Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number 333-81342

Cingular Wireless LLC

Formed under the laws of the State of Delaware

5565 Glenridge Connector, Atlanta, Georgia 30342

Securities Registered Pursuant to Section 12(b) of the Act: None

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

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

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

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

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

Table of Contents

TABLE OF CONTENTS

1

Table of Contents

Cautionary Language Concerning Forward-Looking Statements

      In addition to historical information, this document contains forward-looking statements regarding events, financial trends and critical accounting policies and estimates that may affect our future operating results, financial position, and cash flows. These statements are based on assumptions and estimates and are subject to risks and uncertainties.

      There are possible developments that could cause our actual results to differ materially from those forecasted or implied forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which are current only as of the date of this filing. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

      While the below list of cautionary statements is not exhaustive, some factors, in addition to those contained throughout this document, that could affect future operating results, financial position and cash flows and could cause actual results to differ materially from those expressed in the forward-looking statements are:

	•	the pervasive and intensifying competition in all markets where we operate;
	•	problems associated with the transition of our network to higher speed technologies caused by delayed deliveries of infrastructure equipment and handsets, cost overruns, perceived service degradation as more spectrum is devoted to new technologies, customer dissatisfaction with new handsets that operate on multiple networks to accommodate our technology migration, equipment malfunctions and other factors;
	•	slow growth of our data services due to lack of popular applications, terminal equipment and advanced technology;
	•	shortages and unavailability of spectrum for new services and geographic expansion;
	•	pervasive and prolonged adverse economic conditions in the markets we serve;
	•	changes in available technology that make our existing technology obsolete or expensive to upgrade;
	•	the final outcome of Federal Communications Commission (FCC) proceedings, including rulemakings, and judicial review, if any, of such proceedings;
	•	enactment of additional state and federal regulatory laws and regulations pertaining to our operations;
	•	availability and cost of capital;
	•	impact of industry consolidation; and
	•	the outcome of pending litigation.

2

Table of Contents

PART I

Item 1.     Business

Overview

      We are the second largest provider of wireless voice and data communications services in the United States in terms of customers. For the last two years, we reported:

	•	U.S. wireless cellular service and personal communication services, or “PCS”, subscribers totaling 21.6 million at December 31, 2001 and 21.9 million at December 31, 2002;
	•	revenues of $14.1 billion in 2001 and $14.7 billion in 2002; and
	•	net income of $1.7 billion in 2001 and $1.2 billion in 2002.

      We are one of the largest digital wireless network operators in the United States.

	•	We have access to licenses, either through owned licenses or licenses owned by joint ventures and affiliates, to provide cellular or PCS wireless communications services covering an aggregate of 231 million in population (POPs), or approximately 81% of the U.S. population, including in 45 of the 50 largest U.S. metropolitan areas.
	•	We provide cellular or PCS services in 43 of the 50 largest U.S. metropolitan areas.
	•	100% of our networks utilize digital technology.
	•	At December 31, 2002, 92% of our cellular and PCS customers were using digital service, and in December 2002, 99% of our cellular and PCS minutes of use were digital.

      We provide a wide array of wireless services for individual, business and governmental users. Our data services are offered over our cellular/PCS networks and our separate Mobitex network. On a combined basis, we had 2 million active users of our data services at December 31, 2001 and over 5 million at December 31, 2002.

      The Company’s Internet website is http://www.cingular.com.

Organizational Structure

     The Company

      Our full legal name is Cingular Wireless LLC. We are a Delaware limited liability company formed in April 2000 by SBC Communications Inc. (SBC) and BellSouth Corporation (BellSouth) as the operating company for their U.S. wireless communications joint venture. In October 2000, SBC and BellSouth contributed substantially all of their U.S. wireless businesses to us in exchange for economic ownership interests in us of approximately 60% and 40%, respectively. These businesses, contributed primarily in 2000, included BellSouth Mobility, BellSouth Mobility DCS, Cellular One, Houston Cellular, BellSouth Wireless Data, Southwestern Bell Wireless, Pacific Bell Wireless, Nevada Bell Wireless, Ameritech Wireless, SNET Wireless and SBC Wireless. In January 2001, we began doing business under the “Cingular” brand name. We served customers in 37 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands as of December 31, 2002.

     Management and Governance

      SBC and BellSouth jointly control Cingular Wireless Corporation, a holding company with no material assets of its own other than a 0.0000001% economic interest in us. Its main purpose is to act as our manager and thereby control our management and operations. Our officers are appointed by its board of directors.

3

Table of Contents

Our Business

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

     Voice Services

      We offer a variety of competitive service packages that are designed to meet the needs of various consumer and business user segments at the local, regional and national levels. These plans have great diversity in price, minutes, calling scope and features.

      Postpaid Service. Consumer service is generally offered on a contract basis for one or two year periods. Under the terms of these contracts, service is provided and billed on a monthly basis according to the applicable pricing plan chosen. Our wireless services include basic local wireless communications service, long distance service and roaming services, which enable our subscribers to utilize other carriers’ networks when they are “roaming” outside our coverage area. We also bill other carriers for providing roaming services to their subscribers when they utilize our network outside the coverage area of their wireless service provider. We had approximately 18.9 million direct postpaid contract subscribers at December 31, 2001 and 19.8 million on December 31, 2002. In addition to basic wireless voice telephony services, we offer many enhanced features with many of our pricing plans. These features include caller ID, call waiting, call forwarding, three-way calling, no answer/busy transfer and voice mail. In some markets, we also offer complementary services for a monthly fee, such as unlimited mobile-to-mobile calling, road-side assistance and handset insurance.

      Prepaid Service. We offer prepaid service as an alternative to post-pay subscriptions. As of December 31, 2002, prepaid users, together with reseller customers (discussed below), represented less than 10% of our total subscribers. We believe that our prepaid service offering benefits from being part of a national brand, particularly with regard to distribution. We are marketing our prepaid service to distinct consumer segments such as the youth market, families, small business customers and other consumers who prefer to pay in advance. Our prepaid strategy focuses on increasing the profitability of this customer segment through offering a wider array of services and features to increase the usage, revenue and retention of these customers. In the fourth quarter of 2002, we introduced our KIC^SM (Keep In Contact) prepaid plan. This plan offers new handsets and popular features that had previously been available only to our post-paid users, such as long distance, caller ID, call waiting, voicemail and off-network roaming. At the same time, it retains the benefits of advance payment including no contract, no credit check, no monthly billing and enhanced ability to control spending. In addition, we are increasing the distribution of our prepaid offering to include the Internet, automated replenishment services and strategic retail partners that will allow our prepaid service to truly be a product of convenience.

      We are also improving our network infrastructure so we can provide customers with ubiquitous service and the latest technology (e.g., games and icons).

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

      Reseller Service. We offer wholesale services to resellers, who purchase wireless services from us for resale to their customers. These customers do not comprise a significant revenue source for us. The number of subscribers to our service served through resellers has declined by 45% this year, primarily because WorldCom, Inc. decided to exit the reseller business.

4

Table of Contents

      Equipment Sales. We sell a wide variety of handsets, or phones, manufactured by various suppliers for use with our service. We also sell accessories, such as handset faceplates and carrying cases, hands-free devices, batteries, battery chargers and other items. Handsets and accessories are also sold to agents and other third-party distributors for resale.

     Data Services

      General. Wireless data, although its revenues are and for the foreseeable future are expected to be only a small portion of our overall revenue base, is the fastest growing area of our business. We are upgrading our network and coordinating with equipment manufacturers and applications developers to take advantage of continued growth in wireless data services.

      We had over 5 million customers actively using our data services at December 31, 2002, approximately 817,000 of which we served with advanced applications over our separate Mobitex data network, with the rest using services we offer over our cellular and PCS networks.

      Wireless Data Services Offered over our Mobitex Data Network. We offer value-added wireless data applications to businesses and individuals who have a need for timely data communications to maintain a competitive advantage or increase personal productivity. We are a leader in providing end-to-end wireless data services for complex businesses such as transportation, telecommunications, utilities and other businesses. Our Mobitex data network covers over 90% of the U.S. metropolitan population, and provides coverage in 99 of the 100 largest metropolitan areas.

      We provide wireless access to corporate business applications for our customers who have mobile field personnel. Our wireless solutions allow sales managers to access corporate e-mail when away from the office and technicians to solve problems and access corporate databases from the field. These same businesses can also perform remote monitoring of devices as well as temporary or permanent wireless point-of-sale transaction processing.

      We also provide individuals and mobile professionals with the ability to access information from web sites, conduct mobile commerce transactions (e.g., trade stocks, check bank statements and buy products) and send and receive Internet e-mail, all through a hand-held, wireless device.

      We sell our customers terminal equipment, such as Blackberry^TM hand-held pagers, and specialized devices for use in field/sales force automation, delivery truck and fixed location applications. In addition to collecting equipment fees, we enter into customer contracts with flat or usage-based fees.

      Wireless Data Services Offered through our Cellular and PCS Networks. We currently offer wireless e-mail services, short messaging and other data services throughout our cellular and PCS networks. We have over 15 million customers that have been provisioned with wireless Internet and short messaging data services as part of their wireless service. An example of these services is XpressMail^SM service, which allows businesses to access their Microsoft Exchange Server^TM or Lotus Notes^TM corporate e-mail and other desktop applications in real time from Internet-enabled mobile phones or from Blackberry^TM handheld devices. We also offer wireless Internet access for use on our digital cellular and PCS networks, including a streamlined mobile Internet portal service called “My Wireless Window^SM”.

      Our wireless Internet service gives customers access to timely, personalized information such as news, weather, sports, stocks, directions, restaurant reviews, movie show times, yellow and white pages directories, games and graphics through their wireless handsets. In addition, it allows customers to shop on-line and check e-mail from anywhere and at any time wireless service is available. We are also developing a wide range of more advanced data applications for use over our cellular and PCS networks and plan to offer wireless Internet access services using other devices, such as personal digital assistants and personal computers. Our goal is to provide an array of high quality, productivity-enhancing wireless data services across our cellular and PCS networks through the use of GPRS and EDGE technologies (see definitions of GPRS and EDGE in the following “Our Network” section), similar to those we currently offer across our Mobitex data network.

5

Table of Contents

Our Network

     Licenses

      We have access to licenses to provide cellular and PCS wireless services, both voice and data. We provide both analog and digital cellular services over the 850 MHz band and digital PCS services over the 1900 MHz band. We also have 900 MHz licenses to provide data services over the Mobitex data network. We obtained access to spectrum through application lotteries, mergers, acquisitions, exchanges, ventures, FCC auctions and uncontested application grants of cellular licenses.

     Coverage

      We have access to cellular/PCS licenses in 45 of the 50 largest U.S. metropolitan areas, covering an aggregate of 231 million POPs, or approximately 81% of the of U.S. population, and operate in 43 of the top 50 markets across the country. In addition, we have signed numerous roaming agreements to ensure our customers can receive wireless service in virtually all areas in the United States where cellular/PCS wireless service is available. Our cellular/PCS networks are substantially built out. Our Mobitex data network covers 90% of the U.S. metropolitan POPs, including the 50 largest U.S. metropolitan areas.

      See “— Regulatory Environment — Factors Relating to Our Industry” for FCC build-out requirements.

      We offer analog and digital service in our cellular markets and digital service in our PCS markets. We believe that digital technology offers many advantages over analog technology, including substantially increased network capacity, lower operating costs per unit, reduced susceptibility to fraud and the opportunity to provide improved data transmissions. Digital service also provides clear benefits to our customers, including extended battery life, improved voice quality, greater call security and lower per-minute costs. Digital service enables enhanced features and services, such as interactive messaging, facsimile, e-mail and wireless connections to computer/data networks and the Internet. A majority of our analog subscribers have migrated from analog to digital service, which benefits us and our customers. For the month of December 2002, digital usage accounted for 99% of our total usage based on minutes.

      Our networks utilize two digital voice technologies — Global System for Mobile Communications, or “GSM”, and Time Division Multiple Access, or “TDMA”. TDMA and GSM technologies work by dividing a single radio frequency into multiple time slots so it can support multiple calls. GSM is expected to offer three to four times the capacity of TDMA technology and provides economies of scale due to its predominant global use. International roaming with a single GSM phone is also possible if it has the capability of roaming over different frequencies. Therefore, we are in the process of converting all of our markets to GSM technology. In order to facilitate the ability of our customers to use our entire network, we are selling new handsets, referred to as “GAIT” phones. The new GAIT phones operate on TDMA, GSM and analog networks. These phones are priced slightly higher than current commercial handsets of similar form, features and performance. We expect to have covered 90% of our POPs with GSM voice technology by the end of 2003 and expect to complete the process in 2004. We will use both TDMA and GSM technologies for a number of years to accommodate customer migration to GSM service.

      We offer data-only services over our proprietary Mobitex network. This network utilizes a packet-switched “always on” technology.

      We also offer data services over our cellular and PCS networks. Our GSM networks are already equipped with high-speed “always on” packet switched technology called General Packet Radio Service, or “GPRS”, which allows users to access the network almost instantly. GPRS is being added concurrently with GSM technology to our TDMA voice networks. We plan to deploy an even faster technology called Enhanced Data Rates for Global Evolution, or “EDGE”, beginning in 2003, primarily through software upgrades.

6

Table of Contents

      We currently own licenses for spectrum in the 850 MHz and 1900 MHz bands. We expect that the demand for our wireless services will grow over the next several years as the demand for both traditional wireless voice services and wireless data and Internet services increases significantly. We anticipate needing access to additional spectrum in selected densely populated markets to meet expected demand for existing services and throughout our network to provide full third generation “3G” services beyond EDGE.

      In order to acquire access to additional spectrum, we may participate in future FCC auctions, which will likely include other radio frequency bands. In addition to the auction process, our alternatives for acquiring access to additional spectrum are expected to include spectrum exchanges with and purchases from other wireless carriers, mergers and acquisitions, joint ventures and alliances. See “Regulatory Environment” and “Factors Relating to Our Business — If we fail to obtain access to additional radio spectrum, we may not be able to expand the geographic reach of Cingular-branded services, increase our customer base in areas we currently serve or meet the anticipated demand for new services”.

      We also hold licenses for spectrum in the 900 MHz band that we use in our Mobitex data network. There are no FCC auctions for additional 900 MHz spectrum currently planned; therefore any additional spectrum we access will be through acquisitions or joint ventures with private parties.

      From time to time, we exchange or purchase licenses for spectrum and enter into joint ventures to share networks. Joint ventures such as those described below allow us to enter new markets more quickly and for substantially less capital costs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Expenditures and Other Investments” for further information regarding such joint ventures.

Joint Ventures and Spectrum Exchanges

      In November 2000, we and Crowley Digital Wireless, LLC formed Salmon to bid as a designated entity under the FCC’s rules for PCS licenses in part reclaimed from bankrupt carriers and reauctioned by the FCC in proceedings that concluded in January 2001. As of December 31, 2002, we had an approximately 80% non-controlling equity interest in Salmon, with the balance owned by Crowley Digital. Salmon is controlled by Crowley Digital, which in turn is controlled by George D. Crowley, Jr. Mr. Crowley is the chairman and chief executive officer of Crowley Digital and the chairman and chief executive officer of Salmon. At the conclusion of the auction proceedings, the FCC granted to Salmon 45 auctioned licenses, which cover over 11 million POPs. As a result, we have access to licenses covering an aggregate 231 million POPs, including in 45 of the 50 and 87 of the 100 largest U.S. metropolitan areas. Salmon was the successful bidder for 34 other licenses reclaimed from carriers in bankruptcy and auctioned by the FCC. In December 2002, the FCC released Salmon from its purchase obligation and returned Salmon’s remaining down payment on the 34 other licenses. The U.S. Supreme Court subsequently invalidated the auction results as to the challenged licenses, but the FCC’s grant of the 45 unchallenged licenses was not affected by this decision.

