10-K

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 fiscal year ended December 31, 2001

OR

|_| 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

SBC COMMUNICATIONS INC.

Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883

175 E. Houston, San Antonio, Texas 78205-2233
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 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 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)

Based on composite closing sales price of $37.45 per share on January 31, 2002, the aggregate market value of all voting and non-voting stock held by non-affiliates was $125,494,192,498.

As of January 31, 2002, 3,352,019,692 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

(1)         Portions of SBC Communications Inc.‘s Annual Report to Shareowners for the fiscal year ended December 31, 2001 (Parts I and II).

(2)         Portions of SBC Communications Inc.‘s Notice of 2002 Annual Meeting and Proxy Statement dated on or about March 11, 2002 (Parts III and IV).

SCHEDULE A

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

Title of each class	Name of each exchange on which registered
Common Shares (Par Value $1.00 Per Share)	New York, Chicago and Pacific Stock Exchanges
6.875% Fifty Year Southwestern Bell Telephone Company    Debentures, Due March 31, 2048	New York Stock Exchange
7.00% Forty Year SBC Communications Inc. Notes,    Due June 13, 2041	New York Stock Exchange

TABLE OF CONTENTS

Item		Page
	PART I
1.	Business	1
2.	Properties	12
3.	Legal Proceedings	12
4.	Submission of Matters to a Vote of Security Holders	12

         Executive Officers of the Registrant 13        

	PART II
5.	Market for Registrant's Common Equity and Related Stockholder Matters	14
6.	Selected Financial and Operating Data	14
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
7A.	Quantitative and Qualitative Disclosures about Market Risk	14
8.	Financial Statements and Supplementary Data	14
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	14
	PART III
10.	Directors and Executive Officers of the Registrant	15
11.	Executive Compensation	15
12.	Security Ownership of Certain Beneficial Owners and Management	15
13.	Certain Relationships and Related Transactions	15
	PART IV
14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	16

PART I

ITEM 1. BUSINESS

GENERAL

SBC Communications Inc. (SBC) is a holding company incorporated under the laws of the State of Delaware in 1983 and has its principal executive offices at 175 E. Houston, San Antonio, Texas 78205-2233 (telephone number 210-821-4105). SBC maintains an Internet site at http://www.sbc.com. (This web site address is for information only and is not intended to be an active link or to incorporate any web site information into this document.)

Throughout this document SBC is referred to as "we" or "SBC".

History

SBC was formed as one of several regional holding companies created to hold AT&T Corp.‘s (AT&T) local telephone companies. On January 1, 1984, SBC was spun-off from AT&T pursuant to an anti-trust consent decree, becoming an independent publicly traded telecommunications services provider. At formation, we primarily operated in five southwestern states. SBC subsidiaries merged with Pacific Telesis Group (PAC) in 1997, Southern New England Telecommunications Corporation (SNET) in 1998 and Ameritech Corporation (Ameritech) in 1999, thereby expanding our wireline operations as the incumbent local exchange carrier into a total of 13 states. Our services and products are marketed under several brands including SBC Ameritech, SBC Nevada Bell, SBC Pacific Bell, SBC SNET, SBC Southwestern Bell, and, through our joint venture with BellSouth Corporation (BellSouth), Cingular Wireless (Cingular).

Scope

We rank among the largest providers of telecommunications services in the United States and the world. Through our subsidiaries, we provide communications services and products in the United States and have investments in more than 25 countries. We offer our services and products to businesses and consumers, as well as other providers of telecommunications services.

The services and products that we offer vary by market, and include: local exchange services, wireless communications, long distance services, Internet services, telecommunications equipment, messaging, paging, and directory advertising and publishing. We group our operating subsidiaries as follows, corresponding to our operating segments for financial reporting purposes:

• wireline subsidiaries provide primarily land and wire based services,
• wireless subsidiaries hold our investment in Cingular, which provides primarily radio wave based services,
• directory subsidiaries provide services related to directory advertising and publishing,
• international subsidiaries hold investments in primarily foreign entities outside of the United States, and
• other subsidiaries provide corporate operations, paging and prior to 2001, primarily provided security monitoring and cable television services.

Our principal wireline subsidiaries provide telecommunications services in thirteen states: California, Texas, Illinois, Michigan, Ohio, Missouri, Connecticut, Indiana, Wisconsin, Oklahoma, Kansas, Arkansas and Nevada (13-state area). Certain wireline local exchange services offered in the 13-state area are provided through regulated subsidiaries which operate within authorized regions (in-region) subject to regulation by each state in which they operate and by the Federal Communications Commission (FCC). Additional information relating to regulation is contained under the heading “Government Regulation” below and in the 2001 SBC Annual Report to Shareowners under the heading “Operating Environment and Trends of the Business”, and is incorporated herein by reference pursuant to General Instruction G(2).

InterLATA Long Distance

We offer interLATA (Local Access and Transport Area) long distance services in the states of Texas, Kansas, Oklahoma, Arkansas, Missouri and Connecticut. We intend to seek approval from the FCC to offer interLATA long distance in our other in-region states. As a first step in that process, we have filed applications with the state commissions in California, Illinois, Michigan, Nevada and Ohio.

Additional information on InterLATA Long Distance is contained in the 2001 SBC Annual Report to Shareowners under the heading “Long Distance” on page 14 which is incorporated herein by reference pursuant to General Instruction G(2).

Broadband Initiative

In 1999, as the first post-Ameritech merger initiative, we announced a $6 billion initiative to provide broadband services (Project Pronto). Project Pronto is expected to create a broadband platform that will allow high-speed voice, data and video services to be provided via Digital Subscriber Line (DSL) services to approximately 80 percent of our United States (U.S.) wireline customers. During the third quarter of 2001, due primarily to an adverse and uncertain regulatory environment, we began a slowdown of the capital expenditures to build our national broadband network, which includes fiber, electronic and other technology. As of December 31, 2001 we had spent $3.2 billion on Project Pronto and had 1.3 million DSL subscribers with more than half, or 25 million, of our wireline customers DSL-capable.

Additional information on Project Pronto is contained in the 2001 SBC Annual Report to Shareowners under the heading "Data/Broadband" on page 14 which is incorporated herein by reference pursuant to General Instruction G(2).

National Expansion

In 1999, we began implementation of a “National-Local” strategy in conjunction with our acquisition of Ameritech. We planned to offer local exchange services in 30 new markets across the country. In March 2001, we announced a scale-back of our offerings while still satisfying our regulatory obligations. We offered services in 22 markets as of December 31, 2001, and are required by the FCC to enter into the remaining eight markets by April 2002.

Additional information on National Expansion is contained in the 2001 SBC Annual Report to Shareowners under the heading “Out-of-Region Competition” on page 17 which is incorporated herein by reference pursuant to General Instruction G(2).

Business Combinations

SBC subsidiaries merged with Ameritech in 1999, SNET in 1998 and PAC in 1997, resulting in each acquired company becoming a wholly owned subsidiary of SBC. Each transaction has been accounted for as a pooling of interests and a tax-free reorganization.

As a result of the Ameritech, SNET and PAC mergers, we significantly integrated operations and consolidated some administrative and support functions. We recognized charges during 1999, 1998 and 1997 in connection with these merger initiatives. Charges arising out of the mergers relating to relocation, retraining and other effects of consolidating certain operations were recognized in the periods those charges occurred.

Additional information on business combinations is contained in Note 2 of the 2001 SBC Annual Report to Shareowners and is incorporated herein by reference pursuant to General Instruction G(2).

BUSINESS OPERATIONS

Operating Segments

Our segments are strategic business units that offer different products and services and are managed accordingly. We evaluate performance based on income before income taxes adjusted for normalizing (e.g., one-time) items. We have five reportable segments that reflect the current management of our business: (1) wireline; (2) wireless; (3) directory; (4) international; and (5) other.

In the second quarter of 2001, we moved the results of the SBC Services unit from the other segment to the wireline segment as the SBC Services unit primarily supports the wireline segment. We have restated all prior period information for the change, and this had no effect on our consolidated results.

Additional information about our reportable segments, including financial information and normalizing items, is included under the heading “Segment Results” on pages 7 through 13 and in Note 5 of the 2001 SBC Annual Report to Shareowners and is incorporated herein by reference pursuant to General Instruction G(2).

Wireline

Wireline is our largest operating segment, providing approximately 75 percent of our normalized operating revenues in 2001. Our wireline segment operates as both a retail and wholesale seller of communication services. We provide landline telecommunications services, including local, network access, long distance services, messaging, Internet services, and customer premises and private branch exchange (PBX) equipment. Our landline telecommunications subsidiaries serve approximately 35.0 million residential, 23.9 million business and 0.5 million other access lines in our 13-state area.

Services and Products

Local exchange services - Local exchange services include traditional dial tone primarily used to make or receive voice, fax, or analog modem calls from a residence or business. We also offer this service on a wholesale basis to competitors. At December 31, 2001, we provided wholesale services to approximately 3.6 million access lines. Other local services include certain extended area service, directory assistance and operator services.

Vertical services include custom calling services such as Caller ID, Call Waiting, voice mail and other enhanced services. These features allow telephone users to manage their local services with enhanced features such as displaying the number and/or name of callers, signaling to the telephone user that additional calls are incoming, and sending and receiving voice messages. These services are not regulated by the FCC and are generally more profitable.

Data services - Revenues from data services may be classified as local, network access or long distance revenues and include high-speed data communication services used for transporting digital traffic from one computer system to another. Data services include digital products categorized into three basic categories:

• Switched Transport services such as Integrated Services Digital Network (ISDN), Frame Relay, and DSL;
• Dedicated Transport services such as Digital Services and Synchronous Optical Network (SONET); and
• Application and Data Communications services which include Internet access and network integration.

ISDN transmits voice, video, and data over a single line in support of a wide range of applications, including Internet access. Frame Relay is a fast packet switching technology that allows data to travel in individual packets, or pieces, of information. 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. DSL allows customers to simultaneously make a phone call and access information via the Internet or an office local area network. Digital Services are high-speed dedicated digital circuits offered with various speeds of transport. SONET provides customer access to our backbone network at very high speeds. Network integration services include installation of business data systems, local area networking, and other data networking solutions.

Network access services - - Network access services connect a customer’s telephone or other equipment to the transmission facilities of other carriers that provide long distance and other communications services.

Wireline long distance - - Wireline long distance services primarily result from the transport of intraLATA telecommunications traffic that is outside of a local calling area. Federal regulation prohibits us from providing interLATA long distance services in seven of our 13 in-region states. We provide wireline interLATA long distance to our customers in Texas, Kansas, Oklahoma, Arkansas, Missouri and Connecticut. Long distance services also include other services such as Wide Area Telecommunications Service (WATS or 800 services) and other special services. In addition, since 1996, we have offered wireline interLATA long distance services to customers in selected areas outside the wireline subsidiaries’ authorized regions.

Customer premises equipment (CPE) - CPE and other equipment sales range from single-line and cordless telephones to sophisticated digital PBX systems. PBX is a private telephone switching system, usually located on a customer’s premises, which provides intra-premise telephone services as well as access to the public switched network.

Internet Services - We offer a range of Internet services and products for residences and businesses, varying by market. Internet services offered include basic dial-up access service, dedicated access, web hosting, e-mail, and high-speed access services. During 2000, we formed a relationship with Prodigy Communications Corporation (Prodigy) that combined our residential and small business Internet operations. In the fourth quarter of 2001, we acquired Prodigy.

Additional financial information on the Prodigy acquisition is contained in Note 3 of the 2001 SBC Annual Report to Shareowners and is incorporated herein by reference pursuant to General Instruction G(2).

Yahoo! Agreement

In November 2001, we announced an agreement with Yahoo! to provide broadband access to customers in our 13-state area and co-branded dial-up service nationwide. This agreement will help our customers access our internet services virtually nationwide. We expect to begin offering the co-branded service with Yahoo! during the second half of 2002.

Wireless

Our wireless segment provides domestic wireless telecommunications services, including local, long distance and roaming services. Wireless services and products offered also include certain enhanced services, paging services and wireless equipment. Due to the contribution of substantially all of our domestic wireless operations to Cingular (discussed below), reported wireless results do not include revenues or expenses from the wireless joint venture; instead we reflect our 60 percent share of its net income as equity in net income of affiliates. However, for evaluating the results of Cingular internally, we use proportional consolidation. On that normalized basis, the wireless segment provided approximately 16 percent of our 2001 operating revenues; on an actual reported basis, less than one percent of our operating revenues came from our Wireless segment.

Cingular Wireless Joint Venture

In April 2000, we formed a joint venture with BellSouth to provide domestic wireless services nationally. In October 2000, most of our and BellSouth’s wireless operations were contributed to Cingular, which then began operations. At December 31, 2001, Cingular served approximately 21.6 million customers, making it the second largest wireless operator in the United States. Economic ownership in Cingular is held 60 percent by us and 40 percent by BellSouth, with control shared equally. We are accounting for our interest under the equity method of accounting.

Additional information on Cingular is contained in Note 7 of the 2001 SBC Annual Report to Shareowners and is incorporated herein by reference pursuant to General Instruction G(2).

SpectraSite Agreement

In November 2001, we amended our August 2000 agreement with SpectraSite Communications, Inc. (SpectraSite) in which we granted SpectraSite the exclusive right to lease 3,900 communication towers for prepaid rents of $983 million in cash and SpectraSite common stock valued at $325 million, or $22.659 per share, at the August 2000 closing. We have agreed to reduce the maximum number of communication towers to be leased to SpectraSite to 3,600, and to extend the schedule for closing on towers until the first quarter of 2004. As consideration for those modifications, we received $35 million.

Wireless Auction

Cingular invested in a participant in a December 2000/January 2001 FCC auction of wireless spectrum licenses held by NextWave. A number of legal issues have emerged in connection with this auction and it remains subject to legal, legislative and regulatory proceedings.

Additional information on this auction is contained in the 2001 SBC Annual Report to Shareowners under the heading “Wireless” on page 20 which is incorporated herein by reference pursuant to General Instruction G(2).

Directory

Our directory segment includes advertising, Yellow and White Pages directories and electronic publishing. The directory operating segment provided approximately 8 percent of our normalized operating revenues in 2001.

Our directory subsidiaries operate primarily in our 13-state region.

International

Our international segment includes all of our investments with primarily international operations. We have direct or indirect interests in businesses located in more than 25 countries and as of December 31, 2001, have international investments with a carrying value of approximately $8.2 billion. Our international investments include local and long distance telephone services, wireless communications, voice messaging, data services, video services, Internet access, telecommunications equipment, and directory publishing.

Europe

We hold a 41.6 percent stake in TDC A/S (TDC) (formerly known as Tele Danmark A/S), Denmark’s primary full-service communications operator. TDC has a 16.5 percent investment in Belgacom S.A. (Belgacom) as well as investments in wireless services in Poland, the Ukraine, Lithuania, Austria, the Netherlands and Germany. It has investments in competitive communications providers in Sweden, Germany, Switzerland and the Czech Republic. TDC also has investments in local telephone operations in Hungary and an international digital transmission link through Russia, Korea and Japan. SBC currently is able to elect six of twelve members of the TDC Board of Directors, including the Chairman, who would cast any tie-breaking vote.

In January 2001, TDC acquired a majority interest in diAx A.G (diAx), a wireless and long distance provider in Switzerland owned by SBC International and diAx Holdings.

In Belgium, we hold a 17.5 percent stake in Belgacom, the country’s primary full-service telecommunications operator, and effectively own 24.4 percent of Belgacom when combined with our stake in TDC. With approximately 4.9 million access lines and more than 4.0 million cellular customers, Belgacom provides local, long distance, cellular and other communications services and offers directories and security services. Belgacom also has telecommunications investments in France and the Netherlands.

Belgacom has entered into an agreement with an unaffiliated special purpose entity (SPE) that allows Belgacom, at its discretion, the option to sell portions of its Netherlands wireless operations to the SPE in unspecified amounts until the end of 2002. In the fourth quarter of 2001, Belgacom sold a portion of its investment to the SPE, lowering its ownership percentage from 35 percent to 27 percent. As part of the transaction, Belgacom guaranteed the approximately $237 million in debt incurred by the SPE in the purchase. All holders of stock in the wireless company, including the SPE and TDC, which owns approximately 15 percent, have the right to put the stock to a subsidiary of Deutsche Telecom A.G. beginning January 2003. The SPE can put the shares at a price that is greater than the amount guaranteed by Belgacom.

We hold a 15 percent equity interest in Cegetel S.A. (Cegetel), a holding company, through a joint venture with France’s Vivendi, a French diversified public company. Cegetel owns 80 percent of Societe Francaise du Radiotelephone, a wireless carrier in France with over 11.6 million customers. Cegetel offers both mobile and fixed line services.

Asia

In July 2001, we sold our interest in TransAsia Telecommunications Inc., a regional wireless telecommunications provider in southern Taiwan.

North America

We have a 20 percent stake in Bell Canada, Canada’s premier telecommunications provider. Bell Canada offers services to more than 11.4 million residential and business customers, including local, long distance and wireless communications, Internet access, high-speed data services and directories.

From July 1, 2002 through December 31, 2002, we have the option to sell all of our Bell Canada shares to BCE Inc. (BCE) for an unspecified combination of cash and debt at fair market value plus 25 percent. Similarly, BCE has the right to purchase our Bell Canada shares during the same time frame at either the fair market value plus 25 percent or at our original investment amount compounded at an annual rate of 15 percent, whichever is greater. BCE is a publicly traded company with more than 23 million customer connections through its wireline, wireless, data and Internet, and satellite services. It is Canada’s largest communications company and owns approximately 80 percent of Bell Canada. We currently do not know whether we or BCE will exercise our rights during that time frame. These options are also available on the same terms from July 1, 2004, through December 31, 2004.

We own an 8.1 percent equity share in Teléfonos de México, S.A. de C.V. (Telmex), Mexico’s largest national telecommunications provider of wireline services. Telmex operates approximately 13.3 million access lines. Through our relationship, we have worked with Telmex to develop an advanced network, and have helped Telmex achieve its goal of providing enhanced telephone service throughout Mexico.

We are a member of a consortium that holds all of the class AA shares of Telmex stock, representing voting control of the company. Another member of the consortium, Carso Global Telecom, S.A. de C.V. (Carso), has the right to appoint a majority of the directors of Telmex.

In October 2000, in an effort to promote competition, the Mexican government passed new telecommunications rules for Telmex. The rules established interconnection pricing guidelines and also barred Telmex from charging less for a service than it charges to other carriers. Telmex obtained an injunction in Mexican court against these rules and hearings remain pending. In December 2000, Telmex and certain competitors reached an agreement that provided, among other things, that competitors pay approximately $140 million to Telmex for past-due amounts related to interconnection rates and approximately $550 million for local network costs incurred by Telmex in 1997. The agreement also established an interconnection rate of 1.25 cents per minute for 2001, compared with approximately 3.34 cents in 2000. In addition, as part of the agreement, Telmex will continue negotiations with competitors regarding a new cost-based international settlement model and will review the proportional return mechanism.

In February 2002, U.S. trade officials announced that they will formally ask for a World Trade Organization panel to investigate the allegation that Mexico has unfairly kept U.S. companies from competing in its $12 billion telecommunications market.

As of December 31, 2001, Telmex had approximately 70 percent of the long distance market in Mexico. Telmex’s share of international long distance traffic is expected to decline significantly when the proportional return mechanism expires. This mechanism guarantees Telmex the same percentage of incoming traffic as outgoing traffic. In December 2001, Telmex and some of its competitors agreed to eliminate the proportional return mechanism at the end of 2003 and to a phased-in reduction of the settlement rate: 15.5 cents in 2001, 13.5 cents in 2002, 10 cents in 2003, and free market in 2004. In a later December 2001 agreement, Telmex and its competitors agreed to reduce the interconnection rate to 0.975 cents per minute for 2002 from 1.25 cents per minute for 2001. Local competition is expected to increase in 2002, primarily for business customers. We do not expect the carrier agreement or rules affecting Telmex to have a material impact on our financial position or results of operations.

In 2000, Telmex spun-off its wireless and certain other operations to its shareowners as a separate business, América Móvil S.A. de C.V. (América Móvil), which serves more than 25 million wireless customers. We own an 8 percent interest in América Móvil.

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, Carso, had the right to appoint a majority of the directors of América Móvil. In January 2002, Carso transferred its ownership interest in América Móvil to Americas Telecom S.A. de C.V., and with that the right to appoint a majority of the directors of América Móvil.

South America

In February 2002, Telecom Américas Ltd. (Telecom Americas), a joint venture with América Móvil and Bell Canada International Inc., was reorganized to focus on the provision of wireless in Brazil. As a result of the reorganization our interest in Telecom Americas was reduced from 12.8 percent to 12.4 percent, and may be further diluted to 8.3 percent over the next two and one-half years. The reorganization of Telecom Americas does not alter the provisions of the option granted to América Móvil discussed in the following paragraph.

In January 2002, we purchased from América Móvil its approximately 50 percent of Cellular Communications of Puerto Rico (CCPR) for cash and an option redeemable for our investment in Telecom Americas. This represents a forward sale of our interest in Telecom Americas. In connection with this transaction, we reviewed the values at which we would carry CCPR and our interest in Telecom Americas and recognized a charge of $390 million ($262 million net of tax) for the reduction of our direct and indirect book values to the value indicated by the transaction. The charges were recorded in both other income (expense) – net $(341) million and equity in net income of affiliates $(49) million.

Africa/Middle East

We hold an 18 percent ownership stake in Telkom S.A. Limited (Telkom), South Africa’s state-owned local exchange and long distance company. Currently, Telkom serves nearly 5.0 million access lines in South Africa, and also is developing a second national wireless network serving more than 5.9 million wireless customers through Telkom’s wireless subsidiary, Vodacom.

We own a 13.3 percent stake in Amdocs Limited (Amdocs), a major supplier of billing and customer service software used by telecommunications companies worldwide. Amdocs, a Gurnsey Island corporation, has operations throughout the world with many of its programming support services located in Israel.

Financial information about foreign and domestic operations is included in Note 7 of the 2001 SBC Annual Report to Shareowners and is incorporated herein by reference pursuant to General Instruction G(2).

Other

During 2001, we sold SecurityLink, Ameritech’s security monitoring service, and the operational assets of Ameritech New Media, our cable television operations.

Additional information on the sale of these businesses is contained in Note 3 of the 2001 SBC Annual Report to Shareowners and is incorporated herein by reference pursuant to General Instruction G(2).

MAJOR CLASSES OF SERVICE

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

Percentage of Consolidated Total
Reported Operating Revenues

2001 2000 1999

Landline local service	50%	43%	39%
Wireless subscriber	-	10%	12%
Network access	23%	20%	20%
Directory advertising	10%	9%	9%

Other 11% 12% 13%

Landline local service, network access and other revenues are included in the wireline segment’s results of operations and each also exceeds 10 percent of wireline’s total operating revenues. Substantially all of our wireless subscriber revenues are reported in equity in net income of affiliates and also exceed 10 percent of wireless’ total operating revenues. Directory advertising revenues are included in our directory segment’s results of operations and exceed 10 percent of directory’s total operating revenues.

On a normalized basis, which includes the operations of Cingular on a proportionate consolidation basis in 2001 and the fourth quarter of 2000, the percentage of consolidated total normalized operating revenues by any class of service that accounted for 10 percent or more of our consolidated total operating revenues in any of the last three fiscal years is as follows:

Percentage of Consolidated Total
Normalized Operating Revenues

2001 2000 1999

Landline local service	42%	41%	40%
Wireless subscriber	13%	12%	11%
Network access	19%	20%	21%

Other 12% 13% 13%

Further information about amounts included in normalized results is included under the heading “Segment Results” on pages 7 through 13 and in Note 5 of the 2001 SBC Annual Report to Shareowners and is incorporated herein by reference pursuant to General Instruction G(2).

GOVERNMENT REGULATION

In the 13-state area, certain of our wireline subsidiaries are subject to regulation by state commissions which have the power to regulate, in varying degrees, intrastate rates and services, including local, long distance and network access services. Certain wireline subsidiaries are also subject to the jurisdiction of the FCC with respect to interstate and international rates and services, including interstate access charges. Access charges are designed to compensate the wireline subsidiaries for the use of their facilities for the origination or termination of long distance and access services by other carriers.

Additional information relating to federal and state regulation of the wireline subsidiaries is contained in the 2001 SBC Annual Report to Shareowners under the heading “Regulatory Environment” beginning on page 15, 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. We also license other companies to use this intellectual property. We do not believe that the expiration of any of our intellectual property rights, or the nonrenewal of those rights, would have a material adverse affect on our results of operations.

MAJOR CUSTOMER

No customer accounted for more than 10 percent of our consolidated revenues in 2001, 2000 or 1999.

COMPETITION

Information relating to competition in each of our operating segments is contained in the 2001 SBC Annual Report to Shareowners under the heading “Competition” beginning on page 19, and is incorporated herein by reference pursuant to General Instruction G(2).

RESEARCH AND DEVELOPMENT

The majority of our research and development activities are related to our wireline segment. Applied research, technology planning and evaluation services are conducted at our subsidiary, SBC Technology Resources, Inc. We also have a research agreement with Telcordia Technologies, formerly Bell Communications Research, Inc. Research and development expenses were not material in 2001, 2000 or 1999.

EMPLOYEES

As of January 31, 2002, we employed approximately 192,550 persons. Approximately two-thirds of our employees are represented by the Communications Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW).

In February 2001, our telephone subsidiaries reached agreements with the CWA covering employees in thirteen states. The new agreements expire in March 2004 and include a wage increase of approximately 12.25 percent over the life of the contracts, in addition to other economic provisions.

The IBEW represents approximately 12,000 employees and their labor agreement expires in June 2003.

During 2001, as part of our force-reduction program, an enhanced retirement program (ERB) was offered to eligible PTG nonmanagement employees. The ERB program offered eligible employees who voluntarily decided to terminate employment an enhanced pension benefit and increased eligibility for postretirement medical and dental benefits. Approximately 1,400 employees accepted this offer and terminated employment before the end of December 31, 2001.

In the fourth quarter of 2001, we transferred approximately 17,000 employees that were previously leased to Cingular; these individuals are now on Cingular’s payroll with coverage under Cingular’s benefits plans.

RECENT DEVELOPMENTS

In February 2002, consultants hired by the California Public Utilities Commission (CPUC) issued a report on their 1997-1999 audit of our California wireline subsidiary. The report concluded that we understated regulated net operating income reported to the CPUC and should issue refunds, i.e., service credits, to customers for 1997 and 1998 totaling approximately $350. We do not agree with the report’s conclusions and will contest them in proceedings before the CPUC.

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties. 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 changes in the markets served by SBC or in countries in which SBC has significant investments.
• Changes in available technology and the effects of such changes including product substitutions and deployment costs.
• The final outcome of FCC proceedings, including rulemakings, and judicial review, if any, of such proceedings, including issues relating to jurisdiction.
• The final outcome of state regulatory proceedings in SBC’s 13-state area, and judicial review, if any, of such proceedings, including proceedings relating to interconnection terms, access charges, universal service, unbundled network elements and resale rates, SBC’s broadband initiative known as Project Pronto, service standards and reciprocal compensation.
• Enactment of additional state, federal and/or foreign regulatory laws and regulations pertaining to our subsidiaries and foreign investments.
• The timing of entry and the extent of competition in the local and intraLATA toll markets in SBC’s 13-state area and our entry into the in-region long distance market.
• The impact of the Ameritech transaction, including performance with respect to regulatory requirements, and merger integration efforts.
• The timing, extent and cost of deployment of Project Pronto, its effect on the carrying value of the existing wireline network and the level of consumer demand for offered services.
• The impact of the wireless joint venture with BellSouth, known as Cingular, including marketing and product-development efforts, access to additional spectrum, technological advancements and financial capacity.

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

ITEM 2. PROPERTIES

Our properties do not lend themselves to description by character and location of principal units. At December 31, 2001, approximately 99 percent of our property, plant and equipment was owned by our wireline subsidiaries. Network access lines represented approximately 39 percent of the wireline subsidiaries’ investment in telephone plant; central office equipment represented approximately 41 percent; land and buildings represented approximately 9 percent; other equipment, comprised principally of furniture and office equipment and vehicles and other work equipment, represented approximately 7 percent; and other miscellaneous property represented approximately 4 percent.

Substantially all of the installations of central office equipment are located in buildings and on land which we own. Many garages, administrative and business offices and telephone centers are in leased quarters.

ITEM 3. LEGAL PROCEEDINGS

We are a party to various legal and regulatory proceedings arising in the ordinary course of business. While there can be no assurance as to the ultimate outcome of any pending proceedings, as of the date of this report, we do not believe that 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of shareowners in the fourth quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT
(As of February 28, 2002)

Name Age Position Held Since

Edward E. Whitacre, Jr.	60	Chairman and Chief Executive Officer	1/1990
John H. Atterbury III	53	Group President	6/2001
James W. Callaway	55	Group President	11/1999
Cassandra C. Carr	57	Senior Executive Vice President - External Affairs	10/1998
William M. Daley	53	President	12/2001
James D. Ellis	58	Senior Executive Vice President and         General Counsel	3/1989
Karen E. Jennings	51	Senior Executive Vice President - Human         Resources	10/1998
James S. Kahan	54	Senior Executive Vice President - Corporate         Development	7/1993
Forrest E. Miller	49	President and Chief Executive Officer         (Southwestern Bell Telephone, L.P.)	4/2001
Edward A. Mueller	54	President and Chief Executive Officer        (Ameritech Corporation)	9/2000
Stanley T. Sigman	54	Group President and Chief Operating Officer	4/2001
Randall L. Stephenson	41	Senior Executive Vice President and         Chief Financial Officer	8/2001
Rayford Wilkins, Jr.	50	President and Chief Executive Officer         (Pacific Bell Telephone Company and          Nevada Bell Telephone Company)	9/2000

All of the above executive officers have held high-level managerial positions with SBC or its subsidiaries for more than the past five years, except for Mr. Daley. Mr. Daley was Vice Chairman and Senior Managing Director of Evercore Partners Inc. from May 2001 to December 2001. He was Chairman of the Gore/Lieberman Campaign from July 2000 to December 2000, and he was Secretary of Commerce from January 1997 to July 2000. Prior to that, he was a partner in the law firm of Mayer, Brown & Platt from 1993 to 1997. Executive officers are not appointed to a fixed term of office.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The number of shareowners of record as of December 31, 2001 and 2000 were 1,086,775 and 1,148,570. During 2001, non-employee directors acquired from SBC shares of common stock pursuant to the Non-Employee Director Stock and Deferral Plan. Under the plan, a director may make an annual election to receive all or part of his or her annual retainer or fees in the form of SBC shares or deferred stock units (DSUs) that are convertible into SBC shares. Each Director also receives an annual grant of DSUs. During 2001 an aggregate of 116,100 SBC shares and DSUs were acquired by non-employee directors at prices ranging from $38.95 to $52.38, in each case the fair market value of the shares on the date of acquisition. The issuances of shares and DSUs were exempt from registration pursuant to Section 4(2) of the Securities Act.

Other information required by this Item is included in the 2001 SBC Annual Report to Shareowners under the headings “Quarterly Financial Information” on page 48, “Selected Financial and Operating Data” on page 4, and “Stock Trading Information” on the back cover, which are incorporated herein by reference pursuant to General Instruction G(2).

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

Information required by this Item is included in the 2001 SBC Annual Report to Shareowners under the heading “Selected Financial and Operating Data” on page 4 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 2001 SBC Annual Report to Shareowners on page 5 through page 24, 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 2001 SBC Annual Report to Shareowners under the heading “Market Risk” on page 23 through page 24, 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 2001 SBC Annual Report to Shareowners on page 25 through page 48, 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

No changes in or disagreements with accountants have occurred on any accounting or financial disclosure matters during the period covered by this report.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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. Other information required by this Item 10 is included in the registrant’s definitive proxy statement, dated on or about March 11, 2002, under the heading “Board of Directors” beginning on page 4 which is incorporated herein by reference pursuant to General Instruction G(3).

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item is included in the registrant’s definitive proxy statement, dated on or about March 11, 2002, under the headings “Compensation of Directors” from page 13 through page 14, and “Compensation Committee Interlocks and Insider Participation”, “Executive Compensation”, “Pension Plans”, and “Contracts with Management” from page 19 through page 32, which are incorporated herein by reference pursuant to General Instruction G(3).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this Item is included in the registrant’s definitive proxy statement, dated on or about March 11, 2002, under the heading “Common Stock Ownership of Directors and Officers” on page 15, which is incorporated herein by reference pursuant to General Instruction G(3).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item is included in the registrant’s definitive proxy statement, dated on or about March 11, 2002, under the heading “Compensation of Directors” from page 13 through page 14 and “Contracts with Management” from page 29 through 32, which are incorporated herein by reference pursuant to General Instruction G(3).

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

	Page
(1) Report of Independent Auditors	*
Financial Statements covered by Report of Independent Auditors:
Consolidated Statements of Income	*
Consolidated Balance Sheets	*
Consolidated Statements of Cash Flows	*
Consolidated Statements of Shareowners' Equity	*
Notes to Consolidated Financial Statements	*

* Incorporated herein by reference to the appropriate portions of the registrant’s annual report to shareowners for the fiscal year ended December 31, 2001. (See Part II.)

	Page
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts	20

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 Securities and Exchange Commission (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 June 30, 2000. (Exhibit 3-a to Form 10-K for 2000.)
3-b	Bylaws amended June 30, 2000. (Exhibit 3 to Form 8-K dated June 30, 2000.)
4-a	Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument which defines the rights of holders of long-term debt of the registrant or any of its consolidated subsidiaries is filed herewith. Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request.
4-b	Guaranty of certain obligations of Pacific Bell Telephone Co. and Southwestern Bell Telephone Co. (Exhibit 4-d to Form 10-K for 1999.)
4-c	Guaranty of certain obligations of Ameritech Capital Funding Corp., Illinois Bell Telephone Co., Indiana Bell Telephone Co. Inc., Michigan Bell Telephone Co., The Ohio Bell Telephone Co., Pacific Bell Telephone Co., Southern New England Telecommunications Corp., The Southern New England Telephone Co., Southwestern Bell Telephone Co., Wisconsin Bell, Inc. (Exhibit 4-e to Form 10-K for 1999.)
10-a	Short Term Incentive Plan. (Exhibit 10-a to Form 10-K for 2000.)
10-b	Supplemental Life Insurance Plan. (Exhibit 10-c to Form 10-K for 1997.)
	10-b(i)  Resolution amending the Plan, effective October 15, 2000. (Exhibit 10-c(i) to Form 10-K for 2000.)
10-c	Supplemental Retirement Income Plan. (Exhibit 10-d to Form 10-K for 2000.)
10-d	Senior Management Deferred Compensation Plan (effective for Units of Participation Having a Unit Start Date Prior to January 1, 1988), revised July 30, 1993. (Exhibit 10-e to Form 10-K for 2000.)
	10-d(i)   Resolution amending the Plan, effective October 15, 2000. (Exhibit 10-e(i) to Form 10-K for 2000.)
10-e	Senior Management Deferred Compensation Program of 1988 (effective for Units of Participation Having a Unit Start Date of January 1, 1988 or later), revised July 30, 1993. (Exhibit 10-f to Form 10-K for 2000.)
	10-e(i)   Resolution amending the Plan, effective October 15, 2000. (Exhibit 10-e(i) to Form 10-K for 2000.)
10-f	Senior Management Long Term Disability Plan. (Exhibit 10-f to Form 10-K for 1986.)
10-g	Salary and Incentive Award Deferral Plan. (Exhibit 10-h to Form 10-K for 2000.)
10-h	Financial Counseling Program. (Exhibit 10-i to Form 10-K for 1997.)
	10-h(i)   Resolution amending the Plan, effective October 15, 2000. (Exhibit 10-c(i) to Form 10-K for 2000.)
10-i	Executive Health Plan, formerly the Supplemental Health Plan.
10-j	Retirement Plan for Non-Employee Directors. (Exhibit 10-k to Form 10-K for 1997.)
10-k	Form of Indemnity Agreement, effective July 1, 1986, between SBC and its directors and officers. (Appendix 1 to Definitive Proxy Statement dated March 18, 1987.)
10-l	Forms of Change of Control Severance Agreements for officers of SBC and certain officers of SBC's subsidiaries (Approved November 21, 1997). (Exhibit 10-n to Form 10-K for 1997.)
10-m	Stock Savings Plan.
10-n	1992 Stock Option Plan.
10-o	Officer Retirement Savings Plan. (Exhibit 10-q to Form 10-K for 1997.)
10-p	1996 Stock and Incentive Plan.
10-q	Non-Employee Director Stock and Deferral Plan. (Exhibit 10-s to Form 10-K for 2000.)
10-r	Pacific Telesis Group Deferred Compensation Plan for Nonemployee Directors. (Exhibit 10gg to Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609).)
	10-r(i)   Resolutions amending the Plan, effective November 21, 1997. (Exhibit 10-v(i) to Form 10-K for 1997.)
10-s	Pacific Telesis Group Outside Directors' Deferred Stock Unit Plan. (Exhibit 10oo to Form 10-K for 1995 of Pacific Telesis Group (Reg. 1-8609).)
10-t	Pacific Telesis Group 1996 Directors' Deferred Compensation Plan. (Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609).)
	10-t(i)   Resolutions amending the Plan, effective November 21, 1997. (Exhibit 10-v(i) to Form 10-K for 1997.)
10-u	Pacific Telesis Group 1994 Stock Incentive Plan. (Attachment A to Pacific Telesis Group's 1994 Proxy Statement filed March 11, 1994, and amended March 14 and March 25, 1994.)
	10-u(i)   Resolutions amending the Plan, effective January 1, 1995. (Attachment A to Pacific Telesis Group's 1995 Proxy Statement, filed March 13, 1995.)
10-v	Pacific Telesis Group Nonemployee Director Stock Option Plan. (Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed February 26, 1990.)
	10-v(i)   Resolutions amending the Plan, effective April 1, 1994. (Exhibit 10xx(i) to Form 10-K for 1994 of Pacific Telesis Group (Reg. 1-8609).)
10-w	2001 Incentive Plan.
10-x	Employment Agreement between SBC and William M. Daley.
10-y	Employment Agreement between SBC and Edward E. Whitacre, Jr.
10-z	Retirement Agreement between SBC and Donald E. Kiernan (Exhibit 10-z to Form 10-Q for September 30, 2001.)
10-aa	Employment Agreement between SBC and Charles E. Foster (Exhibit 10-aa to Form 10-Q for September 30, 2001.)
12	Computation of Ratios of Earnings to Fixed Charges.
13	Portions of SBC's Annual Report to shareowners for the fiscal year ended December 31, 2001. Only the information incorporated by reference into this Form 10-K is included in the exhibit.
21	Subsidiaries of SBC.
23	Consent of Ernst & Young LLP.
24	Powers of Attorney.
99-a	Annual Report on Form 11-K for the SBC Savings Plan for the year 2001 to be filed under Form 10-K/A.
99-b	Annual Report on Form 11-K for the SBC Savings and Security Plan for the year 2001 to be filed under Form 10-K/A.
99-c	Annual Report on Form 11-K for the Ameritech Savings and Security Plan for Non-Salaried Employees for the year 2001 to be filed under Form 10-K/A.

