AT&T INC. (Form: 10-K, Received: 02/21/2014 16:27:01)

FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

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

208 S. Akard St., Dallas, Texas, 75202

Telephone Number 210-821-4105

Securities registered pursuant to Section 12(b) of the Act: (See attached Schedule A)

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

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

Yes [X ] No [ ]

Indicate by check mark 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. [ X ]

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

Large accelerated filer [X]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [ ]

(Do not check if a smaller reporting company)

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

Yes [ ] No [X]

Based on the closing price of $35.40 per share on June 28, 2013, the aggregate market value of our voting and non-voting common stock held by non-affiliates was $189 billion.

At February 14, 2014, common shares outstanding were 5,206,849,490.

DOCUMENTS INCORPORATED BY REFERENCE

(1)	Portions of AT&T Inc.’s Annual Report to Stockholders for the fiscal year ended December 31, 2013 (Parts I and II).

(2)	Portions of AT&T Inc.’s Notice of 2014 Annual Meeting and Proxy Statement dated on or about March 11, 2014 to be filed within the period permitted under General Instruction G(3) (Parts III and IV).

SCHEDULE A

Securities Registered Pursuant To Section 12(b) Of The Act:

		Name of each exchange
Title of each class		on which registered

Common Shares (Par Value $1.00 Per Share)		New York Stock Exchange

6.125% AT&T Inc.		New York Stock Exchange
Global Notes due April 2, 2015

5.875% AT&T Inc.		New York Stock Exchange
Global Notes due April 28, 2017

1.875% AT&T Inc. Global Notes due December 4, 2020		New York Stock Exchange

2.65% AT&T Inc. Global Notes due December 17 , 2021		New York Stock Exchange

2.5% AT&T Inc. Global Notes due March 15, 2023		New York Stock Exchange

3.5% AT&T Inc. Global Notes due December 17, 2025		New York Stock Exchange

3.55% AT&T Inc. Global Notes due December 17, 2032		New York Stock Exchange

7.00% AT&T Inc.		New York Stock Exchange
Global Notes due April 30, 2040

4.25% AT&T Inc. Global Notes due June 1, 2043		New York Stock Exchange

4.875% AT&T Inc. Global Notes due June 1, 2044		New York Stock Exchange

TABLE OF CONTENTS

Item		Page
	PART I
1.	Business	1
1A.	Risk Factors	9
2.	Properties	10
3.	Legal Proceedings	10
4.	Mine Safety Disclosures	10

	Executive Officers of the Registrant	11


	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
6.	Selected Financial Data	13
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
7A.	Quantitative and Qualitative Disclosures about Market Risk	13
8.	Financial Statements and Supplementary Data	13
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	13
9A.	Controls and Procedures	13
9B.	Other Information	14


	PART III
10.	Directors, Executive Officers and Corporate Governance	14
11.	Executive Compensation	14
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	14
13.	Certain Relationships and Related Transactions, and Director Independence	16
14.	Principal Accountant Fees and Services	16


	PART IV
15.	Exhibits and Financial Statement Schedules	16

AT&T Inc.

PART I

ITEM 1. BUSINESS

GENERAL

AT&T Inc. (“AT&T,” “we” or the “Company”) is a holding company incorporated under the laws of the State of Delaware in 1983 and has its principal executive offices at 208 S. Akard St., Dallas, Texas, 75202 (telephone number 210-821-4105). We maintain an Internet website at www.att.com. (This website address is for information only and is not intended to be an active link or to incorporate any website information into this document.) We make available, free of charge, on our website our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). We also make available on that website, and in print, if any stockholder or other person so requests, our code of business conduct and ethics entitled “Code of Ethics” applicable to all employees and Directors, our “Corporate Governance Guidelines,” and the charters for all committees of our Board of Directors, including Audit, Human Resources and Corporate Governance and Nominating. Any changes to our Code of Ethics or waiver of our Code of Ethics for senior financial officers, executive officers or Directors will be posted on that website.

History

AT&T, formerly known as SBC Communications Inc. (SBC), was formed as one of several regional holding companies created to hold AT&T Corp.’s (ATTC) local telephone companies. On January 1, 1984, we were spun-off from ATTC pursuant to an anti-trust consent decree, becoming an independent publicly-traded telecommunications services provider. At formation, we primarily operated in five southwestern states. Our subsidiaries merged with Pacific Telesis Group in 1997, Southern New England Telecommunications Corporation in 1998 and Ameritech Corporation in 1999, thereby expanding our wireline operations as the incumbent local exchange carrier (ILEC) into a total of 13 states. In November 2005, one of our subsidiaries merged with ATTC, creating one of the world’s leading telecommunications providers. In connection with the merger, we changed the name of our company from “SBC Communications Inc.” to “AT&T Inc.” In December 2006, one of our subsidiaries merged with BellSouth Corporation (BellSouth) making us the ILEC in an additional nine states. With the BellSouth acquisition, we thereby acquired BellSouth’s 40 percent economic interest in AT&T Mobility LLC (AT&T Mobility), formerly Cingular Wireless LLC, resulting in 100 percent ownership of AT&T Mobility. Substantially all of our services and products are marketed under the AT&T brand name. In 2013, we launched a new wireless brand, Aio, which offers prepaid services and devices with no annual contract.

Scope

We are a leading provider of telecommunications services in the United States and the world. We offer our services and products to consumers in the U.S. and services and products to businesses and other providers of telecommunications services worldwide.

The services and products that we offer vary by market, and include: wireless communications, local exchange services, long-distance services, data/broadband and Internet services, video services, telecommunications equipment, managed networking, and wholesale services. We group our operating subsidiaries as follows, corresponding to our operating segments for financial reporting purposes:

·	wireless subsidiaries provide both wireless voice and data communications services across the U.S. and, through roaming agreements, in a substantial number of foreign countries.

·	wireline subsidiaries provide primarily landline voice and data communication services, AT&T U-verse ® high-speed broadband, video, and voice services (U-verse) and managed networking to business customers.

·	other subsidiaries include results from corporate and other operations, our portion of results from our equity investments and impacts from corporate-wide decisions for which the individual operating segments are not being evaluated.

Our local exchange subsidiaries operate as the ILEC in 22 states: Alabama, Arkansas, California, Connecticut, Illinois, Indiana, Florida, Georgia, Kentucky, Louisiana, Kansas, Michigan, Mississippi, Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Wisconsin (22-state area). In December 2013, we agreed to sell our local exchange operations in Connecticut. Our local exchange subsidiaries are subject to regulation by each state in which they operate and by the Federal Communications Commission (FCC). Wireless service providers are regulated by the FCC. Additional information relating to regulation and pending deals, including the Connecticut operations sale, are contained under the heading “Government Regulation” and in the Annual Report under the headings “Operating Environment and Trends of the Business” and “Other Business Matters” and is incorporated herein by reference pursuant to General Instruction G(2).

AT&T Inc.

With the expansion of our company through acquisitions and the resulting ownership consolidation of AT&T Mobility, and with continuing advances in technology, our services offerings now combine our traditional wireline and wireless services. We make our customers’ lives more convenient and productive and foster competition and further innovation in the communications and entertainment industry. In 2014, we plan to focus on the areas discussed below.

Wireless

AT&T Mobility began operations in October 2000 as a joint venture between us and BellSouth and, in 2004, acquired AT&T Wireless Services, Inc. Upon our acquisition of BellSouth in 2006, AT&T Mobility became a wholly-owned subsidiary. As of December 31, 2013, we served more than 110 million subscribers.

In the United States, we now cover all major metropolitan areas and nearly 280 million people with our LTE technology. We expect to cover approximately 300 million people and to be essentially complete by the summer of 2014. We also provide 4G coverage using various other technologies (UMTS and HSPA+), and when combined with our upgraded backhaul, we are able to enhance our network capabilities and provide superior mobile broadband speeds for data and video services. Our wireless network also relies on other GSM digital transmission technologies for 3G and 2G data communications. As of December 31, 2013, we served more than 110 million subscribers. We continue to expand the number of locations, including airports and cafés, where customers can access broadband Internet connections using wireless fidelity (local radio frequency commonly referred to as Wi-Fi) technology.

As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative data services and a wireless network that has sufficient spectrum and capacity to support these innovations. We are facing significant spectrum and capacity constraints on our wireless network in certain markets. We expect such constraints to increase and expand to additional markets in the coming years. While we are continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the quality of existing voice and data services and our ability to launch new, advanced wireless broadband services, unless we are able to obtain more spectrum. Any long-term spectrum solution will require that the FCC make new or existing spectrum available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to address spectrum and capacity constraints on a market-by-market basis. To that end, we closed more than 60 deals to acquire spectrum and wireless operations during 2013. Much of the recently acquired spectrum came from an innovative solution in which we obtained FCC approval to use Wireless Communication Services spectrum for mobile broadband for the first time.

Also as part of our efforts to improve our network performance and help address the need for additional spectrum capacity, we intend to redeploy spectrum currently used for basic 2G services to support more advanced mobile Internet services on our 3G and 4G networks. We will continue to manage this process consistent with previous network upgrades and will transition customers on a market-by-market basis from 2G networks to our more advanced 3G and 4G networks. We expect to fully discontinue service on our 2G networks by approximately January 1, 2017. As of December 31, 2013, about 4 percent of AT&T’s postpaid subscribers used 2G-capable handsets. We do not expect this transition to have a material impact on our operating results.

Business Customers

We expect to continue to strengthen the reach and sophistication of our network facilities and our ability to offer a variety of communications services, both wireless and wireline, to large businesses, governmental and wholesale customers worldwide. We expect to offer similar services to small- and medium-businesses and to increase the attractiveness of our services to governmental customers. We also expect to extend our wholesale business offerings to other service products and systems integration services.

Data/Broadband

As the communications industry continues to move toward Internet-based technologies that are capable of blending traditional wireline and wireless services, we plan to offer services that take advantage of these new and more sophisticated technologies. In particular, we intend to continue to focus on expanding our AT&T U-verse high-speed broadband and video offerings and on developing IP-based services that allow customers to unite their home or business wireline services with their wireless service.

AT&T Inc.

U-verse Services During 2013, we continued to expand our offerings of U-verse high speed Internet and TV services. As of December 31, 2013, we are marketing U-verse services to approximately 27 million customer locations (locations eligible to receive U-verse service). As of December 31, 2013, we had 10.7 million total U-verse subscribers (high-speed Internet and video), including 10.4 million Internet and 5.5 million video subscribers (subscribers to both services are only counted once in the total). As part of Project Velocity IP (VIP), we plan to expand our IP-broadband service to approximately 57 million customer locations, including U-verse services to a total of 33 million customer locations. We expect to be substantially complete in the 2015 and 2016 timeframe.

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

Internet Protocol Technology IP is generally used to describe the transmission of voice (called voice over IP or VoIP) and data using a software-based technology rather than a traditional wire and physical switch-based telephone network. A company using this technology can provide voice and data services at a lower cost because this technology uses bandwidth more efficiently than a traditional network and because this technology has not been subject to traditional telephone industry regulation. Using this technology also presents growth opportunities especially in providing data and video services to both fixed locations and mobile devices. To take advantage of both these growth and cost-savings opportunities, we have announced plans to transition wireline customers in our current 22-state area to services using this technology by the end of 2020.

BUSINESS OPERATIONS

OPERATING SEGMENTS

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. We analyze our operating segments based on segment income before income taxes. We make our capital allocations decisions based on the strategic needs of the business, needs of the network (wireless or wireline) providing services and demands to provide emerging services to our customers. Actuarial gains and losses from pension and other postemployment benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in the calculation of each segment’s reportable results. The customers and long lived assets of our reportable segments are predominantly in the United States. Each segment’s percentage of total segment operating revenue and income calculations is derived from our segment results, and income percentage may total more than 100 percent due to losses in one or more segments. We have three reportable segments: (1) Wireless, (2) Wireline, and (3) Other.

Additional information about our segments, including financial information, is included under the heading “Segment Results” on pages 13 through 20 and in Note 4 of the Annual Report and is incorporated herein by reference pursuant to General Instruction G(2).

WIRELESS

Wireless consists of our subsidiary, AT&T Mobility, which operates as a wireless provider to both business and consumer subscribers. Our Wireless segment provided approximately 54% of 2013 total segment operating revenues and 76% of our 2013 total segment income. At December 31, 2013, we served more than 110 million wireless subscribers. We classify our subscribers as either postpaid, prepaid, connected device or reseller.

Services and Products

We offer a comprehensive range of high-quality nationwide wireless voice and data communications services in a variety of pricing plans, including postpaid and prepaid service plans. Our offerings are tailored to meet the communications needs of targeted customer segments, including youth, family, active professionals, small businesses, government and major national corporate accounts.

AT&T Inc.

Data – Wireless data revenues continue to be a growing area of our business, representing an increasing share of our overall subscriber revenue. We are experiencing solid growth from both consumer and enterprise wireless data services, as an increasing number of our subscribers have upgraded their handsets to more advanced integrated devices. We are also seeing rapid growth in demand for new data-centric devices such as tablets, direction and navigation aids and monitoring devices. We recently expanded our Mobile Share data plans (which provide for service on multiple devices at reduced rates) to include additional, larger usage levels, and we have introduced AT&T Next, a program allowing subscribers to more frequently upgrade handsets using an installment payment plan. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers, and minimize subscriber churn. Participation in these plans continues to increase. Customers in our “connected device” category (e.g., users of eReaders and navigation aids) purchase those devices from third-party suppliers that buy data access supported by our network. Other data-centric device users are classified as either postpaid customers (primarily tablet, netbook and notebook users) or prepaid customers since they purchase service directly from us. We continue to upgrade our network and coordinate with equipment manufacturers and applications developers in order to further capitalize on the continued growth in the demand for wireless data services.

Voice, text and other service – Our voice service is generally offered on a contract basis for one- or two-year periods, referred to as postpaid. Under the terms of these contracts, service is billed and provided on a monthly basis according to the applicable rate plan chosen. Our wireless services include basic local wireless communications service, long-distance service and roaming services. Roaming services enable our subscribers to utilize other carriers’ networks when they are “roaming” outside our network footprint. We also charge fees to other carriers for providing roaming services to their customers when their customers utilize our network. We also offer prepaid voice service to certain customers who prefer to control usage or pay in advance.

Equipment – We sell a wide variety of handsets, wirelessly enabled computers (i.e., tablets and notebooks) and personal computer wireless data cards manufactured by various suppliers for use with our voice and data services. We sell through our own company-owned stores, agents or third-party retail stores. Like other wireless service providers, we often provide postpaid contract subscribers substantial equipment subsidies to initiate, renew or upgrade service. To reduce these subsidies, we launched our AT&T Next program, which allows customers to buy handsets on an installment basis. As a result of the program, we expect equipment revenues to increase in 2014 along with a proportionate decline in service revenues. We also sell accessories, such as carrying cases, hands-free devices, batteries, battery chargers and other items, to consumers, as well as to agents and third-party distributors for resale.

Equity in net income (loss) of affiliate s – The Wireless segment includes expenses from our mobile payment joint venture with Verizon and T-Mobile, marketed as the Isis Mobile Wallet TM (ISIS).

Additional information on our Wireless segment is contained in the Annual Report in the “Operating Environment Overview” section under the heading “Expected Growth Areas,” “Wireless” and in “Other Business Matters” and “Liquidity and Capital Resources” beginning on page 21 and is incorporated herein by reference pursuant to General Instruction G(2).

WIRELINE

Our Wireline subsidiaries provide both retail and wholesale communication services domestically and internationally. Our Wireline segment provided approximately 46% of 2013 segment operating revenues and 27% of our 2013 total segment income. We divide our wireline services into three product-based categories: data, voice and other. Revenues from our traditional voice services have been declining as customers have been switching to wireless, or VoIP services provided by either us, cable or other Internet-based providers. In addition, the continuing weak job growth and business starts have caused wireline customers to terminate their residential or business phone service as individuals have lost jobs or otherwise combined households and businesses have not added jobs. We have responded by offering packages of combined voice and data services, including broadband and video, and intend to continue this strategy during 2014.

Services and Products

Data – We provide data services that rely on IP-based technology and data services that rely on older, circuit-based technology. We provide businesses voice applications over IP-based networks (i.e., Enhanced Virtual Private Networks or “EVPN”). Over the past several years, we have built out our new IP/MPLS (Internet Protocol/MultiProtocol Label Switching) network, to supplement our IP-based product set, and eventually replace our older circuit-based networks and services. These products allow us to provide highly complex global data networks. Additional IP-based services include Internet access and network integration, dedicated Internet and enterprise networking services, U-verse services and related data equipment sales. These advanced IP-based services continued to grow during 2013 as customers shift from our older circuit-based services. Advanced IP-data now represents more than 30% of our revenues from wireline business customers. We expect this trend to continue in 2014 as both consumers and businesses continue to use more services based on Internet access and demand ever-increasing transmission speeds, especially for video. To cope with these trends, we continue to re-configure our wireline network.

AT&T Inc.

Our circuit-based, traditional data products include switched and dedicated transport services that allow business customers to transmit data at high speeds, as well as DSL Internet access. Our offerings use high-capacity digital circuits, and allow customers to create internal data networks and to access external data networks. Switched Transport services transmit data using switching equipment to transfer the data between multiple lines before reaching its destination. Dedicated Transport services use a single direct line to transmit data between destinations. DSL is a digital modem technology that converts existing twisted-pair telephone lines into access paths for multimedia and high-speed data communications to the Internet or private networks.

Network integration services include installation of business data systems, local area networking and other data networking offerings. Internet access services include a wide range of products for residences and businesses including access service, dedicated access, web hosting, managed services, e-mail and high-speed access services. Our managed web-hosting services for businesses provide network, server and security infrastructure as well as built-in data storage and include application performance management, database management, hardware and operating system management. Our hosting services also provide customers with secure access to detailed reporting information about their infrastructure and applications. These services are evolving to a cloud delivery model, providing customers with on-demand data storage and computing capabilities from a centrally-managed network (referred to as the cloud) accessible from a variety of different devices and locations.

Packet services consist of data networks using packet switching and transmission technologies, including traditional circuit-based, and IP connectivity services. Packet services enable customers to transmit large volumes of data economically and securely and are used for local area network (LAN) interconnection, remote site, point of sale and branch office communications. High-speed packet services are used extensively by enterprise (large business) customers.

Enterprise networking services provide comprehensive support from network design, implementation and installation to ongoing network operations and management for networks of varying scales, including LANs, wide area networks, and virtual private networks. These services include applications such as e-mail, order entry systems, employee directories, human resource transactions and other database applications. We also offer Wi-Fi service.

We provide local, interstate and international wholesale networking capacity to other service providers. We offer a combination of high-volume transmission capacity and conventional dedicated line services on a regional, national and international basis to wireless carriers, interexchange carriers, Internet service providers (ISPs) and facility-based and switchless resellers. Our wholesale customers are primarily large ISPs, wireless carriers, competitive local exchange carriers, regional phone companies, interexchange carriers, cable companies and systems integrators.

Voice – Voice includes traditional local and long-distance service provided to retail customers and wholesale access to our network and individual network elements provided to competitors. At December 31, 2013, our wireline subsidiaries served approximately 12 million retail consumer access lines, 10 million retail business access lines and 2 million wholesale access lines. We also have a number of integrated voice and data services, such as integrated network connections, that provide customers the ability to integrate access for their voice and data services, the data component of which is included in data revenues. Additionally, voice revenues do not include any of our VoIP revenues, which are included in data revenues.

Long distance consists of traditional long distance and international long distance for customers that select us as their primary long-distance carrier. Long distance also includes services provided by calling card, 1-800 services and conference calling. We also provide wholesale switched access service to other service providers.

Voice also includes calling features, fees to maintain wire located inside customer premises and other miscellaneous voice products. Calling features are enhanced telephone services available to retail customers such as Caller ID, Call Waiting and voice mail.

Other – Other includes major items such as outsourcing, integration services and customer premises equipment, and government-related services.

Customer premises equipment and other equipment sales range from single-line and cordless telephones to sophisticated private digital switching systems used by larger businesses to provide intra-office telephone services as well as access to our network.

AT&T Inc.

OTHER

The Other segment provided less than 1% of total segment operating revenues in 2013. Since segment operating expenses exceeded revenues in 2013, a segment loss was incurred. We also include in this segment the equity income from our investments in América Móvil, S.A. de C.V. and YP Holdings. Our Other segment also includes corporate and other operations and impacts from corporate-wide decisions for which the individual operating segments are not being evaluated.

MAJOR CLASSES OF SERVICE

The following table sets forth the percentage of total consolidated reported operating revenues by any class of service that accounted for 10% or more of our consolidated total operating revenues in any of the last three fiscal years:

	Percentage of Total Consolidated Operating Revenues
	2013			2012			2011
Wireless Segment
Data		17	%		14	%		12	%
Voice, text and other service		31	%		32	%		33	%
Equipment		6	%		6	%		5	%
Wireline Segment
Data		26	%		25	%		23	%
Voice		16	%		18	%		20	%
Other 1		4	%		4	%		4	%

1 Includes major items such as outsourcing, integration services and customer premises equipment, and government-related services.

GOVERNMENT REGULATION

Wireless communications providers must be licensed by the FCC to provide communications services at specified spectrum frequencies within specified geographic areas and must comply with the rules and policies governing the use of the spectrum as adopted by the FCC. The FCC’s rules have a direct impact on whether the wireless industry has sufficient spectrum available to support the high quality, innovative services our customers demand. Wireless licenses are issued for a fixed time period, typically ten years, and we must seek renewal of these licenses. While the FCC has generally renewed licenses given to operating companies such as us, the FCC has authority to both revoke a license for cause and to deny a license renewal if a renewal is not in the public interest. Additionally, while wireless communications providers’ prices and service offerings are generally not subject to regulation, the federal government and various states are considering new regulations and legislation relating to various aspects of wireless services.

On January 14, 2014, the D.C. Circuit released its decision on Verizon’s appeal of the FCC’s Net Neutrality rules. Those rules prohibited providers of fixed, mass market Internet access service from blocking access to lawful content, applications, services or non-harmful devices. The rules prohibited providers of mobile broadband Internet access service from blocking consumers from accessing lawful websites or applications that compete with the provider’s own voice or video telephony services. The rules also imposed transparency requirements on providers of both fixed and mobile broadband Internet access services, requiring public disclosure of information regarding network management practices, performance and commercial terms of their service offerings. In addition, the rules prohibited providers of fixed (but not mobile) broadband Internet access service from unreasonably discriminating in their transmission of lawful network traffic.

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

The invalidation of the no-blocking and antidiscrimination rules means that broadband Internet access providers have greater flexibility in their provision of mass market services. However, the court’s finding that section 706 provides the FCC independent authority to adopt rules to promote broadband deployment appears to give the FCC broad authority to regulate the Internet and, more generally, IP-based services, provided the FCC finds such regulation promotes deployment of broadband infrastructure. In addition, because section 706(a) grants authority to both the FCC and the states to adopt rules to promote broadband deployment, states could attempt to rely on that provision to regulate broadband services, although the states’ authority to do so appears to be narrower than the FCC’s. If the FCC were to reclassify broadband as a telecommunications service, or the FCC and/or the states were to impose additional regulation of the Internet or broadband services, it could have a material adverse impact on our broadband services and operating results.

AT&T Inc.

Our wireline subsidiaries are subject to regulation by state governments, which have the power to regulate intrastate rates and services, including local, long-distance and network access services, provided such state regulation is consistent with federal law. Some states have eliminated or reduced regulations on our retail offerings. These subsidiaries are also subject to the jurisdiction of the FCC with respect to intercarrier compensation, interconnection, and interstate and international rates and services, including interstate access charges. Access charges are a form of intercarrier compensation designed to compensate our wireline subsidiaries for the use of their networks by other carriers.

Our subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the market where service is provided. Regulation is generally limited to operational licensing authority for the provision of enterprise services.

Additional information relating to regulation of our subsidiaries is contained in the Annual Report under the headings “Operating Environment Overview” beginning on page 21 and “Regulatory Developments” beginning on page 23 and is incorporated herein by reference pursuant to General Instruction G(2).

IMPORTANCE, DURATION AND EFFECT OF LICENSES

Certain of our subsidiaries own or have licenses to various patents, copyrights, trademarks and other intellectual property necessary to conduct business. Many of our subsidiaries also hold government-issued licenses or franchises to provide wireline or wireless services and regulation affecting those rights is contained in the Annual Report under the heading “Operating Environment Overview” beginning on page 21 and is incorporated herein by reference pursuant to General Instruction G(2). We actively pursue patents, trademarks and service marks to protect our intellectual property within the U.S. and abroad. We maintain a significant global portfolio of patents, trademarks and service mark registrations. We have also entered into agreements that permit other companies, in exchange for fees and subject to appropriate safeguards and restrictions, to utilize certain of our trademarks and service marks. We periodically receive offers from third parties to obtain licenses for patents and other intellectual rights in exchange for royalties or other payments. We also receive notices asserting that our products or services infringe on their patents and other intellectual property rights. These claims, whether against us directly or against third-party suppliers of products or services that we, in turn, sell to our customers, such as wireless handsets, could require us to pay damages, royalties, stop offering the relevant products or services and/or cease other activities. While the outcome of any litigation is uncertain, we do not believe that the resolution of any of these infringement claims or the expiration or non-renewal of any of our intellectual property rights would have a material adverse effect on our results of operations.

MAJOR CUSTOMER

No customer accounted for 10% or more of our consolidated revenues in 2013, 2012 or 2011.

COMPETITION

Information relating to competition in each of our operating segments is contained in the Annual Report under the heading “Competition” beginning on page 24, and is incorporated herein by reference pursuant to General Instruction G(2).

AT&T Inc.

RESEARCH AND DEVELOPMENT

AT&T Labs’ scientists and engineers conduct research in a variety of areas, including IP networking; advanced network design and architecture; network and cyber security, network operations support systems; data mining techniques and advanced speech technologies. The majority of the development activities are performed by AT&T Services, Inc. The developers within AT&T Services, Inc. work with our business units and AT&T Labs to create new services and invent tools and systems to manage secure and reliable networks for us and our customers. In recent years, we initiated a technology outreach effort aimed at venture capital funded startups with the objective of rapidly introducing new solutions, products and applications developed by third parties. We also have a research agreement with Ericsson. Research and development expenses were $1,488 in 2013, $1,278 million in 2012, and $1,307 million in 2011.

EMPLOYEES

As of January 31, 2014, we employed approximately 243,000 persons. Approximately 55 percent of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers or other unions. Contracts covering wages and other non-benefit working terms for mobility employees are structured on a regional basis. In February 2014, we reached a tentative agreement with the CWA for the one regional Mobility contract (covering approximately 11,500 employees) expiring in 2014. The four year tentative agreement includes moderate wage increases, work rule changes and, for employees hired after 2014, the Company will increase its matching contributions to a 401(k) plan rather than provide a pension plan. No contracts covering employees in our traditional wireline telephone operations will expire during 2014.

At December 31, 2013, we had approximately 310,000 retirees who, along with their dependents, were eligible to receive retiree benefits.

AT&T Inc.

ITEM 1A. RISK FACTORS

Information required by this Item is included in the Annual Report under the heading “Risk Factors” on pages 34 through 37 which is incorporated herein by reference pursuant to General Instruction G(2).

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

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

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

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

Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse medical cost trends, unfavorable or delayed implementation of healthcare legislation, regulations or related court decisions; and our inability to receive retroactive approval from the Department Of Labor of our voluntary contribution of a preferred interest in our wireless business.

The final outcome of FCC and other federal or state agency proceedings (including judicial review, if any, of such proceedings) involving issues that are important to our business, including, without limit, intercarrier compensation, interconnection obligations, the transition from legacy technologies to IP-based infrastructure, universal service, broadband deployment, E911 services, competition policy, net neutrality, unbundled network elements and other wholesale obligations, availability of new spectrum from the FCC on fair and balanced terms, and wireless license awards and renewals.

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

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

·	Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative technologies (e.g., cable, wireless and VoIP) and our ability to maintain capital expenditures.

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

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

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

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

·	Our continued ability to attract and offer a diverse portfolio of wireless devices, some on an exclusive basis.

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

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

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

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

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

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

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

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

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

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

AT&T Inc.

ITEM 2. PROPERTIES

Our properties do not lend themselves to description by character and location of principal units. At December 31, 2013, approximately 76% of our property, plant and equipment was owned by our wireline subsidiaries and approximately 24% was owned by our wireless subsidiaries. Central office equipment represented 31%; Outside Plant (including cable, wiring and other non-central office network equipment) represented approximately 28%; other equipment, comprised principally of wireless network equipment attached to towers, furniture and office equipment and vehicles and other work equipment, represented 25%; land, building and wireless communications towers represented 12%; and other miscellaneous property represented 4%.

Substantially all of the installations of central office equipment are located in buildings and on land we own. Many garages, administrative and business offices, wireless towers, telephone centers and retail stores are leased. Property, on which communication towers are located, may be either owned or leased.

ITEM 3. LEGAL PROCEEDINGS

We are a party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. As of the date of this report, we do not believe any pending legal proceedings to which we or our subsidiaries are subject are required to be disclosed as material legal proceedings pursuant to this item.

We are subject from time to time to judicial and administrative proceedings brought by various governmental authorities under federal, state or local environmental laws. We are required to discuss three of these proceedings in our Forms 10-Q and 10-K, because each could result in monetary sanctions (exclusive of interest and costs) of one hundred thousand dollars or more. However, we do not believe that any of them currently pending will have a material adverse effect on our results of operations.

(a)

In 2012, AT&T Mobility entered into an administrative settlement with the U.S. Environmental Protection Agency (EPA) regarding alleged violations of federal environmental statutes in connection with management of back-up power systems at AT&T Mobility facilities. As part of the settlement, we are required to audit our compliance at over 1,300 facilities and to pay stipulated penalties for any violations discovered by those audits. At this time, it is possible that as a result of these audits, we could face civil penalties in excess of one hundred thousand dollars, but we do not anticipate such fines would be in an amount that would be material.

(b)

On March 29, 2012, attorneys in an investigation led by the California Attorney General’s Office informed us of claimed violations of California state hazardous waste statutes arising from the disposal of batteries, aerosol cans, and electronic waste at various California facilities. We are analyzing the claims while cooperating with investigators and implementing remedial measures where appropriate. At this time, it is possible that we could face civil penalties in excess of one hundred thousand dollars, but we do not anticipate such fines would be in an amount that would be material.

(c)

In December 2011, Harris County, Texas brought suit on behalf of itself and the Texas Commission on Environmental Quality (TCEQ) alleging AT&T to be liable for statutory civil penalties for past leakage at eleven petroleum storage tank locations. All eleven sites have been remediated (with de minimis actual impact) in accordance with state programs and the TCEQ has issued No Further Action (NFA) letters closing the sites. Notwithstanding these facts, Harris County declined to dismiss its claims and is proceeding with litigation. Trial is set for July 2014. While it is possible that Harris County may recover civil penalties exceeding one hundred thousand dollars, we do not expect the amount, if any, to be material.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

AT&T Inc.

EXECUTIVE OFFICERS OF THE REGISTRANT

(As of February 1, 2014)

Name	Age		Position	Held Since

Randall L. Stephenson	53	Chairman of the Board, Chief Executive Officer and President		6/2007
William A. Blase Jr.	58	Senior Executive Vice President – Human Resources		6/2007
James W. Cicconi	61	Senior Executive Vice President – External and Legislative Affairs, AT&T Services, Inc.		11/2008
Catherine M. Coughlin	56	Senior Executive Vice President and Global Marketing Officer		6/2007
Ralph de la Vega	62	President and Chief Executive Officer, AT&T Mobility		10/2008
John M. Donovan	53	Senior Executive Vice President – AT&T Technology and Network Operations		1/2012
Andrew M. Geisse	57	Chief Executive Officer – AT&T Business Solutions		8/2012
Lori M. Lee	48	Senior Executive Vice President – Home Solutions		4/2013
John T. Stankey	51	Group President and Chief Strategy Officer		2/2012
John J. Stephens	54	Senior Executive Vice President and Chief Financial Officer		6/2011
Wayne Watts	60	Senior Executive Vice President and General Counsel		6/2007

All of the above executive officers have held high-level managerial positions with AT&T or its subsidiaries for more than the past five years. Executive officers are not appointed to a fixed term of office.

AT&T Inc.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Our common stock is listed on the New York Stock Exchange. The number of stockholders of record as of December 31, 2013 and 2012 was 1,156,355 and 1,224,601. The number of stockholders of record as of February 14, 2014, was 1,152,193. We declared dividends, on a quarterly basis, totaling $1.81 per share in 2013 and $1.77 per share in 2012.

Other information required by this Item is included in the Annual Report under the headings “Quarterly Financial Information” on page 71, “Selected Financial and Operating Data” on page 10, and “Stock Trading Information” on the back cover, which are incorporated herein by reference pursuant to General Instruction G(2).

(c) In December 2010, our Board of Directors authorized a share repurchase plan of 300 million shares of common stock, with no expiration date. During 2010 and 2011, we did not repurchase any shares under this plan. We began buying back stock under this program in 2012 and completed the repurchase of authorized shares that year. In July 2012, the Board of Directors approved a second authorization to repurchase 300 million shares, which we completed in May 2013. In March 2013, our Board of Directors approved a third authorization to repurchase up to 300 million shares of our common stock. For the year ended December 31, 2013, we repurchased 366 million shares totaling $13,028 under the second and third authorizations. For the year ended December 31, 2012, we repurchased approximately 371 million shares totaling $12,752 under the first and second authorizations. We expect to make future repurchases of our common stock opportunistically.

To implement these authorizations, we use open market repurchase programs, relying on Rule 10b5-1 of the Securities Exchange Act of 1934 where feasible. We also use accelerated share repurchase programs with large financial institutions to repurchase our stock.

We will continue to fund any share repurchases through a combination of cash from operations, borrowings dependent on market conditions, or cash from the disposition of certain non-strategic investments.

A summary of our repurchases of common stock during the fourth quarter of 2013 is as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

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

October 1, 2013 - October 31, 2013		12,001,157	$	34.65	12,000,000	204,447,551
November 1, 2013 - November 30, 2013		22,401,629		35.75	22,398,600	182,048,951
December 1, 2013 - December 31, 2013		19,673,371		34.50	19,650,000	162,398,951
Total		54,076,157	$	35.05	54,048,600
1	In March 2013, our Board of Directors authorized the repurchase of up to 300 million shares of our common stock. The March 2013 authorization has no expiration date.
2	Of the shares purchased, 27,557 shares were acquired through the withholding of taxes on the vesting of restricted stock or through the payment in stock of taxes on the exercise price of options.

AT&T Inc.

ITEM 6. SELECTED FINANCIAL DATA

Information required by this Item is included in the Annual Report under the heading “Selected Financial and Operating Data” on page 10, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Information required by this Item is included in the Annual Report on pages 11 through 38, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this Item is included in the Annual Report under the heading “Market Risk” on pages 33 through 34, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required by this Item is included in the Annual Report on pages 39 through 71, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

During our two most recent fiscal years, there has been no change in the independent accountant engaged as the principal accountant to audit our financial statements and the independent accountant has not expressed reliance on other independent accountants in its reports during such time period.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the SEC’s rules and forms. The Chief Executive Officer and Chief Financial Officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of December 31, 2013. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the registrant’s disclosure controls and procedures were effective as of December 31, 2013.

Internal Control Over Financial Reporting

(a) Management’s Annual Report on Internal Control over Financial Reporting

The management of AT&T is responsible for establishing and maintaining adequate internal control over financial reporting. AT&T’s internal control system was designed to provide reasonable assurance as to the integrity and reliability of the published financial statements. AT&T management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2013. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (1992 framework ) . Based on its assessment, AT&T management believes that, as of December 31, 2013, the Company’s internal control over financial reporting is effective based on those criteria.

(b) Attestation Report of the Independent Registered Public Accounting Firm

The independent registered public accounting firm that audited the financial statements included in the Annual Report containing the disclosure required by this Item, Ernst & Young LLP, has issued an attestation report on the Company’s internal control over financial reporting. The attestation report issued by Ernst & Young LLP is included in the Annual Report on page 73, which is incorporated herein by reference pursuant to General Instruction G(2).

AT&T Inc.

ITEM 9B. OTHER INFORMATION

There is no information that was required to be disclosed in a report on Form 8-K during the fourth quarter of 2013 but was not reported.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure at the end of Part I of this report since the registrant did not furnish such information in its definitive proxy statement prepared in accordance with Schedule 14A. Information regarding directors required by Item 401 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s definitive proxy statement, dated on or about March 11, 2014 (Proxy Statement) under the heading “Election of Directors.”

The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the committee are Messrs. Kelly, Madonna, McCallister, Pardo, and Mses. Taylor and Tyson. The additional information required by Item 407(d)(5) of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Audit Committee.”

The registrant has adopted a code of ethics entitled “Code of Ethics” that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer, or controller or persons performing similar functions. The additional information required by Item 406 of Regulation S-K is provided in this report under the heading “General” under Part I, Item 1. Business.

ITEM 11. EXECUTIVE COMPENSATION

Information required by Item 402(k) of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Compensation of Directors.” Information regarding officers is included in the registrant’s Proxy Statement on the pages beginning with the heading “Compensation Discussion and Analysis” and ending with, and including, the pages under the heading “Potential Payments upon Change in Control” which are incorporated herein by reference pursuant to General Instruction G(3). Information required by Item 407(e)(5) of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Compensation Committee Report” and is incorporated herein by reference pursuant to General Instruction G(3) and shall be deemed furnished in this Annual Report on Form 10-K and will not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by Item 403 of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Common Stock Ownership,” which is incorporated herein by reference pursuant to General Instruction G(3).

AT&T Inc.

Equity Compensation Plan Information

The following table provides information as of December 31, 2013, concerning shares of AT&T common stock authorized for issuance under AT&T’s existing equity compensation plans.

Equity Compensation Plan Information
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted- average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation Plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	40,187,209 (1)	$29.26	127,640,511 (2)
Equity compensation plans not approved by security holders	-	-	-
Total	40,187,209 (3)	$29.26	127,640,511

(1)

Includes the issuance of stock in connection with the following stockholder approved plans: (a) 11,089,765 stock options under the 1996 Stock and Incentive Plan, 2001 Incentive Plan, and Stock Purchase and Deferral Plan (SPDP), (b) 1,787,960 phantom stock units under the Stock Savings Plan (SSP), 7,763,499 phantom stock units under the SPDP, 2,782,850 restricted stock units under the 2006 Incentive Plan, and 3,046,098 restricted stock units under the 2011 Incentive Plan, (c) 3,460,888 target number of stock-settled performance shares under the 2006 Incentive Plan, and (d) 6,660,160 target number of stock-settled performance shares under the 2011 Incentive Plan. At payout, the target number of performance shares may be reduced to zero or increased by up to 150%. Each phantom stock unit and performance share is settleable in stock on a 1-to-1 basis. The weighted-average exercise price in the table does not include outstanding performance shares or phantom stock units.

The SSP was approved by stockholders in 1994 and then was amended by the Board of Directors in 2000 to increase the number of shares available for purchase under the plan (including shares from the Company match and reinvested dividend equivalents) and shares subject to options. Stockholder approval was not required for the amendment. To the extent applicable, the amount shown for approved plans in column (a), in addition to the above amounts, includes 2,744,464 phantom stock units (computed on a first-in-first-out basis) and 851,525 stock options that were approved by the Board in 2000. Under the SSP, shares could be purchased with payroll deductions and reinvested dividend equivalents by mid-level and above managers and limited Company partial matching contributions. No new contributions may be made to the plan. In addition, participants received approximately 2 options for each share purchased with employee payroll deductions. The options have a 10-year term and a strike price equal to the fair market value of the stock on the date of grant.

(2)	Includes 30,096,939 shares that may be issued under the SPDP, 76,733,156 shares that may be issued under the 2011 Incentive Plan, and up to 3,919,185 shares that may be purchased through reinvestment of dividends on phantom shares held in the SSP.

(3)

Does not include certain stock options issued by companies acquired by AT&T that were converted into options to acquire AT&T stock. As of December 31, 2013, there were 68,266 shares of AT&T common stock subject to the converted options, having a weighted-average exercise price of $19.82. Also, does not include 61,170 outstanding phantom stock units that were issued by companies acquired by AT&T that are convertible into stock on a 1-to-1 basis, along with up to 57,462 shares that may be purchased with reinvested dividend equivalents paid on the outstanding phantom stock units. These units have no exercise price. No further phantom stock units, other than reinvested dividends, may be issued under the assumed plans. The weighted-average exercise price in the table does not include outstanding performance shares or phantom stock units. These units have no exercise price. No further phantom stock units, other than reinvested dividends, may be issued under the assumed plans. The weighted-average exercise price in the table does not include outstanding performance shares or phantom stock units.

AT&T Inc.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by Item 404 of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Related Person Transactions,” which is incorporated herein by reference pursuant to General Instruction G(3). Information required by Item 407(a) of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Independence of Directors,” which is incorporated herein by reference pursuant to General Instruction G(3).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item is included in the registrant’s Proxy Statement under the heading “Principal Accountant Fees and Services,” which is incorporated herein by reference pursuant to General Instruction G(3).

Part IV

ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as a part of the report:

Page

(1) Report of Independent Registered Public Accounting Firm........................................................................................................ *

Financial Statements covered by Report of Independent Registered Public Accounting Firm:

Consolidated Statements of Income......................................................................................................................................... *

Consolidated Statements of Comprehensive Income............................................................................................................ *

Consolidated Balance Sheets.................................................................................................................................................... *

Consolidated Statements of Cash Flows................................................................................................................................. *

Consolidated Statements of Changes in Stockholders’ Equity........................................................................................... *

Notes to Consolidated Financial Statements.......................................................................................................................... *

Incorporated herein by reference to the appropriate portions of the registrant’s Annual Report to Stockholders for the fiscal year ended December 31, 2013. (See Part II.)

Page

(2) Financial Statement Schedules:

II - Valuation and Qualifying Accounts.................................................................................................................................. 21

Financial statement schedules other than those listed above have been omitted because the required information is contained in the financial statements and notes thereto, or because such schedules are not required or applicable.

(3) Exhibits:

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

Exhibit Number
3-a	Restated Certificate of Incorporation, filed with the Secretary of State of Delaware on December 13, 2013. (Exhibit 3.1 to Form 8-K dated December 13, 2013.)

3-b	Bylaws amended June 24, 2011. (Exhibit 3 to Form 8-K dated June 24, 2011.)

4-a	No instrument which defines the rights of holders of long-term debt of the registrant and all of its consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 601b)(4)(iii)(A), except for the instruments referred to in 4-b, 4-c, 4-d, 4-e, 4-f, 4-g, and 4-h below. Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument not filed herewith to the SEC upon request.

4-b	Guaranty of certain obligations of Pacific Bell Telephone Co. and Southwestern Bell Telephone Co. (Exhibit 4-c to Form 10-K for 2011.)

AT&T Inc.

4-c	Guaranty of certain obligations of Ameritech Capital Funding Corp., Indiana Bell Telephone Co. Inc., Michigan Bell Telephone Co., Pacific Bell Telephone Co., and Wisconsin Bell, Inc. (Exhibit 4-d to Form 10-K for 2011.)

4-d	Guarantee of certain obligations of AT&T Corp. (Exhibit 4-e to Form 10-K for 2011.)

4-e	Guarantee of certain obligations of BellSouth Corp. (Exhibit 4-f to Form 10-K for 2011.)

4-f	Cingular Third Supplemental Indenture. (Exhibit 4-g to Form 10-K for 2011.)

4-g	Indenture dated as of November 1, 1994 between SBC Communications Inc. and The Bank of New York, as Trustee.

4-h	Indenture, dated as of May 15, 2013, between AT&T Inc. and The Bank of New York Mellon Trust Company, N.A. as Trustee (Exhibit 4.1 to Form 8-K dated May 15, 2013.)

10-a	Short Term Incentive Plan, amended and restated effective January 1, 2014.

10-b	2006 Incentive Plan, amended and restated effective through January 28, 2010. (Exhibit 10-c to Form 10-Q filed for June 30, 2010.)

10-c	2011 Incentive Plan, amended December 12, 2013. (Exhibit 10.1 to Form 8-K dated December 12, 2013.)

10-d	Supplemental Life Insurance Plan, amended and restated effective January 1, 2010. (Exhibit 10-d to Form 10-Q filed for June 30, 2009.)

10-e	Supplemental Retirement Income Plan, amended and restated December 31, 2008.

10-f	2005 Supplemental Employee Retirement Plan, amended and restated May 1, 2012. (Exhibit 10-a to Form 10-Q filed for June 30, 2012.)

10-g	Senior Management Deferred Compensation Program of 1988 (effective for Units of Participation Having a Unit Start Date of January 1, 1988 or later) as amended through April 1, 2002.

10-h	Salary and Incentive Award Deferral Plan, dated December 31, 2004. (Exhibit 10-k to Form 10-K for 2011.)

10-i	Stock Savings Plan, dated December 31, 2004. (Exhibit 10-l to Form 10-K for 2011.)

10-j	Stock Purchase and Deferral Plan, amended April 26, 2013. (Exhibit 10 to Form 10-Q filed for March 31, 2013.)

10-k	Cash Deferral Plan, amended and restated January 31, 2013. (Exhibit 10-n to Form 10-K for 2012).

10-l	Master Trust Agreement for AT&T Inc. Deferred Compensation Plans and Other Executive Benefit Plans and subsequent amendments dated August 1, 1995 and November 1, 1999. (Exhibit 10-dd to Form 10-K for 2009.)

10-m	Officer Disability Plan, amended and restated effective January 1, 2010. (Exhibit 10-i to Form 10-Q filed for June 30, 2009.)

AT&T Inc.

10-n	AT&T Inc. Health Plan, amended and restated effective January 1, 2014. (Exhibit 10 to Form 10-Q filed for June 30, 2013.)

10-o	Pension Benefit Makeup Plan No.1, amended and restated December 31, 2010. (Exhibit 10-jj to Form 10-K for 2010.)

10-p	AT&T Inc. Change in Control Severance Plan, amended and restated effective February 1, 2013. (Exhibit 10-t to Form 10-K for 2012.)

10-q	AT&T Inc. Equity Retention and Hedging Policy. (Exhibit 10.2 to Form 8-K dated December 15, 2011.)

10-r	Administrative Plan, amended and restated effective January 1, 2013. . (Exhibit 10-w to Form 10-K for 2012).

10-s	AT&T Inc. Non-Employee Director Stock and Deferral Plan, amended and restated June 26, 2008.

10-t	AT&T Inc. Non-Employee Director Stock Purchase Plan, effective June 27, 2008.

10-u	Communications Concession Program for Directors, amended and restated February 1, 2013. (Exhibit 10-aa to Form 10-K for 2012.)

10-v	Form of Indemnity Agreement, effective July 1, 1986, between SBC (now AT&T Inc.) and its directors and officers. (Exhibit 10-bb to Form 10-K for 2011.)

10-w	Transition Agreement by and between BellSouth Corporation and Rafael de la Vega, dated December 29, 2003. (Exhibit 10-cc to Form 10-K for 2011.)

10-x	Pacific Telesis Group Deferred Compensation Plan for Nonemployee Directors. (Exhibit 10-hh to Form 10-K for 2011.)

	10-x(i)	Resolutions amending the Plan, effective November 21, 1997. (Exhibit 10-hh(i) to Form 10-K for 2011.)

10-y	Pacific Telesis Group Outside Directors’ Deferred Stock Unit Plan. (Exhibit 10-ii to Form 10-K for 2011.)

10-z	Pacific Telesis Group 1996 Directors’ Deferred Compensation Plan. (Exhibit 10-jj to Form 10-K for 2011.)

	10-z(i)	Resolutions amending the Plan, effective November 21, 1997. (Exhibit 10-hh(i) to Form 10-K for 2011.)

10-aa	AT&T Corp. Executive Deferred Compensation Plan (formerly known as AT&T Corp. Senior Management Incentive Award Deferral Plan), amended and restated January 1, 2008.

10-bb	Master Trust Agreement for AT&T Corp. Deferred Compensation Plans and Other Executive Benefit Plans, effective January 13, 1994. (Exhibit 10-nn to Form 10-K for 2011.)

	10-bb(i)	First Amendment to Master Trust Agreement, effective December 23, 1997. (Exhibit 10-nn(i) to Form 10-K for 2011.)

10-cc	AT&T Corp. Non-Qualified Pension Plan, as amended and restated effective December 31, 2008.

AT&T Inc.

10-dd	AT&T Corp. Excess Benefit and Compensation Plan, as amended and restated effective December 31, 2008.

10-ee	BellSouth Corporation Nonqualified Deferred Compensation Plan, dated January 1, 2005. (Exhibit 10-ss to Form 10-K for 2011.)

10-ff	BellSouth Corporation Deferred Compensation Plan for Non-Employee Directors, dated March 9, 1984. (Exhibit 10-uu to Form 10-K for 2011.)

10-gg	BellSouth Corporation Director’s Compensation Deferral Plan, as amended and restated effective as of January 1, 2005. (Exhibit 10-vv to Form 10-K for 2011.)

10-hh	BellSouth Corporation Stock and Incentive Compensation Plan, as amended June 28, 2004. (Exhibit 10-qq for Form 10-K for 2009.)

	10-hh(i)	First Amendment to the BellSouth Corporation Stock and Incentive Compensation Plan, dated September 26, 2005. (Exhibit 10-xx(i) to Form 10-K for 2011.)

	10-hh(ii)	Second Amendment to BellSouth Corporation Stock and Incentive Compensation Plan, effective June 26, 2008.

10-ii	BellSouth Corporation Supplemental Executive Retirement Plan, amended and restated as of May 1, 2012. (Exhibit10-c to Form 10-Q filed for June 30, 2012.)

10-jj	BellSouth Corporation Non-Employee Director Non-Qualified Stock Option Terms and Conditions (for options granted under the BellSouth Corporation Stock and Incentive Compensation Plan). (Exhibit 10-tt to Form 10-K for 2009.)

10-kk	BellSouth Corporation Amended And Restated Trust Under Board Of Directors Benefit Plan(s), effective October 11, 2006. (Exhibit 10-aaa to Form 10-K for 2011.)

10-ll	BellSouth Supplemental Life Insurance Plan, amended and restated November 1, 2009. (Exhibit 10-aaa to Form 10-K for 2009.)

10-mm	BellSouth Nonqualified Deferred Income Plan, as amended and restated May 1, 2012. (Exhibit 10-fff to Form 10-K for 2012.)

10-nn	Cingular Wireless Cash Deferral Plan, effective November 1, 2001. (Exhibit 10-hhh to Form 10-K for 2011.)

10-oo	AT&T Mobility 2005 Cash Deferral Plan. (Exhibit 10-lll to Form 10-K for 2011.)

10-pp	Credit Agreement dated December 11, 2012. (Exhibit 10.b to Form 8-K dated December 11, 2012.)

10-qq	Amended and Restated Credit Agreement dated December 11, 2013. (Exhibit 10.1 to Form 8-K dated December 11, 2013.)

10-rr	Agreement and Plan of Merger, dated as of July 12, 2013, by and among Leap Wireless International, Inc., AT&T Inc., Laser, Inc. and Mariner Acquisition Sub Inc. (exhibit 10.1 to Form 8-K dated July 12, 2013.)

10-ss	Stock Purchase Agreement, dated as of December 16, 2013, by and between AT&T Inc. and Frontier Communications Corporation. (Exhibit 10.1 to Form 8-K dated December 16, 2013.)

12	Computation of Ratios of Earnings to Fixed Charges.

AT&T Inc.

13	Portions of AT&T’s Annual Report to Stockholders for the fiscal year ended December 31, 2011. Only the information incorporated by reference into this Form 10-K is included in the exhibit.

21	Subsidiaries of AT&T Inc.

23	Consent of Ernst & Young LLP, independent registered public accounting firm for AT&T.

24	Powers of Attorney.

31	Rule 13a-14(a)/15d-14(a) Certifications

31.1	Certification of Principal Executive Officer

31.2	Certification of Principal Financial Officer

32	Section 1350 Certification

101	XBRL Instance Document

We will furnish to stockholders upon request, and without charge, a copy of the Annual Report to Stockholders and the Proxy Statement, portions of which are incorporated by reference in the Form 10-K. We will furnish any other exhibit at cost.

Schedule II - Sheet 1

AT&T INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Allowance for Doubtful Accounts

Dollars in Millions

COL. A		COL. B	COL. C			COL. D		COL. E
			Additions
			(1)	(2)	(3)
	Balance at Beginning of Period		Charged to Costs and Expenses (a)	Charged to Other Accounts (b)	Acquisitions	Deductions (c)	Balance at End of Period

Year 2013	$	547	954	(30)	-	988	$	483
Year 2012	$	878	1,117	48	-	1,496	$	547
Year 2011	$	957	1,136	38	-	1,253	$	878

(a)	Includes amounts previously written off which were credited directly to this account when recovered. Excludes direct charges and credits to expense for nontrade receivables in the consolidated statements of income.

(b)	Includes amounts related to long-distance carrier receivables which were billed by AT&T.

(c)	Amounts written off as uncollectible, or related to divested entities.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 21 st day of February, 2014.

	AT&T INC.




	/s/ John J. Stephens
	John J. Stephens Senior Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Principal Executive Officer:

Randall Stephenson*

Chairman of the Board, Chief Executive Officer

and President

Principal Financial and Accounting Officer:

John J. Stephens

Senior Executive Vice President

and Chief Financial Officer

	/s/ John J. Stephens
	John J. Stephens, as attorney-in-fact and on his own behalf as Principal Financial Officer and Principal Accounting Officer

	February 21, 2014


Directors:
Randall L. Stephenson*	Michael B. McCallister*
Reuben V. Anderson*	John B. McCoy*
James H. Blanchard*	Beth E. Mooney*
Jaime Chico Pardo*	Joyce M. Roché*
Scott T. Ford*	Matthew K. Rose*
James P. Kelly*	Cynthia B. Taylor*
Jon C. Madonna*	Laura D’Andrea Tyson*

* by power of attorney

Exhibit 4-h

Execution Copy

SBC COMMUNICATIONS INC.

as Issuer and Registrant of Securities

AND

THE BANK OF NEW YORK

Trustee

____________________

INDENTURE

Dated as of November 1, 1994

___________________

Providing for Issuance of Securities in Series

NY12525: 95095.8

Certain Sections of this Indenture relating to Sections 310 through 318, inclusive, of the Trust Indenture Act of 1939. This reconciliation section does not constitute part of the Indenture.

Trust Indenture Act Indenture

of 1939 Section Section

310(a)(1) . . . . . . . . . . . . . . . . . . . ……………………………….7.10

(a)(2) . . . . . . . . . . . . . . . . . . . …………………………………7.10

(a)(3) . . . . . . . . . . . . . . . . . . . ………………………………….Inapplicable

(a)(4) . . . . . . . . . . . . . . . . . . . ………………………………….Inapplicable

(b) . . . . . . . . . . . . . . . . . . . . . ………………………………….7.08; 7.10

311(a) . . . . . . . . . . . . . . . . . . . . . ………………………………..7.11

(b) . . . . . . . . . . . . . . . . . . . . . ………………………………….7.11

312(a) . . . . . . . . . . . . . . . . . . . . . …………………………………2.07

(b) . . . . . . . . . . . . . . . . . . . . . …………………………………..10.03

313(a) . . . . . . . . . . . . . . . . . . . . ………………………………….7.06

(b)(1) . . . . . . . . . . . . . . . . . . . …………………………………Inapplicable

(b)(2) . . . . . . . . . . . . . . . . . . …………………………………..7.06; 10.02

(d) . . . . . . . . . . . . . . . . . . . . ……………………………………7.06

314(a) . . . . . . . . . . . . . . . . . . . . ………………………………….4.02; 10.02

(b) . . . . . . . . . . . . . . . . . . . . ……………………………………Inapplicable

(c)(1) . . . . . . . . . . . . . . . . . . …………………………………..10.04

(c)(2) . . . . . . . . . . . . . . . . . . …………………………………..10.04

(c)(3) . . . . . . . . . . . . . . . . . . …………………………………..Inapplicable

(d) . . . . . . . . . . . . . . . . . . . . ……………………………………Inapplicable

(e) . . . . . . . . . . . . . . . . . . . . ……………………………………10.05

(f) . . . . . . . . . . . . . . . . . . . . …………………………………….Inapplicable

315(a) . . . . . . . . . . . . . . . . . . . . ………………………………….7.01(b)

(b) . . . . . . . . . . . . . . . . . . . . ……………………………………7.05; 10.02

(d) . . . . . . . . . . . . . . . . . . . . ……………………………………7.01(c)

(e) . . . . . . . . . . . . . . . . . . . . ……………………………………6.11

316(a)(last sentence) . . . . . . . . . . . . …………………………….2.11

(a)(1)(A) . . . . . . . . . . . . . . . . . …………………………………6.05

(a)(1)(B) . . . . . . . . . . . . . . . . . …………………………………6.04

(a)(2) . . . . . . . . . . . . . . . . . . …………………………………..Inapplicable

(b) . . . . . . . . . . . . . . . . . . . . ……………………………………6.07

317(a)(1) . . . . . . . . . . . . . . . . . . …………………………………6.08

(a)(2) . . . . . . . . . . . . . . . . . . …………………………………...6.09

(b) . . . . . . . . . . . . . . . . . . . . ……………………………………2.06

318(a) . . . . . . . . . . . . . . . . . . . . ………………………………….10.01

NY12525: 95095.8

TABLE OF CONTENTS

PAGE

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE1

1.01 Definitions..................................................................................................

1.02 Other Definitions.......................................................................................

1.03 Incorporation by Reference of Trust Indenture Act...........................

1.04 Rules of Construction..............................................................................

ARTICLE 2

THE SECURITIES............................................................ 5

2.01 Issuable in Series.......................................................................................

2.02 Establishment of Terms and Form of Series of Securities...................

2.03 Execution, Authentication and Delivery................................................

2.04 Registrar and Paying Agent....................................................................

2.05 Payment on Securities..............................................................................

2.06 Paying Agent to Hold Money in Trust..................................................

2.07 Securityholder Lists; Ownership of Securities.....................................

2.08 Registration of Transfer and Exchange.................................................

2.09 Replacement Securities............................................................................

2.10 Outstanding Securities............................................................................

2.11 Treasury Securities..................................................................................

2.12 Temporary Securities...............................................................................

2.13 Cancellation..............................................................................................

2.14 Defaulted Interest....................................................................................

2.15 CUSIP Numbers........................................................................................

ARTICLE 3

REDEMPTION.................................................................. 19

3.01 Notice to Trustee......................................................................................

3.02 Selection of Securities to be Redeemed................................................

3.03 Notice of Redemption..............................................................................

3.04 Effect of Notice of Redemption..............................................................

3.05 Deposit of Redemption Price..................................................................

3.06 Securities Redeemed in Part...................................................................

ARTICLE 4

1This Table of Contents Does Not Constitute Part of the Indenture

COVENANTS.....................................................................2 1

4.01 Payment of Securities................................................................................

4.02 Reports by SBC..........................................................................................

4.03 Statement as to Compliance......................................................................

4.04 Calculation of Original Issue Discount...................................................

ARTICLE 5

SUCCESSORS....................................................................2 2

5.01 When SBC May Merge, etc......................................................................

ARTICLE 6

DEFAULTS AND REMEDIES......................................... 23

6.01 Events of Default........................................................................................

6.02 Acceleration................................................................................................

6.03 Other Remedies Available to Trustee....................................................

6.04 Waiver of Existing Defaults......................................................................

6.05 Control by Majority...................................................................................

6.06 Limitation on Suits by Securityholders..................................................

6.07 Rights of Holders to Receive Payment...................................................

6.08 Collection Suits by Trustee......................................................................

6.09 Trustee May File Proofs of Claim............................................................

6.10 Priorities.......................................................................................................

6.11 Undertaking for Costs...............................................................................

ARTICLE 7

TRUSTEE........................................................................... 29

7.01 Duties of Trustee......................................................................................

7.02 Rights of Trustee......................................................................................

7.03 Individual Rights of Trustee...................................................................

7.04 Trustee's Disclaimer.................................................................................

7.05 Notice of Defaults.....................................................................................

7.06 Reports by Trustee to Holders...............................................................

7.07 Compensation and Indemnity.................................................................

7.08 Replacement of Trustee...........................................................................

7.09 Successor Trustee, Agents by Merger, etc..........................................

7.10 Eligibility; Disqualification......................................................................

7.11 Preferential Collection of Claims Against..............................................

ARTICLE 8

DISCHARGE OF INDENTURE.......................................35

8.01 Termination of SBC's Obligations...........................................................

8.02 Application of Trust Money....................................................................

8.03 Repayment to.............................................................................................

8.04 Indemnity for Government Obligations.................................................

ARTICLE 9

AMENDMENTS AND WAIVERS................................ 37

9.01 Without Consent of Holders...................................................................

9.02 With Consent of Holders........................................................................

9.03 Compliance with Trust Indenture Act...................................................

9.04 Revocation and Effect of Consents.......................................................

9.05 Notation on or Exchange of Securities..................................................

9.06 Trustee Protected.....................................................................................

9.07 Execution of Supplemental Indentures.................................................

ARTICLE 10

MISCELLANEOUS........................................................... 40

10.01 Trust Indenture Act Controls................................................................

10.02 Notices......................................................................................................

10.03 Communication by Holders with Other Holders.................................

10.04 Certificate and Opinion as to Conditions Precedent..........................

10.05 Statements Required in Certificate or Opinion....................................

10.06 Rules by Trustee and Agents...............................................................

10.07 Legal Holidays........................................................................................

10.08 Governing Law.........................................................................................

10.09 No Adverse Interpretation of Other Agreements..............................

10.10 No Recourse Against Others...............................................................

10.11 Acts of Holders......................................................................................

10.12 Execution in Counterparts.....................................................................

SIGNATURES...................................................................................................... 44

INDENTURE dated as of November 1, 1994 between SBC COMMUNICATIONS INC., a Delaware corporation ("SBC"), and THE BANK OF NEW YORK, a New York banking company duly organized and validly existing under the laws of the State of New York ("Trustee").

RECITALS OF SBC

SBC has duly authorized the execution and delivery of this Indenture for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness ("Securities") as herein provided.

All things necessary to make this Indenture a valid agreement of SBC, in accordance with its terms, have been done.

For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the Holders of the Securities:

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01 Definitions.

"Affiliate" means any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, SBC.

"Agent" means any Paying Agent, Registrar, or co-Registrar.

"Authorized Newspaper" means a newspaper of general circulation, in an official language of the country of publication or in the English language, customarily published on days other than Legal Holidays, as defined in Section 10.07, in such country. Whenever successive weekly publications in an Authorized Newspaper are required hereunder, they may be made (unless otherwise expressly provided herein) on the same or different days of the week and in the same or different Authorized Newspapers.

"Board of Directors" means the Board of Directors of SBC, or any duly authorized committee thereof.

"Board Resolution" means a copy of a resolution of the Board of Directors, certified by the Secretary or an Assistant Secretary of SBC to have been duly adopted by the Board of Directors and to be in full force and effect.

"Default" means any event which is, or after notice or passage of time would be, an Event of Default.

"Depository" means, with respect to the Securities of any Series issuable or issued in whole or in part in the form of one or more Global Securities, the person designated as Depository by SBC pursuant to Section 2.02.

"Global Security" means a Security in the form prescribed in Section 2.02 evidencing all or part of a Series of Securities, issued to the Depository for such series or its nominee, and registered in the name of such Depository or nominee.

"Holder" or "Securityholder" means the bearer of an Unregistered Security or of a coupon appertaining thereto or the person in whose name a Registered Security is registered on the Registrar's books.

"Indenture" means this Indenture as amended or supplemented from time to time including, for all purposes of this instrument and any such amendment or supplement, the provisions of the TIA that are deemed to be a part of and govern this instrument and any such amendment or supplement, respectively. The term "Indenture" shall also include the forms and terms of a particular Series of Securities established as contemplated hereunder.

"Officer" means the Chairman of the Board of Directors, any Vice Chairman of the Board of Directors, the President, any Vice-President, the Treasurer or the Secretary of SBC.

"Officers' Certificate" means a certificate signed by two Officers or by any Officer and an Assistant Treasurer or an Assistant Secretary of SBC.

"Opinion of Counsel" means a written opinion of legal counsel who is acceptable to SBC and the Trustee. Counsel may be an employee of or counsel to SBC or the Trustee.

"Order" means an order in the name of SBC signed by two Officers or by any Officer and an Assistant Treasurer or an Assistant Secretary of SBC.

"Original Issue Discount Security" means any Security which provides for an amount less than the stated principal amount thereof to be due and payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.02.

"Principal" of a debt security means the principal of the security plus, when appropriate, the premium, if any, on the security.

"Registered Security" means any Security issued hereunder and registered by the Registrar.

"Responsible Officer", when used with respect to the Trustee, shall mean the chairman or any vice-chairman of the board of directors or trustees, the chairman or any vice-chairman of the executive committee of the board of directors or trustees, the president, any vice-president, the treasurer, the secretary, any trust officer, any second or assistant vice-president or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with a particular subject.

"SBC" means the party named as such in this Indenture until a successor replaces it pursuant to the applicable provisions hereof and thereafter means the successor.

"SEC" means the Securities and Exchange Commission.

"Series" or "Series of Securities" means a series of Securities.

"Securities" means the debentures, notes or other obligations of SBC issued, authenticated and delivered under this Indenture.

"Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by SBC or by one or more other of its Subsidiaries, or by SBC and one or more other of its Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

"TIA" means the Trust Indenture Act of 1939 as in effect on the date of this Indenture provided , however , that in the event the Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.

"Trustee" means the party named as such in this Indenture until a successor replaces it pursuant to the applicable provisions hereof and thereafter means the successor and if, at any time, there is more than one Trustee, "Trustee" as used with respect to the Securities of any Series shall mean the Trustee with respect to that Series.

"U.S. person" means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or a political subdivision thereof, or an estate or trust the income of which is subject to United States Federal income taxation regardless of its source.

"United States" means the United States of America (including the States and the District of Columbia), its territories, its possessions and all other areas subject to its jurisdiction.

"Unregistered Security" means any Security issued hereunder which is not a Registered Security.

"Yield to Maturity" means the yield to maturity, calculated by SBC at the time of issuance of a Series of Securities or, if applicable, at the most recent determination of interest on such Series in accordance with accepted financial practice.

SECTION 1.02 Other Definitions.

Term Section

"Bankruptcy Law". . . . . . . . . . . . 6.01

"Custodian" . . . . . . . . . . . . . . 6.01

"Event of Default" . . . . . . . . . . 6.01

"Legal Holiday" . . . . . . . . . . . . 10.07

"Paying Agent" . . . . . . . . . . . . 2.04

"Registrar" . . . . . . . . . . . . . . 2.04

"U.S. Government Obligations" . . . . . 8.01

SECTION 1.03 Incorporation by Reference of Trust Indenture Act.

Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings:

"Commission" means the SEC.

"indenture securities" means the Securities.

"indenture to be qualified" means this Indenture.

"indenture trustee" or "institutional trustee" means the Trustee.

"obligor" on the indenture securities means SBC.

All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings assigned to them therein.

SECTION 1.04 Rules of Construction.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with accounting principles generally accepted in the United States of America.

(3) "or" is not exclusive; and

(4) words in the singular include the plural, and words in the plural include the singular.

ARTICLE 2

THE SECURITIES

SECTION 2.01 Issuable in Series.

The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more Series. There may be Registered Securities and Unregistered Securities within a Series and the Unregistered Securities may be subject to such restrictions, and contain such legends, as may be required by United States laws and regulations. Except as provided in the foregoing sentence or as otherwise provided by or pursuant to the Board Resolution referred to in Section 2.02, all Securities of a Series shall be identical in all respects. Securities of different Series may differ in any respect; provided that all Series of Securities shall be equally and ratably entitled to the benefits of this Indenture.

SECTION 2.02 Establishment of Terms and Form of Series of Securities.

(a) At or prior to the issuance of any Series of Securities, the following shall be established either by or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or by an indenture supplemental hereto:

(1) the title of the Securities of the Series (which title shall distinguish the Securities of the Series from the Securities of all other Series and from all other securities issued by SBC);

(2) any limit upon the aggregate principal amount of the Securities of the Series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the Series pursuant to Section 2.08, 2.09, 2.12, 3.06 or 9.05);

(3) the date or dates on which the principal of the Securities of the Series is payable;

(4) the rate or rates at which the Securities of the Series shall bear interest, if any, or the method of calculating such rate or rates of interest, the date or dates from which such interest shall accrue, the dates on which such interest shall be payable and, with respect to Registered Securities, the record date for the interest payable on any interest payment date;

(5) the place or places where the principal of and interest on Registered and any Unregistered Securities of the Series shall be payable;

(6) the period or periods within which, the price or prices at which, and the terms and conditions upon which, Securities of the Series may be redeemed, in whole or in part, at the option of SBC;

(7) the obligation, if any, of SBC to redeem or purchase Securities of the Series pursuant to any sinking fund or analogous provisions or upon the happening of a specified event or at the option of a Holder thereof and the period or periods within which, the price or prices at which, and the terms and conditions upon which, Securities of the Series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;

(8) if in other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the Series shall be issuable;

(9) if other than the principal amount thereof, the portion of the principal amount of Securities of the Series which shall be payable upon declaration or acceleration of the maturity thereof pursuant to Section 6.02;

(10) whether Securities of the Series shall be issuable as Registered Securities or Unregistered Securities (with or without interest coupons), or both, and any restrictions applicable to the offering, sale or delivery of Unregistered Securities and whether, and the terms upon which, Unregistered Securities of a Series may be exchanged for Registered Securities of the same Series and vice versa;

(11) whether and under what circumstances SBC will pay additional amounts on the Securities of that Series held by a person who is not a U.S. person in respect of taxes or similar charges withheld or deducted and, if so, whether SBC will have the option to redeem such Securities rather than pay such additional amounts;

(12) the currency or currencies, including composite currencies, in which payment of the principal of and interest on the Securities of the Series shall be payable (if other than the currency of the United States of America);

(13) if the amount or payments of principal of or interest on the Securities of the Series may be determined with reference to an index, the manner in which such amounts shall be determined;

(14) the obligation, if any, of SBC to permit the conversion or exchange of the Securities of the Series into other securities (whether or not issued by, or the obligation of, SBC), and the terms and conditions upon which such conversion or exchange shall be effected (including, without limitation, the initial conversion or exchange price or rate, the conversion or exchange period and any other provisions in addition to or in lieu of those set forth in this Indenture relative to such obligation;

(15) whether the Securities of the Series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the Depository for such Global Security or Securities, which Depository shall be a clearing agency registered under the Securities Exchange Act of 1934, as amended;

(16) any other terms of the Series (which terms shall not be inconsistent with the provisions of this Indenture), including any terms which may be required by or advisable under United States laws or regulations or advisable in connection with the marketing of Securities of that Series;

(17) the form of the Securities (or forms thereof if Unregistered and Registered Securities shall be issuable in such Series, including such legends as may be required by United States laws or regulations, the form of any coupons or temporary global Security which may be issued and the forms of any certificates which may be required hereunder or under United States laws or regulations in connection with the offering, sale, delivery or exchange of Unregistered Securities); and

(18) the CUSIP number, if any.

(b) If the terms and form or forms of any Series of Securities are established by or pursuant to a Board Resolution, SBC shall deliver a copy of such Board Resolution to the Trustee at or prior to the issuance of such Series with (1) the form or forms of Security which have been approved attached thereto, or (2) if such Board Resolution authorized Officers to approve the terms and form or forms of the Securities, an Officers' Certificate approving the terms and form or forms of Security with such form or forms of Securities attached thereto.

SECTION 2.03 Execution, Authentication and Delivery.

(a) Securities shall be executed on behalf of SBC by its Chairman of the Board of Directors or a Vice-Chairman of the Board of Directors or its President or a Vice-President, and its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary. Signatures shall be manual or facsimile. SBC's seal shall be reproduced on the Securities and may, but need not, be attested. The coupons of Unregistered Securities shall bear the facsimile signature of the Treasurer or an Assistant Treasurer of SBC.

(b) If an Officer, an Assistant Treasurer or an Assistant Secretary of SBC whose signature is on a Security or coupon no longer holds that office at the time the Security is authenticated, the Security or coupon shall be valid nevertheless.

(c) A Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent and no coupon shall be valid until the Security to which it appertains has been so authenticated. Such signature shall be conclusive evidence that the Security has been authenticated under this Indenture. Each Registered Security shall be dated the date of its authentication, and each Unregistered Security shall be dated as provided in connection with the establishment of the Series thereof.

(d) The Trustee shall at any time, and from time to time, authenticate and deliver Securities of any Series executed and delivered by SBC for original issue in an aggregate principal amount not in excess of the principal amount authorized for such Series, upon receipt by the Trustee of (i) an Order for the authentication and delivery of such Securities, (ii) if the terms and form or forms of the Securities of such Series have been established by or pursuant to a Board Resolution as permitted by Section 2.02, a copy of such Board Resolution and any Officers' Certificate that may be required pursuant to Section 2.02(b), and (iii) an Opinion of Counsel stating,

(1) if the form of such Securities has been established by or pursuant to a Board Resolution as permitted by Section 2.02, that such form has been established in conformity with the provisions of this Indenture;

(2) if the terms of such Securities have been established by or pursuant to a Board Resolution as permitted by Section 2.02, that such terms have been established in conformity with the provisions of this Indenture; and

(3) that such Securities, when authenticated and delivered by the Trustee and issued by SBC in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of SBC entitled to the benefits of the Indenture.

Notwithstanding the provisions of Section 2.02 and of the preceding paragraph, if all Securities of a Series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 2.02(b) or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Security of such Series if such documents are delivered at or prior to the time of authentication upon original issuance of the first Security of such series to be issued.

If the terms and form or forms of such Securities have been established by or pursuant to a Board Resolution as permitted by Section 2.02, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will adversely affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.

Notwithstanding the foregoing, until SBC has delivered an Officers' Certificate to the Trustee and the Registrar stating that, as a result of the action described, SBC would not suffer adverse consequences under the provisions of United States law or regulations in effect at the time of the delivery of Unregistered Securities, (i) delivery of Unregistered Securities by the Trustee or Registrar will be made only outside the United States and (ii) Unregistered Securities will be released by the Trustee or Registrar in definitive form to the person entitled to physical delivery thereof only upon presentation of a certificate in the form prescribed by SBC.

(e) If SBC shall establish pursuant to Section 2.02 that the Securities of a Series are to be issued in whole or in part in the form of one or more Global Securities, then SBC shall execute and the Trustee shall, in accordance with this Section and SBC's Order with respect to such Series, authenticate and deliver one or more Global Securities that (i) shall represent and shall be denominated in an amount equal to the aggregate principal amount of outstanding Securities of such series to be represented by one or more Global Securities; (ii) shall be registered in the name of the Depository for such Global Security or Securities or the nominee of such Depository, (iii) shall be delivered by the Trustee to such Depository or pursuant to such Depository's instruction and (iv) shall bear a legend substantially to the following effect: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depository or a nominee of a Depository. Unless and until it is exchanged in whole or in part for Securities in definitive form in accordance with the provisions of the Indenture and the terms of the Securities, this Security may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository."

Each depository designated pursuant to Section 2.02 for a Global Security must, at the time of its designation and at all times while it serves as Depository, be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and any other applicable statute or regulation.

(f) The Trustee may appoint an authenticating agent to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with SBC or an Affiliate thereof.

SECTION 2.04 Registrar and Paying Agent.

SBC shall maintain in the Borough of Manhattan, The City of New York, State of New York, an office or agency where Registered Securities may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where (subject to Sections 2.05(c) and 2.08(b)) Securities may be presented for payment or for exchange ("Paying Agent"). With respect to any Series of Securities issued in whole or in part as Unregistered Securities, SBC shall maintain one or more Paying Agents located outside the United States and shall maintain such Paying Agents for a period of two years after the principal of such Unregistered Securities has become due and payable. During any period thereafter for which it is necessary in order to conform to United States tax law or regulations, SBC will maintain a Paying Agent outside the United States to which the Unregistered Securities or coupons appertaining thereto may be presented for payment and will provide the necessary funds therefor to such Paying Agent upon reasonable notice. The Registrar shall keep a register with respect to each Series of Securities issued in whole or in part as Registered Securities and to their transfer and exchange. SBC may appoint one or more co-Registrars acceptable to the Trustee and one or more additional Paying Agents for each Series of Securities and SBC may terminate the appointment of any co-Registrar or Paying Agent at any time upon written notice. The term "Registrar" includes any co-Registrar. The term "Paying Agent" includes any additional Paying Agent. SBC shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If SBC fails to maintain a Registrar or Paying Agent, the Trustee shall act as such.

SBC initially appoints the Trustee as Registrar and Paying Agent.

SECTION 2.05 Payment on Securities.

(a) Subject to the following provisions, SBC will pay to the Trustee the amounts, in such coin or currency as is at the time legal tender for the payment of public or private debt, in the manner, at the times and for the purposes set forth herein and in the text of the Securities for each Series, and SBC hereby authorizes and directs the Trustee from funds so paid to it to make or cause to be made payment of the principal of and interest, if any, on the Securities and coupons of each Series as set forth herein and in the text of such Securities and coupons. The Trustee will arrange directly with any Paying Agents for the payment, or the Trustee will make payment, from funds furnished by SBC, of the principal and interest, if any, on the Securities and coupons of each Series by check drawn upon a bank in The City of New York.

(b) Interest, if any, on Registered Securities of a Series shall be paid on each interest payment date for such Series to the Holder thereof at the close of business on the relevant record dates specified in the Securities of such Series. SBC may pay such interest by check mailed to such Holder's address as it appears on the register for Securities of such Series. Principal of Registered Securities shall be payable only against presentation and surrender thereof at the office of the Paying Agent in New York, New York, unless SBC shall have otherwise instructed the Trustee in writing.

(c) To the extent provided in the Securities of a Series, (i) interest, if any, on Unregistered Securities shall be paid only against presentation and surrender of the coupons for such interest installments as are evidenced thereby as they mature and (ii) original issue discount (as defined in Section 1273 of the Internal Revenue Code of 1986, as amended), if any, on Unregistered Securities shall be paid only against presentation and surrender of such Securities, in either case at the office of a Paying Agent located outside of the United States, unless SBC shall have otherwise instructed the Trustee in writing. Principal of Unregistered Securities shall be paid only against presentation and surrender thereof as provided in the Securities of a Series. If at the time a payment of principal of or interest, if any, or original issue discount, if any, on an Unregistered Security or coupon shall become due the payment of the full amount so payable at the office or offices of all the Paying Agents outside the United States is illegal or effectively precluded because of the imposition of exchange controls or other similar restrictions on the payment of such amount in the United States currency, then SBC may instruct the Trustee to make such payments at the office of a Paying Agent located in the United States, provided that provision for such payment in the United States would not cause such Unregistered Security to be treated as a "registration-required obligation" under United States law and regulations.

SECTION 2.06 Paying Agent to Hold Money in Trust.

SBC will require each Paying Agent for any Series of Securities other than the Trustee to agree in writing that it will hold all sums held by it for the payment of principal of and interest on Securities of that Series in trust for the benefit of the persons entitled thereto until such sums are paid to such persons or otherwise disposed of as herein provided, and that the Paying Agent will notify promptly the Trustee of any default by SBC in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. If SBC acts as Paying Agent, it shall segregate the money held by it for the payment of principal of and interest on any Series of Securities and hold such money as a separate trust fund. SBC at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon so doing the Paying Agent shall have no further liability for the money so paid.

SECTION 2.07 Securityholder Lists; Ownership of Securities.

(a) The Trustee shall preserve in as current a form as is reasonably practicable the most recent list received by or furnished to it of the names and addresses of Holders of Securities. If the Trustee is not the Registrar or if Unregistered Securities are outstanding under the Indenture, SBC shall furnish to the Trustee semiannually on or before the last day of June and December in each year, and at such other times as the Trustee may request in writing, a list, in such form and as of such date as the Trustee may reasonably require, containing all the information in the possession or control of the Registrar, any co-Registrar, SBC or any of its Paying Agents other than the Trustee as to the names and addresses of Holders of Securities.

(b) Ownership of Registered Securities of a Series shall be proved by the register for such Series kept by the Registrar. Ownership of Unregistered Securities may be proved by the production of such Unregistered Securities or by a certificate or affidavit executed by the person holding such Unregistered Securities or by a depository with whom such Unregistered Securities were deposited, if the certificate or affidavit is satisfactory to the Trustee. SBC, the Trustee, and any agent of SBC may treat the bearer of any Unregistered Security or coupon and the person in whose name a Registered Security is registered as the absolute owner thereof for all purposes.

(c) Notwithstanding the foregoing, with respect to any Global Security, nothing herein shall prevent SBC, the Trustee or any agent of SBC or the Trustee from giving effect to any written certification, proxy or other authorization furnished by a Depository or impair, as between a Depository and holders of beneficial interests in any Global Security, the operation of customary practices governing the exercise of the rights of the Depository as Holder of such Global Security. None of SBC, the Trustee, any Paying agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

SECTION 2.08 Registration of Transfer and Exchange.

(a) When Registered Securities of a Series are presented to the Registrar with a request to register their transfer or to exchange them for an equal principal amount of Registered Securities of the same Series and of like tenor of other authorized denominations, the Registrar shall register the transfer or make the exchange if its customary requirements for such transactions are met.

(b) If both Registered and Unregistered Securities are authorized for a Series of Securities and the terms of such Securities permit, Unregistered Securities may be exchanged for an equal principal amount of Registered or Unregistered Securities of the same Series and of like tenor in any authorized denominations upon delivery to the Registrar (or a Paying Agent, if the exchange is for Unregistered Securities) of the Unregistered Security with all unmatured coupons and all matured coupons in default appertaining thereto and if all other requirements of the Registrar (or such Paying Agent) and such Securities for such exchange are met.

Notwithstanding the foregoing, the exchange of Unregistered Securities for Registered Securities will be subject to the satisfaction of the provisions of United States law and regulations in effect at the time of such exchange, and no exchange will be made until SBC has notified the Trustee and the Registrar that, as a result of such exchange, SBC would not suffer adverse consequences under such law or regulations.

(c) To permit registrations of transfers and exchanges, the Trustee shall authenticate Securities upon surrender of Securities for registration of transfer or for exchange as provided in this Section. SBC will not make any charge for any registration of transfer or exchange but may require the payment by the party requesting such registration of transfer or exchange of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, but not for any exchange pursuant to Section 2.12, 3.06 or 9.05.

(d) Neither SBC nor the Registrar shall be required (i) to issue, register the transfer of or exchange Securities of any Series for the period beginning at the opening of business 15 days immediately preceding the selection of any such Securities to be redeemed and ending at the close of business on the day of first publication of the relevant notice of redemption or, if there is no publication, the mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange Securities of any Series selected, called or being called for redemption as a whole or the portion being redeemed of any such Securities selected, called or being called for redemption in part.

(e) Unregistered Securities or any coupons appertaining thereto shall be transferable by delivery.

(f) Notwithstanding the foregoing, any Global Security shall be exchangeable pursuant to this Section 2.08 for Securities registered in the names of Persons other than the Depository for such Security or its nominee only if (i) such Depository notifies SBC that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, (ii) SBC executes and delivers to the Trustee an Order that such Global Security shall be so exchangeable or (iii) there shall have occurred and be continuing an Event of Default with respect to the Securities. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as such Depository shall direct.

Notwithstanding any other provision in this Indenture, a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository.

(g) If at any time the Depository for the Securities of a Series notifies SBC that it is unwilling or unable to continue as Depository for the Securities of such Series or if at any time the Depository for the Securities of such Series shall no longer be eligible under Section 2.03, SBC shall appoint a successor Depository with respect to the Securities of such Series. If a successor Depository for the Securities of such Series is not appointed by SBC within 90 days after SBC receives such notice or becomes aware of such ineligibility, SBC's election pursuant to Section 2.02(15) shall no longer be effective with respect to the Securities of such series and SBC will execute, and the Trustee, upon receipt of the Order for the authentication and delivery of definitive Securities of such Series, will authenticate and deliver, Securities of such Series in definitive form in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing such Series in exchange for such Global Security or Securities.

SBC may at any time and in its sole discretion determine that the Securities of any series issued in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event SBC will execute, and the Trustee, upon receipt of the Order for the authentication and delivery of the definitive Securities of such Series, will authenticate and deliver, Securities of such Series in definitive form and in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing such Series in exchange for such Global Security or Securities.

If (a) there shall have occurred and be continuing an Event of Default (as defined in Section 6.01) or an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default with respect to a Series of Securities issued in the form of one or more Global Securities, or (b) if specified by SBC pursuant to Section 2.02 with respect to a Series of Securities, the Depository for such Series of Securities may surrender a Global Security for such Series of Securities in exchange in whole or in part for Securities of such Series in definitive form. Thereupon, SBC shall execute, and the Trustee shall authenticate and deliver, without service closing charge:

(i) to each person specified by such Depository a new Security or Securities of the same series, of any authorized denomination as requested by such person in aggregate principal amount equal to and in exchange for such person's beneficial interest in the Global Security; and

(ii) to such Depository a new Global Security in a denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of Securities delivered to Holders thereof.

In any exchange provided for in any of the preceding three paragraphs, SBC will execute and the Trustee will authenticate and deliver Securities in definitive registered form in authorized denominations.

Upon the exchange of a Global Security for Securities in definitive form, such Global Security shall be canceled by the Trustee. Registered Securities issued in exchange for a Global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depository for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee.

SECTION 2.09 Replacement Securities.

(a) If a mutilated Security or a Security with a mutilated coupon appertaining to it is surrendered to the Trustee, SBC shall issue and the Trustee shall authenticate and deliver in exchange therefor a replacement Registered Security, if such surrendered security was a Registered Security, or a replacement Unregistered Security with coupons corresponding to the coupons appertaining to the surrendered Security, if such surrendered Security was an Unregistered Security, of the same Series and of like tenor, if the Trustee's requirements are met.

(b) If the Holder of a Security claims that the Security or any coupon appertaining thereto has been lost, destroyed or wrongfully taken, SBC shall issue (and the Trustee shall authenticate) a replacement Registered Security of like tenor, if such Holder's claim pertains to a Registered Security, or a replacement Unregistered Security of like tenor with coupons corresponding to the coupons appertaining to the lost, destroyed or wrongfully taken Unregistered Security or the Unregistered Security to which such lost, destroyed or wrongfully taken coupon appertains, if such Holder's claim pertains to an Unregistered Security, of the same Series and of like tenor, if the Trustee's requirements are met; provided, however, that the Trustee or SBC may require any such Holder to provide to the Trustee and SBC security or indemnity sufficient in the judgment of SBC and the Trustee to protect SBC, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Security or any coupon appertaining thereto is replaced. SBC may charge the party requesting a replacement Security for its expenses in replacing a Security.

(d) The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons.

SECTION 2.10 Outstanding Securities.

(a) Securities outstanding at any time are all Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, and those described in this Section as not outstanding.

(b) If a Security is replaced pursuant to Section 2.09, it ceases to be outstanding until the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser.

(c) If a Paying Agent (other than SBC) holds on a redemption date or maturity date money sufficient to pay all amounts due on Securities of any Series on that date, then on and after that date all Securities of such Series due on such date cease to be outstanding and interest on them ceases to accrue, provided that if the Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made.

(d) A Security does not cease to be outstanding because SBC or an Affiliate holds the Security.

(e) In determining whether the Holders of the requisite principal amount of Securities of any Series have concurred in any direction, waiver or consent, (i) the principal amount of an Original Issue Discount Security that shall be deemed to be outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the maturity thereof pursuant to Section 6.02 and (ii) the principal amount of a Security denominated in a foreign currency or currencies shall be the U.S. dollar equivalent, determined on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the U.S. dollar equivalent on the date of original issuance of such Security of the amount determined as provided in (i) above) of such Security.

SECTION 2.11 Treasury Securities.

In determining whether the Holders of the requisite principal amount of Securities of any Series have concurred in any direction, waiver or consent, Securities of such Series owned by SBC or an Affiliate shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities of such Series which the Trustee knows are so owned shall be so disregarded. Securities of such Series owned by SBC or which have been pledged in good faith may be considered by the Trustee if the pledgee establishes to the satisfaction of the Trustee the pledgee's right to so act with respect to such Securities and that the pledgee is not SBC or an Affiliate.

SECTION 2.12 Temporary Securities.

(a) Until definitive Registered Securities of any Series are ready for delivery, SBC may prepare and execute and the Trustee shall authenticate temporary Registered Securities of such Series. Temporary Registered Securities of any Series shall be substantially in the form of definitive Registered Securities of such Series but may have variations that SBC considers appropriate for temporary Securities. Every temporary Registered Security shall be executed by SBC and authenticated by the Trustee, and registered by the Registrar, upon the same conditions, and with like effect, as a definitive Registered Security. Without unreasonable delay, SBC shall prepare and the Trustee shall authenticate definitive Registered Securities of the same Series and of like tenor in exchange for temporary Registered Securities.

(b) Until definitive Unregistered Securities of any Series are ready for delivery, SBC may prepare and execute and the Trustee shall authenticate one or more temporary Unregistered Securities, which may have coupons attached or which may be in the form of a single temporary global Unregistered Security of that Series without coupons. The temporary Unregistered Security or Securities of any Series shall be substantially in the form approved by or pursuant to a Board Resolution and shall be delivered to one of the Paying Agents located outside the United States or to such other person or persons as SBC shall direct against such certifications as SBC may from time to time prescribe. The temporary Unregistered Security or Securities of a Series shall be executed by SBC and authenticated by the Trustee upon the same conditions, and with like effect, as a definitive Unregistered Security of such Series, except as provided herein or in the Board Resolution or supplemental indenture relating thereto. A temporary Unregistered Security or Securities shall be exchangeable for definitive Unregistered Securities of like tenor at the time and on the conditions, if any, specified in the temporary Security.

Upon any exchange of a part of a temporary Unregistered Security of a Series for definitive Unregistered Securities of such Series and of like tenor, the temporary Unregistered Security shall be endorsed by the Trustee or Paying Agent to reflect the reduction of its principal amount by an amount equal to the aggregate principal amount of the definitive Unregistered Securities of such Series and of like tenor so exchanged and endorsed.

SECTION 2.13 Cancellation.

SBC at any time may deliver Securities and coupons to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities and coupons surrendered to them for registration of transfer, for exchange or for payment. The Trustee shall cancel all Securities and coupons surrendered for registration of transfer, exchange, payment or cancellation and may dispose of cancelled Securities and coupons as SBC directs; provided, however, that any Unregistered Securities of a Series delivered to the Trustee for exchange prior to maturity shall be retained by the Trustee for reissue as provided herein or in the Securities of such Series. SBC may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation, provided that the Trustee shall not be required to destroy cancelled Securities but may be required to deliver such Securities to SBC upon demand.

SECTION 2.14 Defaulted Interest.

If SBC defaults on a payment of interest on a Series of Securities, SBC shall pay the defaulted interest as provided in such Securities or in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed and acceptable to the Trustee. With respect to Registered Securities, the Trustee may pay the defaulted interest, plus any interest payable on the defaulted interest, to the Holders of such Registered Securities on a subsequent special record date. SBC shall fix the record date and the payment date. At least 15 days before the record date SBC shall mail to such Holders a notice that states the record date, the payment date and the amount of interest to be paid.

SECTION 2.15 CUSIP Numbers.

SBC in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.

ARTICLE 3

REDEMPTION

SECTION 3.01 Notice to Trustee.

SBC may, with respect to any Series of Securities, reserve the right to redeem and pay such Series of Securities or any part thereof, or may covenant to redeem and pay the Series of Securities or any part thereof, before maturity at such time and on such terms as provided for in such Securities. If a Series of Securities is redeemable and SBC wants or is obligated to redeem all or part of the Series of Securities pursuant to the terms of such Securities, it shall notify the Trustee of the redemption date and the principal amount of the Series of Securities to be redeemed. SBC shall give such notice at least 75 days before the redemption date (or such shorter notice as may be acceptable to the Trustee).

SECTION 3.02 Selection of Securities to be Redeemed.

If less than all the Securities of a Series are to be redeemed, the Trustee, not more than 75 days prior to the redemption date, shall select the Securities of the Series to be redeemed pro rata or by lot or in such other manner as the Trustee shall deem fair and appropriate. The Trustee shall make the selection from Securities of the Series that are outstanding and that have not previously been called for redemption. Securities of the Series and portions of them selected by the Trustee shall be in amounts of $1,000 or integral multiples of $1,000 or, with respect to Securities of any Series issuable in other denominations pursuant to Section 2.02(a)(8), in amounts equal to the minimum principal denomination for each such Series and integral multiples thereof. Provisions of this Indenture that apply to Securities of that Series called for redemption also apply to portions of Securities of that Series called for redemption. The Trustee shall promptly notify SBC in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.

SECTION 3.03 Notice of Redemption.

(a) At least 30 days but not more than 60 days before a redemption date, SBC shall mail a notice of redemption by first-class mail to each Holder of Registered Securities that are to be redeemed.

(b) If Unregistered Securities are to be redeemed, notice of redemption shall be published in an Authorized Newspaper in each of The City of New York, London and, if such Securities to be redeemed are listed on the Luxembourg Stock Exchange, Luxembourg twice in different calendar weeks, the first publication to be not less than 30 nor more than 60 days before the redemption date.