      In November 2000, Salmon entered into a management agreement for a term of eight years, which became effective in October 2001 when the 45 licenses were granted. Under this agreement, Salmon hired us to act as the manager of its PCS systems, subject to its oversight and control. In addition, pursuant to a trademark license agreement, Salmon has elected to use our trademarks in its business to offer Cingular-branded services.

      Crowley Digital has the right to put its interest in Salmon to us at a price in cash equal to its initial investment plus a specified rate of return. The put right can only be exercised at certain times, and we estimate that the earliest exercise period will begin in September 2005 and the latest exercise period will end in April 2008. We estimate that the present value of this put obligation was approximately $126 million as of December 31, 2002. This obligation is included in “Other noncurrent liabilities” in our consolidated balance sheets.

7

Table of Contents

      We entered into a credit agreement with Salmon under which, until November 2006, we will provide through secured loans, upon Salmon’s request, substantially all of the capital Salmon will require to pay for the licenses, build out its system and fund working capital requirements. Loans are repayable no later than May 2008, with interest at a rate of 9% per annum, or 14% per annum if Salmon terminates the management agreement or trademark agreement.

      In May 2001, we and T-Mobile USA, Inc. (formerly VoiceStream Wireless) exchanged FCC licenses covering approximately 36 million POPs each. We received licenses covering 10 MHz of spectrum for the five boroughs of New York City, all of Long Island as well as parts of upstate New York, northeast Pennsylvania, St. Louis, Detroit, Vermont, New Jersey and Connecticut. In exchange, we transferred to T-Mobile licenses covering 10 MHz of spectrum out of the 30 MHz of spectrum that we had in the California and Nevada markets. As a result of the exchange, we gained access to spectrum covering over 20 million additional POPs in the northeastern United States.

      Subsequently, in November 2001, we and T-Mobile formed a jointly-controlled venture to allow the companies to share network infrastructure in the California, Nevada and New York City markets. Each of our respective existing networks in these markets, which use GSM technology and cover approximately 56 million POPs, have been contributed to the venture. Both companies have access to the venture’s network infrastructure, and pursuant to the terms of the venture’s commercial arrangements, are able to provide our respective customers access to a weighted average spectrum depth of 39 MHz in these markets. We and T-Mobile buy network services from the venture but each of us retained ownership and control of our own licenses. Funding for capital investments and cash operating expenses of the venture is generally made by us and T-Mobile on a pro rata basis based on network traffic. We also independently market our unique services to customers using our own brand name and utilize our own sales, marketing, billing and customer care operations. In July 2002, we began marketing and providing service in the New York City market and T-Mobile began providing service in California and Nevada through the venture. Our participation in this venture gives our customers access to more spectrum and is expected to result in more robust networks and lower operating expenses and capital expenditures than if we had constructed our own network.

      In January 2002, we entered into an agreement with AT&T Wireless to form a jointly-controlled and equally-owned venture to build out a GSM voice network with GPRS/EDGE data technologies along a number of major highways in order to ensure availability of GSM/GPRS/EDGE service to our customers, and reduce incollect roaming expenses we pay to other carriers, when our customers travel on those highways. We and AT&T Wireless will each buy services from the venture and provide services under our own brand names. In March 2003, we and AT&T Wireless contributed licenses and assets of equal value. We do not expect capital contributions by either party to exceed $85 million.

      In December 2002, we announced an agreement to transfer to AT&T Wireless our wireless license and operations in Kauai, Hawaii and wireless licenses in Alabama, Idaho, Oklahoma, Mississippi and Washington. In return, we will receive wireless licenses in Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, Tennessee and Texas. We expect this transaction to close in the first half of 2003 and the associated gain is not material. As a result, our licensed coverage area will increase by approximately 1 million POPs.

8

Table of Contents

Competition

      There is substantial and increasing competition in all aspects of the wireless communications industry. We compete for customers based principally on our service offerings, price, call quality, coverage area and customer service.

      Our competitors are principally large providers of cellular, PCS and other wireless communications services. We also compete with smaller companies, resellers and wireline telephone service providers. Some of our competitors have greater financial, technical, marketing, distribution and other resources than we do. In addition, some of the other large providers have more extensive coverage areas than we do. Some of the indirect retailers who sell our services also sell our competitors’ services. Moreover, we may experience significant competition from companies that provide similar services using other communications technologies and services. Some of these technologies and services are now operational and others are being developed or may be developed in the future.

      Consolidation, alliances and business ventures may increase competition. Consolidation and the formation of alliances and business ventures within the wireless communications industry have occurred and we expect that this trend will continue. We have numerous other competing wireless providers in our markets. Consolidation may create larger, better-capitalized competitors with substantial financial, technical, marketing, distribution and other resources to compete with our product and service offerings. Competitors with more complete nationwide footprints may be able to offer nationwide services and plans more economically due to economies of scale and less dependence on roaming arrangements. In addition, global combinations of wireless carriers — such as the alliance between AT&T Wireless and NTT DoCoMo Inc. of Japan, the joint venture between Sprint and Virgin Group, Verizon Wireless, which is a joint venture between Verizon and Vodafone plc, and mergers and acquisitions, such as the acquisition of T-Mobile by Deutsche Telekom — may give some domestic competitors better access to international technologies, marketing expertise and strategies and diversified sources of capital. Other large, national wireless carriers have affiliations with a number of smaller, regional wireless carriers that offer wireless services under the same national brand, thereby expanding the national carrier’s perceived national scope. In addition, infrastructure sharing ventures, while facilitating our entry into new markets, also allow our partners to compete with us in those markets.

      Governmental policy at all levels favors robust competition. For example, under current FCC rules, six or more PCS licensees, two cellular licensees and one or more enhanced specialized mobile radio, or “ESMR”, licensees may operate in each geographic area. This structure has resulted in the presence of multiple competitors in our markets and makes it challenging for us to attract new customers and retain existing ones. In addition, specialized mobile radio, or “SMR”, dispatch system operators have constructed two-way ESMR digital mobile communications systems on existing SMR frequencies in many cities throughout the United States, including most of the markets in which we operate.

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

	•	reduce prices for our services and products;
	•	restructure our service packages to provide more services without increasing prices;
	•	further upgrade our network infrastructure and the handsets we offer;
	•	increase our advertising, promotional spending, commissions and other customer acquisition costs; and
	•	increase our spending to retain customers.

9

Table of Contents

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

Business Strategies

      Our business strategies are to:

	•	Expand our Customer Base Profitably. Recent surveys indicate that we have firmly established our brand, showing approximately 79% brand awareness at December 31, 2002, similar to the brand recognition of competitors who have been in the marketplace with their brand substantially longer than we have. We believe that we can capitalize on this brand recognition and our extensive distribution capabilities to attract new customers, including those customers switching service from other wireless carriers. We can offer new innovative product plans that provide both favorable economics and customer value such as our current “rollover plans”. We also benefit from having the largest wireless/wireline service area overlap in the United States as a result of our affiliation with SBC and BellSouth. We intend to further capitalize upon this strength and expand our distribution and bundled product offerings with SBC and BellSouth as well as explore future opportunities to integrate wireless/wireline services.
	•	Reduce Costs and Enhance Service by Leveraging Our Large Scale and National Scope. Since our formation, we have made progress in realizing cost savings, including lowering of equipment costs resulting from our combined purchasing power, integration of support and billing systems, reduction of roaming rates and consolidation of customer care facilities, headquarter offices and distribution centers. With major integration projects completed, we are positioned to realize the savings from these efforts while deploying better tools to serve our customers.
	•	Increase the Capacity, Speed and Functionality of our Cellular and PCS Networks by Deploying a Common Voice and Data Technology Throughout our Networks. Over 50% of our POPs had access to GSM voice and GPRS data technology as of December 31, 2002. We plan to have these technologies deployed in 90% of our markets, including all of our major markets, by the end of 2003, with the remaining coverage areas to be completed in 2004. In addition, we intend to transition our GPRS data capabilities to EDGE as software and handsets become available. This enhancement will significantly improve data speeds and spectral efficiency and will be primarily completed through software upgrades.
	•	Develop and Promote Advanced Wireless Data Applications Over Multiple Communications Devices. We currently provide advanced data services over our Mobitex and cellular/PCS networks, including interactive messaging and wireless Internet access. Our Mobitex data network service also includes specialized business applications for transportation, telecommunications, banking, utilities and other businesses including mobile field personnel management, remote monitoring, point of sale and other mobile commerce applications. The deployment of GPRS and EDGE throughout the cellular/PCS networks enables us to further expand data applications to our broad base of voice customers using handsets, personal computers and personal digital assistants.
	•	Expand our Existing Network Footprint and Capacity Where Economical by Obtaining Access to Additional Spectrum, Primarily Through Ventures, Alliances and Spectrum Exchanges and Purchases. We plan to further expand our digital network service and promote deployment of GSM technology so that our subscribers can enjoy seamless coverage, consistent features and high-quality service, regardless of their location. We will be opportunistic in the expansion of our network and services. Where economical, we will pursue acquisition of spectrum from private ownership or through FCC auctions. We can also gain access through innovative means such as the spectrum swap we recently announced with AT&T Wireless involving our license and properties in Kauai, Hawaii and licenses throughout the United States. We also have the ability to expand our service through network sharing ventures such as our venture with T-Mobile that allows the companies to share network infrastructures in the California, Nevada and New York City markets.

10

Table of Contents

		In January 2002, we entered into an agreement with AT&T Wireless to build out a GSM voice network with GPRS/EDGE data technologies along a number of major interstate highways predominately in mid-western and western states. See “Our Network”. We are also actively working with other carriers to facilitate a strong GSM/GPRS/EDGE footprint across the continental United States.

Marketing

      We are focusing our marketing strategy on promoting the Cingular brand, providing compelling products and services, delivering high-quality service and customer care, leveraging our extensive distribution network and cross-marketing with SBC and BellSouth. With 21.9 million cellular and PCS customers at December 31, 2002, we also have the opportunity to provide value-added services to a large customer base.

      Our advertising will utilize integrated, multi-media tools including television, radio, newspaper, outdoor, Internet and point of sale. Our advertising objectives include: (1) increasing new customer growth by attracting prospective customers to a Cingular sales channel, and (2) aiding customer retention by reinforcing the value of an existing relationship with Cingular. In less than two years, Cingular has developed a widely recognized national brand identity, on par with our major competitors. In 2003, we will leverage our brand identity by presenting more compelling and market specific reasons to choose Cingular.

      Our marketing strategy is to aggressively sell our voice services based on three basic calling plan structures offered throughout our service areas: Cingular Home^SM, Super Home^SM and Cingular Nation^SM rate plans. The plans differ in terms of the geographic areas that are included as the local calling areas. The costs and terms of each plan depend on the subscriber’s location and the plan selected. We have targeted plans to specific segments: Family Talk®, a shared minutes plan with unlimited mobile-to-mobile calling; KIC^SM (Keep In Contact), our prepaid product for those preferring to pay as they use; Minute Manager, a new spending limits program being introduced nationwide; and a host of plans targeted to various segments of the business-to-business market. In addition, our GSM/GPRS migration is underway, making advanced features, products and services available to customers around the country.

      Our marketing plans also address the growing communications needs of our existing customers, thereby increasing customer retention. We target specific customer segments with tailored services and offer them a range of high-quality handsets and enhanced features, including wireless data services, additional wireless phones, accessories and new products. In addition, customers in good standing who are renewing a post-paid contract are automatically eligible to upgrade their handsets every two years at the current promotional pricing and can switch to a different service plan that better meets their needs at any time.

      Our strategy for data offerings is to leverage the marketing and operational experience that we have gained as a leader in wireless data services and match our customers’ needs with our existing data products or with customized solutions. We offer an entire suite of new products aimed at enhancing the customer experience, including picture messaging through multimedia messaging services, short messaging services, games and polyphonic ringtones. While we have traditionally marketed our business data offerings to larger organizations, we also continue to focus on small and medium-sized businesses.

Sales and Distribution

      Our sales and distribution strategy seeks to tailor the mix of direct, indirect and resale distribution channels to match customer shopping preferences to increase customer growth and satisfaction while reducing customer acquisition and retention costs. As of December 31, 2002, we had over 69,000 distribution “points of presence”. These included approximately 1,200 company-owned stores and kiosks, 8,000 authorized agent locations, more than 58,000 national retail points of distribution, including those distributing prepaid services, and more than 1,800 direct business-to-business salespeople. In addition, we have access to the distribution channels of SBC and BellSouth as both sales channels and bundlers of our wireless services with their wireline product offerings. SBC’s Total Connections^SM and BellSouth

11

Table of Contents

Customer Care and Satisfaction

      The cost of adding new subscribers is one of the most significant cost elements in the wireless industry. Therefore, satisfying and retaining existing customers are critical to the financial performance of wireless operators. The goal of our customer care, retention and satisfaction programs is to ensure customer convenience and ease of use and to cultivate long-term relationships with our customers. We offer our customers a full range of options for making requests and inquiries to maximize convenience. We also offer complete customer care during extended business hours and emergency service after business hours, as well as a number of other services designed to enhance our relationship with our customers. The centralization of call centers previously operated by the wireless businesses of SBC and BellSouth was completed in 2002. This consolidation has allowed Cingular to reduce customer service expense while improving our level of service to our customers.

      We continue to pursue opportunities to enhance customer satisfaction and resolve issues quickly. For some customer segments, such as for our major corporate accounts, we have dedicated response teams that operate in specialty call centers. In 2002, we began testing knowledge-based information systems for customer care representatives and global call routing, which directs inquiries to the appropriate customer care representatives while balancing call volume among centers. During 2003 this technology will be expanded to our collection centers. Additionally, we will continue to invest in customer service to provide a higher level of service at a lower overall cost. Initiatives in 2003 will include enhancement of our voice response systems, improved Internet self service and additional tools such as case management to better meet our customers needs.

Environmental Matters

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

Employees

      As of December 31, 2002, we had approximately 33,800 employees.

      Approximately 17,300 of our employees are represented by the Communications Workers of America, with contracts expiring on various dates between February 2004 and January 2007. Most of the contracts contain no-strike clauses. We are contractually required to maintain a position of neutrality and to allow card-check procedures with respect to unionization and will support the determination of our employees. In those areas where our employees are unionized, we have in place contracts that we believe provide us with the flexibility to run our business in an increasingly competitive environment.

      We consider our relationship with our employees and the Communications Workers of America to be very good.

12

Table of Contents

Seasonality

      Historically, we have experienced a trend of generating a higher number of customer additions in the fourth quarter of each year as compared to the other three quarters. Numerous factors contribute to this trend such as the increasing use of retail distribution, which generally experiences growth due to the holiday shopping season, the timing of product introductions, competitive pricing, and aggressive marketing. As competition has increased, these seasonal trends have become less pronounced. In the fourth quarter of 2002, customer additions were lower than the previous three quarters.

Intellectual Property

      We own the rights to the “Cingular” brand name. We rely on a combination of copyright, patent, trademark, trade secret and other intellectual property rights, together with confidentiality and/or license agreements with our employees, customers and others to protect our proprietary rights. For more information on licenses granted by our parent companies to us and licenses we grant to them, see “Item 13. Certain Relationships and Related Transactions”.

Regulatory Environment

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

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

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

      Wireless systems are subject to Federal Aviation Administration and FCC regulations governing the location, lighting and construction of transmitter towers and antennas and are subject to regulation under federal environmental laws and the FCC’s environmental regulations, including limits on radio frequency radiation from mobile handsets and towers. Zoning and land use regulations, including compliance with historic preservation requirements, also apply to tower siting and construction activities.

