UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

	(Mark One) x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	o	For the quarterly period ended September 30, ~~2014~~2015 or
	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

I.R.S. Employer Identification Number 43-1301883

208 S. Akard St., Dallas, Texas 75202

Telephone Number: (210) 821-4105

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[X]		Accelerated filer	[ ]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Smaller reporting company	[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

At October 31, ~~2014,~~2015, there were ~~5,187~~6,152 million common shares outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AT&T INC.	AT&T INC.													AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME	CONSOLIDATED STATEMENTS OF INCOME													CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts	Dollars in millions except per share amounts													Dollars in millions except per share amounts
(Unaudited)	(Unaudited)													(Unaudited)
		Three months ended						Nine months ended							Three months ended						Nine months ended
		September 30,						September 30,							September 30,						September 30,
		2014			2013			2014			2013				2015			2014			2015			2014
																		As Adjusted						As Adjusted
Operating Revenues		$	32,957		$	32,158		$	98,008		$	95,589
Service															$	35,625		$	29,790		$	94,128		$	89,122
Equipment																3,466			3,167			10,554			8,886
Total operating revenues																39,091			32,957			104,682			98,008

Operating Expenses
Cost of services and sales (exclusive of depreciation
and amortization shown separately below)			14,541			13,403			42,074			39,227
Cost of services and sales
Equipment																4,501			4,432			13,400			12,503
Broadcast, programming and operations																4,081			1,038			6,351			3,019
Other cost of services (exclusive of depreciation and amortization shown separately below)																9,214			8,866			27,604			26,167
Selling, general and administrative			8,475			7,952			24,932			24,406				9,107			8,475			24,535			24,932
Depreciation and amortization			4,539			4,615			13,706			13,715				6,265			4,539			15,539			13,706
Total operating expenses			27,555			25,970			80,712			77,348				33,168			27,350			87,429			80,327
Operating Income			5,402			6,188			17,296			18,241				5,923			5,607			17,253			17,681
Other Income (Expense)
Interest expense			(1,016	)		(829	)		(2,757	)		(2,481	)			(1,146	)		(1,016	)		(2,977	)		(2,757	)
Equity in net income (loss) of affiliates			(2	)		91			188			494				15			(2	)		48			188
Other income (expense) – net			42			50			1,456			370
Other (expense) income – net																(57	)		42			61			1,456
Total other income (expense)			(976	)		(688	)		(1,113	)		(1,617	)			(1,188	)		(976	)		(2,868	)		(1,113	)
Income Before Income Taxes			4,426			5,500			16,183			16,624				4,735			4,631			14,385			16,568
Income tax expense			1,367			1,595			5,769			5,066				1,657			1,444			4,784			5,914
Net Income			3,059			3,905			10,414			11,558				3,078			3,187			9,601			10,654
Less: Net Income Attributable to Noncontrolling Interest			(57	)		(91	)		(213	)		(222	)			(84	)		(57	)		(262	)		(213	)
Net Income Attributable to AT&T		$	3,002		$	3,814		$	10,201		$	11,336			$	2,994		$	3,130		$	9,339		$	10,441
Basic Earnings Per Share Attributable to AT&T		$	0.58		$	0.72		$	1.96		$	2.10			$	0.50		$	0.60		$	1.71		$	2.00
Diluted Earnings Per Share Attributable to AT&T		$	0.58		$	0.72		$	1.95		$	2.09			$	0.50		$	0.60		$	1.71		$	2.00
Weighted Average Number of Common Shares
Outstanding – Basic (in millions)			5,198			5,315			5,208			5,402				5,924			5,198			5,447			5,208
Weighted Average Number of Common Shares
Outstanding – with Dilution (in millions)			5,214			5,331			5,224			5,419				5,943			5,214			5,463			5,224
Dividends Declared Per Common Share		$	0.46		$	0.45		$	1.38		$	1.35			$	0.47		$	0.46		$	1.41		$	1.38
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
				As Adjusted						As Adjusted
Net income	$	3,078		$	3,187		$	9,601		$	10,654
Other comprehensive income (loss), net of tax:
Foreign Currency:
Translation adjustment (includes $(20), $(1), $(20) and $0 attributable to noncontrolling interest), net of taxes of $(535), $(22), $(638) and $(17)		(1,039	)		(35	)		(1,224	)		(29	)
Reclassification adjustment included in net income, net of taxes of $0, $0, $0 and $224		-			-			-			416
Available-for-sale securities:
Net unrealized gains (losses), net of taxes of $(49), $(15), $(30) and $19		(85	)		(29	)		(51	)		30
Reclassification adjustment included in net income, net of taxes of $2, $(1), $(3) and $(9)		3			(1	)		(6	)		(15	)
Cash flow hedges:
Net unrealized gains (losses), net of taxes of $(237), $201, $(479) and $148		(441	)		370			(890	)		272
Reclassification adjustment included in net income, net of taxes of $6, $3, $15 and $14		11			8			28			29
Defined benefit postretirement plans:
Amortization of net prior service credit included in net income, net of taxes of $(131), $(146), $(393) and $(435)		(215	)		(239	)		(644	)		(718	)
Reclassification adjustment included in net income, net of taxes $0, $0, $0 and $33		-			-			-			61
Other comprehensive income (loss)		(1,766	)		74			(2,787	)		46
Total comprehensive income		1,312			3,261			6,814			10,700
Less: Total comprehensive income attributable to noncontrolling interest		(64	)		(56	)		(242	)		(213	)
Total Comprehensive Income Attributable to AT&T	$	1,248		$	3,205		$	6,572		$	10,487
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Net income $ 3,059 $ 3,905 $ 10,414 $ 11,558
Other comprehensive income, net of tax:
    Foreign Currency:
        Translation adjustments (includes $(1), $(1), $0
           and $(2) attributable to noncontrolling interest), net of taxes of
           $(22), $(21), $(17) and $(86)
(35 ) (37 ) (29 ) (155 )
        Reclassification adjustment included in net income,
            net of taxes of $0, $0, $224 and $19
- - 416 34
    Available-for-sale securities:
        Net unrealized gains (losses), net of taxes of $(15), $38,
           $19 and $84
(29 ) 69 30 155
        Reclassification adjustment realized in net income, net of
           taxes of $(1), $(2), $(9) and $(7)
(1 ) (3 ) (15 ) (13 )
     Cash flow hedges:
        Net unrealized gains, net of taxes of $201, $171,
           $148 and $286
370 316 272 526
        Reclassification adjustment included in net income,
           net of taxes of $3, $4, $14 and $12
8 7 29 22
     Defined benefit postretirement plans:
        Reclassification adjustment included in net income, net of
           taxes $0, $0, $33 and $5
- - 61 8
        Amortization of net prior service credit included in
           net income, net of taxes of $(146), $(109), $(435)
           and $(327)
(239 ) (178 ) (718 ) (533 )
Other comprehensive income 74 174 46 44
Total comprehensive income 3,133 4,079 10,460 11,602
Less: Total comprehensive income attributable to
     noncontrolling interest
(56 ) (90 ) (213 ) (220 )
Total Comprehensive Income Attributable to AT&T $ 3,077 $ 3,989 $ 10,247 $ 11,382
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
	September 30,			December 31,
	2015			2014
Assets	(Unaudited)			As Adjusted
Current Assets
Cash and cash equivalents	$	6,202		$	8,603
Accounts receivable - net of allowances for doubtful accounts of $656 and $454		16,329			14,527
Prepaid expenses		1,166			831
Other current assets		11,254			9,802
Total current assets		34,951			33,763
Property, plant and equipment		302,194			282,295
Less: accumulated depreciation and amortization		(179,358	)		(169,397	)
Property, Plant and Equipment – Net		122,836			112,898
Goodwill		105,966			69,692
Licenses		93,063			60,824
Customer Lists and Relationships - Net		19,608			812
Other Intangible Assets – Net		8,236			5,327
Investments in Equity Affiliates		1,744			250
Other Assets		13,585			13,659
Total Assets	$	399,989		$	297,225

Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year	$	7,535		$	6,056
Accounts payable and accrued liabilities		28,280			23,592
Advanced billing and customer deposits		4,640			4,105
Accrued taxes		4,591			1,136
Dividends payable		2,892			2,438
Total current liabilities		47,938			37,327
Long-Term Debt		119,395			76,011
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes		53,044			38,549
Postemployment benefit obligation		36,396			37,079
Other noncurrent liabilities		20,427			17,989
Total deferred credits and other noncurrent liabilities		109,867			93,617

Stockholders' Equity
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2015 and
December 31, 2014: issued 6,495,231,088 at September 30, 2015 and December 31, 2014)		6,495			6,495
Additional paid-in capital		89,717			91,108
Retained earnings		32,627			31,081
Treasury stock (342,990,428 at September 30, 2015 and 1,308,318,131
at December 31, 2014, at cost)		(12,309	)		(47,029	)
Accumulated other comprehensive income		5,294			8,061
Noncontrolling interest		965			554
Total stockholders' equity		122,789			90,270
Total Liabilities and Stockholders' Equity	$	399,989		$	297,225
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
September 30, December 31,
2014 2013
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 2,458 $ 3,339
Accounts receivable - net of allowances for doubtful accounts of $482 and $483 13,445 12,918
Prepaid expenses 869 960
Deferred income taxes 1,030 1,199
Other current assets 8,033 4,780
Total current assets 25,835 23,196
Property, plant and equipment 286,987 274,798
   Less: accumulated depreciation and amortization (171,853 ) (163,830 )
Property, Plant and Equipment – Net 115,134 110,968
Goodwill 70,131 69,273
Licenses 60,784 56,433
Other Intangible Assets – Net 6,252 5,779
Investments in Equity Affiliates 166 3,860
Other Assets 9,637 8,278
Total Assets $ 287,939 $ 277,787

Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 5,109 $ 5,498
Accounts payable and accrued liabilities 24,119 21,107
Advanced billing and customer deposits 4,038 4,212
Accrued taxes 4,328 1,774
Dividends payable 2,385 2,404
Total current liabilities 39,979 34,995
Long-Term Debt 70,516 69,290
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 37,393 36,308
Postemployment benefit obligation 29,918 29,946
Other noncurrent liabilities 17,014 15,766
Total deferred credits and other noncurrent liabilities 84,325 82,020

Stockholders' Equity
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2014 and
   December 31, 2013: issued 6,495,231,088 at September 30, 2014 and December 31, 2013) 6,495 6,495
Additional paid-in capital 91,064 91,091
Retained earnings 34,165 31,141
Treasury stock (1,310,226,392 at September 30, 2014 and 1,268,914,913
   at December 31, 2013, at cost) (47,037 ) (45,619 )
Accumulated other comprehensive income 7,926 7,880
Noncontrolling interest 506 494
Total stockholders' equity 93,119 91,482
Total Liabilities and Stockholders' Equity $ 287,939 $ 277,787
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
	Nine months ended
	September 30,
	2015			2014
Operating Activities				As Adjusted
Net income	$	9,601		$	10,654
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,539			13,706
Undistributed earnings from investments in equity affiliates		(36	)		(45	)
Provision for uncollectible accounts		895			692
Deferred income tax expense		1,539			1,450
Net gain from sale of investments, net of impairments		(46	)		(1,374	)
Changes in operating assets and liabilities:
Accounts receivable		453			(1,269	)
Other current assets		350			(840	)
Accounts payable and accrued liabilities		1,279			4,790
Retirement benefit funding		(595	)		(420	)
Other - net		(2,284	)		(1,751	)
Total adjustments		17,094			14,939
Net Cash Provided by Operating Activities		26,695			25,593

Investing Activities
Construction and capital expenditures:
Capital expenditures		(13,356	)		(16,829	)
Interest during construction		(566	)		(178	)
Acquisitions, net of cash acquired		(30,694	)		(2,053	)
Dispositions		79			6,074
Sales (purchases) of securities, net		1,490			(1,996	)
Return of advances to and investments in equity affiliates		-			3
Other		-			(1	)
Net Cash Used in Investing Activities		(43,047	)		(14,980	)

Financing Activities
Net change in short-term borrowings with original maturities of three months or less		(1	)		(16	)
Issuance of long-term debt		33,967			8,564
Repayment of long-term debt		(9,962	)		(10,376	)
Purchase of treasury stock		-			(1,617	)
Issuance of treasury stock (excluding acquisition of DIRECTV)		133			34
Dividends paid		(7,311	)		(7,170	)
Other		(2,875	)		(913	)
Net Cash Provided by (Used in) Financing Activities		13,951			(11,494	)
Net decrease in cash and cash equivalents		(2,401	)		(881	)
Cash and cash equivalents beginning of year		8,603			3,339
Cash and Cash Equivalents End of Period	$	6,202		$	2,458
Cash paid during the nine months ended September 30 for:
Interest	$	3,462		$	3,351
Income taxes, net of refunds	$	873		$	1,337
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
Nine months ended
September 30,
2014 2013
Operating Activities
Net income $ 10,414 $ 11,558
Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation and amortization 13,706 13,715
   Undistributed earnings from investments in equity affiliates (45 ) (232 )
   Provision for uncollectible accounts 692 653
   Deferred income tax expense 1,304 2,505
   Net gain from sale of investments, net of impairments (1,374 ) (272 )
   Changes in operating assets and liabilities:
      Accounts receivable (1,269 ) (440 )
      Other current assets (813 ) 520
      Accounts payable and accrued liabilities 4,763 (420 )
   Retirement benefit funding (420 ) (175 )
   Other - net
(1,365 ) (533 )
Total adjustments 15,179 15,321
Net Cash Provided by Operating Activities 25,593 26,879

Investing Activities
Construction and capital expenditures:
   Capital expenditures (16,829 ) (15,565 )
   Interest during construction (178 ) (213 )
Acquisitions, net of cash acquired (2,053 ) (4,025 )
Dispositions 6,074 846
Purchases of securities (1,996 ) -
Return of advances to and investments in equity affiliates 3 301
Other (1 ) (4 )
Net Cash Used in Investing Activities (14,980 ) (18,660 )

Financing Activities
Net change in short-term borrowings with original maturities of three months or less (16 ) 1,851
Issuance of other short-term borrowings - 1,476
Repayment of other short-term borrowings - (1,476 )
Issuance of long-term debt 8,564 6,416
Repayment of long-term debt (10,376 ) (2,131 )
Purchase of treasury stock (1,617 ) (11,134 )
Issuance of treasury stock 34 108
Dividends paid (7,170 ) (7,325 )
Other (913 ) 499
Net Cash Used in Financing Activities (11,494 ) (11,716 )
Net decrease in cash and cash equivalents (881 ) (3,497 )
Cash and cash equivalents beginning of year 3,339 4,868
Cash and Cash Equivalents End of Period $ 2,458 $ 1,371
Cash paid during the nine months ended September 30 for:
   Interest $ 3,351 $ 2,980
   Income taxes, net of refunds $ 1,337 $ 1,573
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
	September 30, 2015
	Shares			Amount
				As Adjusted
Common Stock
Balance at beginning of year		6,495		$	6,495
Issuance of stock		-			-
Balance at end of period		6,495		$	6,495

Additional Paid-In Capital
Balance at beginning of year				$	91,108
Issuance of treasury stock					(1,593	)
Share-based payments					202
Balance at end of period				$	89,717

Retained Earnings
Balance at beginning of year				$	31,081
Net income attributable to AT&T ($1.71 per diluted share)					9,339
Dividends to stockholders ($1.41 per share)					(7,793	)
Balance at end of period				$	32,627

Treasury Stock
Balance at beginning of year		(1,308	)	$	(47,029	)
Repurchase of common stock		(1	)		(10	)
Issuance of treasury stock		967			34,730
Balance at end of period		(342	)	$	(12,309	)

Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of year				$	8,061
Other comprehensive loss attributable to AT&T					(2,767	)
Balance at end of period				$	5,294

Noncontrolling Interest
Balance at beginning of year				$	554
Net income attributable to noncontrolling interest					262
Distributions					(214	)
Acquisition of noncontrolling interests					383
Translation adjustments attributable to noncontrolling interest, net of taxes					(20	)
Balance at end of period				$	965

Total Stockholders' Equity at beginning of year				$	90,270
Total Stockholders' Equity at end of period				$	122,789
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
September 30, 2014
Shares Amount
Common Stock
Balance at beginning of year 6,495 $ 6,495
Issuance of stock - -
Balance at end of period 6,495 $ 6,495

Additional Paid-In Capital
Balance at beginning of year $ 91,091
Issuance of treasury stock 3
Share-based payments 3
Change related to acquisition of interests held by noncontrolling owners (33 )
Balance at end of period $ 91,064

Retained Earnings
Balance at beginning of year $ 31,141
Net income attributable to AT&T ($1.95 per diluted share) 10,201
Dividends to stockholders ($1.38 per share) (7,177 )
Balance at end of period $ 34,165

Treasury Stock
Balance at beginning of year (1,269 ) $ (45,619 )
Repurchase of common stock (48 ) (1,617 )
Issuance of treasury stock 7 199
Balance at end of period (1,310 ) $ (47,037 )

Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of year $ 7,880
Other comprehensive income attributable to AT&T 46
Balance at end of period $ 7,926

Noncontrolling Interest
Balance at beginning of year $ 494
Net income attributable to noncontrolling interest 213
Distributions (200 )
Acquisitions of noncontrolling interests 69
Acquisition of interests held by noncontrolling owners (70 )
Balance at end of period $ 506

Total Stockholders' Equity at beginning of year $ 91,482
Total Stockholders' Equity at end of period $ 93,119
See Notes to Consolidated Financial Statements.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Dollars in millions except per share amounts

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of Presentation Throughout this document, AT&T Inc. is referred to as "AT&T," "we" or the "Company." ~~We believe that these~~These consolidated financial statements include all adjustments ~~consisting only of normal recurring accruals,~~ that are necessary to present fairly the results for the presented interim ~~periods.~~periods, consisting of normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of those for the full year. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2013.~~2014.

The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and ~~affiliates.~~affiliates, including the results of DIRECTV for the 68-day period ended September 30, 2015. Our subsidiaries and affiliates operate in the communications and digital entertainment services industry, ~~both~~providing services and equipment that deliver voice, video and broadband services domestically and internationally, providing wireless communications services, traditional wireline voice services, data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services. On March 13, 2014, we closed our acquisition of Leap Wireless International, Inc. (Leap) (see Note 7), and we incorporated Leap into our wireless operations following the date of acquisition.internationally.

All significant intercompany transactions are eliminated in the consolidation process. Investments in less than majority-owned subsidiaries and partnerships where we have significant influence are accounted for under the equity method. Earnings from certain ~~foreign equity~~ investments accounted for using the equity method are included for periods ended within up to one month of our period end. We also recorded our proportionate share of our equity method investees' other comprehensive income (OCI) items, including actuarial gains and losses on pension and other postretirement benefit ~~obligations. On June 30, 2014, we completed the sale of our investment in América Móvil, S.A.B. de C.V. (América Móvil) to an unrelated third party (see Note 7).~~obligations and cumulative translation adjustments.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates. Certain amounts have been reclassified to conform to the current period's ~~presentation.~~presentation, including our presentation of "Equipment" and "Broadcast, programming and operations" expenses separately from other cost of services in the consolidated statements of income.

~~During~~Due to recent organizational changes and our July 24, 2015 acquisition of DIRECTV, effective for the fourth-quarter we conduct our annual impairment testing of intangible assets, remeasure the plan assets and obligations of our benefit plans and, due to our continued access line losses and technology changes,quarter ended September 30, 2015, we are ~~assessing certain network assets for under-utilization and/or abandonment.~~

~~Stock Repurchase Program~~ ~~During the first nine months of 2014, we repurchased approximately 48 million shares for $1,617 under a repurchase authorization that was approved by~~revising our Board of Directors in March 2013. In March 2014, our Board of Directors approved a fourth authorization to repurchase 300 million shares of our common stock. As of September 30, 2014, we had approximately 415 million shares remaining from these authorizations. The repurchase authorizations have no expiration date, and we expect to make future repurchases opportunistically.

~~Software Costs~~ During 2014, we completed studies evaluating the periods that we were utilizing our software assets. As of April 1 and July 1, 2014, we extended our estimated useful lives for capitalized non-network and network software, respectively, to five years to better reflect the estimated periods during which these assets will remain in service andoperating segments to align with the ~~estimated useful lives~~new management structure and organizational responsibilities. We have revised our prior-period presentation to conform to our current reporting. (See Note 4)

Customer Fulfillment Costs In August 2015, with our acquisition of DIRECTV, we announced a change in accounting for customer set-up and installation costs. Historically we have followed an accounting policy of deferring customer set-up and installation costs only to the extent of deferred revenues recorded for upfront fees (e.g., activation charges), and to expense any costs that exceed deferred revenues. After discussing this change with the Securities and Exchange Commission, we changed our accounting to a preferable method of capitalizing these costs and amortizing them over the expected economic life of the customer relationship of approximately four years, subject to an assessment of the recoverability of such costs. This change in accounting principle impacts video, broadband Internet and wireline voice services and is considered preferable in that it provides an accurate reflection of assets (i.e., the contractual customer relationship obtained through the set-up and installation) generated by those specific business activities. Our new accounting method is more comparable with the accounting method used in the cable entertainment industry. With our acquisition of DIRECTV, changing to this accounting method will enhance comparability to other companies in the industry. This change in accounting ~~estimate increased net income $198,~~does not have an impact on our wireless results, due to the absence of these types of expenses in those business activities.

The cumulative effect of the change on Retained Earnings as of January 1, 2014, was an increase of approximately $3,128 on our consolidated balance sheets. This change did not have an impact on cash provided by or ~~$0.04~~used in operations for any period presented.

AT&T INC.

SEPTEMBER 30, 2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per ~~diluted~~ share amounts

The following tables present our results under our historical method and as adjusted to reflect the accounting change:


	Historical Accounting Method		As Adjusted		Effect of Change
For the three months ended September 30, 2015
Other cost of services	$	9,290	$	9,214	$	(76	)
Income tax expense		1,628		1,657		29
Net Income		3,031		3,078		47
Net Income Attributable to AT&T		2,947		2,994		47

Basic Earnings per Share Attributable to AT&T	$	0.50	$	0.50	$	-
Diluted Earnings per Share Attributable to AT&T		0.50		0.50		-

At September 30, 2015 or for the nine months ended
Other cost of services	$	27,842	$	27,604	$	(238	)
Income tax expense		4,694		4,784		90
Net Income		9,453		9,601		148
Net Income Attributable to AT&T		9,191		9,339		148

Basic Earnings per Share Attributable to AT&T	$	1.68	$	1.71	$	0.03
Diluted Earnings per Share Attributable to AT&T		1.68		1.71		0.03

Other current assets	$	9,579	$	11,254	$	1,675
Other Assets		10,671		13,585		2,914
Deferred income taxes		51,949		53,044		1,095
Retained earnings		29,133		32,627		3,494


	Historical Accounting Method		As Adjusted		Effect of Change
For the three months ended September 30, 2014
Other cost of services	$	9,071	$	8,866	$	(205	)
Income tax expense		1,367		1,444		77
Net Income		3,059		3,187		128
Net Income Attributable to AT&T		3,002		3,130		128

Basic Earnings per Share Attributable to AT&T	$	0.58	$	0.60	$	0.02
Diluted Earnings per Share Attributable to AT&T		0.58		0.60		0.02

For the nine months ended September 30, 2014
Other cost of services	$	26,552	$	26,167	$	(385	)
Income tax expense		5,769		5,914		145
Net Income		10,414		10,654		240
Net Income Attributable to AT&T		10,201		10,441		240

Basic Earnings per Share Attributable to AT&T	$	1.96	$	2.00	$	0.04
Diluted Earnings per Share Attributable to AT&T		1.95		2.00		0.05

AT&T INC.

