CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS

			Three Months
			Ended
			March 31,
			2005			2006
Operating revenues:
	Service revenues		$	7,419		$	8,005
	Equipment sales			810			975
		Total operating revenues		8,229			8,980
Operating expenses:
	Cost of services (excluding depreciation, included below, of $1,080 and $1,145, respectively)			2,144			2,320
	Cost of equipment sales			1,295			1,327
	Selling, general and administrative			3,001			2,846
	Depreciation and amortization			1,675			1,680
		Total operating expenses		8,115			8,173
Operating income				114			807
Other income (expenses):
	Interest expense			(338	)		(297	)
	Minority interest in earnings of consolidated entities			(16	)		(41	)
	Equity in net income of affiliates			2			—
	Other, net			20			9
		Total other income (expenses)		(332	)		(329	)
Income (loss) before provision for income taxes				(218	)		478
Provision for income taxes				22			124
Net income (loss)			$	(240	)	$	354

See accompanying notes.

1

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions) — (Continued)

Item 1.     Financial Statements (Unaudited)

CONSOLIDATED BALANCE SHEETS

			December 31,			March 31,
			2005			2006
			(Audited)
ASSETS
Current assets:
	Cash and cash equivalents		$	472		$	218
	Accounts receivable, net of allowance for doubtful accounts of $286 and $256			3,622			3,707
	Inventories			536			668
	Prepaid assets			320			495
	Current deferred tax assets			767			980
	Other current assets			332			345
		Total current assets		6,049			6,413
Property, plant and equipment, net				21,745			21,817
Licenses, net				25,242			25,243
Goodwill				22,359			22,355
Customer relationship intangibles, net				2,998			2,641
Other intangible assets, net				174			166
Other assets				752			709
		Total assets	$	79,319		$	79,344
LIABILITIES AND MEMBERS’ CAPITAL
Current liabilities:
	Debt maturing within one year		$	2,036		$	2,193
	Accounts payable			1,920			1,530
	Due to affiliates, net			54			37
	Advanced billing and customer deposits			946			998
	Accrued liabilities			5,052			4,698
		Total current liabilities		10,008			9,456
Long-term debt:
	Debt due to members			6,717			6,717
	Other long-term debt, net of premium			12,623			12,589
		Total long-term debt		19,340			19,306
Deferred tax liabilities, net				3,086			3,404
Other noncurrent liabilities				1,364			1,272
		Total liabilities		33,798			33,438
Commitments and contingencies
Minority interests in consolidated entities				543			574
Members’ capital:
	Members’ capital			44,988			45,342
	Accumulated other comprehensive loss, net of taxes			(10	)		(10	)
		Total members’ capital		44,978			45,332
		Total liabilities and members’ capital	$	79,319		$	79,344

See accompanying notes.

2

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions) — (Continued)

Item 1.     Financial Statements (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOW

				Three Months
				Ended
				March 31,
				2005			2006
Operating activities
Net income (loss)				$	(240	)	$	354
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization				1,675			1,680
	Provision for doubtful accounts				118			73
	Minority interest in earnings of consolidated entities				16			41
	Equity in net income of affiliates				(2	)		—
	Amortization of debt discount (premium), net				(60	)		(52	)
	Deferred income taxes				14			104
	Changes in operating assets and liabilities:
		Accounts receivable			110			(157	)
		Inventories			205			(132	)
		Other current assets			28			(222	)
		Accounts payable and other current liabilities			(565	)		(810	)
		Pensions and post-employment benefits			19			47
	Other, net				1			5
		Net cash provided by operating activities			1,319			931
Investing activities
Construction and capital expenditures					(971	)		(1,441	)
Receipts from (investments in) equity affiliates, net					(199	)		6
Proceeds from dispositions of assets					2,949			103
Deposits for license purchase					(143	)		—
Investment in qualified trust designated for future capital expenditures					(2,145	)		—
Other					50			(3	)
			Net cash used in investing activities		(459	)		(1,335	)
Financing activities
Net (repayments) borrowings under revolving credit agreement					(993	)		1,165
Repayment of long-term debt and capital lease obligations					(6	)		(1,003	)
Net distributions to minority interests					(4	)		(12	)
			Net cash (used in) provided by financing activities		(1,003	)		150
Net decrease in cash and cash equivalents					(143	)		(254	)
Cash and cash equivalents at beginning of period					352			472
Cash and cash equivalents at end of period				$	209		$	218

See accompanying notes.