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

13

Table of Contents

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

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

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

      Mobitex Wireless Data Services. In 1996, the FCC commenced auctioning market area licenses for the 900 MHz spectrum that we use to provide most of our business data services. The market area licensee is required to protect the incumbent licensee from interference from the new market area license, but the market area licensee did not have any relocation obligation. We were awarded market area licenses (“per transmitter” licenses) for primarily the same geographic areas where we were the incumbent licensee, although we did not obtain market area licenses for all of our per transmitter licenses. In order to keep these market area licenses, we were obligated to either (1) provide service to 66% of the population in the market area by December 31, 2002 or (2) demonstrate by December 31, 2002 that we have made a “substantial service” showing in those market areas. With respect to nearly half of our Mobitex licenses, we have provided service to at least 66% of the population in those areas. In October 2001, the FCC declared that we could satisfy the December 31, 2002 “substantial service” requirement if our build-out in six markets covered at least 30% of the population in six markets and we, at least, maintained the level of coverage we then projected for our other markets. We notified the FCC in December 2002 that we had met the “substantial service” requirement in these markets. We expect FCC approval of that showing in the first quarter of 2003. See “Factors Relating to Our Industry — Our operations are subject to substantial governmental regulation, which could significantly increase our costs and increase churn” for additional information relating to the regulation of our operations.

      Transfers and Assignments of Wireless Licenses. The Communications Act and the FCC rules require the FCC’s prior approval of the assignment or transfer of control of a license for a wireless system. Before we can complete any such purchase or sale, we must file appropriate applications with the FCC, and the public is by law granted a period of time, typically 30 days, to oppose or comment on them. In

14

Table of Contents

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

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

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

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

15

Table of Contents

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

	•	The FCC eliminated the spectrum cap wireless license aggregation limits, effective January 1, 2003. As yet, it has not replaced the spectrum cap with published rules or guidelines setting forth how the FCC will review carriers’ spectrum aggregations. The FCC also eliminated the prohibition on ownership of both cellular licenses by a single entity in metropolitan markets. Certain acquisitions of spectrum would remain subject to approval of the U.S. Department of Justice.
	•	The FCC has imposed rules for making emergency 911 services available by cellular, PCS and other commercial mobile radio service providers, including enhanced 911 services that provide the caller’s communications number and approximate location. These rules require us to make significant investments in our network, to reach agreements with vendors of 911 equipment, and to deliver location information to state and local public safety dispatch agencies. Commercial mobile radio service providers are required to take actions enabling them to relay a caller’s automatic number identification and cell site if requested to do so by a public safety dispatch agency, if necessary at the provider’s own cost. Providers are required to transmit the geographic coordinates of the customer’s location within accuracy parameters set forth by the FCC, either by means of network-based or handset-based technologies. Providers may not demand cost recovery as a condition of doing so, although they are permitted to negotiate cost recovery if it is not mandated by the state or local governments. Because of the unavailability of vendor equipment that could reasonably be relied upon to comply with the FCC’s location accuracy rules or to be deployed in time to meet the FCC’s timeline, we filed in 2001 requests for waivers from these rules with the FCC, as have other wireless carriers. With respect to our analog cellular and TDMA networks, in 2002, we entered into a consent decree with the FCC that sets forth certain deployment benchmarks for our network-based location solution. We agreed to make certain contributions to the U.S. Treasury, starting at $300,000 for the failure to meet a benchmark contained in the consent decree, up to a maximum of $1.2 million for successive failures. In addition, we have agreed to submit quarterly progress updates. The FCC issued an order in early October 2001 granting our waiver request to deploy a handset-based technology for our GSM networks. The FCC set a timetable for compliance that we have not met and cannot meet, given the status of equipment availability from vendors. We have asked the FCC to reconsider that decision. There may be penalties levied for our non-compliance, absent reconsideration by the FCC. We recently informed the FCC that we will deploy a network-based location technology, which holds the promise of greater location accuracy, and that we intend to pursue discussion about a consent decree for our location technology deployment in our GSM networks.
	•	The FCC has established federal universal service requirements that affect commercial mobile radio service operators. Under the FCC’s rules, commercial mobile radio service providers are potentially eligible to receive universal service subsidies for the first time; however, they are also required to contribute to the federal universal service fund and may be required to contribute to state universal service funds. Contributions into the federal fund are based on the interstate and international revenues generated by the properties owned by a commercial mobile radio service provider. For 2002, we paid into the federal universal service fund approximately $129 million. Because the amount that we are required to pay into the fund is based on revenues generated by our properties,

16

Table of Contents

		we anticipate that this amount should continue to increase over time. We recover most of this expense from our customers. Many states also are moving forward to develop state universal service fund programs. A number of these state funds require contributions, varying greatly from state to state, from commercial mobile radio service providers. If these programs expand they will impose a correspondingly growing expense on our business.
	•	The FCC has adopted rules regulating the use of telephone numbers by wireless and other providers as part of an effort to achieve more efficient number utilization. Wireless carriers were required to be able to participate in this “number pooling”, beginning in November 2002. In addition, the FCC adopted rules on number portability that will enable customers to keep their wireline or wireless number when switching to another carrier. These rules require wireless carriers to offer number portability to their customers, beginning in November 2003. Verizon Wireless and the Cellular Telecommunications and Internet Association have appealed that obligation. We and other wireless carriers are supporting elimination of that obligation because Congress did not grant the FCC authority to impose number portability on wireless carriers. In addition, given current industry churn rates, the lack of wireless number portability has not deterred consumers from switching carriers.
	•	The FCC has adopted rules requiring wireless providers to provide functions to facilitate electronic surveillance by law enforcement officials pursuant to the Communications Assistance for Law Enforcement Act of 1995. These obligations are likely to result in significant costs to us for the purchase, installation and maintenance of network software and other equipment needed.
	•	The Communications Act and the FCC’s rules grant various rights and impose various obligations on commercial mobile radio service providers when they interconnect with the facilities of local exchange carriers. Generally, commercial mobile radio service providers are entitled to “reciprocal compensation” in connection with the termination of wireline-originated local traffic, in which they are entitled to collect the same charges for terminating wireline-to-wireless local traffic on their system similar to the charges that the local exchange carriers levy for terminating wireless-to-wireline local calls. Interconnection agreements are typically negotiated by carriers, but in the event of a dispute, state public utility commissions, courts and the FCC all have a role in enforcing the interconnection provisions of the Act. Although we have interconnection agreements in place with the major local exchange carriers in virtually all of our service areas, those agreements are subject to modification, expiration or termination in accordance with their terms. Moreover, we are negotiating and must continue to negotiate interconnection agreements with a number of independent telephone companies in our service areas. Until these agreements are concluded, we must accrue for contractual liabilities associated with the resulting unpaid invoices from those companies. Additionally, as we expand our coverage footprint, we will be required to negotiate interconnection arrangements with other wireline carriers.
	•	In August 2000, the FCC addressed the extent to which the Communications Act limits plaintiffs in class action lawsuits against commercial mobile radio service providers to recover damages and obtain other remedies based on alleged violations of state consumer protection statutes and common law. It held that the Act did preempt state rate regulation as a matter of law, but that whether a specific damage award is prohibited would depend on the facts of a particular case. A request for reconsideration of the ruling was recently denied by the FCC. This ruling might promote the filing of additional class actions against the industry and increase the potential for damages awards by courts.
	•	In 1999, the FCC adopted rules to govern customer billing by carriers. It adopted additional detailed billing rules for landline telecommunications service providers and is considering whether to extend these rules to commercial mobile radio services providers. The FCC may require that more billing detail be provided to consumers, which could add to the expense of the billing process as systems are modified to conform to any new requirements. The FCC recently decided that the carriers that pass through their mandatory universal service contribution to their customers may not

17

Table of Contents

		recover amounts greater than their mandatory contributions from their customers. Adoption of this approach could increase the complexity of our billing processes and restrict our ability to efficiently bill customers for services.
	•	In 1999, the FCC adopted an order that determines the obligations of telecommunications carriers to make their services accessible to individuals with disabilities. The order requires wireless and other providers to offer equipment and services that are accessible to and useable by persons with disabilities. While the rules exempt telecommunications carriers from meeting general disability access requirements if these results are not readily achievable, it is not clear how the FCC will construe this exemption. Accordingly, the rules may require us to make material changes to our network, product line or services at our expense.
	•	Recently the FCC reallocated 30 MHz of spectrum from the 2 GHz Mobile Satellite Service (“MSS”) for fixed and mobile services. The FCC now proposes to combine the 1990-2000 MHz portion of that spectrum, which is adjacent to the upper limit of the base-to-mobile portion of the PCS C Block, with the currently unlicensed PCS spectrum at 1910-1920 MHz, which is adjacent to the upper limit of the mobile-to-base portion of the PCS C Block, to create a new PCS “G” Block. If adopted by the FCC, the new PCS “G” Block could be licensed to other wireless competitors. One plan would grant the PCS “G” block to Nextel in return for it relinquishing certain of its spectrum in the 700/800/900 MHz bands to alleviate public safety interference concerns. Another plan would grant the spectrum in specific locations to Multipoint Distribution Service licensees who are being displaced by the FCC to make room for new Advanced Wireless Service spectrum allocations in the 2 GHz band. Other possible allocations, including the auctioning of that paired spectrum, may be considered by the FCC in its decision making process.
	•	The FCC also recently decided to allow MSS licensees in three separate MSS bands to add an ancillary terrestrial component to their existing or proposed mobile satellite offering. The FCC has conditioned the deployment of the terrestrial offering such that it has to be integrated with the satellite offering of a licensee. In addition, satellites must be launched and operational before the terrestrial service can be initiated. It is likely that the satellite proponents will ask the FCC to minimize or eliminate these conditions which could permit them to forego their satellite service in favor of deploying a terrestrial network and offering service in direct competition with our cellular and PCS services.

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

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

      Several states have invoked this “terms and conditions” authority to impose or propose various consumer protection regulations on the wireless industry. California’s proposed rules are potentially quite costly. States also may impose their own universal service support requirements on wireless and other communications carriers, similar to the requirements that have been established by the FCC. At the local level, wireless facilities typically are subject to zoning and land use regulation. Neither local nor state governments may categorically prohibit the construction of wireless facilities in any community or take

18

Table of Contents

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

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

Factors Relating to Our Business

      If our new management reorganization and marketing initiatives are not successful, we could continue to lose market share and financial growth could decline. Over the last two quarters of 2002, we have lost market share as our customer base has declined slightly and our revenue growth has declined. We believe that this reflects, to some extent, the persistent economic weakness throughout the country and other external factors, such as the decision of WorldCom to exit the reseller business, which resulted in a net loss for the year of over 400,000 high-margin resale customers served through WorldCom, 266,000 of which occurred after WorldCom exited the reseller business.

      We believe, however, that a number of internal business initiatives in 2002 exacerbated these conditions, including:

	•	centralization of the marketing and sales organizations, which reduced our effectiveness in responding to regional and local product and service opportunities;
	•	other merger-related changes, such as billing system integration and inventory and customer care consolidation, that may have impacted customers; and
	•	a shift to sales plan initiatives designed to improve cash flow rather than overall market share.

      In early 2003, we reorganized our marketing and sales organizations and began addressing pricing and sales plan strategies intended to strengthen our competitive position in the industry. Our ability to attract customers of other carriers is becoming increasingly important given the approximate 50% wireless industry penetration rate. We believe we must provide quality products and services that meet the specific needs of customers in each market and continuously improve the quality of our network and customer care in order to maximize our competitive strengths.

      Substantial competition in all aspects of our business could continue to cause reduced pricing and have adverse effects on our profit margins. There is substantial and increasing competition in all aspects of the wireless communications industry. Competition continues to intensify as wireless carriers include more equipment discounts and bundled services in their offerings, including more minutes and free long distance and roaming. This contributes to downward pressure on revenues and profit margins and we expect this trend to continue. Our competitors are principally five other national carriers doing business as Verizon Wireless, AT&T Wireless, Sprint PCS, Nextel Communications and T-Mobile, respectively, and a large number of regional providers of cellular, PCS and other wireless communications services, resellers and wireline telephone service providers.

      Sprint Corporation has stated that it intends to hire Gary Forsee, a former Class B director of our manager and chairman of its board, to act as the chief executive officer of Sprint. BellSouth and we are suing Mr. Forsee and Sprint to prevent this, and Mr. Forsee was removed from this board position on February 21, 2003. (See “Legal Proceedings” for a discussion of this litigation.) The failure to prevail in

19

Table of Contents

      FCC regulations and government policy in general promote robust competition, and future rules or changes to existing rules could increase this trend. See “Regulatory Environment — Recent Regulatory Developments” for a discussion of many such regulations.

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

      For more information about the competitive environment we encounter, see “Business — Competition”.

      We may encounter obstacles in implementing our network technology migration, which could result in a loss of customers, slower customer growth and lower profitability. We are upgrading our networks with new technologies. We are adding GSM equipment throughout our TDMA markets to provide a common voice standard and are adding high-speed GPRS and EDGE technologies across our entire network. As of December 31, 2002, over 50% of our POPs had access to GSM/GPRS technology.

      A number of factors beyond our control could disrupt a timely and cost-effective transition to these technologies. We depend on suppliers to deliver the required hardware and software on schedule and according to specifications. We also depend on the availability of skilled personnel to assist us in the installation work. Furthermore, EDGE software is new and is just being tested in our network. If it does not perform as anticipated and cannot be delivered to us for installation, our implementation schedule and ability to offer third generation, or “3G”, technologies, could be significantly delayed. Any of these obstacles could result in a loss of customers, slower customer growth and lower profitability.

      As we dedicate more resources to new technology, our TDMA offerings could become less attractive, resulting in a loss of customers and reduced profitability. Our TDMA network is extensive, serving 82% of our customers at December 31, 2002. We expect to continue operating our TDMA network for the foreseeable future as customers migrate to GSM/GPRS technology. Due to our decision to overlay our TDMA network with GSM technology, we may choose not to upgrade our TDMA network with the same robust features that may be provided on our competitors’ networks. Furthermore, as more spectrum is dedicated to GSM, our remaining TDMA customers may experience difficulties in using our services. In addition, as we introduce and market GSM service, we may price GSM products and services at more attractive levels than TDMA products and services to encourage our customers to migrate to GSM. All of these potential developments could drive our TDMA customers to our competitors instead of to our GSM offerings and thereby reduce our market share and profitability.

      If we fail to obtain access to additional radio spectrum, we may not be able to expand the geographic reach of Cingular-branded services, increase our customer base in areas we currently serve or meet the anticipated demand for new services. We need more licensed spectrum to support high speed data and other advanced services, to expand our geographic reach, to meet an increasing volume of customer usage and to increase our customer base. If we cannot obtain access to new markets through auctions, spectrum exchanges, other acquisitions, joint ventures or other means, it could have a significant, adverse impact on our ability to grow our business. In addition, an inability to add spectrum in some of our existing markets could adversely affect the quality of service if the demand for wireless communications continues to increase at a rapid rate. There are no spectrum auctions scheduled in the near future at which we could obtain needed spectrum, and there can be no assurance that we will be able to obtain access to additional spectrum from secondary market sources on acceptable terms. Therefore, we cannot assure that we will be successful in obtaining access to the additional spectrum needed to expand our geographic coverage and meet the growing needs of our business.