SEPTEMBER 30, 2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in ~~the third quarter and $330, or $0.06~~millions except per ~~diluted~~ share ~~for the first nine months of 2014.~~amounts


	Historical Accounting Method		As Adjusted		Effect of Change
At December 31, 2014
Other current assets	$	8,067	$	9,802	$	1,735
Other Assets		10,998		13,659		2,661
Accrued taxes		1,091		1,136		45
Deferred income taxes		37,544		38,549		1,005
Retained earnings		27,736		31,081		3,345

New Accounting Standards

~~New Accounting Standards~~Revenue Recognition In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" (ASU 2014-09), which replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. Upon initial evaluation, we believe the key changes in the standard that impact our revenue recognition relate to the allocation of contract revenues between service and equipment, and the timing in which those revenues are recognized. ASU 2014-09 also specifies that incremental costs of obtaining or fulfilling our contracts with customers should be deferred. ASU 2014-09 becomes effective for annual reporting periods beginning after December 15, ~~2016.~~2017, following the July 2015 approval of a one-year deferral of the effective date by the FASB. While we continue to evaluate the impact of the new standard on revenue and costs of acquisition as well as available adoption methods, the requirement to defer costs is not expected to have a significant impact on our operating results as a result of our policy change on fulfillment costs.

Long-Term Debt and Debt Issuance Costs In April 2015, the FASB issued ASU No. 2015-03, "Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" (ASU 2015-03), which will result in the reclassification of debt issuance costs from "Other Assets" to inclusion as a reduction of our reportable "Long-Term Debt" balance on our consolidated balance sheets. Since ASU 2015-03 does not address deferred issuance costs for line-of-credit arrangements, the FASB issued ASU No. 2015-15, "Interest—Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" (ASU 2015-15), in August 2015. ASU 2015-15 allows a company to defer debt issuance costs associated with line-of-credit arrangements, including arrangements with no outstanding borrowings, classify them as an asset, and amortize them over the term of the arrangements. ASU 2015-03 becomes effective January 1, 2016, subject to early adoption, and will require full retrospective application. We do not expect these new standards to have a material impact on our consolidated balance sheets.

Business Combinations In September 2015, the FASB issued ASU No 2015-16, "Business Combinations—Simplifying the Accounting for Measurement-Period Adjustments" (ASU 2015-16), which will result in the ability to recognize, in current-period earnings, any changes in provisional amounts during the measurement period after the closing of an acquisition, instead of retroactively accounting for these changes. ASU 2015-16 becomes effective January 1, 2016, subject to early adoption, and will require prospective application to adjustments to provisional amounts that occur after the effective date of ASU 2015-16. We are evaluating the impact of the new standard on our operating results.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The FASB will allow two adoption methods under ASU 2014-09. Under one method, a company will apply the rules to contracts in all reporting periods presented, subject to certain allowable exceptions. Under the other method, a company will apply the rules to all contracts existing as of January 1, 2017, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and provide additional disclosures comparing results to previous rules. We continue to evaluate the impact of the new standard and available adoption methods.

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per share ~~and diluted earnings~~ for the three and nine months ended September 30, ~~2014~~2015 and ~~2013,~~2014, is shown in the table below:

Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Numerators
Numerator for basic earnings per share:
   Net Income $ 3,059 $ 3,905 $ 10,414 $ 11,558
   Less: Net income attributable to noncontrolling interest (57 ) (91 ) (213 ) (222 )
   Net Income attributable to AT&T 3,002 3,814 10,201 11,336
   Dilutive potential common shares:
      Share-based payment 3 3 10 9
Numerator for diluted earnings per share $ 3,005 $ 3,817 $ 10,211 $ 11,345
Denominators (000,000)
Denominator for basic earnings per share:
   Weighted average number of common shares outstanding 5,198 5,315 5,208 5,402
   Dilutive potential common shares:
      Share-based payment (in shares) 16 16 16 17
Denominator for diluted earnings per share 5,214 5,331 5,224 5,419
Basic earnings per share attributable to AT&T $ 0.58 $ 0.72 $ 1.96 $ 2.10
Diluted earnings per share attributable to AT&T $ 0.58 $ 0.72 $ 1.95 $ 2.09

At September 30, 2014 and 2013, we had issued and outstanding options to purchase approximately 11 million and 12 million shares of AT&T common stock. For the quarter ended September 30, 2014 and 2013, the exercise prices of 3 million shares were above the market price of AT&T stock for the respective periods. Accordingly, we did not include these amounts in determining the dilutive potential common shares.

	Three months ended						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Numerators
Numerator for basic earnings per share:
Net Income	$	3,078		$	3,187		$	9,601		$	10,654
Less: Net income attributable to noncontrolling interest		(84	)		(57	)		(262	)		(213	)
Net Income attributable to AT&T		2,994			3,130			9,339			10,441
Dilutive potential common shares:
Share-based payment		3			2			9			9
Numerator for diluted earnings per share	$	2,997		$	3,132		$	9,348		$	10,450
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		5,924			5,198			5,447			5,208
Dilutive potential common shares:
Share-based payment (in shares)		19			16			16			16
Denominator for diluted earnings per share		5,943			5,214			5,463			5,224
Basic earnings per share attributable to AT&T	$	0.50		$	0.60		$	1.71		$	2.00
Diluted earnings per share attributable to AT&T	$	0.50		$	0.60		$	1.71		$	2.00

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 3. OTHER COMPREHENSIVE INCOME

Changes in the balances of each component included in accumulated other comprehensive income (accumulated OCI) ~~for the nine months ended September 30, 2014 and 2013,~~ are presented below. ~~For the period ended September 30, 2014, the amounts reclassified from accumulated OCI include the adjustments resulting from our change in accounting for América Móvil (see Note 7).~~ All amounts are net of tax and exclude noncontrolling interest.

At September 30, 2015 and for the period ended:																	At September 30, 2015 and for the period ended:
																		Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2014																	Balance as of December 31, 2014	$	(26)		$	499		$	741		$	6,847		$	8,061
Other comprehensive income (loss) before reclassifications																	Other comprehensive income (loss) before reclassifications		(1,204)			(51)			(890)			-			(2,145)
Amounts reclassified from accumulated OCI																	Amounts reclassified from accumulated OCI		-	¹		(6)	²		28	³		(644)	⁴		(622)
Net other comprehensive income (loss)																	Net other comprehensive income (loss)		(1,204)			(57)			(862)			(644)			(2,767)
Balance as of September 30, 2015																	Balance as of September 30, 2015	$	(1,230)		$	442		$	(121)		$	6,203		$	5,294

At September 30, 2014 and for the period ended:	At September 30, 2014 and for the period ended:																At September 30, 2014 and for the period ended:
	Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income					Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2013	$	(367	)	$	450		$	445		$	7,352			$	7,880		Balance as of December 31, 2013	$	(367)		$	450		$	445		$	7,352		$	7,880
Other comprehensive income (loss) before reclassifications		(29	)		30			272			-				273		Other comprehensive income (loss) before reclassifications		(29)			30			272			-			273
Amounts reclassified from accumulated OCI		416	¹		(15	)²		29	³		(657	)⁴			(227	)	Amounts reclassified from accumulated OCI		416	¹		(15)	²		29	³		(657)	⁴		(227)
Net other comprehensive income (loss)		387			15			301			(657	)			46		Net other comprehensive income (loss)		387			15			301			(657)			46
Balance as of September 30, 2014	$	20		$	465		$	746		$	6,695			$	7,926		Balance as of September 30, 2014	$	20		$	465		$	746		$	6,695		$	7,926

At September 30, 2013 and for the period ended:
	Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2012	$	(284	)	$	272		$	(110	)	$	5,358			$	5,236
Other comprehensive income (loss) before reclassifications		(153	)		155			526			-				528
Amounts reclassified from accumulated OCI		34	¹		(13	)²		22	³		(525	)⁴			(482	)
Net other comprehensive income (loss)		(119	)		142			548			(525	)			46
Balance as of September 30, 2013	$	(403	)	$	414		$	438		$	4,833			$	5,282
¹Translation (gain) loss reclassifications are included in Other income (expense) - net in the consolidated statements of income.																	¹Translation (gain) loss reclassifications are included in Other income (expense) - net in the consolidated statements of income.
²(Gains) losses are included in Other income (expense) - net in the consolidated statements of income.																	²(Gains) losses are included in Other income (expense) - net in the consolidated statements of income.
³(Gains) losses are included in Interest expense in the consolidated statements of income. See Note 6 for additional information.																	³(Gains) losses are included in Interest expense in the consolidated statements of income. See Note 6 for additional information.
⁴The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Other cost of services and Selling, general and administrative in the consolidated statements of income (see Note 5). Actuarial loss																	⁴The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Other cost of services and Selling, general and administrative in the consolidated statements of income (see Note 5). Actuarial loss
reclassifications related to our equity method investees are included in Other income (expense) - net in the consolidated statements of income.																	reclassifications related to our equity method investees are included in Other income (expense) - net in the consolidated statements of income.

¹ ~~Pre-tax translation loss reclassifications are included in Other income (expense) - net in the consolidated statements of income.~~

²~~Pre-tax gains are included in Other income (expense) - net in the consolidated statements of income.~~

³~~(Gains) losses are included in interest expense in the consolidated statements of income. See Note 6 for additional information.~~

⁴ The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Cost of services and sales and Selling, general and administrative in the consolidated statements of income (see Note 5).

~~Actuarial loss reclassifications related to our equity method investees are included in Other income (expense) - net in the consolidated statements of income.~~

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 4. SEGMENT INFORMATION

Our segments are strategic business units that offer ~~different~~ products and services to different customer segments over various technology platforms ~~and~~and/or in different geographies that are managed accordingly. Due to recent organizational changes and our July 24, 2015 acquisition of DIRECTV, effective for the quarter ended September 30, 2015, we are revising our operating segments to align with our new management structure and organizational responsibilities. We analyze our operating segments based on segment contribution, which consists of operating income, before income taxes. We make our capital allocation decisions based on our strategic direction of the business, needs of the network (wireless or wireline) providing services and demands to provide emerging services to our customers. Actuarial gains and losses from pensionexcluding acquisition-related costs and other ~~postretirement benefits, interest expense~~significant items (as discussed below), and ~~other~~equity in net income ~~(expense) – net, are~~of affiliates for investments managed ~~only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in~~within each ~~segment's reportable results. The customers and long-lived assets of our reportable segments are predominantly in the United States.~~operating segment. We have ~~two~~four reportable segments: (1) ~~Wireless~~Business Solutions, (2) Entertainment and ~~(2) Wireline.~~Internet Services, (3) Consumer Mobility and (4) International. We have revised our prior-period presentation to conform to our current reporting.

We also evaluate segment performance based on segment operating income before depreciation and amortization, which we refer to as EBITDA and/or EBITDA margin. For AT&T, EBITDA is defined as operating income before depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate segment operating performance. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses.

The ~~Wireless~~Business Solutions segment ~~uses~~provides both wireless and wireline services to business customers and individual subscribers who purchase wireless services through employer-sponsored plans. We provide advanced IP-based services including Virtual Private Networks (VPN), Ethernet-related products and broadband (strategic business services) as well as traditional data and voice products. Services in this segment utilize our wireless and wired network and are marketed to provide a complete communications solution to our business customers.

The Entertainment and Internet Services segment provides video, Internet and voice communication services to residential customers located in the U.S. or in U.S. territories. Services utilize our copper and IP-based wired network and/or our satellite technology to provide video, high speed Internet and voice services.

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

The International segment provides entertainment services in Latin America and wireless services in Mexico. Video entertainment services are provided primarily to residential customers using satellite technology. Wireless services utilize our regional and national networks in Mexico to provide consumer and business customers with wireless data and voice ~~communications~~communication services. ~~This~~Our international subsidiaries transact in their local currency and operating results are converted to U.S. dollars using official exchange rates. The exchange rate used to report net monetary assets and operating results of our Venezuelan subsidiary is the Sistema Marginal de Divisas (SIMADI), which was 199.65 and 199.42 Venezuelan bolivars per U.S. dollar at July 24, 2015 and September 30, 2015, respectively. Our International segment ~~includes our portion of the results from our Softcard~~^TM~~mobile wallet joint venture which~~ is ~~accounted for as an equity investment.~~subject to foreign currency fluctuations.

~~The~~In reconciling items to consolidated operating income, ~~Wireline segment~~ ~~uses our regional, national and global network to provide consumer and business customers with data and voice communications services, AT&T U-verse~~^® ~~high speed Internet, video and VoIP services and managed networking to business customers.~~

~~The~~ Corporate and Other ~~column includes unallocated corporate expenses,~~ includes: (1) operations that are not considered reportable segments and that are no longer integral to our operations or which ~~includes costs to support corporate-driven activities~~we no longer actively market, and ~~operations,~~(2) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans as well as our actuarial gains and losses on our pension and postretirement plan valuations. Results from equity method investments in América Móvil (prior to the June 2014 disposal of our investment), YP Holdings LLC, and Otter Media (our joint venture with The Chernin Group), are also excluded from our segment results as those resultsplans.

Certain operating items are not ~~considered in our assessment of segment performance. We have revised our prior-period presentation to conform~~allocated to our ~~current reporting.~~business segments:

·	Acquisition-related items include (1) operations and support items associated with the merger and integration of newly acquired businesses, and (2) the noncash amortization of intangible assets acquired in acquisitions.

Certain significant items include (1) noncash actuarial gains and losses from pension and other postretirement benefits, (2) employee separation charges associated with voluntary and/or strategic offers, (3) abandonment or impairments of assets and (4) other items for which the segments are not being evaluated.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are also not included in each segment's reportable results.

Our operating assets are shared by multiple segments and consist of our wireless and wired networks as well as an international satellite fleet. We manage our assets on a total company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented. Depreciation is allocated based on network usage or asset utilization by segment.

~~In the following tables, we show how our segment results are reconciled to our consolidated results reported.~~

For the three months ended September 30, 2014
Wireless Wireline
Corporate
and Other

Consolidated
Results
Service $ 15,423 $ 14,368 $ - $ 29,791
Equipment 2,914 247 5 3,166
Total segment operating revenues 18,337 14,615 5 32,957
Operations and support expenses 11,855 10,761 400 23,016
Depreciation and amortization expenses 1,965 2,571 3 4,539
Total segment operating expenses 13,820 13,332 403 27,555
Segment operating income (loss) 4,517 1,283 (398 ) 5,402
Interest expense - - 1,016 1,016
Equity in net income (loss) of affiliates (26 ) 1 23 (2 )
Other income (expense) – net - - 42 42
Segment income (loss) before income taxes $ 4,491 $ 1,284 $ (1,349 ) $ 4,426

For the nine months ended September 30, 2014
Consolidated
Results
Wireless Wireline
Corporate
and Other

Service $ 45,958 $ 43,165 $ - $ 89,123
Equipment 8,175 688 22 8,885
Total segment operating revenues 54,133 43,853 22 98,008
Operations and support expenses 34,305 31,918 783 67,006
Depreciation and amortization expenses 5,931 7,769 6 13,706
Total segment operating expenses 40,236 39,687 789 80,712
Segment operating income (loss) 13,897 4,166 (767 ) 17,296
Interest expense - - 2,757 2,757
Equity in net income (loss) of affiliates (75 ) 2 261 188
Other income (expense) – net - - 1,456 1,456
Segment income (loss) before income taxes $ 13,822 $ 4,168 $ (1,807 ) $ 16,183

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended September 30, 2015
	Revenue			Operations and Support Expenses		EBITDA			Depreciation and Amortization		Operating Income (Loss)			Equity in Net Income (Loss) of Affiliates			Segment Contribution
Business Solutions	$	17,692		$	10,921	$	6,771		$	2,474	$	4,297		$	-		$	4,297
Entertainment and Internet Services		10,858			8,450		2,408			1,389		1,019			2			1,021
Consumer Mobility		8,784			5,065		3,719			976		2,743			-			2,743
International		1,526			1,384		142			225		(83	)		(4	)		(87	)
Segment Total		38,860			25,820		13,040			5,064		7,976			(2	)		7,974
Corporate and Other		316			315		1			3		(2	)
Acquisition-related items		(85	)		611		(696	)		1,198		(1,894	)
Certain significant items		-			157		(157	)		-		(157	)
AT&T Inc.	$	39,091		$	26,903	$	12,188		$	6,265	$	5,923

For the nine months ended September 30, 2015
	Revenue			Operations and Support Expenses		EBITDA			Depreciation and Amortization		Operating Income (Loss)			Equity in Net Income (Loss) of Affiliates			Segment Contribution
Business Solutions	$	52,913		$	32,966	$	19,947		$	7,276	$	12,671		$	-		$	12,671
Entertainment and Internet Services		22,300			18,222		4,078			3,519		559			(16	)		543
Consumer Mobility		26,317			15,808		10,509			2,912		7,597			-			7,597
International		2,253			2,131		122			346		(224	)		(4	)		(228	)
Segment Total		103,783			69,127		34,656			14,053		20,603			(20	)		20,583
Corporate and Other		984			785		199			47		152
Acquisition-related items		(85	)		1,604		(1,689	)		1,439		(3,128	)
Certain significant items		-			374		(374	)		-		(374	)
AT&T Inc.	$	104,682		$	71,890	$	32,792		$	15,539	$	17,253

AT&T INC.

SEPTEMBER 30, 2015

For the three months ended September 30, 2013
Wireless Wireline
Corporate
and Other

Consolidated
Results
Service $ 15,460 $ 14,403 $ - $ 29,863
Equipment 2,020 267 8 2,295
Total segment operating revenues 17,480 14,670 8 32,158
Operations and support expenses 10,982 10,385 (12 ) 21,355
Depreciation and amortization expenses 1,875 2,736 4 4,615
Total segment operating expenses 12,857 13,121 (8 ) 25,970
Segment operating income 4,623 1,549 16 6,188
Interest expense - - 829 829
Equity in net income (loss) of affiliates (18 ) - 109 91
Other income (expense) – net - - 50 50
Segment income (loss) before income taxes $ 4,605 $ 1,549 $ (654 ) $ 5,500

For the nine months ended September 30, 2013

Consolidated
Results
Wireless Wireline
Corporate
and Other

Service $ 45,892 $ 43,266 $ - $ 89,158
Equipment 5,570 832 29 6,431
Total segment operating revenues 51,462 44,098 29 95,589
Operations and support expenses 31,932 31,137 564 63,633
Depreciation and amortization expenses 5,553 8,146 16 13,715
Total segment operating expenses 37,485 39,283 580 77,348
Segment operating income (loss) 13,977 4,815 (551 ) 18,241
Interest expense - - 2,481 2,481
Equity in net income (loss) of affiliates (55 ) 1 548 494
Other income (expense) – net - - 370 370
Segment income (loss) before income taxes $ 13,922 $ 4,816 $ (2,114 ) $ 16,624

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended September 30, 2014
	Revenue		Operations and Support Expenses		EBITDA			Depreciation and Amortization		Operating Income (Loss)			Equity in Net Income (Loss) of Affiliates			Segment Contribution
Business Solutions	$	17,487	$	11,295	$	6,192		$	2,331	$	3,861		$	-		$	3,861
Entertainment and Internet Services		5,553		4,781		772			1,109		(337	)		-			(337	)
Consumer Mobility		9,208		5,731		3,477			950		2,527			(1	)		2,526
International		-		-		-			-		-			-			-
Segment Total		32,248		21,807		10,441			4,390		6,051			(1	)		6,050
Corporate and Other		709		791		(82	)		24		(106	)
Acquisition-related items		-		213		(213	)		125		(338	)
Certain significant items		-		-		-			-		-
AT&T Inc.	$	32,957	$	22,811	$	10,146		$	4,539	$	5,607

For the nine months ended September 30, 2014
	Revenue		Operations and Support Expenses		EBITDA			Depreciation and Amortization		Operating Income (Loss)			Equity in Net Income (Loss) of Affiliates			Segment Contribution
Business Solutions	$	51,877	$	32,836	$	19,041		$	7,009	$	12,032		$	-		$	12,032
Entertainment and Internet Services		16,640		14,182		2,458			3,396		(938	)		-			(938	)
Consumer Mobility		27,247		17,173		10,074			2,846		7,228			(1	)		7,227
International		-		-		-			-		-			153			153
Segment Total		95,764		64,191		31,573			13,251		18,322			152			18,474
Corporate and Other		2,244		2,027		217			77		140
Acquisition-related items		-		403		(403	)		378		(781	)
Certain significant items		-		-		-			-		-
AT&T Inc.	$	98,008	$	66,621	$	31,387		$	13,706	$	17,681

AT&T INC.

SEPTEMBER 30, 2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following table is a reconciliation of operating income (loss) to "Income Before Income Taxes" reported on our consolidated statements of income.

	Third Quarter						Nine-Month Period
	2015			2014			2015			2014
Business Solutions	$	4,297		$	3,861		$	12,671		$	12,032
Entertainment and Internet Services		1,021			(337	)		543			(938	)
Consumer Mobility		2,743			2,526			7,597			7,227
International		(87	)		-			(228	)		153
Segment Contribution		7,974			6,050			20,583			18,474
Reconciling Items:
Corporate and Other		(2	)		(106	)		152			140
Merger and integration charges		(696	)		(213	)		(1,689	)		(403	)
Amortization of intangibles acquired		(1,198	)		(125	)		(1,439	)		(378	)
Employee separation charges		(122	)		-			(339	)		-
Other (expenses) credits		(35	)		-			(35	)		-
Less: segment equity in net (income) loss of affiliates		2			1			20			(152	)
AT&T Operating Income		5,923			5,607			17,253			17,681
Interest Expense		1,146			1,016			2,977			2,757
Equity in net income (loss) of affiliates		15			(2	)		48			188
Other income (expense) - Net		(57	)		42			61			1,456
Income Before Income Taxes	$	4,735		$	4,631		$	14,385		$	16,568

NOTE 5. PENSION AND POSTRETIREMENT BENEFITS

Substantially all of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance, and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit ~~costs as active employees earn these benefits.~~costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to ~~meet~~provide benefits described in the ~~plans' obligations to provide benefits~~plans to employees upon their retirement.

In ~~July~~December 2014, ~~the U.S. Department~~we offered an opportunity for certain management employees who were retirement eligible as of ~~Labor (DOL) published~~March 31, 2015 to elect an enhanced, full lump sum payment option of their accrued pension if they retired on or before March 31, 2015. The lump sum value totaled approximately $1,200 which was distributed in ~~the Federal Register their final retroactive approval~~2015. We recorded special termination benefits of ~~our September 9,~~approximately $150 as a result of this offer.

In 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC, the primary holding company for our domestic wireless business, to the trust used to pay pension benefits under our qualified pension plans. The preferred equity interest had a value of ~~$9,114~~$8,838 at September 30, ~~2014.~~2015. The trust is entitled to receive cumulative cash distributions of $560 per annum, which ~~will be~~are distributed quarterly in equal amounts and ~~will be~~ accounted for as contributions. We distributed $420 to the trust during the nine months ended September 30, ~~2014.~~2015. So long as we make the distributions, ~~the terms of the preferred interest~~we will ~~impose~~have no limitations on our ability to declare a dividend or repurchase shares. This preferred equity interest is a plan asset under ERISA and is recognized as such in the plan's separate financial statements. However, because the preferred equity interest is not unconditionally transferable to an unrelated party, it is not reflected in plan assets in our consolidated financial statements and instead has been eliminated in consolidation. We also agreed to make a cash contribution to the trust of $175 no later than the due date of our federal income tax return for 2014. This contribution was made in June 2015.