3

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions) — (Continued)

Item 1.     Financial Statements (Unaudited)

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL &

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

Three Months Ended March 31, 2006:
Balance at December 31, 2005		$	44,978
	Net income		354
Balance at March 31, 2006		$	45,332
Three Months Ended March 31, 2005:
Balance at December 31, 2004		$	44,536
	Net loss		(240	)
	Other, net		(2	)
Balance at March 31, 2005		$	44,294

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Three Months
		Ended
		March 31,
Comprehensive Income:		2005			2006
Net income (loss)		$	(240	)	$	354
Other comprehensive loss:
	Foreign currency translation adjustment, net of taxes of ($3)		(4	)		—
Total comprehensive income (loss)		$	(244	)	$	354

See accompanying notes.

4

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CINGULAR WIRELESS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

Cingular Wireless LLC (the Company) is a Delaware limited liability company formed in 2000 by SBC Communications Inc. (SBC)* and BellSouth Corporation (BellSouth) as the operating company for their U.S. wireless joint venture. AT&T and BellSouth, through their wholly-owned subsidiaries, respectively, own approximate 60% and 40% economic interests in the Company. Cingular Wireless Corporation (the Manager), which is directed equally by AT&T and BellSouth, acts as the Company’s manager and controls the Company’s management and operations. The Company provides wireless voice and data communications services, including local, long-distance and roaming services using both cellular and personal communications services (PCS) frequencies licensed by the Federal Communications Commission (FCC), and equipment to customers in 46 states, including service to all 100 of the largest U.S. metropolitan areas. All of the Company’s operations, which primarily serve customers in the U.S., are conducted through subsidiaries or joint ventures. Through roaming arrangements with other carriers, the Company provides its customers service in regions where it does not have network coverage and is thus able to serve customers in virtually the entire U.S. and over 180 foreign countries.

In October 2004, the Company acquired AT&T Wireless Services, Inc. (AT&T Wireless) for aggregate consideration of approximately $41,000 in cash. AT&T Wireless, which has been renamed New Cingular Wireless Services, Inc., will continue to be referred to herein as AT&T Wireless and is now a direct wholly-owned subsidiary of the Company. The operations of AT&T Wireless are integrated with those of the Company, and the business is conducted under the “Cingular” brand name.

The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) that permit reduced disclosure for interim periods. Management believes the consolidated financial statements include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the results for the interim periods shown. The results for the interim periods are not necessarily indicative of results for the full year. These interim financial statements should be read in conjunction with the consolidated financial statements of the Company and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Income Taxes

The Company is not a taxable entity for federal income tax purposes. Rather, federal taxable income or loss is included in the Company’s respective members’ federal income tax returns. However, the Company’s provision for income taxes includes federal and state income taxes for certain of its corporate

* On November 18, 2005, SBC acquired through merger AT&T Corp. and changed the name of the surviving entity to AT&T Inc. When used herein, “AT&T” will refer to the surviving entity and, prior to November 18, 2005, to SBC. AT&T Corp. will be referred to as “Old AT&T” prior to November 18, 2005. In March 2006, AT&T and BellSouth agreed to merge. The transaction has been approved by the Board of Directors of each company. It is subject to approval by the shareholders of each of AT&T and BellSouth, review by the U.S. Department of Justice (DOJ), approval by the Federal Communications Commission (FCC) and other regulatory authorities and satisfaction of other conditions.