20

Table of Contents

      The variety of handsets that will operate on both TDMA and GSM networks is currently limited, may be more expensive than current handsets and may have operational inefficiencies, all of which could impede our GSM service offerings and could lead to increased churn. Our voice technology upgrade plans depend heavily on the deployment of new dual mode TDMA/GSM handsets, referred to as “GAIT” phones. Utilizing new technology, these phones are intended to allow our customers to use GSM service without losing the ability to operate on our existing TDMA and analog networks in areas where we have not overlaid GSM technology. Because the variety of GAIT phones is more limited than GSM phones, they may not be readily accepted by customers and could impede our efforts to migrate our customer base from TDMA to GSM. Also, because GAIT phones will be required by only a limited number of carriers on an interim basis to support a transition from TDMA to GSM networks, they may not be produced in sufficient quantities when needed, and they may not achieve desirable economies of scale.

      If we cannot reduce the roaming and long distance charges we pay to other wireless carriers, our margins may decline. Wireless system operators agree to provide “roaming” service to subscribers from other compatible wireless systems who are temporarily located in or traveling through their service areas. We believe that the ability to provide national service to segments of customers is critical to maintaining our competitive position. Since our network does not cover the entire United States, and since our subscribers can currently only access our entire network using GAIT phones due to the different technologies that we use, we have entered into roaming agreements with other providers to permit our subscribers to use their networks. Additionally, GSM coverage in the United States is currently not as widely available compared to other technologies such as TDMA. We may not be able to expand our footprint or reduce the roaming and long distance charges that we pay to other wireless carriers, and, as a result, our services may become less profitable or the coverage area or pricing we offer relative to our competitors may not be as attractive.

      Our choice for the next generation of technology, EDGE, is a new technology and could quickly become obsolete and/or not commercially accepted, which could result in a delay in offering new services. Several wireless providers have announced that they will introduce new third generation, or “3G”, wireless services in the United States within the next several years. We expect that 3G services will combine the attributes of faster speed, greater data capability, better portability and greater functionality than services provided over current networks. We have chosen EDGE as our next generation technology, but we believe that there will be multiple, competing technological standards, several options within each standard, vendor-proprietary variations and rapid technological innovation. Other technologies could emerge as preferred data networks for some services and, if those technologies are widely accepted, we may miss the opportunity to offer those services because of our technology choice. There is a risk that EDGE could be inadequate or become obsolete. In addition, EDGE could receive less active support from equipment vendors and/or be less commercially accepted by users, which could be detrimental to our competitive position, financial condition and results of operations.

      We are committing a substantial amount of capital to upgrade our cellular and PCS networks to offer advanced data services, but there can be no assurance that widespread demand for these services will develop. While demand for our advanced data services is growing, it is currently a small portion of our revenues. Wide market acceptability of these services is constrained by slower network speeds in areas where we have not installed GPRS technology. In addition, continued growth in wireless data services is dependent on other factors, such as increased development and availability of popular applications and improved availability of handsets and other wireless devices with features, functionality and pricing desired by customers. We do not expect that there will be widespread demand for advanced wireless data services in the near future or that data revenues will constitute a significant portion of our total revenues in the near future, and there can be no assurance that this demand will develop at a level that will allow us to earn a reasonable return on our investment. See “Our business expansion and network upgrade will require substantial additional capital and we cannot assure you that we will be able to finance them” for additional information regarding our future capital expenditures.

      Because some of our operations are conducted through joint ventures with other companies, we cannot control all aspects of our business, and disputes with our partners may impede our plans to establish

21

Table of Contents

      Our network sharing venture with T-Mobile may impede our ability to compete effectively in the covered territories. We share network infrastructure in California, Nevada and New York City with T-Mobile. If the combined demand for service through the joint venture far exceeds the network capacity, temporary degradation of service and loss of customers may result until capacity is increased.

      Our business expansion and network upgrade will require substantial additional capital and we cannot assure you that we will be able to finance them. The operation of our business and the upgrading and expansion of our network will require substantial amounts of capital such as:

	•	we will require substantial capital for acquisitions of systems, spectrum licenses, build-out of infrastructure, our network migration and upgrade plan and network capacity expansion;
	•	upon Salmon’s request, we will lend Salmon additional secured debt capital to finance the build-out of its networks and operations;
	•	we will provide funding to our current and potential infrastructure ventures with T-Mobile and AT&T Wireless; and
	•	we will be required to make distributions to SBC and BellSouth under our limited liability company agreement to cover tax liabilities that may arise from their interests in us to the extent that we generate taxable income.

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

      As a result of the cash needs described above, we may need to incur significant amounts of additional debt or to raise equity. Our credit ratings have been downgraded within the past 18 months by two of the credit rating agencies, and incurring substantial amounts of additional debt or failing to improve our operating performance could result in negative rating actions in the future, which could increase our cost of borrowing. In addition, we may not be able to obtain debt or equity funds on satisfactory terms from the capital markets, from other sources or from SBC or BellSouth, neither of which has any obligation to provide us additional funding. The failure to obtain financing could result in, among other things:

	•	delay or abandonment of our business development and expansion or network upgrade plans; or
	•	failure to meet regulatory build-out requirements or to continue to provide service in all or portions of some of our markets,

any of which could result in slower business growth and loss of competitive position. For more information relating to our access to capital and the capital we will require, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Expenditures and Other Investments” and “— Debt Service”.

      Acquisitions may be costly and time consuming to integrate. One element of our strategy is to expand the geographic coverage of our network, which we may achieve by obtaining access to additional spectrum through FCC auctions, spectrum exchanges with or purchases from other wireless providers, acquiring wireless carriers or forming joint ventures or alliances with the existing businesses of other wireless providers. These efforts may require substantial additional financing. In addition, we may encounter difficulties in integrating existing operations that we may acquire into our own operations

22

Table of Contents

      Failure of certain of our key suppliers to deliver equipment and services could adversely affect our ability to operate our business. We depend upon various key suppliers to provide us with equipment and services that we need to continue our network upgrade and operate our business. Some of these suppliers are experiencing financial and business difficulties, and if these suppliers fail to provide equipment or service to us on a timely basis, we may be unable to provide services to our customers in a competitive manner. If we are unable to obtain the hardware and software we need to build out licensed territories, our licenses may be at risk of termination for failure to satisfy the requirements contained in our FCC licenses regarding the construction of our networks.

      We have a major relationship with Research in Motion Limited, or “RIM”, to purchase Blackberry™ hand-held devices for use in our data communications business. A trial court has recently held that these devices infringe several patents. If it is ultimately held that RIM cannot distribute these devices, it could cause a loss of revenue from and disruption to our mobile data business.

      Difficulties in completing the integration of the companies that form our business could adversely affect us in many ways. Prior to our formation, the domestic wireless units of SBC and BellSouth had their own management teams, wireless networks, operational and technical groups, marketing and distribution channels and information, billing and other systems. We have accomplished a significant level of integration, but more remains to be done. The continuing integration of network, information, customer care, billing and financial systems of our predecessor units is critical to achieving our operational and financial goals. This involves considerable effort, and there is a risk that the process could be more costly and time-consuming than planned and could delay the introduction of productivity enhancements and measurement tools. In addition, we may not be able to maximize cost savings and the quality of our customer care and other operations may be negatively impacted during the transition, all of which could have a material adverse effect on our operating results and financial condition.

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

Factors Relating to Our Industry

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

      A high rate of churn would negatively impact our business. Wireless communications services providers, including us, experience varying rates of lost customers, referred to as “churn”. We believe that customers change wireless providers for the following reasons: service offerings, price, call quality, coverage

23

Table of Contents

      Our industry will continue to be adversely affected if the economic slowdown persists. The economies of the United States and many other nations are suffering from a significant and prolonged economic slowdown, and wireless companies, including us, have experienced slower growth. There can be no assurance that such a slowdown will not continue to adversely affect the industry.

      New spectrum available through government auctions will likely be in a frequency band different from our current frequency bands, and if we acquire spectrum in a new frequency band, greater inefficiencies and costs may result. Our network currently consists of infrastructure that provides communications over cellular and PCS frequencies. Our Mobitex data network is operated over a separate frequency. It is likely that new spectrum available through government auctions will be in yet another frequency band. Handsets that utilize spectrum in multiple frequencies are currently under development but they may cost more than currently available handsets. Also, there are operational inefficiencies and added costs required to accommodate such disparate spectrum, and we may lose customers if we must upgrade them to new handsets to permit seamless roaming over new multi-frequency networks.

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

      State and local legislation regarding wireless phone use while driving may adversely affect us. Many states and municipalities have proposed, and several, including New York state, have enacted, legislation that requires the use of a hands-free accessory while driving an automobile, which may discourage use and could decrease our revenues from customers who now use their phones when driving. Such legislation, if adopted and enforced in the areas we serve, may reduce, in the short term, sales, usage and revenues. In addition, allegations that using wireless phones while driving may impair drivers’ attention in certain circumstances may lead to potential litigation relating to traffic accidents and further governmental regulation, which could adversely affect our results of operations.

      Our operations are subject to substantial government regulation, which could significantly increase our costs and increase churn. Many aspects of our business are regulated to varying degrees by the FCC and some state and local regulatory agencies. The adoption or change of regulations could significantly increase

24

Table of Contents

      A number of our FCC licenses to provide wireless services are subject to renewal and potential revocation in the event that we violate applicable laws. A number of our licenses are subject to renewal, generally some each year, upon the expiration of the 10-year period for which they are granted, and we cannot assure you that the FCC will renew them. In addition, FCC rules require all wireless licensees to meet specified build-out requirements, and failure to comply with these and other requirements in a given license area could result in termination or cancellation of our license for that license area or the imposition of fines by the FCC. If any of our licenses are forfeited or revoked, we would not be able to provide service in that area unless we contract to resell wireless services of another provider or utilize roaming agreements.

      Equipment failure and disasters may adversely affect our operations. A major equipment failure or a disaster that affects our mobile telephone switching offices, microwave links, third-party owned local and long distance networks on which we rely, our cell sites or other equipment or the networks of other providers on which our subscribers roam could have a material adverse effect on our operations. While we have insurance coverage for some of these events, our inability to operate our wireless system even for a limited time period may result in a loss of subscribers or impair our ability to attract new subscribers, which would have a material adverse effect on our business, results of operations and financial condition.

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

Factors Relating to Our Arrangements with SBC and BellSouth

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

25

Table of Contents

      SBC and BellSouth may compete with us in the areas of fixed wireless voice and data services, and may resell our services under their own brand names inside their service territories after specified future dates. SBC and BellSouth have agreed in our limited liability company agreement to engage in the provision of U.S. mobile wireless voice and data services only through us and our subsidiaries, but the agreement is subject to significant exceptions, including an exception that permits them to market and sell fixed wireless voice and fixed wireless data services and to market and sell wireless services in areas in which we, our subsidiaries or Salmon are not providing services pursuant to FCC licenses. SBC and BellSouth may also amend the agreement to provide that they can engage in other competitive activities, such as wireless data service commonly referred to as Wi-Fi. SBC and BellSouth are permitted to resell our services under their own brand names outside their service territories. In addition, if BellSouth or SBC terminates its wireless agency agreement on or after October 2, 2003, it may resell our wireless services in its respective service territories. See “Certain Relationships and Related Transactions — Resale Agreements” and “— Wireless Agency Agreements”.

      The arrangements that we have with SBC and BellSouth were established by SBC and BellSouth, and may not be as advantageous as similar agreements negotiated with unaffiliated third parties. We have entered into various agreements with SBC and BellSouth and their respective affiliates that are material to the conduct of our business, and we may enter into additional agreements with them in the future. For example, we have entered into resale and agency agreements with SBC and BellSouth that include pricing and other terms. Although we believe that these agreements, as a whole, are as advantageous to us as those that could otherwise be obtained, we have no independent verification that these agreements are as advantageous as similar agreements negotiated with unaffiliated third parties. See “Certain Relationships and Related Transactions”.

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

      SBC and BellSouth control all important decisions affecting our governance and our operations and may fail to agree on important matters. Under the terms of our limited liability company agreement, our management is exclusively vested in our manager. Both the board of directors and the strategic review committee of our manager are comprised of four directors: two elected by SBC and two elected by BellSouth. Substantially all important decisions of our manager must be approved by its strategic review committee. It is possible that the committee may be deadlocked regarding matters that are very important to us. Although deadlocks are to be resolved by the chief executive officers of SBC and BellSouth, if they cannot agree, inaction may result, which could, among other things, result in us losing important opportunities. For more information on our governance, including the strategic review committee, see “Certain Relationships and Related Transactions — Our Limited Liability Company Agreement”.

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

26

Table of Contents

Item 2.     Properties

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

      As of December 31, 2002, we operated a direct distribution channel comprised of approximately 1,200 company-operated stores and kiosks. We have one central handset and accessory distribution center located in Memphis, Tennessee. Network properties included approximately 150 switches and 20,000 cell sites.

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

Item 3.     Legal Proceedings

      From time to time we are a party to various legal actions and claims relating to matters that are incidental to the conduct of our business, including the following matters.

      In 1993, Westside Cellular, Inc., d/b/a Cellnet of Ohio (“Cellnet”), a reseller, filed a complaint against Cincinnati SMSA Limited Partnership (“Cincinnati”) with the Ohio Public Utilities Commission (PUC) alleging that it had violated certain PUC requirements related to resale of airtime on a wholesale basis. We currently have a 53% controlling interest in Cincinnati. Following the PUC decision against Cincinnati, Cellnet filed a complaint against Cincinnati and its affiliate, Ameritech Mobile Communications LLC, for damages, now alleged to approximate $350 million, in the Cuyahoga County Common Pleas Court, relying upon Ohio law that permits it to seek damages for violation of PUC orders. Under Ohio law, any such damages found by a jury would be trebled. In an opinion issued on December 30, 2002, the Ohio Supreme Court rejected Cincinnati’s federal and state law arguments challenging the PUC decision and affirmed the PUC decision and remanded the case to the Common Pleas Court for a trial on damages. Cincinnati will present evidence and arguments that Cellnet has not sustained any damages as a result of Cincinnati’s conduct. Cincinnati also plans to file a petition for certiorari with the U.S. Supreme Court asking that Court to review and reverse the Ohio Supreme Court’s decision, which would moot any finding of damages and terminate this litigation. It cannot yet be determined whether Cincinnati will be found liable for damages and, if so, in what amount or whether the U.S. Supreme Court will agree to review and reverse the decision of the Ohio Supreme Court.

      BellSouth and we have been advised that Gary Forsee, BellSouth’s vice chairman — domestic operations and a former Class B director of our manager and the chairman of its board of directors, intends to join Sprint Corporation as its chief executive officer. Mr. Forsee was removed as our director on February 21, 2003, and BellSouth and we have sued Mr. Forsee in the Fulton County Superior Court of Georgia to enforce the non-compete and confidentiality provisions of Mr. Forsee’s employment contract with BellSouth with respect to his proposed employment by Sprint. The court found the non-compete provision invalid, but that issue is currently on appeal. The court ordered arbitration on the confidentiality provision and granted a temporary restraining order preventing Mr. Forsee from accepting employment at Sprint until at least March 12, 2003. BellSouth and we have also sued Sprint in the U.S. District Court for the Northern District of Georgia alleging, among other things, tortuous interference with contractual relations, threatened misappropriation of trade secrets and unfair competition.