1216

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

We acquired DIRECTV on July 24, 2015. DIRECTV sponsors a noncontributory defined benefit pension plan, which provides benefits to most employees based on either years of service and final average salary, or eligible compensation while employed by DIRECTV. DIRECTV also maintains (1) a postretirement benefit plan for those retirees eligible to participate in health care and life insurance benefits generally until they reach age 65 and (2) an unfunded nonqualified pension plan for certain eligible employees. We have recorded the fair value of the DIRECTV plans using assumptions and accounting policies consistent with those disclosed by AT&T. Upon acquisition, the excess of projected benefit obligation over the plan assets was recognized as a liability and previously existing deferred actuarial gains and losses and unrecognized service costs or benefits were eliminated.

We recognize actuarial gains and losses on pension and postretirement plan assets in our operating results at our annual measurement date of December 31, unless earlier remeasurements are required. The following table details pension and postretirement benefit costs included in operating expenses in the accompanying consolidated statements of ~~income,~~income; expense credits are denoted with parentheses. A portion of these expenses is capitalized as part of internal construction projects, providing a small reduction in the net expense recorded.

	Three months ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
	2014			2013			2014			2013			2015			2014			2015			2014
Pension cost:
Service cost – benefits earned during the period	$	282		$	331		$	846		$	991		$	305		$	282		$	904		$	846
Interest cost on projected benefit obligation		661			608			1,984			1,822			477			661			1,424			1,984
Expected return on assets		(849	)		(828	)		(2,549	)		(2,484	)		(832	)		(849	)		(2,484	)		(2,549	)
Amortization of prior service credit		(24	)		(25	)		(71	)		(71	)		(25	)		(24	)		(77	)		(71	)
Net pension cost	$	70		$	86		$	210		$	258
Net pension (credit) cost													$	(75	)	$	70		$	(233	)	$	210

Postretirement cost:
Service cost – benefits earned during the period	$	59		$	95		$	175		$	286		$	55		$	59		$	166		$	175
Interest cost on accumulated postretirement benefit obligation		365			389			1,094			1,168			242			365			725			1,094
Expected return on assets		(165	)		(177	)		(491	)		(533	)		(105	)		(165	)		(315	)		(491	)
Amortization of prior service credit		(362	)		(263	)		(1,086	)		(788	)		(320	)		(362	)		(959	)		(1,086	)
Net postretirement (credit) cost	$	(103	)	$	44		$	(308	)	$	133		$	(128	)	$	(103	)	$	(383	)	$	(308	)

Combined net pension and postretirement (credit) cost	$	(33	)	$	130		$	(98	)	$	391		$	(203	)	$	(33	)	$	(616	)	$	(98	)

Our combined net pension and postretirement cost decreased ~~$163~~$170 in the third quarter and ~~$489~~$518 for the first nine months of ~~2014.~~2015. Our combined net pension and postretirement cost decreased $223 in the third quarter and $669 for the first nine months due to the change in the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits. While this change, which was made in the fourth quarter of 2014, provides a more precise measurement of interim service and interest costs, it will not affect the measurement of our total benefit obligations as of December 31 or our annual net periodic benefit cost as the change in the service and interest costs is completely offset in the actuarial gain or loss reported. The decrease ~~reflects higher~~in cost resulting from this change was partially offset by lower amortization of prior service credits ~~due to~~as previous postretirement plan changes ~~including changes to future costs for continued retiree healthcare coverage. The decrease also reflects increasing corporate bond rates, which contributed to~~have become fully amortized, our lower ~~service cost~~expected long-term rate of return on our postretirement plan assets and ~~higher interest costs.~~

Our fourth-quarter 2014 results will include the effects of settlement accounting for a portion of our pension plan. Due in part to our 2013 enhanced retirement offer and other distributions, lump sum distributions from the plan during 2014 exceeded service and interest costs in early October.updated assumed mortality rates.

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental retirement pension benefits cost, which is not included in the table above, was ~~$29~~$22 in the third quarter of 2015, of which $20 was interest cost, and $63 for the first nine months, of which $57 was interest cost. In 2014, net supplemental retirement pension benefits cost was $29 in the third quarter, of which $27 was interest cost, and $87 for the first nine months, of which $82 was interest cost. ~~In 2013, net supplemental retirement pension benefits cost was $27 in the third quarter, of which $25 was interest cost, and $82 for the first nine months, of which $76 was interest cost.~~

13
17

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 6. FAIR VALUE MEASUREMENTS AND DISCLOSURE

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy that gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.

Level 2

Inputs to the valuation methodology include:

·	Quoted prices for similar assets and liabilities in active markets.

·	Quoted prices for identical or similar assets or liabilities in inactive markets.

·	Inputs other than quoted market prices that are observable for the asset or liability.

·	Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

·	Fair value is often based on developed models in which there are few, if any, external observations.

The fair value measurements level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, ~~2013.~~2014.

Long-Term Debt and Other Financial Instruments

The carrying amounts and estimated fair values of our long-term debt, including current maturities and other financial instruments, are summarized as follows:

	September 30, 2014					December 31, 2013						September 30, 2015					December 31, 2014
	Carrying		Fair			Carrying			Fair			Carrying		Fair			Carrying			Fair
	Amount		Value			Amount			Value			Amount		Value			Amount			Value
Notes and debentures	$	75,226		$	82,938		$	74,484		$	79,309	$	126,042		$	129,524		$	81,632		$	90,367
Commercial paper		-			-			20			20
Bank borrowings		5			5			1			1		4			4			5			5
Investment securities		2,643			2,643			2,450			2,450		2,644			2,644			2,735			2,735

The carrying value of debt with an original maturity of less than one year approximates market value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Following is the fair value leveling for available-for-sale securities and derivatives as of September 30, ~~2014~~2015 and December 31, ~~2013:~~2014:

	September 30, 2015
	Level 1		Level 2				Level 3			Total
Available-for-Sale Securities
Domestic equities	$	1,094		$	-			$	-		$	1,094
International equities		561			-				-			561
Fixed income bonds		-			737				-			737
Asset Derivatives¹
Interest rate swaps		-			217				-			217
Cross-currency swaps		-			796				-			796
Liability Derivatives¹
Cross-currency swaps		-			(3,202	)			-			(3,202	)
Foreign exchange contracts		-			(1	)			-			(1	)

	December 31, 2014
	Level 1		Level 2				Level 3			Total
Available-for-Sale Securities
Domestic equities	$	1,160		$	-			$	-		$	1,160
International equities		553			-				-			553
Fixed income bonds		-			836				-			836
Asset Derivatives¹
Interest rate swaps		-			157				-			157
Cross-currency swaps		-			1,243				-			1,243
Interest rate locks		-			5				-			5
Liability Derivatives¹
Cross-currency swaps		-			(1,506	)			-			(1,506	)
Interest rate locks		-			(133	)			-			(133	)
¹Derivatives designated as hedging instruments are reflected as "Other assets," "Other noncurrent liabilities" and, for a portion of interest rate swaps, "Other current assets" in our consolidated balance sheets.

September 30, 2014
Level 1 Level 2 Level 3 Total
Available-for-Sale Securities
   Domestic equities $ 1,108 $ - $ - $ 1,108
   International equities 541 - - 541
   Fixed income bonds - 913 - 913
Asset Derivatives¹

   Interest rate swaps - 131 - 131
   Cross-currency swaps - 1,536 - 1,536
Liability Derivatives¹

   Interest rate swaps - (10 ) - (10 )
   Cross-currency swaps - (901 ) - (901 )

December 31, 2013
Level 1 Level 2 Level 3 Total
Available-for-Sale Securities
   Domestic equities $ 1,049 $ - $ - $ 1,049
   International equities 563 - - 563
   Fixed income bonds - 759 - 759
Asset Derivatives¹

   Interest rate swaps - 191 - 191
   Cross-currency swaps - 1,951 - 1,951
Liability Derivatives¹

   Interest rate swaps - (7 ) - (7 )
   Cross-currency swaps - (519 ) - (519 )
¹Derivatives designated as hedging instruments are reflected as Other assets, Other noncurrent liabilities and, for a portion of interest rate swaps, Other current assets.

Investment Securities

Our investment securities include equities, fixed income bonds and other securities. A substantial portion of the fair values of our available-for-sale securities was estimated based on quoted market prices. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Realized gains and losses on securities are included in "Other income (expense) – net" in the consolidated statements of income using the specific identification method. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in accumulated OCI. Unrealized losses that are considered other than temporary are recorded in "Other income (expense) – net" with the corresponding reduction to the carrying basis of the investment. Fixed income investments of ~~$91~~$93 have maturities of less than one year, ~~$277~~$379 within one to three years, ~~$292~~$52 within three to five years, and ~~$253~~$213 for five or more years.

Our cash ~~equivalent~~equivalents (money market securities), short-term investments (certificate and time deposits) and customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. ~~Our short-term~~Short-term investments ~~of $1,890~~ are recorded in "Other current assets" and our investment securities are recorded in "Other ~~Assets"~~assets" on the consolidated balance sheets.

AT&T INC.

SEPTEMBER 30, 2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Derivative Financial Instruments

We employ derivatives to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.

~~AT&T INC.~~

~~SEPTEMBER 30, 2014~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

The majority of our derivatives are designated either as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), or as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge).

Fair Value Hedging We designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount. Accrued and realized gains or losses from interest rate swaps impact interest expense in the consolidated statements of income. Unrealized gains on interest rate swaps are recorded at fair market value as assets, and unrealized losses on interest rate swaps are recorded at fair market value as liabilities. Changes in the fair values of the interest rate swaps are exactly offset by changes in the fair value of the underlying debt. Gains or losses realized upon early termination of our fair value hedges are recognized in interest expense. In the nine months ended September 30, ~~2014~~2015 and September 30, ~~2013,~~2014, no ineffectiveness was measured on interest rate swaps designated as fair value hedges.

Cash Flow Hedging We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our Euro, British pound sterling, ~~and~~ Canadian dollar and Swiss Franc denominated debt. These agreements include initial and final exchanges of principal from fixed foreign denominations to fixed U.S. denominated amounts, to be exchanged at a specified rate, ~~which was~~usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign-denominated rate to a fixed U.S. denominated interest rate.

Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities, both for the period they are outstanding. For derivative instruments designated as cash flow hedges, the effective portion is reported as a component of accumulated OCI until reclassified into interest expense in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as "Other income (expense) – net" in the consolidated statements of income in each period. We evaluate the effectiveness of our cross-currency swaps each quarter. In the nine months ended September 30, ~~2014~~2015 and September 30, ~~2013,~~2014, no ineffectiveness was measured on cross-currency swaps designated as cash flow hedges.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to "Other income (expense) – net" in the consolidated statements of income. Over the next 12 months, we expect to reclassify ~~$42~~$59 from accumulated OCI to interest expense due to the amortization of net losses on historical interest rate locks.

We hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Some of these instruments are designated as cash flow hedges while others remain ~~nondesignated, largely based on size and duration.~~nondesignated. Gains and losses at the time we settle or take delivery on our designated foreign exchange contracts are amortized into income in the same period the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to "Other income (expense) – net" in the consolidated statements of income. In the nine months ended September 30, ~~2014~~2015 and September 30, ~~2013,~~2014, no ineffectiveness was measured on foreign exchange contracts designated as cash flow hedges.

AT&T INC.

SEPTEMBER 30, 2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At September 30, ~~2014,~~2015, we had posted collateral of ~~$58~~$1,807 (a deposit asset) and held collateral of ~~$1,396~~$379 (a receipt liability). Under the agreements, if our credit rating had been downgraded one rating level ~~by Moody's Investors Service and Standard & Poor's Rating Services and two rating levels~~ by Fitch Ratings, before the final collateral exchange in September, we would have been required to post additional collateral of ~~$71.~~$105. If DIRECTV Holdings LLC's credit rating had been downgraded below BBB- (S&P) and below Baa3 (Moody's) we would owe an additional $92. At December 31, ~~2013,~~2014, we had posted collateral of $8$530 (a deposit asset) and held collateral of ~~$1,600~~$599 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable), against the fair value of the derivative instruments.

16Following is the notional amount of our outstanding derivative positions:

	September 30,		December 31,
	2015		2014
Interest rate swaps	$	7,050	$	6,550
Cross-currency swaps		29,642		26,505
Interest rate locks		-		6,750
Foreign exchange contracts		23		-
Total	$	36,715	$	39,805

Following are the related hedged items affecting our financial position and performance:

Effect of Derivatives on the Consolidated Statements of Income
Fair Value Hedging Relationships	Three months ended							Nine months ended
Fair Value Hedging Relationships	September 30, 2015			September 30, 2014				September 30, 2015				September 30, 2014
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	54			$	(70	)		$	65			$	(59	)
Gain (Loss) on long-term debt		(54	)			70				(65	)			59

In addition, the net swap settlements that accrued and settled in the quarter ended September 30 were included in interest expense.

	Three months ended						Nine months ended
Cash Flow Hedging Relationships	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	(678	)	$	567		$	(1,008	)	$	418

Interest rate locks:
Gain (Loss) recognized in accumulated OCI		-			-			(361	)		-
Interest income (expense) reclassified from accumulated OCI into income		(17	)		(11	)		(43	)		(33	)

Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		-			-			-			(2	)

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 7. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

~~Following is~~

Acquisitions

DIRECTV On July 24, 2015, we completed our acquisition of DIRECTV, a leading provider of digital television entertainment services in both the ~~notional amount~~United States and Latin America. The acquisition represents an opportunity for us to integrate a unique and complementary set of assets and achieve substantial cost synergies over time, as well as generate revenue from pay television in Latin America. Our distribution scale will enable us to offer consumers bundles including video, high-speed broadband and mobile services, using all the sales channels of both companies. We believe the combined company will be a content distribution leader across mobile, video and broadband platforms.

Under the merger agreement, each share of DIRECTV stock was exchanged for $28.50 cash plus 1.892 shares of our ~~outstanding derivative positions:~~common stock. After adjustment for shares issued to trusts consolidated by AT&T, share-based payment arrangements and fractional shares, which were settled in cash, AT&T issued 954,407,524 shares to DIRECTV shareholders, giving them an approximate 16% stake in the combined company, based on common shares outstanding. Based on our $34.29 per share closing stock price on July 24, 2015, the aggregate value of consideration paid to DIRECTV shareholders was $47,404, including $32,727 of AT&T stock and $14,378 in cash and $299 for share-based payment arrangements.

September 30, December 31,
2014 2013
Interest rate swaps $ 6,550 $ 4,750
Cross-currency swaps 20,650 17,787
Total $ 27,200 $ 22,537

Following is the related hedged items affecting our financial position and performance:

Effect of Derivatives on the Consolidated Statements of Income
Fair Value Hedging Relationships Three months ended Nine months ended
September 30,
2014

September 30,
2013

September 30,
2014

September 30,
2013

Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps $ (70 ) $ 9 $ (59 ) $ (78 )
Gain (Loss) on long-term debt 70 (9 ) 59 78

~~In addition,~~Our third-quarter 2015 operating results include the ~~net swap settlements~~results from DIRECTV following the acquisition date. The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that ~~accrued and settled~~are not observable in the ~~quarter ended~~market and thus represent a Level 3 measurement as defined in ASC 820, other than long-term debt assumed in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of acquired technology and customer relationships. The income approach estimates fair value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation. Our September 30, ~~were offset against interest expense.~~2015 consolidated balance sheet includes the assets and liabilities of DIRECTV, which have been measured at fair value.

Three months ended Nine months ended
Cash Flow Hedging Relationships
September 30,
2014

September 30,
2013

September 30,
2014

September 30,
2013

Cross-currency swaps:
     Gain (Loss) recognized in accumulated OCI $ 567 $ 482 $ 418 $ 807

Interest rate locks:
     Interest income (expense) reclassified from
        accumulated OCI into income
(11 ) (11 ) (33 ) (34 )

Foreign exchange contracts:
     Gain (Loss) recognized in accumulated OCI - 5 (2 ) 5

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~NOTE 7. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS~~

The following table summarizes the preliminary estimated fair values of the DIRECTV assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date.

~~Acquisitions~~

	DIRECTV
Assets acquired
Cash	$	4,763
Accounts receivable		2,116
All other current assets		1,795
Property, plant and equipment (including satellites)		8,811
Intangible assets not subject to amortization
Orbital slots		11,946
��Trade name (Latin America)		1,371
Intangible assets subject to amortization
Customer lists and relationships		19,803
Trade name (U.S.)		1,634
Other		324
Investments and other assets		3,730
Goodwill		35,343
Total assets acquired		91,636

Liabilities assumed
Current liabilities, excluding current portion of long-term debt		5,886
Long-term debt		20,500
Other noncurrent liabilities		17,492
Total liabilities assumed		43,878
Net assets acquired		47,758
Noncontrolling interest		(354	)
Aggregate value of consideration paid	$	47,404

~~Leap~~ ~~On March 13, 2014, we~~

These estimates are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired ~~Leap, a provider~~are expected to be collectible. We have not identified any material unrecorded pre-acquisition contingencies where the related asset, liability or impairment is probable and the amount can be reasonably estimated. Goodwill is calculated as the difference between the acquisition date fair value of ~~prepaid wireless service, for fifteen dollars per outstanding share of Leap's common stock, or $1,248 (excluding Leap's cash on hand), plus one nontransferable contingent~~the consideration transferred and the fair value ~~right (CVR) per share. The CVR will entitle each Leap stockholder to a pro rata share~~ of the net ~~proceeds~~assets acquired, and represents the future economic benefits that we expect to achieve as a result of acquisition. Prior to the finalization of the ~~future sale of~~purchase price allocation, if information becomes available that would indicate it is probable that such events had occurred and the ~~Chicago 700 MHz A-band Federal Communications Commission (FCC) license held by Leap.~~

~~The preliminary values~~amounts can be reasonably estimated, such items will be included in the final purchase price allocation and may change goodwill. Purchased goodwill is not expected to be deductible for tax purposes. As we finalize the valuation of assets acquired ~~under the terms of the agreement were: $3,000~~and liabilities assumed, we will determine to which business segments and reporting units that any changes in licenses, $510 in property, plant and equipment, $520 of customer lists, $340 for trade names and $744 of goodwill. The estimated fair value of debt associated with the acquisition of Leap was $3,889, all of which was redeemed or matured by July 31, 2014.goodwill should be recorded.

~~Pending Acquisition~~

~~DIRECTV~~ In May 2014, we announced a merger agreement to acquire DIRECTV in a stock-and-cash transaction for ninety-five dollars per share of DIRECTV's common stock, or approximately $48,500 at the date of announcement. As of September 30, 2014, DIRECTV had approximately $16,852 in net debt based on DIRECTV's financial statements included in the Form 10-Q for the third quarter of 2014. Each DIRECTV shareholder will receive cash of $28.50 per share and $66.50 per share in our stock. The stock portion will be subject to a collar such that DIRECTV shareholders will receive 1.905 AT&T shares if our stock price is below $34.90 per share at closing and 1.724 AT&T shares if our stock price is above $38.58 at closing. If our average stock price (calculated in accordance with the merger agreement with DIRECTV) is between $34.90 and $38.58 at closing, then DIRECTV shareholders will receive a number of shares between 1.724 and 1.905, equal to $66.50 in value. DIRECTV is a premier pay TV provider in the United States and Latin America, with a high-quality customer base, the best selection of programming, the best technology for delivering and viewing high-quality video on any device and the best customer satisfaction among major U.S. cable and satellite TV providers.

The merger agreement was adopted by DIRECTV's stockholders on September 25, 2014 and remains subject to review by the FCC and the Department of Justice and to other closing conditions. It is also a condition that all necessary consents by certain foreign governmental entities have been obtained and are in full force and effect. The transaction is expected to close in the first half of 2015. The merger agreement provides certain mutual termination rights for us and DIRECTV, including the right of either party to terminate the agreement if the merger is not consummated by May 18, 2015, subject to extension in certain cases to a date no later than November 13, 2015. Either party may also terminate the agreement if an order permanently restraining, enjoining, or otherwise prohibiting consummation of the merger becomes final and nonappealable. In October 2014, DIRECTV and the National Football League renewed their agreement for the "NFL Sunday Ticket" service substantially on the terms discussed between AT&T and DIRECTV, satisfying one of the conditions to closing the merger. Under certain circumstances relating to a competing transaction, DIRECTV may be required to pay a termination fee to us in connection with or following a termination of the agreement.

~~Dispositions~~

~~América Móvil~~ In May 2014, in conjunction with the announcement of our intention to dispose of our investment in América Móvil and the resignation of our board members from the board of América Móvil, we discontinued accounting for this investment under the equity method due to our lack of significant influence. On June 30, 2014, we sold our remaining stake in América Móvil for approximately $5,566 and recorded a pre-tax gain of $1,243. At closing, we received $4,565 cash and we received the remaining cash in the third quarter.

1823

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~Connecticut Wireline~~ ~~In December 2013, we agreed to sell our incumbent local exchange~~The following unaudited pro forma consolidated results of operations ~~in Connecticut to Frontier Communications Corporation~~assume that the acquisition of DIRECTV was completed as of January 1 for ~~$2,000 in cash. The transaction was approved by~~each of the ~~FCC in July 2014 and was approved by the Connecticut Public Utilities Regulatory Authority on October 15, 2014. The transaction closed on October 24, 2014.~~fiscal years shown below:

~~We applied held-for-sale treatment~~

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
Total operating revenues ¹	$	41,230	$	41,301	$	123,346	$	122,263
Net Income Attributable to AT&T		2,985		3,429		9,210		11,065

Basic Earnings Per Share Attributable to AT&T	$	0.50	$	0.56	$	1.69	$	1.80
Diluted Earnings Per Share Attributable to AT&T	$	0.50	$	0.55	$	1.69	$	1.79

¹ Reflects revenue declines resulting from our fourth-quarter 2014 sale of our Connecticut wireline operations.

Nonrecurring adjustments included in the pro forma results above consist of the following: At June 30, 2015, due to the continued economic uncertainty and lack of liquidity in all three of the official currency exchange mechanisms in Venezuela, DIRECTV changed the exchange rate used to measure its Venezuelan subsidiary's monetary assets and liabilities into U.S. dollars from Sistema Complementario de Administración de Divisas (SICAD) to SIMADI. The significant change in exchange rates also required the reevaluation of the ~~Connecticut operations,~~recoverability of fixed and ~~accordingly, included the~~intangible assets and inventory, which resulted in ~~"Other current assets," and the related liabilities~~an impairment charge of $1,060 recorded in ~~"Accounts payable and accrued liabilities," on our~~DIRECTV's consolidated ~~balance sheets. However, the business does not qualify as discontinued operations as we expect significant continuing direct cash flows related~~statement of operations. Prior to DIRECTV's June 30, 2015 change to the ~~disposed operations. Assets~~SIMADI, operating results for the six months ended June 30, 2015 were measured using the SICAD exchange rate which resulted in revenues in Venezuela of approximately $500 and ~~liabilities~~operating profit before depreciation and amortization of approximately $180. Pro forma data may not be indicative of the ~~Connecticut operations included~~results that would have been obtained had these events occurred at the ~~following:~~beginning of the periods presented, nor is it intended to be a projection of future results.

September 30, December 31,
2014 2013
Assets held for sale:
Current assets $ 138 $ 155
Property, plant and equipment - net 1,436 1,289
Goodwill 799 799
Other assets 18 17
Total assets $ 2,391 $ 2,260

Liabilities related to assets held for sale:
Current liabilities $ 122 $ 128
Noncurrent liabilities 537 480
Total liabilities $ 659 $ 608

Nextel Mexico On April 30, 2015, we completed our acquisition of the subsidiaries of NII Holdings Inc., operating its wireless business in Mexico, for $1,875, including approximately $427 of net debt and other adjustments. The subsidiaries offer service under the name Nextel Mexico.