(1) the redemption date;

(2) the redemption price;

(3) if less than all the outstanding Securities of a Series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed;

(4) the name and address of the Paying Agent;

(5) that Securities of the Series called for redemption and all unmatured coupons, if any, appertaining thereto must be surrendered to the Paying Agent to collect the redemption price; and

(6) that interest on Securities of the Series called for redemption ceases to accrue on and after the redemption date.

At SBC's request, the Trustee shall give the notice of redemption in SBC's name and at its expense.

SECTION 3.04 Effect of Notice of Redemption.

Once notice of redemption is mailed or published, Securities of a Series called for redemption become due and payable on the redemption date at the redemption price. Upon surrender to the Paying Agent of such Securities together with all unmatured coupons, if any, appertaining thereto, such Securities shall be paid at the redemption price plus accrued interest to the redemption date, but installments of interest due on or prior to the redemption date will be payable, in the case of Unregistered Securities, to the bearers of the coupons for such interest upon surrender thereof and, in the case of Registered Securities, to the Holders of such Securities of record at the close of business on the relevant record dates.

SECTION 3.05 Deposit of Redemption Price.

On or before the redemption date, SBC shall deposit with the Trustee money sufficient to pay the redemption price of and (unless the redemption date shall be an interest payment date) interest accrued to the redemption date on all Securities to be redeemed on that date.

SECTION 3.06 Securities Redeemed in Part.

Upon surrender of a Security that is redeemed in part, SBC shall issue and the Trustee shall authenticate for the Holder of that Security a new Security or Securities of the same Series and like tenor and the same form in authorized denominations equal in aggregate principal amount to the unredeemed portion of the Security surrendered. If a Global Security is so surrendered, such new Security so issued shall be a new Global Security.

ARTICLE 4

COVENANTS

SECTION 4.01 Payment of Securities.

SBC shall pay or cause to be paid the principal of and interest on the Securities on the dates and in the manner provided herein and in the Securities.

SBC shall pay interest on overdue principal of a Security of any Series at the rate of interest (or, in the case of Original Issue Discount Securities, Yield to Maturity) borne by the Securities of that Series, and, to the extent lawful, it shall pay interest on overdue installments of interest at the same rate.

SECTION 4.02 Reports by SBC.

SBC agrees:

(a) to file with the Trustee, within 15 days after SBC is required to file the same with the SEC, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may from time to time by rules and regulations prescribe) which SBC may be required to file with the SEC pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934, as amended; or, if SBC is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the SEC, in accordance with rules and regulations prescribed from time to time by the SEC, such of the supplementary and periodic information, documents and reports which may be required pursuant to section 13 of the Securities Exchange Act of 1934, as amended, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;

(b) to file with the Trustee and the SEC, in accordance with the rules and regulations prescribed from time to time by the SEC, such additional information, documents, and reports with respect to compliance by SBC with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations; and

(c) to transmit by mail to all Holders of Registered Securities, as the names and addresses of such Holders appear on the register for each Series of Securities, to such Holders of Unregistered Securities as have, within the two years preceding such transmission, filed their names and addresses with the Trustee for that purpose and to all Holders of Securities whose names and addresses have been furnished to the Trustee pursuant to Section 2.07, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the SBC pursuant to subsections (a) and (b) of this Section 4.02 as may be required by rules and regulations prescribed from time to time by the SEC.

SECTION 4.03 Statement as to Compliance.

SBC will deliver to the Trustee annually, commencing March 1, 1998, a certificate, from its principal executive officer, principal financial officer or principal accounting officer, stating whether or not to the best knowledge of the signer thereof the Company is in compliance (without regard to periods of grace or notice requirements) with all conditions and covenants under this Indenture, and if SBC shall not be in compliance, specifying such non-compliance and the nature and status thereof of which such signer may have knowledge.

SECTION 4.04 Calculation of Original Issue Discount.

SBC shall file with the Trustee promptly at the end of each calendar year a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on outstanding Securities as of the end of such year.

ARTICLE 5

SUCCESSORS

SECTION 5.01 When SBC May Merge, etc.

SBC may not consolidate with, or merge into, or be merged into, or transfer or lease its properties and assets substantially as an entirety to, any person, unless the person is a corporation organized under the laws of the United States, any State thereof or the District of Columbia, the person assumes by supplemental indenture all the obligations of SBC under this Indenture and the Securities and any coupons appertaining thereto, shall have provided for conversion or exchange rights in accordance with the terms of any Securities contemplating conversion or exchange pursuant to Section 2.01(a)(14), and, after giving effect thereto, no Default or Event of Default shall have occurred and be continuing. The surviving, transferee or lessee corporation shall be the successor to SBC and SBC, except in the case of a lease, shall be relieved of all obligations under this Indenture and the Securities.

ARTICLE 6

DEFAULTS AND REMEDIES

SECTIONS 6.01 Events of Default.

An "Event of Default" occurs with respect to the Securities of any Series if:

(1) SBC defaults in the payment of interest on any Security of that Series when the same becomes due and payable and the Default continues for a period of 90 days;

(2) SBC defaults in the payment of the principal of any Security of that Series when the same becomes due and payable at maturity, upon redemption or otherwise;

(3) SBC fails to comply with any of its other agreements in the Securities of that Series, or in any supplemental indenture under which the Securities of that Series may have been issued or in the Indenture (other than an agreement included solely for the benefit of Series of Securities other than that Series) and the Default continues for the period and after the notice specified below;

(4) SBC pursuant to or within the meaning of any Bankruptcy Law:

(A) commences a voluntary case,

(B) consents to the entry of an order for relief against it in an involuntary case,

(D) makes a general assignment for the benefit of its creditors; or

(5) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(A) is for relief against SBC in an involuntary case,

(B) appoints a Custodian of SBC or for all or substantially all of its property, or

The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

A Default under clause (3) is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of all the outstanding Securities of that Series notify SBC (and the Trustee in the case of notification by such Holders) of the Default and SBC does not cure the Default within 90 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default".

Upon receipt by the Trustee of any Notice of Default pursuant to this Section 6.01 with respect to Securities of a Series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of outstanding Securities of such Series entitled to join in such Notice of Default, which record date shall be at the close of business on the day the Trustee receives such Notice of Default. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such Notice of Default, whether or not such Holders remain Holders after such record date; provided , that unless Holders of at least 10% in principal amount of the outstanding Securities of such Series, or their proxies, shall have joined in such Notice of Default prior to the day which is 90 days after such record date, such Notice of Default shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new Notice of Default identical to a Notice of Default which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 6.01.

SECTION 6.02 Acceleration.

If an Event of Default occurs with respect to the Securities of any Series and is continuing, the Trustee, by notice to SBC, or the Holders of at least 25% in principal amount of all of the outstanding Securities of that Series, by notice to SBC and the Trustee, may declare the principal (or, if any of the Securities of that Series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof) of, and any accrued interest on, all the Securities of that Series to be due and payable. Upon such declaration, such principal (or, in the case of Original Issue Discount Securities, such specified amount) and any accrued interest shall be due and payable immediately. The Holders of a majority in principal amount of all of the Securities of that Series, by notice to SBC and the Trustee, may rescind such acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that have become due solely because of the acceleration.

Upon receipt by the Trustee of any declaration of acceleration, or rescission thereof, with respect to Securities of a Series all or part of which is represented by a Global Security, the Trustee shall establish a record date for determining Holders of outstanding Securities of such Series entitled to join in such declaration of acceleration, or rescission, as the case may be, which record date shall be at the close of business on the date the Trustee receives such declaration of acceleration, or rescission, as the case may be. The Holders on such record date, or their duly designated proxies, and only such persons, shall be entitled to join in such declaration of acceleration, or rescission, as the case may be, whether or not such Holders remain Holders after such record date; provided , that unless such declaration of acceleration, or rescission, as the case may be, shall have become effective by virtue of the requisite percentage having been obtained prior to the day which is 90 days after such record date, such declaration of acceleration, or rescission, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new declaration of acceleration, or rescission thereof, as the case may be, that is identical to a declaration of acceleration, or rescission thereof, which has been canceled pursuant to the proviso to the preceding sentence, in which even a new record date shall be established pursuant to the provisions of this Section 6.02.

SECTION 6.03 Other Remedies Available to Trustee.

(a) If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of and interest on the Securities of the Series that is in Default or to enforce the performance of any provision of the Securities of that Series or this Indenture.

(b) The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. To the extent permitted by law no remedy is exclusive of any other remedy and all available remedies are cumulative.

SECTION 6.04 Waiver of Existing Defaults.

The Holders of a majority in principal amount of any Series of Securities by notice to the Trustee may waive an existing Default with respect to that Series and its consequences except a Default in the payment of principal of or interest on any Security.

SBC may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to waive any past default hereunder. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to waive any default hereunder, whether or not such Holders remain Holders after such record date; provided , that unless such majority in principal amount shall have waived such default prior to the date which is 90 days after such record date, any such waiver previously given shall automatically and without further action by any Holder be canceled and of no further effect.

SECTION 6.05 Control by Majority.

The Holders of a majority in principal amount of the Securities of each Series affected (with each such Series voting as a class) may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it with respect to Securities of that Series. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that is unduly prejudicial to the rights of the Securityholders of that Series.

Upon receipt by the Trustee of any such direction with respect to Securities of a Series all or part of which is represented by a Global Security, the Trustee shall establish a record date for determining Holders of outstanding Securities of such Series entitled to join in such direction, which record date shall be at the close of business on the day the Trustee receives such direction. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such direction, whether or not such Holders remain Holders after such record date; provided , that unless such majority in principal amount shall have been obtained prior to the day which is 90 days after such record date, such direction shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new direction identical to a direction which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 6.05.

SECTION 6.06 Limitation on Suits by Securityholders.

A Securityholder may pursue a remedy with respect to this Indenture or the Securities of any Series only if:

(1) the Holder gives to the Trustee written notice of a continuing Event of Default with respect to Securities of that Series;

(2) the Holders of at least 25% in principal amount of the Securities of that Series make a written request to the Trustee to pursue the remedy;

(3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be, or which may be, incurred by the Trustee in pursuing the remedy;

(4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and

(5) during such 60-day period, the Holders of a majority in principal amount of the Securities of that Series do not give the Trustee a direction inconsistent with the request.

A Securityholder of any Series may not use this Indenture to prejudice the rights of another Securityholder of that Series or any other Series or to obtain a preference or priority over another Securityholder of that Series or any other Series.

SECTION 6.07 Rights of Holders to Receive Payment.

Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of and (subject to Section 2.14) interest on the Security (whether at maturity or upon redemption), on or after the respective due dates expressed in the Security, the right of any Holder of a Security of a Series the terms of which provide for conversion or exchange as contemplated in Section 2.01(a)(14) to have the Security be converted or exchanged as so provided, and the right of any Holder of a coupon to receive payment of (subject to Section 2.14) interest due as provided in such coupon, or to bring suit for the enforcement of any such payment on or after such respective dates or any such conversion or exchange right, shall not be impaired or affected without the consent of such Holder.

SECTION 6.08 Collection Suits by Trustee.

If an Event of Default specified in Section 6.01(1) or (2) occurs with respect to Securities of any Series and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against SBC for the whole amount of the principal of and interest on Securities of that Series remaining unpaid.

SECTION. 6.09 Trustee May File Proofs of Claim.

The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable, and take any and all actions authorized under the TIA, in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relating to SBC (or any other obligor upon the Securities), its creditors or its property.

SECTION 6.10 Priorities.

If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order:

FIRST: to the Trustee for amounts due under Section 7.07;

SECOND: to Holders of Securities in respect of which or for the benefit of which such money has been collected for amounts due and unpaid on such Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest, respectively; and

THIRD: to SBC.

The Trustee may fix a record date (with respect to Registered Securities) and payment date for any such payment to Holders of Securities.

SECTION 6.11 Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable attorneys' fees, against any party litigant in the suit, in the manner and to the extent provided in the TIA. This Section does not apply to a suit by SBC, the Trustee, a Holder pursuant to Section 6.07, or a Holder or Holders of more than 10% in principal amount of the Securities of any Series.

ARTICLE 7

TRUSTEE

SECTION 7.01 Duties of Trustee.

(a) The duties and responsibilities of the Trustee shall be as provided by the TIA. If an Event of Default has occurred and is continuing, the Trustee shall exercise such of its rights and powers under this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

(b) Except during the continuance of an Event of Default:

(1) Subject to the provisions of the TIA, the Trustee need perform only those duties that are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee.

(2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

(1) This paragraph does not limit the effect of paragraph (b) of this Section.

(2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.

(3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05.

(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.

(e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense.

(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with SBC. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

(g) Except as expressly provided herein, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

SECTION 7.02 Rights of Trustee.

(a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may consult with counsel of its selection after consultation with SBC or require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on a Board Resolution, an Officers' Certificate, an Opinion of Counsel or the advice of counsel selected in consultation with SBC.

(c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.

(e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

SECTION 7.03 Individual Rights of Trustee.

The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with SBC or an Affiliate with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11.

SECTION 7.04 Trustee's Disclaimer.

The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, shall not be accountable for SBC's use of the proceeds from the Securities and shall not be responsible for any statement in the Securities other than its certificate of authentication.

SECTION 7.05 Notice of Defaults.

If a Default occurs and is continuing with respect to the Securities of any Series and if it is known to the Trustee, the Trustee shall mail to each Holder of a Security of that Series entitled to receive reports pursuant to Section 4.02(c) (and, if Unregistered Securities of that Series are outstanding, shall cause to be published at least once in an Authorized Newspaper in each of The City of New York, London and, if Securities of that Series are listed on the Luxembourg Stock Exchange, Luxembourg) notice of the Default as and to the extent provided by the TIA. Except in the case of a Default in payment on the Securities of any Series, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding such notice is in the interests of Securityholders of that Series.

SECTION 7.06 Reports by Trustee to Holders.

(a) Within 60 days after each anniversary date of the first issue of a Series of Securities, the Trustee shall mail to each Securityholder of that Series entitled to receive reports pursuant to Section 4.02(c) a brief report, dated as of such date, that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b)(2).

(b) At the time that it mails such a report to Securityholders of any Series, the Trustee shall file a copy of that report with the SEC and with each stock exchange on which the Securities of that Series are listed. SBC shall provide written notice to the Trustee when the Securities of any Series are listed on any stock exchange.

SECTION 7.07 Compensation and Indemnity.

(a) SBC shall pay to the Trustee from time to time such compensation as SBC and the Trustee shall from time to time agree in writing for all services rendered by the Trustee hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. SBC shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it in connection with the performance of its duties under this Indenture. Such expenses shall include the reasonable compensation and out-of-pocket expenses of the Trustee's agents and counsel.

(b) SBC shall indemnify each of the Trustee or any successor Trustee for, and hold the Trustee harmless against, any and all loss, damage, claims, liability or expense, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee), arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of the Trustee's powers or duties hereunder, except to the extent that such loss, damage, claim, liability or expense is due to the Trustee's own negligence or bad faith. The Trustee shall notify SBC promptly of any claim for which it may seek indemnity. SBC shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and SBC shall pay the reasonable fees and expenses of such counsel. SBC need not pay for any settlement made without its consent.

(c) SBC need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its negligence or bad faith.

(d) To secure the payment obligations of SBC pursuant to this Section, the Trustee shall have a lien prior to the Securities of any Series on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on particular Securities of a Series.

(e) If the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(4) or (5) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law.

(f) The provisions of this Section 7.07 shall survive termination of this Indenture and the resignation or removal of the Trustee.

SECTION 7.08 Replacement of Trustee.

(a) The resignation or removal of the Trustee and the appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section.

(b) The Trustee may resign with respect to the Securities of any Series by so notifying SBC. The Holders of a majority in principal amount of the Securities of any Series may remove the Trustee with respect to that Series by so notifying the Trustee and SBC. SBC may remove the Trustee with respect to Securities of any Series if:

(1) the Trustee fails to comply with Section 7.10;

(2) the Trustee is adjudged a bankrupt or an insolvent;

(3) a receiver or public officer takes charge of the Trustee or its property; or

(4) the Trustee becomes incapable of acting.

(c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason with respect to Securities of any Series, SBC shall promptly appoint a successor Trustee for such Series. Within one year after a successor Trustee with respect to the Securities of any Series takes office the Holders of a majority in principal amount of Securities of that Series may appoint a successor Trustee with respect to the Securities of that Series to replace the successor Trustee appointed by SBC.

(d) If a successor Trustee with respect to the Securities of any Series does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, SBC or the Holders of at least 10% in principal amount of the Securities of the applicable Series may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such Series.

(e) If the Trustee with respect to the Securities of any Series fails to comply with Section 7.10, any Securityholder of the applicable Series may petition any court of competent jurisdiction for the removal of such Trustee and the appointment of a successor Trustee.

(f) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and SBC. Thereupon, the resignation or removal of the retiring Trustee for any Series of Securities shall become effective, and the successor Trustee shall have all the rights, powers and duties of the retiring Trustee with respect to all Series of Securities for which the successor Trustee is to be acting as Trustee under this Indenture. The retiring Trustee shall promptly transfer all property held by it as Trustee with respect to such Series of Securities to the successor Trustee subject to the lien provided for in Section 7.07. SBC shall give notice of each appointment of a successor Trustee for any Series of Securities by mailing written notice of such event by first-class mail to the Holders of Securities of such Series entitled to receive reports pursuant to Section 4.03(c) and, if any Unregistered Securities are outstanding, by publishing notice of such event once in an Authorized Newspaper in each of The City of New York, London, and, if Securities of that Series are listed on the Luxembourg Stock Exchange, Luxembourg.

(g) All provisions of this Section 7.08 except subparagraphs (b)(1), (e) and (h) and the words "subject to the lien provided for in Section 7.07" in subparagraph (f) shall apply also to any Paying Agent located outside the United States and its possessions and required by Section 2.04.

(h) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) Series, SBC, the retiring Trustee and such successor Trustee shall execute and deliver a supplemental indenture wherein such successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, such successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those Series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those Series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee.

SECTION 7.09 Successor Trustee, Agents by Merger, etc.

If the Trustee or any Agent consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business assets to, another corporation, the successor corporation, without any further act, shall be the successor Trustee or Agent, as the case may be.

SECTION 7.10 Eligibility; Disqualification.

This Indenture shall always have a Trustee with respect to each Series of Securities which satisfies the requirements of TIA Section 310(a)(1). The Trustee shall always have a combined capital and surplus of at least $100,000,000, as set forth in its most recent published annual report of condition. If the Trustee has or shall acquire a conflicting interest within the meaning of the TIA, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. To the extent permitted by the TIA, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one Series or a trustee under all indentures now or hereafter existing pursuant to which indenture securities have been issued on which SBC is an obligor and which may be excluded under the proviso of TIA Section 310(b)(1).

SECTION 7.11 Preferential Collection of Claims Against SBC.

If and when the Trustee shall be or become a creditor of SBC (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the TIA regarding the collection of claims against SBC (or any such other obligor).

ARTICLE 8

DISCHARGE OF INDENTURE

SECTION 8.01 Termination of SBC's Obligations.

(a) SBC reserves the right to terminate all of its obligations under (i) this Indenture and the Securities, or (ii) the Securities of any Series if SBC irrevocably deposits in trust with the Trustee money or U.S. Government Obligations sufficient to pay, when due, the principal of and any interest on all the Securities or all the Securities of that Series, as the case may be, to maturity or redemption and if all other conditions set forth in the Securities of that Series are met. However, SBC's obligations in Sections 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.15, 4.01, 7.07, 7.08, 8.03 and 8.04 shall survive until the Securities are no longer outstanding. Thereafter SBC's obligations in Sections 7.07, 8.03 and 8.04 shall survive. Unless otherwise provided in the terms of Securities of a Series that are convertible or exchangeable as contemplated in Section 2.01(a)(14), SBC shall not be entitled to terminate its obligations under the Securities of that Series pursuant to this Section 8.01.

(b) Before or after a deposit SBC may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3.

(c) After a deposit by SBC in accordance with this Section in respect of the Securities of a Series, the Trustee upon request shall acknowledge in writing the discharge of SBC's obligations under the Securities of the Series in respect of which the deposit has been made and this Indenture with respect to the Securities of that Series except for those surviving obligations specified above.

(d) In order to have money available on a payment date to pay principal of and interest on the Securities of any Series, the U.S. Government Obligations shall be payable as to principal or interest on or before such payment date in such amounts as will provide the necessary money.

(e) "U.S. Government Obligations" means:

(i) direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America are pledged; or

(ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America;

provided, however, that U.S. Government Obligations shall not be callable at the issuer's option.

SECTION 8.02 Application of Trust Money.

The Trustee shall hold in trust all money or U.S. Government Obligations deposited with it pursuant to Section 8.01. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities of each Series in respect of which the deposit shall have been made.

SECTION 8.03 Repayment to SBC.

(a) The Trustee and the Paying Agent shall promptly pay to SBC upon request any excess money or securities held by them at any time.

(b) The Trustee and the Paying Agent shall pay to SBC upon request any money held by them for the payment of principal or interest that remains unclaimed for two years after such principal or interest became due. After payment to SBC, Securityholders entitled to the money must look to SBC for payment as general creditors unless an applicable abandoned property law designates another person.

SECTION 8.04 Indemnity for Government Obligations.

SBC shall pay and shall indemnify the Trustee and each Securityholder of each Series in respect of which the deposit shall have been made against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such obligations.

ARTICLE 9

AMENDMENTS AND WAIVERS

SECTION 9.01 Without Consent of Holders.

SBC and the Trustee may enter into one or more supplemental indentures without consent of any Securityholder for any of the following purposes:

(1) to cure any ambiguity, defect or inconsistency herein or in the Securities of any Series;

(2) to provide for the issuance of and establish the form and terms and conditions of Securities of any Series as provided in Section 2.02, and to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or any Series of Securities;

(3) to secure the Securities pursuant to Section 4.02;

(4) to comply with Section 5.01 or 5.02;

(5) to provide for uncertificated Securities in addition to or in place of certificated Securities;

(6) to add to the rights of the Holders of any Series of Securities or to surrender any right or power herein conferred on SBC;

(7) to make provision with respect to the conversion or exchange rights of Holders pursuant to the requirements of the terms of Securities of a Series that is convertible or exchangeable as contemplated in Section 2.01(a)(14); or

(8) to make any change that does not adversely affect the rights of any Securityholder.

SECTION 9.02 With Consent of Holders.

(a) With the written consent of the Holders of a majority in principal amount of the outstanding Securities of each Series affected by such supplemental indenture (with each Series voting as a class), SBC and the Trustee may enter into a supplemental indenture to add any provisions to or to change or eliminate any provisions of this Indenture or of any supplemental indenture or to modify, in each case in any manner not covered by Section 9.01, the rights of the Securityholders of each such Series. The Holders of a majority in principal amount of the outstanding Securities of each Series affected by such waiver (with each Series voting as a class), by notice to the Trustee, may waive compliance by SBC with any provision of this Indenture, any supplemental indenture or the Securities of any such Series except a Default in the payment of the principal of or interest on a Security. However, without the consent of each Securityholder affected, an amendment or waiver may not:

(1) reduce the amount of Securities whose Holders must consent to an amendment or waiver;

(2) reduce the rate of or change the time for payment of interest on any Security;

(3) reduce the principal of or change the fixed maturity of any Security;

(4) waive a Default in the payment of the principal of or interest on any Security;

(5) make any Security payable in currency other than that stated in the Security;

(6) adversely affect the right to convert or exchange, as provided in the terms thereof, any Security that is convertible or exchangeable as contemplated in Section 2.01(a)(14); or

(7) make any change in Section 6.04, 6.07 or 9.02(a) (third sentence).

(b) SBC may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided , that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be canceled and of no further effect.

(c) It is not necessary under this Section 9.02 for the Security- holders to consent to the particular form of any proposed supplemental indenture, but it is sufficient if they consent to the substance thereof.

(d) Promptly after the execution by SBC and the Trustee of any supplemental indenture pursuant to the provisions of this Section 9.02, SBC shall transmit by mail a notice, setting forth in general terms the substance of such supplemental indenture, to all Holders of Registered Securities, as the names and addresses of such Holders appear on the register for each Series of Securities, and to such Holders of Unregistered Securities as are entitled to receive reports pursuant to Section 4.02(c). Any failure of SBC to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.

SECTION 9.03 Compliance with Trust Indenture Act.

Every amendment to this Indenture or the Securities of one or more Series shall be set forth in a supplemental indenture that complies with the TIA as then in effect.

SECTION 9.04 Revocation and Effect of Consents.

Until an amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder of each Series affected by such amendment or waiver.

SECTION 9.05 Notation on or Exchange of Securities.

The Trustee may place an appropriate notation about an amendment or waiver on any Security of any Series thereafter authenticated. SBC in exchange for Securities of that Series may issue and the Trustee shall authenticate new Securities of that Series that reflect the amendment or waiver.

SECTION 9.06 Trustee Protected.

The Trustee need not sign any supplemental indenture that is reasonably likely to adversely affect its rights.

SECTION 9.07 Execution of Supplemental Indentures.

In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture.

ARTICLE 10

MISCELLANEOUS

SECTION 10.01 Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies or conflicts with another provision of the TIA that is required under the TIA to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA which may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.

SECTION 10.02 Notices.

(a) Any notice or communication by SBC or the Trustee to the other is duly given if in writing and delivered in person or mailed by first-class mail:

if to SBC to:

SBC Communications Inc.

175 E. Houston Street

San Antonio, Texas 78205-4105

Attention:

Assistant Treasurer-Corporate Finance

if to the Trustee to:

The Bank of New York

101 Barclay Street

Floor 21 West

New York, New York 10286

Attention: Corporate Trust Administration

(b) SBC or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.

(c) Any notice or communication to Holders of Securities entitled to receive reports pursuant to Section 4.02(c) shall be mailed by first-class mail to the addresses for Holders of Registered Securities shown on the register kept by the Registrar and to addresses filed with the Trustee for other Holders. Failure to so mail a notice or communication or any defect in such notice or communication shall not affect its sufficiency with respect to other Holders of Securities of that or any other Series entitled to receive notice.

(d) If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.

(e) If SBC mails a notice or communication to Securityholders, it shall mail a copy to the Trustee and to each Agent at the same time.

(f) If it shall be impractical in the opinion of the Trustee or SBC to make any publication of any notice required hereby in an Authorized Newspaper, any publication or other notice in lieu thereof which is made or given with the approval of the Trustee shall constitute a sufficient publication of such notice.

(g) All other notices or communications will be in writing.

(h) All notices or other communications given to the Trustee shall be effective when actually received by the Trustee.

SECTION 10.03 Communication by Holders with Other Holders.

The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the TIA.

SECTION 10.04 Certificate and Opinion as to Conditions Precedent.

Upon any request or application by SBC to the Trustee to take any action under this Indenture, SBC shall furnish to the Trustee:

(1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

(2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

SECTION 10.05 Statements Required in Certificate or Opinion.

Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall comply with the requirements of the TIA and shall include:

(1) a statement that the person making such certificate or opinion has read such covenant or condition and related definitions;

(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.

SECTION 10.06 Rules by Trustee and Agents.

The Trustee may make reasonable rules for action by or a meeting of Securityholders of one or more Series. The Paying Agent or Registrar may make reasonable rules and set reasonable requirements for its functions.

SECTION 10.07 Legal Holidays.

A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open. If a payment date or a date for conversion or exchange is a Legal Holiday at a place of payment, conversion or exchange, then such payment, conversion or exchange may be made at such place on the next succeeding day this is not a Legal Holiday with the same force and effect as if made on such date, and no interest shall accrue for the intervening period.

SECTION 10.08 Governing Law.

The laws of the State of New York shall govern this Indenture, the Securities and any coupons appertaining thereto without regard to principles of conflicts of laws.

SECTION 10.09 No Adverse Interpretation of Other Agreements.

This Indenture may not be used to interpret another indenture, loan or debt agreement of SBC or any Affiliate. No such indenture, loan or debt agreement may be used to interpret this Indenture.

SECTION 10.10 No Recourse Against Others.

No director, officer, employee or stockholder, as such, of SBC shall have any liability for any obligation of SBC under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.

SECTION 10.11 Acts of Holders.

(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to SBC. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and SBC, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such instrument or writing may be provided by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.

(c) The ownership of Unregistered Securities may be proved by the production of such Unregistered Securities or by a certificate executed by any trust company, bank, banker or other depository, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned such Person has on deposit with such depository, or exhibited to it, the Unregistered Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Unregistered Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and SBC may assume that such ownership of any Unregistered Security continues until (i) another such certificate or affidavit bearing a later date issued in respect of the same Unregistered Security is produced, (ii) such Unregistered Security is produced to the Trustee by some other Person, (iii) such Unregistered Security is surrendered in exchange for a Registered Security or (iv) such Unregistered Security is no longer outstanding. The ownership of Unregistered Securities may also be proved in any other manner which the Trustee deems sufficient.

(d) The ownership of Registered Securities shall be proved by the Registrar.

(e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or SBC in reliance thereon, whether or not notation of such action is made upon such Security.

SECTION 10.12 Execution in Counterparts.

This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one instrument.

SBC COMMUNICATIONS INC.

By: /s/Donald E. Kiernan

Title: Senior Vice President,

Treasuer and Chief

Financial Officer

(SEAL)

ATTEST:

/s/Wayne Wirtz

Title: Assistant Secretary

THE BANK OF NEW YORK

By: /s/Remo Reale

Title: Assistant Vice President

(SEAL)

ATTEST:

/s/Mary LaGumina

Title: Assistant Vice President

Exhibit 10-a

SHORT TERM INCENTIVE PLAN

Originally Effective January 1, 1984

Amended and Restated Effective January 1, 2014

The Short Term Incentive Plan (“Plan”) is established to provide Officers and Senior Managers with short-term incentive compensation based upon the achievement of performance goals.

1.	Definitions .

For purposes of this Plan, the following underlined words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise:

Administrator shall mean the Human Resources Committee.

Award shall mean the Target Award together with the associated Performance Goals and Performance Period as well as the Key Contributor Award.

AT&T or the Company shall mean AT&T Inc., a Delaware Corporation.

Disab il ity shall mean absence of an Employee from work under the relevant Employer disability plan.

Employee shall mean any person designated as an employee in the payroll and personnel records of an Employer and paid on an Employer’s payroll system.

Employer shall mean AT&T or any of its Subsidiaries.

Leave of Absence shall mean an Employee’s absence from employment with an Employer on a formally granted leave of absence (i.e., the absence is with formal permission in order to prevent a break in the continuity of term of employment, which permission is granted (and not revoked) in conformity with the rules of the applicable Employer, as adopted from time to time).

Officer shall mean an Employee who is designated as an officer for compensation purposes on the records of AT&T.

Participant shall mean any individual with an Award under this Plan.

Performance Goals shall mean any financial, service, or other goals applicable to the payment of Target Awards under this Plan.

Performance Period shall mean the time period over which Performance Goals are measured, but in no case shall a Performance Period exceed one (1) year.

Retire or Retirement shall mean the Termination of an Employee’s employment with AT&T or any of its subsidiaries on or after attaining one of the following combinations of age and Term of Employment (as determined under the applicable Employer pension plan), as applicable:

Term of Employment Age

10 years or more 65 or older

20 years or more 55 or older

25 years or more 50 or older

30 years or more Any age

Notwithstanding the foregoing, “Retire” or “Retirement” for an Officer also refers to the Officer’s having attained age 55 with at least a 5 year Term of Employment.

Senior Manager shall mean an Employee who is designated as a senior manager for compensation purposes on the records of AT&T.

SEVP-HR shall mean the AT&T’s highest ranking Officer, below the Chief Executive Officer (CEO), who is specifically responsible for human resources matters. Any authority granted to the SEVP-HR shall also be held by the CEO.

Subsidiary shall mean any U.S. corporation in which AT&T owns, directly or indirectly, more than fifty percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which AT&T owns, directly or indirectly, more than fifty percent (50%) of the combined equity thereof.

Target Award shall mean a specific dollar value or percentage of salary.

Termination of Employment, Termination , or a similar reference shall mean the event where the Employee ceases to be an Employee and is no longer employed by an Employer.

2. Awards .

From time to time, the Administrator, and in certain cases the CEO or SEVP-HR, may establish Awards under this Plan for Officers (other than persons who are identified as Executive Officers under Rule 3b-7 of the Securities Exchange Act of 1934) and Senior Managers (each an “Eligible Employee”). Where an Award is made to replace an Award or similar item under a different plan, such as to recognize a promotion, it shall be prorated to apply from the effective date the Award is made.

An Award shall consist of a Target Award and associated Performance Goals, which will be measured over the relevant Performance Period. The percentage of the Target Award that may be paid out, if at all, shall be based upon the attainment of Performance Goals during the relevant Performance Period as determined in the sole discretion of the Administrator.

A.	Performance Goals

Performance Goals may include:

(1)

Financial performance of the Company (on a consolidated basis), of one or more of its Subsidiaries, and/or a division of any of the foregoing. Such financial performance may be based on net income, Value Added (after-tax cash operating profit less depreciation and less a capital charge), EBITDA (earnings before interest, taxes, depreciation and amortization), revenues, sales, expenses, costs, gross margin, operating margin, profit margin, pre-tax profit, market share, volumes of a particular product or service or category thereof, including but not limited to the product’s life cycle (for example, products introduced in the last two years), number of customers or subscribers, number of items in service, including but not limited to every category of access or other telecommunication or television lines, return on net assets, return on assets, return on capital, return on invested capital, cash flow, free cash flow, operating cash flow, operating revenues, operating expenses, and/or operating income.

(2)

Service performance of the Company (on a consolidated basis), of one or more of its Subsidiaries, and/or of a division of any of the foregoing. Such service performance may be based upon measured customer perceptions of service quality. Employee satisfaction, employee retention, product development, completion of a joint venture or other corporate transaction, completion of an identified special project, and effectiveness of management.

(3)	The Company’s stock price, return on stockholders’ equity, total stockholder return (stock price appreciation plus dividends, assuming the reinvestment of dividends), and/or earnings per Share.

(4)	Impacts of acquisitions, dispositions, or restructurings, on any of the foregoing.

B.	Adjustments.

In order to reinforce the incentive features of the Plan and to avoid distortion in the operation of the Plan, the Administrator may make adjustments in the Performance Goals established for any Performance Period, whether before, after, or during the Performance Period, to the extent the Administrator deems appropriate. Unless otherwise provided by the Administrator at the time of establishment of the Award:

(1)

AT&T net income and any relevant revenue modifier shall exclude the dilutive impacts of any merger and acquisition activity, including intangible amortization, asset write-offs, accelerated depreciation and transaction and restructuring costs. Merger and acquisition activity is defined as the direct or indirect acquisition of or an equity investment in a company by AT&T or a direct or indirect wholly-owned subsidiary of AT&T (excluding acquisitions of or investment in wholly owned subsidiaries of AT&T), where the consideration that would be given for the direct or indirect acquisition or equity investment exceeds $2.0 billion, in each case, whether or not the transaction is consummated.

(2)	The net dilutive impact resulting from the implementation of mandatory changes under The Patient Protection and Affordable Care Act of 2010, as amended from time to time, will also be excluded from the calculation of AT&T net income and any relevant revenue modifier.

(3)	Gains and losses related to the assets and liabilities from pension plans and other post-retirement benefit plans (and any associated tax effects) shall be disregarded in determining whether or the extent to which a Performance Goal has been met.

(4)

If the matters in a specific category below have a collective net impact (whether positive or negative) on net income, after taxes and available and collectible insurance, that exceed $500 million in a calendar year, then such matters (as well as any related effects on cash flow, if applicable) shall be excluded in determining whether or the extent to which the relevant performance goals applicable to such year are met:

Categories:

(1) changes in accounting principles;

(2) extraordinary items;

(3) changes in Federal tax law;

(4) changes in the tax laws of the states;

(5) expenses caused by natural disasters, including but not limited to floods, hurricanes, and earthquakes;

(6) expenses resulting from intentionally caused damage to property of the Company or its Subsidiaries taken as a whole;

(7) non-cash accounting write-downs of goodwill and other intangible assets.

In addition, where matters in a specific category have a collective net impact (whether positive or negative) on net income, after taxes and available and collectible insurance, that exceed $200 million but not $500 million in a calendar year, then such matters (as well as any related effects on cash flow, if applicable) shall also be excluded in determining the achievement of the relevant performance goals but only if the combined net effect of matters in all such categories (exceeding $200 million but not $500 million) exceeds $500 million.

3. Final Award Determination.

Actual performance shall be compared to the predetermined Performance Goals to determine payout of Awards. The Administrator shall then determine the percentage of the Target Award to be distributed to Employees for each Performance Period as it may determine in its sole and complete discretion.

The final Award to be distributed to an Employee may be more or less in the Administrator’s discretion (including no award) than the percentage of the Target Award determined for such Participant; for example, the Administrator may approve a final Award greater or less than the (prorated, if applicable) performance-adjusted Target Award.

Determination and distribution of all Awards is subject to approval by the Administrator. All Awards are payable in cash and will be paid within two and one-half (2 ½) months of the end of the Performance Period and in all cases no later than March 15 of the year following the year in which a Performance Period ends.

For purposes of other plans, the portion of an Award payout that is earned while an Employee is a Senior Manager or below shall be an Annual Bonus; and the portion earned while an Employee is an Officer shall be a Short Term Incentive Award. In each case, unless otherwise provided by the Administrator, the Key Contributor Award, if any, paid with respect to a Performance Period shall be classified as either an Annual Bonus or a Short Term Incentive Award, based upon the recipient’s management level at the end of the Performance Period.

4.	Key Contributor Awards.

The Administrator may provide an additional payment to recipients of Target Awards to recognize and reward outstanding or exceptional achievement. Such a payment shall be called a "Key Contributor Award" or “KCA.” The number of Employees within an organization that may receive a KCA may be limited by the Administrator.

Following are examples of factors that may be considered in granting KCA:

·	Financial results above objective

·	Outstanding customer service results

·	Advancement of workforce diversity

·	Outstanding individual contribution

·	Outstanding leadership

·	Innovation and skills of the future

5. Award Adjustments.

An Employee’s Award shall be adjusted as follows unless otherwise provided by the Administrator (or the CEO or SEVP-HR with respect to Senior Managers only):

	Become an Eligible Employee after the beginning of the Performance Period	Prorate according to time of active service in the eligible position
	Modification of an Award during the Performance Period	Prorate for the amount of active service under each set of Awards
	Leave of Absence	Prorate to date leave commences and from date leave ceases unless otherwise provided by the Administrator
	Dismissal for cause during or after a Performance Period	No Award
	Involuntary Termination	Prorate to date of termination
	Voluntary Termination	No Award
	Retirement or Termination of Employment due to death or Disability during a Performance Period	Prorate to date of Termination of Employment

The receipt of short-term Disability benefits during the Performance Period shall have no effect on an Award.

6. Other Conditions .

(a)	No person shall have any claim to be granted an Award under the Plan and there is no obligation for uniformity of treatment of Employees under the Plan. Awards under the Plan may not be assigned or alienated.

(b)	Neither the Plan nor any action taken hereunder shall be construed as giving to any Employee the right to be retained in the employ of AT&T or any subsidiary thereof.

(c)	Awards shall be subject to applicable withholding taxes as required by law.

7.	Designation of Beneficiaries .

The AT&T Rules for Employee Beneficiary Designations shall apply to Awards under this Plan.

8.	Administrator.

The Administrator, and the CEO or SEVP-HR with respect to Senior Managers only, may, in their absolute discretion, establish or modify Awards and the related Performance Goals and Performance Periods, determine the extent to which the Performance Goals have been met, and approve Award payouts. In addition, the CEO may amend the Performance Goals of any Award held by an officer and, in such event, the CEO shall note any such amendment in the Award payout schedule.

In addition to the CEO or SEVP-HR’s other authority, he or she may modify the amount and/or Performance Goals of any Award established under this Plan prior to its distribution to reflect changes in job responsibilities or promotions, or both; provided, however, such authority may not be exercised for positions with a total compensation market rate exceeding $2.0 million (in such a case the modification shall be approved by the Administrator). In addition, in the event of a promotion or new hire, the SEVP-HR may establish a new Award when the recipient does not then have any existing Award for the same Performance Period.

The Administrator, and where applicable as provided in this Plan, the SEVP-HR, in their sole discretion, shall have complete authority over the administration of the Plan (and payment of any Awards under the Plan), shall have the authority in their sole absolute and total discretion to exercise all of the powers granted to them under the Plan and to construe, interpret, and implement the Plan, including the authority to make factual determinations under the Plan. Awards under the Plan shall be conclusively determined by the Administrator, or, where applicable as provided in the Plan, the CEO or SEVP-HR. Any determinations or actions required or permitted to be made by the Administrator may be delegated by the Administrator in its sole discretion. All such actions and determinations shall be final and binding and shall be afforded the greatest legal deference on review. The Administrator or any delegate thereof, in making any determinations under or referred to in the Plan shall be entitled to rely on opinions, reports or statements of officers or Employees of AT&T and of counsel, public accountants and other professional or expert persons.

The Plan shall be governed by the laws of the State of Texas and applicable Federal law.

9.	Modification or Termination of Plan .

This Plan and any Award made hereunder may be modified, suspended, or terminated at any time for any reason by the Administrator (or the CEO or SEVP-HR with respect to Awards granted to Senior Managers).

Exhibit 10-aa

AT&T CORP.

EXECUTIVE DEFERRED COMPENSATION PLAN

Amended and Restated Effective January 1, 2008

AT&T CORP.

EXECUTIVE DEFERRED COMPENSATION PLAN

Background and Purpose

The AT&T Executive Deferred Compensation Plan was previously established to provide a plan of deferred compensation for certain executives of the Company who are classified as Officers and who contribute to the continued growth, development, and future business of the Company. From the time of its adoption through December 31, 1984, the Plan was named the “Bell System Senior Management Incentive Award Deferral Plan”. During the period from January 1, 1984 through December 31, 2004, the Plan was known as the “AT&T Senior Management Incentive Award Deferral Plan”. The name of the Plan was changed to “AT&T Executive Deferred Compensation Plan”, effective as of January 1, 2005, to reflect the broader classification of executive-level employees who became eligible to participate in the Plan as of that date.

The AT&T Executive Deferred Compensation Plan is a “nonqualified deferred compensation plan” as that term is defined in Code Section 409A(d)(1). The AT&T Deferred Compensation Plan is intended to constitute an “employee pension benefit plan” as defined in Section 3(2)(A) of ERISA that covers a select group of management or highly compensated employees.

The AT&T Executive Deferred Compensation Plan is amended and restated, as set forth herein, to (i) effective as of January 1, 2008, to incorporate a series of amendments that were previously adopted by the AT&T Corp. Board of Directors; and (ii) effective as of January 1, 2005, to make additional amendments, necessary for the AT&T Executive Deferred Compensation Plan to comply with the applicable provisions of Code Section 409A.

The AT&T Executive Deferred Compensation Plan, as amended and restated, provides for two distinct programs: (i) the “Grandfathered Deferral Program”; and (ii) the “Executive Deferral Program”. The Grandfathered Deferral Program incorporates all provisions, rights, and obligations, in effect as of December 31, 2004, and governs the deferral accounts (and any earnings thereon) associated with compensation deferred under the AT&T Executive Deferred Compensation Plan that was earned and vested by the respective Participants prior to January 1, 2005. The Grandfathered Deferral Program, and all accounts thereunder, is deemed to be a “grandfathered” nonqualified deferred compensation plan that is not subject to the requirements of Code Section 409A. The Executive Deferral Program applies to all deferred compensation under the Plan that was not earned and vested prior to January 1, 2005 (and any earnings thereon), and is subject the applicable provisions of Code Section 409A.

During the period from January 1, 2005 to December 31, 2008, the AT&T Executive Deferred Compensation Plan has been operated in good faith compliance with the provisions of Code Section 409A, Internal Revenue Service Notice 2005-1, the proposed Treasury Regulations for Code Section 409A, and the final Treasury Regulations for Code Section 409A, and any other generally applicable guidance published in the Internal Revenue Service Bulletin with an effective date prior to January 1, 2009.

Effective November 18, 2005, AT&T Corp. became a wholly-owned subsidiary of SBC Communications Inc. (now known as “AT&T Inc.”) pursuant to the Agreement and Plan of Merger dated as of January 30, 2005.

Section

Definitions

The following words and phrases, as used in this plan document, shall have the meanings set forth below unless a clearly different meaning is required by the context in which the word or phrase is used.

1.0

Administrator . Prior to August 22, 2006, “Administrator” means the Executive Vice President – Human Resources of AT&T Corp. (or his or her delegate). On and after August 22, 2006, “Administrator” means the most senior vice president of AT&T Inc. responsible for human resource matters (or his or her designee). The Administrator shall have absolute discretion to interpret, manage and administer the Plan in accordance with its terms and conditions.

1.1

Affiliate . “Affiliate” means (i) any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, or governmental or political subdivision thereof that directly, or through one or more intermediates, controls, or is controlled by, or is under common control with, the Company; or (ii) any entity in which the Company has a significant equity interest, as determined by the Committee, provided, however, that effective immediately after the Closing, the term “Affiliate” shall not include any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, or governmental or political subdivision that was not an Affiliate immediately prior to the Closing other than AT&T Enterprise Services, Inc.

1.2

Annual Base Salary . “Annual Base Salary” means the amount of annual cash compensation for an active Officer or E-Band that is identified and treated as “salary” in accordance with the compensation and pay procedures of the Company, as in effect from time to time. For clarification, “Annual Base Salary” does not include Annual Bonus.

1.3	Annual Bonus . “Annual Bonus” means a cash payment of incentive compensation to an Officer or E-Band pursuant to the provisions of the AT&T Short Term Incentive Plan, as amended from time to time.

1.4

AT&T Common Stock . For periods prior to the Closing, “AT&T Common Stock” means the common shares, par value of $1.00 per share, of AT&T Corp. After the Closing, “AT&T Common Stock” means the common shares, par value $1.00 per share, of AT&T Inc. (known as SBC Communications Inc. prior to November 18, 2005).

1.5

AT&T Share Price . “AT&T Share Price” means the average of the daily high and low sale prices of shares of AT&T Common Stock on the New York Stock Exchange (“NYSE”) during each of the five (5) trading days ending on the applicable Determination Date, or during each of the five trading days immediately preceding the applicable Determination Date, if the NYSE is closed on the Determination Date.

1.6	Basic Deferral Distribution Option . “Basic Deferral Distribution Option” means the distribution option under the Grandfathered Deferral Program that is provided for in Section 2.6.

1.7

Broadband Spin-Off . “Broadband Spin-Off” means the spin-off of the Company’s broadband unit that conducted business as “AT&T Broadband” (or the spin-off of a newly-formed holding company for such broadband business) to the Company’s shareholders pursuant to the definitive merger agreement for the AT&T-Comcast transaction, as approved by the Board and announced by the Company on December 19, 2001.

1.8

Beneficiary . “Beneficiary” means the person, trust, entity, organization or estate of a Participant designated pursuant to Section 2.5(f) or Section 3.10 that is entitled to receive benefits under the Grandfathered Deferral Program or the Executive Deferral Program, as applicable, upon the death of a Participant.

1.9	Board . “Board” means the Board of Directors of the Company.

1.10	Change in Control . “Change in Control” has the same meaning assigned to that term in the AT&T 2004 Long Term Incentive Program as in effect on May 19, 2004.

1.11

CIC Eligible Employee . “CIC Eligible Employee” means a “Senior Officer” (as defined in the AT&T Senior Officer Separation Plan), a “Senior Manager” (as defined in the AT&T Senior Manager Separation Plan), or an “Executive” (as defined in the AT&T Executive Separation Plan) or an “Employee” (as defined in the AT&T Separation Plan), as the case may be who, within two (2) years following a Change in Control (a) is terminated for reasons other than (i) “cause”, or (ii) by reason of becoming eligible for benefits under any Company-sponsored long-term disability plan; or (b) terminates employment for “good reason” occurring after a Change in Control.

1.12	Closing . “Closing” means the closing of SBC Communications Inc.’s acquisition of AT&T Corp. as defined in the definitive Agreement and Plan of Merger dated January 30, 2005, between AT&T Corp. and SBC Communications Inc. The Closing occurred on November 18, 2005.
1.13	Code . “Code” means the Internal Revenue Code of 1986, as amended.

1.14	Committee . For periods prior to the Closing, “Committee” means the Compensation and Employee Benefits Committee of the Board (or the successor to such committee). For period on or after the Closing, “Committee” means the Administrator.

1.15	Company . “Company” means AT&T Corp., a New York corporation, and any successors to such entity.

1.16	Company Matching Contribution . “Company Matching Contribution” means the matching contribution made by the Company to a Participant’s deferral account under the Executive Deferral Program in accordance with the provisions of Section 3.5.

1.17	Determination Date . “Determination Date” means the date on which a completed election form for the Basic Deferral Distribution Option from a Participant is received by the Administrator.

1.18

E-Band . “E-Band” means a management employee of a Participating Company holding a position classified as a “Manager 5” or “Manager E”, or its equivalent, in a non-banded environment, or at the salary grade level of “E-Band”, or its equivalent, in a banded environment (also referred to as an “Executive” or “Director” from time to time), as determined in the discretion of the Administrator.

1.19

Eligible Executive . “Eligible Executive” means (i) in the context of the Grandfathered Deferral Program, an active management employee of a Participating Company who satisfies the eligibility requirements set forth in Section 2.1; and (ii) in the context of the Executive Deferral Program, an active management employee of a Participating Company who satisfies the eligibility requirements set forth in Section 3.1.

1.20

Employer . “Employer” means the Company and certain of its subsidiaries and affiliates, as determined by the Company in its sole discretion. Effective immediately after the Closing, the term “Employer” shall, in addition, include AT&T Enterprise Services, Inc. (known as “SBC Enterprise Services, Inc.” prior to January 19, 2006), which following the Closing became an affiliate of the Company.

1.21	ERISA . “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.22	Executive Deferral Program . “Executive Deferral Program” means the nonqualified deferred compensation program described in Section 3 that is applicable to amounts of compensation deferred by Officers and E-Bands that was not earned and vested prior to January 1, 2005.

1.23

Grandfathered Deferral Program . “Grandfathered Deferral Program” means the nonqualified deferred compensation program described in Section 2 that is applicable to amounts of compensation deferred by Officers that was earned and vested prior to January 1, 2005. The substantive terms and conditions of the Grandfathered Deferral Program, including all benefits and rights thereunder, are those that existed under the AT&T Senior Management Incentive Award Deferral Plan on October 3, 2004, without any subsequent “material modifications” (as referred to in the federal income tax regulations underlying Code Section 409A).

1.24	Long Term Award . “Long Term Award” means an Eligible Executive’s annual grant from a Participating Company of “performance shares” (as defined in the 2004 Incentive Program) and/or restricted stock units.

1.25

Officer . “Officer” means a management employee of a Participating Company holding a position classified as a “Manager 6”, “Manager O” or higher level in a non-banded environment, or at a salary grade level above “E-Band”, or its equivalent, in a banded environment (formerly referred to as a “Senior Manager” from time to time), as determined in the discretion of the Administrator.

1.26

Participant . “Participant” means (i) in the context of the Grandfathered Deferral Program, an active or former Officer or E-Band who has satisfied the requirements in Section 2.1 to be an Eligible Executive, has made one or more elections to defer compensation under the Grandfathered Deferral Program, and has an account balance under the Grandfathered Deferral Program; and (ii) in the context of the Executive Deferral Program, an active or former Officer or E-Band who has satisfied the requirements in Section 3.1 to be an Eligible Executive, has made one or more elections to defer compensation under the Executive Deferral Program, and has an account balance under the Executive Deferral Program.

1.27	Participating Company . “Participating Company” means AT&T Corp. and any Affiliate.

1.28

Plan . “Plan” means the AT&T Executive Deferred Compensation Plan, which shall be evidenced by this plan document, as amended from time to time. During the period beginning on January 1, 1984, and ending on December 31, 2004, the Plan was known as the “AT&T Senior Management Incentive Award Deferral Plan”. Prior to January 1, 1984, the Plan was known as the “Bell System Senior Management Incentive Award Deferral Plan”. A reference in this document to the “Plan” shall generally be construed as a reference to the Grandfathered Deferral Program and the Executive Deferral Program, collectively, unless another meaning is clearly required by the context in which the term “Plan” is used.

1.29	Savings Plan . “Savings Plan” means the AT&T Long Term Savings Plan for Management Employees (or any successor to such plan).

1.30

Separation From Service . “Separation From Service” means, for purposes of the Executive Deferral Program, a Participant’s termination of the employment with the Employer for any reason which constitutes a "separation from service" under Code Section 409A(a)(2). Notwithstanding the foregoing, the employment relationship of a Participant with the Employer is considered to remain intact while the Participant is on military leave, sick leave or other bona fide leave of absence if there is a reasonable expectation that the Participant will return to perform services for the Employer and the period of such leave does not exceed six (6) months, or if longer, so long as the Participant retains a right to reemployment with the Employer under applicable law or contract. Whether an Participant has terminated employment with the Employer will be determined by the Employer based on whether (i) it is reasonably anticipated by the Employer and the Participant that the Participant will permanently cease providing services to the Employer (as either an employee or independent contractor); or (ii) the level of bona fide services to be performed by the Participant (as either an employee or independent contractor) will permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (as either an employee or independent contractor) over the immediately preceding thirty-six (36) month period or such shorter period during which the Participant was performing services for the Employer. If a leave of absence occurs during such thirty-six (36) month or shorter period which is not considered a separation from service, unpaid leaves of absence shall be disregarded and the level of services provided during any paid leave of absence shall be presumed to be the level of services required to receive the compensation paid with respect to such leave of absence.

1.31	Service Period . “Service Period” means the calendar year during which an Eligible Executive’s right to compensation from a Participating Company in the form of Annual Base Salary, Annual Bonus, and/or Long Term Award arises.

1.32	Service Recipient . “Service Recipient” means the Employer and all other corporations, entities, and businesses (including, but not limited to, AT&T Inc., a Delaware corporation) that together with the Employer are considered a single employer under Code Sections 414(b) and 414(c).

1.33

Specified Employee . “Specified Employee” means any Participant who is a “Key Employee” (as defined in Code Section 416(i) without regard to paragraph (5) thereof), as determined by the Company in accordance with its uniform policy with respect to all arrangements subject to Code Section 409A, based upon the 12-month period ending on each December 31 st (such 12-month period is referred to below as the “identification period”). All Participants who are determined to be Key Employees under Code Section 416(i) (without regard to paragraph (5) thereof) during the identification period shall be treated as Key Employees for purposes of the Plan during the 12-month period that begins on the first day of the 4 th month following the close of such identification period.

1.34	2004 Incentive Program . “2004 Incentive Program” means the AT&T 2004 Long Term Incentive Program.

1.35	Year of Service . “Year of Service” shall have the same meaning as that assigned to such term under the Savings Plan from time to time.

Section

Grandfathered Deferral Program

2.0

Continuation of Prior Deferred Compensation Plan . The Grandfathered Deferral Program, as set forth in Section 2, represents a restatement of the substantive terms and conditions of the AT&T Senior Management Incentive Award Deferral Plan, including all benefits and rights thereunder, as they existed on October 3, 2004. The text set forth in Section 2 substantially tracks that in the AT&T Senior Management Incentive Award Deferral Plan document, as amended, through October 3, 2004. Certain headings and introductory phrases have been introduced to the text for reference and transitional purposes; however, it is the Company’s intent that the Grandfathered Deferral Program, as set forth herein, reflect no “material modification” (as referred to in the federal income tax regulations underlying Code Section 409A) to those terms and conditions in existence under the AT&T Senior Management Incentive Award Deferral Plan on October 3, 2004. It is further the Company’s intent that the deferral accounts previously established under the AT&T Senior Management Incentive Award Deferral Plan that was earned and vested prior to January 1, 2005 (including all earning thereon) and all deferral and distribution elections made with respect to such deferral accounts, be treated as exempt from the application of the provisions of Code Section 409A.

2.1

Eligibility to Participate . An active Officer of a Participating Company who is eligible for an award under the AT&T Short Term Incentive Award Plan and/or who has been granted a “performance award” or “stock unit award” under the AT&T Senior Management Long Term Incentive Plan, the 1987 Long Term Incentive Plan, the AT&T 1997 Long Term Incentive Program or the 2004 Incentive Program shall be eligible to commence participation in the Grandfathered Deferral Program, provided, however, that no active Officer or other individual may be or become eligible to participate under the Grandfathered Deferral Program with respect to the deferral of any form of compensation with respect to which the Officer or other individual did not, prior to January 1, 2005, have a legally binding right to such compensation, and that right was earned and vested.

2.2	Participation Elections . An Officer who satisfies the eligibility requirements in Section 2.1 may elect to participate in the Grandfathered Deferral Program by making an election to defer compensation in accordance with the following provisions:

(a)

Elections to Defer Awards and Dividend Equivalent Payments . Prior to the beginning of any calendar year, any Officer may elect to participate in the Grandfathered Deferral Program by directing that (i) all or part of an annual short term incentive award or a “performance award” or “stock unit award” under the 1987 Long Term Incentive Plan, the AT&T 1997 Long Term Incentive Program or the 2004 Incentive Program, and/or (ii) all or part of the dividend equivalent payments under the 1987 Long Term Incentive Plan, the AT&T 1997 Long Term Incentive Program or the 2004 Incentive Program, that such employee’s Participating Company would otherwise pay currently to such employee in such calendar year, shall be credited to a deferred account subject to the terms of the Grandfathered Deferral Program. However, in no event shall the part of an award under any plan credited during any calendar year be less than $1,000 (based on a valuation at the time the award would otherwise be paid). There shall be no such minimum limitation on amounts credited during any calendar year that are related to dividend equivalent payments.

(b)

Elections by Designated Officers to Defer Salary . Prior to the beginning of any calendar year, the Chairman of the Board and any other Officer designated by the Chairman of the Board may elect to participate in the Grandfathered Deferral Program by directing that all or part of such Officer’s salary that such employee’s Participating Company would otherwise pay currently to such employee in such calendar year shall be credited to a deferred account subject to the terms of the Grandfathered Deferral Program.

(c)

Elections to Defer Other Compensation . Subject to approval by the Committee, prior to the beginning of any calendar year, any Officer may elect to participate in the Grandfathered Deferral Program as to other awards under the 1987 Long Term Incentive Plan, AT&T 1997 Long Term Incentive Program or 2004 Incentive Program, or other amounts of compensation of such Officer, by directing that all or part of such awards or compensation that such Officer’s Participating Company would otherwise pay currently to such Officer in such calendar year be credited to a deferred account subject to the terms of the Grandfathered Deferral Program.

(d)

Form of Deferral Elections . An election to participate in the Grandfathered Deferral Program described in Section 2.2(a), Section 2.2(b) or Section 2.2(c) shall be in the form of a document executed by the Officer and filed with the Executive Vice President – Human Resources of AT&T Corp. (or his or her designee).

(e)

Irrevocability of Deferral Elections . Except as provided in Section 2.5(k) or Section 2.6, an election related to awards, dividend equivalent payments, salary and/or other compensation otherwise payable currently in any calendar year shall become irrevocable on the last day prior to the beginning of such calendar year.

(f)

Elections to Defer Made by Newly-Eligible Officers . Notwithstanding anything to the contrary contained in this Section 2.2, in the case of an Officer who is newly eligible to participate in the Grandfathered Deferral Program, or in the case of any Officer with respect to awards or compensation newly eligible to be deferred under the Grandfathered Deferral Program, a deferral election may be made with respect to compensation earned and otherwise receivable in the same calendar year in which the election is made and subsequent to such election, provided such election is made within ninety (90) days of such eligibility.

2.3

Deferred Amounts – Amounts Otherwise Payable in Cash . Amounts of compensation deferred under the Grandfathered Deferral Program pursuant to elections made under the provisions of Section 2.2 that otherwise would be payable in cash shall be credited to the Officer’s account and administered in accordance with the following provisions:

(a)

General Rule . Deferred amounts related to awards, dividend equivalent payments which would otherwise have been distributed in cash by a Participating Company and deferred amounts related to salary and/or other cash compensation shall be credited to the employee’s account and shall bear interest from the date the awards, dividend equivalent payments, salary and/or other cash compensation would otherwise have been paid.

(b)

Interest Crediting Rate and Methodology . The interest credited to the account will be compounded at the end of each calendar quarter, and the annual rate of interest applied at the end of any calendar quarter shall be determined by the Committee from time to time; provided, however, that:

(i)

The annual interest rate to be applied with respect to the cash portion of an employee’s (or former employee’s) deferred account balance as of December 31, 1998, plus any additions to such account after December 31, 1998, but prior to January 1, 2000, that result from deferral elections made by the employee prior to December 31, 1998 (reduced by any distributions attributable to such portion of the employee’s deferred account balance), shall not be less than the applicable ten (10) year U.S. Treasury Note rate for the prior calendar quarter, plus five percent (5%).

(ii)

The annual interest rate to be applied with respect to any additions to the cash portion of an employee’s (or former employee’s) deferred account after December 31, 1999, but prior to January 1, 2001, that result from deferral elections made by the employee prior to December 31, 1999, shall be the applicable ten (10) year U.S. Treasury Note rate for the prior calendar quarter, plus five percent (5%).

(iii)

The annual interest rate to be applied with respect to any additions to the cash portion of an employee’s (or former employee’s) deferred account after December 31, 2000, shall be the applicable ten (10) year U.S. Treasury Note rate for the prior calendar quarter, plus two percent (2%).

(c)

Special Transition Rule . If an employee made an election described in Section 2.2, which election was effective on December 31, 1983, then such employee’s account shall also be credited during 1984 with an amount equal to the deferred amounts which would have been credited to the employee’s account during 1984 had the company which employed the employee on December 31, 1983, continued to be a Participating Company during 1984, and such amount shall bear interest in accordance with Section 2.3(b) from the date such amount would have been credited had such company continued to be a Participating Company during 1984.

2.4

Deferred Amounts – Amounts Otherwise Payable in AT&T Common Stock . Amounts of compensation deferred under the Grandfathered Deferral Program pursuant to elections made under the provisions of Section 2.2 that otherwise would be payable in AT&T Common Stock shall be credited to the Officer’s account and administered in accordance with the following provisions:

(a)

General Rule . Deferred amounts related to awards that would otherwise have been distributed in AT&T Common Stock by a Participating Company shall be credited to the employee’s account as deferred AT&T Common Stock.

(b)

Special Transition Rule . If an employee made an election described in Section 2.2, which election was effective on December 31, 1983, then such employee’s account shall also be credited during 1984 with the deferred AT&T shares which would have been credited to the employee’s account had the company which employed the employee on December 31, 1983, continued to be a Participating Company in the Plan and in the AT&T Senior Management Long Term Incentive Plan during 1984.

(c)

Deferred Amounts Related to Dividend Equivalent Payments . Prior to the beginning of any calendar year, the Chairman of the Board and any other Officer designated by the Chairman of the Board may elect that deferred amounts related to dividend equivalent payments, which would otherwise have been distributed in cash by a Participating Company during such calendar year, shall be credited to the employee’s account as deferred AT&T Common Stock. The number of deferred AT&T Common Stock credited, with respect to each dividend equivalent, shall be determined in accordance with the conversion formula set forth in Section 2.4(d), as if such dividend equivalent were the amount to be converted to a number of additional deferred AT&T Common Stock.

(d)

Dividend Payment Conversions to AT&T Common Stock . The employee’s account shall also be credited on each dividend payment date for deferred AT&T Common Stock with an amount equivalent to the dividend payable on the number of deferred AT&T shares of Common Stock equal to the number of deferred AT&T shares of Common Stock in the employee’s account on the record date for such dividend. Such amount shall then be converted to a number of additional deferred AT&T shares of Common Stock determined by dividing such amount by the price of AT&T Common Stock, as determined in the following sentence. The price of AT&T Common Stock related to any dividend payment date shall be the average of the daily high and low sale prices of AT&T Common Stock on the New York Stock Exchange (“NYSE”) for the period of five (5) trading days ending on such dividend payment date, or the period of five (5) trading days immediately preceding such dividend payment date if the NYSE is closed on the dividend payment date.

(e)

Adjustments in Number of Deferred AT&T Common Stock . In the event of any change in outstanding shares of AT&T Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Committee shall make such adjustments, if any, that it deems appropriate in the number of deferred AT&T shares of Common Stock then credited to employees’ accounts. Any and all such adjustments shall be conclusive and binding upon all parties concerned.

(f)

Special Deferred Share Conversion Election . An employee with deferred shares of AT&T Common Stock credited to his account may make an irrevocable, one-time election to convert all or a portion of the deferred shares of AT&T Common Stock credited to his deferred account to their cash value amount and have such amount credited to the employee’s account. If an employee makes this conversion election, the value of the deferred shares of AT&T Common Stock subject to the employee’s conversion election shall be determined by multiplying (i) the number of deferred shares of AT&T Common Stock credited to the employee’s account that are subject to the employee’s conversion election, by (ii) the average of the daily high and low sale prices of AT&T Common Stock on the NYSE during each of the five (5) trading days immediately preceding the date applicable to the AT&T Wireless Group split-off transaction, as determined by the Executive Vice President - Human Resources of AT&T Corp., in consultation with the AT&T Law Department. After such cash value amount has been credited to the employee’s account, it shall thereafter be credited with interest from time to time at the applicable rate determined under Section 2.3(b) for amounts of salary and/or other cash compensation deferred during the year in which the split-off of the AT&T Wireless Group is consummated. An employee’s conversion election must be made within the time period established by the Executive Vice President - Human Resources of AT&T Corp., in consultation with the AT&T Law Department. Notwithstanding the foregoing provisions of this Section 2.4(f), no conversion of deferred shares of AT&T Common Stock to their cash value amount shall have been effective unless (i) the Board (or its delegate) approves the Separation and Distribution Agreement By and Between AT&T Corp. and AT&T Wireless Services, Inc. (“Wireless Separation and Distribution Agreement”); (ii) the Board (or its delegate) approves the Employee Benefits Agreement By and Between AT&T Corp. and AT&T Wireless Services, Inc. (“Wireless Employee Benefits Agreement”); and (iii) the AT&T Wireless Group split-off transaction contemplated by the Wireless Separation and Distribution Agreement and the Wireless Employee Benefits Agreement is consummated. The period during which an employee may submit a Special Deferred Share Conversion Election has closed, and no such further elections shall be permitted under the Plan.

2.5	Distributions . The amounts credited to an employee’s deferred account shall be distributed in accordance with the following provisions:

(a)

Distribution Elections . At the time an eligible employee makes an election to participate in the Grandfathered Deferral Program, the employee shall also make an election with respect to the distribution (during the employee’s lifetime or in the event of the employee’s death) of the amounts credited to the employee’s deferred account. Except as provided in Section 2.5(k) or Section 2.6, such an election related to the distribution during the employee’s lifetime, of amounts otherwise payable currently in any calendar year, shall become irrevocable on the last day prior to the beginning of such calendar year. The election related to the distribution in the event of the employee’s death, including the designation of a Beneficiary or Beneficiaries, may be changed by the employee at any time by filing the appropriate document with the Executive Vice President – Human Resources of AT&T Corp. (or his or her designee).

(b)

Form of Distributions . Amounts credited as cash plus accumulated interest shall be distributed in cash; amounts credited as deferred shares of AT&T Common Stock shall be distributed in the form of an equal number of AT&T shares of Common Stock.

(c)

Number of Installment Payments . With respect to amounts related to deferred cash credited to the employee’s account under Section 2.3(a), and to deferred shares of AT&T Common Stock credited to the employee’s account under Section 2.4(a), Section 2.4(b) or Section 2.4(c), an employee may elect to receive such amounts in one payment or in some other number of approximately equal annual installments (not exceeding twenty (20)), provided however, that the number of annual installments may not extend beyond the life expectancy of the employee, determined as of the date the first installment is paid.

(d)

Time of Commencement of Payments . The employee’s election made pursuant to the provisions of Section 2.5(a) shall also specify that the first installment (or the single payment if the employee has so elected) shall be paid either (i) as soon as practicable after the first day of the calendar quarter next following the end of the month in which the employee attains the age specified in such election, which age shall not be earlier than age fifty-five (55) or later than age seventy and one-half (70½), or (ii) as soon as practicable after the first day of the calendar quarter next following the end of the month in which the employee retires from a Participating Company or otherwise terminates employment with a Participating Company (except for a transfer to another Participating Company); provided, however, that the Committee may, in its sole discretion, direct that the first installment (or the single payment) shall be paid as soon as practicable after the first day of the first calendar quarter in the calendar year next following the year of retirement or other termination of employment. In addition, any Officer eligible to defer salary may specify that the first installment (or the single payment if the employee has so elected) shall be paid as soon as practicable after the first day of the first calendar quarter in the calendar year next following the calendar year in which the employee retires from a Participating Company or otherwise terminates employment with a Participating Company (except for a transfer to another Participating Company).

(e)

Acceleration of Distributions . Notwithstanding an election pursuant to Section 2.5(c) and Section 2.5(d), the entire amount then credited to an employee’s account shall be paid immediately in a single payment (i) if the employee is discharged for cause by his Participating Company; (ii) if the such Participating Company determines that the employee engaged in misconduct in connection with the employee’s employment with the Participating Company; (iii) if the employee, without the consent of his Participating Company and while employed by such Participating Company or after the termination of such employment, establishes a relationship with a competitor of the Participating Company or engages in activity which is in conflict with or adverse to the interest of the Participating Company as determined under the AT&T Non-Competition Guideline; or (iv) the employee becomes employed by a governmental agency having jurisdiction over the activities of a Participating Company or any of its subsidiaries.

(f)

Distributions to Beneficiaries . An employee may elect that, in the event the employee should die before full payment of all amounts credited to the employee’s deferred account, the balance of the deferred account shall be distributed in one payment or in some other number of approximately equal annual installments (not exceeding ten (10)) to the Beneficiary or Beneficiaries designated in writing by the employee, or if no designation has been made, to the estate of the employee. The first installment (or the single payment if the employee has so elected) shall be paid on the first day of the calendar quarter next following the month of death; provided, however, that the Committee may, in its sole discretion, direct that the first installment (or the single payment) shall be paid as soon as practicable after the first day of the first calendar quarter in the calendar year next following the year of death.

(g)

Installment Payment Methodology . Installments subsequent to the first installment to the employee, or to a Beneficiary or to the employee’s estate, shall be paid on the first day of the applicable calendar quarter in each succeeding calendar year until the entire amount credited to the employee’s deferred account shall have been paid. Deferred amounts held pending distribution shall continue to be credited with interest or additional deferred shares of AT&T Common Stock, as applicable, determined in accordance with Section 2.3, Section 2.4(a), Section 2.4(b), Section 2.4(c), and Section 2.4(d).

(h)

Severe Financial Hardship . In the event an employee, or the employee’s beneficiary after the employee’s death, incurs a severe financial hardship, the Committee, in its sole discretion, may accelerate or otherwise revise the distribution schedules from the employee’s account to the extent reasonably necessary to eliminate the severe financial hardship. For the purpose of this Section 2.5(h), a severe financial hardship will be considered to have occurred only if (i) the hardship has been caused by an accident, illness, or other event beyond the control of the employee or, if applicable, the beneficiary; and (ii) the hardship cannot be satisfied by other reasonably available financial resources of the employee, or if applicable, the beneficiary.

(i)

Obligation to Make Distributions of Deferred Amounts . The obligation to make a distribution of deferred amounts credited to an employee’s account during any calendar year, plus the additional amounts credited on such deferred amounts pursuant to Section 2.3, Section 2.4(a), Section 2.4(b), Section 2.4(c), and Section 2.4(d), shall be borne by the Participating Company which otherwise would have paid the related award or salary currently. However, the obligation to make distribution with respect to deferred amounts which are related to amounts credited to an employee’s account under Section 2.3(c) and under Section 2.4(b), and with respect to which no Participating Company would otherwise have paid the related award currently, shall be borne by the Participating Company which employed the employee on January 1, 1984.

(j)

Elections to Forego Deferred Compensation . Notwithstanding any provision of the Plan to the contrary, the amount credited to a former Officer’s account shall be reduced by the amount specified in an Election to Forego Compensation Form executed by the former Officer under the AT&T Corp. Estate Enhancement Program, and the reduction shall be effective as of the effective date of such election.

(k)

Modified Distribution Elections . Notwithstanding the provisions of Section 2.5(a), Section 2.5(d), and any election made thereunder, an employee may modify a prior distribution election to preclude payment of his deferred account balance upon termination of employment and to provide for payment of the amount credited to his deferred account to commence as soon as practicable after attainment of a specific age (not greater than age sixty-five (65)) and to be distributed in one payment or in some other number of approximately equal annual installments (not exceeding ten (10)), provided that such modified distribution election (the “Modified Deferral Election”) shall be effective with respect to the employee only if (i) the Board (or its delegate) approves the Wireless Separation and Distribution Agreement and the Wireless Employee Benefits Agreement; (ii) the Modified Deferral Election is made on or before December 31, 2000, or such later date as approved by the AT&T Corp. Tax Department; (iii) the AT&T Wireless Group split-off transaction contemplated by the Wireless Separation and Distribution Agreement and the Wireless Employee Benefits Agreement is consummated; and (iv) the employee becomes a “Transferred Individual” as defined in the Wireless Employee Benefits Agreement. A Modified Deferral Election must be made within the time period established by the Executive Vice President - Human Resources of AT&T Corp., in consultation with the AT&T Corp. Law Department. Once made, a Modified Deferral Election shall be irrevocable. If an employee makes more than one Modified Deferral Election, all such Modified Deferral Elections made by the employee shall provide for payments to commence at the same specific age and in the same number of annual installments. The period during which an employee may submit a Modified Deferral Election has closed, and no such further elections shall be permitted under the Plan.

2.6	Basic Deferral Distribution Option .

(a)

Notwithstanding the provisions of Section 2.5(a), Section 2.5(b), Section 2.5(c), and Section 2.5(d) to the contrary, effective thirty (30) days after the date on which the Broadband Spin-Off occurs, a Participant shall have an option to relinquish all of his rights under all prior deferral and distribution elections made under the Grandfathered Deferral Program. The rights to be relinquished shall include, but not be limited to, the right to continued deferral of the balance of his deferred account in the Grandfathered Deferral Program (until full payment is made in accordance with the Participant’s previous distribution elections made pursuant to Section 2.5), the right (to the extent applicable) to future interest credits on the cash portion of his deferred account as provided for in Section 2.3(a) and Section 2.3(b), and ten (10) percent of his or her deferred account balance as of the Determination Date. In exchange for relinquishing all of his or her rights under the Grandfathered Deferral Program, the Participant shall receive a single payment of an amount equal to ninety percent (90%) of the Participant’s deferred account balance as of the Determination Date (as determined under Section 2.6(a)(ii) and Section 2.6(a)(iii)), payable in the form of AT&T Common Stock, provided, however, that, effective as of November 20, 2008, accounts distributed under the Basic Deferral Distribution Option shall be made pursuant to Section 2.6(a)(iv). The distribution shall be made as soon as administratively practicable after the applicable Determination Date, in a manner determined by the Administrator, subject to the following terms and conditions:

(i)

The Basic Deferral Distribution Option may be exercised only by an irrevocable written election made by a Participant on a form approved by the Administrator and filed with the Administrator on a date not earlier than thirty (30) days after the date on which the Broadband Spin-Off occurs;

(ii)

For purposes of the Basic Deferral Distribution Option, the value of a Participant’s deferred account as of the Determination Date shall equal the sum of (1) the value of the deferred cash portion, and (2) the value of the portion represented by the deferred shares of AT&T Common Stock, determined as follows:

(A)

The value of the deferred cash portion of a Participant’s deferred account shall be the Participant’s deferred account balance (excluding any deferred shares of AT&T Common Stock credited to such account) as of the Determination Date (including all interest credited to such deferred account through that date); and

(B)

The value of the portion represented by the deferred shares of AT&T Common Stock (if any) of the Participant’s deferred account shall be determined by (1) multiplying the number of deferred shares of AT&T Common Stock credited to the Participant’s deferred account on the Determination Date, by (2) the AT&T Share Price;

(iii)

For periods prior to November 20, 2008, the number of shares of AT&T Common Stock to be distributed to a Participant who elects the Basic Deferral Distribution Option shall be determined by dividing (1) ninety percent (90%) of the value of the Participant’s deferred account (as determined in Section 2.6(a)(ii)), by (2) the AT&T Share Price.

(iv)

On or after November 20, 2008, the distribution shall consist of (1) ninety percent (90%) of the deferred shares of AT&T Common Stock (if any) credited to the Participant’s deferred account, and (2) ninety percent (90%) of the value of the deferred cash portion of a Participant’s deferred account balance (excluding any deferred shares of AT&T Common Stock credited to such account) as of the Determination Date (including all interest credited to such deferred account through that date).

(v)

If a Participant is deceased, the Participant did not file an election for the Basic Deferral Distribution Option with the Administrator prior to the Participant’s death, and amounts are payable to one or more Beneficiaries from a deceased Participant’s deferred account, each of the Participant’s Beneficiaries shall have the independent right to elect the Basic Deferral Distribution Option with respect to the portion of the deceased Participant’s deferred account to which the respective Beneficiary is then entitled, subject to substantially the same terms and conditions that would be applicable under this Section 2.6 if the Beneficiary were a Participant; and

(vi)

The Administrator may, in his or her sole discretion, require the Participant to execute a written receipt or such other documentation determined to be appropriate, on a form approved by the Administrator, as a condition for receipt of the shares of AT&T Common Stock.

(b)

No Participant’s election of the Basic Deferral Distribution Option pursuant to Section 2.6(a) shall be effective (and no distribution shall be made pursuant to a Participant’s election of the Basic Deferral Distribution Option) until the later of (i) thirty (30) days after the date on which the Broadband Spin-Off occurs; or (ii) the satisfaction of all federal and state securities law requirements relative to the distribution of AT&T Common Stock to Participants who elect the Basic Deferral Distribution Option.

2.7	Termination of Participation . A Participant’s participation in the Grandfathered Deferral Program shall terminate when the first of any of the following events occurs:

(a)

The death of the Participant;

(b)

The Participant ceases to have an account balance under the Grandfathered Deferral Program;

(c)

The Board (or its delegate) terminates the Grandfathered Deferral Program pursuant to the provisions of Section 5.1; or

(d)

The Board (or its delegate) terminates the Plan pursuant to the provisions of Section 5.1.

Section

Executive Deferral Program

3.0

Establishment of Executive Deferral Program . The Executive Deferral Program was established as part of the Plan, effective January 1, 2005, and applies to payments of Annual Base Salary and Annual Bonus, and grants of Long Term Awards, to Eligible Executives by a Participating Company that were not earned and vested prior to January 1, 2005.

3.1	Eligibility . An individual shall be an Eligible Executive who is eligible to participate in the Executive Deferral Program if he or she is an active employee of a Participating Company who is classified as either an Officer or an E-Band.

3.2	Commencement of Participation . An Eligible Executive may elect to participate in the Executive Deferral Program initially, and for any Service Period thereafter, by making a deferral election in accordance with the provisions of Section 3.3.

3.3 Deferral Elections .

(a)

Form of Deferral Elections . Any deferral election under the Executive Deferral Program shall be made in writing on such form, or in such other manner, as the Administrator (or his or her designee) shall prescribe from time to time. Each deferral election shall apply to a specified Service Period, and with respect to such Service Period shall (i) designate the type of compensation identified in Section 3.3(b) the Eligible Executive elects to defer; (ii) specify the amount (subject to the percentage limitations in Section 3.3(b)) of each type of compensation attributable to the Service Period which the Eligible Executive elects to defer; and (iii) indicate the Eligible Executive’s election to receive distribution of the deferred amounts upon his or her Separation From Service in a manner that conforms with the provisions of Section 3.8 and/or in the form of an in-service distribution that conforms with the provisions of Section 3.9.

(b)

Allowable Amounts of Compensation for Deferral . Under the Executive Deferral Program, an Eligible Executive may elect to defer the following amounts of compensation with respect to any Service Period:

(i)

Up to fifty percent (50%) of the Eligible Executive’s Annual Base Salary;

(ii)

Up to one hundred percent (100%) of the Eligible Executive’s Annual Bonus; and

(iii)

Up to one hundred percent (100%) of the Eligible Executive’s annual grant of Long-Term Awards.

(c)

Time of Deferral Elections . Except as provided in Section 3.3(d), a deferral election under the Executive Deferral Program must be made no later than the time specified by the Administrator; provided, however, that:

(i)

A deferral election with respect to the deferral of an Eligible Executive’s Annual Base Salary shall be made no later than the last day of the calendar year immediately preceding the Service Period to which such deferral election applies; and

(ii)

A deferral election with respect to the deferral of an Eligible Executive’s Annual Bonus and/or Long Term Awards that constitute “performance-based compensation” (as defined in the federal income tax regulations for Code Section 409A) shall be made no later than six (6) months before the end of the applicable Service Period.

Notwithstanding the preceding provisions of this Section 3.3(c), the Administrator (or his or her designee) may, in his or her sole discretion, require that a deferral election with respect to an Eligible Executive’s Annual Base Salary, Annual Bonus, and Long Term Awards (if any) for a particular Service Period all be made prior to the last day of the calendar year immediately preceding the Service Period to which such deferral election applies.

(d)

Newly Eligible Executives . If an Eligible Executive first becomes eligible to participate in the Executive Deferral Program during a Service Period, the Eligible Executive may make an initial deferral election within thirty (30) days after the Eligible Executive first becomes eligible to participate in the Executive Deferral Program. Such deferral election shall be made only with respect to Annual Base Salary, Annual Bonus, and Long Term Award compensation earned, payable or granted for services performed by the Eligible Executive after the deferral election is made.

(e)

Irrevocability of Deferral Elections . A deferral election (including the distribution elections comprising part of a deferral election) under the Executive Deferral Program shall be deemed made when it is received by the Administrator (or his or her designee) but in any event such election must be received before the commencement of the Service Period. Once a deferral election under the Executive Deferral Program has been made, it shall be irrevocable, and except as provided in Section 3.14 and Section 3.15, shall not be subject to any subsequent modification as to the amount of compensation to be deferred for the particular Service Period and/or the time and form of payment of the deferred compensation to which such election applies.

(f)

Cessation of Deferrals . Notwithstanding any provision of the Plan to the contrary, no Eligible Executive may make an election to defer compensation under the Executive Deferral Program that provides for the crediting of any amount of deferred compensation to a deferral account under the Plan after December 31, 2006.

(g)

Independent Annual Deferral Elections . An Eligible Executive may annually make a deferral election covering his or her Annual Base Salary, Annual Bonus, and Long Term Awards attributable to a particular Service Period. The Eligible Executive’s deferral election made for each Service Period shall be independent of his or her deferral elections made for other Service Periods. All deferral elections made under the Executive Deferral Program shall be independent of the Eligible Executive’s deferral elections, if any, made under the Grandfathered Deferral Program.

3.4	Crediting Accounts .

(a)

Types of Deferred Compensation Credited to Accounts . The deferred compensation credited to the cash portion of a Participant’s deferral account under the Executive Deferral Program shall be amounts of deferred Annual Base Salary and Annual Bonus that, but for the Participant’s deferral election, would have been payable to the Participant as cash, plus the Company Matching Contributions associated with such deferred compensation. The deferred compensation credited to the deferred AT&T share unit portion of a Participant’s deferral account under the Executive Deferral Program shall be deferred Long Term Awards that, but for the Participant’s deferral election, would have been payable to the Participant as shares of AT&T Common Stock.

(b)	Amounts of Deferred Compensation Credited to Accounts . The amounts of deferred compensation credited to a Participant’s account under the Executive Deferral Program with respect to any deferral election shall be determined in accordance with the following provisions:

	(i)	Annual Base Salary . The amount of Annual Base Salary to which a Participant’s deferral election shall be applied shall first be reduced by any pre-tax benefit deductions (including medical benefit premiums payable under a Code Section 125 plan and/or any contributions to a healthcare reimbursement account plan), but shall not be reduced for contributions made to the Savings Plan. The amount of Annual Base Salary credited to a Participant’s deferral account shall be the percentage of his or her Annual Base Salary in any paycheck to be deferred under the Executive Deferral Program, net of withholding deductions for FICA and Medicare taxes due on the deferred amount of Annual Salary and federal and state income tax withholding based on the FICA and Medicare tax deductions.
	(ii)	Annual Bonus . The amount of Annual Bonus credited to a Participant’s deferral account shall be the percentage of Annual Bonus to be deferred under the Executive Deferral Program, net of withholding deductions for FICA and Medicare taxes due on the deferred amount of the Annual Bonus and federal and state income tax withholding based on the FICA and Medicare tax deductions.

(iii)

Long Term Awards . The amount of Long Term Awards credited to a Participant’s deferral account shall be the percentage of Long Term Awards to be deferred under the Executive Deferral Program, net of withholding deductions for FICA and Medicare taxes due on the deferred amount of the Long Term Awards and federal and state income tax withholding based on the FICA and Medicare tax deductions.

3.5	Company Matching Contributions . Amounts of Annual Base Salary and Annual Bonus deferred under the Executive Deferral Program are eligible for Matching Company Contributions as provided in this Section 3.5.

(a)

Matching Contribution Rate Formula . Subject to the limitations set forth in Section 3.5(b), the Company shall match a Participant’s contributions of deferred Annual Base Salary and deferred Annual Bonus under the Executive Deferral Program for a payroll period with periodic cash contributions to the Participant’s deferral account at the rate of two-thirds of the sum of the Participant’s deferred Annual Base Salary and Annual Bonus under the Executive Deferral Program for such payroll period.

(b)

Maximum Company Matching Contribution . Notwithstanding the provisions of Section 3.5(a), the Company Matching Contribution to the Executive Deferral Program with respect to a Participant for any payroll period shall not exceed four percent (4%) of the sum of a Participant’s Annual Base Salary and Annual Bonus for the payroll period (before reduction by the amount of Participant’s deferrals under the Executive Deferral Program, the amount of the Participant’s elective deferrals under the Savings Plan, and the amount of any pre-tax salary reductions for the Participant under a Company-sponsored Code Section 125 cafeteria plan), less the amount of “company matching contributions” allocated to the Participant’s account under the Savings Plan for the corresponding payroll period. For purposes of applying this limitation, the Company shall first match a Participant’s contributions, if any, to the Savings Plan until the allowable annual compensation and/or contribution limitations under the Savings Plan are attained; provided, however, that the Company Matching Contribution on the deferred portion of an Officer’s Annual Bonus shall be credited entirely to his or her deferral account under the Executive Deferral Program.

(c)

Annual Limitation on Company Matching Contribution . In no event shall the amount of the Company Matching Contribution made pursuant to Section 3.5(a) and Section 3.5(b) with respect to any Participant for any Plan Year exceed one hundred percent (100%) of the “matching company contribution” that could have been credited to the Participant’s account under the Savings Plan in the absence of any plan-based restrictions that reflect the limits on qualified plan contributions under the Code.

3.6 Vesting .

(a)	Participant Contributions . A Participant shall be one hundred percent (100%) vested at all times in his or her contributions of deferred Annual Base Salary, Annual Bonus, and Long Term Awards (and all earnings thereon) to his or her deferral account under the Executive Deferral Program.

(b)

Company Matching Contributions . The Company Matching Contributions credited to a Participant’s deferral account under the Executive Deferral Program (and any earning thereon) shall be one hundred percent (100%) vested after the Participant completes three (3) Years of Service. If not then vested, the Company Matching Contributions credited to a Participant’s account under the Executive Deferral Program (and any earning thereon) shall also become one hundred percent (100%) vested, regardless of his or her number of Years of Service, upon the occurrence of any of the following events prior to (or concurrent with) his or her Separation From Service:

(i)

The Participant terminates employment the Company with eligibility for AT&T Corp. Postretirement Welfare Benefits under the AT&T Pension Plan or the AT&T Management Pension Plan;

(ii)

The Participant separates from service due to permanent disability;

(iii)

The Participant attains the first day of the month in which his or her sixty-fifth (65 th ) birthday occurs;

(iv)

The Participant separates from service pursuant to a Company-initiated force reduction program or in accordance with the Company’s practices with respect to technological displacement;

(v)

The Participant is laid off (Participant’s position is eliminated or relocated and redeployment is not possible);

(vi)

The Participant dies;

		(vii)	The Participant is assigned to an entity, other than a Participating Company or another Affiliate., and terminates employment with a Participating Company solely for this purpose;
	(viii)		The Participant’s employment with a Participating Company is terminated on account of a disposition of assets or disposition of a subsidiary;

(ix)

The Participant’s employment with a Participating Company is terminated as part of an outsourcing transaction;

(x)

This Plan is terminated or partially terminated, or there is a complete discontinuance of contributions by a Participating Company, other than by reason of being merged into, or consolidated with, another Participating Company; or

(xi)

Upon the date a “Change in Control” (as such term is defined in the 2004 Incentive Program as of May 19, 2004) occurs, provided he or she is a CIC Eligible Employee.

(c)

Forfeitures . If a Participant terminates employment with the Employer before the Company Matching Contributions credited to his or her deferral account are one hundred percent (100%) vested, the Participant’s Company Matching Contributions and the associated earnings credited to the Participant’s deferral account under the Executive Deferral Program shall be forfeited. The Company Matching Contributions and any earnings thereon credited to a Participant’s deferral account under the Executive Deferral Program shall also be forfeited if the Participant violates the AT&T Non-Competition Guidelines or the AT&T Code of Conduct.

3.7 Deferral Account Earnings .

(a)

Earnings on Cash Portion of Deferral Account . The annual rate of interest crediting on amounts allocated to the cash portion of a Participant’s deferral account under the Executive Deferral Program shall be equal to the yield on the ten (10) year U.S. Treasury Note, plus a premium amount, denominated as a percentage rate, determined by the Board (or its designee) from time to time. For 2005 and all subsequent years until modified by the Board (or its designee), the applicable premium amount shall be equal to two percent (2%). Interest on amounts held in the cash portion of a Participant’s deferral account under the Executive Deferral Program shall be credited quarterly, at the end of each calendar quarter, based on the actual average ten (10) year U.S. Treasury Note rate (and if applicable, any premium adjustment) for the prior calendar quarter.

(b)

Earnings on Share Unit Portion of Deferral Account . The deferred AT&T share unit portion of each Participant’s deferral account under the Executive Deferral Program shall be credited on each dividend payment date for AT&T Common Stock with an amount equal to the dividend payment on the number of shares of AT&T Common Stock that is equal to the number of AT&T share units credited to the respective Participant’s deferral account. That amount is then converted to an additional number of deferred AT&T share units and credited to the respective Participant’s deferral account under the Executive Deferral Program. For valuation purposes, the deferred AT&T share unit portion of a Participant’s deferral account under the Executive Deferral Program will be indexed to the AT&T Share Price.

3.8	Distributions of Deferred Compensation Upon Separation From Service .

(a)

General Rule . Subject to Section 3.8(d), distributions of amounts of Annual Base Salary, Annual Bonus, and Long Term Awards deferred under the Executive Deferral Program pursuant to a specific deferral election (and any associated Company Matching Contributions and earnings) shall be made upon the Participant’s Separation From Service at a time and in a form elected pursuant to Section 3.3 which conforms with the provisions of this Section 3.8, except to the extent that the Participant elects to have permissible amounts of such deferred compensation paid in the form of an in-service distribution pursuant to Section 3.9.

(b)

Form of Payments . An Eligible Executive’s deferral election that includes an election to receive payment of deferred compensation upon the Eligible Executive’s Separation From Service shall specify whether the deferred compensation to which the deferral election applies shall be paid in the form of either (i) a single payment; or (ii) annual installments. If the Eligible Executive elects the annual installment payment option, he or she shall also specify the number of annual installments to be made, ranging between a minimum of two (2) annual installments and a maximum of ten (10) annual installments. If a Participant elects the single payment option, the Plan shall make a single payment to the Participant of all amounts of compensation (and any associated Company Matching Contributions and earnings) credited to the Participant’s deferral account for the particular Service Period. If a Participant elects the installment payment option, the Plan shall pay to the Participant all amounts of compensation (and any associated Company Matching Contributions and earnings) credited to the Participant’s deferral account for the particular Service Period in the specified number of annual installment payments.

(c)

Medium of Payment . Under either the single payment or the annual installment payment options described in Section 3.8(b), (i) the distributable amount credited to the cash portion of a Participant’s deferral account under the Executive Deferral Program attributable to the particular Service Period shall be paid in the form of cash; and (ii) the distributable amount credited to the AT&T share unit portion of a Participant’s deferral account under the Executive Deferral Program attributable to the particular Service Period shall be paid in the form of shares of AT&T Common Stock equal to the number of AT&T share units credited to the AT&T share unit portion of a Participant’s deferral account under the Executive Deferral Program.

(d)

Timing of Payments .

(i)

Single Payment Option . As part of each deferral election that provides for payment of deferred compensation upon the Participant’s Separation From Service in the form of a single payment, the Participant shall specify whether such payment is to be made either:

(A)

On the first day of the calendar quarter that begins six (6) months after the calendar quarter during which the Participant incurs a Separation From Service with the Employer; or

(B)

On the first day of the calendar quarter that immediately follows the first one-year anniversary of the Participant’s Separation From Service with the Employer.

