DBRS Confirms AT&T Mobility II, LLC, a Subsidiary of AT&T Mobility LLC, at A (low) and “A”

DBRS has today confirmed the Senior Unsecured Notes of AT&T Mobility II, LLC (formerly Cingular Wireless II, LLC) at A (low) and its Co-obliged Notes at “A”; the trends are Stable. AT&T Mobility II, LLC is a wholly owned subsidiary of AT&T Mobility LLC (AT&T Mobility or the Company). The ratings reflect incremental improvements in both the business and financial risk profiles of AT&T Mobility, which has continued to make progress in improving its business risk profile in the following two areas.

Firstly, AT&T Mobility’s integration efforts continue to be on track, with significant network and billing platform consolidation having been completed over the past two years. DBRS believes this consolidation will continue in 2007 and likely culminate in early 2008 with the shutdown of its analogue and TDMA networks. As a result, DBRS expects this to position AT&T Mobility with a single GSM-based network (with advanced 3G platforms – UMTS/HSDPA) that is more directly aligned with its peers.

Secondly, AT&T Mobility has continued to improve its wireless operating metrics since it acquired AT&T Wireless Services Inc. in October 2004. Specifically, the Company has steadily improved its subscriber turnover (churn), now at 1.3% per month for its postpaid subscribers versus closer to 2.0% per month on a quarterly basis in 2005. This, along with sustained levels of gross subscriber additions, has helped drive further scale benefits. In terms of costs, AT&T Mobility has also significantly improved its operating efficiency (adjusted cost of service declined to 24.8% of total service revenue in Q1 2007 versus 28.7% in Q1 2006). Furthermore, despite the wireless industry remaining highly competitive, AT&T Mobility has benefited from stable levels of ARPU, with strong data growth offsetting pressure on average revenue per voice minute. As a result of all of these factors, AT&T Mobility’s EBITDA margins have improved to 32% of total revenue currently versus the mid-20% range in 2004.

However, despite these two areas of improvement, DBRS believes that AT&T Mobility still has some additional execution required in order to meet its leadership goal in terms of its wireless and operating metrics. While DBRS believes it may ultimately achieve its goal, it may take longer than initially envisioned. Despite this, DBRS notes that AT&T Mobility will benefit from additional competitive advantages that were not originally contemplated in 2004. These include a longer-term benefit of the AT&T brand and a shorter-term benefit of exclusive rights to sell Apple’s iPhone (mid-2007).

Additionally, DBRS notes that AT&T Mobility has continued to improve its financial risk profile, with significant free cash flow being generated (DBRS expects more than $6 billion for 2007 before cash taxes) and improved key credit metrics. This has been the result of the aforementioned operating improvements in conjunction with lower capex requirements after the completion of significant grooming of duplicate networks.

Ultimately, DBRS believes that AT&T Mobility’s rating could improve to be the same as its parent, AT&T Inc. However, this will remain dependent on AT&T Mobility achieving improved operating performance and AT&T Inc. maintaining its “A” rating in an increasingly competitive market.

Note:
All figures are in U.S. dollars unless otherwise noted.