      Cingular and various affiliated entities are subject to state government inquiries over marketing practices in the cellular industry, and are defendants in a number of purported class actions brought on behalf of subscribers throughout the country, regarding common law and statutory claims of misrepresentation, inadequate disclosure, unfair trade practices or breach of contract related to our advertising, promotions, sales, billing and collection practices. These include claims relating to the practice or alleged practice, and alleged nondisclosure, of rounding up of partial minutes of airtime usage to full minute increments, send-to-end billing, negative options, ring time billing, first incoming minute free

27

Table of Contents

      Cingular and various affiliated entities are defendants in a number of cases in various courts involving claims by former agents and resellers who allege that we breached our contracts with those agents and resellers, have tortuously interfered with their contractual relationships with others by terminating our relationships with them and have engaged in unfair competition. Some of the complaints have further alleged that we are a franchisor under applicable state franchise law and have violated franchise laws in our relationship with them. State franchise laws often provide for treble damages for violations. We believe that we are not a franchisor under state law in these cases.

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

      While complete assurance cannot be given as to the outcome of any legal actions and claims, we believe that any financial impact would not be material to our results of operations, financial position or cash flows.

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

      None

28

Table of Contents

PART II

(Dollars in Millions)

      There is no established trading market for our ownership interests. SBC owns approximately 60% of our ownership interests and BellSouth owns approximately 40% of our ownership interests. Cingular Wireless Corporation, our manager, owns the remaining 0.0000001% ownership interest in us.

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

      Additionally, we are required to distribute to our members 50% of our “excess cash”, as defined in our operating agreement, at the end of each fiscal year. Excess cash consists of funds generated from our operations, less forecasted cash needs for the upcoming fiscal year and distributions made to the members for their tax payments. In 2000, 2001 and 2002, we were not required to make any distributions of excess cash to the members and do not anticipate being required to make any such distributions in 2003.

      We have no outstanding equity compensation plans.

Item 6.     Selected Financial Data

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

Selected Historical Financial Information — Cingular Wireless LLC

      The following table presents selected historical consolidated financial and operating data of Cingular Wireless LLC from the date of its formation, April 24, 2000. The data presented in this table is derived from the historical financial statements and related notes which are included in this document. The results for the period April 24, 2000 to December 31, 2000 presented below include the contributed SBC and BellSouth Domestic Wireless Groups’ wireless operations from October 2, 2000; there were no meaningful results of operations of Cingular Wireless LLC prior to that date.

29

Table of Contents

(1)	In November 2001, depreciation expense related to the transfer of assets with our network infrastructure venture with T-Mobile USA, Inc. (formerly known as VoiceStream Wireless Corporation) was reclassified as a component of equity in net loss of affiliates and thus is no longer included in operating expenses.
(2)	Fiscal 2002 includes a cumulative effect of accounting change in accounting principle of $32 upon the adoption of SFAS No. 142. See Note 4 to the audited financial statements.
(3)	Capital expenditures do not include capital expenditures and cash contributions related to the Company’s infrastructure venture with T-Mobile.
(4)	Licensed POPs refers to the number of people residing in areas where we have licenses to provide cellular or PCS service.
(5)	Cellular/PCS subscribers include customers served through reseller agreements. In 2001, cellular/PCS subscribers include customers associated with additional wireless businesses contributed by our members.
(6)	Cellular/PCS subscriber churn is calculated by dividing the aggregate number of cellular/PCS subscribers who cancel service during each month in a period by the total number of cellular/PCS subscribers at the beginning of each month in that period.
(7)	ARPU is defined as cellular/PCS service revenues during the period divided by average cellular/PCS subscribers during the period.
(8)	EBITDA is defined as operating income plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with generally accepted accounting principles, but because we believe it is a widely accepted indicator of our ability to incur and service debt and make capital expenditures. EBITDA does not give effect to cash used for debt service requirements and distributions and thus does not

30

Table of Contents

	reflect funds available for dividends, reinvestment or other discretionary uses. In addition, EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies.
(9)	EBITDA margin is defined as EBITDA divided by service revenues.

(10)	Earnings consist of income before income taxes, extraordinary gain (loss), cumulative effect of accounting changes and fixed charges. Fixed charges include interest expense, capitalized interest and the portion of rent expense representing interest.

Selected Historical Financial Information — SBC Domestic Wireless Group

      The following table presents selected historical consolidated financial and operating data of the SBC Domestic Wireless Group. The statement of operations and cash flow data for the years ended December 31, 1998 and 1999 and the period ended October 2, 2000 is derived from the audited financial statements of the SBC Domestic Wireless Group. We derived the remaining financial data from the SBC Domestic Wireless Group’s unaudited financial statements. You should read those statements for a further explanation of the selected financial data set forth below. You should also read our “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

      The historical financial information includes the results of operations and cash flows for the SBC Domestic Wireless Group for all periods, retroactively restated to reflect the mergers of SBC with the wireless businesses of Pacific Telesis Group (PAC), Southern New England Telecommunications Corporation (SNET) and Ameritech Corporation (Ameritech) as poolings of interests. Historical financial information also includes the results of operations and cash flows for acquisitions from their date of acquisition and includes the results of operations and cash flows from various disposed assets until their date of disposition. You should also read our “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Presentation of Financial Information”.

31

Table of Contents

(1)	In October 1999, SBC completed the required disposition, as a condition of the Ameritech merger, of 20 Midwestern cellular properties, including the competing cellular licenses in Chicago, Illinois, and St. Louis, Missouri and other markets. The SBC Domestic Wireless Group recorded an extraordinary gain of $1,379 on this sale, net of taxes of $960.
(2)	In September 2000, adjustments related to calculations of the 1999 gain on the required disposition of the 20 Midwestern cellular properties following the Ameritech merger referred to in note (1) above resulted in an additional extraordinary gain of $36, net of taxes of $24.
(3)	The SBC Domestic Wireless Group’s results in 1999 include the effect of conforming the adoption date for postretirement accounting between SBC and Ameritech. This change was recorded in the third quarter of 1999, retroactive to January 1, 1999, as a cumulative effect of accounting change of $14, net of taxes of $9.
(4)	Net cash provided by operating activities for the period ended October 2, 2000 reflects a tax payment of $1,102 associated with the sale of the 20 Midwestern cellular properties referenced in note (1).
(5)	Subscribers include customers served through reseller agreements.
(6)	Cellular/PCS subscriber churn is calculated by dividing the aggregate number of cellular/PCS subscribers who cancel service during each month in a period by the total number of cellular/PCS subscribers at the beginning of each month in that period.
(7)	Average revenue per subscriber unit (ARPU) is defined as cellular/PCS service revenues during the period divided by average cellular/PCS subscribers during the period.
(8)	EBITDA is defined as operating income plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with generally accepted accounting principles, but because we believe it is a widely accepted indicator of our ability to incur and service debt and make capital expenditures. EBITDA does not give effect to cash used for debt service requirements and distributions and thus does not reflect funds available for dividends, reinvestment or other discretionary uses. In addition, EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies.
(9)	EBITDA margin is defined as EBITDA divided by service revenues. When adjusted for a $220 million charge recorded in 1999 by SBC in connection with the sale/leaseback of certain network assets, the EBITDA margin for 1999 would have been 37.0%.

Selected Historical Financial Information — BellSouth Domestic Wireless Group

      The following table presents summary historical consolidated financial and operating data of the BellSouth Domestic Wireless Group. The statement of operations and cash flow data for the years ended December 31, 1998 and 1999 and the period ended October 2, 2000 is derived from the audited financial statements of the BellSouth Domestic Wireless Group. We derived the remaining financial data from the BellSouth Domestic Wireless Group’s unaudited financial statements. You should read those statements

32

Table of Contents

      The historical financial information for the BellSouth Domestic Wireless Group includes the results of operations and cash flows for various significant acquisitions from their date of acquisition and includes the results of operations and cash flows from various disposed assets until their date of disposition. You should also read our “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Presentation of Financial Information”.

(1)	Total operating expenses include a provision for asset impairment in 1999. This provision represents non-cash charges associated with disposals of infrastructure equipment in 14 wireless markets in the southeastern United States. This charge of $320 was recorded to write down these assets to their fair market value, as required under SFAS 121, and was estimated by discounting the expected future cash flows of these assets through the date of disposal. This equipment was replaced with new equipment.
(2)	Subscribers include customers served through reseller agreements.
(3)	Cellular/PCS subscriber churn is calculated by dividing the aggregate number of cellular/PCS subscribers who cancel service during each month in a period by the total number of cellular/PCS subscribers at the beginning of each month in that period.
(4)	Average revenue per subscriber unit (ARPU) is defined as cellular/PCS service revenues during the period divided by average cellular/PCS subscribers during the period.

33

Table of Contents

(5)	EBITDA is defined as operating income plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with generally accepted accounting principles, but because we believe it is a widely accepted indicator of our ability to incur and service debt and make capital expenditures. EBITDA does not give effect to cash used for debt service requirements and distributions and thus does not reflect funds available for dividends, reinvestment or other discretionary uses. In addition, EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies.
(6)	EBITDA margin is defined as EBITDA divided by service revenues. When adjusted for the provision for asset impairment described in note (1), the EBITDA margin for 1999 would have been 27.1%.

Introduction

      We serve approximately 22.7 million voice and data customers, including customers served over our Mobitex network, and are the second-largest provider of wireless voice and data communications services in the United States, based on the number of wireless subscribers. We have access to licenses to provide cellular or PCS wireless communications services covering an aggregate population of 231 million, or approximately 81% of the U.S. population, including in 45 of the 50 largest U.S. metropolitan areas. We provide cellular or PCS services in 43 of the 50 largest U.S. metropolitan areas.

Competition

      We compete for customers based principally on price, service offerings, call quality, coverage area and customer service. We face substantial and increasing competition in all aspects of our business. This condition has had an adverse impact on our customer and revenue growth, and we expect this trend to continue. Our competitors are principally five national (Verizon Wireless, AT&T Wireless, Sprint PCS, Nextel Communications and T-Mobile) and a large number of regional providers of cellular, PCS and other wireless communications services, resellers and wireline service providers. In addition, we may experience significant competition from companies that provide similar services using other current or future communications technologies and services.

Operating Revenues

      Service Revenues. Service revenues consist of revenues from the provision of wireless voice and data services. Service revenues, which we record when services are provided, include revenues from:

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

      Revenues from data services have not been material in any of the periods presented. We expect that trend to continue, although revenues from wireless data services will increase as a result of the availability of GPRS and EDGE across our network and the introduction of new data applications for business and consumer use, including access to e-mail, Internet content, mobile commerce and location-based services.

34

Table of Contents

      Equipment Sales. Equipment sales include revenues from the sale of handsets and accessories to new and existing customers and to agents and other third-party distributors. The trend in equipment sales is generally comparable to the trend in gross customer additions.

Operating Expenses

      Our operating expenses include:

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

      The integration of our predecessor operations provided opportunities for cost savings. Prior to our formation as a joint venture, the SBC and BellSouth Domestic Wireless Groups had their own management teams, wireless networks, operational and technical groups, marketing and distribution channels and information, customer care, billing and other systems. We believe that our formation and the resulting combination of these businesses has generated significant synergies, which will lower our overall cost structure on a recurring basis.

      We must increasingly seek to reduce expense growth in order to protect profit margins. As a combined entity, we eliminated roaming costs between our two predecessor entities and by spreading our fixed costs over a larger subscriber base, we generate higher operating income. We also believe that our industry position enables us to negotiate roaming, long distance and local network connection fees and handset and network infrastructure purchase arrangements on favorable terms.

      Cost of Services. Cost of services includes the cost of carrying calls and maintaining our network including internal and contract engineering labor, expenses to monitor, maintain and service our network and landline facilities expense. Cost of service also includes roaming charges and long distance expense for services provided by other telecommunications carriers, which are increasing as a result of increased usage stimulated by national rate plans’ inclusion of free roaming and long distance services.

      Cost of Equipment Sales. Cost of equipment sales includes the cost of handsets and accessories. Some of our third party distributors purchase handsets and accessories from us, usually above cost. However, we generally sell handsets below cost to customers who purchase through direct sales channels, such as our company stores, as an inducement to customers who agree to one-year and two-year subscription contracts or in connection with other promotions. As a result, revenues from equipment sales are more than offset by the related cost of equipment sales, resulting in a net subsidy to customers. In addition, we have actively focused on selling services to new customers and upgrading existing customers to digital handsets and service, which increase network capacity and lower our operating cost per minute. When first introduced, digital handsets were more expensive than analog phones, contributing to an increase in cost of equipment. The trend in costs from equipment sales follows the trend in gross customer additions and, to a lesser degree, changes in the cost of handsets. The cost of handsets has declined, and, as one of the largest purchasers of handsets in the United States, we believe we will be able to purchase handsets at attractive volume-discounted rates.

      Selling, General and Administrative. Selling, general and administrative expenses include all operating costs and expenses not included in the other operating cost and expense categories, such as:

	•	sales and marketing costs, including the costs of advertising and promotions;
	•	distribution expenses, including the costs to maintain retail locations and the commissions paid to our own sales force as well as agents and other third party distributors; and
	•	other administrative cost such as accounting and billing operations, customer service, and other overhead costs.

35

Table of Contents

      Pre-paid and reseller customers, together, comprise less than 10% of our customer base. Because the cost to acquire these customers is less than for direct, post-paid customers, our customer acquisition costs have increased as pre-paid and reseller customers have decreased as a percentage of total subscribers.

      Depreciation and Amortization. Depreciation and amortization expense includes non-cash expenses relating to the depreciation of property, plant and equipment and the amortization of intangibles, such as customer lists and, prior to 2002, FCC licenses and goodwill. Depreciation expense pertaining to assets used in our business (excluding assets transferred to joint ventures) has been generally increasing as a result of our capital expenditures and we expect this expense to continue to increase in the foreseeable future as we make capital expenditures to build out and upgrade our network, adjust asset lives, as appropriate, and make other investments. See “— Liquidity and Capital Resources” below for a discussion of our capital expenditures and other investments.

Other Income (Expenses)

      Interest Expense. Interest expense includes interest costs related primarily to our indebtedness and capital leases.

      Minority Interest. Minority interest reflects the share of operating income (loss) belonging to members or partners in consolidated entities.

      Equity in Net Income (Loss) of Affiliates, Net. In addition to the subsidiaries that we control and include in our consolidated financial statements, we have non-controlling equity investments in various entities. The largest of these are as follows:

	•	In November 2000, we made an equity investment, and as of December 31, 2002 had a non-controlling equity interest, in Salmon. Because we do not control Salmon, we account for this investment using the equity method and record profits or losses in our income statement as equity in net income (loss) of affiliates. Crowley Digital LLC, the other member of Salmon, is not committed to provide equity funding in excess of its initial capital contribution of $50. As a result, we will recognize 100% of Salmon’s losses at such time as Crowley’s capital contribution has been eliminated due to it being charged with its proportionate share of Salmon’s losses. Until Salmon’s networks are built out and it has acquired a significant number of subscribers, it is expected to generate significant operating losses. None of Salmon’s networks are constructed or operational as of December 31, 2002.
	•	In November 2001, we formed a jointly-controlled infrastructure venture with T-Mobile. In July 2002, we commenced commercial operations in New York City and T-Mobile commenced operations in California and Nevada. Because we do not independently control this venture, we also account for this investment using the equity method. This venture is structured to generate operating losses approximating the amount of the depreciation on the assets that have been contributed to it and unreimbursed interest expense.

      We expect to record a significant equity in loss of affiliates over the next several years relating to our investments in these ventures.

Income Taxes

      We are a limited liability company treated as a partnership for income tax purposes and therefore generally do not pay taxes on our income. Instead, income taxes are generally the responsibility of our members. However, we have corporate and LLC subsidiaries that are taxpayers in some jurisdictions and will record income tax expense. We do not expect that our income tax expense will be material in the near future.

