services. Wireless data continues to be a high growth area of our business, with its revenue representing an increasing share of our overall subscriber revenue. We are experiencing solid growth from both consumer and enterprise wireless data solutions. We are upgrading our network and coordinating with equipment manufacturers and applications developers to take advantage of continued growth in the demand for wireless data services. With the acquisition of AT&T Wireless, we believe we are the largest provider of wireless data in the U.S. wireless industry based on annual data revenues for 2004.

Postpaid Voice Service. Consumer postpaid voice service is generally offered on a contract basis for one or two year periods. Under the terms of these contracts, service is provided and billed on a monthly basis according to the applicable pricing plan chosen. Our wireless services include basic local wireless communications service, long distance service and roaming services, which enable our customers to utilize other carriers’ networks when they are “roaming” outside our coverage area. We also bill other carriers for providing roaming services to their customers when their customers utilize our network. We had approximately 42.9 million postpaid contract customers (excluding reseller customers) at December 31, 2004. In addition to basic wireless voice telephony services, we offer many enhanced features with many of our pricing plans. These features include caller ID, call waiting, call forwarding, three-way calling, no answer/busy transfer and voice mail. In some markets, we make available additional services for a monthly fee, such as unlimited Mobile-to-Mobile calling, discounted international roaming and international long distance, expanded off peak hours, roadside assistance and handset insurance.

Our primary marketing emphasis is enrolling customers in postpaid service calling plans. Despite the relatively higher cost of enrollment due to handset subsidies and sales commission structure, such customers generate higher revenue and have a lower churn rate than prepaid service customers. Accordingly, a significant component of our strategy consists of developing value-added plan features, ancillary services, unique devices and promotions to attract and retain postpaid customers. In 2004, we focused on simplifying and enhancing our national and international calling plans. We emphasized national calling plans without roaming or long distance charges due to the simplicity and value of the plans. We expanded mobile-to-mobile coverage areas to include non-Cingular network areas in the calling plan area and, to take advantage of Cingular’s large calling community, we included in many of our national plans the ability to call other Cingular customers on their wireless phones for free. Thus, as our coverage and

4

Table of Contents

that of our GSM roaming partners expands, so does the calling area of our customers, which further enhances our brand messages RAISING THE BAR^SM, the ALLOVER^SM network and MORE BARS IN MORE PLACES^SM. FAMILYTALK®* plans, which add lines at substantial discounts to high-priced accounts, continue to be popular and to contribute a significant portion of our postpaid customer growth. The ROLLOVER® rate plans, which allow our customers to carry over any unused “anytime” minutes from month to month for up to one year, continue to be offered exclusively by Cingular. We enhanced our international GSM voice roaming coverage to over 170 countries for subscribers with compatible devices. Additionally, we introduced a new international services feature package providing discounted voice roaming to Western Europe and discounted international long distance dialing from the U.S.

Prepaid Voice Service. We offer prepaid service to meet the demands of distinct consumer segments, such as the youth market, families and small business customers, who prefer to control usage or pay in advance. Our prepaid services are marketed as GOPHONE® and KIC® (Keep in Contact) branded service. As of December 31, 2004, retail prepaid users represented approximately 7% of our total customers. We believe our prepaid service offering benefits from being part of a national brand, particularly with regard to distribution. Our prepaid strategy focuses on increasing the profitability of this customer segment through offering a wider array of services and features to increase revenue and retention of these customers. Our prepaid services offer customers many features available on our postpaid plans, including unlimited nights and weekends, long distance, caller ID, call waiting, voicemail and off-network roaming, as well as enhanced features like text messaging, downloadable graphics and ringtones, games and information alerts. At the same time, the customer retains the benefits of no credit check and enhanced ability to control spending, and our KIC customers also have no contract or monthly billing. In addition, we continue to focus on increasing the distribution of our prepaid offering to include the Internet, automated replenishment services and strategic retail partners that will allow our prepaid service to truly be a product of convenience.

Consistent with the industry, we experience higher customer churn rates and lower revenue per customer with prepaid customers than our postpaid customers; however, these impacts are somewhat offset by the lower cost of acquiring new prepaid customers, including lower handset subsidies, higher revenue per minute earned and the absence of significant payment defaults.

Data Services. We currently offer a wide array of consumer data services, such as wireless Internet browsing, wireless e-mail, text messaging, instant messaging, multi-media messaging and downloadable content and applications. We continue to focus on improving the customer experience through the deployment of advanced data capable devices; through constantly enhancing the user interface on these devices; and by making the provisioning of data services on these devices as seamless as possible. This approach continues to drive solid growth in the consumer data business.

The downloading of premium content, applications and wireless browsing are strong growth areas for us. Customers can easily purchase the latest ringtones, games, graphics and premium applications directly from their wireless devices. In 2004, we launched streaming video through a downloadable application that resides on our subscribers’ compatible handsets. With this application, a wireless subscriber can view and hear content such as news, sports and entertainment. Entertainment industry partnerships are yielding a wealth of content and segmented promotional opportunities. The deployment of next generation devices, the improved customer browsing and download experience and the expanded variety of content and applications contribute to revenue growth.

5

Table of Contents

Text messaging remains a core contributor to our overall consumer data revenue stream. Messaging growth is extending into new areas as our base of subscribers is steadily adopting enhanced messaging services such as instant messaging and picture messaging. Simple pricing and the ongoing deployment of advanced data devices, with easy-to-use digital camera technology and instant messaging services through AOL or Yahoo, have driven this growth.

Equipment Sales. We sell a wide variety of handsets and personal computer wireless data cards manufactured by various suppliers for use with our voice and data services. We also sell accessories, such as carrying cases, hands-free devices, batteries, battery chargers and other items, to consumers, and we sell handsets and accessories to agents and other third-party distributors for resale. We provide postpaid contract customers substantial equipment subsidies to initiate or upgrade service.

Corporate Wireless Solutions. At the core of our business-to-business (B2B) activities is the Business Markets Group. The Business Markets Group is a nationally focused B2B organization that gives business customers access to sales and support professionals in the areas of sales, customer care, ordering, product and offer development and solutions deployment that are focused on specialized needs.

With our acquisition of AT&T Wireless, we expanded our enterprise service offerings and broadened our base of enterprise customers. One of the strengths of AT&T Wireless was its enterprise business, which focused on large corporate customers and governmental agencies.

We provide business customers a comprehensive set of corporate wireless management solutions. These solutions are designed to meet the needs of small-to mid-size businesses, large corporations and government agencies and provide business-specific rate plans, volume and equipment discounts and wireless management tools for ordering, activation, support, billing and reporting. We also offer a program that allows an enterprise’s eligible employees to set up their own wireless services, and their usage applies towards a corporation’s discounted volume.

Enterprise Voice Service. Our business customers can take advantage of consumer postpaid voice plans, as well as a number of business-specific devices and features, and pooled and flat rate plans. We were the industry pioneer in offering pooled rate plans that allow enterprises to share minutes and megabytes across their employee base to optimize total cost of ownership. We are also working on a portfolio of converged wireless/wireline solutions in collaboration with our parent companies, SBC and BellSouth.

Enterprise Data Services. We provide wireless access to corporate business applications for our customers who have mobile field personnel. Our wireless solutions allow sales managers to access corporate e-mail when away from the office and technicians to solve problems and access corporate databases from the field. To deliver these services, we offer a wide range of wireless data devices for business needs. We support all major operating system platforms — BlackBerry®, Windows Mobile®, Palm® and Symbian® and a wide range of devices — data-enabled handsets, integrated personal digital assistants (PDAs) (such as BlackBerry handhelds), personal computer data cards and special purpose devices.*

We believe we are the industry leader in corporate wireless email and messaging services. These solutions provide wireless access to a wide range of email applications for businesses and individuals who have a need for timely data communications to maintain a competitive advantage or increased personal productivity. We have the largest base of BlackBerry subscribers and the largest share of activations in the world. For enterprises looking for a cost-effective, easy to set-up, highly flexible, real-time email that supports multiple devices, we offer Xpress Mail^SM service, which can be deployed without purchasing or installing additional

* Trademarks used herein are marks of their respective owners.

6

Table of Contents

hardware or software. We also have sales, marketing and product development alliances with Microsoft and IBM to assist enterprises with wirelessly enabling existing email and messaging infrastructure.

We are a leader in providing wireless data services for a focused set of vertical industries, targeting specific business processes where real-time wireless connectivity creates the most business value. For example, we work with top property and casualty insurance carriers in wirelessly enabling claim management business processes, assist the nation’s largest food and beverage manufacturers with real-time enablement of direct-store delivery and help wirelessly enable field service for leading telecommunications, utility and high-tech companies. In 2004, we significantly expanded our comprehensive portfolio of network-compatible special purpose devices, certified software solutions and system integrator alliances. This approach helps increase speed-to-market, reduce implementation risk and drive solid growth in wireless data sales.

Mobitex. In October 2004, we sold Cingular Interactive, L.P. (Cingular Interactive), a data messaging business utilizing the proprietary “Mobitex” packet switched network. We retained Cingular Interactive’s direct e-mail customers, as well as several other major accounts. We have continued to offer Mobitex data products pursuant to a reseller agreement with the buyer of the Mobitex network.

Reseller Service. We offer wholesale services to resellers, who purchase wireless services from us for resale to their customers. As of December 31, 2004 the number of customers served through resellers represented approximately 5% of our total customers.

Equipment Sales. We sell a wide variety of handsets, integrated PDAs and wireless PC card modems manufactured by various suppliers for use with our service. We also provide our customers and resellers with subscriber identity modules (SIM) cards that store unique customer account information such as the customer’s phone number and identify customers to the network. When an activated SIM card is inserted into a compatible GSM device, the device is recognized by the network and becomes enabled for service. This technology allows our customers to swap devices at their convenience simply by moving the SIM card from one device to another. It also allows customers to activate special purpose devices that they can buy directly from equipment manufacturers in addition to those that are available directly from us. We have tested a broad portfolio of these special purpose devices — from rugged PDAs and laptops to fleet management and telemetry solutions — for network compatibility, creating a solid foundation for our customers to run their applications.

Our Network

We have access to licenses to provide cellular and PCS wireless services, both voice and data. We provide both analog and digital cellular services over the 850 megahertz (MHz) band and digital PCS services over the 1900 MHz band. We obtained access to spectrum through application lotteries, mergers, acquisitions, exchanges, joint ventures, FCC auctions and uncontested application grants of cellular licenses.

Cellular/ PCS Technology. In the U.S. wireless telecommunications industry, there are two principal frequency bands currently licensed by the FCC for transmitting two-way voice and data signals — the 850 MHz band and the 1900 MHz band. The services provided over these two frequency bands are commonly referred to as cellular and PCS, respectively. PCS infrastructure is characterized by shorter transmission distances and the need for closer spacing of cells and towers than in a cellular network to

7

Table of Contents

accommodate the different characteristics of the PCS radio signals. However, PCS service does not differ functionally to the user from digital cellular service.

First generation cellular systems initially provided service solely by means of analog transmissions, which the FCC will not require cellular radio licensees to offer after 2008. PCS systems have been constructed using only digital technology and are not required by the FCC to offer analog service. We offer analog and digital services in our cellular markets and digital service in our PCS markets. Less than 1% of our total usage based on minutes remains on our analog network.

Currently the five largest U.S. wireless communications providers use the following principal 2nd generation (2G) digital technologies:

•	GSM — used by us and T-Mobile. GSM is a digital wireless technology originally developed by the European operator community and later adopted by operators around the world to become the world’s most dominant wireless technology serving more than one billion users and accounting for 72% of the world’s wireless market. Hardware and software enhancements, referred to as General Packet Radio Service (GPRS), and Enhanced Data Rates for GSM Evolution (EDGE), allow higher-speed data communications.
•	TDMA — used by us in some markets pending customer migration to GSM/ GPRS/ EDGE.
•	Code Division Multiple Access (CDMA) — used by Verizon Wireless — (Verizon Wireless) and Sprint PCS — (Sprint PCS). CDMA is a technology originally developed by the military but adapted for commercial usage.
•	integrated Digital Enhanced Network (iDEN”®) — used by Nextel Communications Inc. (Nextel).

TDMA, iDEN and GSM technologies work by dividing a single radio frequency into multiple time slots so it can support multiple calls. TDMA allows for up to three calls per frequency (30 kHz of spectrum), iDEN allows up to six, and GSM allows for up to eight (200 kHz of spectrum). CDMA technology works by encoding individual conversations all on the same frequency using different codes. This is analogous to being in a room where every pair of speakers is having a conversation but in a different language, and each is able to understand or “de-code” only the other person speaking the same language as them. These technologies are not currently compatible or interchangeable with each other and require separate types of wireless phones and network infrastructure.

Prior to 2002, our network consisted of both TDMA (approximately 70%) and GSM (approximately 30%) technologies. In late 2001, we began to overlay GSM/ GPRS throughout our TDMA network and upgrade our data network to EDGE. EDGE, which delivers 2-3 times higher data rates than GPRS technology and is a 3G alternative, provides our customers with greater connectivity and communications capabilities, including faster speeds for accessing the wireless Internet. The GSM overlay was completed in early 2004 and, at December 31, 2004, more than 65% of our subscriber base was GSM-equipped and 79% of our minutes were being carried by our GSM network.

The operation and performance of today’s wireless communication networks and handsets is generally functionally identical across all digital technologies, and we believe that most wireless customers are generally unaware of or unconcerned with the particular technology of their chosen wireless carrier. Therefore, we believe that our chosen technology path is fully capable of supporting our business growth strategies in this competitive market. Nevertheless, to continue to advance and potentially differentiate versus the competition, Cingular is actively deploying a more advanced 3G technology.

8

Table of Contents

Although many advances are still underway for enhanced capacity, performance and features in all of the deployed technologies, Cingular, through its acquisition of AT&T Wireless, operates its 3G cellular/ PCS system using the UMTS standard in six cities (Dallas, San Francisco, Detroit, Seattle, Phoenix and San Diego). UMTS, like GSM, is the dominant world standard that has been accepted and deployed in Europe and Asia. In addition to providing higher data speeds, UMTS also supports voice, obviating the need to separately augment voice infrastructures as network usage grows. Our currently deployed 3G UMTS systems allow user average data download speeds between 220-300 kilobits per second (Kbps), providing the capability for a variety of services such as streaming audio, video and simultaneous voice and data applications. Much like our EDGE system, UMTS allows for packet data enabling “always on” connectivity, which is useful for receiving email when it arrives, versus the need to set aside time for an email download, and allowing billing based on the amount of data transferred, rather than the amount of time a given device is connected.