(ii)

Installment Payments . As part of each deferral election that provides for payment of deferred compensation upon the Participant’s Separation From Service in the form of installment payments, the Participant shall specify whether such payments shall commence either:

(A)

On the first day of the calendar quarter that begins six (6) months after the calendar quarter during which the Participant incurs a Separation From Service with the Company, with any subsequent annual installment payments being made on the first day of the same calendar quarter of each subsequent calendar year; or

(B)

On the first day of the calendar quarter that immediately follows the first one-year anniversary of the Participant’s Separation From Service with the Company, with any subsequent annual installment payments being made on the first day of the same calendar quarter of each subsequent calendar year.

3.9 In-Service Distributions .

(a)

Election of In-Service Distributions . In lieu of making an election for a distribution of deferred compensation upon Separation From Service pursuant to Section 3.8, a Participant may, as part of his or her deferral election for a particular Service Period, elect to receive an in-service distribution. An in-service distribution election must specify (i) a source of the in-service distribution; and (ii) an in-service payment date. Pursuant to Section 3.3(e), an in-service distribution election which comprises part of a deferral election shall be irrevocable once it is received by the Administrator.

(b)

Source of In-Service Distribution . The source of an in-service distribution is limited to either the Annual Base Salary (plus any earnings thereon) or the Annual Bonus (plus any earnings thereon) which a Participant elects pursuant to Section 3.3 to defer for the particular Service Period. An in-service distribution election shall apply to the entire amount of the specified source of compensation that is deferred by the Participant for the particular Service Period. Company Matching Contributions made with respect to a Participant’s deferral of Annual Base Salary or Annual Bonus for a Service Period shall not be distributed as part of an in-service distribution.

(c)

In-Service Payment Date . An election to receive an in-service distribution shall specify a future date (referred to as the “in-service payment date”) as of which the in-service distribution shall be made. Such in-service payment shall be at least four (4) years but no more than ten (10) years after the date on which the deferral election that includes the in-service distribution election is made.

(d)	Timing of In-Service Distribution . An in-service distribution shall be made to a Participant as soon as practicable during the third calendar quarter (July 1 to September 30) of the year during which the in-service payment date specified by the Participant occurs.

(e)	Form of Payment . All in-service distributions shall be made in the form of a lump sum cash payment.

(f)	Limitation on Number of In-Service Distribution Elections . A Participant may have no more than three (3) in-service distribution elections in force under the Executive Deferral Program at anytime.

(g)

Priority of Payment. In the event that an Eligible Executive has a Separation From Service prior to the date indicated in his or her in-service distribution election, the Eligible Executive’s entire deferred compensation under the Plan shall be payable at the time and form as if the eligible executive had made a deferral election that provides for distribution pursuant to Section 3.8(d)(i)(A) upon a Separation From Service.

3.10 Payments After Death of Participant .

(a)

Beneficiary Election . At the time an Eligible Executive first enrolls to participate in the Executive Deferral Program, the Eligible Executive shall be required to make and file a Beneficiary Election with the Administrator (or his or her designee). The Beneficiary Election shall be made in writing on such form or forms as the Administrator (or his or her designee) shall prescribe. As part of the Beneficiary Election, the Participant shall (i) designate a Beneficiary to receive the distribution of the balance of the Participant’s deferral account under the Executive Deferral Program in the event of the Participant’s death; and (ii) specify the number of annual installment payments (up to a maximum of five (5) payments) through which such account balance is to be made to the Participant’s Beneficiary. Such Beneficiary Election shall be effective upon the Participant’s death. Prior to death, a Participant may change his or her designated Beneficiary (but not the specified number of annual installment payments) from time to time following the procedures established by the Administrator (or his or her designee). Once a Participant’s Beneficiary Election is made, the Participant’s specification of the number of annual installment payments shall be irrevocable. The designation of a Participant’s Beneficiary on his or her Beneficiary Election shall be irrevocable upon the death of the Participant. If, for any reason, the Administrator (or his or her designee) determines that it does not have a valid Beneficiary Election on file at the time of the Participant’s death, the Participant shall be deemed to have made a Beneficiary Election in which the Participant (i) designated his or her estate as the Beneficiary; and (ii) specified that his or her deferral account under the Executive Deferral Program be paid to the Beneficiary in a single payment.

(b)

Payments to Beneficiary . Upon the death of a Participant, the first payment of all of the Participant’s deferral account balance under the Executive Deferral Program shall be made to the Participant’s Beneficiary during the calendar quarter that begins immediately after the calendar quarter during which the Participant’s death occurs. If the Participant dies after the commencement of payment of his or her deferral account under the Executive Deferral Program, the Plan shall pay the remainder of the balance of the Participant’s account under the Executive Deferral Program to the Participant’s Beneficiary in the number of payments specified in the Participant’s Beneficiary Election at such time as when the payments would have been paid to the Participant had his or her death not occurred. Any in-service distribution that a Participant may have elected pursuant to Section 3.9 but not received prior to the date of his or her death shall be paid to the Participant’s Beneficiary during the calendar quarter that begins immediately after the calendar quarter during which the Participant’s death occurs. If, for any reason, the AT&T Executive Compensation Department is not notified of the Participant’s death until after the end of the calendar quarter that begins immediately after the calendar quarter during which the Participant’s death occurs, the first payment of all of the Participant’s deferral account balance under the Executive Deferral Program and the payment of any in-service distribution the Participant had elected but not received prior to his or her death shall be made to the Participant’s Beneficiary within such period of time as may be provided for under the provisions of Code Section 409A.

(c)

Medium of Payment to Beneficiary . Amounts credited to the cash portion of a Participant’s deferral account under the Executive Deferral Program shall be paid to the Participant’s Beneficiary in the form of cash. Amounts credited to the AT&T share unit portion of a Participant’s deferral account under the Executive Deferral Program shall be paid to the Participant’s Beneficiary in the form of shares of AT&T Common Stock equal to the number of AT&T share units credited to the AT&T share unit portion of a Participant’s deferral account under the Executive Deferral Program.

3.11

Periodic Statements to Participants . The Administrator (or his or her designee) shall deliver a statement to each Participant in the Executive Deferral Program each calendar quarter that reports with respect to the immediately preceding calendar quarter (i) the amount of contributions of the Participant’s deferred compensation received by the Plan during such calendar quarter; (ii) the amount of Company Matching Contributions credited to the Participant’s deferral account during such calendar quarter; (iii) the amount of interest credited to the cash portion of a Participant’s deferral account under the Executive Deferral Program during such calendar quarter; and (iv) the amount of dividends (if any) reinvested in the AT&T share unit portion of the Participant’s’ deferral account during such calendar quarter.

3.12

Impact of Participation in Executive Deferral Program . The rules and procedures for the Executive Deferral Program set forth in this Section 3 shall only apply to the Executive Deferral Program. Neither the establishment of the Executive Deferral Program nor the rules and procedures for the Executive Deferral Program set forth in this Section 3 shall have any bearing or impact on the Grandfathered Deferral Program or any Participant’s deferral account or deferral and distribution elections made thereunder. An Eligible Executive’s decision to participate in the Executive Deferral Program, and any deferral election made under the Executive Deferral Program as a result of such decision to participate, shall not, in any way, impact the Eligible Executive’s deferral account or deferral and distribution elections made under the Grandfathered Deferral Program. A Participant’s Beneficiary Election made pursuant to Section 3.10 (including his or her designation of a Beneficiary) shall be independent of any election as to the form or number of payments upon death or any designation of a Beneficiary made by a Participant for purposes of the Grandfathered Deferral Program.

3.13

Delay in Deferred Compensation Payments to Specified Employees . Notwithstanding any other provision of the Plan or the Executive Deferral Program to the contrary, if a Participant in the Executive Deferral Program incurs a Separation From Service on or after January 1, 2005, and at the time of such Separation From Service the Participant is a Specified Employee, no payment of deferred compensation from the Participant’s deferral account under the Executive Deferral Program shall be made to, or with respect to, such Participant before the date that is six (6) months after the Participant’s Separation From Service (or if earlier, the date of the Participant’s death). Any payment from a deferral account under the Executive Deferral Program that, but for the application of the preceding provisions of this Section 3.13, would have been paid to a Participant at any time during the first six (6) months after the Participant’s Separation From Service (or if earlier, the date of the Participant’s death) shall be accumulated (including any earnings thereon credited in accordance with Section 3.7 during the period that payment is delayed pursuant to this Section 3.13) and paid to the Participant on the first day of the seventh (7 th ) month following the Participant’s Separation From Service. Any payment under the Executive Deferral Program to a Specified Employee not scheduled to be made during the first six (6) months after the Participant’s Separation From Service shall be made at the time or times provided for in the Participant’s Deferral Election and Section 3.8 or Section 3.9, as applicable. Notwithstanding the foregoing, in the event that an Eligible Executive’s in-service distribution date occurs within six (6) months following his or her Separation From Service, such in-service distribution date shall be disregarded and shall be of no force or effect.

3.14

Prohibition on Acceleration of Payments of Deferred Compensation . Notwithstanding any provision of the Executive Deferral Program as set for the herein to the contrary except the provisions of Section 3.15, any acceleration of the time or schedule of any payment of deferred compensation under the terms of the Executive Deferral Program or the amount of such deferred compensation scheduled to be paid under the terms of the Executive Deferral Program, shall be prohibited on or after January 1, 2005, unless such change to the time, schedule or amount of the deferred compensation payment qualifies for an exception established in the federal income tax regulations underlying the prohibition on acceleration of deferred compensation payments set forth in Code Section 409A(a)(3).

3.15

Special Distribution Provision . Notwithstanding any provision of the Executive Deferral Program as set forth herein to the contrary, in the event that (i) the Internal Revenue Service prevails in a claim that all or any portion of a Participant’s deferral account under the Executive Deferral Program is required to be included in the Participant’s taxable income for any taxable year of such Participant prior to the taxable year during which such amount is otherwise to be distributed to him or her due to the Plan’s failure to satisfy the requirements of Code Section 409A; or (ii) legal counsel satisfactory to the Company and the applicable Participant renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the affected portion of the Participant’s deferral account that is required to be included in the Participant’s taxable income shall be immediately distributed to the Participant (or his or her Beneficiary). For purposes of this Section 3.15, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or if the Company or Participant, based on an opinion of legal counsel satisfactory to the Company and the Participant fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim, to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period.

3.16	Termination of Participation in Executive Deferral Program . A Participant’s participation in the Executive Deferral Program shall terminate upon the occurrence of the first of any of the following events:

(a)

The death of the Participant;

(b)

The Participant ceases to have a deferral account balance under the Executive Deferral Program;

(c)

The Board (or its delegate) terminates the Executive Deferral Program pursuant to the provisions of Section 5.1; or

(d)

The Board (or its delegate) terminates the Plan pursuant to the provisions of Section 5.1.

Notwithstanding the provisions of Section 3.16(b) or Section 3.16(c), an individual who has a deferral account balance under the Grandfathered Deferral Program shall continue to be a Participant in the Grandfathered Deferral Program and the Plan until his or her participation in the Grandfathered Deferral Program also terminates in accordance with the provisions of Section 2.8.

Section

Claims and Appeals

4.0

Claims . A person who believes that he or she is being denied a benefit to which he or she is entitled under this Plan (hereinafter referred to as a “Claimant”) may file a written request for such benefit with the Executive Compensation Administration Department, setting forth his or her claim. The request must be addressed to the AT&T Executive Compensation Administration Department at its then principal place of business.

4.1

Claim Decision . Upon receipt of a claim, the AT&T Executive Compensation Administration Department shall review the claim and provide the Claimant with a written notice of its decision within a reasonable period of time, not to exceed ninety (90) days, after the claim is received. If the AT&T Executive Compensation Administration Department determines that special circumstances require an extension of time beyond the initial ninety (90) day claim review period, the AT&T Executive Compensation Administration Department shall notify the Claimant in writing within the initial ninety (90) day period and explain the special circumstances that require the extension and state the date by which the AT&T Executive Compensation Administration Department expects to render its decision on the claim. If this notice is provided, the AT&T Executive Compensation Administration Department may take up to an additional ninety (90) days (for a total of one hundred eighty (180) days after receipt of the claim) to render its decision on the claim.

If the claim is denied by the AT&T Executive Compensation Administration Department, in whole or in part, the AT&T Executive Compensation Administration Department shall provide a written decision using language calculated to be understood by the Claimant and setting forth: (i) the specific reason or reasons for such denial; (ii) specific references to pertinent provisions of this Plan on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or such information is necessary; (iv) a description of the Plan’s procedures for review of denied claims and the steps to be taken if the Claimant wishes to submit the claim for review; (v) the time limits for requesting a review of a denied claim under Section 4.2 and for conducting the review under Section 4.3; and (vi) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA if the claim is denied following review under Section 4.3.

4.2

Request for Review . Within sixty (60) days after the receipt by the Claimant of the written decision on the claim provided for in Section 4.1, the Claimant may request in writing that the Administrator review the determination of the AT&T Executive Compensation Administration Department. Such request must be addressed to the Administrator at the address for giving notice to the Administrator designated in Section 7.5. To assist the Claimant in deciding whether to request a review of a denied claim or in preparing a request for review of a denied claim, a Claimant shall be provided, upon written request to the Administrator and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim. The Claimant or his or her duly authorized representative may, but need not, submit a statement of the issues and comments in writing, as well as other documents, records or other information relating to the claim for consideration by the Administrator. If the Claimant does not request a review of the AT&T Executive Compensation Administration Department’s decision by the Administrator within such sixty (60) day period, the Claimant shall be barred and estopped from challenging the determination of the AT&T Executive Compensation Administration Department.

4.3

Review of Decision . Within sixty (60) days after the Administrator’s receipt of a request for review, the Administrator will review the decision of the AT&T Executive Compensation Administration Department. If the Administrator determines that special circumstances require an extension of time beyond the initial sixty (60) day review period, the Administrator shall notify the Claimant in writing within the initial sixty (60) day period and explain the special circumstances that require the extension and state the date by which the Administrator expects to render its decision on the review of the claim. If this notice is provided, the Administrator may take up to an additional sixty (60) days (for a total of one hundred twenty (120) days after receipt of the request for review) to render its decision on the review of the claim.

During its review of the claim, the Administrator shall:

(a)	Take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial review of the claim conducted pursuant to Section 4.1;

(b)	Follow reasonable procedures to verify that its benefit determination is made in accordance with the applicable Plan documents; and

(c)	Follow reasonable procedures to ensure that the applicable Plan provisions are applied to the Participant to whom the claim relates in a manner consistent with how such provisions have been applied to other similarly-situated Participants.

After considering all materials presented by the Claimant, the Administrator will render a decision, written in a manner designed to be understood by the Claimant. If the Administrator denies the claim on review, the written decision will include (i) the specific reasons for the decision; (ii) specific references to the pertinent provisions of this Plan on which the decision is based; (iii) a statement that the Claimant is entitled to receive, upon request to the Administrator and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and (iv) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA.

The Administrator shall serve as the final review committee under the Plan and shall have sole and complete discretionary authority to administer, interpret, construe and apply the Plan provisions, and determine all questions of administration, interpretation, construction, and application of the Plan, including questions and determinations of eligibility, entitlement to benefits and the type, form and amount of any payment of benefits, all in its sole and absolute discretion. The Committee shall further have the authority to determine all relevant facts and related issues, and all documents, records and other information relevant to a claim conclusively for all parties, and in accordance with the terms of the documents or instruments governing the Plan. Decisions by the Administrator shall be conclusive and binding on all parties and not subject to further review.

In any case, a Participant or Beneficiary may have further rights under ERISA. The Plan provisions require that Participants or Beneficiary pursue all claim and appeal rights described in this Section 4 before they seek any other legal recourse regarding claims for benefits.

Section

Amendment and Termination

5.0

Continuation of Program . The Company does not guarantee the continuation of the Plan or any benefits during employment or after termination of employment, nor does the Company guarantee any specific level of benefits. Benefits are provided under the Plan at the Company’s discretion and do not create a contract of employment. Neither the establishment nor the continuance of the Plan shall be construed as conferring any legal rights upon any Eligible Executive, Participant or other person for continuation of employment, nor shall such establishment or continuance interfere with the right of the Company to discharge any Eligible Executive, Participant or other person without regard to the existence of the Plan. The Company intends to continue the Plan indefinitely; however, the Committee (for periods ending prior to the Closing) and the Board or its delegate (for periods beginning on or after the Closing) reserve the right to amend or terminate the Plan at any time pursuant to Section 5.1.

5.1

Amendment or Termination . The Committee (for periods ending prior to the Closing) and the Board or its delegate (for periods beginning on or after the Closing) may, at any time, amend or terminate the Plan or any underlying program, but such amendment or termination shall not adversely affect the rights of any Participant without his or her consent, to any benefit under the Plan to which such Participant may have previously become entitled prior to the effective date of such amendment or termination. The Executive Vice President – Human Resources of AT&T Corp. (or his or her successor), with the concurrence of the General Counsel of AT&T Corp. (or his or her successor), shall be authorized to make minor or administrative changes to the Plan, as well as amendments required by applicable federal or state law (or authorized or made desirable by such statutes).

Section

Change In Control

6.0

Coverage of Individual Deferral Agreements . Upon the occurrence of a “Change in Control” or a “Potential Change in Control” (as those terms are defined in the AT&T Corp. Benefits Protection Trust as in effect on October 23, 2000), each individual deferral agreement (including any individual nonqualified pension arrangement) made between an Officer (active or former) and a Participating Company for the deferral of compensation, retirement and/or severance benefits (and the deferred account balance, if any, under each such agreement) identified by the Executive Vice President – Human Resources of AT&T Corp. (or his or her successor), in his or her discretion, shall be deemed to be a deferred compensation obligation under the Plan. Notwithstanding any other provision of the Plan to the contrary, (i) each of the individual deferral agreements (including each of the individual nonqualified pension arrangements) deemed to be a deferred compensation obligation of the Plan pursuant to the provisions of this Section 6.0 shall be treated under the Plan in a manner that is consistent with the express terms and conditions of the respective individual deferral agreement; and (ii) the deferred compensation (including nonqualified pension benefit) entitlement of an Officer under the Plan with respect to any such individual deferral agreement (including individual nonqualified pension arrangements) shall be limited solely to the benefit provided under the express terms and conditions of the respective individual deferral agreement. Nothing contained in this Section 6.0 shall entitle an Officer to any other deferred compensation benefits under the Plan except as expressly provided in the individual deferral agreement (including any individual nonqualified pension arrangement).

6.1

Vesting Upon Change in Control . Upon the occurrence of a “Change in Control” (as defined in the 2004 Incentive Program as in effect on May 19, 2004), the portion, if any, of each deferred account balance under the Plan (including the deferred account balance of any former Officer, the deferred account balance under any individual deferral agreement, and the benefits under any individual nonqualified pension arrangement deemed pursuant to the provisions of Section 6.0 to be an obligation of the Plan), that was not vested immediately prior to such “Change in Control”, shall become fully vested.

6.2

Interest Crediting After Change in Control . After the occurrence of a “Change in Control” (as defined in the 2004 Incentive Program as in effect on May 19, 2004), the interest credited to a deferred account (including the deferred account of any former Officer and the deferred account under any individual deferral agreement deemed pursuant to the provisions of Section 6.0 to be an obligation of the Plan) for any period, to the extent applicable, shall not be less than the interest derived under the interest rate formula applicable to such deferred account (and used to calculate the interest credited to such deferred account) for the interest crediting period immediately prior to the occurrence of such “Change in Control” (unless the provisions of any individual deferral agreement provide otherwise).

6.3

Prohibition on Deferral of Short-Term Incentive Awards . Notwithstanding any provision of any Officer’s deferral election to the contrary, after the occurrence of a “Change in Control” (as defined in the 2004 Incentive Program as in effect on May 19, 2004), no payment of any Officer’s short term incentive award, if any, under the AT&T Short Term Incentive Plan for the performance year during which such “Change in Control” occurs shall be deferred under the Plan.

Section

General Provisions

7.0	Named Fiduciary . The Administrator is hereby designated as the “named fiduciary” under this Plan. The named fiduciary shall have authority to control and manage the operation and administration of this Program.

7.1	Plan Administration . The Administrator (or his or her designee) shall have authority to establish, from time to time, and implement reasonable and necessary procedures for the administration of the Plan.

7.2

Cooperation With Administrator . All Participants and Beneficiaries shall be required to reasonably cooperate with the direction of the Administrator (or his or her designee) with respect to the administration of the Plan. Such cooperation shall include (i) timely completion, execution, and return of all enrollment forms, deferral election forms, and other administrative forms and documents in the manner prescribed by the Administrator; and (ii) compliance with such further administrative requirements and conditions as may be reasonably established by the Administrator from time to time.

7.3	Effective Date . The effective date of this amended and restated Plan document is January 1, 2008, unless otherwise stated herein.

7.4	Calendar Year Plan . All Plan records shall be maintained on a calendar year basis, beginning January 1 and ending December 31.

7.5

Notice Under Plan . Any notice to be given under this Plan shall be in writing and shall be either delivered in person or mailed by United States Mail, first-class postage pre-paid. If notice is to be given to the Administrator by mail, such notice shall be addressed as indicated below and mailed to the Administrator at the following address:

AT&T Inc.

208 South Akard, Room 2350.06

Dallas, Texas 75202

Attention: AT&T Executive Compensation

Administration Department

If notice is to be given to a Participant by United States Mail, such notice shall be addressed using such Participant’s address then on file with the AT&T Executive Compensation Department. Any party may change the address to which notices shall be mailed by giving written notice of such change of address.

7.6	Binding Effect . This Plan shall be binding upon the Company’s successors and assigns, and upon the Participants and their Beneficiaries, heirs, executors, and administrators.

7.7	Pension Benefit Plan Under ERISA . The Plan is intended to constitute an “employee pension benefit plan” within the meaning of Section 3(2)(A) of ERISA, covering a select group of management or highly compensated employees.

7.8

Plan Document . This Plan document is the plan document required by ERISA. The information contained herein provides the final and exclusive statement of the terms of the Plan. Unless otherwise authorized by the Board or its delegate, no amendment or modification to this Plan shall be effective until reduced to writing and adopted pursuant to Section 5.1. This document legally governs the operation of the Plan, and any claim of right or entitlement under the Plan shall be determined solely in accordance with the provisions of Section 4. No other evidence, whether written or oral, shall be taken into account in determining the right of an Eligible Executive, a Participant or a Beneficiary, as applicable, to any benefit of any type provided under the Plan.

7.9

Source of Funds . The amounts of compensation deferred under this Plan (and any earnings thereon) shall be held in the general funds of the Participating Companies. The Participating Companies shall not be required to reserve, or otherwise set aside, funds for the payment of such amounts of compensation deferred (or the earnings thereon).

7.10

Prohibition on Assignments . The rights of a Participant or Beneficiary to any deferred amounts of compensation deferred under this Plan, plus the additional amounts credited thereon pursuant to Section 2.3, Section 2.4(a), Section 2.4(b), Section 2.4(c), Section 2.4(d), and Section 3.7, shall not be subject to assignment by the Participant or any Beneficiary.

7.11	Governing Law . To the extent not preempted by applicable federal law, the Plan shall be governed by, and construed and interpreted in accordance with, the laws of the State of Texas (irrespective of the choice of laws principles of the State of Texas).

7.12

Severability . If any provision of this Plan or the application thereof to any person or circumstance shall be held by a court of competent jurisdiction to be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of the Plan and shall not affect the application of any provision of the Plan to any other person or circumstance.

7.13	Headings . The headings and subheadings preceding the Sections of this Plan have been inserted solely as a matter of convenience of reference, and shall have no force or effect in the construction or interpretation of the Plan or any of its provisions.

7.14

Construction . Whenever any words used herein are in the singular form, they shall be construed as though they were also used in the plural form in all cases where the plural form would apply ( and vice versa ). Pronouns and other words of one gender used herein shall be construed to include the other gender as the context requires. The word “or” shall not be exclusive; “may not” is prohibitive and not permissive. The term “earnings” shall refer to the amounts of interest and/or dividend equivalents credited to a deferral account hereunder pursuant to the provisions of Section 2.3(b), Section 2.4(d), and Section 3.7. The words, “hereof”, “herein”, “hereunder” and words of similar import shall refer to the entire Plan document, and not to any particular Section or paragraph of the Plan document, unless the context clearly indicates otherwise. All Section references made in this Plan document are to the applicable Sections of this Plan document unless otherwise specified.

7.15

Plan to Comply with Section 409A . The Plan (other than with respect to the Grandfathered Deferral Program) is at all times intended to comply with and operate in a manner that is consistent with the requirements of Section 409A of the Code. Notwithstanding any other provision to the contrary in this Plan, each provision in this Plan (other than with respect to the Grandfathered Deferral Program) shall be interpreted to permit the deferral of compensation in accordance with Section 409A of the Code and any provision that would conflict with such requirements shall not be valid or enforceable.

Exhibit 10-cc

AT&T CORP.

NON-QUALIFIED PENSION PLAN

THIS DOCUMENT, LIKE ALL COMPANY PLANS, PERSONNEL POLICIES OR PRACTICES, IS NOT A CONTRACT OF EMPLOYMENT. IT IS NOT INTENDED TO CREATE, AND IT SHOULD NOT BE CONSTRUED TO CREATE, ANY CONTRACTUAL RIGHTS TO CONTINUED EMPLOYMENT, EITHER EXPRESS OR IMPLIED, BETWEEN THE COMPANY AND ITS EMPLOYEES.

AT AT&T CORP., THE EMPLOYMENT RELATIONSHIP WITH EMPLOYEES COVERED BY THIS PLAN IS "AT-WILL." THIS MEANS THAT EMPLOYEES HAVE THE RIGHT TO QUIT THEIR EMPLOYMENT AT ANY TIME AND FOR ANY REASON, AND THE COMPANY RESERVES THE RIGHT TO TERMINATE ANY EMPLOYEE’S EMPLOYMENT, WITH OR WITHOUT CAUSE, AT ANY TIME FOR ANY REASON, SUBJECT TO THE RIGHTS OF ELIGIBLE PARTICIPANTS TO BENEFITS PROVIDED BY THIS PLAN.

IN THE EVENT THERE IS A CONFLICT BETWEEN STATEMENTS IN THIS PLAN AND THE TERMS OF ANY OTHER BENEFIT PLAN, POLICY, OR PRACTICE, THE APPLICABLE BENEFIT PLAN, POLICY OR PRACTICE PROVIDING THE BENEFITS IN QUESTION WILL CONTROL. AT&T CORP. RESERVES THE RIGHT, AT ANY TIME, TO MODIFY, SUSPEND, CHANGE, OR TERMINATE ITS EMPLOYEE BENEFIT PLANS OR EXECUTIVE LEVEL INCENTIVE, BENEFIT AND/OR PERQUISITE PLANS, PROGRAMS, POLICIES OR PRACTICES.

As Amended and Restated Effective January 1, 1997, Including

Amendments Adopted Through December 31, 2008

Article 1

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Purpose

AT&T CORP. NON-QUALIFIED PENSION PLAN

Article 1.

Purpose

This AT&T Non-Qualified Pension Plan (the “Plan”) is an amendment and restatement of predecessor programs sponsored by the Company that were first adopted on October 1, 1980, and reflects amendments adopted through December 31, 2008. The Plan provides supplemental pension, disability and death benefits to certain employees of AT&T Corp. (“AT&T”) and its Affiliated Corporations, as defined herein. The Plan is intended to constitute an unfunded plan of deferred compensation for a select group of management or highly compensated employees for purposes of Title I of ERISA. Except as otherwise indicated herein, the provisions of this amended and restated AT&T Non-Qualified Pension Plan shall apply only with respect to a Participant, as defined herein, who terminates employment on or after January 1, 1997. For former employees who terminated employment before January 1, 1997, the provisions of the AT&T Non-Qualified Pension Plan in effect on the date of the former employee’s termination of employment shall govern.

Effective January 1, 1997, the Plan was amended to provide a Special Update to the Basic Formula and a Special Update to the Alternate Formula, for employees who were actively employed and participating in the Plan on January 1, 1997. Effective January 1, 1998, the Plan was amended to discontinue ongoing benefit accruals for employees other than Officers, to implement a Cash Balance Formula as the only formula providing ongoing accruals, and to provide for the transfer of the benefit accrued as of December 31, 1996 under the AT&T Mid-Career Pension Plan to this Plan, for Officers who participate in this Plan on or after January 1, 1998.

Effective January 1, 2004, the Plan was amended to provide benefit accruals for a select group of management or highly compensated employees of a Participating Company who participate in the AT&T Executive Deferred Compensation Plan. The benefit provided to such employees by the Plan is generally equal to the reduction in the benefit payable to or on behalf of such employee under the AT&T Management Pension Plan and the AT&T Excess Benefit and Compensation Plan, resulting from such employee’s election to defer amounts (“Qualified Deferrals” herein) under the AT&T Executive Deferred Compensation Plan or the AT&T Inc. Cash Deferral Plan. Accruals under this provision ceased December 31, 2007.

Effective after December 31, 2008, benefit accruals under this Plan are limited to accruals under the cash balance formula with respect to short term incentive awards, for employees who are Officers on December 31, 2008. These accruals will continue for this group of Officers until the individuals “SERP Vesting Date,” as defined herein, at which time the benefit will be frozen. Employees who become Officers after December 31, 2008 are not entitled to benefits under this Plan, except with respect to benefits earned under a prior formula that was frozen effective December 31, 1997, or with respect to benefits based on Qualified Deferrals, with respect to which benefit accruals ceased December 31, 2007.

Article 1

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Purpose

During the period from January 1, 2005 to December 31, 2008, the Plan has been operated in good faith compliance with the provisions of Code Section 409A, Internal Revenue Notice 2005-1, and the final Treasury Regulations for Code Section 409A, and any other generally applicable guidance published in the Internal Revenue Service Bulletin with an effective date prior to January 1, 2009. On or after January 1, 2009, this Plan shall be interpreted and construed consistent with the requirements of Code Section 409A and all applicable guidance issued thereunder with respect to all accrued benefits under this Plan, including, except as indicated below, those benefits that may be otherwise treated as existing prior to the statutory effective date of Code Section 409A (“grandfathered benefits”) within the meaning of Treasury Regulation Section 1.409A-6(a)(3). The preceding sentence notwithstanding, it is the intention of the Company that the grandfathering provisions of Code Section 409A be applied under this Plan with respect to any Participant (and any surviving Spouse, Beneficiary or Estate of such Participant) who terminated employment prior to January 1, 2005, with respect to all benefits earned under the Plan with respect to such Participant prior to termination of employment. If any individual who terminated employment prior to January 1, 2005 is rehired after December 31, 2004 and earns additional benefits following reemployment the terms of the Plan shall be applied separately with respect to benefits earned prior to January 1, 2005 and with respect to benefits earned following rehire. The Company reserves the right to amend any provision of the Plan or any election submitted by a Participant, or take any other action that the Company deems appropriate to ensure compliance with Code Section 409A, including altering the time and form of any distribution so as to accomplish the intended purpose of this Plan.

Article 1

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Purpose

Article 2.

Definitions

Unless the context clearly indicates otherwise, the following terms have the meanings described below when used in this Plan, and references to a particular Article, Section, or Appendix shall mean the Article, Section, or Appendix so delineated in this Plan.

Section 2.01

Adjusted Career Average Pay

“Adjusted Career Average Pay,” as used in the Alternate Formula described in Section 4.02(b), means (i) in the case of an Officer, the sum of A and B below, divided by such Officer’s Term of Employment, and (ii) in the case of an E-band Employee, the amount described in B below divided by such E-band Employee’s Term of Employment; for purposes of this Section 2.01, the last day of a Participant’s Term of Employment is the earliest to occur of July 31, 1997, the date specified in the applicable provision of Section 3.02(c) for purposes of determining a benefit under the Alternate Formula, or the date of the Participant’s termination of employment from a Participating Company:

A .

the sum of (1) and (2), where (1) is the product of (a) the average of the Officer’s annual Short Term Incentive Awards includable in the 1989 Base Period, and (b) the Officer’s Term of Employment as of December 31, 1989, and (2) is his or her Short Term Incentive Awards and any Deferred Salary for the period from January 1, 1990 through the earliest to occur of (i) July 31, 1997, (ii) the date specified in the applicable provision of Section 3.02(c) for purposes of determining a benefit under the Alternate Formula, or (iii) the date of the Participant’s termination of employment from a Participating Company.

B .

the sum of (1) and (2), where (1) is the product of (a) the Participant’s average annual “Compensation” (as defined in the Pension Plan) for the 1992 Base Period, and (b) the Participant’s Term of Employment as of December 31, 1992, and (2) is the Participant’s “Compensation” (as defined in the Pension Plan) for the period from January 1, 1993 through the earliest to occur of (i) July 31, 1997, (ii) the date specified in the applicable provision of Section 3.02(c) for purposes of determining a benefit under the Alternate Formula, or (iii) the date of the Participant’s termination of employment from a Participating Company.

Section 2.02

Administrator

“ Administrator ” means the person identified as the Pension Plan Administrator under the Pension Plan, or such other person or entity designated by the Company.

Section 2.03

Affiliated Corporation

“Affiliated Corporation” means any corporation or other entity of which 50 percent or more of the voting stock is owned directly or indirectly by AT&T.

Article 2

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Definitions

Section 2.04

AT&T, Company

“AT&T” or “Company” means AT&T Corp., a New York Corporation, or its successors. Effective on November 18, 2005, AT&T Corp. was acquired by SBC Communications Inc. (now known as AT&T Inc.) pursuant to a plan and agreement of merger dated January 30, 2005.

Section 2.05

AT&T Controlled Group

“AT&T Controlled Group” means AT&T and each other entity required to be aggregated with AT&T under Code Sections 414(b), (c), (m), or (o). With respect to periods on or after November 18, 2005, the controlled group shall be determined with respect to entities required to be aggregated recognizing the acquisition of AT&T Corp. by SBC Communications Inc. (now known as AT&T Inc.).

Section 2.06

1989 Base Period

“1989 Base Period” means the period from January 1, 1987, through December 31, 1989, inclusive. Notwithstanding the provisions of the immediately preceding sentence, the “1989 Base Period” shall in no event include any period on or after the date specified in the applicable provision of Section 3.02(c) for purposes of determining a benefit under the Basic Formula or under the Alternate Formula.

Section 2.07

1992 Base Period

“1992 Base Period” means the period from January 1, 1990, through December 31, 1992, inclusive. Notwithstanding the provisions of the immediately preceding sentence, the “1992 Base Period” shall in no event include any period on or after the date specified in the applicable provision of Section 3.02(c) for purposes of determining a benefit under the Alternate Formula or under the Alternate Minimum Formula.

Section 2.08

1996 Base Period

“1996 Base Period” means the period from January 1, 1994 through December 31, 1996, inclusive. Notwithstanding the provisions of the immediately preceding sentence, the “1996 Base Period” shall in no event include any period on or after the date specified in the applicable provision of Section 3.02(c) for purposes of determining a benefit under the Special Update to the Basic Formula or under the Special Update to the Alternate Formula.

Section 2.09

Board

“Board” means the Board of Directors of AT&T.

Section 2.10

Cash Balance Account

“Cash Balance Account” means a hypothetical bookkeeping account used solely in calculating the amount under this Plan of a Cash Balance Participant’s Benefit Based on the Cash Balance Account, as described in Section 4.03. The term “Cash Balance Account” does not include amounts credited to the Qualified Deferrals Cash Balance Account, as described in Section 4.11.

Article 2

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Definitions

Section 2.11

Cash Balance Participant

“Cash Balance Participant” means an employee who is on the active roll of a Participating Company as an Officer on or after January 1, 1998. Notwithstanding the preceding sentence, an individual who is promoted to an Officer position after December 31, 2008 shall not be eligible to earn benefits as a “Cash Balance Participant.”

Section 2.12

CIC Eligible Employee

“CIC Eligible Employee” means a Deferral Participant who is considered a “CIC Eligible Employee” under the terms of the Pension Plan.

Section 2.13

Code

“Code” means the Internal Revenue Code of 1986, as amended from time to time. Any reference to a particular section of the Code includes any applicable regulations promulgated under that section.

Section 2.14

Committee

“Committee” means the Employees’ Benefit Committee appointed by AT&T to administer the Pension Plan.

Section 2.15

Concert Employee

“Concert Employee” means a former employee of a Participating Company who, pursuant to pertinent agreement(s) concluded between AT&T and British Telecommunications, PLC (“BT”) became employed by a Concert entity after December 15, 1999 and before April 1, 2002, under such circumstances that his or her net credited service would be subject to an immediate bridge if the Concert entity were a participating company under the Pension Plan, who was an Officer immediately prior to his or her employment by Concert, and who returned to the employment of a Participating Company as an Officer immediately following the termination of his or her employment by Concert on or before April 1, 2002. For purposes of this definition, “Concert” means the joint venture established pursuant to pertinent agreement(s) concluded between AT&T and BT.

Section 2.16

Covered Compensation Base

“Covered Compensation Base” means an amount which is the average of the maximum wage amounts on which an employee’s liability for Social Security taxes was determined for each year beginning with January 1, 1958 and ending with December 31, 1993.

Article 2

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Definitions

Section 2.17

Deferral Participant

“Deferral Participant” means an employee who defers compensation under the AT&T Executive Deferred Compensation Plan, or for periods after 2006, the AT&T Inc. Cash Deferral Plan, to the extent that such deferred compensation is a Qualified Deferral.

Section 2.18

Deferred Salary

“Deferred Salary” means any salary amounts deferred under the AT&T Senior Manager Incentive Award Deferral Plan, for periods commencing on or after January 1, 1994 and prior to January 1, 2005. For periods commencing on or after January 1, 2005, “Deferred Salary” is zero. Deferred Salary does not include amounts deferred pursuant to Code Section 401(k) or amounts contributed pursuant to Code Section 125.

Section 2.19

Deferred Vested Benefit

“Deferred Vested Benefit” means a benefit determined pursuant to Section 4.02E (under benefit formulas prior to January 1, 1998) and payable to a Participant who is vested under the Pension Plan at the time of his or her termination of employment, and who is not Service Pension Eligible as of the date specified by the relevant provision of this Plan.

Section 2.20

Disability Benefit

“Disability Benefit” means the benefit payable from the Plan to a Participant who, prior to January 1, 1998, became eligible for a disability pension from the Pension Plan while an Officer. If the disability pension from the Pension Plan is discontinued (other than by reason of attainment of normal retirement age, as defined in the Pension Plan), the Disability Benefit hereunder shall also be discontinued.

Section 2.21

E-band Employee

“E-band Employee” means any employee of a Participating Company employed in a position evaluated or classified by the Company as an “E-band” (formerly E-level, Fifth level and SG-12 through SG-14) or equivalent position in a banded environment, or Manager 5 or its equivalent in a non-banded environment, except that no employee who is assigned to such a position on a temporary basis after being notified in writing of the temporary status of such assignment shall be an “E-band Employee” for any purpose under this Plan.

Section 2.22

ERISA

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. Any reference to a particular section of ERISA includes any applicable regulations promulgated under that section.

Article 2

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Definitions

Section 2.23

50% Joint and Survivor Annuity

“50% Joint and Survivor Annuity” means an annuity form of payment under which payments continue to the surviving Spouse of the Participant, effective as of the first day of the month after the death of the Participant, and continuing until the last day of the month in which the death of the Spouse occurs, in an amount equal to fifty percent of the amount of the monthly benefit which was being paid to the Participant. If the Spouse predeceases the Participant after the Pension Commencement Date (and the pension is other than a Deferred Vested Pension described in Section 4.02(a)(iii)), the Participant’s pension shall be restored by the amount of the original reduction for this election, starting with the pension payment for the month following the death of the Spouse. For purposes of the 50% Joint and Survivor Annuity, the Spouse is the Spouse to whom the Participant was married on his or her Pension Commencement Date. This definition does not apply with respect to any benefit payable pursuant to a SERP Election made by a SERP Participant.

Section 2.24

100% Joint and Survivor Annuity

“100% Joint and Survivor Annuity” means an annuity form of payment under which payments continue to the surviving Spouse of the Participant, effective as of the first day of the month after the death of the Participant, and continuing until the last day of the month in which the death of the Spouse occurs, in an amount equal to amount of the monthly benefit which was being paid to the Participant. If the Spouse predeceases the Participant after the Pension Commencement Date, the Participant’s pension shall be restored by the amount of the original reduction for this election, starting with the pension payment for the month following the death of the Spouse. For purposes of the 100% Joint and Survivor Annuity, the Spouse is the Spouse to whom the Participant was married on his or her Pension Commencement Date. This definition does not apply with respect to any benefit payable pursuant to a SERP Election made by a SERP Participant.

Section 2.25

Leave of Absence

A “Leave of Absence” means where a person is absent from employment with AT&T on a leave of absence, military leave, or sick leave, where the leave is given in order to prevent a break in the continuity of term of employment, and permission for such leave is granted (and not revoked) in conformity with the rules of the employer that employs the individual, as adopted from time to time, and the employee is reasonably expected to return to service. Except as set forth below, the leave shall not exceed six (6) months for purposes of this Plan, and the employee shall Terminate Employment upon termination of such leave if the employee does not return to work prior to or upon expiration of such six (6) month period, unless the individual retains a right to reemployment under law or by contract. A twenty-nine (29) month limitation shall apply in lieu of such six (6) month limitation if the leave is due to the employee being “disabled” (within the meaning of Treasury Regulation Section 1.409A-3(i)(4). A Leave of Absence shall not commence or shall be deemed to cease under the Plan where the employee has incurred a Termination of Employment.

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Definitions

Section 2.26

Normal Retirement Date

“Normal Retirement Date” means the Participant’s normal retirement date as that term is defined in the Pension Plan.

Section 2.27

Officer

“Officer” means any employee of a Participating Company holding a position evaluated or classified by the Company above the “E-band” level in a banded environment, or classified at the Manager 6 level or above in a non-banded environment, except that no employee who is assigned to such a position on a temporary basis after being notified in writing of the temporary status of such assignment shall be an “Officer” for any purpose under this Plan.

Section 2.28

Participant

“Participant” means an Officer or an E-band Employee who satisfies the requirements of Article 3 for eligibility to accrue benefits under the Plan. An employee who has become a Participant, but who is no longer eligible to accrue benefits under the Plan, shall continue to be a Participant with respect to any nonforfeitable benefits he or she has accrued under the Plan, until such accrued benefits have been fully discharged through payment or through the purchase of an annuity contract.

Section 2.29

Participating Company

“Participating Company” means AT&T and any Affiliated Corporation which shall have determined, with the concurrence of AT&T, to participate in the Plan. In order to be a Participating Company under this Plan, a company must also be a participating company under the AT&T Management Pension Plan.

Section 2.30

Pension Commencement Date

“Pension Commencement Date” means the first day of the first month for which a payment under this Plan is payable in the form of an annuity or any other form. With respect to payments that commenced prior to January 1, 2009, the pension commencement date under the Pension Plan was the same as the Pension Commencement Date under this Plan.

Section 2.31

Pension Plan

“Pension Plan” means the AT&T Management Pension Plan, as amended and restated from time to time, and effective January 1, 2007, the AT&T Pension Benefit Plan – AT&T Legacy Management Program.

Section 2.32

Pension Plan Benefit

“Pension Plan Benefit” means (i) for purposes of determining the benefit under Section 4.02E(b) of the Plan, the “accrued benefit” under any of the pay base formulas under the Pension Plan, other than the special update formula, (ii) for purposes of determining the benefit under Section 4.02E(e) of the Plan, the “accrued benefit” under any of the pay base formulas under the Pension Plan, including the special update formula, and (iii) for purposes of determining the benefit under Section 4.02E(c) of the Plan, the “accrued benefit” under the Pension Plan under any of the pay base formulas under the Pension Plan, including the special update formula, each of (i), (ii) and (iii) herein determined without regard to the limitations on covered compensation under Code Section 401(a)(17), or the limitations on benefit accruals and payments under Code Section 415 and, unless otherwise indicated in the Plan, before any reduction in such pension benefit for the cost of a survivor benefit or for early commencement. Notwithstanding the provisions of the immediately preceding sentence, in applying the pay base formulas under the Pension Plan to a Participant described in Section 3.02(c), service and compensation after the date specified in the applicable provisions of Section 3.02(c) for purposes of determining the benefit under Section 4.02E(b) or Section 4.02E(e) of this Plan shall be excluded.

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Definitions

Section 2.33

Plan

“Plan” means this AT&T Non-Qualified Pension Plan, as set forth herein and as amended from time to time.

Section 2.34

Position Rate

“Position Rate” means an amount established periodically by the Company for each Officer’s position, upon which base salaries are administered.

Section 2.35

Qualified Deferral

A “Qualified Deferral” means any salary or bonus amounts deferred under the AT&T Executive Deferred Compensation Plan, for periods commencing on or after January 1, 2005, or the AT&T Inc. Cash Deferral Plan for periods after December 31, 2006, to the extent such salary or bonus would have been included as “Eligible Pay” (determined before application of any limitations under Code Section 401(a)(17)) under the Pension Plan if not deferred. Notwithstanding the preceding, the term “Qualified Deferral” does not include amounts deferred pursuant to Code Section 401(k) or amounts contributed pursuant to Code Section 125. An amount is treated as deferred for the period in which such amount would have been paid, if not deferred. Notwithstanding the preceding, a Qualified Deferral does not include amounts deferred with respect to any paycheck dated after December 31, 2007.

Section 2.36

Qualified Deferrals Cash Balance Account

“Qualified Deferrals Cash Balance Account” means a hypothetical bookkeeping account used solely in calculating the amount under this Plan of a Deferral Participant’s Benefit Based on the Qualified Deferrals Cash Balance Account, as described in Section 4.11E. The term “Qualified Deferrals Cash Balance Account” does not include amounts credited to the Cash Balance Account described in Section 4.03E.

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Definitions

Section 2.37

SERP

“SERP” means the 2005 Supplemental Employee Retirement Plan of AT&T Inc., as amended from time to time.

Section 2.38

SERP Effective Date

“SERP Effective Date” means SERP Effective Date as defined in the SERP.

Section 2.39

SERP Election

“SERP Election” means the election made before December 31, 2008 and in effect on December 31, 2008 with respect to distributions under the 2005 Supplemental Employee Retirement Plan of AT&T Inc. The SERP Election shall also apply to benefits payable under this Plan to a Participant who became a SERP Participant prior to January 1, 2009.

Section 2.40

SERP Participant

“SERP Participant” means an individual who has been designated as eligible to participate in the SERP. For purposes of this Plan, such individual is considered a SERP Participant whether or not he or she has satisfied the vesting requirements of the SERP.

Section 2.41

SERP Vesting Date

“SERP Vesting Date” means the date a SERP Participant becomes vested in his or her benefit under the 2005 Supplemental Employee Retirement Plan of AT&T Inc., or January 1, 2011 if later.

Section 2.42

Service Benefit

“Service Benefit” means the benefit determined pursuant to Section 4.02E(a) through (e), as applicable, and payable under the Plan to a Participant who is Service Pension Eligible at the date specified by the relevant provision of this Plan as if the Participant terminated employment as of such date.

Section 2.43

Service Pension Eligible

“Service Pension Eligible” means (i) with respect to a termination of employment prior to January 1, 1997, the Participant is eligible for a service pension under the Pension Plan; and (ii) with respect to a termination of employment on or after January 1, 1997, the Participant meets the following requirements:

(i)

the Participant’s term of employment has been at least thirty years, regardless of his or her age, or

(ii)

the Participant’s term of employment has been at least twenty-five years and he or she has reached the age of fifty years, or

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Definitions

(iii)

the Participant’s term of employment has been at least twenty years and he or she has reached the age of fifty-five years, or

(iv)

the Participant’s term of employment has been at least ten years and he or she has reached the age of sixty-five years.

For purposes of subparagraphs (i) through (iv) above, a Participant’s “term of employment” is determined under the provisions of the Pension Plan, as that plan was in effect on January 1, 1997, and is measured as of the date specified by the relevant provision of this Plan as if the Participant terminated employment of such date, or if no date is specified, as of the date of such Participant’s termination of employment. In determining the Participant’s “term of employment” under the Pension Plan, and in determining a Participant’s status as eligible for a service pension under the Pension Plan, the effect of the Management Pension Enhancement under the Pension Plan for employees with five or more years of term of employment (under the Pension Plan) as of December 30, 1989, shall be disregarded.

Section 2.44

Short Term Incentive Award

“Short Term Incentive Award” means the actual amount awarded annually (including any such amounts deferred pursuant to the AT&T Senior Management Incentive Award Deferral Plan or the AT&T Executive Deferred Compensation Plan) to an Officer pursuant to the AT&T Short Term Incentive Plan, or any predecessor short term incentive plan. A Short Term Incentive Award shall, for purposes of Sections 4.02E(a) and 4.02E(d) of this Plan, be considered to be awarded on the last day of the performance period with respect to which it is earned. For purposes of the annual award credit under the Cash Balance Account, the Short Term Incentive Awards shall be taken into account in the year paid (or in which it would have been paid, if not deferred) and only if such amount is paid (or would have been paid, if not deferred) on or before the end of the month in which the Officer terminates employment. Notwithstanding the preceding, after calendar year 2007, a short term incentive award shall be taken into account if it is paid in the month following termination of employment as part of the regular payroll schedule applied for payment of amounts earned during the final pay period of the month in which employment terminated.

Effective December 15, 1999, any short term award received from Concert by a Concert Employee while employed in “Concert service” (as defined in the Pension Plan) shall be treated as a Short Term Incentive Award provided that, had the award been received from a Pension Plan participating company, it would have been considered a Short Term Incentive Award.

Section 2.45

Special Update Adjusted Career Average Pay

“Special Update Adjusted Career Average Pay,” as used in the Special Update to the Alternate Formula described in Section 4.02E(e), means (i) in the case of an Officer the sum of (a) the average annual Short Term Incentive Awards and the average annual Deferred Salary under the AT&T Senior Management Incentive Award Deferral Plan for the 1996 Base Period and (b) the average annual “Compensation” (as defined in the Pension Plan) for the 1996 Base Period, and (ii) in the case of an E-band Employee, the average annual “Compensation” (as defined in the Pension Plan) for the 1996 Base Period.

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Definitions

Section 2.46

Specified Employee

Any Participant who is a Key Employee (as defined in Code Section 416(i) without regard to paragraph (5) thereof), as determined by AT&T in accordance with its uniform policy with respect to all arrangements subject to Code Section 409A, based upon the 12-month period ending on each December 31st (such 12-month period is referred to below as the identification period). All Participants who are determined to be Key Employees under Code Section 416(i) (without regard to paragraph (5) thereof) during the identification period shall be treated as Key Employees for purposes of the Plan during the 12-month period that begins on the first day of the 4th month following the close of such identification period.

Section 2.47

Successor Plan Sponsor

“Successor Plan Sponsor” means Lucent Technologies Inc. and any other corporation or entity that enters into an agreement or agreements providing for the assumption of liabilities arising under this Plan, including the Management Interchange Agreement dated as of April 8, 1996, and the Employee Benefits Agreement dated February 1, 1996, and amended and restated as of March 29, 1996, between AT&T and Lucent Technologies Inc.

Section 2.48

Spouse

“Spouse” means a person of the opposite sex who is the lawful spouse of a married Participant, under the laws of the state of the Participant’s domicile, and at the relevant time period stated under the applicable Plan provisions. Notwithstanding the preceding, if an alternate payee (as that term is defined in Section 414(p) of the Code) is deemed the surviving spouse for purposes of all or a portion of the Participant’s benefit under the Pension Plan, such alternate payee shall not be deemed to be the “spouse” for any purpose under this Plan.

Section 2.49

Term of Employment

“Term of Employment” means “term of employment” as determined under the provisions of the Pension Plan, as that plan was in effect on January 1, 1997, but excluding any service subsequent to the date indicated, if any, by a provision of this Plan for purposes of applying such Plan provision. Notwithstanding the foregoing, except for purposes of determining a CIC Credit pursuant to Section 4.11E(c), a Participant’s Term of Employment shall end no later than the date the Participant is reclassified or reassigned (or such later date as otherwise specified in Section 3.02(c) for the purpose indicated therein).

Section 2.50

Termination of Employment

The ceasing of the Participant’s employment from the AT&T controlled group of companies for any reason whatsoever, whether voluntarily or involuntarily. Effective January 1, 2009, references herein to Termination of Employment, Terminate Employment, or a similar reference, shall mean the event where the employee has a separation from service, as defined under Code Section 409A, with all members of the AT&T controlled group. Notwithstanding the foregoing, the employment relationship of a Participant with the AT&T controlled group is considered to remain intact while the individual is on a Leave of Absence.

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Definitions

Section 2.51

Total Compensation

“Total Compensation” as used in the Alternate Minimum Formula described in Section 4.02(c) means, with respect to any period, the sum of (i) “Compensation” as defined in the Pension Plan, (ii) Deferred Salary under the AT&T Senior Management Incentive Award Deferral Plan, and (iii) Short Term Incentive Awards, applicable to such period.

Section 2.52

Transition Employee

“Transition Employee” means a former Participant, as to whom the responsibility and liability for the payment of benefits accrued or payable under this Plan has been assumed by a Successor Plan Sponsor.

Section 2.53

Years of Service

“Years of Service” with respect to a Participant means the years of service as defined in Article 2 of the Pension Plan as that plan was in effect on December 31, 1993. “Years of Service” is used herein solely for the purpose of determining a Participant’s eligibility for the Alternate Minimum Formula.

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Definitions

Article 3.

Participation and Eligibility for Plan Benefits

Section 3.01

Eligibility to Accrue Plan Benefits

Effective for periods prior to January 1, 1997, eligibility to accrue benefits under this Plan shall be determined in accordance with the provisions of the Plan as in effect from time to time prior to January 1, 1997.

Effective January 1, 1997 through July 31, 1997, all Officers and E-band Employees shall be eligible to accrue benefits under this Plan.

During the period beginning August 1, 1997 and ending December 31, 1997, no employee will accrue additional retirement benefits under this Plan.

Effective January 1, 1998, an employee who was an Officer prior to January 1, 1998 shall be eligible to accrue benefits under the Cash Balance Formula of this Plan, during the period on or after January 1, 1998 that he or she continues to be an Officer of a Participating Company. Any other employee who becomes an Officer prior to January 1, 2009 shall become eligible to accrue benefits under the Cash Balance Formula on the date he or she becomes an Officer. Notwithstanding the preceding, such Officer shall not accrue additional benefits hereunder after the SERP Vesting Date. An individual who is not an Officer on December 31, 2008 shall not be eligible to accrue benefits under the Plan after December 31, 2008.

Effective January 1, 2004, an employee who defers compensation under the AT&T Executive Deferred Compensation Plan, or the AT&T Inc. Cash Deferral Plan for periods after December 31, 2006, shall be eligible to accrue benefits under this Plan with respect to amounts deferred under such plan, to the extent such amounts deferred are Qualified Deferrals. Notwithstanding the preceding, a Qualified Deferral does not include amounts deferred with respect to any paycheck dated after December 31, 2007.

No individual shall become a Participant in this Plan after December 31, 2008.

Section 3.02

Eligibility to Receive Plan Benefits

(a) Participants Who Are Officers

Participants Who Are Officers Before January 1, 2009

Subject to the provisions of Section 3.01, Section 3.02(c) regarding reassignments and reclassifications, and Section 3.02(d) regarding Qualified Deferrals and Section 3.02(a)(v) regarding Participants who become an Officer after December 31, 2008, a Participant who is an Officer prior to January 1, 2009 shall be eligible for the following pension benefits from the Plan, in an amount determined in accordance with the provisions of Article 4 and Appendix E. If a Participant is eligible for a benefit determined pursuant to more than one subparagraph of this Section 3.02(a), the benefit payable from the Plan shall be determined under the provision which applies to him or her and which produces the greatest benefit, taking into account the Pension Commencement Date and the form of payment. Notwithstanding the preceding, the benefit with respect to a Participant who is an Officer prior to January 1, 2009 shall be calculated as of the earlier of the Participant’s termination of employment or SERP Vesting Date as the immediate single life annuity that would be payable under the Plan commencing on such date, and once determined, the amount of the single life annuity payable under this Plan shall not change.

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Participation And Eligibility

For Plan Benefits

(i)	If the Participant is a Cash Balance Participant, a Benefit Based on the Cash Balance Account, as described in Section 4.03E(f), provided that the Participant is vested under the Pension Plan at the time of his or her termination of employment from the AT&T Controlled Group;

(ii)	If the Participant is Service Pension Eligible at the time of his or her termination of employment with a Participating Company, a Service Benefit determined in accordance with the applicable provision of Section 4.01E and Section 4.02E (with regard to benefits frozen prior to January 1, 1998);

(iii)

If the Participant is not Service Pension Eligible at the time specified in the relevant Plan provision, a Deferred Vested Benefit determined in accordance with Section 4.02E(a) or Section 4.02E(d) (with regard to benefits frozen prior to January 1, 1998), as applicable, provided that the Participant is vested under the Pension Plan at the time of his or her termination of employment from the AT&T Controlled Group;

(iv)

If the Participant became eligible for a disability pension from the Pension Plan while an Officer, a Disability Benefit, determined in accordance with Section 4.02E(a) or Section 4.02E(d) (with regard to benefits frozen prior to January 1, 1998), as applicable. Such Disability Benefit shall be paid in lieu of any other benefit under the Plan, so long as the Participant is prevented by such disability from resuming active service with a Participating Company. If the Participant’s disability continues to his or her Normal Retirement Date, the Disability Benefit shall be converted to a Service Benefit commencing on the first day of the month following such Normal Retirement Date;

Participants Who Become Officers After December 31, 2008

(v)

If an individual first becomes an Officer after December 31, 2008, the only benefits payable under the Plan with respect to such individual will be benefits attributable to Qualified Deferrals, if any, and benefits that were accrued under the Plan prior to January 1, 1998, if any. Benefits earned prior to January 1, 1998 will be paid pursuant to the provisions of Section 3.02(b) applicable to Participants who are E-band Employees, and benefits attributable to Qualified Deferrals pursuant to Section 3.02(d). The benefit with respect to such Participant shall be calculated as of the SERP Effective Date as the immediate single life annuity that would be payable under the Plan commencing on such date, and once determined, the amount of the single life annuity payable under this Plan shall not change.

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Participation And Eligibility

For Plan Benefits

(b) Participants Who Are E-band Employees (and Certain Officer Promotions)

Subject to the provisions of Section 3.01, Section 3.02(c) regarding reassignments and reclassifications, and Section 3.02(d) regarding Qualified Deferrals, a Participant who is an E-band Employee, and a Participant who becomes an Officer after December 31, 2008, shall be eligible for the following pension benefits from the Plan, in an amount determined in accordance with the provisions of Article 4 and, as applicable Appendix E:

(i)	If the Participant is Service Pension Eligible at the time of his or her termination of employment from a Participating Company, a Service Benefit determined in accordance with the applicable provision of Section 4.01E and Section 4.02E (with respect to benefits frozen prior to January 1, 1998) ;

(ii)

If the Participant is not Service Pension Eligible at the time of his or her termination of employment with a Participating Company, a Deferred Vested Benefit determined in accordance with Section 4.02E(a) or Section 4.02E(d) (with respect to benefits frozen prior to January 1, 1998), as applicable, provided that the Participant is vested under the Pension Plan at the time of his or her termination of employment from the AT&T Controlled Group.

In applying the provisions of this Section 3.02(b) to a Participant who is promoted to Officer after December 31, 2008, the determinations in (i) and (ii) of whether the Participant is Service Pension Eligible shall be made as of such Participant’s SERP Effective Date. The benefit with respect to such a Participant shall be determined as described in Section 3.02(a)(v).

(i)

An Officer who, on or after January 1, 1986 and before January 1, 1998, was reassigned to a position evaluated below the E-band level for reasons other than unsatisfactory performance, and who has satisfied the vesting requirements of the Pension Plan as of the reassignment date shall be eligible for benefits as follows:

(A) such a former Officer who was Service Pension Eligible as of the reassignment date, shall be eligible for a Service Benefit under Section 3.02(a)(ii) as of his or her termination of employment. The benefit of any reassigned Officer described in this Section 3.02(c)(i)(A) shall equal the greater of (1) or (2), as follows:

(1)

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Participation And Eligibility

For Plan Benefits

(2)

(B) such a former Officer who was not Service Pension Eligible, but who was eligible for a deferred vested pension pursuant to the Pension Plan as of the reassignment date, shall be eligible for a Deferred Vested Benefit under Section 3.02(a)(iii) as of his or her termination of employment. For purposes of determining benefits pursuant to this Section 3.02(c)(i) (B) the Participant’s Term of Employment shall exclude any period following the earliest to occur of the last day of the year in which such reassignment occurs, July 31, 1997, or termination of employment, and.

(ii)

An Officer who, on or after January 1, 1986 and before January 1, 1998, was reassigned to a position evaluated below the E-band level, and who was not Service Pension Eligible or eligible for a deferred vested pension pursuant to the Pension Plan as of the reassignment date, will not be eligible for benefits under this Plan.

(iii)

An Officer who, on or after January 1, 1986 and before January 1, 1998, was reassigned to a position evaluated at the E-band level for reasons other than unsatisfactory performance, shall be eligible for benefits as follows:

(A) such a former Officer who was Service Pension Eligible as of the reassignment date, shall be eligible for a Service Benefit under Section 3.02(a)(ii) upon his or her termination of employment. The benefit of any reassigned Officer described in this Section 3.02(c)(iii)(A) shall equal the greater of (1) and (2) as follows:

(1)

an amount computed in accordance with Section 4.02(a), the Basic Formula, or Section 4.02(d), the Special Update to the Basic Formula, as applicable, as in effect on the reassignment date. For purposes of determining a benefit under the Basic Formula, the Participant’s Term of Employment shall exclude any period following the earliest to occur of the last day of the year in which his or her job was reclassified, July 31, 1997, or termination of employment; for purposes of determining a benefit under the Special Update to the Basic Formula, the Participant’s Term of Employment shall exclude any period following the earliest to occur of the last day of the year in which his or her job was reclassified, December 31, 1996, or termination of employment; and

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Participation And Eligibility

For Plan Benefits

(2)

an amount computed in accordance with Section 4.02(b) (the Alternate Formula), or Section 4.02(e) (the Special Update to the Alternate Formula), as applicable, as in effect on the reassignment date. For purposes of determining a benefit under the Alternate Formula, the Participant’s Term of Employment shall exclude any period following the last day of 1988 or if later, the earliest to occur of the last day of the year in which his or her job was reclassified, July 31, 1997, or termination of employment; for purposes of determining a benefit under the Special Update to the Alternate Formula, the Participant’s Term of Employment shall exclude any period following the earliest to occur of the last day of the year in which his or her job was reclassified, December 31, 1996, or termination of employment.

(B) such a former Officer who was not Service Pension Eligible but was eligible for a deferred vested pension pursuant to the Pension Plan, as of the reassignment date, shall be eligible for a Deferred Vested Benefit under Section 3.02(a)(iii) upon his or her termination of employment. The benefit of any reassigned Officer described in this Section 3.02(c)(iii)(B) shall be computed under Section 4.02(a) (the Basic Formula), or Section 4.02(d) (the Special Update to the Basic Formula), as applicable, in effect as of the date of such reassignment. For purposes of determining a benefit under the Basic Formula, the Participant’s Term of Employment shall exclude any period following the earliest to occur of the last day of the year in which his or her job was reclassified, July 31, 1997, or termination of employment; for purposes of determining a benefit under the Special Update to the Basic Formula, the Participant’s Term of Employment shall exclude any period following the earliest to occur of the last day of the year in which his or her job was reclassified, December 31, 1996, or termination of employment.

(iv)

A Participant, other than an Officer, whose job was classified or reclassified during or after 1986 and prior to January 1, 1998 to a level below E-band, will be eligible for the Service Benefit computed in accordance with Section 4.02(b) (the Alternate Formula), or Section 4.02(e) (the Special Update to the Alternate Formula), as applicable, as in effect on the reclassification date, provided he or she is Service Pension Eligible as of the date of such classification or reclassification, and further provided he or she is not demoted subsequent to such day because of unsatisfactory job performance prior to termination of employment. For purposes of determining a benefit under the Alternate Formula, the Participant’s Term of Employment shall exclude any period following the last day of 1988 or if later, the earliest to occur of the last day of the year in which his or her job was reclassified, July 31, 1997, or termination of employment; For purposes of determining a benefit under the Special Update to the Alternate Formula, the Participant’s Term of Employment shall exclude any period following the earliest to occur of the last day of the year in which his or her job was reclassified, December 31, 1996, or termination of employment.

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Participation And Eligibility

For Plan Benefits

(v)

The benefit with respect to a Participant who is an Officer on or after January 1, 1998 who is reassigned on or after January 1, 1998 and before January 1, 2009, shall be determined pursuant to Section 4.03(f); provided, however, that the benefit of such former Officer shall be determined in accordance with subparagraphs (i) through (iii) of this Section 3.02(c) assuming a reassignment date of December 31, 1997, if such determination produces a higher benefit, as of the Participant’s Pension Commencement Date.

(d) Benefits Based on Qualified Deferrals

A Participant who is a Deferral Participant shall be eligible for a Benefit Based on the Qualified Deferrals Cash Balance Account, as described in Section 4.11E. Notwithstanding any other provision of the Plan to the contrary, the Benefit Based on the Qualified Deferrals Cash Balance Account shall be payable in addition to any other benefits payable under the Plan.

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Participation And Eligibility

For Plan Benefits

Article 4.

Pension Benefits After 2008

Section 4.01

Applicable Benefit Formulas.

The provisions of this Article 4 apply with respect to benefits payable to or with respect to a Participant who terminates employment on or after December 1, 2008. This article also describes the distribution provisions with respect to Participants who terminated employment after December 31, 2004 with respect to whom benefit payments had not commenced on or before December 1, 2008. The determination of pension benefits in all other cases is made as described in Appendix E. Appendix E generally includes the provisions of Article 4 as in effect prior to December 31, 2008. References in the Plan to a provision in Article 4 should in general be interpreted as reference to the corresponding provision in Appendix E when applied to or with respect to a termination of employment prior to December 1, 2008.

(a) Participants Terminated Before January 1, 1997

The Service Benefit, Deferred Vested Benefit, or Disability Benefit payable to a Participant who terminated employment from a Participating Company prior to January 1, 1997 is determined in accordance with the terms of the Plan as in effect from time to time prior to January 1, 1997.

(b) Active Participants on January 1, 1997

(i)

Participants Whose Eligibility to Accrue Benefits Ends Prior to August 1, 1997.

(A)

Subject to the provisions of Section 4.01(b)(i)(D), the annual benefit of a Participant, who is an Officer or an E-band Employee on January 1, 1997, who is an Officer at the time he or she leaves the service of a Participating Company prior to August 1, 1997, and who is Service Pension Eligible as of the last day of his or her Term of Employment, will be the greater of the annual benefit amount determined under the Basic Formula described in Section 4.02E(a), the annual benefit amount determined under the Alternate Formula described in Section 4.02E(b), or, in the case of an Officer who had at least five Years of Service as an Officer as of December 31, 1993, the annual benefit amount determined under the Alternate Minimum Formula described in Section 4.02E(c).

(B)

Subject to the provisions of Section 4.01(b)(i)(D), the annual benefit of a Participant, who is an Officer or an E-band Employee on January 1, 1997, who is an Officer at the time he leaves the service of a Participating Company prior to August 1, 1997, but who is not Service Pension Eligible as of the last day of his or her Term of Employment, will be a Deferred Vested Benefit determined under the Basic Formula described in Section 4.02E(a), provided he or she is vested under the Pension Plan at the time of termination of employment from the AT&T Controlled Group. Notwithstanding the provisions of the immediately preceding sentence, if such Participant was an Officer who had at least five Years of Service as an Officer as of December 31, 1993, the annual benefit shall not be less than the annual benefit determined under the Alternate Minimum Formula described in Section 4.02E(c).

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Pension Benefits After 2008

(C)

Subject to the provisions of Section 4.01(b)(i)(D), the annual benefit of a Participant, who is an E-band Employee on January 1, 1997, who terminates employment as an E-band Employee prior to August 1, 1997 and who is Service Pension Eligible as of the last day of his or her Term of Employment, will be the annual benefit amount determined under the Alternate Formula described in Section 4.02E(b).

(D)

Effective August 1, 1997, the annual benefit of a Participant described in this Section 4.01(b)(i) shall increase (but shall not be decreased) to the amount determined pursuant to the following subsection 4.01(b)(ii)(A), if the Participant is described in subsection 4.01(b)(i)(A), or to the amount determined pursuant to subsection 4.01(b)(ii)(B) if the Participant is described in subsection 4.01(b)(i)(B), or to the amount determined pursuant to the following subsection 4.01(b)(ii)(D), if the Participant is described in subsection 4.01(b)(i)(C). For purposes of applying the provisions of Section 4.01(b)(ii) to increase a benefit which commenced prior to August 1, 1997 pursuant to this subsection 4.01(b)(i)(D), any age-based reduction shall be based on such Participant’s age on his or her original Pension Commencement Date.

(ii)

Participants Whose Eligibility to Accrue Benefits Ends after July 31, 1997 .

(A)

Subject to the provisions of subsection 4.01(b)(ii)(C) for Officers after December 31, 1997, the annual benefit of a Participant who is an Officer or an E-band Employee on January 1, 1997, who is an Officer at the time he or she leaves the service of a Participating Company after July 31, 1997, and who is Service Pension Eligible as of his or her termination of employment from a Participating Company, will be the greater of the annual benefit amount determined under the Special Update to the Basic Formula described in Section 4.02E(d) and the annual benefit amount determined under the Special Update to the Alternate Formula described in Section 4.02E(e). Notwithstanding the preceding, in no event shall be the benefit with respect to a Participant described in this subsection 4.01(b)(ii)(A) be less than the amounts determined pursuant to Section 4.01(b)(i)(A).

(B)

Subject to the provisions of subsection 4.01(b)(ii)(C), the annual benefit of a Participant who is an Officer or an E-band Employee on January 1, 1997, who is an Officer at the time he leaves the service of a Participating Company after July 31, 1997 but who is not Service Pension Eligible as of the last day of his or her termination of employment will be a Deferred Vested Benefit equal to the greater of the annual benefit amount determined under the Special Update to the Basic Formula described in Section 4.02E(d) or the amounts determined pursuant to Section 4.01(b)(i)(B), provided he or she is vested under the Pension Plan at the time of termination of employment from the AT&T Controlled Group.

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(C)

The annual benefit of a Participant on January 1, 1997 who is also an Officer on or after January 1, 1998 shall not be less than the amount determined pursuant to subsection 4.01(d).

(D)

Subject to the provisions of Section 4.01(d)(ii) regarding an E-band Employee who becomes an Officer on or after January 1, 1998, the benefit of a Participant who is an E-band Employee on January 1, 1997, who terminates employment as an E-band Employee after July 31, 1997, and who is Service Pension Eligible as of his or her termination of employment from a Participating Company, will be the annual benefit amount determined under the Special Update to the Alternate Formula described in Section 4.02E(e), but shall in no event be less than the amount determined pursuant to Section 4.01(b)(i)(C).

(i)

An individual who first becomes a Participant after January 1, 1997 and before January 1, 1998, and who is an Officer on January 1, 1998, shall be eligible for benefits determined pursuant to Section 4.01(d).

(ii)

An individual who first becomes an Officer on or after August 1, 1997, who was not previously an E-band Employee, and who leaves the service of a Participating Company prior to January 1, 1998 shall not be eligible for benefits under the Plan.

(iii)

An individual, who first becomes a Participant after January 1, 1997 and before January 1, 1998, who is not an Officer at any time on or after January 1, 1998, and who terminates employment with a Participating Company on or after January 1, 1998 shall be eligible for a Service Benefit if the Participant is Service Pension Eligible at the time of his or her termination of employment from a Participating Company. Such benefit shall be determined only under the Alternate Formula described in Section 4.02E(b). No benefit shall be payable from the Plan if such Participant is not Service Pension Eligible at the time of his or her termination of employment from a Participating Company.

(d) Participants who are Officers on or after January 1, 1998 (Cash Balance Participants)

Participants Who Are Officers Before January 1, 2009

(i) An individual who is an Officer on or after January 1, 1998, who first became an Officer on or after August 1, 1997 and who was not previously an E-band Employee shall be eligible for a benefit determined under Section 4.03 if such Officer is vested in his or her benefit under the Pension Plan upon his or her termination of employment from the AT&T Controlled Group.

(ii) An individual who is an Officer on or after January 1, 1998, who was an Officer or an E-band Employee prior to August 1, 1997, and whose Pension Commencement Date is after July 1, 1998, shall be eligible for a benefit from the Plan if such Officer is vested in his or her benefit under the Pension Plan upon termination of employment from the AT&T Controlled Group. The benefit shall be the greater of (A) the benefit determined pursuant to Section 4.03, or (B) the sum of (I) the Mid-Career Pension Benefit determined pursuant to Section 4.07 and (II) the benefit accrued under the Plan prior to January 1, 1998 and payable pursuant to the terms of Section 4.01E(b)(ii)(A) or Section 4.01E(b)(ii)(B), as applicable. For purposes of the preceding sentence, the determination of the greater of (A) and (B) shall be made taking into account the Pension Commencement Date and the form of payment determined in accordance with Section 4.09E.

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Participants Who Become Officers After December 31, 2008

(iii)

Notwithstanding the preceding Sections 4.01(d)(i) and 4.01(d)(ii), benefits, if any, with respect to an individual who first becomes on Officer after December 31, 2008 shall be determined pursuant to the provisions of the Plan related to a Qualified Deferral Participant and to a Participant who is an E-band Employee, as applicable with respect to such individual. Such a Participant shall not be eligible for benefits determined under the Cash Balance Formula.

(e) Surviving Spouse of an E-band Employee or Officer

An Automatic Survivor Annuity will be paid to the Spouse to whom an E-band Employee or Officer is married at the time of his or her death while an active employee, provided such Participant is vested as of his or her date of death, and satisfies the provisions of Section 4.04 at the date of death. The benefit payable to such Spouse shall be equal to the present value of the benefit determined in accordance with Section 4.04. The provisions of this Section 4.01(e) do not apply to a benefit determined under the cash balance formula of Section 4.11, or to a benefit based on a Mid-Career Pension Benefit of Section 4.07E. The benefit to a Surviving Spouse shall not be payable under both this Section 4.01(e) and Section 4.01(f).

(f) Surviving Spouse (or Estate) of a Cash Balance Participant

A benefit, determined pursuant to the provisions of Section 4.10, shall be payable to the surviving Spouse (or estate, in the case of a Participant who is not married at the time of death) of a Cash Balance Participant who is vested in his or her benefit under the Pension Plan as of his or her date of death and who dies prior to commencing distribution of his or her benefit under the Plan. The benefit to a Surviving Spouse shall not be payable under both this Section 4.01(f) and Section 4.01(e).

(g) Deferral Participant

An individual who is a Deferral Participant shall be eligible for a benefit determined pursuant to Section 4.11, provided that such Participant is vested in his or her benefit under the Pension Plan upon his or her termination of employment from the AT&T Controlled Group. Notwithstanding any other provision of the Plan to the contrary, such benefit shall be payable in addition to any other benefits otherwise payable under the Plan.

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(h) Surviving Spouse (or Estate) of a Deferral Participant

A benefit, determined pursuant to the provisions of Section 4.10, shall be payable to the surviving Spouse (or estate, in the case of a Participant who is not married at the time of death) of a Deferral Participant who is vested in his or her benefit under the Pension Plan as of his or her date of death and who dies prior to commencing distribution of his or her benefit under the Plan.

Section 4.02

Benefit Formulas (other than Cash Balance)

To the extent that a benefit payable to a Participant who terminates employment on or after December 1, 2008 is based on a formula other than the Cash Balance Account of Section 4.03 or the Qualified Deferral Cash Balance Account of Section 4.11, the amount of such benefit shall be determined in accordance with the provisions of Section 4.02E of Appendix E.

Section 4.03

Cash Balance Accounts

Effective January 1, 1998, a cash balance formula was added to the Plan, applicable only to Participants who were Officers on or after such date. Section 4.03E describes the manner in which cash balance accounts were established, and the annual accruals under such formula.

The Cash Balance Account of a Participant who is an Officer prior to January 1, 2009 shall continue to be credited with Annual Award Credits and Interest Credits until the earlier of such Participant’s termination of employment or SERP Vesting Date, at which time no further amounts shall be credited to the Cash Balance Account. In the latter case, the provisions of Section 4.03E(c) and Section 4.03E(d) shall be applied as if the SERP Vesting Date is the Participant’s termination date and commencement date, as applicable. The amount of the single life annuity that would be payable from the Cash Balance Account commencing as of such date shall be determined in accordance with the provisions of Section 4.03E(f). Any reference to the Benefit Based on the Cash Balance Account for a period after the SERP Vesting Date shall be the amount so determined as of such date.

The Cash Balance Account with respect to a Participant who is not an Officer prior to January 1, 2009 shall be zero.

Section 4.04

Automatic Survivor Annuities

The Automatic Survivor Annuity described in this Section 4.04 does not apply to a benefit determined under the cash balance formula of Section 4.03 or 4.11, or to a benefit based on the Mid-Career Pension Benefit of Section 4.07. The Automatic Survivor Annuity is payable upon the death of a Participant who dies while actively employed after December 31, 2008, if such Participant’s benefit under the Plan is determined under a formula described in Section 4.02E.

The surviving Spouse of such a Participant shall be entitled to a pre-retirement Automatic Survivor Annuity determined pursuant to this Section 4.04 effective commencing as of the first day of the month following the death of a Participant who dies while an employee if such Participant has a Term of Employment of at least fifteen years at the time of death, or, if such Participant meets the age and Term of Employment requirements for a Service Benefit (or is Service Pension Eligible) at the time of his or her death. The pre-retirement Automatic Survivor Annuity shall be payable monthly in an amount equal to forty six percent of the monthly benefit that would have been payable to the Participant pursuant to Section 4.02E had such Participant terminated employment with a Service Benefit, regardless of his or her actual eligibility therefore, on the date of his or her death. For purposes of determining the Automatic Survivor Annuity provided in this Section 4.04(a), the early retirement discounts in Sections 4.02E(a), 4.02E(b), 4.02E(d) or 4.02E(e) shall not apply. With respect to a Participant whose benefit is determined pursuant to Section 4.01(d)(ii)(B), the Automatic Survivor Annuity shall not include the portion, if any, of the Participant’s benefit attributable to the Participant’s transferred Mid-Career Pension Benefit described in Section 4.07. With respect to a Participant who terminates employment on or after December 1, 2008, distribution of a benefit determined pursuant to this Section 4.04 shall be made in a lump sum payment upon the death of the Participant. The amount of the lump sum payment shall be determined by multiplying the monthly benefit determined above by the immediate single life annuity factor based on the age of the surviving Spouse as of the commencement date, and the Code Section 417(e) actuarial assumptions in effect under the Pension Plan as of such date.

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Section 4.05

Special Increases

The provisions of Section 4.05E do not apply to a benefit that commences after December 1, 2008, except in the case of a survivor benefit payable with respect to a Participant who commenced distribution of a Plan benefit on or before December 1, 2008.

Section 4.06

Monthly Payments

The annual benefit determined under Section 4.02 shall be divided by twelve to determine a monthly benefit amount. All annuity benefits under the Plan shall be payable monthly or at such other periods as the Committee or the Administrator, as applicable, may determine in each case; a benefit payable other than monthly shall be adjusted to reflect the period covered by such payment. Notwithstanding the preceding, distributions after December 1, 2008 with respect to a Participant who terminates employment on or after December 1, 2008 shall only be made in the form of a lump sum or installments over a period of 120 months, except with respect to a SERP Election.

Section 4.07

Mid-Career Pension Benefit

The description of the Mid-Career Pension Benefit is set forth in Section 4.07E of Appendix E.

Section 4.08

Treatment During Subsequent Employment

Effective beginning January 1, 2005, benefits shall not be suspended during a period of employment or reemployment. Benefits paid upon a subsequent termination of employment shall be reduced by the actuarial equivalent of the benefit payments that were continued during reemployment.

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Section 4.09

Payment of Pensions

(a) Commencement Prior to 2005

Provisions governing the payment of pension benefits that commenced after 2004 and prior to 2009 are set forth in Section 4.09E of Appendix E.

(b) Commencement After 2004 and Prior to 2009

Provisions governing the payment of pension benefits that commenced after 2004 and prior to 2009 are set forth in Section 4.09E of Appendix E.

Payment of benefits that commence after December 1, 2008, except in the case of a survivor benefit payable with respect to a Participant who commenced distribution of a Plan benefit on or before December 1, 2008, shall be made in the time and form as described in the following subparagraphs (i) through (iv), as applicable.

(i) Participants Terminating Prior to 2005 : The provisions of Section 4.09E regarding the time and form of payment of benefits under the Plan shall apply with respect to benefits commencing after 2008 to or with respect to a Participant who terminated employment prior to 2005. If such an individual is rehired into a position covered by this Plan after 2004, the terms of the Plan shall apply separately to the benefit earned prior to 2005 and the benefit earned after 2004.

(ii) Participants Terminating Employment after 2004 and Prior to December 1, 2008 : Subject to the provisions of Section 4.09(d) and Section 6.01, benefits payable to or with respect to a Participant who terminates employment after December 31, 2004 and prior to December 1, 2008 shall be paid

(A) if distribution of benefits to or on behalf of the Participant commence on or before December 1, 2008, pursuant to the provisions of Section 4.09E, or

(B) if distribution of benefits does not commence on or before December 1, 2008, the annual benefit amount to which such Participant is entitled commencing at Normal Retirement Date shall be determined under the terms of the Plan as set forth in Appendix E. Distribution of such benefit shall be made to the Participant commencing on July 1, 2009 in the form of a lump sum, equal to the present value determined pursuant to Section 4.09(c)(iv); provided, however, if the amount so determined exceeds $50,000, distribution shall be paid in monthly installments over a period of 120 months. If the Participant dies prior to the commencement of such payment, distribution equal to the present value of the amount that otherwise would have been payable to the Participant shall be made on July 1, 2009 to the Surviving Spouse, if any, otherwise to the estate of the Participant. If the Surviving Spouse entitled to receive the benefit described in the preceding sentence dies after the Participant but before distribution of such benefit, the benefit shall be paid to the estate of the Surviving Spouse. Survivor benefits, if any, upon death following commencement of distribution to the Participant shall be determined pursuant to the provisions of Section 4.10(d).

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(iii) Participants Terminating Employment on or After December 1, 2008 : Subject to the provisions of Section 4.09(c)(iv) and Section 4.09(d), benefits payable to or with respect to a Participant who terminates employment on or after December 1, 2008 shall be paid as follows:

(A) Participants Who Are Not SERP Participants :

The “Plan Retirement Benefit” for a Participant who does not become a SERP Participant is equal to the sum of (i) the benefit earned prior to January 1, 1998, determined pursuant to the provisions of Section 4.02E, and (ii) the Benefit Based on the Qualified Deferrals Cash Balance Account, if any, payable at Normal Retirement Date and determined pursuant to the provisions of Section 4.11, expressed as a single life annuity payable commencing at Normal Retirement Date. Distribution of such benefit shall be paid in the form of a lump sum, in an amount determined pursuant to Section 4.09(c)(iv), upon the Participant’s Termination of Employment; provided, however, if the present value so determined exceeds $50,000, distribution shall be paid in monthly installments over a period of 120 months. If the Participant dies before receiving a complete distribution of the benefits so determined, survivor benefits, if any, shall be paid in accordance with the provisions of Section 4.10.

(B) Participants Who Are SERP Participants on December 31, 2008 :

(I) A Participant who is a SERP Participant on December 31, 2008 shall continue to accrue benefits under the Cash Balance Formula until the earlier of his or her SERP Vesting Date or termination of employment. As of such date, the Participant’s benefit under the Plan shall be determined as the greater of (A) the Participant’s benefit, if any, determined pursuant to Section 4.02 or (B) the sum of (i) the Benefit Attributable to the Cash Balance Formula and (ii) the Benefit Attributable to Qualified Deferrals, determined as if payment of such benefit were to commence on such date. The amount of the monthly benefit so determined, expressed as a single life annuity, shall be fixed and shall not change (the “Frozen Single Life Annuity”);

(II) Subject to the provisions of Section 4.09(d), upon Termination of Employment, distribution of the benefit determined pursuant to subparagraph (I) shall commence in a form of payment determined pursuant to such Participant’s SERP Election, as defined herein. The amount payable to such Participant shall be the actuarial equivalent of the single life annuity determined pursuant to subparagraph (I), based on actuarial equivalent factors under the AT&T SERP as of the Participant’s Termination of Employment. Survivor benefits, if any, following the death of the Participant shall be determined in accordance with the provisions of Section 4.10.

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(I) A Participant who becomes a SERP Participant after December 31, 2008 shall not be entitled to accrued additional benefits under the Plan after December 31, 2008. The sum of (i) the benefit earned prior to January 1, 1998, determined pursuant to the provisions of Section 4.02E, and (ii) the Benefit Attributable to Qualified Deferrals, determined pursuant to the provisions of Section 4.11, if any, shall be determined as if payment of such benefits were to commence on the SERP Effective Date, and the amount of the monthly benefit so determined, expressed as a single life annuity, shall be fixed and shall not change (the “Frozen Single Life Annuity”).

(II) Subject to the provisions of Section 4.09(d), distribution of the benefit determined pursuant to subparagraph (I) shall be paid in the form of a lump sum or in 120 monthly installments commencing upon Termination of Employment; the applicable form of payment shall be determined on the Participant’s SERP Effective Date, based on the present value of the Frozen Single Life Annuity if distribution of such benefit commenced on the SERP Effective Date in the form of a single life annuity, and based on the actuarial assumptions in effect under the SERP as of such date. If the present value determined as of such SERP Effective Date is $50,000 or less, the form of payment shall be a lump sum, and if the present value exceeds $50,000, the form of payment shall be 120 monthly installments. The amount of the benefit payable commencing at Termination of Employment shall be determined in accordance with the provisions of Section 4.09(c)(iv). If the Participant dies before receiving a complete distribution of the benefits so determined, survivor benefits, if any, shall be determined in accordance with the provisions of Section 4.10.

(iv) Determination of Present Value: For purposes of Section 4.09(c)(ii)(B), Section 4.09(c)(iii)(A), and Section 4.09(c)(iii)(C), present value shall be determined as follows:

(A)

Employee who is not a SERP Participant: with respect to a Participant described in Section 4.09(c)(ii)(B) or Section 4.09(c)(iii)(A), an amount equal to the present value of the single life annuity that would be payable under the Plan commencing on the Participant’s Normal Retirement Date. Such present value shall be determined on the basis of actuarial assumptions under the Qualified Plan as of such date, calculated as follows: the annual amount of such benefit payable at Normal Retirement Date shall be multiplied by the factor for determining the lump sum value as set forth in Appendix B of the Qualified Plan for the Participant’s age at Termination of Employment. Notwithstanding the preceding, for a Participant described in Section 4.09(c)(ii)(B), the present value shall be based on the Participant’s age as of December 1, 2008, and the amount so determined will be accumulated to July 1, 2009 at an effective annual interest rate of four percent; and

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(B)

Employee who is a SERP Participant other than a SERP Participant on December 31, 2008: with respect to a Participant described in Section 4.09(c)(iii)(C), the present value of the amount payable commencing at Termination of Employment shall be determined by multiplying the Frozen Single Life Annuity (determined pursuant to Section 4.09(c)(iii)(C)(I)) by an immediate annuity factor based on the age of the Participant at Termination of Employment. The immediate annuity factor shall be based on the Mortality Tables and the GAAP Rate, both as in effect for the calendar year immediately preceding the calendar year of the Participant’s Termination of Employment, and as defined in the SERP.

With respect to benefits payable in installments over a period of 120 months, the amount of each monthly installment shall be calculated in the same manner that a financial institution would calculate the monthly payments for a 10-year fixed interest loan, based on the present value of Plan benefits determined pursuant to Section 4.09(c)(iv). The interest rate used in the calculations shall be equal to the Code Section 417(e) interest rate in effect under the Pension Plan on the date of the Participant’s Termination of Employment, or, with respect to distributions made pursuant to Section 4.09(c)(ii)(B), the rate in effect for the 2008 calendar year.

(d) Payments to Specified Employees

Notwithstanding the provisions of the preceding sections 4.09(a) through 4.09(c), effective on and after January 1, 2005 with respect to payments in the form of a commercial annuity pursuant to Section 6.01 and effective on and after January 1, 2009 with respect to all other payments under the Plan, payment under the Plan to or with respect to a Participant who is eligible to participate in the SERP or who is determined to meet the definition of Specified Employee shall be payable as otherwise provided in this Plan, except that the initial payment shall be made no earlier than six (6) months following his or her Termination of Employment. If, absent this Section 4.09(d), payment to a Specified Employee would have commenced before the expiration of such six-month period, the first payment with respect to such Specified Employee will include the sum of the annuity payments withheld, together with interest thereon. For purposes of the immediately preceding sentence, interest shall be credited using the GAAP Rate in effect as of the end of the calendar year immediately preceding the Participant’s Termination of Employment, for distributions made after December 31, 2007. “GAAP Rate” means such rate as defined under the SERP for the referenced period. Notwithstanding the preceding, for distributions made prior to January 1, 2008, interest credited for purposes of this Section 4.09(d) shall be at an effective annual rate equal to 120 percent of the Federal Mid-term rate in effect as of the date such annuity payments otherwise would have commenced.

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Section 4.10

Payment of Plan Benefits Following Death

The provisions of this Section 4.10 apply upon the death of a Participant who is an employee on or after December 1, 2008, and, for purposes of Section 4.10(d), upon the death of a Participant described in Section 4.09(c)(ii)(B).

(a) Death prior to commencement : If a Participant described in Section 4.09(c)(iii) dies before Termination of Employment, or following Termination of Employment but before the date as of which distribution of the Plan benefit commences, benefits will be payable in a lump sum to the Spouse, or if there is no surviving Spouse, to the Participant’s estate. The amount of such lump sum payment shall be determined pursuant to the provisions of Section 4.10(c).

(b) Death of Spouse before payment of survivor benefit : If a Participant dies before the date as of which distribution of the Plan benefits commences, and he or she is survived by a Spouse entitled to payment pursuant to Section 4.10(a), and such surviving Spouse dies prior to the date payment of benefits under this Plan commence, a lump sum benefit shall be payable to the estate of the Spouse upon the death of the Spouse. The amount of such lump sum payment shall be determined pursuant to the provisions of Section 4.10(c).

(i) With respect to a Participant described in Section 4.09(c)(iii)(A), the lump sum payment payable pursuant to Section 4.10(a) or Section 4.10(b) shall be an amount equal to the present value of the Plan Retirement Benefit, as defined in Section 4.09(c)(iii)(A). Such present value shall be determined on the basis of actuarial assumptions under the Qualified Plan as of the date of death, calculated as follows: the annual amount the Plan Retirement Benefit, payable in the form of a single life annuity commencing at Normal Retirement Date shall be multiplied by the factor for determining the lump sum value as set forth in Appendix B of the Qualified Plan for the Participant’s age at death;

(ii) The lump sum payment payable pursuant to Section 4.10(a) or Section 4.10(b) upon the death of a Participant who is a SERP Participant, shall be determined by multiplying the Frozen Single Life Annuity determined pursuant to Section 4.09(c)(iii)(B) or Section 4.09(c)(iii)(C), as applicable, by an immediate annuity factor based on the age of the Participant as of the date of death. The immediate annuity factor shall be based on the Mortality Tables and the GAAP Rate, both as in effect for the calendar year immediately preceding the calendar year of the date of death and as defined in the SERP.

(d) Death following commencement of distribution for a Participant who is not a SERP Participant on December 31, 2008 : If a Participant described in Section 4.09(c)(ii)(B), Section 4.09(c)(iii)(A) or Section 4.09(c)(iii)(C) dies following distribution of Plan benefits in the form of a lump sum, no benefit shall be payable following the death of the Participant. If the Participant is receiving payment of the Plan benefit in the form of 120 monthly installments, the present value of the remaining payments shall be made to the surviving Spouse of the Participant, or if there is no surviving Spouse, to the estate of the Participant. Such present value shall be calculated using the interest rate that was used to determine the amount of the monthly installments at the time distribution of such payments commenced.

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Pension Benefits After 2008

(e) Death following commencement of distribution for a Participant who is a SERP Participant on December 31, 2008 : Upon the death following commencement of benefits under the Plan of a Participant who is a SERP Participant on December 31, 2008, further payment of benefits related to the retirement benefit under the Plan shall be the survivor benefit, if any, payable under the terms of an election made on or before December 31, 2008 with respect to benefits that may become payable to the Participant under the SERP, determined under the actuarial assumptions and methodology set forth in the SERP. Any survivor benefit payable pursuant to this Section 4.10(e) shall be paid to the same beneficiary to whom survivor benefits are payable under the SERP.

Section 4.11

Qualified Deferrals Cash Balance Account

A Qualified Deferral Cash Balance Account was added to the Plan effective January 1, 2005, or such later date on which an Officer, E-band Employee, or other eligible employee began deferring certain compensation under the AT&T Executive Deferred Compensation Plan or the AT&T Inc. Cash Deferral Plan (“Qualified Deferrals,” as defined in Section 2.35 herein). Annual Qualified Deferral Credits were discontinued under the Plan effective with respect to amounts deferred under such deferral plan from any paycheck dated after December 31, 2007.