The preliminary values of assets acquired were: $376 in licenses, $1,391 in property, plant and equipment, $65 in customer lists and $414 of goodwill.

GSF Telecom On January 16, 2015, we acquired Mexican wireless company GSF Telecom Holdings, S.A.P.I. de C.V. (GSF Telecom) for $2,500, including net debt of approximately $700. GSF Telecom offers service under both the Iusacell and Unefon brand names in Mexico.

The preliminary values of assets acquired were: $920 in licenses, $712 in property, plant and equipment, $311 in customer lists, $26 in trade names and $1,124 of goodwill.

AWS-3 Auction In January 2015, we submitted winning bids for 251 Advanced Wireless Service (AWS) spectrum licenses in the AWS-3 Auction (FCC Auction 97) for $18,189. We provided the Federal Communications Commission (FCC) an initial down payment of $921 in October 2014 and paid the remaining $17,268 in the first quarter of 2015. The interest associated with this acquisition will be excluded from interest expense and capitalized until this spectrum is ready for its intended use.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 8. GOODWILL

As part of our organizational realignment discussed in Note 4, the goodwill from the previous Wireless segment was allocated to the Business Solutions and Consumer Mobility segments and the goodwill from the previous Wireline segment was allocated to the Business Solutions and Entertainment and Internet Services segment. The allocation was based on the relative fair value of the portions of the previous Wireless and Wireline segments which were moved into the new Business Solutions, Entertainment and Internet Services and Consumer Mobility segments.

Changes in the carrying amounts of goodwill, by segment were as follows:

	Wireless			Wireline			Business Solutions		Entertainment and Internet Services		Consumer Mobility		International			Total
Balance as of December 31, 2013	$	36,106		$	33,167		$	-	$	-	$	-	$	-		$	69,273
Goodwill Acquired		367			-			-		-		-		-			367
Other		(4	)		56			-		-		-		-			52
Balance as of December 31, 2014		36,469			33,223			-		-		-		-			69,692
Goodwill Acquired		6			-			-		31,653		-		5,228			36,887
Foreign Currency Translation Adjustments		-			-			-		-		-		(610	)		(610	)
Allocation of Goodwill		(36,471	)		(33,226	)		44,763		8,422		16,512		-			-
Other		(4	)		3			-		-		-		(2	)		(3	)
Balance as of September 30, 2015	$	-		$	-		$	44,763	$	40,075	$	16,512	$	4,616		$	105,966

The majority of our goodwill acquired during 2015 related to our acquisitions of DIRECTV, Nextel Mexico and GSF Telecom (see Note 7). The allocation of goodwill represents goodwill previously assigned to our Wireless and Wireline segments. Other changes to our goodwill in 2015 include foreign currency translation adjustments and the final valuation of Leap Wireless, Inc. (Leap). The majority of our goodwill acquired during 2014 related to our acquisition of Leap. Other changes to our goodwill during 2014 include adjustments related to closing the sale of our Connecticut wireline operations.

AT&T INC.

SEPTEMBER 30, 2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 9. SALES OF EQUIPMENT INSTALLMENT RECEIVABLES

We offer our customers the option to purchase certain wireless devices in installments over a period of up to 2430 months, with the right to trade in the original equipment for a new device within a set period and have the remaining unpaid balance satisfied. As of September 30, 2015 and December 31, 2014, gross equipment installment receivables of ~~$3,002~~$4,428 and $4,265 were included on our consolidated balance sheets, of which ~~$1,861~~$2,690 and $2,514 are notes receivable that are included in "Accounts receivable, net."

On June 27, 2014, we entered into the first of a series of uncommitted agreements pertaining to the sale of equipment installment receivables and related security with Citibank, N.A. and various other relationship banks as purchasers (collectively, the Purchasers) ~~with a funding amount not expected to exceed $2,000 at any given time.~~. Under ~~the agreement,~~these agreements, we ~~may transfer~~transferred the receivables to the Purchasers for cash and additional consideration upon settlement of the receivables. Under the terms of the ~~arrangement,~~arrangements, we continue to bill and collect on behalf of our customers for the receivables sold. To date, we have collected and remitted approximately $3,394 (net of fees), of which $421 was returned as deferred purchase price.

The following table sets forth a summary of equipment installment receivables sold during the three months and nine months ended September 30, 2015 and 2014:

	Three months		Nine months		Three months ended						Nine months ended
					September 30,						September 30,
					2015			2014			2015			2014
Gross receivables sold						$	1,601		$	1,028		$	5,964		$	2,665
Net receivables sold¹	$	885	$	2,276			1,431			885			5,367			2,276
Cash proceeds received		556		1,375			980			556			3,553			1,375
Deferred purchase price recorded		324		889			456			324			1,819			889
¹Gross receivables sold were $1,028 and $2,665 for the third quarter and the first nine months of 2014, respectively, before deducting the allowance, imputed interest and trade-in right guarantees.
¹Receivables net of allowance, imputed interest and trade-in right guarantees.					¹Receivables net of allowance, imputed interest and trade-in right guarantees.

The deferred purchase price was initially recorded at estimated fair value, which was based on remaining installment payments expected to be collected, adjusted by the expected timing and value of ~~the~~ device trade-ins, and is subsequently carried at the lower of cost or net realizable value. The estimated value of the device trade-ins considers ~~estimated~~ prices offered to us by independent third parties that contemplate changes in value after the launch of a ~~device.~~ device model. The fair value measurements used are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 6).

During the third quarter of 2015, we repurchased installment receivables previously sold to the Purchasers, with a fair value of $412. This transaction reduced our current deferred purchase price receivable by $314, resulting in a gain of $98 in the third quarter of 2015. This gain is included in "Selling, general and administrative" in the consolidated statements of income.

At September 30, 2015, our deferred purchase price receivable was $2,869, of which $1,676 is included in "Other current assets" on our consolidated balance sheets, with the remainder in "Other Assets." At December 31, 2014, our deferred purchase price receivable was ~~$901,~~$1,606, which is included in "Other ~~Assets" on our consolidated balance sheets.~~Assets." Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the amount of our deferred purchase price at any point in time.

~~These transactions~~The sales of equipment installment receivables did not have a material impact in our consolidated statements of income or to "Total Assets" reported on our consolidated balance sheets. We reflect the cash flows related to the arrangement as operating activities in our consolidated statements of cash flows because the cash received from the Purchasers upon both the sale of the receivables and the collection of the deferred purchase price is not subject to significant interest rate risk.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Dollars in millions except per share amounts

RESULTS OF OPERATIONS

For ease of reading, AT&T Inc. is referred to as "we," "AT&T" or the "Company" throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate in the communications and digital entertainment services ~~industry both in the United States~~industry. Our subsidiaries and ~~internationally, providing wireless and wireline telecommunication~~affiliates provide services and ~~equipment.~~equipment that deliver voice, video and broadband services both domestically and internationally. You should read this discussion in conjunction with the consolidated financial statements, accompanying notes and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2013.~~2014. A reference to a "Note" in this section refers to the accompanying Notes to Consolidated Financial Statements. In the tables throughout this section, percentage increases and decreases that are not considered meaningful are denoted with a dash. We completed our acquisition of DIRECTV on July 24, 2015, and have included DIRECTV results for the 68-day period ended September 30, 2015. In accordance with U.S. generally accepted accounting principles (GAAP), operating results from DIRECTV prior to the acquisition are excluded. Certain amounts have been reclassified to conform to the current period's presentation.

Consolidated Results Our financial results in the third quarter and for the first nine months of ~~2014~~2015 and ~~2013~~2014 are summarized as follows:

	Third Quarter							Nine-Month Period							Third Quarter							Nine-Month Period
	2014		2013		Percent Change			2014		2013		Percent Change			2015		2014		Percent Change			2015		2014		Percent Change
	2014		2013		Percent Change			2014		2013		Percent Change			2015		2014		Percent Change			2015		2014		Percent Change
Operating Revenues	$	32,957	$	32,158		2.5	%	$	98,008	$	95,589		2.5	%
Service															$	35,625	$	29,790		19.6	%	$	94,128	$	89,122		5.6	%
Equipment																3,466		3,167		9.4			10,554		8,886		18.8
Total Operating Revenues																39,091		32,957		18.6			104,682		98,008		6.8

Operating expenses
Cost of services and sales		14,541		13,403		8.5			42,074		39,227		7.3
Equipment																4,501		4,432		1.6			13,400		12,503		7.2
Broadcast, programming and operations																4,081		1,038		-			6,351		3,019		-
Other cost of services (exclusive of depreciation and amortization shown separately below)																9,214		8,866		3.9			27,604		26,167		5.5
Selling, general and administrative		8,475		7,952		6.6			24,932		24,406		2.2			9,107		8,475		7.5			24,535		24,932		(1.6	)
Depreciation and amortization		4,539		4,615		(1.6	)		13,706		13,715		(0.1	)		6,265		4,539		38.0			15,539		13,706		13.4
Total Operating Expenses		27,555		25,970		6.1			80,712		77,348		4.3			33,168		27,350		21.3			87,429		80,327		8.8
Operating Income		5,402		6,188		(12.7	)		17,296		18,241		(5.2	)		5,923		5,607		5.6			17,253		17,681		(2.4	)
Income Before Income Taxes		4,426		5,500		(19.5	)		16,183		16,624		(2.7	)		4,735		4,631		2.2			14,385		16,568		(13.2	)
Net Income		3,059		3,905		(21.7	)		10,414		11,558		(9.9	)		3,078		3,187		(3.4	)		9,601		10,654		(9.9	)
Net Income Attributable to AT&T	$	3,002	$	3,814		(21.3	)%	$	10,201	$	11,336		(10.0	)%	$	2,994	$	3,130		(4.3	) %	$	9,339	$	10,441		(10.6	) %

Overview

Operating ~~income~~revenues ~~decreased $786,~~increased $6,134, or ~~12.7%~~18.6%, in the third quarter and ~~$945,~~$6,674, or ~~5.2%~~6.8%, for the first nine months of 2014. Operating income in the third quarter and for the first nine months reflects continued decline in legacy voice and data product revenues as well as higher AT&T U-verse® (U-verse) content costs. This decline is partially offset by higher wireless equipment revenue for device sales under our AT&T Next^SM (AT&T Next) program as well as continued growth in our U-verse and strategic business services. Our operating results include the operations of Leap Wireless International, Inc. (Leap) from March 13, 2014, the date of acquisition.2015.

~~Operating~~Service revenues increased ~~$799,~~$5,835, or ~~2.5%~~19.6%, in the third quarter and ~~$2,419,~~$5,006, or ~~2.5%~~5.6%, for the first nine months of ~~2014. Growth~~2015. The increases were primarily due to our acquisition of DIRECTV and our new wireless operations in ~~wireless~~Mexico. Also contributing to the revenue increases were gains in fixed strategic business services and IP broadband, offset by continued declines in our legacy voice and data products.

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

Equipment revenues increased $299, or 9.4%, in the third quarter and $1,668, or 18.8%, for the first nine months of 2015. This growth reflected the continuing trend by our postpaid wireless subscribers to choose devices on installment purchase rather than the device subsidy model, which resulted in ~~increased~~higher equipment revenue recognized ~~for~~from device sales. Wireline revenues were slightly lower and continue to be driven by service revenues from our U-verse services and strategic business services, which almost offset decreases from our legacy voice and data products.

Operating expenses increased $5,818, or 21.3%, in the third quarter and $7,102, or 8.8%, for the first nine months of 2015.

Equipment expenses increased $69, or 1.6%, in the third quarter and $897, or 7.2%, for the first nine months of 2015. Expense increases in the third quarter are primarily due to customers choosing higher priced wireless devices. The ~~telecommunications industry~~increase for the first nine months is ~~rapidly evolving~~primarily due to the continuing trend of customers choosing higher-priced wireless devices.

Broadcast, programming and operations expenses increased $3,043 in the third quarter and $3,332 for the first nine months of 2015 due to our acquisition of DIRECTV. Also contributing to the increase were higher content costs for our AT&T U-verse^®(U-verse) subscribers.

Other cost of services expenses increased $348, or 3.9%, in the third quarter and $1,437, or 5.5%, for the first nine months of 2015. Included in other costs of services were net expense deferrals of $428 in the third quarter and $590 for the first nine months of 2015, compared to $205 in the third quarter and $385 for the first nine months of 2014, resulting from ~~fixed location, voice-oriented services into an industry driven~~our deferral and amortization of customer fulfillment costs. Expense increases include network rationalization charges related to Leap Wireless International, Inc. (Leap) totaling $250 in the three months and $614 for the first nine months. Also contributing to the expense increases were merger and integration charges, wireless handset insurance costs and the addition of DIRECTV. These increases were partially offset by ~~customer demand~~lower Universal Service Fund and Connect America Fund fees and the fourth-quarter 2014 sale of our Connecticut wireline operations.

Selling, general and administrative expenses increased $632, or 7.5%, in the third quarter and decreased $397, or 1.6%, for ~~instantly available, data-based services (including video). Our products, services~~the first nine months of 2015. The increase in the third quarter was primarily due to our acquisition of DIRECTV offset by lower employee, sales and ~~plans are changing as we transition~~wireless commission expenses. The decrease for the first nine months was due to ~~sophisticated, high-speed, IP-based alternatives. In addition~~lower employee, sales, wireless commission, advertising and marketing expenses and the fourth-quarter 2014 sale of our Connecticut wireline operations, partially offset by the acquisition of DIRECTV.

Depreciation and amortization expense increased $1,726, or 38.0%, in the third quarter and $1,833, or 13.4%, for the first nine months of 2015. Amortization expense increased $1,072 in the third quarter and $1,061 for the first nine months of 2015 due to ~~re-designing our networks~~the amortization of intangibles from recent acquisitions. Amortization expense is not allocated to ~~accommodate these new demands~~the operating segments.

Depreciation expense increased $654, or 14.8%, in the third quarter and $772, or 5.8%, for the first nine months of 2015. The increase was primarily due to ~~take advantage~~the acquisitions of ~~related technological efficiencies, we are also repositioning~~DIRECTV and our wireless ~~model~~properties in Mexico, ongoing capital spending for network upgrades and extending the estimated useful life of software. The increases were partially offset by ~~moving~~abandonment of certain wireline network assets, which occurred in 2014.

Operating income increased $316, or 5.6%, in the third quarter and decreased $428, or 2.4%, for the first nine months of 2015. Our operating income margin in the third quarter decreased from 17.0% in 2014 to ~~simple pricing~~15.2% in 2015, and ~~no-device-subsidy plans. We expect continued growth~~from 18.0% in 2014 to 16.5% in 2015 for the first nine months, and include the impact of higher acquisition-related charges in 2015.

Interest expense increased $130, or 12.8%, in the third quarter and $220, or 8.0%, for the first nine months of 2015. The increases were primarily due to higher average debt balances, including debt issued and debt acquired in connection with our ~~wireless~~acquisition of DIRECTV and ~~wireline IP-based services as we bundle~~spectrum acquired in the Advanced Wireless Service (AWS)-3 Auction. The increases were partially offset by lower average interest rates and ~~price plans with greater focus on data~~an increase in capitalized interest resulting from spectrum acquired in the AWS-3 Auction (see Note 7).

Equity in net income of affiliates increased $17, in the third quarter and ~~video offerings. We expect continued declines~~decreased $140, or 74.5%, for the first nine months of 2015. Results for the third quarter and first nine months include earnings from equity method investments acquired in ~~voice services and our basic wireline data services as customers choose these next-generation services.~~the purchase of DIRECTV in the third quarter of 2015. The decrease for the first nine months primarily resulted from the sale of shares of América Móvil, S.A. de C.V. (América Móvil) in June 2014.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

Dollars in millions except per share amounts

~~Cost of services and sales~~ expenses increased $1,138, or 8.5%, in the third quarter and $2,847, or 7.3%, for the first nine months of 2014. The increases were primarily due to higher sales volume and customers choosing higher-priced devices, which contributed to increased wireless equipment costs, and handset insurance costs. The increases also reflect higher wireless network costs and wireline costs attributable to U-verse content costs and subscriber growth and employee-related charges.

~~Selling, general and administrative~~ expenses increased $523, or 6.6%, in the third quarter and $526, or 2.2%, for the first nine months of 2014. The increases were primarily due to the 2013 gains on spectrum transactions of $293, which resulted in lower expense in the third quarter and for the first nine months of 2013. Also contributing to increased selling and administrative expenses were increased sales expense in our Wireless segment and unallocated corporate expenses related to information technology enhancements, legal and new product and development costs. Partially offsetting the increases were lower Wireless commissions expenses and lower employee-related costs in our Wireline segment.

~~Depreciation and amortization~~ expense decreased $76, or 1.6%, in the third quarter and $9, or 0.1%, for the first nine months of 2014. The decreases were primarily due to extending the estimated useful life of software and an increase in fully depreciated assets, which were largely offset by ongoing capital spending for network upgrades and expansion and additional expense due to assets acquired from Leap.

~~Interest expense~~ increased $187, or 22.6%, in the third quarter and $276, or 11.1%, for the first nine months of 2014. The increases were primarily due to charges associated with the early redemption of debt, interest related to our December 2013 tower transaction, and higher debt balances. These increases were partially offset by lower interest rates resulting from 2013 refinancing activity.

~~Equity in net income (loss) of affiliates~~ decreased $93 in the third quarter and $306, or 61.9%, for the first nine months of 2014. This decrease in equity income for the third quarter and the first nine months primarily resulted from the sale of América Móvil, S.A. de C.V. (América Móvil) in June 2014 (see Note 7).

Third Quarter Nine-Month Period
2014 2013 2014 2013
América Móvil $ - $ 85 $ 153 $ 410
YP Holdings LLC (YP Holdings) 23 23 108 138
Softcard^TM Mobile Wallet Joint Venture
(25 ) (18 ) (74 ) (55 )
Other - 1 1 1
Equity in Net Income (Loss) of Affiliates $ (2 ) $ 91 $ 188 $ 494

Other income (expense) – net We had other expense of $57 in the third quarter and other income of $61 for the first nine months of 2015, compared to other income of $42 in the third quarter and $1,456 for the first nine months of ~~2014, compared to other income of $50~~2014. Results in the third quarter and ~~$370~~ for the first nine months of ~~2013. Results~~2015 included foreign exchange losses of $73 and $68, net (losses) gains on the sale of investments of $(4) and $46 and interest and dividend income of $29 and $74, respectively.

Other income in the third quarter of 2014 included interest and dividend income of $15, foreign exchange gains of $10 and a net gain on the sale of various investments of ~~$9 and leveraged lease income of $7.~~$9. Results for the first nine months of 2014 included a net ~~gain~~gains on the sale of América Móvil shares and other investments of $1,376, interest and dividend income of $51 and ~~leveraged lease income~~foreign exchange gains of ~~$20.~~

Other income in the third quarter and for the first nine months of 2013 included interest and dividend income of $14 and $54 and leveraged lease income of $6 and $21, respectively. Income for the first nine months of 2013 also included a net gain on the sale of América Móvil shares and other investments of $272.$9.

Income taxes ~~decreased $228,~~increased $213, or ~~14.3%~~14.8%, in the third quarter and ~~increased $703,~~decreased $1,130, or ~~13.9%~~19.1%, for the first nine months of ~~2014.~~2015. Our effective tax rate was ~~30.9%~~35.0% for the third quarter and ~~35.6%~~33.3% for the first nine months of ~~2014,~~2015, as compared to ~~29.0%~~31.2% for the third quarter and ~~30.5%~~35.7% for the first nine months of ~~2013.~~2014. The ~~increase~~higher effective tax rate for the third quarter was primarily due to a favorable tax adjustment recorded in third quarter 2014. The lower effective tax rate for the first nine months ~~was~~were primarily due to the sale of América Móvil shares in ~~2014. We had previously assumed that~~2014, and the recognition of tax benefits related to the restructuring of a portion of our ~~undistributed earnings for our investment~~enterprise business in ~~América Móvil would be returned through dividends that, when received, would qualify for foreign tax credits. As a result~~2015.

Selected Financial and Operating Data
	September 30,
Subscribers and connections in (000s)	2015			2014
Domestic wireless subscribers		126,406			118,650
Mexican wireless subscribers		8,091			-
Total wireless subscribers		134,497			118,650

Domestic satellite video subscribers		19,570			-
U-verse video subscribers¹		5,880			6,067
Latin America satellite video subscribers²		12,544			-
Total video subscribers		37,994			6,067

Total domestic broadband connections		15,832			16,486

Network access lines in service ¹		17,352			21,464
U-Verse VoIP connections¹		5,443			4,756

Debt ratio³		50.8	%		43.9	%
Net Debt Ratio⁴		48.3	%		42.5	%
Ratio of earnings to fixed charges⁵		3.85			5.08
Number of AT&T employees⁶		281,240			247,700

¹ Reflects the October 2014 sale of our ~~strategic decision to sell this~~Connecticut wireline operations.

² Excludes subscribers of our International segment equity ~~position~~investments in ~~connection with our pending acquisition of DIRECTV, these foreign tax credits were not available to be realized.~~SKY Mexico.

~~AT&T INC.~~

~~SEPTEMBER 30, 2014~~

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

~~Dollars in millions except per share amounts~~

Selected Financial and Operating Data
September 30,
Subscribers and connections in (000s) 2014 2013
Wireless subscribers 118,650 109,460
Network access lines in service 21,464 25,680
U-Verse VoIP connections 4,756 3,616
Total wireline broadband connections 16,486 16,427
Debt ratio¹
44.8 % 46.9 %
Ratio of earnings to fixed charges²
4.99 5.50
Number of AT&T employees 247,700 246,740

¹³Debt ratios are calculated by dividing total debt (debt maturing within one year plus long-term debt) by total capital (total debt plus total stockholders' equity) and do not consider cash available to pay down debt. See our "Liquidity and Capital Resources" section for discussion.

²⁴Net debt ratios are calculated by deriving total debt (debt maturing within one year plus long-term debt) less cash available by total capital (total debt plus total stockholders' equity).

⁵See ~~Exhibit~~exhibit 12.

⁶ Reflects acquisition activity.

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

Segment Results

Our segments are strategic business units that offer different products and services over various technology platforms ~~and~~and/or in different geographies that are managed accordingly. Our operating segment results presented in Note 4 and discussed below for each segment follow our internal management reporting. We analyze our operating segments based on segment contribution, which consists of operating income, before income taxes. We make our capital allocation decisions based on our strategic direction of the business, needs of the network (wireless or wireline) providing services and demands to provide emerging services to our customers. Actuarial gains and losses from pensionexcluding acquisition-related costs and other ~~postretirement benefits, interest expense~~significant items, and ~~other~~equity in net income ~~(expense) – net, are~~of affiliate for investments managed ~~only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in~~within each ~~segment's reportable results. The customers and long-lived assets of our reportable segments are predominantly in the United States.~~operating segment. We have ~~two~~four reportable segments: (1) ~~Wireless~~Business Solutions, (2) Entertainment and ~~(2) Wireline.~~Internet Services, (3) Consumer Mobility and (4) International. We have revised our prior-period presentation to conform to our current reporting.

We also evaluate segment performance based on segment operating income before depreciation and amortization, which we refer to as EBITDA and/or EBITDA margin. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating performance. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is operating income before depreciation and amortization, divided by total revenues. (See Note 4)

The Business Solutions segment provides both wireless and wireline services to business customers and individual subscribers who purchase wireless services through employer-sponsored plans. We provide advanced IP-based services including Virtual Private Networks (VPN), Ethernet-related products and broadband (strategic business services) as well as traditional data and voice products. Services in this segment utilize our wireless and wired network and are marketed to provide a complete communications solution to our business customers.