In January 2005, Cingular field tested a higher speed downlink component of UMTS called “High Speed Downlink Packet Access” (HSDPA), which we intend to offer in all of our UMTS markets. Our successful field trial of the first phase of HSDPA, which provides up to 3.6 megabits per second (Mbps) peak speed, demonstrated that HSDPA is the fastest wide-area wireless high speed data solution available for consumer access in the U.S. In the next two years, HSDPA will have average throughput in the 400-700 Kbps range and theoretical speeds of 14 Mbps. Cingular has awarded UMTS/ HSDPA contracts to three infrastructure vendors, Lucent Technologies, Inc. (Lucent), Telefonaktiebolaget LM Ericsson (Ericsson) and Siemens AG (Siemens), as well as its key device vendors. We plan to deploy HSDPA in 15 to 20 markets in 2005 and to provide UMTS/ HSDPA in most major metropolitan areas by the end of 2006.

The acquisition of AT&T Wireless provided Cingular with significantly more cell sites covering its footprint than any other operator in the U.S. To ensure that the additional cell sites result in improved coverage for our customers, we have activated “home-on-home roaming” between the previous AT&T Wireless and Cingular systems allowing former AT&T Wireless customers to roam onto Cingular networks where they previously did not have coverage and similarly for Cingular customers. We intend to maintain this improved coverage and to continue network construction to add a large number of new cell sites to further bolster our coverage advantage.

We also have opportunities to reduce the ongoing cost of the business in areas where the former Cingular and AT&T Wireless had comparable coverage, such as where they are co-located on the same cell site. In these situations, we intend to choose the best cell sites, and de-commission the other cell sites. This process will occur during integration, when both networks are combined into one common network. We expect to have over 40% of the networks integrated by the end of 2005 and to finalize network integration by the end of 2006.

We currently own licenses for spectrum in the 850 MHz and 1900 MHz bands. We own or lease cellular or PCS licenses, or otherwise have access through joint ventures and affiliates to cellular or PCS licenses, in all 100 of the largest U.S. metropolitan areas, covering an aggregate of 290 million POPs, or approximately 98% of the U.S. population, and operate in all of the top 100 markets across the country. In addition, we have signed numerous roaming agreements to ensure our customers can receive wireless

9

Table of Contents

service in virtually all areas in the U.S. where cellular or PCS service is available. Our cellular and PCS networks are substantially completed.

As shown in the table below, as of December 31, 2004, approximately 98% of the U.S. population was covered by an average spectrum depth owned by us of over 50 MHz.

(1)	MSA — metropolitan service area; RSA — rural service area
(2)	Based on total 2004 estimated U.S. POPs of 295 million

We expect that the demand for our wireless services will grow over the next several years as the demand for both traditional wireless voice services and wireless data and Internet services increases. We anticipate needing access to additional spectrum in selected densely populated markets to meet demand for existing services and throughout our network to provide UMTS/ HSDPA. Some of this additional spectrum requirement was met by the acquisition of AT&T Wireless and the purchase of 1900 MHz spectrum from NextWave Telecom, Inc. (NextWave).

In order to acquire access to additional spectrum, we may participate in future FCC auctions and exchange spectrum with, and lease or purchase spectrum licenses from, other wireless carriers. On February 15, 2005, the FCC’s most recent auction of wireless spectrum concluded. We participated in Auction 58 as a non-controlling equity interest holder in Edge Mobile, LLC (Edge). Edge was the successful bidder for, and following the filing and review of the standard applications, expects to be granted, 21 licenses. Edge’s total high bids for the licenses in which we will have an indirect economic interest amounted to $181 million. We are obligated to fund $174 million of that amount. In December 2004, we contributed $31 million in equity to Edge, which will be used to pay for a portion of the licenses. Upon and subject to grant of these licenses by the FCC, Edge will hold 20 MHz of PCS spectrum in Pittsburgh and 10 MHz in Dayton, Denver, Kansas City, Minneapolis, Norfolk, Oklahoma City, Richmond and other areas, all of which are markets where we currently operate. We may also obtain additional spectrum capacity through mergers and acquisitions, joint ventures and alliances. See “Regulatory Environment” and “Factors Relating to Our Business — If we fail to obtain access to additional spectrum, we may not be able to expand the geographic reach of Cingular-branded services, increase our customer base in areas we currently serve or meet the anticipated demand for new services”.

Acquisitions, Dispositions, Joint Ventures and Spectrum Exchanges

In October 2004, we acquired AT&T Wireless, which served nearly 22 million subscribers as of the acquisition date. AT&T Wireless also held equity interests in U.S. and international communications ventures, corporations and partnerships. The acquisition created the largest wireless communications company in the U.S. in terms of number of subscribers.

The aggregate consideration paid to AT&T Wireless shareholders to complete the AT&T Wireless acquisition was approximately $41 billion in cash. Under the merger agreement, each common shareholder

10

Table of Contents

of AT&T Wireless received $15 in cash per common share and the AT&T Wireless preferred shareholders received the then applicable liquidation preference of their preferred shares. We received $36,024 million in equity funding from SBC and BellSouth, in proportion to their respective economic interests in us, to finance the acquisition. The remaining portion of the purchase price was funded with AT&T Wireless cash on hand.

The acquisition was structured as a merger of a wholly owned subsidiary of the Manager with and into AT&T Wireless, following which AT&T Wireless became a direct wholly owned subsidiary of the Manager, and as the surviving entity, AT&T Wireless retained all its assets and liabilities. Following the merger, the Manager sold all its interests in AT&T Wireless to us, and AT&T Wireless then became our direct wholly owned subsidiary. Subsequently, a significant portion of the operations, including assets, liabilities and subsidiary entities, were transferred from us and AT&T Wireless to a new limited liability company owned by us and AT&T Wireless, Cingular Wireless II, LLC (CWII). We and CWII executed supplemental indentures to AT&T Wireless’s two indentures under which its Senior Notes are outstanding to become co-obligated for all obligations thereunder, and AT&T Wireless and CWII executed supplemental indentures to our indenture, under which our Senior Notes are outstanding, to become co-obligated for all obligations thereunder; as a result, CWII, AT&T Wireless and we are co-obligated on all of our and AT&T Wireless’ Senior Notes.

The acquisition was advantageous to us for a number of reasons:

•	AT&T Wireless fills in our licensed spectrum and network footprints by covering areas where Cingular did not have licenses or network infrastructure;
•	AT&T Wireless adds depth to our licensed spectrum position in existing markets, enhancing our ability to offer future high-speed data services and reduce capital expenditures;
•	AT&T Wireless’ customer base, which has a stronger business customer component than ours, adds a complementary customer mix to our customer base;
•	AT&T Wireless’ average revenue per user (ARPU) had historically been higher than the ARPU of our customers;
•	AT&T Wireless gives us added size and scale to compete more effectively in the industry and to procure more significant cost economies from vendors; and
•	the acquisition will reduce our incollect roaming costs because of the broader post-acquisition footprint.

In July 2004, AT&T Wireless and Triton PCS Holdings, Inc. (Triton) signed an agreement to terminate their stockholders’ agreement, which terminated a market exclusivity arrangement between the parties. As of the close of the AT&T Wireless acquisition, we had wireless operations in markets where AT&T Wireless was prohibited from operating under the exclusivity arrangement. In exchange for the termination of the stockholders’ agreement, AT&T Wireless surrendered to Triton its equity interest in Triton. The transaction closed in October 2004, immediately following the acquisition of AT&T Wireless. With the consummation of this agreement, we are able to provide continuing service in areas where Triton currently has operations.

In September 2004, we, AT&T Wireless and Triton signed an agreement providing for the acquisition by us of Triton’s wireless properties in Virginia in exchange for AT&T Wireless properties in North Carolina, Puerto Rico and the U.S. Virgin Islands and $176 million in cash. The transfer of network properties

11

Table of Contents

closed in December 2004. Spectrum licenses are being leased to the transferees pending FCC approval for transfer. We expect to exchange licenses in the second quarter of 2005.

In August 2003, we executed an agreement with NextWave and certain of its affiliates for the purchase of FCC licenses for wireless spectrum in 34 markets for $1.4 billion in cash. The transaction closed in April 2004. The funding for this transaction consisted of $900 million in existing cash on hand and $500 million from commercial paper, which was repaid prior to December 31, 2004.

In August 2004, amended in February 2005, we and Cincinnati Bell, Inc. (Cincinnati Bell) signed an agreement that allows us the right to put to Cincinnati Bell, any time on or after January 31, 2006, AT&T Wireless’ 19.9% equity interest in Cincinnati Bell’s wireless subsidiary, Cincinnati Bell Wireless, LLC (CBW), for $83 million. The agreement also allows Cincinnati Bell the right to call the equity, any time before January 31, 2006, for $85 million plus interest. On and after January 31, 2006, Cincinnati Bell has the right to call the equity for $83 million plus interest.

Additionally, we, AT&T Wireless and Cincinnati Bell amended the CBW operating agreement to remove the exclusivity arrangement applicable to AT&T Wireless, which allows us to provide continuing service in areas where CBW currently has operations. We and Cincinnati Bell also amended certain provisions of the CBW operating agreement to eliminate the right of AT&T Wireless to appoint any members of the member committee and limit the circumstances in which AT&T Wireless will retain approval rights over the actions of CBW. By its terms, the amendment was effective immediately following the acquisition of AT&T Wireless.

Pursuant to an agreement signed in September 2004, we sold Cingular Interactive, a data messaging business utilizing the proprietary “Mobitex” packet switched network, to newly formed affiliates of Cerberus Capital Management, L.P. (Buyer) for $45 million. We retained Cingular Interactive’s direct e-mail customers, as well as several other major accounts. We will continue our involvement in this data business as a reseller of the Buyer’s services. We retained the FCC licenses of Cingular Interactive and leased them to the Buyer prior to FCC approval. The sale transaction closed in October 2004, and the license transfer closed in December 2004.

In 2001, we and T-Mobile exchanged FCC licenses for, and subsequently formed our GSMF joint venture to share infrastructure covering the metropolitan New York market known as the New York Basic Trading Area (BTA) and most of California and parts of Nevada known as the Los Angeles and San Francisco Major Trading Areas (MTAs). In May 2004, we and T-Mobile entered into an agreement to dissolve GSMF, sell to T-Mobile certain spectrum licenses and other assets and exchange certain other spectrum licenses since we determined that the AT&T Wireless acquisition would provide us with spectrum and network infrastructure in areas missing from our original footprint. The first phase of these transactions closed in January 2005.

Pursuant to the agreement, in January 2005 we sold our ownership of the California/ Nevada MTA network assets to T-Mobile for approximately $2.5 billion in cash. In connection with the dissolution, we were required to contribute an additional $200 million to the venture to equalize capital accounts. The

12

Table of Contents

Item 1.     Business

ownership of the New York BTA network assets returned to T-Mobile. We retained the right to utilize the California/ Nevada and New York networks during a four-year transition period and have guaranteed to purchase a minimum number of minutes over this term with a minimum purchase price of $1.2 billion. We and T-Mobile retained all of our respective customers in each market. We also sold 10 MHz of spectrum to T-Mobile in each of the San Francisco, Sacramento and Las Vegas BTAs for $180 million.

As agreed to as part of the original joint venture agreement, we and T-Mobile were each to receive 50% of the spectrum used in the operation of the joint venture following its dissolution. Spectrum licenses were not contributed to the joint venture upon its formation in 2001 but rather were subject to a separate agreement governing their use. In connection with the dissolution, we and T-Mobile are contractually required to exchange certain spectrum licenses. We expect the spectrum licenses to be exchanged on January 1, 2007. We will receive 10 MHz of spectrum in the New York BTA in addition to the 10 MHz of spectrum we made available for use by GSMF and 2.5 MHz of spectrum in the Las Vegas, Nevada BTA, and T-Mobile will receive 5 MHz of spectrum in each of nine BTAs in California, the largest of which is San Diego. T-Mobile also has the option to purchase an additional 10 MHz of spectrum in the Los Angeles and San Diego BTAs from us at the end of two years under certain circumstances.

In December 2004, Atlantic West B.V. (AWBV), a 50/50 joint venture between us and Verizon Communications, Inc. (Verizon), sold its 49% interest in Bratislava to Slovak Telecom a.s. for total cash proceeds of $315 million. Our share of proceeds from the sale totaled $158 million. AWBV distributed $280 million of the proceeds upon completion of the sale, of which $140 million was distributed to us. AWBV holds the remaining $35 million in cash, along with $662 million in cash from a prior sale, which will be distributed equally to us and Verizon upon completion of a repatriation plan which qualifies under the American Jobs Creation Act of 2004. For further information regarding the American Jobs Creation Act of 2004, see Note 16 to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data”.

As a condition to receiving regulatory approval to acquire AT&T Wireless, we were required to dispose of certain AT&T Wireless properties. In February 2005, we sold MetroPCS, Inc. (MetroPCS) 10 MHz of former AT&T Wireless spectrum in each of Dallas, Texas and Detroit, Michigan for $230 million and sold Cellco Partnership, d/b/a Verizon Wireless, 10 MHz of former AT&T Wireless spectrum in Knoxville, Tennessee for $20 million. We have an agreement pending with Alltel Corporation (Alltel), subject to regulatory approval, to sell certain former AT&T Wireless assets and properties, including licenses, network assets and subscribers, that we currently operate in several markets, the largest of which is Oklahoma City, Oklahoma. We also agreed, subject to regulatory approval, to sell Alltel 20 MHz of spectrum and the network assets formerly held by AT&T Wireless in Wichita, Kansas, which we were not required to divest.

In addition, we signed agreements, subject to regulatory approval, to dispose of certain other former AT&T Wireless properties and assets in four smaller transactions involving the sale of various combinations of spectrum, network assets and subscriber accounts in rural regions of Arkansas, Mississippi, Missouri and Texas. The Mississippi transaction closed in March 2005.

In December 2004, we entered into an agreement to sell our indirect interest in IDEA Cellular Ltd. (IDEA), a cellular telecommunications company in India, to a joint venture between STT

13

Table of Contents

Communications Ltd. and TM International Sdn, a wholly-owned subsidiary of Telekom Malaysia Berhd. Under the agreement, we will receive the U.S. dollar equivalent of Rupees 9,108,628,130 based upon the exchange rate two business days before the transaction closes. The U.S. dollar equivalent was approximately $210 million as of December 31, 2004. The transaction is subject to approval by several regulatory agencies in India as well as the lenders of IDEA.

Competition

There is substantial and increasing competition in all aspects of the wireless communications industry. We expect this to continue as consolidation in the industry continues. We compete for customers based principally on our reputation, network quality, customer service, price and service offerings.