Deferral Interest Credits shall continue to be credited to the Qualified Deferral Cash Balance Account of all Participants who made Qualified Deferrals as defined herein. The Benefit Based on the Qualified Deferrals Cash Balance Account shall be the benefit commencing at Normal Retirement determined pursuant to the provisions of Section 4.11E(e). Notwithstanding the preceding sentence, with respect to a Participant who is an Officer, the following provisions shall apply:

(i) with respect to a Participant who is an Officer prior to December 31, 2008, Deferral Interest Credits shall cease as of the earlier of the Participant’s termination of employment or SERP Vesting Date. In the latter case, the provisions of Section 4.11E(d) with respect to application of the interest credit shall be applied as if the SERP Vesting Date is the Participant’s commencement date. The amount of the single life annuity that would be payable from the Qualified Deferral Cash Balance Account commencing as of the date or termination or the SERP Vesting Date shall be determined in accordance with the provisions of Section 4.11E(e). Any reference to the Benefit Based on the Qualified Deferral Cash Balance Account for a period after the SERP Vesting Date shall mean the benefit so determined as of such date; and

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(ii) with respect to a Participant who becomes an Officer after December 31, 2008, Deferral Interest Credits shall cease as of the Participant’s SERP Effective Date. The provisions of Section 4.11E(d) with respect to application of the interest credit shall be applied as if the SERP Effective Date is the Participant’s commencement date. The amount of the single life annuity that would be payable from the Qualified Deferral Cash Balance Account commencing as of the SERP Effective Date shall be determined in accordance with the provisions of Section 4.11E(e). Any reference to the Benefit Based on the Qualified Deferral Cash Balance Account for a period after the SERP Effective Date shall mean the benefit so determined as of such date.

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Article 5.

Death Benefits

Section 5.01

Participation

A Death Benefit shall be provided under this Article 5, in the following cases: (a) upon the death prior to January 1, 1998 of an active Officer; (b) upon the death of an Officer who, on or after August 10, 1980 and prior to January 1, 1998, (i) terminated employment with eligibility for a pensioner death benefit under the Pension Plan (excluding for purposes of this Section 5.01 the effect of any management pension enhancement pursuant to the Pension Plan) or (ii) terminated employment with eligibility to receive payments under the AT&T Senior Management Long Term Disability and Survivor Protection Plan; (c) upon the death prior to January 1, 2008 of an active Officer, provided such Officer is eligible for the sickness death benefit under the Pension Plan; or (d) upon the death of an Officer who is on the active payroll of a Participating Company on January 1, 1998 and who terminates employment prior to January 1, 2008, if such Officer was Service Pension Eligible or otherwise satisfied eligibility requirements for the Pensioner Death Benefit under the Pension Plan (such as, under certain circumstances, the Rule of 65, as defined in the Pension Plan), at the time of his or her termination of employment (excluding for purposes of this Section 5.01 the effect of any management pension enhancement pursuant to the Pension Plan). A Participant who terminates employment on or after January 1, 1998 and is subsequently reemployed prior to January 1, 2008 shall not be eligible for a Death Benefit following such reemployment unless he or she was eligible for the pensioner death benefit under the Pension Plan as of the date of such earlier termination of employment, and provided further that such Participant’s last employment with a Participating Company was with one covered by the death benefit provisions of the Pension Plan; such eligibility for a Death Benefit shall terminate with respect to a Participant who remains employed within the AT&T Controlled Group on January 1, 2008.

Notwithstanding the provisions of the preceding paragraph, no Death Benefit under this Article 5 shall be provided with respect to a Participant who made a qualified election for a form of payment that resulted in a lump sum distribution of the full present value of his or her accrued benefit (as reduced to reflect the limitations of Code Section 415 and Code Section 401(a)(17) as of the Participant’s Pension Commencement Date) under the Pension Plan.

The Death Benefit under this Article 5 is in addition to the sickness and pensioner death benefits under the Death Benefit Plan in the Pension Plan, and shall be paid to the same beneficiary or beneficiaries, and administered in the same manner as such benefits under the Death Benefit Plan in the Pension Plan. Notwithstanding the preceding, effective for deaths occurring on or after January 1, 2009, the Death Benefit shall be paid in a lump sum within a reasonable period of time following the date the Beneficiary is identified by the Committee or its delegate.

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Death Benefits

Section 5.02

Death Benefits

(a) Sickness or Pensioner Death Benefit

In the case of the death of an Officer described in Section 5.01, as eligible for death benefit coverage, except as otherwise determined under Section 5.02(a)(ii), a Death Benefit equal to one year’s wages (as defined below) shall be paid.

(i) Death after January 1, 1996 and before January 1, 1998

For purposes of determining the Death Benefit payable under Section 5.02(a), with respect to an Officer described in Section 5.01, who died after January 1, 1994 and before January 1, 1998, “one year’s wages” is defined as the greater of (A) the Officer’s Short Term Award for the calendar year preceding the earlier of (i) his or her date of death, or (ii) the date of his or her termination of employment, or (B) the Officer’s Short Term Award with respect to any later partial calendar year of service, but only with respect to a calendar year prior to 1998.

(ii) Death on or after January 1, 1998

For purposes of determining the Death Benefit under Section 5.02(a), with respect to an Officer described in Section 5.01, who dies on or after January 1, 1998, the amount of the Death Benefit shall equal the amount that would have been payable if the Participant died with eligibility for the Death Benefit as of December 31, 1997.

(b) Other Post-Retirement Death Benefits

Additional death benefits described in this Section 5.02(b) shall be provided, (i) with respect to an Officer who terminated employment on a service pension or disability pension under the Pension Plan, after December 31, 1986 and before January 1, 1997 (or who terminated employment on a service pension or a disability pension prior to December 31, 1986, provided he or she did not attain age fifty-five on or before December 31, 1983), and (ii) with respect to an Officer who terminates employment after December 31, 1996, only if such Officer is Service Pension Eligible at the time of his or her termination of employment. The death benefits described under Section 5.02(b)(ii) shall also be paid upon the death of an Officer who terminates employment with entitlement to the benefits under the AT&T Senior Management Long Term Disability and Survivor Protection Plan.

(i) Group Life Differential

Upon the death of an Officer, age sixty-six or older who retired after December 31, 1986 and before October 1, 1990, the difference between (i) the amount of his or her Basic Group Life Insurance coverage under the Company’s Group Life Insurance Program, as in effect on the day before his or her sixty-sixth birthday, and (ii) the amount of such insurance coverage, as in effect on the date of his or her death, shall be paid in a lump sum to the beneficiary or beneficiaries designated by the Officer, or, if there is no such beneficiary, to the Officer’s estate.

Article 5

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Death Benefits

(ii) Tax Differential

An individual who is the beneficiary of a deceased retired Officer or of an Officer who terminated employment with entitlement to payments under the AT&T Senior Management Long Term Disability and Survivor Protection Plan, and who receives one or more of the benefits listed below, shall be eligible to receive, under this Section 5.02(b)(ii), a tax differential payment related to the difference between (i) the beneficiary’s assumed federal income tax liability on such benefit or benefits and (ii) the beneficiary’s assumed federal income tax liability had such benefit or benefits been paid as a non-tax death benefit under a life insurance policy on the life of the retired Officer:

(A)

Post-Retirement Survivor Annuity described in Section 4.04(b),

(B)

Pensioner Death Benefit described in Section 5.02(a),

(C)

Group Life Differential Death Benefit described in Section 5.02(b)(i),

(D)

Pensioner Death Benefit described in Article 5 of the Pension Plan,

(E)

The Death Benefit described in Section 5 of the AT&T Senior Management Long Term Disability and Survivor Protection Plan, and

(F)

The Death Benefit described in the AT&T Excess Benefit and Compensation Plan.

Pursuant to the terms of the various plans described above, no benefit identified in (A), (B), (C), (D) or (F) is payable with respect to a Participant who terminates employment after December 31, 2007 (or such earlier date as may be specified in such plan), and no benefit shall be payable under this Plan with respect to such plans.

Federal estate tax, state and local inheritance taxes, and state and local income taxes, shall not be considered in computing the tax differential payment under this Section 5.02(b)(ii).

Article 5

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Death Benefits

Article 6.

Source Of Payment

Section 6.01

Source of Payments

(a) Benefits arising under this Plan and all costs, charges, and expenses relating thereto will be payable from the Company’s general assets. The Company may, however, establish a trust to pay such benefits and related expenses, provided such trust does not cause the Plan to be “funded” within the meaning of ERISA. To the extent trust assets are available, they may be used to pay benefits arising under this Plan and all costs, charges, and expenses relating thereto. To the extent that the funds held in the trust, if any, are insufficient to pay such benefits, costs, charges and expenses, the Company shall pay such benefits, costs, charges, and expenses from its general assets.

(b) In addition, the Company may, in its sole discretion, purchase and distribute one or more commercial annuity contracts, or cause the trustee of the trust to purchase and distribute one or more commercial annuity contracts, to make benefit payments required under this Plan, to any Officer, as defined herein, or the Surviving Spouse of any Officer, provided, however, that with respect to an annuity purchase occurring prior to January 1, 2005, the purchase and distribution of any such annuity contracts shall be no sooner than the expiration of any forfeiture provisions applicable to the Officer under the AT&T Non-Competition Guidelines, or as otherwise may be provided in accordance with procedures establish by the Executive Vice President – Human Resources (or any successor to such position), and provided further that, effective January 1, 2004, the Company’s right to direct that payments under the Plan shall be made through one or more commercial annuity contracts shall be applicable to only the benefits payable to any Participant, or the Surviving Spouse of any such Participant, as applicable, who (1) was on the active payroll of the Company (or on an approved leave of absence with guaranteed right of reinstatement) and classified as an Officer on December 31, 2003, and (2) satisfies the age and service requirements, or is within twelve months of satisfying the requirements in effect at the time the Participant terminates employment with the Company for the receipt of retirement-related health benefits under the AT&T Corp. Postretirement Welfare Benefits Plan (or any successor to such plan) (other than by virtue of the “Rule of 65”or through a Company-sponsored employee-paid health benefits access program, or through the AT&T Corp. Separation Medical Plan), without regard to whether or not the Officer has five years of service as of December 31, 1999.

Any such annuity contracts described above may be purchased from a commercial insurer acceptable to the Executive Vice President - Human Resources (or any successor to such position). Further, the Executive Vice President - Human Resources (or any successor to such position), may determine, in his or her sole discretion, to pay additional sums to any Officer, from the Company’s general assets or from the trust, if any, to reimburse the Officer for additional federal and state income taxes estimated to be incurred by reason of the distribution of any such annuity contracts. The Executive Vice President - Human Resources (or any successor to such position) shall establish a methodology or methodologies for determining the amount of such additional sums. The methodology or methodologies selected shall be those that the Executive Vice President - Human Resources (or any successor to such position) determines, in his or her sole discretion, to be the most effective and administratively feasible for the purpose of producing after-tax periodic benefit payments that approximate the after-tax periodic benefit payments that would have been received by Officers in the absence of the distribution of the annuity contract. Any such purchase and distribution of an annuity contract shall be a full and complete discharge of the Plan’s, AT&T’s and the Participating Companies’ liability for payments assumed by the issuer of the annuity contract.

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Source Of Payment

(c) Notwithstanding the provisions of the preceding Section 6.01(b), effective January 1, 2005, a Participant who is eligible to elect to receive his or her benefit under the Plan in the form of a third-party commercial annuity contract pursuant to Section 6.01(b) shall be required to submit an election, on a form provided by the Company, with respect to the time and form of payment in which benefits under this Plan shall be distributed for any reason other than the death of the Participant. Such election form shall be submitted to the Company no later than one of the following dates, whichever is applicable: (i) such Participant’s separation from service, with respect to distribution of such annuity contract during the 2005 calendar year, (ii) the earlier of (A) such employee’s separation from service, or (B) December 31, 2005, with respect to the distribution of such annuity contract during the 2006 calendar year, and (iii) December 31, 2006, for distributions of such annuity contracts occurring after the 2006 calendar year. Notwithstanding the foregoing, the Company may permit such a Participant to submit a distribution election form in 2006 with respect to his or her benefits under the Plan, provided that such election in the 2006 calendar year may not result in a change in payment elections with respect to payments that the Participant would otherwise receive during the 2006 calendar year, or to cause payments to be made in 2006, to the extent permitted under the proposed Treasury Regulations under Code Section 409A.

(d) Notwithstanding the provisions of the preceding Section 6.01(b) and Section 6.01(c), the annuity purchase program described in Section 6.01(b) shall be discontinued effective September 6, 2007, and any election in effect on September 6, 2007 pursuant to which a Participant has elected to receive distribution of his or her benefits under this Plan through the purchase of a commercial annuity contract shall be null and void, as such election relates to any distribution from this Plan to a Participant or Surviving Spouse occurring after September 6, 2007.

Section 6.02

Unfunded Status

The Plan at all times shall be entirely unfunded for purposes of the Code and ERISA, and, except as provided in Section 6.01, no provision shall be made at any time with respect to segregating any assets of a Participating Company for the payment of any benefits hereunder. The Plan constitutes a mere promise by the Participating Companies to make payments, if any, in the future. No Participant, surviving Spouse or any other person shall have any interest in any particular assets of a Participating Company by reason of the right to receive a benefit under the Plan, and to the extent a Participant, surviving Spouse, or any other person, acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of any Participating Company.

Article 6

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Source Of Payment

Article 7.

Administration Of The Plan

Section 7.01

Administration and Authorities

The Plan shall be administered by the Company, and it shall have full discretionary authority to manage and control the operation and administration of the Plan, including the power to interpret the provisions of the Plan, to make determinations of fact, promulgate rules and regulations, to determine benefit eligibility of individuals and classes of Participants (including, without limitation, determinations of a Participant’s applicable Term of Employment and Position Rate), delegate its powers and duties hereunder to the Committee, the Administrator, or others, and to take such other action as it shall find necessary and appropriate to implement the provisions of the Plan. The Committee and the Administrator may retain attorneys, consultants, accountants or other persons (who may be employees of the Company or an Affiliated Corporation) to render advice and assistance, and may delegate any of the authorities conferred on them to such persons as they shall determine to be appropriate to effect the discharge of their duties hereunder. The Company, other Participating Companies, and any of their Officers and E-band Employees, shall be entitled to rely upon the advice, opinions, and determinations of any such persons. Any exercise of the authorities set forth in this Article 7, whether by the Company, the Committee or its delegate, or the Administrator, shall be final and binding upon the Company, its Affiliated Corporations, their officers, directors and affected Participants and beneficiaries.

Section 7.02

Committee

The Company has delegated to the Committee the authority to make the final determination to grant or deny claims for benefits under the Plan with respect to Participants, surviving Spouses, and other beneficiaries, and to authorize disbursements according to the terms of the Plan.

Section 7.03

Indemnification

No member of the Board, the Committee or the Administrator shall be personally liable, by reason of any contract or other instrument executed by such individual, or on his or her behalf, in his or her capacity as a member of the Board, the Committee or the Administrator, nor for any mistake of judgment made in good faith, and AT&T shall indemnify and hold harmless each member of the Board, each member of the Committee, the Administrator and each other employee, officer, or director of AT&T, to whom any duty or power relating to the administration or interpretation of the Plan have been allocated or delegated, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan, unless arising out of such person’s own fraud or bad faith.

Article 7

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Administration Of The Plan

Section 7.04

Benefit Claims and Appeals

(a) Benefit Claims

All claims for benefit payments under the Plan shall be submitted in writing by the Participant, a Surviving Spouse, beneficiary, or the estate of the Participant, or the duly authorized representative of such person or estate (“Claimant” for purposes of this Section 7.04) to the Administrator. The Administrator shall notify the Claimant in writing within 90 days after receipt as to whether the claim has been granted or denied. This period may be extended for up to an additional 90 days, for a total of 180 days, in the case of special circumstances provided that written notice of the extension is furnished to the Claimant prior to the termination of the initial 90-day period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Administrator expects to render the benefit determination. In the event the claim is denied, in whole or in part, the Claimant will receive notice of the Administrator’s decision, including: (i) the specific reasons for the adverse determination, (ii) reference to the pertinent Plan provisions on which the adverse determination is based, (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary, and (iv) a description of the Plan’s procedures for appealing the adverse determination (including applicable time limits) and the Claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse determination on review.

(b) Benefit Appeals

A Claimant whose claim for benefits has been denied, in whole or in part, may, within 60 days of receipt of any adverse benefit determination, appeal such denial to the Committee. All appeals shall be in the form of a written statement and shall (i) set forth all of the reasons in support of favorable action on the appeal, (ii) identify those provisions of the Plan upon which the Claimant is relying, and (iii) include copies of any other documents, records and other materials which may support favorable consideration of the claim. If the Claimant submits a written request for review of a denied claim, the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim (as defined in DOL Reg. §2560.503-1(m)(8) for claims filed on or after January 1, 2002), and (iv) a statement of the right of the Claimant to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on review. The Claimant may raise issues even if such issues were not raised in the initial benefit determination. The Committee shall decide the issues presented within 60 days after receipt of such request, but this period may be extended for up to an additional 60 days in the case of special circumstances provided that written notice of the extension is furnished to the Claimant prior to the termination of the initial 60-day period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the determination. In the case of an adverse determination, the decision of the Committee shall be set forth in writing and include (i) the specific reason or reasons for the adverse determination, (ii) reference to the pertinent Plan provisions on which the denial is based, (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information (as defined in DOL Reg. §2560.503-1(m)(8) for claims filed on or after January 1, 2002) relevant to the Claimant’s claim for benefits, and (iv) a statement of the right of the Claimant to bring a civil action under section 502(a) of ERISA.

Article 7

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Administration Of The Plan

Any Claimant whose claim for benefits has been denied shall have such further rights of review as are provided in ERISA § 503, and the Committee and Administrator shall retain such right, authority, and discretion as is provided in or not expressly limited by ERISA § 503.

The Committee shall serve as the final review committee, under the Plan and ERISA, for the review of all appeals by Claimants (as defined in Section 7.04) whose initial claims for benefits have been denied, in whole or in part, by the Administrator. The Committee shall have the authority, subject to Section 7.04(c), to determine conclusively for all parties any and all questions arising from administration of the Plan, and shall have sole and complete discretionary authority and control to manage the operation and administration of the Plan, including, but not limited to, authorizing disbursements according to the Plan, the determination of all questions relating to eligibility for participation and benefits, interpretation of all Plan provisions, determination of the amount and kind of benefits payable to any Participant, Surviving Spouse or estate, and the construction of disputed and doubtful terms. Such decisions by the Committee shall be conclusive and binding on all parties and not subject to further review.

(d) Action by Trustee

In the event that the Company (or its designee) fails to make a decision on a claim and/or appeal within 20 days of an event entitling the Claimant to a payment under this Plan (or, if later, within the ninety/sixty day period, with extensions, set forth in Section 7.04(a) and (b)), the Trustee of the AT&T Corp. Benefits Protection Trust (“Trust”) may make a decision in lieu of the Company (or its designee) as authorized by the Trust and subject to the terms and conditions of the Trust. Any decision by the Trustee to make a payment under this Plan to the Claimant is subject to the availability of Trust assets allocated to pay benefits under this Plan. A payment to the Claimant from the prorated Trust assets shall be considered a satisfaction of the Company’s liability under this Plan to the extent payment from the Trust was sufficient to cover the amount determined by the Trustee as the amount to which the Claimant was entitled.

Article 7

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Administration Of The Plan

Article 8.

Adoption, Amendment And Termination

Section 8.01

Adoption of Plan

Any Affiliated Corporation that participates in the Pension Plan may, with the consent of AT&T, elect to participate in the Plan. Such Affiliated Corporation shall become a Participating Company as of the date specified by AT&T in its resolution approving the participation of the Affiliated Corporation in the Plan.

Section 8.02

Amendment and Termination

AT&T is the sponsor of the Plan, and the Board or its delegate, may from time to time amend, modify or change the Plan, as set forth in this document, and the Board or its delegate (acting pursuant to the Board’s delegations of authority then in effect) may terminate the Plan at any time. Plan amendments, modifications, and changes may include, but are not limited to, elimination or reduction in the level or type of benefits provided to any class or classes of Participant (and surviving Spouses and other beneficiaries). Any and all Plan amendments, modifications, and changes may be made without the consent of any Participant, surviving Spouse or beneficiary. Notwithstanding the foregoing, no such amendment, modification, or change shall retroactively impair or otherwise adversely affect the rights of any Participant or surviving Spouse to benefits under the Plan to which he or she has previously become entitled as a result of a Participant’s satisfaction of the vesting schedule of this Plan which is the same as and never will be greater than the vesting schedule under the Pension Plan.

Notwithstanding the preceding, the Board may adopt any prospective or retroactive amendment that it determines is necessary for the Plan to maintain its compliance with Code Section 409A.

Section 8.03

Sale, Spin-Off, or Other Disposition of Participating Company

(a) Subject to Section 9.01 of this Plan, in the event AT&T sells, spins off, or otherwise disposes of an Affiliated Corporation, or disposes of all or substantially all of the assets of an Affiliated Corporation, such that one or more Participants terminate employment with a Participating Company for the purpose of accepting employment with the acquirer of such Affiliated Corporation or such assets, each such Participant shall be deemed to have terminated his or her employment with such Participating Company for all relevant purposes under this Plan. Notwithstanding the preceding, effective January 1, 2005, no distribution shall commence pursuant to this Section 8.03(a) unless the Participant has a separation from service, as defined under Code Section 409A, with all members of the AT&T controlled group.

Article

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Adoption, Amendment

And Termination

(b) Notwithstanding the provisions of Section 8.03(a), and subject to Section 9.01 of this Plan, if the sale, spin-off, or other disposition of the stock or assets of an Affiliated Corporation is to a Successor Plan Sponsor, with the effect that a Participant is or becomes a Transition Employee, the Successor Plan Sponsor shall be solely liable for the payment of the annual benefits and death benefits described in this Plan, and the entitlement of the Transition Employee, or of his or her surviving Spouse or beneficiary, to benefits under this Plan shall terminate. A Transition Employee shall not be considered to have terminated his or her employment with AT&T or a Participating Company for any purpose under this Plan.

Article

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Adoption, Amendment

And Termination

Article 9.

General Provisions

Section 9.01

Binding Effect

The Plan shall be binding upon and inure to the benefit of each Participating Company and its successors and assigns, and to the benefit of each Participant, his or her successors, assigns, designees, spouse, and estate. The Plan also shall be binding upon any successor corporation or organization succeeding to substantially all of the assets and business of AT&T, but nothing in the Plan shall preclude AT&T from merging or consolidating into or with, or transferring all or substantially all of its assets to, another corporation which assumes the Plan and all obligations of AT&T hereunder. AT&T agrees that it will make appropriate provision for the preservation of the rights of Participants, surviving Spouses and beneficiaries under the Plan, in any agreement or plan or reorganization into which it may enter to effect any merger, consolidation, reorganization or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets and assumption of obligations, that results in a Participant continuing to be employed by the Company or an Affiliated Corporation, the term “Participating Company” shall refer to such other corporation and the Plan shall continue in full force and effect as to that Participant and his or her lawful spouse or other beneficiary.

Section 9.02

Fiduciary Relationship

Nothing contained in the Plan, and no action taken pursuant to the provisions of the Plan, shall create or be construed to create a trust or contract of any kind, or a fiduciary relationship between or among AT&T, any other Participating Company, any Affiliated Corporation, the Board, the Administrator, the Committee, any Participant, any surviving Spouse or any other person.

Section 9.03

No Guarantee of Employment

Neither the Plan, nor any action taken thereunder, shall be construed as (i) a contract of employment, or (ii) deemed to give any employee the right to be retained in the employment of a Participating Company, or (iii) the right to any position level or level of compensation, or (iv) the right to future participation in the Plan, or (v) affecting the right of a Participating Company to discharge or dismiss any employee at any time.

Section 9.04

Tax Withholding

AT&T shall withhold all federal, state, local or other taxes required by law to be withheld from payments or accruals under the Plan.

Section 9.05

Assignment of Benefits

Benefits under the Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, executed upon, encumbered, or subjected to any charge or legal process; no interest or right to receive a benefit may be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, any Participant, Spouse, or beneficiary, including without limitation, any judgment or claim for alimony, support or separate maintenance pursuant to a domestic relations order within the meaning of Section 206(d)(3) of ERISA, and claims in bankruptcy proceedings. Any such attempted disposition shall be null and void.

Article 9

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General Provisions

Section 9.06

Facility of Payment

If the Administrator shall find that any person to whom any amount is or was payable under the Plan is unable to care for his or her affairs, because of illness or accident, then any payment, or any part thereof, due to such person (unless a prior claim therefore has been made by a duly appointed legal representative), may, if the Administrator so directs AT&T, be paid to the same person or institution that the benefits with respect to such person are paid under the Pension Plan, if applicable, or to the person’s spouse, under the laws of the state of the person’s domicile, Participant’s surviving Spouse, child, or relative, or to an institution maintaining or having custody of such person, or to any other person deemed by the Administrator to be a proper recipient, on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability for such amount, of AT&T, the Board, the Committee, the Administrator, and the Participating Company therefore. If any payment, to which a Participant, a surviving Spouse, or a beneficiary, is entitled under this Plan, is unclaimed or otherwise not subject to payment to the person or persons so entitled, the amounts representing such payment or payments shall be forfeited after a period of two (2) years from the date the first such payment was payable and shall not escheat to any state or revert to any party; provided, however, that any such payment or payments shall be restored if any person otherwise entitled to such payment or payments makes a valid claim.

Section 9.07

Severability

If any section, clause, phrase, provision or portion of this Plan, or the application thereof, to any person or circumstance, shall be invalid or unenforceable under any applicable law, such invalidity or unenforceability shall not affect or render invalid or unenforceable the remainder of this Plan, and shall not affect the application of any section, clause, provision, or portion hereof to other persons or circumstances.

Section 9.08

Effective Date

This Plan first became effective for Officers actively employed on or after October 1, 1980 and for E-band Employees actively employed on or after on January 1, 1984 and is amended and restated effective January 1, 1997, with subsequent amendments through December 31, 2008.

Section 9.09

Plan Year

The Plan Year shall begin on January 1 and end on December 31.

Article 9

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General Provisions

Section 9.10

Headings

The captions of the sections and articles hereof have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provision of the Plan.

Section 9.11

Governing Law

To the extent such laws are not preempted by the laws of the United States of America, the Plan shall be governed by the laws of the State of Texas, except as to its principles of conflict of laws.

Section 9.12

Forfeiture of Benefits

Except as provided in this Section 9.12 and Section 3.02, benefits previously awarded may not be canceled, and upon attaining the right under the Plan for a Service Benefit or a Deferred Vested Benefit, or for an automatic survivor annuity, such right shall be nonforfeitable. Notwithstanding any eligibility or entitlement to benefits of an individual arising or conferred under any other provision or paragraph of this Plan, all benefits for which a Participant would otherwise be eligible hereunder may be forfeited, subject to the requirements of ADEA (29 CFR 1625.12), (i) at the discretion of the Board or the Committee, if an individual without the Company’s consent establishes a relationship with a competitor of the Company or (ii) at the discretion of the Executive Vice President – Human Resources, if an individual violates the AT&T Non-Competition Guideline, as determined by the Executive Vice President – Human Resources in his or her sole discretion. To the extent a benefit under any other nonqualified plan of AT&T is offset by benefits payable under this Plan, such offset shall be determined as if a forfeiture had not occurred.

Section 9.13

Special Classification

For purposes of the Plan, the determination of those causes of death not classified as due to accident shall be accomplished in the same manner as set forth in the Pension Plan, as such plan was in effect on October 1, 1996.

Section 9.14

Claims Release

In case of accident resulting in the death of a Participant which entitles his or her beneficiary or beneficiaries or his or her surviving Spouse to death benefits under the Plan, such beneficiary(ies) or surviving Spouse shall, prior to the payment of any such benefits, sign a release, releasing the Company and/or other Participating Companies, as applicable, from all claims and demands which the deceased had and which his or her beneficiary(ies) or his or her surviving Spouse may have against them, otherwise than under the Plan, on account of such accident. If any person(s), other than the beneficiary(ies) and/or the surviving Spouse under this Plan, might legally assert claims against a Participating Company on account of the death of a Participant, no part of the Death Benefit under the Plan shall be due or payable until there have also been delivered to the Committee or the Administrator, as applicable, good and sufficient releases of all claims, arising from or growing out of the death of the Participant, which such other beneficiary(ies) and/or surviving Spouse might legally assert against any Participating Company. The Committee or the Administrator, as applicable, in its discretion, may require that the releases described above shall release any other company connected with the accident. This requirement of a release or releases shall not apply in the case of Survivor Annuities as described in Section 4.04.

Article 9

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General Provisions

Section 9.15

Damage Claims or Suits

Should a claim, other than under the Plan, be presented, or suit brought against the Company or any Participating Company, for damages on account of death of the Participant, nothing shall be payable under the Plan on account of such death except as provided in Section 9.17; provided, however, that the Committee or the Administrator, as applicable, may, in its discretion and upon such terms as it may prescribe, waive this provision if such claim be withdrawn or if such suit be discontinued; and provided further that this provision shall not preclude the payment of Survivor Annuities as described in Section 4.04.

Section 9.16

Judgment or Settlement

In case any judgment is recovered against any Participating Company, or any settlement is made of any claim or suit, on account of the death of a Participant, and the amount paid to the beneficiary(ies) or surviving Spouse who would have received benefits under the Plan is less than what would otherwise have been payable under the Plan, the difference between the two amounts may, in the discretion of the Committee or the Administrator, as applicable, be distributed to such beneficiary(ies) or surviving Spouse.

Section 9.17

Payment under Law

In the case that any benefit (which the Committee or the Administrator, as applicable, shall determine to be of the same general character as a benefit provided by the Plan) is payable to any Participant, to his or her beneficiary(ies), to his or her estate, or to his or her surviving Spouse under any law now in force or hereafter enacted, only the excess, if any, of the amount prescribed in the Plan, above the amount of such payment prescribed by law, shall be payable under the Plan; provided, however, that no benefit payable under the Plan shall be reduced by reason of any governmental benefit or pension payable on account of military service or by reason of any benefit which the recipient would be entitled to receive under the Social Security Act or the Railroad Retirement Act. In those cases where, because of differences in the beneficiaries, or in the time or methods of payment or otherwise, the determination of any such excess is not ascertainable by mere comparison but adjustments are necessary, the Committee or the Administrator, as applicable, shall, in its discretion, determine whether or not in fact any such excess exists and make the adjustments necessary to carry out in a fair and equitable manner the spirit of the provision for the payment of any such excess. Further, in determining whether or not there is an excess, to the extent any payments under any law are considered in determining whether there is any excess payable to an employee under any other plan sponsored by the Company, the amount of such payments under law shall not be considered under this Plan.

Article 9

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General Provisions

Section 9.18

CIC Provision

(a) Applicability

This Section 9.18 applies only to an individual who, as of the date a Change in Control (“CIC”) occurs (as defined in the Pension Plan) is an employee of a Participating Company and a Participant in this Plan.

(b)	Nonforfeitable Benefits

Notwithstanding any other provisions of this Plan, on and after the date a CIC occurs, solely for purposes of determining entitlement to benefits from this Plan, and individual described in Section 9.18(a) shall be deemed to be vested under the Pension Plan, whether or not such Participant is otherwise entitled to a vested benefit from the Pension Plan.

(c)	Amendments to CIC Provisions

Notwithstanding the provisions of Section 8.02, or any other provision of the Plan, unless required by applicable law, this Section 9.18 may not be amended in any manner adverse to the interests of Participants without their consent and, further, upon the occurrence of a CIC, no amendment may be made to this Section 9.18 by the Board, the Company, (including any successor to the Company), any committee, any officer, or any other party to suspend, modify, or eliminate any benefit provisions that are applicable upon occurrence of a CIC.

Section 9.19

Entire Plan

This written Plan document is the exclusive statement of the terms of this Plan, and any claim of right or entitlement under the Plan shall be determined in accordance with its provisions pursuant to the procedures described in Article 7. Unless otherwise authorized by the Board or its delegate, no amendment or modification to this Plan shall be effective until reduced to writing and adopted pursuant to Section 8.02.

Section 9.20

Overpayments

If any overpayment is made by the Plan for any reason, the Plan shall have the right to recover such overpayment. The Participant shall cooperate fully with the Plan to recover any overpayment and provide any necessary information and required documents. Any recovery of overpayment pursuant to this Section 9.20 may be deducted from future benefits payable to or on behalf of the Participant from this Plan.

Article 9

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General Provisions

AT&T Non-Qualified Pension Plan

Appendix A.

Section 4.02(c)E Alternate Minimum Formula - Table of Factors

Service/Age		50 or less		51	52	53	54	55	56	57	58	59	60	61	62	63	64	65
20 or less			1.33	1.33	1.33	1.36	1.43	1.47	1.43	1.38	1.33	1.28	1.25	1.20	1.15	1.10	1.05	1.00

	21		1.38	1.32	1.32	1.35	1.42	1.46	1.42	1.37	1.32	1.27	1.24	1.19	1.14	1.09	1.05	1.00

	22		1.42	1.37	1.31	1.34	1.41	1.45	1.41	1.36	1.30	1.26	1.23	1.18	1.14	1.09	1.05	1.00

	23		1.47	1.41	1.36	1.33	1.40	1.44	1.40	1.35	1.29	1.25	1.22	1.17	1.13	1.09	1.04	1.00

	24		1.52	1.46	1.40	1.39	1.39	1.43	1.39	1.34	1.29	1.24	1.21	1.17	1.12	1.08	1.04	1.00

	25		1.58	1.51	1.45	1.43	1.45	1.42	1.38	1.33	1.28	1.23	1.20	1.16	1.12	1.08	1.04	1.00

	26		1.57	1.50	1.44	1.42	1.44	1.41	1.37	1.32	1.27	1.22	1.19	1.15	1.11	1.08	1.04	1.00

	27		1.57	1.49	1.43	1.42	1.43	1.40	1.36	1.31	1.26	1.21	1.18	1.15	1.11	1.07	1.04	1.00

	28		1.56	1.48	1.42	1.41	1.43	1.39	1.36	1.31	1.25	1.21	1/18	1.14	1.11	1.07	1.04	1.00

	29		1.55	1.48	1.42	1.40	1.42	1.39	1.35	1.30	1.25	1.20	1.17	1.14	1.10	1.07	1.03	1.00

	30		1.38	1.36	1.33	1.35	1.39	1.38	1.34	1.29	1.24	1.19	1.17	1.13	1.10	1.07	1.03	1.00

	31		1.38	1.35	1.33	1.34	1.39	1.37	1.34	1.29	1.24	1.19	1.16	1.13	1.10	1.06	1.03	1.00

	32		1.37	1.35	1.32	1.34	1.38	1.37	1.33	1.28	1.23	1.18	1.16	1.12	1.09	1.06	1.03	1.00

	33		1.37	1.34	1.32	1.34	1.38	1.36	1.33	1.28	1.23	1.18	1.15	1.12	1.09	1.06	1.03	1.00

	34		1.36	1.34	1/31	1.33	1.37	1.36	1.32	1.27	1.22	1.17	1.15	1.12	1.09	1.06	1.03	1.00

35 or more			1.36	1.33	1.31	1.33	1.37	1.35	1.32	1.27	1.22	1.17	1.14	1.11	1.09	1.06	1.03	1.00

Appendix A

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Section 4.02(c)E Alternate Minimum Formula

- Table of Factors

AT&T Non-Qualified Pension Plan

Appendix B.

Early Retirement Factors – Alternate Formula, Special Update to the Alternate Formula, and Alternate Minimum Formula

The benefit payable under the Alternate Formula of Section 4.02E(b), under the Special Update to the Alternate Formula of Section 4.02E(e), or under Formula B of the Alternate Minimum Formula of Section 4.02E(c), for commencement prior to Normal Retirement Age shall equal the amount otherwise determined under such sections, multiplied by the applicable factor based on completed years and months of age effective as of the Pension Commencement Date:

Attained Age

Years/Months	0	1	2	3	4	5	6	7	8	9	10	11

50	.29	.29	.30	.30	.31	.31	.32	.32	.32	.33	.33	.34

51	.34	.34	.35	.35	.36	.36	.37	.37	.37	.38	.38	.39

52	.39	.40	.40	.41	.42	.42	.43	.44	.44	.45	.46	.46

53	.47	.48	.48	.49	.50	.50	.51	.52	.52	.53	.54	.54

54	.55	.56	.57	.57	.58	.59	.60	.60	.61	.62	.63	.63

55	.64	.64	.66	.66	.66	.66	.67	.67	.67	.67	.69	.69

56	.69	.69	.71	.71	.71	.72	.72	.72	.74	.74	.74	.76

57	.76	.76	.78	.78	.78	.79	.79	.79	.81	.81	.81	.83

58	.83	.83	.84	.84	.86	.86	.88	.88	.88	.90	.90	.91

59	.91	.91	.93	.93	.95	.95	.97	.97	.97	.98	.98	1.00

60	1.00

Appendix B

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Early Retirement Factors - Alternate

Formula, Special Update to the Alternate

AT&T Non-Qualified Pension Plan

Appendix C.

Initial Conversion Factors

Age	Conversion Factor	Age	Conversion Factor
20	17.16	43	50.04
21	17.88	44	51.60
22	18.48	45	52.92
23	19.20	46	55.08
24	20.04	47	57.12
25	20.76	48	59.28
26	22.08	49	61.32
27	24.12	50	63.24
28	26.16	51	65.88
29	29.76	52	68.28
30	31.68	53	70.80
31	33.72	54	73.20
32	35.16	55	75.60
33	36.48	56	78.60
34	37.44	57	81.60
35	38.40	58	84.60
36	40.08	59	87.48
37	41.64	60	90.36
38	42.84	61	94.56
39	44.16	62	98.76
40	45.36	63	102.84
41	46.92	64	106.92
42	48.60	65 or later	111.12

Appendix C

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Initial Conversion Factors

AT&T Non-Qualified Pension Plan

Appendix D.

Deferred Vested Benefit – Early Commencement Factors

Single Life Annuity Early Commencement Factors

Based Upon Completed Years and Months of Age

At Commencement of Non-Service Benefit

Years\Months	0	1	2	3	4	5	6	7	8	9	10	11
50	0.26	0.26	0.26	0.26	0.26	0.26	0.27	0.27	0.27	0.27	0.27	0.28
51	0.28	0.28	0.28	0.28	0.28	0.29	0.29	0.29	0.29	0.29	0.30	0.30
52	0.30	0.30	0.30	0.31	0.31	0.31	0.31	0.32	0.32	0.32	0.32	0.32
53	0.33	0.33	0.33	0.33	0.34	0.34	0.34	0.34	0.34	0.35	0.35	0.35
54	0.35	0.36	0.36	0.36	0.36	0.37	0.37	0.37	0.37	0.38	0.38	0.38
55	0.38	0.39	0.39	0.39	0.40	0.40	0.40	0.40	0.41	0.41	0.41	0.42
56	0.42	0.42	0.43	0.43	0.43	0.44	0.44	0.44	0.44	0.45	0.45	0.45
57	0.46	0.46	0.46	0.47	0.47	0.48	0.48	0.48	0.49	0.49	0.49	0.50
58	0.50	0.50	0.51	0.51	0.52	0.52	0.52	0.53	0.53	0.54	0.54	0.54
59	0.55	0.55	0.56	0.56	0.57	0.57	0.57	0.58	0.58	0.59	0.59	0.60
60	0.60	0.61	0.61	0.62	0.62	0.63	0.63	0.64	0.64	0.65	0.65	0.66
61	0.66	0.67	0.67	0.68	0.68	0.69	0.70	0.70	0.71	0.71	0.72	0.72
62	0.73	0.74	0.74	0.75	0.76	0.76	0.77	0.78	0.78	0.79	0.80	0.80
63	0.81	0.82	0.82	0.83	0.84	0.85	0.85	0.86	0.87	0.88	0.88	0.89
64	0.90	0.91	0.91	0.92	0.93	0.94	0.95	0.96	0.97	0.97	0.98	0.99
65	l.00

Appendix D

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Deferred Vested Benefit - Early

Commencement Factors

AT&T Non-Qualified Pension Plan

Appendix E.

Article 4E - Pension Benefits

This Appendix E sets forth the provisions related to the determination of benefit amounts and payment of such benefits commencing on or before December 1, 2008, and to the extent indicated herein, and as modified by Article 4 of the main text of the Plan, the determination of benefit amounts with respect to certain benefits commencing after December 1, 2008. A reference in this Appendix E to a provision of Article 4 means such provision as set forth in this Appendix E, unless the reference specifically indicates otherwise.

Section 4.01E Applicable Benefit Formulas.

For purposes of applying the provisions of Sections 4.01 and 4.02 with respect to a Participant described in Section 3.02(c), the Participant’s “Term of Employment” and the day for the determination of such a Participant’s status as “Service Pension Eligible” shall be subject to the provisions of Section 3.02(c).

(a) Participants Terminated Before January 1, 1997

(b) Active Participants on January 1, 1997

(i)

Participants Whose Eligibility to Accrue Benefits Ends Prior to August 1, 1997 .

(A)

Subject to the provisions of Section 4.01(b)(i)(D), the annual benefit of a Participant, who is an Officer or an E-band Employee on January 1, 1997, who is an Officer at the time he or she leaves the service of a Participating Company prior to August 1, 1997, and who is Service Pension Eligible as of the last day of his or her Term of Employment, will be the greater of the annual benefit amount determined under the Basic Formula described in Section 4.02(a), the annual benefit amount determined under the Alternate Formula described in Section 4.02(b), or, in the case of an Officer who had at least five Years of Service as an Officer as of December 31, 1993, the annual benefit amount determined under the Alternate Minimum Formula described in Section 4.02(c).

(B)

Subject to the provisions of Section 4.01(b)(i)(D), the annual benefit of a Participant, who is an Officer or an E-band Employee on January 1, 1997, who is an Officer at the time he leaves the service of a Participating Company prior to August 1, 1997, but who is not Service Pension Eligible as of the last day of his or her Term of Employment, will be a Deferred Vested Benefit determined under the Basic Formula described in Section 4.02(a), provided he or she is vested under the Pension Plan at the time of termination of employment from the AT&T Controlled Group. Notwithstanding the provisions of the immediately preceding sentence, if such Participant was an Officer who had at least five Years of Service as an Officer as of December 31, 1993, the annual benefit shall not be less than the annual benefit determined under the Alternate Minimum Formula described in Section 4.02(c).

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(C)

(D)

(ii)

Participants Whose Eligibility to Accrue Benefits Ends after July 31, 1997 .

(A)

Subject to the provisions of subsection 4.01(b)(ii)(C) for Officers after December 31, 1997, the annual benefit of a Participant who is an Officer or an E-band Employee on January 1, 1997, who is an Officer at the time he or she leaves the service of a Participating Company after July 31, 1997, and who is Service Pension Eligible as of his or her termination of employment from a Participating Company, will be the greater of the annual benefit amount determined under the Special Update to the Basic Formula described in Section 4.02(d) and the annual benefit amount determined under the Special Update to the Alternate Formula described in Section 4.02(e). Notwithstanding the preceding, in no event shall be the benefit with respect to a Participant described in this subsection 4.01(b)(ii)(A) be less than the amounts determined pursuant to Section 4.01(b)(i)(A).

(B)

Subject to the provisions of subsection 4.01(b)(ii)(C), the annual benefit of a Participant who is an Officer or an E-band Employee on January 1, 1997, who is an Officer at the time he leaves the service of a Participating Company after July 31, 1997 but who is not Service Pension Eligible as of the last day of his or her termination of employment will be a Deferred Vested Benefit equal to the greater of the annual benefit amount determined under the Special Update to the Basic Formula described in Section 4.02(d) or the amounts determined pursuant to Section 4.01(b)(i)(B), provided he or she is vested under the Pension Plan at the time of termination of employment from the AT&T Controlled Group.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(C)

The annual benefit of a Participant on January 1, 1997 who is also an Officer on or after January 1, 1998 shall not be less than the amount determined pursuant to subsection 4.01(d).

(D)

Subject to the provisions of Section 4.01(d)(ii) regarding an E-band Employee who becomes an Officer on or after January 1, 1998, the benefit of a Participant who is an E-band Employee on January 1, 1997, who terminates employment as an E-band Employee after July 31, 1997, and who is Service Pension Eligible as of his or her termination of employment from a Participating Company, will be the annual benefit amount determined under the Special Update to the Alternate Formula described in Section 4.02(e), but shall in no event be less than the amount determined pursuant to Section 4.01(b)(i)(C).

(i)

(ii)

(iii)

An individual, who first becomes a Participant after January 1, 1997 and before January 1, 1998, who is not an Officer at any time on or after January 1, 1998, and who terminates employment with a Participating Company on or after January 1, 1998 shall be eligible for a Service Benefit if the Participant is Service Pension Eligible at the time of his or her termination of employment from a Participating Company. Such benefit shall be determined only under the Alternate Formula described in Section 4.02(b). No benefit shall be payable from the Plan if such Participant is not Service Pension Eligible at the time of his or her termination of employment from a Participating Company.

(d) Participants who are Officers on or after January 1, 1998 (Cash Balance Participants)

Participants Who Are Officers Before January 1, 2009

(i)

An individual who is an Officer on or after January 1, 1998, who first became an Officer on or after August 1, 1997 and who was not previously an E-band Employee shall be eligible for a benefit determined under Section 4.03 if such Officer is vested in his or her benefit under the Pension Plan upon his or her termination of employment from the AT&T Controlled Group.

(ii)

An individual who is an Officer on or after January 1, 1998, who was an Officer or an E-band Employee prior to August 1, 1997, and whose Pension Commencement Date is after July 1, 1998, shall be eligible for a benefit from the Plan if such Officer is vested in his or her benefit under the Pension Plan upon termination of employment from the AT&T Controlled Group. The benefit shall be the greater of (A) the benefit determined pursuant to Section 4.03, or (B) the sum of (I) the Mid-Career Pension Benefit determined pursuant to Section 4.07 and (II) the benefit accrued under the Plan prior to January 1, 1998 and payable pursuant to the terms of Section 4.01(b)(ii)(A) or Section 4.01(b)(ii)(B), as applicable. For purposes of the preceding sentence, the determination of the greater of (A) and (B) shall be made taking into account the Pension Commencement Date and the form of payment determined in accordance with Section 4.09.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

Participants Who Become Officers After December 31, 2008

(iii)

Notwithstanding the preceding Sections 4.01(d)(ii) and 4.01(d)(ii), benefits, if any, with respect to an individual who first becomes on Officer after December 31, 2008 shall be determined pursuant to the provisions of the Plan related to a Qualified Deferral Participant or to a Participant who is an E-band Employee, as more fully described in the provisions of Article 4 of the main text of the Plan effective after December 31, 2008 (such provisions which are not included in this Appendix E). Such a Participant shall not be eligible for benefits determined under the Cash Balance Formula.

(e) Surviving Spouse of an Officer (other than a Cash Balance Participant)

(i) An Automatic Survivor Annuity will be paid to the Spouse to whom an Officer (other than a Cash Balance Participant) is married at the time of his or her death, provided such Participant is vested as of his or her date of death, and satisfies the provisions of Section 4.04(a) or Section 4.04(b), as applicable. The benefit payable to such Spouse shall be determined in accordance with Section 4.04(a) if such Officer is an employee of the AT&T Controlled Group at the time of death, and in accordance with Section 4.04(b) if such Officer is not an employee of the AT&T Controlled Group at the time of death.

(ii) Notwithstanding the provisions of the preceding subsection 4.01(e)(i), if the Officer elects distribution of his or her Pension Plan benefit in the form of a 50% Joint and Survivor Annuity and dies following his or her Pension Commencement Date, the surviving Spouse will be eligible for a monthly benefit equal to 50% of the monthly benefit being paid to the Officer at the time of his or her death. The benefit payable to the surviving Spouse will commence on the first day of the month following the date of the Officer’s death. For purposes of this subsection 4.01(e)(ii), the surviving Spouse is the Spouse to whom the Officer was married at his or her date of death. In no event will a benefit be paid pursuant to this subsection 4.01(e)(ii), if a benefit is payable pursuant to subsection 4.01(e)(i) or subsection 4.01(g).

(f) Surviving Spouse of an E-band Employee

An Automatic Survivor Annuity will be paid to the Spouse to whom an E-band Employee is married at the time of his or her death while an active employee, provided such Participant is vested as of his or her date of death, and satisfies the provisions of Section 4.04(a) at the date of death. The benefit payable to such Spouse shall be determined in accordance with Section 4.04(a). The provisions of this Section 4.01(f) do not apply to a benefit determined under the cash balance formula of Section 4.11, or to a benefit based on a Mid-Career Pension Benefit of Section 4.07.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(g) Surviving Spouse (or Estate) of a Cash Balance Participant

A benefit, determined pursuant to the provisions of Section 4.09, shall be payable to the surviving Spouse of a Cash Balance Participant who dies prior to December 1, 2008 following commencement of his or her benefits under the Plan, if such Participant’s benefit was being paid under the 50% Joint and Survivor Annuity or 100% Joint and Survivor Annuity form of payment.

(h) Deferral Participant

(i) Surviving Spouse (or Estate) of a Deferral Participant

A benefit, determined pursuant to the provisions of Section 4.11(f), shall be payable to the surviving Spouse (or estate, in the case of a Participant who is not married at the time of death) of a Deferral Participant who is vested in his or her benefit under the Pension Plan as of his or her date of death and who dies prior to commencing distribution of his or her benefit under the Plan.

A benefit, determined pursuant to the provisions of Section 4.09, shall be payable to the surviving Spouse of a Deferral Participant who dies prior to December 1, 2008 following commencement of his or her benefits under the Plan, if such Participant’s benefit was being paid under the 50% Joint and Survivor Annuity or 100% Joint and Survivor Annuity form of payment.

Section 4.02E Benefit Formulas (other than Cash Balance)

(a) Basic Formula

(i)

Service Benefit . The annual Service Benefit under the Basic Formula shall be determined by adding (A) the product of one and five-tenths percent (1.5%) of the average annual Short Term Incentive Awards for the 1989 Base Period and the Officer’s Term of Employment as of December 31, 1989, and (B) the sum of one and six-tenths percent (1.6%) of the Short Term Incentive Award for each successive full or partial calendar year of employment following 1989, through the earlier of the date of termination of active participation in the Plan or July 31, 1997.

Appendix E

-57-

Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(ii)

Service Benefit - Early Commencement . If a Participant commences distribution of the annual Service Benefit prior to attainment of age fifty-five, the Service Benefit determined in accordance with the Basic Formula of this Section 4.02(a) shall be reduced by one-half percent for each calendar month or part thereof by which his or her age at commencement is less than fifty-five years, except that the Service Benefit for an Officer who terminates employment with a Term of Employment of thirty or more years shall be reduced by one-quarter percent for each calendar month or part thereof by which such Officer’s age at commencement is less than fifty-five years.

(iii)

Deferred Vested Benefit .

The annual benefit determined under the Basic Formula for as Officer eligible for a Deferred Vested Benefit under the provisions of Section 3.02(a)(iii) shall be payable commencing at the Officer’s Normal Retirement Date in an amount equal to the benefit determined pursuant to Section 4.02(a)(i). An Officer who has elected to have his deferred vested pension under the Pension Plan payable early in reduced amounts pursuant to the terms and conditions of the Pension Plan shall be deemed to have elected to have his or her Deferred Vested Benefit under this Plan payable early in reduced amounts. In the event of such an election, the amount of Deferred Vested Benefit shall be determined as follows:

(A)

with respect to payments for the months occurring on or after January, 1997 and prior to August, 1997, the amount determined pursuant to Section 4.02(a)(i) shall be multiplied by a factor determined in accordance with Appendix D, based on the Participant’s age on his or her Pension Commencement Date, or

(B)

with respect to payments for months commencing on or after August 1, 1997, the amount determined pursuant to Section 4.02(a)(i) shall be multiplied by a factor of one-half percent for each calendar month or part thereof by which the Participant’s age at commencement is less than fifty-five years, except that the reduction with respect to an Officer with a Term of Employment of thirty or more years shall be one-quarter percent for each calendar month or part thereof by which such Officer’s age at commencement is less than fifty-five years.

(iv)

Disability Benefit . The annual Disability Benefit payable to a Participant who becomes eligible for a disability pension from the Pension Plan because of total disability as a result of sickness or injury incurred while an Officer, shall be equal to the Service Benefit determined pursuant to this Section 4.02(a), unreduced for early commencement. Such Disability Benefit shall continue to be paid so long as the employee is prevented by such disability from resuming active service with a Participating Company. If the employee’s disability continues to his or her Normal Retirement Date, the Disability Benefit shall be converted to a Service Benefit.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(b) Alternate Formula

The annual Service Benefit under the Alternate Formula shall be the excess of B over A, where A equals the Participant’s annual Pension Plan Benefit and B equals the product of (i) one and seven-tenths percent of the Participant’s Adjusted Career Average Pay, less eight-tenths of one percent of the Participant’s Covered Compensation Base, and (ii) the Participant’s Term of Employment. The Service Benefit under this Alternate Formula will be reduced in case of commencement before age sixty by multiplying such benefit by the appropriate reduction factor from Appendix B. For purposes of the Alternate Formula, the Participant’s Term of Employment is determined as of the earliest to occur of (i) July 31, 1997, (ii) the date specified in the applicable provision of Section 3.02(c) for purposes of determining a benefit under the Alternate Formula, or (iii) the date of termination of employment from a Participating Company.

The annual Service Benefit under the Alternate Minimum Formula in this Section 4.02(c) shall be an amount equal to (A) the product of the greater of the amount determined under the following Formula A or Formula B, multiplied by the applicable factor set forth in Appendix A, where such factor is based on the Participant’s age and service as of December 31, 1996, less (B) the amount of the Officer’s Pension Plan Benefit (as adjusted to reflect any reduction for early commencement). If the Pension Commencement Date under this Plan occurs prior to the date the Participant is eligible to commence receipt of his or her deferred vested pension from the AT&T Management Pension Plan, payments under this Plan shall be made without the reduction in (B) of the immediately preceding sentence until the earliest date on which the Participant is eligible to commence distribution of such deferred vested pension from the AT&T Management Pension Plan, at which time payments from the Plan shall be adjusted to reflect such reduction.

(i)

Formula A . For purposes of the Alternate Minimum Formula in this Section 4.02(c), Formula A means the sum of (a) the product of one and five tenths percent of average calendar year Total Compensation for the 1992 Base Period and the Term of Employment as of December 31, 1992 and (b) one and six tenths percent of Total Compensation for the calendar year 1993. Such sum shall be actuarially reduced in case of commencement before age fifty-five by applying the appropriate reduction factor set forth in Section 4.02(a)(ii).

(ii)

Formula B . For purposes of the Alternate Minimum Formula in this Section 4.02(c), Formula B means the product of (a) the excess of one and seven tenths percent of Adjusted Career Average Pay, over eight tenths of one percent of the Covered Compensation Base (determined as of December 31, 1993), and (b) the Officer’s Term of Employment at December 31, 1993. Such product shall be actuarially reduced in case of commencement before age sixty by applying the appropriate reduction factor set forth in Appendix B. Solely for purposes of this Formula B, “Adjusted Career Average Pay” means the Participant’s Total Compensation for his or her Term of Employment through December 31, 1993, divided by such Participant’s Term of Employment as of December 31, 1993.

Appendix E

-59-

Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(d) Special Update to the Basic Formula

(i)

Service Benefit. The annual Service Benefit under the Special Update to the Basic Formula shall be equal to one and six-tenths percent of the sum of the Officer’s average annual Short Term Incentive Awards and the average annual Deferred Salary for the 1996 Base Period, multiplied by the lesser of (1) one plus the Officer’s Term of Employment as of December 31, 1996 and (2) one hundred and five percent of the Officer’s Term of Employment as of December 31, 1996. The Special Update to the Basic Formula is equal to zero for any determination date prior to January 1, 1997.

(ii)

Service Benefit - Early Commencement . If a Participant commences distribution of the annual Service Benefit prior to attainment of age fifty-five, the Service Benefit determined in accordance with the Special Update to the Basic Formula of this Section 4.02(d), shall be reduced by one-half percent for each calendar month or part thereof by which his or her age at commencement is less than fifty-five years, except that the Service Benefit for an Officer who terminates employment with a Term of Employment of thirty or more years shall be reduced by one-quarter percent for each calendar month or part thereof by which such Officer’s age at commencement is less than fifty-five years.

(iii)

Deferred Vested Benefit . The annual benefit determined under the Special Update to the Basic Formula for each Officer eligible for a Deferred Vested Benefit under the provisions of Section 3.02(a)(iii) shall be payable commencing at the Normal Retirement Date in an amount equal to the benefit determined pursuant to Section 4.02(d)(i). An Officer who has elected to have his deferred vested pension under the Pension Plan payable early in reduced amounts pursuant to the terms and conditions of the Pension Plan shall be deemed to have elected to have his or her Deferred Vested Benefit under this Plan payable early in reduced amounts. In the event of such an election, the amount determined pursuant to Section 4.02(d)(i) shall be reduced by one-half percent for each calendar month or part thereof by which the Participant’s age at commencement is less than fifty-five years, except that the reduction with respect to an Officer with a Term of Employment of thirty or more years shall be one-quarter percent for each calendar month or part thereof by which such Officer’s age at commencement is less than fifty-five years.

(e) Special Update to the Alternate Formula

The annual Service Benefit under the Special Update to the Alternate Formula shall be the excess of B over A, where A equals the Participant’s Pension Plan Benefit and B equals the product of (i) and (ii), where (i) is one and seven-tenths percent of the Participant’s Special Update Adjusted Career Average Pay, less eight-tenths of one percent of the Participant’s Covered Compensation Base (determined as of December 31, 1996), and (ii) is the lesser of (1) one plus the Participant’s Term of Employment as of December 31, 1996 and (2) one hundred and five percent of the Participant’s Term of Employment as of December 31, 1996. The benefit under this Alternate Formula will be reduced in case the Pension Commencement Date is before age sixty by applying the appropriate reduction factor from the Table of such factors shown in Appendix B to such benefit. The Special Update to the Alternate Formula is equal to zero for any determination date prior to January 1, 1997.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

Section 4.03E Cash Balance Accounts

The provisions of this Section 4.03E describe the establishment and development of the Cash Balance Account with respect to a Participant who is an Officer on or after January 1, 1998 and before January 1, 2009 with respect to benefits that commence under the Cash Balance Formula prior to January 1, 2009. Except as modified by the provisions of Article 4 of the main text of the Plan, the methodology set forth in this Section 4.03E also applies for purposes of determining a Benefit Based on the Cash Balance Account with respect to benefits that commence after December 1, 2008 to or with respect to a Participant who was an Officer prior to January 1, 2009.

The Cash Balance Account with respect to a Participant who is not an Officer prior to January 1, 2009 shall be zero.

(a) Establishment of Cash Balance Accounts

A Cash Balance Participant’s Cash Balance Account is a hypothetical bookkeeping account used solely in calculating the amount of the Cash Balance Participant’s Benefit Based on the Cash Balance Account. The Cash Balance Account is calculated by accumulating the initial cash balance credit determined pursuant to Section 4.03(b), annual award credits determined pursuant to Section 4.03(c), and interest credits determined pursuant to Section 4.03(d).

A Participant’s Cash Balance Account shall be established as of the later of January 1, 1998 or the date the Participant becomes a Cash Balance Participant in the Plan. Except as provided in Section 4.03(b), the initial Cash Balance Account shall be zero.

(b) Initial Cash Balance Credit

(i) Effective as of January 1, 1998, the Cash Balance Account of each Cash Balance Participant on the roll of a Participating Company on that date shall be credited with an initial cash balance credit determined by multiplying the Participant’s conversion benefit (as defined below) by one hundred seven percent (107%) of the applicable conversion factor set forth in Appendix C, based on the Participant’s attained age (in whole years) as of December 31, 1996. The Cash Balance Participant’s conversion benefit under this Section 4.03(b) shall equal one-twelfth of his or her annual benefit determined in accordance with Section 4.02(d).

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(ii) The initial cash balance credit shall be zero for any Participant who is not an Officer on January 1, 1998.

(i) January 1, 1998

Effective as of January 1, 1998, the Cash Balance Account of each Cash Balance Participant on the roll of a Participating Company on that date shall be credited with an annual award credit. This annual award credit shall equal the sum of (A) and (B) where (A) is the product of (I) and (II), where (I) is the Short Term Incentive Award, if any, for 1997 and (II) is two times the pay factor for the Participant as set forth in Section 4.04(c)(v) of the Pension Plan, based on the Participant’s attained age as of December 31, 1997, and (B) is the credit based on the Participant’s 1997 Deferred Salary, if any, determined pursuant to the following (x), (xi) or (xii), as applicable, where for purposes of (x), (xi) and (xii), “pay factor” means the pay factor as set forth in Section 4.04(c)(v) of the Pension Plan based on the Participant’s attained age as of December 31, 1997, and:

(x)

if the sum of the pay taken into account for such Participant under the Pension Plan and the AT&T Excess Benefit and Compensation Plan (such sum constituting “1997 Considered Pay”) is equal to or greater than the Social Security Wage Base for 1997, the credit described in Section 4.03(c)(i)(B) shall be equal to the Participant’s 1997 Deferred Salary multiplied by two times the pay factor, and

(xi)

if the sum of the Participant’s 1997 Deferred Salary and 1997 Considered Pay (as defined in (x) above) is less than or equal to the Social Security Wage Base for 1997, the credit described in Section 4.03(c)(i)(B) shall be equal to the Participant’s 1997 Deferred Salary multiplied by one times the pay factor, and

(xii)

if the 1997 Considered Pay, (as defined in (x) above), is less than the Social Security Wage Base for 1997, but the sum of the Participant’s 1997 Deferred Salary and 1997 Considered Pay is greater than such Social Security Wage Base, the credit described in Section 4.03(c)(i)(B) shall be equal to the sum of (I) and (II), where (I) is the 1997 Deferred Salary multiplied by one times the pay factor, and (II) is one times the pay factor multiplied by the excess over the 1997 Social Security Wage Base of the sum of 1997 Deferred Salary and 1997 Considered Pay.

(ii) Calendar Year 1998 and Thereafter

Except as otherwise provided herein, effective as of December 31, 1998, and each December 31 thereafter, the Cash Balance Account of each individual who is a Cash Balance Participant during the respective calendar year shall be credited with an annual award credit. The Cash Balance Participant’s annual award credit shall equal (A), plus, for Plan Years prior to 2005, (B), where (A) is the product of (I) and (II), where (I) is the Short Term Incentive Award for the respective calendar year (as determined pursuant to Section 2.40), and (II) is two times the supplemental pay factor for the Participant as set forth in Section 4.04(c)(v) of the Pension Plan, based on the Participant’s attained age as of December 31 of such calendar year, and (B) is the credit based on the Participant’s Deferred Salary, if any, for the calendar year determined pursuant to the following (xiii), (xiv) or (xv), as applicable, where for purposes of (x), (xi) and (xii), “pay factor” means the pay factor as set forth in Section 4.04(c)(v) of the Pension Plan based on the Cash Balance Participant’s attained age as of December 31 of such calendar year, and

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(xiii)

if the sum of the pay taken into account for such Participant under the Pension Plan and the AT&T Excess Benefit and Compensation Plan (such sum constituting “Considered Pay”) is equal to or greater than the Social Security Wage Base for the calendar year, the credit described in Section 4.03(c)(ii)(B) shall be equal to the Participant’s Deferred Salary multiplied by two times the pay factor, and

(xiv)

if the sum of the Participant’s Deferred Salary and Considered Pay (as defined in (xiii) above) is less than or equal to the Social Security Wage Base for the calendar year, the credit described in Section 4.03(c)(ii)(B) shall be equal to the Participant’s Deferred Salary multiplied by one times the pay factor, and

(xv)

if the Considered Pay, (as defined in (xiii) above), is less than the Social Security Wage Base for the calendar year, but the sum of the Participant’s Deferred Salary and Considered Pay is greater than such Social Security Wage Base, the credit described in Section 4.03(c)(ii)(B) shall be equal to the sum of (I) and (II), where (I) is the Deferred Salary multiplied by one times the pay factor, and (II) is one times the pay factor multiplied by the excess over such Social Security Wage Base of the sum of the Participant’s Deferred Salary and Considered Pay.

Notwithstanding the foregoing, in any calendar year in which a Cash Balance Participant terminates employment, any such annual award credit shall be based on his or her attained age as of the end of the month in which the Participant terminates employment and shall be credited to the Participant’s Cash Balance Account as of that date.

(d) Interest Credits

Beginning in 1998, a Cash Balance Participant’s Cash Balance Account shall be credited with an interest credit based on the balance of his or her Cash Balance Account as of the first day of the Plan Year. Notwithstanding the provisions of the immediately preceding sentence, no Interest Credits shall be made with respect to the period after the last day of the month immediately preceding the Participant’s Pension Commencement Date.

For the Plan Year in which a Cash Balance Participant terminates employment, his or her Cash Balance Account shall also be credited with an interest credit based on any annual award credit for that Plan Year.

Unless the Participant commences his or her pension during the Plan Year, the interest credit shall be made as of the last day of that Plan Year. For the Plan Year in which the Participant commences his or her pension, the interest credit shall be made as of the last day of the month immediately preceding the Participant’s Pension Commencement Date.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

The interest crediting rate shall be the same interest crediting rate in effect for such period under the Pension Plan, and shall be credited at the same time and in the same manner as interest credits are applied under the Pension Plan.

(e) Cash Balance Account Attributable to the Mid-Career Pension Benefit

(i) With respect to an employee who is an Officer on or after January 1, 1998, effective as of the later of January 1, 1998 or the first day of the month following the transfer to this Plan of the liability for a Participant’s annual benefit from the AT&T Mid-Career Pension Plan, if any, as described in Section 4.07, a Mid-Career Cash Balance Subaccount shall be established for such Participant. The initial credit to such Mid-Career Cash Balance Subaccount shall be determined by multiplying the Cash Balance Participant’s Mid-Career Conversion Benefit (as defined below) by one hundred seven percent (107%) of the applicable conversion factor set forth in Appendix C, based on the Cash Balance Participant’s attained age (in whole years) as of December 31, 1996. The Cash Balance Participant’s Mid-Career Conversion Benefit under this Section 4.03(b) shall equal the monthly benefit (commencing at Normal Retirement Age) transferred from the AT&T Mid-Career Pension Plan. Such initial Mid-Career Cash Balance Subaccount shall be credited with interest credits as follows:

(A)

with respect to the Mid-Career Cash Balance Subaccount for a Participant who is Officer on January 1, 1998, interest credits, beginning in 1998, determined in the manner described in Section 4.03(d);

(B)

with respect to the Mid-Career Cash Balance Subaccount for a Participant who is not an Officer on January 1, 1998, interest credits determined as follows:

(I)

an initial interest credit effective as of the date the Mid-Career Cash Balance Subaccount is established, equal to the interest that would have been credited in accordance with the provisions of Section 4.03(d) for the period beginning January 1, 1998 to the date such Subaccount is established; and

(II)	interest credits determined in the manner described in Section 4.03(d), effective for periods following the establishment of such Subaccount.

(ii) A benefit attributable to the Mid-Career Cash Balance Subaccount, if any, shall be payable only if the Participant has completed a Term of Employment of at least five years classified by the Company as full-time, for one or more Participating Companies, at E-band or above, prior to the Normal Retirement Date. For purposes of determining whether the Participant has completed a Term of Employment of at least five years, the provisions of the Pension Plan providing exceptions to what is considered a break in the continuity of service shall not apply. Except as otherwise provided under the terms of the Plan, if the Participant becomes eligible to receive a benefit based on the Mid-Career Cash Balance Subaccount, the Mid-Career Cash Balance Subaccount shall be added to the Participant’s Cash Balance Account determined pursuant to Section 4.03(b) through (d).

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(f) Benefit Based on the Cash Balance Account

A Cash Balance Participant’s Benefit Based on the Cash Balance Account shall be a monthly benefit determined in the manner described in the Pension Plan, taking into account the Participant’s Cash Balance Account as of the date such benefit is being determined.

Section 4.04E Automatic Survivor Annuities

The Automatic Survivor Annuity described in this Section 4.04 does not apply to a benefit determined under the cash balance formula of Section 4.03 or 4.11, or to a benefit based on the Mid-Career Pension Benefit of Section 4.07. For purposes of this Section 4.04, an Officer who is not Service Pension Eligible at the time of his or her termination of service with a Participating Company shall not be considered a retired Officer, unless such Officer was eligible for a Disability Benefit at the time of his or her termination of service.

(a) Before-Retirement

The surviving Spouse shall be entitled to a pre-retirement Automatic Survivor Annuity determined pursuant to this Section 4.04(a) effective commencing as of the first day of the month following the death of a Participant who dies while an employee if such Participant has a Term of Employment of at least fifteen years at the time of death, or, if such Participant meets the age and Term of Employment requirements for a Service Benefit (or is Service Pension Eligible) at the time of his or her death. The pre-retirement Automatic Survivor Annuity shall be payable monthly in an amount equal to forty five percent (forty six percent effective for benefits commencing on or after July 1, 1998) of the monthly benefit that would have been payable to the Participant pursuant to Section 4.02 had such Participant terminated employment with a Service Benefit, regardless of his or her actual eligibility therefore, on the date of his or her death. For purposes of determining the Automatic Survivor Annuity provided in this Section 4.04(a), the early retirement discounts in Sections 4.02(a), 4.02(b), 4.02(d) or 4.02(e) shall not apply. With respect to a Participant whose benefit is determined pursuant to Section 4.01(d)(ii)(B), the Automatic Survivor Annuity shall not include the portion, if any, of the Participant’s benefit attributable to the Participant’s transferred Mid-Career Pension Benefit described in Section 4.07.

(b) Post-Retirement

(i) Subject to the provisions of Section 4.04(b)(ii), upon the death of an Officer receiving (or eligible to receive) a Service or Disability Benefit under this Plan who retired on or after December 31, 1986 (or retired prior to that date but had not reached age fifty-five on or before December 31, 1983), a survivor annuity in the amount of forty five percent (forty six percent effective for benefits commencing on or after July 1, 1998) of such retired Officer’s monthly benefit amount will be payable beginning on the first day of the month following the date of his or her death to the surviving Spouse to whom such retired Officer is married at the time of death. If the Officer had not yet commenced distribution of his or her benefit, the benefit will be reduced for early commencement, as if the Officer’s Pension Commencement Date were the date payments to the surviving Spouse commence. For purposes of determining the monthly benefit payable to the surviving Spouse pursuant to this Section 4.04(b), the Officer’s Service or Disability Benefit determined pursuant to Section 4.02 is based on the amount that would be paid in the form of a single life annuity, and is not reduced to reflect any optional form of payment. With respect to a Participant whose benefit is determined pursuant to Section 4.01(d)(ii)(B), the Automatic Survivor Annuity shall not include the portion, if any, of the Service or Disability Benefit attributable to the Participant’s transferred Mid-Career Pension Benefit described in Section 4.07.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(ii) In the case of an Officer who terminates employment on or after August 1, 1997, no benefit shall be payable pursuant to Section 4.04(b)(i) unless (A) the Officer’s benefit under the Pension Plan is larger under a “pay base” formula of the Pension Plan than under the cash balance formula of such plan, (B) the benefit determined under Section 4.02(a), 4.02(b), 4.02(d) or 4.02(e), as applicable, is greater than the benefit determined under Section 4.03 of this Plan, and (C) the Officer elected to receive his or her Pension Plan benefit in the form of a single life annuity or a 50% joint and survivor annuity. For purposes of making the determination under (A) and (B) of this Section 4.04(b)(ii), any applicable reduction for commencement prior to age 65 is taken into account, and any amounts attributable to the Mid-Career Pension Benefit, whether pursuant to Section 4.03(e) or Section 4.07, shall be disregarded. If pursuant to the immediately preceding provisions of this Section 4.04(b)(ii) the provisions of Section 4.04(b)(i) do not apply with respect to such Participant, the benefits, if any, payable following the death of a Participant after his or her Pension Commencement Date shall be determined solely in accordance with the provisions of Section 4.09(a)(iv).

Section 4.05E Special Increases

Monthly pension payments being made under the Plan to a terminated Participant or the surviving Spouse of a terminated Participant shall be increased by the same percentage and pursuant to the same terms and conditions, as are set forth for comparable payments to similarly situated individuals, from time to time, under the Pension Plan.

Section 4.06E Monthly Payments

Section 4.07E Mid-Career Pension Benefit

(a) Transfer of Mid-Career Pension Benefit

Effective January 1, 1998, for an Officer who is a Participant as of January 1, 1998, the liability for the monthly benefit from the AT&T Mid-Career Pension Plan, if any, shall be transferred to this Plan, and the AT&T Mid-Career Pension Plan shall retain no further obligation with respect to such benefit. With respect to an employee who becomes an Officer after January 1, 1998, the liability for the annual benefit from the AT&T Mid-Career Pension Plan, if any, shall be transferred to this Plan effective upon his or her designation as an Officer, and the AT&T Mid-Career Pension Plan shall retain no further obligation with respect to such benefit. Solely for purposes of determining the benefit transferred to this Plan, it shall be assumed that the Participant had completed a Term of Employment of at least five years classified by the Company as full-time, for one or more Participating Companies, at E-band or above prior to December 31, 1997, and had terminated employment as of December 31, 1997.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(b) Eligibility for Payment of Mid-Career Pension Benefit

Following the transfer of the AT&T Mid-Career Pension Plan benefit to this Plan, such transferred benefit shall be paid from this Plan, in the manner described in Section 4.07(c), provided that such Participant has completed a Term of Employment of at least five years classified by the Company as full-time, for one or more Participating Companies, at E-band or above, prior to the last day of the month in which he or she reaches Normal Retirement Age. For purposes of determining whether the Participant has completed a Term of Employment of at least five years, the provisions of the Pension Plan providing exceptions to what is considered a break in the continuity of service shall not apply. Notwithstanding the preceding provisions of this Section 4.07, if a benefit paid under this Plan is paid pursuant to the Cash Balance Formula of Section 4.03, no additional benefit shall be paid pursuant to this Section 4.07, because such transferred benefit is already included in the determination of benefit amounts under Section 4.03.

The transferred Mid-Career Pension Benefit is included in the benefit determined pursuant to Section 4.01(d)(ii)(A) or Section 4.01(d)(ii)(B), as applicable. A Mid-Career Pension Benefit payable pursuant to Section 4.01(d)(ii)(A) is included in the “Benefit Based on the Cash Balance Account” described in Section 4.03(f), through the operation of Section 4.03(e)(ii). If a Participant’s benefit is payable pursuant to Section 4.01(d)(ii)(B) and commences prior to January 1, 2009, the portion of such benefit attributable to the Mid-Career Pension Benefit shall be paid only in the form of a single life annuity, and if such benefit commences prior to Normal Retirement Date shall be reduced in accordance with the terms of the AT&T Mid-Career Pension Plan as in effect on December 31, 1997, and shall not be included in determining the Automatic Survivor Annuity of Section 4.04 (a) or Section 4.04(b). In addition to the provisions of this Section 4.07(c), distribution of the Mid-Career Pension Benefit shall be subject to the provisions of Section 4.09.

Section 4.08E Treatment During Subsequent Employment

When a Participant’s Term of Employment includes service with more than one Participating Company, the last Participating Company to employ him or her immediately prior to his or her termination of employment, with entitlement to a benefit hereunder, shall be responsible for the full benefit under this Plan. If a Participant’s benefit payments under the Pension Plan are suspended under the terms of the Pension Plan, because of his or her employment or reemployment subsequent to termination of employment, any benefit payment he or she is entitled to under this Plan shall be permanently suspended for the period of such employment or reemployment to the same extent and in the same manner, consistent with the terms and conditions applicable to the suspension of benefit payments under the Pension Plan, provided, however, that payments to which an Officer is entitled under an annuity contract purchased on his or her behalf shall not be suspended for the period of such employment or reemployment. Payment of a Participant’s benefit under this Plan shall resume simultaneously with the recommencement of his or her benefits under the Pension Plan. Following recommencement of benefit payments under this Plan, the Participant (or surviving Spouse) shall not be eligible to receive any payments under this Plan that would otherwise have been payable but for the suspension.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

Notwithstanding the preceding, effective beginning January 1, 2005, benefits shall not be suspended during a period of employment or reemployment. Benefits paid upon a subsequent termination of employment shall be reduced by the actuarial equivalent of the benefit payments that were continued during reemployment.

Section 4.09E Payment of Pensions

(a) Commencement Prior to 2005

(i) Subject to the exception set forth in paragraph (ii) of this Section 4.09(a), (regarding the Alternate Minimum Formula), benefits payable to the Participant under this Plan shall commence on the date the benefits under the Pension Plan are first paid to the Participant, and shall, except for the reasons specified in Section 3.02(a)(iv), Section 4.08 or Section 9.12, continue to the death of the recipient. Benefits payable to the surviving Spouse or the estate of the Participant shall commence and be paid as indicated in the applicable provision of this Plan.

(ii) Any benefit payable to an Officer pursuant to Section 4.02(c) shall not commence before age sixty-five, except that an Officer who has been employed for at least five years as an Officer as of December 31, 1993, and as to whom the sum of his or her attained age and Term of Employment equaled or exceeded seventy as of that date, shall be eligible to commence his or her benefit as of the first day of the month following his or her termination of employment and shall, except for the reasons specified in Section 4.09(a)(i), continue to his or her death.

(iii) For a Participant who terminated employment prior to August 1, 1997, the benefit under this Plan shall be payable in the form of a single life annuity. Any post-retirement survivor benefits, with respect to such a Participant, shall be determined solely in accordance with the provisions of Section 4.04(b).

(iv) This Section 4.09(a)(iv) applies only to a Participant who terminates employment on or after August 1, 1997, and who is not described in Section 4.09(a)(v).

(A) If the Participant elects the cash payment option under the Pension Plan, with no remaining annuity payable from the Pension Plan, or a lump sum, if applicable, the benefit under this Plan shall be paid in the form of a single life annuity. For purposes of this subparagraph (A), an annuity payable under the AT&T Excess Benefit and Compensation Plan is not considered to be an annuity payable from the Pension Plan.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(B) If the Participant elected the cash payment option under the Pension Plan, with an annuity remaining under the Pension Plan, the benefit under this Plan shall be paid in the same form as the remaining annuity under the Pension Plan is paid.

(C) The form of payment under this Plan shall be the same form of payment, as elected by the Participant under the Pension Plan, unless the benefit under the Pension Plan is the cash payment option or a lump sum, if applicable, (in which case the form of payment under this Plan shall be determined pursuant to the immediately preceding subparagraphs (A) or (B)). If the form of payment under the Pension Plan includes a joint and survivor form of payment with the survivor benefit payable to an alternate payee, the benefit to the Participant under this Plan shall be (i) paid as a single life annuity, if the Participant is not married on the Pension Commencement Date, or (ii) paid in the joint and survivor form of payment elected by the Participant under the Pension Plan, with the survivor benefit under this Plan payable to the Spouse to whom the Participant is married at the Pension Commencement Date, if the Participant is married on the Pension Commencement Date.

(D) The single life annuity benefit otherwise payable under this Plan to a Participant will be reduced as follows to reflect the form of payment: (1) the benefit under this Plan based on the Cash Balance Account shall be reduced by 8% (10% for a Pension Commencement Date prior to July 1, 1999) if payment is made in the form of a 50% Joint and Survivor Annuity, and by 15% (18% for a Pension Commencement Date prior to July 1, 1999) if payment is made in the form of a 100% Joint and Survivor Annuity; (2) the benefit under this Plan which is not based on the Cash Balance Account, with respect to a Participant who is not Service Pension Eligible on termination of employment, shall be reduced by 12% if the benefit is to be paid under the 50% Joint and Survivor Annuity form of payment; and (3) in the case of a Participant whose benefit under the Plan is based on a formula other than the Cash Balance Account, a benefit payable in the form of a 100% Joint and Survivor Annuity shall be reduced for commencement prior to Normal Retirement Date by applying the early commencement factors applicable to the cash balance formula, as described in the Pension Plan, and shall be reduced for the 100% Joint and Survivor Annuity form of payment by 15% (18% for a Pension Commencement Date prior to July 1, 1999).

(E) Notwithstanding the preceding (A) through (D), the benefit payable under this Plan that is attributable to the Mid-Career Pension Benefit and paid pursuant to Section 4.01(d)(ii)(B) shall be paid only in the form of a single life only.

(v) The benefit under this Plan with respect to an Officer who is Service Pension Eligible at his or her termination of employment on or after August 1, 1997, and who meets the requirements set forth in Section 4.04(b)(ii), shall be paid in the form of a single life annuity, and any post-retirement survivor benefit will be determined pursuant to Section 4.04(b)(ii). In lieu of the benefit payable pursuant to the immediately preceding sentence, such Officer may instead elect distribution of his benefit in the form of a 100% Joint and Survivor Annuity, with reduction for commencement prior to Normal Retirement Date and for the 100% Joint and Survivor Annuity form of payment determined as described in the preceding subsection 4.09(a)(iv)(D)(3).

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(b) Commencement After 2004 and Prior to 2009

Except as provided in Section 6.01 regarding payments in the form of a commercial annuity contract, the provisions of Section 4.09(a) regarding the time and form of payment of benefits under the Plan shall apply with respect to benefits for which distribution to a Participant commenced, or with respect to benefits payable on behalf of a Participant whose death occurred, after 2004 and prior to 2009. The provisions of Section 4.09(a) relating to commencement of the benefit under the Pension Plan shall refer to commencement of the Participant’s regular pension under the Pension Plan (and not to commencement of any benefit under the Pension Plan based on the Special CIC Credit or the Force Management Pension Credit).

Provisions related to payment of benefits to the Participant that commence after December 31, 2008 or with respect to a Participant who is an employee on December 31, 2008 and whose death occurs after December 31, 2008 are not included in Appendix E. Such payments shall be made in the time and form as described in Section 4.09(c) of Article 4 as in effect after December 31, 2008 as set forth in the main text of the Plan.

(d) Payments to Specified Employees

Notwithstanding the provisions of the preceding sections 4.09(a) through 4.09(c), effective on and after January 1, 2005 with respect to payments in the form of a commercial annuity pursuant to Section 6.01 and effective on and after January 1, 2009 with respect to all other payments under the Plan, payment under the Plan to or with respect to a Participant who is determined to meet the definition of Specified Employee shall be payable as otherwise provided in this Plan, except that the initial payment shall be made no earlier than six (6) months following his or her Termination of Employment. If, absent this Section 4.09(d), payment to a Specified Employee would have commenced before the expiration of such six-month period, the first payment with respect to such Specified Employee will include the sum of the annuity payments withheld, together with interest thereon. For purposes of the immediately preceding sentence, interest shall be credited using the GAAP Rate in effect as of the end of the calendar year immediately preceding the Participant’s Termination of Employment, for distributions made after December 31, 2007. “GAAP Rate” means such rate as defined under the SERP for the referenced period. Notwithstanding the preceding, for distributions made prior to January 1, 2008, interest credited for purposes of this Section 4.4(d) shall be at an effective annual rate equal to 120 percent of the Federal Mid-term rate in effect as of the date such annuity payments otherwise would have commenced.

Section 4.10E Preretirement Survivor Benefits for Cash Balance Participants

(a) Preretirement Death Benefit

(i) If a Cash Balance Participant who is vested under the Pension Plan dies before the date as of which his or her benefit commences under this Plan, and he or she has a surviving Spouse at the time of death, a single life annuity determined pursuant to Section 4.10(b), shall be payable to the surviving Spouse commencing on the first day of any month following the death of the Participant, (A) with respect to a Participant who terminated employment prior to January 1, 2005, or (B) with respect to a Participant who terminated employment after December 31, 2004 and dies before December 1, 2008, but only to the extent that such surviving Spouse otherwise satisfies the requirements of the Plan with respect to receipt of such a benefit. Payment shall commence at the same time as payment to a surviving Spouse commences under the Pension Plan. For purposes of this Section 4.10(a), the surviving Spouse shall be the Spouse to whom the Participant is married on the date of the Participant’s death and who has survived the Cash Balance Participant to at least the next calendar day after the Cash Balance Participant’s death. If the Cash Balance Participant is unmarried at the date of his or her death, or if the surviving Spouse does not survive the Participant to at least the next calendar day after the Participant’s death, the Participant’s Cash Balance Account shall be payable to the estate of the Participant. No death benefit is payable with respect to a Participant who terminated employment after December 31, 2004 who dies after December 1, 2008, except as described in Section 4.09(c)(ii) of Article 4 of the main text of the Plan effective after December 31, 2008 (such provisions which are not included in this Appendix E),

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(ii) If a Participant dies before the date as of which his or her benefit commences under this Plan, and he or she does not have a surviving Spouse at the time of his or her death, or if such surviving Spouse is not eligible for a benefit pursuant to the provisions of Section 4.10(a)(i), a lump sum benefit shall be payable to the surviving Spouse of the Participant, or, if there is no surviving Spouse, to the Participant’s estate, within a reasonable period of time following the death of the Participant. The amount of such single cash payment shall be equal to the Participant’s Cash Balance Account.

(iii) If a Participant dies before the date as of which his or her benefit commences under this Plan and he or she is survived by a surviving Spouse who is entitled to a benefit pursuant to the preceding Section 4.10(a)(i) or Section 4.10(a)(ii), and such surviving Spouse dies prior to the date payment of benefits under this Plan commence, a lump sum benefit shall be payable to the estate of the surviving Spouse upon the death of the surviving Spouse. The amount of such single cash payment shall be equal to the Participant’s Cash Balance Account.

(b) Single Life Annuity

A surviving Spouse’s single life annuity shall equal the Cash Balance Participant’s Benefit Based on the Cash Balance Account under Section 4.03(f), but substituting the surviving Spouse’s attained age, for the age of the Participant when applying the procedures of the Pension Plan for purposes of such determination.

If the Cash Balance Participant would have been eligible for a benefit determined pursuant to Section 4.02 had he or she terminated employment on the day preceding the date of death, the surviving Spouse’s single life annuity will be determined in accordance with the provisions of Section 4.04(a), if that provision produces a higher benefit (determined as of the Spouse’s Pension Commencement Date) for the surviving Spouse than the benefit determined under this Section 4.10(b).

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

Section 4.11E Qualified Deferrals Cash Balance Account

The provisions of this Section 4.03E describe the establishment and development of the Qualified Deferrals Cash Balance Account with respect to benefits that commence under the Qualified Deferrals Cash Balance Account Formula prior to January 1, 2009. Except as modified by the provisions of Article 4 of the main text of the Plan, the methodology set forth in this Section 4.11E also applies for purposes of determining a Benefit Based on the Qualified Deferrals Cash Balance Account with respect to benefits that commence after December 1, 2008.

(a) Establishment of Qualified Deferrals Cash Balance Accounts

A Deferral Participant’s Qualified Deferrals Cash Balance Account is a hypothetical bookkeeping account used solely in calculating the amount of the Deferral Participant’s Benefit Based on the Qualified Deferrals Cash Balance Account. The Qualified Deferrals Cash Balance Account is calculated by accumulating the annual qualified deferral credits determined pursuant to Section 4.11(b), and deferral interest credits determined pursuant to Section 4.11(c).

A Participant’s Qualified Deferrals Cash Balance Account shall be established as of the date the Deferral Participant begins to make Qualified Deferrals under the AT&T Executive Deferred Compensation Plan or the AT&T Inc. Cash Deferral Plan.

(b) Annual Qualified Deferral Credits

Effective as of each December 31 following the date an individual becomes a Deferral Participant, the Qualified Deferrals Cash Balance Account of such individual shall be credited with an annual qualified deferral credit. The Deferral Participant’s annual qualified deferral credit shall equal the credit based on the participant’s Qualified Deferral, if any, for the calendar year determined pursuant to the following (xvi), (xvii) or (xviii), as applicable, where for purposes of (xvi), (xvii) and (xviii), “pay factor” means the pay factor as set forth in Section 4.04(c)(v) of the Pension Plan based on the Participant’s attained age as of December 31 of such calendar year, and

(xvi)

if the sum of the pay taken into account for such Participant under the Pension Plan and the AT&T Excess Benefit and Compensation Plan (such sum constituting “Considered Pay”) is equal to or greater than the Social Security Wage Base for the calendar year, the annual qualified deferral credit shall be equal to the Qualified Deferral multiplied by two times the pay factor, and

(xvii)

if the sum of the participant’s Qualified Deferral and Considered Pay (as defined in (xvi) above) is less than or equal to the Social Security Wage Base for the calendar year, the annual qualified deferral credit shall be equal to the participant’s Qualified Deferrals multiplied by one times the pay factor, and

(xviii)

if the Considered Pay, (as defined in (xvi) above), is less than the Social Security Wage Base for the calendar year, but the sum of the participant’s Qualified Deferrals and Considered Pay is greater than such Social Security Wage Base, the annual qualified deferral credit shall be equal to the sum of (I) and (II), where (I) is the Qualified Deferrals multiplied by one times the pay factor, and (II) is one times the pay factor multiplied by the excess over such Social Security Wage Base of the sum of the participant’s Qualified Deferrals and Considered Pay.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

Notwithstanding the foregoing, in any calendar year in which a Deferral Participant terminates employment, any such annual qualified deferral credit shall be based on his or her attained age as of the end of the month in which the participant terminates employment and shall be credited to the Qualified Deferrals Cash Balance Account as of that date.

Annual Qualified Deferral Credits were discontinued under the Plan effective with respect to amounts deferred from any paycheck dated after December 31, 2007.

A Deferral Participant who is a CIC Eligible Employee shall have a “CIC credit” credited to his or her CIC Subaccount as of the date of such termination of employment that allows the Deferral Participant to be considered a CIC Eligible Employee. The CIC credit shall be an amount equal to the sum of (i) and (ii) as follows:

(i)

The CIC Eligible Employee’s Qualified Deferral for the calendar year immediately preceding the calendar year in which the “change in control” (as such term is defined in the Pension Plan) occurs, multiplied by the lesser of (A) five percent for each whole year of the CIC Eligible Employee’s Term of Employment as of the last day of the month in which the change in control occurs, or (B) one hundred percent;

(ii)

An interest credit on the amount determined in (i) above from the first of the month following the month in which the change in control occurs through the last day of the month in which such termination of employment occurs, based on the effective annual rates set forth in Section 4.10(d), as in effect for the period beginning on the first of the month following the month in which the change in control occurs through the month in which such termination of employment described in this Section 4.10(c) occurs.

The CIC Subaccount shall be credited with interest credits in the manner described in the following Section 4.11(d). The benefit amount, method of payment, and pre-retirement survivor benefit, if any, attributable to the CIC Subaccount shall be determined in the manner described with respect to the “CIC Credit” under the Pension Plan. The benefit provisions of this Section 4.11(c) shall be subject to the provisions of Section 9.18. For purposes of any joint and survivor annuity benefit, the surviving Spouse is the Spouse to whom the Participant was married on his or her Pension Commencement Date.

In order to fulfill the intent of the CIC resolutions as adopted by the Board of Directors of the Company in October, 2000, prior to the adoption of the AT&T Executive Deferred Compensation Plan, solely for the purpose of determining severance payments with respect to a CIC Eligible Employee under an “applicable severance plan” as that term is defined in Section G.07(j) of the Pension Plan, the benefit attributable to the CIC Subaccount with respect to a Deferral Participant shall be treated as paid from the Pension Plan.

Appendix E

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Article 4E - Pension Benefits

AT&T Non-Qualified Pension Plan

(d) Deferral Interest Credits

Effective as of each December 31 following the date an individual becomes a Deferral Participant, the Qualified Deferrals Cash Balance Account of such individual shall be credited with an interest credit based on the balance of his or her Qualified Deferrals Cash Balance Account as of the first day of the Plan Year. Notwithstanding the provisions of the immediately preceding sentence, no Interest Credits shall be made with respect to the period after the last day of the month immediately preceding the participant’s Pension Commencement Date.

For the Plan Year in which a Deferral Participant terminates employment, his or her Qualified Deferrals Cash Balance Account shall also be credited with an interest credit based on any annual qualified deferral credit for that Plan Year.

Unless the Participant commences his or her pension during the Plan Year, the interest credit shall be made as of the last day of that Plan Year. For the Plan Year in which the Deferral Participant commences his or her pension, the interest credit shall be made as of the last day of the month immediately preceding the participant’s Pension Commencement Date.

(e) Benefit Based on the Qualified Deferrals Cash Balance Account

A Deferral Participant’s Benefit Based on the Qualified Deferrals Cash Balance Account shall be a monthly benefit determined in the manner described in the Pension Plan, taking into account the participant’s Qualified Deferrals Cash Balance Account as of the date such benefit is being determined, and multiplied by twelve to produce an annual benefit. Notwithstanding the preceding, the Benefit Based on the Qualified Deferrals Cash Balance Account shall not exceed (I) the benefit that would have been payable under the Pension Plan, determined before application of the limitations of Code Section 401(a)(17) and Code Section 415, if eligible pay under the Pension Plan for a Plan Year included the Qualified Deferrals for such Plan Year, minus (II) the benefit actually payable under the Pension Plan plus the benefit actually payable under the AT&T Excess Benefit and Compensation Plan, where (I) and (II) are determined as of the Participant’s Pension Commencement Date, and the form of payment elected by the participant. The Benefit Based on the Qualified Deferrals Cash Balance Account shall be paid in the same form of payment elected by the Participant under the Pension Plan. Notwithstanding the preceding, if the Participant elected the cash payment option under the Pension Plan, the benefit under this Plan shall be paid in the same form as the remaining annuity elected by the Participant under the Pension Plan. For purposes of any joint and survivor annuity benefit, the surviving Spouse is the Spouse to whom the Participant was married on his or her Pension Commencement Date.