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

The International segment provides entertainment services in Latin America and wireless services in Mexico. Video entertainment services are provided primarily to residential customers using satellite technology. Wireless ~~segment uses~~services utilize our ~~nationwide network~~regional and national networks in Mexico to provide consumer and business customers with wireless data and voice ~~communications~~communication services. ~~This~~Our international subsidiaries transact in their local currency and operating results are converted to U.S. dollars using official exchange rates. The exchange rate used to report net monetary assets and operating results of our Venezuelan subsidiary is the Sistema Marginal de Divisas (SIMADI), which was 199.65 and 199.42 Venezuelan bolivars per U.S. dollar at July 24, 2015 and September 30, 2015, respectively. Our International segment ~~includes~~is subject to foreign currency fluctuations.

Our operating assets are shared by multiple segments and consist of our ~~portion of the results from our mobile walletjoint venture which is accounted for~~wireless and wired networks as well as an ~~equity investment.~~

~~The Wireline~~international satellite fleet. We manage our assets on a total company basis, not by operating segment, ~~uses our regional, national~~ and ~~global~~therefore asset information and capital expenditures by operating segment are not presented. Depreciation is allocated based on network ~~to provide consumer and business customers with data and voice communications services, U-verse high speed Internet, video and VoIP services and managed networking to business customers.~~usage or asset utilization by segment.

We discuss capital expenditures ~~for each segment~~ in "Liquidity and Capital Resources."

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

Dollars in millions except per share amounts

Business Solutions
Segment Results
	Third Quarter							Nine-Month Period
	2015		2014		Percent Change			2015		2014		Percent Change
	2015		2014		Percent Change			2015		2014		Percent Change
Segment operating revenues
Wireless service	$	7,732	$	7,542		2.5	%	$	23,003	$	22,593		1.8	%
Fixed strategic services		2,763		2,454		12.6			8,083		7,103		13.8
Legacy voice and data services		4,499		4,928		(8.7	)		13,743		15,055		(8.7	)
Other services		885		977		(9.4	)		2,585		2,834		(8.8	)
Wireless equipment		1,813		1,586		14.3			5,499		4,292		28.1
Total Segment Operating Revenues		17,692		17,487		1.2			52,913		51,877		2.0

Segment operating expenses
Operations and support		10,921		11,295		(3.3	)		32,966		32,836		0.4
Depreciation and amortization		2,474		2,331		6.1			7,276		7,009		3.8
Total Segment Operating Expenses		13,395		13,626		(1.7	)		40,242		39,845		1.0
Segment Operating Income		4,297		3,861		11.3			12,671		12,032		5.3
Equity in Net Income of Affiliates		-		-		-			-		-		-
Segment Contribution	$	4,297	$	3,861		11.3	%	$	12,671	$	12,032		5.3	%

Wireless
Segment Results
Third Quarter Nine-Month Period
2014 2013
Percent
Change
2014 2013
Percent
Change

Segment operating revenues
   Service $ 15,423 $ 15,460 (0.2 )% $ 45,958 $ 45,892 0.1 %
   Equipment 2,914 2,020 44.3 8,175 5,570 46.8
Total Segment Operating Revenues 18,337 17,480 4.9 54,133 51,462 5.2
Segment operating expenses
   Operations and support 11,855 10,982 7.9 34,305 31,932 7.4
   Depreciation and amortization 1,965 1,875 4.8 5,931 5,553 6.8
Total Segment Operating Expenses 13,820 12,857 7.5 40,236 37,485 7.3
Segment Operating Income 4,517 4,623 (2.3 ) 13,897 13,977 (0.6 )
Equity in Net Income (Loss) of
   Affiliates (26) (18) (44.4 ) (75) (55) (36.4 )
Segment Income $ 4,491 $ 4,605 (2.5 )% $ 13,822 $ 13,922 (0.7 )%

The following table highlights other key measures of performance for the Business Solutions segment:

	Third Quarter								Nine-Month Period
	2015			2014		Percent Change			2015			2014		Percent Change
(in 000s)	2015			2014		Percent Change			2015			2014		Percent Change
Business Wireless Subscribers
Postpaid										47,414			44,063		7.6	%
Reseller										83			6		-
Connected devices¹										24,064			18,482		30.2
Total Business Wireless Subscribers										71,561			62,551		14.4

Business Wireless Net Additions²
Postpaid		265			545		(51.4	) %		850			1,498		(43.3	)
Reseller		8			(4)		-			14			4		-
Connected devices ¹		1,602			1,275		25.6			4,104			2,144		91.4
Business Wireless Net Subscriber Additions		1,875			1,816		3.2			4,968			3,646		36.3

Business Wireless Postpaid Churn ^{2, 3}		1.05	%		0.84 %	21 BP				0.95	%		0.84 %	11 BP

Business IP Broadband Connections										891			791		12.6
Business IP Broadband Net Additions		20			43		(53.5	) %		70			159		(56.0	) %
¹ Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
² Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.
³ Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

Dollars in millions except per share amounts

Operating Revenues increased $205, or 1.2%, in the third quarter and $1,036, or 2.0%, for the first nine months of 2015. Revenue growth was driven by mobility revenues and continued growth in fixed strategic business services, partially offset by continued declines in our legacy voice and data services and foreign exchange pressures.

Wireless service revenues increased $190, or 2.5%, in the third quarter and $410, or 1.8%, for the first nine months of 2015. The revenue increases reflect smartphone and tablet gains as well as customer migrations from our Consumer Mobility segment.

When compared to September 30, 2014, business wireless subscribers increased 14.4%, to 71.6 million subscribers at September 30, 2015. Postpaid subscribers increased 7.6% reflecting the addition of new customers as well as migrations from our Consumer Mobility segment, partially offset by continuing competitive pressures in the industry. Connected devices, which have lower average revenue per average subscriber (ARPU) and lower churn, increased 30.2% reflecting growth in business customers using tracking, monitoring and other sensor-embedded devices on their equipment.

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. In the third quarter, business wireless postpaid churn increased from 0.84% in 2014 to 1.05% in 2015 and for the first nine months increased from 0.84% to 0.95%, respectively.

Fixed strategic services revenues increased $309, or 12.6%, in the third quarter and $980, or 13.8%, for the first nine months of 2015. Our revenues, which were negatively impacted by foreign exchange rates, increased in the third quarter and for the first nine months due to: Ethernet increases of $103 and $318, U-verse services increases of $63 and $185, Ethernet access to Managed Internet Services increases of $48 and $140 and VPN increases of $12 and $109.

Legacy wired voice and data service revenues decreased $429, or 8.7%, in the third quarter and $1,312, or 8.7%, for the first nine months of 2015. Traditional data revenues decreased $252 and $766 and long-distance and local voice revenues decreased $178 and $549. The decreases were primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings, or our competitors.

Other service revenues decreased $92, or 9.4%, in the third quarter and $249, or 8.8%, for the first nine months of 2015. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from other managed services, outsourcing, government professional service and equipment. The declines in the third quarter and for the first nine months are primarily due to lower project-based and equipment revenues, as well as impacts from foreign exchange rates.

Wireless equipment revenues increased $227, or 14.3%, in the third quarter and $1,207, or 28.1%, for the first nine months of 2015. The increase was primarily due to the increase in handsets sold under our AT&T Next^SM (AT&T Next) program and the increase in sales of higher-priced smartphones.

Operations and support expenses decreased $374, or 3.3%, in the third quarter and increased $130, or 0.4%, for the first nine months of 2015. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and personnel costs, such as compensation and benefits.

Expense decreases in the third quarter were primarily due to:

·	Lower commission costs of $304 primarily due to lower average commission rates and fewer upgrade transactions.

·	Reductions of $58 in access costs, primarily due to lower interconnect, roaming and traffic compensations costs.

·	Lower customer service costs of $45 primarily due to our simplified offers and increased efforts to take care of customers on their first call.

·	Lower employee charges resulting from workforce reductions and other cost initiatives.

Partially offsetting the decreases in the third quarter were higher wireless handset insurance cost of $130 due to higher claim rates and costs per claim.

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

Expense increases for the first nine months were primarily due to:

·	Increased equipment expense of $765 due to the continuing trend of customers choosing higher-cost devices.

·	Higher wireless handset insurance cost of $304 resulting from higher claim rates and costs per claim.

Partially offsetting the increases for the first nine months were:

·	Lower commission costs of $437 primarily due to lower average commission rates and fewer upgrade transactions..

·	Lower customer service costs of $160 primarily due to our simplified offers and increased efforts to take care of customers on their first call.

·	Reductions of $159 in access costs, primarily due to lower interconnect, roaming and traffic compensations costs.

·	Lower employee charges resulting from workforce reductions and other cost initiatives.

Depreciation expense increased $143, or 6.1%, in the third quarter and $267, or 3.8%, for the first nine months of 2015. The increases in the third quarter and for first nine months were primarily due to the increase in ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets.

Operating income increased $436, or 11.3%, in the third quarter and $639, or 5.3%, for the first nine months of 2015. Our Business Solutions segment operating income margin in the third quarter was 24.3% in 2015 and 22.1% in 2014, and for the first nine months 23.9% in 2015 and 23.2% in 2014. Our Business Solutions EBITDA margin in the third quarter was 38.3% in 2015 and 35.4% in 2014, and for the first nine months 37.7% in 2015 and 36.7% in 2014.

Entertainment and Internet Services
Segment Results
	Third Quarter							Nine-Month Period
	2015		2014		Percent Change			2015			2014		Percent Change
	2015		2014		Percent Change			2015			2014		Percent Change
Segment operating revenues
Video entertainment	$	7,162	$	1,719		-		$	11,024		$	5,016		-
High-speed Internet		1,685		1,414		19.2			4,861			4,040		20.3
Legacy voice and data services		1,419		1,834		(22.6	)		4,547			5,897		(22.9	)
Equipment and other		592		586		1.0			1,868			1,687		10.7
Total Segment Operating Revenues		10,858		5,553		95.5			22,300			16,640		34.0

Segment operating expenses
Operations and support		8,450		4,781		76.7			18,222			14,182		28.5
Depreciation and amortization		1,389		1,109		25.2			3,519			3,396		3.6
Total Segment Operating Expenses		9,839		5,890		67.0			21,741			17,578		23.7
Segment Operating Income		1,019		(337)		-			559			(938)		-
Equity in Net Income (Loss) of Affiliates		2		-		-			(16	)		-		-
Segment Contribution	$	1,021	$	(337)		-		$	543		$	(938)		-

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

The following table highlights other key measures of performance for the Wireless segment:

Third Quarter Nine-Month Period
2014 2013
Percent
Change
2014 2013
Percent
Change

(in 000s)
Wireless Subscribers ¹
118,650 109,460 8.4 %
   Postpaid smartphones 55,791 50,637 10.2
   Postpaid feature phones and data-centric
     devices 19,314 21,395 (9.7 )
Postpaid 75,105 72,032 4.3
Prepaid 11,179 7,425 50.6
Reseller 13,884 14,089 (1.5 )
Connected devices ²
18,482 15,914 16.1
Total Wireless Subscribers 118,650 109,460 8.4

Net Additions ³

   Postpaid 785 363 - 2,436 1,210 -
   Prepaid (140 ) 192 - (595 ) 19 -
   Reseller 87 (285 ) - (281 ) (951 ) 70.5
   Connected devices²
1,275 719 77.3 2,143 1,634 31.2
Net Subscriber Additions 2,007 989 - 3,703 1,912 93.7

Mobile Share connections 46,909 16,130 -
Smartphones sold under our installment
   program during period 3,401 401 - 9,411 401 -

Total Churn⁴
1.36 % 1.31 % 5 BP 1.41 % 1.35 % 6 BP
Postpaid Churn⁴
0.99 % 1.07 % (8) BP 0.97 % 1.04 % (7) BP

¹ ~~Represents 100%~~

The following table highlights other key measures of performance for the Entertainment and Internet Services segment:

	Third Quarter								Nine-Month Period
	2015			2014		Percent Change			2015			2014		Percent Change
(in 000s)	2015			2014		Percent Change			2015			2014		Percent Change
Video Connections
Satellite										19,570			-		-
U-verse										5,854			5,848		0.1
Total Video Connections										25,424			5,848		-

Video Net Additions ¹
Satellite		26			-		-			26			-		-
U-verse		(92	)		212		-			(66	)		591		-
Net Video Additions		(66	)		212		-			(40	)		591		-	��

Broadband Connections
IP										12,185			11,010		10.7
DSL										2,137			3,455		(38.1	)
Total Broadband Connections										14,322			14,465		(1.0	)

Broadband Net Additions
IP		172			547		(68.6	)		802			1,527		(47.5	)
DSL		(278	)		(479)		42.0			(922	)		(1,375)		32.9
Net Broadband Additions		(106	)		68		-			(120	)		152		-

Retail Consumer Switched Access Lines										7,675			9,851		(22.1	)
U-verse Consumer VoIP Connections										5,216			4,530		15.1
Total Retail Consumer Voice Connections										12,891			14,381		(10.4	) %
¹Excludes acquisition-related additions during the period.

Operating revenues increased $5,305, or 95.5%, in the third quarter and $5,660, or 34.0%, for the first nine months of 2015. Our July 2015 acquisition of DIRECTV was largely responsible for higher revenues beginning in the third quarter of 2015. Also contributing to that gain was continued strong growth in U-verse video and consumer IP broadband, which more than offset lower revenues from legacy voice and data products.

Video entertainment revenues increased $5,443 in the third quarter and $6,008 for the first nine months of 2015, primarily related to our acquisition of DIRECTV. With our acquisition of DIRECTV, we are now focusing our sales efforts on satellite service as there are lower content costs for DIRECTV.

High-speed Internet revenues increased $271, or 19.2%, in the third quarter and $821, or 20.3%, for the first nine months of 2015. When compared to September 30, 2014, IP broadband subscribers increased 10.7%, to 12.2 million subscribers at September 30, 2015; however, third-quarter net additions were lower due to fewer U-verse sales promotions in the quarter and churn of video customers, some of which also purchased broadband service.

Legacy voice and data service revenues decreased $415, or 22.6%, in the third quarter and $1,350, or 22.9%, for the first nine months of 2015. The revenue decreases were due to a $264 and $886 decrease in long-distance and local voice revenues and a $150 and $464 decrease in traditional data revenues, which include circuit-based services.

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

Equipment and other revenues increased $6, or 1.0%, in the third quarter and $181, or 10.7%, for the first nine months of 2015.

Operations and support expenses increased $3,669, or 76.7%, in the third quarter and $4,040, or 28.5%, for the first nine months of 2015. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks, providing video content and personnel costs, such as compensation and benefits.

Increased operations and support expenses were primarily due to our acquisition of DIRECTV, which increased our Entertainment and Internet Services operations and support expenses $3,905. The increases were attributable to higher broadcast programming and content costs, which were primarily due to our addition of DIRECTV, but also included content cost pressures for our U-verse services. Partially offsetting increased expenses were lower employee charges resulting from workforce reductions, lower equipment costs and our focus on cost initiatives.

Depreciation expenses increased $280, or 25.2%, in the third quarter and $123, or 3.6%, for the first nine months of 2015, primarily due to our acquisition of DIRECTV and ongoing capital spending for network upgrades and expansion, partially offset by fully depreciated assets.

Operating income increased $1,356 in the third quarter and $1,497 for the first nine months of 2015. Our Entertainment and Internet Services segment operating income margin in the third quarter was 9.4% in 2015 and (6.1)% in 2014, and for the first nine months was 2.5% in 2015 and (5.6)% in 2014. Our Entertainment and Internet Services EBITDA margin in the third quarter was 22.2% in 2015 and 13.9% in 2014, and the first nine months was 18.3% in 2015 and 14.8% in 2014.

Consumer Mobility
Segment Results
	Third Quarter							Nine-Month Period
	2015		2014		Percent Change			2015		2014		Percent Change
	2015		2014		Percent Change			2015		2014		Percent Change
Segment operating revenues
Postpaid wireless	$	5,527	$	6,071		(9.0	) %	$	16,783	$	18,490		(9.2	) %
Prepaid wireless		1,198		1,163		3.0			3,411		3,106		9.8
Other service revenue		638		646		(1.2	)		1,825		1,768		3.2
Equipment		1,421		1,328		7.0			4,298		3,883		10.7
Total Segment Operating Revenues		8,784		9,208		(4.6	)		26,317		27,247		(3.4	)

Segment operating expenses
Operations and support		5,065		5,731		(11.6	)		15,808		17,173		(7.9	)
Depreciation and amortization		976		950		2.7			2,912		2,846		2.3
Total Segment Operating Expenses		6,041		6,681		(9.6	)		18,720		20,019		(6.5	)
Segment Operating Income		2,743		2,527		8.5			7,597		7,228		5.1
Equity in Net Income (Loss) of Affiliates		-		(1)		-			-		(1)		-
Segment Contribution	$	2,743	$	2,526		8.6	%	$	7,597	$	7,227		5.1	%

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

The following table highlights other key measures of performance for the Consumer Mobility segment:

	Third Quarter							Nine-Month Period
	2015		2014		Percent Change			2015			2014		Percent Change
(in 000s)	2015		2014		Percent Change			2015			2014		Percent Change
Consumer Mobility Subscribers
Postpaid									29,257			31,043		(5.8	) %
Prepaid									10,988			10,026		9.6
Reseller									13,647			13,877		(1.7	)
Connected devices ¹									953			1,153		(17.3	)
Total Consumer Mobility Subscribers									54,845			56,099		(2.2	)

Consumer Mobility Net Additions ²
Postpaid		23		240		(90.4	) %		289			938		(69.2	)
Prepaid		466		(46)		-			895			(244)		-
Reseller		149		91		63.7			(218	)		(286)		23.8
Connected devices ¹		-		(94)		-			(109	)		(351)		68.9
Consumer Mobility Net Subscriber Additions		638		191		-			857			57		-

Consumer Mobility Postpaid Churn ^{2, 3}		1.33 %		1.20 %	13 BP				1.23 %			1.15 %	8 BP
Total Consumer Mobility Churn ^{2, 3}		1.90 %		2.03 %	(13) BP				1.93 %			2.00 %	(7) BP
¹Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
²Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.
³Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.

Operating Revenues decreased $424, or 4.6%, in the third quarter and $930, or 3.4%, for the first nine months of 2015. Consumer Mobility revenues reflect declines in postpaid service revenues due to the success of Mobile Share Value plans and migrations of customers to our Business Solutions segment, offset by higher prepaid service revenues and an increase in equipment revenues. Our business wireless offerings allow for individual subscribers to purchase wireless services through employer-sponsored plans for a reduced price. The migration of these subscribers to the Business Solutions segment negatively impacted consumer postpaid subscriber and service revenues growth.

Postpaid wireless revenues decreased $544, or 9.0%, in the third quarter and $1,707, or 9.2%, for the first nine months of 2015. These decreases were largely due to customers continuing to shift to no-device-subsidy plans, which allow for discounted monthly service charges under our Mobile Share plans and the migration of subscribers to Business Solutions. Without the migration of customers to Business Solutions, postpaid wireless revenues would have decreased approximately 4% in the third quarter and for the first nine months.

Prepaid wireless revenues increased $35, or 3.0%, in the third quarter and $305, or 9.8%, for the first nine months of 2015. Our prepaid services, which include services sold under the Cricket brand, are monthly prepaid services. Prepaid wireless revenues increased primarily due to growth in the subscriber base and our March 2014 acquisition of Leap.

Other service revenue decreased $8, or 1.2%, in the third quarter and increased $57, or 3.2%, for the first nine months of 2015.

Equipment revenue increased $93, or 7.0%, in the third quarter and $415, or 10.7%, for the first nine months of 2015. These increases were primarily related to the increase in devices sold under our AT&T Next program and the increase in sales of higher-priced smartphones.

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

Operations and support expenses decreased $666, or 11.6%, in the third quarter and $1,365, or 7.9%, for the first nine months of 2015. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and personnel costs, such as compensation and benefits.

Decreased operations and support expenses in the third quarter were primarily due to the following:

·	Selling and commission expenses decreased $202 primarily due to lower average commission rates, including those paid under the AT&T Next program, combined with fewer upgrade transactions.

·	Network costs decreased $135 primarily due to lower interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies.

·	Customer service costs decreased $108 primarily due to lower call volumes, reductions in professional services and contract labor, and lower payroll costs.

·	Other cost of service decreased $90 primarily due to incollect roaming fee rate declines, which were partially offset by increased data volume.

Decreased operations and support expenses for the first nine months were primarily due to the following:

·	Selling and commission expenses decreased $403 primarily due to lower average commission rates, including those paid under the AT&T Next program, partially offset by an increase in rates associated with Cricket sales.

·	Network costs decreased $299 primarily due to lower interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies.

·	Customer service costs decreased $187 primarily due to reduced salaries and benefits, lower outsourced vendor and professional services from reduced call volumes and integration activities.

·	Other cost of service decreased $168 primarily due to incollect roaming fee rate declines, which were partially offset by increased data volume.

Depreciation expense increased $26, or 2.7%, in the third quarter and $66, or 2.3%, for the first nine months of 2015 primarily due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets.

Operating income increased $216, or 8.5%, in the third quarter and $369, or 5.1%, for the first nine months of 2015. Our Consumer Mobility segment operating income margin in the third quarter was 31.2% in 2015 and 27.4% in 2014, and for the first nine months was 28.9% in 2015 and 26.5% in 2014. Our Consumer Mobility EBITDA margin in the third quarter was 42.3% in 2015 and 37.8% in 2014, and for the first nine months 39.9% in 2015 and 37.0% in 2014.

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

International
Segment Results
	Third Quarter							Nine-Month Period
	2015			2014		Percent Change		2015			2014		Percent Change
Segment operating revenues
Video entertainment	$	945		$	-		-	$	945		$	-		-
Wireless		494			-		-		1,153			-		-
Equipment		87			-		-		155			-		-
Total Segment Operating Revenues	$	1,526		$	-		-	$	2,253		$	-		-

Segment operating expenses
Operations and support	$	1,384		$	-		-	$	2,131		$	-		-
Depreciation and amortization		225			-		-		346			-		-
Total Segment Operating Expenses		1,609			-		-		2,477			-		-
Segment Operating Income (Loss)		(83	)		-		-		(224	)		-		-
Equity in Net Income (Loss) of Affiliates		(4	)		-		-		(4	)		153		-
Segment Contribution	$	(87	)	$	-		-	$	(228	)	$	153		-

Operating Results

Our International segment consists of the Latin American operations acquired in our July 2015 acquisition of DIRECTV as well as the Mexican wireless operations acquired earlier in 2015 (see Note 7). Our International segment operating income margin was (5.4)% in the third quarter and (9.9)% for the first nine months of 2015. Our International EBITDA margin was 9.3% in the third quarter and 5.4% for the first nine months of 2015.

Operating revenues consist of wireless service and equipment revenues from subscribers in Mexico as well as video entertainment revenues from DIRECTV subscribers in Latin America. Our operating revenues were $1,526 in the third quarter of 2015, with $945 attributable to video services in Latin America and $581 of wireless revenues in Mexico. For the first nine months of 2015 operating revenues were $2,253, with $1,308 attributable to wireless revenues in Mexico and $945 in video services in Latin America.

Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and personnel costs, such as compensation and benefits. Operating expenses in the third quarter were $1,609 and operating loss was $83. For the first nine months of 2015, our operating expenses were $2,477 and operating loss was $224.

Connections Summary

At September 30, 2015, we had approximately 8.1 million wireless subscribers in Mexico and 12.5 million video connections in Latin America, including 5.5 million in Brazil. During the third quarter of 2015, our Mexico wireless business had a net loss of 231,000 subscribers, mainly prepaid customers, and our Latin America operations had a net loss of 113,000 video connections. Since acquisition, our Mexico wireless business had a net loss of 689,000 subscribers.