Our competitors are principally the other national providers of cellular, PCS and other wireless communications services — Verizon Wireless, Sprint PCS, Nextel and T-Mobile, which together with us serve over 90% of the U.S. wireless customers. Our competitors also include regional carriers, such as U.S. Cellular and Alltel, niche carriers, such as MetroPCS and Cricket Communications Inc. and resellers. Some of the indirect retailers who sell our services also sell our competitors’ services. We rank first among the five national carriers in terms of customers served as of December 31, 2004, and second in 2004 revenues. Verizon Wireless ranks second in terms of customers served and first in terms of revenues for 2004.

Regulatory policies favor robust competition in wireless markets. Wireless Local Number Portability (WLNP), which was implemented by the FCC late in 2003, has also increased the level of competition in the industry. WLNP allows subscribers to switch carriers without having to change their telephone numbers.

Consolidation, alliances and business ventures increase competition. Consolidation and the formation of alliances and business ventures within the wireless communications industry have occurred and we expect that this trend will continue. Consolidation may create larger, better-capitalized competitors with substantial financial, technical, marketing, distribution and other resources to compete with our product and service offerings. In addition, global combinations of wireless carriers — such as the joint venture between Sprint PCS and Virgin Group Ltd., Verizon Wireless, which is a joint venture between Verizon Communications and Vodafone Group Plc, and mergers and acquisitions, such as the acquisition of T-Mobile by Deutsche Telekom AG and proposed mergers of Sprint Corporation and Nextel, and Alltel and Western Wireless Corporation (Western) — may give some domestic competitors better access to international technologies, marketing expertise and strategies and diversified sources of capital. Other large, national wireless carriers have affiliations with a number of smaller, regional wireless carriers that offer wireless services under the same national brand, thereby expanding the national carrier’s perceived national scope.

Our ability to compete successfully will depend, in part, on the quality of our network, customer service and sales and distribution channels, as well as our marketing efforts and our ability to anticipate and respond to various competitive factors affecting the industry. These factors include the introduction of new services and technologies, changes in consumer preferences, demographic trends, economic conditions, pricing strategies of competitors and our ability to take advantage of our relationship with SBC and BellSouth. As a result of competition, we have in the past and may in the future be required to:

•	increase our spending to retain customers;
•	restructure our service packages to include more compelling products and services;
•	further upgrade our network infrastructure and the handsets we offer; and

14

Table of Contents

•	increase our advertising, promotional spending, commissions and other customer acquisition costs.

Verizon Wireless and Sprint PCS are deploying 3G data-only network technology using the standard known as Evolution — Data Only (EV-DO), which will provide theoretical communication speeds slightly higher than those of UMTS, though slightly slower than HSDPA. Verizon’s announced roll-out plans are to cover two-thirds of its POPs by the end of 2005; Sprint plans to launch 3G service later in 2005; and T-Mobile has not yet announced a 3G deployment schedule beyond EDGE. Nextel’s plans are subject to its planned merger with Sprint. We believe that we are well-positioned to offer competitive 3G services and that our UMTS/ HSDPA technology is superior to EV-DO in terms of speed and applicability to voice as well as data telephony. Furthermore, because our need to invest in additional infrastructure to increase the capacity of our voice network can be accomplished by the addition of UMTS/ HSDPA equipment, we believe we are better positioned with our choice for 3G technology than users of EV-DO technology, who will still have to invest in additional voice communications infrastructure to increase the capacity of their voice networks.

See “Factors Relating to Our Business — Substantial competition in all aspects of our business could continue to cause reduced pricing and have adverse effects on our profit margins”.

Business Strategies

We intend to be the pre-eminent wireless communication company in the U.S. Our business strategies to achieve that goal are to:

•	Build the Best Network. We believe that one of the most significant factors that customers consider when making decisions on wireless service is network quality. To that end, we plan to continually improve and expand our network. We are currently in the process of integrating the Cingular and AT&T Wireless networks under a plan that is designed to achieve network quality and coverage performance that exceed that of either of the former networks. We will accelerate the build out of the network to improve coverage in suburban and neighborhood areas and strengthen the in-building penetration in urban areas. We will significantly expand the capacity and coverage of our network in California and Nevada in order to facilitate the transition of customers that continue to be served by the network assets that we recently sold to T-Mobile as well as to accommodate future growth in those markets. In concert with the network integration work, we will deploy UMTS/ HSDPA in major markets across the country. This technology will increase the capacity of our network to carry voice traffic and provide data speeds that exceed those of the commercial offerings provided by other competitive carriers today and will allow us to offer a host of new broadband data applications. We will also work with our rural roaming partners to improve and expand coverage outside of our footprint and assist them in providing consistent products and services to our customers that roam across their networks.
•	Deliver Exceptional Customer Service. Another key focus area for us is delivering best-in-class customer care. We are implementing policies and procedures at every point of contact with our customers to improve the customer experience. We are deploying customer management and call routing technologies in our call centers to improve the accessibility and efficiency of our customer care representatives. We are equipping our customers with self-service tools to be able to access account information directly via their handsets, the Internet or integrated voice response systems. We continue to develop and implement initiatives that make it easier for customers to order or change products or features, upgrade or repair handsets and inquire about or pay their bills. Our acquisition of AT&T Wireless has given us not only the ability to choose and implement the best practices of the two constituent companies but also the challenge of efficiently integrating and rationalizing the facilities and systems used by the companies in providing customer care. One of the major contacts with customers is

15

Table of Contents

	through the billing process. A significant task in integrating AT&T Wireless’ operations into ours is integrating and streamlining the billing systems, which we anticipate will be complete by the end of 2006. These efforts will produce substantial operational efficiencies for us. We believe that by offering an exceptional customer experience to our customers, they will choose to remain with us and be instrumental in attracting new customers.
•	Create an Unmatched Distribution Network. The acquisition of AT&T Wireless has resulted in a significant increase in our number of distribution channels. We will rationalize both our direct and indirect distribution channels over the next few years. During this integration process, we will seek to create an optimized mix of direct and indirect sales channels that will balance the cost of customer acquisition with the ability to be in high traffic locations that drive higher sales volumes. Furthermore, we will expand sales locations opportunistically in areas that have higher growth prospects and scale back distribution in heavily penetrated areas. We will continue to drive our distribution capabilities deeper into emerging channels like our e-store and tele-sales operations. Our goal is to be a world class retailer and to meet our customers where they want to shop. By creating an unmatched distribution network, we believe that we will be able to attract an increasing number of new consumers.
•	Offer Compelling Products and Services. We believe that it is increasingly important to create products and services that are attractive to customers across a broad spectrum of market segments. This includes developing compelling devices and features, as well as pricing plans, that are differentiated from our competitors. In many cases, we intend to transition customers of AT&T Wireless to Cingular’s plans and handheld equipment. We will continue to pursue collaborative relationships with our handset vendors to develop and market devices that are equipped with the latest technology and functionality that consumers demand. A selection of these devices will be offered on an exclusive basis. Additionally, we will continue to improve and expand the ringtones, games and other content that our customers can access via their handsets. We will continue to offer pricing plans that offer a compelling value to consumers. Our ROLLOVER® rate plans are an example of how we provide a compelling value to customers by allowing them to keep their unused minutes for up to one year. Additionally, we will continue to develop products and services designed to appeal specifically to certain market segments like pre-paid hybrid plans, international calling plans, push-to-talk service and handsets and integrated business products with our parent companies.
•	Drive Financial Results by Quickly and Efficiently Integrating AT&T Wireless into Cingular Wireless. We will increase our financial performance by quickly and efficiently integrating AT&T Wireless’ business and operations into ours. We expect to achieve significant cost savings by eliminating redundant resources and facilities and more effectively and efficiently utilizing the best business practices of both companies to drive customer growth and revenues. We saw customer growth and reduced churn, but also reduced ARPU and operating margins, during the fourth quarter of 2004. While the causes for this are not solely related to our acquisition of AT&T Wireless, we believe that there are opportunities to achieve revenue and cost synergies and continued customer growth and reduced churn through successful and timely integration efforts.

Marketing

Our marketing strategy is focused on promoting the Cingular brand. Key marketing communication messages will also articulate and build on our business strategies of building the best network, delivering great customer service, creating an unmatched sales and distribution network and offering compelling products and services. Additionally, we will communicate and leverage, through cross-marketing, the strengths of our parents, SBC and BellSouth.

16

Table of Contents

Our advertising utilizes multiple media forms, including television, radio, newspaper, outdoor, Internet and point of sale. Advertising objectives include:

•	Increasing new customer growth by attracting prospective customers to our sales channel best suited to the customers’ needs;
•	Aiding customer retention by reinforcing the value of an existing relationship with Cingular;
•	Increasing existing customer usage of additional services (cross-sell/up-sell opportunities) and added-value features; and
•	Encouraging new and existing customers to combine (bundle) our wireless services with SBC’s and BellSouth’s wireline, Internet and video services.

Immediately following the acquisition of AT&T Wireless we repositioned the brand with RAISING THE BAR^SM. Under that umbrella, we also branded our network — the largest digital voice and data network in America — as the ALLOVER^SM network, utilizing the slogan MORE BARS IN MORE PLACES^SM. Both elements dramatize our network and provide a compelling reason for potential customers — including competitors’ customers — to choose Cingular as their wireless provider. Our initial research indicates that key brand attributes and perceptions have been positively affected by the communication. We will continue to leverage our brand identity by presenting more compelling and market specific reasons to choose Cingular.

Our marketing strategy is to aggressively sell our national voice services through our Cingular Nation® rate plans, while still providing regional plans for customers who prefer them. The plans differ in terms of the geographic areas that are included as the local calling areas, with Nation plans offering unlimited free roaming and long-distance, as well as unlimited mobile-to-mobile calling among our 49 million customers. We offer FAMILYTALK® shared minute plans, allowing customers to share their minutes while taking advantage of the size of our customer base with free calling to all Cingular subscribers. The costs and terms of each plan depend on the customer’s location and the plan selected. We also provide targeted plans for specific customer segments such as prepaid service, marketed under the GOPHONE® and KIC® brands. A host of plans targeted to various segments of the business-to-business market are also available.

Our marketing plans also address the growing communications needs of our existing customers, thereby increasing customer retention. We target specific customer segments with tailored services and offer them a range of high-quality handsets and enhanced features, including wireless data services, additional wireless phones, accessories and new products. We also offer the convenience of many added-value features, such as our *BAL# and *MIN# codes, which allow customers to check their balances and minutes used without having to call customer service. Many new handsets are also being provisioned with this service built in to the phone.

Data services are becoming an increased focus of our business. Instant messaging through AOL and Yahoo, Internet access, text messaging/short messaging services, picture and video messaging and gaming are all now integral parts of the wireless industry. We are focused on this category as a high-growth area with competitive and fair rates to support customer needs. In addition, graphics, MP3/ Supertones and polyphonic ringtones continue to show strong growth, as customers look to customize their wireless devices. We serve business customers with a robust line-up of business data services from corporate messaging to customized wireless application access. We market our business data offerings to larger organizations, as well as small and medium-sized businesses.

17

Table of Contents

Sales & Distribution

Our sales and distribution strategy seeks to tailor the mix of direct, indirect and resale distribution channels to match customer shopping preferences to increase customer growth and satisfaction while reducing customer acquisition and retention costs. As of December 31, 2004, we had over 260,000 distribution “points of presence”. These included approximately 2,600 company-owned stores and kiosks, 16,000 authorized agent locations, more than 5,500 national retail points of presence and over 240,000 national retail prepaid locations. In addition, we have access to the distribution channels of SBC and BellSouth as both sales channels and bundlers of our wireless services with their wireline product offerings. SBC’s Total Connections^SM and BellSouth Answers^SM product offerings combine local phone service and features, long distance, Internet access and Cingular Wireless services, with the customer receiving one consolidated bill. In addition to these traditional channels, we will continue to utilize and expand other channels, such as the Internet and telemarketing.

Customer Care and Satisfaction

The cost of adding new customers is one of the most significant cost elements in the wireless industry. Therefore, satisfying and retaining existing customers are critical to reducing churn and improving the financial performance of wireless operators. The goal of our customer care, retention and satisfaction programs is to ensure customer convenience and ease of use and to cultivate long-term relationships with our customers. We offer our customers a full range of options for making requests and inquiries to maximize convenience. We also offer complete customer care during extended business hours and emergency service after business hours, as well as a number of other services designed to enhance our relationship with our customers.

In 2005, we will continue to pursue opportunities to enhance customer satisfaction. Our key initiatives include continued expansion of our knowledge base tools, improved call routing initiatives and deployment of a contact management tool. We use a combination of internal and outsourced staffing for customer care and will transition onto a common customer care platform over time.

Environmental Matters

We are subject to various federal, state and local environmental protection and health and safety laws and regulations, and we incur costs to comply with those laws. Environmental laws hold current or previous owners or operators of businesses and real property potentially liable for contamination on that property, even if they did not know of and were not responsible for the contamination. Environmental laws may also impose liability on any person who disposes or arranges for the disposal of hazardous substances for contamination at the disposal site, regardless of whether the disposal site is owned or operated by such person. Although we do not currently anticipate that the costs of complying with environmental laws, including costs for remediating contaminated properties, if any, will materially adversely affect us, we cannot ensure that we will not incur material costs or liabilities in the future due to the discovery of new facts or conditions, the occurrence of new releases of hazardous materials or a change in environmental laws.

Employees

As of December 31, 2004, we had approximately 70,300 employees. Approximately 22,000 of our employees are represented by the Communications Workers of America (CWA), with contracts expiring on various dates until February 2008. The contract that expired in February 2005, covering approximately 5,500 employees, has been renegotiated and is subject to ratification by such employees. Most of the

18

Table of Contents

contracts contain no-strike clauses. In most areas of the country and with most job titles, we are contractually required to maintain a position of neutrality and to allow card-check procedures with respect to unionization, and we will support the determination of our employees. In those areas where our employees are unionized, we have in place contracts that we believe provide us with the flexibility to run our business in an increasingly competitive environment. We consider our relationship with our employees and the CWA to be very good.

Intellectual Property

We own the rights to the “Cingular®” brand name. We rely on a combination of copyright, patent, trademark, trade secret and other intellectual property rights, together with confidentiality and/or license agreements with our employees, customers and others to protect our proprietary rights. Our trademarks cover our brand name and icon and names of our service and product offerings and have a duration of 10 years with renewal provisions. We also license trademarks for various products and services from either SBC or BellSouth for varying terms. For more information on licenses granted by our member companies to us and licenses we grant to them, see Item 13, “Certain Relationships and Related Transactions”. Our FCC licenses are discussed under “Regulatory Environment”.