We will furnish to shareowners upon request, and without charge, a copy of the annual report to shareowners and the proxy statement, portions of which are incorporated by reference in the Form 10-K. We will furnish any other exhibit at cost.

(b) Reports on Form 8-K:

On January 25, 2002, we filed a Form 8-K, reporting on Item 5. Other Events. In the report, we disclosed information that was announced in our January 25, 2002 earnings release.

SBC COMMUNICATIONS INC.		Schedule II - Sheet 1
	SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Allowance for Uncollectibles Dollars in Millions

COL. A COL. B COL. C COL. D COL. E

Additions

Description Balance at Beginning of Period (1)
Charged to Costs and Expenses - Note (a) (2)
Charged to Other Accounts - Note (b) Deductions - Note (c) Balance at End of Period

Year 2001	$	1,016	1,384	293	1,439	(d)	$	1,254
Year 2000 (f)	$	1,389	885	264	1,522	(e)	$	1,016
Year 1999 (f)	$	951	1,136	596	1,294		$	1,389

*  Certain balances from prior periods have been restated.

__________

(a)	Excludes direct charges and credits to expense on the statements of income and reinvested earnings related to interexchange carrier receivables.
(b)	Includes amounts previously written off which were credited directly to this account when recovered and amounts related to long-distance carrier receivables which are being billed by SBC.
(c)	Amounts written off as uncollectible.
(d)	Includes $50 from the sale of SecurityLink.
(e)	Includes $81 transferred to Cingular.
(f)	Certain amounts have been reclassified to conform to the current year's presentation.

SBC COMMUNICATIONS INC.		Schedule II - Sheet 2
	SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Accumulated Amortization of Intangibles Dollars in Millions

COL. A COL. B COL. C COL. D COL. E

Additions

Description Balance at Beginning of Period (1)

Charged to Expense (2)
Charged to Other Accounts Deductions Balance at End of Period

Year 2001	$	746	481		1		457	(a)	$	771
Year 2000 (e)	$	1,325	1,268	(b)	(262)	(c)	1,585	(d)	$	746
Year 1999	$	1,111	378		8		172		$	1,325

__________

(a)	Includes $277 from the sale of SecurityLink and $101 transfer to Cingular.
(b)	Includes impairment of underlying assets at SecurityLink.
(c)	Primarily related to the transfer to Cingular.
(d)	Includes $962 transfer to Cingular and $670 related to impairment at SecurityLink.
(e)	Certain amounts have been reclassified to conform to the current year's presentation.

SBC COMMUNICATIONS INC.		Schedule II - Sheet 3
	SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Reserve for Restructuring Dollars in Millions

COL. A COL. B COL. C COL. D COL. E

Additions

Description Balance at Beginning of Period (1)
Charged to Costs and Expenses (2)
Charged to Other Accounts Deductions Balance at End of Period

Year 2001 (a)	$	-	-	-	-		$	-
Year 2000	$	14	-	-	14		$	-
Year 1999	$	123	5	-	114	(b)	$	14

__________

(a)	No activity in 2001 as the balance was zero at December 31, 2000.
(b)	Includes $99 that was reversed to other operating expenses for amounts no longer required.

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 28th day of February, 2002.

SBC COMMUNICATIONS INC.

By /s/ Randall Stephenson     
(Randall Stephenson
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:

Edward E. Whitacre, Jr.*
Chairman and
Chief Executive Officer

Principal Financial and
Accounting Officer:

Randall Stephenson
Senior Executive Vice President and
  Chief Financial Officer

/s/ Randall Stephenson     
(Randall Stephenson, as attorney-in-fact
and on his own behalf as Principal
Financial Officer and Principal Accounting Officer)

February 28, 2002

Directors:

Edward E. Whitacre, Jr.* Charles F. Knight*

Gilbert F. Amelio*	Lynn M. Martin*
Clarence C. Barksdale*	John B. McCoy*
James E. Barnes*	Mary S. Metz*
August A. Busch III*	Toni Rembe*
William P. Clark*	S. Donley Ritchey*
Martin K. Eby, Jr.*	Joyce M. Roché*
Herman E. Gallegos*	Carlos Slim Helú*
Jess T. Hay*	Laura D'Andrea Tyson*
James A. Henderson*	Patricia P. Upton*

Bobby R. Inman*

* by power of attorney

EX-10

Exhibit 10-i

EXECUTIVE HEALTH PLAN
(Formerly the SUPPLEMENTAL HEALTH PLAN prior to September 1, 2001)

Effective: January 1, 1987
Revisions Effective: March 19, 2001

EXECUTIVE HEALTH PLAN
TABLE OF CONTENTS

  Section             Subject                                     Page
  -------             -------                                     ----

     1.     Purpose ..............................................  1
     2.     Definitions...........................................  1
     3.     Eligibility ..........................................  2
     4.     (a)  Coverage.........................................  3
            (b)  Substitute Basic Coverage........................  3
     5.     Costs.................................................  4
     6.     Non-Competition ......................................  5
     7.     Administration........................................  6
     8.     Amendments and Termination ...........................  6

1. Purpose. The Executive Health Plan ("Plan") provides Eligible Employees and their eligible dependents with supplemental medical, dental and vision benefits.

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

Chairman. "Chairman" shall mean the Chairman of the Board of SBC Communications Inc.

Committee. "Committee" shall mean the Human Resources Committee of the Board of SBC Communications Inc.

Eligible Employee. "Eligible Employee" shall mean an Officer.

Officer. "Officer" shall mean an individual who is designated by the Chairman as eligible to participate in the Plan who is an elected officer of SBC or of any SBC subsidiary (direct or indirect).

Retirement. "Retirement" shall mean the termination of an Eligible Employee's employment with SBC or any of its subsidiaries, for reasons other than death, on or after the earlier of the following dates: (1) the date the Eligible Employee is Retirement Eligible as such term is defined in the SBC Supplemental Retirement Income Plan ("SRIP"); 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 SBC Pension Benefit Plan - Nonbargained Program (“SBCPBP”) upon termination of Employment, the term “Retirement” shall include such Eligible Employee’s termination of employment.

Termination Under EPR. In determining whether an Eligible Employee’s termination of employment under the Enhanced Pension and Retirement Program (“EPR”) is a Retirement for purposes of this Plan, five years shall be added to each of age and net credited service (“NCS”). If with such additional age and years of service, (1) an Eligible Employee upon such termination of employment under EPR is Retirement Eligible according to the SBC Supplemental Retirement Income Plan (“SRIP”) or (2) the Eligible Employee upon such termination of employment under EPR has attained one of the following combinations of age and service,

               Actual NCS + 5 Years                Actual Age + 5 Years
               --------------------                --------------------
               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

then such termination of employment shall be a Retirement for all purposes under this Plan and the Eligible Employee shall be entitled to the treatment under this Plan afforded in the case of a termination of employment which is a Retirement.

SBC. "SBC" shall mean SBC Communications Inc.

3. Eligibility. Each Eligible Employee shall be eligible to participate in this Plan along with his or her eligible dependents. Eligible dependents are those covered under the Eligible Employee's SBC company's basic managed care medical, dental, and vision care plans ("Basic Plans").

Provisions of this Plan will continue in effect during Retirement for each Eligible Employee who became an Eligible Employee on or after January 1, 1987 but before January 1, 1999. Dependent coverage will also continue during the Retirement period for an Eligible Employee who became an Eligible Employee on or after January 1, 1987 but before January 1, 1999. An Eligible Employee who becomes an Eligible Employee after December 31, 1998 shall not be eligible hereunder for coverage during Retirement.

Eligible Employees as of October 1, 1998 must elect to continue coverage effective January 1, 1999 by December 31, 1998. An Eligible Employee who becomes an Eligible Employee after October 1, 1998 shall have 90 days after becoming an Eligible Employee to elect coverage under this Plan. Coverage will remain in effect as long as the applicable contribution is paid by the Eligible Employee. However, once an Eligible Employee terminates coverage he or she may not reinstate such coverage.

4. (a) Coverage. Subject to the limitations in this Section, this Plan provides 100% coverage of all medical, dental and vision expenses not covered by the Eligible Employee’s Basic Plans provided such expenses would qualify as deductible medical expenses for federal income tax purposes, whether deducted or not. Notwithstanding any other provision of the Plan to the contrary, an employee who first becomes an Eligible Employee mid-year and who is enrolled in SBC sponsored medical plans other than his or her company’s Basic Plans (e.g., HMO) will be allowed to participate in the Plan for the remainder of the calendar year along with his or her dependents who are enrolled in such other SBC sponsored Plans, as if he or she was participating in his or her company’s Basic Plans. Thereafter, to participate in the Plan, the Eligible Employee, as well as his or her dependents for whom coverage is desired under this Plan, must be enrolled in the Basic Plans to have coverage hereunder. Expenses incurred by any Eligible Employee or any of his or her eligible dependents under this Plan shall not exceed $50,000 per year per individual. Effective January 1, 1998, expenses incurred by any Eligible Employee and his or her eligible dependents under this Plan shall not exceed $100,000 total per Plan year (i.e., January 1 through December 31). Expenses covered by the Basic Plans will not be included in these limits.

Claims will be applied against the various health plans in the following order:

(1) Medicare if participant is eligible for same,

(2) Group Health Plans,

(3) CarePlus if elected and applicable,

(4) Long Term Care Plan if elected and applicable,

(5) this Plan.

(b) Substitute Basic Coverage. Notwithstanding any other provision of this Plan to the contrary, if upon Retirement, an Eligible Employee is eligible for coverage under this Plan during Retirement, but not eligible for coverage under the Basic Plans, this Plan shall provide all medical, dental and vision expenses as if such Eligible Employee had been eligible for Non-Network coverage under the Basic Plans (hereinafter, “Substitute Basic Coverage”). Such Substitute Basic Coverage shall be subject to the same terms and conditions, including monthly retiree contributions, copays, etc. (if any), as would be applicable to the Eligible Employees and dependents if provided under the Basic Plans and shall constitute such Eligible Employee’s Basic Plans for all purposes under this Plan. The costs of Substitute Basic Coverage (except for any monthly contributions, copays, etc.) shall be borne by SBC and shall not be included in the determination of any Eligible Employee’s annual Plan contribution amount as provided in Section 5.

5. Costs. Except as provided below in this Section, costs and expenses incurred in the operation and administration of this Plan will be borne by SBC; and each subsidiary will be required to reimburse SBC for applicable costs and expenses attributable to Eligible Employees employed by it:

• Effective January 1, 1999, an Eligible Employee electing coverage under the Plan will pay for coverage under the Plan while in active service. Such Eligible Employee’s annual contribution amount will be equal to 10% of SBC’s actual costs per Eligible Employee for the prior Plan year.
• Effective with respect to a retirement occurring on or after January 1, 1999, an Eligible Employee who became an Eligible Employee before January 1, 1999 and who elects retirement coverage under the Plan will pay for coverage under the Plan during retirement. Such Eligible Employee’s annual contribution amount during retirement will be equal to a percentage of SBC’s actual costs per Eligible Employee for the prior Plan year according to the following:

The contribution percentage to be used shall be the lower of the Annual Contribution Percentage determined using each Eligible Employee’s Age or Years Until Retirement as of December 31, 1997:

                                                Annual                                     Annual Contribution
                                             Contribution         Years Until Retirement        Percentage
                          Age                 Percentage     OR
               --------------------------- ----------------- ---- ------------------------ ---------------------
               if age 55 or older                10%              if retirement eligible           10%
               --------------------------- ----------------- ---- ------------------------ ---------------------
               if age 50 or older but            25%              if not retirement          10% plus 5% for
               less than 55                                       eligible                   each whole year*
                                                                                             until retirement
                                                                                             eligibility (not to
                                                                                             exceed 50%)
               --------------------------- ----------------- ---- ------------------------ ---------------------
               if less than age 50               50%
               --------------------------- ----------------- ---- ------------------------ ---------------------

*in the event an Eligible Employee is less than one whole year from retirement eligibility, the Annual Contribution Percentage shall be determined as if one whole year from retirement eligibility

Coverage will remain in effect as long as the applicable contribution is paid by the Retiree. However, once a Retiree terminates coverage he or she may not reinstate such coverage.

6. Non-Competition. Notwithstanding any other provision of this Plan, no coverage shall be provided under this Plan with respect to any Eligible Employee who shall, without the written consent of SBC, and while employed by SBC or any subsidiary thereof, or within three (3) years after termination of employment from SBC or any subsidiary thereof, engage in competition with SBC or any subsidiary thereof or with any business with which a subsidiary of SBC or an affiliated company has a substantial interest (collectively referred to herein as “Employer business”). For purposes of this Plan, engaging in competition with any Employer business shall mean engaging by Eligible Employee 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, coverage shall not be provided under this Plan if, within the time period and without the written consent specified, Eligible Employee 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 Eligible Employee takes and regardless of whether or not the employing company, or the company that Eligible Employee becomes associated with or renders service to, is itself engaged in direct competition with an Employer business.

7. Administration. Subject to the terms of the Plan, the Chairman shall establish such rules as are deemed necessary for the proper administration of the Plan. SBC will compute a “gross-up” allowance which will be paid to an Eligible Employee to offset income tax liabilities incurred as a result of receiving benefits under this Plan.

8. Amendments and Termination. This Plan may be modified or terminated at any time in accordance with the provisions of SBC's Schedule of Authorizations.

EXECUTIVE
HEALTH PLAN
ADMINISTRATIVE GUIDELINES

TABLE OF CONTENTS

    Section        Subject                                    Page
    -------        -------                                    ----

      1.     General.............................................1
      2.     Coverage Considerations.............................1
      3.     Enrollment..........................................2
      4.     Eligible Charges....................................3
      5.     Annual Limits.......................................3
      6.     Claims Processing...................................3
      7.     I. D. Cards.........................................5
      8.     Prescriptions.......................................5
      9.     Billing.............................................5
      10.    Reports.............................................6
      11.    Accruals............................................6
      12.    Taxes...............................................6

Approved:
Chairman & Chief Executive Officer                                          Date

1. General. The purpose of these guidelines is to list the procedures to be followed in administering the Executive Health Plan ("EHP").

The Senior Vice President - Human Resources will establish internal procedures and group insurance policies with health carrier(s) as appropriate to carry out the provisions of the Plan.

2. Coverage Considerations.

Eligible Employees:

Coverage is provided only for an Eligible Employee covered by a subsidiary’s basic medical plan (“basic plan”), except as otherwise provided for in Section 4 of the Plan.

Coverage continues during periods of disability and during retirement in certain circumstances as described in the Plan. Coverage during such periods shall be the same as provided to active Eligible Employees.

Coverage for a new Eligible Employee is effective the first day of the month in which the employee is declared to be eligible to participate in the Plan by the Chairman.

Coverage will cease on the last day of the month in which one of the following conditions exist:

(a) Eligible Employee is no longer a participant in the Basic Plan

(b) termination of Eligible Employee from active service for reasons other than disability or the retirement of an Eligible Employee who became an Eligible Employee before January 1, 1999

(c) death of Eligible Employee (unless surviving dependents continue coverage under basic plan)

(d) demotion of Eligible Employee so as to no longer be eligible to participate in the Plan

(e) transfer to a subsidiary that will not bear expenses for the Eligible Employee to participate in the Plan

(f) Eligible Employee engages in competitive activity

(g) discontinuance of the Plan by SBC or a subsidiary

Dependents:

Coverage is provided for dependents of a covered Eligible Employee if the dependents are covered by the basic plan.

If coverage for a dependent ceases under the basic plan, coverage under this Plan will cease with the same effective date.

If coverage for the Eligible Employee under this Plan ceases for any reason, dependent coverage will cease with the same effective date except where employee coverage ceases due to death of the Eligible Employee, the Plan will continue in effect for surviving dependents as long as the dependents are covered under the basic plan (through automatic coverage or through payment of basic premiums) and are paying any applicable premiums under this Plan.

3. Enrollment. Upon approval as an Eligible Employee, enrollment in the basic plan and payment of any applicable premium under this Plan, the Eligible Employee and current dependents shall be covered under the Plan. The Executive Compensation Administration (ECA) contact will forward a portfolio to the Eligible Employee including the following:

• Blank claim forms (5 to 10 copies)
• Blue return envelopes (5 to 10 )
• Filing instructions
• I. D. Cards with Eligible Employee's name imprinted (for use for Eligible Employee, spouse, and eligible dependents)

As a matter of convenience for the Eligible Employee, the ECA contact will advise the appropriate payroll office regarding withholding of basic coverage premiums for class II or sponsored dependents not already enrolled in the basic plan. The premium paid for dependents is at the rate specified for basic coverage only. There is no additional premium to be paid for EHP coverage for the dependent. Withholding of dependent basic premiums for retired Eligible Employees, where applicable, shall be handled in the same manner as other withholding arrangements for retired executives.

Each month, the ECA contact will provide the EHP carrier and subsidiary benefit administration groups with a list of Eligible Employees currently enrolled in the Plan. The ECA contact will provide updated dependent information to the carrier whenever new or revised Dependent Enrollment Forms are received from Eligible Employees.

4. Eligible Charges. Charges for medical care will be eligible under this Plan if they are also eligible medical expenses as defined in the Internal Revenue Code. In general, medical expenses are defined to include any amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease or for the purpose of affecting any structure or function of the body, and transportation for and essential to medical care. Amounts paid for illegal operations or treatments are not eligible medical expenses. In addition, expenses incurred which are merely beneficial to the general health of an individual are also not considered eligible medical expenses unless they are for the primary purpose of curing a particular disease or ailment and prescribed by a doctor.

Eligible Employees are encouraged to use basic plan cost management features, including pre-certification, continued stay, second surgical opinion and designation of Primary Care Physician. Use of these features is optional for Eligible Employees.

5. Annual Limits. The annual limits for charges which will be paid under the Plan are specified in the Plan. Expenses incurred under provisions of basic medical, dental and vision plans are not counted against the Plan's limits. The Plan's limits apply to the following eligible charges:

a) Medical expenses not paid under a basic medical expense plan (deductibles, co-pay amounts, excluded charges, etc., but not premiums to enroll dependents in the basic plan); plus

b) Dental expenses not paid under basic dental plan (deductibles, co-pay amounts, excluded charges etc., but not premiums to enroll dependents in the basic plan); plus

c) All vision expenses not covered by basic vision plan, but not premiums to enroll dependents in the basic plan

When an Eligible Employee or dependent or the Eligible Employee’s family exhausts annual coverage, the Eligible Employee will be notified by the carrier.

6. Claims Processing. Eligible Employees or their Providers (Doctors, Hospitals, etc.) should submit all basic medical, dental and vision plan and EHP claims to the EHP carrier (United HealthCare). In no case should claims be submitted for processing under the procedures of the basic medical, dental and vision plans. United HealthCare will coordinate processing for both basic and EHP claims to reduce administrative efforts for Eligible Employees. Retired Eligible Employees who are eligible for coverage under the Plan and who are eligible for Medicare should file with Medicare first. See Medicare Section below.

To submit a claim, Elibible Employees or their Providers should use a claim form (see Attachment 1) and one of the blue envelopes provided in the enrollment portfolio. Documentation of service provided should be attached to the claim form. Additional forms and envelopes are available from the carrier.

The carrier will receive completed forms, verify participation and make payment to the Eligible Employee or to the Provider as appropriate. The Explanation of Benefits statement will be forwarded to the Eligible Employee when payments are made.

Medical and Dental Claims. The carrier will allocate claim charges to either basic medical or dental plan coverage, EHP coverage or non-covered charges. The Eligible Employee or the Eligible Employee’s Provider will be reimbursed for all charges except those not eligible under either a basic medical or dental plan or EHP. The carrier will use the separation of charges between plans to produce reports and to track against annual limits.

Vision Claims. The carrier will allocate claim charges to either basic vision plan coverage, EHP coverage or non-covered charges. The Eligible Employee or the Eligible Employee’s Provider will be reimbursed for all charges except those not eligible under either a basic vision plan or EHP. The carrier will use the separation of charges between plans to produce reports and to track against annual limits. Eligible Employees should not submit vision claims to carriers other than the EHP carrier.

Medicare. Any retired Eligible Employee eligible for coverage under the Plan or his or her dependents any of whom are eligible for Medicare shall file claims with Medicare first. Expenses not reimbursed by Medicare should then be filed with United HealthCare using the Executive Health Plan Claim Form.

Coordination by Administrators. The ECA contact will instruct claims administrators for basic plans (vision, dental, medical) to forward all Eligible Employee claims to the EHP carrier for processing.

Release of Information. If requested by a Provider, it will be necessary for the Eligible Employee to sign a form to authorize the carrier to obtain additional information from a Provider. In those cases, the carrier will forward an information release form directly to the Eligible Employee.

7. I. D. Cards. Each enrollment portfolio includes I.D. cards which should be signed on the back by the Eligible Employee except for the Eligible Employee's spouse's card which should be signed by the spouse. The dependent's name will be shown on the dependent's card.

Blank cards can be obtained from the carrier and imprinted locally by the ECA Group.

Each card will contain a carrier telephone number dedicated to the EHP. This number is also on the claim forms.

8. Prescriptions. Participants in the EHP should use the Mail Service Prescription Drug Program or purchase prescriptions from a pharmacy, as appropriate. The Eligible Employee should attach his/her receipt for any amount not covered by the basic Plan to a claim form, and forward to the carrier for full reimbursement. Only prescription medicines are eligible for reimbursement. Over-the-counter medicines (cold tablets, aspirin, etc.) and hygienic supplies (contact lens solution, eye drops, etc.) are not covered under the plan.

9. Billing. The carrier will issue insurance premium bills at the beginning of each quarter to the following SBC entities:

• SBC ECA Group (for corporate staff Eligible Employees)
• Each subsidiary's Human Resources/Personal Administration Group (for subsidiary Eligible Employees).

Quarterly payments are due to the carrier by the end of the first month in the quarter.

Bills will provide sufficient detail to show the following:

• Amounts above that allocated to basic medical, dental and vision plans
• EHP premiums
• Other EHP charges/credits
• SBC code
• State code
• Individual bills for each Eligible Employee as requested by the employing subsidiary

10. Reports. The carrier will issue quarterly reports to the SBC ECA contact. These will include claim-to-premium reconciliation data for use in forecasting end-of-year true-ups and determining whether or not accruals will be required.

11. Accruals. If claim-to premium reconciliation data indicates claims are significantly exceeding premiums during a quarter, accruals should be considered during the year. At the end of the year, an accrual is generally required unless a year-end true-up bill is not expected.

12. Taxes. If receipt of coverage/benefits under this Plan results in taxable income, an Eligible Employee's income will be grossed-up.

EX-10

Exhibit 10-m

STOCK SAVINGS PLAN

As amended through September 28, 2001

Article 1 - Statement of Purpose

The purpose of the Stock Savings Plan (“Plan”) is to increase stock ownership by, and to provide retirement and savings opportunities to, a select group of management employees consisting of Eligible Employees of SBC Communications Inc. (“SBC” or the “Company”) and its Subsidiaries.

Article 2 - Definitions

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

After-Tax Account. The account maintained on an after-tax basis on the books of account of SBC for each Participant.

Base Compensation. The following types of cash-based compensation, in each case as determined by SBC, paid by an Employer (but not including payments made by a non-Employer, such as state disability payments), before reduction due to any contribution pursuant to this Plan or reduction pursuant to any deferral plan of an Employer, including but not limited to a plan that includes a qualified cash or deferral arrangement under Section 401(k) of the Internal Revenue Code, as amended (“Code”):

(a) annual base salary;

(b) commissions;

(c) Team Award (the annual award determined to be the “Team Award” by SBC together with the individual award determined by SBC to be the Individual Discretionary Award made in connection therewith) or comparable awards, if any, determined by SBC to be used in lieu of these awards. Unless otherwise provided by SBC, Team Award shall include, among other things, bonus awards under the Ameritech Management Incentive Plan or the Ameritech Senior Management Short Term Incentive Plan.

Payments by an Employer under a Disability plan made in lieu of any compensation described in (a), (b) or (c), above, shall be deemed to be a part of the respective form of compensation it replaces for purposes of this definition. Base Compensation does not include zone allowances or any other geographical differential and shall not include payments made in lieu of unused vacation or other paid days off, and such payments shall not be contributed to this Plan.

Business Day. Any day during regular business hours that SBC is open for business.

Chairman. The Chairman of the Board of Directors of SBC Communications Inc.

Committee. The Human Resources Committee of the Board of Directors of SBC Communications Inc.

Disability. Absence of an Employee from work with an Employer under the relevant Employer's disability plan.

Eligible Employee. An Employee who:

(a) is a full time, salaried Employee of SBC or an Employer in which SBC has a direct or indirect 100% ownership interest and who is on active duty, Disability (but only while such Employee is deemed by the Employer to be an Employee of such Employer) or Leave of Absence; and

(b) is, as determined by SBC, a member of Employer’s “select group of management or highly compensated employees” within the meaning of the Employment Retirement Income Security Act of 1974, as amended, and regulations thereunder (“ERISA”).

(c) is an officer level employee for compensation purposes as shown on the records of SBC or has an employment status which has been approved by SBC to be eligible to participate in this Plan.

Notwithstanding the foregoing, SBC may, from time to time, exclude any Employee or group of Employees from being deemed an “Eligible Employee” under this Plan.

In the event a court or other governmental authority determines that an individual was improperly excluded from the class of persons who would be considered Eligible Employees during a particular time for any reason, that individual shall not be an Eligible Employee for purposes of the Plan for the period of time prior to such determination.

Any Employee that holds options to acquire shares of AirTouch Communications, Inc. or ordinary shares or American Depository Shares of Vodafone AirTouch plc (or any similar rights), under the Pacific Telesis Group Stock Option and Stock Appreciation Rights Plan or any other stock option plan of an Employer is not an Eligible Employee and may not participate in this Plan.

Employee. Any person employed by an Employer, excluding persons hired for a fixed maximum term and excluding persons who are neither citizens nor permanent residents of the United States, all as determined by SBC. For purposes of this Plan, a person on Leave of Absence who otherwise would be an Employee shall be deemed to be an Employee.

Employer. SBC Communications Inc. or any of its Subsidiaries.

Exercise Price. The price per share of Stock purchasable under an Option.

Fair Market Value or FMV. In valuing Stock or any other item subject to valuation under this Plan, the Committee may use such index or measurement as the Committee may reasonably determine from time to time, and such index or measurement shall be the FMV of such Stock or other item. In the absence of such action by the Committee, FMV means, with respect to Stock, the closing price on the New York Stock Exchange (“NYSE”) of the Stock on the relevant date, or if on such date the Stock is not traded on the NYSE, then the closing price on the immediately preceding date such Stock is so traded.

Leave of Absence. Where a person is absent 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 Employer which employs the individual, as adopted from time to time). For purposes of this Plan, a Leave of Absence shall be deemed to also include a transfer by an Employer of a person to, and continuous employment by, an entity for a rotational work assignment. In the event a transfer to such an entity lasts more than 5 years or the rotational work assignment status is canceled by SBC, it shall be deemed a Termination of Employment with the Employer at that time for purposes of this Plan. To be a rotational work assignment, the Employer must have indicated in writing to the person that the person was to be rehired by the Employer on termination of the rotational work assignment.

Options or Stock Options. Options to purchase Stock issued pursuant to this Plan.

Participant. An Eligible Employee or former Eligible Employee who participates in this Plan.

Pre-Tax Account. The account maintained on a pre-tax basis on the books of account of SBC for each Participant.

Retirement or Retire. The Termination of Employment for reasons other than death, on or after the earlier of the following dates: (1) the date the Employee is eligible to retire with an immediate pension pursuant to the SBC Supplemental Retirement Income Plan (“SRIP”); or (2) the date the Employee has attained one of the following combinations of age and service at Termination of Employment, 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 Employee who is granted an EMP Service Pension under and pursuant to the provisions of the SBC Pension Benefit Plan - Nonbargained Program upon Termination of Employment, the term “Retirement” shall include such Employee’s Termination of Employment.

Shares or Share Units. An accounting entry representing the right to receive an equivalent number of shares of Stock.

Short Term Incentive Award. An award paid by an Employer (and not by a non-Employer, such as state disability payments) under the Short Term Incentive Plan; an award under a similar plan intended by the Committee to be in lieu of an award under such Short Term Incentive Plan; the Key Executive Officer Short Term Award paid under the 1996 Stock and Incentive Plan or the 2001 Incentive Plan; or any other award that the Committee designates as a Short Term Incentive Award specifically for purposes of this Plan (regardless of the purpose of the award).

Stock. The common stock of SBC Communications Inc.

Subsidiary. Any corporation, partnership, venture or other entity in which SBC holds, directly or indirectly, a 50% or greater ownership interest. The Committee may, at its sole discretion, designate any other corporation, partnership, venture or other entity a Subsidiary for the purpose of participating in this Plan.

Termination of Employment. References herein to “Termination of Employment,” “Terminate Employment” or a similar reference, shall mean the event where the Employee ceases to be an Employee of any Employer, including but not limited to where the employing company ceases to be an Employer.

Article 3 - Administration of the Plan

3.1 The Committee.

The Committee shall be the administrator of the Plan and will administer the Plan, interpret, construe and apply its provisions and determine entitlement to benefits, all in its discretion. The Committee may further establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. References to determinations or other actions by SBC, herein, shall mean actions authorized by the Committee, the Chairman, the Senior Executive Vice President of SBC in charge of Human Resources, or their respective successors or duly authorized delegates, in each case in the discretion of such person. All decisions by SBC shall be final and binding.

3.2 Authorized Shares of Stock.

(a) Except as provided below, the number of shares of Stock which may be distributed pursuant to the Plan, exclusive of Article 8, is 21,000,000. The number of Stock Options and shares of Stock which may be issued pursuant to Article 8 of the Plan is 34,000,000 each. Of the foregoing Stock Options, the number of incentive Stock Options which may be issued pursuant to the Plan is 34,000,000. Conversions of stock awards into Share Units pursuant to Section 4.4 and their eventual distribution shall count only against the limits of the plans from which they are transferred or contributed and shall not be applied against the limits in this Plan. To the extent Share Units are acquired through deferrals of Stock or contributions of cash where the payment of which would otherwise be deductible by SBC under Section 162(m) of the Code regardless of the size of the distribution, and such Share Units are available for distribution, they shall be distributed first. In the event SBC determines that continuing the purchase of Share Units under the Plan may cause the number of shares of Stock that are to be distributed under this Plan (which may take into account, among other things, the number of Share Units acquired and the number of Stock Options issued or required to be issued, reduced by the number of shares of Stock that would be withheld for income tax purposes) to exceed the number of authorized shares of Stock, then SBC may cancel further purchases of Share Units and require that any further dividend equivalents on Share Units be paid in cash to the Participants.

(b) 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 SBC affecting the shares of Stock, such adjustment shall be made to the number and class of the shares of Stock which may be delivered under the Plan (including but not limited to individual limits), and in the number and class of and/or price of shares of Stock subject to outstanding Options granted under the Plan, and/or in the number of outstanding Options and Share Units, in each case as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.

Article 4 - Contributions

4.1 Election to Make Contributions.

(a) An Eligible Employee may elect to purchase Share Units through payroll deductions contributed to the Plan as follows (such contributions to the Plan are “Employee Contributions”):

(i) An Eligible Employee may elect to contribute from 6% to 30% (in whole percentage increments) of his or her monthly Base Compensation, as the same may change from time to time.

(ii) An Eligible Employee may elect to contribute up to 100% (in whole percentage increments) of a Short Term Incentive Award.

(b) An Eligible Employee may only make an election, change an election, or terminate an election to purchase Share Units with Employee Contributions as follows:

(i) An Employee who is an Eligible Employee as of September 30 may make an election on or prior to the last Business Day of the immediately following November with respect to the contribution of Base Compensation and/or Short Term Incentive Awards paid on or after the immediately following January 1.

(ii) An Employee who was not an Eligible Employee as of September 30 but who is an Eligible Employee the immediately following March 31 may make an election on or prior to the last Business Day of the immediately following May with respect to the contribution of Base Compensation and/or Short Term Incentive Awards paid on or after the immediately following July 1.

SBC may refuse or terminate any election to purchase Share Units in the Plan at any time; provided, however, only the Committee may take such action with respect to persons who are “officer level” Employees as shown on the records of SBC.

In the event the Participant takes a hardship withdrawal from a benefit plan qualified under the Code and sponsored by SBC or an Employer, any election to make Employee Contributions by such Participant shall be immediately cancelled, and the Participant shall not be permitted to make a new election with respect to Employee Contributions that would be contributed during the then current and immediately following calendar year.

4.2 Purchase of Share Units.

(a) Employee Contributions (as well as any corresponding SBC matching contribution) shall be made solely pursuant to a proper election and only during the Employee’s lifetime and while the Employee remains an Eligible Employee (if the Employee ceases to be an Eligible Employee, his or her election to make Employee Contributions shall be cancelled); provided, however, Termination of Employment of an Eligible Employee shall not constitute loss of eligibility solely with respect to contribution of annual base salary earned prior to termination but paid within 60 days thereafter or with respect to a Short Term Incentive Award paid after Retirement (and such person shall be deemed an Eligible Employee for such contributions).

(b) The number of Share Units purchased by a Participant during a calendar month shall be found by dividing the Participant’s contributions during the month by the FMV on the last day of such month.

(c) A contribution to the Plan shall be made when the compensation – from which the contribution is to be deducted – is paid using the “check date” shown on the related pay record (sometimes referred to as the “paycheck stub”) as the contribution date (if no “check date” is shown, then the date of the pay record). When there is an underpayment or delayed payment of gross compensation for any reason, the related contribution shall be determined and made when the underpayment or delayed payment is paid, again using the date on the pay record. Where there is an overpayment of gross compensation, the amount of the overpayment will not be considered in determining the contribution amount.

4.3 Reinvestment of Dividends.

In the month containing a record date for a regular cash dividend on SBC Stock, each Participant shall be credited with that number of Share Units equal to the declared dividend per share of Stock multiplied by the number of Share Units held by the Participant and divided by the FMV on the last day of the month containing the dividend record date.

4.4 Deferral of Other Stock Awards.

(a) An Eligible Employee who would receive from SBC a distribution of Stock (including but not limited to the removal of restrictions on restricted stock) pursuant to the 1996 Stock and Incentive Plan or the 2001 Incentive Plan (but not through the exercise of stock options granted under either such plan) or pursuant to any other plan or award specifically permitted to be contributed to this Plan by the Committee, may contribute all or part of such distribution that would not be recognized as income for Federal income tax purposes upon conversion to Share Units under this Plan. To make this contribution, the Eligible Employee must make an election on or prior to the last Business Day of the calendar year prior to the calendar year such Stock would otherwise actually been paid (or, for restricted stock, the calendar year such restrictions would be removed and the stock recognized for Federal income tax purposes) to convert the part of the distribution that is not recognized as income for Federal income tax purposes into the number of Share Units under this Plan equal to the number of shares of Stock to which the Eligible Employee would be entitled; provided such person remains an Eligible Employee at the time of such conversion. Distribution of such Share Units shall be governed solely by the provisions of this Plan. SBC may refuse or terminate any election under this Section 4.4 to convert a distribution into Share Units in the Plan at any time.

(b) Effective January 1, 2001, except for persons who die prior to 2001, deferrals of Stock made prior thereto under the Salary and Incentive Award Deferral Plan will be converted into the number of Share Units equal to the number of shares of Stock or the equivalent thereof then held by the Participant through such Salary and Incentive Award Deferral Plan. Any such conversion shall not reduce or offset the number of authorized shares of Stock under this Plan. All elections made under such plan shall be terminated and the distribution of such Share Units shall be governed solely by the provisions of this Plan.

(c) The Committee may permit an Eligible Employee to purchase Share Units under this Plan with amounts other than Base Compensation or Short Term Incentive Awards on such terms and conditions as such Committee may permit from time to time.

(d) In no event shall an acquisition of Share Units pursuant to this Section 4.4 result in the crediting of an SBC matching contribution or Options.

Article 5 - SBC Match

5.1 SBC Match.

SBC shall credit each Participant’s account with the number of Share Units found by taking eighty percent (80%) of the Participant’s contributions from no more than six percent (6%) of the Participant’s Base Compensation made during the month and dividing the resulting figure by the FMV of the Stock on the last day of such month. However, if during any month the Participant is concurrently participating in this Plan and (a) the match eligible portion of the SBC Savings Plan (which may be referred to as “basic contributions”) or (b) the match eligible portion of any other tax qualified or nonqualified plan of an Employer, then the monthly matching contribution under this Plan shall be reduced so that the total monthly matching contribution shall be paid with respect to no more than:

(x) six percent (6%) minus

(y) the Participant's match eligible percentage determined under such other plan,

of the Participant’s monthly Base Compensation. In no event shall matching contributions under this Plan and all other plans of SBC and all Employers combined (including but not limited to the SBC Savings Plan) be paid with respect to more than six percent (6%) of Participant’s monthly Base Compensation. SBC match shall only be paid on Base Compensation contributed to the Plan.

5.2 Vesting and Distribution of Share Units Acquired with Matching Contributions.

A Participant’s interest in Share Units purchased with SBC matching contributions, as well as earnings thereon, shall vest at such time as Participant shall have three (3) years of service as reflected on the records of SBC. Share Units shall be available for distribution in accordance with the Plan’s distribution provisions only upon becoming vested and only after the earlier of: (a) the Termination of Employment of the Participant, or (b) the beginning of the calendar year in which the Participant will reach age 55. Upon the Participant’s Termination of Employment, all the Participant’s unvested Share Units shall be forfeited.