(f) Preretirement Death Benefit

(i) If a Deferral Participant dies prior to his or her Pension Commencement Date and he or she has a surviving Spouse at the time of death, a single life annuity determined pursuant to the following Section 4.11(f)(iv), commencing on the first day of any month following the death of the Participant, shall be payable to the surviving Spouse if such Participant terminates employment after December 31, 2004 and dies before January 1, 2009, but only to the extent that such surviving Spouse otherwise satisfies the requirements of the Plan with respect to receipt of such a benefit. For purposes of this Section 4.11(f), a surviving Spouse shall be the individual to whom the Participant is legally married on the date of the Participant’s death and who has survived the Participant to at least the next calendar day after the Participant’s death. If the Deferral Participant is unmarried at the date of his or her death, or if the surviving Spouse does not survive the Participant to at least the next calendar day after the Participant’s death, the Participant’s Qualified Deferrals Cash Balance Account shall be payable to the estate of the Participant.

(ii) If a Deferral Participant dies before the date as of which his or her benefit commences under this Plan, and he or she does not have a surviving Spouse at the time of his or her death, or if such surviving Spouse is not eligible for a benefit pursuant to the provisions of Section 4.11(f)(i), a lump sum benefit shall be payable to the surviving Spouse of the Participant, or, if there is no surviving Spouse, to the Participant’s estate, within a reasonable period of time following the death of the Participant. The amount of such single cash payment shall be equal to the Participant’s Qualified Deferrals Cash Balance Account.

(iii) If a Deferral Participant dies before the date as of which his or her benefit commences under this Plan and he or she is survived by a surviving Spouse who is entitled to a benefit pursuant to the preceding Section 4.11(f)(i) or Section 4.11(f)(ii), and such surviving Spouse dies prior to the date payment of benefits under this Plan commence, a lump sum benefit shall be payable to the estate of the surviving Spouse within a reasonable period of time following the death of the surviving Spouse. The amount of such single cash payment shall be equal to the Participant’s Qualified Deferrals Cash Balance Account.

(iv) A surviving Spouse’s single life annuity payable pursuant to Section 4.11(f)(i) shall equal the Participant’s Benefit Based on the Qualified Deferrals Cash Balance Account under Section 4.03(d), but substituting the surviving Spouse’s attained age, for the age of the Participant when applying the procedures of the Pension Plan for purposes of such determination.

Appendix E

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Article 4E - Pension Benefits

Exhibit 10-dd

AT&T CORP.

EXCESS BENEFIT AND COMPENSATION PLAN

AT&T Corp.

and

Such of its Subsidiary Companies which are

Participating Companies

Effective January 1, 1997, Including Amendments Adopted Through December 31, 2008

Article I.

Background and Purpose

AT&T EXCESS BENEFIT AND COMPENSATION PLAN

Article

Background and Purpose

The AT&T Excess Benefit Plan was established to provide eligible management and occupational employees of AT&T Corp. (formerly American Telephone and Telegraph Company) and Participating Companies with certain benefits that would have been payable under the AT&T Management Pension Plan or the AT&T Pension Plan, respectively, but for the limitations placed on benefits payable under the AT&T Management Pension Plan or the AT&T Pension Plan by Section 415 of the Code. Effective January 1, 1989, AT&T established an additional plan to provide eligible management employees with certain benefits that would have been payable under the AT&T Management Pension Plan but for the limitations placed on eligible compensation by Code Section 401(a)(17). These plans were amended, the two separate plans combined into a single plan document, and restated, effective January 1, 1994, and are referred to collectively as the “AT&T Excess Benefit and Compensation Plan” or “Plan.”

The Plan is intended to constitute an unfunded “excess benefit plan” as defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to the extent it provides benefits that would be paid under the AT&T Management Pension Plan or the AT&T Pension Plan but for the limitations imposed by Code Section 415, and an “unfunded plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” for purposes of Title I of ERISA, to the extent it provides other benefits.

Except as expressly provided below, this amended and restated plan document applies only to employees who terminate employment on or after January 1, 1997. For former employees who terminated employment before January 1, 1997, the provisions of the AT&T Excess Benefit and Compensation Plan in effect on the date of the former employee’s termination of employment shall govern.

During the period from January 1, 2005 to December 31, 2008, the Plan has been operated in good faith compliance with the provisions of Code Section 409A, Internal Revenue Notice 2005-1, and the final Treasury Regulations for Code Section 409A, and any other generally applicable guidance published in the Internal Revenue Service Bulletin with an effective date prior to January 1, 2009. On or after January 1, 2009, this Plan shall be interpreted and construed consistent with the requirements of Code Section 409A and all applicable guidance issued thereunder with respect to all accrued benefits under this Plan, including, except as indicated below, those benefits that may be otherwise treated as existing prior to the statutory effective date of Code Section 409A (“grandfathered benefits”) within the meaning of Treasury Regulation Section 1.409A-6(a)(3). The preceding sentence notwithstanding, it is the intention of the Company that the grandfathering provisions of Code Section 409A be applied under this Plan with respect to any Participant (and any Surviving Spouse, Beneficiary or Estate of such Participant) who terminated employment prior to January 1, 2005, with respect to all benefits earned under the Plan with respect to such Participant prior to termination of employment. If an individual who terminated employment prior to January 1, 2005 is rehired after December 31, 2004 and earns additional benefits under the Plan following his or her rehire, the terms of the Plan shall be applied separately with respect to benefits earned prior to January 1, 2005 and with respect to benefits earned following rehire. The Company reserves the right to amend any provision of the Plan or any election submitted by a Participant, or take any other action that the Company deems appropriate to ensure compliance with Code Section 409A, including altering the time and form of any distribution so as to accomplish the intended purpose of this Plan.

Article

Definitions

Unless the context clearly indicates otherwise, the following terms have the meanings described below when used in this Plan and references to a particular Article or Section shall mean the Article or Section so delineated in this Plan.

2.1.	Administrator

AT&T Corp. shall be the “administrator” of the Plan as that term is defined in ERISA. Effective August 22, 2006, and until such time as the Board determines and advises otherwise, the Senior Executive Vice President – Human Resources of AT&T Inc. (or the individual directly reporting to the Chief Executive Officer of AT&T Inc. who has responsibility for human resource matters, regardless of such individual’s title) is authorized to administer, amend, merge and/or terminate the Plan, to appoint and remove members of the administrative committees and claims administrators for the Plan, and to allocate Plan administrative responsibilities to such committees or administrators.

2.2.	AT&T Corp.

AT&T Corp. (formerly the American Telephone and Telegraph Company), a New York corporation, or its successor.

2.3.	AT&T Inc. or AT&T

AT&T Inc. (formerly SBC Communications Inc.), a Delaware Corporation, which acquired AT&T Corp. effective November 18, 2005 pursuant to that certain merger agreement dated January 30, 2005.

2.4.	AT&T Company

AT&T and each other entity required to be aggregated with AT&T under Code §§ 414(b), (c), (m), or (o). With respect to periods prior to November 18, 2005, the controlled group shall be determined only with respect to entities required to be aggregated with AT&T Corp. With respect to periods on or after November 18, 2005, the controlled group shall be determined with respect to entities required to be aggregated recognizing the acquisition of AT&T Corp. by SBC Communications Inc. (now known as AT&T Inc.).

2.5.	AT&T Corp. Subsidiary

Any corporation of which more than 50 percent of the voting stock is owned directly or indirectly by AT&T Corp.

2.6.	AT&T Management Pension Plan

The AT&T Management Pension Plan, as amended and restated from time to time, and effective January 1, 2007, the AT&T Pension Benefit Plan – AT&T Legacy Management Program.

2.7.	AT&T Pension Plan

The AT&T Pension Plan, as amended and restated from time to time.

2.8.	Beneficiary

Any person entitled to an Excess Death Benefit, if any, pursuant to Section 4.10.

2.9.	Benefit Limitation

The maximum benefit payable to a Participant under the Qualified Plan in accordance with Code Section 415, but after application of the Compensation Limitation, if any, under the AT&T Management Pension Plan or the AT&T Pension Plan.

2.10.

Board

The Board of Directors of AT&T Corp.

2.11.

Change in Control

A change in control, as that term is defined in the AT&T Management Pension Plan.

2.12.

CIC Eligible Employee

A CIC eligible employee, as that term is defined in the AT&T Management Pension Plan.

2.13.

Code

The Internal Revenue Code of 1986, as amended from time to time (and its predecessor, the Internal Revenue Code of 1954, as amended). Any reference to a particular section of the Code includes any applicable regulations promulgated under that section.

2.14.

Code Section 401(a)(17) Excess Retirement Benefit

The benefit, if any, described in Section 4.3 that is payable to an Executive or a Surviving Spouse of an Executive under the terms of the Plan.

2.15.

Code Section 415 Excess Retirement Benefit

The benefit, if any, described in Section 4.2 that is payable to a Participant or a Surviving Spouse of a Participant under the terms of the Plan.

2.16.

Committee

The Employees’ Benefit Committee appointed by AT&T Corp. to administer the Plan, or any successor to such Employees’ Benefit Committee.

2.17.

Company

AT&T Corp.

2.18.

Compensation Limitation

The maximum amount of annual compensation under Code Section 401(a)(17) that may be taken into account in any Plan Year for benefit accrual purposes under the AT&T Management Pension Plan, or that is taken into account in any Plan Year under the AT&T Management Pension Plan for purposes of calculating an Accident Death Benefit (for periods prior to January 1, 1999), Sickness Death Benefit or Pensioner Death Benefit under the AT&T Management Pension Plan.

2.19.

Eligible Employee

An individual who is employed in a position eligible to participate in the AT&T Management Pension Plan or the AT&T Pension Plan. An individual who is a participant in the 2005 Supplemental Employee Retirement Plan of AT&T Inc. (“SERP”) on December 31, 2008 shall not be eligible to continue to accrue a benefit under this Plan on or after such individual’s SERP Vesting Date. An individual who becomes a participant in the SERP after December 31, 2008 shall not be eligible to continue to accrue a benefit under this Plan on or after such individual’s SERP Effective Date (as defined in the SERP).

2.20. ERISA

The Employee Retirement Income Security Act of 1974, as amended from time to time. Any reference to a particular section of ERISA includes any applicable regulations promulgated under that section.

2.21.

Excess Death Benefit

The benefit, if any, described in Section 4.10 of the Plan.

2.22.

Excess Retirement Benefit

The sum of the Code Section 415 Excess Retirement Benefit, if any, and the Code Section 401(a)(17) Excess Retirement Benefit, if any, payable to a Participant or a Surviving Spouse (or to the estate of the Participant or Surviving Spouse) under the terms of the Plan.

2.23.

Executive

A participant in the AT&T Management Pension Plan who is considered to be within “a select group of management or highly compensated employees” for purposes of Title I of ERISA and whose “eligible pay,” as that term is defined in the AT&T Management Pension Plan (other than the AT&T Management Pension Plan provision limiting eligible pay to an amount under $150,000, as adjusted), in any Plan Year exceeds the Compensation Limitation for that Plan Year. Notwithstanding the preceding, for periods of participation in the AT&T Management Pension Plan prior to January 1, 1998, the term “compensation,” as that term is defined in the AT&T Management Pension Plan, shall be substituted in the preceding sentence for the term “eligible pay.”

2.24.

Leave of Absence

Where a person is absent from employment with AT&T on a leave of absence, military leave, or sick leave, where the leave is given in order to prevent a break in the continuity of term of employment, and permission for such leave is granted (and not revoked) in conformity with the rules of the employer that employs the individual, as adopted from time to time, and the employee is reasonably expected to return to service. Except as set forth below, the leave shall not exceed six (6) months for purposes of this Plan, and the employee shall Terminate Employment upon termination of such leave if the employee does not return to work prior to or upon expiration of such six (6) month period, unless the individual retains a right to reemployment under law or by contract. A twenty-nine (29) month limitation shall apply in lieu of such six (6) month limitation if the leave is due to the employee being “disabled” (within the meaning of Treasury Regulation Section 1.409A-3(i)(4)). A Leave of Absence shall not commence or shall be deemed to cease under the Plan where the employee has incurred a Termination of Employment.

2.25.

Normal Retirement Date

The Normal Retirement Date as determined under the AT&T Management Pension Plan or the AT&T Pension Plan, as applicable.

2.26.

Officer

An individual who is designated as an officer level employee for compensation purposes on the records of AT&T Inc. Notwithstanding the preceding, for purposes of Section 7.1(b), relating to the purchase of a commercial annuity contract, the term “Officer” shall mean an officer of AT&T Corp., as defined in the AT&T Non-Qualified Pension Plan.

2.27.

Participant

An individual and/or an Executive who has satisfied the eligibility requirements in Section 3.1.

2.28.

Participating Company

AT&T Corp. and any AT&T Corp. Subsidiary that is a participating company under the AT&T Management Pension Plan or the AT&T Pension Plan. Effective January 1, 2007, the term Participating Company shall also include an AT&T Company to the extent that an employee of such AT&T Company is eligible to participate in the AT&T Management Pension Plan pursuant to the provisions of Section 2.15(c) of that plan.

2.29.

Plan

This AT&T Excess Benefit and Compensation Plan.

2.30.

Plan Administrator

With respect to individuals covered by the AT&T Management Pension Plan, the Pension Plan Administrator under the AT&T Management Pension Plan and, with respect to individuals covered by the AT&T Pension Plan, the Pension Plan Administrator under the AT&T Pension Plan. The Plan Administrator has the authority to administer and adjudicate claims under the Plan.

2.31.

Qualified Plan

The AT&T Management Pension Plan or the AT&T Pension Plan, whichever such Plan holds the liability for the Participant’s qualified accrued pension benefit as of the date payment(s) under this Plan commence(s) or recommence(s).

2.32.

Specified Employees

2.33.

SERP

The 2005 Supplemental Employee Retirement Plan of AT&T Inc., as amended from time to time.

2.34.

SERP Participant

An individual who has been designated as eligible to participate in the SERP. For purposes of this Plan, such individual is considered a SERP Participant whether or not he or she has satisfied the vesting requirements of the SERP.

2.35.

SERP Vesting Date

The later of January 1, 2011 or the date an individual vests under the SERP.

2.36.

Surviving Spouse

A deceased Participant’s surviving spouse of the opposite sex who is such Participant’s “spouse” within the meaning of the Qualified Plan, as defined in the respective provisions of the Qualified Plan. Notwithstanding the preceding, if an alternate payee (as that term is defined in Section 414(p) of the Code) is deemed the surviving spouse for purposes of all or a portion of the Participant’s benefit under the Qualified Plan, such alternate payee shall not be deemed to be the “spouse” for any purpose under this Plan.

2.37.

Termination of Employment

The ceasing of the Participant’s employment from the AT&T controlled group of companies for any reason whatsoever, whether voluntarily or involuntarily. References herein to Termination of Employment, Terminate Employment, or a similar reference, shall mean the event where the employee has a separation from service, as defined under Code Section 409A, with all members of the AT&T controlled group. Notwithstanding the foregoing, the employment relationship of a Participant with the AT&T controlled group is considered to remain intact while the individual is on a Leave of Absence.

2.38.

VRIP

The Voluntary Retirement Incentive Program for Management Employees within the meaning of the AT&T Management Pension Plan.

Article

Eligibility

3.1.	Participation

(a) Date of Participation . If the benefit payable under the Qualified Plan to an Eligible Employee or a Surviving Spouse or Beneficiary of an Eligible Employee is limited by reason of the application of the Benefit Limitation or the Compensation Limitation, he or she shall be eligible to be a Participant or receive benefits as a Surviving Spouse, as applicable, under this Plan. An Eligible Employee shall not become a Participant in this Plan if he or she is subject to the Compensation Limitation, but not the Benefit Limitation, under the AT&T Pension Plan.

(b) Loss of Eligibility . In the event any Participant ceases to be an Eligible Employee by reason of a change to an employment status which is not eligible to participate in the Plan, such Participant shall nevertheless continue to be eligible to receive benefits under this Plan, however, no additional benefits shall accrue under the Plan unless and until he or she shall re-attain eligibility hereunder.

3.2.	Surviving Spouse Benefit

The Surviving Spouse of a Participant shall be eligible to receive an Excess Retirement Benefit under the Plan to the extent provided in Section 4.1 or Section 4.5 of the Plan.

3.3.	Relationship To Other Plans

The Excess Retirement Benefit and Excess Death Benefit (as defined in Section 4.10) payable under the Plan shall be in addition to any other benefits provided, directly or indirectly, to a Participant, Surviving Spouse, Beneficiary, or the estate of such Participant or Surviving Spouse, by any AT&T Company. Participation in the Plan shall not preclude or limit the participation of the Participant in any other benefit plan sponsored by an AT&T Company for which such Participant would otherwise be eligible. Notwithstanding the preceding, the Excess Retirement Benefit and Excess Death Benefit payable to a Participant, Surviving Spouse, Beneficiary, or estate of a Participant or Surviving Spouse under this Plan shall not duplicate benefits payable to such Participant, Surviving Spouse, Beneficiary, or estate of such Participant or Surviving Spouse, under any other plan or arrangement of an AT&T Company.

3.4.	Forfeiture of Benefits

If any Participant who otherwise would be entitled to an Excess Retirement Benefit under this Plan is discharged for cause due to conviction of a felony related to his or her employment, the rights of such Participant to an Excess Retirement Benefit under this Plan, including the rights of the Participant’s Surviving Spouse, Beneficiary and/or estate to any benefits related to such Participant under the Plan, shall be forfeited. To the extent a benefit under any other nonqualified plan of AT&T is offset by benefits payable under this Plan, such offset shall be determined as if a forfeiture had not occurred.

Article

Retirement and Death Benefits

4.1	Excess Retirement Benefits

If the retirement benefit payable to a Participant or a Surviving Spouse under the AT&T Management Pension Plan or the AT&T Pension Plan is limited by reason of the application of the Benefit Limitation and/or, for an Executive or Surviving Spouse of an Executive under the AT&T Management Pension Plan is limited in any year by reason of the application of the Compensation Limitation, an Excess Retirement Benefit shall be paid as provided in this Article 4 to the Participant or the Surviving Spouse, as applicable. Notwithstanding the immediately preceding sentence, effective for distributions commencing on or after January 1, 2009, the provisions of Section 4.2 and Section 4.3 shall not apply for purposes of determining the benefit payable following the death of a Participant except with respect to a Participant who terminated employment prior to January 1, 2005. In all other cases, the benefit payable following the death of a Participant shall be determined pursuant to Section 4.5, or Section 4.4(c)(ii)(B).

4.2	Amount of Code Section 415 Excess Retirement Benefit

(a) Subject to the provisions of Section 4.2(c), Section 4.7 and Section 4.8, the amount, if any, of the Code Section 415 Excess Retirement Benefit payable monthly to a Participant or a Surviving Spouse pursuant to this Section 4.2 shall be equal to the excess, if any, of (i) over (ii) at the date of benefit commencement or recommencement, as applicable, where:

"(i)" is the amount of the monthly benefit which would be provided to the Participant or the Surviving Spouse under the Qualified Plan as of such date, without regard to the Benefit Limitation but taking into account the Compensation Limitation, based on the age of the Participant (or Surviving Spouse, if applicable) as of such date and the form of payment elected by the Participant or Surviving Spouse, as applicable, under the Qualified Plan; and

"(ii)" is the amount of the monthly benefit actually payable to such Participant or Surviving Spouse under the Qualified Plan as of such date, based on the age of the Participant (or Surviving Spouse, if applicable) and the form of payment elected by the Participant or Surviving Spouse, as applicable, under the Qualified Plan.

For purposes of subparagraphs (i) and (ii), the Qualified Plan shall be the Qualified Plan as in effect at the date of termination of employment, or death, if earlier, provided, however, that if the Qualified Plan is subsequently amended in a manner that affects the amount of benefit payable with respect to such Participant or Surviving Spouse, the terms of the Qualified Plan, as amended, shall, to the extent applicable, apply to such Participant or Surviving Spouse.

(b) Except as described in Section 4.2(c), the amount of the Code Section 415 Excess Retirement Benefit payable as a result of the application of the Benefit Limitation under the Qualified Plan pursuant to Section 4.2(a) shall be determined or redetermined, including a decrease, (i) as of the date when benefits are to commence pursuant to Section 4.4 or recommence pursuant to Section 4.7 (including the date survivor annuitant benefits payable to a Surviving Spouse commence following the death of a Participant who was receiving a monthly benefit from the Qualified Plan at the time of his or her death); (ii) as of the effective date of any subsequent increases and/or decreases in the Benefit Limitation, to the extent such increase and/or decrease affects the benefit payable to the Participant or Surviving Spouse under the Qualified Plan, and/or (iii) as of the effective date of any special increases in the benefit payable with respect to the Participant or Surviving Spouse, prior to application of the Benefit Limitation, as a result of amendments to the AT&T Management Pension Plan and/or the AT&T Pension Plan, whichever is applicable. Benefits under this Section 4.2 Plan shall also be redetermined upon the occurrence of an event described in Section 4.6.

(c) The provisions of Section 4.2(a) and Section 4.2(b) shall apply only (i) to benefits payable with respect to a Participant who terminated employment prior to January 1, 2005, and (ii) to benefits payable with respect to a Participant who terminated employment after December 31, 2004 if distribution commenced to either the Participant or the Surviving Spouse on or before December 1, 2008. Effective for distributions commencing after December 1, 2008, except with respect to a Participant who terminated employment prior to January 1, 2005, the Code Section 415 Excess Retirement Benefit shall be determined as of the later of (i) November 30, 2008 or (ii) the date of the Participant’s termination of employment, determined as if benefits under the Qualified Plan commenced in the form of a single life annuity as of such date, and shall not be subject to redetermination pursuant to Section 4.2(b). Notwithstanding the preceding, (i) with respect to a SERP Participant who is eligible to participate in the SERP on December 31, 2008, the Code Section 415 Excess Retirement Benefit shall be determined as of the earlier of termination of employment or the SERP Vesting Date, and (ii) with respect to a SERP Participant who first becomes eligible to participate in the SERP on or after January 1, 2009, the Code Section 415 Excess Retirement Benefit shall be determined as of the earlier of termination of employment or the Participant’s SERP Effective Date (as defined in the SERP), and with respect to any SERP Participant, shall not thereafter be subject to redetermination pursuant to Section 4.2(b).

4.3	Amount of Code Section 401(a)(17) Excess Retirement Benefit

(a) Subject to the provisions of Section 4.3(c), Section 4.7 and Section 4.8, the amount, if any, of the Code Section 401(a)(17) Excess Retirement Benefit payable monthly to a Participant or a Surviving Spouse pursuant to this Section 4.3 shall be equal to the excess, if any, of (i) over (ii) at the date of benefit commencement or recommencement, as applicable, where:

"(i)" is the amount of the monthly benefit which would be provided to the Participant or the Surviving Spouse under the AT&T Management Pension Plan as of such date, without regard to the Compensation Limitation and Benefit Limitation, based on the age of the Participant (or Surviving Spouse, if applicable) as of such date and the form of payment elected by the Participant or Surviving Spouse, as applicable, under the AT&T Management Pension Plan; and

"(ii)" is the amount of the monthly benefit actually payable to such Participant or Surviving Spouse under the AT&T Management Pension Plan as of such date, based on the age of the Participant (or Surviving Spouse, if applicable) and the form of payment elected by the Participant or Surviving Spouse, as applicable, under the AT&T Management Pension Plan, taking into account the Compensation Limitation, but prior to application of the Benefit Limitation.

For purposes of subparagraphs (i) and (ii), the determination of the benefits payable under this Plan shall be made pursuant to the terms of the AT&T Management Pension Plan as in effect at the date of termination of employment, or death, if earlier, provided, however, that if the AT&T Management Pension Plan is subsequently amended in a manner that affects the amount of benefit payable with respect to such Participant or Surviving Spouse, the terms of the AT&T Management Pension Plan, as amended, shall, to the extent applicable, apply to such Participant or Surviving Spouse.

(b) Except as described in Section 4.3(c), the amount of the Code Section 401(a)(17) Excess Retirement Benefit payable as a result of the application of the Compensation Limitation under the AT&T Management Pension Plan pursuant to Sections 4.3(a) shall be determined or redetermined, including a decrease, (a) as of the date when benefits are to commence pursuant to Section 4.4 or recommence pursuant to Section 4.7; (b) as of the effective date of any subsequent increases and/or decreases in the Compensation Limitation, to the extent such increase and/or decrease affects the benefit payable to the Participant or Surviving Spouse under the AT&T Management Pension Plan, and/or (c) as of the effective date of any special increases in the benefit payable with respect to the Participant or Surviving Spouse, prior to application of the Compensation Limitation, as a result of amendments to the AT&T Management Pension Plan. Benefits under this Section 4.3 Plan shall also be redetermined upon the occurrence of an event described in Section 4.6.

(c) The provisions of Section 4.3(a) and Section 4.3(b) shall apply only (i) to benefits payable with respect to a Participant who terminated employment prior to January 1, 2005, and (ii) to benefits payable with respect to a Participant who terminated employment after December 31, 2004 if distribution commenced to either the Participant or the Surviving Spouse on or before December 1, 2008. Effective for distributions commencing after December 1, 2008, except with respect to a Participant who terminated employment prior to January 1, 2005, the Code Section 401(a)(17) Excess Retirement Benefit shall be determined as of the later of (i) November 30, 2008 or (ii) the date of the Participant’s termination of employment, determined as if benefits under the AT&T Management Pension Plan commenced in the form of a single life annuity as of such date, and shall not be subject to redetermination pursuant to Section 4.3(b). Notwithstanding the preceding, (i) with respect to a SERP Participant who is eligible to participate in the SERP on December 31, 2008, the Code Section 401(a)(17) Excess Retirement Benefit shall be determined as of the earlier of termination of employment or the SERP Vesting Date, and (ii) with respect to a SERP Participant who first becomes eligible to participate in the SERP on or after January 1, 2009, the Code Section 401(a)(17) Excess Retirement Benefit shall be determined as of the earlier of termination of employment or the Participant’s SERP Effective Date (as defined in the SERP), and with respect to any SERP Participant, shall not thereafter be subject to redetermination pursuant to Section 4.3(b).

4.4.	Time and Form of Benefits Payable to a Participant or Surviving Spouse

(a) For Benefits Commencing Prior to 2005 . The Excess Retirement Benefit provided under the Plan payable to either the Participant or the Surviving Spouse, as applicable, with respect to benefits commencing prior to the 2005 calendar year shall be payable as follows:

(1)

With respect to a Participant whose Qualified Plan benefit is payable under the AT&T Management Pension Plan and who terminates employment prior to January 1, 1998, and with respect to a Participant whose Qualified Plan benefit is payable under the AT&T Pension Plan and who terminates employment prior to July 1, 1999, the Excess Retirement Benefit shall commence at the same time and shall be paid in the same benefit form as the Participant’s or Surviving Spouse’s benefits are paid under the AT&T Management Pension Plan or the AT&T Pension Plan, whichever is applicable, provided, however, that the Committee shall have the right to approve the election of the form of the Excess Retirement Benefit payable to the Participant under this Plan; and

(2)

With respect to a Participant whose Qualified Plan benefit is payable under the AT&T Management Pension Plan and who terminates employment after December 31, 1997, the Excess Retirement Benefit shall commence at the same time and shall be paid in the same form of annuity in which all or a portion of the Participant’s or Surviving Spouse’s benefits under the AT&T Management Pension Plan are paid, or if no annuity is payable from the AT&T Management Pension Plan under the form of payment elected, shall be paid in the form of a single life annuity, unless the Committee, in its sole discretion, elects to pay the Excess Retirement Benefit in the form of a single lump sum payment; and

(3)

With respect to a Participant whose Qualified Plan benefit is payable under the AT&T Pension Plan and who terminates employment after June 30, 1999, the Excess Retirement Benefit shall commence at the same time and shall be paid in the same form of annuity in which all or a portion of the Participant’s or Surviving Spouse’s benefits under the AT&T Pension Plan benefits are paid, or if no annuity is elected under the AT&T Pension Plan, shall be paid in the form of a single life annuity, unless the Committee, in its sole discretion, elects to pay the Excess Retirement Benefit in the form of a single lump sum payment.

(b) Benefits Commencing After 2004 and On or Before December 1, 2008 . With respect to a Participant whose Qualified Plan benefit commences after 2004, except as provided in Section 7.1 regarding payments in the form of a commercial annuity contract, the Excess Retirement Benefit shall commence at the same time and shall be paid in the same form of annuity in which all or a portion of the Participant’s or Surviving Spouse’s benefits under the Qualified Plan are paid, or if no annuity is elected under the Qualified Plan, in the form of a single life annuity.

(c) Benefits Commencing After December 1, 2008 . Payment of benefits with respect to a Participant whose Qualified Plan benefit has not commenced on or before December 1, 2008 shall be made in the time and form as described in the following subparagraphs (i) through (v), as applicable. For purposes of this subparagraph (c), if a Participant or Surviving Spouse is entitled to a benefit based on a Force Management Pension credit and/or a CIC Credit under the AT&T Management Pension Plan in addition to the regular pension benefit, and if such Participant or Surviving Spouse, as applicable, commenced distribution of only a portion of the Qualified Plan benefit (and associated benefit under this Plan) on or before December 1, 2008, then the provisions of subparagraphs (i) through (v) shall be applied separately to the portion of the benefit for which distribution has commenced, and that portion of the benefit for which distribution has not commenced by such date.

(i) Participants Terminating Prior to 2005 : The provisions of Section 4.4(b) regarding the time and form of payment of benefits under the Plan shall apply with respect to benefits commencing after December 1, 2008 to or with respect to a Participant who terminated employment prior to 2005. If such an individual is rehired into a position covered by this Plan after 2004, the terms of the Plan shall apply separately to the benefit earned prior to 2005 and the benefit earned after 2004.

(ii) Participants Terminating Employment after 2004 and Prior to December 1, 2008 : Subject to the provisions of Section 4.4(d) and Section 7.1(c), benefits payable to or with respect to a Participant who terminates employment after December 31, 2004 and before December 1, 2008 shall be paid as follows:

(A) if distribution of benefits with respect to the Participant commences on or before December 1, 2008, the time and form of payment of benefits under the Plan shall be determined in the manner described in Section 4.4(b), or

(B) if distribution of benefits does not commence on or before December 1, 2008, distribution shall be made to the Participant commencing on July 1, 2009 in the form of a lump sum equal to the present value determined pursuant to Section 4.4(c)(vi); provided, however, if the amount so determined exceeds $50,000, distribution shall be paid in monthly installments over a period of 120 months. If the Participant dies prior to the commencement of such payment, distribution equal to the present value of the amount that otherwise would have been payable to the Participant shall be made on July 1, 2009 to the Surviving Spouse, or if there is no Surviving Spouse, to the estate of the Participant. If the Surviving Spouse entitled to receive the benefit described in the preceding sentence dies after the Participant but before distribution of such benefit, the benefit shall be paid to the estate of the Surviving Spouse. Survivor benefits, if any, upon death following commencement of distribution to the Participant shall be determined pursuant to the provisions of Section 4.5(d).

(iii) Participants Terminating Employment On or After December 1, 2008 Who Are Not SERP Participants : Subject to the provisions of Section 4.4(c)(iv), Section 4.4(c)(v), and Section 4.4(d), benefits payable to a Participant who terminates employment on or after December 1, 2008 shall be paid in the form of a lump sum equal to the present value determined pursuant to Section 4.4(c)(vi), upon the Participant’s Termination of Employment; provided, however, if the amount so determined exceeds $50,000, distribution shall be paid in monthly installments over a period of 120 months. If the Participant dies before receiving a complete distribution of the benefits so determined, survivor benefits, if any, shall be paid in accordance with the provisions of Section 4.5.

(iv) SERP Participants on December 31, 2008 : Subject to the provisions of Section 4.4(d), with respect to a Participant who becomes eligible to participate in the SERP prior to January 1, 2009, Excess Retirement Benefits shall be paid to such Participant in accordance with the terms of an election made on or before December 31, 2008 with respect to benefits that may become payable to the Participant under the SERP, and shall be effective for purposes of this Plan without regard to whether such Participant becomes vested under the SERP. The amount payable from the Plan shall be the actuarial equivalent of the single life annuity benefit determined pursuant to the provisions of Section 4.2(c) and Section 4.3(c), based on the actuarial assumptions in effect under the SERP as of the date payments commence. Survivor benefits, if any, following the death of the Participant shall be determined in accordance with the provisions of Section 4.5.

(v) Participants Terminating Employment On or After December 1, 2008 Who Become SERP Participants After December 31, 2008 : Subject to the provisions of Section 4.4(d), with respect to a Participant who becomes eligible to participate in the SERP after December 31, 2008, Excess Retirement Benefits shall be paid in the form of a lump sum or in 120 monthly installments commencing upon Termination of Employment; the applicable form of payment shall be determined on the Participant’s SERP Effective Date, based on the present value of the Excess Retirement Benefit determined as if distribution of such benefit commenced on the SERP Effective Date in the form of a single life annuity, and based on the actuarial assumptions in effect under the SERP as of such date. If the present value determined as of the SERP Effective Date is $50,000 or less, the form of payment shall be a lump sum, and if present value exceeds $50,000, the form of payment shall be 120 monthly installments. The amount of the benefit payable commencing at Termination of Employment shall be determined in accordance with the provisions of Section 4.4(c)(vi). If the Participant dies before receiving a complete distribution of the benefits so determined, survivor benefits, if any, shall be paid in accordance with the provisions of Section 4.5

(vi) Determination of Present Value : For purposes of Section 4.4(c)(ii)(B), Section 4.4(c)(iii) and Section 4.4(c)(v), the present value shall be determined as follows:

(A) Employee who is not a SERP Participant: with respect to a Participant who is not a SERP Participant, equal to the present value of the single life annuity that would be payable under the Plan commencing on the Participant’s Normal Retirement Date. Such present value shall be determined on the basis of actuarial assumptions under the Qualified Plan as of such date, calculated as follows: the annual amount of the Excess Retirement Benefit shall be divided by the early commencement factor as set forth in Appendix B of the Qualified Plan for the Participant’s age at Termination of Employment, and multiplied by the factor for determining the lump sum value as set forth in Appendix B of the Qualified Plan for the Participant’s age at Termination of Employment. Notwithstanding the preceding, for a Participant described in Section 4.4(c)(ii)(B), the present value shall be based on the Participant’s age as of December 1, 2008, and the amount so determined will be accumulated to July 1, 2009 at an effective annual interest rate of four percent.

(B) Employee who is a SERP Participant: with respect to a Participant who is a SERP Participant, other than a SERP Participant described in Section 4.4(c)(iv), the present value of the amount payable at Termination of Employment shall be determined by multiplying the Excess Retirement Benefit determined pursuant to Section 4.2(c) and Section 4.3(c) by an immediate annuity factor based on the age of the Participant at Termination of Employment. The immediate annuity factor shall be based on the Mortality Tables and the GAAP Rate, both as in effect for the calendar year immediately preceding the calendar year of the Participant’s Termination of Employment and as defined in the SERP.

For purposes of Sections 4.4(c)(ii)(B), 4.4(c)(iii) and 4.4(c)(v) above, monthly installments shall be calculated in the same manner that a financial institution would calculate the monthly payments for a 10-year fixed interest loan. The interest rate used in the calculations shall be equal to the Code Section 417(e) interest rate in effect under the Qualified Plan on the date of the Participant’s Termination of Employment (except, with respect to distributions made pursuant to Section 4.4(c)(ii)(B), such rate in effect for the 2008 calendar year).

(d) Payments to Specified Employees. Notwithstanding the provisions of the preceding sections 4.4(a) through 4.4(c), effective on and after January 1, 2005 with respect to payments in the form of a commercial annuity pursuant to Section 7.1 and effective on and after January 1, 2009 with respect to all other payments under the Plan, payment of the Excess Retirement Benefit under the Plan with respect to a Participant who is eligible to participate in the SERP or who is determined to meet the definition of Specified Employee shall be payable as otherwise provided in this Plan, except that the initial payment shall be made no earlier than the sixth month anniversary of his or her Termination of Employment. If, absent this Section 4.4(d), payment to a Specified Employee would have commenced before the expiration of such six-month period, the first payment with respect to such Specified Employee will include the sum of the payments withheld, together with interest thereon. For purposes of the immediately preceding sentence, interest shall be credited using the GAAP Rate in effect as of the end of the calendar year immediately preceding the Participant’s Termination of Employment, for distributions made after December 31, 2007. “GAAP Rate” means such rate as defined under the SERP for the referenced period. Notwithstanding the preceding, for distributions made prior to January 1, 2008, interest credited for purposes of this Section 4.4(d) shall be at an effective annual rate equal to 120 percent of the Federal Mid-term rate in effect as of the date such annuity payments otherwise would have commenced.

4.5.	Additional Provisions for Payment of Excess Retirement Benefit Following Death

The provisions of this Section 4.5 apply upon the death of a Participant if payment of the Excess Retirement Benefit is determined pursuant to the provisions of Section 4.4(c)(iii), Section 4.4(c)(iv) or Section 4.4(c)(v), and, for purposes of Section 4.5(d), also to a Participant described in Section 4.4(c)(ii)(B). In all other circumstances, benefits, if any, payable following the death of the Participant, shall be determined as described elsewhere in this Plan.

(a) Death prior to commencement : If a Participant described in Section 4.4(c)(iii), Section 4.4(c)(iv) or Section 4.4(c)(v) dies before Termination of Employment, or following Termination of Employment but before the date as of which his or her benefit commences under this Plan, the Excess Retirement Benefit shall be payable in a lump sum to the Surviving Spouse, or if there is no Surviving Spouse, to the Participant’s estate, upon the death of the Participant. The amount of such lump sum payment shall be determined pursuant to the provisions of Section 4.5(c).

(b) Death of Spouse before payment of survivor benefit : If a Participant dies before the date as of which his or her benefit commences under this Plan, and he or she is survived by a Surviving Spouse entitled to payment of the Excess Retirement Benefit pursuant to Section 4.5(a), and such Surviving Spouse dies prior to the date payment of benefits under this Plan commence, a lump sum benefit shall be payable to the estate of the Surviving Spouse upon the death of the Surviving Spouse. The amount of such lump sum shall be determined pursuant to the provisions of Section 4.5(c).

(i) Except with respect to a SERP Participant, the single cash payment payable pursuant to Section 4.5(a) or Section 4.5(b) shall be equal to the difference between (A) the Participant’s “cash balance account” under the Qualified Plan as of the date of death of the Participant or the Surviving Spouse, as applicable, determined without regard to the Compensation Limitation or the Benefit Limitation, and (B) the corresponding payment that would be payable under the Qualified Plan as of the date of commencement of benefits under this Plan. No benefit is payable pursuant to Section 4.5(a) or Section 4.5(b) with respect to a Participant who does not have a cash balance account under the Qualified Plan at the time of his or her death.

(ii) The single cash payment payable pursuant to Section 4.5(a) or Section 4.5(b) upon the death of a Participant who is a SERP Participant, shall be determined by multiplying the Excess Retirement Benefit determined pursuant to Section 4.2(c) and Section 4.3(c) by an immediate annuity factor based on the age of the Participant on the date of death. The immediate annuity factor shall be based on the Mortality Tables and the GAAP Rate, both as in effect for the calendar year immediately preceding the calendar year of the Participant’s Termination of Employment and as defined in the SERP.

(d) Death following commencement of distribution for a Participant who is not a SERP Participant on December 31, 2008 : If the Participant dies following distribution of the lump sum pursuant to Section 4.4(c)(ii)(B), Section 4.4(c)(iii) or Section 4.4(c)(v), no benefit shall be payable with respect to such Participant’s Excess Retirement Benefit following the death of the Participant. If the Participant is receiving payment of the Excess Retirement Benefit in the form of installments pursuant to Section 4.4(c)(ii)(B), Section 4.4(c)(iii) or Section 4.4(c)(v) and dies prior to receiving such installments for 120 months, the present value of the remaining payments shall be made to the Surviving Spouse of such Participant, or if there is no Surviving Spouse, to the estate of the Participant. Such present value shall be calculated using the interest rate that was used to determine the amount of the monthly installments at the time distribution of such payments commenced.

(e) Death following commencement of distribution for a Participant who is a SERP Participant on December 31, 2008 : Upon the death following commencement of benefits under the Plan of a Participant described in Section 4.4(c)(iv), further payment of benefits related to the Excess Retirement Benefit shall be the survivor benefit, if any, payable under the terms of an election made on or before December 31, 2008 with respect to benefits that may become payable to the Participant under the SERP and under this Plan, determined under the actuarial assumptions and methodology set forth in the SERP. Any survivor benefit payable pursuant to this Section 4.5(e) shall be paid to the same beneficiary to whom survivor benefits are payable under the SERP.

4.6.	Future Benefit Adjustments

(a) Effective with respect to benefits that commenced on or before December 1, 2008, if a Participant has commenced receiving a pension under the Qualified Plan (other than a deferred vested pension under a formula other than cash balance) in the form of either a joint and 50 percent survivor annuity or a joint and 100 percent survivor annuity (including such a joint and survivor annuity pursuant to the cash payment option under the AT&T Management Pension Plan) and his or her designated annuitant subsequently predeceases him or her, the Participant’s Excess Retirement Benefit under this Plan shall be adjusted prospectively, by increasing the monthly pension by the original cost of the survivor annuity form of benefit under the Qualified Plan. Such adjustment shall be effective as of the first day of the first month following the death of the Participant’s designated annuitant. The amount, if any, which is to be paid from this Plan following the death of such designated annuitant shall be determined pursuant to the recalculation provisions of Section 4.2 and Section 4.3. The provisions of this Section 4.6(a) do not apply with respect to a distribution in the form of a commercial annuity pursuant to Section 7.1.

(b) In the event that, following commencement of benefits on or before December 1, 2008 to a Participant or Surviving Spouse under the Plan, the Qualified Plan benefit is subsequently increased as a result of a successful claim for benefits under the Qualified Plan, the Excess Retirement Benefit to the Participant or Surviving Spouse under this Article 4 shall be recalculated as soon as practicable after the Qualified Plan benefit is adjusted. The Company shall have the right to recover any benefits paid from this Plan to the extent that such payments are subsequently paid by the Qualified Plan as a result of such successful claim for benefits under those plans.

4.7.	Suspension and Recommencement of Benefit Payments

Subject to Section 5.2, if a Participant’s benefit payments under the Qualified Plan are suspended (or would have been suspended if the Participant had not received his or her total benefit under such plan as a lump sum) under the terms of that plan because of his or her employment or reemployment subsequent to termination of employment, any type of benefit payment he or she is entitled to under this Plan shall be permanently suspended for the period of such employment or reemployment to the extent and in a manner consistent with the terms and conditions applicable to the suspension of benefit payments under the Qualified Plan, provided, however, that payments for which an Executive is entitled pursuant to a commercial annuity contract purchased on his or her behalf pursuant to Section 7.1 of the Plan shall not be suspended for the period of such employment or reemployment. Payment of a Participant’s suspended benefit under this Plan shall recommence simultaneously with the recommencement of his or her benefits under the Qualified Plan. The amount of the Participant’s Excess Retirement Benefit upon recommencement shall be adjusted (including a decrease, if applicable) to reflect adjustments, if any, in the amount of the Participant’s pension benefit under the Qualified Plan resulting from the period of reemployment, pursuant to Section 4.2 and/or Section 4.3, including any recalculations pursuant to Section 4.2(b) and Section 4.3(b). Following recommencement of payment under this Plan, the Participant (or Surviving Spouse) shall not be eligible to receive any payments that would otherwise have been payable but for the suspension.

4.8.	Application of Code Section 417(e)

Notwithstanding the foregoing provisions of this Article 4, effective for distributions commencing on or before December 1, 2008, if the application of Code Section 417(e) has resulted in an increase in the Participant’s or Surviving Spouse’s otherwise payable benefit under the AT&T Management Pension Plan (including the VRIP provisions) or the AT&T Pension Plan, the benefit otherwise determinable under this Plan will be decreased by the amount of the increase attributable to the application of Code Section 417(e) under the AT&T Management Pension Plan or the AT&T Pension Plan, as applicable, even if this decrease results in eliminating the Excess Retirement Benefit from this Plan.

4.9.	Change in Control Provisions

(a) In accordance with the preceding provisions of Article 3 and this Article 4, following the occurrence of a Change in Control, the benefit determined pursuant to Section 4.2 and/or Section 4.3 for a CIC Eligible Employee shall be determined taking into account the Change in Control provisions of the AT&T Management Pension Plan.

(b) Notwithstanding the provisions of Section 9.1, or any other provision of the Plan, unless required by applicable law, this Section 4.9 may not be amended in any manner adverse to the interests of Participants without their consent and, further, upon the occurrence of a Change in Control, no amendment may be made to this Section 4.9 by the Board, the Company, (including any successor to the Company), any committee, any officer, or any other party to suspend, modify, or eliminate any benefit provisions that are applicable upon occurrence of a Change in Control.

4.10.

Excess Death Benefit

(a) If an Accident Death Benefit (for periods prior to January 1, 1999), Sickness Death Benefit or Pensioner Death Benefit (collectively, “Death Benefit”) is payable under the terms of the AT&T Management Pension Plan but is limited by reason of the Compensation Limitation, an Excess Death Benefit shall be paid as provided in this Section 4.10 to the Beneficiary of an Executive otherwise entitled to receive the Death Benefit under the terms and conditions of the AT&T Management Pension Plan, including the condition that no Pensioner Death Benefit is payable with respect to a Participant who has commenced distribution of the pension benefit under the AT&T Management Pension Plan but who at the time of death is not receiving payment in the form of an annuity from that plan.

(b) The amount, if any, of the Excess Death Benefit payable shall be equal to the difference between (i) and (ii) where:

“(i)” is the amount of the Death Benefit which would be provided to the Beneficiary under the AT&T Management Pension Plan, if any, without regard to the Compensation Limitation under the AT&T Management Pension Plan; and

“(ii)” is the amount of the Death Benefit actually payable to such Beneficiary under the AT&T Management Pension Plan.

(c) The Excess Death Benefit provided under this Plan, if any, (i) shall commence at the same time, (ii) shall be paid for as long as, and (iii) shall be paid in the same benefit form as the Committee or its delegate has determined with respect to the Death Benefit payable under the AT&T Management Pension Plan. Notwithstanding the preceding, effective for deaths occurring on or after January 1, 2009, the Excess Death Benefit, if any, shall be paid in a lump sum within a reasonable period of time following the date the Beneficiary is identified by the Committee or its delegate.

Article

Miscellaneous Provisions

5.1.	Determination of Benefits

Except as otherwise indicated herein, Excess Retirement Benefit payments under Article 4 of this Plan shall be calculated in accordance with the rules, procedures, and assumptions utilized under the AT&T Management Pension Plan or the AT&T Pension Plan, whichever is applicable. Thus, whenever it is necessary to determine whether one benefit is less than, equal to, or larger than another, or to determine the equivalent actuarial value of any benefit, whether or not such form of benefit is provided under this Plan, such determination shall be made, at the Administrator’s discretion, by AT&T Corp.’s enrolled actuary, using mortality, interest and other assumptions normally used at the time in determining actuarial equivalence under the AT&T Management Pension Plan or AT&T Pension Plan, whichever is applicable.

5.2.	Mandatory Portability Agreement

A Participant (a) who is employed by an “Interchange Company,” as that term is defined under the Mandatory Portability Agreement (“MPA”), subsequent to retirement or termination of employment from AT&T Corp., its subsidiaries or any affiliated company, (b) who is covered under the terms and conditions of the MPA, and (c) for whom assets and liabilities are transferred from the AT&T Management Pension Plan or the AT&T Pension Plan to a defined benefit pension plan of an Interchange Company, shall forfeit his rights to an Excess Retirement Benefit under this Plan, including the rights of the Participant’s spouse to an Excess Retirement Benefit as a Surviving Spouse and the rights of a Beneficiary to an Excess Death Benefit.

Article

Disposition of Participating Company

6.1.	Sale, Spin-Off, or Other Disposition of Participating Company

(a) Subject to Sections 5.2 and 10.1, in the event AT&T Corp. sells, spins off, or otherwise disposes of a Subsidiary, or disposes of all or substantially all of the assets of a Subsidiary such that one or more Participants terminate employment for the purpose of accepting employment with the purchaser of such stock or assets, any person employed by such Subsidiary who ceases to be an employee as a result of the sale, spin-off, or disposition shall be deemed to have terminated his or her employment with a Participating Company and be eligible for an Excess Retirement Benefit commencing in accordance with the terms and conditions of this Plan that are applicable to a separation from service. Further, if the Participant dies after termination of employment as described in this Section 6.1, his or her Surviving Spouse may be entitled to an Excess Retirement Benefit, if eligible as provided in Sections 4.2 and 4.3, and/or his or her Beneficiary may be entitled to an Excess Death Benefit, if eligible as provided in Section 4.10. Notwithstanding the preceding, effective January 1, 2005, no distribution shall commence pursuant to this Section 6.1(a) unless the Participant has a separation from service, as defined under Code Section 409A, with all members of the AT&T controlled group.

(b) Notwithstanding the foregoing provisions of this Section 6.1, and subject to Section 10.1, if, as part of the sale, spin-off, or other disposition of the stock or assets of a Subsidiary, the Subsidiary, its successor owner, or any other party agrees in writing to assume the liability for the payment of the Excess Retirement Benefit and/or the Excess Death Benefit to which the Participant, Surviving Spouse and/or Beneficiary would have been entitled under the Plan but for such sale, spin-off, or other disposition, then the entitlement of the Participant or his or her Surviving Spouse to an Excess Retirement Benefit and/or any Beneficiary to an Excess Death Benefit under this Plan shall terminate. Any subsequent entitlement of the former Participant or his or her Surviving Spouse or Beneficiary to the Excess Retirement Benefit and/or the Excess Death Benefit shall be the sole responsibility of the assuming party.

Article

Source of Payment

7.1.	Source of Payments

(b) In addition, subject to the provisions of Section 7.1(d), the Company may, in its sole discretion, purchase and distribute one or more commercial annuity contracts, or cause the trustee of the trust to purchase and distribute one or more commercial annuity contracts, to make benefit payments required under this Plan, to any Officer, as defined in the AT&T Non-Qualified Pension Plan, or the Surviving Spouse of any Officer, provided, however, that with respect to an annuity purchase occurring prior to January 1, 2005, the purchase and distribution of any such annuity contracts shall be no sooner than the expiration of any forfeiture provisions applicable to the Officer under the AT&T Non-Competition Guidelines, or as otherwise may be provided in accordance with procedures establish by the Executive Vice President – Human Resources (or any successor to such position), and provided further that, effective January 1, 2004, the Company’s right to direct that payments under the Plan shall be made through one or more commercial annuity contracts shall be applicable to only the benefits payable to any Participant, or the Surviving Spouse of any such Participant, as applicable, who (1) was on the active payroll of the Company (or on an approved leave of absence with guaranteed right of reinstatement) and classified as an Officer on December 31, 2003, and (2) satisfies the age and service requirements, or is within twelve months of satisfying the requirements in effect at the time the Participant terminates employment with the Company for the receipt of retirement-related health benefits under the AT&T Corp. Postretirement Welfare Benefits Plan (or any successor to such plan) (other than by virtue of the “Rule of 65”or through a Company-sponsored employee-paid health benefits access program, or through the AT&T Corp. Separation Medical Plan), without regard to whether or not the Officer has five years of service as of December 31, 1999. Such annuity contracts may be purchased from a commercial insurer acceptable to the Executive Vice President - Human Resources (or any successor to such position). Further, the Executive Vice President - Human Resources (or any successor to such position), may determine, in his or her sole discretion, to pay additional sums to any Officer, from the Company’s general assets or from the trust, if any, to reimburse the Officer for additional federal and state income taxes estimated to be incurred by reason of the distribution of any such annuity contracts. The Executive Vice President - Human Resources (or any successor to such position) shall establish a methodology or methodologies for determining the amount of such additional sums. The methodology or methodologies selected shall be those that the Executive Vice President - Human Resources (or any successor to such position) determines, in his or her sole discretion, to be the most effective and administratively feasible for the purpose of producing after-tax periodic benefit payments that approximate the after-tax periodic benefit payments that would have been received by Officers in the absence of the distribution of the annuity contract. Any such purchase and distribution of an annuity contract shall be a full and complete discharge of the Plan’s, AT&T Corp.’s and the Participating Companies’ liability for payments assumed by the issuer of the annuity contract.

(c) Notwithstanding the provisions of the preceding Section 7.1(b), effective January 1, 2005, a Participant who is eligible to elect to receive his or her benefit under the Plan in the form of a third-party commercial annuity contract pursuant to Section 7.1(b) shall be required to submit an election, on a form provided by the Company, with respect to the time and form of payment in which benefits under this Plan shall be distributed for any reason other than the death of the Participant. Such election form shall be submitted to the Company no later than one of the following dates, whichever is applicable: (i) such Eligible Employee’s separation from service, with respect to distribution of such annuity contract during the 2005 calendar year, (ii) the earlier of (A) such employee’s separation from service, or (B) December 31, 2005, with respect to the distribution of such annuity contract during the 2006 calendar year, and (iii) December 31, 2006, for distributions of such annuity contracts occurring after the 2006 calendar year. Notwithstanding the foregoing, the Company may permit such an employee to submit a distribution election form in 2006 with respect to his or her benefits under the Plan, provided that such election in the 2006 calendar year may not result in a change in payment elections with respect to payments that the Participant would otherwise receive during the 2006 calendar year, or to cause payments to be made in 2006, to the extent permitted under the proposed Treasury Regulations under Code Section 409A.

(d) Notwithstanding the provisions of the preceding Section 7.1(b) and Section 7.1(c), the annuity purchase program described in Section 7.1(b) shall be discontinued effective September 6, 2007, and any election in effect on September 6, 2007 pursuant to which a Participant has elected to receive distribution of his or her benefits under this Plan through the purchase of a commercial annuity contract shall be null and void, as such election relates to any distribution from this Plan to a Participant or Surviving Spouse occurring after September 6, 2007.

7.2.	Unfunded Status

The Plan at all times shall be entirely unfunded for purposes of the Code and ERISA and no provision shall at any time be made with respect to segregating any assets of a Participating Company for payment of any benefits hereunder. Funds that may be invested through a trust described in Section 7.1 shall continue for all purposes to be part of the general assets of the Participating Company that invested the funds. The Plan constitutes a mere promise by AT&T Corp. and the Participating Companies to make Excess Retirement Benefit payments and Excess Death Benefit payments, if any, in the future. No Participant, Surviving Spouse or any other person shall have any interest in any particular assets of a Participating Company by reason of the right to receive a benefit under the Plan and to the extent the Participant, Surviving Spouse or any other person acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of a Participating Company.

7.3.	Fiduciary Relationship

Nothing contained in the Plan, and no action taken pursuant to the provisions of the Plan, shall create or be construed to create a trust or a fiduciary relationship between or among AT&T Corp., any other Participating Company, the Board, the Administrator, the Committee, any Participant, any Surviving Spouse, or any other person, except as provided in Section 8.4.

Article

Administration of the Plan

8.1.	Administration

AT&T Corp. shall be the “administrator” of the Plan as that term is defined in ERISA.

8.2.	Indemnification

Neither the Administrator, any member of the Board or of the Committee, nor each other officer to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, shall be personally liable by reason of any contract or other instrument executed by such individual or on his or her behalf in his or her capacity as the Administrator or as a member of the Board or of the Committee, nor for any mistake of judgment made in good faith, and AT&T Corp. shall indemnify and hold harmless the Administrator, each member of the Board, each member of the Committee, and each other employee or officer to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or bad faith.

8.3.	Claims Procedure

(a) All claims for benefit payments under the Plan shall be submitted in writing by the Participant, Surviving Spouse, Beneficiaries, estate, or the duly authorized representative of such person or estate (“Claimant” for purposes of this Section 8.3) to the Plan Administrator. The Plan Administrator shall notify the Claimant in writing within 90 days after receipt as to whether the claim has been granted or denied. This period may be extended for up to an additional 90 days, for a total of 180 days, in the case of special circumstances provided that written notice of the extension is furnished to the Claimant prior to the commencement of the extension. In the event the claim is denied, in whole or in part, the Claimant will receive notice of the Plan Administrator’s decision, including: (i) the specific reasons for the denial, (ii) reference to the pertinent Plan provisions on which the denial is based, (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary, and (iv) a description of the Plan’s procedures for appealing the denial (including applicable time limits) and the Claimant’s right to bring a civil action under section 502(a) of ERISA, to the extent ERISA applies to such claim for benefits, following an adverse determination on review.

(b) Any Claimant whose claim for benefits has been denied, in whole or in part, may, within 60 days of receipt of any adverse benefit determination, appeal such denial to the Committee. All appeals shall be in the form of a written statement and shall (i) set forth all of the reasons in support of favorable action on the appeal, (ii) identify those provisions of the Plan upon which the Claimant is relying, and (iii) include copies of any other documents, records and other materials which may support favorable consideration of the claim. If the Claimant submits a written request for review of a denied claim, the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim (as defined in DOL Reg. §2560.503-1(m)(8) for claims filed on or after January 1, 2002), to the extent ERISA applies to such claim for benefits, and (iv) a statement of the right of the Claimant to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review, to the extent ERISA applies to such claim for benefits. The Committee shall decide the issues presented within 60 days after receipt of such request, but this period may be extended for up to an additional 60 days in the case of special circumstances provided that written notice of the extension is furnished to the Claimant prior to the commencement of the extension. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the determination. In the case of an adverse determination, the decision of the Committee shall be set forth in writing and include (i) the specific reason or reasons for the adverse determination, (ii) reference to the pertinent Plan provisions on which the denial is based, (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information (as defined in DOL Reg. §2560.503-1(m)(8) for claims filed on or after January 1, 2002) relevant to the Claimant’s claim for benefits, to the extent ERISA applies to such claim for benefits, and (iv) a statement of the right of the Claimant to bring a civil action under ERISA Section 502(a), to the extent ERISA applies to such claim for benefits.

Any Claimant whose claim for benefits has been denied shall have such further rights of review as are provided in ERISA Section 503, and the Committee and Plan Administrator shall retain such right, authority, and discretion as is provided in or not expressly limited by ERISA Section 503.

(c) The Committee shall serve as the final review committee, under the Plan and ERISA, for the review of all appeals by Claimants whose initial claims for benefits have been denied, in whole or in part, by the Plan Administrator. The Committee shall have the authority, subject to Section 8.3(d), to determine conclusively for all parties any and all questions arising from administration of the Plan, and shall have sole and complete discretionary authority and control to manage the operation and administration of the Plan, including, but not limited to, authorizing disbursements according to the Plan, the determination of all questions relating to eligibility for participation and benefits, interpretation of all Plan provisions, determination of the amount and kind of benefits payable to any Participant, Surviving Spouse, Beneficiary or estate, and the construction of disputed and doubtful terms. Such decisions by the Committee shall be conclusive and binding on all parties and not subject to further review.

(d) In the event that the Company (or its designee) fails to make a decision on a claim and/or appeal within 20 days of an event entitling the Claimant to a payment under this Plan (or, if later, within the ninety/sixty day period, with extensions, set forth in Section 8.3(a) and (b)), the Trustee of the AT&T Corp. Benefits Protection Trust (“Trust”) may make a decision in lieu of the Company (or its designee) as authorized by the Trust and subject to the terms and conditions of the Trust. Any decision by the Trustee to make a payment under this Plan to the Claimant is subject to the availability of Trust assets allocated to pay benefits under this Plan. A payment to the Claimant from the prorated Trust assets shall be considered a satisfaction of the Company’s liability under this Plan to the extent payment from the Trust was sufficient to cover the amount determined by the Trustee as the amount to which the Claimant was entitled.

8.4.	Named Fiduciaries

AT&T Corp., the Committee, the Administrator(s) and each Participating Company, and effective beginning August 22, 2006, the Chief Financial Officer of AT&T Inc., and the individual directly reporting to the Chief Executive Officer of AT&T Inc., who has responsibility for human resource matters, are each a named fiduciary as that term is used in ERISA with respect to the particular duties and responsibilities herein provided to be allocated to each of them, respectively.

8.5.	Role of the Committee

(a) The Committee shall have the specific powers elsewhere herein granted to it and shall have such other powers as may be necessary in order to enable it to administer the Plan, except for powers herein granted or provided to be granted to others.

(b) The adoption of by-laws and rules for the employment of a secretary and assistants shall be the same as are set forth in AT&T Management Pension Plan or the AT&T Pension Plan.

8.6.	Allocation of Responsibilities

AT&T Corp. may allocate responsibilities for the operation and administration of the Plan consistent with the Plan’s terms, including allocation of responsibilities to the Committee and the other Participating Companies. AT&T Corp. and other named fiduciaries may designate in writing other persons to carry out their respective responsibilities under the Plan, and may employ persons to advise them with regard to any such responsibilities.

8.7.	Multiple Capacities

Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan.

Article

Amendment and Termination

9.1.	Amendment and Termination

Pursuant to ERISA Section 402(b)(3), and subject to Section 4.9 of the Plan, the Board or its delegate (acting pursuant to the Board’s delegations of authority then in effect) may from time to time amend, suspend, or terminate the Plan at any time. Plan amendments may include, but are not limited to, elimination or reduction in the level or type of benefits provided prospectively to any class or classes of Participants (and Surviving Spouses and Beneficiaries). Any and all Plan amendments may be made without the consent of any Participant, Surviving Spouse or Beneficiary. Notwithstanding the foregoing, no such amendment, suspension, or termination shall retroactively impair or otherwise adversely affect the rights of any Participant, Surviving Spouse, or other person to benefits under the Plan, the AT&T Management Pension Plan or the AT&T Pension Plan which have arisen prior to the date of such action.

Notwithstanding the preceding, the Board may adopt any prospective or retroactive amendment that it determines is necessary for the Plan to maintain its compliance with Code Section 409A.

Article

10.

General Provisions

10.1.

Binding Effect

The Plan shall be binding upon and inure to the benefit of each Participating Company and its successors and assigns, and to each Participant, his or her successors, designees, Beneficiaries, designated annuitants, and estate. The Plan shall also be binding upon any successor corporation or organization succeeding to substantially all of the assets and business of AT&T Corp. Nothing in the Plan shall preclude AT&T Corp. from merging or consolidating into or with, or transferring all or substantially all of its assets to, another corporation which assumes the Plan and all obligations of AT&T Corp. hereunder. AT&T Corp. agrees that it will make appropriate provision for the preservation of the rights of Participants, Surviving Spouses and Beneficiaries under the Plan in any agreement or plan or reorganization into which it may enter to effect any merger, consolidation, reorganization, or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets, the term “Participating Company” shall refer to such other corporation and the Plan shall continue in full force and effect.

10.2.

No Guarantee of Employment

Neither the Plan nor any action taken hereunder shall be construed as (i) a contract of employment or deemed to give any Participant the right to be retained in the employment of a Participating Company, the right to any level of compensation, or the right to future participation in the Plan; or (ii) affecting the right of a Participating Company to discharge or dismiss any Participant at any time.

10.3.

Assignment of Benefits

No Excess Retirement Benefit or Excess Death Benefit under this Plan or any right or interest in such Excess Retirement Benefit or Excess Death Benefit shall be assignable or subject in any manner to anticipation, alienation, sale, transfer, claims of creditors, garnishment, pledge, execution, attachment or encumbrance of any kind, including, but not limited to, pursuant to any domestic relations order (within the meaning of ERISA Section 206(d)(3) and Code Section 414(p)(1)(B)) or judgment or claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings, and any such attempted disposition shall be null and void.

10.4.

Facility of Payment

If the Plan Administrator shall find that any person to whom any amount is or was payable under the Plan is unable to care for his or her affairs because of illness or accident, then any payment, or any part thereof, due to such person (unless a prior claim therefore has been made by a duly appointed legal representative), may, if the Plan Administrator so directs AT&T Corp., be paid to the same person or institution that the benefit with respect to such person is paid or to be paid under the AT&T Management Pension Plan or AT&T Pension Plan, if applicable, or the Participant’s Surviving Spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Administrator to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of AT&T Corp., the Board, the Committee, the Administrator, and the Participating Company therefore. If any payment to which a Participant, Surviving Spouse or Beneficiary is entitled under this Plan is unclaimed or otherwise not subject to payment to the person or persons so entitled, such amounts representing such payment or payments shall be forfeited after a period of two years from the date the first such payment was payable and shall not escheat to any state or revert to any party; provided, however, that any such payment or payments shall be restored if any person otherwise entitled to such payment or payments makes a valid claim.

10.5.

Severability

If any section, clause, phrase, provision, or portion of this Plan or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Plan and shall not affect the application of any section, clause, provision, or portion hereof to other persons or circumstances.

10.6.

Plan Year

Each plan year shall begin on January 1 and end on December 31.

10.7.

Headings

The captions preceding the sections and articles hereof have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan.

10.8.

Governing Law

The Plan shall be governed by the laws of the State of Texas (other than its conflict of laws provisions) from time to time in effect, except to the extent such laws are preempted by the laws of the United States of America.

10.9.

Entire Plan

This written Plan document is the final and exclusive statement of the terms of this Plan, and any claim of right or entitlement under the Plan shall be determined in accordance with its provisions pursuant to the procedures described in Article 8. Unless otherwise authorized by the Board or its delegate, no amendment or modification to this Plan shall be effective until reduced to writing and adopted pursuant to Section 9.1.

10.10.

Overpayments

If any overpayment is made by the Plan for any reason, the Plan shall have the right to recover such overpayment. The Participant shall cooperate fully with the Plan to recover any overpayment and provide any necessary information and required documents. Any recovery of overpayment pursuant to this Section 10.10 may be deducted from future benefits payable to or on behalf of the Participant from this Plan.

Exhibit 10-e

SUPPLEMENTAL RETIREMENT INCOME PLAN

Effective: January 1, 1984

Revisions Effective: December 31, 2008

SUPPLEMENTAL RETIREMENT INCOME PLAN

Purpose.

The purpose of the Supplemental Retirement Income Plan ("Plan") is to provide Eligible Employees with retirement benefits to supplement benefits payable pursuant to AT&T's qualified group pension plans.

Except as provided in this paragraph, no benefits shall accrue under this Plan after December 31, 2004. The Plan shall be applied and interpreted consistent with Treasury Regulations issued under Code Section 409A(e)(1) so that no benefit hereunder is an amount deferred after December 31, 2004 and the Plan is not subject to the provisions of Code Section 409A; provided, however, a Participant’s Age shall be determined as of December 31, 2008, or, if earlier, the Participant’s Termination of Employment. The Administrative Committee shall have discretionary authority to interpret this Plan consistent with this Section 1, and the Committee’s determination shall be final and conclusive.

A Participant’s accrued benefit hereunder as of December 31, 2004 shall equal the present value as of December 31, 2004 of the amount to which a Participant would be entitled under this Plan assuming the Participant voluntarily terminated employment without cause on December 31, 2004 and received a full payment of his or her SRIP benefits on the earliest possible date allowed hereunder following such deemed Termination of Employment, but only to the extent such SRIP benefits are earned and vested as of December 31, 2004. For purposes of such calculation, a Participant’s Years of Service and Final Average Earnings shall be determined as of December 31, 2004, and a Participant’s Age shall be determined as of December 31, 2008, or, if earlier, the Participant’s Termination of Employment.

2	Definitions.

For purposes of this Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise:

Administrative Committee . "Administrative Committee" means a Committee consisting of the Senior Executive Vice President-Human Resources and two or more other members designated by the Senior Executive Vice President-Human Resources who shall administer the Plan.

Agreement . "Agreement" means the written agreement (substantially in the form attached to this Plan as Attachment A) that shall be entered into between AT&T by the Senior Executive Vice President-Human Resources and a Participant to carry out the Plan with respect to such Participant. Entry into a new Agreement shall not be required upon amendment of the Plan or upon an increase in a Participant's Retirement Percent (which increase shall nevertheless be utilized to determine the Participant's benefits hereunder even though not reflected in the Participant's Agreement), except entry into a new Agreement shall be required in the case of an amendment which alters, to the detriment of a Participant, the benefits described in this Plan as applicable to such Participant (See Section 6.5). Such new Agreement shall operate as the written consent required by Section 6.5 of the Participant to such amendment.

Beneficiary . "Beneficiary" shall mean any beneficiary or beneficiaries designated by the Eligible Employee pursuant to the AT&T Rules for Employee Beneficiary Designations as may hereafter be amended from time-to-time ("Rules").

Chairman . "Chairman" shall mean the Chairman of the Board of AT&T Inc.

Disability . "Disability" means any Termination of Employment prior to being Retirement Eligible (without regard to the 5 Years of Service requirement otherwise applicable to certain Participants age 55 or older) that the Administrative Committee, in its complete and sole discretion, determines is by reason of a Participant's total and permanent disability. The Administrative Committee may require that the Participant submit to an examination by a competent physician or medical clinic selected by the Administrative Committee. On the basis of such medical evidence, the determination of the Administrative Committee as to whether or not a condition of total and permanent disability exists shall be conclusive.

Earnings . "Earnings" means for a given calendar year the Participant's: (1) bonus earned as a short term award during the calendar year but not exceeding 200% of the target amount of such bonus (or such other portion of the bonus or target bonus as may be determined by the Human Resources Committee of the Board of AT&T), plus (2) base salary before reduction due to any contribution pursuant to any deferred compensation plan or agreement provided by AT&T, including but not limited to compensation deferred in accordance with Section 401(k) of the Internal Revenue Code. Notwithstanding anything herein to the contrary, “Earnings” shall not include any amounts earned or paid on or after January 1, 2005.

Eligible Employee . "Eligible Employee" means an Officer or a non-Officer employee of any AT&T company who is designated by the Chairman as eligible to participate in the Plan. Effective on and after July 1, 1994, only an Officer may become an Eligible Employee. Notwithstanding the foregoing, the Chairman, may, at any time and from time to time, exclude any Employee or group of Employees from being deemed an “Eligible Employee” under this plan.

Final Average Earnings . "Final Average Earnings" means the average of the Participant's Monthly Earnings for the thirty-six (36) consecutive months out of the one hundred twenty (120) months next preceding January 1, 2005 which yields the highest average earnings. If the Participant has fewer than thirty-six (36) months of employment prior to January 1, 2005, the average shall be taken over his or her period of employment prior to January 1, 2005.

GAAP Rate . "GAAP Rate" means the interest rate used for valuing Plan liabilities on the immediately preceding December 31 and periodic pension expense for the calendar year for purposes of AT&T's financial statement reporting requirements for the referenced period.

Immediate Annuity Value . "Immediate Annuity Value" means the annual amount of annuity payments that would be paid out of a plan on a single life annuity basis if payment of the plan's benefit was commenced immediately upon Termination of Employment, notwithstanding the form of payment of the plan's benefit actually made to the Participant (i.e., joint and survivor annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such benefit.

Mid-Career Hire . “Mid-Career Hire” means an individual (i) initially hired or rehired at age 35 or older into a position eligible for benefits under this Plan or (ii) initially hired or rehired at age 35 or older who is subsequently promoted to a position eligible for benefits under this Plan.

Monthly Earnings . "Monthly Earnings" means one-twelfth (1/12) of Earnings.

Mortality Tables . "Mortality Tables" means the mortality tables as defined by Code Section 417(e) for valuing minimum lump sum benefits payable from qualified pension plans for the referenced period.

Officer . "Officer" shall mean an individual who is designated as an officer level Employee for compensation purposes on the records of AT&T.

Participant . A "Participant" means an Eligible Employee who has entered into an Agreement to Participate in the Plan.

Retire or Retirement . "Retire" or "Retirement" shall mean the Termination of Employment of an Eligible Employee for reasons other than death, on or after the earlier of the following dates: (1) the date the Eligible Employee is Retirement Eligible or (2) the date the Eligible Employee has attained one of the following combinations of age and service at Termination of Employment on or after April 1, 1997, except as otherwise indicated below:

Net Credited Service Age

10 years or more 65 or older

20 years or more 55 or older

25 years or more 50 or older

30 years or more Any age

With respect to an Eligible Employee who is granted an EMP Service Pension under and pursuant to the provisions of the AT&T Pension Benefit Plan - Nonbargained Program ("ATTPBP") upon Termination of Employment, the term "Retirement" shall include such Eligible Employee's Termination of Employment.

Retirement Eligible . "Retirement Eligible" or "Retirement Eligibility" means that a Participant has attained age 55 and, for an individual who becomes a Participant on or after January 1, 2002, has five (5) Years of Service. Note: Any reference in any other AT&T plan to a person being eligible to retire with an immediate pension pursuant to the AT&T Supplemental Retirement Income Plan shall be interpreted as having the same meaning as the term Retirement Eligible.

Retirement Percent . "Retirement Percent" means the percent specified in the Agreement with the Participant which establishes a Target Retirement Benefit (see Section 3.1) as a percentage of Final Average Earnings.

AT&T . "AT&T" means AT&T Inc.

Service Factor . "Service Factor" means, unless otherwise agreed in writing by the Participant and AT&T, either (a) a deduction of 1.43 percent, or .715 percent for Mid-Career Hires, multiplied by the number by which (i) thirty-five (or thirty in the case of an Officer) exceeds (ii) the number of Years of Service of the Participant determined as of December 31, 2004, or (b) a credit of 0.715 percent multiplied by the number by which (i) the number of Years of Service of the Participant determined as of December 31, 2004 exceeds (ii) thirty-five (or thirty in the case of an Officer). For purposes of the above computation, a deduction shall result in the Service Factor being subtracted from the Retirement Percent whereas a credit shall result in the Service Factor being added to the Retirement Percent.

Termination of Employment . "Termination of Employment" means the ceasing of the Participant's employment from the AT&T controlled group of companies for any reason whatsoever, whether voluntarily or involuntarily.

Year . A "Year" is a period of twelve (12) consecutive calendar months.

Years of Service . "Years of Service" means the number of each complete years of continuous, full-time service as an employee beginning on the date when a Participant first began such continuous employment with any AT&T company and on each anniversary of such date, including service prior to the adoption of this Plan.

3	Plan ("SRIP") Benefits.

3.1	Termination of Employment/Vesting.

With respect to (1) a person who becomes a Participant prior to January 1, 1998, or (2) a person who prior to January 1, 1998 is an officer of a Pacific Telesis Group ("PTG") company and becomes a Participant after January 1, 1998, upon such a Participant's Termination of Employment, AT&T shall pay to such Participant a SRIP Benefit in accordance with Section 3.3. The amount of such SRIP Benefit is calculated as follows:

Final Average Earnings

x Revised Retirement Percentage

= Target Retirement Benefit

- Immediate Annuity Value of any AT&T/PTG Qualified Pensions as of

December 31, 2004

- Immediate Annuity Value of any other AT&T/PTG Non-Qualified

Pensions as of December 31, 200 4

= Target Benefit

- Age Discount

= Annual Value of Life with 10 Year Certain SRIP Benefit immediately payable upon Termination of Employment

With respect to a person who is appointed an Officer and becomes a Participant on or after January 1, 1998, upon such a Participant's Termination of Employment, AT&T shall pay to such Participant a SRIP Benefit in accordance with Section 3.3. The amount of such SRIP Benefit is calculated as follows:

Final Average Earnings

X Revised Retirement Percentage

= Target Retirement Benefit

- Age Discount

= Discounted Target Benefit

- Immediate Annuity Value of any AT&T/PTG Qualified Pensions as of

December 31, 2004

-	Immediate Annuity Value of any AT&T/PTG Non-Qualified Pensions, as of December 31, 2004

= Annual Value of Life with 10 Year Certain SRIP Benefit immediately payable upon Termination of Employment

Where in both of the above cases the following apply:

(a)	Revised Retirement Percentage = Retirement Percent + Service Factor.

(b)	For purposes of determining the Service Factor, the Participant's actual Years of Service as of the earlier of the date of Termination of Employment or December 31, 2004, to the day, shall be used.

(c)	For purposes of determining the Final Average Earnings, the Participant's Earnings history prior to January 1, 2005 shall be used.

(d)	Age Discount means the Participant's SRIP Benefit shall be decreased by five-tenths of one percent (.5%) for each month that December 31, 2008, or, if earlier, the Participant’s Termination of Employment, precedes the date on which the Participant will attain age 60.

Notwithstanding the foregoing, if, at the earlier of the time of Termination of Employment or December 31, 2004, the Participant is, or has been within the one year period immediately preceding Participant's Termination of Employment, an Officer with 30 or more Years of Service such Participant's Age Discount shall be zero.

Except to true up for an actual short term award paid following Termination of Employment and prior to December 31, 2004, there shall be no recalculation of the value of a Participant's SRIP Benefit following a Participant's Termination of Employment.

If a Participant who has commenced payment of his or her SRIP Benefit dies, his or her Beneficiary shall be entitled to receive the remaining SRIP Benefit in accordance with the Benefit Payout Alternative elected or deemed elected by the Participant or to make the same elections that the Participant could have made as of the day immediately preceding the Participant’s death. If the Participant had elected a lump sum benefit, such Beneficiary may make an election under Section 3.6. If a Participant dies while in active service, Section 4 shall apply.

Notwithstanding any other provision of this Plan, upon any Termination of Employment of the Participant for a reason other than death or Disability, AT&T shall have no obligation to the Participant under this Plan if the Participant has less than 5 Years of Service at the time of Termination of Employment.

3.2 Disability

Upon a Participant's Disability and application for benefits under the Social Security Act as now in effect or as hereinafter amended, the Participant will continue to accrue Years of Service during his or her Disability until the earliest of his or her:

(a)	Recovery from Disability,

(b)	Retirement (determined without regard to the 5 Years of Service requirement otherwise applicable to certain Participants age 55 or older), or

(c)

Death.

Upon the occurrence of either (a) Participant's recovery from Disability prior to his or her Retirement Eligibility if Participant does not return to employment, or (b) Participant's Retirement (determined without regard to the 5 Years of Service requirement otherwise applicable to certain Participants age 55 or older), the Participant shall be entitled to receive a SRIP Benefit in accordance with Section 3.1.

For purposes of calculating the foregoing benefit, the Participant's Final Average Earnings shall be determined using his or her Earnings history as of the date of his or her Disability.

If a Participant who continues to have a Disability dies prior to his or her Retirement Eligibility (without regard to the 5 Years of Service requirement otherwise applicable to certain Participants age 55 or older), the Participant will be treated in the same manner as if he or she had died while in employment (See Section 4.1).

3.3	Benefit Payout Alternatives.

The normal form of a Participant's benefits hereunder shall be a Life with 10-Year Certain Benefit as described in Section 3.3(a). However, a Participant may elect in his or her Agreement or in a subsequently filed election to convert his or her benefits hereunder, into one of the Benefit Payout Alternatives described in Section3.3(b), 3.3(c) or 3.3(d).

(a)

Life with a 10-Year Certain Benefit . An annuity payable during the longer of (i) the life of the Participant or (ii) the 10-year period commencing on the date of the first payment and ending on the day next preceding the tenth anniversary of such date (the "Life With 10-Year Certain Benefit"). If a Participant who is receiving a Life with 10-Year Certain Benefit dies prior to the expiration of the 10-year period described in this Section 3.3(a), the Participant's Beneficiary shall be entitled to receive the remaining Life With 10-Year Certain Benefit installments which would have been paid to the Participant had the Participant survived for the entire such 10-year period.

(b)

Joint and 100% Survivor Benefit . A joint and one hundred percent (100%) survivor annuity payable for life to the Participant and at his or her death to his or her Beneficiary, in an amount equal to one hundred percent (100%) of the amount payable during the Participant's life, for life (the "Joint and 100% Survivor Benefit").

(c)

Joint and 50% Survivor Benefit . A joint and fifty percent (50%) survivor annuity payable for life to the Participant and at his or her death to his or her Beneficiary, in an amount equal to fifty percent (50%) of the amount payable during the Participant's life, for life (the "Joint and 50% Survivor Benefit").

(d)	Lump Sum Benefit . Effective for a Termination of Employment on or after June 19, 2001, if the Participant has attained the age of fifty-five years as of his or her Termination of Employment, the Participant is eligible to receive a lump sum benefit as described in Section 3.4.

The Benefit Payout Alternatives described in Section 3.3(b), 3.3(c) and 3.3(d) shall be the actuarially determined equivalent (as determined by the Administrative Committee in its complete and sole discretion) of the Life With 10-Year Certain Benefit that is converted by such election.

Any election made pursuant to this Section 3.3 may be made in the Participant's Agreement or in a timely filed benefit payout election form. A Participant may elect in his or her Agreement or in a timely filed benefit payout election form to defer the time by which he or she is required to elect one of the foregoing forms of Benefit Payout Alternatives. A benefit payout election form is timely filed only if it is delivered by the Participant, in writing, telecopy, email or in another electronic format, to the Administrative Committee no later than the last day of the calendar year preceding the calendar year in which the Participant's Termination of Employment takes place or other benefit payment under this Plan commences.

If a Participant's Agreement or benefit payout election form fails to show an election of a Benefit Payout Alternative, or if the Participant having chosen to defer his or her benefit payout election, fails to make a timely election of benefits, such Participant shall be deemed to have elected and such Participant's form of benefit shall be the Life With 10-Year Certain Benefit which is described in Section 3.3(a).

Notwithstanding the foregoing, in the event of the death of a designated annuitant during the life of the Participant, the Participant's election to have a Benefit Payout Alternative described in Section 3.3(b) or 3.3(c) shall be deemed to be revoked, in which event, subject to the conditions and limitations specified in the immediately preceding paragraph, or within the ninety-day period following the death of the annuitant if such period would end later than the time allowed for an election by the immediately preceding paragraph, the Participant may elect to have his or her benefit, or remaining benefit, under the Plan, as the case may be, paid in any of the forms described in Sections 3.3(a), 3.3(b) or 3.3(c). In the event the Participant's designated annuitant predeceases the Participant and the Participant fails to make a timely election in accordance with the provisions of the immediately preceding sentence, the Participant's benefit, or remaining benefit, as the case may be, shall be paid or reinstated, as the case may be, in the form of a Life With 10-Year Certain Benefit as described in Section 3.3(a). Any conversion of benefit from one form to another pursuant to the provisions of this paragraph shall be subject to actuarial adjustment (as determined by the Administrative Committee in its complete and sole discretion) such that the Participant's new benefit is the actuarial equivalent of the Participant's remaining prior form of benefit. Payments pursuant to Participant's new form of benefit shall be effective commencing with the first monthly payment for the month following the death of the annuitant.

Notwithstanding any other provision of this Plan to the contrary, payment in the form of a Benefit Payout Alternative described in Section 3.3(b) or 3.3(c), with a survivor annuity for the benefit of the Participant's spouse as Beneficiary, may be waived by the annuitant with the consent of the Participant in the event of the divorce (or legal separation) of said annuitant from said Participant. In such event, the Participant's benefit shall be reinstated to the remainder of the Life with 10-Year Certain Benefit as described in Section 3.3(a) (i.e., the 10-Year period as described in Section 3.3(a) shall be the same 10-year period as if such form of benefit was the form of benefit originally selected and the expiration date of such period shall not be extended beyond its original expiration date) effective commencing with the first monthly payment following receipt of the waiver and Participant consent in a form acceptable to the Administrative Committee. A waiver of the type described in this paragraph shall be irrevocable.

3.4	Lump Sum Benefit Election.

(a)

A Participant who has attained the age of fifty-five (55) years as of his or her Termination of Employment and whose Termination of Employment occurs after December 31, 2001 shall be eligible to make an election for a lump sum benefit. A lump sum benefit election may be made in or after the calendar year immediately preceding the calendar year in which the Participant attains age fifty-five (55); provided , however , such election shall not be effective unless the Participant attains age fifty-five on or before such Participant's Termination of Employment, and, in such event, the Participant shall be deemed to have elected the Benefit Payout Alternative described in Section 3.3(a).

The amount of such Participant's lump sum benefit shall be calculated as of the Participant's Termination of Employment applying the Mortality Tables and the GAAP Rate, both as in effect for the calendar year immediately preceding the calendar year of the Participant’s Termination of Employment, but using the Participant’s age as of the Participant’s Termination of Employment.

(b)

A Participant who was eligible to receive a lump sum benefit at Retirement, but who elected (or is deemed to have elected) one of the Benefit Payout Alternatives described in Section 3.3(a), 3.3(b) or 3.3(c), may elect to convert such annuity distribution to a lump sum benefit in a timely filed election. The Beneficiary of a deceased Participant shall be eligible to make such conversion election to the same extent the Participant was eligible to make such election as of the day immediately preceding the Participant’s death. An election to convert an annuity benefit into a lump sum benefit is timely filed only if it is delivered by the Participant (or the Beneficiary), in writing, telecopy, email or in another electronic format, to the Administrative Committee no later than December 31 of the calendar year following the calendar year in which the Participant’s Termination of Employment occurred. The value of the lump sum benefit resulting from the conversion of a previously elected annuity benefit, shall be the Participant’s lump sum benefit valued as of the Participant’s Termination of Employment, less the payments, adjusted for interest (using the same GAAP Rate that was used to calculate the Lump Sum Benefit as of the Participant’s Termination of Employment), that were received prior to the effective date of the conversion. If a Participant (or his or her Beneficiary) makes a timely election to convert an annuity benefit into a lump sum benefit, such election shall be effective on or about March 1 st of the calendar year immediately following the calendar year in which such election is made, and the annuity benefit shall continue to be paid through such March 1 st , whereupon the lump sum benefit election shall become effective. If an election to convert an annuity benefit into a lump sum benefit is not timely filed, the annuity benefit shall continue to be distributed in the form elected (or deemed elected) by the Participant.

(c)

A Participant or Beneficiary who elects a lump sum benefit under Section 3.3(d) and/or Section 3.4 must, contemporaneous with such Lump Sum Benefit election, elect to defer all or a portion of the lump sum benefit (including any interest accrued thereon as provided in Section 3.5) in accordance with a payment schedule timely elected by the Participant (or Beneficiary); provided, however ,

(i)	with respect to a lump sum benefit effective at Retirement, the Participant must defer the receipt of one hundred percent (100%) of such lump sum benefit (including any interest thereon) until the later of:

(A)	his or her Termination of Employment; or

(B)	March 1 of the calendar year in which the Participant realizes a Termination of Employment;

(ii)

the Participant must defer the receipt of at least seventy percent (70%) of such lump sum benefit (excluding any interest accrued thereon as provided in Section 3.5) until at least the third (3 rd ) anniversary of such Participant’s Termination of Employment; provided, however, if the Participant attained the age of sixty (60) as of his or her Termination of Employment, the Participant is not required to defer receipt of such Lump Sum Benefit if he or she agrees, in writing, substantially in the form provided in Attachment B, not to compete with an Employer Business within the meaning of Section 7.2 for a period of three (3) years from such Participant’s Termination of Employment and further agrees that if he or she fails to abide by such agreement, the non-compete agreement is challenged or the non-compete agreement is unenforceable, he or she shall forfeit all benefits hereunder and repay the Lump Sum Benefit to AT&T; and

(iii)

the Participant (or Beneficiary) may not defer the receipt of all or any portion of such lump sum benefit, including any interest accrued thereon, beyond the twentieth (20 th ) calendar year after the Participant’s Termination of Employment.

The payment schedule elected by a Participant or Beneficiary must comply with the rules for payment schedules as adopted by the Administrative Committee (as determined by the Administrative Committee in its sole and absolute discretion), which, for example, may require payment of principal to be made no more frequently than once per calendar year.

If a Participant who, as of his or her Retirement, timely elected to defer the receipt of a lump sum benefit under this Section fails to timely elect a payment schedule or if such Participant's timely filed payment schedule does not comply with the rules for payment schedules, (i) thirty percent (30%) of such Participant’s lump sum benefit shall be paid to the Participant upon the later of (A) such Participant’s Termination of Employment, or (B) March 1 of the calendar year in which the Participant realizes a Termination of Employment, and (ii) the remaining seventy percent (70%) (plus any interest accrued thereon as provided in Section 3.5) shall be paid to the Participant on the third (3 rd ) anniversary of such Participant’s Termination of Employment. If a Participant who timely elects to defer the receipt of a lump sum benefit resulting from the conversion of an annuity benefit, fails to timely elect a payment schedule or if such Participant's timely filed payment schedule does not comply with the rules for payment schedules, (i) thirty percent (30%) of such Participant’s lump sum benefit shall be paid to the Participant on or about March 1 st of the calendar year following the year in which the conversion election is made, and (ii) the remaining seventy percent (70%) (plus any interest accrued thereon as provided in Section 3.5) shall be paid to the Participant on the third (3 rd ) anniversary of such Participant’s Termination of Employment.

3.5	Lump Sum Benefit Account Balance.

The Administrative Committee shall maintain a lump sum benefit account balance on its books and records for each Participant (or Beneficiary) that elects a lump sum benefit. During such period of time that all or any portion of a Participant’s lump sum benefit is not paid, interest shall be credited using the same methodology used by AT&T for financial accounting purposes using the GAAP Rate that was used to calculate such Participant’s lump sum benefit. Payments of principal and interest shall be deducted from the lump sum benefit account balance.

3.6	One-Time Acceleration of Deferred Lump Sum Benefit.

Participants who realize a Termination of Employment on or after June 19, 2001 who timely elected a lump sum benefit under Section 3.3(d) and/or Section 3.4 (and their Beneficiary) may make a one-time, irrevocable election to accelerate the payment of their unpaid lump sum benefit, if any, subject to the following conditions and limitations. The Participant's (or Beneficiary’s) election to accelerate his unpaid lump sum benefit, if any, must be received by the Administrative Committee on or before the last day of the calendar year immediately preceding the calendar year in which such unpaid portion of the lump sum benefit distribution is to be made. Such distribution shall be made on March 1 of the calendar year immediately following the calendar year in which such acceleration election is made (the “Accelerated Distribution Date”); provided , however , a Participant who makes a lump sum benefit acceleration election pursuant to this Section 3.6 whose Termination of Employment occurred within three (3) years of the Accelerated Distribution Date shall receive thirty percent (30%) of such lump sum benefit on the Accelerated Distribution Date and the remaining seventy percent (70%) of such lump sum benefit (plus accrued interest as provided in Section 3.5) on the third (3 rd ) anniversary of such Participant’s Termination of Employment; provided, further, however, if the Participant attained the age of sixty (60) as of his or her Termination of Employment, the Participant may accelerate the distribution of 100% of his or her unpaid lump sum benefit if he or she agrees, in writing substantially in the form provided in Attachment B, not to compete with an Employer Business within the meaning of Section 7.2 for a period of three (3) years from such Participant’s Termination of Employment and further agrees that if he or she fails to abide by such agreement, the non-compete agreement is challenged or the non-compete agreement is unenforceable, he or she shall forfeit all benefits hereunder and repay the Lump Sum Benefit to AT&T.

4	Death Benefits.

4.1

Death.

If a Participant dies prior to his or her Retirement, a pre-retirement death benefit will be calculated and paid as though the Participant had Retired (determined without regard to the 5 Years of Service requirement otherwise applicable to certain Participants age 55 or older) on the day prior to the date of death. Notwithstanding the provisions of Section 3.3, if a Participant's Agreement or benefit payout election form fails to show an election of a Benefit Payout Alternative, or if the Participant, having chosen to defer his benefit election, failed to make a timely election of a Benefit Payout Alternative prior to his or her death, the form of the pre-retirement death benefit shall, at the option of the Participant's Beneficiary, be either the Life With 10-Year Certain Benefit form of the Participant's benefit, a Beneficiary Life Annuity (as such term is hereinafter described) based on the life expectancy of the Beneficiary, or, if the Participant was eligible to make a Lump Sum Benefit election as of his or her date of death, a Lump Sum Benefit (calculated in the manner described in this Section 4.1). If paid as a Beneficiary Life Annuity based on the Life of the Beneficiary, such benefit shall be the actuarially determined equivalent (as determined by the Administrative Committee in its complete and sole discretion) of the Life With 10-Year Certain Benefit; provided , however , should the Beneficiary die prior to the payment to the Beneficiary of the total dollar amount of the Life with 10-Year Certain Benefit, the remaining dollar balance of such Life With 10-Year Certain Benefit shall be paid in accordance with the Participant's beneficiary designation and the Rules at the same monthly rate of payment as would have been the monthly payment pursuant to the 10-year payment schedule had the Life With 10-Year Certain Benefit been selected. For purposes of this Section 4.1, a Lump Sum Benefit shall be calculated in the same manner as provided in Section 3.4 as if the Participant were alive; e.g., calculated as of the Participant's Death applying the Mortality Tables and the GAAP Rate, both as in effect for the calendar year immediately preceding the calendar year of the Participant’s Death, but using the Participant’s age as of the Participant’s date of death.

4.2	Disability.

In the event that a Participant terminates employment prior to Retirement by reason of a Disability that entitles the Participant to continue to accrue Years of Service until Retirement Eligibility pursuant to Section 3.2 and thereafter dies after attaining Retirement Eligibility (without regard to the 5 Years of Service requirement otherwise applicable to certain Participants age 55 or older), the Employer shall pay to the Participant's Beneficiary the Death Benefit specified in Section 4.1 based on the Participant's Monthly Earnings for the twelve (12) months preceding his or her Disability. No death benefit shall be payable if the Participant dies prior to attaining Retirement Eligibility (without regard to the 5 Years of Service requirement otherwise applicable to certain Participants age 55 or older).