36

Table of Contents

Consolidated Results of Operations

Presentation of Financial Information

      We were formed in 2000 and have limited historical results of operation prior to the contribution of the SBC and BellSouth Domestic Wireless Groups’ assets on October 2, 2000. Therefore, for periods prior to October 2000, we present the historical results of operations of the SBC Domestic Wireless Group and the BellSouth Domestic Wireless Group and discuss the results of operations of those businesses on a historical basis.

      We present and discuss:

	•	our financial results for the twelve months ended December 31, 2002 compared to the twelve months ended December 31, 2001; and
	•	certain components of our historical financial results for the year ended December 31, 2001 compared to the comparative components of unaudited combined historical results of the SBC Domestic Wireless Group and the BellSouth Domestic Wireless Group for the nine months ended September 30, 2000, combined with our historical consolidated financial results for the period April 24, 2000 (inception) through December 31, 2000.

      The combined financial data was prepared by aggregating for the periods indicated the historical financial statements of Cingular, the SBC Domestic Wireless Group and the BellSouth Domestic Wireless Group, as applicable, and eliminating any inter-company transactions. The combined operating data for 2000 does not purport to be indicative of what our results of operations would actually have been if we had been formed at the beginning of that year. The SBC and BellSouth Domestic Wireless Groups were managed separately prior to their contribution to us on October 2, 2000; and the combined financial data for 2000 is not intended to show what the combined financial results would have been had the companies actually been managed together. We present the combined operating data because management evaluates our business by comparing our results from one period against results from prior periods and believes that these comparisons provide a reasonable basis for measuring changes in our operating results.

      The combined operating data should be read in conjunction with our audited financial statements and the audited financial statements of the SBC Domestic Wireless Group and the BellSouth Domestic Wireless Group and other financial and operating information appearing under Item 8.

      The historical consolidated data below is for the years ended December 31, 2001 and 2002.

37

Table of Contents

     Customer Base

      We have recently experienced lower subscriber growth due in part to a slowing economy and increased wireless penetration and competition in the United States. As these factors may reduce the pool of prospective wireless subscribers, our customer growth is increasingly dependent on reducing our churn and attracting customers who churn from other carriers.

      Cellular/PCS customers were 21.9 million at December 31, 2002, an increase of 1.4% from the 21.6 million customers at December 31, 2001. Net cellular/PCS customer additions in 2002 were 360,000, a decrease of 1,561,000, or 81.3%, from the 1,921,000 net customer additions in 2001. The decrease in net customer additions was primarily a function of a 1.1 million, or 12.3%, reduction in gross customer additions from 2001. The decrease in 2002 was a result of intense industry competition, impacts of the economic slowdown, and the continued decline in our analog, prepaid and reseller customer bases. We lost approximately 266,000 reseller customers after WorldCom, Inc. (WorldCom) exited the reseller business during the year, and an additional approximately 130,000 WorldCom customers became our direct customers. We believe that a number of internal business initiatives also contributed to our negative growth trends in 2002, including;

	•	centralization of the marketing and sales organizations, which reduced our effectiveness in responding to regional and local product and service opportunities;
	•	other merger-related changes, such as billing system integration and inventory and customer care consolidation, that may have impacted customers; and
	•	a shift to sales plan initiatives designed to improve cash flow rather than overall market share.

38

Table of Contents

      During the year ended December 31, 2002, our postpaid subscriber base increased 928,000, or 4.9%, including the approximately 130,000 former WorldCom reseller subscribers who transferred to us after WorldCom exited the reseller business. The prepaid and reseller subscriber bases decreased by 23,000, or 1.6%, and 577,000, or 45.1% respectively, during the year.

      For the year ended December 31, 2002, the cellular/PCS churn rate was 2.8% compared with a 2.9% churn rate for 2001. The lower churn in 2002 is reflective of our efforts to acquire and maintain quality non-reseller postpaid customers. This lower churn was partially offset by the continued deterioration of our prepaid and reseller customer base, primarily as a result of WorldCom’s exiting the reseller business, which had a negative impact on churn in 2002.

      We had over 5 million customers using our data services at December 31, 2002. In addition to our cellular and PCS licenses, we own FCC licenses to provide data services over a separate frequency band. Our network at this band utilizes a different technology called “Mobitex”. The number of our Mobitex data network customers increased to approximately 817,000 at December 31, 2002, an 11.5% increase from 733,000 customers at year-end 2001. Net customer additions for the year ended December 31, 2002 were 84,000, a decrease of 47.5% from the 160,000 net customer additions in the prior year. Most of these customers are business customers, and the decline in net additions is primarily due to the economic slowdown.

     Operating Revenue

      Total operating revenues, consisting of service revenues and equipment revenues, increased $619, or 4.4%, to $14,727 for the year ended December 31, 2002, compared with $14,108 for the prior year. An increase in 2002 service revenues, as a result of a higher average number of subscribers, was partially offset by reduced equipment revenues, primarily attributable to reduced gross customer additions. Although total operating revenues increased, the rate of increase declined during 2002, reflecting slower customer growth and lower prices for our services driven by increasing competition. The components of the change in operating revenues are described below.

      Service Revenues. Service revenues are comprised of local service, roaming, long distance and other revenues. For the year ended December 31, 2002, service revenues were $13,746 an increase of $677, or 5.2%, compared with $13,069 for the prior year. Of the $677 increase, $203 can be attributed to the contribution of a Puerto Rico wireless business from SBC in September 2001.

      The local service component of total service revenues includes recurring monthly access charges, airtime usage, including prepaid service when earned, and charges for optional features and services, such as voice mail, mobile-to-mobile calling, roadside assistance, caller ID, handset insurance and data services.

      Local service revenues for the year ended December 31, 2002 were $11,924, an increase of $1,111, or 10.3%, compared with $10,813 for the prior year. The increase was primarily driven by a 6.8% increase in the average number of cellular/PCS subscribers versus 2001 and the continued migration of our customers to all-inclusive rate plans that include roaming and long distance at no additional charge. The increase was also driven by a 26.2% increase in local minutes of use per customer, driven by plans offering increasing numbers of minutes of service for a flat, monthly fee. Additionally, $156 from the provision of handset insurance through a new subsidiary and $181 due to the September 2001 contribution by SBC of the Puerto Rico wireless business also contributed to the increase from the prior year. Data service revenues, a component of local service revenues, increased 48.2% in 2002, from $193 in 2001 to $286 in 2002.

      The roaming component of total service revenues includes revenues that we collect from our customers who roam outside their selected home coverage area, referred to as “incollect” roaming revenues, and revenues from other wireless carriers for roaming by their customers on our network, referred to as “outcollect” roaming revenues.

      Incollect revenues for the year ended December 31, 2002 were $776, a decrease of $108, or 12.2%, compared with $884 for the prior year. Incollect revenues declined as more of our customers adopted regional and national rate plans, which include free roaming in bundled minute plans.

39

Table of Contents

      Outcollect revenues for the year ended December 31, 2002 were $701, a decrease of $239, or 25.4%, compared with $940 for the prior year. This decline is primarily a function of reductions in roaming rates with major roaming partners and the building out of other carriers’ networks, which reduces the need of their customers to roam on our network. The impact of our infrastructure venture with T-Mobile also contributed $26 to the decrease from 2001.

      Long distance revenues for the year ended December 31, 2002 comprised only approximately 1.5% of total service revenues. These revenues continue to decline as our customers migrate to all-inclusive rate plans that include long distance service in the monthly access charge.

      Other revenues for the year ended December 31, 2002 were $136, a decrease of $73, or 34.9% compared with $209 for the prior year. The decrease in 2002 includes a reduction of $23 in administrative and programming revenues related to the formation of a captive handset insurance company in 2002. Other decreases from 2001 include a $17 reduction in management fees as a result of the contribution of the Puerto Rico wireless business in September 2001 and a $13 decrease in local exchange carrier (LEC) reciprocal compensation revenues as a result of our infrastructure joint venture with T-Mobile.

      ARPU for cellular/PCS service declined by $0.79 to $51.47, or 1.5%, from $52.26 for the year ended December 31, 2001. Our strategy of targeting, acquiring and retaining non-reseller postpaid customers has resulted in an increase in subscriber revenues. This increase, however, has been offset by reductions in revenues from bundled services and outcollect and other revenues, thereby reducing overall service ARPU. The consolidation of Puerto Rico operating results in our financial statements, beginning September 2001, also adversely affected ARPU as a result of the heavy concentration of prepaid subscribers in Puerto Rico. Of the $0.79 decline in ARPU, $0.18 of the decline can be attributed to the dilutive ARPU impact of the Puerto Rico consolidation.

      Equipment Sales. Equipment sales for the year ended December 31, 2002 were $981, a decrease of $58, or 5.6%, compared with $1,039 for the prior year. This decrease is primarily the result of a 5.0% decline in non-reseller gross additions from 2001.

     Operating Expenses

      Cost of Services (Exclusive of Depreciation). Cost of services primarily includes expenses to monitor, maintain and service our network, landline facilities expense, incollect roaming charges from other carriers and long distance expense. Cost of services for the year ended December 31, 2002 was $3,395, an increase of $643, or 23.4%, compared with $2,752 for the prior year. Cost increases in 2002 were driven by a 36% increase in system minutes of use and higher roaming and long distance costs. These increases are a result of customer migration to digital rate plans that include more minutes, free long distance calling and free roaming. Increases in 2002 over the prior year also include $151 in impairment losses related to our long-lived assets utilized in our Mobitex data network and certain TDMA network assets and $93 related to the provision of handset insurance through the new captive insurance subsidiary. See “Critical Accounting Policies and Estimates” for further discussion of impairment losses recognized in 2002. Although systems costs are increasing due to increased minutes of use, efficiencies attributable to digital networks contribute to decreasing per-minute costs.

      Cost of Equipment Sales. Cost of equipment sales for the year ended December 31, 2002 was $1,535, a decrease of $117, or 7.1%, compared with $1,652 for the prior year. Consistent with the trend in equipment revenues, this decrease is primarily the result of a 5.0% decline in non-reseller gross additions compared with 2001. This year over year cost decrease was also driven by more favorable per-unit pricing in 2002 resulting from our combined purchasing power as well as industry trends. These decreases were offset to a limited degree by increased upgrade equipment costs in 2002.

      Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2002 were $5,426, an increase of $191, or 3.6%, compared with $5,235 for prior year. The higher cost in 2002 was driven by increases of $135 in costs related to maintaining and supporting our customer base, $41 in administrative costs and $15 in selling expenses.

40

Table of Contents

      The $135 in cost increases for maintaining and supporting our customer base included higher residuals and upgrade commissions, customer retention costs and bad debt expense. Bad debt expense increased by $70, with over half of the increase attributable to WorldCom write-offs occurring in 2002. Within this same area of customer maintenance and support expenses, the overall $135 cost increase included lower billing and customer service expenses, reflecting cost reductions as a result of billing system and call center consolidations.

      The increase of $41 in other administrative costs is primarily due to higher information technology (IT) and development costs.

      Selling expenses, which include sales, marketing, advertising and commissions expenses, increased $15 from 2001. Increases in 2002 include $41 in advertising and agent build-out costs associated with the launch of Cingular Wireless service in New York City and $28 related to the reorganization of the sales operation and related workforce reductions. Costs in 2001 included $70 related to the Cingular brand launch.

      Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2002 were $1,850, a decrease of $71, or 3.7%, compared with $1,921 for the prior year. Depreciation expense increased $148 and was comprised primarily of increased depreciation associated with new capital assets, partially offset by a reduction in depreciation as a result of the transfer of assets to our network infrastructure venture with T-Mobile. Beginning in November 2001, the operating losses of Factory, which include depreciation, are reflected as a component of equity in net loss of affiliates. For the year ended December 31, 2002, amortization expense decreased by $219 compared with the prior year. This was primarily attributable to the cessation of amortizing goodwill and wireless licenses as a result of our January 1, 2002 adoption of SFAS No. 142.

     Interest Expense

      Interest expense for the year ended December 31, 2002 was $911, an increase of $89, or 10.8%, compared with $822 for the prior year. The increase in interest expense primarily resulted from the issuance in December 2001 of $2,000 in fixed-rate senior notes to refinance lower interest-bearing commercial paper and fund capital expenditures and working capital. The increased interest expense of $124 related to these fixed-rate senior notes was offset by a reduction of $39 related to minimal use of commercial paper in 2002, compared to 2001.

      Equity in net loss of affiliates for the year ended December 31, 2002 was $265, an increase of $197, compared with $68 for the prior year. The increase primarily reflects additional equity losses of $209 associated with the investment in our network infrastructure venture with T-Mobile, which was formed in the fourth quarter of 2001. This increase was partially offset by a $14 reduction in losses related to our Salmon joint venture.

      Other, net for the year ended December 31, 2002 was $29, a decrease of $135, compared with $164 for the prior year. The decrease is primarily due to a $76 gain associated with the distribution of assets to us at fair value following a partnership dissolution in 2001, a reduction of $27 in interest income and gains from partitioning transactions and a $19 decrease in interest income on advances to Salmon.

      Cumulative effect of change in accounting principle, net of tax, was a loss of $32 during the year ended December 31, 2002 and resulted from an impairment of goodwill related to the Mobitex data business upon the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002.

41

Table of Contents

      The historical consolidated operating revenues, cost of service and equipment sales and gross margin for Cingular Wireless LLC are shown for the year ended December 31, 2001. For the year ended December 31, 2000, the combined historical consolidated operating revenues, cost of service and equipment sales and gross margin for the period April 24, 2000 (inception) to December 31, 2000, combined with the operating revenues, cost of service and equipment sales and gross margin for the SBC Domestic Wireless group and the BellSouth Domestic Wireless Group for the period ended October 2, 2000, are included below. In combining the historical results of the SBC Domestic Wireless Group and the BellSouth Domestic Wireless Group, inter-group transactions have been eliminated. For 2001, the first full year of operations for Cingular Wireless LLC, we have also included below a discussion of 2001’s selling, general and administrative expenses, depreciation and amortization, interest expense, minority interest in net income of consolidated partnerships, equity in net income (loss) of affiliates, net and other, net.

(1)	Gross margin excludes depreciation expense.
(2)	Cellular/PCS subscribers include customers served through reseller agreements.
(3)	Average revenue per subscriber unit (ARPU) is defined as cellular/PCS service revenues during the period divided by average cellular/PCS subscribers during the period.

      Cellular and PCS customers grew to 21.6 million for the year ended December 31, 2001, an increase of 16.1% from the 18.6 million customers at December 31, 2000. In comparison, the increase in the customer base for the year ended December 31, 2000 was 20.0%. The slower rate of growth for the 2001 period reflects the economic slowdown, higher penetration levels and increasing competition in all of our markets. In addition, the rate of customer growth reflects a cellular/PCS customer churn rate of 2.9% for the year ended December 31, 2001, compared to 2.6% in 2000. Our net cellular/PCS customer additions, excluding net additions that occurred prior to the contribution date of those businesses contributed to us in 2001, declined 36.7% from 3.0 million for the year ended December 31, 2000 to 1.9 million in 2001. This decrease was mainly attributable to third and fourth quarter 2001 net customer additions of 417,000, a

42

Table of Contents

	•	increasing pricing for postpaid analog customers;
	•	reducing the subsidy for handsets sold to prepaid customers;
	•	shortening the expiration date of new prepaid cards to 90 days from 180 days from the date of issue; and
	•	removing from our count of resale customers those customers who were inactive for 60 days or longer.

      We implemented these practices to migrate analog customers to digital service and improve the profitability of prepaid services.