Article 6 - Distributions

6.1 Distributions of Share Units.

(a) Beginning March 10 (or such other date as determined by SBC) of the first (1st) calendar year following the calendar year of the Retirement of a Participant and on March 10 (or such other date as determined by SBC) of each of the successive 14 calendar years, SBC shall distribute that number of Share Units that is equal to the total number of Share Units then held by the Participant divided by the number of remaining installments. Not withstanding the foregoing, if the Participant Retires prior to 2001, then any undistributed Share Units will be distributed in a lump sum on March 10 of the fifteenth (15th) calendar following the calendar year of the Retirement of the Participant.

b) Beginning March 10 (or such other date as determined by SBC) of the calendar year following the calendar year of Termination of Employment which is not a Retirement and on March 10 (or such other date as determined by SBC) of each of the successive 2 calendar years, SBC shall distribute that number of Share Units that is equal to the total number of Share Units then held by the Participant divided by the number of remaining installments. Notwithstanding the foregoing, non-Retirement eligible Participants who Terminate Employment prior to January 1, 2001, shall receive all undistributed Share Units in a lump sum.

(c) Notwithstanding (a) or (b), above, to the contrary, in the event of the death of a Participant, all undistributed Share Units shall be promptly distributed to the Participant’s beneficiary in accordance with the SBC Rules for Employee Beneficiary Designations, as the same may be amended from time to time.

6.2 Accelerated Distribution.

(a) On or before the last Business Day of a calendar year, a Participant may elect to receive a distribution of all or a specified number of the Participant’s vested Share Units. Such distribution shall be made March 10 (or such other date as determined by SBC) of the immediately following calendar year. If the Participant will not be age 55 or older at any time during the calendar year of the distribution, then Share Units that were acquired with SBC matching contributions, as well as earnings thereon, may be distributed pursuant to an Accelerated Distribution election only if the Participant Terminated Employment prior to the calendar year of the distribution. This distribution shall be in addition to the number of Share Units to be distributed at the same time under Section 6.1, to the extent any remain available for distribution, which Distribution shall be calculated without regard to an election under this section. No distribution under this Section 6.2 (a) shall be made of Share Units acquired with Employee Contributions or SBC matching contributions in the same calendar year as the distribution.

(b) In the event the Participant Terminates Employment for reasons other than Retirement, SBC may, at its sole discretion, accelerate the distribution of all or part of the Share Units credited to the Participant to the date of SBC’s choosing, without notice to, or the consent of, the Participant.

6.3 Small Distribution.

Notwithstanding any election made by the Participant, after the Termination of Employment of the Participant for any reason, if at the time of a distribution the Participant’s Share Units have a FMV of less than $10,000, SBC may, in its discretion, convert and distribute all of the Participant’s Share Units in the form of a lump sum distribution.

6.4 Determination by Internal Revenue Service.

In the event that a final determination shall be made by the Internal Revenue Service or any court of competent jurisdiction that a Participant has recognized gross income for Federal income tax purposes in excess of the Share Units actually distributed by SBC, SBC shall promptly convert and distribute to the Participant those Share Units to which such additional gross income is attributable.

6.5 Emergency Distribution.

In the event that SBC, upon written petition of the Participant, determines in its sole discretion that the Participant has suffered an unforeseeable financial emergency, SBC shall convert and distribute to the Participant, as soon as practicable following such determination, the number of Share Units determined by SBC in its sole discretion to meet the emergency (the “Emergency Distribution”), other than Share Units acquired with SBC matching contributions, as well as earnings thereon. 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 such distribution, any election to make Employee Contributions by such Participant shall be immediately cancelled, and the Participant shall not be permitted to make a new election with respect to Employee Contributions that would be contributed during the then current and immediately following calendar year.

6.6 Ineligible Participant.

Notwithstanding any other provisions of this Plan to the contrary, if SBC receives an opinion from counsel selected by SBC, or a final determination is made by a Federal, state or local government or agency, acting within its scope of authority, to the effect that an individual is not, or was not at the time of his or her making Employee Contributions to this Plan, a member of Employer’s “select group of management or highly compensated employees” within the meaning of ERISA, then such person will not be eligible to participate in this Plan and shall receive an immediate lump sum distribution of shares of Stock corresponding to the vested portion of the Share Units standing credited to his or her account. Upon such payment no other distribution shall thereafter be payable under this Plan either to the individual or any beneficiary of the individual, except as provided under Section 10.1 Additional Benefit.

6.7 Distribution Process.

Share Units shall be distributed under this Plan by taking the number of Share Units to be distributed and converting them into an equal number of shares of Stock. (Once distributed, a Share Unit shall be canceled.)

Article 7 - Transition Provisions

The transition rules of this Article 7 shall supercede all other terms of this Plan.

7.1 Effective Dates.

Except as otherwise provided in this Article, the amendments to this Plan made March 31, 2000 (the “2000 Amendments”) shall be effective March 31, 2000. No election to begin a Savings Unit nor an election regarding the distribution or further deferral of a distribution of a Savings Unit may be made on or after March 31, 2000. (As used herein, “Savings Units” shall have the same meaning as used in this Plan prior to such amendments.)

7.2 Combination of Share Units.

(a) Effective January 1, 2001, all Share Units (previously referred to as “Shares”) acquired under Savings Units by a Participant shall be combined in a single account regardless of date acquired or the Savings Unit to which they were related, except for the Share Units to be distributed under (b), below.

(b) Share Units equal in value to, and constituting, a Participant’s tax basis in the Share Units acquired on an after-tax basis shall be valued and distributed on or promptly after March 10, 2001, unless a later distribution is required by SBC.

(c) To the extent any Participant who retires before 2001 would, were it not for the 2000 Amendments, under valid elections made prior to March 31, 2000, receive a distribution under a Savings Unit(s) that would extend the Participant’s distributions beyond 2015, then the Savings Unit(s) so affected shall not be combined with other Share Units and shall be distributed in accordance with such elections. Notwithstanding the foregoing, the Participant may, with the consent of SBC, elect to have all undistributed Shares in such Savings Unit(s) be governed by this Plan as in effect after March 31, 2000.

(d) In the event a Participant dies prior to 2001, the Participant’s Savings Unit(s) shall not be combined with other Savings Units and shall be distributed in accordance with the Plan as it existed immediately prior to March 31, 2000, and deferrals under the Salary and Incentive Award Deferral Plan by such Participant will not be transferred to this Plan but will be paid out in accordance with the terms of that plan as it existed immediately prior to March 31, 2000.

7.3 Termination of Elections.

(a) Distributions from the Plan that would be made in the year 2000 under the Plan as it existed immediately prior to March 31, 2000, based on elections made before March 31, 2000, shall continue to be made in the year 2000 as provided in the Plan immediately prior to March 31, 2000. All other distribution elections are cancelled, including but not limited to distributions which have already commenced, but only to the extent such elections call for distributions after the year 2000. All Share Units remaining undistributed after such distributions shall be held and distributed in accordance with the terms of the Plan as in effect after March 31, 2000.

(b) Contributions to the Plan that would be made in the year 2000 under the Plan as it existed immediately prior to March 31, 2000, based on elections made before March 31, 2000, shall continue to be made in the year 2000 as provided in the Plan immediately prior to March 31, 2000. Elections to participate in the Plan shall not automatically be renewed for the year 2001. Each Eligible Employee must make a new election after March 31, 2000, in order to purchase Share Units with Employee Contributions after 2000. Provided, however, valid elections made prior to March 31, 2000, to contribute Short Term Incentive Awards in 2001 shall be valid elections under this Plan.

7.4 Annual Base Salary Contribution Transition.

Annual base salary earned prior to January 1, 2001, shall be contributed when earned, while annual base salary earned on or after such date shall be contributed when paid. In order to avoid any double contribution of annual base salary, that part of annual base salary earned in the year 2000 shall not be included in any determination of contributions to the Plan in a later calendar year, even though paid in such calendar year. This section shall not apply to employees of Ameritech Corporation or its direct or indirectly held subsidiaries or to Employees who did not make contributions to the Plan in 2000.

7.5 Stock Options.

The August 2000 and February 2001 issuances of Options shall be determined and made as the Plan was written immediately prior to March 31, 2000, so as not to enlarge or reduce the rights of Participants with Savings Units commencing in 2000.

Article 8 - Options

8.1 Grants.

The Committee shall determine at its discretion whether the Options issued pursuant to this Plan shall be non-qualified Stock Options or incentive Stock Options within the meaning of Section 422 of the Code. Any Options issued hereunder shall be non-qualified Options unless the Committee specifies prior to the issuance thereof that they shall be incentive Stock Options. Notwithstanding any other provision of the Plan, any incentive Stock Options issued under this Plan shall be issued and exercised in accordance with Section 422 of the Code. The Options may be issued in definitive form or recorded on the books and records of SBC for the account of the Participant, at the discretion of SBC. If SBC elects not to issue the Options in definitive form, they shall be deemed issued, and the Participants shall have all rights incident thereto as if they were issued on the dates provided herein, without further action on the part of SBC or the Participant. In addition to the terms herein, all Options shall be subject to such additional provisions and limitations as provided in any Administrative Procedures adopted by the Committee prior to the issuance of such Options. The number of Options issued to a Participant shall be reflected on the Participant’s annual statement of account.

8.2 Term of Options.

The Options may only be exercised: (a) after the earlier of (i) the expiration of one (1) year from date of issue or (ii) the Participant’s Termination of Employment, and (b) no later than the tenth (10^th) anniversary of their issue; and Options shall be subject to earlier termination as provided herein.

8.3 Exercise Price.

The Exercise Price of an Option shall be the FMV of the Stock on the date of issuance of the Options.

8.4 Issuance of Options.

(a) On each June 1 a Participant shall receive two (2) Options for each Share Unit acquired by the Participant during the immediately preceding January through April period with Employee Contributions of Base Compensation and/or Short Term Incentive Award. A fractional number of Options shall be rounded up to the next whole number.

(b) On each February 1 a Participant shall receive:

(i) two (2) Options for each Share Unit acquired by the Participant during the immediately preceding May through December with Employee Contributions of Base Compensation and/or Short Term Incentive Award; and

(ii) two (2) Options for each Share Unit acquired prior to such date by the Participant with dividend equivalents that were derived, directly or indirectly (such as dividend equivalents paid on Share Units acquired with dividend equivalents), from Share Units acquired with Employee Contributions during the immediately preceding January through December.

A fractional number of Options shall be rounded up to the next whole number.

(c) If Stock is not traded on the NYSE on any of the foregoing Option issuance dates, then the Options shall not be issued until the next such day on which Stock is so traded.

(d) If a Participant Terminates Employment other than (i) while Retirement eligible or (ii) because of death or Disability, no further Options shall be issued to or with respect to such Participant.

(e) No more than 400,000 Options shall be issued to any individual under this Plan during a calendar year. No Share Unit may be counted more than once for the issuance of Options.

(f) The Committee may, in its sole discretion, at any time increase or lower the number of Options that are to be issued for each Share Unit acquired. However, if the Committee lowers the number of Options, then such change shall only be effective with respect to the next period in which a Participant may change his or her Share Unit purchase election.

(g) The Committee may also, at any time and in any manner, limit the number of Options which may be acquired as a result of the Short Term Incentive Award being contributed to the Plan. Further, except as otherwise provided by the Committee, in determining the number of Options to be issued to a Participant with respect to a Participant’s contribution of a Short Term Incentive Award to the Plan and subsequent crediting of Share Units, Options may be issued only with respect to an amount which does not exceed the target amount of such award (or such other portion of the award as may be determined by the Committee).

8.5 Exercise and Payment of Options.

Options shall be exercised by providing notice to the designated agent selected by SBC (if no such agent has been designated, then to SBC), in the manner and form determined by SBC, which notice shall be irrevocable, setting forth the exact number of shares of Stock with respect to which the Option is being exercised and including with such notice payment of the Exercise Price. When Options have been transferred, SBC or its designated agent may require appropriate documentation that the person or persons exercising the Option, if other than the Participant, has the right to exercise the Option. No Option may be exercised with respect to a fraction of a share of Stock.

Exercises of Options may be effected only on days and during the hours that the New York Stock Exchange is open for regular trading or as otherwise provided or limited by SBC. If an Option expires on a day or at a time when exercises are not permitted, then the Options may be exercised no later than the immediately preceding date and time that the Options were exercisable.

The Exercise Price shall be paid in full at the time of exercise. No Stock shall be issued or transferred until full payment has been received therefor.

Payment may be made:

(a) in cash, or

(b) unless otherwise provided by the Committee at any time, and subject to such additional terms and conditions and/or modifications as SBC may impose from time to time, and further subject to suspension or termination of this provision by SBC at any time, by:

(i) delivery of Stock owned by the Participant in partial (if in partial payment, then together with cash) or full payment; provided, however, as a condition to paying any part of the Exercise Price in Stock, at the time of exercise of the Option, the Participant must establish to the satisfaction of SBC that the Stock tendered to SBC must have been held by the Participant for a minimum of six (6) months preceding the tender; or

(ii) if SBC has designated a stockbroker to act as SBC’s agent to process Option exercises, issuance of an exercise notice to such stockbroker together with instructions irrevocably instructing the stockbroker: (A) to immediately sell (which shall include an exercise notice that becomes effective upon execution of a sell order) a sufficient portion of the Stock to pay the Exercise Price of the Options being exercised and the required tax withholding, and (B) to deliver on the settlement date the portion of the proceeds of the sale equal to the Exercise Price and tax withholding to SBC. In the event the stockbroker sells any Stock on behalf of a Participant, the stockbroker shall be acting solely as the agent of the Participant, and SBC disclaims any responsibility for the actions of the stockbroker in making any such sales. No Stock shall be issued until the settlement date and until the proceeds (equal to the Exercise Price and tax withholding) are paid to SBC.

If payment is made by the delivery of Stock, the value of the Stock delivered shall be equal to the FMV of the Stock on the day preceding the date of exercise of the Option.

Restricted Stock may not be used to pay the Option exercise price.

8.6 Restrictions on Exercise and Transfer.

No Option shall be transferable except: (a) upon the death of a Participant in accordance with SBC’s Rules for Employee Beneficiary Designations, as the same may be amended from time to time; and (b) in the case of any holder after the Participant’s death, only by will or by the laws of descent and distribution. During the Participant’s lifetime, the Participant’s Options shall be exercisable only by the Participant or by the Participant’s guardian or legal representative. After the death of the Participant, an Option shall only be exercised by the holder thereof (including but not limited to an executor or administrator of a decedent’s estate) or his or her guardian or legal representative.

8.7 Termination of Employment.

(a) Not Retirement Eligible. If a Participant Terminates Employment while not Retirement eligible, a Participant's Options may be exercised, to the extent then exercisable:

(i) if such Termination of Employment is by reason of death or Disability, then for a period of three (3) years from the date of such Termination of Employment or until the expiration of the stated term of such Option, whichever period is shorter; or

(ii) if such Termination of Employment is for any other reason, then for a period of one (1) year (three (3) months for Options granted before August 1, 1998) from the date of such Termination of Employment or until the expiration of the stated term of such Option, whichever period is shorter.

(b) Retirement Eligible. If a Participant Terminates Employment while Retirement eligible, a Participant’s Option may be exercised, to the extent then exercisable: (i) for a period of five (5) years (three (3) years for options granted before August 1, 1998) from the date of Retirement or (ii) until the expiration of the stated term of such Option, whichever period is shorter. If a Participant Terminated Employment because of death or Disability on or before March 31, 2000, the Participant will be deemed to have Terminated Employment while not Retirement eligible for purposes of this section.

Article 9 - Discontinuation, Termination, Amendment.

9.1 SBC’s Right to Discontinue Offering Share Units.

SBC may at any time discontinue offerings of Share Units under the Plan. Any such discontinuance shall have no effect upon existing Share Units or the terms or provisions of this Plan as applicable to such Share Units.

9.2 SBC’s Right to Terminate Plan.

No Share Units may be purchased with Employee Contributions after December 31, 2004. The Committee may terminate the Plan at any earlier time. Upon termination of the Plan, contributions shall no longer be made under the Plan.

After termination of the Plan, Participants shall continue to earn dividend equivalents in the form of Share Units on undistributed Share Units and shall continue to receive all distributions under this Plan at such time as provided in and pursuant to the terms and conditions of Participant’s elections and this Plan.

9.3 Amendment.

The Committee may at any time amend the Plan in whole or in part including but not limited to changing the formulas for determining the amount of SBC matching contributions under Article5 or increasing or decreasing the number of Options to be issued under Article 8; provided, however, that no amendment, including but not limited to an amendment to this section, shall be effective, without the consent of a Participant, to alter, to the material detriment of such Participant, the distributions described in this Plan as applicable to Share Units of the Participant or to decrease the number of Share Units standing credited to such Participant’s Accounts under the Plan. For purposes of this section, an alteration to the material detriment of a Participant shall mean a material reduction in the period of time over which Stock may be distributed to a Participant, any reduction in the Participant’s number of vested Share Units or Options, or an increase in the Exercise Price or decrease in the term of an Option. Any such consent may be in a writing, telecopy, or e-mail or in another electronic format. An election to acquire, or to modify an election to acquire, Share Units with Employee Contributions and the failure to terminate an election to acquire Share Units with Employee Contributions when able to do so shall each be conclusively deemed to be the consent of the Participant to any and all amendments to the Plan prior to such election or failure to terminate an election, and such consent shall be a condition to making any election with respect to Employee Contributions.

Notwithstanding anything to the contrary contained in this section of the Plan, the Committee may modify this Plan with respect to any person subject to the provisions of Section 16 of the Securities Exchange Act of 1934 as amended (“Exchange Act”) to place additional restrictions on the exercise of any Option or the transfer of any Stock not yet issued under the Plan.

Article 10 - Miscellaneous

10.1 Additional Benefit.

The reduction of any benefit payable under the SBC Pension Benefit Plan (or comparable plan identified by SBC as a replacement therefor), which results from participation in this Plan, will be restored as an additional benefit (“make-up piece”) under this Plan. The Participant shall elect prior to commencement of payment of the make-up piece whether to receive such benefit in cash in a lump sum (consisting of the present value equivalent of the pension retirement benefit (life annuity) make-up piece) or such benefit in an annuity form of payment. Notwithstanding the proceeding provisions of this section, if all or a portion of the make-up piece is paid pursuant to SRIP or another non-qualified plan, then such amount shall not be payable pursuant to this Plan.

10.2 Tax Withholding.

Upon distribution of Stock, including but not limited to, shares of Stock issued upon the exercise of an Option, SBC shall withhold shares of Stock sufficient in value, using the FMV on the date determined by SBC to be used to value the Stock for tax purposes, to satisfy the minimum amount of Federal, state, and local taxes required by law to be withheld as a result of such distribution.

Any fractional share of Stock payable to a Participant shall be withheld as additional Federal withholding, or, at the option of SBC, paid in cash to the Participant.

Unless otherwise determined by the Committee, when the method of payment for the Exercise Price is from the sale by a stockbroker pursuant to Section 8.5(b)(ii), hereof, of the Stock acquired through the Option exercise, then the tax withholding shall be satisfied out of the proceeds. For administrative purposes in determining the amount of taxes due, the sale price of such Stock shall be deemed to be the FMV of the Stock.

10.3 Elections and Notices.

Notwithstanding anything to the contrary contained in this Plan, all elections and notices of every kind shall be made on forms prepared by SBC or the General Counsel, Secretary or Assistant Secretary, or their respective delegates or shall be made in such other manner as permitted or required by SBC or the General Counsel, Secretary or Assistant Secretary, or their respective delegates, including through electronic means, over the Internet or otherwise. An election shall be deemed made when received by SBC (or its designated agent, but only in cases where the designated agent has been appointed for the purpose of receiving such election), which may waive any defects in form. Unless made irrevocable by the electing person, each election with regard to making Employee Contributions or distributions of Share Units shall become irrevocable at the close of business on the last day to make such election. SBC may limit the time an election may be made in advance of any deadline.

If not otherwise specified by this Plan or SBC, any notice or filing required or permitted to be given to SBC under the Plan shall be delivered to the principal office of SBC, directed to the attention of the Senior Executive Vice President-Human Resources of SBC or his or her successor. Such notice shall be deemed given on the date of delivery.

Notice to the Participant shall be deemed given when mailed (or sent by telecopy) to the Participant’s work or home address as shown on the records of SBC or, at the option of SBC, to the Participant’s e-mail address as shown on the records of SBC. It is the Participant’s responsibility to ensure that the Participant’s addresses are kept up to date on the records of SBC. In the case of notices affecting multiple Participants, the notices may be given by general distribution at the Participants’ work locations.

By participating in the Plan, each Participant agrees that SBC may provide any documents required or permitted under the Federal or state securities laws, including but not limited to the Securities Act of 1933 and the Securities Exchange Act of 1934 by e-mail, by e-mail attachment, or by notice by e-mail of electronic delivery through SBC’s Internet Web site or by other electronic means.

10.4 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 any Employer. No assets of any Employer shall 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 any Employer under this Plan. Any and all of each Employer’s assets shall be, and remain, the general, unpledged, unrestricted assets of such Employer. The only obligation of an Employer under the Plan shall be merely that of an unfunded and unsecured promise of SBC to distribute shares of Stock corresponding to Share Units, and Options, under the Plan.

10.5 Offset.

SBC may offset against the amount of Stock otherwise distributable to a Participant, any amounts due an Employer by a Participant, including but not limited to overpayments under any compensation or benefit plans. In addition, SBC may also cancel a Stock Option to satisfy such an obligation to an Employer. For this purpose, each Stock Option shall be valued by subtracting the Exercise Price of the Stock Option from the FMV of the Stock on such date.

10.6 Non-Assignability.

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, shares of Stock corresponding to Share Units under the Plan, if any, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the Stock distributable shall, prior to actual distribution, 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.

10.7 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 an Employer or to serve as a director.

10.8 Errors.

At any time SBC may correct any error made under the Plan without prejudice to SBC. Such corrections may include, among other things, changing or revoking a Stock Option issuance, cancelling Share Units and refunding contributions to a Participant with respect to any period he or she made Employee Contributions while not an Eligible Employee, or cancelling the enrollment of a non-Eligible Employee.

10.9 Captions.

The captions of the articles, sections, and paragraphs of this Plan are for convenience only and shall not control nor affect the meaning or construction of any of its provisions.

10.10 Governing Law.

To the extent not preempted by Federal law, the Plan, and all awards and agreements hereunder, and any and all disputes in connection therewith, shall be governed by and construed in accordance with the substantive laws of the State of Texas, without regard to conflict or choice of law principles which might otherwise refer the construction, interpretation or enforceability of this Plan to the substantive law of another jurisdiction.

Because awards under the Plan are granted in Texas, records relating to the Plan and awards thereunder are located in Texas, and the Plan and awards thereunder are administered in Texas, the Company and the Participant to whom an award under this Plan is granted, for themselves and their successors and assigns, irrevocably submit to the exclusive and sole jurisdiction and venue of the state or federal courts of Texas with respect to any and all disputes arising out of or relating to this Plan, the subject matter of this Plan or any awards under this Plan, including but not limited to any disputes arising out of or relating to the interpretation and enforceability of any awards or the terms and conditions of this Plan. To achieve certainty regarding the appropriate forum in which to prosecute and defend actions arising out of or relating to this Plan, and to ensure consistency in application and interpretation of the Governing Law to the Plan, the parties agree that (a) sole and exclusive appropriate venue for any such action shall be an appropriate federal or state court in Bexar County, Texas, and no other, (b) all claims with respect to any such action shall be heard and determined exclusively in such Texas court, and no other, (c) such Texas court shall have sole and exclusive jurisdiction over the person of such parties and over the subject matter of any dispute relating hereto and (d) that the parties waive any and all objections and defenses to bringing any such action before such Texas court, including but not limited to those relating to lack of personal jurisdiction, improper venue or forum non conveniens.

10.11 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.

10.12 Successors and Assigns.

This Plan shall be binding upon SBC and its successors and assigns.

10.13 Participation in Predecessor Plans.

Effective November 21, 1997, the plans of the Stock Savings Program were merged into the Stock Savings Plan. All Share Units under the Stock Based Savings Plan or the Management Stock Savings Plan were transferred to this Plan as of that date and are governed by the terms of this Plan.

EX-10

Exhibit 10-n

1992 STOCK OPTION PLAN

Plan Effective: January 1, 1996
As amended through: June 19, 2001

TABLE OF CONTENTS

1.1   Purpose..........................................................1

1.2   Additional Definitions...........................................1

1.3   Effective Date...................................................2

2.1   The Committee....................................................2

2.2   Authority of the Committee.......................................2

3.1   Number of Shares.................................................3

3.2   Lapsed Options...................................................3

3.3   Adjustments in Authorized Shares.................................3

4.1   Grant of Options.................................................3

4.2   Form of Issuance.................................................4

4.3   Option Price.....................................................4

4.4   Duration of Option...............................................4

4.5   Vesting of Options...............................................4

4.6   Exercise of Options..............................................4

4.7   Payment..........................................................5

4.8   Termination of Employment........................................6

4.9   Transfers........................................................6

4.10  Restrictions on Exercise and Transfer of Options.................6

4.11  Change in Control................................................7

5.1   Amendment, Modification, and Termination.........................7

5.2   Awards Previously Granted........................................8

6.1   Tax Withholding..................................................8

7.1   Employment.......................................................8

7.2   Participation....................................................8

7.3   Successors.......................................................8

7.4   Governing Law....................................................8

SBC 1992 STOCK OPTION PLAN

ARTICLE 1. PURPOSE, DEFINITIONS AND EFFECTIVE DATE

1.1 Purpose. The purpose of the SBC 1992 Stock Option Plan (“Plan”) is to promote the success and enhance the value of SBC Communications Inc. (the “Company”) by linking the personal interests of the Employees of the Company and its Subsidiaries to the interests of the Company’s shareowners, and by providing Employees with an additional incentive for outstanding performance. No awards may be granted under this Plan on or after April 27, 2001.

1.2 Additional Definitions. In addition to definitions set forth elsewhere in the Plan, for purposes of the Plan:

(a) “Cause” shall mean willful and gross misconduct on the part of a Participant that is materially and demonstrably detrimental to the Company or any Subsidiary as determined by the Company in its sole discretion.

(b) “Disability” shall mean absence of an Employee from work under the relevant Company or Subsidiary disability plan.

(c) “Employee” shall mean any employee of the Company or of one of the Company’s Subsidiaries Directors who are not otherwise employed by the Company or one of its Subsidiaries shall not be considered Employees under the Plan.

(d) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any successor Act thereto.

(e) “Fair Market Value” shall mean the closing price on the New York Stock Exchange (“NYSE”) for Shares on the relevant date, or if such date was not a trading day, the next preceding trading date, all as determined by the Company. A trading day is any day that the Shares are traded on the NYSE. In lieu of the foregoing, the Committee may select any other index or measurement to determine the Fair Market Value of Shares under the Plan.

(f) “Option” shall mean the right to purchase one or more shares of the common stock of SBC Communications Inc. on the terms and conditions contained in this Plan, the rules of the Committee, and the terms of the Option. “Awards” shall mean Options.

(g) “Participant” shall mean an Employee or former Employee that participates in this Plan.

(h) “Retirement” shall mean the termination of a Participant’s employment with the Company or one of its Subsidiaries, for reasons other than death, Disability or for Cause, on or after the date Participant 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 a Participant who is granted an EMP Service Pension under and pursuant to the provisions of the SBC Pension Benefit Plan - Nonbargained Program upon termination of employment, the term “Retirement” shall include such Participant’s termination of employment.

      In determining whether a Participant’s Termination of Employment under the Enhanced Pension and Retirement Program (“EPR”) is a Retirement as defined above, 5 years shall be added to each of Age and Net Credited Service.

(i) “Rotational Work Assignment Company”(“RWAC”) shall mean any 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.

(j) “Shares” or “Stock” or “Shares of Stock” shall mean the common stock of SBC Communications Inc.

(k) “Subsidiary” shall mean any corporation in which the Company owns directly, or indirectly through subsidiaries, 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 the Company owns more than fifty percent (50%) of the combined equity thereof.

1.3 Effective Date. The Plan shall be effective on the date it is approved by the Company's shareowners.

ARTICLE 2. ADMINISTRATION

2.1 The Committee. The Plan shall be administered by a Committee or Committees (the "Committee") appointed by the Board of Directors.

2.2 Authority of the Committee. The Committee shall have full power, except as limited by law and subject to the provisions herein, in its sole and exclusive discretion: to grant Awards; to select the recipients of Awards; to determine the eligibility of a person to participate in the Plan or to receive a particular Award; to determine the sizes and types of Awards; to determine the terms and conditions of such Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 5 herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations in its discretion which may be necessary or advisable for the administration of the Plan.

             References to determinations or other actions by the Company, herein, shall mean actions authorized by the Committee, the Chairman of the Board of the Company, the Senior Executive Vice President of the Company in charge of Human Resources or their respective successors or duly authorized delegates, in each case in the discretion of such person.

             All determinations and decisions made by the Company pursuant to the provisions of the Plan, and all related orders and resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries.

ARTICLE 3. SHARES SUBJECT TO THE PLAN

3.1 Number of Shares. Subject to adjustment as provided in Section 3.3 Adjustments in Authorized Shares, herein, the total number of Shares of Stock for which Options may be granted under the Plan may not exceed 36,000,000 Shares. These Shares may be either authorized but unissued or reacquired Shares.

3.2 Lapsed Options. If any Option granted under the Plan is canceled, terminates, expires, or lapses for any reason, any Shares subject to such Option again shall be available for the grant of an Option under the Plan.

3.3 Adjustments in Authorized Shares. 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 and class of Shares which may be delivered under the plan, and in the number and class of and/or price of Shares subject to outstanding Options granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; and provided that the number of Shares subject to any Option shall always be a whole number.

ARTICLE 4. STOCK OPTIONS

4.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to such Employees, at such times and on such terms and conditions, as shall be determined by the Committee; provided, however, no Options may be granted after the 10th anniversary of the effective date of the Plan. The Committee shall have discretion in determining the number of Options and the number of Shares subject to each Option granted to each Participant. Without limiting the generality of the foregoing, the Committee shall have the authority to establish guidelines setting forth anticipated grant levels which correspond to various salary grades or the equivalent thereof.

4.2 Form of Issuance. Options may be issued in the form of a certificate or may be recorded on the books and records of the Company for the account of the Participant. If an Option is not issued in the form of a certificate, then the Option shall be deemed granted upon issuance of a notice of the grant addressed to the recipient. The terms and conditions of an Option shall be set forth in the certificate, in the notice of the issuance of the grant, or in such other documents as the Committee shall determine. The Committee may require a Participant to enter into a written agreement containing terms and conditions relating to the Option and its exercise.

4.3 Option Price. The Option Price for each grant of an Option shall be determined by the Committee; provided, however, that the minimum Option Price shall be one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted.

4.4 Duration of Options. Each Option shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant.

4.5 Vesting of Options. Options shall vest at such times and under such terms and conditions as determined by the Committee. The Committee shall have the right to accelerate the vesting of any Option; however, the Chairman of the Board or the Senior Executive Vice President-Human Resources, or their respective successors, or such other persons designated by the Committee, shall have the authority to accelerate the vesting of Options for any Employee who is not at that time an officer, director or ten percent beneficial owner, as those terms are defined under Section 16 of the Exchange Act.

4.6. Exercise of Options. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee or the Board shall in each instance approve, which need not be the same for each grant or for each Participant. Exercises of Options may be effected only on days and during the hours that the New York Stock Exchange is open for regular trading. The Company may further change or limit the times or days Options may be exercised. If an Option expires on a day or at a time when exercises are not permitted, then the Options may be exercised no later than the immediately preceding date and time that the Options were exercisable.

             Options shall be exercised by providing notice to the designated agent selected by the Company (if no such agent has been designated, then to the Company), in the manner and form determined by the Company, which notice shall be irrevocable, setting forth the exact number of Shares with respect to which the Option is being exercised and including with such notice payment of the Option Price. When Options have been transferred, the Company or its designated agent may require appropriate documentation that the person or persons exercising the Option, if other than the Participant, has the right to exercise the Option. No Option may be exercised with respect to a fraction of a Share.

4.7 Payment. The Option Price shall be paid in full at the time of exercise. No Shares shall be issued or transferred until full payment has been received therefor.

             Payment may be made:

(a) in cash, or

(b) unless otherwise provided by the Committee at any time, and subject to such; additional terms and conditions and/or modifications as the Committee or the Company may impose from time to time, and further subject to suspension or termination of this provision by the Committee or the Company at any time, by:

(i) delivery of Shares of Stock owned by the Participant in partial (if in partial payment, then together with cash) or full payment; provided, however, as a condition to paying any part of the Option Price in Stock, at the time ofexercise of the Option, the Participant must establish to the satisfaction of the Company that the Stock tendered to the Company must have been held by the Participant for a minimum of six (6) months preceding the tender; or

(ii) if the Company has designated a stockbroker to act as the Company’s agent to process Option exercises, issuance of an exercise notice to such stockbroker together with instructions irrevocably instructing the stockbroker: (A) to immediately sell (which shall include an exercise notice that becomes effective upon execution of a sell order) a sufficient portion of the Shares to pay the Option Price of the Options being exercised and the required tax withholding, and (B) to deliver on the settlement date the portion of the proceeds of the sale equal to the Option Price and tax withholding to the Company. In the event the stockbroker sells any Shares on behalf of a Participant, the stockbroker shall be acting solely as the agent of the Participant, and the Company disclaims any responsibility for the actions of the stockbroker in making any such sales. No Stock shall be issued until the settlement date and until the proceeds (equal to the Option Price and tax withholding) are paid to the Company.

             If payment is made by the delivery of Shares of Stock, the value of the Shares delivered shall be equal to the Fair Market Value of the Shares on the day preceding the date of exercise of the Option.

            Restricted Stock may not be used to pay the Option Price.

4.8      Termination of Employment.

(a) Termination by Reason of Death or Disability. In the event the employment of a Participant is terminated by reason of death or Disability any outstanding Options granted to the Participant shall vest as of the date of termination of employment and may be exercised, if at all, no more than one (1) year following termination of employment, unless the Options, by their terms, expire earlier.

(b) Termination by Retirement. In the event the employment of a Participant is terminated by reason of Retirement, any outstanding Options granted to the Participant which are vested as of the date of termination of employment may be exercised, if at all, no more than three (3) years following termination of employment, unless the Options, by their terms, expire earlier. If the Participant is Retirement eligible at the time the Participant terminates employment by reason of death or disability (as defined above) after March 31, 2000, then for purposes of this section, the Participant shall be deemed to have terminated employment by reason of Retirement.

(c) Termination of Employment for Other Reasons. If the employment of a Participant shall terminate for any reason other than the reasons set forth in (a) or (b), above, and other than for Cause, all outstanding Options granted to the Participant which are vested as of the date of termination of employment may be exercised by the Participant within the period beginning on the effective date of termination of employment and ending three (3) months after such date, unless the Options, by their terms, expire earlier.

(d) Termination for Cause. If the employment of a Participant shall terminate for Cause, all outstanding Options held by the Participant shall immediately terminate and be forfeited to the Company, and no additional exercise period shall be allowed.

(e) Options not Vested at Termination. Any outstanding Options not vested as of the effective date of termination of employment shall expire immediately and shall be forfeited to the Company.

4.9 Transfers. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries (or between Subsidiaries) or between the Company or a Subsidiary and a RWAC, to the extent the term of employment at a RWAC is equal to or less than five (5) years, shall not be deemed a termination of employment under this Plan. Provided, however termination of employment with a RWAC without a concurrent transfer to the Company or any of its Subsidiaries shall be deemed a termination of employment as that term is used in this Plan. Similarly, termination of an entity’s status as a Subsidiary or as a RWAC shall be deemed a termination of employment of any Participants employed by such Subsidiary or RWAC.

4.10 Restrictions on Exercise and Transfer of Options. Unless otherwise provided by the Committee;

(a) During the Participant’s lifetime, the Participant’s Options shall be exercisable only by the Participant or by the Participant’s guardian or legal representative. After the death of the Participant, except as otherwise provided by the Company’s Rules for Employee Beneficiary Designations, as the same may be amended from time to time, an Option shall only be exercised by the holder thereof (including, but not limited to, an executor or administrator of a decedent’s estate) or his or her guardian or legal representative.

(b) No Option shall be transferable except: (a) in the case of the Participant, only upon the Participant’s death and in accordance with the Company’s Rules for Employee Beneficiary Designations, as the same may be amended from time to time; and (b) in the case of any holder after the Participant’s death, only by will or by the laws of descent and distribution.

4.11 Change in Control. Upon the occurrence of a Change in Control, all Options held by Participants hereunder shall immediately become vested and exercisable, notwithstanding the provisions of Section 4.6 Exercise of Options to the contrary. A “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareowners of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the total voting power represented by the Company’s then outstanding voting securities, or (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new Director whose election by the Board of Directors or nomination for election by the Company’s shareowners was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareowners of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent (80%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareowners of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets.

ARTICLE 5. AMENDMENT, MODIFICATION, AND TERMINATION

5.1 Amendment, Modification, and Termination. The Board or the Committee may at any time and from time to time, terminate, amend, or modify the Plan. However, no such amendment, modification, or termination of the Plan may be made without the approval of the shareowners of the Company, if such approval is required by the Internal Revenue Code, by the insider trading rules of Section 16 of the Exchange Act, by any national securities exchange or system on which the Shares are then listed or reported, or by a regulatory body having jurisdiction with respect hereto.

5.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall in any material manner adversely affect any Option previously granted under the Plan, without the written consent of the Participant holding such Option.

ARTICLE 6. WITHHOLDING

6.1 Tax Withholding. Upon exercise of an Option, the Company shall withhold Shares sufficient in value, using the Fair Market Value on the date determined by the Company to be used to value the Shares for tax purposes, to satisfy the minimum amount of Federal, state, and local taxes required by law to be withheld as a result of such exercise.

            Any fractional share of Stock payable to a Participant shall be withheld as additional Federal withholding, or, at the option of the Company, paid in cash to the participant.

             Unless otherwise determined by the Committee, when the method of payment for the Option Price is from the sale by a stockbroker pursuant to Section 4.7(b)(ii), hereof, of the Stock acquired through the Option exercise, then the tax withholding shall be satisfied out of the proceeds. For administrative purposes in determining the amount of taxes due, the sale price of such Stock shall be deemed to be the Fair Market Value of the Stock.