Regulatory Environment

The FCC regulates the licensing, construction, operation, acquisition and transfer of wireless systems in the U.S. pursuant to the Communications Act of 1934 (Communications Act) and its associated rules, regulations and policies.

To obtain the authority to have the exclusive use of radio frequency spectrum in an area within the U.S., wireless communications systems must be licensed by the FCC to operate the wireless network and wireless devices in assigned spectrum segments and must comply with the rules and policies governing the use of the spectrum as adopted by the FCC. These rules and policies, among other things, (1) regulate our ability to acquire and hold radio spectrum licenses or to lease spectrum, (2) impose technical obligations on the operation of our network, (3) impose requirements on the ways we provide service to and communicate with our customers, (4) regulate the interconnection of our network with the networks of other carriers, (5) obligate us to permit resale of our services by resellers, if we offer resale opportunities, and to serve roaming customers of other wireless carriers and (6) impose a variety of fees and charges on our business that are used to finance numerous regulatory programs and a substantial part of the FCC’s budget.

Licenses are issued for only a fixed period of time, typically 10 years. Consequently, we must periodically seek renewal of those licenses. The FCC will award a renewal expectancy to a wireless licensee that has provided substantial service during its past license term and has substantially complied with applicable FCC rules and policies and the Communications Act. The FCC has routinely renewed wireless licenses in the past. However, the Communications Act provides that licenses may be revoked for cause and license renewal applications denied if the FCC determines that a renewal would not serve the public interest. Violations of FCC rules may also result in monetary penalties or other sanctions. FCC rules provide that applications competing with a license renewal application may be considered in comparative hearings and establish the qualifications for competing applications and the standards to be applied in hearings.

Wireless systems are subject to 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, including limits on radio frequency

19

Table of Contents

radiation from wireless handsets and towers. Zoning and land use regulations, including compliance with historic preservation requirements, also apply to tower siting and construction activities.

Two-way Voice and Data Services. We hold geographic service area licenses granted by the FCC to provide cellular and PCS services. A cellular system operates on one of two 25 MHz frequency blocks in the 850 MHz band that the FCC allocates for cellular radio service. Cellular systems principally are used for two-way mobile voice applications, although they may be used for data applications and fixed wireless services as well. Cellular licenses are issued for either MSA or RSAs, two in each area.

A broadband PCS system operates under licenses issued in the 1900 MHz band. PCS systems generally are used for two-way voice applications, although they may carry two-way data communications and fixed wireless services as well. For the purpose of awarding PCS licenses, the FCC has divided the U.S. into 51 large regions called major trading areas, or “MTAs”, which are comprised of 493 smaller regions called basic trading areas, or “BTAs”. The FCC awarded two PCS licenses for each major trading area, known as the “A” and “B” blocks, and four licenses for each BTA known as the “C”, “D”, “E” and “F” blocks. Thus, generally, six PCS licenses are authorized in each area, together with two cellular licenses. The two MTA licenses authorize the use of 30 MHz of PCS spectrum. One of the basic trading area licenses is for 30 MHz of spectrum (the “C” block), and the other three are for 10 MHz each. The FCC permits a licensee to split its license and assign a portion, on either a geographic or frequency basis or both, to another party or parties.

We must satisfy a range of FCC-specified coverage requirements. For example, a cellular licensee was permitted five years following the grant of its license to provide service to its desired coverage area. The area it served with specified minimum signal strength became its licensed service area. Failure to provide that coverage to the boundaries of its initially licensed service area resulted in reduction of the relevant license area by the FCC. All 30 MHz PCS licensees must construct facilities that offer coverage to one-third of the population of the service area within five years of the original license grants and to two-thirds of the population within 10 years. All 15 MHz and 10 MHz PCS licensees must construct facilities that offer coverage to one-fourth of the population of the licensed area or “make a showing of substantial service in their license area” within five years of the original license grants. A licensee that fails to meet the coverage requirements may be subject to forfeiture of its license.

We use common carrier point-to-point microwave facilities and dedicated facilities leased from communications companies or other common carriers to connect our wireless cell sites and to link them to the main switching office. The FCC licenses point-to-point microwave facilities separately and they are subject to regulation as to technical parameters and service. Microwave licenses must also be renewed every 10 years.

Transfers and Assignments of Wireless Licenses. The Communications Act and the FCC rules require the FCC’s prior approval of the assignment or transfer of control of a license for a wireless system. Before we can complete any such purchase or sale, we must file appropriate applications with the FCC, and the public is by law granted a period of time, typically 30 days for major acquisitions, to oppose or comment on them. In addition, the FCC has established transfer disclosure requirements that require licensees who assign or transfer control of a license acquired through an auction within the first three years of their license terms to file associated sale contracts, option agreements, management agreements or other documents disclosing the total consideration that the licensee would receive in return for the transfer or assignment of its license. Non-controlling minority interests in an entity that holds an FCC license generally may be bought or sold without FCC approval. However, notification and expiration or earlier termination of the applicable waiting period under Section 7A of the Clayton Act by either the

20

Table of Contents

U.S. Federal Trade Commission or the U.S. Department of Justice may be required, as well as notification of state or local regulatory authorities having competent jurisdiction, if we sell or acquire wireless systems.

Foreign Ownership. Under existing law, no more than 20% of an FCC licensee’s capital stock may be owned, directly or indirectly, or voted by non-U.S. citizens or their representatives, by a foreign government or its representatives or by a foreign corporation. If an FCC licensee is controlled by another entity, as is the case with our ownership structure, up to 25% of that entity’s capital stock may be owned or voted by non-U.S. citizens or their representatives, by a foreign government or its representatives or by a foreign corporation.

Foreign ownership above the 25% level may be allowed should the FCC find such higher levels not inconsistent with the public interest. The FCC has ruled that higher levels of foreign ownership, even up to 100%, are presumptively consistent with the public interest with respect to investors from certain nations, which are countries that are signatories to the World Trade Organization Agreement on Basic Telecommunications Services. However, the FCC, in adopting that strong presumption, did note that the possibility exists that entry by a foreign carrier into the U.S. telecommunications market could be so detrimental as to require the imposition of conditions on entry by such a carrier or even a denial of entry. In addition, the FCC stated it would accord deference to legitimate national security, law enforcement, foreign policy and trade concerns raised by other federal agencies as part of the FCC’s analysis of whether to grant a particular authorization. The FCC has done that in certain cases where the U.S. Department of Justice and the U.S. Federal Bureau of Investigation have raised concerns, requiring the carrier to configure its network(s) to be capable of complying with lawful U.S. process and to make available in the U.S. certain call and customer data. Foreign ownership by entities from countries other than World Trade Organization member countries must meet a more stringent standard, and there is no assurance that the FCC would find a grant of such an application to be in the public interest. If our foreign ownership were to exceed the permitted level (through foreign ownership of our owners, their transfers of ownership in us or issuances of Class A common stock by our manager), the FCC could revoke our FCC licenses, although we could seek a declaratory ruling from the FCC allowing the foreign ownership or take other actions to reduce our foreign ownership percentage in order to avoid the loss of our licenses. We have no knowledge of any present foreign ownership that exceeds these limitations.

Spectrum Acquisitions and Leasing. Two of the ways by which we can attempt to meet our needs for additional spectrum are by acquiring spectrum licenses held by others or by accessing new spectrum being auctioned and licensed by the FCC. The Communications Act requires the FCC to award new licenses for commercial wireless services to applicants through a competitive bidding process. Therefore, if we need additional spectrum, we plan to acquire the spectrum, indirectly through joint arrangements, or directly in an auction for any new licenses that may become available or by purchasing existing licensed facilities and incorporating them into our system, provided that we are permitted to do so under FCC rules.

The FCC has announced that it will auction spectrum in the 700 MHz band. There are numerous television operators that currently occupy UHF television channels 52-69 in this band. Although these stations have been awarded a second channel to establish digital service, they also have the right to continue operation on the current channel through at least 2006 and potentially longer if various conditions are not met. Absent adoption of new federal legislation or rules that lead to “clearing” of the 700 MHz band earlier than current law requires, or the development of band-clearing mechanisms by these operators for relocation, this spectrum would be of limited use in the short-term for wireless services.

The FCC’s spectrum leasing rules permit license holders to lease the use of their spectrum to others and provide that such holders can meet their network system build requirements through the facilities construction and operating activities of their lessees. The FCC has structured its rules such that it has

21

Table of Contents

minimal involvement in leasing activities. The FCC does limit the ability of a designated entity to lease spectrum to a non-designated entity that has an equity position in the designated entity, and it has stated that it intends to scrutinize leasing activities by designated entities. Nevertheless, we view spectrum leasing as an attractive alternative to license acquisition in areas where we are spectrum constrained.

See “Our Network — Spectrum Capacity and Coverage” for information on results of Auction 58.

Rates and Services. The FCC does not specify the rates we may charge for our services nor does it require us to file tariffs for our U.S. wireless operations. However, the Communications Act states that an entity, such as us, that provides commercial mobile radio services is a common carrier and is thus subject to the requirements of the Communications Act that it not charge unjust or unreasonable rates nor engage in unreasonable discrimination. The FCC may invoke these provisions to regulate the rates and related terms and conditions under which we provide service. In addition, the Communications Act defines a commercial mobile radio service provider as a common carrier, which makes it subject to a number of other regulatory requirements in its dealings with other carriers and customers. The following requirements impose restrictions on our business and increase our costs as well as the costs of other wireless carriers.

Number Pooling. The FCC has adopted rules regulating the use of telephone numbers by wireless and other providers as part of an effort to achieve more efficient number utilization. Wireless carriers were required to participate in this “number pooling”, beginning in November 2002.

Recent Regulatory Developments. The FCC eliminated the rules limiting the amount of spectrum a wireless carrier can own in a market, effective January 1, 2003. As yet, it has not replaced these spectrum limits with published rules or guidelines setting forth how the FCC will review carriers’ spectrum aggregations. The FCC also eliminated the prohibition on ownership of both cellular licenses by a single-entity, except it will review on a case-by-case basis applications for authority to own both cellular licenses in a rural area. Certain acquisitions of spectrum would remain subject to approval of the U.S. Department of Justice.

The FCC has imposed rules requiring carriers to provide emergency 911 services, including enhanced 911 services that provide to local public safety dispatch agencies the caller’s communications number and approximate location. Providers are required to transmit the geographic coordinates of the customer’s location within accuracy parameters set forth by the FCC, either by means of network-based or handset-based technologies. Providers may not demand cost recovery as a condition of doing so, although they are permitted to negotiate cost recovery if it is not mandated by the state or local governments. Because of the delayed availability of vendor equipment that could reasonably be relied upon to comply with the FCC’s location accuracy rules, we and other wireless carriers negotiated settlement arrangements with the FCC that modified compliance standards and deadlines.

The FCC has established federal universal service requirements that affect commercial mobile radio service operators. Under the FCC’s rules, commercial mobile radio service providers are potentially eligible to receive universal service subsidies for the first time; however, they are also required to contribute to the federal universal service fund and may be required to contribute to state universal service funds. Contributions into the federal fund are based on the interstate and international revenues generated by the properties owned by a commercial mobile radio service provider. For 2004, we had payment obligations into the federal universal service fund of approximately $415 million. Because the amount that we are required to pay into the fund is based on revenues generated by our properties, we anticipate that this amount should continue to increase over time. We recover most of this expense from our customers. 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 commercial mobile radio service providers. If these programs expand they will impose a correspondingly growing expense on our business.

22

Table of Contents

As mentioned, commercial mobile radio service providers are now eligible to receive universal service subsidies if federal and state conditions are met. We pursue this funding in states where the corresponding regulatory burdens do not exceed the benefits of the subsidies.

In November 2003, the FCC’s rules on wireless local number portability became operative, enabling wireless customers to keep their wireless number when switching to another carrier. These rules have increased competition, costs and customer churn across the industry.

In October 2003, the Federal Trade Commission’s (FTC) National Do Not Call Registry became operative. Consumers are allowed to register their telephone numbers with the FTC which maintains the National Do Not Call Registry. Once a telephone number is on the registry for 30 days, commercial entities, including telemarketers, are prohibited from placing unsolicited telemarketing calls to the number unless they have an established business relationship with a consumer at that number. The FCC has jurisdiction over such telemarketing calls by common carriers. The FCC is investigating approximately 1,000 complaints against AT&T Wireless.

The FCC has adopted rules requiring wireless providers to provide functions to facilitate electronic surveillance by law enforcement officials pursuant to the Communications Assistance for Law Enforcement Act of 1995. These obligations are likely to result in significant costs to us for the purchase, installation and maintenance of network software and other equipment needed.

The Communications Act and the FCC’s rules grant various rights and impose various obligations on commercial mobile radio service providers when they interconnect with the facilities of local exchange carriers. Generally, commercial mobile radio service providers are entitled to “reciprocal compensation” in connection with the termination of wireline-originated local traffic, in which they are entitled to collect the same charges for terminating wireline-to-wireless local traffic on their system similar to the charges that the local exchange carriers levy for terminating wireless-to-wireline local calls. Interconnection agreements are typically negotiated by carriers, but in the event of a dispute, state public utility commissions, courts and the FCC all have a role in enforcing the interconnection provisions of the Communications Act. Although we have interconnection agreements in place with the major local exchange carriers in virtually all of our service areas, those agreements are subject to modification, expiration or termination in accordance with their terms. Moreover, we are negotiating and must continue to negotiate interconnection agreements with a number of independent telephone companies in our service areas. Until these agreements are concluded, we must accrue for contractual liabilities associated with the resulting unpaid invoices from those companies. Additionally, as we expand our coverage footprint, we will be required to negotiate interconnection arrangements with other wireline carriers.

The FCC has reallocated 30 MHz of spectrum from the 2 GHz Mobile Satellite Service or MSS for fixed and mobile services. The FCC has combined part of the 1990-2000 MHz portion of that spectrum, which is adjacent to the upper limit of the base-to-mobile portion of the PCS C Block, with part of the currently unlicensed PCS spectrum at 1910-1920 MHz, which is adjacent to the upper limit of the mobile-to-base portion of the PCS “C” Block, to create a new PCS “G” Block. The FCC plans to grant the PCS “G” block (1910-1915 MHz paired with 1990-1995 MHz) to Nextel in return for it relinquishing certain of its spectrum in the 700/800/900 MHz bands to alleviate public safety interference concerns. The FCC has also proposed the creation of a PCS “H” Block at 1915-1920 MHz paired with 1995-2000 MHz for new and innovative licensed mobile services. This spectrum block likely will be licensed to wireless service providers by auction in the future once technical issues are resolved by the FCC.