4.3	Termination of Employment.

If a Participant terminates employment other than by reason of Disability prior to Retirement Eligibility (without regard to the 5 Years of Service requirement otherwise applicable to certain Participants age 55 or older), no death benefit shall be payable to the Participant's Beneficiary.

Payment.

5.1	Commencement of Payments.

Notwithstanding the designation of a specific date for payment of a distribution hereunder, commencement of payments under this Plan may be delayed for administrative reasons in the discretion of the Administrative Committee, but shall begin not later than sixty (60) days following the occurrence of an event which entitles a Participant (or a Beneficiary) to payments under this Plan.

5.2	Withholding; Unemployment Taxes.

A payment may be made from the Plan to reflect the payment of state, local, or foreign tax obligations arising from participation in the Plan that apply to an amount deferred under the Plan before the amount is paid or made available to a Participant (the “ State, Local, or Foreign Tax Amount ” ). Such payment may not exceed the amount of such taxes due as a result of participation in the Plan. Such payment may be made by distributions to the Participant in the form of withholding pursuant to provisions of applicable state, local, or foreign law or by distribution directly to the Participant. Additionally, a payment may be made from the Plan to pay the income tax at source on wages imposed under Code Section 3401 as a result of the payment of the State, Local, or Foreign Tax Amount and to pay the additional income tax at source on wages attributable to such additional Code Section 3401 wages and taxes. However, the total payment under this Section (a) shall not exceed the aggregate of the State, Local, or Foreign Tax Amount and the income tax withholding related to such State, Local, or Foreign Tax Amount.

(b)

A payment may be made from the Plan to pay the Federal Insurance Contributions Act tax imposed by Code Sections 3101, 3121(a), and 3121(v)(2) on compensation deferred under the Plan (the “ FICA Amount ” ). Additionally, a payment may be made from the Plan to pay the income tax at source on wages imposed under Code Section 3401 or the corresponding withholding provisions of applicable state, local or foreign tax laws as a result of the payment of the FICA Amount and to pay the additional income tax at source on wages attributable to the pyramiding section 3401 wages and taxes. However, the total payment under this Section (b) shall not exceed the aggregate of the FICA Amount and the income tax withholding related to such FICA Amount.

5.3	Recipients of Payments; Designation of Beneficiary.

All payments to be made under the Plan shall be made to the Participant during his or her lifetime, provided that if the Participant dies prior to the completion of such payments, then all subsequent payments under the Plan shall be made to the Participant's Beneficiary or Beneficiaries.

In the event of the death of a Participant, distributions/benefits under this Plan shall pass to the Beneficiary (ies) designated by the Participant in accordance with the Rules.

5.4	Additional Benefit.

The reduction of any benefits payable under the AT&T Pension Benefit Plan ("ATTPBP"), which results from participation in the AT&T Senior Management Deferred Compensation Program of 1988, will be restored under this Plan.

5.5	No Other Benefits.

No benefits shall be paid hereunder to the Participant or his or her Beneficiary except as specifically provided herein.

5.6	Small Benefit.

Notwithstanding any election made by the Participant, the Administrative Committee in its sole discretion may pay any benefit in the form of a lump sum payment if the lump sum equivalent amount is or would be less than $10,000 when payment of such benefit would otherwise commence.

5.7	Special Increases.

5.7.1

1990 Special Increase.

Notwithstanding any other provision of this Plan to the contrary:

(a)

Effective July 1, 1990, the monthly pension benefit amount then being paid hereunder to a retired Participant whose Plan payments began before January 1990 shall be increased by 1/30 of 5.0% for each month from and including January 1988 or the month in which said Participant's pension

payments began, whichever is later, through and including June 1990, inclusive.

(b)

Effective July 1, 1990, the present and/or future monthly payment hereunder of a surviving annuitant of a Participant whose Plan payments began before January 1990 or of a Participant who died in active service before January 1990, shall be increased by the same percentage as the related

pension was or would have been increased under the provisions of Paragraph (a) of this Section 5.7.1.

5.7.2

Enhanced Management Pension (EMP) Flow-Through for Participant Receiving Other than an ATTPBP "Cash Balance" Benefit.

Notwithstanding any other provision of this Plan to the contrary:

(a)

Effective December 30, 1991, a Participant who as of the date of his or her Retirement satisfies the requirements for a service pension under the terms of the ATTPBP as it existed prior to December 30, 1991, shall have his or her SRIP Benefit determined without subtracting any increase in his or her

ATTPBP (or successor plan) pension amount attributable to the Enhanced Management Pension ("EMP") provisions thereof, i.e., EMP benefits will "flow-through" to the Participant; provided, however, such additional benefit amounts corresponding to term of employment extending beyond

age 65 through application of the EMP provisions shall be subtracted.

(b)	EMP flow-through shall not apply in the case of any person who becomes an Eligible Employee after December 31, 1997.

5.7.3

1993 Special Increase and Subsequent Special Increases.

Notwithstanding any other provision of this Plan to the contrary:

(a)

Effective July 1, 1993, the monthly pension benefit amount then being paid hereunder to (1) all retired Participants whose Plan payments began before July 1, 1993, (2) then current and contingent annuitants of such retired Participants who elected one of the Plan’s survivor annuities and (3) then

current annuitants of employees who before July 1, 1993 died in active service shall be increased in the same percentages as the ATTPBP ad hoc pension increase percentages effective July 1, 1993.

(b)	Any time after July 1, 1993 that the ATTPBP is amended to provide for an ad hoc pension increase for ATTPBP nonbargained participants, the same percentage increase shall apply to Plan benefit amounts.

6	Conditions Related to Benefits.

6.1	Administration of Plan.

The Administrative Committee shall be the sole administrator of the Plan and will, in its discretion, administer, interpret, construe and apply the Plan in accordance with its terms. The Administrative Committee shall further establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. All decisions of the Administrative Committee shall be final and binding unless the Board of Directors should determine otherwise.

6.2	No Right to AT&T Assets.

Neither a Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of any AT&T company whatsoever including, without limiting the generality of the foregoing, any specific funds or assets which AT&T, in its sole discretion, may set aside in anticipation of a liability hereunder, nor in or to any policy or policies of insurance on the life of a Participant owned by AT&T. No trust shall be created in connection with or by the execution or adoption of this Plan or any Agreement, and any benefits which become payable hereunder shall be paid from the general assets of AT&T. A Participant shall have only a contractual right to the amounts, if any, payable hereunder unsecured by any asset of AT&T.

6.3	Trust Fund.

AT&T shall be responsible for the payment of all benefits provided under the Plan. At its discretion, AT&T may establish one or more trusts, for the purpose of providing for the payment of such benefits. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of AT&T's creditors. To the extent any benefits provided under the Plan are actually paid from any such trust, AT&T shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by AT&T.

6.4	No Employment Rights.

Nothing herein shall constitute a contract of continuing employment or in any manner obligate any AT&T company to continue the service of a Participant, or obligate a Participant to continue in the service of any AT&T company and nothing herein shall be construed as fixing or regulating the compensation paid to a Participant.

6.5	Modification or Termination of Plan.

This Plan may be modified or terminated at any time in accordance with the provisions of AT&T's Schedule of Authorizations; provided, however, the Plan shall not be materially modified (within the meaning of Section 885(d)(2)(B) of the American Jobs Creation Act of 2004) after October 3, 2004 unless such modification is consistent with the guidance issued under Section 885(f) of the American Jobs Creation Act of 2004 so that such amendment is not a material modification of the Plan. A modification may affect present and future Eligible Employees. AT&T also reserves the sole right to terminate at any time any or all Agreements. In the event of termination of the Plan or of a Participant's Agreement, a Participant shall be entitled to benefits hereunder, if prior to the date of termination of the Plan or of his or her Agreement, such Participant has attained 5 Years of Service, in which case, regardless of the termination of the Plan/Participant's Agreement, such Participant shall be entitled to benefits at such time as provided in and as otherwise in accordance with the Plan and his or her Agreement, provided, however, Participant's benefit shall be computed as if Participant had terminated employment as of the date of termination of the Plan or of his or her Agreement. No amendment, including an amendment to this Section 6.5, shall be effective, without the written consent of a Participant, to alter, to the detriment of such Participant, the benefits described in this Plan as applicable to such Participant as of the effective date of such amendment. For purposes of this Section 6.5, an alteration to the detriment of a Participant shall mean a reduction in the amount payable hereunder to a Participant to which such Participant would be entitled if such Participant terminated employment at such time, or any change in the form of benefit payable hereunder to a Participant to which such Participant would be entitled if such Participant terminated employment at such time. Any amendment which reduces Participant's benefit hereunder to adjust for a change in his or her pension benefit resulting from an amendment to any company-sponsored defined benefit pension plan which changes the pension benefits payable to all employees, shall not require the Participant's consent. Written notice of any amendment shall be given to each Participant.

6.6

Offset.

If at the time payments or installments of payments are to be made hereunder, a Participant or his or her Beneficiary or both are indebted to any AT&T company, then the payments remaining to be made to the Participant or his or her Beneficiary or both may, at the discretion of the Board of Directors, be reduced by the amount of such indebtedness; provided, however, that an election by the Board of Directors not to reduce any such payment or payments shall not constitute a waiver of such AT&T company's claim for such indebtedness.

6.7	Change in Status.

In the event of a change in the employment status of a Participant to a status in which he is no longer an Eligible Employee, the Participant shall immediately cease to be eligible for any benefits under this Plan except such benefits as had previously vested. Only Participant's Years of Service and Earnings history prior to the change in his employment status shall be taken into account for purposes of determining Participant's vested benefits hereunder.

7	Miscellaneous.

7.1	Nonassignability.

Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt of the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency.

7.2	Non-Competition.

Notwithstanding any other provision of this Plan, all benefits provided under the Plan with respect to a Participant shall be forfeited and canceled in their entirety if the Participant, without the consent of AT&T and while employed by AT&T or any subsidiary thereof or within three (3) years after termination of such employment, engages in competition with AT&T or any subsidiary thereof or with any business with which AT&T or a subsidiary or affiliated company has a substantial interest (collectively referred to herein as "Employer business") and fails to cease and desist from engaging in said competitive activity within 120 days following receipt of written notice from AT&T to Participant demanding that Participant cease and desist from engaging in said competitive activity. For purposes of this Plan, engaging in competition with any Employer business shall mean engaging by the Participant in any business or activity in the same geographical market where the same or substantially similar business or activity is being carried on as an Employer business. Such term shall not include owning a nonsubstantial publicly traded interest as a shareholder in a business that competes with an Employer business. However, engaging in competition with an Employer business shall include representing or providing consulting services to, or being an employee of, any person or entity that is engaged in competition with any Employer business or that takes a position adverse to any Employer business. Accordingly, benefits shall not be provided under this Plan if, within the time period and without the written consent specified, Participant either engages directly in competitive activity or in any capacity in any location becomes employed by, associated with, or renders service to any company, or parent or affiliate thereof, or any subsidiary of any of them, if any of them is engaged in competition with an Employer business, regardless of the position or duties the Participant takes and regardless of whether or not the employing company, or the company that Participant becomes associated with or renders service to, is itself engaged in direct competition with an Employer business.

7.3

Notice.

Any notice required or permitted to be given to the Administrative Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by certified mail, to the principal office of AT&T, directed to the attention of the Senior Vice President-Human Resources. Any notice required or permitted to be given to a Participant shall be sufficient if in writing and hand delivered, or sent by certified mail, to Participant at Participant's last known mailing address as reflected on the records of his or her employing company or the company from which the Participant incurred a Termination of Employment, as applicable. Notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for certification.

7.4

Validity.

In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this plan.

7.5	Applicable Law.

This Plan shall be governed and construed in accordance with the laws of the State of Texas to the extent not preempted by the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder ("ERISA").

7.6	Plan Provisions in Effect Upon Termination of Employment.

The Plan provisions in effect upon a Participant's Termination of Employment shall govern the provision of benefits to such Participant. Notwithstanding the foregoing sentence, the benefits of a Participant whose Retirement occurred prior to February 1, 1989, shall be subject to the provisions of

Section 3.3 hereof.

7.7	Plan To Be Interpreted and Applied So As Not To Be Subject To Code Section 409A.

Notwithstanding any provision to the contrary in this Plan, each provision in this Plan shall be interpreted and applied so that amounts deferred under the Plan are not subject to the provisions of Section 409A of the Code and any provision that would conflict with such requirements shall be applied and

construed, as determined by the Administrative Committee in its complete discretion, consistent with the foregoing. The Administrative Committee ’ s determination, as provided herein, shall be final and conclusive.

SUPPLEMENTAL RETIREMENT INCOME PLAN AGREEMENT

THIS AGREEMENT is made and entered into at San Antonio, Texas as of this _____ day of _______________, by and between AT&T Inc. ("AT&T") and __________ (" Participant").

WHEREAS, AT&T has adopted a Supplemental Retirement Income Plan (the "Plan"); and

WHEREAS, the Participant has been determined to be eligible to participate in the Plan; and

WHEREAS, the Plan requires that an agreement be entered into between AT&T and Participant setting out certain terms and benefits of the Plan as they apply to the Participant;

NOW, THEREFORE, AT&T and the Participant hereby agree as follows:

1.	The Plan is hereby incorporated into and made a part of this Agreement as though set forth in full herein. The parties shall be bound by, and have the benefit of, each and every provision of the Plan as set forth in the Plan.

2.	The Participant was born on ___________, and his or her present employment began on _____________,

3.	The Participant's "Retirement Percent" which is described in the Plan shall be ________ percent (__%)

Election as to Form of Benefits . The Participant elects the Benefit Payout Alternative as shown on the Supplemental Retirement Income Plan (SRIP) Benefit Election form attached hereto and incorporated herein for all purposes (the "Form"). The Participant may change this election

at any time prior to the end of the calendar year immediately preceding the Participant's Termination of Employment, and the Participant's election in effect at the time will control the distribution of benefit under the Plan. If the Participant has not elected a Benefit Payout Alternative

prior to the end of the calendar year immediately preceding the Participant's Termination of Employment, the Participant's form of benefit under the Plan shall be the Life With 10-Year Certain Benefit.

This Agreement supersedes all prior Supplemental Retirement Income Plan Agreements between AT&T and Participant, and any amendments thereto, and shall inure to the benefit of, and be binding upon, AT&T, its successors and assigns, and the Participant and his or her Beneficiaries.

IN WITNESS WHEREOF, the parties hereto have signed and entered into this Agreement on and as of the date first above written.

AT&T INC.:

By:

Senior Executive Vice President-Human Resources

PARTICIPANT:

Due Date:

Form SRIP-4 (9/01)

Supplemental Retirement Income Plan (SRIP)

P ayment Election

Name: Social Security Number:

1. Form of Payment

I hereby elect the following form of benefit for my SRIP benefit in accordance with and subject to the terms of the

Plan:

a.	____Life with 10-Year Certain Benefit. Complete Section 4.

b.	____Joint and 100% Survivor Benefit. Complete Section 4.

c.	____Joint and 50% Survivor Benefit. Complete Section 4.

d.	____Lump Sum. Complete Section 2. (Only available if age 54 or older at time of election and age 55 or older at Termination of Employment).

e.	____Defer making an election until no later than the last day of the calendar year preceding the calendar year in which my Termination of Employment takes place or my SRIP benefit commences. Complete Section 4.

Default Distribution: If a payment election is not on file as of the last day of the year prior to your retirement or termination, the form of benefit shall be the Life with10-Year Certain Benefit.

2. SRIP Lump Sum Deferral Amount

You must defer the receipt of at least seventy percent (70%) of your lump sum (excluding accrued interest thereon) until at least the third anniversary of your retirement (the "70% Rule"). Please indicate below the portion of your lump sum that you wish to defer:

I wish to defer _______% (not less than 70%). Any portion not deferred will be paid within 60 days following my Termination of Employment. Complete Section 3.

Note: You have a one-time right to accelerate the distribution of your deferred balance by making an election prior to the first day of the calendar year in which you desire to receive an accelerated distribution of your deferred balance.

3. Distribution Election for Deferred Lump Sum and Accrued Interest ("Deferred Balance")

Please indicate how you would like your deferred balance distributed.

·	Complete Section 3a if you wish to receive monthly interest only payments. You must also complete Section 3b to elect how to receive your remaining deferred balance.

·	Complete Section 3b to specify distribution of your deferred balance. Subject to the 70% Rule, payment will begin within 60 days of your retirement date if you elect distribution in your year of retirement.

·	The deferred balance must be distributed no later than the 20th anniversary of your retirement.

·	If applicable, the dates you complete in Section a and b cannot overlap.

a.	Interest Paid Monthly

Please distribute interest on my deferred balance paid monthly commencing

______________(month/year) through ______________(month/year).

Note: Also complete Section 3b to elect payment of deferred balance.

b.	Ratable Distribution Over a Period of Years

Please make an annual payment of my deferred balance on March 1 st of each year paid for ________

(insert number from 1 through 20) year(s) commencing ___________(insert year). Please choose one distribution method as follows:

r	Paid ratably for the period(s) selected in 3b. (e.g. 1/20 th , 1/19 th , 1/18 th …. If payment is requested over 20 years).

r	Paid in equal annual installments for the period(s) selected in 3b.

Note: You may not request more than 30% of your lump sum within 36 months following retirement.

Complete Section 4.

4. Authorization

I hereby authorize and make the above elections.

Signature Date

Please return to Executive Compensation Staff

175 E. Houston, 3-N-1, San Antonio, Texas 78205

Exhibit 10-g

SENIOR MANAGEMENT

DEFERRED COMPENSATION PLAN

OF 1988

(4 Year Units)

Effective For Units of Participation

Having A Unit Start Date Of

January 1, 1988 Or Later And

Prior To January 1, 1991

Effective: January 1, 1988

As amended through April 1, 2002

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002

SENIOR MANAGEMENT

DEFERRED COMPENSATION PLAN OF 1988

Section 1

Statement of Purpose . The purpose of the Senior Management Deferred Compensation Plan of 1988 is to provide retirement, death, or termination-of-employment benefits to a select group of management employees consisting of Eligible Employees of SBC Communications Inc. (the “Company”) and its Subsidiaries (“Participating Companies”).

Section 2

Definitions . For the purposes of this Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise.

1. Administrative Committee. “Administrative Committee” means a committee of three or more members, at least one of whom is a Senior Manager, who shall be designated by the Vice President-Human Resources to administer the Plan pursuant to Section 3.

2. Agreement. “Agreement” means the written agreement entitled “Senior Management Deferred Compensation Plan of 1988 Agreement” (substantially in the form attached to this Plan) that shall be entered into by the Employer and a Participant with respect to each Unit of Participation to carry out the Plan with respect to such Participant.

3. Annualized Total Unit Deferral Amount. The “Annualized Total Unit Deferral Amount” means the Total Unit Deferral Amount divided by four.

4. Base Salary. “Base Salary” means the Participant's annual base salary before reduction pursuant to this Plan or any plan of the Employer whereby compensation is deferred, including but not limited to a plan whereby compensation is deferred in accordance with Section 401(k) of the Internal Revenue Code.

5. Beneficiary. “Beneficiary” means the person or persons designated as such in accordance with Section 9.

6. Board. “Board” means the Board of Directors of SBC Communications Inc.

7. Compensation. “Compensation” means the Participant's monthly Base Salary plus any other compensation that is normally matched in the SBC Communications Inc. Savings Plan for Salaried Employees before reduction for compensation deferred pursuant to this Plan or any plan of the Employer whereby compensation is deferred, including but not limited to a plan whereby compensation is deferred in accordance with Section 401(k) of the Internal Revenue Code.

8. Declared Rate. “Declared Rate” means with respect to any Plan Year the interest rate which will be credited during such Plan Year on a Participant's Deferred Compensation Accounts for Units of Participation which have not yet commenced benefit payments. The Declared Rate for each Plan Year will be determined by the Administrative Committee, in its complete and sole discretion, and will be announced on or before January 1 of the applicable Plan Year; provided that in no event will the Declared Rate for any Plan Year be less than the Moody's Corporate Bond Yield Average-Monthly Average Corporates as published by Moody's Investor's Service, Inc. (or any successor thereto) for the month of September before the Plan Year in question, or, if such yield is no longer published, a substantially similar average selected by the Administrative Committee.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 1

9. Deferral Amount. “Deferral Amount” means an amount of Base Salary deferred with respect to a Unit of Participation under this Plan.

10. Deferred Compensation Account. “Deferred Compensation Account” means the account maintained on the books of account of the Employer for each Participant for each Unit of Participation pursuant to Section 5.1.

11. Disability. “Disability” means a disability as defined in the SBC Communications Inc. Sickness and Accident Disability Benefit Plan or the SBC Communications Inc. Senior Management Long Term Disability Plan covering the Participant, as applicable.

12. Intentionally Omitted.

13. Intentionally Omitted.

14. Intentionally Omitted.

15. Early Retirement. “Early Retirement” means the termination of a Participant's employment with Employer for reasons other than death prior to Normal Retirement and on or after the date Participant attains age 55.

16. Election Form. The “Election Form” means an Eligible Employee's written election to participate in the Plan with respect to each Unit of Participation in accordance with Section 4.

17. Eligible Employee. “Eligible Employee” means an Employee of the Employer who (a) is in active service, (b) is a Senior Manager or has an employment status which has been approved by the Board or its Chairman to be eligible to participate in this Plan, and (c) who continuously maintains the employment status upon which eligibility to participate in this Plan was based.

18. Employee. ”Employee” means any person employed by the Employer on a regular full-time salaried basis.

19. Employer. “Employer” means SBC Communications Inc. or any of its Subsidiaries.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 2

20. Normal Retirement. “Normal Retirement” means attainment of age 65 during a Participant's employment with Employer irrespective of whether there is a termination of Participant's employment with Employer.

21. Participant. “Participant” means an Employee participating in the Plan in accordance with the provisions of Section 4.

22. Plan Year. “Plan Year” means the calendar year.

23. Projected Employer Contribution. “Projected Employer Contribution” means for purposes of computing the Pre-Retirement Survivor Benefit with respect to a Unit of Participation pursuant to Section 6.6(a), the product of (i) the Company Match Rate Expressed as a Percent* as in effect at the time of the Unit Start Date, times the Participant's annual Base Salary at the Unit Start Date minus (a) any Employer matching contribution determined as of the Unit Start Date associated with said Base Salary at the Unit Start Date which is then being contributed or is to be contributed to the Salaried Savings Plan and minus (b) any Employer matching contribution which has previously been allocated to a Unit of Participation under this or any other Employer deferred compensation plan and (ii) the number of years in the Unit Deferral Period for the Unit of Participation.

24. Rotational Work Assignment Company (‘RWAC”). shall mean Bell Communications Research, Inc. (“Bellcore”), formerly the Central Services Organization, Inc., and/or any other entity with which SBC Communications Inc. or any of its Subsidiaries may enter into an agreement to provide an employee for a rotational work assignment.25. Retirement Benefit Option. “Retirement Benefit Option” means with respect to any Unit of Participation the Retirement Benefit payment option described in Section 6.

25. Senior Manager. “Senior Manager” means an individual employed by Employer in a position having a Salary Grade of 29 or above or equivalent.

26. SBC Communications Inc. Savings Plan for Salaried Employees. “SBC Communications Inc. Savings Plan for Salaried Employees” or “Salaried Savings Plan” means the SBC Communications Inc. Savings Plan for Salaried Employees or any successor plan to such plan adopted by the Employer. Participants from any Subsidiary, permitted to participate in this Plan, shall be treated as participating in the SBC Communications Inc. Savings Plan for Salaried Employees for purposes of calculating any matching Employer contributions.

The Company Match Rate Expressed as a Percent means the maximum percent of salary that can be received as Employer matching contribution under the SBC Communications Inc. Savings Plan for Salaried Employees, e.g., a match of 66 2/3% of the amount of basic allotment (up to 6%) of salary results in a Company Match Rate Expressed as a Percent of .667 x 6% -- 4%.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 3

27. Subsidiary. A “Subsidiary” of the Company is any corporation, partnership, venture or other entity in which the Company has, either directly or indirectly, at least a 10% ownership interest.

28. Total Unit Deferral Amount. “Total Unit Deferral Amount” means the sum of all amounts of Base Salary deferred during the Unit Deferral Period with respect to a Unit of Participation, as shown in Exhibit A of Participant's Agreement for that Unit of Participation.

29. Unit Deferral Period. “Unit Deferral Period” means the number of months the Participant elects to reduce his Base Salary with respect to a Unit of Participation, as shown in Exhibit A of Participant's Agreement for that Unit of Participation. The Unit Deferral Period for a Unit of Participation will commence on the Unit Start Date and end upon the earliest to occur of the following: (i) the last day of the forty-eight (48) month period which commenced with the Unit Start Date, or (ii) when the Participant terminates employment, terminates the Unit of Participation or ceases to be an Eligible Employee as described in Section 6.4 of the Plan. In no event shall the Unit Deferral Period for a Unit of Participation end later than forty-eight (48) months after the Unit Start Date.

30. Unit of Participation. “Unit of Participation” means a stated Total Unit Deferral Amount and associated Employer contributions which provide stated benefits pursuant to Section 6 in accordance with the Participant's Agreement for that Unit of Participation.

31. Unit Start Date. “Unit Start Date” means the date for commencement of deferrals shown in Exhibit A of a Participant's Agreement for a given Unit of Participation. The Unit Start Date will be January 1, unless the Administrative Committee, in its sole discretion permits a new Participant to elect a Unit Start Date within 30 days after such Participant first becomes an Eligible Employee.

Section 3

Administration of the Plan. The Administrative Committee shall be the sole administrator of the Plan and will administer the Plan, interpret, construe and apply its provisions in accordance with its terms. The Administrative Committee shall further establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. All decisions of the Administrative Committee shall be final and binding.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 4

Section 4

Participation.

4.1 Election to Commence a Unit of Participation. Any Eligible Employee may elect to commence deferral of Base Salary with respect to a Unit of Participation under the Plan by filing a completed Election Form with the Administrative Committee prior to the beginning of the Unit Start Date. Pursuant to said Election Form, the Eligible Employee shall elect a Total Unit Deferral Amount and a Unit Deferral Period to be specified in Exhibit A of Participant's Agreement with respect to such Unit of Participation.

The combination of deferrals from all of the Participant's Units of Participation including the Unit of Participation with respect to which the Participant is electing to commence deferrals and from Units of Participation under the SBC Communications Inc. Senior Management Deferred Compensation Plan (“SBC DCP”), must be at least six percent (6%) of Participant's Base Salary at the Unit Start Date for the Unit of Participation with respect to which the Participant is electing to commence deferrals. A Unit of Participation shall require a minimum Annualized Total Unit Deferral Amount of $1,000. The sum of the Participant's contributions, if any, to the SBC Communications Inc. Savings Plan for Salaried Employees plus the Annualized Total Unit Deferral Amounts for all Units of Participation under this Plan and under the SBC DCP in a given Plan Year may not exceed thirty percent (30%) of a Participant's Compensation for that Plan Year.

4.2 Termination of Election. A Participant's election to defer Base Salary is irrevocable upon the filing of his Election Form with the Administrative Committee, provided, however, that the election may be terminated with respect to Base Salary not yet paid by mutual agreement in writing between the Participant and the Administrative Committee. Such termination if approved shall be effective beginning the first day of the month following the execution of such mutual agreement.

Section 5

Deferred Compensation.

5.1 Deferred Compensation Account. The Administrative Committee shall establish and maintain a separate Deferred Compensation Account for each Participant for each Unit of Participation. The amount by which a Participant's Base Salary is reduced each month pursuant to Section 4.1 and the amount of Employer contribution allocated to the Participant's Units of Participation pursuant to Section 5.3 with respect to any Unit of Participation shall be credited by the Employer to the Participant's Deferred Compensation Account for such Unit of Participation no later than the first day of the following month, and such Deferred Compensation Account shall be debited by the amount of any payments made by the Employer to the Participant or the Participant's Beneficiary with respect to such Unit of Participation pursuant to this Plan.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 5

With respect to each Unit of Participation, the Deferred Compensation Account of a Participant shall be deemed to bear interest from the date such Deferred Compensation Account was established through the date of commencement of benefit payments at a rate equal to the applicable Declared Rate for the particular Plan Year on the balance from month-to-month in such Deferred Compensation Account. Interest will be credited monthly to the Deferred Compensation Account at one-twelfth of the annual Declared Rate, compounded annually. Following the commencement of benefit payments with respect to a Unit of Participation, a Participant's Deferred Compensation Account shall be deemed to bear interest on the balance in such Deferred Compensation Account from month-to-month at a rate equal to one-twelfth of the average of the annual Declared Rates for the five (5) Plan Years ending prior to commencement of benefit payments (or, if the Plan has been in operation for less than five (5) Plan Years, the average of the Declared Rates for all Plan Years ending prior to commencement of benefit payments).

5.2 Participant Deferrals. The Participant's Total Unit Deferral Amount is deferred in equal amounts on a monthly basis over the Unit Deferral Period or as otherwise may be permitted by the Administrative Committee. The amount deferred each month with respect to a given Unit of Participation shall be credited by the Employer to the Participant's Deferred Compensation Account for that Unit of Participation no later than the first day of the following month.

The Participant will be permitted to defer an additional amount equal to all or a portion of his Short Term Incentive Award. A Participant shall not be permitted to “defer” into the Plan any monies that are not compensation paid by Employer. Any additional deferrals by a Participant with respect to a given Unit of Participation shall not affect Total Unit Deferral Amount and shall not result in any change in the maximum Employer contribution pursuant to Section 5.3 for the Plan Year during which the additional deferral is made. In no event shall any such additional deferral by a Participant result in any reduction in the amounts by which the Participant's Base Salary is reduced pursuant to Exhibit A to the Participant's Agreement with respect to such Unit of Participation prior to completion of deferral of the Total Unit Deferral Amount for such Unit

of Participation. Participant's election to defer all or a portion of his Short Term Incentive Award shall be filed with the Administrative Committee (on a form to be provided by said Committee for such purpose) prior to the beginning of the fiscal year during which such Award is earned.

Such additional deferral amount shall be considered a separate part of Participant's Deferred Compensation Account, shall be subject to the terms thereof except survivor benefits, and shall be paid out in the same manner as the rest of such Deferred Compensation Account.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 6

5.3 Employer Contribution. Participation in this Plan does not preclude participation in the SBC Communications Inc. Savings Plan for Salaried Employees. For a given Plan Year, the aggregate Employer contribution to both the SBC Communications Inc. Savings Plan for Salaried Employees and this Plan on behalf of a Participant will be an amount equal to the Company Match Rate Expressed as a Percent as in effect during all or portions of that Plan year times the Participant's Compensation as in effect during all or portions of that Plan Year which is contributed or deferred for that Plan Year by the Participant in accordance with each plan, respectively. Any such amount of Employer contribution not allocated to the SBC Communications Inc. Savings Plan for Salaried Employees will be credited to the Participant's Deferred Compensation Accounts, as applicable. The amount or percent of a Participant's Base Salary to be allocated to Basic Allotments in the SBC Communications Inc. Savings Plan for Salaried Employees shall be specified in Paragraph 3 of a Participant's Agreement.

5.4 Vesting of Deferred Compensation Account. A Participant's interest in his Deferred Compensation Account shall vest at the same rate and in the same manner as it would under the SBC Communications Inc. Savings Plan for Salaried Employees, as in effect from time to time, had both the Deferral Amount and the Employer contribution to this Plan with respect to that Deferral Amount for any given Unit of Participation been contributed instead to the SBC Communications Inc. Savings Plan for Salaried Employees. For this purpose all years of service recognized under the SBC Communications Inc. Savings Plan for Salaried Employees, for purposes of determining a Participants vested interest under that plan, shall be taken into account in determining the Participant's vested interest under this Plan.

5.5 Valuation of Accounts. The value of a Deferred Compensation Account as of any date shall equal the amounts theretofore credited to such account plus the interest on such account credited in accordance with Section 5.1 through the day preceding such date.

5.6 Statement of Accounts. Each Participant will receive annual statements in such form as the Administrative Committee deems desirable setting forth the balance standing to the credit of each of the Participant's Deferred Compensation Accounts.

Section 6

Retirement Benefits. Section 6 shall apply to all Units of Participation under this Plan. The benefits specified in this Section 6 shall be provided under the Retirement Benefit Option.

6.1 Normal Retirement. Upon Normal Retirement, with respect to a Unit of Participation, the Employer shall pay to the Participant an equal amount each month for one hundred eighty (180) months, beginning on the first day of the month next following the date of Normal Retirement, which will amortize over such one hundred eighty (180) equal monthly payments the sum of (a) the value of the Deferred Compensation Account for such Unit of Participation as of the date of commencement of benefit payments, plus (b) the interest that will accrue on the unpaid balance in such Deferred Compensation Account during such one hundred eighty (180) month period pursuant to Section 5.1 (“Standard Retirement Benefit”). Alternatively, a Participant may elect in the Agreement for any Unit of Participation to receive an alternative retirement benefit in lieu of the Standard Retirement Benefit (“Alternative Retirement Benefit”) for such Unit of Participation either in a lump sum payment or in sixty (60) or one hundred twenty (120) equal monthly payments, with the amount of each monthly payment to be calculated in accordance with the principle stated in the preceding sentence.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 7

6.2 Early Retirement. Upon Early Retirement, with respect to a Unit of Participation, the Employer shall pay to the Participant an equal amount each month for one hundred eighty (180) months, beginning on the first day of the month next following the date of Early Retirement, which will amortize over such one hundred eighty (180) equal monthly payments the sum of (a) the value of the Deferred Compensation Account for such Unit of Participation as of the date of commencement of benefit payments, plus (b) the interest that will accrue on the unpaid balance in such Deferred Compensation Account during such one hundred eighty (180) month period pursuant to Section 5.1 (“Standard Retirement Benefit”). Alternatively, a Participant may elect in the Agreement for any Unit of Participation to receive an alternative retirement benefit in lieu of the Standard Retirement Benefit (“Alternative Retirement Benefit”) for such Unit of Participation either in a lump sum payment or in sixty (60) or one hundred twenty (120) equal monthly payments, with the amount of each monthly payment to be calculated in accordance with the principle stated in the preceding sentence. A Participant may further elect in the Agreement for any Unit of Participation to have the Early Retirement Benefit for such Unit of Participation commence when he attains age 65.

6.3 Provisions Relating to Manner and Time of Payments. If a Participant's Agreement fails to show an election of a manner of payment of a Normal or Early Retirement Benefit such Participant will receive the Standard Normal or Early Retirement Benefit in accordance with Section 6.1 or Section 6.2, respectively.

In the event that a final determination shall be made by the Internal Revenue Service or any court of competent jurisdiction that by reason of Normal or Early Retirement a Participant has recognized gross income for Federal income tax purposes in excess of the Standard or Alternative Retirement Benefit actually paid by the Employer to which such gross income is attributable, the Employer shall make a lump sum payment to the Participant of the remaining balance of his Deferred Compensation Accounts for any affected Units of Participation. If a benefit is payable to a Participant pursuant to this paragraph for any Unit of Participation, no other benefits shall thereafter be payable under this Plan with respect to such Unit of Participation.

Notwithstanding any election made by the Participant, the Administrative Committee will pay the Participant's Standard or Alternative Retirement Benefit in the form of a lump sum payment if the value of his Deferred Compensation Account for a Unit of Participation is less than $10,000 when payment of a Normal or Early Retirement Benefit with respect to the Unit of Participation would otherwise commence.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 8

6.4 Termination Benefit.

(a)

Termination of Employment Before Attaining Age 55. Upon any termination of employment of the Participant for reasons other than death or Disability before the Participant attains age fifty-five (55), the Company shall pay to the Participant, with respect to a Unit of Participation, as compensation earned for services rendered prior to his termination of service, a lump sum equal to the vested portion of the amounts standing credited to his Deferred Compensation Account for such Unit of Participation as of the date of such termination of service (“Termination Benefit”).

(b)

Termination of a Unit of Participation. A Participant may discontinue a Unit of Participation while continuing in the service of the Employer. Notwithstanding any other provision of the Plan, upon such discontinuance, the Participant shall immediately cease to be eligible for any benefits other than his Termination Benefit with respect to that Unit of Participation except as provided under Section 8.1.

No other benefit shall be payable with regard to such Unit of Participation to either the Participant or any Beneficiary of such Participant. The Participant shall continue to be credited with interest on the amounts standing credited to his Deferred Compensation Accounts as provided under Section 5.1 and to vest in such amounts as provided under Section 5.4 while he remains in employment with the Employer until payment of his Termination Benefit. However, no further Participant deferrals or Employer contributions to this Plan shall be made pursuant to Sections 5.2 or 5.3 with respect to a Unit of Participation after a Participant discontinues or terminates such Unit of Participation.

A Participant shall terminate a Unit of Participation if he terminates his election to defer Base Salary with the approval of the Administrative Committee pursuant to Section 4.2.

(c)

Loss of Eligibility. In the event that the Participant ceases to be an Eligible Employee by reason of a change to an employment status which is not eligible to participate in this Plan, except as provided under Section 8.1, the Participant shall immediately cease to be eligible for any benefits other than a modified Termination Benefit which shall consist of a lump sum equal to the vested amounts standing credited to his Deferred Compensation Accounts as of the date of such loss of eligibility, provided the Participant shall continue to be credited with interest on such amounts as provided under Section 5.1 and to vest in such amounts as provided under Section 5.4 while he remains in employment with the Employer. However, no further Participant deferrals or Employer contributions shall be made to this Plan pursuant to Sections 5.2 or 5.3 subsequent to the date of such loss of eligibility. Each such lump sum Termination Benefit shall be payable upon the Participant's termination of employment by the Employer, whether by death, Normal Retirement, Early Retirement or any other means. The provisions of this subparagraph 6.4(c) shall not apply if the Participant in his new employment status is an eligible employee under another similar deferred compensation plan of the Employer. In such event the provisions of Section 8.6 of this Plan shall apply.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 9

(d)

No Other Benefits Payable. When a Participant terminates employment, terminates a Unit of Participation or ceases to be an Eligible Employee under circumstances in which Section 6.4(a), (b) or (c) applies, no Survivor Benefit or other benefit shall thereafter be payable under this Plan to either the Participant or any Beneficiary of the Participant with respect to such Unit of Participation except as provided under Section 8.1.

6.5 Disability. In the event that a Participant suffers a Disability, Participant deferrals and Employer contributions that otherwise would have been credited to the Deferred Compensation Accounts of the Participant in accordance with Sections 5.2 and 5.3 will continue to be credited to such Deferred Compensation Accounts at the same time and in the same amounts as they would have been credited if the Participant had not suffered a Disability for as long as he is eligible to receive monthly disability benefits equal to 100 percent of his monthly base salary at the time of his Disability. At such time as the Participant is not eligible to receive monthly disability benefits equal to 100 percent of his monthly base salary at the time of his Disability, Participant deferrals and Employer contributions that otherwise would have been credited to the Deferred Compensation Accounts of the Participant in accordance with Section 5.2 and 5.3 shall cease.

If the Participant recovers from his Disability and returns within sixty (60) days thereafter to employment with the Employer in an employment status which would make him eligible to participate in this Plan and prior to the end of the original Unit Deferral Period, the Participant shall continue or resume making deferrals, as the case may be, in accordance with Section 5.2 and the Employer shall continue or resume making contributions, as the case may be, in accordance with Section 5.3 until the end of the original Unit Deferral Period.

If the Participant recovers from his Disability, the Participant shall be treated as terminating service with the Employer on the date of his recovery, unless within sixty (60) days thereafter he returns to employment with the Employer in an employment status which makes him eligible to participate in this Plan.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 10

If a Participant's Disability terminates by reason of his death, the rights of his Beneficiary shall be determined pursuant to Section 6.6 as if the Participant had not been disabled but rather had been in service on the date of his death and either died or retired on such date, whichever would be most advantageous to such Beneficiary. If a Participant's Disability terminates by reason of attainment of age 65, the Participant shall upon the attainment of age 65 be entitled to a Normal Retirement Benefit determined pursuant to Section 6.1. If a Participant's Disability terminates by reason of the Participant's election to take Early Retirement under the Plan, the Participant shall be treated as having an Early Retirement on the date elected by the Participant and shall be entitled to an Early Retirement Benefit determined pursuant to Section 6.2.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 11

6.6 Survivor Benefits.

(a)

If a Participant dies while in service with the Employer (or while suffering from a Disability prior to attaining age 55) prior to eligibility for Early Retirement with respect to a Unit of Participation, upon the Participant's death the Employer will pay to the Participant's Beneficiary with respect to each Unit of Participation an amount per month, as specified in paragraph 6 of his Agreement, equal to the greater of (i) [(50% of the sum of the Total Unit Deferral Amount plus the Projected Employer Contribution for such Unit of Participation) divided by 12] or (ii) the balance in the Deferred Compensation Account (excluding any Short Term Incentive Award deferred pursuant to Section 5.2 and excluding any interest earned on the Short Term Incentive Award) divided by the number of months payments are to be made as stated below, plus interest in accordance with the interest methodology of Section 6.2. Payments are to be made for the greater of one hundred twenty (120) months or the number of months from the date of Participant's death until he would have been age 65 (“Pre-Retirement Survivor Benefit”).

In addition, the Participant's Beneficiary will receive any Short Term Incentive Award associated with such Unit of Participation, deferred pursuant to Section 5.2, plus corresponding interest earned on the Short Term Incentive Award, paid out over the same period as the Pre-Retirement Survivor Benefit and in accordance with the interest methodology of Section 6.2.

(b)

If a Participant dies while in service after eligibility for Early Retirement with respect to a Unit of Participation, but prior to commencement of payment of an Early or Normal Retirement Benefit with respect to such Unit of Participation, the Employer will pay to the Participant's Beneficiary the greater of (i) the benefit that such Participant's Beneficiary would have received with respect to such Unit of Participation had the Participant retired and commenced to receive an Early Retirement Benefit on the day prior to such Participant's death or (ii) a benefit equal to the Pre-Retirement Survivor Benefit. The Administrative Committee shall determine which benefit is greater on a present value basis using such interest rate as the Administrative Committee may determine in its sole discretion. Payments will commence upon the Participant's death, irrespective of when Early Retirement Benefit payments would have commenced if the Participant had survived. Such payments shall be made in accordance with the method of payment which the Participant had elected for payment of his Normal or Early Retirement Benefit.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 12

(c)

If a Participant dies after Early or Normal Retirement but before commencement of payment of an Early or Normal Retirement Benefit with respect to a Unit of Participation, the Employer will pay to the Participant's Beneficiary the installments of any such benefit that such Participant's Beneficiary would have received with respect to such Unit of Participation had the Participant commenced to receive an Early or Normal Retirement Benefit on the day prior to such Participant's death. Payments will commence upon the Participant's death, irrespective of when Early or Normal Retirement Benefit payments would have commenced if the Participant had survived. Such payments shall be made in accordance with the method of payment which the Participant had elected for payment of his Normal or Early Retirement Benefit.

(d)

If a Participant dies after the commencement of payment of an Early or Normal Retirement Benefit with respect to a Unit of Participation, the Employer will pay to the Participant's Beneficiary the remaining installments of any such benefit that would have been paid to the Participant had the Participant survived.

(e)

As an additional benefit, if a Participant dies subsequent to eligibility to commence payment of a Standard or Alternative Retirement Benefit, and has a surviving spouse, the Employer shall pay to the spouse commencing on the later of (a) the sixteenth (16th) year after commencement of payment of any Standard or Alternative Retirement Benefit or (b) the first of the month following the Participant's death, an amount per month for the life of the spouse equal to sixty-six and two-thirds percent (66-2/3%) of the Standard Retirement Benefit. If the spouse is more than three (3) years younger or older than the Participant on the date of Participant's death, the amount of such benefit shall be actuarially adjusted based on standard mortality tables.

6.7 Termination with Retirement Eligibility/Involuntary Termination. Notwithstanding any other provisions of the Plan, if after November 17, 1995, a Participant’s employment terminates before the Participant attains age fifty-five, and if such termination is involuntary (which shall be deemed to include termination by reason of death), and is for a reason other than for cause (i.e., willful and gross misconduct on the part of the Participant that is materially and demonstrably detrimental to the Company or any entity in which the Company has at least a 50% ownership interest), and is on or after the date Participant is within five years of being pension eligible, i.e., would be within five years of being eligible to retire with a service pension under the rules for service pension eligibility as in effect under the SBC Pension Benefit Plan, and/or is a Senior Manager within five years of being eligible to retire with an immediate pension based on the eligibility rules of the SBC Senior Management Supplemental Retirement Income Plan, whether or not actually a participant in either such plan, then the provisions of this Section 6.7 shall govern and control with respect to the distribution of the Plan’s benefits if the benefits offered by this Section 6.7 are elected. In such case, the Participant, or the Participant’s Beneficiary(ies) if the Participant’s employment terminates by reason of the Participant’s death, may irrevocably elect in writing, in a Waiver Agreement, as described below, filed with the Company, to waive the Termination Benefit or the Pre-Retirement Survivor Benefit, as applicable, with respect to any or all Units of Participation, and in lieu of said Benefit for any such Unit, receive an “Alternative Termination Benefit”.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 13

Such Alternative Termination Benefit for a Unit shall be the Unit as described in the Participant’s Agreement, provided in accordance with and governed in all respects by the terms of the Plan and said Agreement, except that the Plan and Agreement shall be applied with respect to such Unit as if the Participant had remained in employment and retired upon or after attaining age fifty-five, regardless of Participant’s actual termination date. For purposes of applying the Plan and the Agreement, Normal Retirement shall be the Participant’s sixty-fifth birthday and Early Retirement shall be the date specified by the Participant as Participant’s Early Retirement date, which date shall be specified at the time the waiver Agreement, as described below, is filed with the Company, and which date may be no earlier than Participant’s fifty-fifth birthday. In the event of Participant’s death prior to age fifty-five, the Alternative Termination Benefit for a Unit, whether such Benefit was elected by the Participant or Participant’s Beneficiary(ies), shall be determined, as described below, by applying the Plan and Agreement with respect to such Unit as if the Participant had died upon reaching age fifty-five.

Accordingly, notwithstanding any other provisions of the Plan, for purposes of application of this Section 6.7, in the event a Participant elects an Alternative Termination Benefit in lieu of the Termination Benefit for a Unit, or a Beneficiary(ies) elects to receive an Alternative Termination Benefit in lieu of a Pre-Retirement Survivor Benefit for a Unit, survivor benefits for such Unit shall be determined as follows: (a) If Participant dies on or after the date specified by Participant as Participant’s Early Retirement date, Participant’s Beneficiary(ies) shall receive the remaining installments of Participant’s retirement benefit; or (b) If Participant dies on or after age fifty-five but prior to the date specified by Participant as Participant’s Early Retirement date, Participant’s Beneficiary(ies) will receive survivor benefits in accordance with Section 6.6(b), i.e., the provision of the Plan that would have applied had Participant’s death actually been an in service death which occurred upon or after attainment of age fifty-five, or (c) If Participant’s death occurs prior to age fifty-five, Participant’s Beneficiary(ies) will receive at such time as Participant would have attained age fifty-five, survivor benefits in accordance with Section 6.6(b), i.e., the provision of the Plan that would have applied had Participant’s death actually been an in service death which occurred upon attainment of age fifty-five; and (d) Finally, the benefit described in Section 6.6(e) shall apply commencing on the later of the sixteenth year after commencement of payments pursuant to the Alternative Termination Benefit or the first of the month following Participant’s death.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 14

For purposes of computing the Vested Benefits (as such term is used in rabbi trusts (“Trusts”) established by the Company for the purpose of providing for the payment of benefits under the Plan) corresponding to an Alternative Termination Benefit, for all Trust purposes, including for purposes of determining the Trust funding level applicable for such Alternative Termination Benefit, the Participant shall be treated for each such Alternative Termination Benefit Unit as if continuing in employment until age fifty-five if the Participant dies before attaining age fifty-five or until the date of Participant’s death if Participant dies after attaining age fifty-five or until reaching the Participant’s Early Retirement Date for such Unit as selected by the Participant if Participant survives until such date, i.e., the Trust funding for any such Unit and the security afforded Participant or Participant’s Beneficiary(ies) thereby shall be no different as a result of this Section 6.7 than they would have been had Participant continued in employment in the absence of this Section 6.7 and lived until at least age fifty-five.

Waiver of a Termination Benefit with respect to a Unit by a Participant, or of a Pre-Retirement Survivor Benefit with respect to a Unit by a Beneficiary(ies), and in either case, receipt of an Alternative Termination Benefit in lieu thereof, shall be conditioned upon the agreement in writing by the Participant, or Participant’s Beneficiary(ies), as applicable, at the time of Participant’s termination of employment, to provisions substantially as attached.

6.8 Termination Under EPR. Notwithstanding any other provisions of the Plan, if a Participant's employment terminates before the Participant attains age fifty-five, and if such termination is as an EPR Terminee under the Enhanced Pension and Retirement Program ("EPR") of the SBC Pension Benefit Plan-Nonbargained Program ("SBC PBP") or as a Deceased Electing Employee under EPR, and is on or after the date Participant is within five years of being pension eligible, i.e., would be within five years of being eligible to retire with a service pension under the rules for service pension eligibility as in effect under the SBC PBP, and/or is a Senior Manager within five years of being eligible to retire with an immediate pension based on the eligibility rules of the SBC Supplemental Retirement Income Plan, whether or not actually a participant in either such plan, or a Participant who is age 55 or over terminates employment under EPR, then the provisions of this Section 6.8 shall govern and control with respect to the distribution of the Plan’s benefits if the benefits offered by this Section 6.8 are elected. In such case, the Participant, or the Participant’s Beneficiary(ies) if the Participant’s employment terminates by reason of the Participant’s death, may irrevocably elect in writing, in an EPR special election form filed with the Company, to waive the Termination Benefit or the Pre-Retirement Survivor Benefit or the Early Retirement Benefit, as applicable, with respect to any or all Units of Participation, and in lieu of said Benefit for any such Unit, receive an “EPR Alternative Termination Benefit”.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 15

Such an EPR Alternative Termination Benefit for a Unit shall be the Unit as described in the Participant’s Agreement, provided in accordance with and governed in all respects by the terms of the Plan and said Agreement, except that the Plan and Agreement shall be applied with respect to such Unit, in accordance with Participant's special EPR election form applicable to such Unit, as if the Participant had remained in employment and retired upon the Participant's Early Retirement Date specified in his EPR special election form applicable to such Unit of Participation, regardless of Participant’s actual termination date. For purposes of applying the Plan and the Agreement, Normal Retirement shall be the Participant’s sixty-fifth birthday and Early Retirement shall be the date specified by the Participant as Participant’s Early Retirement date, which date shall be specified in Participant's special EPR election form filed with the Company, and which date may be no earlier than Participant’s fifty-fifth birthday. In the event of Participant’s death prior to age fifty-five, the EPR Alternative Termination Benefit for a Unit, whether such Benefit was elected by the Participant or Participant’s Beneficiary(ies), shall be determined, as described below, by applying the Plan and Agreement with respect to such Unit as if the Participant had died upon or after reaching age fifty-five.

Accordingly, notwithstanding any other provisions of the Plan, for purposes of application of this Section 6.8, in the event a Participant elects an EPR Alternative Termination Benefit in lieu of the Termination Benefit or the Early Retirement Benefit for a Unit, or a Beneficiary(ies) elects to receive an EPR Alternative Termination Benefit in lieu of a Pre-Retirement Survivor Benefit for a Unit, as applicable, survivor benefits for such Unit shall be determined as follows: (a) If Participant dies on or after the date specified by Participant as Participant’s Early Retirement date, Participant’s Beneficiary(ies) shall receive the remaining installments of Participant’s retirement benefit; or (b) If Participant dies on or after age fifty-five but prior to the date specified by Participant as Participant’s Early Retirement date, Participant’s Beneficiary(ies) will receive survivor benefits in accordance with Section 6.6(b), i.e., the provision of the Plan that would have applied had Participant’s death actually been an in service death which occurred upon or after attainment of age fifty-five, or (c) If Participant’s death occurs prior to age fifty-five, Participant’s Beneficiary(ies) will receive at such time as Participant would have attained age fifty-five, survivor benefits in accordance with Section 6.6(b), i.e., the provision of the Plan that would have applied had Participant’s death actually been an in service death which occurred upon attainment of age fifty-five; and (d) Finally, the benefit described in Section 6.6(e) shall apply commencing on the later of the sixteenth year after commencement of payments pursuant to the EPR Alternative Termination Benefit or the first of the month following Participant’s death.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 16

For purposes of computing the Vested Benefits (as such term is used in rabbi trusts (“Trusts”) established by the Company for the purpose of providing for the payment of benefits under the Plan) corresponding to an EPR Alternative Termination Benefit, for all Trust purposes, including for purposes of determining the Trust funding level applicable for such EPR Alternative Termination Benefit, the Participant shall be treated for each such EPR Alternative Termination Benefit Unit as if continuing in employment until age fifty-five if the Participant dies before attaining age fifty-five or until the date of Participant’s death if Participant dies after attaining age fifty-five or until reaching the Participant’s Early Retirement Date for such Unit as selected by the Participant if Participant survives until such date, i.e., the Trust funding for any such Unit and the security afforded Participant or Participant’s Beneficiary(ies) thereby shall be no different as a result of this Section 6.8 than they would have been had Participant continued in employment in the absence of this Section 6.8 and lived until at least age fifty-five.

Section 7

Intentionally Omitted.

Section 8

Payment of Benefits.

8.1 Intentionally Omitted.

8.2 Small Benefit. Notwithstanding any election made by the Participant, the Administrative Committee will pay any benefit in the form of a lump sum payment if the lump sum equivalent amount is less than $10,000 when payment of such benefit would otherwise commence.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 17

8.3 Emergency Benefit. In the event that the Administrative Committee, upon written petition of the Participant, determines in its sole discretion, that the Participant has suffered an unforeseeable financial emergency, the Employer shall pay to the Participant, as soon as practicable following such determination, the balance of his Deferred Compensation Accounts for one or more Units of Participation as necessary to meet the emergency (the “Emergency Benefit”). For purposes of this Plan, an unforeseeable financial emergency is an unexpected need for cash arising from an illness, casualty loss, sudden financial reversal, or other such unforeseeable occurrence. Cash needs arising from foreseeable events such as the purchase of a house or education expenses for children shall not be considered to be the result of an unforeseeable financial emergency. Upon payment of an Emergency Benefit with respect to any Unit of Participation, the Unit of Participation shall thereupon terminate, and no other benefits shall be payable under the Plan to either the Participant or any Beneficiary of the Participant with respect to the Unit of Participation.

8.4 Commencement of Payments. Except as otherwise provided in this Plan, commencement of payments under this Plan shall begin sixty (60) days following the event which entitles a Participant (or a Beneficiary) to payments under the Plan, or at such earlier date as may be determined by the Administrative Committee.

8.5 Withholding; Unemployment Taxes. To the extent required by the law in effect at the time payments are made, the Employer shall withhold from payments made hereunder the minimum taxes required to be withheld by the federal or any state or local government.

8.6 Change in Status. In the event of a change in the employment status of a Participant to a status in which he is no longer an Eligible Employee under this Plan, but is an eligible employee under the Management Deferred Compensation Plan of 1988 or another similar deferred compensation plan of the Employer, the Participant and all of his Units of Participation under this Plan shall automatically be transferred to such other deferred compensation plan for which he is then an eligible employee, unless otherwise determined by the Administrative Committee. In the event of any such transfer, the provisions of the other deferred compensation plan to which the Participant transfers shall thereafter determine the rights and benefits of the Participant with respect to all of his Units of Participation, unless otherwise determined by the Administrative Committee. The Employer may, but shall not be required to, enter into revised Agreements with the Participant to carry out the provisions of this Section.

8.7 Transfer to RWAC. Effective August 1, 1990, if a Participant transfers to a RWAC prior to completion of a Unit of Participation, deferrals which would otherwise have been made by the Participant in accordance with Section 5.2 shall continue to be made by the Employer until the Participant resumes employment with the Employer but for a maximum period not to exceed 5 years. Contributions which would have been made by the Employer in accordance with Section 5.3 shall also continue to be made by the Employer during such period as Participant contributions are continued in accordance with the preceding sentence. Benefits applicable during the period of employment at a RWAC (not to exceed 5 years) and the methods used for crediting the Deferred Compensation Account and repaying amounts contributed by the Employer and reducing the Normal Retirement or Early Retirement Benefit paid to the Participant or his Beneficiary shall be the same as those applicable pursuant to Section 6.7 in the case of Disability, i.e., employment at a RWAC shall be deemed a Disability for the purpose of making determinations pursuant to Section 6.7. If the Participant has not resumed employment with the Employer or has not completed a Unit of Participation as result of Employer Contributions within 5 years from date of transfer, a Termination Benefit based on the amounts credited to the Participant's Deferred Compensation Account at the date of transfer shall be paid upon termination of employment with a RWAC or the expiration of such 5 year period whichever is earlier.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 18

8.8 Leave of Absence. If a Participant absents himself from employment on a formally granted leave of absence (i.e., the absence is with formal permission in order to prevent a break in the continuity of the Employee's term of employment which permission is granted in conformity with the rules of the Employer which employs the individual, as adopted from time to time), all of the Participant's Units of Participation shall automatically be frozen upon such leave of absence, unless otherwise determined by the Administrative Committee. No Participant deferrals or Employer contributions shall be made during the leave of absence. However, during the leave of absence (for a period not to exceed six (6) months), the Participant shall continue to be credited with interest on his Deferred Compensation Accounts as provided under Section 5.1 and to vest in such amounts as provided under Section 5.4, and all benefits shall continue to be payable to the Participant and his Beneficiaries in accordance with Section 6 hereof, except in the case of a political leave (i.e., to campaign for or serve when elected to a political office, to serve if appointed to public office or for non-candidate employees to participate in campaigns of candidates for political office). In the case of such a political leave, except as provided under Section 8.1, the only benefit payable if the Participant dies during such leave shall be a Termination Benefit based on the amounts credited to the Participant's Deferred Compensation Accounts, which shall be payable to the Participant's Beneficiary. If the Participant returns to employment with the Employer in an employment status which makes him eligible to participate in this Plan within six (6) months from commencement of the leave of absence, Participant deferrals and Employer contributions will resume until the end of the original Unit Deferral Period. If the Participant has not resumed employment with the Employer in an employment status which makes him eligible to participate in this Plan within six (6) months from the commencement of the leave of absence, a Termination Benefit based on the amounts credited to the Participant's Deferred Compensation Accounts shall be paid to the Participant.

This Section 8.8 shall not apply with respect to any period during which a Participant is suffering from a Disability, and such period of Disability shall not be included under this Section 8.8 as a portion of a period of leave of absence.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 19

8.9 Ineligible Participant. Notwithstanding any other provisions of this Plan to the contrary, if any Participant is determined not to be a “management or highly compensated employee” within the meaning of the Employee Retirement Income Security Act of 1974, as amended (ERISA) or Regulations thereunder, such Participant will not be eligible to participate in this Plan and shall receive an immediate lump sum payment equal to the vested portion of the amounts standing credited to his Deferred Compensation Accounts. Upon such payment no Survivor Benefit or other benefit shall thereafter be payable under this Plan either to the Participant or any Beneficiary of the Participant, except as provided under Section 8.1.

Each Participant shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries (both primary as well as contingent) to whom payment under this Plan shall be made in the event of his death prior to complete distribution to Participant of the benefits due him under the Plan. Each Beneficiary designation shall become effective only when filed in writing with the Administrative Committee during the Participant's lifetime on a form prescribed by the Administrative Committee with written acknowledgment of receipt.

The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. The spouse of a married Participant domiciled in a community property jurisdiction shall join in any designation of Beneficiary or Beneficiaries other than the spouse.

If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Administrative Committee shall direct the distribution of such benefits to the Participant's estate.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 20

Section 9

Beneficiary Designation. Each Participant shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries (both primary as well as contingent) to whom payment under this Plan shall be made in the event of his death prior to complete distribution to Participant of the benefits due him under the Plan. Each Beneficiary designation shall become effective only when filed in writing with the Administrative Committee during the Participant’s lifetime on a form prescribed by the Administrative Committee with written acknowledgment of receipt.

If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Administrative Committee shall direct the distribution of such benefits to the Participant’s estate.

Section 10

Discontinuation, Termination, Amendment.

10.1 Employer's Right to Discontinue Offering Units. The Chairman of the Board may at any time discontinue offerings of additional Units of Participation with respect to any or all future Plan Years. Any such discontinuance shall have no affect upon the deferrals or benefits or the terms or provisions of this Plan as applicable to any then previously existing Units of Participation.

10.2 Employer's Right to Terminate Plan. The Board may at any time terminate the Plan. Termination of the Plan shall mean that (1) there shall be no further offerings of additional Units of Participation with respect to any future Plan Year; (2) Base Salary shall prospectively cease to be deferred with respect to all Units of Participation for the then Plan Year and thereafter; and (3) all then currently existing Units of Participation shall be treated as follows:

The Participant's Deferred Compensation Accounts shall be 100% vested. The Participant shall receive or continue to receive all benefits under this Plan at such time as provided in and pursuant to the terms and conditions of his Agreement(s) and as described in this Plan, provided however, any benefits payable under a Unit of Participation that is not completed due to a termination of the Plan under this Section 10.2 shall be prorated based upon the number of months Participant made deferrals with respect to such Unit of Participation divided by the Unit Deferral Period for that Unit of Participation.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 21

10.3 Amendment. The Board may at any time amend the Plan in whole or in part, provided however, that no amendment, including an amendment to this Section 10, shall be effective, without the written consent of a Participant, to alter, to the detriment of such Participant, the benefits described in this Plan as applicable to a Unit of Participation of the Participant or to decrease amounts standing credited to such Participant's Deferred Compensation Accounts under the Plan. For purposes of this Section 10.3, an alteration to the detriment of a Participant shall mean a reduction in the period of time over which benefits are payable under a Participant's Agreement, subject however to the proration provisions of Section 10.2 hereof, or any change in the form of benefits payable to a Participant under the Participant's Agreement. Written notice of any amendment shall be given to each Participant.

Section 11

Miscellaneous.

11.1 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interest, or claims in any property or assets of Employer, nor shall they be Beneficiaries of, or have any rights, claims, or interests in any life insurance policies, annuity contracts, or the proceeds therefrom owned or which may be acquired by Employer (“Policies”). Any such Policies or other assets of Employer shall not be held under any trust for the benefit of Participants, their Beneficiaries, heirs, successors, or assigns, or held in any way as collateral security for the fulfilling of the obligations of Employer under this Plan. Any and all of the Employer's assets and Policies shall be, and remain, the general, unpledged, unrestricted assets of Employer. Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise of Employer to pay money in the future.

11.2 Trust Fund. The Employer shall be responsible for the payment of all benefits provided under the Plan. At its discretion, the Company may establish one or more trusts, for the purpose of providing for the payment of such benefits. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Employer's creditors. To the extent any benefits provided under the Plan are actually paid from any such trust, the Employer shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by, the Employer.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 22

11.3 Obligations to Employer. If a Participant becomes entitled to a distribution of benefits under the Plan, the Employer may offset against the amount of benefits otherwise distributable any claim to reimbursement for intentional wrongdoing by the Participant against the Employer or an affiliate. Such determination shall be made by the Administrative Committee.

11.4 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency.

11.5 Employment Not Guaranteed. Nothing contained in this Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any Employee any right to be retained in the employ of the Employer or to serve as a director.

11.6 Protective Provisions. A Participant will cooperate with the Employer by furnishing any and all information requested by the Employer, in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Employer may deem necessary and taking such other relevant action as may be requested by the Employer. If a Participant refuses so to cooperate, the Employer shall have no further obligation to the Participant under the Plan. If a Participant commits suicide during the two-year period beginning on the Unit Start Date for a given Unit of Participation or if the Participant makes any material misstatement of information or non-disclosure of medical history, then no benefits will be payable with respect to that Unit of Participation to such Participant or his Beneficiary, or in the Employer's sole discretion, benefits may be payable in a reduced amount.

11.7 Gender, Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine or feminine, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular.

11.8 Waiver of Benefits. No benefit shall be payable under the provisions of this Plan with respect to any Participant who is or was a member of a group of employees designated by an Employer as eligible to waive such benefit if such Participant has waived such benefit under this Plan unless the Employer by which such Participant is or was last employed has authorized the revocation of such waiver and such Participant has revoked such waiver.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 23

11.9 Captions. The captions of the articles, sections, and paragraphs of this Plan are for convenience only and shall not control nor affect the meaning of construction of any of its provisions.

11.10 Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of Missouri.

11.11 Validity. In the event any provision of this Plan is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan.

11.12 Notice. Any notice or filing required or permitted to be given to the Administrative Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Employer, directed to the attention of the Vice President-Human Resources of the Employer. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

11.13 Successors and Assigns. This Plan shall be binding upon the Company and its successors and assigns.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 24

SBC COMMUNICATIONS INC.

SENIOR MANAGEMENT

DEFERRED COMPENSATION PLAN OF 1988 AGREEMENT

19___ UNIT OF PARTICIPATION

THIS AGREEMENT is made and entered into at St. Louis, Missouri as of the _____ day of ___________________________, 19___, by and between SBC Communications Inc. (“Company”), and (“Senior Manager”).

WHEREAS, the Company has adopted a Senior Management Deferred Compensation Plan of 1988 (the “Plan”); and

WHEREAS, The Senior Manager has been determined to be eligible to participate in the Plan; and

WHEREAS, the Plan requires that an agreement be entered into between the Company and the Senior Manager setting out certain terms and benefits of the Plan as they apply to the Senior Manager;

NOW, THEREFORE, the Company and the Senior Manager hereby agree as follows:

1. The Plan is hereby incorporated into and made a part of this Agreement, as though set forth in full herein. The parties shall be bound by, and have the benefit of, each and every provision of the Plan, including without limitation the restrictions on assignability set forth in the Plan.

2. The Senior Manager was born on ______________________.

3. The Senior Manager's basic allotment percentage in the SBC Communications Inc. Savings Plan for Salaried Employees (“Savings Plan”) is _____ percent (___%). Any subsequent change in this level of participation by the Senior Manager before this Unit of Participation is completed will void this Agreement and require that a new Agreement be entered into between the Employer and the Senior Manager.

4. The Senior Manager's Base Salary during a calendar year shall be reduced in accordance with Exhibit A attached to this Agreement.

5. The Senior Manager's Projected Employer Contribution associated with this Unit of Participation is set forth in Exhibit A attached to this Agreement. There shall be no duplication of Employer matching contributions, i.e., it is understood that any Employer matching contributions corresponding to Senior Manager deferrals under this Unit of Participation that are contributed to the Plan will preclude Employer matching contributions to the Savings Plan with respect to such Senior Manager deferrals, and vice versa.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 25

6. The amount per month of Pre-Retirement Survivor Benefit in accordance with Section 6.6(a) of the Plan is the greater of (i) $____________, or (ii) the balance in the Deferred Compensation Account (excluding Short Term Incentive Awards deferred and interest earned on such awards) divided by the number of months payments are to be made, plus interest; such amounts shall be payable for the greater of ten (10) years or the number of years from the date of Participant's death until he would have been age 65.

7. The payment option for Participant's 19___ Unit of Participation shall be the Retirement Benefit Option in accordance with Section 6.

This payment option will also apply to payout of any Short Term Incentive Awards deferred and interest earned on such awards. Such payout is not considered part of the Standard Retirement Benefit.

RETIREMENT BENEFIT OPTION

(Paragraphs 8 and 9 apply to benefits paid pursuant to the Retirement Benefit Option.)

8. Upon Normal or Early Retirement, the Participant hereby elects: (please initial (a) or (b))

(a)

_______

To receive a Standard Retirement Benefit, payable for a period of one hundred eighty (180) months.

(b)

_______

To receive an Alternative Retirement Benefit to be paid in accordance with one of the following payment modes: (please initial one of the following)

(i)

______

In a lump sum payment.

(ii)

______

In equal monthly installments for a period of sixty (60) months.

(iii)

______

In equal monthly installments for a period of one hundred twenty (120) months.

9. The Participant hereby elects to receive any Early Retirement Benefit as follows (please initial (a) or (b)):

(a)

_______

Commencing at age 65.

(b)

_______

Commencing at Early Retirement.

10. Intentionally Omitted

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 26

11. Intentionally Omitted

12. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successors and assigns, and the Senior Manager and his Beneficiaries.

IN WITNESS WHEREOF, the parties hereto have signed and entered into this Agreement on and as of the date first above written.

THE COMPANY:

By ___________________________________

Its Senior Vice President-Human Resources

SENIOR MANAGER ______________________ ___________

Signature Date

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 27

EXHIBIT A

SBC COMMUNICATIONS INC.

SENIOR MANAGEMENT

DEFERRED COMPENSATION PLAN AGREEMENT

19__ Unit of Participation

Unit Start Date: _____________, 19__

Unit Deferral Period: 48 Months

Annual Amount

Year Deferred

1. Unit Start Date:

19__ (commencing the first day

of the month of January) $__________ (1)

2. 19__ __________ (1)

3. 19__ __________ (1)

4. 19__ (ending the last day of __________ (1)

the month of December)

Total Unit

Deferral Amount $_____________

Projected Employer Contribution $_____________

associated with this Unit of

Participation

Monthly Pre-Retirement Survivor $_____________

Benefit associated with this Unit

of Participation

(1) This amount will be deferred in equal amounts on a monthly basis.

Ex 10-g_Senior Mgmt Def Comp Plan of 1988 amended 04.01.2002 28

Exhibit 10-hh(ii)

AT&T INC.

HUMAN RESOURCES COMMITTEE

June 26, 2008

Second Amendment to BellSouth Corporation

Stock and Incentive Compensation Plan

RESOLVED, that the Human Resources Committee of AT&T Inc. ("Corporation") hereby authorizes and directs the Senior Executive Vice President-Human Resources to provide that, notwithstanding anything to the contrary in the plan, payments of Restricted Stock Units under the BellSouth Corporation Stock and Incentive Compensation Plan must be delayed six months from when they would otherwise be payable when such amounts are to be paid to a Specified Employee, as that term is used in Treasury Regulation §1.409A; and

RESOLVED FURTHER, that the appropriate officers of the Corporation are authorized to do or cause to be done any and all such acts and things, and to execute and deliver any and all documents and papers that they may deem necessary, proper or advisable to carry out the foregoing resolutions.

Exhibit 10-s

AT&T Inc.

Non-Employee Director Stock and Deferral Plan

amended June 26, 2008

Article 1. Purpose

The purpose of the Non-Employee Director Stock and Deferral Plan (the “Plan”) (formerly the Deferred Compensation Plan for Non-Employee Directors) is to promote the achievement of long-term objectives of AT&T Inc. by linking the personal interests of Non-Employee Directors to those of the Company’s stockholders and to attract and retain Non-Employee Directors of outstanding competence.

Article 2. Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the defined meaning is intended, the initial letter of the word is capitalized:

	(a)	"Annual Retainer" or "Retainer" means the payments made to Directors for their annual Board service. It includes any additional Retainer paid to Committee Chairpersons or the Lead Director. "Base Annual Retainer" means the Annual Retainer without any additional amounts for Committee Chairpersons, Lead Directors or otherwise.
	(b)	"Award" means, individually or collectively, an award under this Plan of Stock Units.

	(c)	"Board" means the Board of Directors of the Company.
	(d)	" Business Day " means any day that the Company is open for the regular transaction of business.

	(e)	"Company" means AT&T Inc., a Delaware corporation.
	(f)	"Director" means any individual who is a member of the Board, including Advisory Directors.

	(g)	"Employee" means any full-time, nonunion, salaried employee of the Company or of the Company’s directly or indirectly held subsidiaries. For purposes of the Plan, an individual whose only employment relationship with the Company is as a Director shall not be deemed to be an Employee.
	(h)	"Fair Market Value" or "FMV" means the closing price on the New York Stock Exchange ("NYSE") for Shares on the relevant date, all as determined by the Company. In lieu of the foregoing, the Board may select any other index or measurement to determine the FMV of Shares under the Plan.

	(i)	"Non-Employee Director" means any individual who is a member of the Board but who is not otherwise an Employee, nor has otherwise been an Employee.
	(j)	"Participant" means a person who is entitled to participate in the Plan.

	(k)	"Shares" means shares of common stock of the Company, par value one dollar ($1.00) per share.
	(l)	"Stock Unit" or "Unit" means an Award acquired by a Participant as a measure of participation under the Plan, and having a value equal to one (1) Share.

(m)

"Trading Day" means any day that the Shares are traded on the NYSE.

Article 3. Eligibility and Administration

3.1 Eligibility . Persons eligible to participate in the Plan are limited to Non-Employee Directors.

3.2 The Committee . The Plan shall be administered by the Corporate Governance and Nominating Committee of the Board (the “Committee”), subject to the restrictions set forth

in the Plan.

3.3 Administration by the Committee . The Committee shall have the full power, discretion, and authority to interpret and administer the Plan in a manner consistent with the Plan’s provisions. However, in no event shall the Committee have the power to determine Plan eligibility, or to determine the number, the value, the vesting period, or the timing of Awards to be made under the Plan (all such determinations being automatic pursuant to the provisions of the Plan).

3.4 Decisions Binding . All determinations and decisions made by the Committee pursuant to the Plan, and all related orders or resolutions of the Committee shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Participants, and their estates and beneficiaries.

Article 4. Shares Previously Acquired Under Plan

Effective December 31, 2008, no Shares may be issued under this Plan. However, any Shares previously acquired by a Director under this Plan may not be sold for one year after acquisition. Thereafter, such Shares shall only be sold pursuant to an effective registration statement or pursuant to an exemption from the Securities Act of 1933, including sales pursuant to Rule 144 thereunder. The Company may place a legend on the certificates for such Shares evidencing this restriction.

Article 5. Award of Stock Units for Non-Employee Directors

5.1 Award of Deferred Stock Units for Non-Employee Directors . Effective the day of each annual meeting of the Company’s stockholders, each continuing Non-Employee Director shall be Awarded that number of Stock Units that is equal to: (a) one hundred fifty percent (150%) of the Base Annual Retainer as in effect at the time of the Award divided by (b) the Fair Market Value of a Share on the last Trading Day in the calendar month in which such Award is made. Each Award is intended to be in consideration for service until the next annual meeting of stockholders, but will be fully earned on the date of the Award and credited to the Non-Employee Director’s account on the day the number of Stock Units is determined. Provided, however, if the Director terminates service on or before the day of the annual meeting of stockholders, the related Award to be earned on such meeting date will not be made.

5.2 Award of Deferred Stock Units for New Non-Employee Directors . The following applies only to Non-Employee Directors who originally became a Non-Employee Director after November 21, 1997 and before September 24, 2004. Each Non-Employee Director shall receive, in addition to the Award described in Section 5.1 above, an annual Award of Stock Units effective the day of each annual meeting of the Company’s stockholders. The number of Stock Units in each such Award shall equal thirteen thousand dollars ($13,000), divided by the Fair Market Value of a Share on the last Trading Day in the calendar month in which such Award is made. Each Award is intended to be in consideration for service until the next annual meeting of stockholders, but will be fully earned on the date of the Award and credited to the Non-Employee Director’s account on the day the number of Stock Units is determined. Provided, however, if the Director terminates service on or before the day of the annual meeting of stockholders, the related Award to be earned on such meeting date will not be made. No Director shall receive more than ten (10) Awards under this Section 5.2.

5.3 Deferral of Retainers and Fees into Stock Units . Each Non-Employee Director may elect to defer all (100%) or fifty percent (50%) of the Director's Annual Retainer earned during the relevant calendar year into Stock Units. In addition, a Non-Employee Director may elect to defer all (100%) of the Director’s Board and committee meeting fees and other attendance fees into Stock Units. The number of Stock Units acquired shall equal the fees and/or the portion of the Annual Retainer being deferred into Stock Units in a calendar month, divided by the Fair Market Value of a Share on the last Trading Day in such calendar month, and such Stock Units shall be credited to the Non-Employee Director’s account effective the day the number of Stock Units is determined. Amounts are deferred at the time they otherwise would have been paid were it not for the relevant deferral election.

Any deferral election under this Section 5.3 shall be made prior to the beginning of, and will be effective for, the calendar year in which such payments would beearned. Unless the Non-Employee Director notifies the Secretary of the Company otherwise prior to the beginning of each subsequent calendar year, each election hereunder will renew automatically for an additional calendar year.

5.4 Payout of Deferred Stock Units . Each Stock Unit shall be paid out in cash equal to the Fair Market Value of a Share; a fractional Stock Unit shall be entitled to cash equal to the equivalent fraction of a Share.

The Participant shall elect the timing of the payout for Stock Unit Awards no later than the last day of the calendar year prior to the first scheduled payment of such Stock Units. Notwithstanding the foregoing:

(i) persons who become Directors after November 19, 2004, shall elect the timing of the payout of their Stock Units (their “Post 2004 Stock Units”) no later than the time they first make a deferral election into Stock Units or thirty (30) days after their original election to the Board, whichever is sooner (the Corporate Governance and Nominating Committee may extend only the 30 day deadline and may do so only so long as such extension is permitted by Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”)); and

(ii) each Participant in the Plan as of November 19, 2004 who has not irrevocably elected the timing of the payout of Stock Units shall make such an election by December 31, 2004 with respect to all Stock Units from deferrals of Awards made or Annual Retainer or fees earned after December 31, 2004 (also known as “Post 2004 Stock Units”).

One election will apply to all Post 2004 Stock Units, whether from deferrals, annual Awards or otherwise, and Stock Units earned thereon (each such payout schedule is hereinafter referred to as a “Stock Unit Schedule”); and a separate election shall apply to all other Stock Units and earnings thereon. Stock Units acquired under this Plan shall, with respect to each Stock Unit Schedule (if more than one), be paid out in a lump sum payment or in up to fifteen (15) annual installments, as elected by the Participant. The lump sum payment or the first installment, as the case may be, for each Stock Unit Schedule shall be payable on the first Business Day of February of the year following the calendar year of the termination of the Participant’s service as a Director. Each subsequent annual installment shall be payable on the first Business Day of February. If the Director fails to make a timely election as to the number of installments for any Stock Unit Schedule, such Stock Units shall be paid out in four (4) annual installments.

For Participants electing a payout (or payouts, as the case may be) of Stock Units in installments, the number of Stock Units to be paid out for each Stock Unit Schedule in each installment shall equal the number of Stock Units available for payout under such Stock Unit Schedule, divided by the number of remaining installments (including the installment being made).

5.5 Stock Units . Each Stock Unit shall represent an unfunded and unsecured promise by the Company to issue cash equal in value to the Stock Unit. Participants holding Stock Units (or fractions thereof) shall earn dividend equivalents paid in the form of additional Stock Units added to their account. The number of Stock Units so added shall equal the dividend on a Share multiplied by the number of Stock Units held by the Participant on the record date for such dividend, divided by the Fair Market Value of a Share on the last Trading Day in the calendar month in which the record date for such dividend occurs. The Stock Units shall be credited to a Participant's account on the day the number of Stock Units is determined.

Article 6. Cash Deferral Account

6.1 Cash Deferral Account . A cash deferral account (the "Cash Deferral Account") shall be established and maintained by the Company for each Participant that makes a cash deferral election under the Plan. Each Cash Deferral Account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant and shall be credited to reflect the interest return thereon until paid. The establishment and maintenance of such Cash Deferral Accounts, however, shall not be construed as entitling any Participant to any specific assets of the Company and shall represent an unfunded and unsecured promise of the Company with respect to the amounts due thereunder.

6.2 Cash Deferral Elections . Effective for payments on or after January 1, 1998, each Non-Employee Director may elect to defer all (100%) or fifty percent (50%) of the Director's Annual Retainer earned during the relevant calendar year into the Director's Cash Deferral Account. In addition, a Non-Employee Director may elect to defer all (100%) of the Director’s Board and committee meeting fees and other attendance fees into the

Director's Cash Deferral Account. Amounts are deferred at the time they otherwise would have been paid were it not for the relevant deferral election.

Any deferral election under this Section 6.2 shall be made prior to the beginning of, and will be effective for, the calendar year in which such payments would be earned. Unless the Non-Employee Director notifies the Secretary of the Company otherwise prior to the beginning of each subsequent calendar year, each election hereunder will renew automatically for an additional calendar year.

Deferral elections under the Plan made prior to November 21, 1997, shall be credited to the Cash Deferral Account and continue to earn interest in accordance with Section 6.3.

6.3 Interest on Cash Deferral Accounts . The annual rate of interest on amounts in the Cash Deferral Accounts for 1997 and subsequent calendar years shall be Moody's Long-Term Corporate Bond Yield Average as published by Moody’s Investor Service, Inc. (or any successor thereto) for the month of September before the calendar year in question (if such yield is no longer published, a substantially similar average selected by the Committee) or such other rate as the Committee shall determine prior to the year for which the interest rate would be applicable. Such interest shall be compounded quarterly, in arrears, on all unpaid amounts and shall be recorded on Participant’s statements quarterly.

6.4 Form and Timing of Payout of Cash Deferral Accounts . Cash Deferral Accounts shall be paid out in cash. The Participant shall elect the timing of the payout for the Participant’s Cash Deferral Account no later than the last day of the calendar year prior to the first scheduled payment thereof. Notwithstanding the foregoing:

(i) persons who become Directors after November 19, 2004, shall elect the timing of the payout of their Cash Deferral Account (their “Post 2004 CDA Deferrals”) no later than the time they first make a deferral election into their Cash Deferral Account; and

(ii) each Participant in the Plan as of November 19, 2004 who has not irrevocably elected the timing of the payout of his or her Cash Deferral Account shall make such an election by December 31, 2004 with respect to all amounts from deferrals into such Participant’s Cash Deferral Account of Annual Retainers or fees earned after December 31, 2004 (the “Post 2004 CDA Deferrals”).

One election shall apply to a Participant's Post 2004 CDA Deferrals and earnings thereon (each such payout schedule is hereinafter referred to as a “Cash Account Schedule”); and a separate election shall apply to amounts that are not Post 2004 CDA Deferrals and earnings thereon. A

Participant’s Cash Deferral Account shall, with respect to each Cash Account Schedule (if more than one), be paid out in a lump sum payment or in up to fifteen (15) annual installments, as elected by the Participant. The lump sum payment or the first installment, as the case may be, for each Cash Account Schedule shall be payable on the first Business Day of February of the year following the calendar year of the termination of the Participant’s service as a Director. Each subsequent annual installment shall be payable on the first Business Day of February. If the Director fails to make a timely election as to the number of installments for any Cash Account Schedule, the Participant’s Cash Deferral Account shall be paid out in four (4) annual installments. Each installment shall equal the amount available for payout under such Cash Account Schedule, divided by the number of remaining installments (including the installment being made).

6.5 Conversion of Non-Employee Director’s Cash Deferral Account to Deferred Stock Units . Each year, on or before the close of trading in Shares on the NYSE on the tenth day (if the tenth day is not a Trading Day, then the next preceding Trading Day) following the Company’s public release of its annual summary statement of earnings (typically in January of each year) (such Trading Day to be the "Conversion Date"), a Non-Employee Director may elect to convert all or part of the balance of his or her Cash Deferral Account into Stock Units. Notwithstanding the foregoing, however, no such conversion of Post 2004 CDA Deferrals shall be permitted unless the payout schedules for such Participant’s Post 2004 CDA Deferrals and Post 2004 Stock Units are identical. Each such election shall become irrevocable as of the last time such election may be made. A Non-Employee Director who elects to convert his or her Cash Deferral Account shall receive the number of Stock Units found by dividing the Non-Employee Director's balance in the Cash Deferral Account, together with all accrued but not yet credited interest, or such lesser amount of the Cash Deferral Account elected by the Non-Employee Director, by the Fair Market Value of a Share on the Conversion Date. Upon such conversion, the Participant’s Cash Deferral Account shall be reduced by the amount so converted.

Article 7. Amendment, Modification, and Termination

7.1 Amendment, Modification, and Termination . Subject to the terms set forth in this Article 7, the Board may terminate, amend, or modify the Plan at any time and from time to time.

7.2 Awards Previously Granted . Unless required by law, no termination, amendment, or modification of the Plan shall in any material manner adversely affect any Award previously provided under the Plan, without the written consent of the Participant holding the Award.

Article 8. Miscellaneous

8.1 Elections . All elections and notices of any kind hereunder shall be in writing and provided to the Secretary of the Company in a form prescribed by the Secretary. Unless marked as irrevocable, an election may be modified or revoked at any time prior to, and shall not be effective until, the deadline for making such election.

8.2 Assignment . Except as otherwise expressly provided herein, no rights under this Plan may be assigned by a Participant.

8.3 Savings Clause. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. Notwithstanding any provision to the contrary in this Plan, each provision in this Plan shall be interpreted to permit the deferral of compensation in accordance with Section 409A of the Internal Revenue Code of 1986, as amended, and any provision that would conflict with such requirements shall not be valid or enforceable.

8.4 Death of a Director/Beneficiary Designation . Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named primarily or contingently) to whom any benefit under the Plan is to be paid in the event of his or her death. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Secretary of the Company, and will be effective only when provided by the Participant in writing to the Secretary during such Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

In the event of the death of a Participant before full payment of all amounts due hereunder, the balance shall be paid in a lump sum as soon as administratively possible in accordance with the foregoing. Notwithstanding this, if the Participant so elects as part of the Participant's deferral elections, the Stock Units and/or the Cash Deferral Account will be paid out in the number of annual installments elected by the Participant, beginning on the first Business Day of February following the calendar year of the Participant's death and occurring annually thereafter; provided, however, if distributions to the Participant have already commenced at the time of the Participant's death, then under this election, distributions will continue as scheduled.

8.5 No Right of Nomination . Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Director for reelection by the Company’s stockholders.

8.6 Successors . All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

8.7 Requirements of Law . The granting of Awards under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

8.8 Governing Law . The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the internal, substantive laws of the State of Texas.

8.9 Adjustments. In the event of a merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number of outstanding Stock Units as may be determined to be appropriate and equitable by the Board, in its sole discretion, to prevent dilution or enlargement of rights.

Exhibit 10-t

AT&T Inc.

Non-Employee Director Stock Purchase Plan

(Effective June 27, 2008)

A Non-Employee Director of AT&T Inc. (the “Company”) may file a written election with the Secretary of the Company to invest one hundred percent (100%) or fifty percent (50%) of his or her annual retainer payments (including any additional retainer payments to Committee Chairpersons or the Lead Director) in shares of common stock of the Company (“Shares”). This election shall be made no later than December 31 of the year preceding, and shall be effective for, the calendar year in which the annual retainer will be paid. This election will renew automatically each year unless the Director notifies the Secretary of the Company in writing no later than December 31 of the preceding year.

The Shares shall be purchased from the Company on the last day Shares are traded on the New York Stock Exchange (“NYSE”) in the calendar month in which such retainer would have been paid if not for the investment election (the “Purchase Date”). The number of Shares purchased on a Purchase Date shall equal the portion of the annual retainer payment being used to purchase Shares, divided by the closing price of a Share on the NYSE on such Purchase Date (or such other measurement of the value of a Share that the Board of Directors of the Company shall determine in its sole discretion). Fractional Shares shall not be issued. Any amount that would be used to purchase a fractional Share shall be paid in cash.

No interest shall accrue with respect to funds to be invested hereunder. Participants in this plan shall have no legal or equitable rights, interest, or claims in any property or assets of the Company. No assets of the Company shall be held under any trust for the benefit of participants, or held in any way as collateral security for the fulfilling of the obligations of the Company under this plan. The Company’s assets shall be, and remain, the general, unpledged, unrestricted assets of the Company. The only obligation of the Company under this plan shall be merely that of an unfunded and unsecured promise of the Company to sell Shares on the Purchase Date. Participants may not assign any of their rights under this plan.

All elections and notices of any kind hereunder shall be in writing and provided to the Secretary of the Company in a form prescribed by the Secretary. Unless marked as irrevocable, an election may be modified or revoked at any time prior to, and shall not be effective until, the deadline for making such election. The Board may terminate, amend, or modify this plan at any time and from time to time.

											EXHIBIT 12
AT&T INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions


			Year Ended December 31,
			Year Ended December 31,
			2013		2012		2011		2010				2009
Earnings:
	Income from continuing operations before income taxes		$	27,777	$	10,439	$	6,716	$	18,238		$	18,518
	Equity in net income of affiliates included above			(642)		(752)		(784)		(762)			(734)
	Fixed charges			5,452		4,876		4,835		4,723			5,012
	Distributed income of equity affiliates			318		137		161		161			317
	Interest capitalized			(284)		(263)		(162)		(772)			(740)

		Earnings, as adjusted	$	32,621	$	14,437	$	10,766	$	21,588		$	22,373

Fixed Charges:
	Interest expense		$	3,940	$	3,444	$	3,535	$	2,994		$	3,368
	Interest capitalized			284		263		162		772			740
	Portion of rental expense representative of interest factor			1,228		1,169		1,138		957			904

		Fixed Charges	$	5,452	$	4,876	$	4,835	$	4,723		$	5,012

	Ratio of Earnings to Fixed Charges			5.98		2.96		2.23		4.57			4.46

Selected Financial and Operating Data
Dollars in millions except per share amounts

At December 31 and for the year ended:	2013			2012			2011			2010			2009
Financial Data
Operating revenues	$	128,752		$	127,434		$	126,723		$	124,280		$	122,513
Operating expenses	$	98,273		$	114,437		$	117,505		$	104,707		$	101,513
Operating income	$	30,479		$	12,997		$	9,218		$	19,573		$	21,000
Interest expense	$	3,940		$	3,444		$	3,535		$	2,994		$	3,368
Equity in net income of affiliates	$	642		$	752		$	784		$	762		$	734
Other income - net	$	596		$	134		$	249		$	897		$	152
Income tax expense (benefit)	$	9,224		$	2,900		$	2,532		$	(1,162	)	$	6,091
Net Income	$	18,553		$	7,539		$	4,184		$	20,179		$	12,447
Less: Net Income Attributable to Noncontrolling Interest	$	(304	)	$	(275	)	$	(240	)	$	(315	)	$	(309	)
Net Income Attributable to AT&T	$	18,249		$	7,264		$	3,944		$	19,864		$	12,138
Earnings Per Common Share:
Net Income Attributable to AT&T	$	3.39		$	1.25		$	0.66		$	3.36		$	2.06
Earnings Per Common Share - Assuming Dilution:
Net Income Attributable to AT&T	$	3.39		$	1.25		$	0.66		$	3.35		$	2.05
Total assets	$	277,787		$	272,315		$	270,442		$	269,473		$	268,312
Long-term debt	$	69,290		$	66,358		$	61,300		$	58,971		$	64,720
Total debt	$	74,788		$	69,844		$	64,753		$	66,167		$	72,081
Construction and capital expenditures	$	21,228		$	19,728		$	20,272		$	20,302		$	17,294
Dividends declared per common share	$	1.81		$	1.77		$	1.73		$	1.69		$	1.65
Book value per common share	$	17.50		$	16.61		$	17.85		$	18.94		$	17.28
Ratio of earnings to fixed charges 1		5.98			2.96			2.23			4.57			4.46
Debt ratio		45.0	%		43.0	%		38.0	%		37.1	%		41.4	%
Weighted-average common shares outstanding (000,000)		5,368			5,801			5,928			5,913			5,900
Weighted-average common shares outstanding with dilution (000,000)		5,385			5,821			5,950			5,938			5,924
End of period common shares outstanding (000,000)		5,226			5,581			5,927			5,911			5,902
Operating Data
Wireless subscribers (000) 2		110,376			106,957			103,247			95,536			85,120
In-region network access lines in service (000) 1		24,639			29,279			34,054			39,211			47,534
Broadband connections (000) 3		16,425			16,390			16,427			16,309			15,789
Number of employees		243,360			241,810			256,420			266,590			282,720
1 Prior-period amounts are restated to conform to current-period reporting methodology.
2 The number presented represents 100% of AT&T Mobility wireless subscribers.
3 Broadband connections include U-verse high speed Internet access, DSL lines and satellite broadband.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dollars in millions except per share amounts

For ease of reading, AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate in the communications services industry in both the United States and internationally, providing wireless and wireline telecommunications services and equipment. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes. A reference to a “Note” in this section refers to the accompanying Notes to Consolidated Financial Statements. In the tables throughout this section, percentage increases and decreases that are not considered meaningful are denoted with a dash.

RESULTS OF OPERATIONS

Consolidated Results Our financial results are summarized in the table below. We then discuss factors affecting our overall results for the past three years. These factors are discussed in more detail in our “Segment Results” section. We also discuss our expected revenue and expense trends for 2014 in the “Operating Environment and Trends of the Business” section.