ARTICLE 7. MISCELLANEOUS

7.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary thereof to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employment of the Company or any Subsidiary thereof.

7.2 Participation. No Employee shall have the right to be selected to receive an Option under the Plan, or, having been so selected, to be selected to receive a future Option.

7.3 Successors. All obligations of the Company under the Plan 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.

7.4 Governing Law. This Plan shall be governed by and construed in accordance with the substantive laws of the State of Texas, excluding any conflicts or choice of law rule or principle that might otherwise refer constructive or interpretation of this Plan to provisions of the substantive law of any jurisdiction other than the State of Texas. Any action seeking to enforce the rights of an employee, former employee or person who holds such rights through, from or on behalf of such employee or former employee under this Plan may be brought only in a Federal or state court located in Bexar County, Texas.

EX-10

Exhibit 10-p

1996 STOCK AND INCENTIVE PLAN

Plan Effective: January 1, 1996
Revisions Effective: September 28, 2001

                                  TABLE OF CONTENTS

Article 1   Establishment and Purpose....................................................................1

  1.1  Establishment of the Plan.........................................................................1
  1.2  Purpose of the Plan...............................................................................1
  1.3  Effective Date of the Plan........................................................................1

Article 2 Definitions....................................................................................1

Article 3 Administration.................................................................................6

  3.1  The Committee.....................................................................................6
  3.2  Authority of the Committee........................................................................6

Article 4   Shares Subject to the Plan...................................................................7

  4.1  Number of Shares..................................................................................7
  4.2  Lapsed Awards.....................................................................................8
  4.3  Adjustments in Authorized Plan Shares.............................................................8

Article 5   Eligibility and Participation................................................................8

  5.1  Eligibility.......................................................................................8
  5.2  Actual Participation..............................................................................8

Article 6   Stock Options................................................................................8

  6.1  Grant of Options..................................................................................8
  6.2  Form of Issuance..................................................................................9
  6.3  Exercise Price....................................................................................9
  6.4  Duration of Options...............................................................................9
  6.5  Vesting of Options................................................................................9
  6.6  Exercise of Options..............................................................................10
  6.7  Payment..........................................................................................10
  6.8  Termination of Employment........................................................................11
  6.9  Employee Transfers...............................................................................13
  6.10 Restrictions on Exercise and Transfer of Options.................................................13
  6.11 Competition......................................................................................14

Article 7   Restricted Stock............................................................................14

  7.1  Grant of Restricted Stock........................................................................14
  7.2  Restricted Stock Agreement.......................................................................15
  7.3  Transferability..................................................................................15
  7.4  Other Restrictions...............................................................................15
  7.5  Removal of Restrictions..........................................................................15
  7.6  Voting Rights, Dividends and Other Distributions.................................................15
  7.7  Termination of Employment Due to Death or Disability.............................................16
  7.8  Termination of Employment for Other Reasons......................................................16
  7.9  Employee Transfers...............................................................................16
  7.10 Other Grants.....................................................................................16

Article 8   Performance Units and Performance Shares....................................................16


  8.1  Grants of Performance Units and Performance Shares.............................................. 16
  8.2  Value of Performance Shares and Units............................................................16
  8.3  Performance Period...............................................................................17
  8.4  Performance Goals................................................................................17
  8.5  Dividend Equivalents on Performance Shares.......................................................19
  8.6  Form and Timing of Payment of Performance Units and Performance Shares...........................19
  8.7  Termination of Employment Due to Death, Disability, or Retirement................................20
  8.8  Termination of Employment for Other Reasons......................................................20
  8.9  Termination of Employment for Cause..............................................................21
  8.10 Nontransferability...............................................................................21

Article 9   Beneficiary Designation.....................................................................21

Article 10  Deferrals...................................................................................21

Article 11  Employee Matters............................................................................21

  11.1 Employment Not Guaranteed   .....................................................................21
  11.2 Participation....................................................................................21

Article 12  Change in Control...........................................................................21

Article 13  Amendment, Modification, and Termination....................................................22

  13.1 Amendment, Modification, and Termination.........................................................22
  13.2 Awards Previously Granted........................................................................22

Article 14  Withholding.................................................................................22

  14.1 Tax Withholding..................................................................................22
  14.2 Share Withholding................................................................................22

Article 15  Successors..................................................................................23

Article 16  Legal Construction..........................................................................23

  16.1 Gender and Number................................................................................23
  16.2 Severability.....................................................................................23
  16.3 Requirements of Law.  ...........................................................................23
  16.4 Securities Law Compliance........................................................................23
  16.5 Governing Law....................................................................................24

Article 1
Establishment and Purpose.

1.1 Establishment of the Plan. SBC Communications Inc., a Delaware corporation (the "Company" or "SBC"), hereby establishes an incentive compensation plan (the "Plan"), as set forth in this document. No awards may be granted under this Plan on or after April 27, 2001.

1.2 Purpose of the Plan. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of Participants to those of the Company’s shareowners, and by providing Participants with an incentive for outstanding performance.

             The Plan is further intended to attract and retain the services of Participants upon whose judgment, interest, and special efforts the successful operation of SBC and its subsidiaries is dependent.

1.3 Effective Date of the Plan. The Plan shall become effective on January 1, 1996; however, grants may be made before that time subject to becoming effective on or after that date. During the first year this Plan is effective, Awards shall be issued only to the extent the potential payout of Shares shall not exceed 10% of the Shares approved for issuance under this Plan.

Article 2
Definitions.

            Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized:

(a) “Award” means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, Performance Units, or Performance Shares.

(b) “Award Agreement” means an agreement which may be entered into by each Participant and the Company, setting forth the terms and provisions applicable to Awards granted to Participants under this Plan.

(c) “Board” or “Board of Directors” means the SBC Board of Directors.

(d) “Cause” shall mean willful and gross misconduct on the part of a Participant that is materially and demonstrably detrimental to the Company or any Subsidiary as determined by the Company in its sole discretion.

(e) “Change in Control” shall be deemed to have occurred if (i) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareowners of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the total voting power represented by the Company's then outstanding voting securities, or (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new Director whose election by the Board of Directors or nomination for election by the Company’s shareowners was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareowners of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent (80%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareowners of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets.

(f) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

(g) “Committee” means the committee or committees, as specified in Article 3, appointed by the Board to administer the Plan with respect to grants of Awards.

(h) “Director” means any individual who is a member of the SBC Board of Directors.

(i) “Disability” shall mean absence of an Employee from work under the relevant Company or Subsidiary disability plan.

(j) “Employee” means any management employee of the Company or of one of the Company’s Subsidiaries. “Employment” means the employment of an Employee by the Company or one of its Subsidiaries. Directors who are not otherwise employed by the Company shall not be considered Employees under this Plan.

(k) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor Act thereto.

(l) “Exercise Price” means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee.

(m) “Fair Market Value” shall mean the closing price on the New York Stock Exchange (“NYSE”) for Shares on the relevant date, or if such date was not a trading day, the next preceding trading date, all as determined by the Company. A trading day is any day that the Shares are traded on the NYSE. In lieu of the foregoing, the Committee may select any other index or measurement to determine the Fair Market Value of Shares under the Plan.

(n) “Incentive Stock Option” or “ISO” means an option to purchase Shares from SBC, granted under this Plan, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code.

(o) “Insider” shall mean an Employee who is, on the relevant date, an officer, director, or ten percent (10%) beneficial owner of the Company, as those terms are defined under Section 16 of the Exchange Act.

(p) “Key Executive Officer Short Term Award” means a Performance Unit expressed in dollars.

(q) “Nonqualified Stock Option” or “NQSO” means the option to purchase Shares from SBC, granted under this Plan, which is not intended to be an Incentive Stock Option.

(r) “Option” or “Stock Option” shall mean an Incentive Stock Option or a Nonqualified Stock Option, and shall include a Restoration Option.

(s) “Participant” shall mean an Employee or former Employee that participates in this Plan.

(t) “Performance Unit” and “Performance Share” shall each mean an Award granted to an Employee pursuant to Article 8 herein.

(u) "“Plan” means this 1996 Stock and Incentive Plan. The Plan may also be referred to as the "SBC 1996 Stock and Incentive Plan" or as the "SBC Communications Inc. 1996 Stock and Incentive Plan."

(v) “Restricted Stock” means an Award of Stock granted to an Employee pursuant to Article 7 herein.

(w) “Restriction Period” means the period during which Shares of Restricted Stock are subject to restrictions or conditions under Article 7.

(x) “Retirement” or to “Retire” shall mean the termination of a Participant's employment with the Company or one of its Subsidiaries, for any reason other than death, Disability or for Cause, on or after the earlier of the following dates, or as otherwise provided by the Committee: (1) the date the Participant would be eligible to retire with an immediate pension under the rules of the SBC Supplemental Retirement Income Plan, whether or not actually a participant in such plan; or (2) the date the Participant 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 of 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 a Participant who is granted an EMP Service Pension under and pursuant to the provisions of the SBC Pension Benefit Plan – Nonbargained Program upon termination of employment, the terms “Retirement” or to “Retire” shall include such Participant’s termination of employment.

             Termination Under EPR. In determining whether an Eligible Employee’s termination of employment under the Enhanced Pension and Retirement Program (“EPR”) is a Retirement for purposes of this Plan, five years shall be added to each of age and net credited service (“NCS”). If with such additional age and years of service, (1) an Eligible Employee upon such termination of employment under EPR is Retirement Eligible according to the SBC Supplemental Retirement Income Plan (“SRIP”) or (2) the Eligible Employee upon such termination of employment under EPR has attained one of the following combinations of age and service,

                      Actual NCS + 5 Years       Actual Age + 5 Years
                      -----------------------------------------------

                        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

then such termination of employment shall be a Retirement for all purposes under this Plan and the Eligible Employee shall be entitled to the treatment under this Plan afforded in the case of a termination of employment which is a Retirement.

(y) "Rotational Work Assignment Company ("RWAC") shall mean any 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.

(z) "Shares" or "Stock" means the shares of common stock of the Company.

(aa) “Subsidiary” shall mean any corporation in which the Company owns directly, or indirectly through subsidiaries, 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 the Company owns more than fifty percent (50%) of the combined equity thereof.

(bb) “Window Period” means the period beginning on the third business day following the date of public release of the Company’s quarterly sales and earnings information, and ending on the twelfth business day following such date.

Article 3
Administration.

3.1 The Committee. Administration of the Plan shall be bifurcated as follows:

(a) With respect to Insiders, the Plan and all Awards hereunder shall be administered only by the Human Resources Committee of the Board or such other Committee as may be appointed by the Board for this purpose (the “Disinterested Committee”), where each Director on such Disinterested Committee is a “Disinterested Person” (or any successor designation for determining who may administer plans, transactions or awards exempt under Section 16(b) of the Exchange Act), as that term is used in Rule 16b-3 under the Exchange Act, as that rule may be modified from time to time.

(b) The Disinterested Committee and such other Committee as the Board may create, if any, specifically to administer the Plan with respect to non-Insiders (the “Non-Insider Committee”) shall each have full authority to administer the Plan and all Awards hereunder with respect to all persons who are not Insiders, except as otherwise provided herein or by the Board. Either Committee may be replaced by the Board at any time.

3.2 Authority of the Committee. The Committee shall have full power, except as limited by law and subject to the provisions herein, in its sole and exclusive discretion: to grant Awards; to select the recipients of Awards; to determine the eligibility of a person to participate in the Plan or to receive a particular Award; to determine the sizes and types of Awards; to determine the terms and conditions of such Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 13 herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations in its discretion which may be necessary or advisable for the administration of the Plan.

            References to determinations or other actions by the Company, herein, shall mean actions authorized by the Committee, the Chairman of the Board of the Company, the Senior Executive Vice President of the Company in charge of Human Resources or their respective successors or duly authorized delegates, in each case in the discretion of such person.

            All determinations and decisions made by the Company pursuant to the provisions of the Plan, and all related orders and resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries.

Article 4
Shares Subject to the Plan.

4.1 Number of Shares. Subject to adjustment as provided in Section 4.3 herein, the number of Shares available for grant under the Plan shall not exceed 60 million Shares of Stock. No more than 10% of the Shares approved for issuance under this Plan may be Shares of Restricted Stock. No more than 40% of the Shares approved for issuance under this Plan may be issued to Participants as a result of Performance Share or Restricted Stock Awards. The Shares granted under this Plan may be either authorized but unissued or reacquired Shares. The Disinterested Committee shall have full discretion to determine the manner in which Shares available for grant are counted in this Plan.

             Without limiting the discretion of the Committee under this section, unless otherwise provided by the Committee, the following rules will apply for purposes of the determination of the number of Shares available for grant under the Plan or compliance with the foregoing limits:

(a) The grant of a Stock Option or a Restricted Stock Award shall reduce the Shares available for grant under the Plan by the number of Shares subject to such Award. However, to the extent the Participant uses previously owned Shares to pay the Exercise Price or any taxes, or Shares are withheld to pay taxes, these Shares shall be available for regrant under the Plan.

(b) With respect to Performance Shares, the number of Performance Shares granted under the Plan shall be deducted from the number of Shares available for grant under the Plan. The number of Performance Shares which cannot be, or are not, converted into Shares and distributed (including deferrals) to the Participant (after any applicable tax withholding) following the end of the Performance Period shall increase the number of Shares available for regrant under the Plan by an equal amount.

(c) With respect to Performance Units representing a fixed dollar amount that may only be settled in cash, the Performance Units Award shall not affect the number of Shares available under the Plan.

4.2 Lapsed Awards. If any Award granted under this Plan is canceled, terminates, expires, or lapses for any reason, Shares subject to such Award shall be again available for the grant of an Award under the Plan.

4.3 Adjustments in Authorized Plan Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, Stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, an adjustment shall be made in the number and class of Shares which may be delivered under the Plan (including individual limits), and in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and/or the number of outstanding Options, Shares of Restricted Stock, and Performance Shares constituting outstanding Awards, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.

Article 5
Eligibility and Participation.

5.1 Eligibility. All management Employees are eligible to participate in this Plan.

5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Employee is entitled to receive an Award unless selected by the Committee.

Article 6
Stock Options.

6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Employees at any time and from time to time, and under such terms and conditions, as shall be determined by the Committee.  The Committee shall have discretion in determining the number of Shares subject to Options granted to each Employee; provided, however, that the maximum number of Shares subject to Options which may be granted to any single Employee during any calendar year shall not exceed 2% of the Shares approved for issuance under this Plan. The Committee may grant ISOs, NQSOs, or a combination thereof; provided, however, that no ISO may be issued after January 1, 2006. The Committee may authorize the automatic grant of additional Options (“Restoration Options”) when a Participant exercises already outstanding Options, or options granted under a prior option plan of the Company, on such terms and conditions as it shall determine. Unless otherwise provided by the Committee, the number of Restoration Options granted to a Participant with respect to the exercise of an option (including an Option under this Plan) shall not exceed the number of Shares delivered by the Participant in payment of the Exercise Price of such option, and/or in payment of any tax withholding resulting from such exercise, and any Shares which are withheld to satisfy withholding tax liability arising out of such exercise. A Restoration Option shall have an Exercise Price of not less than 100% of the per Share Fair Market Value on the date of grant of such Restoration Option, and shall be subject to all the terms and conditions of the original grant, including the expiration date, and such other terms and conditions as the Committee in its sole discretion shall determine.

6.2 Form of Issuance. Each Option grant may be issued in the form of an Award Agreement and/or may be recorded on the books and records of the Company for the account of the Participant. If an Option is not issued in the form of an Award Agreement, then the Option shall be deemed granted as determined by the Committee. The terms and conditions of an Option shall be set forth in the Award Agreement, in the notice of the issuance of the grant, or in such other documents as the Committee shall determine. Such terms and conditions shall include the Exercise Price, the duration of the Option, the number of Shares to which an Option pertains (unless otherwise provided by the Committee, each Option may be exercised to purchase one Share), and such other provisions as the Committee shall determine, including, but not limited to whether the Option is intended to be an ISO or a NQSO.

6.3 Exercise Price. Unless a greater Exercise Price is determined by the Committee, the Exercise Price for each Option Awarded under this Plan shall be equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted.

6.4 Duration of Options. Each Option shall expire at such time as the Committee shall determine at the time of grant (which duration may be extended by the Committee); provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant.

6.5 Vesting of Options. Options shall vest at such times and under such terms and conditions as determined by the Committee; provided, however, unless a later vesting period is provided by the Committee at or before the grant of an Option, one-third of the Options will vest on each of the first three anniversaries of the grant; if one Option remains after equally dividing the grant by three, it will vest on the first anniversary of the grant, if two Options remain, then one will vest on each of the first two anniversaries. The Committee shall have the right to accelerate the vesting of any Option; however, the Chairman of the Board or the Senior Vice President-Human Resources, or their respective successors, or such other persons designated by the Committee, shall have the authority to accelerate the vesting of Options for any Participant who is not an Insider.

6.6 Exercise of Options. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee or the Board shall in each instance approve, which need not be the same for each grant or for each Participant. Exercises of Options may be effected only on days and during the hours that the New York Stock Exchange is open for regular trading. The Company may further change or limit the times or days Options may be exercised. If an Option expires on a day or at a time when exercises are not permitted, then the Options may be exercised no later than the immediately preceding date and time that the Options were exercisable.

             Options shall be exercised by providing notice to the designated agent selected by the Company (if no such agent has been designated, then to the Company), in the manner and form determined by the Company, which notice shall be irrevocable, setting forth the exact number of Shares with respect to which the Option is being exercised and including with such notice payment of the Exercise Price. When Options have been transferred, the Company or its designated agent may require appropriate documentation that the person or persons exercising the Option, if other than the Participant, has the right to exercise the Option. No Option may be exercised with respect to a fraction of a Share.

6.7 Payment. The Exercise Price shall be paid in full at the time of exercise. No Shares shall be issued or transferred until full payment has been received therefor.

Payment may be made:

(a) in cash, or

(b) unless otherwise provided by the Committee at any time, and subject to such additional terms and conditions and/or modifications as the Committee or the Company may impose from time to time, and further subject to suspension or termination of this provision by the Committee or Company at any time, by:

(i) delivery of Shares of Stock owned by the Participant in partial (if in partial payment, then together with cash) or full payment; provided, however, as a condition to paying any part of the Exercise Price in Stock, at the time of exercise of the Option, the Participant must establish to the satisfaction of the Company that the Stock tendered to the Company must have been held by the Participant for a minimum of six (6) months preceding the tender; or

(ii) if the Company has designated a stockbroker to act as the Company’s agent to process Option exercises, issuance of an exercise notice together with instructions to such stockbroker irrevocably instructing the stockbroker: (A) to immediately sell (which shall include an exercise notice that becomes effective upon execution of a sell order) a sufficient portion of the Shares to pay the Exercise Price of the Options being exercised and the required tax withholding, and (B) to deliver on the settlement date the portion of the proceeds of the sale equal to the Exercise Price and tax withholding to the Company. In the event the stockbroker sells any Shares on behalf of a Participant, the stockbroker shall be acting solely as the agent of the Participant, and the Company disclaims any responsibility for the actions of the stockbroker in making any such sales. No Stock shall be issued until the settlement date and until the proceeds (equal to the Option Price and tax withholding) are paid to the Company.

             If payment is made by the delivery of Shares of Stock, the value of the Shares delivered shall be equal to the Fair Market Value of the Shares on the day preceding the date of exercise of the Option.

            Restricted Stock may not be used to pay the Option Price.

6.8 Termination of Employment.

             Unless otherwise provided by the Committee, the following limitations on exercise of Options shall apply upon termination of Employment:

(a) Termination by Death or Disability. In the event the Employment of a Participant shall terminate by reason of death or Disability, all outstanding Options granted to that Participant shall immediately vest as of the date of termination of Employment and may be exercised, if at all, no more than three (3) years from the date of the termination of Employment, unless the Options, by their terms, expire earlier. However, in the event the Participant was eligible to Retire at the time of termination of Employment, notwithstanding the foregoing, the Options may be exercised, if at all, no more than five (5) years from the date of the termination of Employment, unless the Options, by their terms, expire earlier.

(b) Termination for Cause. If the Employment of a Participant shall be terminated by the Company for Cause, all outstanding Options held by the Participant shall immediately be forfeited to the Company and no additional exercise period shall be allowed, regardless of the vested status of the Options.

(c) Retirement or Other Termination of Employment. If the Employment of a Participant shall terminate for any reason other than the reasons set forth in (a) or (b), above:

(i) If upon the Participant’s termination of Employment, the Participant is not an EPR Terminee (as that term is defined in the SBC Pension Benefit Plan or the Ameritech Management Pension Plan), but is eligible to Retire (and if the Participant is an officer level employee for compensation purposes as determined by SBC, the employee must also be age 55 or older at termination of Employment), then all outstanding unvested Options granted to that Participant shall immediately vest as of the date of the Participant’s termination of Employment; provided, however, this vesting provision shall not apply to an Option granted prior to September 28, 2001, unless and except for those Options outstanding as of September 27, 2001, that have an Exercise Price equal to or more than the Fair Market Value of Stock on such date;

(ii) All outstanding Options which are vested as of the effective date of termination of Employment may be exercised, if at all, no more than five (5) years from the date of termination of Employment if the Participant is eligible to Retire, or one (1) year from the date of the termination of Employment if the Participant is not eligible to Retire, as the case may be, unless in either case the Options, by their terms, expire earlier; and

(iii) In the event of the death of the Participant after termination of Employment, this paragraph (c) shall still apply and not paragraph (a), above.

(d) Options not Vested at Termination. Except as provided in paragraph (a), above, all Options held by the Participant which are not vested on or before the effective date of termination of Employment shall immediately be forfeited to the Company (and shall once again become available for grant under the Plan).

(e) Notwithstanding the foregoing, the Committee may, in its sole discretion, establish different terms and conditions pertaining to the effect of termination of Employment, but no such modification shall shorten the terms of Options issued prior to such modification.

6.9 Employee Transfers. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries (or between Subsidiaries) or between the Company or a Subsidiary and a RWAC, to the extent the period of employment at a RWAC is equal to or less than five (5) years, shall not be deemed a termination of Employment. Provided, however, for purposes of this Article 6, termination of employment with a RWAC without a concurrent transfer to the Company or any of its Subsidiaries shall be deemed a termination of Employment as that term is used herein. Similarly, termination of an entity’s status as a Subsidiary or as a RWAC shall be deemed a termination of Employment of any Participants employed by such Subsidiary or RWAC.

6.10 Restrictions on Exercise and Transfer of Options. Unless otherwise provided by the Committee:

(a) During the Participant’s lifetime, the Participant’s Options shall be exercisable only by the Participant or by the Participant’s guardian or legal representative. After the death of the Participant, except as otherwise provided by SBC’s Rules for Employee Beneficiary Designations, as the same may be amended from time to time, an Option shall only be exercised by the holder thereof (including, but not limited to, an executor or administrator of a decedent’s estate) or his or her guardian or legal representative.

(b) No Option shall be transferable except: (a) in the case of the Participant, only upon the Participant’s death and in accordance with the Company’s Rules for Employee Beneficiary Designations, as the same may be amended from time to time; and (b) in the case of any holder after the Participant’s death, only by will or by the laws of descent and distribution.

6.11 Competition and Solicitation. In the event a Participant directly or indirectly, engages in competitive activity, or has become associated with, employed by, controls, or renders service to any business that is engaged in competitive activity, with (i) the Company, (ii) any Subsidiary, or (iii) any business in which any of the foregoing have a substantial interest, or if the Participant attempts, directly or indirectly, to induce any employee of the Company or a Subsidiary to be employed or perform services elsewhere without the permission of the Company, then the Company may (i) cancel any Option granted to such Participant, whether or not vested, in whole or in part; and/or (ii) rescind any exercise of the Participant’s Options that occurred on or after that date six months prior to engaging in such activity, in which case the Participant shall pay the Company the gain realized or received upon such exercise of Options. “Has become associated with” shall include, among other things, beneficial ownership of 1/10 of 1% or more of a business engaged in competitive activity. The determination of whether a Participant has engaged in any such activity and whether to cancel Options and/or rescind the exercise of Options may be made by the Committee, the Senior Executive Vice President of the Company in charge of Human Resources or such person’s successor, or the delegate of or a committee appointed by any of the foregoing, and in each case such determination shall be final, conclusive and binding on all persons.

Article 7
Restricted Stock.

7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to eligible Employees in such amounts and upon such terms and conditions as the Committee shall determine. In addition to any other terms and conditions imposed by the Committee, vesting of Restricted Stock may be conditioned upon the attainment of Performance Goals based on Performance Criteria in the same manner as provided in Section 8.4, herein, with respect to Performance Shares. No Employee may receive, in any calendar year, in the form of Restricted Stock more than one-third of 1% of the Shares approved for issuance under this Plan.

7.2 Restricted Stock Agreement. The Committee may require, as a condition to an Award, that a recipient of a Restricted Stock Award enter into a Restricted Stock Award Agreement, setting forth the terms and conditions of the Award. In lieu of a Restricted Stock Award Agreement, the Committee may provide the terms and conditions of an Award in a notice to the Participant of the Award, on the Stock certificate representing the Restricted Stock, in the resolution approving the Award, or in such other manner as it deems appropriate.

7.3 Transferability. Except as otherwise provided in this Article 7, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Restriction Period established by the Committee, which shall not be less than a period of three years.

7.4 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock and/or restrictions under applicable Federal or state securities laws; and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions.

             The Company shall also have the right to retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied.

7.5 Removal of Restrictions. Except as otherwise provided in this Article 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the Restriction Period and completion of all conditions to vesting, if any. However, unless otherwise provided by the Committee, the Committee, in its sole discretion, shall have the right to immediately waive all or part of the restrictions and conditions with regard to all or part of the Shares held by any Participant at any time.

7.6 Voting Rights, Dividends and Other Distributions. During the Restriction Period, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights and shall receive all regular cash dividends paid with respect to such Shares. Except as provided in the following sentence, in the sole discretion of the Committee, other cash dividends and other distributions paid to Participants with respect to Shares of Restricted Stock may be subject to the same restrictions and conditions as the Shares of Restricted Stock with respect to which they were paid. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions and conditions as the Shares of Restricted Stock with respect to which they were paid.

7.7 Termination of Employment Due to Death or Disability. In the event the Employment of a Participant shall terminate by reason of death or Disability, all Restriction Periods and all restrictions imposed on outstanding Shares of Restricted Stock held by the Participant shall immediately lapse and the Restricted Stock shall immediately become fully vested as of the date of termination of Employment.

7.8 Termination of Employment for Other Reasons. If the Employment of a Participant shall terminate for any reason other than those specifically set forth in Section 7.7 herein, all Shares of Restricted Stock held by the Participant which are not vested as of the effective date of termination of Employment immediately shall be forfeited and returned to the Company.

7.9 Employee Transfers. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries (or between Subsidiaries) or between the Company or a Subsidiary and a RWAC, to the extent the period of employment at a RWAC is equal to or less than five (5) years, shall not be deemed a termination of Employment. Provided, however, for purposes of this Article, termination of employment with a RWAC without a concurrent transfer to the Company or any of its Subsidiaries shall be deemed a termination of Employment as that term is used herein. Similarly, termination of an entity’s status as a Subsidiary or as a RWAC shall be deemed a termination of Employment of any Participants employed by such Subsidiary or RWAC.

7.10 Other Grants. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may make grants of cash or other property to eligible Employees in such amounts and upon such terms and conditions as the Committee shall determine. If the grant is in the form of stock or shares in a company other than SBC, the award shall be subject to tax withholding in accordance with Article 14, hereof, in the same manner as Stock.

Article 8
Performance Units and Performance Shares.

8.1 Grants of Performance Units and Performance Shares. Subject to the terms of the Plan, Performance Shares and Performance Units may be granted to eligible Employees at any time and from time to time, as determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units and/or Performance Shares Awarded to each Participant.

8.2 Value of Performance Shares and Units.

(a) A Performance Share is equivalent in value to a Share of Stock. In any calendar year, no individual may be Awarded Performance Shares having a potential payout of Shares of Stock exceeding two-thirds of 1% of the Shares approved for issuance under this Plan.

(b) A Performance Unit shall be equal in value to a fixed dollar amount determined by the Committee. In any calendar year, no individual may be Awarded Performance Units having a potential payout equivalent exceeding the Fair Market Value of two-thirds of 1% of the Shares approved for issuance under this Plan. The number of Shares equivalent to the potential payout of a Performance Unit shall be determined by dividing the maximum cash payout of the Award by the Fair Market Value per Share on the effective date of the grant. In the event the Committee denominates a Performance Unit Award in dollars instead of Performance Units, the Award may be referred to as a Key Executive Officer Short Term Award. In all other respects, the Key Executive Officer Short Term Award will be treated in the same manner as Performance Units under this Plan.

8.3 Performance Period. The Performance Period for Performance Shares and Performance Units is the period over which the Performance Goals are measured. The Performance Period is set by the Committee for each Award; however, in no event shall an Award have a Performance Period of less than one year.

8.4 Performance Goals. For each Award of Performance Shares or Performance Units, the Committee shall establish performance objectives (“Performance Goals”) for the Company, its Subsidiaries, and/or divisions of any of foregoing, based on the Performance Criteria and other factors set forth in (a) through (d), below. Performance Goals shall include payout tables, formulas or other standards to be used in determining the extent to which the Performance Goals are met, and, if met, the number of Performance Shares and/or Performance Units which would be converted into Stock and/or cash (or the rate of such conversion) and distributed to Participants in accordance with Section 8.6. All Performance Shares and Performance Units which may not be converted under the Performance Goals or which are reduced by the Committee under Section 8.6 or which may not be converted for any other reason after the end of the Performance Period shall be canceled at the time they would otherwise be distributable. When the Committee desires an Award to qualify under Section 162(m) of the Code, as amended, the Committee shall establish the Performance Goals for the respective Performance Shares and Performance Units prior to or within 90 days of the beginning of the service relating to such Performance Goal, and not later than after 25% of such period of service has elapsed. For all other Awards, the Performance Goals must be established before the end of the respective Performance Period.

(a) The Performance Criteria which the Committee is authorized to use, in its sole discretion, are any of the following criteria or any combination thereof:

(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 and/or Value Added (after-tax cash operating profit less depreciation and less a capital charge).

(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.

(3)The Company’s Stock price; return on shareholders’ equity; total shareholder return (Stock price appreciation plus dividends, assuming the reinvestment of dividends); and/or earnings per share.

(4)With respect to the Company (on a consolidated basis), to one or more of its Subsidiaries, and/or to a division of any of the foregoing: sales; costs; market share of a product or service; return on net assets; return on assets; return on capital; profit margin; and/or operating revenues, expenses or earnings.

(b) If the performance of more than one Subsidiary is being measured to determine the attainment of performance goals, then a weighted average of the Subsidiaries’ results shall be used, as determined by the Committee, including, but not limited to, basing such weighting upon the revenues, assets or net income for each Subsidiary for any year prior to the Performance Period or by using budgets to weight such Subsidiaries.

(c) Except to the extent otherwise provided by the Committee in full or in part, if any of the following events occur during a Performance Period and would directly affect the determination of whether or the extent to which Performance Goals are met, they shall be disregarded in any such computation: changes in accounting principles; extraordinary items; changes in tax laws affecting net income and/or Value Added; natural disasters, including floods, hurricanes, and earthquakes; and intentionally inflicted damage to property which directly or indirectly damages the property of the Company or its Subsidiaries. No such adjustment shall be made to the extent such adjustment would cause the Performance Shares or Performance Units to fail to satisfy the performance based exemption of Section 162(m) of the Code.

8.5 Dividend Equivalents on Performance Shares. Unless reduced or eliminated by the Committee, a cash payment in an amount equal to the dividend payable on one Share will be made to each Participant for each Performance Share which on the record date for the dividend had been awarded to the Participant and not converted, distributed (or deferred) or canceled.

8.6 Form and Timing of Payment of Performance Units and Performance Shares. As soon as practicable after the applicable Performance Period has ended and all other conditions (other than Committee actions) to conversion and distribution of a Performance Share and/or Performance Unit Award have been satisfied (or, if applicable, at such other time determined by the Committee at or before the establishment of the Performance Goals for such Performance Period), the Committee shall determine whether and the extent to which the Performance Goals were met for the applicable Performance Units and Performance Shares. If Performance Goals have been met, then the number of Performance Units and Performance Shares to be converted into Stock and/or cash and distributed to the Participants shall be determined in accordance with the Performance Goals for such Awards, subject to any limits imposed by the Committee. Unless the Participant has elected to defer all or part of his Performance Units or Performance Shares as provided in Article 10, herein, payment of Performance Units and Performance Shares shall be made in a single lump sum, as soon as reasonably administratively possible following the determination of the number of Shares or amount of cash to which the Participant is entitled. Performance Units will be distributed to Participants in the form of cash. Performance Shares will be distributed to Participants in the form of 50% Stock and 50% Cash, or at the Participant’s election, 100% Stock or 100% Cash. In the event the Participant is no longer an Employee at the time of the distribution, then the distribution shall be 100% in cash, provided the Participant may elect to take 50% or 100% in Stock. At any time prior to the distribution of the Performance Shares and/or Performance Units (or if distribution has been deferred, then prior to the time the Awards would have been distributed), unless otherwise provided by the Committee, the Committee shall have the authority to reduce or eliminate the number of Performance Units or Performance Shares to be converted and distributed or to mandate the form in which the Award shall be paid (i.e., in cash, in Stock or both, in any proportions determined by the Committee).

             Unless otherwise provided by the Committee, any election to take a greater amount of cash or Stock with respect to Performance Shares must be made in the calendar year prior to the calendar year in which the Performance Shares are distributed (or if distribution has been deferred, then in the year prior to the year the Performance Shares would have been distributed absent such deferral). In addition, if required in order to exempt the transaction from the provisions of Section 16(b) of the Exchange Act, any election by an Insider to take a greater amount in cash must be made during a Window Period and shall be subject to Committee approval.

             For the purpose of converting Performance Shares into cash and distributing the same to the holders thereof (or for determining the amount of cash to be deferred), the value of a Performance Share shall be the average of the Fair Market Values of Shares for the period of five (5) trading days ending on the valuation date. The valuation date shall be the first business day of the second month in the year of distribution (or the year it would have been distributed were it not deferred). Performance Shares to be distributed in the form of Stock will be converted at the rate of one (1) Share of Stock per Performance Share.

8.7 Termination of Employment Due to Death, Disability, or Retirement. If the Employment of a Participant shall terminate by reason of death or Disability, the Participant shall receive a lump sum payout of all outstanding Performance Units and Performance Shares calculated as if all unfinished Performance Periods had ended with 100% of the Performance Goals achieved, payable in the year following the date of termination of Employment. In the event of Retirement, the full Performance Units and Performance Shares shall be converted and distributed based on and subject to the achievement of the Performance Goals and in accordance with all other terms of the Award and this Plan.

8.8 Termination of Employment for Other Reasons. If the Employment of a Participant shall terminate for other than a reason set forth in Section 8.7 (and other than for Cause), the number of Performance Units and Performance Shares to be converted and distributed shall be converted and distributed based upon the achievement of the Performance Goals and in accordance with all other terms of the Award and the Plan; however, the Participant may receive no more than a prorated payout of all Performance Units and Performance Shares, based on the portions of the respective Performance Periods that have been completed.

8.9 Termination of Employment for Cause. In the event that a Participant’s Employment shall be terminated by the Company for Cause, all Performance Units and Performance Shares shall be forfeited by the Participant to the Company.

8.10 Nontransferability. Performance Units and Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than in accordance with the SBC Rules for Employee Beneficiary Designations.

Article 9
Beneficiary Designation.

            In the event of the death of a Participant, distributions or Awards under this Plan, other than Restricted Stock, shall pass in accordance with the SBC Rules for Employee Beneficiary Designations, as the same may be amended from time to time.

Article 10
Deferrals.

             Unless otherwise provided by the Committee, a Participant may, as permitted by the Stock Savings Plan or the Salary and Incentive Award Deferral Plan, defer all or part of awards made under this Plan in accordance with and subject to the terms of such plans.

Article 11
Employee Matters.

11.1 Employment Not Guaranteed. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s Employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or one of its Subsidiaries.

11.2 Participation. No Employee shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.

Article 12
Change in Control.

            Upon the occurrence of a Change in Control:

(a) Any and all Options granted hereunder immediately shall become vested and exercisable;

(b) Any Restriction Periods and all restrictions imposed on Restricted Shares shall lapse and they shall immediately become fully vested;

(c) The 100% Performance Goal for all Performance Units and Performance Shares relating to incomplete Performance Periods shall be deemed to have been fully achieved and shall be converted and distributed in accordance with all other terms of the Award and this Plan; provided, however, notwithstanding anything to the contrary in this Plan, no outstanding Performance Unit or Performance Share may be reduced.

Article 13
Amendment, Modification, and Termination.

13.1 Amendment, Modification, and Termination. The Board may at any time suspend or terminate the Plan in whole or in part; the Disinterested Committee may at any time and from time to time, alter or amend the Plan in whole or in part.

13.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.

Article 14
Withholding.

14.1 Tax Withholding. The Company shall deduct or withhold an amount sufficient to satisfy Federal, state, and local taxes (including the Participant’s employment tax obligations) required by law to be withheld with respect to any taxable event arising or as a result of this Plan (“Withholding Taxes”).

14.2 Share Withholding. Upon the exercise of Options, the lapse of restrictions on Restricted Stock, the distribution of Performance Shares in the form of Stock, or any other taxable event hereunder involving the transfer of Stock to a Participant, the Company shall withhold Stock equal in value, using the Fair Market Value on the date determined by the Company to be used to value the Stock for tax purposes, to the Withholding Taxes applicable to such transaction.

             Any fractional Share of Stock payable to a Participant shall be withheld as additional Federal withholding, or, at the option of the Company, paid in cash to the Participant.

             Unless otherwise determined by the Committee, when the method of payment for the Exercise Price is from the sale by a stockbroker pursuant to Section 6.7(b)(ii), herein, of the Stock acquired through the Option exercise, then the tax withholding shall be satisfied out of the proceeds. For administrative purposes in determining the amount of taxes due, the sale price of such Stock shall be deemed to be the Fair Market Value of the Stock.