The FCC has also decided to allow MSS licensees in three separate MSS bands to add an ancillary terrestrial component to their existing or proposed mobile satellite offering. The FCC has conditioned the deployment of the terrestrial offering such that it has to be integrated with the satellite offering of a

23

Table of Contents

licensee. In addition, satellites must be launched and operational before the terrestrial service can be initiated. It is likely that the satellite proponents will ask the FCC to minimize or eliminate these conditions which could permit them to forego their satellite service in favor of deploying a terrestrial network and offering service in direct competition with our cellular and PCS services.

State Regulation and Local Approvals. With the rapid growth and penetration of wireless services has come a commensurate surge of interest on the part of state legislatures and state public utility commissions and local governmental authorities in regulating our industry. This interest has taken the form of efforts to regulate customer billing, termination of service arrangements, advertising, filing of “informational” tariffs, certification of operation, use of handsets when driving, service quality, sales practices, and many other areas. We anticipate that this trend will continue. It will require us to devote legal and other resources to working with the states to respond to their concerns while minimizing any new regulation that could increase our costs of doing business.

While the Communications Act generally preempts state and local governments from regulating entry of, or the rates charged by, wireless carriers, it also permits a state to petition the FCC to allow it to impose commercial mobile radio service rate regulation when market conditions fail adequately to protect customers and such service is a replacement for a substantial portion of the telephone wireline exchange service within a state. No state currently has such a petition on file. In addition, the Communications Act does not expressly preempt the states from regulating the “terms and conditions” of wireless service.

Several states have invoked this “terms and conditions” authority to impose or propose various consumer protection regulations on the wireless industry. California’s recently enacted rules are potentially quite costly. States also may impose their own universal service support requirements on wireless and other communications carriers, similar to the requirements that have been established by the FCC. At the local level, wireless facilities typically are subject to zoning and land use regulation. Neither local nor state governments may categorically prohibit the construction of wireless facilities in any community or take actions, such as indefinite moratoria, which have the effect of prohibiting construction. Nonetheless, securing state and local government approvals for new tower sites has been and is likely to continue to be difficult, lengthy and costly.

In addition, state commissions continue their efforts to conserve telephone numbering resources. These efforts may impact wireless service providers disproportionately by imposing additional costs or limiting access to numbering resources. Examples of state conservation methods include number pooling, number rationing and code sharing. In many non-top 100 markets, the supply of new numbers is inadequate to meet growing customer demands, but states have been and continue to be reluctant to deploy new area codes.

Further, states have become more active in imposing new taxes on wireless carriers, such as gross receipts taxes, and fees for items such as the use of public rights of way. These taxes and fees are generally passed through to our customers and result in higher costs to our customers.

Risk Factors

Substantial competition in all aspects of our business could continue to cause reduced pricing and have adverse effects on our profit margins. There is substantial competition in all aspects of the wireless communications industry. Our competitors are principally the four other national carriers doing business as Verizon Wireless, Sprint PCS, Nextel and T-Mobile and a large number of regional providers of cellular, PCS and other wireless communications services, resellers and wireline telephone service providers. We

24

Table of Contents

expect robust competition to continue in the wake of our acquisition of AT&T Wireless and the announced mergers of Sprint and Nextel and Alltel and Western. In acquiring AT&T Wireless, we became the largest wireless carrier in terms of numbers of customers. We believe that there will be competitive responses from other wireless service providers in terms of additional mergers, joint ventures to share or reduce costs and more robust competitive service and product offerings at lower prices. Competition continues to intensify as wireless carriers include more equipment discounts and bundled services in their offerings, including more minutes and free long distance and roaming services. This contributes to downward pressure on revenue growth and profit margins, and we expect this trend to continue.

FCC regulations and government policy in general promote robust competition, and new rules or changes to existing rules, such as rules providing for spectrum leasing and requiring wireless local number portability for customers changing wireless local carriers, could increase this trend and result in higher churn and lower margins.

Many of our competitors have substantial financial, technical, marketing, distribution and other resources. As a response to the intensifying competition, the need for cost reduction and the requirements for additional radio spectrum, we believe that the industry will continue to consolidate. This may produce larger and more formidable competitors with greater financial ability to continue to reduce prices to increase their customer base. As a result, our market share and profit margins may decrease.

New communications technologies, such as “Wi-Fi” and voice over Internet, are being developed and deployed by competitors, which may affect our ability to grow our wireless data and voice businesses.

ARPU from voice services has declined for several years and may not stabilize. Our ARPU has weakened over the past several years, declining from $52.91 to $49.30 over the past four years. This trend has resulted from increased numbers of customers and decelerating revenue growth caused primarily by:

•	decreased roaming revenues due to lower negotiated roaming rates and broader coverage footprints, which obviate the need for roaming;
•	increased competition, which has reduced pricing generally; and
•	expansion of subscriber bases to customers on lower price plans, such as prepaid, reseller plans and our FAMILYTALK® and similar plans targeting different market segments.

As none of these trends show signs of abating in the near term, we believe that ARPU will continue to be under pressure, notwithstanding increasing revenue from data services.

Integrating AT&T Wireless operations will be costly and time consuming. The challenges to integrate AT&T Wireless into our company include:

•	delivering a single, consistent and effective customer experience across all functions;
•	demonstrating to customers that the transaction will result in positive changes in client service standards and business focus;
•	integration and rationalization of separate analog, TDMA and GSM network systems;
•	consolidating and rationalizing corporate information technology and administrative infrastructures;
•	migrating AT&T Wireless customers to Cingular’s product offerings and creating a strong Cingular brand identity with such customers;
•	coordinating sales and customer service efforts to communicate our capabilities effectively;

25

Table of Contents

•	reducing redundant facilities and resources;
•	preserving distribution, marketing and other important relationships and resolving potential conflicts that may arise;
•	coordinating and rationalizing research and development activities to enhance introduction of new products and technologies with reduced cost;
•	minimizing the diversion of management attention from ongoing business concerns; and
•	maintaining employee morale and retaining key employees while downsizing our workforce.

If we do not successfully address these integration challenges in a timely and cost-effective manner, we may not realize the anticipated benefits or synergies of the acquisition to the extent, or in the timeframe, anticipated. The size and scale of the acquisition of AT&T Wireless increase both the scope and consequences of ongoing integration risks.

If our wireless service offerings or customer care service do not meet customer expectations, it could limit our ability to retain or attract 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. Consumer demand could be impacted by differences in technology, footprint and service areas, network quality, consumer perceptions, customer care levels and rate plans. We may have difficulty retaining customers if we are unable to meet our customers’ expectations for network quality and coverage, billing systems or customer care. An inability to address those issues could limit our ability to expand our network capacity or subscriber base and place us at a competitive disadvantage to other wireless service providers in our markets. These issues could affect our ability to attract new subscribers as well.

A high rate of customer churn would negatively impact our business. Wireless communications services providers, including us, experience varying rates of customer churn. We believe that customers change wireless providers for many reasons, including call quality, service offerings, price, coverage area and customer service. We expect to incur significant expenses to improve customer retention and reduce churn by subsidizing product upgrades and/or reducing pricing to match competitors’ initiatives, upgrading our network and providing improved customer service. There can be no assurance that these efforts will be successful. A high rate of churn would adversely affect our results of operations because we would lose revenue and because the cost of adding a new customer, which generally includes a commission expense and/or a handset subsidy, is a significant factor in income and profitability for participants in the wireless industry.

We believe industry-wide churn has increased slightly with the implementation of wireless local number portability. Carriers are not allowed to condition number portability on bringing delinquent accounts current. Churn from this new regulatory initiative could increase substantially over time as service contracts expire and customers become more familiar and comfortable with the processes involved in changing carriers.

During the fourth quarter of 2003 and into 2004, AT&T Wireless experienced difficulty transferring wireless phone numbers on a timely basis in connection with the implementation of wireless local number portability, and disruptions to its GSM/ GPRS order entry, customer care and collections processes in connection with implementing an upgrade to its customer care support system. These difficulties damaged its reputation and increased its churn. The lingering effects of these issues could impede our growth and adversely affect our churn. Since many of our gross customer additions came from AT&T Wireless’ churn, our gross customer additions could be negatively affected by our acquisition of this subscriber source.

26

Table of Contents

As we dedicate more resources to new GSM voice technology, our TDMA offerings could become less attractive, resulting in a loss of customers and reduced profitability. We expect to continue operating our TDMA network for at least the next three years as customers migrate to GSM technology. Due to our overlay of GSM technology over our TDMA systems, and to encourage our customers to migrate to GSM service, we expect not to upgrade our TDMA network with the same robust features that we will provide on our GSM networks. Furthermore, as we dedicate more spectrum to GSM, our remaining TDMA customers may experience difficulties in using our TDMA services. As we introduce and market GSM service, we may price GSM products and services at more attractive levels than TDMA products and services to encourage our customers to migrate to our GSM service. Manufacturers are not expected to produce innovative TDMA handsets with the same multiplicity of features and attractiveness of design as handsets using other technologies. All of these potential developments could drive our TDMA customers to our competitors instead of to our GSM offerings and thereby reduce our market share and profitability.

If we fail to obtain access to additional spectrum, we may not be able to expand the geographic reach of Cingular-branded services, increase our customer base in areas we currently serve or meet the anticipated demand for new services. Although our acquisition of AT&T Wireless, our purchase of spectrum licenses from NextWave and our teaming with other parties in FCC auctions have generally provided us with access to sufficient spectrum to meet anticipated levels of usage and provide 3G services in the near term, we will need additional spectrum in certain markets. If we cannot obtain access to new markets through auctions, spectrum exchanges or leasing, acquisitions, joint ventures or other means, it could impede our growth. In addition, an inability to add spectrum in some of our existing markets could adversely affect the quality of service if the demand for wireless communications continues to increase at a rapid rate.

We are committing a substantial amount of capital to upgrade our wireless voice networks to offer advanced data services over a 3G network, but there can be no assurance that widespread demand for these services will develop. While demand for our advanced data services is growing, revenues from such sources are currently a small portion of our total revenues. Continued growth in wireless data services is dependent on increased development and availability of popular applications and improved availability of handsets and other wireless devices with features, functionality and pricing desired by customers. EDGE is a new technology and a limited number of applications and devices designed to operate on this technology are currently available. If applications and devices are not developed and do not become commercially accepted, our revenues and competitive position would be materially and adversely affected. We cannot give assurance that in the near future there will be widespread demand for advanced wireless data services or that data revenues will constitute a significant portion of our total revenues, nor can we provide assurance that this demand will develop at a level that will allow us to earn a reasonable return on our investment.

We have also committed to build over the next several years an advanced 3G network utilizing UMTS/HSDPA technology. Customer demand for this service is unknown, and demand for 3G services in Europe has generally been disappointing and in Asia has varied significantly. As these services are in their infancy in the U.S. and are being offered in a highly competitive market, we cannot provide assurance that these services can be priced at profitable levels. Significant challenges also exist to develop and produce at reasonable cost handsets that successfully address battery life, size and functionality issues. Furthermore, our own experience encouraging subscribers to migrate from TDMA to GSM service was that substantial handset subsidies were required. If we are unable to effectively promote and obtain reasonable penetration of this service in our subscriber base at adequate pricing levels, our ability to earn an acceptable rate of return on our investment and protect our operating margins would be jeopardized.

Our choice for the next generation of technology, UMTS/HSDPA, is a new technology, which could become obsolete and/or not commercially accepted, which could result in a delay in offering new services.

27

Table of Contents

New high-speed 3G wireless services are now being offered by wireless carriers in the U.S. that combine the attributes of faster speed, greater data capability, better portability and greater functionality than services provided over existing networks. We have chosen UMTS/HSDPA as our advanced 3G technology, but we believe that there will be multiple, competing technological standards, several options within each standard, vendor-proprietary variations and rapid technological innovation. Other technologies could emerge as preferred data networks for some services and, if those technologies are widely accepted, we may miss the opportunity to offer those services because of our technology choice. There is a risk that UMTS/HSDPA could be inadequate or become obsolete as 4G technologies are developed.

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 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 a call, or 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 continue to obtain roaming agreements for our GSM/GPRS, EDGE, and other next-generation products and services with pricing or coverage we desire.

Alltel is acquiring Western, which is one of our significant GSM roaming partners. If the combined company replaces Western’s GSM network with CDMA technology, which Alltel uses, we would lose a valuable GSM roaming partner. In such case, we would have to replace them or build our own GSM network in the Western service area to provide service there.

In all markets where our roaming providers operate, we are at risk because we do not control those entities. As a result, we may not be able to compel them to participate in our technology migration and enhancement strategies 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 providers 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. Some of these carriers are still building their GSM/GPRS/EDGE networks, primarily in rural areas. If those carriers are delayed or prevented from completing their GSM/GPRS/EDGE networks, or if they cease doing business, our customers might be unable to roam on those networks when out of their home service areas, or they may have to roam on carriers’ networks with which we have less favorable roaming agreements. To the extent our roaming providers that have developed GSM/GPRS do not deploy EDGE or UMTS technology, our ability to expand our EDGE and UMTS service area beyond our own network will be limited, which could adversely affect demand for the service. If we lose the ability to rely on roaming providers to provide service in an area, we may be required to commit capital resources to the construction of our own network in those areas rather than to the pursuit of other business opportunities.

Our business expansion and network upgrade will require substantial additional capital, and we are now dependent on SBC and BellSouth to provide working capital and long-term financing. We will require substantial capital for acquisitions of systems, construction of network infrastructure, concluding our technology migration and upgrade plan, expanding our network capacity, investing in joint venture affiliates

28

Table of Contents

Item 1.     Business

and making other capital investments. As a result of our acquisition of AT&T Wireless, our needs for working capital and funds for debt repayment and long-term financing have significantly increased.

The actual amount of capital required may vary materially from our current estimates. Unforeseen delays, cost overruns, regulatory changes, engineering and technological changes, legal costs and judgments and other factors may also require additional funds.

As a result of the cash needs described above, we may need to incur significant amounts of additional financing. SBC and BellSouth have committed to provide us with working capital financing, and in light of that we have terminated our commercial paper and bank financing arrangements. If SBC or BellSouth are unable or unwilling to finance our operating and capital needs on a timely basis, we would be unable to pursue our business plan or meet our financial obligations, unless SBC and BellSouth are willing to permit us to seek third party financing.

Delay in completing our network expansion in California and Nevada could result in substantially greater operating expenses. Our agreement to dissolve our GSMF venture with T-Mobile required us to sell to them our California and Nevada network assets and allowed T-Mobile to receive the New York network assets. We will be required to expand the networks acquired in our AT&T Wireless acquisition in those locations and, pending completion of our expansion, we have the right to utilize the networks transferred to T-Mobile for a four-year transition period. We have committed to purchase at least $1.2 billion of minutes over this term. In the event that our expansion is not completed in a timely manner, our operating costs will substantially increase.