5

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CINGULAR WIRELESS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

subsidiaries, as well as for certain states which impose income taxes upon non-corporate legal entities. After the acquisition, AT&T Wireless contributed the majority of its assets and liabilities to Cingular Wireless II, LLC (CW II), which it owns jointly with Cingular Wireless LLC. In exchange for the assets and liabilities contributed to CW II, AT&T Wireless received a 43% ownership interest in CW II, from which any income (loss) is allocated and is subject to federal and state income taxes. The remaining income (loss) from CW II is allocated to the Company and flows through to the members who are taxed at their level pursuant to federal and state income tax laws.

The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory rates. The Company provides valuation allowances for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

The Company’s effective tax rate for the three months ended March 31, 2006 was 25.9%. This rate varies from the expected federal statutory rate of 35% primarily as a result of the exclusion from the Company’s income tax provision of operating results which are wholly allocated to its respective members’ federal income tax returns. The income tax provision for the three months ended March 31, 2006 also includes provisions for income taxes in certain state and local jurisdictions.

The Company incurred income tax expense in the quarter ended March 31, 2005 despite a pre-tax loss as a result of the exclusion from the Company’s income tax provision of operating losses which are wholly allocated to its respective members’ federal income tax returns. Income was generated at certain taxable subsidiaries during the first quarter of 2005. The income tax provision for the three months ended March 31, 2005 also includes income tax expense related to state income tax law changes and the establishment of valuation allowances.

2. Intangible Assets

Summarized below are the carrying values for the major classes of intangible assets:

						(Audited)
						December 31, 2005					March 31, 2006
						Gross					Gross
						Carrying		Accumulated			Carrying		Accumulated
				Useful Lives		Amount		Amortization			Amount		Amortization
Intangible assets subject to amortization:
	Customer relationship intangibles				5 years	$	5,316	$	(2,318	)	$	5,003	$	(2,362	)
	Other intangibles				1-18 years		306		(134	)		301		(137	)
			Total			$	5,622	$	(2,452	)	$	5,304	$	(2,499	)
Intangible assets not subject to amortization:
		FCC (U.S.) licenses				$	25,242	$	—		$	25,243	$	—
		Goodwill				$	22,359	$	—		$	22,355	$	—

The changes in the carrying value of goodwill for the quarter ended March 31, 2006, which totaled $6, are largely attributable to adjustments to purchase price allocation of AT&T Wireless assets and liabilities

6

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CINGULAR WIRELESS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents current and estimated amortization expense for each of the following periods:

Aggregate amortization expense:
	For the three months ended March 31, 2006		$	365
Estimated amortization expense:
	For the remainder of 2006		$	950
	For the years ending December 31, 2007			955
		2008		603
		2009		237
		2010 and thereafter		60
			$	2,805

For the three months ended March 31, 2005, amortization expense was $506.

In addition to the intangible assets noted above, the Company had $2 of intangible assets at December 31, 2005 and March 31, 2006 in connection with the recognition of an additional minimum liability for its bargained pension plan and/or other unqualified benefit plans as required by SFAS No. 87, Employers’ Accounting for Pensions, (SFAS 87).

3. Salmon PCS LLC

In November 2000, the Company and Crowley Digital Wireless, LLC (Crowley Digital) entered into an agreement, pursuant to which Salmon PCS LLC (Salmon) was formed to bid as a “very small business” for certain 1900 MHz band PCS licenses auctioned by the FCC. The Company granted Crowley Digital the right to put its approximate 20% economic interest in Salmon to the Company at a cash price equal to Crowley Digital’s initial investment plus a specified rate of return. The Company’s maximum liability for the purchase of Crowley Digital’s interest in Salmon under this put right is $225. The fair values of this put obligation, estimated at $172 and $176 as of December 31, 2005 and March 31, 2006, respectively, are included in “Accrued liabilities” in the consolidated balance sheets for the respective periods. Crowley Digital has exercised its put right pursuant to which the Company expects to pay approximately $186 should the put close in October 2006, as the Company anticipates.