             Prior to the end of any Performance Period a Participant may elect to have a greater amount of Stock withheld from the distribution of Performance Shares to pay withholding taxes; provided, however, the Committee may prohibit or limit any individual election or all such elections at any time. In addition, if required in order to exempt the transaction from the provisions of Section 16(b) of the Exchange Act, any such election by an Insider must be made during a Window Period and shall be subject to Committee approval.

Article 15
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.

Article 16
Legal Construction.

16.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.

16.2 Severability. 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.

16.3 Requirements of Law. The granting of Awards and the issuance of Shares 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.

16.4 Securities Law Compliance. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions or Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the plan or action by the Committee fails to comply with a condition of Rule 16b-3 or its successors, it shall not apply to the Insiders or transactions thereby.

16.5 Governing Law. This Plan shall be governed by and construed in accordance with the substantive laws of the State of Texas, excluding any conflicts or choice of law rule or principle that might otherwise refer constructive or interpretation of this Plan to provisions of the substantive law of any jurisdiction other than the State of Texas. Any action seeking to enforce the rights of an employee, former employee or person who holds such rights through, from or on behalf of such employee or former employee under this Plan may be brought only in a Federal or state court located in Bexar County, Texas.

EX-10

Exhibit 10-w

2001 INCENTIVE PLAN

Plan Effective: April 27, 2001
Revisions Effective: November 19, 2001

                                  TABLE OF CONTENTS


Article 1 Establishment and Purpose..........................................1

  1.1  Establishment of the Plan.............................................1
  1.2  Purpose of the Plan...................................................1
  1.3  Effective Date of the Plan............................................1

Article 2 Definitions........................................................1

Article 3 Administration.....................................................5

  3.1  The Committee.........................................................5
  3.2  Authority of the Committee............................................5

Article 4 Shares Subject to the Plan.........................................6

  4.1  Number of Shares......................................................6
  4.2  Lapsed Awards.........................................................7
  4.3  Adjustments in Authorized Plan Shares.................................7

Article 5 Eligibility and Participation......................................7

  5.1  Eligibility...........................................................7
  5.2  Actual Participation..................................................7

Article 6 Stock Options......................................................7

  6.1  Grant of Options......................................................7
  6.2  Form of Issuance......................................................8
  6.3  Exercise Price........................................................8
  6.4  Duration of Options...................................................8
  6.5  Vesting of Options....................................................9
  6.6  Exercise of Options...................................................9
  6.7  Payment...............................................................9
  6.8  Termination of Employment............................................11
  6.9  Employee Transfers...................................................12
  6.10 Restrictions on Exercise and Transfer of Options.....................13
  6.11 Competition and Solicitation.........................................13

Article 7 Restricted Stock..................................................14

  7.1  Grant of Restricted Stock............................................14
  7.2  Restricted Stock Agreement...........................................14
  7.3  Transferability......................................................14
  7.4  Restrictions.........................................................14
  7.5  Removal of Restrictions..............................................15
  7.6  Voting Rights, Dividends and Other Distributions.....................15
  7.7  Termination of Employment Due to Death or Disability.................15
  7.8  Termination of Employment for Other Reasons..........................15
  7.9  Employee Transfers...................................................15

Article 8 Performance Units and Performance Shares..........................16

  8.1  Grants of Performance Units and Performance Shares...................16
  8.2  Value of Performance Shares and Units................................16
  8.3  Performance Period...................................................16
  8.4  Performance Goals....................................................16
  8.5  Dividend Equivalents on Performance Shares...........................18
  8.6  Form and Timing of Payment of Performance Units
         and Performance Shares.............................................18
  8.7  Termination of Employment Due to Death or Disability.................19
  8.8  Termination of Employment for Other Reasons..........................19
  8.9  Termination of Employment for Cause..................................20
  8.10 Nontransferability...................................................20

Article 9 Beneficiary Designation...........................................20

Article 10 Deferrals........................................................20

Article 11 Employee Matters.................................................20

  11.1 Employment Not Guaranteed............................................20
  11.2 Participation........................................................20

Article 12 Change in Control................................................20

Article 13 Amendment, Modification, and Termination.........................21

  13.1 Amendment, Modification, and Termination.............................21
  13.2 Awards Previously Granted............................................21

Article 14 Withholding......................................................21

  14.1 Tax Withholding......................................................21
  14.2 Share Withholding....................................................21

Article 15 Successors.......................................................22

Article 16 Legal Construction...............................................22

  16.1 Gender and Number....................................................22
  16.2 Severability.........................................................22
  16.3 Requirements of Law..................................................22
  16.4 Errors...............................................................22
  16.5 Elections and Notices ...............................................23
  16.6 Govering Law.........................................................23
  16.7 Venue................................................................23

SBC COMMUNICATIONS INC.

2001 INCENTIVE PLAN

Article 1 Establishment and Purpose.

1.1 Establishment of the Plan. SBC Communications Inc., a Delaware corporation (the “Company” or “SBC”), hereby establishes an incentive compensation plan (the “Plan”), as set forth in this document.

1.2 Purpose of the Plan. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of Participants to those of the Company’s shareowners, and by providing Participants with an incentive for outstanding performance.

1.3 Effective Date of the Plan. The Plan shall become effective on April 27, 2001; however, grants may be made before that time subject to becoming effective on or after that date.

Article 2 Definitions.

Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized:

(a) “Award” means, individually or collectively, a grant or award under this Plan of Stock Options, Restricted Stock, Performance Units, or Performance Shares.

(b) “Award Agreement” means an agreement which may be entered into by each Participant and the Company, setting forth the terms and provisions applicable to Awards granted to Participants under this Plan.

(c) “Board” or "Board of Directors" means the SBC Board of Directors.

(d) “Cause” shall mean willful and gross misconduct on the part of an Employee that is materially and demonstrably detrimental to the Company or any Subsidiary as determined by the Company in its sole discretion.

(e) “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareowners of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the total voting power represented by the Company’s then outstanding voting securities, or (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new Director whose election by the Board of Directors or nomination for election by the Company’s shareowners was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareowners of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent (80%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareowners of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets.

(f) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

(g) “Committee” means the committee or committees of the Board of Directors given authority to administer the Plan as provided in Article 3.

(h) “Director” means any individual who is a member of the SBC Board of Directors.

(i) “Disability” shall mean absence of an Employee from work under the relevant Company or Subsidiary disability plan.

(j) “Employee” means any employee of the Company or of one of the Company’s Subsidiaries. “Employment” means the employment of an Employee by the Company or one of its Subsidiaries. Directors who are not otherwise employed by the Company shall not be considered Employees under this Plan.

(k) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor Act thereto.

(l) “Exercise Price” means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee.

(m) “Fair Market Value” shall mean the closing price on the New York Stock Exchange (“NYSE”) for Shares on the relevant date, or if such date was not a trading day, the next preceding trading date, all as determined by the Company. A trading day is any day that the Shares are traded on the NYSE. In lieu of the foregoing, the Committee may select any other index or measurement to determine the Fair Market Value of Shares under the Plan.

(n) “Insider” shall mean an Employee who is, on the relevant date, an officer, director, or ten percent (10%) beneficial owner of the Company, as those terms are defined under Section 16 of the Exchange Act.

(o) “Key Executive Officer Short Term Award” or “KEO Award” means a Performance Unit.

(p) “Option” means an option to purchase Shares from SBC.

(q) “Participant” means an Employee or former Employee who holds an outstanding Award granted under the Plan.

(r) “Performance Unit” and “Performance Share” shall each mean an Award granted to an Employee pursuant to Article 8 herein.

(s) “Plan” means this 2001 Incentive Plan. The Plan may also be referred to as the "SBC 2001 Incentive Plan" or as the "SBC Communications Inc. 2001 Incentive Plan."

(t) “Restricted Stock” means an Award of Stock granted to an Employee pursuant to Article 7 herein.

(u) “Retirement” or to “Retire” shall mean the Participant’s Termination of Employment for any reason other than death, Disability or for Cause, on or after the earlier of the following dates, or as otherwise provided by the Committee: (1) the date the Participant would be eligible to retire with an immediate pension under the rules of the SBC Supplemental Retirement Income Plan, whether or not actually a participant in such plan; or (2) the date the Participant has attained one of the following combinations of age and service, 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

In determining whether a Participant’s Termination of Employment under the Enhanced Pension and Retirement Program (“EPR”) is a Retirement as defined above, 5 years shall be added to each of Age and Net Credited Service.

(v) “Rotational Work Assignment Company” (“RWAC”) shall mean any 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.

(w) “Shares” or “Stock” means the shares of common stock of the Company.

(x) “Subsidiary” shall mean any corporation in which the Company owns directly, or indirectly through subsidiaries, 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 the Company owns more than fifty percent (50%) of the combined equity thereof.

(y) “Termination of Employment” or a similar reference shall mean the event where the Employee is no longer an Employee of the Company or of any Subsidiary, including but not limited to where the employing company ceases to be a Subsidiary.

Article 3 Administration.

3.1 The Committee. Administration of the Plan shall be as follows:

(a) With respect to Insiders, the Plan and all Awards hereunder shall be administered by the Human Resources Committee of the Board or such other Committee as may be appointed by the Board for this purpose (each of the Human Resources Committee and such other committee is the “Disinterested Committee”), where each Director on such Disinterested Committee is a “Non-Employee Director”, as that term is used in Rule 16b-3 under the Exchange Act (or any successor designation for determining who may administer plans, transactions or awards exempt under Section 16(b) of the Exchange Act), as that rule may be modified from time to time.

(b) The Disinterested Committee and such other Committee as the Board may create, if any, to administer the Plan with respect to non-Insiders (such other Committee shall be the “Non-Insider Committee”) shall each have full authority to administer the Plan and all Awards hereunder with respect to all persons who are not Insiders, except as otherwise provided herein or by the Board. Any Committee may be replaced by the Board at any time.

3.2 Authority of the Committee. The Committee shall have full power, except as limited by law and subject to the provisions herein, in its sole and exclusive discretion: to grant Awards; to select the recipients of Awards; to determine the eligibility of a person to participate in the Plan or to receive a particular Award; to determine the sizes and types of Awards; to determine the terms and conditions of such Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 13 herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations in its discretion, which may be necessary or advisable for the administration of the Plan.

        No Award other than Restoration Options may be made under the Plan after April 2, 2011.

        References to determinations or other actions by SBC or the Company, herein, shall mean actions authorized by the Committee, the Chairman of the Board of SBC, the Senior Executive Vice President of SBC in charge of Human Resources or their respective successors or duly authorized delegates, in each case in the discretion of such person.

        All determinations and decisions made by SBC pursuant to the provisions of the Plan and all related orders or resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries.

        Subject to the terms of this Plan, the Committee is authorized, and shall not be limited in its discretion, to use any of the Performance Criteria specified herein in its determination of any Award under this Plan.

Article 4 Shares Subject to the Plan.

4.1 Number of Shares. Subject to adjustment as provided in Section 4.3 herein, the number of Shares available for issuance under the Plan shall not exceed 60 million Shares of Stock. No more than 10% of the Shares approved for issuance under this Plan may be Shares of Restricted Stock. No more than 40% of the Shares approved for issuance under this Plan may be issued to Participants as a result of Performance Share and Restricted Stock Awards. The Shares granted under this Plan may be either authorized but unissued or reacquired Shares. The Disinterested Committee shall have full discretion to determine the manner in which Shares available for grant are counted in this Plan.

        Without limiting the discretion of the Committee under this section, unless otherwise provided by the Committee, the following rules will apply for purposes of the determination of the number of Shares available for grant under the Plan or compliance with the foregoing limits:

(a) The grant of a Stock Option or a Restricted Stock Award shall reduce the Shares available for grant under the Plan by the number of Shares subject to such Award. However, to the extent the Participant uses previously owned Shares to pay the Exercise Price or any taxes, or Shares are withheld to pay taxes, these Shares shall be available for regrant under the Plan.

(b) With respect to Performance Shares, the number of Performance Shares granted under the Plan shall be deducted from the number of Shares available for grant under the Plan. The number of Performance Shares which cannot be, or are not, converted into Shares and distributed (including deferrals) to the Participant or deferred through another plan following the end of the Performance Period, or which are withheld for taxes, shall increase the number of Shares available for regrant under the Plan by an equal amount.

(c) With respect to Performance Units representing a fixed dollar amount that may only be settled in cash, the Performance Units Award shall not affect the number of Shares available under the Plan.

4.2 Lapsed Awards. If any Award granted under this Plan is canceled, terminates, expires, or lapses for any reason, Shares subject to such Award shall be again available for the grant of an Award under the Plan.

4.3 Adjustments in Authorized Plan Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, Stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, an adjustment shall be made in the number and class of Shares which may be delivered under the Plan (including individual limits), and in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and/or the number of outstanding Options, Shares of Restricted Stock, and Performance Shares constituting outstanding Awards, as may be determined to be appropriate and equitable by the Disinterested Committee, in its sole discretion, to prevent dilution or enlargement of rights.

Article 5 Eligibility and Participation.

5.1 Eligibility. All management Employees are eligible to receive Awards under this Plan.

5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Employee is entitled to receive an Award unless selected by the Committee.

Article 6 Stock Options.

6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Employees at any time and from time to time, and under such terms and conditions, as shall be determined by the Committee. The Committee shall have discretion in determining the number of Shares subject to Options granted to each Employee; provided, however, that the maximum number of Shares subject to Options which may be granted to any single Employee during any calendar year shall not exceed 2% of the Shares approved for issuance under this Plan. The Committee may not grant Incentive Stock Options, as described in Section 422 of the Code, under this Plan. The Committee may authorize the automatic grant of additional Options (“Restoration Options”) when a Participant exercises already outstanding Options, or options granted under a prior option plan of the Company, on such terms and conditions as it shall determine. Unless otherwise provided by the Committee, the number of Restoration Options granted to a Participant with respect to the exercise of an option (including an Option under this Plan) shall not exceed the number of Shares delivered by the Participant in payment of the Exercise Price of such option, and/or in payment of any tax withholding resulting from such exercise, and any Shares which are withheld to satisfy withholding tax liability arising out of such exercise. A Restoration Option shall have an Exercise Price of not less than 100% of the per Share Fair Market Value on the date of grant of such Restoration Option, and shall be subject to all the terms and conditions of the original grant, including the expiration date, and such other terms and conditions as the Committee in its sole discretion shall determine.

6.2 Form of Issuance. Each Option grant may be issued in the form of an Award Agreement and/or may be recorded on the books and records of the Company for the account of the Participant. If an Option is not issued in the form of an Award Agreement, then the Option shall be deemed granted as determined by the Committee. The terms and conditions of an Option shall be set forth in the Award Agreement, in the notice of the issuance of the grant, or in such other documents as the Committee shall determine. Such terms and conditions shall include the Exercise Price, the duration of the Option, the number of Shares to which an Option pertains (unless otherwise provided by the Committee, each Option may be exercised to purchase one Share), and such other provisions as the Committee shall determine.

6.3 Exercise Price. Unless a greater Exercise Price is determined by the Committee, the Exercise Price for each Option Awarded under this Plan shall be equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted.

6.4 Duration of Options. Each Option shall expire at such time as the Committee shall determine at the time of grant (which duration may be extended by the Committee); provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant. In the event the Committee does not specify the expiration date of an Option, then such Option will expire on the tenth (10^th) anniversary date of its grant, except as otherwise provided herein.

6.5 Vesting of Options. Options shall vest at such times and under such terms and conditions as determined by the Committee; provided, however, unless another vesting period is provided by the Committee at or before the grant of an Option, one-third of the Options will vest on each of the first three anniversaries of the grant; if one Option remains after equally dividing the grant by three, it will vest on the first anniversary of the grant, if two Options remain, then one will vest on each of the first two anniversaries. The Committee shall have the right to accelerate the vesting of any Option; however, the Chairman of the Board or the Senior Executive Vice President-Human Resources, or their respective successors, or such other persons designated by the Committee, shall have the authority to accelerate the vesting of Options for any Participant who is not an Insider.

6.6 Exercise of Options. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Exercises of Options may be effected only on days and during the hours that the New York Stock Exchange is open for regular trading. The Company may further change or limit the times or days Options may be exercised. If an Option expires on a day or at a time when exercises are not permitted, then the Options may be exercised no later than the immediately preceding date and time that the Options were exercisable.

        Options shall be exercised by providing notice to the designated agent selected by the Company (if no such agent has been designated, then to the Company), in the manner and form determined by the Company, which notice shall be irrevocable, setting forth the exact number of Shares with respect to which the Option is being exercised and including with such notice payment of the Exercise Price. When Options have been transferred, the Company or its designated agent may require appropriate documentation that the person or persons exercising the Option, if other than the Participant, has the right to exercise the Option. No Option may be exercised with respect to a fraction of a Share.

6.7 Payment. The Exercise Price shall be paid in full at the time of exercise. No Shares shall be issued or transferred until full payment has been received therefor.

Payment may be made:

(a) in cash, or

(b) unless otherwise provided by the Committee at any time, and subject to such additional terms and conditions and/or modifications as the Committee or the Company may impose from time to time, and further subject to suspension or termination of this provision by the Committee or Company at any time, by:

(i) delivery of Shares of Stock owned by the Participant in partial (if in partial payment, then together with cash) or full payment; provided, however, as a condition to paying any part of the Exercise Price in Stock, at the time of exercise of the Option, the Participant must establish to the satisfaction of the Company that the Stock tendered to the Company must have been held by the Participant for a minimum of six (6) months preceding the tender; or

(ii) if the Company has designated a stockbroker to act as the Company’s agent to process Option exercises, issuance of an exercise notice together with instructions to such stockbroker irrevocably instructing the stockbroker: (A) to immediately sell (which shall include an exercise notice that becomes effective upon execution of a sale order) a sufficient portion of the Shares to be received from the Option exercise to pay the Exercise Price of the Options being exercised and the required tax withholding, and (B) to deliver on the settlement date the portion of the proceeds of the sale equal to the Exercise Price and tax withholding to the Company. In the event the stockbroker sells any Shares on behalf of a Participant, the stockbroker shall be acting solely as the agent of the Participant, and the Company disclaims any responsibility for the actions of the stockbroker in making any such sales. No Stock shall be issued until the settlement date and until the proceeds (equal to the Option Price and tax withholding) are paid to the Company.

        If payment is made by the delivery of Shares of Stock, the value of the Shares delivered shall be equal to the Fair Market Value of the Shares on the day preceding the date of exercise of the Option.

         Restricted Stock may not be used to pay the Option Price.

6.8 Termination of Employment.Unless otherwise provided by the Committee, the following limitations on exercise of Options shall apply upon Termination of Employment:

(a) Termination by Death or Disability. In the event of the Participant’s Termination of Employment by reason of death or Disability, all outstanding Options granted to that Participant shall immediately vest as of the date of Termination of Employment and may be exercised, if at all, no more than three (3) years from the date of the Termination of Employment, unless the Options, by their terms, expire earlier. However, in the event the Participant was eligible to Retire at the time of Termination of Employment, notwithstanding the foregoing, the Options may be exercised, if at all, no more than five (5) years from the date of the Termination of Employment, unless the Options, by their terms, expire earlier.

(b) Termination for Cause. In the event of the Participant’s Termination of Employment by the Company for Cause, all outstanding Options held by the Participant shall immediately be forfeited to the Company and no additional exercise period shall be allowed, regardless of the vested status of the Options.

(c) Retirement or Other Termination of Employment. In the event of the Participant's Termination of Employment for any reason other than the reasons set forth in (a) or (b), above:

(i) If upon the Participant’s Termination of Employment, the Participant is not an EPR Terminee (as that term is defined in the SBC Pension Benefit Plan or the Ameritech Management Pension Plan), but is eligible to Retire (and if the Participant is an officer level employee for compensation purposes as determined by SBC, the employee must also be age 55 or older at Termination of Employment), then all outstanding unvested Options granted to that Participant shall immediately vest as of the date of the Participant’s Termination of Employment; provided, however, this vesting provision shall not apply to Options granted prior to September 28, 2001, unless and except for those Options outstanding as of September 27, 2001, that have an Exercise Price equal to or more than the Fair Market Value of Stock on such date;

(ii) All outstanding Options which are vested as of the effective date of Termination of Employment may be exercised, if at all, no more than five (5) years from the date of Termination of Employment if the Participant is eligible to Retire, or three (3) months from the date of the Termination of Employment if the Participant is not eligible to Retire, as the case may be, unless in either case the Options, by their terms, expire earlier; and

(iii) In the event of the death of the Participant after Termination of Employment, this paragraph (c) shall still apply and not paragraph (a), above.

(d) Options not Vested at Termination. Except as provided in paragraph (a), above, all Options held by the Participant which are not vested on or before the effective date of Termination of Employment shall immediately be forfeited to the Company (and shall once again become available for grant under the Plan).

(e) Notwithstanding the foregoing, the Committee may, in its sole discretion, establish different terms and conditions pertaining to the effect of Termination of Employment, but no such modification shall shorten the terms of Options issued prior to such modification.

6.9 Employee Transfers. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries (or between Subsidiaries) or between the Company or a Subsidiary and a RWAC, to the extent the period of employment at a RWAC is equal to or less than five (5) years, shall not be deemed a Termination of Employment. Provided, however, for purposes of this Article 6, termination of employment with a RWAC without a concurrent transfer to the Company or any of its Subsidiaries shall be deemed a Termination of Employment as that term is used herein. Similarly, termination of an entity’s status as a Subsidiary or as a RWAC shall be deemed a Termination of Employment of any Participants employed by such Subsidiary or RWAC.

6.10 Restrictions on Exercise and Transfer of Options. Unless otherwise provided by the Committee:

(a) During the Participant’s lifetime, the Participant’s Options shall be exercisable only by the Participant or by the Participant’s guardian or legal representative. After the death of the Participant, except as otherwise provided by SBC’s Rules for Employee Beneficiary Designations, an Option shall only be exercised by the holder thereof (including, but not limited to, an executor or administrator of a decedent’s estate) or his or her guardian or legal representative.

(b) No Option shall be transferable except: (i) in the case of the Participant, only upon the Participant’s death and in accordance with the SBC Rules for Employee Beneficiary Designations; and (ii) in the case of any holder after the Participant’s death, only by will or by the laws of descent and distribution.

6.11 Competition and Solicitation. In the event a Participant directly or indirectly, engages in competitive activity, or has become associated with, employed by, controls, or renders service to any business that is engaged in competitive activity, with (i) the Company, (ii) any Subsidiary, or (iii) any business in which any of the foregoing have a substantial interest, or if the Participant attempts, directly or indirectly, to induce any employee of the Company or a Subsidiary to be employed or perform services elsewhere without the permission of the Company, then the Company may (i) cancel any Option granted to such Participant, whether or not vested, in whole or in part; and/or (ii) rescind any exercise of the Participant’s Options that occurred on or after that date six months prior to engaging in such activity, in which case the Participant shall pay the Company the gain realized or received upon such exercise of Options. “Has become associated with” shall include, among other things, beneficial ownership of 1/10 of 1% or more of a business engaged in competitive activity. The determination of whether a Participant has engaged in any such activity and whether to cancel Options and/or rescind the exercise of Options shall be made by SBC, and in each case such determination shall be final, conclusive and binding on all persons.

Article 7 Restricted Stock.

7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to eligible Employees in such amounts and upon such terms and conditions as the Committee shall determine. In addition to any other terms and conditions imposed by the Committee, vesting of Restricted Stock may be conditioned upon the attainment of Performance Goals based on Performance Criteria in the same manner as provided in Section 8.4, herein, with respect to Performance Shares. No Employee may receive, in any calendar year, in the form of Restricted Stock more than one-third of 1% of the Shares approved for issuance under this Plan.

7.2 Restricted Stock Agreement. The Committee may require, as a condition to an Award, that a recipient of a Restricted Stock Award enter into a Restricted Stock Award Agreement, setting forth the terms and conditions of the Award. In lieu of a Restricted Stock Award Agreement, the Committee may provide the terms and conditions of an Award in a notice to the Participant of the Award, on the Stock certificate representing the Restricted Stock, in the resolution approving the Award, or in such other manner as it deems appropriate.

7.3 Transferability. Except as otherwise provided in this Article 7, and subject to any additional terms in the grant thereof, Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until fully vested.

7.4 Restrictions. The Restricted Stock shall be subject to such vesting terms as may be determined by the Committee, but the Restricted Stock shall not vest prior to the third anniversary of the grant thereof (unless accelerated as provided in Section 7.5). The Committee may impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock and/or restrictions under applicable Federal or state securities laws; and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions.

        The Company shall also have the right to retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as the shares are fully vested and all conditions and/or restrictions applicable to such Shares have been satisfied.

7.5 Removal of Restrictions. Except as otherwise provided in this Article 7 or otherwise provided in the grant thereof, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after completion of all conditions to vesting, if any. However, the Committee, in its sole discretion, shall have the right to immediately vest the shares and waive all or part of the restrictions and conditions with regard to all or part of the Shares held by any Participant at any time.

7.6 Voting Rights, Dividends and Other Distributions. Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights and shall receive all regular cash dividends paid with respect to such Shares. Except as provided in the following sentence, in the sole discretion of the Committee, other cash dividends and other distributions paid to Participants with respect to Shares of Restricted Stock may be subject to the same restrictions and conditions as the Shares of Restricted Stock with respect to which they were paid. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions and conditions as the Shares of Restricted Stock with respect to which they were paid.

7.7 Termination of Employment Due to Death or Disability. In the event of the Participant’s Termination of Employment by reason of death or Disability, all restrictions imposed on outstanding Shares of Restricted Stock held by the Participant shall immediately lapse and the Restricted Stock shall immediately become fully vested as of the date of Termination of Employment.

7.8 Termination of Employment for Other Reasons. In the event of the Participant’s Termination of Employment for any reason other than those specifically set forth in Section 7.7 herein, all Shares of Restricted Stock held by the Participant which are not vested as of the effective date of Termination of Employment immediately shall be forfeited and returned to the Company.

7.9 Employee Transfers. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries (or between Subsidiaries) or between the Company or a Subsidiary and a RWAC, to the extent the period of employment at a RWAC is equal to or less than five (5) years, shall not be deemed a Termination of Employment. Provided, however, for purposes of this Article, termination of employment with a RWAC without a concurrent transfer to the Company or any of its Subsidiaries shall be deemed a Termination of Employment as that term is used herein. Similarly, termination of an entity’s status as a Subsidiary or as a RWAC shall be deemed a Termination of Employment of any Participants employed by such Subsidiary or RWAC.

Article 8 Performance Units and Performance Shares.

8.1 Grants of Performance Units and Performance Shares. Subject to the terms of the Plan, Performance Shares and Performance Units may be granted to eligible Employees at any time and from time to time, as determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units and/or Performance Shares Awarded to each Participant.

8.2 Value of Performance Shares and Units.

(a) A Performance Share is equivalent in value to a Share of Stock. In any calendar year, no individual may be Awarded Performance Shares having a potential payout of Shares of Stock exceeding two-thirds of 1% of the Shares approved for issuance under this Plan.

(b) A Performance Unit shall be equal in value to a fixed dollar amount determined by the Committee. In any calendar year, no individual may be Awarded Performance Units having a potential payout equivalent exceeding the Fair Market Value of two-thirds of 1% of the Shares approved for issuance under this Plan. The number of Shares equivalent to the potential payout of a Performance Unit shall be determined by dividing the maximum cash payout of the Award by the Fair Market Value per Share on the effective date of the grant. The Committee may denominate a Performance Unit Award in dollars instead of Performance Units. A Performance Unit Award may be referred to as a “Key Executive Officer Short Term Award” or “KEO Award”.

8.3 Performance Period. The Performance Period for Performance Shares and Performance Units is the period over which the Performance Goals are measured. The Performance Period is set by the Committee for each Award; however, in no event shall an Award have a Performance Period of less than one year.

8.4 Performance Goals. For each Award of Performance Shares or Performance Units, the Committee shall establish performance objectives (“Performance Goals”) for the Company, its Subsidiaries, and/or divisions of any of foregoing, based on the Performance Criteria and other factors set forth in (a) through (d), below. Performance Goals shall include payout tables, formulas or other standards to be used in determining the extent to which the Performance Goals are met, and, if met, the number of Performance Shares and/or Performance Units which would be converted into Stock and/or cash (or the rate of such conversion) and distributed to Participants in accordance with Section 8.6. All Performance Shares and Performance Units which may not be converted under the Performance Goals or which are reduced by the Committee under Section 8.6 or which may not be converted for any other reason after the end of the Performance Period shall be canceled at the time they would otherwise be distributable. When the Committee desires an Award to qualify under Section 162(m) of the Code, as amended, the Committee shall establish the Performance Goals for the respective Performance Shares and Performance Units prior to or within 90 days of the beginning of the service relating to such Performance Goal, and not later than after 25% of such period of service has elapsed. For all other Awards, the Performance Goals must be established before the end of the respective Performance Period.

(a) The Performance Criteria which the Committee is authorized to use, in its sole discretion, are any of the following criteria or any combination thereof:>

(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 income taxes, depreciation and amortization), revenues, sales, expenses, costs, 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 2 years), return on net assets, return on assets, return on capital, profit margin, 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.

(3) The Company’s Stock price, return on shareholders’ equity, total shareholder return (Stock price appreciation plus dividends, assuming the reinvestment of dividends), and/or earnings per share.

(b) Except to the extent otherwise provided by the Committee in full or in part, if any of the following events occur during a Performance Period and would directly affect the determination of whether or the extent to which Performance Goals are met, the effects of such events shall be disregarded in any such computation: changes in accounting principles; extraordinary items; changes in tax laws affecting net income and/or Value Added; natural disasters, including floods, hurricanes, and earthquakes; and intentionally inflicted damage to property which directly or indirectly damages the property of the Company or its Subsidiaries. No such adjustment shall be made to the extent such adjustment would cause the Performance Shares or Performance Units to fail to satisfy the performance based exemption of Section 162(m) of the Code.

8.5 Dividend Equivalents on Performance Shares. Unless reduced or eliminated by the Committee, a cash payment in an amount equal to the dividend payable on one Share will be made to each Participant for each Performance Share held by a Participant on the record date for the dividend.

8.6 Form and Timing of Payment of Performance Units and Performance Shares. As soon as practicable after the applicable Performance Period has ended and all other conditions (other than Committee actions) to conversion and distribution of a Performance Share and/or Performance Unit Award have been satisfied (or, if applicable, at such other time determined by the Committee at or before the establishment of the Performance Goals for such Performance Period), the Committee shall determine whether and the extent to which the Performance Goals were met for the applicable Performance Units and Performance Shares. If Performance Goals have been met, then the number of Performance Units and Performance Shares to be converted into Stock and/or cash and distributed to the Participants shall be determined in accordance with the Performance Goals for such Awards, subject to any limits imposed by the Committee. Unless the Participant has elected to defer all or part of his Performance Units or Performance Shares as provided in Article 10, herein, payment of Performance Units and Performance Shares shall be made in a single lump sum, as soon as reasonably administratively possible following the determination of the number of Shares or amount of cash to which the Participant is entitled. Performance Units will be distributed to Participants in the form of cash. Performance Shares will be distributed to Participants in the form of 50% Stock and 50% Cash, or at the Participant’s election, 100% Stock or 100% Cash. In the event the Participant is no longer an Employee at the time of the distribution, then the distribution shall be 100% in cash, provided the Participant may elect to take 50% or 100% in Stock. At any time prior to the distribution of the Performance Shares and/or Performance Units (or if distribution has been deferred, then prior to the time the Awards would have been distributed), unless otherwise provided by the Committee, the Committee shall have the authority to reduce or eliminate the number of Performance Units or Performance Shares to be converted and distributed or to mandate the form in which the Award shall be paid (i.e., in cash, in Stock or both, in any proportions determined by the Committee).

        Unless otherwise provided by the Committee, any election to take a greater amount of cash or Stock with respect to Performance Shares must be made in the calendar year prior to the calendar year in which the Performance Shares are distributed (or if distribution has been deferred, then in the year prior to the year the Performance Shares would have been distributed absent such deferral).

        For the purpose of converting Performance Shares into cash and distributing the same to the holders thereof (or for determining the amount of cash to be deferred), the value of a Performance Share shall be the average of the Fair Market Values of Shares for the period of five (5) trading days ending on the valuation date. The valuation date shall be the first business day of the second month in the year of distribution (or the year it would have been distributed were it not deferred). Performance Shares to be distributed in the form of Stock will be converted at the rate of one (1) Share of Stock per Performance Share.

8.7 Termination of Employment Due to Death or Disability. In the event of the Participant’s Termination of Employment by reason of death or Disability, the Participant shall receive a lump sum payout of all outstanding Performance Units and Performance Shares calculated as if all unfinished Performance Periods had ended with 100% of the Performance Goals achieved, payable in the year following the date of Termination of Employment.

8.8 Termination of Employment for Other Reasons. In the event of the Participant’s Termination of Employment for other than a reason set forth in Section 8.7 (and other than for Cause), if the Participant is not Retirement eligible at Termination of Employment, the Participant may receive no more than a prorated payout of all Performance Units and Performance Shares, based on the number of months the Participant worked at least one day during the respective Performance Period divided by the number of months in the Performance Period.

8.9 Termination of Employment for Cause. In the event of the Participant’s Termination of Employment of a Participant by the Company for Cause, all Performance Units and Performance Shares shall be forfeited by the Participant to the Company.

8.10 Nontransferability. Performance Units and Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than in accordance with the SBC Rules for Employee Beneficiary Designations.

Article 9 Beneficiary Designation.

        In the event of the death of a Participant, distributions or Awards under this Plan, other than Restricted Stock, shall pass in accordance with the SBC Rules for Employee Beneficiary Designations, as the same may be amended from time to time. Beneficiary Designations of a Participant received by SBC prior to November 16, 2001, that were applicable to awards under the 1996 Stock and Incentive Plan will also apply to awards under this Plan unless and until the Participant provides to the contrary.

Article 10 Deferrals.

         Unless otherwise provided by the Committee, a Participant may, as permitted by the Stock Savings Plan or the Salary and Incentive Award Deferral Plan, defer all or part of Awards made under this Plan in accordance with and subject to the terms of such plans.

Article 11 Employee Matters.

11.1 Employment Not Guaranteed. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s Employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or one of its Subsidiaries.

11.2 Participation. No Employee shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.

Article 12 Change in Control.

Upon the occurrence of a Change in Control:

(a) Any and all Options granted hereunder immediately shall become vested and exercisable;

(b) Any Restriction Periods and all restrictions imposed on Restricted Shares shall lapse and they shall immediately become fully vested;

(c) The 100% Performance Goal for all Performance Units and Performance Shares relating to incomplete Performance Periods shall be deemed to have been fully achieved and shall be converted and distributed in accordance with all other terms of the Award and this Plan; provided, however, notwithstanding anything to the contrary in this Plan, no outstanding Performance Unit or Performance Share may be reduced.

Article 13 Amendment, Modification, and Termination.

13.1 Amendment, Modification, and Termination. The Board or the Disinterested Committee may at any time and from time to time, alter or amend the Plan in whole or in part or suspend or terminate the Plan in whole or in part.

13.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.

Article 14 Withholding.

14.1 Tax Withholding. The Company shall deduct or withhold an amount sufficient to satisfy Federal, state, and local taxes (including the Participant’s employment tax obligations) required by law to be withheld with respect to any taxable event arising or as a result of this Plan (“Withholding Taxes”).

14.2 Share Withholding. Upon the exercise of Options, the lapse of restrictions on Restricted Stock, the distribution of Performance Shares in the form of Stock, or any other taxable event hereunder involving the transfer of Stock to a Participant, the Company shall withhold Stock equal in value, using the Fair Market Value on the date determined by the Company to be used to value the Stock for tax purposes, to the Withholding Taxes applicable to such transaction.

        Any fractional Share of Stock payable to a Participant shall be withheld as additional Federal withholding, or, at the option of the Company, paid in cash to the Participant.

        Unless otherwise determined by the Committee, when the method of payment for the Exercise Price is from the sale by a stockbroker pursuant to Section 6.7(b)(ii), herein, of the Stock acquired through the Option exercise, then the tax withholding shall be satisfied out of the proceeds. For administrative purposes in determining the amount of taxes due, the sale price of such Stock shall be deemed to be the Fair Market Value of the Stock.

        If permitted by the Committee, prior to the end of any Performance Period a Participant may elect to have a greater amount of Stock withheld from the distribution of Performance Shares to pay withholding taxes; provided, however, the Committee may prohibit or limit any individual election or all such elections at any time.

Article 15 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.

Article 16 Legal Construction.

16.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.

16.2 Severability. 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.

16.3 Requirements of Law. The granting of Awards and the issuance of Shares 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.

16.4 Errors. At any time SBC may correct any error made under the Plan without prejudice to SBC. Such corrections may include, among other things, changing or revoking an issuance of an Award.

16.5 Elections and Notices. Notwithstanding anything to the contrary contained in this Plan, all elections and notices of every kind shall be made on forms prepared by SBC or the General Counsel, Secretary or Assistant Secretary, or their respective delegates or shall be made in such other manner as permitted or required by SBC or the General Counsel, Secretary or Assistant Secretary, or their respective delegates, including through electronic means, over the Internet or otherwise. An election shall be deemed made when received by SBC (or its designated agent, but only in cases where the designated agent has been appointed for the purpose of receiving such election), which may waive any defects in form. SBC may limit the time an election may be made in advance of any deadline.

        Where any notice or filing required or permitted to be given to SBC under the Plan, it shall be delivered to the principal office of SBC, directed to the attention of the Senior Executive Vice President-Human Resources of SBC or his or her successor. Such notice shall be deemed given on the date of delivery.

        Notice to the Participant shall be deemed given when mailed (or sent by telecopy) to the Participant’s work or home address as shown on the records of SBC or, at the option of SBC, to the Participant’s e-mail address as shown on the records of SBC. It is the Participant’s responsibility to ensure that the Participant’s addresses are kept up to date on the records of SBC. In the case of notices affecting multiple Participants, the notices may be given by general distribution at the Participants’ work locations.

16.6 Governing Law. To the extent not preempted by Federal law, the Plan, and all awards and agreements hereunder, and any and all disputes in connection therewith, shall be governed by and construed in accordance with the substantive laws of the State of Texas, without regard to conflict or choice of law principles which might otherwise refer the construction, interpretation or enforceability of this Plan to the substantive law of another jurisdiction.