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, 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., Ericsson, Nokia Networks, Inc., Siemens and Lucent 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 companies were unable to honor, or otherwise failed to honor their obligations to us, or terminated their relationship with us, we could experience disruptions of our business and adverse effects on our revenues and results of operations.

We have an agreement with Research in Motion Limited (RIM), to purchase Blackberry® hand-held devices for use in our data communications business. In litigation against RIM by various patent holders, a court has held that these devices infringe several patents. If we cannot obtain these or comparable devices from RIM on a reasonable financial basis, it could impair our profit margins and disrupt our wireless data business.

Our lack of control over a large part of our distribution network could hurt our ability to grow our customer base. As of December 31, 2004, we had over 260,000 distribution channels, of which only 2,600 were our own stores or kiosks. We rely heavily upon independent agents, national retailers and the distribution channels of SBC and BellSouth to sell our products and services. Many of these distributors also sell communications products and services of other companies, and we cannot completely control the marketing messages they use in their selling efforts or their preferences to sell our products and services as opposed to those of our competitors. As a result, our distribution channels may be ineffective to a degree

29

Table of Contents

that we cannot directly address, which would hurt our ability to generate new customer additions and maximize revenues.

The potential impact of unionization and organizing activities, which we expect will increase, could adversely affect our costs and results of operations. All of our businesses, excluding joint ventures, are subject to various agreements with the CWA. These agreements contain provisions requiring us to maintain neutrality if the union conducts an organizing campaign and requiring us to allow employees to vote to unionize by presenting authorization cards rather than participating in a more difficult secret ballot process conducted by the National Labor Relations Board. In an effort to gain recognition in the areas not already covered by a contract, union activity may increase. We believe that no other national wireless provider currently employs a unionized workforce to any significant extent. At the expiration of the CWA agreements, a work stoppage could prevent us from providing service to our customers in the areas covered by the expired contracts and possibly result in customer loss and a reduction in revenue.

Because some of our operations are conducted through joint ventures with other companies, we cannot control all aspects of our business, and disputes with our partners may damage our reputation as a nationwide brand. Despite our commitments to provide substantial funds to joint venture affiliates, we do not have control of their managements. If we experience disagreements with our partners, it could adversely affect our ability to serve some of our customers and profitably grow our business.

We may be adversely affected by the significant changes expected in the wireless communications industry. The wireless communications industry is experiencing significant changes. These include evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new services, evolution to new 3G standards, changes in end-user needs and preferences and high costs and customer churn due to implementation of wireless local number portability. Also, alternative technologies are developing for the provision of services to customers that may provide wireless communications services or alternative services superior to those available from us. Accordingly, there can be no assurance that technological changes will not materially adversely affect us.

Industry growth will be affected by increased market penetration. Currently, the penetration rate in the wireless communications market is approximately 62%. Although this market continues to grow, increased penetration will have the effect of slowing customer growth, and gross customer additions of any carrier will increasingly have to be obtained from other carriers’ churn. Currently, we believe that approximately 70% of our gross additions were formerly customers of another wireless carrier. If this condition continues, we expect competition to intensify and our customer growth to be increasingly dependent on reducing our churn rate.

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

30

Table of Contents

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 operating margins could fluctuate from quarter to quarter, depending on marketing expenses, significant fluctuations in the number of new subscribers and our customer retention efforts.

Our operations are subject to substantial government regulation, which could significantly increase our costs and increase customer churn. Many aspects of our business are regulated to varying degrees by the FCC and some state and local regulatory agencies. The adoption or change of regulations could significantly increase our costs and increase customer churn. For example, the FCC, together with the Federal Aviation Administration, regulates tower marking and lighting. In addition, the FCC and the states are increasingly looking to the wireless industry to fund various initiatives, including universal service programs, local telephone number portability, services for the hearing-impaired and emergency 911 networks. Furthermore, many states have imposed significant taxes on the wireless industry and are attempting to regulate consumer protection matters. We are also subject to environmental protection and health and safety regulation, including limits on radio frequency energy from wireless handsets and towers. The failure to comply with any of these regulations, even if hardware and software solutions are not readily available from manufacturers and suppliers, can result in significant penalties.

A number of our FCC licenses to provide wireless services are subject to renewal and potential revocation in the event that we violate applicable laws. A number of our licenses are subject to renewal, generally some each year, upon the expiration of the 10-year period for which they are granted, and we cannot assure you that the FCC will renew them. If any of our licenses are forfeited or revoked, we would not be able to provide service in that area unless we contract to resell wireless services of another provider, utilize roaming agreements or lease spectrum from other carriers.

Concern about alleged health risks relating to radio frequency energy may harm our prospects. A number of studies have been conducted to examine the health effects of wireless phone use, and some persons have construed some of the studies as indicating that wireless phone use causes adverse health effects or that wireless phones’ safety has not been established. Some media reports have also suggested that radio frequency energy from wireless handsets, accessories and cell sites may be associated with various health problems, including cancer. In addition, lawsuits have been filed against us and other participants in the wireless industry alleging actual and potential adverse health consequences as a result of wireless phone usage. Some of these lawsuits allege other related claims, including negligence, strict liability, conspiracy and the misrepresentation of or failure to disclose these alleged health risks. If consumers’ health concerns over radio frequency energy increase, they may be discouraged from using wireless handsets, and regulators may impose restrictions on the location and operation of cell sites. These concerns could have an adverse effect on the wireless communications industry and expose wireless providers to further litigation, which, even if not successful, can be costly to defend. Additional studies of radio frequency energy are ongoing and new studies are anticipated. Any negative findings in these studies could increase the risks described

31

Table of Contents

above. In addition, an adverse outcome or settlement in the existing and/or any further litigation against us or any other provider of wireless services could have a material adverse effect on our results of operations, financial condition and/or prospects.

Equipment failure and disasters may adversely affect our operations. A major equipment failure or a natural disaster, terrorist act or other breach of network or IT security that affects our wireless telephone switching offices, 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 customers 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, even for a limited time period, may result in a loss of customers or impair our ability to attract new customers, which would have a material adverse effect on our business, results of operations and financial condition.

The restricted supply of new telephone numbers could limit or delay our growth in California and some other states. The supply of new telephone numbers in some areas of the U.S. is near exhaustion due to rapidly growing customer demand for additional numbers for wireless handsets and pagers, as well as for Internet access and private branch exchange systems or private telephone networks used within enterprises. Many states have imposed restrictions on carriers’ access to additional numbers, creating shortages and delay in obtaining needed number resources. If we are unable to obtain a sufficient supply of new telephone numbers, our ability to increase our customer base would be adversely affected.

SBC and BellSouth may transfer their controlling interests in us and cease to be subject to certain obligations that benefit us, including exclusivity provisions. Under our limited liability company agreement and the stockholders’ agreement among our manager, SBC and BellSouth, each of SBC and BellSouth will cease to be subject to many of the restrictions imposed on it that benefit and protect us, such as restrictions on competition and acquisitions of other wireless businesses, once its ownership interest falls below 10%. Although both SBC and BellSouth are subject to a number of transfer restrictions, each of them may, under the circumstances described in Item 13, “Certain Relationships and Related Transactions — Our Limited Liability Company Agreement”, sell its interests in us and its common stock in our manager to third parties, subject to a right of first refusal of the respective other party, or spin-off or split-off its interests in us or its stock in our manager to its shareholders. In addition, we may lose any competitive advantage we currently gain from our agency relationships and service bundling offerings with SBC and BellSouth.

SBC and BellSouth may compete with us in the areas of fixed wireless voice and data services and may resell our services under their own brand names inside their service territories after specified future dates. SBC and BellSouth have agreed in our limited liability company agreement to engage in the provision of U.S. mobile wireless voice and data services only through us and our subsidiaries, but the agreement is subject to significant exceptions, including an exception that permits them to market and sell fixed wireless voice and fixed wireless data services and to market and sell wireless services in areas in which we, our subsidiaries or joint venture affiliates are not providing Cingular-branded services pursuant to FCC licenses. SBC and BellSouth engage in other competitive activities, such as “Wi-Fi” wireless data service. SBC and BellSouth are permitted to resell our services under their own brand names outside their service territories. In addition, if BellSouth or SBC terminates its wireless agency agreement, it may resell our wireless services in its respective service territories.

The arrangements that we have with SBC and BellSouth were established by SBC and BellSouth, and may not be as advantageous as similar agreements negotiated with unaffiliated third parties. We have entered

32

Table of Contents

into various agreements with SBC and BellSouth and their respective affiliates that are material to the conduct of our business, and we may enter into additional agreements with them in the future. For example, we have entered into agency agreements with SBC and BellSouth that include pricing and other terms. Although we believe that these agreements, as a whole, are as advantageous to us as those that could otherwise be obtained, we have no independent verification that these agreements are as advantageous as similar agreements negotiated with unaffiliated third parties.

Under the terms of agreements with SBC and BellSouth, the scope of our potential business is limited, which could hurt the growth of our business. We have agreed with SBC and BellSouth that, without their consent, we may not enter into any business other than U.S. and limited foreign mobile wireless voice and data businesses. These restrictions could limit our ability to grow our business through initiatives such as expansion into additional markets and acquisitions of wireless providers that are also engaged in other businesses outside of our permitted activities. These restrictions may also preclude us from pursuing other attractive related or unrelated business opportunities.

SBC and BellSouth control all important decisions affecting our governance and our operations and may fail to agree on important matters. Under the terms of our limited liability company agreement, our management is exclusively vested in our Manager. Both the board of directors and the strategic review committee of our Manager are comprised of six directors: three elected by SBC and three elected by BellSouth. Substantially all important decisions of our Manager must be approved by its strategic review committee. It is possible that the committee may be deadlocked regarding matters that are very important to us. Although deadlocks are to be resolved by the chief executive officers of SBC and BellSouth, if they cannot agree, inaction or disputes may result, which could, among other things, result in us losing important opportunities.

SBC and BellSouth may have conflicts of interest with us and with each other. Conflicts of interest may arise between us and SBC and BellSouth and with each other when faced with decisions that could have different implications for us and SBC or BellSouth, including technology decisions, financial budgets, repayment of member loans from SBC and BellSouth, the payment of distributions by us, business activities and other matters. They may also take action that favors their businesses and the interests of their shareholders over our wireless business and the interests of our debt holders. Because SBC and BellSouth control us, conflicts of interest could be resolved in a manner adverse to us or our debt holders. Therefore, we may not always be able to use our resources in the best interest of advancing our business. Any of these types of conflicts could impede our relationship with our members, their ability to manage us efficiently or our ability to operate our business in the best interests of our security holders.

We lease our corporate headquarters buildings in Atlanta, Georgia. We also maintain administrative and sales offices, customer care call centers, retail sales locations, switching centers, cell tower sites and data centers throughout the U.S. Most locations are generally leased to provide maximum flexibility. Switching centers and data centers are frequently owned due to their critical role in our operations and high set-up and relocation costs.

We continue to maintain the leased office space that had previously been the corporate headquarters of AT&T Wireless in Redmond, Washington.

33

Table of Contents

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).

As of December 31, 2004, we operated a direct distribution channel comprised of approximately 2,600 company-operated stores and kiosks. We have two centrally operated handset and accessory distribution centers, which are located in Memphis, Tennessee and Dallas, Texas. Network properties included nearly 45,000 cell sites. This cell site count excludes over 5,000 cell sites sold to T-Mobile related to the sale of the California and Nevada Cingular network on January 5, 2005.

We believe that our facilities are in good operating condition and are currently suitable and adequate for our business operations.

NOTE: The claims identified as AT&T Wireless claims were filed against AT&T Wireless prior to the acquisition.

We and our subsidiaries, including AT&T Wireless, are parties to various legal actions and regulatory proceedings relating to matters that are incidental to the conduct of our business. These involve disputes with and inquiries by private parties and governmental entities over alleged patent infringement, agency and reseller relationships, alleged unfair competition, marketing (including unsolicited marketing calls to persons on the FTC’s National Do Not Call Registry), advertising, promotions, sales, labor practices, billing and collection practices and alleged health effects of wireless phones. We are also subject to claims incidental to the normal conduct of our business, including actions by customers, vendors and employees and former employees.

We and various affiliated entities are subject to state government inquiries over marketing practices in the wireless industry and are defendants in a number of purported class actions or representative actions brought on behalf of subscribers throughout the country regarding common law and statutory claims of misrepresentation, inadequate disclosure, unfair trade practices or breach of contract related to our advertising, promotions, sales, billing and collection practices. These include claims relating to the alleged practice, and alleged nondisclosure, of rounding up of partial minutes of airtime usage to full minute increments, send-to-end billing, charging early termination fees, post-cancellation billing practices, billing for recovery costs associated with regulatory programs, billing for roaming calls, locking of handsets and other practices and charges, as well as the adequacy of our wireless coverage and the quality of service. The actions are in various stages of the investigation and litigation processes. Plaintiffs in most of these putative class actions and representative actions have not specified the alleged damages they seek.

We and various affiliated entities are defendants in a number of cases in various courts involving claims by former agents and resellers who allege that we breached our contracts with those agents and resellers, have tortiously interfered with their contractual relationships with others by terminating our relationships with them and have engaged in unfair competition. Some of the complaints have further alleged that we are a franchisor under applicable state franchise law and have violated franchise laws in our relationship with

34

Table of Contents

them. State franchise laws often provide for treble damages for violations. We believe that we are not a franchisor under state law in these cases.

In September 2004, the California Public Utilities Commission voted to fine us $12 million and to require us to pay restitution to customers for alleged violations of California’s consumer protection laws. We are appealing that decision.

We and AT&T Wireless are defendants in a lawsuit brought by Freedom Wireless, Inc. alleging patent infringement related to prepaid wireless service. The case is pending in the U.S. District Court for the District of Massachusetts, and the trial for this matter commenced in late February 2005. The trial could last at least two months. The plaintiff is expected to seek approximately $250 million in monetary damages from us and AT&T Wireless, as well as injunctive relief. Boston Communications Group, Inc. (BCGI), whose prepaid technology platform we have used and whose technology is alleged to infringe two patents held by Freedom Wireless, has agreed to indemnify us and AT&T Wireless with respect to the claims asserted in this litigation. Financial and other information regarding BCGI can be obtained at www.bcgi.net. (This web site address is an inactive textual reference included for information only and is not intended to be an active link or to incorporate any web site information into this document.)