								Percent Change
	2013			2012		2011		2013 vs. 2012			2012 vs. 2011
	2013			2012		2011		2013 vs. 2012			2012 vs. 2011
Operating Revenues		$	128,752	$	127,434	$	126,723		1.0	%		0.6	%
Operating expenses
Cost of services and sales			51,464		55,228		54,904		(6.8	)		0.6
Selling, general and administrative			28,414		41,066		41,314		(30.8	)		(0.6	)
Impairment of intangible assets			-		-		2,910		-			-
Depreciation and amortization			18,395		18,143		18,377		1.4			(1.3	)
Total Operating Expenses			98,273		114,437		117,505		(14.1	)		(2.6	)
Operating Income			30,479		12,997		9,218		-			41.0
Interest expense			3,940		3,444		3,535		14.4			(2.6	)
Equity in net income of affiliates			642		752		784		(14.6	)		(4.1	)
Other income (expense) – net			596		134		249		-			(46.2	)
Income Before Income Taxes			27,777		10,439		6,716		-			55.4
Net Income			18,553		7,539		4,184		-			80.2
Net Income Attributable to AT&T		$	18,249	$	7,264	$	3,944		-			84.2	%

Overview

Operating income increased $17,482 in 2013 and $3,779, or 41.0%, in 2012. Our operating margin was 23.7% in 2013, compared to 10.2% in 2012 and 7.3% in 2011. Operating income for 2013 increased $17,578 due to a noncash actuarial gain of $7,584 related to pension and postemployment benefit plans in 2013 and an actuarial loss of $9,994 in 2012. Operating income for 2013 also reflects continued growth in wireless data revenue, and increased revenues from AT&T U-verse ® (U-verse) and strategic business services. Partially offsetting these increases were continued declines in our traditional voice and data services, higher wireless equipment costs and increased expenses supporting U-verse subscriber growth. Operating income for 2012 included actuarial losses of $9,994, and reflected a partial year’s results for our sold Advertising Solutions segment. Operating income for 2011 included actuarial losses of $6,280, charges of $4,181 related to our decision to terminate the acquisition of T-Mobile USA, Inc. (T-Mobile) and noncash charges of $2,910 related to impairments of directory intangible assets.

Operating revenues increased $1,318, or 1.0%, in 2013 and $711, or 0.6%, in 2012. The increases in 2013 and 2012 are primarily due to growth in wireless data and equipment revenues, reflecting the increasing percentage of wireless subscribers choosing smartphones. Higher wireline data revenues from U-verse residential customers and strategic business services also contributed to revenue growth. These increases were mostly offset by continued declines in wireline voice revenues for both years. The sale of our Advertising Solutions segment lowered revenues $1,049 in 2013 and $2,244 in 2012.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

The telecommunications industry is rapidly evolving from fixed location, voice-oriented services into an industry driven by customer demand for instantly available, data-based services (including video). Our products, services and plans are changing as we transition to sophisticated, high-speed, IP-based alternatives. We are also re-designing our networks to accommodate these new demands and to take advantage of related technological efficiencies. We expect continued growth in our wireless and wireline IP-based data revenues as we bundle and price plans with greater focus on data and video services. We expect continued declines in voice revenues and our basic wireline data services as customers choose these next-generation services.

Cost of services and sales expenses decreased $3,764, or 6.8%, in 2013 and increased $324, or 0.6%, in 2012. The 2013 expense decreased by $4,822 as a result of recording actuarial gains in 2013 and actuarial losses in 2012. Lower interconnect and long-distance expenses, lower costs associated with Universal Service Fund (USF) fees and the sale of our Advertising Solutions segment also contributed to expense declines in 2013. These decreases were partially offset by increased wireless equipment costs related to device sales and increased wireline costs attributable to U-verse subscriber growth.

Expense increases in 2012 were primarily due to increased wireline costs attributable to growth in U-verse subscribers, higher wireless handset costs related to strong smartphone sales and a higher actuarial loss on benefit plans. These increases were partially offset by lower traffic compensation costs, the sale of our Advertising Solutions segment and lower other nonemployee-related charges.

Selling, general and administrative expenses decreased $12,652, or 30.8%, in 2013 and $248, or 0.6%, in 2012. The 2013 expense decreased by $12,757 as a result of recording actuarial gains in 2013 and actuarial losses in 2012. Expense reductions in 2013 also reflect lower employee related Wireline costs, gains on spectrum transactions, lower financing-related costs associated with our pension and postretirement benefits (referred to as Pension/OPEB expenses) and the sale of our Advertising Solutions segment. These decreases were partially offset by increased charges for employee separations and higher selling and advertising expenses.

The 2012 expense decrease was primarily due to $4,181 in 2011 expenses related to the termination of the T-Mobile merger and the sale of our Advertising Solutions segment, offset by a larger actuarial loss of $3,454 and higher wireless commissions and administrative costs.

Impairment of intangible assets In 2011, we recorded noncash charges for impairments in our Advertising Solutions segment, which consisted of a $2,745 goodwill impairment and a $165 impairment of a trade name.

Depreciation and amortization expense increased $252, or 1.4%, in 2013 and decreased $234, or 1.3%, in 2012. The 2013 expense increase was primarily due to ongoing capital spending for network upgrades and expansion, partially offset by fully depreciated assets and lower amortization of intangibles for customer lists related to acquisitions and the sale of our Advertising Solutions segment.

The 2012 expense decrease was primarily due to the sale of our Advertising Solutions segment and lower amortization of intangibles for customer lists related to acquisitions, offset by increased depreciation associated with ongoing capital spending for network upgrades and expansion.

Interest expense increased $496, or 14.4%, in 2013 and decreased $91, or 2.6%, in 2012. The increase was due to a $581 charge related to our debt tender offers in 2013, partially offset by charges associated with early debt redemptions in 2012. Lower average interest rates offset higher average debt balances.

The decrease in interest expense for 2012 was primarily due to lower average interest rates and average debt balances, partially offset by one-time charges associated with early debt redemptions.

Equity in net income of affiliates decreased $110, or 14.6%, in 2013 and $32, or 4.1%, in 2012. Decreased equity in net income of affiliates in both periods was due to lower earnings from América Móvil, S.A. de C.V. (América Móvil), and increased expenses in our mobile payment joint venture with other wireless carriers, marketed as the Isis Mobile Wallet TM (ISIS). These decreases were partially offset by earnings from YP Holdings LLC (YP Holdings).

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Other income (expense) – net We had other income of $596 in 2013, $134 in 2012 and $249 in 2011. Results for 2013 included a net gain on the sale of América Móvil shares and other investments of $498, interest and dividend income of $68, and leveraged lease income of $26.

Other income for 2012 included interest and dividend income of $61, leveraged lease income of $55 and net gains on the sale of investments of $74. This income was partially offset by $57 of investment impairments. Results for 2011 included interest and dividend income of $73, leveraged lease income of $80 and net gains on the sale of investments of $97.

Income tax expense increased $6,324 in 2013 and $368 in 2012. Both increases were primarily due to an increase in income before income taxes. Our effective tax rate was 33.2% in 2013, 27.8% in 2012 and 37.7% in 2011 (see Note 11).

Segment Results

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. Our operating segment results presented in Note 4 and discussed below for each segment follow our internal management reporting. We analyze our operating segments based on segment income before income taxes. We make our capital allocation decisions based on the strategic needs of the business, needs of the network (wireless or wireline) providing services and demands to provide emerging services to our customers. Actuarial gains and losses from pension and other postemployment benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in each segment’s percentage of our total segment income. Each segment’s percentage of total segment operating revenue and income calculations is derived from our segment results, and income percentage may total more than 100 percent due to losses in one or more segments. We have three reportable segments: (1) Wireless, (2) Wireline and (3) Other. Our operating results prior to May 9, 2012, also included our sold Advertising Solutions segment (see Note 5).

The Wireless segment accounted for approximately 54% of our 2013 total segment operating revenues as compared to 52% in 2012 and 76% of our 2013 total segment income as compared to 70% in 2012. This segment uses our nationwide network to provide consumer and business customers with wireless data and voice communications services. This segment includes our portion of the results from our mobile payment joint venture ISIS, which is accounted for as an equity method investment.

The Wireline segment accounted for approximately 46% of our 2013 total segment operating revenues as compared to 47% in 2012 and 27% of our 2013 total segment income as compared to 31% in 2012. This segment uses our regional, national and global network to provide consumer and business customers with data and voice communications services, U-verse high-speed broadband, video, voice services and managed networking to business customers.

The former Advertising Solutions segment (sold on May 8, 2012), included our directory operations, which published Yellow and White Pages directories and sold directory advertising, Internet-based advertising and local search.

The Other segment accounted for less than 1% of our 2013 and 2012 total segment operating revenues. Since segment operating expenses exceeded revenue in both years, a segment loss was incurred in both 2013 and 2012. This segment includes results from our equity investments in América Móvil and YP Holdings, and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans.

The following sections discuss our operating results by segment. Operations and support expenses include certain network planning and engineering expenses; information technology; our repair technicians and repair services; property taxes; bad debt expense; advertising costs; sales and marketing functions, including customer service centers; real estate costs, including maintenance and utilities on all buildings; credit and collection functions; and corporate support costs, such as finance, legal, human resources and external affairs. Pension and postretirement service costs, net of amounts capitalized as part of construction labor, are also included to the extent that they are associated with employees who perform these functions.

We discuss capital expenditures for each segment in “Liquidity and Capital Resources.”

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Wireless
Segment Results
							Percent Change
	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
Segment operating revenues
Data	$	21,719	$	18,297	$	14,861		18.7	%		23.1	%
Voice, text and other service		39,833		40,889		41,865		(2.6	)		(2.3	)
Equipment		8,347		7,577		6,489		10.2			16.8
Total Segment Operating Revenues		69,899		66,763		63,215		4.7			5.6
Segment operating expenses
Operations and support		44,508		43,296		41,282		2.8			4.9
Depreciation and amortization		7,468		6,873		6,329		8.7			8.6
Total Segment Operating Expenses		51,976		50,169		47,611		3.6			5.4
Segment Operating Income		17,923		16,594		15,604		8.0			6.3
Equity in Net Income (Loss) of Affiliates		(75)		(62)		(29)		(21.0	)		-
Segment Income	$	17,848	$	16,532	$	15,575		8.0	%		6.1	%

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

										Percent Change
(Subscribers in 000s)	2013			2012			2011			2013 vs. 2012			2012 vs. 2011
Wireless Subscribers 1
Postpaid smartphones 2		51,874			47,076			39,376			10.2	%		19.6	%
Postpaid feature phones and data-centric devices		20,764			23,421			29,933			(11.3	)		(21.8	)
Postpaid		72,638			70,497			69,309			3.0			1.7
Prepaid		7,384			7,328			7,225			0.8			1.4
Reseller		14,028			14,875			13,644			(5.7	)		9.0
Connected devices 3		16,326			14,257			13,069			14.5			9.1
Total Wireless Subscribers		110,376			106,957			103,247			3.2			3.6

Net Additions 4
Postpaid 2		1,776			1,438			1,429			23.5			0.6
Prepaid		(13	)		128			674			-			(81.0	)
Reseller		(1,074	)		1,027			1,874			-			(45.2	)
Connected devices		2,032			1,171			3,722			73.5			(68.5	)
Net Subscriber Additions		2,721			3,764			7,699			(27.7	) %		(51.1	) %

Total Churn 5		1.37	%		1.35	%		1.37	%	2 BP			(2) BP
Postpaid Churn 5		1.06	%		1.09	%		1.18	%	(3) BP			(9) BP
1 Represents 100% of AT&T Mobility wireless subscribers.
2 Includes approximately 1,534 smartphones sold in 2013 under the AT&T Next program.
3 Includes data-centric devices (eReaders and automobile monitoring systems). Excludes tablets, which are primarily included in postpaid.
4 Excludes merger and acquisition-related additions during the period.
5 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Wireless Subscriber Relationships

As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative services, plans and devices and a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible. To attract and retain subscribers in a maturing market, we have launched a wide variety of service plans, including Mobile Share and AT&T Next (our program that allows for the purchase of devices on installment), and expect to launch additional plans during 2014. While we have focused on attracting and retaining postpaid subscribers, we have recently increased our focus on prepaid subscribers with our pending acquisition of Leap Wireless, which we expect to complete by the end of first quarter 2014.

In 2013, we continued to see an increasing number of our postpaid subscribers select smartphones rather than feature phones, which lack general Internet access. Of our total postpaid phone subscriber base, 76.6% (or 51.9 million subscribers) use smartphones, up from 69.6% (or 47.1 million subscribers) a year earlier and 58.5% (or 39.4 million subscribers) two years ago. As is common in the industry, most of our subscribers’ phones are designed to work only with our wireless technology, requiring subscribers who desire to move to a new carrier with a different technology to purchase a new device. Our postpaid subscribers also continued to add more tablets, reflecting the popularity of our Mobile Share plan.

Our postpaid subscribers typically sign a two-year contract, which includes discounted handsets and early termination fees. About 90% of our postpaid smartphone subscribers are on FamilyTalk ® plans (family plans), Mobile Share plans or business plans, which provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates. During 2013, we introduced additional programs that allow for the purchase of handsets on installments and for reduced-price service plans. We also offer data plans at different price levels (usage-based data plans) to attract a wide variety of subscribers and to differentiate us from our competitors. Our postpaid subscribers on data plans increased 10.2% year over year. A growing percentage of our postpaid smartphone subscribers are on usage-based data plans, with 72.6% (or 37.7 million subscribers) on these plans as of December 31, 2013, up from 67.4% (or 31.7 million subscribers) as of December 31, 2012, and 56.0% (or 22.1 million subscribers) as of December 31, 2011. About 80% of subscribers on usage-based data plans have chosen the medium- and higher-data plans. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and minimize subscriber churn.

As of December 31, 2013, approximately 77% of our postpaid smartphone subscribers use a 4G-capable device (i.e., a device that would operate on our HSPA+ or LTE network), and more than 50% of our postpaid smartphone subscribers use an LTE device. Due to substantial increases in the demand for wireless service in the United States, AT&T is facing significant spectrum and capacity constraints on its wireless network in certain markets. We expect such constraints to increase and expand to additional markets in the coming years. While we are continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the quality of existing data and voice services and our ability to launch new, advanced wireless broadband services, unless we are able to obtain more spectrum. Any long-term spectrum solution will require that the Federal Communications Commission (FCC) make new or existing spectrum available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to address spectrum and capacity constraints on a market-by-market basis.

Wireless Metrics

Subscriber Additions As of December 31, 2013, we served 110.4 million wireless subscribers, an increase of 3.2% from 2012. Market maturity in traditional wireless subscribers continues to limit the rate of growth in the industry’s subscriber base, contributing to a 1.4% decrease in our gross subscriber additions (gross additions) in 2013 and a decrease of 13.0% in 2012.

Net subscriber additions (net additions) in 2013 were lower primarily due to losses in low-revenue reseller accounts. Lower net additions in 2012, as compared to 2011, were primarily attributable to lower net connected device and reseller additions when compared to the prior year, which reflected higher churn rates for customers not using such devices (zero-revenue customers).

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Average service revenue per user (ARPU) – Postpaid increased 1.6% in 2013 and 1.9% in 2012, driven by increases in data services ARPU of 16.9% in 2013 and 17.9% in 2012, reflecting greater use of smartphones and data-centric devices by our subscribers.

The growth in postpaid data services ARPU in 2013 and 2012 was partially offset by a 5.0% decrease in postpaid voice and other service ARPU in 2013 and a 3.7% decrease in 2012. Voice and other service ARPU declined due to lower access and airtime charges, triggered in part by postpaid subscribers on our discount plans, and lower roaming revenues.

ARPU – Total increased 0.9% in 2013, reflecting growth in data services as more subscribers are using smartphones and tablets and choosing medium- and higher-priced usage-based data plans. Total ARPU decreased 1.6% in 2012, reflecting growth in connected device, tablet and reseller subscribers, which have lower-priced data-only plans compared with our postpaid smartphone plans. We expect continued revenue growth from data services as more subscribers use smartphones and data-centric devices. While price changes may impact revenue and service ARPU, going forward we expect to increase equipment sales under our AT&T Next installment program. Data services ARPU increased 15.1% in 2013 and 16.1% in 2012, reflecting increased smartphone and data-centric device use. Voice, text and other service ARPU declined 5.5% in 2013 and 7.9% in 2012 due to voice access and usage trends and a shift toward a greater percentage of data-centric devices. We expect continued pressure on voice, text and other service ARPU.

Churn The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. While the postpaid churn rate was lower in 2013, the total churn rate was up slightly in 2013, reflecting increased competition, especially for price-conscious customers. Total and postpaid churn were down slightly in 2012, reflecting popularity of our reduced-rate family, Mobile Share, and business plans; however, the decrease was mostly offset by the disconnection of reseller low-revenue accounts.

Operating Results

Segment operating income margin was 25.6% in 2013, compared to 24.9% in 2012 and 24.7% in 2011. Our Wireless segment operating income increased $1,329, or 8.0%, in 2013 and increased $990, or 6.3%, in 2012. The operating income and margin increase in 2013 reflected continuing data revenue growth and operating efficiencies, partially offset by the high subsidies associated with growing smartphone sales. The margin increase in 2012 reflected higher data revenues generated by our postpaid subscribers, partially offset by higher equipment and selling costs associated with higher smartphone sales and handset upgrades. While we subsidize the sales prices of various smartphones, we expect that subscriber revenues generated over time from voice and data services will exceed the cost of those subsidies. We also expect our subsidies costs to be tempered in 2014 by the growing popularity of our AT&T Next program, as discussed below.

Voice, text and other service revenues decreased $1,056, or 2.6%, in 2013 and $976, or 2.3%, in 2012. While the number of wireless subscribers increased 3.2% in 2013, and 3.6% in 2012, these revenues continued to decline due to voice access and usage declines, as noted in the ARPU and subscriber relationships discussions above.

Data service revenues increased $3,422, or 18.7%, in 2013 and $3,436, or 23.1%, in 2012. The increases were primarily due to the increased number of subscribers using smartphones and data-centric devices, such as tablets, eReaders, and mobile navigation devices. Data service revenues accounted for approximately 35.3% of our wireless service revenues in 2013, compared to 30.9% in 2012 and 26.2% in 2011.

Equipment revenues increased $770, or 10.2%, in 2013 and $1,088, or 16.8%, in 2012. The increases were primarily due to year-over-year increases in smartphone sales as a percentage of total device sales to postpaid subscribers. Equipment revenues in 2013 also included incremental revenues from devices sold under our AT&T Next program. While we expect equipment revenues to increase under this program, we expect monthly services revenues to decline for subscribers to this program. The increase in 2012 was primarily due to the launch of a new iPhone model and increased handset upgrade fees.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Operations and support expenses increased $1,212, or 2.8%, in 2013 and $2,014, or 4.9%, in 2012. The increase in 2013 was primarily due to the following:

·	Equipment costs increased $817, reflecting sales of more expensive smartphones, partially offset by the overall decline in upgrade activity and total device sales.

Selling expenses (other than commissions) and administrative expenses increased $712 due primarily to a $265 increase in employee-related costs, a $246 increase in advertising costs, $187 increase in information technology costs in conjunction with ongoing support systems development, and $107 increase in nonemployee-related costs, partially offset by an $84 decrease in bad debt expense.

·	Network system costs increased $146 primarily due to higher network traffic, personnel-related network support costs and cell site related costs in conjunction with our network enhancement efforts.

·	Commission expenses increased $59 due to a year-over-year increase in smartphone sales as a percentage of total device sales, partially offset by the overall decline in handset upgrade activity and total device sales.

Partially offsetting these increases were the following:

·	Interconnect and long-distance costs decreased $353 due to third-party credits, lower usage costs and our ongoing network transition to more efficient Ethernet/IP-based technologies in 2013.

·	USF fees decreased $104 primarily due to USF rate decreases, which are offset by lower USF revenues.

·	Incollect roaming fees decreased $73 primarily due to rate declines and lower roaming use associated with the integration of previously acquired subscribers into our network.

The increase in 2012 was primarily due to the following:

·	Commission expenses increased $636 due to a year-over-year increase in smartphone sales as a percentage of total device sales, partially offset by the overall decline in handset upgrade activity and total device sales.

Selling expenses (other than commissions) and administrative expenses increased $526 due primarily to a $181 increase in information technology costs in conjunction with ongoing support systems development, $137 increase in employee-related costs, $99 increase in nonemployee-related costs, and $89 increase in bad debt expense, partially offset by a $57 decline in advertising costs.

·	Equipment costs increased $507, reflecting sales of more expensive smartphones, partially offset by the overall decline in upgrade activity and total device sales.

·	Network system, interconnect, and long-distance costs increased $202 primarily due to higher network traffic, personnel-related network support costs and cell site related costs in conjunction with our network enhancement efforts and storm costs.

·	USF fees increased $166 primarily due to USF rate increases.

·	Handset insurance cost increased $141 due to claims on more expensive devices.

Partially offsetting these increases, incollect roaming fees decreased $115 primarily due to rate declines and lower roaming use associated with the integration of previously acquired subscribers into our network.

Depreciation and amortization expenses increased $595, or 8.7%, in 2013 and $544, or 8.6%, in 2012. In 2013, depreciation expense increased $865, or 13.5%, primarily due to ongoing capital spending for network upgrades and expansions partially offset by certain network assets becoming fully depreciated. Amortization expense decreased $270, or 55.3%, primarily due to lower amortization of intangibles for customer lists related to acquisitions.

Depreciation expense increased $855, or 15.5%, in 2012 primarily due to ongoing capital spending for network upgrades and expansion and the reclassification of shared information technology costs partially offset by certain network assets becoming fully depreciated. Amortization expense decreased $311, or 38.9%, in 2012 primarily due to lower amortization of intangibles for customer lists related to acquisitions.

Equity in net income (loss) of affiliates for the Wireless segment includes expenses for ISIS, our mobile payment joint venture with Verizon and T-Mobile.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Wireline
Segment Results
							Percent Change
	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
Segment operating revenues
Data	$	33,593	$	31,841	$	29,548		5.5	%		7.8	%
Voice		20,333		22,614		25,121		(10.1	)		(10.0	)
Other		4,888		5,118		5,480		(4.5	)		(6.6	)
Total Segment Operating Revenues		58,814		59,573		60,149		(1.3	)		(1.0	)
Segment operating expenses
Operations and support		41,638		41,207		41,361		1.0			(0.4	)
Depreciation and amortization		10,907		11,123		11,615		(1.9	)		(4.2	)
Total Segment Operating Expenses		52,545		52,330		52,976		0.4			(1.2	)
Segment Operating Income		6,269		7,243		7,173		(13.4	)		1.0
Equity in Net Income (Loss) of Affiliates		2		(1)		(2)		-			-
Segment Income	$	6,271	$	7,242	$	7,171		(13.4	) %		1.0	%

Operating Results

Our Wireline segment operating income margin was 10.7% in 2013, compared to 12.2% in 2012 and 11.9% in 2011. Our Wireline segment operating income decreased $974, or 13.4%, in 2013 and increased $70, or 1.0%, in 2012. The decrease in operating income and margin in 2013 was driven primarily by lower voice revenue and higher operations and support expense, partially offset by data revenue growth and lower depreciation and amortization expense. The increase in operating income and margins in 2012 was driven by data revenue growth and lower depreciation and amortization expense, partially offset by lower voice revenue. As we transition from basic voice and data services to sophisticated, high-speed, IP-based alternatives, we expect continued growth in our more advanced IP data products while traditional data and DSL revenues continue to decline.

Data revenues increased $1,752, or 5.5%, in 2013 and $2,293, or 7.8%, in 2012. Data revenues accounted for approximately 57% of wireline operating revenues in 2013, 53% in 2012 and 49% in 2011. Data revenues include IP, strategic business and traditional data services.

IP data revenues (excluding strategic business services below) increased $1,662, or 11.3%, in 2013 and $1,781, or 13.8%, in 2012 primarily driven by higher U-verse penetration, customer additions, and migration from our legacy voice and DSL services. In 2013 and 2012 U-verse revenue from consumer customers increased $1,289 and $1,154 for broadband high-speed Internet access, $995 and $1,056 for video and $282 and $250 for voice, respectively. These increases were partially offset by a decrease of $777 and $628 in DSL revenue as customers continue to shift to our U-verse or competitors’ high speed Internet access offerings.

Strategic business services, which include VPN, Ethernet, hosting, IP conferencing, VoIP, Ethernet-access to Managed Internet Service (EaMIS), security services and U-verse provided to business customers, increased $1,105, or 15.0%, in 2013 and $1,029, or 16.2%, in 2012 primarily driven by migration from our legacy services. In 2013 and 2012, revenues from VPN increased $360 and $432, Ethernet increased $310 and $280, U-verse services increased $143 and $85, EaMIS increased $126 and $111 and VoIP increased $93 and $61, respectively.

Traditional data revenues, which include transport (excluding Ethernet) and packet-switched data services, decreased $1,016, or 10.4%, in 2013 and $528, or 5.1%, in 2012. These decreases were primarily due to lower demand as customers continue to shift to more advanced IP-based technology such as VPN, Ethernet, U-verse high speed Internet access and managed Internet services.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Voice revenues decreased $2,281, or 10.1%, in 2013 and $2,507, or 10.0%, in 2012 primarily due to declining demand for traditional voice services by our consumer and business customers. Included in voice revenues are revenues from local voice, long distance (including international) and local wholesale services. Voice revenues do not include VoIP revenues, which are included in data revenues.

·	Local voice revenues decreased $1,420, or 10.2%, in 2013 and $1,526, or 9.9%, in 2012. The decrease in 2013 and 2012 was driven primarily by a 15.8% and 14.0% decline in switched access lines.

Long-distance revenues decreased $843, or 11.0%, in 2013 and $965, or 11.2%, in 2012. Lower demand for long-distance service from our business and consumer customers decreased revenues $709 in 2013 and $801 in 2012. Additionally, expected declines in the number of national mass-market customers decreased revenues $135 in 2013 and $162 in 2012.

Other operating revenues decreased $230, or 4.5%, in 2013 and $362, or 6.6%, in 2012. Major items included in other operating revenues are integration services and customer premises equipment, government-related services and outsourcing, which account for approximately 60% of total other revenue in the years reported.

Operations and support expenses increased $431, or 1.0%, in 2013 and decreased $154, or 0.4%, in 2012. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and personnel costs, such as compensation and benefits.

The 2013 increase was primarily due to increased cost of sales of $680, primarily related to U-verse related expenses, advertising expenses of $155 and contract services of $125. These increases were partially offset by lower employee-related expense of $437, reflecting workforce reduction initiatives, and USF fees of $116, which were offset by lower USF revenue.

The 2012 decrease was primarily due to lower employee-related expense of $470, reflecting workforce reduction initiatives, decreased traffic compensation expense of $281 and lower nonemployee-related expense of $172. These decreases were partially offset by increased cost of sales of $538, primarily related to U-verse related expenses, and increased USF fees of $254, which were offset by higher USF revenue.

Depreciation and amortization expenses decreased $216, or 1.9%, in 2013 and $492, or 4.2%, in 2012. Both decreases were primarily related to lower amortization of intangibles for customer lists associated with acquisitions.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Supplemental Information

Wireline Broadband, Telephone and Video Connections Summary

Our broadband, switched access lines and other services provided at December 31, 2013, 2012, and 2011 are shown below and trends are addressed throughout the preceding segment discussion.

							Percent Change
(in 000s)	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
U-verse high speed Internet		10,375		7,717		5,224		34.4	%		47.7	%
DSL and other broadband connections		6,050		8,673		11,203		(30.2	)		(22.6	)
Total Wireline Broadband Connections 1		16,425		16,390		16,427		0.2			(0.2	)

Total U-verse Video Connections		5,460		4,536		3,791		20.4			19.7

Retail consumer switched access lines		12,403		15,707		18,952		(21.0	)		(17.1	)
U-verse consumer VoIP connections		3,848		2,905		2,278		32.5			27.5
Total Retail Consumer Voice Connections 2		16,251		18,612		21,230		(12.7	)		(12.3	)

Switched Access Lines
Retail consumer		12,403		15,707		18,952		(21.0	)		(17.1	)
Retail business		10,364		11,484		12,750		(9.8	)		(9.9	)
Retail Subtotal 2		22,767		27,191		31,702		(16.3	)		(14.2	)

Wholesale Subtotal 2		1,626		1,775		1,978		(8.4	)		(10.3	)

Total Switched Access Lines 2, 3		24,639		29,279		34,054		(15.8	) %		(14.0	) %
1 Total wireline broadband connections include U-verse high speed Internet access, DSL lines and satellite broadband.
2 Prior-period amounts are restated to conform to current-period reporting methodology.
3 Total switched access lines include access lines provided to national mass markets and private payphone service providers of 246 a t December 31, 2013, 313 at December 31, 2012, and 374 at December 31, 2011.

Advertising Solutions
Segment Results
								Percent Change
	2013		2012		2011		2013 vs. 2012		2012 vs. 2011
Total Segment Operating Revenues	$	-	$	1,049	$	3,293		-		(68.1)	%
Segment operating expenses
Operations and support		-		773		2,265		-		(65.9)
Impairment of intangible assets		-		-		2,910		-		-
Depreciation and amortization		-		106		386		-		(72.5)
Total Segment Operating Expenses		-		879		5,561		-		(84.2)
Segment Income (Loss)	$	-	$	170	$	(2,268)		-		-

On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. (see Note 5).

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Other
Segment Results
							Percent Change
							2013 vs. 2012			2012 vs. 2011
	2013		2012		2011		2013 vs. 2012			2012 vs. 2011
Total Segment Operating Revenues	$	39	$	49	$	66		(20.4	) %		(25.8	) %
Total Segment Operating Expenses		1,336		1,065		5,077		25.4			(79.0	)
Segment Operating Loss		(1,297)		(1,016)		(5,011)		(27.7	)		79.7
Equity in Net Income of Affiliates		715		815		815		(12.3	)		-
Segment Income (Loss)	$	(582)	$	(201)	$	(4,196)		-			95.2	%

The Other segment includes our ownership percentage of the results from América Móvil and YP Holdings, and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans.

Segment operating revenues decreased $10, or 20.4%, in 2013 and $17, or 25.8%, in 2012. The decrease was primarily due to reduced revenues from leased equipment programs.

Segment operating expenses increased $271 , or 25.4%, in 2013 and decreased $4,012, or 79.0%, in 2012. The increase in 2013 was primarily related to higher charges for employee separations, increased new product development expenses and higher corporate support and capital leasing operations costs, partially offset by gains of $293 associated with the transfers of Advanced Wireless Service (AWS) licenses as part of our 700 MHz spectrum acquisitions and decreased Pension/OPEB financing costs and other employee-related charges. The decrease in 2012 was due to charges incurred in 2011 related to the termination of the T-Mobile acquisition.

Equity in net income of affiliates decreased $100, or 12.3%, in 2013 and remained flat for 2012. Decreased equity in net income of affiliates in 2013 was due to reduced earnings and foreign exchange impacts from América Móvil. In 2012 increased equity income of affiliates from YP Holdings earnings were offset by lower results at América Móvil.

Our equity in net income of affiliates by major investment is listed below:

	2013		2012			2011
América Móvil	$	532	$	686		$	720
YP Holdings		182		130			-
Telmex 1		-		-			95
Other		1		(1	)		-
Other Segment Equity in Net Income of Affiliates	$	715	$	815		$	815
1 Acquired by América Móvil in 2011.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

2014 Revenue Trends We expect our operating environment in 2014 to remain challenging as current uncertain economic conditions continue and competition continues to increase, especially in the wireless area. Despite these challenges, we expect our consolidated operating revenues in 2014 to grow, driven by continuing growth in our wireless data and IP-related wireline data services, including U-verse. We expect our primary driver of growth to be wireless data services from smartphones, tablets and other services (such as wireless home services and mobile navigation, including car-based services). While price changes may impact revenue and service ARPU, we expect to increase equipment sales under our AT&T Next installment program. We expect that all our major customer categories will continue to increase their use of Internet-based broadband/data services. We expect continuing declines in traditional access lines and in traditional telephone service revenues. Where available, our U-verse services have proved effective in stemming access line losses, and we expect to continue to expand our U-verse service offerings in 2014.

2014 Expense Trends We expect a stable consolidated operating income margin in 2014 with expanding wireless margins being offset by wireline margin pressure as a result of our IP broadband and video expansion and other initiatives to enhance business offerings, including cloud services. Expenses related to growth areas of our business, including wireless data, U-verse and strategic business services, will apply some pressure to our operating income margin.

Market Conditions During 2013, ongoing slow recovery in the general economy has continued to negatively affect our customers. Our business and residential customers have continued to purchase lower levels of traditional wireline services and we expect those trends to continue. These negative trends were partially offset by continued growth in our wireless data and IP-related services. We expect further pressure on pricing and margins as we compete for both wireline and wireless customers who have less discretionary income. We also may experience difficulty purchasing equipment in a timely manner or maintaining and replacing equipment under warranty from our suppliers.

Included on our consolidated balance sheets are assets held by benefit plans for the payment of future benefits. Our pension plans are subject to funding requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA). In September 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC to the trust used to pay pension benefits. The trust is entitled to receive cumulative annual cash distributions of $560, which will result in a $560 contribution during 2014. We do not have significant additional contribution requirements to our pension plans for 2014. However, a weakness in the equity, fixed income and real asset markets could require us in future years to make contributions to the pension plans in order to maintain minimum funding requirements as established by ERISA. Investment returns on these assets depend largely on trends in the U.S. securities markets and the U.S. economy. In addition, our policy of recognizing actuarial gains and losses related to our pension and other postretirement plans in the period in which they arise subjects us to earnings volatility caused by changes in market conditions. Changes in our discount rate, which are tied to changes in the bond market, and changes in the performance of equity markets, may have significant impacts on the fair value of pension and other postretirement plans at the end of 2014 (see “Accounting Policies and Estimates”).

OPERATING ENVIRONMENT OVERVIEW

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

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

In addition, states representing a majority of our local service access lines have adopted legislation that enables new video entrants to acquire a single statewide or state-approved franchise (as opposed to the need to acquire hundreds or even thousands of municipal-approved franchises) to offer competitive video services. We also are supporting efforts to update and improve regulatory treatment for retail services. Regulatory reform and passage of legislation is uncertain and depends on many factors.

We provide wireless services in robustly competitive markets, but those services are subject to substantial and increasing governmental regulation. Wireless communications providers must obtain licenses from the FCC to provide communications services at specified spectrum frequencies within specified geographic areas and must comply with the FCC rules and policies governing the use of the spectrum. The FCC has recognized that the explosive growth of bandwidth-intensive wireless data services requires the U.S. Government to make more spectrum available. In February 2012, Congress set forth specific spectrum blocks to be auctioned and licensed by February 2015, and also authorized the FCC to conduct an “incentive auction,” to make available for wireless broadband use certain spectrum that is currently used by broadcast television licensees. The FCC has initiated proceedings to establish rules that would govern this process. It also initiated a separate proceeding to review its policies governing mobile spectrum holdings and consider whether there should be limits on the amount of spectrum a wireless service provider may possess. We seek to ensure that we have the opportunity, through the incentive auction and otherwise, to obtain the spectrum we need to provide our customers with high-quality service. While wireless communications providers’ prices and service offerings are generally not subject to state regulation, states sometimes attempt to regulate or legislate various aspects of wireless services, such as in the area of consumer protection.

Expected Growth Areas

We expect our wireless services and wireline IP-data products to remain the most significant growth portions of our business and have also discussed trends affecting the segments in which we report results for these products (see “Wireless Segment Results” and “Wireline Segment Results”). Over the next few years, we expect our growth to come from IP-based data services used by our wireless and wireline customers. Whether, or the extent to which, growth in these areas will offset declines in other areas of our business is not known.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Wireless We expect to deliver continued revenue growth in the coming years. We are in a period of rapid growth in wireless data usage and believe that there are substantial opportunities available for next-generation converged services that combine wireless, broadband, voice and video. For example, we have launched our innovative home monitoring service (Digital Life) and have announced plans for car-related security and entertainment services. We also participate in ISIS which has also begun its national rollout of mobile payment services.

REGULATORY DEVELOPMENTS

Set forth below is a summary of the most significant regulatory proceedings that directly affected our operations during 2013. Industry-wide regulatory developments are discussed above in Operating Environment Overview. While these issues may apply only to certain subsidiaries, the words “we,” “AT&T” and “our” are used to simplify the discussion. The following discussions are intended as a condensed summary of the issues rather than as a comprehensive legal analysis and description of all of these specific issues.

International Regulation Our subsidiaries operating outside the United States are subject to the jurisdiction of regulatory authorities in the market where service is provided. Our licensing, compliance and advocacy initiatives in foreign countries primarily enable the provision of enterprise (i.e., large-business) services. AT&T is engaged in multiple efforts with foreign regulators to open markets to competition, reduce network costs, foster conditions favorable to investment, and increase our scope of fully authorized network services and products.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Federal Regulation A summary of significant 2013 federal regulatory developments follows.

Intercarrier Compensation/Universal Service In October 2011, the FCC adopted an order fundamentally overhauling its high-cost universal service program, through which it disburses approximately $4,500 per year to carriers providing telephone service in high-cost areas, and its existing intercarrier compensation (ICC) rules, which govern payments between carriers for the exchange of traffic. The order adopts rules to address immediately certain practices that artificially increase ICC payments, as well as other practices to avoid such payments. The order also establishes a new ICC regime that will result in the elimination of virtually all terminating switched access charges and reciprocal compensation payments over a six-year transition. In the order, the FCC also repurposed its high-cost universal service program to encourage providers to deploy broadband facilities in unserved areas. To accomplish this goal, the FCC is transitioning support amounts disbursed through its existing high-cost program to its new Connect America Fund (CAF). In 2013, the FCC awarded us approximately $100 in new CAF funding to deploy broadband in unserved areas. We support many aspects of the order and new rules. AT&T and other parties have filed appeals of the FCC’s rules, which are pending in the Tenth Circuit Court of Appeals. Our appeal challenges only certain, narrow aspects of the order; AT&T intervened in support of the broad framework adopted by the order. Oral argument on the appeal took place November 19, 2013. A decision is possible in 2014. We do not expect the FCC’s rules to have a material impact on our operating results.

Transition to IP-Based Network In conjunction with Project VIP, we filed a petition with the FCC asking it to open a proceeding to facilitate our transition to all IP-based networks and services to promote consumer interests and incent private investment in broadband infrastructure. On January 30, 2014, the FCC adopted an order authorizing a broad set of voluntary experiments to measure the impact on consumers of the IP transition. Among other things, the order invites providers to submit proposals for all-IP trials in discrete geographic areas. In the first quarter of 2014, AT&T expects to submit a detailed plan for two such trials. The FCC will put that detailed plan out for public comment, and expects to adopt an order regarding AT&T’s plan by the end of the second quarter of 2014. We expect this transition to take several years.

Net Neutrality On January 14, 2014, the D.C. Circuit released its decision on Verizon’s appeal of the FCC’s Net Neutrality rules. As discussed above, although the court found that the FCC generally has authority to adopt Net Neutrality rules, the court vacated and remanded the FCC’s antidiscrimination and no-blocking rules on the ground that they impermissibly imposed common carrier regulation on broadband Internet access service (the court upheld the transparency requirements). That decision means that broadband Internet access providers have greater flexibility in their provision of mass market services. But the court’s finding that the FCC has authority to adopt rules to promote broadband deployment appears to give the FCC broad authority to regulate the Internet and, more generally, IP-based services. In addition, the court’s rationale appears to give the states authority to adopt rules to promote broadband deployment, although their authority to do so appears to be narrower than the FCC’s. If the FCC were to reclassify broadband as a telecommunications service, or the FCC and/or the states were to impose additional regulation of the Internet or broadband services, it could have a material adverse impact on our broadband services and operating results.

COMPETITION

Competition continues to increase for telecommunications and information services. Technological advances have expanded the types and uses of services and products available. In addition, lack of or a reduced level of regulation of comparable alternatives (e.g., cable, wireless and VoIP providers) has lowered costs for these alternative communications service providers. As a result, we face heightened competition as well as some new opportunities in significant portions of our business.

Wireless

We face substantial and increasing competition in all aspects of our wireless business. Under current FCC rules, multiple licensees, including six or more PCS licensees, two cellular licensees and one or more enhanced specialized mobile radio licensee may operate in each of our service areas, which results in the potential presence of multiple competitors. Our competitors include brands such as Verizon Wireless, Sprint, T-Mobile, Metro PCS and Cricket Wireless, a larger number of regional providers of cellular, PCS and other wireless communications services and resellers of those services (see Note 5 for a discussion of our pending acquisition of Leap). In addition, we face competition from providers who offer voice, text messaging and other services as applications on data networks. More than 97 percent of the U.S. population lives in areas with at least three mobile telephone operators, and 90 percent of the population lives in areas with at least five competing carriers. We may experience significant competition from companies that provide similar services using other communications technologies and services. While some of these technologies and services are now operational, others are being developed or may be developed. We compete for customers based principally on service/device offerings, price, call quality, coverage area and customer service.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

The FCC may develop rules to auction or otherwise make available additional spectrum to the wireless industry. The FCC has indicated it plans to conduct an auction in 2014 under which up to 120 MHz of UHF TV spectrum could be reallocated for mobile wireless use. In addition, the FCC is required by law to auction up to 65 MHz of additional wireless spectrum in 2015. The FCC has yet to develop the rules under which this spectrum might be available.

Wireline

Our wireline subsidiaries will face continued competitive pressure in 2014 from multiple providers, including wireless, cable and other VoIP providers, interexchange carriers and resellers. In addition, economic pressures are leading customers to terminate their traditional local wireline service and use competitive wireless and Internet-based services, intensifying a pre-existing trend toward wireless and Internet use. In most markets, we compete, often on pricing of bundled services, with large cable companies, such as Comcast Corporation, Cox Communications Inc. and Time Warner Cable Inc., for local, high-speed Internet, video and voice services customers and other smaller telecommunications companies for both long-distance and local services customers.

Our wireline subsidiaries generally remain subject to regulation for wholesale services by state regulatory commissions for intrastate services and by the FCC for interstate services. Under the Telecom Act, companies seeking to interconnect to our wireline subsidiaries’ networks and exchange local calls enter into interconnection agreements with us. Any unresolved issues in negotiating those agreements are subject to arbitration before the appropriate state commission. These agreements (whether fully agreed-upon or arbitrated) are then subject to review and approval by the appropriate state commission.

Our wireline subsidiaries operate under state-specific forms of regulation for retail services that were either legislatively enacted or authorized by the appropriate state regulatory commission. Most states deregulate the competitive services; impose price caps for some services where the prices for these services are not tied to the cost of providing the services or to rate-of-return requirements; or adopt a regulatory framework that incorporates deregulation and price caps. Some states may impose minimum customer service standards with required payments if we fail to meet the standards.

We continue to lose access lines due to competitors (e.g., wireless, cable and VoIP providers) who can provide comparable services at lower prices because they are not subject to traditional telephone industry regulation (or the extent of regulation is in dispute), utilize different technologies, or promote a different business model (such as advertising based) and consequently have lower cost structures. In response to these competitive pressures, for several years we have utilized a bundling strategy that rewards customers who consolidate their services (e.g., long-distance telephone, high-speed Internet, wireless and video) with us. We continue to focus on bundling wireline and wireless services, including combined packages of minutes and video service through our U-verse service. We will continue to develop innovative products that capitalize on our IP-based network.

Additionally, we provide local, domestic intrastate and interstate, international wholesale networking capacity, and switched services to other service providers, primarily large Internet Service Providers using the largest class of nationwide Internet networks (Internet backbone), wireless carriers, Competitive Local Exchange Carriers, regional phone Incumbent Local Exchange Carriers, cable companies and systems integrators. These services are subject to additional competitive pressures from the development of new technologies and the increased availability of domestic and international transmission capacity. The introduction of new products and service offerings and increasing satellite, wireless, fiber-optic and cable transmission capacity for services similar to those provided by us continues to provide competitive pressures. We face a number of international competitors, including Orange Business Services, British Telecom, Singapore Telecommunications Limited and Verizon Communications Inc., as well as competition from a number of large systems integrators, such as HP Enterprise Services.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

ACCOUNTING POLICIES AND STANDARDS

Critical Accounting Policies and Estimates Because of the size of the financial statement line items they relate to or the extent of judgment required by our management, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. The following policies are presented in the order in which the topics appear in our consolidated statements of income.

Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses that result from the failure of our customers to make required payments. When determining the allowance, we consider the probability of recoverability based on past experience, taking into account current collection trends as well as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical write-offs, net of recoveries, and an analysis of the aged accounts receivable balances with reserves generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcy or catastrophes. The analysis of receivables is performed monthly, and the allowances for doubtful accounts are adjusted through expense accordingly. A 10% change in the amounts estimated to be uncollectible would result in a change in the provision for uncollectible accounts of approximately $95.

Pension and Postretirement Benefits Our actuarial estimates of retiree benefit expense and the associated significant weighted-average assumptions are discussed in Note 12. Our assumed discount rate of 5.00% at December 31, 2013, reflects the hypothetical rate at which the projected benefit obligations could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and the related expected duration for the obligations. These bonds were all rated at least Aa3 or AA- by one of the nationally recognized statistical rating organizations, denominated in U.S. dollars, and neither callable, convertible nor index linked. For the year ended December 31, 2013, we increased our discount rate by 0.70%, resulting in a decrease in our pension plan benefit obligation of $4,533 and a decrease in our postretirement benefit obligation of $3,161. For the year ended December 31, 2012, we decreased our discount rate by 1.00%, resulting in an increase in our pension plan benefit obligation of $7,030 and an increase in our postretirement benefit obligation of $4,546.

Our expected long-term rate of return on plan assets assumption was 7.75% for the year ended December 31, 2013. Our expected return on plan assets is calculated using the actual fair value of plan assets. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the expected long-term rate of return would cause 2014 combined pension and postretirement cost to increase $262, which under our accounting policy would be recognized in the current year as part of our fourth-quarter remeasurement of our retiree benefit plans. In 2013, the actual return on our combined pension and postretirement plan assets was 14.1%, resulting in an actuarial gain of $3,239.

We recognize gains and losses on pension and postretirement plan assets and obligations immediately in our operating results. These gains and losses are generally measured annually as of December 31 and accordingly will normally be recorded during the fourth quarter, unless an earlier remeasurement is required. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit obligation and postretirement benefit cost would be affected in future years. Note 12 also discusses the effects of certain changes in assumptions related to medical trend rates on retiree healthcare costs.

Depreciation Our depreciation of assets, including use of composite group depreciation and estimates of useful lives, is described in Notes 1 and 6. We assign useful lives based on periodic studies of actual asset lives. Changes in those lives with significant impact on the financial statements must be disclosed, but no such changes have occurred in the three years ended December 31, 2013. However, if all other factors were to remain unchanged, we expect that a one-year increase in the useful lives of our plant in service would result in a decrease of approximately $2,539 in our 2013 depreciation expense and that a one-year decrease would result in an increase of approximately $3,763 in our 2013 depreciation expense.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Asset Valuations and Impairments We account for acquisitions completed after 2008 using the acquisition method. We allocate the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The estimated fair values of intangible assets acquired are based on the expected discounted cash flows of the identified customer relationships, patents, trade names and FCC licenses. In determining the future cash flows, we consider demand, competition and other economic factors.

Customer relationships, which are finite-lived intangible assets, are primarily amortized using the sum-of-the-months-digits method of amortization over the period in which those relationships are expected to contribute to our future cash flows. The sum-of-the-months-digits method is a process of allocation and reflects our belief that we expect greater revenue generation from these customer relationships during the earlier periods after acquisition. Amortization of other intangibles, including patents and certain trade names, is determined using the straight-line method of amortization over the expected remaining useful lives.

Goodwill, wireless FCC licenses and trade names are not amortized but tested annually for impairment. We conduct our impairment tests as of October 1. We test goodwill on a reporting unit basis, and our reporting units coincide with our segments. If, due to changes in how we manage the business, we move a portion of a reporting unit to another reporting unit, we determine the amount of goodwill to reallocate to the new reporting unit based on the relative fair value of the portion of the business moved and the portion of the business remaining in the reporting unit. The goodwill impairment test is a two-step process. The first step involves determining the fair value of the reporting unit and comparing that measurement to the book value. If the fair value exceeds the book value, then no further testing is required. If the fair value is less than the book value (i.e., an indication of impairment exists), then we perform the second step.

In the second step, we determine the fair values of all of the assets and liabilities of the reporting unit, including those that may not be currently recorded. The difference between the sum of all of those fair values and the overall reporting unit’s fair value is a new implied goodwill amount, which we compare to the recorded goodwill. If implied goodwill is less than the recorded goodwill, then we record an impairment of the recorded goodwill. The amount of this impairment may be more or less than the difference between the overall fair value and book value of the reporting unit. It may even be zero if the fair values of other assets are less than their book values.

As shown in Note 7, all of our goodwill resides in the Wireless and Wireline segments. For each of those segments, we assess their fair values using an income approach (also known as a discounted cash flow) and a market multiple approach. The income approach utilizes a 10-year cash flow projection with a perpetuity value discounted using an appropriate Weighted Average Cost of Capital rate for each reporting unit. The market multiple approach uses a multiple of a company’s Earnings Before Interest, Taxes, and Depreciation and Amortization expenses (EBITDA). We determined the multiples of the publicly traded companies whose services are comparable to those offered by the segment and then calculated a weighted-average of those multiples. Using those weighted averages, we then calculated fair values for each of those segments. In 2013, the calculated fair value of the reporting unit exceeded book value in all circumstances and no additional testing was necessary. In the event of a 10% drop in the fair values of the reporting units, the fair values would have still exceeded the book values of the reporting units and additional testing would still have not been necessary. As a result of our 2011 impairment test, we recorded a goodwill impairment charge in the Advertising Solutions segment due to declines in the value of our directory business and that industry (see Note 7). We also recorded a corresponding impairment to an indefinite-lived trade name used by the former Advertising Solutions segment.

Wireless FCC licenses are tested for impairment on an aggregate basis, consistent with the management of the business on a national scope. As in prior years, we performed our test of the fair values of FCC licenses using a discounted cash flow model (the Greenfield Approach). The Greenfield Approach assumes a company initially owns only the wireless FCC licenses, and then makes investments required to build an operation comparable to the one that currently utilizes the licenses. We utilized a 17-year discrete period to isolate cash flows attributable to the licenses, including modeling the hypothetical build-out. The projected cash flows are based on certain financial factors, including revenue growth rates, EBITDA margins and churn rates. For impairment testing purposes, we assumed wireless revenue growth to trend down from our 2013 growth rate of 4.7% to a long-term growth rate that reflects expected long-term inflation trends. We assumed our churn rates will decline in 2014 from our rate of 1.37% in 2013, in line with expected trends in the industry but at a rate comparable with industry-leading churn. EBITDA margins were assumed to continue to trend at least 40%.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

This model then incorporates cash flow assumptions regarding investment in the network, development of distribution channels and the subscriber base, and other inputs for making the business operational. We based the assumptions, which underlie the development of the network, subscriber base and other critical inputs of the discounted cash flow model, on a combination of average marketplace participant data and our historical results, trends and business plans. We also used operating metrics such as capital investment per subscriber, acquisition costs per subscriber, minutes of use per subscriber, etc., to develop the projected cash flows. Since we included the cash flows associated with these other inputs in the annual cash flow projections, the present value of the unlevered free cash flows of the segment, after investment in the network, subscribers, etc., is attributable to the wireless FCC licenses. The terminal value of the segment, which incorporates an assumed sustainable growth rate, is also discounted and is likewise attributed to the licenses. We used a discount rate of 8.5%, based on the optimal long-term capital structure of a market participant and its associated cost of debt and equity, to calculate the present value of the projected cash flows. This discount rate is also consistent with rates we use to calculate the present value of the projected cash flows of licenses acquired from third parties.

If either the projected rate of long-term growth of cash flows or revenues declined by 1%, or if the discount rate increased by 1%, the fair values of the wireless FCC licenses, while less than currently projected, would still be higher than the book value of the licenses. The fair value of the licenses exceeded the book value by more than 25%.

We review customer relationships and other long-lived assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable over the remaining life of the asset or asset group. To determine that the asset is recoverable, we verify that the expected undiscounted future cash flows directly related to that asset exceed its book value.

We evaluate our investments to determine whether market declines are temporary and accordingly reflected in accumulated other comprehensive income, or other-than-temporary and recorded as an expense in other income (expense) in the consolidated income statements. This evaluation is based on the length of time and the severity of decline in the investment’s value. In 2012 and 2011, we identified an immaterial other-than-temporary decline in the value of equity method investments and various cost investments.

Income Taxes Our estimates of income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note 11 and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or the final review of our tax returns by federal, state or foreign tax authorities.

We use our judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and adjust our unrecognized tax benefits (UTBs) in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense. Settlement of uncertain tax positions may require use of our cash.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

OTHER BUSINESS MATTERS

Atlantic Tele-Network, Inc. Transaction In September 2013, we acquired Atlantic Tele-Network, Inc.’s U.S. retail wireless operations, operated under the Alltel brand, for $806 in cash, which included closing adjustments. Under the terms of the agreement, we acquired wireless properties, including licenses, network assets, retail stores and approximately 550,000 subscribers. We expect to complete network upgrades and migrate customers to our network in the second half of 2014.

Leap Acquisition In July 2013, we announced an agreement to acquire Leap Wireless International, Inc. (Leap), a provider of prepaid wireless service under the Cricket brand name, for fifteen dollars per outstanding share of Leap’s common stock, or approximately $1,260, plus one nontransferable contingent value right (CVR) per share. The CVR will entitle each Leap stockholder to a pro rata share of the net proceeds of the future sale of the Chicago 700 MHz A-band FCC license held by Leap. As of September 30, 2013, Leap had approximately $3,100 of debt, net of cash. Under the terms of the agreement, we will acquire all of Leap’s stock and, thereby, acquire all of its wireless properties, including spectrum licenses, network assets, retail stores and approximately 4.6 million subscribers. Leap’s spectrum licenses include Personal Communications Services (PCS) and AWS bands and are largely complementary to our licenses. Leap’s network covers approximately 96 million people in 35 states and consists of a 3G CDMA network and an LTE network covering approximately 21 million people.

The agreement was approved by more than 99 percent of votes cast by Leap’s stockholders on October 30, 2013. The transaction is subject to review by the FCC and Department of Justice (DOJ). The review process is underway at both agencies. The transaction is expected to close in the first quarter of 2014. The agreement provides both parties with certain termination rights if the transaction does not close by July 11, 2014, which can be extended until January 11, 2015 if certain conditions have not been met by that date. Under certain circumstances, Leap may be required to pay a termination fee or AT&T may be required to provide Leap with a three-year roaming agreement for LTE data coverage in certain Leap markets lacking LTE coverage, if the transaction does not close. If Leap enters into the roaming agreement, AT&T will then have the option within 30 days after entry into the roaming agreement to purchase certain specified Leap spectrum assets. If AT&T does not exercise its right to purchase all of the specified Leap spectrum assets, Leap can then within 60 days after expiration of AT&T’s option require AT&T to purchase all of the specified spectrum assets.

Spectrum Acquisitions In September 2013, we acquired spectrum in the 700 MHz B band from Verizon Wireless for $1,900 in cash and an assignment of AWS spectrum licenses in five markets. The 700 MHz licenses acquired by AT&T cover 42 million people in 18 states. In January 2014, we announced an agreement to purchase 49 AWS spectrum licenses, covering nearly 50 million people in 14 states, from Aloha Partners II, L.P. The transaction is subject to regulatory approval and we expect to close the transaction in the second half of 2014.

Tower Transaction On December 16, 2013, we closed our transaction with Crown Castle International Corp. (Crown Castle) in which Crown Castle will have the exclusive rights to lease and operate 9,048 and purchase 627 of our wireless towers for $4,827 in cash. Under the terms of the leases, Crown Castle will have exclusive rights to lease and operate the towers over various terms with an average length of approximately 28 years. As the leases expire, Crown Castle will have fixed price purchase options for these towers totaling approximately $4,200, based on their estimated fair market values at the end of the lease terms. We will sublease space on the towers from Crown Castle for a minimum of 10 years at current market rates, with options to renew. We accounted for the proceeds as a financing obligation.

Connecticut Wireline Disposition In December 2013, we agreed to sell our incumbent local exchange operations in Connecticut to Frontier Communications Corporation for $2,000 in cash. These Connecticut operations represent approximately $1,200 in annual revenues as of 2013. The transaction is subject to review by the U.S. Department of Justice, the FCC and the Connecticut Public Utilities Regulatory Authority and other state regulatory authorities. We expect the transaction to close in the second half of 2014, subject to customary closing conditions.

Environmental We are subject from time to time to judicial and administrative proceedings brought by various governmental authorities under federal, state or local environmental laws. We reference in our Forms 10-Q and 10-K certain environmental proceedings that could result in monetary sanctions (exclusive of interest and costs) of one hundred thousand dollars or more. However, we do not believe that any of those currently pending will have a material adverse effect on our results of operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

LIQUIDITY AND CAPITAL RESOURCES

We had $3,339 in cash and cash equivalents available at December 31, 2013. Cash and cash equivalents included cash of $697 and money market funds and other cash equivalents of $2,642. Cash and cash equivalents decreased $1,529 since December 31, 2012. During 2013, cash inflows were primarily provided by cash receipts from operations, a net increase in our debt and cash received from our tower leasing arrangement with Crown Castle and other asset sales. These inflows were largely offset by cash used to meet the needs of the business, including but not limited to, payment of operating expenses, funding capital expenditures, dividends to stockholders, stock repurchases and the acquisition of wireless spectrum and operations. We discuss many of these factors in detail below.

Cash Provided by or Used in Operating Activities

During 2013, cash provided by operating activities was $34,796, compared to $39,176 in 2012. Lower operating cash flows in 2013 were due to higher cash tax payments and the timing of working capital payments and wireless device financing related to our AT&T Next program. We expect lower cash from operations in 2014, in part as the tax rules allowing companies to more rapidly deduct the cost of equipment have ended and our AT&T Next program continues to gain popularity with customers.

During 2012, cash provided by operating activities was $39,176 compared to $34,743 in 2011. Our higher operating cash flows in 2012 were due to nonrecurring payments made in the prior year, including a $3,000 merger breakup fee to Deutsche Telekom AG (Deutsche Telekom) and a contribution to our pension plan of $1,000, as well as improvements in inventory and working capital management during 2012.

Cash Used in or Provided by Investing Activities

During 2013, cash used in investing activities consisted primarily of:

·	$20,944 in capital expenditures, excluding interest during construction.

·	$284 in interest during construction.

·	$4,050 purchase of wireless spectrum licenses and operations.

During 2013, cash provided by investing activities consisted primarily of:

·	$1,179 from the sale of a portion of our shares in América Móvil.

·	$712 from the sale of various properties.

·	$200 from the repayment of advances to YP Holdings.

·	$101 from the return of investment in YP Holdings.

Virtually all of our capital expenditures are spent on our wireless and wireline networks, our U-verse services and support systems for our communications services. Capital expenditures, excluding interest during construction, increased $1,479 from 2012. Our Wireless segment represented 52% of our total spending and increased 3% in 2013. The Wireline segment, which includes U-verse services, represented 48% of the total capital expenditures and increased 13% in 2013, primarily reflecting our implementation of Project VIP.

We expect that our capital expenditures during 2014 will be in the $21,000 range. We expect 2014 to be our peak investment year for Project VIP and anticipate our Wireless and Wireline segments’ spend to be proportionally consistent to the previous year. Upon our completion of Project VIP, we expect capital investments to trend back to historic levels. The amount of capital investment is influenced by demand for services and products, continued growth and regulatory considerations.

Cash Used in or Provided by Financing Activities

We paid dividends of $9,696 in 2013, $10,241 in 2012, and $10,172 in 2011, primarily reflecting the decline in shares outstanding due to our repurchase activity, partially offset by dividend rate increases. In December 2013, our Board of Directors approved a 2.2% increase in the quarterly dividend from $0.45 to $0.46 per share. This follows a 2.3% dividend increase approved by our Board in November 2012. Dividends declared by our Board of Directors totaled $1.81 per share in 2013, $1.77 per share in 2012, and $1.73 per share in 2011. Our dividend policy considers the expectations and requirements of stockholders, internal requirements of AT&T and long-term growth opportunities. It is our intent to provide the financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by our Board of Directors.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

In 2013, we continued to take advantage of lower market interest rates and undertook several activities related to our long-term debt which caused our weighted average interest rate of our entire long-term debt portfolio to decrease from 4.9% at December 31, 2012 to 4.5% at December 31, 2013. We had $74,484

of total notes and debentures outstanding (see Note 9) at December 31, 2013, which included Euro, British pound sterling or Canadian dollar denominated debt of approximately $18,206.

During 2013, we received net proceeds of $12,040 from the issuance of $12,108 in long-term debt in various markets, with an average weighted maturity of approximately 10 years and an average interest rate of 2.6%. Debt issued included:

·	February 2013 issuance of $1,000 of 0.900% global notes due 2016 and $1,250 of floating rate notes due 2016. The floating rate is based upon the three-month London Interbank Offered Rate (LIBOR), reset quarterly, plus 38.5 basis points.

·	March 2013 issuance of $500 of 1.400% global notes due 2017.

·	March 2013 issuance of €1,250 of 2.500% global notes due 2023 (equivalent to $1,626 when issued) and €400 of 3.550% global notes due 2032 (equivalent to $520 when issued).

·	May 2013 issuance of £1,000 of 4.250% global notes due 2043 (equivalent to $1,560 when issued).

·	November 2013 issuance of €1,000 of 2.650% global notes due 2021 (equivalent to $1,349 when issued) and €1,000 of 3.500% global notes due 2025 (equivalent to $1,349 when issued).

·	November 2013 issuance of CDN$1,000 of 3.825% global notes due 2020 (equivalent to $954 when issued).

·	November 2013 issuance of $1,600 of 2.375% global notes due 2018 and $400 of floating rate notes due 2018. The floating rate is based upon the three-month LIBOR, reset quarterly, plus 91 basis points.

During 2013, we redeemed $7,698 in debt, primarily consisting of the following repayments:

·	March 2013 repayment of €1,250 4.375% notes (equivalent to $1,641 when repaid) and $147 of 6.5% notes.

·	July 2013 early redemption of $300 of 7.375% notes originally due in July 2043.

·	October 2013 early redemption of $550 of 6.625% notes originally due in October 2034.

·	We also completed debt tender offers covering $5,000 of various notes with stated rates of 5.20% to 8.75% for $5,556 in cash payments.

At December 31, 2013, we had $5,498 of debt maturing within one year, substantially all of which was related to long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:

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

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

In December 2010, our Board of Directors authorized the repurchase of up to 300 million shares of AT&T common stock. We began buying back stock under this program in the first quarter of 2012 and completed the authorized repurchase that year. In July 2012, the Board of Directors approved a second authorization to repurchase 300 million shares, which we completed in May 2013. In March 2013, our Board of Directors approved a third authorization to repurchase 300 million shares of our common stock, which has no expiration date. During 2013, we repurchased 366 million shares for $13,028 under the two most recent authorizations. At the end of 2013, we had approximately 163 million shares remaining on the March 2013 authorization. We expect to make future repurchases opportunistically.

The emphasis of our 2014 financing activities will be the payment of dividends, subject to approval by our Board of Directors, the repayment of debt and share repurchases. We plan to fund these activities through a combination of cash from operations, debt issuances, and asset sales. The timing and mix of debt issuance will be guided by credit market conditions and interest rate trends.

Credit Facilities

On December 11, 2013, we amended and extended for an additional two-year term our existing $5,000 revolving credit agreement with a syndicate of banks until December 2018 (December 2018 Facility). We also have an existing $3,000 revolving credit agreement that was entered into in 2012, with a syndicate of banks that is available until December 2017 (December 2017 Facility). In the event advances are made under either agreement, those advances would be used for general corporate purposes. Advances are not conditioned on the absence of a material adverse change. All advances must be repaid no later than the date on which lenders are no longer obligated to make any advances under each agreement. Under each agreement, we can terminate, in whole or in part, amounts committed by the lenders in excess of any outstanding advances; however, we cannot reinstate any such terminated commitments. At December 31, 2013, we had no advances outstanding under either agreement and were in compliance with all covenants under each agreement.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Advances under both agreements would bear interest, at AT&T's option, either:

at a variable annual rate equal to (1) the highest of: (a) the base (or prime) rate of the bank affiliate of Citibank, N.A. which is serving as administrative agent under the Agreement, (b) 0.50% per annum above the Federal funds rate, and (c) the LIBOR applicable to U.S. dollars for a period of one month plus 1.00% per annum, plus (2) an applicable margin, as set forth in the Agreement (Applicable Margin); or

·	at a rate equal to: (i) the LIBOR for a period of one, two, three or six months, as applicable, plus (ii) the Applicable Margin.

The Applicable Margin for both agreements will equal 0.565%, 0.680%, or 0.910% per annum, depending on AT&T’s credit rating.

Under each agreement AT&T will pay a facility fee of 0.060%, 0.070% or 0.090% per annum, depending on AT&T’s credit rating, of the amount of lender commitments.

Both agreements require that, if at any time AT&T or a subsidiary pledges assets or otherwise permits a lien on its properties, advances under the agreement will be ratably secured, subject to specified exceptions. Both agreements also contain a financial ratio covenant that provides that AT&T will maintain, as of the last day of each fiscal quarter, a debt-to-EBITDA (earnings before interest, income taxes, depreciation and amortization, and other modifications described in the agreements) ratio of not more than 3.0 to 1, for the four quarters then ended.

Defaults under both agreements permit the lenders to accelerate required repayment and would increase the Applicable Margin by 2.00% per annum. Defaults include noncompliance with the two covenants above, other representations and warranties and the following:

·	We fail to pay principal or interest, or other amounts under the agreement beyond any grace period.

·	We fail to pay when due other debt of $400 or more that results in acceleration of that debt (commonly referred to as cross-acceleration) or a creditor commences enforcement proceedings within a specified period after a money judgment of $400 or more has become final.

·	A person acquires beneficial ownership of more than 50% of AT&T common shares or more than a majority of AT&T’s directors change in any 24-month period other than as elected by the remaining directors.

·	We fail to make certain minimum funding payments under the Employee Retirement Income Security Act of 1974, as amended (ERISA).

·	Our bankruptcy or insolvency.

Both agreements contain provisions permitting subsidiaries to be added as additional borrowers, with or without a guarantee by AT&T. The terms of the guarantee are set forth in the agreements.

The obligations of the lenders under the December 2017 Facility to provide advances will terminate on December 11, 2017, unless prior to that date either: (i) AT&T, and if applicable, a Co-Borrower, reduce to $0 the commitments of the lenders, or (ii) certain events of default occur. We and lenders representing more than 50% of the facility amount may agree to extend their commitments for two one-year periods beyond the December 11, 2017, termination date, under certain circumstances. We also can request the lenders to further increase their commitments (i.e., raise the available credit) up to an additional $2,000 provided no event of default has occurred. The same provisions apply to the December 2018 Facility except that the applicable date is December 11, 2018.

Other

Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by América Móvil or YP Holdings. At December 31, 2013, our debt ratio was 45.0%, compared to 43.0% at December 31, 2012, and 38.0% at December 31, 2011. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and stock repurchases. Total capital increased $3,731 in 2013 compared to a decrease of $8,011 in 2012. The 2013 capital increase was primarily due to increases in net income due to actuarial gains on our pension and postretirement benefit plans, increases in accumulated other comprehensive income related to prior service credits resulting from amendments to our postretirement benefit plans and increases in debt balances partially offset by share repurchases.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

A significant amount of our cash outflows are related to tax items and benefits paid for current and former employees. Total taxes incurred, collected and remitted by AT&T during 2013, 2012, and 2011 were $21,004, $19,703 and $19,224. These taxes include income, franchise, property, sales, excise, payroll, gross receipts and various other taxes and fees. Total health and welfare benefits provided to certain active and retired employees and their dependents totaled $5,167 in 2013, with $1,682 paid from plan assets. Of those benefits, $4,254 related to medical and prescription drug benefits. During 2013, we paid $3,966 of pension benefits out of plan assets.

During 2013, we also received approximately $7,000 from monetization of various nonstrategic assets. A majority of that cash was attributable to the towers transaction (see Note 16) as well as sales of investments and real estate holdings. We plan to continue to explore similar opportunities in 2014.

In September 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding company for our wireless business, to the trust used to pay pension benefits under our qualified pension plans. The preferred equity interest had a value of $9,104 on the contribution date, does not have any voting rights and has a liquidation value of $8,000. The trust is entitled to receive cumulative cash distributions of $560 per annum, which will be distributed quarterly in equal amounts. So long as we make the distributions, we will have no limitations on our ability to declare a dividend, or repurchase shares. At the time of the contribution of the preferred equity interest, we made an additional cash contribution of $175 and have agreed to annual cash contributions of $175 no later than the due date for our federal income tax return for each of 2014, 2015 and 2016. These contributions, combined with our existing pension assets, are essentially equivalent to the pension obligation at December 31, 2013.

The preferred equity interest is not transferable by the trust except through its put and call features. After a period of five years from the contribution or, if earlier, the date upon which the pension plan trust is fully funded as determined under U.S. generally accepted accounting principles (GAAP), AT&T has a right to purchase from the pension plan trust some or all the preferred equity interest at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends. In addition, AT&T will have the right to purchase the preferred equity interest in the event AT&T’s ownership of Mobility is less than 50% or there is a transaction that results in the transfer of 50% or more of the pension plan trust’s assets to an entity not under common control with AT&T (collectively, a change of control). The pension plan trust has the right to require AT&T to purchase the preferred equity interest at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends, and in installments, as specified in the contribution agreement upon the occurrence of any of the following: (1) at any time if the ratio of debt to total capitalization of Mobility exceeds that of AT&T, (2) the date on which AT&T is rated below investment grade for two consecutive calendar quarters, (3) upon a change of control if AT&T does not exercise its purchase option, or (4) at any time after a seven-year period from the contribution date. In the event AT&T elects or is required to purchase the preferred equity interest, AT&T may elect to settle the purchase price in cash or shares of AT&T common stock or a combination thereof.

On September 9, 2013, the Department of Labor (DOL) published a proposed exemption that authorizes retroactive approval of this voluntary contribution. The proposal was open for public comment and we are currently awaiting a final decision by the DOL. Our retirement benefit plans, including required contributions, are subject to the provisions of ERISA.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

Current accounting standards require us to disclose our material obligations and commitments to making future payments under contracts, such as debt and lease agreements, and under contingent commitments, such as debt guarantees. We occasionally enter into third-party debt guarantees, but they are not, nor are they reasonably likely to become, material. We disclose our contractual long-term debt repayment obligations in Note 9 and our operating lease payments in Note 6. Our contractual obligations do not include contributions associated with our voluntary contribution of the Mobility preferred equity interest, or expected pension and postretirement payments (we maintain pension funds and Voluntary Employee Beneficiary Association trusts to fully or partially fund these benefits) (see Note 12). In the ordinary course of business, we routinely enter into commercial commitments for various aspects of our operations, such as plant additions, inventory and office supplies. However, we do not believe that the commitments will have a material effect on our financial condition, results of operations or cash flows.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Our contractual obligations as of December 31, 2013, are in the following table. The purchase obligations that follow are those for which we have guaranteed funds and will be funded with cash provided by operations or through incremental borrowings. The minimum commitment for certain obligations is based on termination penalties that could be paid to exit the contract. Other long-term liabilities are included in the table based on the year of required payment or an estimate of the year of payment. Such estimate of payment is based on a review of past trends for these items, as well as a forecast of future activities. Certain items were excluded from the following table, as the year of payment is unknown and could not be reliably estimated since past trends were not deemed to be an indicator of future payment.

Substantially all of our purchase obligations are in our Wireline and Wireless segments. The table does not include the fair value of our interest rate swaps. Our capital lease obligations and bank borrowings have been excluded from the table due to the insignificant amounts of such obligations at December 31, 2013. Many of our other noncurrent liabilities have been excluded from the following table due to the uncertainty of the timing of payments, combined with the absence of historical trending to be used as a predictor of such payments. Additionally, certain other long-term liabilities have been excluded since settlement of such liabilities will not require the use of cash. However, we have included, in the following table, obligations that primarily relate to benefit funding due to the certainty of the timing of these future payments. Our other long-term liabilities are: deferred income taxes (see Note 11) of $36,308; postemployment benefit obligations of $29,946; and other noncurrent liabilities of $15,766.

	Payments Due By Period
	Total			Less than 1 Year			1-3 Years			3-5 Years			More than 5 Years
Contractual Obligations	Total			Less than 1 Year			1-3 Years			3-5 Years			More than 5 Years
Long-term debt obligations 1		$	75,500		$	5,472		$	13,181		$	11,057		$	45,790
Interest payments on long-term debt			53,219			3,350			6,035			5,328			38,506
Finance obligations 2			3,945			221			454			473			2,797
Operating lease obligations			24,952			3,003			5,551			4,691			11,707
Unrecognized tax benefits 3			2,332			265			-			-			2,067
Purchase obligations 4			14,320			5,749			5,182			2,570			819
Total Contractual Obligations		$	174,268		$	18,060		$	30,403		$	24,119		$	101,686
1 Represents principal or payoff amounts of notes and debentures at maturity or, for putable debt, the next put opportunity.
2 Represents future minimum payments under the sublease arrangement for our tower transactions (see Note 16).
3 The noncurrent portion of the UTBs is included in the “More than 5 Years” column, as we cannot reasonably estimate the timing or amounts of additional cash payments, if any, at this time. See Note 11 for additional information.
4 We calculated the minimum obligation for certain agreements to purchase goods or services based on termination fees that can be paid to exit the contract. If we elect to exit these contracts, termination fees for all such contracts in the year of termination could be approximately $489 in 2014, $567 in the
aggregate for 2015 and 2016, $174 in the aggregate for 2017 and 2018, and $8 in the aggregate thereafter. Certain termination fees are excluded from the above table, as the fees would not be paid every year and the timing of such payments, if any, is uncertain.

MARKET RISK

We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates. These risks, along with other business risks, impact our cost of capital. It is our policy to manage our debt structure and foreign exchange exposure in order to manage capital costs, control financial risks and maintain financial flexibility over the long term. In managing market risks, we employ derivatives according to documented policies and procedures, including interest rate swaps, interest rate locks, foreign currency exchange contracts and combined interest rate foreign currency contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We do not foresee significant changes in the strategies we use to manage market risk in the near future.

Interest Rate Risk

The majority of our financial instruments are medium- and long-term fixed-rate notes and debentures. Changes in interest rates can lead to significant fluctuations in the fair value of these instruments. The principal amounts by expected maturity, average interest rate and fair value of our liabilities that are exposed to interest rate risk are described in Notes 9 and 10. In managing interest expense, we control our mix of fixed and floating rate debt, principally through the use of interest rate swaps. We have established interest rate risk limits that we closely monitor by measuring interest rate sensitivities in our debt and interest rate derivatives portfolios.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

All our foreign-denominated long-term debt has been swapped from fixed-rate foreign currencies to fixed-rate U.S. dollars at issuance through cross-currency swaps, removing interest rate risk and foreign currency exchange risk associated with the underlying interest and principal payments. Likewise, periodically we enter into interest rate locks to partially hedge the risk of increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We expect gains or losses in our cross-currency swaps and interest rate locks to offset the losses and gains in the financial instruments they hedge.

Following are our interest rate derivatives subject to material interest rate risk as of December 31, 2013. The interest rates illustrated below refer to the average rates we expect to pay based on current and implied forward rates and the average rates we expect to receive based on derivative contracts. The notional amount is the principal amount of the debt subject to the interest rate swap contracts. The fair value asset (liability) represents the amount we would receive (pay) if we had exited the contracts as of December 31, 2013.

	Maturity
																					Fair Value
	2014			2015			2016			2017			2018			Thereafter			Total		12/31/13
Interest Rate Derivatives
Interest Rate Swaps:
Receive Fixed/Pay
Variable Notional
Amount Maturing	$	500		$	1,500		$	-		$	-		$	1,000		$	1,750		$	4,750	$	184
Weighted-Average
Variable Rate Payable 1		2.3	%		3.2	%		4.8	%		5.9	%		7.3	%		7.9	%
Weighted-Average
Fixed Rate Receivable		4.6	%		5.1	%		5.7	%		5.7	%		5.8	%		5.8	%
1 Interest payable based on current and implied forward rates for One, Three, or Six Month LIBOR plus a spread ranging between approximately 4 and 425 basis points.

Foreign Exchange Risk

We are exposed to foreign currency exchange risk through our foreign affiliates and equity investments in foreign companies. We do not hedge foreign currency translation risk in the net assets and income we report from these sources. However, we do hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions and cash flow streams, such as those related to issuing foreign-denominated debt, receiving dividends from foreign investments, and other receipts and disbursements.

Through cross-currency swaps, all our foreign-denominated debt has been swapped from fixed-rate foreign currencies to fixed-rate U.S. dollars at issuance, removing interest rate risk and foreign currency exchange risk associated with the underlying interest and principal payments. We expect gains or losses in our cross-currency swaps to offset the losses and gains in the financial instruments they hedge.

In anticipation of other foreign currency-denominated transactions, we often enter into foreign exchange forward contracts to provide currency at a fixed rate. Our policy is to measure the risk of adverse currency fluctuations by calculating the potential dollar losses resulting from changes in exchange rates that have a reasonable probability of occurring. We cover the exposure that results from changes that exceed acceptable amounts.

For the purpose of assessing specific risks, we use a sensitivity analysis to determine the effects that market risk exposures may have on the fair value of our financial instruments and results of operations. To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of a hypothetical 10% depreciation of the U.S. dollar against foreign currencies from the prevailing foreign currency exchange rates, assuming no change in interest rates. We had no foreign exchange forward contracts outstanding at December 31, 2013.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

STOCK PERFORMANCE GRAPH

The comparison above assumes $100 invested on December 31, 2008, in AT&T common stock, Standard & Poor’s 500 Index (S&P 500), and Standard & Poor's 500 Integrated Telecom Index (S&P 500 Integrated Telecom). Total return equals stock price appreciation plus reinvestment of dividends.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

RISK FACTORS

In addition to the other information set forth in this document, including the matters contained under the caption “Cautionary Language Concerning Forward-Looking Statements,” you should carefully read the matters described below. We believe that each of these matters could materially affect our business. We recognize that most of these factors are beyond our ability to control and therefore we cannot predict an outcome. Accordingly, we have organized them by first addressing general factors, then industry factors and, finally, items specifically applicable to us.

The current U.S. economy has changed our customers’ buying habits and a failure to adequately respond could materially adversely affect our business.

We provide services and products to consumers and large and small businesses in the United States and to larger businesses throughout the world. The current slow economic recovery in the United States continues to pressure our customers’ demand for and ability to pay for existing services, especially local landline service, and their interest in purchasing new services. Customers are changing their buying habits in response to both ongoing anemic economic conditions and technological advances. Should we fail to respond promptly to address these changes in customer demands, we are likely to experience greater pressure on pricing and margins as we continue to compete for customers who would have even less discretionary income.

Adverse changes in medical costs and the U.S. securities markets and a further decline in interest rates could materially increase our benefit plan costs.

Our costs to provide current benefits and funding for future benefits are subject to increases, primarily due to continuing increases in medical and prescription drug costs, and can be affected by lower returns on funds held by our pension and other benefit plans, which are reflected in our financial statements for that year. Investment returns on these funds depend largely on trends in the U.S. securities markets and the U.S. economy. We have experienced historically low interest rates during the last several years. While rates have increased recently, we expect relatively stable rates to continue for the next several years. Recent increases in the rates have led to better than assumed investment returns on our plan assets and to lower funding obligations. In calculating the costs included on our financial statements of providing benefits under our plans, we have made certain assumptions regarding future investment returns, medical costs and interest rates. If actual investment returns, medical costs and interest rates are worse than those previously assumed, our costs will increase.

The Financial Accounting Standards Board requires companies to recognize the funded status of defined benefit pension and postretirement plans as an asset or liability in our statement of financial position and to recognize changes in that funded status in the year in which the changes occur. We have elected to reflect the annual adjustments to the funded status in our consolidated statement of income. Therefore, an increase in our costs or adverse market conditions will have a negative effect on our operating results.

Adverse changes in global financial markets could limit our ability and our larger customers' ability to access capital or increase the cost of capital needed to fund business operations.

While the global financial markets were stable during 2013, a continuing uncertainty surrounding global growth rates has resulted in periodic volatility in the credit, currency, equity and fixed income markets. Volatility in some areas, such as in emerging markets, may affect companies’ access to the credit markets, leading to higher borrowing costs for companies or, in some cases, the inability of these companies to fund their ongoing operations. In addition, we contract with large financial institutions to support our own treasury operations, including contracts to hedge our exposure on interest rates and foreign exchange and the funding of credit lines and other short-term debt obligations, including commercial paper. These financial institutions also face new capital-related and other regulations in the United States and Europe, as well as ongoing legal and financial issues concerning their loan portfolios, which may hamper their ability to provide credit or raise the cost of providing such credit. A company’s cost of borrowing is also affected by evaluations given by various credit rating agencies and these agencies have been applying tighter credit standards when evaluating a company’s debt levels and future growth prospects. While we have been successful in continuing to access the credit and fixed income markets when needed, adverse changes in the financial markets could render us either unable to access these markets or able to access these markets only at higher interest costs and with restrictive financial or other conditions, severely affecting our business operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Changes in available technology could increase competition and our capital costs.

The telecommunications industry has experienced rapid changes in the past several years. The development of wireless, cable and IP technologies has significantly increased the commercial viability of alternatives to traditional wireline telephone service and enhanced the capabilities of wireless networks. In addition, our customers continue to demand services that can be accessed on mobile devices, especially video services. In order to remain competitive, we are deploying a more sophisticated wireline network and continue to deploy a more sophisticated wireless network, as well as research other new technologies. We expect our plans to significantly expand and enhance our wireless and wireline IP broadband networks will result in increased capital expenditures and increased debt levels as these plans are implemented. If the new technologies we have adopted or on which we have focused our research efforts fail to be cost-effective and accepted by customers, our ability to remain competitive could be materially adversely affected.

Changes to federal, state and foreign government regulations and decisions in regulatory proceedings could further increase our operating costs and/or alter customer perceptions of our operations, which could materially adversely affect us.

Our wireline subsidiaries are subject to significant federal and state regulation while many of our competitors are not. In addition, our subsidiaries and affiliates operating outside the United States are also subject to the jurisdiction of national and supranational regulatory authorities in the market where service is provided. Our wireless subsidiaries are regulated to varying degrees by the FCC and some state and local agencies. Adverse rulings by the FCC relating to broadband issues could impede our ability to manage our networks and recover costs and lessen incentives to invest in our networks. The development of new technologies, such as IP-based services, also has created or potentially could create conflicting regulation between the FCC and various state and local authorities, which may involve lengthy litigation to resolve and may result in outcomes unfavorable to us. In addition, increased public focus on a variety of issues related to our operations, such as privacy issues, government requests or orders for customer data, and potential global climate changes, have led to proposals at state, federal and foreign government levels to change or increase regulation on our operations. Should customers decide that our competitors operate in a more customer-friendly environment, we could be materially adversely affected.

Continuing growth in our wireless services will depend on continuing access to adequate spectrum, deployment of new technology and offering attractive services to customers.

The wireless industry is undergoing rapid and significant technological changes and a dramatic increase in usage, in particular demand for and usage of data, video and other non-voice services. We must continually invest in our wireless network in order to continually improve our wireless service to meet this increasing demand and remain competitive. Improvements in our service depend on many factors, including continued access to and deployment of adequate spectrum. We must maintain and expand our network capacity and coverage as well as the associated wireline network needed to transport voice and data between cell sites. To this end, we continue to deploy technology advancements in order to further improve network quality and the efficient use of our spectrum.

Network service enhancements and product launches may not occur as scheduled or at the cost expected due to many factors, including delays in determining equipment and handset operating standards, supplier delays, increases in network equipment and handset component costs, regulatory permitting delays for tower sites or enhancements or labor-related delays. Deployment of new technology also may adversely affect the performance of the network for existing services. If the FCC does not fairly allocate sufficient spectrum to allow the wireless industry in general, and the Company in particular, to increase its capacity or if we cannot acquire needed spectrum or deploy the services customers desire on a timely basis without burdensome conditions or at adequate cost while maintaining network quality levels, then our ability to attract and retain customers, and therefore maintain and improve our operating margins, could be materially adversely affected.

Increasing competition for wireless customers could adversely affect our operating results.

We have multiple wireless competitors in each of our service areas and compete for customers based principally on service/device offerings, price, call quality, coverage area and customer service. In addition, we are facing growing competition from providers offering services using alternative wireless technologies and IP-based networks as well as traditional wireline networks. We expect market saturation to continue to cause the wireless industry’s customer growth rate to moderate in comparison with historical growth rates, leading to increased competition for customers. We also expect that our customers’ growing demand for data services will place constraints on our network capacity. This competition and our capacity issues will continue to put pressure on pricing and margins as companies compete for potential customers. Our ability to respond will depend, among other things, on continued improvement in network quality and customer service and effective marketing of attractive products and services, and cost management. These efforts will involve significant expenses and require strategic management decisions on, and timely implementation of, equipment choices, network deployment and management, and service offerings.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Increasing costs in our wireline operations could adversely affect wireline operating margins.

We expect our operating costs, including customer acquisition and retention costs will continue to put pressure on pricing, margins and customer retention levels. A number of our competitors that rely on alternative technologies (e.g., wireless, cable and VoIP) and business models (e.g., advertising-supported) are typically subject to less (or no) regulation than our wireline subsidiaries and therefore are able to operate with lower costs. These competitors also have cost advantages compared to us, due in part to operating on newer, more technically advanced and lower-cost networks and a nonunionized workforce, lower employee benefits and fewer retirees (as most of the competitors are relatively new companies). Over time these cost disparities could require us to evaluate the strategic worth of various wireline operations. To this end, we have begun initiatives at both the state and federal levels to obtain regulatory approvals, where needed, to transition services from our older copper-based network to an advanced IP-based network. If we do not obtain regulatory approvals for this transition or obtain approvals with onerous conditions attached, we could experience significant cost and competitive disadvantages.

The continued success of Project VIP will depend on the development of our U-verse services and wireless initiatives; attractive and profitable broadband and video service offerings; the extent to which regulatory, franchise fees and build-out requirements apply to this initiative; the availability of content on reasonable terms and conditions, including price, and the availability and reliability of the various technologies required to provide such offerings.

Telecommunications technology has shifted from the traditional circuit- and wire-based technology to IP-based technology. IP-based technology can transport voice and data, as well as video, from both wired and wireless networks. IP-based networks also potentially cost less to operate than traditional networks. Our competitors, many of which are newer companies, are deploying this IP-based technology. In order to continue to offer attractive and competitively priced services, we have deployed a new broadband network to offer IP-based voice, data and video services. Should regulatory requirements change, our deployment could be limited to only those geographical areas where regulation is not burdensome. In addition, should the delivery of services expected to be deployed on our network be delayed due to technological or regulatory constraints, performance of suppliers, or other reasons, or the cost of providing such services, including the availability and cost of content for our video offerings, becomes higher than expected, customers may decide to purchase services from our competitors, which would adversely affect our revenues and margins, and such effects could be material.

Unfavorable litigation or governmental investigation results could require us to pay significant amounts or lead to onerous operating procedures.

We are subject to a number of lawsuits both in the United States and in foreign countries, including, at any particular time, claims relating to antitrust; patent infringement; wage and hour; personal injury; customer privacy violations; and our advertising, sales and billing and collection practices. We also spend substantial resources complying with various government standards, which may entail related investigations. As we deploy newer technologies, especially in the wireless area, we also face current and potential litigation relating to alleged adverse health effects on customers or employees who use such technologies including, for example, wireless handsets. We may incur significant expenses defending such suits or government charges and may be required to pay amounts or otherwise change our operations in ways that could materially adversely affect our operations or financial results.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Dollars in millions except per share amounts

Equipment failures, natural disasters, computer hacking and terrorist acts may materially adversely affect our operations .

Major equipment failures or natural disasters, including severe weather, computer hacking, terrorist acts or other breaches of network or IT security that affect our wireline and wireless networks, including telephone switching offices, microwave links, third-party-owned local and long-distance networks on which we rely, our cell sites or other equipment, or our customer account support and information systems, could have a material adverse effect on our operations. While we have been subject to security breaches or cyber attacks, these did not result in a material adverse effect on our operations. Our inability to operate our wireline, wireless or customer-related support systems as a result of such events, even for a limited time period, could result in significant expenses, potential legal liability or a loss of customers or impair our ability to attract new customers, any of which could have a material adverse effect on our business, results of operations and financial condition.

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

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

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

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

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

Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse medical cost trends, unfavorable or delayed implementation of healthcare legislation, regulations or related court decisions; and our inability to receive retroactive approval from the DOL of our voluntary contribution of a preferred interest in our wireless business.

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

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

·	Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative technologies (e.g., cable, wireless and VoIP) and our ability to maintain capital expenditures.

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

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

·	Our continued ability to attract and offer a diverse portfolio of wireless devices, some on an exclusive basis.

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

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

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

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

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

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

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

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

AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
	2013			2012			2011
Operating Revenues	$	128,752		$	127,434		$	126,723

Operating Expenses
Cost of services and sales (exclusive of depreciation		51,464			55,228			54,904
and amortization shown separately below)
Selling, general and administrative		28,414			41,066			41,314
Impairment of intangible assets		-			-			2,910
Depreciation and amortization		18,395			18,143			18,377
Total operating expenses		98,273			114,437			117,505
Operating Income		30,479			12,997			9,218

Other Income (Expense)
Interest expense		(3,940	)		(3,444	)		(3,535	)
Equity in net income of affiliates		642			752			784
Other income (expense) – net		596			134			249
Total other income (expense)		(2,702	)		(2,558	)		(2,502	)
Income Before Income Taxes		27,777			10,439			6,716
Income tax expense		9,224			2,900			2,532
Net Income		18,553			7,539			4,184
Less: Net Income Attributable to Noncontrolling Interest		(304	)		(275	)		(240	)
Net Income Attributable to AT&T	$	18,249		$	7,264		$	3,944

Basic Earnings Per Share Attributable to AT&T	$	3.39		$	1.25		$	0.66
Diluted Earnings Per Share Attributable to AT&T	$	3.39		$	1.25		$	0.66
The accompanying notes are an integral part of the consolidated financial statements.

AT&T Inc.
Consolidated Statements of Comprehensive Income
Dollars in millions
	2013			2012			2011
Net income	$	18,553		$	7,539		$	4,184
Other comprehensive income, net of tax:
Foreign Currency:
Foreign currency translation adjustments (includes $(2), $0 and $(1) attributable to noncontrolling interest), net of taxes of $(78), $48 and $(117)		(140	)		87			(219	)
Reclassification adjustment included in net income, net of taxes of $30, $0 and $183		55			-			341
Available-for-sale securities:
Net unrealized gains (losses), net of taxes of $137, $64, and $(21)		257			118			(41	)
Reclassification adjustment included in net income, net of taxes of $(42), $(36) and $(29)		(79	)		(68	)		(54	)
Cash flow hedges:
Net unrealized gains (losses), net of taxes of $286, $154 and $(140)		525			283			(256	)
Reclassification adjustment included in net income, net of taxes of $16, $15 and $8		30			28			15
Defined benefit postretirement plans:
Net actuarial loss from equity method investees arising during period, net of taxes of $0, $(32) and $0		-			(53	)		-
Reclassification adjustment included in net income, net of taxes of $7, $0 and $0		11			-			-
Net prior service credit arising during period, net of taxes of $1,695, $1,378 and $699		2,765			2,249			1,140
Amortization of net prior service credit included in net income, net of taxes of $(480), $(361) and $(282)		(782	)		(588	)		(460	)
Other		-			-			1
Other comprehensive income		2,642			2,056			467
Total comprehensive income		21,195			9,595			4,651
Less: Total comprehensive income attributable to noncontrolling interest		(302	)		(275	)		(239	)
Total Comprehensive Income Attributable to AT&T	$	20,893		$	9,320		$	4,412
The accompanying notes are an integral part of the consolidated financial statements.

AT&T Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
	December 31,
	2013			2012
Assets
Current Assets
Cash and cash equivalents	$	3,339		$	4,868
Accounts receivable - net of allowances for doubtful accounts of $483 and $547		12,918			12,657
Prepaid expenses		960			1,035
Deferred income taxes		1,199			1,036
Other current assets		4,780			3,110
Total current assets		23,196			22,706
Property, Plant and Equipment – Net		110,968			109,767
Goodwill		69,273			69,773
Licenses		56,433			52,352
Customer Lists and Relationships – Net		763			1,391
Other Intangible Assets – Net		5,016			5,032
Investments in and Advances to Equity Affiliates		3,860			4,581
Other Assets		8,278			6,713
Total Assets	$	277,787		$	272,315

Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year	$	5,498		$	3,486
Accounts payable and accrued liabilities		21,107			20,494
Advanced billings and customer deposits		4,212			4,225
Accrued taxes		1,774			1,026
Dividends payable		2,404			2,556
Total current liabilities		34,995			31,787
Long-Term Debt		69,290			66,358
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes		36,308			28,491
Postemployment benefit obligation		29,946			41,392
Other noncurrent liabilities		15,766			11,592
Total deferred credits and other noncurrent liabilities		82,020			81,475
Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2013
and 2012: issued 6,495,231,088 at December 31, 2013 and 2012)		6,495			6,495
Additional paid-in capital		91,091			91,038
Retained earnings		31,141			22,481
Treasury stock (1,268,914,913 at December 31, 2013 and 913,836,325
at December 31, 2012, at cost)		(45,619	)		(32,888	)
Accumulated other comprehensive income		7,880			5,236
Noncontrolling interest		494			333
Total stockholders’ equity		91,482			92,695
Total Liabilities and Stockholders’ Equity	$	277,787		$	272,315
The accompanying notes are an integral part of the consolidated financial statements.

AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions
	2013			2012			2011
Operating Activities
Net income	$	18,553		$	7,539		$	4,184
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		18,395			18,143			18,377
Undistributed earnings from investments in equity affiliates		(324	)		(615	)		(623	)
Provision for uncollectible accounts		954			1,117			1,136
Deferred income tax expense		6,242			1,747			2,929
Net (gain) loss from sale of investments, net of impairments		(492	)		(19	)		(89	)
Impairment of intangible assets		-			-			2,910
Actuarial (gain) loss on pension and postretirement benefits		(7,584	)		9,994			6,280
Changes in operating assets and liabilities:
Accounts receivable		(1,329	)		(1,365	)		(1,164	)
Other current assets		412			1,017			(397	)
Accounts payable and accrued liabilities		(152	)		1,798			(341	)
Retirement benefit funding		(209	)		-			(1,000	)
Other - net		330			(180	)		2,541
Total adjustments		16,243			31,637			30,559
Net Cash Provided by Operating Activities		34,796			39,176			34,743

Investing Activities
Construction and capital expenditures:
Capital expenditures		(20,944	)		(19,465	)		(20,110	)
Interest during construction		(284	)		(263	)		(162	)
Acquisitions, net of cash acquired		(4,113	)		(828	)		(2,368	)
Dispositions		1,923			812			1,301
Sales (purchases) of securities, net		-			65			62
Return of advances to and investments in equity affiliates		301			-			-
Other		(7	)		(1	)		27
Net Cash Used in Investing Activities		(23,124	)		(19,680	)		(21,250	)

Financing Activities
Net change in short-term borrowings with original maturities of three months or less		20			1			(1,625	)
Issuance of other short-term borrowings		1,476			-			-
Repayment of other short-term borrowings		(1,476	)		-			(28	)
Issuance of long-term debt		12,040			13,486			7,936
Repayment of long-term debt		(7,698	)		(8,733	)		(7,574	)
Issuance of other long-term financing obligations		4,796			-			-
Purchase of treasury stock		(13,028	)		(12,752	)		-
Issuance of treasury stock		114			477			237
Dividends paid		(9,696	)		(10,241	)		(10,172	)
Other		251			89			(423	)
Net Cash Used in Financing Activities		(13,201	)		(17,673	)		(11,649	)
Net (decrease) increase in cash and cash equivalents		(1,529	)		1,823			1,844
Cash and cash equivalents beginning of year		4,868			3,045			1,201
Cash and Cash Equivalents End of Year	$	3,339		$	4,868		$	3,045
The accompanying notes are an integral part of the consolidated financial statements.

AT&T Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Dollars and shares in millions except per share amounts
	2013			2012			2011
	Shares	Amount		Shares	Amount		Shares	Amount
Common Stock
Balance at beginning of year	6,495	$	6,495	6,495	$	6,495	6,495	$	6,495
Issuance of stock	-		-	-		-	-		-
Balance at end of year	6,495	$	6,495	6,495	$	6,495	6,495	$	6,495

Additional Paid-In Capital
Balance at beginning of year		$	91,038		$	91,156		$	91,731
Issuance of treasury stock			(8)			120			132
Share-based payments			62			(78)			(118)
Share of equity method investee capital transactions			-			(160)			(290)
Change related to acquisition of interests held by noncontrolling owners			(1)			-			(299)
Balance at end of year		$	91,091		$	91,038		$	91,156

Retained Earnings
Balance at beginning of year		$	22,481		$	25,453		$	31,792
Net income attributable to AT&T ($3.39, $1.25 and $0.66 per diluted share)			18,249			7,264			3,944
Dividends to stockholders ($1.81, $1.77 and $1.73 per share)			(9,589)			(10,236)			(10,283)
Balance at end of year		$	31,141		$	22,481		$	25,453

Treasury Stock
Balance at beginning of year	(914)	$	(32,888)	(568)	$	(20,750)	(584)	$	(21,083)
Repurchase of common stock	(366)		(13,028)	(371)		(12,752)	-		-
Issuance of treasury stock	11		297	25		614	16		333
Balance at end of year	(1,269)	$	(45,619)	(914)	$	(32,888)	(568)	$	(20,750)
The accompanying notes are an integral part of the consolidated financial statements.

AT&T Inc.
Consolidated Statements of Changes in Stockholders’ Equity (continued)
Dollars and shares in millions except per share amounts
	2013		2012		2011
	Amount		Amount		Amount
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax:
Balance at beginning of year	$	5,236	$	3,180	$	2,712
Other comprehensive income attributable to AT&T		2,644		2,056		468
Balance at end of year	$	7,880	$	5,236	$	3,180

Noncontrolling Interest:
Balance at beginning of year	$	333	$	263	$	303
Net income attributable to noncontrolling interest		304		275		240
Distributions		(231)		(205)		(220)
Contributions		51		-		-
Acquisitions of noncontrolling interests		44		-		-
Acquisition of interests held by noncontrolling owners		(5)		-		(59)
Translation adjustments attributable to noncontrolling interest, net of taxes		(2)		-		(1)
Balance at end of year	$	494	$	333	$	263

Total Stockholders’ Equity at beginning of year	$	92,695	$	105,797	$	111,950
Total Stockholders’ Equity at end of year	$	91,482	$	92,695	$	105,797
The accompanying notes are an integral part of the consolidated financial statements.

Notes to Consolidated Financial Statements

Dollars in millions except per share amounts

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both domestically and internationally, providing wireless communications services, traditional wireline voice services, data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services.

All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity method are included for periods ended within up to one month of our year end (see Note 8). We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items, including actuarial gains and losses on pension and other postretirement benefit obligations.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates. Certain amounts have been reclassified to conform to the current period’s presentation.

Income Taxes We provide deferred income taxes for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the computed tax basis of those assets and liabilities. We provide valuation allowances against the deferred tax assets for which the realization is uncertain. We review these items regularly in light of changes in federal and state tax laws and changes in our business.

We report revenues from transactions between us and our customers net of taxes imposed by government authorities in our consolidated statements of income.

Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less. The carrying amounts approximate fair value. At December 31, 2013, we held $697 in cash and $2,642 in money market funds and other cash equivalents.

Revenue Recognition Revenues derived from wireless, local telephone, long distance, data and video services are recognized when services are provided. This is based upon either usage (e.g., minutes of traffic/bytes of data processed), period of time (e.g., monthly service fees) or other established fee schedules. Our service revenues are billed either in advance, arrears or are prepaid.

We record revenue reductions for estimated future adjustments to customer accounts, other than bad debt expense, at the time revenue is recognized based on historical experience. Service revenues also include billings to our customers for various regulatory fees imposed on us by governmental authorities. Cash incentives given to customers are recorded as a reduction of revenue. When required as part of providing service, revenues and associated expenses related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the associated service contract period or customer life. Associated expenses are deferred only to the extent of such deferred revenue. For contracts that involve the bundling of services, revenue is allocated to the services based on their relative selling price, subject to the requirement that revenue recognized is limited to the amounts received from the customer that are not contingent upon the delivery of additional products or services to the customer in the future. We record the sale of equipment to customers as gross revenue when we are the principal in the arrangement, when title is passed and when the products are accepted by customers. For agreements involving the resale of third-party services in which we are not considered the principal in the arrangement, we record the revenue net of the associated costs incurred.

We offer to our customers the option to purchase certain devices in installments over a period of up to 26 months, with the right to trade in for a new device after a specified period of time and have the remaining unpaid balance waived for the original device. For customers that elect these trade-in programs, we recognize revenue for the entire amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed interest. As of December 31, 2013, total equipment installment plan receivables of $863 were recorded in “Accounts receivable” or “Other assets” on our consolidated balance sheets.

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Allowance for Doubtful Accounts We record expense to maintain an allowance for doubtful accounts for estimated losses that result from the failure or inability of our customers to make required payments deemed collectable from the customer when the service was provided or product was delivered. When determining the allowance, we consider the probability of recoverability of accounts receivable based on past experience, taking into account current collection trends as well as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcy or catastrophes.

Inventory Inventories, which are included in “Other current assets” on our consolidated balance sheets, were $1,148 at December 31, 2013, and $1,036 at December 31, 2012. Wireless devices and accessories, which are valued at the lower of cost or market (determined using current replacement cost) were $1,031 at December 31, 2013, and $888 at December 31, 2012.

Property, Plant and Equipment Property, plant and equipment is stated at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value (see Note 6). The balance as of December 31, 2013, excluded amounts classified as held for sale (see Note 5). The cost of additions and substantial improvements to property, plant and equipment is capitalized, and includes internal compensation costs for these projects; however, noncash actuarial gains or losses included in compensation costs are excluded from our capital expenditures reported on the consolidated statements of cash flows. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Property, plant and equipment costs are depreciated using straight-line methods over their estimated economic lives. Certain subsidiaries follow composite group depreciation methodology. Accordingly, when a portion of their depreciable property, plant and equipment is retired in the ordinary course of business, the gross book value is reclassified to accumulated depreciation, and no gain or loss is recognized on the disposition of these assets.

Property, plant and equipment is reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made. In periods subsequent to initial measurement, we recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. The increase in the carrying value of the associated long-lived asset is depreciated over the corresponding estimated economic life.

Software Costs It is our policy to capitalize certain costs incurred in connection with developing or obtaining internal-use software. Capitalized software costs are included in “Property, Plant and Equipment” on our consolidated balance sheets and are primarily amortized over a three-year period. In addition, there is certain network software that allows the equipment to provide the features and functions unique to the AT&T network, which we include in the cost of the equipment categories for financial reporting purposes.

Goodwill and Other Intangible Assets AT&T has four major classes of intangible assets: goodwill, Federal Communications Commission (FCC) licenses, other indefinite-lived intangible assets, made up predominately of the AT&T brand, and various other finite-lived intangible assets (see Note 7).

Goodwill represents the excess of consideration paid over the fair value of net assets acquired in business combinations. FCC licenses provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services. While FCC licenses are issued for a fixed period of time (generally 10 years), renewals of FCC licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our FCC licenses. We acquired the rights to the AT&T and other brand names in previous acquisitions. We have the effective ability to retain these exclusive rights permanently at a nominal cost.

Goodwill, FCC licenses and other indefinite-lived intangible assets are not amortized but are tested at least annually for impairment. The testing is performed on the value as of October 1 each year, and compares the book value of the assets to their fair value. Goodwill is tested by comparing the book value of each reporting unit, deemed to be our principal operating segments (Wireless and Wireline), to the fair value of those reporting units calculated under a discounted cash flow approach as well as a market multiple approach. FCC licenses are tested for impairment on an aggregate basis, consistent with the management of the business on a national scope. We perform our test of the fair values of FCC licenses using a discounted cash flow approach. Brand names are tested by comparing the book value to a fair value calculated using a discounted cash flow approach on a presumed royalty rate derived from the revenues related to the brand name. The fair value measurements used are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 10).

Notes to Consolidated Financial Statements

Dollars in millions except per share amounts

Intangible assets that have finite useful lives are amortized over their useful lives (see Note 7). Customer lists and relationships are amortized using primarily the sum-of-the-months-digits method of amortization over the period in which those relationships are expected to contribute to our future cash flows. The remaining finite-lived intangible assets are generally amortized using the straight-line method.

Advertising Costs We expense advertising costs for advertising products and services or for promoting our corporate image as we incur them (see Note 15).

Traffic Compensation Expense We use various estimates and assumptions to determine the amount of traffic compensation expense recognized during any reporting period. Switched traffic compensation costs are accrued utilizing estimated rates and volumes by product, formulated from historical data and adjusted for known rate changes. Such estimates are adjusted monthly to reflect newly available information, such as rate changes and new contractual agreements. Bills reflecting actual incurred information are generally not received within three months subsequent to the end of the reporting period, at which point a final adjustment is made to the accrued switched traffic compensation expense. Dedicated traffic compensation costs are estimated based on the number of circuits and the average projected circuit costs.

Foreign Currency Translation We are exposed to foreign currency exchange risk through our foreign affiliates and equity investments in foreign companies. Our foreign subsidiaries and foreign investments generally report their earnings in their local currencies. We translate our share of their foreign assets and liabilities at exchange rates in effect at the balance sheet dates. We translate our share of their revenues and expenses using average rates during the year. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (accumulated OCI) in the accompanying consolidated balance sheets. We do not hedge foreign currency translation risk in the net assets and income we report from these sources. However, we do hedge a portion of the foreign currency exchange risk involved in anticipation of highly probable foreign currency-denominated transactions, which we explain further in our discussion of our methods of managing our foreign currency risk (see Note 10).

Employee Separations We established obligations for expected termination benefits provided under existing plans to former or inactive employees after employment but before retirement. These benefits include severance payments, workers’ compensation, disability, medical continuation coverage and other benefits. During 2013, due to initiatives to streamline the business, we accrued $251 of anticipated employee separation costs. At December 31, 2013, we have severance accruals of $349, and at December 31, 2012, we had severance accruals of $120.

Pension and Other Postretirement Benefits See Note 12 for a comprehensive discussion of our pension and postretirement benefit expense, including a discussion of the actuarial assumptions and our policy for recognizing the associated gains and losses.

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for net income for the years ended December 31, 2013, 2012 and 2011, is shown in the table below:

Year Ended December 31,	2013			2012			2011
Numerators
Numerator for basic earnings per share:
Net income	$	18,553		$	7,539		$	4,184
Net income attributable to noncontrolling interest		(304	)		(275	)		(240	)
Net income attributable to AT&T		18,249			7,264			3,944
Dilutive potential common shares:
Share-based payment		12			12			11
Numerator for diluted earnings per share	$	18,261		$	7,276		$	3,955
Denominators (000,000)
Denominator for basic earnings per share:
Weighted-average number of common shares outstanding		5,368			5,801			5,928
Dilutive potential common shares:
Share-based payment (in shares)		17			20			22
Denominator for diluted earnings per share		5,385			5,821			5,950
Basic earnings per share attributable to AT&T	$	3.39		$	1.25		$	0.66
Diluted earnings per share attributable to AT&T	$	3.39		$	1.25		$	0.66

At December 31, 2013, 2012 and 2011, we had issued and outstanding options to purchase approximately 12 million, 17 million, and 66 million shares of AT&T common stock. The exercise prices of 3 million, 3 million, and 40 million shares in 2013, 2012, and 2011 were above the average market price of AT&T stock for the respective periods. Accordingly, we did not include these amounts in determining the dilutive potential common shares.

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

NOTE 3. OTHER COMPREHENSIVE INCOME

Changes in the balances of each component included in accumulated OCI for the year ended December 31, 2013, are presented below. All amounts are net of tax and exclude noncontrolling interest.

	Foreign Currency Translation Adjustment 5				Net Unrealized Gains (Losses) on Available- for-Sale Securities 5				Net Unrealized Gains (Losses) on Cash Flow Hedges 5				Defined Benefit Postretirement Plans 5				Accumulated Other Comprehensive Income 5
Balance as of December 31, 2012		$	(284	)		$	272			$	(110	)		$	5,358			$	5,236
Other comprehensive income (loss) before reclassifications			(138	)			257				525				2,765				3,409
Amounts reclassified from accumulated OCI			55	1			(79	) 2			30	3			(771	) 4			(765	)
Net other comprehensive income (loss)			(83	)			178				555				1,994				2,644
Balance as of December 31, 2013		$	(367	)		$	450			$	445			$	7,352			$	7,880
1 Pre-tax translation loss reclassifications are included in Other income (expense) - net in the consolidated statements of income.
2 Realized gains are included in Other income (expense) - net in the consolidated statements of income.
3 Realized (gains) losses are included in interest expense in the consolidated statements of income. See Note 10 for additional information.
4 The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Cost of services and sales and Selling, general and administrative in the consolidated statements of income (see Note 12). Actuarial loss
reclassifications related to our equity method investees are included in Other income (expense) - net in the consolidated statements of income.
5 The balance at December 31, 2011 for each component of accumulated OCI, respectively, was $(371), $222, $(421), and $3,750, for a total of $3,180.

NOTE 4. SEGMENT INFORMATION

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. We analyze our operating segments based on segment income before income taxes. We make our capital allocation decisions based on the strategic needs of the business, needs of the network (wireless or wireline) providing services and demands to provide emerging services to our customers. Actuarial gains and losses from pension and other postretirement benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in each reportable segment’s results. The customers and long-lived assets of our reportable segments are predominantly in the United States. We have three reportable segments: (1) Wireless, (2) Wireline and (3) Other. Our operating results prior to May 9, 2012, also included our sold Advertising Solutions segment.

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless data and voice communications services. This segment includes our portion of the results from our mobile payment joint venture marketed as the Isis Mobile Wallet TM (ISIS), which is accounted for as an equity method investment.

The Wireline segment uses our regional, national and global network to provide consumer and business customers with data and voice communications services, AT&T U-verse ® high-speed broadband, video and voice services and managed networking to business customers.

The Other segment includes our portion of the results from equity method investments in América Móvil, S.A. de C.V. (América Móvil), and YP Holdings LLC (YP Holdings), and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans.

Notes to Consolidated Financial Statements (continued)

Dollars in millions except per share amounts

Segment Results, including a reconciliation to AT&T consolidated results, for 2013, 2012, and 2011 are as follows:
At December 31, 2013 and for the year ended							Advertising Solutions									Consolidated Results
	Wireless			Wireline			Advertising Solutions			Other			Consolidations			Consolidated Results
Data	$	21,719		$	33,593		$	-		$	-		$	-		$	55,312
Voice, text and other		39,833			20,333			-			-			-			60,166
Equipment and other		8,347			4,888			-			39			-			13,274
Total segment operating revenues		69,899			58,814			-			39			-			128,752
Operations and support expenses		44,508			41,638			-			1,316			(7,584	)		79,878
Depreciation and amortization expenses		7,468			10,907			-			20			-			18,395
Total segment operating expenses		51,976			52,545			-			1,336			(7,584	)		98,273
Segment operating income (loss)		17,923			6,269			-			(1,297	)		7,584			30,479
Interest expense		-			-			-			-			3,940			3,940
Equity in net income (loss) of affiliates		(75	)		2			-			715			-			642
Other income (expense) – net		-			-			-			-			596			596
Segment income (loss) before income taxes	$	17,848		$	6,271		$	-		$	(582	)	$	4,240		$	27,777
Segment Assets	$	141,196		$	123,714		$	-		$	12,875		$	2		$	277,787
Investments in and advances to equity method affiliates		61			-			-			3,799			-			3,860
Expenditures for additions to long-lived assets		11,191			10,036			-			1			-			21,228

At December 31, 2012 and for the year ended							Advertising Solutions									Consolidated Results
	Wireless			Wireline			Advertising Solutions			Other			Consolidations			Consolidated Results
Data	$	18,297		$	31,841		$	-		$	-		$	-		$	50,138
Voice, text and other		40,889			22,614			-			-			-			63,503
Equipment and other		7,577			5,118			1,049			49			-			13,793
Total segment operating revenues		66,763			59,573			1,049			49			-			127,434
Operations and support expenses		43,296			41,207			773			1,024			9,994			96,294
Depreciation and amortization expenses		6,873			11,123			106			41			-			18,143
Total segment operating expenses		50,169			52,330			879			1,065			9,994			114,437
Segment operating income (loss)		16,594			7,243			170			(1,016	)		(9,994	)		12,997
Interest expense		-			-			-			-			3,444			3,444
Equity in net income (loss) of affiliates		(62	)		(1	)		-			815			-			752
Other income (expense) – net		-			-			-			-			134			134
Segment income (loss) before income taxes	$	16,532		$	7,242		$	170		$	(201	)	$	(13,304	)	$	10,439
Segment Assets	$	132,556		$	125,340		$	-		$	14,416		$	3		$	272,315
Investments in and advances to equity method affiliates		41			-			-			4,540			-			4,581
Expenditures for additions to long-lived assets		10,795			8,914			13			6			-			19,728

For the year ended December 31, 2011							Advertising Solutions									Consolidated Results
	Wireless			Wireline			Advertising Solutions			Other			Consolidations			Consolidated Results
Data	$	14,861		$	29,548		$	-		$	-		$	-		$	44,409
Voice, text and other		41,865			25,121			-			-			-			66,986
Equipment and other		6,489			5,480			3,293			66			-			15,328
Total segment operating revenues		63,215			60,149			3,293			66			-			126,723
Operations and support expenses		41,282			41,361			5,175			5,030			6,280			99,128
Depreciation and amortization expenses		6,329			11,615			386			47			-			18,377
Total segment operating expenses		47,611			52,976			5,561			5,077			6,280			117,505
Segment operating income (loss)		15,604			7,173			(2,268	)		(5,011	)		(6,280	)		9,218
Interest expense		-			-			-			-			3,535			3,535
Equity in net income (loss) of affiliates		(29	)		(2	)		-			815			-			784
Other income (expense) – net		-			-			-			-			249			249
Segment income (loss) before income taxes	$	15,575		$	7,171		$	(2,268	)	$	(4,196	)	$	(9,566	)	$	6,716

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

NOTE 5. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

Spectrum Acquisitions During 2013, we acquired $895 of wireless spectrum and operations from various companies, not including the 700 MHz, Atlantic Tele-Network Inc. (ATNI), and NextWave purchases discussed below. During 2012 , we acquired $855 of wireless spectrum from various companies. During 2011, we acquired $33 of wireless spectrum from various companies, not including the Qualcomm spectrum purchase discussed below.

700 MHz Spectrum In September 2013, we acquired spectrum in the 700 MHz B band from Verizon Wireless for $1,900 in cash and an assignment of Advanced Wireless Service (AWS) spectrum licenses in five markets. The 700 MHz licenses acquired by AT&T cover 42 million people in 18 states. We recognized a gain of approximately $293 on this and other spectrum transactions.

Atlantic Tele-Network In September 2013, we acquired ATNI’s U.S. retail wireless operations, operated under the Alltel brand, for $806 in cash, which included closing adjustments. Under the terms of the agreement, we acquired wireless properties, with a value of $322 in licenses and $296 of goodwill.

NextWave In January 2013, we completed the acquisition of NextWave Wireless Inc. (NextWave), which held wireless licenses in the Wireless Communication Services and AWS bands. We acquired all the equity and purchased a portion of the debt of NextWave for $605. The transaction was accounted for as an asset acquisition of spectrum.

Qualcomm Spectrum Purchase In December 2011, we completed our purchase of spectrum licenses in the Lower 700 MHz frequency band from Qualcomm Incorporated for approximately $1,925 in cash. The spectrum covers more than 300 million people total nationwide, including 12 MHz of Lower 700 MHz D and E block spectrum covering more than 70 million people in five of the top 15 metropolitan areas and 6 MHz of Lower 700 MHz D block spectrum covering more than 230 million people across the rest of the United States.

Purchase of Wireless Partnership Minority Interest In July 2011, we completed the acquisition of Convergys Corporation’s minority interest in the Cincinnati SMSA Limited Partnership and an associated cell tower holding company for approximately $320 in cash.

Pending Acquisitions

Leap In July 2013, we announced an agreement to acquire Leap Wireless International, Inc. (Leap), a provider of prepaid wireless service, for fifteen dollars per outstanding share of Leap’s common stock, or approximately $1,260, plus one nontransferable contingent value right (CVR) per share. The CVR will entitle each Leap stockholder to a pro rata share of the net proceeds of the future sale of the Chicago 700 MHz A-band FCC license held by Leap. As of September 30, 2013, Leap had approximately $3,100 of debt, net of cash. Under the terms of the agreement, we will acquire all of Leap’s stock and, thereby, acquire all of its wireless properties, including spectrum licenses, network assets, retail stores and subscribers.

The agreement was approved by Leap’s stockholders on October 30, 2013. The transaction is subject to review by the FCC and Department of Justice (DOJ). The review process is underway at both agencies. The transaction is expected to close in the first quarter of 2014. The agreement provides both parties with certain termination rights if the transaction does not close by July 11, 2014, which can be extended until January 11, 2015, if certain conditions have not been met by that date. Under certain circumstances, Leap may be required to pay a termination fee or AT&T may be required to provide Leap with a three-year roaming agreement for LTE data coverage in certain Leap markets lacking LTE coverage, if the transaction does not close. If Leap enters into the roaming agreement, AT&T will then have the option within 30 days after entry into the roaming agreement to purchase certain specified Leap spectrum assets. If AT&T does not exercise its right to purchase all of the specified Leap spectrum assets, Leap can then within 60 days after expiration of AT&T’s option require AT&T to purchase all of the specified spectrum assets.

Dispositions

América Móvil In 2013, we sold a portion of our shares in América Móvil for approximately $1,179. We sold the shares to maintain our historical ownership percentage in conjunction with América Móvil’s repurchase activity. (See Note 8)

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Advertising Solutions On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. for approximately $740 in cash after closing adjustments, a $200 advance, which was repaid in 2013, and a 47 percent equity interest in the new entity, YP Holdings. Our operating results include the results of the Advertising Solutions segment through May 8, 2012.

Tender of Telmex Shares In August 2011, the Board of Directors of América Móvil approved a tender offer for the remaining outstanding shares of Télefonos de México, S.A. de C.V. (Telmex) that were not already owned by América Móvil. We tendered all of our shares of Telmex for $1,197 of cash. Telmex was accounted for as an equity method investment (see Note 8).

Pending Disposition

Connecticut Wireline In December 2013, we entered into an agreement to sell our incumbent local exchange operations in Connecticut for $2,000 in cash. The transaction is subject to review by the DOJ, the FCC and the Connecticut Public Utilities Regulatory Authority and other state regulatory authorities. We expect the deal to close in the second half of 2014, subject to customary closing conditions.

These Connecticut operations represent approximately $1,200 in annual revenues as of 2013. We applied held-for-sale treatment to the assets and liabilities of the Connecticut operations, and, accordingly, included the assets in “Other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance sheets. However, the business will not qualify as discontinued operations as we expect significant continuing direct cash flows related to the disposed operations. Assets and liabilities of the Connecticut operations included the following as of December 31, 2013:

Assets held for sale:
Current assets	$	155
Property, plant and equipment - net		1,289
Goodwill		799
Other assets		17
Total assets	$	2,260

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

Other

T-Mobile In March 2011, we agreed to acquire from Deutsche Telekom AG (Deutsche Telekom) all shares of T-Mobile USA, Inc. (T-Mobile) for approximately $39,000, subject to certain adjustments. In December 2011, in light of opposition to the merger from the DOJ and FCC, we and Deutsche Telekom agreed to terminate the transaction. Pursuant to the purchase agreement, we paid a breakup fee of $3,000, entered into a broadband roaming agreement and transferred certain wireless spectrum with a book value of $962. These agreement termination charges were included in “Selling, general and administrative” expenses in our Other segment.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is summarized as follows at December 31:

	Lives (years)		2013		2012
Land		-	$	1,523	$	1,689
Buildings and improvements		10-44		31,485		28,939
Central office equipment 1		3-10		86,370		86,185
Cable, wiring and conduit		15-50		76,107		80,338
Other equipment		3-15		67,887		61,387
Software		3		8,150		7,957
Under construction		-		3,276		4,412
				274,798		270,907
Accumulated depreciation and amortization				163,830		161,140
Property, plant and equipment - net			$	110,968	$	109,767
1 Includes certain network software.

Our depreciation expense was $17,722 in 2013, $16,933 in 2012 and $16,368 in 2011. Depreciation expense included amortization of software totaling $2,142 in 2013, $2,130 in 2012 and $2,243 in 2011.

Certain facilities and equipment used in operations are leased under operating or capital leases. Rental expenses under operating leases were $3,683 for 2013, $3,507 for 2012, and $3,414 for 2011. At December 31, 2013, the future minimum rental payments under noncancelable operating leases for the years 2014 through 2018 were $3,003, $2,857, $2,694, $2,458, and $2,233, with $11,707 due thereafter. Certain real estate operating leases contain renewal options that may be exercised. Capital leases are not significant.

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amounts of goodwill, by segment (which is the same as the reporting unit for Wireless, Wireline and Advertising Solutions), for the years ended December 31, 2013 and 2012, were as follows:

	Wireless			Wireline			Advertising Solutions			Other			Total

Balance as of January 1, 2012	$	35,755		$	33,638		$	1,059		$	390		$	70,842
Goodwill acquired		13			5			-			-			18
Other		35			327			(1,059	)		(390	)		(1,087	)
Balance as of December 31, 2012		35,803			33,970			-			-			69,773
Goodwill acquired		305			-			-			-			305
Held for sale		-			(799	)		-			-			(799	)
Other		(2	)		(4	)		-			-			(6	)
Balance as of December 31, 2013	$	36,106		$	33,167		$	-		$	-		$	69,273

The held for sale adjustment to goodwill in 2013 was the result of a goodwill allocation in conjunction with our pending sale of our Connecticut operations. Our goodwill acquired during 2013 primarily related to our acquisition of ATNI (see Note 5). Changes to goodwill during 2012 primarily resulted from the sale of the Advertising Solutions segment (see Note 5). Changes in goodwill during 2012 also included a reclassification of goodwill due to segment reclassification to better align goodwill with operations.

In 2011, we recorded a $2,745 goodwill impairment in the Advertising Solutions segment, triggered by declining revenues in our directory business and the directory industry as a whole, and we also recorded a $165 impairment for a trade name.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Our other intangible assets are summarized as follows:

	December 31, 2013				December 31, 2012
Other Intangible Assets	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists and relationships:
AT&T Mobility LLC	$	982	$	771	$	6,760	$	6,335
BellSouth Corporation		5,825		5,317		5,825		4,994
AT&T Corp.		2,482		2,438		2,490		2,356
Other		-		-		351		350
Subtotal		9,289		8,526		15,426		14,035
Other		284		169		304		174
Total	$	9,573	$	8,695	$	15,730	$	14,209

Indefinite-lived intangible assets not subject to amortization:
Licenses	$	56,433	$	52,352
Trade names		4,901		4,902
Total	$	61,334	$	57,254

As discussed in Note 5, most of our license additions in 2013 were related to a spectrum swap and various business acquisitions, with the remainder originating from various spectrum license purchases.

Amortized intangible assets are definite-life assets, and as such, we record amortization expense based on a method that most appropriately reflects our expected cash flows from these assets, over a weighted-average of 9.8 years (9.7 years for customer lists and relationships and 12.2 years for other). Amortization expense for definite-life intangible assets was $672 for the year ended December 31, 2013, $1,210 for the year ended December 31, 2012, and $2,009 for the year ended December 31, 2011. Amortization expense is estimated to be $364 in 2014, $224 in 2015, $127 in 2016, $60 in 2017, and $34 in 2018. In 2013, we wrote off approximately $6,217 of fully amortized intangible assets (primarily customer lists). In 2012, we wrote off approximately $191 in fully amortized intangible assets (primarily patents) and $3,187 of customer lists due to the sale of our Advertising Solutions segment (see Note 5). We review other amortizing intangible assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable over the remaining life of the asset or asset group.

We review indefinite-lived intangible assets for impairment annually (see Note 1). Licenses include wireless FCC licenses of $56,399 at December 31, 2013 and $52,318 at December 31, 2012, that provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services.

NOTE 8. EQUITY METHOD INVESTMENTS

Investments in partnerships, joint ventures and less than majority-owned subsidiaries in which we have significant influence are accounted for under the equity method.

Our investments in equity affiliates primarily include our international equity investment, América Móvil, and our interest in YP Holdings. Investments in equity affiliates also include our investment in our mobile payment joint venture, marketed as ISIS.

YP Holdings We hold a 47% interest in YP Holdings, an online advertising company and directory publisher. During 2013, we received $200 from the repayment of advances to YP Holdings and $101 from the return of investment in YP Holdings.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

América Móvil América Móvil is primarily a wireless provider in Mexico with telecommunications investments in the United States, Latin America and Europe. We are a member of a consortium that holds all of the class AA shares of América Móvil stock, representing voting control of the company. Another member of the consortium has the right to appoint a majority of the directors of América Móvil. During 2013, we sold a portion of our shares in América Móvil, to maintain our historical ownership percentage in conjunction with América Móvil’s repurchase activity. At December 31, 2013, the fair value of our 8.7% investment in América Móvil, based on the equivalent value of América Móvil L shares, was $7,166.

Telmex Transaction During 2011, the Board of Directors of América Móvil approved and completed a tender offer for the remaining outstanding shares of Telmex that were not already owned by América Móvil. In conjunction with the tender of our shares, we have recorded our portion of América Móvil’s resulting equity adjustments.

The following table is a reconciliation of our investments in equity affiliates as presented on our consolidated balance sheets:

	2013			2012
Beginning of year	$	4,581		$	3,718
Additional investments		111			405
Equity in net income of affiliates		642			752
Dividends and Distributions received		(318	)		(137	)
Currency translation adjustments		61			95
Sale of América Móvil shares		(781	)		-
Return of advances to and investments in YP Holdings		(301	)		-
América Móvil equity adjustments		(124	)		(260	)
Other adjustments		(11	)		8
End of year	$	3,860		$	4,581

Undistributed earnings from equity affiliates were $6,699 and $6,375 at December 31, 2013 and 2012.

NOTE 9. DEBT

Long-term debt of AT&T and its subsidiaries, including interest rates and maturities, is summarized as follows at December 31:

					2013			2012
Notes and debentures
	Interest Rates		Maturities 1
		0.60% – 2.99%		2015 – 2022	$	18,774		$	13,969
		3.00% – 4.99%		2013 – 2045		22,327			14,590
		5.00% – 6.99%		2013 – 2095		28,513			35,226
		7.00% – 9.10%		2013 – 2097		6,268			7,059
	Other					1			2
Fair value of interest rate swaps recorded in debt						154			267
						76,037			71,113
Unamortized (discount) premium - net						(1,553	)		(1,535	)
Total notes and debentures						74,484			69,578
Capitalized leases						283			265
Total long-term debt, including current maturities						74,767			69,843
Current maturities of long-term debt						(5,477	)		(3,485	)
Total long-term debt					$	69,290		$	66,358
1 Maturities assume putable debt is redeemed by the holders at the next opportunity.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

We had outstanding Euro, British pound sterling or Canadian dollar denominated debt of approximately $18,206 and $11,951 at December 31, 2013 and 2012. The weighted average interest rate of our entire long-term debt portfolio decreased from 4.9% at December 31, 2012 to 4.5% at December 31, 2013.

Current maturities of long-term debt include debt that may be put back to us by the holders in 2014. We have $1,000 of annual put reset securities that may be put each April until maturity in 2021. If the holders do not require us to repurchase the securities, the interest rate will be reset based on current market conditions. Likewise, we have an accreting zero-coupon note that may be redeemed each May, until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030.

Debt maturing within one year consisted of the following at December 31:

	2013		2012
Current maturities of long-term debt	$	5,477	$	3,485
Commercial paper		20		-
Bank borrowings 1		1		1
Total	$	5,498	$	3,486
1 Outstanding balance of short-term credit facility of a foreign subsidiary.

Debt Refinancing

During 2013, we received net proceeds of $12,040, from the issuance of $12,108 in long-term debt in various markets, with an average weighted maturity of approximately 10 years and an average interest rate of 2.6%. We redeemed $7,698 in borrowings, including debt tender offers covering $5,000 of various notes with stated rates of 5.20% to 8.75% for $5,556 in cash payments and early redemptions of $300 and $550 with stated rates of 7.375% and 6.625%, respectively.

As of December 31, 2013 and 2012, we were in compliance with all covenants and conditions of instruments governing our debt. Substantially all of our outstanding long-term debt is unsecured. Maturities of outstanding long-term notes and debentures, as of December 31, 2013, and the corresponding weighted-average interest rate scheduled for repayment are as follows:

	2014				2015				2016				2017				2018				Thereafter
Debt repayments 1		$	5,472			$	6,514			$	6,667			$	5,257			$	5,800			$	45,790
Weighted-average interest rate			4.9	%			3.2	%			2.7	%			2.4	%			4.6	%			5.1	%
1 Debt repayments assume putable debt is redeemed by the holders at the next opportunity.

Credit Facilities

Advances under both agreements would bear interest, at AT&T's option, either:

at a variable annual rate equal to (1) the highest of: (a) the base (or prime) rate of the bank affiliate of Citibank, N.A. which is serving as administrative agent under the Agreement, (b) 0.50% per annum above the Federal funds rate, and (c) the London Interbank Offered Rate (LIBOR) applicable to U.S. dollars for a period of one month plus 1.00% per annum, plus (2) an applicable margin, as set forth in the Agreement (Applicable Margin); or

·	at a rate equal to: (i) the LIBOR for a period of one, two, three or six months, as applicable, plus (ii) the Applicable Margin.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

The Applicable Margin for both agreements will equal 0.565%, 0.680%, or 0.910% per annum, depending on AT&T’s credit rating.

Under each agreement AT&T will pay a facility fee of 0.060%, 0.070% or 0.090% per annum, depending on AT&T’s credit rating, of the amount of lender commitments.

·	We fail to pay principal or interest, or other amounts under the agreement beyond any grace period.

·	We fail to pay when due other debt of $400 or more that results in acceleration of that debt (commonly referred to as cross-acceleration) or a creditor commences enforcement proceedings within a specified period after a money judgment of $400 or more has become final.

·	A person acquires beneficial ownership of more than 50% of AT&T common shares or more than a majority of AT&T’s directors change in any 24-month period other than as elected by the remaining directors.

·	We fail to make certain minimum funding payments under ERISA.

·	Our bankruptcy or insolvency.

Both agreements permit subsidiaries to be added as additional borrowers, with or without a guarantee by AT&T. The terms of the guarantee are set forth in the agreements.

NOTE 10. FAIR VALUE MEASUREMENTS AND DISCLOSURE

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

Level 1

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

Level 2

Inputs to the valuation methodology include:

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

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

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

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

Level 3

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

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

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

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2012.

Long-Term Debt and Other Financial Instruments

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

	December 31, 2013						December 31, 2012
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
Notes and debentures		$	74,484		$	79,309		$	69,578		$	81,310
Commercial paper			20			20			-			-
Bank borrowings			1			1			1			1
Investment securities			2,450			2,450			2,218			2,218

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

Investment Securities

Our investment securities include equities, fixed income bonds and other securities. A substantial portion of the fair values of our available-for-sale securities was estimated based on quoted market prices. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Realized gains and losses on securities are included in “Other income (expense) – net” in the consolidated statements of income using the specific identification method. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in accumulated OCI. Unrealized losses that are considered other than temporary are recorded in “Other income (expense) – net” with the corresponding reduction to the carrying basis of the investment. Fixed income investments of $106 have maturities of less than one year, $279 within one to three years, $109 within three to five years, and $265 for five or more years.

Our short-term investments (including money market securities) and customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Our investment securities are recorded in “Other Assets” on the consolidated balance sheets.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Following is the fair value leveling for available-for-sale securities and derivatives as of December 31, 2013, and December 31, 2012:

	December 31, 2013
	Level 1			Level 2				Level 3			Total
Available-for-Sale Securities
Domestic equities		$	1,049		$	-			$	-		$	1,049
International equities			563			-				-			563
Fixed income bonds			-			759				-			759
Asset Derivatives 1
Interest rate swaps			-			191				-			191
Cross-currency swaps			-			1,951				-			1,951
Liability Derivatives 1
Interest rate swaps			-			(7	)			-			(7	)
Cross-currency swaps			-			(519	)			-			(519	)

	December 31, 2012
	Level 1			Level 2				Level 3			Total
Available-for-Sale Securities
Domestic equities		$	873		$	-			$	-		$	873
International equities			469			-				-			469
Fixed income bonds			-			837				-			837
Asset Derivatives 1
Interest rate swaps			-			287				-			287
Cross-currency swaps			-			752				-			752
Foreign exchange contracts			-			1				-			1
Liability Derivatives 1
Cross-currency swaps			-			(672	)			-			(672	)
1 Derivatives designated as hedging instruments are reflected as "Other Assets," "Other noncurrent liabilities" and, for a portion of interest rate swaps, "Other current assets" in our consolidated balance sheets.

Derivative Financial Instruments

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

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

Fair Value Hedging We designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount. Accrued and realized gains or losses from interest rate swaps impact interest expense in the consolidated statements of income. Unrealized gains on interest rate swaps are recorded at fair market value as assets, and unrealized losses on interest rate swaps are recorded at fair market value as liabilities. Changes in the fair values of the interest rate swaps are exactly offset by changes in the fair value of the underlying debt. Gains or losses realized upon early termination of our fair value hedges are recognized in interest expense. In the years ended December 31, 2013, and December 31, 2012, no ineffectiveness was measured on interest rate swaps designated as fair value hedges.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

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

Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities, both for the period they are outstanding. For derivative instruments designated as cash flow hedges, the effective portion is reported as a component of accumulated OCI until reclassified into interest expense in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as other income or expense in each period. We evaluate the effectiveness of our cross-currency swaps each quarter. In the years ended December 31, 2013, and December 31, 2012, no ineffectiveness was measured.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated statements of income. Over the next 12 months, we expect to reclassify $44 from accumulated OCI to interest expense due to the amortization of net losses on historical interest rate locks.

We hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Some of these instruments are designated as cash flow hedges while others remain nondesignated, largely based on size and duration. Gains and losses at the time we settle or take delivery on our designated foreign exchange contracts are amortized into income in the same period the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to other income (expense) in the consolidated income statement. In the years ended December 31, 2013, and December 31, 2012, no ineffectiveness was measured.

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At December 31, 2013, we had posted collateral of $8 (a deposit asset) and held collateral of $1,600 (a receipt liability). Under the agreements, if our credit rating had been downgraded one rating level by Moody’s Investor Service and Standards & Poor’s and two rating levels by Fitch, Inc. before the final collateral exchange in December, we would have been required to post additional collateral of $54. At December 31, 2012, we had posted collateral of $22 (a deposit asset) and held collateral of $543 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable), against the fair value of the derivative instruments.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Following is the notional amount of our outstanding derivative positions at December 31:

	2013		2012
Interest rate swaps	$	4,750	$	3,000
Cross-currency swaps		17,787		12,071
Foreign exchange contracts		-		51
Total	$	22,537	$	15,122

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

Effect of Derivatives in the Consolidated Statements of Income
Fair Value Hedging Relationships
For the years ended December 31,	2013				2012				2011
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps		$	(113	)		$	(179	)		$	10
Gain (Loss) on long-term debt			113				179				(10	)

In addition, the net swap settlements that accrued and settled in the periods above were offset against interest expense.

Cash Flow Hedging Relationships
For the year ended December 31,	2013			2012			2011
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	813		$	432		$	(219	)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI		-			-			(167	)
Interest income (expense) reclassified from accumulated OCI into income		(46	)		(43	)		(23	)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		(2	)		5			(10	)

NOTE 11. INCOME TAXES

Significant components of our deferred tax liabilities (assets) are as follows at December 31:

	2013			2012
Depreciation and amortization	$	43,623		$	41,411
Intangibles (nonamortizable)		1,874			1,874
Employee benefits		(9,072	)		(13,350	)
Net operating loss and other carryforwards		(2,272	)		(2,167	)
Other – net		29			(1,199	)
Subtotal		34,182			26,569
Deferred tax assets valuation allowance		927			886
Net deferred tax liabilities	$	35,109		$	27,455

Net long-term deferred tax liabilities	$	36,308		$	28,491
Less: Net current deferred tax assets		(1,199	)		(1,036	)
Net deferred tax liabilities	$	35,109		$	27,455

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

At December 31, 2013, we had combined net operating and capital loss carryforwards (tax effected) for federal income tax purposes of $866 and for state and foreign income tax purposes of $890, expiring through 2032. Additionally, we had state credit carryforwards of $515, expiring primarily through 2033.

We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Our valuation allowances at December 31, 2013 and 2012, relate primarily to state net operating losses and state credit carryforwards.

We recognize the financial statement effects of a tax return position when it is more likely than not, based on the technical merits, that the position will ultimately be sustained. For tax positions that meet this recognition threshold, we apply our judgment, taking into account applicable tax laws, our experience in managing tax audits and relevant GAAP, to determine the amount of tax benefits to recognize in our financial statements. For each position, the difference between the benefit realized on our tax return and the benefit reflected in our financial statements is recorded on our consolidated balance sheets as an unrecognized tax benefit (UTB). We update our UTBs at each financial statement date to reflect the impacts of audit settlements and other resolutions of audit issues, the expiration of statutes of limitation, developments in tax law and ongoing discussions with taxing authorities. A reconciliation of the change in our UTB balance from January 1 to December 31 for 2013 and 2012 is as follows:

Federal, State and Foreign Tax	2013			2012
Balance at beginning of year	$	4,793		$	4,541
Increases for tax positions related to the current year		255			791
Increases for tax positions related to prior years		488			991
Decreases for tax positions related to prior years		(1,238	)		(1,426	)
Lapse of statute of limitations		(24	)		(29	)
Settlements		(47	)		(75	)
Balance at end of year		4,227			4,793
Accrued interest and penalties		1,034			977
Gross unrecognized income tax benefits		5,261			5,770
Less: Deferred federal and state income tax benefits		(481	)		(610	)
Less: Tax attributable to timing items included above		(2,121	)		(2,448	)
Total UTB that, if recognized, would impact the
effective income tax rate as of the end of the year	$	2,659		$	2,712

Periodically we make deposits to taxing jurisdictions which reduce our UTB balance but are not included in the reconciliation above. The amount of deposits that reduced our UTB balance was $2,303 at December 31, 2013, and $2,372 at December 31, 2012.

Accrued interest and penalties included in UTBs were $1,034 as of December 31, 2013, and $977 as of December 31, 2012. We record interest and penalties related to federal, state and foreign UTBs in income tax expense. The net interest and penalty expense (benefit) included in income tax expense was $35 for 2013, $(74) for 2012, and $(65) for 2011.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. As a large taxpayer, our income tax returns are regularly audited by the Internal Revenue Service (IRS) and other taxing authorities. The IRS has completed field examinations of our tax returns through 2008. All audit periods prior to 2003 are closed for federal examination purposes. We are engaged with the IRS Appeals Division in resolving issues related to our 2003 through 2008 returns; we are unable to estimate the impact the resolution of these issues may have on our UTBs.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

The components of income tax (benefit) expense are as follows:

	2013			2012			2011
Federal:
Current	$	3,043		$	451		$	(420	)
Deferred – net		5,692			2,256			2,555
		8,735			2,707			2,135
State, local and foreign:
Current		(61	)		702			23
Deferred – net		550			(509	)		374
		489			193			397
Total	$	9,224		$	2,900		$	2,532

A reconciliation of income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate (35%) to income from continuing operations before income taxes is as follows:

	2013			2012			2011
Taxes computed at federal statutory rate	$	9,722		$	3,654		$	2,351
Increases (decreases) in income taxes resulting from:
State and local income taxes – net of federal income tax benefit		294			85			210
Goodwill Impairment		-			-			961
Other – net		(792	)		(839	)		(990	)
Total	$	9,224		$	2,900		$	2,532
Effective Tax Rate		33.2	%		27.8	%		37.7	%

NOTE 12. PENSION AND POSTRETIREMENT BENEFITS

Pension Benefits and Postretirement Benefits

Substantially all of our U.S. employees are covered by one of our noncontributory pension plans. The majority of our newly hired employees, longer-service management and some nonmanagement employees participate in cash balance pension programs that include annual or monthly credits based on salary as well as an interest credit. Other longer-service management employees participate in pension programs that have a traditional pension formula (i.e., a stated percentage of employees’ adjusted career income). Other longer-service nonmanagement employees’ pension benefits are generally calculated using one of two formulas: a flat dollar amount applied to years of service according to job classification or a cash balance plan with negotiated annual pension band credits as well as interest credits. Most nonmanagement employees can elect to receive their pension benefits in either a lump sum payment or an annuity.

We also provide a variety of medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits.

In October 2013, we offered a one-time opportunity for certain retirement-eligible employees to elect a full lump sum payment of their accrued pension if they retired as of December 30, 2013. The lump sum value was calculated using the August 2012 discount rates for some pension programs and was equal to the cash balance amount for the management new hire pension program. The lump sum value totaled approximately $2,700, which will be distributed in the first quarter of 2014. We recorded special termination benefits of $250 as a result of this offer.

In October 2013, as part of our 2014 annual benefits enrollment process, we communicated an amendment to our Medicare-eligible retirees that beginning in 2015 AT&T will provide access to retiree health insurance coverage that supplements government-sponsored Medicare through a private insurance marketplace. This new approach will allow retirees to choose insurance with the terms, cost and coverage that best fits their needs, while still receiving financial support as determined by AT&T. We expect that the cost to AT&T for retiree medical coverage in 2015 will be comparable to 2014. Future changes in support, if any, will be based on a number of factors such as business conditions, government actions, marketplace changes and the general consumer inflation rate.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

During 2012, approximately 90,000 collectively bargained employees ratified new agreements. For the vast majority of covered employees, the agreements provided for a pension band increase of 1 percent for each year of the agreement. These agreements also provide for continued healthcare coverage with a modest increase to employee costs over the agreement term. There were also modest increases to retiree costs for continued healthcare coverage for retirees.

During 2012, we transferred the funding of the payment of postretirement death benefits not already in the Voluntary Employee Benefit Association (VEBA) trust from the pension trust to the postretirement VEBA trust.

Obligations and Funded Status

For defined benefit pension plans, the benefit obligation is the “projected benefit obligation,” the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels.

For postretirement benefit plans, the benefit obligation is the “accumulated postretirement benefit obligation,” the actuarial present value as of a date of all future benefits attributed under the terms of the postretirement benefit plan to employee service rendered to the valuation date.

The following table presents this reconciliation and shows the change in the projected benefit obligation for the years ended December 31:

	Pension Benefits					Postretirement Benefits
	2013			2012		2013			2012
Benefit obligation at beginning of year	$	58,911		$	56,110	$	37,431		$	34,953
Service cost - benefits earned during the period		1,321			1,216		352			336
Interest cost on projected benefit obligation		2,429			2,800		1,532			1,725
Amendments		-			(905)		(4,460	)		(2,768	)
Actuarial (gain) loss		(2,390	)		6,707		(2,098	)		4,844
Special termination benefits		255			12		1			5
Benefits paid		(3,966	)		(5,729)		(2,473	)		(2,608	)
Transfer for sale of Advertising Solutions segment		-			(149)		-			(207	)
Plan transfers		-			(1,151)		-			1,151
Benefit obligation at end of year	$	56,560		$	58,911	$	30,285		$	37,431

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

The following table presents the change in the value of plan assets for the years ended December 31 and the plans’ funded status at December 31:

	Pension Benefits					Postretirement Benefits
		2013			2012		2013			2012
Fair value of plan assets at beginning of year	$	45,060		$	45,907	$	9,295		$	9,890
Actual return on plan assets		5,935			5,041		1,347			1,266
Benefits paid 1		(3,966	)		(5,729)		(1,682	)		(1,842	)
Contributions		209			3		-			-
Transfer for sale of Advertising Solutions segment		-			(165)		-			(19	)
Other		-			3		-			-
Fair value of plan assets at end of year 3		47,238			45,060		8,960			9,295
Unfunded status at end of year 2	$	(9,322	)	$	(13,851)	$	(21,325	)	$	(28,136	)
1 At our discretion, certain postretirement benefits may be paid from AT&T cash accounts, which does not reduce VEBA assets. Future benefit payments may be made from VEBA trusts and thus reduce those asset balances.
2 Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts. Required pension funding is determined in accordance with ERISA regulations.
3 Net assets available for benefits at December 31, 2013 were $56,447 and include a $9,209 preferred equity interest in AT&T Mobility II LLC, as discussed below.

On September 9, 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding company for our wireless business, to the trust used to pay pension benefits under our qualified pension plans. The preferred equity interest had a value of $9,104 on the contribution date and was valued at $9,209 at December 31, 2013. The trust is entitled to receive cumulative cash distributions of $560 per annum, which will be distributed quarterly in equal amounts and will be accounted for as contributions. So long as we make the distributions, we will have no limitations on our ability to declare a dividend, or repurchase shares. This preferred equity interest is a plan asset under ERISA and is recognized as such in the plan’s separate financial statements. However, because the preferred equity interest is not unconditionally transferable to an unrelated party, it is not reflected in plan assets in our consolidated financial statements and instead has been eliminated in consolidation. At the time of the contribution of the preferred equity interest, we made an additional cash contribution of $175 and have agreed to annual cash contributions of $175 no later than the due date for our federal income tax return for each of 2014, 2015 and 2016. These contributions combined with our existing pension assets are essentially equivalent to the pension obligation at December 31, 2013.

On September 9, 2013, the Department of Labor (DOL) published a proposed exemption that authorized retroactive approval of this voluntary contribution. The proposal was open for public comment and we are currently awaiting a final decision by the DOL. Our retirement benefit plans, including required contributions, are subject to the provisions of ERISA.

As noted above, this preferred equity interest represents a plan asset of our pension trust, which is recognized in the separate financial statements of our pension plan as a qualified plan asset for funding purposes. The following table presents a reconciliation of our pension plan assets recognized in the consolidated financial statements of the Company with the net assets available for benefits included in the separate financial statements of the pension plan at December 31:

	2013		2012
Plan assets recognized in the consolidated financial statements	$	47,238	$	45,060
Preferred equity interest in Mobility		9,209		-
Net assets available for benefits	$	56,447	$	45,060

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Amounts recognized on our consolidated balance sheets at December 31 are listed below:

	Pension Benefits					Postretirement Benefits
	2013			2012		2013			2012
Current portion of employee benefit obligation 1	$	-		$	-	$	(1,949	)	$	(2,116	)
Employee benefit obligation 2		(9,322	)		(13,851)		(19,376	)		(26,020	)
Net amount recognized	$	(9,322	)	$	(13,851)	$	(21,325	)	$	(28,136	)
1 Included in "Accounts payable and accrued liabilities."
2 Included in "Postemployment benefit obligation."

The accumulated benefit obligation for our pension plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our pension plans was $55,077 at December 31, 2013, and $57,010 at December 31, 2012.

Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

Periodic Benefit Costs

Our combined net pension and postretirement (credit) cost recognized in our consolidated statements of income was $(7,390), $10,257 and $7,288 for the years ended December 31, 2013, 2012 and 2011. A portion of pension and postretirement benefit costs is capitalized as part of the benefit load on internal construction and capital expenditures, providing a small reduction in the net expense recorded. The following table presents the components of net periodic benefit cost:

	Pension Benefits								Postretirement Benefits
	2013			2012			2011		2013			2012			2011
Service cost – benefits earned during the period	$	1,321		$	1,216		$	1,186	$	352		$	336		$	362
Interest cost on projected benefit obligation		2,429			2,800			2,958		1,532			1,725			2,051
Expected return on assets		(3,312	)		(3,520	)		(3,690)		(706	)		(811	)		(1,040	)
Amortization of prior service credit		(94	)		(15	)		(15)		(1,161	)		(927	)		(694	)
Actuarial (gain) loss		(5,013	)		5,206			4,498		(2,738	)		4,247			1,672
Net pension and postretirement (credit) cost	$	(4,669	)	$	5,687		$	4,937	$	(2,721	)	$	4,570		$	2,351

Other Changes in Benefit Obligations Recognized in Other Comprehensive Income

The following table presents the after-tax changes in benefit obligations recognized in OCI and the after-tax prior service credits that were amortized from OCI into net periodic benefit costs:

	Pension Benefits								Postretirement Benefits
	2013			2012			2011		2013			2012			2011
Balance at beginning of year	$	641		$	92		$	102	$	4,766		$	3,655		$	2,951
Prior service (cost) credit		-			559			-		2,765			1,686			1,134
Amortization of prior service credit		(58	)		(10	)		(10)		(719	)		(575	)		(430	)
Total recognized in other comprehensive (income) loss		(58	)		549			(10)		2,046			1,111			704
Balance at end of year	$	583		$	641		$	92	$	6,812		$	4,766		$	3,655

The estimated prior service credits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year is $94 ($58 net of tax) for pension and $1,448 ($898 net of tax) for postretirement benefits.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Assumptions

In determining the projected benefit obligation and the net pension and postemployment benefit cost, we used the following significant weighted-average assumptions:

	2013			2012			2011
Discount rate for determining projected benefit obligation at December 31		5.00	%		4.30	%		5.30	%
Discount rate in effect for determining net cost		4.30	%		5.30	%		5.80	%
Long-term rate of return on plan assets		7.75	%		8.25	%		8.25	%
Composite rate of compensation increase for determining projected benefit obligation		3.00	%		3.00	%		4.00	%
Composite rate of compensation increase for determining net pension cost (benefit)		3.00	%		4.00	%		4.00	%

We recognize gains and losses on pension and postretirement plan assets and obligations immediately in our operating results. These gains and losses are measured annually as of December 31 and accordingly will be recorded during the fourth quarter, unless earlier remeasurements are required.

Discount Rate Our assumed discount rate of 5.00% at December 31, 2013, reflects the hypothetical rate at which the projected benefit obligations could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and the related expected duration for the obligations. These bonds were all rated at least Aa3 or AA- by one of the nationally recognized statistical rating organizations, denominated in U.S. dollars, and neither callable, convertible nor index linked. For the year ended December 31, 2013, we increased our discount rate by 0.70%, resulting in a decrease in our pension plan benefit obligation of $4,533 and a decrease in our postretirement benefit obligation of $3,161. For the year ended December 31, 2012, we decreased our discount rate by 1.00%, resulting in an increase in our pension plan benefit obligation of $7,030 and an increase in our postretirement benefit obligation of $4,546.

Expected Long-Term Rate of Return Our expected long-term rate of return on plan assets of 7.75% for 2014 and 2013 reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. In setting the long-term assumed rate of return, management considers capital markets future expectations and the asset mix of the plans’ investments. Actual long-term return can, in relatively stable markets, also serve as a factor in determining future expectations. We consider many factors that include, but are not limited to, historical returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisers. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the expected long-term rate of return would cause 2014 combined pension and postretirement cost to increase $262. However, any differences in the rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured.

Composite Rate of Compensation Increase Our expected composite rate of compensation increase cost of 3.00% in 2014 and 2013 reflects the long-term average rate of salary increases.

Mortality Tables At December 31, 2013 we updated our assumed mortality rates to better predict future mortality improvements, creating an increase of $1,986 in our pension obligation and $679 in our postretirement obligations.

Healthcare Cost Trend Our healthcare cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. In addition to the healthcare cost trend in 2013, we assumed an annual 2.50% growth in administrative expenses and an annual 3.00% growth in dental claims. Our assumed annual healthcare cost trend rate for 2014 and 2013 is 5.00% and our ultimate trend rate is 5.00%.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

A one percentage-point change in the assumed combined medical and dental cost trend rate would have the following effects:

	One Percentage-		One Percentage-
	Point Increase		Point Decrease
Increase (decrease) in total of service and interest cost components	$	207	$	(179	)
Increase (decrease) in accumulated postretirement benefit obligation		1,010		(878	)

Plan Assets

Plan assets consist primarily of private and public equity, government and corporate bonds, and real assets (real estate and natural resources). The asset allocations of the pension plans are maintained to meet ERISA requirements. Any plan contributions, as determined by ERISA regulations, are made to a pension trust for the benefit of plan participants. As part of our voluntary contribution of the Mobility preferred equity interest, we will contribute $560 of cash distributions during 2014. We do not have additional significant required contributions to our pension plans for 2014.

We maintain VEBA trusts to partially fund postretirement benefits; however, there are no ERISA or regulatory requirements that these postretirement benefit plans be funded annually.

The principal investment objectives are to ensure the availability of funds to pay pension and postretirement benefits as they become due under a broad range of future economic scenarios, to maximize long-term investment return with an acceptable level of risk based on our pension and postretirement obligations, and to be broadly diversified across and within the capital markets to insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses. The current asset allocation policy and risk level for the pension plan and VEBA assets is based on a study completed and approved during 2013 and is reflected in the table below.

The plans’ weighted-average asset targets and actual allocations as a percentage of plan assets, including the notional exposure of future contracts by asset categories at December 31, are as follows:

	Pension Assets									Postretirement (VEBA) Assets
	Target					2013		2012		Target					2013		2012
Equity Securities:
Domestic	25	%	-	35	%	25	%	26	%	20	%	-	30	%	25	%	37	%
International	10	%	-	20	%	16		16		15	%	-	25	%	20		33
Fixed income securities	30	%	-	40	%	33		34		19	%	-	29	%	24		24
Real assets	6	%	-	16	%	11		11		0	%	-	6	%	1		1
Private equity	4	%	-	14	%	12		13		0	%	-	9	%	4		4
Other	0	%	-	5	%	3		-		21	%	-	31	%	26		1
Total						100	%	100	%						100	%	100	%

At December 31, 2013, AT&T securities represented less than 0.5% of assets held by our pension plans and VEBA trusts included in these financial statements.

Investment Valuation

Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See “Fair Value Measurements” for further discussion.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Investments in securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Shares of registered investment companies are valued based on quoted market prices, which represent the net asset value of shares held at year-end. Over-the-counter (OTC) securities and government obligations are valued at the bid price or the average of the bid and asked price on the last business day of the year from published sources where available and, if not available, from other sources considered reliable. Depending on the types and contractual terms of OTC derivatives, fair value is measured using valuation techniques, such as the Black-Scholes option pricing model, simulation models or a combination of various models.

Common/collective trust funds, pooled separate accounts and other commingled (103-12) investment entities are valued at quoted redemption values that represent the net asset values of units held at year-end which management has determined approximates fair value.

Alternative investments, including investments in private equity, real estate, natural resources (included in real assets), mezzanine and distressed debt (included in partnerships/joint ventures), limited partnership interest, fixed income securities and hedge funds do not have readily available market values. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differences could be material. Alternative investments not having an established market are valued at fair value as determined by the investment managers. Private equity, mezzanine and distressed investments are often valued initially by the investment managers based upon cost. Thereafter, investment managers may use available market data to determine adjustments to carrying value based upon observations of the trading multiples of public companies considered comparable to the private companies being valued. Such market data used to determine adjustments to accounts for cash flows and company-specified issues include current operating performance and future expectations of the investments, changes in market outlook, and the third-party financing environment. Private equity partnership holdings may also include publicly held equity investments in liquid markets that are marked-to-market at quoted public values, subject to adjustments for large positions held. Real estate and natural resource direct investments are valued either at amounts based upon appraisal reports prepared by independent third-party appraisers or at amounts as determined by internal appraisals performed by the investment manager, which have been agreed to by an external valuation consultant. Fixed income securities valuation is based upon pricing provided by an external pricing service when such pricing is available. In the event a security is too thinly traded or narrowly held to be priced by such a pricing service, or the price furnished by such external pricing services is deemed inaccurate, the managers will then solicit broker/dealer quotes (spreads or prices). In cases where such quotes are available, fair value will be determined based solely upon such quotes provided. Managers will typically use a pricing matrix for determining fair value in cases where an approved pricing service or a broker/dealer is unable to provide a fair valuation for specific fixed-rate securities such as many private placements. New fixed-rate securities will be initially valued at cost at the time of purchase. Thereafter, each bond will be assigned a spread from a pricing matrix that will be added to current Treasury rates. The pricing matrix derives spreads for each bond based on external market data, including the current credit rating for the bonds, credit spreads to Treasuries for each credit rating, sector add-ons or credits, issue specific add-ons or credits as well as call or other options.

Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date.

Non-interest bearing cash and overdrafts are valued at cost, which approximates fair value.

Fair Value Measurements

See Note 10 for a discussion of fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

The following table sets forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2013:

Pension Assets and Liabilities at Fair Value as of December 31, 2013
	Level 1			Level 2			Level 3		Total
Non-interest bearing cash	$	65		$	-		$	-	$	65
Interest bearing cash		-			324			-		324
Foreign currency contracts		-			3			-		3
Equity securities:
Domestic equities		9,841			3			-		9,844
International equities		6,431			7			-		6,438
Fixed income securities:
Asset-backed securities		-			553			3		556
Mortgage-backed securities		-			2,470			-		2,470
Collateralized mortgage-backed securities		-			364			-		364
Collateralized mortgage obligations/REMICS		-			514			-		514
Other Corporate and other bonds and notes		154			5,147			540		5,841
Government and municipal bonds		15			4,566			-		4,581
Private equity funds		-			-			5,724		5,724
Real estate and real assets		-			-			5,194		5,194
Commingled funds		-			6,358			4		6,362
Securities lending collateral		390			3,074			-		3,464
Receivable for variation margin		12			-			-		12
Assets at fair value		16,908			23,383			11,465		51,756
Investments sold short and other liabilities at fair value		(619	)		(5	)		-		(624	)
Total plan net assets at fair value	$	16,289		$	23,378		$	11,465	$	51,132
Other assets (liabilities) 1										(3,894	)
Total Plan Net Assets									$	47,238
1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Postretirement Assets and Liabilities at Fair Value as of December 31, 2013
	Level 1		Level 2		Level 3		Total
Interest bearing cash	$	405	$	2,073	$	-	$	2,478
Equity securities:
Domestic equities		1,609		-		-		1,609
International equities		1,527		-		-		1,527
Fixed income securities:
Asset-backed securities		-		35		2		37
Collateralized mortgage-backed securities		-		110		-		110
Collateralized mortgage obligations		-		53		3		56
Other Corporate and other bonds and notes		-		367		18		385
Government and municipal bonds		-		558		1		559
Commingled funds		-		1,899		2		1,901
Private equity assets		-		-		309		309
Real assets		-		-		111		111
Securities lending collateral		19		372		-		391
Foreign exchange contracts receivable		3		-		-		3
Assets at fair value		3,563		5,467		446		9,476
Foreign exchange contracts payable		3		-		-		3
Liabilities at fair value		3		-		-		3
Total plan net assets at fair value	$	3,560	$	5,467	$	446	$	9,473
Other assets (liabilities) 1								(513	)
Total Plan Net Assets							$	8,960
1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2013:

Pension Assets	Equities			Fixed Income Funds			Private Equity Funds			Real Estate and Real Assets			Total
Balance at beginning of year	$	-		$	1,042		$	5,797		$	4,766		$	11,605
Realized gains (losses)		(3	)		53			390			122			562
Unrealized gains (losses)		3			(8	)		546			525			1,066
Transfers in		-			5			-			-			5
Transfers out		-			(442	)		-			-			(442	)
Purchases		-			75			1,214			354			1,643
Sales		-			(178	)		(2,223	)		(573	)		(2,974	)
Balance at end of year	$	-		$	547		$	5,724		$	5,194		$	11,465

Postretirement Assets	Fixed Income Funds			Private Equity Funds			Real Assets			Total
Balance at beginning of year	$	21		$	343		$	110		$	474
Realized gains (losses)		-			2			12			14
Unrealized gains (losses)		1			58			4			63
Transfers in		1			-			-			1
Transfers out		(1	)		-			-			(1	)
Purchases		5			89			27			121
Sales		(1	)		(183	)		(42	)		(226	)
Balance at end of year	$	26		$	309		$	111		$	446

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2012:

Pension Assets and Liabilities at Fair Value as of December 31, 2012
	Level 1			Level 2			Level 3		Total
Non-interest bearing cash	$	144		$	-		$	-	$	144
Interest bearing cash		56			235			-		291
Foreign currency contracts		-			1			-		1
Equity securities:
Domestic equities		8,291			-			-		8,291
International equities		6,361			29			-		6,390
Fixed income securities:
Asset-backed securities		-			543			14		557
Mortgage-backed securities		-			2,324			-		2,324
Collateralized mortgage-backed securities		-			311			-		311
Collateralized mortgage obligations/REMICS		-			523			1		524
Other Corporate and other bonds and notes		140			4,903			600		5,643
Government and municipal bonds		50			5,301			-		5,351
Private equity funds		-			-			5,797		5,797
Real estate and real assets		-			-			4,766		4,766
Commingled funds		-			4,927			426		5,353
Securities lending collateral		868			1,930			1		2,799
Receivable for variation margin		72			-			-		72
Assets at fair value		15,982			21,027			11,605		48,614
Investments sold short and other liabilities at fair value		(563	)		(7	)		-		(570	)
Total plan net assets at fair value	$	15,419		$	21,020		$	11,605	$	48,044
Other assets (liabilities) 1										(2,984	)
Total Plan Net Assets									$	45,060
1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Postretirement Assets and Liabilities at Fair Value as of December 31, 2012
	Level 1		Level 2		Level 3		Total
Interest bearing cash	$	169	$	243	$	-	$	412
Equity securities:
Domestic equities		2,575		-		-		2,575
International equities		2,685		1		-		2,686
Fixed income securities:
Asset-backed securities		-		29		-		29
Collateralized mortgage-backed securities		-		79		-		79
Collateralized mortgage obligations		-		46		-		46
Other Corporate and other bonds and notes		1		383		17		401
Government and municipal bonds		22		598		-		620
Commingled funds		82		2,038		4		2,124
Private equity assets		-		-		343		343
Real assets		-		-		110		110
Securities lending collateral		544		81		-		625
Assets at fair value		6,078		3,498		474		10,050
Total plan net assets at fair value	$	6,078	$	3,498	$	474	$	10,050
Other assets (liabilities) 1								(755	)
Total Plan Net Assets							$	9,295
1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2012:

Pension Assets	Equities			Fixed Income Funds			Private Equity Funds			Real Estate and Real Assets			Total
Balance at beginning of year	$	4		$	824		$	5,931		$	5,213		$	11,972
Realized gains (losses)		(1	)		16			459			165			639
Unrealized gains (losses)		1			33			32			10			76
Transfers in		-			120			12			24			156
Transfers out		-			(2	)		-			-			(2	)
Purchases		-			142			610			918			1,670
Sales		(4	)		(91	)		(1,247	)		(1,564	)		(2,906	)
Balance at end of year	$	-		$	1,042		$	5,797		$	4,766		$	11,605

Postretirement Assets	Fixed Income Funds			Private Equity Funds			Real Assets			Total
Balance at beginning of year	$	24		$	437		$	124		$	585
Realized gains (losses)		-			58			16			74
Unrealized gains (losses)		-			(39	)		(5	)		(44	)
Purchases		-			20			33			53
Sales		(3	)		(133	)		(58	)		(194	)
Balance at end of year	$	21		$	343		$	110		$	474

Estimated Future Benefit Payments

Expected benefit payments are estimated using the same assumptions used in determining our benefit obligation at December 31, 2013. Because benefit payments will depend on future employment and compensation levels, average years employed, average life spans, and payment elections, among other factors, changes in any of these factors could significantly affect these expected amounts. Due to our move to a group prescription drug provider plan in 2013 for certain of our Medicare eligible retirees and the move to a private exchange market for all remaining Medicare eligible retirees receiving subsidized drug coverage in 2015, AT&T does not expect to be receiving any direct Medicare Part D subsidies for years 2015 and beyond. The following table provides expected benefit payments under our pension and postretirement plans:

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

	Pension Benefits		Postretirement Benefits		Medicare Subsidy Receipts
2014	$	7,376	$	2,265	$	(19)
2015		4,294		2,271		-
2016		4,197		2,222		-
2017		4,115		2,171		-
2018		4,029		2,129		-
Years 2019 - 2023		19,589		9,921		-

Supplemental Retirement Plans

We also provide certain senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. While these plans are unfunded, we have assets in a designated nonbankruptcy remote trust that are independently managed and used to provide for these benefits. These plans include supplemental pension benefits as well as compensation-deferral plans, some of which include a corresponding match by us based on a percentage of the compensation deferral.

We use the same significant assumptions for the discount rate and composite rate of compensation increase used in determining the projected benefit obligation and the net pension and postemployment benefit cost. The following tables provide the plans’ benefit obligations and fair value of assets at December 31 and the components of the supplemental retirement pension benefit cost. The net amounts are recorded as “Other noncurrent liabilities” on our consolidated balance sheets.

The following table provides information for our supplemental retirement plans with accumulated benefit obligations in excess of plan assets at December 31:

	2013			2012
Projected benefit obligation	$	(2,280	)	$	(2,456	)
Accumulated benefit obligation		(2,227	)		(2,392	)
Fair value of plan assets		-			-

The following tables present the components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in OCI:

Net Periodic Benefit Cost	2013			2012		2011
Service cost – benefits earned during the period	$	9		$	10	$	14
Interest cost on projected benefit obligation		101			116		126
Amortization of prior service cost (credit)		-			-		2
Actuarial (gain) loss		(106	)		230		81
Net supplemental retirement pension cost	$	4		$	356	$	223

Other Changes Recognized in Other Comprehensive Income	2013			2012			2011
Prior service (cost) credit	$	(1	)	$	(1	)	$	6
Amortization of prior service cost (credit)		-			-			1
Total recognized in other comprehensive (income) loss (net of tax)	$	(1	)	$	(1	)	$	7

The estimated prior service credit for our supplemental retirement plan benefits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year is $1.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

Deferred compensation expense was $122 in 2013, $118 in 2012 and $96 in 2011. Our deferred compensation liability, included in “Other noncurrent liabilities,” was $1,118 at December 31, 2013, and $1,061 at December 31, 2012.

Contributory Savings Plans

We maintain contributory savings plans that cover substantially all employees. Under the savings plans, we match in cash or company stock a stated percentage of eligible employee contributions, subject to a specified ceiling. There are no debt-financed shares held by the Employee Stock Ownership Plans, allocated or unallocated.

Our match of employee contributions to the savings plans is fulfilled with purchases of our stock on the open market or company cash. Benefit cost is based on the cost of shares or units allocated to participating employees’ accounts and was $654, $634 and $636 for the years ended December 31, 2013, 2012 and 2011.

NOTE 13. SHARE-BASED PAYMENTS

Under our various plans, senior and other management employees and nonemployee directors have received nonvested stock and stock units. We grant performance stock units, which are nonvested stock units, based upon our stock price at the date of grant and award them in the form of AT&T common stock and cash at the end of a three-year period, subject to the achievement of certain performance goals. We treat the cash portion of these awards as a liability. We grant forfeitable restricted stock and stock units, which are valued at the market price of our common stock at the date of grant and vest typically over a two- to seven-year period. We also grant other nonvested stock units and award them in cash at the end of a three-year period, subject to the achievement of certain market based conditions. As of December 31, 2013, we were authorized to issue up to 128 million shares of common stock (in addition to shares that may be issued upon exercise of outstanding options or upon vesting of performance stock units or other nonvested stock units) to officers, employees and directors pursuant to these various plans.

We account for our share-based payment arrangements based on the fair value of the awards on their respective grant date, which may affect our ability to fully realize the value shown on our consolidated balance sheets of deferred tax assets associated with compensation expense. We record a valuation allowance when our future taxable income is not expected to be sufficient to recover the asset. Accordingly, there can be no assurance that the current stock price of our common shares will rise to levels sufficient to realize the entire tax benefit currently reflected on our consolidated balance sheets. However, to the extent we generate excess tax benefits (i.e., that additional tax benefits in excess of the deferred taxes associated with compensation expense previously recognized) the potential future impact on income would be reduced.

The compensation cost recognized for those plans was included in operating expenses in our consolidated statements of income, as reflected in the table below. The total income tax benefit recognized in the consolidated statements of income for share-based payment arrangements was $175 for 2013, compared to $195 for 2012 and $187 for 2011.

	2013			2012		2011
Performance stock units	$	381		$	397	$	388
Restricted stock and stock units		80			102		91
Other nonvested stock units		(3	)		12		4
Other		-			-		6
Total	$	458		$	511	$	489

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

A summary of the status of our nonvested stock units as of December 31, 2013, and changes during the year then ended is presented as follows (shares in millions):

Nonvested Stock Units	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2013		26		$	28.55
Granted		11			35.36
Vested		(12	)		27.99
Forfeited		(1	)		31.10
Nonvested at December 31, 2013		24		$	31.93

As of December 31, 2013, there was $348 of total unrecognized compensation cost related to nonvested share-based payment arrangements granted. That cost is expected to be recognized over a weighted-average period of 1.95 years. The total fair value of shares vested during the year was $336 for 2013, compared to $333 for 2012 and $360 for 2011.

It is our policy to satisfy share option exercises using our treasury stock. Cash received from stock option exercises was $135 for 2013, $517 for 2012 and $250 for 2011.

NOTE 14. STOCKHOLDERS’ EQUITY

Stock Repurchase Program From time to time, we repurchase shares of common stock for distribution through our employee benefit plans or in connection with certain acquisitions. In December 2010, our Board of Directors authorized the repurchase of 300 million shares of our common stock. We began buying back stock under this program in 2012 and completed the purchase of authorized shares that year. In July 2012, our Board of Directors approved a second authorization to repurchase 300 million shares and we completed that program in May 2013. In March 2013, our Board of Directors approved a third authorization to repurchase 300 million shares, under which we are currently purchasing shares. For the year ended December 31, 2013, we had repurchased approximately 366 million shares totaling $13,028 under these authorizations. For the year ended December 31, 2012, we had repurchased approximately 371 million shares totaling $12,752 under these authorizations. We expect to make future repurchases opportunistically.

Authorized Shares There are 14 billion authorized common shares of AT&T stock and 10 million authorized preferred shares of AT&T stock. As of December 31, 2013 and 2012, no preferred shares were outstanding.

Dividend Declarations In December 2013, the Company declared an increase in its quarterly dividend to $0.46 per share of common stock. In November 2012, the Company declared a quarterly dividend of $0.45 per share of common stock, which reflected an increase from the $0.44 quarterly dividend declared in December 2011.

Preferred Equity Interest The preferred equity interest discussed in Note 12 is not transferable by the trust except through its put and call features, and therefore has been eliminated in consolidation. After a period of five years from the contribution or, if earlier, the date upon which the pension plan trust is fully funded as determined under GAAP, AT&T has a right to purchase from the pension plan trust some or all of the preferred equity interest at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends. In addition, AT&T will have the right to purchase the preferred equity interest in the event AT&T’s ownership of Mobility is less than 50% or there is a transaction that results in the transfer of 50% or more of the pension plan trust’s assets to an entity not under common control with AT&T (collectively, a change of control). The pension plan trust has the right to require AT&T to purchase the preferred equity interest at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends, and in installments, as specified in the contribution agreement upon the occurrence of any of the following: (1) at any time if the ratio of debt to total capitalization of Mobility exceeds that of AT&T, (2) the date on which AT&T Inc. is rated below investment grade for two consecutive calendar quarters, (3) upon a change of control if AT&T does not exercise its purchase option, or (4) at any time after a seven-year period from the contribution date. In the event AT&T elects or is required to purchase the preferred equity interest, AT&T may elect to settle the purchase price in cash or shares of AT&T common stock or a combination thereof. Because the preferred equity interest was not considered outstanding for accounting purposes at year-end, it did not affect the calculation of earnings per share.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

NOTE 15. ADDITIONAL FINANCIAL INFORMATION

	December 31,
Consolidated Balance Sheets	2013		2012
Accounts payable and accrued liabilities:
Accounts payable	$	11,561	$	12,076
Accrued payroll and commissions		1,985		2,332
Current portion of employee benefit obligation		1,949		2,116
Accrued interest		1,559		1,588
Other		4,053		2,382
Total accounts payable and accrued liabilities	$	21,107	$	20,494

Consolidated Statements of Income	2013			2012			2011
Advertising expense	$	3,268		$	2,910		$	3,135
Interest expense incurred	$	4,224		$	3,707		$	3,697
Capitalized interest		(284	)		(263	)		(162	)
Total interest expense	$	3,940		$	3,444		$	3,535

Consolidated Statements of Cash Flows	2013		2012		2011
Cash paid during the year for:
Interest	$	4,302	$	3,714	$	3,691
Income taxes, net of refunds		1,985		458		32

No customer accounted for more than 10% of consolidated revenues in 2013, 2012 or 2011.

A majority of our employees are represented by labor unions as of year-end 2013.

NOTE 16. TOWER TRANSACTION

On December 16, 2013, we closed our transaction with Crown Castle International Corp. (Crown Castle) in which Crown Castle gained the exclusive rights to lease and operate 9,048 wireless towers and purchased 627 of our wireless towers for $4,827 in cash. Under the terms of the leases, Crown Castle has exclusive rights to lease and operate the towers over various terms with an average length of approximately 28 years. As the leases expire, Crown Castle will have fixed price purchase options for these towers totaling approximately $4,200, based on their estimated fair market values at the end of the lease terms. We sublease space on the towers from Crown Castle for an initial term of 10 years at current market rates, subject to optional renewals in the future.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

We determined our continuing involvement with the tower assets prevented us from achieving sale-leaseback accounting for the transaction, and we accounted for the cash proceeds from Crown Castle as a financing obligation on our consolidated balance sheet. We record interest on the financing obligation using the effective interest method at a rate of approximately 3.90%. The financing obligation is increased by interest expense and estimated future net cash flows generated and retained by Crown Castle from operation of the tower sites, and reduced by our contractual payments. We continue to include the tower assets in Property, plant and equipment in our consolidated balance sheets and depreciate them accordingly. At December 31, 2013, the tower assets had a balance of $1,039. The impact of the transaction on our operating results for the year ended December 31, 2013, was not material.

The future minimum payments under the sublease arrangement are $221 for 2014, $225 for 2015, $229 for 2016, $234 for 2017, $239 for 2018, and $2,797 thereafter.

NOTE 17. CONTINGENT LIABILITIES

We are party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. In evaluating these matters on an ongoing basis, we take into account amounts already accrued on the balance sheet. In our opinion, although the outcomes of these proceedings are uncertain, they should not have a material adverse effect on our financial position, results of operations or cash flows.

We have contractual obligations to purchase certain goods or services from various other parties. Our purchase obligations are expected to be approximately $5,749 in 2014, $5,182 in total for 2015 and 2016, $2,570 in total for 2017 and 2018 and $819 in total for years thereafter.

See Note 10 for a discussion of collateral and credit-risk contingencies.

Notes to Consolidated Financial Statements ( continued)

Dollars in millions except per share amounts

NOTE 18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following tables represent our quarterly financial results:

	2013 Calendar Quarter
	First		Second		Third		Fourth 2		Annual
Total Operating Revenues	$	31,356	$	32,075	$	32,158	$	33,163	$	128,752
Operating Income		5,940		6,113		6,188		12,238		30,479
Net Income		3,773		3,880		3,905		6,995		18,553
Net Income Attributable to AT&T		3,700		3,822		3,814		6,913		18,249
Basic Earnings Per Share Attributable
to AT&T 1	$	0.67	$	0.71	$	0.72	$	1.31	$	3.39
Diluted Earnings Per Share Attributable
to AT&T 1	$	0.67	$	0.71	$	0.72	$	1.31	$	3.39
Stock Price
High	$	36.87	$	39.00	$	36.31	$	36.80
Low		32.76		34.10		33.19		33.09
Close		36.69		35.40		33.82		35.16
1 Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average common shares for the quarters versus the weighted-average common shares for the year.
2 Includes an actuarial gain on pension and postretirement benefit plans (Note 12), special termination charges (Note 12) and charges for employee separations (Note 1).

	2012 Calendar Quarter
	First		Second		Third		Fourth 2			Annual
Total Operating Revenues	$	31,822	$	31,575	$	31,459	$	32,578		$	127,434
Operating Income (Loss)		6,101		6,817		6,037		(5,958	)		12,997
Net Income (Loss)		3,652		3,965		3,701		(3,779	)		7,539
Net Income (Loss) Attributable to AT&T		3,584		3,902		3,635		(3,857	)		7,264
Basic Earnings (Loss) Per Share
Attributable to AT&T 1	$	0.60	$	0.67	$	0.63	$	(0.68	)	$	1.25
Diluted Earnings (Loss) Per Share
Attributable to AT&T 1	$	0.60	$	0.66	$	0.63	$	(0.68	)	$	1.25
Stock Price
High	$	31.97	$	36.00	$	38.58	$	38.43
Low		29.02		29.95		34.24		32.71
Close		31.23		35.66		37.70		33.71
1 Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average common shares for the quarters versus the weighted-average common shares for the year.
2 Includes an actuarial loss on pension and postretirement benefit plans (Note 12).

Report of Management

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. The integrity and objectivity of the data in these financial statements, including estimates and judgments relating to matters not concluded by year end, are the responsibility of management, as is all other information included in the Annual Report, unless otherwise indicated.

The financial statements of AT&T Inc. (AT&T) have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm. Management has made available to Ernst & Young LLP all of AT&T’s financial records and related data, as well as the minutes of stockholders’ and directors’ meetings. Furthermore, management believes that all representations made to Ernst & Young LLP during its audit were valid and appropriate.

Management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by AT&T is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

Management also seeks to ensure the objectivity and integrity of its financial data by the careful selection of its managers, by organizational arrangements that provide an appropriate division of responsibility and by communication programs aimed at ensuring that its policies, standards and managerial authorities are understood throughout the organization.

The Audit Committee of the Board of Directors meets periodically with management, the internal auditors and the independent auditors to review the manner in which they are performing their respective responsibilities and to discuss auditing, internal accounting controls and financial reporting matters. Both the internal auditors and the independent auditors periodically meet alone with the Audit Committee and have access to the Audit Committee at any time.

Assessment of Internal Control

The management of AT&T is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934. AT&T’s internal control system was designed to provide reasonable assurance to the company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

AT&T management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2013. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (1992 framework). Based on its assessment, AT&T management believes that, as of December 31, 2013, the Company’s internal control over financial reporting is effective based on those criteria.

Ernst & Young LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the company’s internal control over financial reporting.

/s/ Randall Stephenson /s/ John J. Stephens

Randall Stephenson John J. Stephens

Chairman of the Board, Senior Executive Vice President and

Chief Executive Officer and President Chief Financial Officer

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of AT&T Inc.

We have audited the accompanying consolidated balance sheets of AT&T Inc. (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework (1992 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, Texas

February 21, 2014

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Stockholders of AT&T Inc.

We have audited AT&T Inc.’s (the Company) internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2013 and 2012, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013 and our report dated February 21, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, Texas

February 21, 2014

Exhibit 21

PRINCIPAL SUBSIDIARIES OF

AT&T INC., AS OF DECEMBER 31, 2013

2013 AT&T INC. REPORT TO STOCKHOLDERS

SECURITIES AND EXCHANGE COMMISSION ("SEC")

FORM 10-K filed February 21, 2014

Legal Name	State of Incorporation/Formation	Conducts Business Under
Illinois Bell Telephone Company	Illinois	AT&T Illinois; AT&T Wholesale
Indiana Bell Telephone Company, Incorporated	Indiana	AT&T Indiana; AT&T Wholesale
Michigan Bell Telephone Company	Michigan	AT&T Michigan; AT&T Wholesale
Nevada Bell Telephone Company	Nevada	AT&T Nevada; AT&T Wholesale
Pacific Bell Telephone Company	California	AT&T California; AT&T Wholesale; AT&T DataComm
AT&T International, Inc.	Delaware	AT&T International
SBC Internet Services, LLC	California	AT&T Internet Services
SBC Long Distance, LLC	Delaware	AT&T Long Distance
AT&T Teleholdings, Inc.	Delaware	AT&T Midwest; AT&T West; AT&T East
Southwestern Bell Telephone Company	Delaware	AT&T Arkansas; AT&T Kansas; AT&T Missouri; AT&T Oklahoma; AT&T Texas; AT&T Southwest; AT&T DataComm; AT&T Wholesale
The Ohio Bell Telephone Company	Ohio	AT&T Ohio; AT&T Wholesale
The Southern New England Telephone Company	Connecticut	AT&T Connecticut
Wisconsin Bell, Inc.	Wisconsin	AT&T Wisconsin; AT&T Wholesale

AT&T Corp.	New York	AT&T Corp.; ACC Business; AT&T Wholesale; Lucky Dog Phone Co.; AT&T Business Solutions; AT&T Advanced Solutions; SNET Diversified Group
AT&T Communications of New York, Inc.	New York	same
Teleport Communications New York	New York	same
BellSouth Corporation	Georgia	AT&T South
BellSouth Telecommunications, LLC	Georgia	AT&T Alabama AT&T Florida AT&T Georgia AT&T Kentucky AT&T Louisiana AT&T Mississippi AT&T North Carolina AT&T South Carolina AT&T Tennessee AT&T Southeast
AT&T Mobility LLC	Delaware	AT&T Mobility
AT&T Mobility II LLC	Delaware	AT&T Mobility
New Cingular Wireless Services, Inc.	Delaware	AT&T Mobility

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K) of AT&T Inc. (AT&T) of our reports dated February 21, 2014, with respect to the consolidated financial statements of AT&T and the effectiveness of internal control over financial reporting of AT&T, included in the 2013 Annual Report to Stockholders of AT&T.

Our audits also included the financial statement schedule of AT&T listed in Item 15(a). This schedule is the responsibility of AT&T's management. Our responsibility is to express an opinion based on our audits. In our opinion, as to which the date is February 21, 2014, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We consent to the incorporation by reference of our reports dated February 21, 2014, with respect to the consolidated financial statements and schedule of AT&T and the effectiveness of internal control over financial reporting of AT&T included in this Annual Report (Form 10-K) of AT&T for the year ended December 31, 2013, in the following Registration Statements:

(1)	Registration Statement (Form S-8 No. 333-34062) pertaining to the Stock Savings Plan,

(2)	Registration Statement (Form S-8 No. 333-120894) pertaining to the AT&T Stock Purchase and Deferral Plan and Cash Deferral Plan,

(3)	Registration Statement (Form S-8 No. 333-129814) pertaining to the AT&T Savings Plan and certain other plans,

(4)	Registration Statement (Form S-3 No. 333-187350) of AT&T and the related Prospectuses,

(5)	Registration Statement (Form S-8 No. 333-135517) pertaining to the 2006 Incentive Plan,

(6)	Registration Statement (Form S-8 No. 333-139749) pertaining to the BellSouth Retirement Savings Plan and certain other BellSouth plans,

(7)

Registration Statement (Form S-8 No. 333-173078) pertaining to the AT&T Savings Plan, AT&T Savings and Security Plan, AT&T Long Term Savings and Security Plan, AT&T Retirement Savings Plan, AT&T Puerto Rico Savings Plan, AT&T Puerto Rico Retirement Savings Plan, AT&T of Puerto Rico, Inc. Long Term Savings and Security Plan, and the BellSouth Savings and Security Plan,

(8)	Registration Statement (Form S-8 No. 333-152822) pertaining to the AT&T Non-Employee Director Stock Purchase Plan,

(9)	Registration Statement (Form S-8 No. 333-173079) pertaining to the AT&T 2011 Incentive Plan

(10)	Registration Statement (Form S-8 No. 333-188384) pertaining to the AT&T Stock Purchase and Deferral Plan and Cash Deferral Plan, and

(11)	Registration Statement (Form S-8 No. 333-189789) pertaining to the AT&T Savings and Security Plan, the AT&T Puerto Rico Retirement Savings Plan, the AT&T Retirement Savings Plan, and the BellSouth Savings and Security Plan.

/s/ Ernst & Young LLP

Dallas, Texas

February 21, 2014

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

THAT, AT&T INC., a Delaware corporation, hereinafter referred to as the “Corporation,” proposes to file with the Securities and Exchange Commission at Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Randall L. Stephenson
Date		Randall L. Stephenson Chairman of the Board, Chief Executive Officer and President

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Randall L. Stephenson, Jonathan P. Klug, John J. Stephens, Paul W. Stephens, Wayne Watts, or any one of them, all of the City of Dallas and State of Texas, the attorneys for the undersigned and in the undersigned’s name, place and stead, and in the undersigned’s office and capacity in the Corporation, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and concerning the premises, as fully to all intents and purposes as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Reuben V. Anderson
Date		Reuben V. Anderson Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ James H. Blanchard
Date		James H. Blanchard Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.

January 31, 2014		/s/ Jaime Chico Pardo
Date		Jaime Chico Pardo
		Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Scott T. Ford
Date		Scott T. Ford Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


February 1, 2014		/s/ James P. Kelly
Date		James P. Kelly Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Jon C. Madonna
Date		Jon C. Madonna Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Michael B. McCallister
Date		Michael B. McCallister Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ John B. McCoy
Date		John B. McCoy Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


February 5, 2014		/s/ Beth E. Mooney
Date		Beth E. Mooney Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Joyce M. Roché
Date		Joyce M. Roché Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Matthew K. Rose
Date		Matthew K. Rose Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Cynthia B. Taylor
Date		Cynthia B. Taylor Director

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand the date set forth opposite their name.


January 31, 2014		/s/ Laura D’Andrea Tyson
Date		Laura D’Andrea Tyson Director

Exhibit 31.1

CERTIFICATION

I, Randall Stephenson, certify that:

1.	I have reviewed this report on Form 10-K of AT&T Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 21, 2014

/s/ Randall Stephenson

Randall Stephenson

Chairman of the Board,

Chief Executive Officer and President

Exhibit 31.2

CERTIFICATION

I, John J. Stephens, certify that:

1.	I have reviewed this report on Form 10-K of AT&T Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 21, 2014

/s/ John J. Stephens

John J. Stephens

Senior Executive Vice President

and Chief Financial Officer

Exhibit 32

Certification of Periodic Financial Reports

Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of AT&T Inc. (the “Company”) hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 21, 2014		February 21, 2014
By: /s/ Randall Stephenson.		By: /s/ John J. Stephens.
Randall Stephenson		John J. Stephens
Chairman of the Board, Chief Executive Officer		Senior Executive Vice President
and President		and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (“Exchange Act”) or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to AT&T Inc. and will be retained by AT&T Inc. and furnished to the Securities and Exchange Commission or its staff upon request.