16.7 Venue. Because awards under the Plan are granted in Texas, records relating to the Plan and awards thereunder are located in Texas, and the Plan and awards thereunder are administered in Texas, the Company and the Participant to whom an award under this Plan is granted, for themselves and their successors and assigns, irrevocably submit to the exclusive and sole jurisdiction and venue of the state or federal courts of Texas with respect to any and all disputes arising out of or relating to this Plan, the subject matter of this Plan or any awards under this Plan, including but not limited to any disputes arising out of or relating to the interpretation and enforceability of any awards or the terms and conditions of this Plan. To achieve certainty regarding the appropriate forum in which to prosecute and defend actions arising out of or relating to this Plan, and to ensure consistency in application and interpretation of the Governing Law to the Plan, the parties agree that (a) sole and exclusive appropriate venue for any such action shall be an appropriate federal or state court in Bexar County, Texas, and no other, (b) all claims with respect to any such action shall be heard and determined exclusively in such Texas court, and no other, (c) such Texas court shall have sole and exclusive jurisdiction over the person of such parties and over the subject matter of any dispute relating hereto and (d) that the parties waive any and all objections and defenses to bringing any such action before such Texas court, including but not limited to those relating to lack of personal jurisdiction, improper venue or forum non conveniens.

EX-10

Exhibit 10-x

November 16, 2001

Private & Confidential

Mr. William M. Daley
845 United Nations Plaza
Apartment 22-A
New York, NY 10027

Dear Mr. Daley:

This letter (“Agreement”) reflects our offer of full time employment for you to join the SBC Communications Inc. companies (“SBC”) as an officer and it outlines the compensation and other benefits you will receive as a full time employee. Your position will be President, SBC Communications Inc., an officer position reporting directly to the Chairman of the Board of SBC, and, as such, you will be in charge of strategic planning, regulatory matters, legislative initiatives and external affairs. Your annual compensation shall consist of the Base Salary, Short Term Award and Long Term Share Grant as more fully described herein. Your entitlement to all other benefits shall be consistent with the terms and conditions of the plans under which such benefits are provided to similarly situated officers of SBC and, subject to the terms of this Agreement, as such plans may be amended from time-to-time. Your employment will be as a full-time employee and you shall not perform any duties as an employee, contractor, sub-contractor, agent or otherwise for any other person, corporation, partnership or other entity during the term of this Agreement. However, we understand that you plan to continue your service on certain corporate, civic and charitable boards and other activities as separately identified to us.

Place of Employment and Effective Date

You will begin employment effective December 1, 2001, in San Antonio, Texas.

Special Incentives

As a special incentive to restore valuable compensation that you will forfeit upon termination of your current employment and as an inducement to join SBC, we will provide you the following awards: (1) a cash award of $1,100,000, payable within 45 days after your start date and (2) grant you 90,000 non-qualified stock options on or near your start date. These options will be granted under and governed by the terms and provisions of the SBC 2001 Incentive Plan (as most recently amended effective November 16, 2001) and the terms hereof, a copy of which has been provided to you. This option will vest in thirds on each of the first three anniversaries of your employment.

Subsequent stock option grants (“Option Grants”) under the SBC 2001 Incentive Plan (or successor to such plan) shall be made in the discretion of the Board of Directors of SBC or its delegates in a like manner taking into consideration grants made to similarly situated officers of SBC.

Annual Rate of Compensation (Base Salary, Short Term Award and Long Term Incentive

Your starting base salary for full time employment shall be at the annual rate of $600,000 (“the Base Salary”). The level of your base salary will be subject to review as part of our normal review process (review normally begins at the end of the calendar year and adjustments, if any, are usually effective thereafter in March). Your annual rate of base salary for full time employment shall not be less than $600,000.00 during the term of this Agreement.

Your target award for 2002 and thereafter under the SBC Short Term Incentive Plan (or comparable plan) will not be less than 100% of your Base Salary (the “Target Short Term Award”). You shall be eligible for a target and maximum Short Term Award opportunity consistent with similarly situated officers. Subject to the foregoing provisions of this paragraph, the Short Term Award is subject to an adjustment based on accomplishment of SBC financial performance and you will be eligible to receive an individual discretionary adjustment based on your individual performance. The foregoing to the contrary notwithstanding, you will receive a Short Term Award payment of $60,000 for 2001 and your Short Term Award for 2002 shall not be less than $600,000.00.

Performance share grants are traditionally granted in January (the “Long Term Share Grant”). You will be awarded a Long Term Share Grant under the SBC 2001 Incentive Plan in January 2002 as hereafter provided. The performance shares will have a three-year performance period associated with them and corresponding corporate financial performance criterion applicable to similarly situated officers of SBC. The Long Term Share Grant is subject to an adjustment based on accomplishment of SBC financial performance. You will receive the Actual Performance Shares Award granted (the “Actual Performance Shares Award”) at the end of the three (3) year performance period associated with each grant. The Performance Shares earn dividend equivalents during the three-year actual performance period.

At the discretion of the Board, Stock Options may be granted to you as a part of your incentive compensation.

Consistent with awards to similarly situated officers, your 2002 annual Option Grant and 2002 annual Target Long Term Share Grant shall, in the aggregate, have a value of not less than 350% of your Base Salary (such value to be determined in the case of the Option Grant using SBC’s Black Scholes valuation methodology as consistently applied for all executives and using the value of an equal number of shares of SBC Communications Stock in the case of the Long Term Share Grant) and shall be in the same proportion of Shares to Options as the proportions of such grants made to such officers. On or before January 31, 2002, you also shall be awarded a prorated Long Term Share Grant of performance shares for (i) a one-year performance cycle ending December 31, 2002 (which shall be equal to $280,000.00) and (ii) a two-year performance cycle ending December 31, 2003, (which grant shall be equal to $560,000.00) provided that payment for each of such awards shall be made at the same time as and under such terms and conditions as are existing for Long Term Share Grants awarded to similarly situated officers for the cycles ending on December 31, 2002 and December 31, 2003, as the case may be.

Retirement Income

You will be eligible to participate in the SBC Pension Benefit Plan Non-Bargained Program (“SBCPBP”), which is a cash balance pension program that requires five (5) years of vesting service before any benefit becomes payable. Subject to limits imposed by the Internal Revenue Code, your annual benefit in the SBCPBP is generally 5% of your compensation plus accrued interest.

You shall also be eligible to receive a Supplemental Retirement Income Plan (“SRIP”) benefit to supplement SBC’s qualified, cash balance pension benefit, all in accordance with the terms of these plans. Your benefit under the SRIP (the “SRIP benefit”) shall have a Retirement Percent (as defined in the SRIP) of 60%, shall, except as otherwise described herein, vest upon completion of five (5) years of service, and is targeted at a service adjusted percentage of your Final Average Earnings (as defined under the SRIP) at the time you retire or resign. As a mid-career hire, the Service Factor (as defined under the SRIP) is one-half the standard discount and, for such purpose you shall be designated as an “Officer” under the SRIP. You shall be entitled to an Equivalent SRIP Benefit in lieu of your SRIP Benefit if your Equivalent SRIP Benefit is greater than your SRIP Benefit. Your Equivalent SRIP Benefit shall be provided in accordance with, and be governed in all respects by, the terms of the SRIP with the following modifications: (i) “Final Average Earnings” shall not be less than the sum of your initial Base Salary and your initial full year Target Short Term Award, and (ii) if SBC terminates your employment without cause (as defined below) prior to completion of five (5) years of service, then you shall be vested in your Equivalent SRIP benefit upon such termination. The foregoing provisions shall be reflected in a separate SRIP participation agreement.

Asset Accumulation

In addition to a traditional 401(k) Plan, you shall be eligible to participate in SBC’s two non-qualified pre-tax deferral plans for both salary and incentive compensation (the “Deferral Plans”) in accordance with the terms of those plans. These Deferral Plans are generally described as follows:

(1) stock based -- deferral of up to 30% of salary and 100% of short term awards; a possibility of 80% stock match on first 6% of deferrals; 2-for-1 stock option match for each share deemed purchased with employee base pay and Short Term Target Award deferrals; and

(2) cash based -- deferral of up to 100% of short term and cash long-term awards, as well as up to 50% of salary, with interest credits based on a Moody’s Corporate Bond Yield.

Health Benefits

At the present time, SBC provides its similarly situated officers (including you) with supplemental health coverage to its group health plans while they are actively employed. The coverage for similarly situated officers and his or her eligible dependents is 100% of any medical, dental, vision, mental health, or other health expense that meets the IRS definition of a deductible health expense on a federal income tax return and that is not covered by SBC’s basic managed care medical, dental or vision care plans, limited to $50,000 per individual, per year and $100,000 per family, per year. The officer pays an annual contribution of 10% of SBC’s actual, per officer’s cost of the entire plan for the prior plan year.

The company also offers you the option to purchase CarePlus medical coverage (covers the cost of certain experimental medical treatments not covered by general group plans), and the option to purchase long-term care insurance.

Except as provided in this Agreement, SBC does not provide post-retirement medical benefits unless certain conditions are satisfied, including the completion of at least ten years of service as of the date of an employee’s termination of employment.

Income Protection

You will receive company-paid life insurance equivalent to one time your Base Salary, with an option to purchase supplemental group life insurance equal to a multiple of your salary between one and six (inclusive).

SBC also provides its similarly situated officers (including you) with supplementary disability coverage. The benefit is 100% of your monthly base salary, coordinated with certain other income, for the first year of disability, and 80% thereafter prior to age 65.

Other Benefits

You will be eligible to participate in the other plans and programs that SBC makes available to its similarly situated officers from time-to-time on the same terms and conditions as are generally applicable to such officers.

Your vacation entitlement shall be five (5) weeks on an annual basis plus seven (7) personal days also on an annual basis.

SBC will pay all professional expenses incurred by you in connection with the negotiation and preparation of this agreement.

You will also be provided the following benefits in accordance with and subject to the terms of SBC’s benefit plan including, without limitation:

(1) Company paid initiation fee for one country club membership, monthly dues and such other expenses as are provided under the SBC country club policy for similarly situated officers;

(2) Financial counseling services;

(3) Company paid communications services, i.e., long distance, home telephone equipment, cellular phone, etc.; and

(4) A monthly auto allowance plus all fuel and maintenance.

Relocation Assistance

Your relocation to San Antonio shall be handled under and be governed by the terms and provisions of the SBC Management Relocation Plan A as if you were eligible for the benefits provided by such plan whether or not you are actually eligible therefor (including reasonable local temporary living expenses for at least six (6) months and during such period all reasonable costs of travel between San Antonio and your present residence).

Amendment

This Agreement may only be amended by the parties' mutual written agreement.

Change in Control Benefits

You will be entitled to all benefits provided to participants under a SBC Severance Benefits-Change in Control Agreement (“Change in Control Agreement”) consistent with similarly situated officers of SBC in accordance with the terms thereof.

Termination of Employment

Notwithstanding any other provision of this Agreement, (i) your employment shall be employment at will and (ii) in no event may your employment extend past your 65^th birthday. Your employment may be terminated with or without cause; provided, however, in the event SBC terminates your employment other than for cause at any time prior to your reaching your 65^th birthday, you will be entitled to: (a) a lump sum, payable in cash within thirty (30) days after such termination in an amount equal to the sum of (x) your Base Salary (which shall not be less than $600,000.00), and (y) the greater of your Target Short Term Award for the year in which such termination occurs or the actual Short Term Award earned for the year prior to such termination (which for this purpose shall not be less than $600,000.00); and (b) payment within thirty (30) days following such termination of your accrued and unpaid Base Salary, unpaid vacation and unreimbursed expenses through the date of termination of your employment. If you are terminated by SBC without cause on or before December 31, 2004 or your employment is terminated by SBC or by you for any reason after December 31, 2004, such termination shall constitute a “retirement” and you shall be deemed to be “retirement eligible” (and deemed to have attained at least age 55) under all SBC plans, programs and benefits (other than the qualified retirement plans, medical plans and other qualified group plans, except as provided above); provided, however, in lieu of providing retiree medical benefits resulting from such deemed retirement under SBC’s group medical plan, SBC shall provide equivalent retiree medical benefits outside of its group medical plan. Your employment will also terminate upon your death, disability, voluntary termination or termination by SBC for cause (“Termination of Employment”), and in the event of your Termination of Employment, your right to the Base Salary, Short Term Award, and Long Term Award described in this Agreement shall cease upon such Termination of Employment (other than amounts accrued and unpaid on such date or as otherwise provided under the Short and Long Term Awards). Cause shall have the meaning set forth in the Change in Control Plan. Disability shall mean your inability, due to your physical or mental condition, to maintain or obtain gainful employment. In the event you terminate your employment due to (i) a material reduction in your Base Salary, Target Short Term Award opportunity or Target Long Term Share Grant opportunity, (ii) a material adverse change in your title, duties or reporting responsibilities, or (iii) a material breach of this Agreement by SBC (a “SBC Breach”), such termination shall not be deemed “voluntary” by you, but instead shall be a termination of your employment by SBC without cause, provided that in the case of a SBC Breach, you have given written notice of such breach to SBC and SBC has failed to cure such breach within thirty (30) days of such notice, provided, further, however, that you are not in material breach of this Agreement, or if in material breach during the foregoing thirty (30) day cure period, you have cured such breach.

In no event shall you be obligated to seek other employment or take any other action to mitigate the amounts payable to you under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned as result of your employment by another employer.

General Information

Summary descriptions of the nonqualified plans are enclosed. Please be advised that the plan summaries do not govern the operation of the plan and are not meant to replace the plan documents. All rights of all employees under the plans are governed in all respects by the plan documents establishing the benefits provided under each.

In the case of conflict between the terms of this Agreement (the “Terms”) and the provisions of any plan, policy, or practice of SBC as in effect from time to time (the “Provisions”), your rights or SBC’s obligations shall be established by whichever of the Terms or Provisions would be more beneficial to you.

SBC will maintain, for your benefit, officer liability insurance in form at least as comprehensive as, and in an amount that is at least equal to, that maintained by SBC on the effective date of your employment. In addition, you will be indemnified by SBC against liability as an officer and a director (if so elected) of SBC and any subsidiary or affiliate of SBC to the maximum extent permitted by applicable law. Your rights under this paragraph will continue so long as you may be subject to liability, whether or not this Agreement may have terminated prior thereto.

Any questions you have regarding your specific compensation and benefits may be directed to Duane Helm, Vice President-Compensation, at 210-351-2420.

I look forward to working with you. Please call me if I can answer any questions.

Sincerely,

/s/ James D. Ellis

Accepted and Agreed:

/s/ William M. Daley
William M. Daley
845 United Nations Plaza
Apartment 22-A
New York, NY 10027

EX-10

Exhibit 10-y

EMPLOYMENT AGREEMENT

        THIS AGREEMENT ("Agreement") by and between SBC COMMUNICATIONS INC., a Delaware corporation ("SBC"), SBC MANAGEMENT SERVICES, L.P. (the "Company") and EDWARD E. WHITACRE, JR. ("Employee") is effective the 16th day of November, 2001.

WITNESSETH THAT:

        WHEREAS, Employee presently is Chairman of the Board and Chief Executive Officer of SBC and possesses executive skills and experience which SBC acknowledges are of substantial value and importance to the success of SBC’s present and future business operations; and

        WHEREAS, SBC, the Company and Employee desire to provide for the terms and conditions upon which Employee will continue in the employ and service of SBC and the Company,

        NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein set forth, the parties hereto agree as follows:

1. Employment and Duties. The Company hereby employs Employee, and Employee agrees to continue in the employ of the Company, for the term herein specified (the “Employment Term”). During the Employment Term, Employee shall serve SBC and the Company as Chairman of the Board and Chief Executive Officer and shall devote his full time, attention and effort to the business and affairs of SBC and its affiliates.

2. Term. Subject to Section 4 below, the Employment Term shall be a five (5) year period commencing November 16, 2001 and ending November 15, 2006; provided, however, upon notice provided by either party to the other within 60 days prior to the second anniversary of this Agreement, the Employment Term shall end on the third anniversary of this Agreement.

3. Consideration, Benefits and Compensation.

a.         Consideration. In consideration of Employee’s agreement to enter into this Agreement and to make the non-compete, non-solicitation and confidentiality covenants provided in Section 7, SBC agrees to make a one-time grant to Employee of 2,500,000 SBC options with an exercise price equal to the closing price of SBC Communications Inc. stock on the New York Stock Exchange on the effective date hereof. The options shall be granted under the 2001 Incentive Plan or another plan of SBC or as a special grant having terms substantially similar to the 2001 Incentive Plan. The terms of this agreement shall supercede any conflicting terms contained in any such grant. The options shall only vest upon completion of the earliest to occur of: (A) the end of the fifth (5th) year of the Employment Term; however, three-fifths (3/5) of the options shall vest after the first three (3) years of the Employment Term; (B) termination of the Employee’s employment due to death or Disability, as that term is used in the 2001 Incentive Plan; (C) a change in control, as that term is used in the 2001 Incentive Plan; or (D) in the event the Company terminates the employment of Employee without Cause. In the event the Employee voluntarily terminates his employment prior to the end of the first 3 years of the Employment Term, he shall forfeit all options under this grant. In the event the Employee voluntarily terminates his employment prior to the end of the Employment Term but after the first three years of the Employment Term, he shall forfeit unvested options under this grant.

b.         Benefits. In consideration of Employee’s provision of services to SBC and the Company throughout his career with SBC and its affiliates, SBC agrees to continue to provide to Employee, for the duration of Employee’s life, (i) health and welfare benefits on terms and conditions that are at least equivalent to the health and welfare benefits provided to Employee and his eligible dependents as of the date of this Agreement, (the employee’s spouse shall also be eligible to receive company provided health and welfare benefits on terms no less favorable than exist as of the date of employee’s retirement in the event employee shall pre-decease her) and (ii) access to and U.S. domestic use of SBC’s aircraft for a maximum of ten (10) hours per month, office facilities and support staff, and an automobile or automobile benefits at least equivalent to those provided to Employee as of the date of this Agreement; provided, however, Employee shall be responsible for the payment of all taxes incurred by him because of personal use of such aircraft.

c.         Compensation. In order that SBC and the Company may continue to benefit from Employee’s experience, knowledge, reputation and contacts and in consideration of his services, Employee shall earn and the Company shall pay, during each calendar year of the Employment Term, base salary to be set by the SBC Board of Directors, which shall not be less than the rate of base salary earned by Employee during calendar year 2001, and, during the Employment Term, Employee’s short-term and long-term targets shall not be less than his short-term and long-term targets for calendar year 2001. In addition, Employee shall participate in SBC’s health and welfare, pension and other benefit plans and programs applicable generally to employees of SBC and its affiliates, and in any fringe benefit programs presently existing or hereafter adopted for the benefit of executive employees of SBC and its affiliates that are commensurate with Employee’s position. In the event that any of such programs require future action by the Board of Directors of SBC or a Committee of such Board (for example, as in the case of future stock grants, stock option grants, or long term incentive programs), Employee shall be a candidate for participation in such programs commensurate with Employee’s position on the basis applicable to other eligible executive employees of SBC and its affiliates. SBC and the Company may, from time to time, also consider the award of other forms of compensation to Employee.

4. Effect of Termination of Employment. The Employment Term and, except as provided in this Section 4, Employee’s right to salary and compensation (including benefits) as provided for in Section 3(c) shall terminate only (a) upon the expiration of the Employment Term pursuant to Section 2, (b) if Employee shall die during the Employment Term, (c) if Employee shall voluntarily terminate his employment, or (d) if Employee’s employment is terminated for Cause during the Employment Term. The Company reserves the right to terminate the employment of Employee for any other reason not specified in the preceding sentence, but in such case, the Company shall be obligated to continue to provide Employee with the salary and compensation through the end of the then current Employment Term and to pay fees and benefits during the consulting period described below.

For purposes of this Agreement, the term Cause shall mean (i) a willful failure or refusal of Employee to perform his employment or consulting duties and obligations hereunder; (ii) any fraud, embezzlement or other dishonesty of Employee, or (iii) the conviction of Employee of a felony committed in the performance by him of services on behalf of SBC or its affiliates.

Employee’s right to salary and compensation (including benefits) shall not be limited or affected by any illness or disability of Employee, or on account of any accident or other event (except as provided herein) which either temporarily or permanently, or wholly or partially, shall prevent Employee from performing his employment duties hereunder.

Employee shall continue to participate, so long as he continues in the employ of the Company or any affiliate of SBC, in employee benefit plans and other fringe benefit programs available to employees generally and to any group or class of employees to which he belongs on the same terms and conditions applicable to employees generally or to such group or class of employees, as the case may be.

5. Consulting. Employee agrees that commencing upon Retirement, provided he has completed as least three (3) years of the Employment Term,he will provide consulting services and advice to SBC when and as reasonably requested by the Chief Executive Officer or by the Board of Directors of SBC until the earliest of the third anniversary of Employee’s Retirement or the Employee’s death (the “Consulting Term”). In consideration of such services, SBC or its affiliates shall, pay Employee an annual consulting fee equal to 50% of his annual rate of base salary in effect at his Retirement (the “Consulting Fee”), payable in monthly installments. In addition to the benefits specified in Section 3(b), SBC shall provide Employee continued access during the Consulting Term to SBC’s facilities and services comparable to those provided to him prior to his Retirement, including club memberships, financial planning, automobile or allowance therefore, and an office and support staff (collectively referred to as “Consulting Benefits”), on the same basis as such facilities and services were provided to Employee prior to his Retirement. During the Consulting Term, SBC shall also reimburse Employee, upon the receipt of appropriate documentation, for reasonable expenses, which he incurs in providing such consulting services at the request of the Chief Executive Officer or the Board of Directors of SBC. During the Consulting Term, Employee and SBC agree and acknowledge that Employee shall be an independent contractor. Notwithstanding the foregoing, in the event his employment is terminated for Cause during the Employment Term, the obligation to perform consulting services and advice shall not begin and the Company shall not be obligated to pay Employee any fees, benefits, or expenses.

The Consulting Term and Employee’s right to the Consulting Fee and Consulting Benefits as provided for in this Section 5 shall terminate only (a) upon the expiration of the Consulting Term pursuant to this Section 5, (b) if Employee shall die during the Consulting Term, or (c) if Employee’s consulting arrangement is terminated by SBC for Cause during the Consulting Term. Employee’s right to the Consulting Fee and Consulting Benefits shall not be limited or affected by any illness or disability of Employee, or on account of any accident or other event (except as provided herein) which either temporarily or permanently, or wholly or partially, shall prevent Employee from performing his consulting duties hereunder.

6. Change of Control. Notwithstanding anything to the contrary herein, in the event that Employee receives a payment pursuant to that certain change in control/severance agreement between Employee and SBC dated March 1, 1989, as amended in an agreement dated March 25, 1998, as a result of a “change in control of the Corporation” (as that term is defined in such change in control/severance agreement, as amended), the Employment Term shall expire on the date such payment is made; provided, however, the number of days in the Employment Term that expire pursuant to this Section 6 shall be added to the Consulting Term, whereupon the Employee shall be entitled to receive the Consulting Fees and Consulting Benefits as described in Section 5 during the Consulting Term as extended by this Section 6.

7. Non-Disclosure, Non-Solicitation and Non-Compete Agreements. Employee agrees that he will not disclose to any other firm or person any of SBC’s or its affiliates’ trade secrets or any confidential information relating to its or their business. Employee further agrees that, for the three year period commencing upon the expiration of the Employment Term (but excepting any period following a termination by SBC with Cause), or if longer, at any time during the Consulting Term, he will not without the prior consent of SBC, (a) enter the employ of, or have any material interest in, directly or indirectly, any business in this country in competition with SBC or any of its affiliates, (b) contact, solicit or attempt to solicit, directly or indirectly any customer of SBC or any of its affiliates, or (c) induce, directly or indirectly, any personnel of SBC or any of its affiliates to leave SBC or any of its affiliates nor interfere with the faithful discharge by such personnel of their duties to serve SBC or its affiliates.

8 Miscellaneous. Neither this Agreement nor any rights hereunder shall be assignable by either party hereto.

        This Agreement shall be construed and interpreted under the laws of the State of Texas. If any payments or benefits provided by SBC, the Company or any of their respective affiliates to Employee are subject to golden parachute excise tax, then SBC shall make Employee whole for such excise taxes on an after-tax basis. Any dispute arising out of or relating to this Agreement, except any dispute by SBC arising out of or relating to matters addressed in Section 7, shall be settled by final and binding arbitration, which shall be the exclusive means of resolving any such dispute, and the parties specifically waive all rights to pursue any other remedy, recourse or relief. Any such arbitration shall be expedited and conducted in San Antonio, Texas and shall be governed by the United States Arbitration Act, 9 U.S.C. Section 1-16, and judgment upon the award rendered by the arbitration may be entered by any court having jurisdiction.

        IN WITNESS WHEREOF, the parties have executed this Agreement, as amended, this 16^th day of November, 2001.

SBC COMMUNICATIONS INC.
SBC MANAGEMENT SERVICES, L.P.

By: /s/ Jess T. Hay
Printed Name: Jess T. Hay
Its: Chairman, Human Resources
Committee of the Board of Directors

EMPLOYEE

/s/ Edward E. Whitacre, Jr.
Edward E. Whitacre, Jr.

EX-12

Exhibit 12

SBC COMMUNICATIONS INC.
SUPPLEMENTAL PRO FORMA COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions

                                                     2001         2000        1999        1998       1997
                                                 ----------   ----------  ---------- ----------- ----------
Income Before Income Taxes, Extraordinary Items
  and Cumulative Effect of Accounting Changes*   $ 10,602     $ 12,367    $ 10,382    $ 11,859   $  6,356
      Add: Interest Expense                         1,599        1,592       1,430       1,605      1,550
             Dividends on Preferred Securities         57          118         118         114         98
             1/3 Rental Expense                       266          252         236         228        202
                                                 ----------   ----------  ---------- ----------- ----------

      Adjusted Earnings                          $ 12,524     $ 14,329    $ 12,166    $ 13,806   $  8,206
                                                 ==========   ==========  ========== =========== ==========

Total Interest Charges                           $  1,718     $  1,693    $  1,511    $  1,691   $  1,700
Dividends on Preferred Securities                      57          118         118         114         98
1/3 Rental Expense                                    266          252         236         228        202
                                                 ----------   ----------  ---------- ----------- ----------

      Adjusted Fixed Charges                     $  2,041     $  2,063    $  1,865    $  2,033   $  2,000
                                                 ==========   ==========  ========== =========== ==========

Ratio of Earnings to Fixed Charges                   6.14         6.95        6.52        6.79       4.10


*Undistributed earnings on investments accounted for under the equity method have been excluded.

EX-13

Exhibit 13

Selected Financial and Operating Data

Dollars in millions except per share amounts
At December 31 or for the year ended:		2001		2000		1999		1998		1997
Financial Data 1 Operating revenues	$	45,908	$	51,374	$	49,531	$	46,241	$	43,126
Operating expenses	$	35,020	$	40,631	$	37,933	$	35,018	$	35,524
Operating income	$	10,888	$	10,743	$	11,598	$	11,223	$	7,602
Interest expense	$	1,599	$	1,592	$	1,430	$	1,605	$	1,550
Equity in net income of affiliates	$	1,595	$	897	$	912	$	613	$	437
Other income (expense) - net	$	(209)	$	2,561	$	(354)	$	1,702	$	(93)
Income taxes	$	4,097	$	4,921	$	4,280	$	4,380	$	2,451
Income before extraordinary items and      cumulative effect of accounting change	$	7,260	$	7,967	$	6,573	$	7,735	$	4,087
Net income 2	$	7,242	$	7,967	$	8,159	$	7,690	$	4,087
Earnings per common share:   Income before extraordinary items and      cumulative effect of accounting change	$	2.16	$	2.35	$	1.93	$	2.27	$	1.21
Net income 2	$	2.15	$	2.35	$	2.39	$	2.26	$	1.21
Earnings per common share - assuming dilution:   Income before extraordinary items and      cumulative effect of accounting change	$	2.14	$	2.32	$	1.90	$	2.24	$	1.20
Net income 2	$	2.13	$	2.32	$	2.36	$	2.23	$	1.20
Total assets	$	96,322	$	98,651	$	83,215	$	74,966	$	69,917
Long-term debt	$	17,133	$	15,492	$	17,475	$	17,170	$	17,787
Construction and capital expenditures	$	11,189	$	13,124	$	10,304	$	8,882	$	8,856
Free cash flow 3	$	3,616	$	942	$	6,370	$	4,108	$	2,721
Dividends declared per common share 4	$	1.025	$	1.015	$	0.975	$	0.935	$	0.895
Book value per common share	$	9.69	$	9.00	$	7.87	$	6.69	$	5.26
Ratio of earnings to fixed charges		6.14		6.95		6.52		6.79		4.10
Debt ratio		44.6%		45.2%		42.9%		47.3%		54.9%
Weighted average common shares outstanding (000,000)		3,366		3,392		3,409		3,406		3,391
Weighted average common shares outstanding with dilution (000,000)		3,396		3,433		3,458		3,450		3,420
End of period common shares outstanding (000,000)		3,354		3,386		3,395		3,406		3,398
Operating Data
Network access lines in service (000)		59,532		61,250		60,697		58,980		56,707
Access minutes of use (000,000)		283,164		281,581		264,010		247,597		228,300
Wireless customers (000) - Cingular/SBC5		21,596		19,681		11,151		8,686		7,556
Number of employees		193,420		220,090		204,530		200,380		202,440

¹ Amounts in the above table have been prepared in accordance with accounting principles generally accepted in the United States. Certain one-time items are included in the results for each year presented but are excluded when management evaluates our results of operations. See Results of Operations for a summary of the 2001, 2000 and 1999 one-time items. In 1998, results include the incremental operating impacts attributable to the operations of the overlapping Ameritech Corporation (Ameritech) wireless properties sold in 1999, charges related to strategic initiatives resulting from the merger integration process with Southern New England Telecommunications Corp. (SNET) and charges to cover the cost of consolidating security monitoring centers and company-owned wireless retail stores. Additionally, we recognized a gain on the sale of Telecom Corporation of New Zealand Limited shares; gains from the sale of certain noncore businesses, principally the required disposition of our investment in MTN, a cellular company in South Africa; and gains from the sale of certain telephone and directory assets. Excluding these items, SBC Communications Inc. (SBC) reported an adjusted income before extraordinary item and cumulative effect of accounting change of $6,611, or $1.92 diluted earnings per share, and an adjusted net income of $6,566, or $1.90 diluted earning per share in 1998. In 1997, results include the incremental operating impacts attributable to the operations of the overlapping Ameritech wireless properties sold in 1999, charges resulting from the merger integration process with Pacific Telesis Group (PAC), and charges related to a work force restructuring at Belgacom S.A. Additionally, we recognized gains from the sale of our interests in Bell Communications Research, Inc. and from settlement gains at PAC associated with lump sum pension payments for 1996 retirements. Excluding these items, SBC reported an adjusted net income of $5,836, or $1.71 diluted earnings per share in 1997.

² Amounts include the following extraordinary items and cumulative effect of accounting change: 2001, loss related to the early extinguishment of our corporation-obligated mandatorily redeemable preferred securities of subsidiary trusts; 1999, gain on the sale of overlapping cellular properties and change in directory accounting at Ameritech; 1998, early retirement of debt and change in directory accounting at SNET.

³ Free cash flow is net cash provided by operating activities less construction and capital expenditures.

⁴ Dividends declared by SBC’s Board of Directors; these amounts do not include dividends declared and paid by Ameritech, SNET and PAC prior to their respective mergers.

⁵ All periods exclude customers from the overlapping Ameritech wireless properties sold in 1999. Beginning in 2000, the number presented is the total customers served by Cingular Wireless, in which we own a 60% equity interest.

Management's Discussion and Analysis of Financial Condition and Results of Operations
Dollars in millions except per share amounts

Throughout this document, SBC Communications Inc. is referred to as “we” or “SBC”. We are a holding company whose subsidiaries and affiliates operate in the communications services industry. Our subsidiaries and affiliates provide wireline and wireless telecommunications services and equipment and directory advertising services both domestically and worldwide.

You should read this discussion in conjunction with the consolidated financial statements and the accompanying notes. A reference to a Note in this section refers to the accompanying Notes to the Consolidated Financial Statements.

Results of Operations

Overview
Reported financial results are summarized as follows:

Percent Change

			2001 vs.	2000 vs.
2001	2000	1999	2000	1999

Operating revenues $ 45,908 $ 51,374 $ 49,531 (10.6) % 3.7 %

Operating expenses	35,020	40,631	37,933	(13.8)	7.1
Operating income	10,888	10,743	11,598	1.3	(7.4)
Income before extraordinary items and     cumulative effect of accounting change	7,260	7,967	6,573	(8.9)	21.2
Extraordinary items	(18)	-	1,379	-	-
Cumulative effect of accounting change	-	-	207	-	-
Net income	7,242	7,967	8,159	(9.1)	(2.4)

Diluted earnings per share 2.13 2.32 2.36 (8.2) (1.7)

In 2001, we incurred an extraordinary loss related to the early redemption of $1,000 of our corporation-obligated mandatorily redeemable preferred securities of subsidiary trusts. In 1999, we recognized an extraordinary gain on the sale of overlapping cellular properties relating to the Ameritech Corporation (Ameritech) merger (see Note 3), and a cumulative effect of accounting change related to accounting for directory revenues and expenses (see Note 1).

Our reported operating revenues, expenses and income were lower in 2001 and in the fourth quarter of 2000 primarily due to the contribution of our wireless properties to Cingular Wireless (Cingular). This contribution resulted in a change in the way we account for Cingular’s revenues and expenses from operating results to equity in net income of affiliates. In addition, sales of nonstrategic assets in 2001, including our Ameritech security monitoring and cable operations, lowered revenues but also decreased expenses by a greater amount, thereby increasing 2001 operating income. Also included in income before extraordinary items and cumulative effect of accounting change were certain one-time items that were incurred in 2001, 2000 and 1999. For internal management reporting purposes, we exclude (i.e., normalize) the one-time items from our results and analyze them separately.

The net effect of excluding the normalizing items was to increase net income by $712 in 2001, decrease net income by $221 in 2000 and increase net income by $866 in 1999. In addition to the normalizing items, for internal management purposes, we include the 60% proportional consolidation of Cingular in our 2001 and fourth quarter of 2000 normalized results (see the columns labeled “Cingular” in the tables below). The proportional consolidation of Cingular changes our normalized revenues, expenses, operating income and nonoperating items, but does not change our net income. The following tables reconcile our reported results to our normalized results and list the normalizing items for 2001, 2000 and 1999. Following the tables are explanations of the normalizing items.

2001 Normalizing Items

Reported A B C D E F G H Cingular Normalized

Operating revenues	$	45,908	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	8,393	$	54,301
Operating expenses		35,020		1,097		-		-		(316)		-		-		(197)		(619)		6,884		41,869

Operating income 10,888 (1,097) - - 316 - - 197 619 1,509 12,432

Interest expense	1,599	-	-	-	-	-	-	-	-	159	1,758
Interest income	682	-	-	-	-	-	-	-	-	(308)	374
Equity in net income of affiliates	1,595	-	-	-	-	49	197	-	-	(1,038)	803
Other income (expense) - net	(209)	-	401	(120)	-	341	-	-	-	1	414

Income before income taxes		11,357		(1,097)		401		(120)		316		390		197		197		619		5		12,265
Income taxes		4,097		(409)		140		(42)		111		128		-		69		194		5		4,293
Income before extraordinary items and     cumulative effect of accounting change	$	7,260	$	(688)	$	261	$	(78)	$	205	$	262	$	197	$	128	$	425	$	-	$	7,972

2000 Normalizing Items

Reported I J K L M N O Cingular Normalized

Operating revenues	$	51,374	$	-	$	-	$	-	$	-	$	-	$	23	$	-	$	1,814	$	53,211
Operating expenses		40,631		-		-		506		(1,183)		(132)		(596)		-		1,592		40,818

Operating income 10,743 - - (506) 1,183 132 619 - 222 12,393

Interest expense	1,592	-	-	-	-	-	-	-	46	1,638
Interest income	279	-	-	-	-	-	-	-	(92)	187
Equity in net income of affiliates	897	(68)	-	(6)	-	-	110	-	(72)	861
Other income (expense) - net	2,561	(1,818)	(238)	-	22	-	242	(357)	(14)	398

Income before income taxes		12,888		(1,886)		(238)		(512)		1,205		132		971		(357)		(2)		12,201
Income taxes		4,921		(638)		(83)		(184)		405		-		294		(258)		(2)		4,455
Income before extraordinary items and     cumulative effect of accounting change	$	7,967	$	(1,248)	$	(155)	$	(328)	$	800	$	132	$	677	$	(99)	$	-	$	7,746

1999 Normalizing Items

Reported P Q R S T Normalized

Operating revenues	$	49,531	$	176	$	(705)	$	-	$	-	$	-	$	49,002
Operating expenses		37,933		(1,591)		(473)		566		-		44		36,479

Operating income 11,598 1,767 (232) (566) - (44) 12,523

Interest expense	1,430	(1)	(11)	-	-	-	1,418
Interest income	127	-	-	-	-	-	127
Equity in net income of affiliates	912	-	-	-	(131)	-	781
Other income (expense) - net	(354)	(2)	24	-	-	-	(332)

Income before income taxes		10,853		1,766		(197)		(566)		(131)		(44)		11,681
Income taxes		4,280		309		(78)		(198)		(54)		(17)		4,242
Income before extraordinary items and     cumulative effect of accounting change	$	6,573	$	1,457	$	(119)	$	(368)	$	(77)	$	(27)	$	7,439

Normalizing items for 2001:

A. Pension settlement gains related to management employees, primarily resulting from a fourth-quarter 2000 voluntary retirement program net of costs associated with that program.

B. Combined charges primarily related to valuation adjustments of Williams Communications Group Inc. as well as certain other cost investments accounted for under Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (FAS 115). The charges resulted from an evaluation that the decline was other than temporary (see Note 3).

C. Reduction of a valuation allowance on a note receivable related to the sale of SecurityLink. The note was collected in July 2001.

D. Combined charges related to impairment of our cable operations.

E. A charge indicated by a transaction pending as of December 31, 2001, to reduce the direct and indirect book value of our investment in Telecom Américas.