While more research needs to be conducted and is being conducted on the subject, the research conducted to date does not demonstrate that use of a wireless phone has any adverse health effects, according to the U.S. Food and Drug Administration’s Center for Devices and Radiological Health (the FDA). The FDA stated in July 2001: “The available scientific evidence does not show that any health problems are associated with using wireless phones. There is no proof, however, that wireless phones are absolutely safe.” The FDA shares regulatory responsibility for wireless phones with the FCC. The FCC relies on the FDA and other health agencies for safety questions about wireless phones. The FDA is party to the Cooperative Research and Development Agreement with the Cellular Telecommunications and Internet Association, of which we and other wireless companies are members. Pursuant to this agreement, the parties have agreed to support research regarding wireless phone safety. We and various affiliated entities are defendants in lawsuits alleging personal injuries, including brain cancer, from wireless phone use. We and various affiliated entities are also defendants in purported class actions that allege adverse health effects caused by wireless phone use and also allege fraudulent conduct, participation in conspiracies and other wrongful conduct by wireless phone manufacturers, service providers and others. Plaintiffs seek various forms of relief, including compensatory and punitive damages, and/or injunctive and equitable relief.

In a purported consumer class action against AT&T Wireless filed in Texas pertaining to service quality, the named plaintiffs at one time 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’ motion for review in the Texas Supreme Count was granted.

A series of class-action cases have been filed against us and AT&T Wireless, as well as our major competitors, alleging that we and the other defendants have violated federal and state antitrust laws and/or committed unfair or deceptive trade practices by allegedly restricting the portability of wireless handsets between carriers.

Several class-action lawsuits have been filed against AT&T Corp., certain executives of AT&T Corp. and AT&T Wireless and a group of investment banking firms asserting claims under the federal securities laws. The complaints assert claims that AT&T Corp. 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

35

Table of Contents

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 and AT&T Corp. may result in AT&T Wireless’ 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.

AT&T Wireless 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 Corp. has demanded arbitration of a claim that AT&T Wireless has breached agreements that were part of the split-off of AT&T Wireless from AT&T Corp. by agreeing with us in the context of the acquisition that certain stock options originally granted by AT&T Corp. and later converted into options to purchase AT&T Wireless stock would be cancelled upon consummation of the acquisition. Prior to the closing of the acquisition, we waived the requirement that these options be cancelled, and as a result, they were not cancelled. AT&T Corp. asserts that AT&T Wireless is obligated to pay compensation to option holders (even for those options that are “under water”) and asserts a claim for restitution from AT&T Wireless in the amount of $201 million.

While complete assurance cannot be given as to the outcome of any legal claims, we believe that any financial impact from litigation or regulatory proceedings would not be material to our business, financial position or cash flows.

None

36

Table of Contents

Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters

There is no established trading market for our ownership interests. SBC indirectly owns approximately 60% of our ownership interests and BellSouth indirectly owns approximately 40% of our ownership interests. Cingular Wireless Corporation, our manager, owns a de minimis ownership interest in us.

We are required to make periodic distributions to our members on a pro rata basis in accordance with each member’s ownership interest in amounts sufficient to permit members to pay the tax liabilities resulting from allocations of income tax items from us. During 2001, we made distributions to members of $47 related to 2000 tax liabilities and $592 related to 2001 tax liabilities. Since we did not generate taxable income to the members in 2002, 2003 and 2004, we made no distributions in any of these years.

Additionally, we are required to distribute to our members 50% of our “excess cash”, as defined in our operating agreement, at the end of each fiscal year. Excess cash consists of all funds generated from our business, less forecasted cash needs for the upcoming fiscal year and distributions made to the members for their tax payments. Between 2002 and 2004, we were not required to make any distributions of excess cash to the members.

Furthermore, under a revolving loan agreement with SBC and BellSouth, free cash flow after repayment of the revolving loans thereunder and subordinated shareholder loans will be distributed to SBC and BellSouth. These distribution provisions supercede the distribution provisions described above to the extent they require a greater equity distribution.

The following selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto contained herein in Item 8, “Financial Statements and Supplementary Data”, the information contained herein in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the information contained herein in “Item 1, Business — Risk Factors — Factors Relating to our Business, — Factors Relating to our Industry and — Factors Relating to Our Arrangements with SBC and BellSouth”. Historical results are not necessarily indicative of future results.

Selected Historical Financial Information — Cingular Wireless LLC

The following table presents our selected historical consolidated financial and operating data from the date of our formation, April 24, 2000. The statements of income, balance sheets and cash flow presented in this table are derived from our audited historical consolidated financial statements and related notes. Operating data was derived from unaudited financial data. The results for the period April 24, 2000 to December 31, 2000 presented below include the contributed SBC and BellSouth Domestic Wireless Groups’ wireless operations from October 2, 2000, the contribution date; we had no meaningful results of operations prior to that date.

During the course of preparing our 2004 consolidated financial statements, we determined that our method of accounting for operating leases did not comply with the requirements of Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases and Financial Accounting Staff Board (FASB) Technical Bulletin No. 85-3 Accounting for Operating Leases with Scheduled Rent Increases. Historically, we have not assumed the exercise of available renewal options in accounting for operating leases. We reevaluated our accounting for operating leases and the related useful lives for depreciating leasehold improvements following publication of a letter issued by the Office of the Chief Accountant of the SEC on February 7, 2005. In light of our investment in each cell site, including acquisition costs and leasehold improvements, we have determined that the exercise of certain renewal options was reasonably assured at the inception of the leases. Accordingly, we have corrected our accounting to recognize rent expense, on a straight-line basis, over the initial lease term and renewal periods that are reasonably

37

Table of Contents

assured, and to depreciate the associated leasehold improvements and other related assets over the lesser of their useful lives or their respective lease terms. The restated selected financial data below for the years ending December 31, 2000, 2001, 2002 and 2003 include the impact of the restatements. In addition, our GSMF infrastructure venture, accounted for under the equity method, reached a similar conclusion with respect to operating leases, requiring correction and restatement of its previously issued financial statements for the years ended December 31, 2003 and 2002. As a result, the selected financial data below for the years ending December 31, 2002 and 2003 reflects the restated net equity in losses of affiliates. See Note 2 to the accompanying consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” for additional information related to the restatements for the years ending December 31, 2002 and 2003. See footnote 11 below for further information related to the restatements of the years ending December 31, 2000 and 2001.

The 2004 data presented below is not necessarily comparable to that for 2003 or any other prior period as a result of the acquisition of AT&T Wireless, which closed in October 2004. AT&T Wireless’ results subsequent to that date have been included in our consolidated financial statements.

In 2003, to be consistent with industry practices, historical consolidated statements of income for all periods presented were reclassified to reflect billings to our customers for the Universal Service Fund (USF) and other regulatory fees as operating revenues and the costs related to payments into the associated regulatory funds as operating expenses. Operating income and net income for all periods were unaffected.

38

Table of Contents

	(1)	Subsequent to November 2001, depreciation expense related to the assets transferred to GSMF is classified as a component of equity in net loss of affiliates and is no longer included in operating expenses.
	(2)	For the year ended December 31, 2002, net income includes a cumulative effect of accounting change, net of tax, of $32 upon the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. See Note 5 to our audited financial statements included in Item 8.
	(3)	Capital expenditures do not include capital expenditures and cash contributions related to our infrastructure venture, GSMF. See Note 6 to our audited financial statements included in Item 8.
	(4)	Licensed POPs refers to the number of people residing in areas where we have licenses to provide cellular or PCS service.
	(5)	Cellular/PCS customers include customers of other carriers served through reseller agreements. Effective 2001, cellular/PCS customers include customers associated with additional wireless businesses subsequently contributed by our members.
	(6)	Cellular/PCS customer churn is calculated by dividing the aggregate number of cellular/PCS customers who cancel service during each month in a period by the total number of cellular/PCS customers at the beginning of each month in that period. Beginning in the first quarter of 2005 we will adopt a new reseller churn calculation methodology that, for resellers, is based on net disconnects, See “Consolidated Results of Operations, Year Ended December 31, 2004 Compared with the Year Ended December 31, 2003”.
	(7)	ARPU is defined as cellular/PCS service revenues during the period divided by average number of cellular/PCS customers during the period. This metric is used to compare the recurring revenue amounts generated on our network to prior periods and internal targets. We believe that this metric provides useful information concerning the performance of our initiatives to attract and retain high value customers and the use of our network. For further discussion of ARPU and a reconciliation to its most comparable measure under generally accepted accounting principles (GAAP), see “ARPU Discussion” below.

39

Table of Contents

	(8)	Earnings consist of income before income taxes, extraordinary gain (loss), cumulative effect of accounting changes and fixed charges. Fixed charges include interest expense, capitalized interest and the portion of rent expense representing interest.
	(9)	OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from operating income (loss), as calculated in accordance with GAAP, in that it excludes depreciation and amortization. It differs from net income (loss), as calculated in accordance with GAAP, in that it excludes, as presented in our Consolidated Statements of Income: (1) depreciation and amortization, (2) interest expense, (3) minority interest expense, (4) equity in net income (loss) of affiliates, (5) other, net, and (6) provision (benefit) for income taxes. OIBDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies. For further discussion of OIBDA, including reasons we believe its presentation is useful, and a reconciliation to its most comparable measure under GAAP, see “OIBDA Discussion” below.

(10)	OIBDA margin is defined as OIBDA divided by service revenues.
(11)	Fiscal periods ending December 31, 2001 and 2000 have been restated for items discussed above. As a result of these restatements, our financial statements as of December 31, 2001 and 2000 and for the fiscal periods then ended have been adjusted as follows:

40

Table of Contents

Item 6.	Selected Financial Data

OIBDA Discussion

OIBDA is defined as operating income (loss) before depreciation and amortization. Although we have used substantively similar measures in the past, which we called “EBITDA”, we now use the term OIBDA to describe the measure we use as it more clearly reflects the elements of the measure. OIBDA margin is calculated as OIBDA divided by services revenue. These are non-GAAP financial measures. They differ from operating income (loss) and operating margin, as calculated in accordance with GAAP, in that they exclude depreciation and amortization. They differ from net income (loss), as calculated in accordance with GAAP, in that they exclude, as presented in our Consolidated Statements of Income: (i) depreciation and amortization, (ii) interest expense, (iii) minority interest expense, (iv) equity in net income (loss) of affiliates, (v) other, net, and (vi) provision (benefit) for income taxes. We believe these measures are relevant and useful information to our investors as they are an integral part of our internal management reporting and planning processes and are important metrics our management uses 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. Lastly, we use this measure for planning purposes and in presentations to our board of directors, and we use multiples of this current or projected measure in our discounted cash flow models to determine the value of our licensing costs and our overall enterprise valuation.

OIBDA excludes other, net, minority interest expense and equity in net income (loss) of affiliates, 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. Equity in net income (loss) of affiliates represents our proportionate share of the net income (loss) of affiliates 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, equity in net income (loss) of affiliates may include results that are material to our overall net income (loss). OIBDA also excludes interest expense and the provision (benefit) for income taxes. Excluding these items eliminates the expenses associated with our capitalization and tax structures. Finally, OIBDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.

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 are 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 service revenue that is generated by the subscriber. We also use service revenue to calculate margin to facilitate comparison, both internally and externally with our competitors, as they calculate their margins using service revenue as well.

There are material limitations to using these non-GAAP financial measures, 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, tax expense and equity in net income (loss) of affiliates, 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 its analysis of net income (loss) as calculated in accordance

41

Table of Contents

Item 6.	Selected Financial Data

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 U.S. OIBDA and OIBDA margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies.

ARPU Discussion

ARPU is defined as cellular/ PCS service revenues during the period divided by average cellular/ PCS customers during the period. This metric is used to compare the recurring revenue amounts generated on our cellular/PCS network to prior periods and internal targets. We believe that this metric provides useful information concerning the performance of our ongoing initiatives to attract and retain high value customers and the use of our network.

              Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures.

Selected Historical Financial Information — SBC Domestic Wireless Group

The following table presents selected historical consolidated financial and operating data of the SBC Domestic Wireless Group. The statements of operations and cash flow data for the period ended October 2, 2000 are derived from the audited financial statements of the SBC Domestic Wireless Group. We derived the operating data from unaudited financial reports of the SBC Domestic Wireless Group.

42

Table of Contents

Item 6.	Selected Financial Data

The historical financial information includes the results of operations and cash flows for the SBC Domestic Wireless Group for the period ended October 2, 2000. Historical financial information also includes the results of operations and cash flows for acquisitions from their dates of acquisition and includes the results of operations and cash flows from various disposed assets until their dates of disposition. The revenues and expenses presented below have not been adjusted for the USF and other regulatory fees as previously noted in our historical financial information as such amounts are immaterial.

(1)	In September 2000, adjustments related to calculations of a gain in 1999 on the required disposition of the 20 Midwestern cellular properties following the Ameritech merger resulted in an additional extraordinary gain of $36, net of taxes of $24.
(2)	Net cash provided by operating activities for the period ended October 2, 2000 reflects a tax payment of $1,102 associated with the sale of the 20 Midwestern cellular properties referenced in note (1).
(3)	Cellular/ PCS customers of other carriers include customers served through reseller agreements.
(4)	Cellular/ PCS customer churn is calculated by dividing the aggregate number of cellular/ PCS customers who cancel service during each month in a period by the total number of cellular/ PCS customers at the beginning of each month in that period.

Selected Historical Financial Information — BellSouth Domestic Wireless Group

The following table presents summary historical consolidated financial and operating data of the BellSouth Domestic Wireless Group. The statements of operations and cash flow data for the period ended October 2, 2000 are derived from the audited financial statements of the BellSouth Domestic Wireless

43

Table of Contents

Item 6.	Selected Financial Data

Group. We derived the operating data from unaudited financial reports of the BellSouth Domestic Wireless Group.

The historical financial information for the BellSouth Domestic Wireless Group includes the results of operations and cash flows for various significant acquisitions from their dates of acquisition and includes the results of operations and cash flows from various disposed assets until their dates of disposition. The revenues and expenses presented below have not been adjusted for the USF and other regulatory fees as previously noted in the historical financial information for Cingular Wireless LLC as such amounts are immaterial.

(1)	Cellular/ PCS customers include customers of other carriers served through reseller agreements.
(2)	Cellular/ PCS customer churn is calculated by dividing the aggregate number of cellular/ PCS customers who cancel service during each month in a period by the total number of cellular/ PCS customers at the beginning of each month in that period.

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We earn revenues and generate cash primarily by offering a comprehensive variety of high-quality wireless voice and data communications services and products. Our services are available in a variety of postpaid pricing plans and prepaid service arrangements. Our voice and data offerings are tailored to meet the communications needs of targeted customer segments, including youth, family, active professionals, local and regional businesses and major national corporate accounts.