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

Supplemental Operating Information

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


AT&T Mobility Results
	Third Quarter							Nine-Month Period
	2015		2014		Percent Change			2015		2014		Percent Change
	2015		2014		Percent Change			2015		2014		Percent Change
Operating revenues
Service	$	15,095	$	15,423		(2.1	) %	$	45,022	$	45,958		(2.0	) %
Equipment		3,234		2,914		11.0			9,797		8,175		19.8
Total Operating Revenues		18,329		18,337		-			54,819		54,133		1.3

Operating expenses
Operations and support		10,865		11,683		(7.0	)		33,310		34,021		(2.1	)
EBITDA		7,464		6,654		12.2			21,509		20,112		6.9
Depreciation and amortization		2,046		1,909		7.2			6,082		5,785		5.1
Total Operating Expenses		12,911		13,592		(5.0	)		39,392		39,806		(1.0	)
Operating Income	$	5,418	$	4,745		14.2	%	$	15,427	$	14,327		7.7	%

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

The following table highlights other key measures of performance for AT&T Mobility:

	Third Quarter							Nine-Month Period
	2015		2014		Percent Change			2015			2014		Percent Change
(in 000s)	2015		2014		Percent Change			2015			2014		Percent Change
Wireless Subscribers ¹
Postpaid smartphones									57,733			55,791		3.5	%
Postpaid feature phones and data-centric devices									18,938			19,314		(1.9	)
Postpaid									76,671			75,105		2.1
Prepaid									10,988			10,026		9.6
Reseller									13,729			13,884		(1.1	)
Connected devices ²									25,018			19,635		27.4
Total Wireless Subscribers									126,406			118,650		6.5

Net Additions ³
Postpaid		289		785		(63.2	) %		1,140			2,436		(53.2	)
Prepaid		466		(46)		-			895			(244)		-
Reseller		156		87		79.3			(205	)		(281)		27.0
Connected devices²		1,602		1,181		35.6			3,995			1,792		-
Net Subscriber Additions		2,513		2,007		25.2			5,825			3,703		57.3

Mobile Share connections									59,592			46,909		27.0
Smartphones under our installment program at end of period									23,487			10,133		-
Smartphones sold under our installment program during period		4,074		3,401		19.8	%		11,998			9,411		27.5	%

Total Churn⁴		1.33 %		1.36 %	(3) BP				1.35 %			1.41 %	(6) BP
Postpaid Churn⁴		1.16 %		0.99 %	17 BP				1.06 %			0.97 %	9 BP
¹Represents 100% of AT&T Mobility wireless subscribers.
²Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.
³Excludes acquisition-related additions during the period.
⁴Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.

Operating income increased $673, or 14.2%, in the third quarter and $1,100, or 7.7%, for the first nine months of 2015. The operating income margin of AT&T Mobility ~~wireless subscribers.~~

²~~Includes data-centric devices (e.g., eReaders~~was 29.6% in the third quarter of 2015 compared to 25.9% in 2014 and ~~automobile systems)~~28.1% for the first nine months of 2015 compared to 26.5%. ~~Excludes tablets, which are primarily included~~AT&T Mobility's EBITDA margin in ~~postpaid.~~

³ ~~Excludes merger~~the third quarter was 40.7% in 2015 and ~~acquisition-related additions during~~36.3% in 2014, and for the ~~period.~~

⁴~~Calculated by dividing~~first nine months 39.2% in 2015 and 37.2% in 2014. AT&T Mobility's EBITDA service margin in the ~~aggregate number of wireless subscribers who canceled~~third quarter was 49.4% in 2015 and 43.1% in 2014, and for the first nine months 47.8% in 2015 and 43.8% in 2014. (EBITDA service ~~during a period~~margin is operating income before depreciation and amortization, divided by ~~the~~ total ~~number~~service revenues.) AT&T Mobility's operating results reflect strong adoption of ~~wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.~~AT&T Next, BYOD (bring your own devices) customers, lower smartphone gross adds and strong operational efficiencies.

Subscriber Relationships

As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative services, plans and devices and a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible. To attract and retain subscribers in a maturing market, we have launched a wide variety of plans, including Mobile Share and Mobile Share Value ~~(Mobile~~(collectively referred to as Mobile Share) and AT&T ~~Next~~^SM~~(AT&T Next). While we have historically focused on attracting and retaining postpaid subscribers, we have recently increased our focus on prepaid subscribers with our acquisition of Leap.~~Next.

At September 30, 2014, we served 118.7 million subscribers (including Cricket subscribers from our March 13, 2014 acquisition of Leap, which were approximately 4.5 million at closing), an increase of 8.4% from the prior year. Our subscriber base consists primarily of postpaid accounts. Our prepaid services, which include results from services sold under the Cricket brand, are monthly pay-as-you-go services.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

Dollars in millions except per share amounts

ARPU

~~Total~~Postpaid phone-only ARPU (average ~~service~~ revenue per average wireless ~~subscribers) was down 8.0% in~~subscriber) decreased 2.6% compared to the third quarter of 2014 and ~~6.4% for~~4.7% compared to the first nine months of ~~2014.~~2014 reflecting subscribers' continued adoption of AT&T Next and Mobile Share Value plans. Postpaid ARPU was down 9.2% and 6.8% when compared to the third quarter and first nine months of 2013, primarily due to our transition to plans that result in lower service revenues in lieu of subsidized devices, which began in the first quarter of 2014. As we adjust our service offerings and pricing structures, management believes that postpaid phone-only ARPU plus Next subscriber installment billings (postpaid phone-only ARPU plus AT&T Next) ~~is a better representation of the monthly economic value per postpaid subscriber. For the quarter~~increased 4.9% and ~~nine months, postpaid phone-only ARPU decreased 8.0% and 5.2% versus the year-ago periods and postpaid phone-only ARPU plus AT&T Next decreased 3.4% and 2.1%~~3.0% compared to the same periods last ~~year.~~year, as expected due to the continuing growth of the AT&T Next program. Compared to the second quarter of ~~2014, postpaid ARPU increased 0.6%,~~2015, postpaid phone-only ARPU ~~increased 0.3%,~~decreased 0.7% and postpaid phone-only ARPU plus AT&T Next increased ~~2.0%~~0.8%.

Churn

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Total churn was ~~higher in~~lower for the third quarter and ~~for the~~ first nine months of ~~2014 due to the expected pressure in prepaid with the acquisition of Leap.~~2015. Postpaid churn was ~~lower~~higher for both the third quarter and the first nine ~~months.~~months reflecting continuing competitive pressures in the industry.

Postpaid

Postpaid subscribers increased ~~1.0%~~0.2% during the third quarter when compared to June 30, 2015 and ~~4.3%~~2.1% when compared to September 30, ~~2013.~~2014. At September 30, ~~2014, 81%~~2015, 86% of our postpaid phone subscriber base used smartphones, compared to ~~75%~~81% at September 30, ~~2013.~~2014. About ~~96%~~98% of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates. A growing percentage of our postpaid smartphone subscribers are on usage-based data plans, with approximately ~~82%~~50.4 million subscribers on these plans as compared to ~~72%~~46.1 million subscribers in the prior ~~year, and about 51%~~year. About half of our Mobile Share accounts have chosen ~~the~~data plans with 10 ~~gigabyte~~gigabytes or ~~higher plans.~~higher. Device connections on our Mobile Share plans now represent ~~about 62%~~over 77% of our postpaid customer base. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and minimize subscriber churn.

As of September 30, 2014, approximately 86% of our postpaid smartphone subscribers use a 4G-capable device (i.e., a device that would operate on our HSPA+ or LTE network), and about 67% of our postpaid smartphone subscribers use an LTE device.

Historically, our postpaid customers ~~have~~had signed two-year service contracts ~~for~~when they purchased subsidized handsets. However, through our Mobile Share plans, we ~~have recently begun offering~~offer postpaid services at lower prices for those customers who either bring their own devices (BYOD) or participate in our AT&T Next program. Approximately ~~50%~~71% of all postpaid smartphone gross adds and upgrades during the third quarter of 2015 chose AT&T Next. ~~We also experienced a sharp rise in the number of BYOD gross adds to 462,000, compared to 109,000 at September 30, 2013.~~ While BYOD customers do not generate equipment revenue or incur additional expenses for device subsidy, the ~~lack of a device cost and subsidy~~service revenue helps improve our margins. ~~We expect continued increases in our AT&T Next take rate as we have expanded offering to additional distributors.~~

Our AT&T Next program allows for postpaid subscribers to purchase certain devices in installments over a period of up to 2430 months. Additionally, after a specified period of time, they also have the right to trade in the original device for a new device and have the remaining unpaid balance satisfied. For customers that elect these trade-in programs, we recognize equipment revenue at the time of the sale ~~we recognize equipment revenue~~ for the amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed interest. A significant percentage of our customers on the AT&T Next program pay a lower monthly service charge, which results in lower service revenue recorded for these subscribers. In the second quarter of 2014, we began offering the AT&T Next program through other distributors and we expanded the offering to almost all of our remaining distributors during the third quarter, which is expected to further accelerate the impacts on service revenues.

Prepaid

In ~~March 2014,~~the first quarter of 2015, we ~~completed~~updated our ~~acquisition~~definition of ~~Leap, which included approximately 4.5 million~~ prepaid subscribers ~~at closing.~~to exclude session-based tablets, which are now included with connected devices. Prepaid subscribers ~~decreased 1.4%~~now consist primarily of phone users. Prepaid subscribers increased 5.3% during the third quarter ~~due in part~~when compared to ~~expected transition of Cricket subscribers. As of October 31, 2014~~June 30, 2015 and 9.6% when compared to September 30, 2014.

Connected Devices

Connected Devices includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Connected device subscribers increased 6.8% when compared to June 30, 2015 and 27.4% when compared to September 30, 2014. During the third-quarter 2015, we ~~have over 2~~added approximately 1.0 million ~~Leap and former Aio subscribers on our GSM network.~~"connected" cars through agreements with various carmakers. We believe that these connected car agreements give us the opportunity to create future retail relationships with the car owners.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

Dollars in millions except per share amounts

~~Operating Results~~

Our Wireless segment operating income margin in the third quarter decreased from 26.4% in 2013 to 24.6% in 2014 and for the first nine months decreased from 27.2% in 2013 to 25.7% in 2014. Our Wireless segment operating income decreased $106, or 2.3%, in the third quarter and decreased $80, or 0.6%, for the first nine months of 2014. The decreases in operating margin and income in the third quarter and for the first nine months reflected the increasing popularity of Mobile Share plans, promotional activities and our continued investment in new services.OTHER BUSINESS MATTERS

~~Service~~DIRECTV ~~revenues decreased $37, or 0.2%,~~In July 2015, we completed our acquisition of DIRECTV, a leading provider of digital television entertainment services in both the United States and Latin America. The acquisition gives us a unique and complementary set of assets and the opportunity to achieve substantial cost synergies over time, as well as increasing revenue from pay television in Latin America. Our distribution scale will enable us to offer consumers attractive combinations of video, high-speed broadband and mobile services, using all the sales channels of both companies. We believe the combined company will be a content distribution leader across mobile, video and broadband platforms.

Under the merger agreement, each share of DIRECTV stock was exchanged for $28.50 cash plus 1.892 shares of our common stock. After adjustment for shares issued to trusts consolidated by AT&T, stock based payment arrangements and fractional shares, which were settled in cash, AT&T issued 954,407,524 shares to DIRECTV shareholders, giving them an approximate 16% stake in the ~~third quarter~~combined company, based on common shares outstanding. Based on our $34.29 per share closing stock price on July 24, 2015, the aggregate value of consideration paid to DIRECTV shareholders was $47,404, including $32,727 of AT&T stock and ~~increased $66, or 0.1%,~~$14,378 in cash and $299 for shared based payment arrangements.

The Federal Communications Commission (FCC) approved the first nine months of 2014. The decrease in the third quarter is due to customers shifting to no-device-subsidy plans, which allow for discounted monthly service charges under our Mobile Share plans. This decrease was largely offset by revenues from Cricket subscribers that were not included in our 2013 results. The increase in the first nine months was primarily duetransaction subject to the increased number of subscribers using smartphones with larger data plans and revenues from Cricket subscribers, which were partially offset by the growing adoption of Mobile Share plans. While we expect monthly service revenues to continue to be pressured as customers move to Mobile Share plans, we expect equipment revenues to increase for those subscribers who elect the AT&T Next program.

~~Equipment~~ revenues increased $894, or 44.3%, in the third quarter and $2,605, or 46.8%, for the first nine months of 2014. The increases were primarily related to devices sold under our AT&T Next program. During the second quarter of 2014, with the launch of the AT&T Next program through other distributors we began deferring the recognition of equipment revenue and costs until the device is sold to the end subscriber and the trade-in right is conveyed. This lag in timing of the recognition of the sale resulted in lower revenue through these distributors beginning in the second quarter of 2014.

~~Operations and support~~ expenses increased $873, or 7.9%, in the third quarter and $2,373, or 7.4%, in the first nine months of 2014. The increases in the third quarter and for the first nine months were primarily due to the following:following conditions:

~~Equipment costs increased $406~~Fiber to the Premises Deployment – Within four years, we will offer our all-fiber Internet access service to at least 12.5 million customer locations such as residences, home offices and ~~$950, respectively, reflecting~~very small businesses. Combined with our existing high-speed broadband network, at least 25.7 million customer locations will have access to broadband speeds of 45Mbps or higher by the ~~sales~~end of ~~more expensive smartphones. Equipment costs also include Cricket~~the four-year build. While the addition of medium and ~~Alltel subscriber integration charges, which~~large businesses do not count towards the commitments, we ~~expect~~ will ~~continue into 2015~~have the opportunity to provide services to those customers as part of this expansion. In addition, we ~~complete the transition of those subscribers~~will offer 1 Gbps fiber Internet access service pursuant to applicable E-rate rules to any eligible school or library requesting that service within or contiguous to our ~~network.~~all-fiber footprint.

~~Selling (other than commissions) and administrative expenses increased $267 and $966 due primarily~~Discounted Broadband Services Program – Within our 21-state area, we will offer a discounted fixed broadband service to ~~increases of: $125 and $290, which include increased legal costs and new product development expenses; $50 and $106~~low-income households that qualify for the government's Supplemental Nutrition Assistance Program. In locations where it is available, service with speeds of at least 10Mbps will be offered for ten dollars per month. Elsewhere, 5Mbps service will be offered for ten dollars per month or, in ~~bad debt expense; $29 and $125 in customer~~some locations, 3Mbps service expense; and $7 and $117 in sales expense. Also contributing to the increase in the first nine months were higher marketing and advertising expenses of $119. Each of these increases included additional costs related to acquisitions.will be offered for five dollars per month.

~~Network system costs increased $185~~Non-Discriminatory Usage-Based Practices – We are required to refrain from using usage-based allowances or other retail terms and ~~$538 due~~conditions on our fixed broadband Internet access service, as defined in the order, to ~~higher network traffic~~discriminate in favor of our own online video services. We can and ~~personnel-related network support costs~~will continue to offer discounts on integrated bundles of our video and ~~cell site related costs in conjunction with our network enhancement efforts and increased costs related to the Cricket acquisition.~~fixed broadband services.

~~Handset insurance cost increased $122~~Internet Interconnection Disclosure Requirements – We will submit to the FCC new interconnection agreements we enter into with peering networks and ~~$285 due~~with "on-net" customers that purchase Managed Internet Service to exchange Internet traffic with other AT&T customers. We will develop, together with an ~~increase in~~independent expert, a methodology for measuring the ~~cost~~performance of ~~replacement phones.~~our Internet traffic exchange and regularly report these metrics to the FCC.

Compliance Program and Reporting – We will appoint a Company Compliance Officer to develop and implement a plan to ensure compliance with these merger conditions. We will engage an independent, third-party compliance officer to evaluate the plan and our implementation. Both AT&T and the independent compliance officer will submit periodic reports to the FCC.

~~Partially offsetting these increases were lower commission expenses of $182 and $522. Commission expense was lower~~The conditions will remain in ~~both~~effect for four years from July 24, 2015. A condition may be extended once for two years if the ~~third quarter and first nine months of 2014 primarily due to lower average commission rates and increased national equipment activation credits. A decrease~~FCC makes a formal finding that we have violated the condition in ~~upgrade transactions contributed to the lower commission expense for the nine month period.~~whole or in part.

~~Depreciation and amortization~~Litigation Challenging DIRECTV's NFL Sunday Ticket ~~expenses increased $90, or 4.8%,~~More than a dozen putative class actions have been filed in the ~~third quarter and $378, or 6.8%,~~U.S. District Courts for the ~~first nine months~~Central District of ~~2014. Depreciation expense increased $80, or 4.4%,~~California and the Southern District of New York against DIRECTV and the National Football League (NFL) alleging that the NFL and DIRECTV violated federal antitrust law in connection with the ~~third quarter and $419, or 7.8%,~~NFL Sunday Ticket package. Among other things, the complaints allege that plaintiffs have been overcharged for the ~~first nine months primarily~~televised presentation of out-of-market NFL games due to ~~ongoing capital spending for network upgrades~~DIRECTV's exclusive agreement with the NFL to broadcast out-of-market games through the Sunday Ticket package. The complaints seek unspecified treble damages and ~~expansion and acquisition of Leap partially offset by extending the estimated useful life of software.~~attorneys' fees along with injunctive relief. The first complaint, Abrahamian v. National Football League, Inc., et al., was served in June 2015. We vigorously dispute these allegations.

Amortization expense increased $10, or 21.3%, in the third quarter and decreased $41, or 21.9%, for the first nine months. The increase in the third quarter is primarily due to higher amortization of intangibles for customer lists related to our acquisition of Leap, mostly offset by the completion of amortization of customer lists from our December 2006 acquisition of BellSouth Corporation (BellSouth). The decrease for the first nine months reflects the fully amortized customer lists from our acquisition of BellSouth, slightly offset by amortization of customer lists from our March 2014 acquisition of Leap.

2742

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

Dollars in millions except per share amounts

Wireline
Segment Results
Third Quarter Nine-Month Period
2014 2013
Percent
Change
2014 2013
Percent
Change

Segment operating revenues
   Service $ 14,368 $ 14,403 (0.2) % $ 43,165 $ 43,266 (0.2) %
   Equipment 247 267 (7.5) 688 832 (17.3)
Total Segment Operating Revenues 14,615 14,670 (0.4) 43,853 44,098 (0.6)
Segment operating expenses
   Operations and support 10,761 10,385 3.6 31,918 31,137 2.5
   Depreciation and amortization 2,571 2,736 (6.0) 7,769 8,146 (4.6)
Total Segment Operating Expenses 13,332 13,121 1.6 39,687 39,283 1.0
Segment Operating Income 1,283 1,549 (17.2) 4,166 4,815 (13.5)
Equity in Net Income of Affiliates 1 - - 2 1 -
Segment Income $ 1,284 $ 1,549 (17.1) % $ 4,168 $ 4,816 (13.5) %

~~Supplemental Information~~

~~Wireline Broadband, Telephone and Video Connections Summary~~

~~Our broadband, switched access lines and other services provided at September 30, 2014 and 2013 are shown below and trends are addressed throughout this segment discussion.~~

September 30, September 30, Percent
(in 000s)
2014 2013 Change
U-verse high speed Internet 12,098 9,745 24.1 %
DSL and Other Broadband Connections 4,388 6,682 (34.3)
Total Wireline Broadband Connections¹
16,486 16,427 0.4

Total U-verse Video Connections 6,067 5,266 15.2

Retail Consumer Switched Access Lines 10,182 13,133 (22.5)
U-verse Consumer VoIP Connections 4,698 3,616 29.9
Total Retail Consumer Voice Connections 14,880 16,749 (11.2)

Switched Access Lines
Retail Consumer 10,182 13,133 (22.5)
Retail Business 9,509 10,632 (10.6)
Retail Subtotal 19,691 23,765 (17.1)

Wholesale Subtotal 1,562 1,655 (5.6)

Total Switched Access Lines²
21,464 25,680 (16.4) %

¹~~Total wireline broadband connections include DSL, U-verse high speed Internet and satellite broadband.~~

²~~Total switched access lines includes access lines provided to national mass markets and private payphone service providers of 211 at September 30, 2014 and 260 at September 30, 2013.~~

~~AT&T INC.~~

~~SEPTEMBER 30, 2014~~

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

~~Dollars in millions except per share amounts~~

~~Operating Results~~

Our Wireline segment operating income margin in the third quarter decreased from 10.6% in 2013 to 8.8% in 2014, and for the first nine months decreased from 10.9% in 2013 to 9.5% in 2014. Our Wireline segment operating income decreased $266, or 17.2%, in the third quarter and $649, or 13.5%, for the first nine months of 2014. The decrease in operating margins and income was driven primarily by continued revenue decreases from our legacy voice and data products and increased U-verse content costs, partially offset by increased revenues from our U-verse and IP-based strategic business services.

~~Service~~ revenues decreased $35, or 0.2%, in the third quarter and $101, or 0.2%, for the first nine months of 2014. Lower service revenues from business customers (which include integration, government-related and outsourcing services) and the continued decline in revenues from legacy services that we no longer actively market were largely offset by higher service revenues from our residential customers.

~~Business~~

Service revenues from business customers decreased $168, or 2.0%, in the third quarter and $547, or 2.1%, for the first nine months of 2014. The revenue decreases were due to a $176 and $440 decrease, respectively, in long-distance and local voice revenues and a $284 and $928 decrease in traditional data revenues, which include circuit-based and packet-switched data services. The decreases were primarily due to lower demand as customers continue to shift to our most advanced IP-based offerings, such as Ethernet, VPN, U-verse high speed Internet access and managed Internet services, or to other service providers. The lower traditional service revenues were largely offset by higher demand for our next generation services. Strategic business service revenues, which include VPNs, Ethernet, hosting, IP conferencing, VoIP, Ethernet-access to Managed Internet Service (EaMIS), security services, and U-verse services provided to business customers increased $308, or 14.3%, in the third quarter and $909, or 14.6%, for the first nine months of 2014. In the third quarter and for the first nine months, revenue from VPN increased $82 and $270, Ethernet increased $87 and $252, U-verse services increased $48 and $126 and EaMIS increased $50 and $123.

~~Consumer~~

Service revenues from residential customers increased $175, or 3.2%, in the third quarter and $590, or 3.6%, for the first nine months of 2014. The increases were driven by higher IP data revenue reflecting increased U-verse penetration, customer additions, and migration from our legacy voice and DSL services. In the third quarter and for the first nine months, U-verse revenue from consumers increased $327 and $1,029 for high-speed Internet access, $265 and $806 for video and $101 and $306 for voice. These increases were partially offset by a decrease of $184 and $536 in DSL revenue as customers continue to shift to our strategic high-speed Internet access offerings, and a $348 and $1,048 decrease in traditional voice revenues.

~~Equipment~~ ~~revenues decreased $20, or 7.5%, in the third quarter of 2014, and $144, or 17.3%, for the first nine months of 2014. Our equipment revenues are mainly attributable to our business customers.~~

~~Operations and support~~ expenses increased $376, or 3.6%, in the third quarter and $781, or 2.5%, for the first nine months of 2014. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and personnel costs, such as compensation and benefits.

The increases in expenses were primarily due to increased cost of sales of $197 and $450, related to U-verse content fees; higher nonemployee expenses of $108 and $350 in conjunction with Project Velocity IP (VIP) deployment, information technology enhancements and overall growth of our U-verse services; higher Universal Service Fund (USF) fees of $39 and $142, which are offset by higher USF revenues; higher materials and energy costs of $46 and $120; and higher traffic compensation costs of $67 for the year-to-date period. These increases were partially offset by lower employee related expense of $23 and $301, reflecting ongoing workforce reduction initiatives.