F. A charge for costs related to TDC A/S’s (TDC) (formerly known as Tele Danmark A/S) decision to discontinue nonwireless operations of its Talkline subsidiary and our impairment of the goodwill we allocated to Talkline.

G. A charge representing a proposed settlement agreement with the Illinois Commerce Commission (ICC) related to a provision of the Ameritech merger. The amount represents an estimate of all future savings to be shared with our Illinois customers.

H. Combined charges associated with our comprehensive review of operations in the fourth quarter of 2001, which resulted in decisions to reduce work force, terminate certain real estate leases and shut down certain operations (see Note 3).

Normalizing items for 2000:

I. Gains related to the sale of direct and indirect investments in MATÁV and Netcom GSM, two international equity affiliates, and from the contribution of our investment in ATL - Algar Telecom Leste S.A. (ATL), a Brazilian telecommunications company, to Telecom Américas.

J. Gains on the sale of Teléfonos de Mexico, S.A. de C.V. (Telmex) L shares associated with our private purchase of a note receivable with characteristics that essentially offset future mark-to-market adjustments on the Debt Exchangeable for Common Stock (DECS).

K. Pension settlement gains associated with pension litigation, first-quarter payments primarily related to employees who terminated employment during 1999 and gains resulting from a voluntary retirement program net of enhanced pension and postretirement benefits associated with that program (see Note 12).

L. Costs associated with strategic initiatives and other adjustments resulting from the merger integration process with Ameritech.

M. A charge related to in-process research and development from the March 2000 acquisition of Sterling Commerce, Inc. (Sterling) (see Note 3).

N. Combined charges related to valuation adjustments of SecurityLink and certain cost investments accounted for under FAS 115, and the restructure of agreements with Prodigy Communications Corporation (Prodigy), including the extension of a credit facility and recognition of previously unrecognized equity losses from our investment (see Note 3).

O. Gains primarily related to our required disposition of overlapping wireless properties in connection with our contribution of operations to Cingular.

Normalizing items for 1999:

P. Charges including recognition of impairment of long-lived assets, adjustments to the estimate of allowance for doubtful accounts, estimation of deferred taxes on international investments, wireless conversion costs and other items (see Note 2).

Q. Elimination of income from the incremental impacts of overlapping wireless properties sold in October 1999 relating to the Ameritech merger.

R. Pension settlement gains associated with lump sum pension payments that exceeded the projected service and interest costs.

S. Gains recognized from the sale of property by an international equity affiliate.

T. A reduction related to a portion of a first-quarter 1998 charge to cover the cost of consolidating security monitoring centers and company-owned wireless retail stores.

Normalized financial results are summarized as follows:

Percent Change

			2001 vs.	2000 vs.
2001	2000	1999	2000	1999

Operating revenues $ 54,301 $ 53,211 $ 49,002 2.0 % 8.6 %

Operating expenses	41,869	40,818	36,479	2.6	11.9
Operating income	12,432	12,393	12,523	0.3	(1.0)
Income before extraordinary items and     cumulative effect of accounting change	7,972	7,746	7,439	2.9	4.1

Diluted earnings per share, before exraordinary items
     and cumulative effect of accounting change 2.35 2.26 2.15 4.0 5.1

Normalized operating revenues increased in 2001 and 2000 primarily due to growth in demand for data communications, wireless, interLATA (Local Access and Transport Area) long distance and directory services. In 2001, the revenue increase was partially offset by declines in our core telephone operations, including the impact of our decision to de-emphasize low-margin equipment. Sales of nonstrategic assets, including our Ameritech security monitoring and cable operations, also partially offset the revenue increases in 2001. The slowing revenue growth rate reflects the ongoing impact of a weak United States (U.S.) economy, challenging federal and state regulatory environments and increased competition. We expect that these factors will continue to dampen business and consumer demand, and our revenue in 2002.

Normalized operating expenses increased in 2001 and 2000 primarily due to the higher level of investments made for new products and services, including Digital Subscriber Line (DSL) and interLATA long distance, and to restore the quality of service in the Ameritech region. Expenses also increased in 2001 due to an increase in our provision for uncollectible accounts for companies that went out of business and customers with a higher credit risk due to the adverse U.S. economic environment. Partially offsetting the expense increases in 2001 were cost savings from employee reductions, the scale-back of our national expansion initiative, and favorable expense comparisons to 2000 now that we are beyond the first year of our initial launch of DSL.

Growth of our diluted earnings per share, before extraordinary items and cumulative effect of accounting change, in 2001 was greater than our operating income growth primarily due to a decreasing effective tax rate and a decline in our weighted average common shares outstanding from our purchases of approximately 47 million shares of our common stock. In 2000 our diluted earnings per share increased while our operating income declined primarily due to reduced mark-to-market expense on the DECS securities and increased gains on sales of multiple smaller investments as compared to 1999. The current U.S. economy, combined with a challenging regulatory and competitive environment, will continue to put significant pressure on our results in 2002.

Segment Results

Our segments are strategic business units that offer different products and services and are managed accordingly. We evaluate performance based on income before income taxes adjusted for the normalizing (e.g., one-time) items that we describe in the “Overview” section. We have five reportable segments that reflect the current management of our business: (1) wireline; (2) wireless; (3) directory; (4) international; and (5) other.

In the second quarter of 2001, we moved the results of the SBC Services unit from the other segment to the wireline segment because the SBC Services unit now primarily supports the wireline segment. We have restated all prior period information for this change, and this had no effect on our consolidated results.

The wireline segment, which accounted for approximately 75% of our total normalized operating revenues in 2001, provides landline telecommunications services, including local, network access and long distance services, messaging and Internet services and sells customer premise and private business exchange equipment.

Prior to the fourth quarter of 2000, the wireless segment, which accounted for approximately 16% of our total normalized operating revenues in 2001, included our consolidated businesses that provided wireless telecommunications services and sold wireless equipment. In October 2000, we contributed substantially all of our wireless businesses to Cingular and began reporting results from Cingular’s operations as equity in net income of affiliates in the Consolidated Financial Statements. However, for internal management purposes, we analyze Cingular’s results using proportional consolidation and therefore will discuss Cingular’s results on that basis for segment reporting. Cingular offers both wireless voice and data communications services across most of the U.S., providing cellular and PCS services.

The directory segment, which accounted for approximately 8% of our total normalized operating revenues in 2001, includes all directory operations, including Yellow and White Pages advertising and electronic publishing. All investments with primarily international operations are included in the international segment. The other segment includes all corporate operations and Ameritech’s paging, cable television and SecurityLink operations. SecurityLink was sold in January 2001, and we sold Ameritech New Media, Ameritech’s cable television operations, in November 2001.

Wireline
Normalized Results

Percent Change

			2001 vs.	2000 vs.
2001	2000	1999	2000	1999

Operating revenues

Local service	$	22,735	$	22,057	$	19,526	3.1	%	13.0	%
Network access		10,459		10,491		10,184	(0.3)		3.0
Long distance service		2,914		2,930		3,348	(0.5)		(12.5)
Other		4,579		4,413		4,314	3.8		2.3

Total Operating Revenues 40,687 39,891 37,372 2.0 6.7

Operating expenses
Operations and support	24,041	23,472	21,422	2.4	9.6
Depreciation and amortization	8,381	7,867	6,828	6.5	15.2

Total Operating Expenses		32,422		31,339		28,250	3.5		10.9
Operating Income		8,265		8,552		9,122	(3.4)		(6.2)
Interest Expense		1,205		1,298		1,188	(7.2)		9.3
Other Income (Expense) - Net		31		72		114	(56.9)		(36.8)
Income Before Income Taxes	$	7,091	$	7,326	$	8,048	(3.2)	%	(9.0)	%

The results of our wireline segment during 2001 reflect the impacts of the weak U.S. economy, regulatory uncertainty and increasing competition. The decline in revenue growth during 2001 was partially offset by a slowing trend in expense growth, primarily from reductions in work force and other employee-related costs. In 2002 we expect a continued slowdown in the revenue growth rate as we continue to face regulatory challenges and strong competition in our local and long distance markets. In response to our declining revenue trend, we will continue to control expenses where possible.

Local service revenues increased $678, or 3.1%, in 2001 and $2,531, or 13.0%, in 2000. Access line revenue steadily declined during 2001 as a result of a slowing U.S. economy, increased competition, and technology substitution from wireless and high-speed access service. The access line revenue decrease was approximately $634 in 2001. Access lines served at the end of 2001 decreased by 2.8% compared to 2000. And, although total access lines in service at the end of 2000 increased by approximately 1%, this was a declining trend when compared to the increase of 3% during 1999. Partially offsetting the access line revenue decrease, the continued rollout of DSL increased local service revenues in 2001 by approximately $319, and our DSL customers increased to approximately 1,333,000 as compared to 767,000 at the end of 2000. Certain other data-related revenues including data equipment sales and network integration services increased in 2001. However, these data revenues declined sequentially during the second half of the year primarily due to our decision to de-emphasize low-margin equipment as a component in data solutions. Wholesale revenues, which include unbundled network elements and resale services, increased approximately $352 during 2001. Revenues from vertical services such as Caller ID, voice mail and other enhanced services and vertical service packages increased by approximately $127 during 2001; however, the sequential quarterly growth rate has been declining to flat since the first quarter.

During 2000, excluding the operations of Sterling, acquired in March 2000, local service revenue increased approximately 10.9% over the prior year. Approximately $619 of that increase was attributable to increased demand from business customers for network integration and Internet services. Demand for DSL and dial-up Internet services in the residential market increased local service revenues by approximately $164 in 2000. Increased demand for wholesale services accounted for approximately $389 of the increase in 2000. Additionally, directory assistance revenues increased approximately $75 in 2000, primarily due to price increases in California, Illinois and Texas, while vertical services revenues increased by approximately 10% to more than $3.7 billion in 2000, up from more than $3.3 billion in 1999.

During 2001, Illinois legislation caused an increase in revenues of approximately $139, and as discussed below, this legislation increased operations and support expenses and decreased interest expense resulting in a net increase of $68 in pre-tax income. During 2000, local service revenues increased as a result of regulatory actions that decreased one or more other types of operating revenues. The introduction of extended area service plans and the September 1999 Texas Universal Service Fund (TUSF) rate rebalancing collectively increased local service revenues in 2000 by approximately $140. However, these regulatory actions had only a nominal effect on overall revenue during 2000 because they decreased intrastate network access revenues by approximately $95 and decreased long distance revenues by approximately $22. The Texas Public Utility Commission stated that the TUSF was intended, among other things, to help support the provision of basic local telephone service to high-cost rural areas.

Network access revenues decreased $32, or 0.3%, in 2001 and increased $307, or 3.0%, in 2000. The decrease in 2001 was primarily due to decreases in switched access revenue related to decreased demand, the continuing impact of the July 2000 implementation of the Coalition for Affordable Local and Long Distance Service (CALLS) proposal, and state regulatory access rate reductions in Texas. These rate reductions were partially offset by continued demand for our high-capacity data transport services.

The increase in 2000 was due primarily to demand for special access and switched data transport services, as well as higher network usage by alternative providers of intraLATA toll services. The increase in 2000 was partially offset by a decrease of $293 due to the impact of CALLS. Also offsetting the 2000 increase were the effects of the TUSF described in local service above of $95 as well as other state regulatory rate reductions of $183.

Long distance service revenues decreased $16, or 0.5%, in 2001 and $418, or 12.5%, in 2000. During 2001, long distance service revenues decreased approximately $197 due to competitive losses resulting from intraLATA dialing parity and $146 attributable to competitive pricing actions in the Ameritech region. These losses were partially offset by an increase of approximately $322 resulting from our 2001 entry into the Arkansas, Kansas, Missouri and Oklahoma interLATA long distance markets in addition to our previous entry into the Texas and Connecticut markets. Competition will continue to affect our intraLATA markets as we seek interLATA long distance approval in the remainder of our 13-state area.

In 2000, competitive losses of approximately $329, primarily resulting from dialing parity implementation, decreased long distance service revenues. Regulatory actions related to the continued introduction of extended area service plans, as discussed in local service, decreased revenues approximately $22. These decreases were partially offset by approximately $64 from the entry into the Texas long distance market for interLATA and interstate services and $31 due to price increases in Illinois, Indiana, Michigan and Ohio.

Other operating revenues increased $166, or 3.8%, in 2001 and $99, or 2.3%, in 2000. Price increases added revenue of approximately $112 in 2001. Continued declines in the payphone business decreased other operating revenues by approximately $52 in 2001 and $124 in 2000. Sales of nonregulated products and services increased in 2001, but at a slower rate than in 2000 due to a decline in demand related to the weakness of the U.S. economy.

Operations and support expenses increased $569, or 2.4%, in 2001 and $2,050, or 9.6%, in 2000. Our provision for uncollectible accounts increased approximately $540 in 2001 for companies that went out of business and customers with a higher credit risk due to the adverse U.S. economic environment. Costs to restore the quality of service in the Ameritech region increased approximately $260 in 2001. The Illinois legislation discussed above in local service caused a one-time increase in expenses of approximately $84 in 2001, which includes a reversal of approximately $26 in the fourth quarter of 2001 of expenses we no longer expect to incur. Costs associated with our continued rollout of DSL increased approximately $120 in 2001 compared to an increase of $930 in 2000, primarily due to growth in subscribers and favorable expense comparisons to 2000 now that we are beyond the first year of our initial launch of DSL. Costs associated with data equipment sales, network integration and e-commerce services increased approximately $70 in 2001, significantly lower than the increase of $850 in 2000, primarily due to our decision to de-emphasize low-margin equipment, and acquisitions in 2000. Costs associated with our national expansion initiative decreased approximately $90 in 2001, reflecting the initiative’s scaleback, compared to an increase of $300 in 2000. InterLATA long distance service expenses increased by approximately $320 in 2001 compared to $260 in 2000 primarily reflecting our entry into four new states. The acquisition of Prodigy (see Note 3) late in 2001 increased expenses approximately $50.

Costs associated with reciprocal compensation decreased approximately $185 in 2001 and $175 in 2000 as we signed new contracts with lower rates and favorable settlement agreements with carriers, partially offset by growth in minutes of use on our network. Expenses decreased approximately $635 in 2001 due to work force reductions, early retirements, lower personnel benefit costs, reduced outsourcing and advertising costs, and gains from certain employee postretirement plans. This compared to employee-related expense increases of approximately $130 in 2000 to meet demand for our new products and services. In addition, 2001 included a reduction in taxes of approximately $92, primarily related to settlements and lower property tax appraisals.

We expect our personnel benefits costs to increase in 2002 due primarily to reduced investment portfolio returns, higher medical claim costs and lower interest rates. We expect that the Prodigy acquisition and increased personnel benefits costs will add between $650 and $850 to operations and support expenses in 2002.

Depreciation and amortization expenses increased $514, or 6.5%, in 2001 and $1,039, or 15.2%, in 2000. The majority of the increase in 2001 was related to higher plant levels from the build-out of our broadband network and launch of new products and services, including DSL and Internet data centers. Approximately $308 of the 2000 increase was related to higher plant levels. Our acquisition of Sterling in 2000 increased expenses approximately $100 and $263 in 2001 and 2000. Amortization of capitalized software also increased approximately $148 in 2001 and $198 in 2000.

Amortization expense of goodwill was approximately $161 in 2001. Goodwill will no longer be amortized in 2002 when we adopt new accounting standards (see Note 1).

Wireless
Normalized Results

Percent Change

			2001 vs.	2000 vs.
2001	2000	1999	2000	1999

Operating revenues

Subscriber revenues	$	7,307	$	6,480	$	5,308	12.8	%	22.1	%
Other		1,340		1,462		1,317	(8.3)		11.0

Total Operating Revenues 8,647 7,942 6,625 8.9 19.9

Operating expenses
Operations and support	5,957	5,348	4,464	11.4	19.8
Depreciation and amortization	1,232	1,083	918	13.8	18.0

Total Operating Expenses		7,189		6,431		5,382	11.8		19.5
Operating Income		1,458		1,511		1,243	(3.5)		21.6
Interest Expense		538		424		226	26.9		87.6
Equity in Net Income of Affiliates		(11)		12		42	-		(71.4)
Other Income (Expense) - Net		33		(120)		(176)	-		31.8
Income Before Income Taxes	$	942	$	979	$	883	(3.8)	%	10.9	%

We account for our 60% economic interest in Cingular under the equity method of accounting. However, we use proportional consolidation in order to evaluate the results of Cingular for internal management purposes. In the table above, Cingular’s proportional results are included in 2001 and the fourth quarter of 2000 along with the residual wireless properties we hold that have not been contributed. The first nine months of 2000 and all of 1999 include the historical results of our comparable wireless operations.

During 2001, at the expense of customer additions, Cingular focused on policies that had the effect of shifting subscribers from analog plans to digital plans which typically have higher margins. Cingular’s expenses increased due to marketing of its new brand after beginning operations in the fourth quarter 2000. Partially offsetting the increased brand costs were synergies and economies of scale created by the formation of Cingular.

Subscriber revenues increased $827, or 12.8%, in 2001 and $1,172, or 22.1%, in 2000. The 2001 increase was primarily related to growth in customer base accompanied by existing customers shifting to higher monthly rate plans, increased minutes of use and the sale of higher access rate plans to new customers. During 2001, Cingular focused on policies that had the effect of shifting subscribers from analog plans to digital plans. For 2002, as Cingular’s digital network and rate plan offerings continue to expand, they expect continued erosion in their analog customer base. Cingular’s net customer additions during 2001 were approximately 1,987,000, excluding approximately 72,000 customers sold to minority partners. At December 31, 2001, Cingular had approximately 21,596,000 customers.

The 2000 increase in subscriber revenues resulted from the 1999 acquisitions of Comcast Cellular Corporation (Comcast) and Cellular Communication of Puerto Rico, Inc. (CCPR), with the remaining increase due to net customer additions.

Other revenues decreased $122, or 8.3%, in 2001 and increased $145, or 11.0%, in 2000. The 2001 decrease was due to a decline in roaming revenues from other carriers, reflecting the continued build-out of competitors’ networks, which resulted in fewer minutes on Cingular’s network and lower negotiated rates with other carriers. Equipment revenues also declined due to a lower customer growth rate in 2001. The 2000 increase was primarily due to higher equipment sales resulting from a higher customer growth rate in 2000.

Operations and support expenses increased $609, or 11.4%, in 2001 and $884, or 19.8%, in 2000. The 2001 increase was primarily due to increased minutes of use on the network, increased long distance expenses as more plans include free long distance, and the Cingular national branding campaign that was completed in 2001. These increases were partially offset by new long distance rates with BellSouth Corporation (BellSouth) and SBC Long Distance that became effective June 2001, and administrative cost savings gained through the formation of Cingular. The 2000 increase reflects increased minutes of use on the system due to the growth in number of customers served during 2000.

Depreciation and amortization expenses increased by $149, or 13.8%, in 2001 and $165, or 18.0%, in 2000 primarily related to higher plant levels. The 2000 increase was partially offset by a decrease of approximately $35 resulting from a purchase price allocation true-up adjustment related to the 1999 acquisitions of Comcast and CCPR.

Our 60% share of Cingular’s amortization expense on goodwill and wireless licenses was approximately $182 in 2001. Goodwill and wireless licenses will no longer be amortized in 2002 upon adoption of new accounting standards (see Note 1).

Directory
Normalized Results

Percent Change

			2001 vs.	2000 vs.
2001	2000	1999	2000	1999

Operating Revenues $ 4,468 $ 4,340 $ 4,126 2.9 % 5.2 %

Operating expenses
Operations and support	1,898	2,008	2,081	(5.5)	(3.5)
Depreciation and amortization	36	32	33	12.5	(3.0)

Total Operating Expenses		1,934		2,040		2,114	(5.2)		(3.5)
Operating Income		2,534		2,300		2,012	10.2		14.3
Other Income (Expense) - Net		9		61		(1)	(85.2)		-
Income Before Income Taxes	$	2,543	$	2,361	$	2,011	7.7	%	17.4	%

Our directory results in 2001 and 2000 included increased demand for directory advertising services and decreased expenses from merger initiatives and cost-containment efforts. However, the growth rate has slowed due to increased competition, increased bad debt expenses and a weak U.S. economy.

Operating revenues increased $128, or 2.9%, in 2001 and $214, or 5.2%, in 2000. A change in the timing of directory publications contributed approximately $79 in 2001 and $33 in 2000 to the increase in revenues. The remaining increases in 2001 and 2000 related to increased demand for directory advertising services. The 2001 growth rate was lower than the growth rate for 2000, reflecting the impacts of a weaker U.S. economy and increased competition.

Operations and support expenses decreased $110, or 5.5%, in 2001 and $73, or 3.5%, in 2000. The decreased expenses in 2001 were due primarily to lower compensation-related expenses, as a result of merger initiatives, a 2000 pension and retirement program, and cost-containment efforts. Offsetting these decreases was an increase in bad debt expense for companies that went out of business or are a higher credit risk due to the weak U.S. economy. The decreased expenses in 2000 were primarily related to cost savings from the merger integration process with Ameritech.

International
Normalized Results

Percent Change

			2001 vs.	2000 vs.
2001	2000	1999	2000	1999

Operating Revenues	$	185	$	328	$	255	(43.6)	%	28.6	%
Operating Expenses		241		475		266	(49.3)		78.6
Operating Income (Loss)		(56)		(147)		(11)	61.9		-
Interest Expense		49		174		235	(71.8)		(26.0)
Equity in Net Income of Affiliates		800		862		739	(7.2)		16.6
Other Income (Expense) - Net		369		389		209	(5.1)		86.1
Income Before Income Taxes	$	1,064	$	930	$	702	14.4	%	32.5	%

Our international results for 2001 reflect our prior sale of various international investments through decreased interest expense, and lower operating expenses due to the first-quarter 2001 completion of the depreciation of certain property, plant and equipment. These savings were offset by reduced operating results at our international affiliates and lower management fee revenues. We expect our international affiliates will continue to feel the impact of a weak global economy and increasing competition.

Operating revenues decreased $143, or 43.6%, in 2001 and increased $73, or 28.6%, in 2000. Revenues declined approximately $87 due to lower volume-related long distance revenues and the September 2001 disposition of Ameritech Global Gateway Services (AGGS). Directory advertising revenues declined approximately $41 due to the December 2000 sale of our German directory investment, Wer Liefert Was (WLW), and the remaining decrease was due to lower management fee revenues. We expect future operating revenues to decrease as a result of the 2001 sale of AGGS. The 2000 increase was primarily due to higher volume-related long distance revenues.

Operating expenses decreased $234, or 49.3%, in 2001 and increased $209, or 78.6%, in 2000. The 2001 decrease was primarily due to AGGS, through both lower long distance activity and the September 2001 disposition, and our December 2000 sale of WLW. Additionally, depreciation expense declined due to certain property, plant and equipment being fully depreciated during the first quarter of 2001. We expect future operating expenses to decrease as a result of the 2001 sale of AGGS. The 2000 increase was largely due to the costs associated with the higher long distance volumes during 2000 and to an increase in corporate support charges.

Equity in net income of affiliates decreased $62, or 7.2%, in 2001 and increased $123, or 16.6%, in 2000. The 2001 decrease includes a decrease of approximately $295 from Belgacom S.A. (Belgacom) and TDC, primarily related to decreased earnings from their foreign affiliates and the inclusion in 2000 results of the gain on the sale of Telenordia. Offsetting this 2001 decrease was a gain of approximately $64 related to Belgacom’s fourth-quarter 2001 sale of a portion of its Netherlands wireless operations to an unaffiliated special purpose entity (SPE). Although Belgacom guaranteed approximately $237 of the SPE’s debt, the SPE has the right to put the investment to a subsidiary of Deutsche Telekom A.G. at a price that is greater than the amount guaranteed. The third-quarter 2000 sale of our investment in MATÁV reduced earnings approximately $65 in 2001 as compared to 2000. Lower income from South American wireless companies held by América Móvil S.A. de C.V., certain true-up adjustments in 2000 at Telmex and our smaller ownership percentage at these affiliates resulted in a decrease of approximately $26. Offsetting these decreases were increases of approximately $92 resulting from wireless subscriber growth, higher average revenue per customer and Cegetel S.A.‘s (Cegetel) second-quarter 2001 sale of AOL France. Bell Canada’s first-quarter 2001 gain on their disposition of an Internet service provider subsidiary and improved operating results contributed approximately $74 to the increase in 2001. Also offsetting the decrease was the elimination of losses, on a comparative basis, of approximately $139 resulting from the first-quarter 2001 disposition of diAx A.G. (diAx), a Swiss mobile landline operator, and the exchange of our equity investment in ATL for a cost investment in Telecom Américas.

The 2000 increase includes increased equity in net income, including our share of certain disposition gains, of approximately $219 from investments in Telmex, TDC, and Belgacom. A full 12 months of operations from Bell Canada in 2000 resulted in approximately $48 higher equity income than the seven months of operations in 1999. Our investment in Cegetel produced positive equity income for the first time in 2000 leading to an increase of approximately $17 over prior year equity losses. Offsetting these increases were reductions to equity in net income of approximately $35 as a result of the sale of our investment in the Aurec companies in Israel and MATÁV, a Hungarian telecommunications company. Our investment in diAx contributed approximately $32 in increased losses in equity income due to increased operating losses, as well as severance accruals and other one-time adjustments. Our investment in Telkom SA Limited (Telkom) had approximately $20 in lower equity income from the prior year due mainly to one-time adjustments. Additionally, our investment in ATL had equity losses of approximately $80.

Our earnings from foreign affiliates will continue to be sensitive to exchange-rate changes in the value of the respective local currencies. Our foreign investments are recorded under accounting principles generally accepted in the United States (GAAP), which include adjustments for the purchase method of accounting and exclude certain adjustments required for local reporting in specific countries, such as inflation adjustments.

Amortization expense of embedded goodwill on our international equity investments was approximately $134 in 2001. In addition, we estimate our international holdings had between $45 and $65 of their own goodwill amortization expense in 2001. Goodwill will no longer be amortized when our international investees adopt new U.S. accounting standards (see Note 1).

Other
Normalized Results

Percent Change

			2001 vs.	2000 vs.
2001	2000	1999	2000	1999

Operating Revenues	$	589	$	1,100	$	1,138	(46.5)	%	(3.3)	%
Operating Expenses		358		923		981	(61.2)		(5.9)
Operating Income		231		177		157	30.5		12.7
Interest Expense		883		895		701	(1.3)		27.7
Other Income (Expense) - Net		1,277		1,323		581	(3.5)		-
Income Before Income Taxes	$	625	$	605	$	37	3.3	%	-	%

Our other segment results in 2001 reflect the sales of nonstrategic assets, including our Ameritech security monitoring and cable operations.

Operating revenues decreased $511, or 46.5%, in 2001 and $38, or 3.3%, for 2000. The decrease in 2001 is primarily due to the January 2001 sale of SecurityLink. In November 2001, we sold Ameritech New Media, Ameritech’s cable television operations that reported $151 in revenues during 2001. We expect 2002 revenues to decline as a result of this disposition activity. The remaining revenues in this segment are primarily the result of corporate operations.

Operating expenses decreased $565, or 61.2%, in 2001 and $58, or 5.9%, in 2000. The decreases in 2001 and 2000 relate to the sale of nonstrategic assets and their associated expenses. The 2001 decrease is primarily due to the sale of SecurityLink. Ameritech New Media, whose sale is mentioned above, reported operating expenses of approximately $160 in 2001. We expect 2002 expenses to decline as a result of these sales.

Consolidated Results

The following discussion is based on consolidated results as reported under GAAP. It does not include the impacts of the normalizing items.

Interest expense increased $7, or 0.4%, in 2001 and increased $162, or 11.3%, in 2000. The 2001 increase was primarily due to interest accrued on payables to Cingular. Prior to the fourth quarter of 2000, our other segment recorded interest expense on notes payable with our wireless properties that was eliminated in the consolidation process. For operations contributed to Cingular this interest expense is no longer eliminated. However, this does not have a material impact on our net income because the interest expense is mostly offset when we record our share of equity income in Cingular. In the second quarter of 2001 we completed a net debt settlement agreement with Cingular and are no longer incurring this expense (see Note 7). Also contributing to the increase was debt issued to redeem the Trust Originated Preferred Securities (TOPrS), the interest on which was reported as other income (expense) - net, and higher commercial paper borrowings. Offsetting these increases were lower composite rates and the reversal of an accrual of approximately $23 related to items resolved by the June 2001 Illinois legislation discussed in local service. The 2000 increase was primarily due to higher composite rates and increased debt levels.

Interest income increased $403 in 2001 and $152 in 2000. The increases were primarily due to the income accrued from Cingular. Prior to the fourth quarter of 2000, our other segment recorded interest income on notes receivable with our wireless properties that was eliminated in the consolidation process. For operations contributed to Cingular, this interest income is no longer eliminated. However, this does not have a material impact on our net income because the interest income is mostly offset when we record our share of equity income in Cingular.

Other income (expense) - net includes items that we normalized as previously described in the “Overview” section. These normalizing items totaled $623, $2,163 and $22 in 2001, 2000 and 1999. In addition to those items, results for 2001 included gains on the sale of investments of approximately $476, consisting of the sale of our investment in TransAsia Telecommunications, Smith Security, Amdocs Limited (Amdocs) shares and other investments. These gains were partially offset by a loss of approximately $61 on the sale of Ameritech New Media. Additional offsets came from dividends paid on preferred securities issued by Ameritech subsidiaries of approximately $33, and minority interest of $16. The amount of our 2001 minority interest expense significantly declined from 2000 due to the contribution of most of our wireless properties to Cingular in the fourth quarter of 2000. Included in 2001 are net gains of approximately $23 recognized for mark-to-market adjustments on shares of Amdocs, one of our equity investees, which were granted to executives as deferred compensation. An offsetting deferred compensation expense was recorded in operations and support expense. Additionally, in 2001, we recognized an expense of approximately $581 related to an endowment of Amdocs shares to the SBC Foundation and income of approximately $575 from the related mark-to-market adjustment on the Amdocs shares, for a net expense of $6. Also included in 2001 is approximately $32, which represents consideration for modifications to our agreement with SpectraSite Communications Inc. (SpectraSite).

Results for 2000 include gains of approximately $87 that were recognized for mark-to-market adjustments on shares of Amdocs used for deferred compensation. An offsetting deferred compensation expense was recorded in operations and support expense. Results for 2000 also include gains of approximately $295 on the sales of our interests in WLW, the Aurec companies in Israel and certain cost investments. Additionally, we sold our remaining Telmex L shares not related to the DECS for a gain, which was partially offset by appreciation in the market value of Telmex L shares underlying the DECS, for a net gain of approximately $117. These gains were partially offset by lower income from our wireless minority interest and dividends paid on preferred securities issued by Ameritech subsidiaries of approximately $208.

Results for 1999 include a gain from the sale of Amdocs shares of approximately $92 and gains of $63 representing dividends and mark-to-market adjustments on Amdocs shares used for contributions to the SBC Foundation and deferred compensation. Results for 1999 also include a gain of approximately $59 on the sale of our investment in Chile and a gain of $81 on the sales of certain discontinued plant and other investments. These gains were offset by increased expenses related to higher appreciation in the market value of Telmex L shares underlying the DECS than in the comparable periods of 1998, net of gains recognized from the sale of certain Telmex L shares, of approximately $296, and dividends paid on preferred securities issued by Ameritech subsidiaries, losses on forward exchange contracts and other nonoperating items of $76. In addition, higher wireless minority interest resulted in approximately $287 of expense.

Income taxes for 2001, 2000 and 1999 reflect the tax effect of the normalizing items previously described in the “Overview” section. Excluding these items, income taxes in 2001 were lower than 2000 primarily due to contributions to the SBC Foundation in the first quarter of 2001. Income taxes in 2000 were higher than 1999 primarily due to higher income before income taxes. The decrease in the effective tax rate for 2001 was primarily due to contributions to the SBC Foundation in the first quarter of 2001. With the adoption of new accounting standards (see Note 1) in 2002, nondeductible amortization expense will decline, and therefore, we expect to see a decline in our effective tax rate for 2002.

Extraordinary items in 2001 included an extraordinary loss of $18, net of taxes of $10, related to the early redemption of $1,000 of the TOPrS (see Note 9). Results in 1999 included an extraordinary gain of $1,379, net of taxes of $960, on the sale of overlapping wireless properties in October 1999 due to the Ameritech merger (see Note 3).

Cumulative effect of accounting change includes a change in the method of recognizing directory publishing revenues and related expenses at Ameritech, effective January 1, 1999 (see Note 1). The cumulative after-tax effect of applying the new method to prior years was recognized as of January 1, 1999, as a one-time, noncash gain applicable to continuing operations of $207, or $0.06 per share, net of deferred taxes of $125.

Operating Environment and Trends of the Business

Overview
Despite passage of the Telecommunications Act of 1996 (Telecom Act), the U.S. telecommunications industry, including DSL and other advanced services, continues, in many respects, to operate as a heavily regulated industry. The expected transition from an industry overseen by multiple regulatory bodies to a market-driven industry monitored by state and federal agencies has been slow. Our wireline subsidiaries remain subject to regulation by state regulatory commissions for intrastate services and by the FCC for interstate services. This continuing difficult and uncertain regulatory environment combined with the recent downturn in the U.S. economy presents challenges for our business.

Expected Growth Areas
We expect the wireline segment to remain the most significant portion of our business and have also discussed trends affecting this segment (see “Wireline” under “Segment Results” above). Over the next few years we expect an increasing percentage of our business to come from two areas within the wireline segment - data/broadband and long distance - and our wireless segment.

Data/Broadband In October 1999, we announced plans to upgrade our network to make broadband services available to approximately 80% of our U.S. wireline customers over the four years through 2003 (Project Pronto). Due to the weakening U.S. economy and uncertain regulatory environment noted above, in October 2001 we announced a scale-back in our broadband deployment plans. At December 31, 2001, we had approximately 1.3 million DSL subscribers, and more than half, or 25 million, of our wireline customer locations were DSL-capable. Additionally, we have spent approximately $3.2 billion as of December 31, 2001, for fiber, electronics and other technology for Project Pronto. The build-out will include transferring certain portions of our existing copper network to a new fiber network. Over the deployment period, marketing costs will be incurred depending on the rate of customer sign-ups and installations.

Long Distance We offer landline interLATA long distance services to customers in selected areas outside our wireline subsidiaries’ operating areas. Further, we offer interLATA long distance services to customers in Texas, Kansas, Oklahoma, Arkansas, Missouri and Connecticut. The FCC approved our application to provide interLATA long distance service for calls originating in Kansas and Oklahoma effective March 7, 2001, and in Arkansas and Missouri on November 16, 2001. We officially launched service under the SBC Southwestern Bell brand in those states on the effective approval dates or shortly thereafter, offering domestic residential and business long distance services as well as international calling plans. We continue to seek long distance approval in our other in-region states and have filed applications with state commissions in California, Illinois, Michigan, Nevada and Ohio. See “State Regulation” below for the status of our state applications.

In October 2001, the FCC completed its re-examination of certain information contained in our previously approved Kansas and Oklahoma long distance applications and found that we did not intentionally provide false information. However, the FCC proposed that we pay approximately $3 for alleged collateral violations related to those applications. This FCC ruling is still pending and has no effect on our ability to continue to offer long distance service in either state.

Wireless In October 2000, Cingular began operations as the second-largest wireless provider in the U.S. (see Note 7). Cingular’s top priorities for 2002 include geographic expansion, including expansion into New York City through an infrastructure-sharing agreement with VoiceStream Wireless Corporation (VoiceStream), further rollout of wireless data services, overlaying GSM voice and GPRS high-speed data technology over its existing networks and integration of operations to strengthen its competitive position and realize cost synergies. The fastest-growing area of the wireless business is data. Although data revenues are not currently a significant portion of Cingular’s total revenues, Cingular plans to accelerate the development of this business. In late 2001, Cingular launched GPRS in Seattle, Las Vegas, eastern Tennessee, coastal Georgia and the Carolinas and plans to launch GPRS in California by mid-2002. In January 2002, Cingular announced the formation of a joint venture with AT&T Wireless Services Inc. (AT&T Wireless) that is expected to allow Cingular to extend its GSM/GPRS network coverage along interstate highways in the upper Midwestern and Western sections of the U.S. Cingular expects the new networks to be operational by the first quarter of 2003. Additionally, Cingular has announced it will begin upgrading its network to third generation (3G) wireless data technology by introducing Enhanced Data Rates for Global Evolution (EDGE). EDGE technology is Cingular’s choice for a 3G wireless communications standard that will allow customers to access the Internet from their wireless devices at higher speeds than in the past. This upgrade is expected to be completed by early 2004. During 2002, Cingular expects to spend approximately $4.5 billion for ongoing capital expenditures and to begin overlaying its existing network with GSM voice and GPRS/EDGE data technology.

Regulatory Environment

Wireline
Federal Regulation Under the Telecom Act, before being permitted to offer landline interLATA long distance service in any state within the 12-state region encompassed by the regulated operating areas of Southwestern Bell Telephone Company (SWBell), Pacific Bell Telephone Company (PacBell), Ameritech and Nevada Bell (these areas with the addition of Southern New England Telecommunications Corp.‘s (SNET) area are referred to as our 13-state area), we are required to apply for and obtain state-specific approval from the FCC. The FCC’s approval, which involves consultation with the U.S. Department of Justice and the appropriate state commission, requires favorable determinations that our wireline subsidiaries have entered into interconnection agreement(s) that satisfy a 14-point “competitive checklist” or, alternatively, the subsidiaries have a statement of terms and conditions effective in that state under which they offer the “competitive checklist” items. The FCC also must make favorable public interest and structural separation determinations in connection with each application. See “State Regulation” below for the status of our state applications.

         Interconnection - Collocation Under the Telecom Act, regional Bell operating companies were required to allow competitors to put equipment in their offices "necessary" for connecting to the local network. In March 1999, the FCC issued rules allowing competitors to install any equipment that is "used" or "useful" for interconnection, even if some equipment has other functions. In August 2001, the FCC issued its order in response to a March 2000 appellate court reversal and remand of the FCC's March 1999 interconnection rules. In its August 2001 order, the FCC required that incumbent local exchange companies, such as our wireline subsidiaries, allow competitors to collocate only equipment that has the primary purpose of interconnecting or accessing local lines. The order also required incumbents to allow competitors to cross-connect with other collocated carriers. In August 2001, we, along with BellSouth, filed a petition for review of this order with the United States Court of Appeals for the District of Columbia (D.C. Court of Appeals) on the grounds that the order exceeds the FCC's jurisdiction and authority. The effect of any future decision on our results of operations and financial position cannot be determined at this time; however, if the August 2001 FCC order stands as written, we do not expect it to have a material effect on our financial position or results of operations.