4. Debt

Revolving Credit Agreement

Under a revolving credit agreement, AT&T and BellSouth provide the Company unsubordinated short-term financing on a pro rata basis at an interest rate of LIBOR plus 0.05% for the Company’s ordinary course operations based upon the Company’s budget and forecasted cash needs. The revolving credit agreement provides that in the event that the Company has available cash (as defined) on any business day, such amount shall first be applied to the repayment of the revolving loans, and any remaining excess shall then be applied to the repayment of the Subordinated Notes (member loans) from AT&T and BellSouth at month end if the Company does not then require a cash advance under the agreement. As of December 31, 2005 and March 31, 2006, the Company had an outstanding balance of $511 and $1,676, respectively, under the revolving credit agreement.

7

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CINGULAR WIRELESS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Debt Repayment

The Company repaid $1,000 of 7.35% AT&T Wireless Services, Inc. unsecured and unsubordinated Senior Notes on the maturity date, March 1, 2006.

5. Related Party Transactions

These consolidated financial statements include charges from AT&T and BellSouth for certain expenses pursuant to various agreements.

In addition to the affiliate transactions described elsewhere in these consolidated financial statements, other significant transactions with the Company’s members are as follows:

	Three Months
	Ended
	March 31,
Type of Services(1)	2005		2006
Agent commissions and compensation	$	20	$	14
Interconnect and long distance		282		464
Telecommunications and other services		57		107

(1)  See Note 11 to the Company’s audited consolidated financial statements included in Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 for a further description of services.

The Company had receivables from affiliates of $156 and $160 and payables to affiliates of $210 and $197 at December 31, 2005 and March 31, 2006, respectively.

6. Acquisition-Related and Integration Costs

The Company is executing plans to exit certain activities and dispose of certain assets of AT&T Wireless to fully integrate the acquired operations with those of the Company. These plans affect many areas of the combined company, including sales and marketing, network, information technology, customer care, supply chain and general and administrative functions. In connection therewith, the Company expects to continue to incur significant costs over the next several quarters associated with such integration activities. Plans affecting the Company’s integration of retail stores, administrative space and the network have been completed and approved by management, resulting in adjustments to the purchase price allocation for the acquired assets and assumed liabilities of AT&T Wireless and the need to shorten the useful lives of certain network and other property, plant and equipment.

Network Integration Plan — Phase I

In June 2005, the Company finalized a portion of its plan to integrate certain acquired network assets of AT&T Wireless. The plan primarily addressed certain TDMA network equipment in locations where the Company and AT&T Wireless had overlapping TDMA network assets and AT&T Wireless’ UMTS (Universal Mobile Telephone Service) assets. The plan included decommissioning TDMA assets (approximately 85% former AT&T Wireless assets and 15% legacy Cingular assets) and replacing former AT&T Wireless UMTS assets by the end of 2005.

8

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CINGULAR WIRELESS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company also determined to decommission and replace certain vendor-specific Cingular network assets in three markets as part of its overall network integration efforts, resulting in a net increase of $257 in depreciation expense for 2005, including $35 for the three months ended March 31, 2005. The net increase for the three months ended March 31, 2006 was $15.

Network Integration Plan — Phase II

In October 2005, the Company approved the second and final phase of its network integration plan. This plan complemented the activities undertaken in June 2005 to eliminate redundant network facilities that arose upon the purchase of AT&T Wireless. In connection with the second phase of the network integration plan, the Company is integrating its GSM (Global System for Mobile Communication) networks, decommissioning redundant cell sites and core network elements and swapping vendor equipment in various markets to have like equipment in each operating market. The plan is anticipated to result in decommissioning approximately 7,600 cell sites, of which approximately 5,700 were acquired from AT&T Wireless. Certain legacy Cingular assets that will be decommissioned as a result of the second phase of the network integration plan were depreciated on an accelerated basis beginning in the fourth quarter of 2005. For the three months ended March 31, 2006, the related incremental depreciation associated with those legacy assets amounted to $75. The Company has currently executed approximately 50% of the activities associated with its network integration plans and expects to be substantially completed by December 31, 2006. During the first quarter of 2006, the Company recorded immaterial expenses related to revised integration estimates.