~~Depreciation and amortization~~ expenses decreased $165, or 6.0%, in the third quarter and $377, or 4.6%, for the first nine months of 2014. Depreciation expense decreased $130, or 4.9%, in the third quarter and $270, or 3.5%, for the first nine months of 2014 primarily due to extending the estimated useful life of software, partially offset by ongoing capital spending for network upgrades and expansion. Amortization expense decreased $35, or 34.0%, and $107, or 31.8%, for the first nine months of 2014 primarily due to fully amortized customer lists associated with acquisitions.

~~AT&T INC.~~

~~SEPTEMBER 30, 2014~~

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

~~Dollars in millions except per share amounts~~

~~OTHER BUSINESS MATTERS~~

~~U-verse Services~~ As part of Project VIP, we announced a goal to expand our IP-broadband service to approximately 57 million customer locations and we achieved that goal during the third quarter. As of September 30, 2014, we had 12.4 million total U-verse subscribers (high-speed Internet and video), including 12.1 million Internet and 6.1 million video subscribers (subscribers to both services are only counted once in the total).

We believe that our U-verse TV service is a "video service" under the Federal Communications Act. However, some cable providers and municipalities have claimed that certain IP services should be treated as a traditional cable service and therefore subject to the applicable state and local cable regulation. Petitions have been filed at the Federal Communications Commission (FCC) alleging that the manner in which we provision "public, educational and governmental" (PEG) programming over our U-verse TV service conflicts with federal law. If courts having jurisdiction where we have significant deployments of our U-verse services were to decide that federal, state and/or local cable regulation were applicable to our U-verse services, or if the FCC, state agencies or the courts were to rule that we must deliver PEG programming in a manner substantially different from the way we do today or in ways that are inconsistent with our current network architecture, it could have a material adverse effect on the cost and extent of our U-verse offerings.

~~DIRECTV Acquisition~~ In May 2014, we announced a merger agreement to acquire DIRECTV in a stock-and-cash transaction for ninety-five dollars per share of DIRECTV's common stock, or approximately $48,500 at the date of announcement. As of September 30, 2014, DIRECTV had approximately $16,852 in net debt based on DIRECTV's financial statements included in its Form 10-Q for the third quarter of 2014. Each DIRECTV shareholder will receive cash of $28.50 per share and $66.50 per share in our stock. The stock portion will be subject to a collar such that DIRECTV shareholders will receive 1.905 AT&T shares if our stock price is below $34.90 per share at closing and 1.724 AT&T shares if our stock price is above $38.58 at closing. If our average stock price (calculated in accordance with the merger agreement with DIRECTV) is between $34.90 and $38.58 at closing, then DIRECTV shareholders will receive a number of shares between 1.724 and 1.905, equal to $66.50 in value. DIRECTV is a premier pay TV provider in the United States and Latin America, with a high-quality customer base, the best selection of programming, the best technology for delivering and viewing high-quality video on any device and the best customer satisfaction among major U.S. cable and satellite TV providers.

The merger agreement was adopted by DIRECTV's stockholders on September 25, 2014 and remains subject to review by the FCC and the Department of Justice and to other closing conditions. It is also a condition that all necessary consents by certain foreign governmental entities have been obtained and are in full force and effect. The transaction is expected to close in the first half of 2015. The merger agreement provides certain mutual termination rights for us and DIRECTV, including the right of either party to terminate the agreement if the merger is not consummated by May 18, 2015, subject to extension in certain cases to a date no later than November 13, 2015. Either party may also terminate the agreement if an order permanently restraining, enjoining, or otherwise prohibiting consummation of the merger becomes final and nonappealable. In September 2014, DIRECTV and the National Football League renewed their agreement for the "NFL Sunday Ticket" service substantially on the terms discussed between AT&T and DIRECTV, satisfying one of the conditions to closing the merger. Under certain circumstances relating to a competing transaction, DIRECTV may be required to pay a termination fee to us in connection with or following a termination of the agreement.

Based on synergies we expect to realize with the acquisition, we have also committed to the following upon closing of the transaction: (1) expanding and enhancing our deployment of both wireline and fixed wireless broadband to at least 15 million customer locations across 48 states, with most of the locations in underserved rural areas, (2) adhering to the FCC's Open Internet protections established in 2010 for three years after closing, regardless of whether the FCC re-establishes such protections for other industry participants following the D.C. Circuit's vacating of those rules, (3) for three years after closing, offering standalone retail broadband Internet access service at reasonable market-based prices, including a service of at least 6 Mbps down (where feasible) at guaranteed prices, in areas where we offer wireline broadband service today, and (4) offering, for three years after closing, standalone DIRECTV satellite video service at nationwide package prices that do not differ between customers in AT&T's wireline footprint and customers outside our current 22-state wireline footprint.

~~AT&T INC.~~

~~SEPTEMBER 30, 2014~~

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

~~Dollars in millions except per share amounts~~

~~GSF Telecom Acquisition~~On November 7, 2014, we entered into an agreement to acquire 100 percent of the stock of Mexican wireless company GSF Telecom Holdings, S.A.P.I. de C.V. (GSF Telecom) for $2,500, less net debt at closing, which was approximately $700 at announcement. GSF Telecom offers service under both the Iusacell and Unefon brand names in Mexico with a network that covers about 70 percent of Mexico's population of approximately 120 million. Under the terms of the purchase agreement, we will acquire all of GSF Telecom's wireless properties, including licenses, network assets, retail stores and about 8.6 million subscribers. The acquisition will occur after Grupo Salinas, the current owner of 50 percent of GSF Telecom, closes its announced purchase of the other 50 percent of GSF Telecom it does not own today. The purchase is subject to review by the Mexican Federal Telecommunications Institute and the Mexican National Foreign Investment Commission. We expect to close the purchase during the first quarter of 2015, subject to customary closing conditions.

~~Spectrum Acquisitions~~ On September 3, 2014, we completed our acquisition of 49 Advanced Wireless Services (AWS) spectrum licenses, covering nearly 50 million people in 14 states, from Aloha Partners II, L.P., for approximately $804 in cash.

~~Connecticut Wireline Disposition~~ In December 2013, we agreed to sell our incumbent local exchange operations in Connecticut to Frontier Communications Corporation for $2,000 in cash. The transaction was approved by the FCC in July 2014 and was approved by the Connecticut Public Utilities Regulatory Authority on October 15, 2014. The transaction closed on October 24, 2014. We anticipate the cash tax impact of the transaction will be partially offset by the availability of capital losses.

Federal Trade Commission Litigation Involving DIRECTV In March 2015, the Federal Trade Commission (FTC) filed a civil suit in the U.S. District Court for the Northern District of California against DIRECTV seeking injunctive relief and unspecified money damages under Section 5 of the Federal Trade Commission Act and Section 4 of the Restore Online Shoppers' Confidence Act. The FTC's allegations concern DIRECTV's advertising, marketing and sale of programming packages. The FTC alleges that DIRECTV did not adequately disclose all relevant terms. We are disputing these allegations vigorously.

Unlimited Data Plan Claims OnIn October ~~28,~~ 2014, the Federal Trade Commission (FTC) filed a civil suit in the U.S. District Court for the Northern District of California against AT&T Mobility, LLC seeking injunctive relief and unspecified money damages under Section 5 of the Federal Trade Commission Act. The FTC's allegations concern AT&T's Maximum Bit Rate ~~("MBR")~~(MBR) program, which temporarily reduces the download speeds of a small portion of our legacy Unlimited Data Plan customers each month. MBR is an industry-standard practice that is ~~authorized by the FCC and~~ designed to affect only the most data-intensive applications (such as video streaming). Texts, emails, tweets, social media posts, ~~internet~~Internet browsing, and many other applications are typically unaffected. Contrary to the FTC's allegations, which we vigorously dispute, our MBR program is permitted by our customer contracts, was fully disclosed in advance to our Unlimited Data Plan customers, and was implemented to protect the network for the benefit of all customers. In March 2015, our motion to dismiss the litigation on the grounds that the FTC lacked jurisdiction to file suit was denied. In May 2015, the Court granted our motion to certify its decision for immediate appeal. The United States Court of Appeals for the Ninth Circuit subsequently granted our petition to accept the appeal, and the appeal is now pending before that Court while limited discovery proceeds in the District Court.

On June 17, 2015, the FCC issued a Notice of Apparent Liability and Order (NAL) to AT&T Mobility, LLC concerning our MBR policy that applies to Unlimited Data Plan customers. The NAL alleges that we violated the FCC's Open Internet Transparency Rule by using the term "unlimited" in connection with the offerings subject to the MBR policy and by failing adequately to disclose the speed reductions that apply once a customer reaches a specified data threshold. The NAL proposes a forfeiture penalty of $100, and further proposes to order us to correct any misleading and inaccurate statements about our unlimited plans, inform customers of the alleged violation, revise our disclosures to address the alleged violation and inform these customers that they may cancel their plans without penalty after reviewing the revised disclosures. On July 17, 2015, we filed our response to the NAL. We believe that the NAL is unlawful and should be withdrawn, because we have fully complied with the Open Internet Transparency Rule and the FCC has no authority to impose the proposed remedies. The matter is currently pending before the FCC.

~~Environmental~~ Labor Contracts~~In 2012, AT&T Mobility entered into an administrative settlement with~~ New three-year agreements covering approximately 17,000 traditional wireline employees, which expired in April, have been ratified. On October 20, 2015, we reached tentative four-year agreements on three southeast regional contracts covering 24,000 traditional wireline employees. These southeast contracts remain subject to ratification by the U.S. Environmental Protection Agency (EPA) regarding alleged violations of federal environmental statutes in connection with management of back-up power systems at AT&T Mobility facilities. As part of the settlement, we are required to audit our compliance at over 1,300 facilities and to pay stipulated penalties for any violations discovered by those audits. At this time, it is probable that as a result of these audits, we will face civil penalties in excess of one hundred thousand dollars but not in an amount that would be material.union membership.

In December 2011, Harris County, Texas brought suit on behalf of itself and the Texas Commission on Environmental Quality (TCEQ) alleging AT&T to be liable for statutory civil penalties for past leakage at eleven petroleum storage tank locations. All eleven sites have been remediated (with de minimis actual impact) in accordance with state programs and the TCEQ has issued No Further Action letters closing the sites. Notwithstanding these facts, Harris County declined to dismiss its claims. In September 2014, the parties agreed to settle the case for an immaterial amount in civil penalties.

COMPETITIVE AND REGULATORY ENVIRONMENT

Overview AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is ~~provided, and regulation is generally limited to operational licensing authority for the provision of services to enterprise customers.~~provided.

In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare. However, since the Telecom Act was passed, the FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. We are pursuing, at both the state and federal levels, additional legislative and regulatory measures to reduce regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our ability to compete more effectively and offer services wanted and needed by our customers, including initiatives to transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that legacy regulations are not extended to broadband or wireless services, which are subject to vigorous competition.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

Dollars in millions except per share amounts

We provide satellite video service through our subsidiary DIRECTV, whose satellites are licensed by the FCC. The Communications Act of 1934 and other related acts give the FCC broad authority to regulate the U.S. operations of DIRECTV. In addition, states representing a majority of our local service access lines have adopted legislation that enables ~~new~~us to provide U-verse video ~~entrants to acquire~~service through a single statewide or state-approved franchise (as opposed to the need to acquire hundreds or even thousands of municipal-approved franchises) to offer competitive video services. We also are supporting efforts to update and improve regulatory treatment for retail services. Regulatory reform and passage of legislation is uncertain and depends on many factors.

We provide wireless services in robustly competitive markets, but those services are subject to substantial and increasing governmental regulation. Wireless communications providers must obtain licenses from the FCC to provide communications services at specified spectrum frequencies within specified geographic areas and must comply with the FCC rules and policies governing the use of the spectrum. While wireless communications providers' prices and service offerings are generally not subject to state regulation, states sometimes attempt to regulate or legislate various aspects of wireless services, such as in the area of consumer protection.

The FCC has recognized that the explosive growth of bandwidth-intensive wireless data services requires the U.S. Government to make more spectrum available. In February 2012, Congress set forth specific spectrum blocks to be auctioned and licensed by February 2015 (the "AWS-3 Auction"), and also authorized the FCC to conduct an "incentive auction," to make available for wireless broadband use certain spectrum that is currently used by broadcast television licensees (the "600 MHz Auction"). ~~On September 12, 2014, AT&T submitted an application to participate~~We participated in the ~~AWS auction.~~AWS-3 Auction. The FCC ~~has initiated proceedings to establish rules that would govern these auctions. The AWS-3 Auction is expected to begin in the second half of 2014. The FCC recently~~ announced that the 600 MHz Auction ~~has been postponed until~~(Auction 1000) is scheduled to begin on March 29, 2016. Due to the FCC's rules restricting communications regarding auction strategy, we will not disclose our financial plans for the auctions during the quiet period for these auctions, unless legally required.

In May 2014, in a separate proceeding, the FCC issued an order revising its policies governing mobile spectrum holdings. The FCC rejected the imposition of caps on the amount of spectrum any carrier could acquire, retaining its ~~case by case~~case-by-case review policy. Moreover, it increased the amount of spectrum that could be acquired before exceeding an aggregation "screen" that would automatically trigger closer scrutiny of a proposed transaction. On the other hand, it indicated that it will separately consider an acquisition of "low band" spectrum that exceeds ~~one third~~one-third of the available low band spectrum as presumptively harmful to competition. In addition, the FCC imposed limits on certain bidders in the 600 MHz Auction, including AT&T, restricting them from bidding on up to 40 percent of the available spectrum in the incentive auction in markets that cover as much as 70-80 percent of the U.S. population. On balance, the order and the new spectrum screen should allow AT&T to obtain additional spectrum to meet our customers' needs, but because AT&T uses more "low band" spectrum in its network than some other national carriers, the separate consideration of low band spectrum acquisitions might affect AT&T's ability to expand capacity in these bands ("low band" spectrum has better propagation characteristics than "high band" spectrum). We seek to ensure that we have the opportunity, through the auction process and otherwise, to obtain the spectrum we need to provide our customers with high-quality service in the future.

~~Due~~As the wireless industry continues to ~~substantial increases in the demand for~~mature, we believe that future wireless ~~service in the United States, AT&T is~~growth will increasingly depend on our ability to offer innovative data services and a wireless network that has sufficient spectrum and capacity to support these innovations. We are facing significant spectrum and capacity constraints on ~~its~~our wireless network in certain markets. We expect such constraints to increase and expand to additional markets in the coming years. While we are continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the quality of existing ~~data~~voice and ~~voice~~data services and our ability to launch new, advanced wireless broadband services, unless we are able to obtain more spectrum. Any long-term spectrum solution will require that the FCC make ~~new or existing~~additional spectrum available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to address spectrum and capacity constraints on a market-by-market basis.

Net Neutrality In February 2015, the FCC released an order in response to the D.C. Circuit's January 2014 decision adopting new rules, and reclassifying both fixed and mobile consumer broadband Internet access services as telecommunications services, subject to comprehensive regulation under the Act. The FCC's decision significantly expands the FCC's existing authority to regulate the provision of fixed and mobile broadband Internet access services. The FCC also asserted jurisdiction over Internet interconnection arrangements, which until now have been unregulated. These actions could have an adverse impact on our fixed and mobile broadband services and operating results. AT&T and several other parties, including US Telecom and CTIA trade groups, have appealed the FCC's order. The case is scheduled for oral argument in December 2015.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

~~Dollars in millions except per share amounts~~

~~Net Neutrality~~ In January 2014, the D.C. Circuit released its decision on Verizon's appeal of the FCC's Net Neutrality rules. Those rules prohibited providers of fixed, mass market Internet access service from blocking access to lawful content, applications, services or non-harmful devices. The rules prohibited providers of mobile broadband Internet access service from blocking consumers from accessing lawful websites or applications that compete with the provider's own voice or video telephony services. The rules also imposed transparency requirements on providers of both fixed and mobile broadband Internet access services, requiring public disclosure of information regarding network management practices, performance and commercial terms of their service offerings. In addition, the rules prohibited providers of fixed (but not mobile) broadband Internet access service from unreasonably discriminating in their transmission of lawful network traffic.

In its decision, the court found the FCC had authority under section 706 of the Act (which directs the FCC and state commissions to promote broadband deployment) to adopt rules designed to preserve the open Internet, but vacated and remanded the antidiscrimination and no-blocking rules on the ground that they impermissibly imposed common carrier regulation on broadband Internet access service. The court held that, having declared broadband Internet access services to be information services, the FCC could not regulate them as telecommunications services. The court did not vacate the transparency rules.

The invalidation of the no-blocking and antidiscrimination rules means that broadband Internet access providers have greater flexibility in their provision of mass market services. However, the court's finding that section 706 provides the FCC independent authority to adopt rules to promote broadband deployment appears to give the FCC broad authority to regulate the Internet and, more generally, IP-based services, provided the FCC finds such regulation promotes deployment of broadband infrastructure. In addition, because section 706(a) grants authority to both the FCC and the states to adopt rules to promote broadband deployment, states could attempt to rely on that provision to regulate broadband services, although the states' authority to do so appears to be narrower than the FCC's. In May 2014, the FCC released a notice of proposed rulemaking in response to the D.C. Circuit's January decision that also asks wide-ranging questions that appear to re-open settled issues. Most significantly, the Commission asks whether it has sufficient authority under section 706 to reestablish protections against discrimination and blocking on broadband Internet access services or whether it needs to reclassify broadband Internet access service as a telecommunications service to achieve its regulatory goals. If the FCC were to reclassify broadband as a telecommunications service, or the FCC and/or the states were to impose additional regulation of the Internet or broadband services, it could have a material adverse impact on our broadband services and operating results.

~~Intercarrier Compensation/Universal Service~~ In October 2011, the FCC adopted an order fundamentally overhauling its high-cost universal service program, through which it disburses approximately $4,500 per year to carriers providing telephone service in high-cost areas, and its existing intercarrier compensation (ICC) rules, which govern payments between carriers for the exchange of traffic. The order adopts rules to address immediately certain practices that artificially increase ICC payments, as well as other practices to avoid such payments. The order also establishes a new ICC regime that will result in the elimination of virtually all terminating switched access charges and reciprocal compensation payments over a six-year transition. In the order, the FCC also repurposed its high-cost universal service program to encourage providers to deploy broadband facilities in unserved areas. To accomplish this goal, the FCC is transitioning support amounts disbursed through its existing high-cost program to its new Connect America Fund (CAF). In 2013, the FCC awarded us approximately $100 in new CAF funding to deploy broadband in unserved areas. In May 2014, the United States Court of Appeals for the Tenth Circuit denied all challenges to the universal service and intercarrier compensation rules adopted in the 2011 order. It subsequently denied two petitions for rehearing of discrete aspects of that decision. We do not expect the FCC's rules to have a material impact on our operating results.

~~AT&T INC.~~

~~SEPTEMBER 30, 2014~~

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

Dollars in millions except per share amounts

LIQUIDITY AND CAPITAL RESOURCES

We had ~~$2,458~~$6,202 in cash and cash equivalents available at September 30, ~~2014.~~2015. Cash and cash equivalents included cash of ~~$1,324~~$2,699 and money market funds and other cash equivalents of ~~$1,134.~~$3,503. Approximately $828 of our cash and cash equivalents resided in foreign jurisdictions, some of which are subject to restrictions on repatriation. Cash and cash equivalents decreased $2,401 since December 31, 2014. We also had ~~$1,890~~$400 in short-term ~~cash~~ investments, which we included in "Other current assets" on our consolidated balance ~~sheet.~~sheets. In the first nine months of ~~2014,~~2015, cash inflows were primarily provided by long-term debt issuances and cash receipts from operations, ~~and long-term debt issuances, with additional~~including cash from ~~the monetization~~our sale and transfer of ~~our investment in América Móvil and other assets.~~certain equipment installment receivables to third parties. These inflows were ~~largely~~ offset by cash used to meet the needs of the business, including, but not limited to, payment of operating ~~expenses, funding capital expenditures, dividends to stockholders, debt redemptions, stock repurchases and the acquisition~~expenses; acquisitions of wireless spectrum, DIRECTV, GSF Telecom Holdings, S.A.P.I. de C.V. (GSF Telecom) and ~~operations.~~Nextel Mexico; funding capital expenditures; debt repayments; dividends to stockholders; and collateral posting (see Note 6). We discuss many of these factors in detail below.

Cash Provided by or Used in Operating Activities

During the first nine months of ~~2014,~~2015, cash provided by operating activities was ~~$25,593,~~$26,695, compared to ~~$26,879~~$25,593 for the first nine months of ~~2013. Lower~~2014. Higher operating cash flows in ~~2014~~2015 were primarily due to increased ~~inventory levels, retirement benefit funding and wireless device financing related to~~operating results resulting from our ~~AT&T Next program, which results in cash collection over the installment period instead~~acquisition of at the time of sale. In June 2014, we entered into uncommitted agreements to periodically sell certain equipment installment receivables for cash and future consideration (see Note 8 for details). ProceedsDIRECTV. Higher proceeds from the sale of equipment installment receivables ~~which we included~~ in ~~our operating cash flows, and the~~2015, offset by timing of other working capital payments, ~~partially offset the decline in~~also impacted operating cash flows. ~~We expect lower cash from operations in 2014 as our AT&T Next program continues to gain popularity with customers and as we incur Leap and other wireless integration costs and DIRECTV merger costs.~~

Cash Used in or Provided by Investing Activities

For the first nine months of ~~2014,~~2015, cash used in investing activities totaled ~~$14,980~~$43,047 and consisted primarily of:

·	$17,703 for acquisitions of spectrum licenses, largely due to the remaining payment for AWS spectrum licenses in the AWS-3 Auction.

·	$13,356 for capital expenditures, excluding interest during construction.

·	$12,991 for the acquisitions of DIRECTV, GSF Telecom, Nextel Mexico and other operations.

During the first nine months, we also received $1,890 upon the maturity of ~~$16,829 for capital expenditures, excluding interest during construction, $1,996 in~~certain short-term investments ~~($1,890 of which are time deposits greater than 90 days),~~ and ~~$2,053~~paid $400 for ~~the acquisitions of spectrum, Leap and other operations. These expenditures were partially offset by cash receipts of approximately $5,885 from the sale of our shares in América Móvil.~~additional short-term investments.

Virtually all of our capital expenditures are spent on our wireless and wireline networks, our ~~U-verse~~video services and support systems for our communications and video services. Capital expenditures, excluding interest during construction, increased $1,264 in the first nine months. Our Wireless segment represented 54% of our total spending and increased 10% in the first nine months. The Wireline segment, which includes U-verse services, represented 46% of the total capital expenditures and increased 6%decreased $3,473 in the first nine months, ~~primarily~~ reflecting the completion of our ~~ongoing implementation~~LTE build and other Project VIP initiatives in 2014. Capital expenditures also include spending for DIRECTV, GSF Telecom and Nextel Mexico after the acquisition dates. As part of ~~Project VIP.~~our organization realignment, we no longer allocate capital expenditures to our segments.

We continue to expect our capital expenditures during 2014 to be in the $21,000 range. We expect 2014 to be our peak investment year for Project VIP and anticipate our Wireless and Wireline segments' spend to be proportionally consistent to 2013. We expect our 2015 capital expenditures ~~for our existing businesses~~ to be in the ~~$18,000 range.~~$21,000 range, and we expect our capital expenditures to be in the 15 percent range of service revenues or lower from 2016 through 2018. The amount of capital investment is influenced by demand for services and products, capacity needs and network enhancements. We are also focused on ensuring merger commitments are met.