      In addition to our cellular and PCS licenses, we own licenses to provide data services over a separate frequency band. Our network at this band utilizes a different technology called “Mobitex”. Our Mobitex data network customers increased to approximately 733,000 at December 31, 2001, a 27.9% increase from approximately 573,000 customers at December 31, 2000. The rate of growth slowed during 2001 as net customer additions of approximately 160,000 for the year ended December 31, 2001 declined from just over 350,000 for the comparable 2000 period. Most of these customers are business customers, and the decline in net additions reflects primarily the economic slowdown, as well as removal of inactive customers from our customer base. This had a significant impact in the third and fourth quarters of 2001 with nearly 45,000 net additions, compared to approximately 191,000 in the third and fourth quarters of 2000. We had approximately 1.7 million active users of our cellular and PCS data services as of December 31, 2001. Most of these customers began subscribing to these services during 2001.

      Revenue from data services has not been material in any of the periods presented. We believe that growth in our data services revenue and customers demonstrates customer acceptance of these services, which we expect over time will increasingly contribute to operating revenue.

      Total operating revenues for the year ended December 31, 2001 were $14,108, an increase of $1,899, or 15.6%, from $12,209 for the year ended December 31, 2000. The components of the change in operating revenues are described below.

      Service Revenues. Service revenues for the year ended December 31, 2001 were $13,069, an increase of $1,848, or 16.5%, compared to $11,221 for the year ended December 31, 2000. The increase was primarily driven by the 21.2% increase in average cellular/PCS subscribers versus the same period one year earlier, offset by a decline in revenues we received from other wireless carriers for roaming by their subscribers on our network. Roaming revenues are trending downward as other carriers build out their networks and as roaming rates decline. Long distance revenue and the revenue we collect from our customers to cover the costs we incur when our customers roam on the networks of other wireless carriers also decreased slightly as a result of our introduction of more competitive regional and national calling plans, which have the effect of converting minutes of use from long distance and roaming revenues to local service revenues. Local service revenues for the year ended December 31, 2001 increased 24.6% over the year ended December 31, 2000. ARPU decreased by $1.21 to $52.26, or 2.3%, from $53.47 in the year ended December 31, 2000 largely due to a lower per minute pricing, offset by a 37.3% increase in local minutes of use per customer.

      Equipment Sales. Equipment sales for the year ended December 31, 2001 were $1,039, an increase of $51, or 5.2%, from $988 for the year ended December 31, 2000. The growth was primarily attributable to an increase in gross customer additions, offset by declining retail prices for digital handsets.

43

Table of Contents

      Total cost of service and equipment sales for the year ended December 31, 2001 was $4,404, an increase of $640, or 17.0%, from $3,764 for the year ended December 31, 2000. The components of the change in cost of service and equipment sales are described below.

      Cost of Services (Exclusive of Depreciation). Cost of services for the year ended December 31, 2001 was $2,752, an increase of $561, or 25.6%, compared to $2,191 for the year ended December 31, 2000. This increase was largely attributable to a 61.0% increase in system minutes of use, fueled by a 18.7% increase in average cellular/PCS subscribers and higher usage from digital rate plans with larger numbers of included minutes. The cost associated with the increase in network traffic volume was partly offset by lower interconnection costs and efficiencies attributable to digital networks.

      Cost of Equipment Sales. Cost of equipment sales for the year ended December 31, 2001 was $1,652, an increase of $79, or 5.0%, compared to $1,573 for the year ended December 31, 2000. The increase was primarily due to an increase in handset sales in order to accommodate subscriber growth and upgrades, coupled with a shift toward higher priced handsets.

      Selling, general and administrative expenses for the year ended December 31, 2001 were $5,235, or approximately 37% of total revenues. Our integration efforts are expected to yield some savings in distribution and customer care costs, with additional savings realized from the consolidation of call centers, billing systems and other functions.

      Depreciation and amortization for the year ended December 31, 2001 was $1,921. We expect depreciation costs to increase as larger capital expenditures will be required for new technologies and services, network enhancements and product offerings.

      Interest expense for the year ended December 31, 2001 was $822. The issuance of $2,000 in senior notes in December 2001 will lead to higher interest expense in subsequent periods.

      Minority interest in net income of consolidated partnerships for the year ended December 31, 2001 was ($122). Partnership operating results and changes in ownership drive the change in minority interest in net income of consolidated partnerships.

      Equity in net income (loss) of affiliates, net, for the year ended December 31, 2001 was a $68 million loss. The loss primarily reflects $32 in equity losses associated with our investment in our jointly controlled venture with T-Mobile and $43 in equity losses associated with Salmon PCS.

      Other, net, for the year ended December 31, 2001 was $164, which primarily reflects a $76 gain associated with the distribution of assets to us at fair value following a partnership dissolution, $24 in gains from the sale of partitioned properties and $43 in interest income on advances to Salmon PCS.

44

Table of Contents

Liquidity and Capital Resources

      The following cash flow analysis compares cash flows for the year ended December 31, 2002, with the year ended December 31, 2001. Also presented are the year 2000 cash flows for our limited operations from October 2, 2000 through December 31, 2000. Because a year over year comparison for such periods does not yield meaningful results, the discussion regarding 2000 will be on the cash flow activity occurring in that period.

      Cash and cash equivalents for the year ended December 31, 2002 was $908, an increase of $341, or 60.1%, compared with $567 for the year ended December 31, 2001.

      Net Cash Provided by Operating Activities. Net cash generated by operations for the year ended December 31, 2002, was $3,592, a decrease of $73, or 2.0%, compared with $3,665 for the year ended December 31, 2001. Net cash generated by operations was $1,062 for the period from October 2, 2000 through December 31, 2000. Cash generated from operations was our primary source of funds in 2002, 2001 and 2000.

      Net Cash Used in Investing Activities. Net cash used in investing activities for the year ended December 31, 2002, was $3,585, a decrease of $360, or 9.1%, compared with $3,945 for the year ended December 31, 2001. Net cash used in investing activities was $1,218 for the period October 2, 2000 through December 31, 2000.

      Capital expenditures, representing the largest component of cash used in investing activities, totaled $3,085 in 2002, a decrease of $71 from $3,156 in 2001. Capital expenditures were $959 for the period October 2, 2000 through December 31, 2000.

      The primary contributors to the overall decrease in 2002 of net cash used in investing activities were a $283 decrease in acquisition activity, a $135 reduction in advances and investments in equity affiliates and the $71 decrease in capital expenditures. These decreases were offset by a $79 decrease in cash inflows in 2002 related to dispositions and a $50 cash payment in 2002 for a contractor engineering deposit.

      Advances and investments in equity affiliates of $450 in 2002 decreased $135 from $585 in 2001. In 2002, an increase of $641 for cash and funding of capital expenditures contributed to our infrastructure venture with T-Mobile was offset by a $780 decrease related to our Salmon investment. In 2001 and 2000, we made advances and investments in Salmon of $384 and $239, respectively. In 2002, Salmon made net advance repayments of $396, consisting of two repayments totaling $421 partially offset by $25 in additional advances. The $421 repayment by Salmon was as a result of the return to Salmon, by the FCC, of license deposits related to 34 challenged licenses.

      Cash needs for acquisitions of businesses and licenses decreased by $283 in 2002 when compared with 2001. Acquisitions of $289 in 2001 consisted primarily of net cash payments of $146 for the remaining 10% ownership stake in our Washington/Baltimore property and $140 for the Salt Lake/Provo license acquisition. In 2002 and 2000, there was limited acquisition activity.

      Net Cash Provided by Financing Activities. Net cash provided by financing activities for the year ended December 31, 2002, was $334, a decrease of $387, or 53.7%, compared with $721 for the year ended December 31, 2001. Net cash provided by financing activities was $282 for the period October 2, 2000 through December 31, 2000.

      The primary component of the $334 in cash provided by financing activities in 2002 was a $499 capital contribution by our members, SBC and BellSouth. This was partially offset in 2002 by $79 in net distributions to minority interests, $59 in external debt repayments and a $27 commercial paper repayment. The 2002 external debt repayment consisted primarily of capital lease payments of $42 and a $17 payment to retire bonds issued by our Puerto Rico company.

      The $721 in cash provided by financing activities in 2001 consisted of net cash inflows of $1,973 related to the issuance of $2,000 in senior notes in December 2001 and $1,370 associated with the

45

Table of Contents

      Cash provided by financing activities of $282 in 2000 consisted of net cash inflows of $699 from the issuance of commercial paper and $117 related to cash contributed at the inception of Cingular. These cash inflows were partially offset by cash outflows in 2000 of $324 for external debt repayments, primarily bank loans, payment of $140 in affiliate debt and $70 in net distributions to minority interests.

      We expect to have significant cash needs over the next several years, as described below.

      Network Upgrades and Expansion. The operation, upgrade and expansion of our networks will require substantial amounts of capital over the next several years. During 2003, we expect to spend $3,400 to $3,800 for our ongoing capital expenditures and equity investments. These estimates include approximately $1,200 to $1,300 for costs of upgrading our TDMA systems with GSM voice and GPRS/EDGE data technology, $1,600 to $1,700 for network and other capital expenditures and $600 to $800 for equity contributions and/or secured loans to Salmon and funding our network sharing ventures with T-Mobile and AT&T Wireless. Expenditures for additional investment in the TDMA network is limited to markets where additional capacity is needed prior to GSM upgrade. Including our network infrastructure venture with T-Mobile and investment in Salmon, capital expenditures totaled $3,944 for the year ended December 31, 2002.

      The GSM/GPRS/EDGE network upgrade is currently on schedule and we expect to have 90% of our POPs covered by GSM/GPRS/EDGE by the end of 2003 and 100% by the end of 2004. We estimate that the total capital cost of our network upgrade will be approximately $2,600 to $2,800 through 2004 when the upgrade project is expected to conclude. We have vendor contracts for the acquisition and installation of infrastructure for our GSM/GPRS/EDGE overlay. Under these agreements, we have made good faith capital expenditure commitments through 2004. However, there is no penalty for not achieving the contemplated levels of expenditures under these vendor agreements, and we are not contractually obligated to spend these amounts. Expansion of our current network in future years will continue to require large outlays of funds because network usage by wireless customers is expected to continue to rise, wireless subscriber growth is expected to continue, and additional capacity is necessary to support wireless data services. We may also require substantial additional capital for, among other uses, access to additional spectrum, build-out of infrastructure in newly licensed areas, additional system development and network technology changes, as well as development and implementation of 3G technologies and services. Unforeseen delays, cost overruns, regulatory changes, engineering and technological factors may also increase our funding requirements.

      Investment in Salmon. We and Crowley Digital Wireless LLC (Crowley Digital) formed Salmon to bid for PCS licenses in an FCC auction that ended in January 2001. Salmon was successful in acquiring 45 licenses covering more than 11 million POPs. We have secured loans (including accrued interest) to Salmon of $101 as of December 31, 2002. Salmon has principally used advances to make full payment on the 45 licenses that the FCC granted to Salmon. In addition to funding payment for licenses, we have agreed that, upon Salmon’s request, we will provide, until November 2006, through additional secured loans and equity contributions, substantially all of the funding that Salmon will need to build out and operate its systems and to fund operating losses. Advances and loans made during the year 2002 were $25. Salmon has scheduled the launch of two of its markets in 2003. The remaining 43 markets are scheduled to launch during 2005. We estimate the costs to build out Salmon’s system is approximately $350 to $500. Loans are repayable no later than May 2008, with interest at a rate of 9% per annum, or 14% per annum if Salmon terminates the management agreement or trademark license agreement.

46

Table of Contents

      Investment in Venture with T-Mobile (Factory). In November 2001, we and T-Mobile formed a jointly-controlled infrastructure venture, which we refer to as “Factory”, to allow the companies to share network infrastructures in the California, Nevada and New York City metropolitan area markets. We and T-Mobile buy access to the venture’s network infrastructure but each of us has retained ownership and control of our own FCC licenses. Although the networks we contributed to the venture are constructed and operational, we will from time to time be required to invest additional capital to modify and expand the network and to fund cash operating expenses.

      We and T-Mobile agreed to jointly fund capital expenditures of Factory. Contributions to Factory are generally determined by our proportionate share of the annual capital expenditure requirements based on each party’s incremental growth in minutes of use, and such contributions are accounted for as an increase to our investment. During the period from November 1, 2001 to December 31, 2001, we made additional contributions of $208 to Factory, principally related to capital expenditures in the California and Nevada markets. During 2002, we made net contributions of assets to Factory of $707. In 2002, we also contributed $225 in cash pursuant to contractual commitments. An additional $225 contractual commitment is due on or after July 1, 2003. At December 31, 2002, we had an approximate 75% economic interest in Factory.

      Formation of Joint Venture with AT&T Wireless. In January 2002, we entered into an agreement with AT&T Wireless to form a jointly-controlled and equally-owned venture to build out a GSM voice network with GPRS/EDGE data technologies along a number of major highways in order to ensure availability of GSM/GPRS/EDGE service to our customers, and reduce incollect roaming expenses we pay to other carriers, when our customers travel on those highways. We and AT&T Wireless will each buy services from the venture and provide services under our own brand names. In March 2003, we and AT&T Wireless contributed licenses and assets of equal value. We do not expect capital contributions by either party to exceed $85.

      Purchase of California/Nevada Tower Leasehold Interests. In February 2003, we acquired leasehold interests in 545 communication towers in California and Nevada from SpectraSite for $81. SpectraSite had previously acquired these leasehold interests from an affiliate of SBC in 2000 and a portion of the tower space was leased by us indirectly from SpectraSite for use in our network infrastructure venture with T-Mobile.

      As of December 31, 2002, we had $12,591 of consolidated indebtedness and capitalized lease obligations. This debt includes an aggregate of $9,678 in unsecured, subordinated member loans from SBC and BellSouth and $2,000 in unsecured senior notes. In addition, at December 31, 2002, we were obligated to pay capital leases assigned to the T-Mobile venture of $222.

      Member loans are subordinated to our senior debt, including commercial paper notes, our other capital markets debt and any debt outstanding under our bank credit facility. Although the subordinated member loans are scheduled to mature on March 31, 2005, we may prepay the subordinated loans or refinance them with senior debt (other than with the proceeds from our bank credit facility or senior loans from SBC or BellSouth) at any time if we are not in default under our senior debt.

      At December 31, 2002, we were obligated to pay capital leases assigned to the T-Mobile venture of $222. We have several investments in unconsolidated affiliates, including our investment in Salmon and our joint ventures with T-Mobile and AT&T Wireless. As required by GAAP, we have accounted for our joint venture activity using the equity method of accounting, as we do not control these joint ventures. As a result, the assets and liabilities of our joint ventures are not included on our balance sheet and the results of operations of the ventures are not included on our income statement, other than as equity in earnings of unconsolidated affiliates.

47

Table of Contents

      We expect to rely on cash provided by operations to fund most of our ongoing operations, business development, debt service and distributions to our members. To the extent that additional cash is required from time to time for these purposes or for acquisitions or other business expansion initiatives, we may utilize the following sources of external funding: issuances of commercial paper and long-term debt, equity investments and borrowings from SBC or BellSouth and bank borrowings under our revolving credit facility, which we do not expect to use as a normal source of funding. Neither SBC nor BellSouth is obligated to provide additional financing to us, and there is no assurance that any further loans would be on a subordinated basis.

      In order to provide a source of short-term liquidity, our manager’s board has authorized us to issue commercial paper through selected dealers. Our commercial paper program is supported by a $1,500 revolving credit facility, which expires on November 17, 2003. As of December 31, 2002, we had no commercial paper or revolving credit facility debt outstanding.