Retail Stores and Administrative Space Integration Plans

The Company also finalized plans to integrate the retail stores and administrative space requirements for the sales/distribution and corporate real estate functions in June 2005. Legacy Cingular assets affected by the integration plans are depreciated on an accelerated basis through their estimated remaining lives. The impact on depreciation expense is not material. As of March 31, 2006, these plans are substantially completed.

Exit Costs Recorded Under Integration Plans

In addition to the revaluation of assets, the Company incurred and recorded certain costs and accruals associated with the integration plans in accordance with the requirements of Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination (EITF 95-3), Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), and SFAS No. 112, Employers’ Accounting for Postemployment Benefits (SFAS 112).

The costs presented in the table below were recorded under EITF 95-3 to exit certain AT&T Wireless activities and resulted in adjustments to the purchase price allocation for assets acquired and liabilities assumed in the acquisition of AT&T Wireless. The majority of the costs recognized related to termination fees associated with leases, equipment removal costs, other contractual arrangements and employee termination benefits related to former AT&T Wireless employees.

Similar integration costs incurred related to legacy Cingular activities were recorded under SFAS 146 and SFAS 112 as “Cost of services” and “Selling, general and administrative” in the consolidated statements

9

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CINGULAR WIRELESS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of income. Under SFAS 146, expenses are recognized when those costs have been incurred, while expenses are recognized under SFAS 112 when such costs are probable and estimable. See the SFAS 146 table below for respective balances and activity.

In connection with the integration of AT&T Wireless, the Company identified approximately 2,400 legacy Cingular employees and 2,200 former AT&T Wireless employees to be terminated during 2005 and 2006 of which approximately 2,100 and 1,800 of these employees, respectively, left their positions as of March 31, 2006.

The following table displays the current period activity and balances recorded under EITF 95-3, which are reflected in “Accrued liabilities” in the consolidated balance sheets. Due to ongoing monitoring of the integration plan, the Company recorded additional accruals for extended lease notification periods and accrual reductions related to the ongoing contract termination progress. The impact of increases to the accrual and adjustments decreasing the accruals in the table below are reflected as expense in the current period Consolidated Statement of Operations and goodwill in the Consolidated Balance Sheet, respectively.

	December 31,										March 31,
EITF 95-3 Summary	2005		Accruals		Payments			Adjustments			2006
Lease terminations	$	262	$	21	$	(8	)	$	(17	)	$	258
Severance		15		—		(4	)		—			11
Equipment removal costs		185		—		(10	)		—			175
Other		3		—		—			—			3
Total	$	465	$	21	$	(22	)	$	(17	)	$	447

A summary of total expected costs to be incurred under SFAS 146 for the integration plans, and the amounts incurred through and for the three months ended March 31, 2006, is presented in the table below. The estimate of costs expected to be incurred and current period costs reflect a $7 reduction due to the impact of contract termination negotiations.

	Estimate of Expenses		Cumulative Expenses		Expenses		Cumulative Expenses
	Expected to be		Incurred through		Incurred		Incurred through
Summary of SFAS 146 Costs	Incurred		December 31, 2005		During 2006		March 31, 2006
Contract termination costs:
Lease terminations	$	131	$	36	$	12	$	48
Agent terminations		10		—		4		4
Other contract terminations		6		—		—		—
Equipment removal costs		126		15		3		18
Other		4		3		2		5
Total	$	277	$	54	$	21	$	75

10

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CINGULAR WIRELESS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table displays the SFAS 146 activity and balances of the restructuring liabilities associated with the integration plans which are reflected in “Accrued liabilities” on the consolidated balance sheet. Activity under SFAS 112 for the three months ended March 31, 2006 was immaterial.