44

Table of Contents

At December 31, 2004, after our fourth quarter 2004 acquisition of AT&T Wireless Services, Inc. (AT&T Wireless) and exchange of properties with Triton PCS Holdings, Inc. (Triton), we served 49.1 million voice and data customers over our cellular and personal communications services (PCS) networks and were the largest provider of wireless voice and data communications services in the United States (U.S.), based on the number of wireless customers. We had access to Federal Communications Commission (FCC) licenses to provide cellular or PCS wireless communications services covering an aggregate population (POPs) of 290 million, or approximately 98% of the U.S. population, including all of the 100 largest U.S. metropolitan markets.

Although we are required to divest certain wireless services and spectrum licenses in order to comply with conditions imposed by the FCC and the U.S. Department of Justice (DOJ) in connection with their approvals of the AT&T Wireless acquisition, these divestitures are not expected to materially affect our ability to provide services in such markets or adversely affect our overall business or financial prospects. See Note 20 to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data”.

On October 26, 2004, Cingular Wireless Corporation (our Manager) acquired AT&T Wireless for an aggregate consideration of approximately $41,000 in cash. On October 27, 2004, our Manager sold to us all of its interest in AT&T Wireless. At the acquisition date, AT&T Wireless served nearly 22 million customers over its cellular and PCS networks in the U.S. and the Caribbean. AT&T Wireless also held equity interests in U.S. and international communications ventures, corporations and partnerships. For further information, see Note 3 to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data”.

The addition of licensed and facilities-covered spectrum as a result of the acquisition of AT&T Wireless will enhance the breadth and spectrum depth of our footprint and our ability to offer new services. We expect that it will also enable improved customer satisfaction and retention as a result of enhanced call clarity and reduced call interruptions. These improvements are critical to our strategy of retaining customers in light of industry trends that the wireless market is maturing and as competitors seek to distinguish themselves through attractive service offerings and quality customer service in order to maintain operating margins. Our ability to achieve these objectives is dependent on our ability to quickly and efficiently integrate AT&T Wireless’ operations into our own and realize anticipated cost savings.

We expect our operating performance initially to be adversely affected as a result of our acquisition of AT&T Wireless. In the third and fourth quarters of 2004, we incurred $288 of integration costs and expect integration costs to continue in 2005 as we begin to more fully integrate their operations with ours. In addition, during the fourth quarter of 2004, we began recording significant non-cash amortization expenses that will continue over the next few years as a result of purchase accounting adjustments related to the acquisition. For further information, see Note 5 to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data”. Although we have begun to realize cost savings and improvements in the operating performance of our combined operations, the more significant cost synergies will not occur until later in 2005 from the elimination of redundant facilities, advertising costs, staff functions, capital expenditures and other resources. We expect these synergy savings to partially offset integration costs and higher amortization expense in 2005 and then contribute to higher operating margins, beginning during 2006.

Consistent with generally accepted accounting principles (GAAP), the discussion of our results of operations for the year ended December 31, 2004 includes the financial results of AT&T Wireless for the

45

Table of Contents

last 67 days of the period. The inclusion of these results may render direct comparisons with the results for prior periods less meaningful. Accordingly, the discussion below addresses, where appropriate, trends we believe are significant, separate and apart from the impact of the acquisition of AT&T Wireless.

Restatement of Consolidated Financial Statements

During the course of preparing our 2004 consolidated financial statements, we determined that our method of accounting for operating leases did not comply with the requirements of Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases and Financial Accounting Staff Board (FASB) Technical Bulletin No. 85-3, Accounting for Operating Leases with Scheduled Rent Increases. Historically, we have not assumed the exercise of available renewal options in accounting for operating leases. We reevaluated our accounting for operating leases and the related useful lives for depreciating leasehold improvements following publication of a letter issued by the Office of the Chief Accountant of the SEC on February 7, 2005. In light of our investment in each cell site, including acquisition costs and leasehold improvements, we have determined that the exercise of certain renewal options was reasonably assured at the inception of the leases. Accordingly, we have corrected our accounting to recognize rent expense, on a straight-line basis, over the initial lease term and renewal periods that are reasonably assured, and to depreciate the associated leasehold improvements and other related assets over the lesser of their useful lives or their respective lease terms. In addition, the Company’s infrastructure venture with T-Mobile USA, Inc. (T-Mobile), GSM Facilities, LLC (GSMF), accounted for under the equity method, reached a similar conclusion with respect to operating leases, requiring correction and restatement of its previously issued financial statements for the years ended December 31, 2003 and 2002.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations on and for the years ending December 31, 2003 and 2002 has been modified and updated to reflect the effects of these restatements.

Industry and Operating Trends

We compete for customers based principally on our reputation, network quality, customer service, price and service offerings. We face substantial and increasing competition in all aspects of our business. Our competitors are principally four national (Verizon Wireless, Sprint PCS, Nextel Communications and T-Mobile) and a large number of regional providers of cellular, PCS and other wireless communications services, as well as resellers. In addition, we may experience significant competition from companies that provide similar services using other current or future communications technologies and services. Our management focuses on the key wireless industry drivers of customer penetration, average revenue per user (ARPU), operating income including OIBDA and reputation within the wireless industry to evaluate our performance.

The wireless telecommunications industry is continuing to grow and consolidate; however, a high degree of competition exists among the current five national carriers, their affiliates and the smaller regional carriers. This competition and other factors, such as the implementation of wireless local number portability, will continue to put pressure on pricing, margins and customer churn (see Note 6 to “Selected Historical Financial Information — Cingular Wireless LLC” for a definition of customer churn) as the carriers compete for potential customers. Future carrier revenue growth is highly dependent upon the number of net customer additions a carrier can achieve and the ARPU derived from its customers. Our ARPU has weakened over the past several years declining from $52.91 to $49.30 over the past four years. This trend has resulted from increased numbers of customers and decelerating revenue growth caused primarily by:

•	decreased roaming revenues due to lower negotiated roaming rates and broader coverage footprints, which obviate the need for roaming;

46

Table of Contents

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

•	increased competition, which has reduced pricing generally; and
•	expansion of subscriber bases to customers on lower price plans, such as prepaid, reseller plans and our FAMILYTALK® and similar plans targeting different market segments.

As none of these trends show signs of abating in the near term, we believe that ARPU will continue to be under pressure, notwithstanding increasing revenue from data services. The effective management of customer churn is also paramount in minimizing customer acquisition costs and maintaining and improving margins.

Competition and the slowing rate of wireless service penetration will continue to adversely impact revenue growth and margins. We expect cost of services increases to continue due to higher network system usage and, to a lesser extent, redundant expenses related to operating multiple networks as our customer base transitions from our Time Division Multiple Access (TDMA) network to our Global System for Mobile Communication (GSM) network and as we integrate AT&T Wireless’ network and operations with ours. Our operating margin in the fourth quarter of 2004 was unfavorably impacted by certain on-going and expense increases related to the AT&T Wireless acquisition. Operating expenses for the fourth quarter included $245 in integration costs related to our acquisition of AT&T Wireless as well as higher costs due to the significant gross customer additions during the quarter and handset upgrade and related costs associated with customer migrations to new Cingular common service offerings. If we are successful in continuing to increase our postpaid customer base, our customer acquisition costs will increase. We also expect increased costs to maintain and support our growing customer base, including customer care initiatives to improve our level of service to our combined customer base and retain existing customers. We expect these and other cost increases to be partially offset by ongoing efforts to reduce general and administrative expenses and decreased roaming costs as a result of lower negotiated roaming rates with other carriers and the acquisition of AT&T Wireless, formerly our largest roaming partner. In addition, we expect to see synergy savings related to our AT&T Wireless acquisition offset integration costs and other expense increases and begin to contribute to higher margins during 2006.

Components of Our Operating Results

Service Revenues. Service revenues consist of revenues from the provision of wireless voice and data services. For all the periods presented, revenues from voice services accounted for more than 90% of our consolidated voice and data service revenues. Service revenues, which we record when services are provided and are net of service credits and adjustments, include revenues from:

•	recurring monthly access charges;
•	airtime usage, including prepaid service;
•	long distance charges;
•	charges for optional features and services such as voice mail, unlimited mobile-to-mobile calling, roadside assistance, caller ID and data services;
•	billings for Universal Services Fund (USF) and other regulatory program fees;
•	roaming charges we bill to our customers for their use of our and other carriers’ networks, which we refer to as “incollect roaming” revenues; and
•	roaming charges we bill to other wireless service providers whose customers use our network, which we refer to as “outcollect roaming” revenues.

47

Table of Contents

Revenues from data services were slightly over 5% of total service revenues for 2004 and have not been material in any of the periods presented. We expect revenues from our wireless data services to continue to exhibit significant increases compared with the prior year periods but not to comprise a material component of service revenues for the foreseeable future. We expect growth in wireless data services to be driven by the increased availability and/or usage of higher-speed General Packet Radio Service (GPRS), Enhanced Data Rates for GSM Evolution (EDGE) and Universal Mobile Telecommunications System (UMTS) with High-Speed Downlink Packet Access (HSDPA) technology across our network and the introduction of new data applications for business and consumer use, including access to e-mail, Internet content, mobile commerce and location-based services.

As a result of the AT&T Wireless acquisition, our consolidated outcollect roaming revenues will reflect a reduction or elimination of intra-company revenues between the now combined Cingular and former AT&T Wireless operations. This elimination will significantly reduce the new combined company outcollect roaming revenues when compared to the combination of prior historical stand-alone results. There is also a corresponding elimination of roaming expenses, a component of cost of services, as described below.

Equipment Sales. Equipment sales include revenues from the sale of handsets and accessories to new and existing customers and to agents and other third-party distributors. The trend in equipment sales is generally comparable to the trend in gross customer additions, as well as being impacted by customers who upgrade their handsets.

Our operating expenses include:

•	cost of services;
•	cost of equipment sales;
•	selling, general and administrative expenses; and
•	depreciation and amortization.

Cost of Services. Cost of services includes network costs related to voice and data transmissions and includes the costs to monitor, maintain and service our network and wireline facilities expense, as well as costs related to payments into the USF and other regulatory funds. We expect cost of services to continue to increase as a result of higher network system costs associated with increased customer usage. Cost of services also includes roaming charges and long distance expense for services provided by other telecommunications carriers. Overall, we expect these third-party costs to continue to decrease. Roaming costs continue to decline as increased usage stimulated by national rate plans’ inclusion of free roaming is more than offset by lower negotiated roaming rates. Additionally, as a result of the AT&T Wireless acquisition, our consolidated roaming expenses will reflect a reduction or elimination of intra-company roaming costs between the now combined former Cingular and AT&T Wireless properties. This elimination will significantly reduce roaming expenses when compared to the combination of prior historical stand-alone results. There is also a corresponding elimination of outcollect roaming revenue, a component of service revenues, as described above. We expect reductions in roaming costs to be partially offset by higher long distance costs as usage increases.

Cost of Equipment Sales. Cost of equipment sales includes the cost of handsets and accessories. Some of our third party distributors purchase handsets and accessories from us, nominally above cost. However, we generally sell handsets below cost to customers who purchase through direct sales channels, such as our company stores, as an inducement to customers to agree to one-year and two-year subscription contracts,

48

Table of Contents

to upgrade service or in connection with other promotions. As a result, revenues from equipment sales are more than offset by the related cost of equipment sales, resulting in a net subsidy to customers. In addition, we have actively focused on selling services to new customers and upgrading existing customers to digital handsets and service, which improves network efficiency and lowers our per minute operating costs. The trend in the cost of equipment sales generally follows the trend in gross customer additions and customer upgrades, but is also impacted by changes in the cost of handsets. As we continue to upgrade our network and introduce new data offerings, we expect to see an increase in higher-cost, feature-rich handsets for both new and existing customers. As one of the largest purchasers of handsets in the U.S., we believe we will be able to purchase handsets at attractive volume-discounted rates.

Selling, General and Administrative. Selling, general and administrative expenses include:

•	sales and marketing costs, including the costs of advertising and promotions;
•	distribution expenses, including the costs to maintain retail locations and the commissions paid to our own sales force as well as agents and other third party distributors;
•	provisions for uncollectible receivables; and
•	other administrative costs, such as finance, information technology, human resources, billing operations, customer service and other overhead costs.

Depreciation and Amortization. Depreciation and amortization expense includes non-cash expenses relating to the depreciation of property, plant and equipment, amortization of internal use software and amortization of identifiable finite-lived intangibles, such as customer relationships. Depreciation and amortization expense excludes depreciation related to assets used in our joint ventures. See “— Equity in Net Income (Loss) of Affiliates, Net” below. Depreciation expense pertaining to assets used in our business has been generally increasing as a result of our capital expenditures and recognition of shorter TDMA asset lives. We expect this expense to continue to increase in the foreseeable future as we make substantial capital expenditures to expand and upgrade our network and make other investments. See “— Cash Requirements” below for a discussion of our capital expenditures and other investments. Additionally, amortization expense will increase in 2005 over prior years as a result of the customer relationship and AT&T trade name intangible assets recorded with our acquisition of AT&T Wireless. This amortization expense will decrease after 2005 as the AT&T trade name intangible asset becomes fully amortized and the amortization related to the customer relationship intangible asset decreases.

Interest Expense. Interest expense includes interest costs related primarily to our indebtedness and capital leases, net of amounts capitalized. Interest expense will increase over the levels recorded in 2004, primarily due to the additional $9,500 of AT&T Wireless Senior Notes we assumed with our acquisition of AT&T Wireless. This increase will be partially offset by a reduction in interest expense due to the amortization of a $2,045 purchase accounting fair value premium associated with the assumed debt.

Minority Interest in Earnings of Consolidated Entities. Minority interest reflects the share of net income (loss) allocated to members or partners in our consolidated entities.

Equity in Net Income (Loss) of Affiliates, Net. We have non-controlling equity investments in various entities. Effective January 2005, we terminated a joint venture with T-Mobile, GSMF. For further information regarding our equity investments, see also Note 6, “Investments in and Advances to Equity Affiliates”, to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data”.

49

Table of Contents

We are a limited liability company treated as a partnership for income tax purposes and therefore generally do not pay taxes on our income. Instead, income taxes are generally the responsibility of our members. However, we have corporate and LLC subsidiaries that are taxpayers in some jurisdictions and will record income tax expense. With the acquisition of AT&T Wireless as a corporate subsidiary, a larger portion of our income will generate income tax expense on our financial statements. For further information, see also Note 16, “Income Taxes”, to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data”.

Consolidated Results of Operations