      Depending upon the corporate credit ratings assigned to us from time to time by the various rating agencies, any amounts outstanding under our revolving credit facility would bear variable rate interest at a spread above LIBOR ranging from 0.24% to 1.30%. As a result of our current credit ratings, which are discussed below, interest would currently accrue on any borrowings under our revolving credit facility at an average rate of LIBOR plus 28 basis points, assuming borrowings under the facility are less than 33% of the $1.5 billion credit facility, or 38 basis points, assuming higher borrowings. The credit facility contains customary events of defaults and covenants, including a covenant to maintain a specified debt (excluding subordinated member loans) to trailing four quarters EBITDA ratio, a limitation on mergers and sale of all or substantially all of our assets and a negative pledge. We are in compliance with all such ratios and covenants under our credit facility, and there are no other material covenants to which we are subject under other agreements. Based on our current business plans and projections, we believe we will have sufficient operating cash flow to enable us to continue to comply with the covenants in the credit facility.

      Our credit ratings as of the date of this filing with Standard & Poor’s, Moody’s Investor Services and Fitch Ratings are:

      To the extent the rating agencies downgrade our ratings, it may be more difficult to access the commercial paper market and our cost of borrowings from all sources may increase.

      In July 2002, WorldCom filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to this filing, approximately 130,000 former WorldCom reseller customers became our direct customers as of December 31, 2002. We previously supplied airtime for WorldCom to serve those customers and approximately 266,000 other WorldCom reseller subscribers who did not transition to become our direct subscribers. Upon completion of the transition of WorldCom customers in the fourth quarter, we paid WorldCom a fee for each customer retained. We do not believe that the amounts paid were material to our results of operations, financial position or liquidity.

Critical Accounting Policies and Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reflected in the consolidated financial statements and accompanying notes. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the

48

Table of Contents

      We depreciate our wireless communications equipment using the straight-line method over estimated useful lives. We periodically review changes in our technology and industry conditions, asset retirement activity and salvage to determine adjustments to estimated remaining useful lives and depreciation rates.

      Effective January 1, 2003, we implemented the results of a review of the estimated service lives of our remaining TDMA network assets. Useful lives will be shortened to fully depreciate all such equipment within six years. While we will continue to sell and market TDMA services for the foreseeable future, the amount of future projected cash flows to be derived from the TDMA network assets is highly dependent upon the rate of transition of existing subscribers using TDMA equipment to GSM/GPRS/EDGE-capable equipment, as well as other competitive and technological factors. We determined that a reduction in the useful lives of these assets is warranted based on the projected transition of network traffic to GSM/GPRS/EDGE. This change in estimate is expected to increase depreciation in 2003 by approximately $100. TDMA equipment acquired after January 1, 2003 will have useful lives not to exceed six years. We will continue to review the useful lives of the TDMA assets throughout the period of transition of subscribers to GSM/GPRS/EDGE-capable equipment to determine whether further changes are warranted.

      We review long-lived assets, consisting primarily of property, plant and equipment and intangible assets with finite lives, for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). In analyzing potential impairment, we use projections of future cash flows from the assets. These projections are based on our views of growth rates for the related business and anticipated future economic conditions and the appropriate discount rates relative to risk and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If changes in growth rates, future economic conditions or discount rates and estimates of terminal values were to occur, long-lived assets may become impaired. In 2002, we recognized impairment losses related to our Mobitex data business long-lived assets and certain TDMA network assets. These impairment losses are as follows:

	•	During the fourth quarter of 2002, we evaluated the recoverability of the long-lived assets, including property and equipment and FCC licenses, of our Mobitex data business. While the business continues to generate positive operating cash flows, the timing of our migration to data services over our cellular/PCS networks, as well as other competitive and technological factors, have decreased the cash flows that we expect to generate from continuing to operate the Mobitex data network. In the fourth quarter of 2002, we determined that the estimated future undiscounted cash flows were less than the carrying value of the Mobitex data business long- lived assets. Accordingly, we adjusted the carrying value of the Mobitex data business long-lived assets to their estimated fair value, resulting in a noncash impairment loss of $104. Fair value was determined using a discounted cash flow approach.
	•	Our cellular/PCS networks are currently equipped with digital transmission technologies, TDMA and GSM. Additionally, the TDMA technologies are deployed over two different spectrum frequencies, 850 MHz (cellular) and 1900 MHz (PCS). As discussed in “Capital Expenditures and Other Investments”, we are currently in the process of adding GSM equipment throughout our TDMA markets to provide a common voice standard and to add technologies for high-speed data services. In the fourth quarter of 2002, we finalized market specific execution strategies concurrent with the development and approval of the 2003 capital budget. In general, we have adequate

49

Table of Contents

		spectrum depth in our 850 MHz markets to operate both technologies. In several smaller PCS markets, where we have only 10 MHz of available spectrum, we do not have adequate spectrum depth to concurrently provide wireless services using both TDMA and GSM technologies. In these markets we must retire the TDMA network assets in order to deploy GSM technology. The TDMA technology assets used in 1900 MHz markets are frequency specific and cannot be redeployed for use in our other 850 MHz markets. Due to the anticipated near-term removal of these assets from service during the period ranging from the third quarter of 2003 to the fourth quarter of 2004, we performed an impairment test as required by SFAS No. 144 to determine whether the future cash flows of these markets were sufficient to recover the carrying value of the related TDMA assets as of December 31, 2002. In the fourth quarter of 2002, we recognized a noncash impairment charge of $47 related to our 1900 MHz TDMA assets in ten markets located in the southeastern and southwestern United States. The impairment loss was measured as the difference between the carrying value of these assets at December 31, 2002 and their fair value. Fair value was determined using the discounted cash flow approach.

      We review goodwill and indefinite-lived intangible assets for impairment based on the requirements of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. We adopted this new accounting standard effective January 1, 2002. Under this standard, a new impairment testing process for goodwill is required to be performed on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. Additionally, impairment tests for other indefinite-lived intangible assets, consisting of FCC licenses, are required to be performed on an annual basis or on an interim basis if an event occurs or circumstances change that would indicate the asset might be impaired. These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors.

      We began applying the provisions of SFAS No. 142 in the first quarter of 2002 in relation to testing goodwill for impairment using a two-step process. The first step screens for potential impairment, while the second step measures the amount of the impairment, if any. In the first quarter of 2002, we completed the first step of the goodwill impairment transition tests as of January 1, 2002 for our reporting units. For goodwill related to our cellular/PCS business, the first step indicated no impairment in value. For goodwill related to the Mobitex data business, the first step indicated an impairment in value. In the second quarter we completed the second step of the goodwill impairment transition test for our Mobitex data business using a discounted cash flow approach. Based on the results of this test, we recognized an impairment of the goodwill related to our Mobitex data business, with a carrying value of $32, and have reflected the impairment as the cumulative effect of a change in accounting principle in the first quarter of 2002.

      We completed the transition impairment test of our FCC licenses as of January 1, 2002 and determined that no impairment existed. In accordance with Emerging Issues Task Force (EITF) 02-7, Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets, impairment tests for FCC licenses are performed on an aggregate basis, consistent with our management of the business on a national scope. We utilize a fair value approach, incorporating discounted cash flows, to complete the test. This approach determines the fair value of the FCC licenses and accordingly incorporates cash flow assumptions regarding the investment in a network, the development of distribution channels, and other inputs for making the business operational. As these inputs are included in determining free cash flows of the business, the present value of the free cash flows is attributable to the licenses. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value.

      Annual impairment tests for goodwill and FCC licenses were performed in the fourth quarter and indicated no impairment. The determination of fair value is critical to assessing impairments under SFAS No. 142 and includes significant assumptions and estimates.

50

Table of Contents

      We earn service revenues by providing access to our wireless network (access revenue) and for usage of our wireless system (airtime revenue). Access revenue is billed in advance and recognized ratably over the service period. Airtime revenue, including roaming revenue and long-distance revenue, for postpaid customers is billed in arrears based on minutes of use and is recognized when the service is rendered. Prepaid airtime sold to customers is recorded as deferred revenues prior to the commencement of services, and revenue is recognized when airtime is used or expires. Access and airtime services provided are billed throughout the month according to the bill cycle in which a particular subscriber is placed. As a result of bill cycle cut-off times, we are required to make estimates for service revenues earned but not yet billed at the end of each quarter. These estimates are based primarily upon actual and historical minutes of use. Certain rate plans include a rollover feature whereby unused peak minutes do not expire each month but rather are available, under certain conditions, for future use for a period not to exceed one year from the date of purchase. We defer revenue based on an estimate of the portion of minutes expected to be utilized prior to expiration. Our estimate of expected future services is primarily based on historical minutes of use.

      Roaming revenues include revenues from certain customers who roam outside their selected home coverage area, referred to as “incollect” roaming revenues, and revenues from other wireless carriers for roaming by their customers on our network, referred to as “outcollect” roaming revenues.

      We offer enhanced services including caller ID, call waiting, call forwarding, three-way calling, no answer/busy transfer, text messaging and voice mail. Generally, these enhanced features generate additional revenues through monthly subscription fees or increased wireless usage through utilization of the features. Other optional services, such as unlimited mobile-to-mobile calling, roadside assistance and handset insurance, may also be provided for a monthly fee. These enhanced features and optional services may be bundled with package rate plans or sold separately. Revenues for enhanced services and optional features are recognized as earned.

      We defer non-refundable, up-front activation fees and associated costs to the extent of the related revenues in accordance with Staff Accounting Bulletin Number 101 (SAB 101), Revenue Recognition in Financial Statements, issued by the Securities and Exchange Commission (SEC). These deferred fees and costs are amortized over the estimated customer relationship period, which is currently estimated to be three years. We have recorded deferred revenues and deferred expenses of equal amount in the consolidated balance sheets. As of December 31, 2002, SAB 101 deferred revenues and expenses were $198.

      Equipment sales consist principally of revenues from the sale of wireless mobile telephone handsets and accessories to new and existing customers and to agents and other third-party distributors. The revenue and related expenses associated with the sale of wireless handsets and accessories are recognized when the products are delivered and accepted by the customer, as this is considered to be a separate earnings process from the sale of wireless services.

      We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We base our estimates primarily on our historical write-off experience, net of recoveries, and the aging of accounts receivable balances. Our collection policies and procedures vary by credit class and prior payment history of subscribers.

      We maintain inventory valuation reserves for obsolescence and slow moving inventory. Reserves for obsolescence are determined based on analysis of inventory agings. Changes in technology may require us to provide additional reserves.

51

Table of Contents

      We hold non-controlling investments in several entities for which we apply the equity or cost method of accounting. We record impairments associated with these investments when we determine that the decline in market value of the investment below our carrying value is deemed to be other than temporary. Volatility in market prices of these investments or poor operating performance of these entities could result in future values of these investments declining below our carrying value.

      We calculate the costs of providing retiree benefits under the provisions of SFAS No. 87, Employers’ Accounting for Pensions, and SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. The key assumptions used in making these calculations are disclosed in the notes to our consolidated financial statements. The most significant of these assumptions are the discount rate used to value the future obligation, expected return on plan assets and health care cost trend rates. We select the discount rate commensurate with current market interest rates on high-quality, fixed-rate debt securities. The expected return on assets is based on our current view of the long-term returns on assets held by the plans, which is influenced by historical averages. The medical cost trend rate is based on our actual medical claims and future projections of medical cost trends. The changes in our discount rate, long-term rate of return on plan assets and composite rate of compensation increase for 2002, as described in Note 14 to the audited consolidated financial statements, did not have a significant impact our results of operations or cash flows.

Contractual Obligations

      The following table provides a summary of our contractual commitments as of December 31, 2002.

(1)	Long-term debt obligations include interest of $3,730. The “1-3 years” amount also includes $9,678 of debt due to SBC and BellSouth with a maturity date of March 31, 2005. See Note 7 to the audited consolidated financial statements included in Item 8. We do not expect SBC and BellSouth to require any repayment if it would impair our debt ratings or impair our working capital or if we cannot advantageously raise debt or equity proceeds from external financing sources.
(2)	Capital lease obligations include interest and executory costs. See Note 7 to the audited consolidated financial statements included in Item 8.
(3)	Operating lease obligations do not include payments due under renewals to the original lease term. See Note 15 to the audited consolidated financial statements included in Item 8.
(4)	Purchase obligations also include the expected payout of the Crowley put option of $186 in 2006. See discussion of the Crowley put option in Note 5 to the audited consolidated financial statements included in Item 8.
(5)	Other long-term obligations include our contractual cash commitment related to our Factory venture. See Note 5 to the audited consolidated financial statements included in Item 8.

52

Table of Contents

Related Party Transactions

      We incurred the following related party charges:

(1)	These are charges from SBC and BellSouth, and their affiliates
(2)	These are charges for services under contract with Amdocs Limited (Amdocs), a software company affiliated with SBC.

      For the year ended December 31, 2002, SBC and BellSouth made cash capital contributions to us of $499 for general corporate purposes.

Recent Accounting Pronouncements

      See the section, New Accounting Standards, in Note 1 to our audited consolidated financial statements included in Item 8.

      The majority of our financial instruments are medium- and long-term fixed rate notes and member loans. Fluctuations in market interest rates can lead to significant fluctuations in the fair value of these fixed rate instruments. In addition,we are exposed to market risks, primarily from changes in interest rates and to a lesser degree from foreign currency exchange rates. To manage exposure to these fluctuations, manage capital costs, control financial risks and maintain financial flexibility over the long term, we engage from time to time in hedging transactions that have been authorized by the board of directors of our manager. We do not use derivatives for trading purposes, to generate income or to engage in speculative activity.

      We currently have outstanding an aggregate of $9,678 in unsecured, subordinated member loans from SBC and BellSouth with a fixed interest rate of 7.5% and a stated maturity of March 31, 2005. In addition, we currently have outstanding $2,000 of unsecured senior notes with fixed interest rates ranging from 5.625% to 7.125% and with maturity dates between 2006 and 2031. We also have capital leases outstanding of $778 primarily with a fixed interest rate of 8% and of $83 with fixed interest rates ranging from 4.55% to 7.08%. As of December 31, 2002, we had not entered into any interest rate swaps pertaining to any of our fixed rate debt.

      As of December 31, 2002, we had $64 of floating rate borrowings. A change in interest rates of 100 basis points would change our interest expense on floating rate debt balances as of December 31, 2002 by less than $1 per annum.

      We currently have no commercial paper outstanding and we have not borrowed any amounts under our revolving credit facility. However, we may have future interest rate risk associated with the issuance of commercial paper or borrowings under our $1,500 revolving credit facility, which was executed in November 2002. Commercial paper is issued at a spread to LIBOR, depending on our credit ratings. Borrowings under the credit facility would generally bear interest at pre-determined spreads above LIBOR. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

53

Table of Contents

      The fair values of our foreign currency derivatives are subject to fluctuations in foreign exchange rates. We use forward foreign currency exchange contracts to offset foreign exchange gains and losses on Japanese Yen-denominated capital lease obligations. As of December 31, 2002, the approximate fair value of these foreign currency hedging instruments was a loss of $35. The potential gain or loss in the fair value of such financial instruments from a hypothetical 10% decrease or increase in the Japanese Yen relative to the U.S. Dollar would be less than $10 as of December 31, 2002, although this would be primarily offset by the decrease or increase in the fair value of the capital lease obligations. The fair value is based on dealer quotes, considering current exchange rates. There is not a cash flow impact or earnings risk associated with changes in the fair value of the these foreign currency hedging instruments and the underlying capital lease obligations.

      The risk management discussion above, related to our market risks, contains forward-looking statements and represents, among other things, an estimate of possible changes in fair value that would occur assuming hypothetical future foreign currency fluctuations. Future impacts of market risk would be based on actual developments in the financial markets. See “Cautionary Language Concerning Forward-Looking Statements” immediately prior to Part I of this Annual Report.

54

Table of Contents

Item 8.     Financial Statements and Supplemental Data