~~On October 24, 2014, we completed the sale of our Connecticut operations for approximately $2,000 in cash.~~

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

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

Dollars in millions except per share amounts

Cash Provided by or Used in ~~or Provided by~~ Financing Activities

For the first nine months of ~~2014,~~2015, cash ~~used in~~provided by financing activities totaled ~~$11,494~~$13,951 and included net proceeds of ~~$8,564~~$33,967 from the following long-term debt issuances:

·	~~March 2014~~February 2015 issuance of ~~$1,100~~$2,619 of ~~2.300%~~4.600% global notes due ~~2019, $1,000~~2045.

·	March 2015 borrowings under a variable rate term loan facility due 2018, variable rate term loan facility due 2020 and variable rate 18-month credit agreement due 2016, together totaling $11,155.

·	March 2015 issuance of ~~3.900%~~€1,250 of 1.300% global notes due ~~2024~~2023 and ~~$400~~€1,250 of 2.450% global notes due 2035 (together, equivalent to $2,844, when issued).

May 2015 issuance of $3,000 of 2.450% global notes due 2020; $2,750 of 3.000% global notes due 2022; $5,000 of 3.400% global notes due 2025; $2,500 of 4.500% global notes due 2035; $3,500 of 4.750% global notes due 2046; and $750 floating rate global notes due ~~2019.~~2020. The floating rate for the ~~notes~~note is based upon the three-month London Interbank Offered Rate (LIBOR), reset quarterly, plus 6793 basis points.

·	~~March 2014 issuance of $500 of floating rate global notes due 2017. The floating rate for the notes is based upon the three-month LIBOR, reset quarterly, plus 42 basis points.~~

·	May 2014 draw of $750 on a private financing agreement with Export Development Canada due 2017. The agreement is designed to encourage the purchase of Canadian-sourced equipment. The agreement contains terms similar to that provided under our revolving credit arrangements, discussed below.

·	~~June 2014 issuance of $2,000 of 4.800% global notes due 2044.~~

·	~~June 2014 issuance of €1,600 (equivalent to $2,181 when issued) of 2.400% global notes due 2024 and €500 (equivalent to $681 when issued) of 3.375% global notes due 2034.~~

~~For~~During the first nine months of ~~2014,~~2015, we redeemed ~~$10,376~~$9,962 of debt, primarily consisting of the following:

~~March 2014 redemption~~Redemption of ~~$1,814~~$899 of ~~Cricket Communications, Inc. term loans and approximately $38 of 4.500% Leap convertible~~various senior notes ~~(Leap senior notes)~~ in connection with the ~~Leap~~January 2015 GSF Telecom acquisition and April 2015 Nextel Mexico acquisition.

·	April ~~2014~~2015 redemption of ~~Cricket Communications, Inc. 7.750% senior notes with a face value~~€1,250 (approximately $1,975 at maturity) of ~~$1,600 in connection with the Leap acquisition.~~

~~July 2014 redemption of $4,393 of debt consisting of all of the outstanding BellSouth 5.200% notes due 2014,~~ AT&T ~~0.875% global notes due 2015, AT&T 5.625% global notes due 2016, and BellSouth 5.200% notes due 2016 as well as $750 in principal amount of the outstanding AT&T 2.500% global~~6.125% notes due 2015.

·	~~July 2014~~August 2015 redemption of ~~the remaining $211~~$1,500 of ~~Leap senior~~AT&T 2.500% notes ~~in connection with the Leap acquisition.~~due August 2015.

September ~~2014~~2015 redemption of ~~$2,250~~$1,000 of ~~SBC Communications Inc. 5.100% global~~0.800% notes due ~~2014.~~December 2015; $1,000 of 0.900% AT&T notes due February 2016; $750 of 3.125% DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. notes due February 2016; and $1,500 of 3.500% of DIRECTV senior notes due March 2016.

·	September 2015 prepayment of $1,000 of the outstanding advances under the $2,000 18-month credit agreement (the "18-Month Credit Agreement") by and between AT&T and Mizuho. (See the "Credit Facilities" discussion below.)

Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately ~~4.4%~~4.0% as of September 30, ~~2014,~~2015, compared to 3.8% as of June 30, 2015, and ~~4.5%~~4.2% as of December 31, ~~2013.~~2014. We had ~~$75,226~~$126,042 of total notes and debentures outstanding at September 30, ~~2014,~~2015, which included Euro, British pound sterling, ~~and~~Swiss Franc, Canadian dollar and Brazilian real denominated debt of approximately ~~$19,823.~~

~~In October 2014, we initiated approximately $1,300 of Taiwan-based borrowing that will close in November.~~$27,073.

~~In October 2014, we made a refundable deposit with the FCC for the upcoming AWS-3 Auction.~~

Since the first quarter of 2012, we have been buying back shares of AT&T common stock under three previous 300 million share repurchase authorizations approved by our Board of Directors. During the first nine months of 2014, we repurchased approximately 48 million shares for $1,617. In March 2014, our Board of Directors approved a fourth authorization to repurchase 300 million shares of our common stock, which has no expiration date. As of September 30, ~~2014,~~2015, we had approximately 415 million shares remaining from 2013 and 2014 authorizations from our Board of Directors to repurchase shares of our common stock. With the ~~authorizations. We expect~~completion of the DIRECTV acquisition, our priority will be to ~~make future repurchases opportunistically.~~use free cash flow (operating cash flows less construction and capital expenditures) after dividends to pay down debt.

We paid dividends of ~~$7,170~~$7,311 during the first nine months of ~~2014,~~2015, compared with ~~$7,325~~$7,170 for the first nine months of ~~2013,~~2014, primarily reflecting ~~the decline in shares outstanding due to our repurchase activity, partially offset by~~ the increase in the quarterly dividend approved by our Board of Directors in December ~~2013.~~2014, partially offset by the impact of the decline in shares outstanding (prior to our completion of the DIRECTV merger), due to repurchases in 2014. Dividends declared by our Board of Directors totaled $0.47 per share in the third quarter and $1.41 per share for the first nine months of 2015 and $0.46 per share in the third quarter and $1.38 per share for the first nine months of ~~2014 and $0.45 per share in~~2014. With significantly higher outstanding shares of AT&T common stock due to the ~~third quarter and $1.35 per share~~DIRECTV merger, our total dividend payments for ~~the first nine months of 2013.~~2015 will be higher when compared to 2014. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. It is our intent to provide the financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by our Board of Directors.

~~AT&T INC.~~

~~SEPTEMBER 30, 2014~~

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

~~Dollars in millions except per share amounts~~

At September 30, ~~2014,~~2015, we had ~~$5,109~~$7,535 of debt maturing within one year, ~~$5,063~~$7,380 of which was related to long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:

·	$1,000 of annual put reset securities issued by BellSouth that may be put back to us each April until maturity in 2021.

·	An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030.

AT&T INC.

SEPTEMBER 30, 2015

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

Dollars in millions except per share amounts

Credit Facilities

We have ~~two~~a $5,000 revolving credit ~~agreements~~agreement with a syndicate of ~~banks: a $5,000 agreement expiring~~banks that expires in December 2018 (the "December 2018 Facility") and a $3,000 revolving credit agreement ~~expiring~~with a syndicate of banks that expires in December 2017. Advances under either agreement may be used for general corporate purposes. Advances are not conditioned on the absence of a material adverse change. All advances must be repaid no later than the date on which lenders are no longer obligated to make any advances under each agreement. Under each agreement, we can terminate, in whole or in part, amounts committed by the lenders in excess of any outstanding advances; however, we cannot reinstate any such terminated commitments. Under each agreement, we must maintain a debt-to-EBITDA, including modifications described in the agreement, ratio of not more than three-to-one as of the last day of each fiscal quarter for the four quarters then ended. Both agreements also contain a negative pledge covenant, which generally provides that if we pledge assets or permit liens on our property, then any advances must also be secured. At September 30, 2014, we had2017 (the "December 2017 Facility"). There were no advances outstanding under ~~either~~the December 2018 Facility or the December 2017 Facility at September 30, 2015.

On January 21, 2015, we entered into a $9,155 credit agreement (the "Syndicated Credit Agreement") containing (i) a $6,286 term loan facility (the "Tranche A Facility") and (ii) a $2,869 term loan facility (the "Tranche B Facility"), with certain investment and commercial banks and Mizuho Bank, Ltd. ("Mizuho"), as administrative agent. On that date, we also entered into the 18-Month Credit Agreement with Mizuho as initial lender and agent.

On March 2, 2015, we borrowed $9,155 under the Syndicated Credit Agreement and $2,000 under the 18-Month Credit Agreement at floating interest rates. We used these advances for general corporate purposes, including acquisition related payments. Amounts borrowed under the Tranche A Facility will be due and payable on March 2, 2018. The Tranche A Facility interest rate equals three-month LIBOR, reset quarterly, plus the Applicable Margin (or 100 basis points when issued). Amounts borrowed under the Tranche B Facility will be subject to amortization from March 2, 2018, with twenty-five percent of the aggregate principal amount thereof being payable prior to March 2, 2020, and all remaining principal amount due and payable on March 2, 2020. The Tranche B Facility interest rate equals three-month LIBOR, reset quarterly, plus the Applicable Margin (or 112.5 basis points when issued). Outstanding amounts borrowed under the 18-Month Credit Agreement will be due and payable on September 2, 2016. The 18-Month Credit Agreement interest rate equals three-month LIBOR, reset quarterly, plus the Applicable Margin (or 80 basis points when issued).

At September 30, 2015, we had advances outstanding of $9,155 under the Syndicated Credit Agreement and were in compliance with all ~~covenants~~covenants. At September 30, 2015, we had advances outstanding of $1,000 under ~~each agreement.~~the 18-Month Credit Agreement and were in compliance with all covenants. Additional details regarding the Syndicated Credit Agreement and 18-Month Credit Agreement are available in our Annual Report on Form 10-K for the year ended December 31, 2014.

Collateral Arrangements

During the first nine months of 2015, we posted $1,496 of additional cash collateral, on a net basis, to banks and other participants in our derivative arrangements. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 6)

Other

Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders' equity. Our capital structure does not include ~~any~~ debt issued by ~~YP Holdings and other investees.~~our equity method investments. At September 30, ~~2014,~~2015, our debt ratio, which includes the debt raised in anticipation of our recently closed DIRECTV acquisition, was ~~44.8%~~50.8%, compared to ~~46.9%~~55.6% at June 30, 2015, and 47.6% at December 31, 2014. Our net debt ratio was 48.2% at September 30, ~~2013,~~2015, compared to 45.3% at June 30, 2015, and ~~45.0%~~41.5% at December 31, ~~2013.~~2014. The debt ratio is affected by the same factors that affect total capital, and reflects our ~~recent~~ debt issuances during the first half of 2015, inclusion of DIRECTV debt and additional outstanding shares of AT&T common stock in ~~connection with acquisitions~~our balance sheet as of the acquisition date, and ~~stock repurchases.~~debt redemptions for the first nine months of 2015.

During ~~2014,~~2015, we ~~also~~ received ~~approximately $8,074~~$3,642 from the monetization of various ~~nonstrategic~~ assets, ~~including~~primarily the sale of ~~our Connecticut operations. A majority of that cash was attributable to sales of our investment in América Móvil and real estate holdings.~~certain equipment installment receivables. We plan to continue to explore similar opportunities induring the remainder of ~~2014.~~2015.

In ~~September~~ 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding company for our U.S. wireless ~~business,~~operations, to the trust used to pay pension benefits under our qualified pension plans. ~~In July 2014, the U.S. Department of Labor (DOL) published in the Federal Register their final retroactive approval of our voluntary contribution.~~

The preferred equity interest had a value of ~~$9,114~~$8,838 as of September 30, ~~2014,~~2015, and ~~$9,104 on the contribution date,~~$9,021 as of December 31, 2014, does not have any voting rights and has a liquidation value of $8,000. The trust is entitled to receive cumulative cash distributions of $560 per annum, which ~~will be~~are distributed quarterly in equal amounts. We distributed $420 to the trust during the first nine months ~~ended September 30, 2014.~~of 2015. So long as we make the distributions, the terms of the preferred equity interest will not impose any limitations on our ability to declare a dividend or repurchase shares. At the time of the contribution of the preferred equity interest, we agreed to annual cash contributions to the trust of $175 no later than the due date for our federal income tax return for each of 2014, 2015 and 2016. The 2014 contribution of $175 was made to the trust during the second quarter of 2015.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Dollars in millions except per share amounts

At September 30, ~~2014,~~2015, we had interest rate swaps with a notional value of ~~$6,550~~$7,050 and a ~~net~~ fair value of ~~$121.~~$217.

We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign-currency-denominated debt instruments with a U.S. dollar notional value of ~~$20,650~~$29,642 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of ~~$635~~$(2,406) at September 30, ~~2014.~~2015.

We also have foreign exchange contracts with a notional value of $23 and a fair value of $0.

Item 4. Controls and Procedures

The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of September 30, ~~2014.~~2015. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant's disclosure controls and procedures were effective as of September 30, ~~2014.~~2015.

Internal control Over Financial Reporting

There have been no changes in the registrant's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the registrant's third quarter of 2015 that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Due to the timing of our acquisitions of GSF Telecom, Nextel Mexico and DIRECTV, we will exclude the operations of these recently acquired companies as we continue to evaluate the internal controls over financial reporting of each entity. This exclusion is in accordance with the general guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recent business combination may be omitted from management's report on internal control over financial reporting in the first year of consolidation.

3748

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the "Risk Factors" section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.

The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:

·	Adverse economic and/or capital access changes in the markets served by us or in countries in which we have significant investments, including the impact on customer demand and our ability and our suppliers' ability to access financial markets at favorable rates and terms.

·	Changes in available technology and the effects of such changes, including product substitutions and deployment costs.

Increases in our benefit plans' costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends, and unfavorable or delayed implementation of healthcare legislation, regulations or related court decisions.

The final outcome of FCC and other federal or state agency proceedings (including judicial review, if any, of such proceedings) involving issues that are important to our business, including, without limit, intercarrier compensation, interconnection obligations, pending Notices of Apparent Liability, the transition from legacy technologies to IP-based infrastructure including the withdrawal of legacy TDM-based services, universal service, broadband deployment, E911 services, competition policy, net neutrality, including the FCC's order reclassifying broadband as Title II services subject to much more fulsome regulation, unbundled network elements and other wholesale obligations, availability of new spectrum from the FCC on fair and balanced terms, and wireless and satellite license awards and renewals.

·	The final outcome of state and federal legislative efforts involving issues that are important to our business, including deregulation of IP-based services, relief from Carrier of Last Resort obligations, and elimination of state commission review of the withdrawal of services.

·	Enactment of additional state, federal and/or foreign regulatory and tax laws and regulations pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.

·	Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative technologies or delivery methods (e.g., cable, wireless, VoIP and ~~VoIP)~~Over The Top Video service) and our ability to maintain capital expenditures.

·	The extent of competition and the resulting pressure on customer and access line totals and ~~wireline and wireless~~segment operating margins.

·	Our ability to develop attractive and profitable product/service offerings to offset increasing ~~competition in our wireless and wireline markets.~~competition.

The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including state regulatory proceedings relating to unbundled network elements and nonregulation of comparable alternative technologies (e.g., VoIP).

The continued development and delivery of attractive and profitable ~~U-verse service offerings;~~video offerings through satellite and U-verse; the extent to which regulatory ~~franchise fees~~ and build-out requirements apply to ~~this initiative;~~our offerings; and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.

·	Our continued ability to attract and offer a diverse portfolio of wireless service and devices, device financing plans, ~~devices~~ and maintain margins.

·	The availability and cost of additional wireless spectrum and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.

·	Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.

·	The outcome of pending, threatened or potential litigation, including patent and product safety claims by or against third parties.

The impact on our networks, including satellites operated by DIRECTV, and business from major equipment failures; security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced, and in the case of satellites launched, in a timely and cost-effective manner from suppliers; or severe weather conditions, natural disasters, pandemics, energy shortages, wars or terrorist attacks.

·	The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.

The issuance by the Internal Revenue Service and/or state or foreign tax authorities of new tax regulations or changes to existing standards and actions by federal, state, local or ~~local~~foreign tax agencies and judicial authorities with respect to applying applicable tax laws and regulations and the resolution of disputes with any taxing jurisdictions.

·	Our ~~pending~~ability to integrate our acquisition of DIRECTV.

·	Our ability to adequately fund our wireless operations, including payment for additional spectrum, network upgrades and technological advancements.

·	Our increased exposure to video competition and foreign economies due to our recent acquisitions of DIRECTV and Mexican wireless properties, including foreign exchange fluctuations, as well as regulatory and political uncertainty in Latin America.

·	Changes in our corporate strategies, such as changing network requirements or acquisitions and dispositions, which may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and technological developments.

·	The uncertainty surrounding further congressional action to address spending reductions, which may result in a significant reduction in government spending and reluctance of businesses and consumers to spend in general and on our products and services specifically, due to this fiscal uncertainty.

Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.

3849

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

PART II – OTHER INFORMATION

Dollars in millions except per share amounts

Item 1A. Risk Factors

We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. ~~The additional Risk Factor below reflects~~

Our ability to successfully integrate our ~~pending~~July 2015 acquisition of DIRECTV, ~~(See "Other Business Matters").~~

~~The impact of our pending acquisition of DIRECTV,~~ including ~~our ability to obtain governmental approvals on favorable terms including any required divestitures; the risk that the businesses will not be integrated successfully;~~ the risk that the cost savings and any other synergies from the acquisition may not be fully realized or may take longer to realize than expected; our costs in financing the acquisition and potential adverse effects on our share price and dividend amount due to the issuance of additional shares; the addition of DIRECTV's existing debt to our balance sheet; disruption from the acquisition making it more difficult to maintain relationships with customers, employees or suppliers; and competition and its effect on pricing, spending, third party relationships and revenues.

We ~~have agreed to acquire~~completed our acquisition of DIRECTV ~~for approximately $48,500.~~in July 2015. We believe that the acquisition will give us the scale, resources and ability to deploy video ~~technology~~services to more customers than otherwise possible and to provide an integrated bundle of broadband, video and wireless services enabling us to compete more effectively against cable operators as well as other technology, media and communications companies. In addition, we believe the acquisition will result in cost savings, especially in the area of video content costs, and other potential synergies, enabling us to expand and enhance our broadband deployment and provide more video options across multiple fixed and mobile devices.

Achieving these results will depend upon obtaining governmental approvals on favorable terms within the time limits contemplated by the parties. Delays in closing, including as a result of delays in obtaining We must comply with various regulatory ~~approval could divert attention from ongoing operations on the part of management~~conditions and ~~employees, adversely affecting customers and suppliers and therefore revenues. If such approvals are obtained and the transaction is consummated, then we must~~ integrate a large number of video network and other operational systems and administrative ~~systems, which may involve significant management time and create uncertainty for employees, customers and suppliers.~~systems. The integration process may also result in significant expenses and charges against earnings, both cash and noncash. While we have successfully merged large companies into our operations in the past, delays in the process could have a material adverse effect on our revenues, expenses, operating results and financial condition. This acquisition ~~also will increase~~has increased the amount of debt on our balance sheet (both from DIRECTV's debt and the indebtedness needed to pay a portion of the purchase price) leading to additional interest expense and, due to additional shares being issued, will result in additional cash being required for any dividends declared. Both of these factors could put pressure on our financial flexibility to continue capital investments, develop new services and declare future dividends. In addition, events outside of our control, including changes in regulation and laws as well as economic trends, could adversely affect our ability to realize the expected benefits from this acquisition.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

PART II – OTHER INFORMATION - Continued

Dollars in millions except per share amounts

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) A summary of our repurchases of common stock during the third quarter of 2014 is as follows:

Period
(a)

Total Number of
Shares (or Units)
Purchased^1,2

(b)

Average Price Paid
Per Share (or Unit)

(c)

Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs¹

(d)

Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) That May Yet Be
Purchased Under The
Plans or Programs

July 1, 2014 -
July 31, 2014
5,205,380 $ 35.57 5,200,000 415,550,000
August 1, 2014 -
August 31, 2014
1,004,945 35.67 1,000,000 414,550,000
September 1, 2014 -
September 30, 2014
3,379 - - 414,550,000
Total 6,213,704 $ 35.58 6,200,000
¹ In March 2014, our Board of Directors approved a fourth authorization to repurchase up to 300 million shares of our common stock. In March 2013, our Board of Directors approved a third authorization to repurchase up to an additional 300 million shares of our common stock.

The authorizations have no expiration date.
² Of the shares repurchased, 13,704 shares were acquired through the withholding of taxes on the vesting of restricted stock or through the payment in stock of taxes on the exercise price of options.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) A summary of our repurchases of common stock during the third quarter of 2015 is as follows:

Period	(a) Total Number of Shares (or Units) Purchased^{1, 2}	(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs¹	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs

July 1, 2015 - July 31, 2015	28,296	$	-	-	414,550,000
August 1, 2015 - August 31, 2015	7,006		-	-	414,550,000
September 1, 2015 - September 30, 2015	425		-	-	414,550,000
Total	35,727	$	-	-
¹In March 2014, our Board of Directors approved a fourth authorization to repurchase up to 300 million shares of our common stock. In March 2013, our Board of Directors authorized the repurchase of up to an additional 300 million shares of our common stock. The authorizations
have no expiration date.
²All shares were acquired through the withholding of taxes on the vesting of restricted stock or through the payment in stock of taxes on the exercise price of options.

AT&T INC.

SEPTEMBER 30, ~~2014~~2015

Item 6. Exhibits

Exhibits identified in parentheses below, on file with the Securities and Exchange Commission, are incorporated by reference as exhibits hereto. Unless otherwise indicated, all exhibits so incorporated are from File No. 1-8610.


10-a	2011 Incentive Plan, amended September 24, 2015
10-b	Cash Deferral Plan, amended September 24, 2015
10-c	Administrative Plan, amended September 24, 2015
10-d	Stock Purchase and Deferral Plan, amended September 24, 2015
10-e	Supplemental Life Insurance Plan, amended September 24, 2015
10-f	DIRECTV Deferred Compensation Plan for Non-Employee Directors
12	Computation of Ratios of Earnings to Fixed Charges
18	Letter regarding change in Accounting Principles
31	Rule 13a-14(a)/15d-14(a) Certifications 31.1 Certification of Principal Executive Officer 31.2 Certification of Principal Financial Officer
32	Section 1350 Certifications
99.1	The unaudited consolidated balance sheets of DIRECTV as of June 30, 2015 and the consolidated statements of income, consolidated statements of cash flows and consolidated statements of stockholders' equity and comprehensive income of DIRECTV for the period ended June 30, 2015, and the notes related thereto (incorporated by reference to Item 1 of DIRECTV's Quarterly Report on Form 10-Q/A filed October 20, 2015 (SEC File No. 001-34554)).
101	XBRL Instance Document

SIGNATURE

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

November ~~10, 2014~~5, 2015			AT&T Inc. /s/ John J. Stephens John J. Stephens Senior Executive Vice President and Chief Financial Officer

	September 30,		September 30,		Percent
(in 000s)	2014		2013		Change
U-verse high speed Internet		12,098		9,745		24.1	%
DSL and Other Broadband Connections		4,388		6,682		(34.3)
Total Wireline Broadband Connections¹		16,486		16,427		0.4

Total U-verse Video Connections		6,067		5,266		15.2

Retail Consumer Switched Access Lines		10,182		13,133		(22.5)
U-verse Consumer VoIP Connections		4,698		3,616		29.9
Total Retail Consumer Voice Connections		14,880		16,749		(11.2)

Switched Access Lines
Retail Consumer		10,182		13,133		(22.5)
Retail Business		9,509		10,632		(10.6)
Retail Subtotal		19,691		23,765		(17.1)

Wholesale Subtotal		1,562		1,655		(5.6)

Total Switched Access Lines²		21,464		25,680		(16.4)	%