	SFAS 146
Balance at December 31, 2005	$	37
Additions		21
Payments		(6	)
Balance at March 31, 2006	$	52

7. Commitments and Contingencies

Commitments

The Company has unconditional purchase commitments for advertising and marketing, computer equipment and services, roaming, long distance services, network equipment and related maintenance and software development and related maintenance. These commitments totaled approximately $1,403 at March 31, 2006. Included in this amount are commitments aggregating $109 to AT&T, BellSouth and their affiliates for telecommunications and other services.

In connection with the termination of the Company’s GSMF network infrastructure joint venture with T-Mobile, the Company made a $1,200 commitment to purchase a minimum number of minutes from T-Mobile over a four-year transition period. This commitment became effective in January 2005, and approximately $409 of the purchase commitment remained outstanding as of March 31, 2006. The Company believes that the rates reflected in this purchase commitment are indicative of market rates based upon the volume of the commitment and the length of the transition period.

See Note 15 to the Company’s audited consolidated financial statements included in Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 for a further description of these commitments.

Contingencies

In a jury trial, Freedom Wireless, Inc. (Freedom) was awarded damages jointly against the Company and Boston Communications Group, Inc. (BCGI) in the aggregate amount, including prejudgment interest, of approximately $165 for alleged past infringement of two patents allegedly owned by Freedom and used by BCGI to provide to the Company and other carriers a prepaid wireless telephone service technology platform. The court also enjoined the Company’s continued use of the BCGI platform, but the U.S. Court of Appeals for the Federal Circuit issued a stay of the injunction, and the Company and BCGI are appealing the entire case. BCGI has agreed to indemnify the Company with respect to the claims asserted in this litigation and has escrowed $41 for that purpose. However, if BCGI were to commence a bankruptcy proceeding, which is possible, the $41 may not be available to cover any of the Company’s liability. As a result of this arrangement and based upon the Company’s anticipated prospects on appeal, the Company does not believe the ultimate disposition of this case will have a material impact on its operations, cash flows or financial position beyond the $20 accrued in its consolidated financial statements.

11

CINGULAR WIRELESS LLC

PART I — FINANCIAL INFORMATION (Dollars in Millions)

Item 1. Financial Statements (Unaudited)

CINGULAR WIRELESS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Several class-action lawsuits have been filed against Old AT&T asserting claims under the federal securities laws. The complaints assert claims that Old AT&T made material misstatements concerning earnings and financial condition, while omitting other material information, allegedly to maximize proceeds from the offering of AT&T Wireless Group tracking stock in April 2000 and/or to avoid paying a cash guarantee in connection with its MediaOne acquisition. In April 2006, the plaintiffs and AT&T reached a tentative settlement of this case for $150. In connection with the split-off of AT&T Wireless from Old AT&T, the Separation Agreement between AT&T Wireless and Old AT&T provides for the allocation to AT&T Wireless of 70% of any liabilities arising out of these actions. Management’s estimation of the potential loss from this and other preacquisition liabilities from AT&T Wireless was previously recorded in the purchase price allocation to AT&T Wireless’ assets acquired and liabilities assumed. The settlement, if approved by the court, will not result in the accrual of any additional liabilities by the Company.

The Company is subject to claims arising in the ordinary course of business involving allegations of personal injury, breach of contract, anti-competitive conduct, employment law issues, regulatory matters and other actions. To the extent that management believes that a loss arising from litigation or regulatory proceedings is probable and can reasonably be estimated, an amount is accrued on the financial statements for the estimated loss. As additional information becomes available, the potential liability related to the matter is reassessed and the accruals are revised, if necessary. While complete assurance cannot be given as to the outcome of any legal claims, the Company believes that any financial impact would not be material to its business, financial position or cash flows.

12