         Interconnection - Pricing In July 2000, the Eighth Circuit Court of Appeals (8th Circuit) struck down FCC rules governing the rates incumbent local exchange carriers, such as our wireline subsidiaries, charge competitors for interconnection and for leasing portions of the incumbents' telephone networks. The decision rejected FCC pricing rules that required incumbents to charge competitors rates based on hypothetical costs and held that prices should instead be based on actual (but not necessarily historical) costs incurred by carriers to provide interconnection or access to unbundled network elements. In addition, the decision rejected FCC rules governing the amount incumbents must discount services purchased by competitors for resale to end users, holding that the discount should be based on actual, not hypothetical, avoided costs of the incumbents. The 8th Circuit remanded the pricing issues back to the FCC. The 8th Circuit also reaffirmed its prior conclusion that incumbents cannot be required to create new combinations of unbundled network elements for competitors, nor to provide competitors better quality interconnection or access to unbundled network elements than the incumbents provide to themselves. In October 2001, the United States Supreme Court (Supreme Court) heard an appeal of certain portions of the 8th Circuit's ruling, including its invalidation of the FCC's pricing rules and its rule governing new combinations of network elements. A Supreme Court decision is expected during the first half of 2002. Until the Supreme Court issues its decision on the appeal issues, the FCC rules continue in effect. The effect of the future Supreme Court decision, which may include remand of this issue back to the FCC, on our financial position or results of operations cannot currently be determined.

         Unbundled Network Elements/Line Sharing In November 1999, the FCC ordered that incumbent local exchange carriers must continue leasing certain parts of their telephone network to competitors at a discount, as well as revised rules that expand the definitions of certain unbundled network elements (UNE). However, the order limited discounted access to switches serving customers with four or more lines under certain conditions. In addition, the FCC declined to regulate mandatory leasing of high-speed Internet and data equipment. In a separate order, the FCC ordered incumbents to share telephone lines with DSL competitors (DSL line sharing order).

Several parties petitioned the FCC for reconsideration of various aspects of the UNE and DSL line sharing orders. In addition, other parties appealed the UNE and DSL line sharing orders to the D.C. Court of Appeals. Several parties also requested that the FCC require our wireline subsidiaries and other incumbents to provide and support line sharing on a UNE platform as well as make DSL a UNE product.

In December 2001, the FCC began evaluating its unbundling rules, seeking to fashion a more targeted approach to unbundling. The FCC plans to consider whether existing UNEs should be changed and whether transition plans are appropriate prior to a change in existing UNE obligations. After considering data, the FCC is expected to issue a series of decisions on unbundling obligations beginning in mid-2002. The effect of this review on our results of operations and financial position cannot be determined at this time; however, we do not expect it to be materially adverse.

         National Performance Measures In November 2001, the FCC released notices of proposed rulemaking (NPRMs) regarding the creation of national performance measures and standards for evaluating incumbent local exchange carriers, such as our wireline subsidiaries, performance in the provisioning of UNEs and interstate special access services to competitive local carriers. The FCC offered for comment performance measures and standards that apply to special access services and to facilities that the competitive carriers acquire from incumbents for use in entering the local services market. The FCC has stated it will also consider the imposition of enforcement measures in the event any adopted standards are not met. The effects of these NPRMs on our results of operations and financial position cannot be determined at this time.

         Advanced Services In December 2001, the FCC began examining the appropriate rules for the provision of domestic broadband services by incumbent local carriers or their affiliates. This examination was triggered in part by our petition requesting that the FCC classify our separate affiliates offering DSL and other advanced services as nondominant providers and thus relieve us from dominant-carrier regulation of these services. In its review, the FCC plans to consider broadband services offered over cable, satellite and wireless platforms in addition to traditional wireline offerings. The effect of this review on our results of operations and financial position cannot be determined at this time.

         Reciprocal Compensation is billed to our wireline subsidiaries by competitors for the termination of certain local exchange traffic to competitors' customers. In February 1999, the FCC declared that Internet traffic is not local traffic, but instead is primarily interstate, subject to interstate jurisdiction. However, the FCC found that existing federal law did not address to what extent, if any, compensation should be paid to competitors that deliver Internet traffic to Internet service providers and initiated a proceeding to establish such rules. In March 2000, the D.C. Court of Appeals vacated the FCC's February 1999 holding that Internet traffic is interstate and remanded the holding to the FCC for a more reasoned explanation of that conclusion. In April 2001, the FCC issued an order and further notice of proposed rulemaking (FNPRM) addressing that remand. In its FNPRM, the FCC launched a broad examination of all forms of inter-carrier compensation as well as proposed to eliminate all reciprocal compensation when the transitional mechanism expires.

Additionally, in its April 2001 order, the FCC ruled that calls to Internet service providers are interstate access and not subject to reciprocal compensation. However, instead of immediately eliminating all compensation, the FCC established a transitional compensation mechanism for exchange of this traffic. Under this mechanism, the per-minute-of-use fee was capped at 0.15 cents during the first six months following the order and declines to 0.07 cents after two years. In addition, the FCC capped the growth of Internet minutes for which carriers may seek compensation. The FCC transition plan is optional for incumbent local exchange carriers and in order to opt into the plan, incumbents must offer to exchange local and wireless traffic at the same compensation rate as Internet traffic. To date, none of our wireline subsidiaries have opted into the transition plan.

Appeals of reciprocal compensation decisions currently are pending before the Supreme Court, the United States Court of Appeals for the Sixth Circuit (6th Circuit) and U.S. District Courts in Texas, Indiana, Ohio, Wisconsin and California. We have fully accrued expenses for amounts sought by competitors for the termination of Internet traffic to Internet service providers.

         Pricing Flexibility In March 2001, the FCC granted our request to (1) offer volume and term discounts under contract for some access services in certain markets and (2) remove special access and dedicated transport services from price cap regulation in certain additional market areas. The market areas covered by this decision include Chicago, Los Angeles and Dallas. We expect this decision to have an immaterial favorable effect on our results of operations and financial position.

         Coalition for Affordable Local and Long Distance Service (CALLS) In September 2001, the United States Court of Appeals for the Fifth Circuit (5th Circuit) ruled on appeal of the FCC's May 2000 CALLS order restructuring federal price cap regulation. Although the 5th Circuit upheld the CALLS order in most key respects, it reversed and remanded to the FCC two specific aspects of the order.

• The 5th Circuit held that the FCC failed to sufficiently justify an incremental $650 in universal service funding and remanded to the FCC for further explanation of the amount; and
• held that the FCC failed to show a rational basis for how it derived the 6.5% transitional mechanism, i.e., the productivity factor used to reduce access rates until a targeted average rate is achieved, and remanded to the FCC for an explanation of how the percentage was derived.

The current universal service fund amount and transitional mechanism will remain in effect pending FCC response. The effect of any future FCC order on our results of operations and financial position cannot be determined at this time.

         Ameritech Merger In association with its approval of the October 1999 Ameritech merger, the FCC set specific performance and reporting requirements and enforcement provisions that mandate approximately $2.0 billion in potential payments through June 2004 if certain goals are not met. Associated with these conditions, we incurred approximately $94 and $355 in 2001 and 2000 in additional expenses, including payments for failing to meet certain performance measurements, specifically, the "Opening Local Markets to Competition" condition. At December 31, 2001, $1.9 billion in remaining potential payments could be triggered if the "Out-of-Region Competition" and "Opening Local Markets to Competition" conditions discussed below are not met. The following briefly summarizes all the major conditions:

• Out-of-Region Competition In accordance with this condition, we will offer local exchange services in 30 new markets across the country. We are required by the FCC to enter these 30 markets as a provider of local services to business and residential customers by April 2002. Failure to meet the FCC condition requirement could result in a payment of up to $40 for each market. Entrance into these new markets did not have a material effect on our results of operations or financial position.
  
  As of December 31, 2001 we had introduced service in 22 new markets (Boston, Fort Lauderdale, Miami, New York, Seattle, Atlanta, Denver, Minneapolis, Philadelphia, Phoenix, Baltimore, Bergen-Passaic, Middlesex, Nassau, Newark, Orlando, Salt Lake City, Tampa, Washington D.C., West Palm Beach, Louisville and Charlotte), and plan to enter at least eight more by April 2002. In March of 2001, we scaled back our service offerings in these areas in response to certain economic environment and regulatory factors, while still fulfilling our FCC merger condition requirements.
  
  
• Opening Local Markets to Competition We are required to file performance measurement data reflecting 20 different categories with the FCC and relevant state commissions on a monthly basis. These performance measurements address functions that the FCC believes may have a particularly direct effect on our local competitors and their customers, such as our response to competitors’ requests for information and interconnection.
  
  
• Improving Residential Service We will offer residential customers a plan with no minimum monthly long distance fees for at least three years after entering the long distance business in that state. In addition, we offer a low-income Lifeline Universal Service plan to low-income residential customers in each state in our 13-state area.
  
  
• Promoting Advanced Services We established separate subsidiaries to provide advanced services, such as DSL, in order that the subsidiaries be exempt from a Telecom Act provision requiring them to make the services available for resale to competitors. These subsidiaries are required to use the same processes for the ordering and provisioning of our wireline services as competitors, pay an equivalent price for facilities and services and locate at least 10% of their DSL service facilities in low-income areas. See “Data/Broadband” under “Expected Growth Areas” above for further discussion of Project Pronto.
  
  In January 2001, the D.C. Court of Appeals struck down the FCC merger condition that granted our separate affiliates an exemption from the Telecom Act requirement to offer retail DSL transport and other retail advanced services for resale at a discount. Although the merger condition allows us to partially integrate the affiliates into our telephone companies under such circumstances, we are continuing to maintain the advanced services affiliates as separate companies. We believe this is in the best interest of our customers although we continue to evaluate our operations and customer needs. We do not expect, at this time, that this issue will have a material effect on our results of operations or financial position.

The effects of the FCC decisions on the above topics are dependent on many factors including, but not limited to, the ultimate resolution of the pending appeals; the number and nature of competitors requesting interconnection, unbundling or resale; and the results of the state regulatory commissions’ review and handling of related matters within their jurisdictions. Accordingly, we are not able to assess the total potential impact of the FCC orders and proposed rulemakings.

State Regulation The following summarizes state regulation in the 13 states in which our wireline subsidiaries operated at December 31, 2001:

State	Alternative Regulation 1	Number of Signed Wireline Interconnection Agreements 2	Long Distance Application Status
Arkansas	Yes	122	Long distance service provided effective November 2001
California	Yes, review pending	237	Decision expected in 2002 3
Connecticut	Yes	65	Long distance service provided
Illinois	Yes, pending state approval	139	Decision expected in 2002 3
Indiana	Yes, through 12/2003	131	Filing planned in 2002 4
Kansas	Yes	123	Long distance service provided effective March 2001
Michigan	Yes	95	Decision expected in 2002 3
Missouri	Yes	126	Long distance service provided effective December 2001
Nevada	Yes	75	Decision expected in 2002 3
Ohio	Yes, through 1/2003	133	Decision expected in 2002 3
Oklahoma	Yes	105	Long distance service provided effective March 2001
Texas	Yes	342	Long distance service provided
Wisconsin	Yes	96	Filing planned in 2002 4

Notes:

¹ Alternative regulation is other than rate of return regulation.

² Interconnection agreements are signed with competitors for the purpose of allowing them to exchange local calls with the incumbent telephone company and, at their option, to resell services and obtain unbundled network elements.

³ Awaiting determination by state commissions on our compliance with the 14-point competitive checklist. FCC approval is required subsequent to state determination.

⁴ Will require approval by the state commission and the FCC.

The following summarizes certain regulatory developments:

         Illinois Merger Settlement In December 2001, we entered into an agreement to end the cost-sharing provision of the ICC Ameritech merger order. The annual cost-sharing provision required our Illinois wireline subsidiary to track and report merger-related costs and savings and share 50% of those savings with end-users and carriers. Under terms of the agreement, which is pending ICC approval, we will provide a one-time credit to end-users and carriers of approximately $197 during 2002 in exchange for elimination of any future sharing obligations as well as the requirement to track and report merger costs and savings. The credits were fully accrued at December 31, 2001.

         Illinois Legislation The Illinois legislature passed a four-year law, effective June 30, 2001, imposing new requirements on Illinois telecommunications companies, including our Illinois wireline subsidiary. The law (1) requires all local telephone companies to provide wireless phones or cash payments to customers who wait more than five days to get local service repaired or installed, (2) increases the dollar amount the ICC is authorized to levy in fines against companies that violate ICC orders, (3) requires our subsidiary to offer fixed-rate service plans that will result in savings for the average residential customer and (4) requires our subsidiary to offer advanced broadband telecommunications services to at least 80% of its Illinois customers by 2005. Additionally, the law contains numerous provisions affecting competitive access to our wireline network, most notably a requirement that we offer for resale new combinations of unbundled network elements. This issue regarding new combinations is also pending before the Supreme Court and the Supreme Court's decision will likely affect implementation of these unbundling provisions.

Most of the provisions of this legislation will require the ICC to issue specific regulations, prior to implementation, in order to integrate the new legislation with existing alternative regulation laws. This legislation may require us to incur additional expenses to restructure our telecommunications network, which may or may not improve the efficiency of the network, and to improve installation and repair service quality. We are likely to experience a decrease in revenues due to the potentially lower total revenue from average customers generated under fixed-rate service plans as well as due to new rules regarding competitors' access to our network, including the impact of any required new combinations of unbundled network elements offered for resale. The extent of any decrease will depend, among other factors, on the monthly rates that the ICC ultimately authorizes for our service plans and the resulting number of access lines lost to competitors as well as on future ICC and Supreme Court rulings regarding competitive access. As we cannot predict how the ICC will implement the provisions of this legislation, or the effect of the pending Supreme Court case, the legislation's effect on our future results of operations and financial position is not determinable at this time; however, it is not expected to be material. We are prepared to challenge various provisions of this law depending on ICC interpretation of those provisions.

This legislation increased pre-tax income approximately $68 in 2001, consisting of revenue increases due to the legislation resolving issues pending before the ICC partially offset by refunds and implementation expenses.

         Michigan Legislation In July 2000, the Michigan legislature eliminated the monthly intrastate end-user common line (EUCL) charge and implemented price caps for certain telecommunications services. In July 2000, we eliminated the EUCL charge and filed suit in federal court challenging the constitutionality of the legislation. In September 2000, temporary stays of the price cap provision and the EUCL charge elimination were issued. In July 2001, the 6th Circuit ruled that we had demonstrated a substantial likelihood of ultimately showing that the price cap and the EUCL charge elimination were unconstitutional and stayed both provisions pending completion of the litigation. We reinstated the EUCL charge in October 2000, and increased prices for our basic local services in April 2001, both of which are subject to refund if the legislation is upheld. In July 2001, both the State of Michigan and MCI WorldCom, Inc. filed petitions for re-hearing of the 6th Circuit decision. In October 2001, the 6th Circuit decided to delay its decision on the petitions for re-hearing until the Supreme Court rules on the 8th Circuit appeal discussed above in "Interconnection."

The law also authorized an expansion of local calling areas so that many short toll calls could be reclassified as local calls and 2001 revenues declined approximately $5 ($27 annualized) associated with the expansion of local calling areas.

         California Proceedings In September 2001, the California Public Utilities Commission (CPUC) ruled that our California wireline subsidiary must pay approximately $26 for alleged overly aggressive and deceptive marketing practices related to packages of enhanced services such as Caller ID and call forwarding. We believe these allegations are unwarranted and could hinder our ability to inform consumers about the products and services we offer. The CPUC ruling also ordered us to reduce the commission we pay our customer service employees and prescribes acceptable marketing practices; however, in October 2001, the CPUC agreed to reconsider the provision relating to incentive compensation. We believe this decision is unlawful on a number of grounds and have filed legal challenges to the decision.

CPUC rules allow for an audit of a utility's books every three years. The audit of our California wireline subsidiary began in April 2000, and a report is expected during the first quarter of 2002. The CPUC will consider the results of the audit as it conducts its triennial review of our regulatory framework during 2002 and 2003. It is uncertain at this time what effect the report or changes to our regulatory framework might have on our future results of operations and financial position.

         Ohio Service Quality Audit In January 2002, the Public Utilities Commission of Ohio (PUCO) issued a supplemental order adopting many of the recommendations made by an outside consultant that audited our Ohio wireline subsidiary's service quality and marketing practices. The audit covered the period from August 1999 through May 2001. The PUCO ordered us to improve service quality compliance, provide retroactive customer credits in accordance with the original order, and pay the State of Ohio approximately $9, with additional payments possible based on assessment of our past and future service quality compliance. The PUCO also ordered us to deploy advanced services in certain areas of Ohio and provide a temporary discount on certain wholesale services provided to competing carriers. We began providing the customer credits in October 2001. We do not expect the order to have a material effect on our results of operations or financial position.

Competition
Competition continues to increase for telecommunications and information services. Recent changes in legislation and regulation have increased the opportunities for alternative communications service providers. Technological advances have expanded the types and uses of services and products available. As a result, we face increasing competition as well as new opportunities in significant portions of our business. The following discusses recent regulatory events affecting wireline competition.

Wireline
Our wireline subsidiaries expect increased competitive pressure in 2002 and beyond from multiple providers in various markets, including facilities-based local competitors, interexchange carriers and resellers. Substitution of wireless and Internet for traditional local service lines also continues to increase. At this time, we are unable to assess the effect of competition on the industry as a whole, or financially on us, but we expect both losses of market share in local service and gains resulting from new business initiatives, vertical services and new long distance service areas.

State legislative and regulatory developments over the last several years allow increased competition for local exchange services. Companies wishing to provide competitive local service have filed numerous applications with each of the state commissions throughout our 13-state area, and the commission of each state has been approving these applications since late 1995. Under the Telecom Act, companies seeking to interconnect to our wireline subsidiaries' networks and exchange local calls must enter into interconnection agreements with us. These agreements are then subject to approval by the appropriate state commission. We have reached over 1,700 wireline interconnection agreements with competitive local service providers, and most have been approved by the relevant state commission. In addition, other competitors are reselling our local exchange services, and as of December 31, 2001, we had approximately 1.2 million access lines (approximately 2.0% of our total access lines) supporting services of resale competitors throughout our 13-state area, primarily in Texas, California and Illinois.

The CPUC authorized facilities-based local services competition in California effective January 1996 and resale competition effective March 1996. In November 1998, the CPUC issued a decision authorizing our subsidiary to recover local competition implementation costs and we recovered approximately $44 via a customer surcharge during 2001 and expect to recover approximately $44 in 2002.

The ICC approved Advantage Illinois in 1994, providing a framework for regulating our Illinois wireline subsidiary by capping prices for noncompetitive services. In this order, the ICC approved a price cap on the monthly line charge for residential customers and residential calling rates within local calling areas for an initial five-year period that ended in October 1999. In January 2000 the ICC initiated a review of Advantage Illinois with respect to its effectiveness and whether any modifications are necessary. We expect the ICC to complete this review in mid-2002. The price cap on residential rates will remain in effect until the review is completed.

The Indiana Court of Appeals reversed a portion of the 1997 Indiana Utility Regulatory Commission (IURC) order in October 1999, which had directed Ameritech to reduce rates for basic residential and business services and remanded the rate issue to the IURC. In March 2001, we and the IURC settled the outstanding issues under the 1997 order, including tightened service standards, thus extending alternative regulation in Indiana through December 2003. This agreement is not expected to have a material effect on our results of operations or financial position.

In Connecticut, the Connecticut Department of Public Utility Control (CDPUC) approved a five-year alternative regulation plan for SNET in 1996. In May 2001, the CDPUC issued a decision extending our alternative regulation plan indefinitely and the monitoring period until 2004. In its decision, the CDPUC rejected our request for authority to adjust local residential service rates annually based on the rate of inflation. Additionally, in March 2001, the CDPUC granted our request to close our Connecticut cable television business and we did so in June 2001.

Wireless
Cingular, our wireless joint venture with BellSouth, began operations in October 2000. Cingular serves approximately 21.6 million customers, is the second-largest wireless provider in the U.S., and has approximately 219 million potential customers in 41 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.

Cingular targets futher geographic expansion through possible spectrum exchanges and auctions. During 2001, Cingular agreed to share infrastructure with VoiceStream. VoiceStream is sharing infrastructure in New York City, St. Louis and Detroit, and Cingular is sharing infrastructure in Los Angeles and San Francisco. Additionally, in January 2002, Cingular announced the formation of a joint venture with AT&T Wireless. See “Wireless” under “Expected Growth Areas” above for further discussion.

Cingular also invested in Salmon PCS (Salmon), a participant in a December 2000/January 2001 FCC auction of wireless spectrum licenses, including licenses held by wireless companies that had previously filed for bankruptcy protection before completing payment. Salmon was the highest bidder on 79 licenses; 45 of those licenses were awarded to Salmon and 34 licenses remain subject to legal and regulatory challenges and possible legislative inquiry. It is unclear how a resolution of these proceedings will affect Cingular. To date, Cingular has provided Salmon equity of approximately $192 and secured loans of approximately $475, including interest. If all the licenses are awarded, it is estimated Cingular would be required to provide Salmon approximately $1.7 billion.

Cingular faces substantial competition in all aspects of its business as competition continues to increase in the wireless communications industry. Cingular competes for customers based principally on service offerings, price, call quality, coverage area and customer service. Cingular's competitors are principally large providers of cellular, PCS and other wireless communications services, but Cingular also competes with smaller companies, as well as dispatch mobile telephone companies, resellers and wireline service providers. Moreover, Cingular 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 in the future. See discussion of EDGE technology in “Wireless” under “Expected Growth Areas” above.

Directory
Our directory subsidiaries face competition from over 100 publishers of printed directories in their operating areas. Direct and indirect competition also exists from other advertising media, including newspapers, radio, television and direct mail providers, as well as from directories offered over the Internet.

Accounting Policies and Standards

Significant Policies Because of the size of the financial statement elements they relate to, some of our accounting policies and estimates have a more significant impact on our financial statements than others:

• How we depreciate assets, including use of composite group depreciation and estimates of useful lives, are 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, 2001.
• Our recording of revenue is described in Note 1, and the associated estimate of bad debts is based on analysis of history and future expectations. As discussed in Results of Operations, the impacts of companies that went out of business and customers with a higher credit risk due to the adverse U.S. economy were reflected in our results through a significant increase in both bad debt expense and allowance for uncollectible accounts in 2001.
• Our actuarial estimates of retiree benefit expense and the associated significant weighted-average assumptions are discussed in Note 11. The most significant of these is the return on assets assumption of 9.5% on nearly $40 billion of pension and other post-retirement assets (for the year 2001). This assumption reflects our current view of long-term returns. The increase from 8.5% in 2000 reflects our actual long-term results exceeding previous assumptions; our assumption for 2002 is unchanged. For each of the three years ended 2001, our actual 10-year return on investments exceeded 10%, including the effect of the negative returns in 2001. Note 11 also discusses the effects of certain changes in assumptions related to medical trend rates to retiree health care costs. We did not reduce our medical trend rate as originally anticipated in response to actual claim results during 2001.
• Our estimates of income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note 10. These 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 on results from final Internal Revenue Service review of our tax returns.
• Our use of estimates to accrue probable liabilities is noted in Note 1, and significant individual accruals are discussed within the affected area. Included in these items are those that are normalized as described in Note 5 and in the "Overview" section of our Results of Operations discussion.
• Our policy on valuation of intangible assets is described in Note 1. In addition, for cost investments, we evaluate whether mark-to-market declines are temporary and reflected in other comprehensive income, or other-than-temporary and recorded as an expense in the income statement; this evaluation is based on the length of time and the severity of decline in the investment's value. Significant asset and investment valuation adjustments we have made are discussed in Notes 2, 3 and 5.

New Accounting Standards On January 1, 2002, we were required to adopt Statement of Financial Accounting Standards No. 141, "Business Combinations" (FAS 141) and Statement No. 142, "Goodwill and Other Intangible Assets" (FAS 142). FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. FAS 141 also provides new criteria to determine whether an acquired intangible asset should be recognized separately from goodwill. Adoption of FAS 142 means that we will stop amortizing goodwill. At least annually, we will test the remaining book value for impairment using a new two-step test, which is described below. After initial adoption of the statements, any future impairments will be recorded in operating expenses.

For the fourth quarter of 2001, we reviewed the carrying values and lives of our intangible assets, including approximately $3,200 of goodwill, using the criteria of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121), which was the current accounting rule for impairment of goodwill. Our review indicated that the estimated future undiscounted cash flows were sufficient to recover the related carrying values, so no impairment was recorded.

Under FAS 142, we will also stop amortizing goodwill recorded on our equity investments. However, we will continue to test this embedded goodwill for impairment under accounting rules for equity investments, which are based on comparisons between fair value and carrying value. In addition, we will adjust the equity in net income of affiliates line item to reflect the impact of adopting these new accounting standards on the operations of our equity investments.

Cingular has determined that the FCC wireless licenses they own have an indefinite useful life because cash flows are expected to continue, and historical practice has shown that Cingular has been able to renew the licenses at each expiration period. Under FAS 142, Cingular will not amortize these wireless licenses until Cingular determines that the licenses have a finite life. Cingular is currently performing the required impairment tests under FAS 142. Cingular held approximately $7,190 of wireless licenses as of December 31, 2001, and has determined that no impairment exists under FAS 121 as of that date.

Our existing and embedded goodwill amortization and our share of Cingular's license amortization was approximately $380 net of tax, or $0.11 per share in 2001. Amortization for these items will not occur in 2002, thus increasing our net income in 2002. Our international holdings are still reviewing the impact of FAS 141 and 142 on their own operations and these reviews will also impact us. Our current estimate of the impact on us of our international holdings ceasing amortization of goodwill is between $45 and $65 net of tax. This amount will also increase our net income in 2002.

During 2002, we will perform the first step of the required FAS 142 impairment tests as of January 1, 2002. This first step requires us to compare the carrying value of any reporting unit that has goodwill to the estimated fair value of the reporting unit. A reporting unit is one of our operating segments or a discrete component of that segment. If the current fair value is less than the carrying value, then we will perform the second step of the impairment test. This second step requires us to measure the excess of the recorded goodwill over the current value of the goodwill, and to record any excess as an impairment.

We have determined that the fair value of our investment in Sterling is less than the carrying value, and are performing the second step of the impairment test. Although we have not yet completed the impairment testing, we expect the impairment to be between $1,500 and $1,900, before taxes. We plan to complete the impairment tests on our direct investments in the first quarter of 2002. We do not expect that all of our international holdings will have completed their own impairment tests by that time. Any impairment resulting from the initial application of the statements will be recorded as a cumulative effect of accounting change as of January 1, 2002, and will reduce our net income in 2002.

On January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires all derivatives to be recorded on the balance sheet at fair value. Our adoption did not have a significant effect on our financial position or results of operations.

Liquidity and Capital Resources

We had $703 in cash and cash equivalents available at December 31, 2001. Commercial paper borrowings as of December 31, 2001 totaled $6,039. We have lines of credit with several banks totaling $3,700, all of which may be used to support commercial paper borrowings. We had no borrowings outstanding under these lines of credit as of December 31, 2001.

Cash from Operating Activities
During 2001, 2000 and 1999, our primary source of funds continued to be cash generated from operations, as shown in the consolidated statements of cash flows. Net cash provided by operating activities exceeded our construction and capital expenditures during 2001, 2000 and 1999; this excess is referred to as free cash flow, a supplemental measure of liquidity. We generated free cash flow of $3,616, $942 and $6,370 in 2001, 2000 and 1999.

During 2001, we received $495 in cash in addition to SpectraSite stock in exchange for leasing 2,665 communication towers to SpectraSite. In November 2001, we amended our agreement. We agreed to reduce the maximum number of towers to be leased from 3,900 to 3,600, and to extend the schedule for closing on towers until the first quarter of 2004. As consideration for those modifications, we received $35.

In the first quarter of 2001, we received approximately $783 related to the sale of our investment in diAx to TDC. Approximately $565 was recorded as a dividend, due to the nature of our investment in TDC, and was included in undistributed earnings from investments in equity affiliates.

Cash from Investing Activities
To provide high-quality communications services to our customers we must make significant investments in property, plant and equipment. The amount of capital investment is influenced by demand for services and products, continued growth and regulatory commitments.

Our capital expenditures totaled $11,189, $13,124 and $10,304 for 2001, 2000 and 1999. Capital expenditures in the wireline segment, which represented the majority of our total capital expenditures, decreased by 8.5% in 2001 compared to 2000, primarily due to the slowdown of the deployment of our national broadband network. The wireline segment capital expenditures increased by 37.8% in 2000 compared to 1999, primarily attributed to the expansion of our local exchange service into new markets, DSL, digital and broadband network upgrades and regulatory commitments.

In 2002, management expects total capital spending to be between $9,200 and $9,700. We expect these expenditures to relate primarily to our wireline subsidiaries' networks, our broadband initiative, DSL, and support systems for our long distance service.

We received $1,371 from Cingular in 2001 for payment on notes receivable. In 2001, our cash receipts from dispositions exceeded cash expended on acquisitions. In 2000 and 1999, cash expended on acquisitions exceeded receipts from dispositions (see Note 3).

Cash from Financing Activities
Dividends declared by the Board of Directors of SBC were $1.025 per share in 2001, $1.015 per share in 2000 and $0.975 per share in 1999. These per share amounts do not include dividends declared and paid by Ameritech prior to its 1999 merger. The total dividends paid by SBC and Ameritech were $3,448 in 2001, $3,443 in 2000 and $3,312 in 1999. SBC's dividend policy considers both the expectations and requirements of shareowners, internal requirements of SBC and long-term growth opportunities.

In November 2001, our Board of Directors authorized the repurchase of up to 100 million shares of SBC common stock. This is in addition to the January 2000 authorization to repurchase 100 million shares. In 2001, we spent $2,068 on these stock repurchases. As of January 31, 2002, we have repurchased a total of approximately 99 million shares of the 200 million that are authorized. We have also entered into a series of put options on SBC stock with institutional counterparties. We have a maximum potential obligation to purchase 9,000,000 shares of our common stock at a weighted average exercise price of $37.45 per share (see Note 14).

In February 2002, we issued approximately $1,000 of 10-year, 5.875%, global notes. We also issued $2,000 of five-year, 5.75%, global notes and $1,250 of 10-year, 6.25%, global notes in April and March, of 2001. In addition to these global notes, we issued two, variable interest rate, one-year notes, each for $500 in March 2001; $500 of 7.00% notes due 2041; and privately sold $1,000 of 20-year annual Puttable Reset Securities (PURS) in June 2001. For additional information on these debt issuances see Note 8.

During the third quarter of 2001, we redeemed approximately $665 of multiple bonds with maturities up to 40 years and interest rates ranging from 4.4% to 6.9%. We also redeemed approximately $615 of multiple bonds with maturities up to 40 years and interest rates ranging from 5.8% to 8.5% during the second quarter of 2001. In March 2001, we paid the principal amount of each of the DECS, as adjusted by the exchange rate specified in the DECS, in the form of cash that was received from the settlement of our note receivable with characteristics similar to the DECS. For additional information on these debt redemptions see Note 8.

During 2001, we redeemed prior to maturity the $1,000 of the TOPrS. The TOPrS had an original maturity of 30 years and were included on the balance sheet as corporation-obligated mandatorily redeemable preferred securities of subsidiary trusts (see Note 9).

In May 2000, we issued $1,000 in notes through private placement. These notes matured in May 2001. In April 2000, we issued notes for $1,015 that also matured in May 2001.

In December 1999, we called approximately $31 of debt issued by our capital financing subsidiaries that was scheduled to mature in December 2004. The net income effect of retiring this debt did not materially impact our financial statements. During 1999, subsequent to the completion of the acquisitions of Comcast and CCPR, we retired $1,415 of Comcast's and CCPR's long-term debt with no effect on net income. In May 1999, we issued $750 of unsecured 6.25% Eurodollar notes, due May 2009, through our capital financing subsidiaries.

We expect to fund ongoing capital expenditures, the repurchase of stock and merger initiative expenses with cash provided by operations and incremental borrowings.

Other
Our total capital consists of debt (long-term debt and debt maturing within one year), TOPrS (in 2000), and shareowners' equity. Our capital structure does not include debt issued by our International equity investees or Cingular. Total capital increased $1,232 in 2001 and $8,850 in 2000. The 2001 increase was less than the 2000 increase because of lower net income, the redemption of the TOPrS and the repurchase of common shares through our stock repurchase programs. Our debt ratio was 44.6%, 45.2% and 42.9% at December 31, 2001, 2000 and 1999. The debt ratio is affected by the same factors that affect total capital.

Current accounting standards require us to disclose our material obligations and commitments to make 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 material. We disclose our contractual long-term debt repayment obligations in Note 8 and our operating lease payments in Note 6. In the ordinary course of business we routinely enter into commercial commitments for various aspects of our operations, such as plant additions 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.

Market Risk

We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates. In managing exposure to these fluctuations, we may engage in various hedging transactions that have been authorized according to documented policies and procedures. We do not use derivatives for trading purposes, to generate income or to engage in speculative activity. Our capital costs are directly linked to financial and business risks. We seek to manage the potential negative effects from market volatility and market risk. The majority of our financial instruments are medium- and long-term fixed rate notes and debentures. Fluctuations in market interest rates can lead to significant fluctuations in the fair value of these notes and debentures. 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. Where appropriate, we will take actions to limit the negative effect of interest and foreign exchange rates, liquidity and counterparty risks on shareowner value.

Quantitative Information About Market Risk

Interest Rate Sensitivity 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 8 and 9. Following are our interest rate derivatives subject to interest rate risk as of December 31, 2001. The interest rates illustrated in the interest rate swaps section of the table below refer to the average expected rates we would receive and the average expected rates we would pay based on the contracts. The notional amount is the principal amount of the debt subject to the interest rate swap contracts. The fair value represents the amount we would receive if we exited the contracts as of December 31, 2001.

Maturity

2002 2003 2004 2005 2006 After
2006 Total    Fair Value
12/31/01

Interest Rate Derivatives

Interest Rate Swaps:

Receive Fixed/Pay Variable   Notional Amount	-	-	-	-	$500	$75	$575	$5
Variable Rate Payable 1	2.7%	4.8%	6.2%	6.7%	6.8%	6.2%

Weighted Average Fixed
  Rate Receivable 5.7% 5.7% 5.7% 5.7% 5.7% 5.4%

Receive Variable/Pay Fixed   Notional Amount	$5	-	-	-	-	-	$5	$-
Fixed Rate Payable	8.2%	-	-	-	-	-

Weighted Average Variable
   Rate Receivable ² 2.6% - - - - -

Lease Obligations

Variable Rate Leases ³ - - $81 - - - $81   $81     

Average Interest Rate ³ 3.8% 5.5% 6.1% - - -

¹ Interest payable based on Three Month London Interbank Offer Rate (LIBOR) plus or minus a spread.

² Interest receivable based on Three Month Commercial Paper Index published by Federal Reserve.

³ Average interest rate as of December 31, 2001 based on current and implied forward rates for One Month LIBOR plus 30 basis points. The lease obligations require interest payments only until maturity.

The fair value of our interest rate swap contracts was $4 at December 31, 2000. In 2001, we entered into $500 in variable interest rate swap contracts. Of the $995 in variable rate contracts held at December 31, 2000, $920 were canceled during 2001 with no premium or penalty. We also held $25 in fixed interest rate swap contracts at December 31, 2000, of which $20 matured in 2001. In January 2002, we entered into $500 in variable interest rate swap contracts.

Qualitative Information About Market Risk

Foreign Exchange Risk From time to time we make investments in businesses in foreign countries, are paid dividends, receive proceeds from sales or borrow funds in foreign currency. Before making an investment, or in anticipation of a foreign currency receipt, we often will enter into forward foreign exchange contracts. The contracts are used 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. We do not speculate in foreign exchange markets.

Interest Rate Risk We issue debt in fixed and floating rate instruments. Interest rate swaps are used for the purpose of controlling interest expense by managing the mix of fixed and floating rate debt. We do not seek to make a profit from changes in interest rates. We manage interest rate sensitivity by measuring potential increases in interest expense that would result from a probable change in interest rates. When the potential increase in interest expense exceeds an acceptable amount, we reduce risk through the issuance of fixed rate (in lieu of variable rate) instruments and purchasing derivatives.

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties. 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 changes in the markets served by SBC or in countries in which SBC has significant investments.
• Changes in available technology and the effects of such changes including product substitutions and deployment costs.
• The final outcome of FCC proceedings, including rulemakings, and judicial review, if any, of such proceedings, including issues relating to jurisdiction.
• The final outcome of state regulatory proceedings in SBC’s 13-state area, and judicial review, if any, of such proceedings, including proceedings relating to interconnection terms, access charges, universal service, unbundled network elements and resale rates, SBC’s broadband initiative known as Project Pronto, service standards and reciprocal compensation.
• Enactment of additional state, federal and/or foreign regulatory laws and regulations pertaining to our subsidiaries and foreign investments.
• The timing of entry and the extent of competition in the local and intraLATA toll markets in SBC’s 13-state area and our entry into the in-region long distance market.
• The impact of the Ameritech transaction, including performance with respect to regulatory requirements, and merger integration efforts.
• The timing, extent and cost of deployment of Project Pronto, its effect on the carrying value of the existing wireline network and the level of consumer demand for offered services.
• The impact of the wireless joint venture with BellSouth, known as Cingular, including marketing and product-development efforts, access to additional spectrum, technological advancements and financial capacity.

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

Report of Management

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States. 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 SBC Communications Inc. (SBC) have been audited by Ernst & Young LLP, independent auditors. Management has made available to Ernst & Young LLP all of SBC’s financial records and related data, as well as the minutes of shareowners’ and directors’ meetings. Furthermore, management believes that all representations made to Ernst & Young LLP during its audit were valid and appropriate.

Management has established and maintains a system of internal accounting controls that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the costs of an internal accounting controls system should not exceed, in management’s judgment, the benefits to be derived.

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. Management continually monitors the system of internal accounting controls for compliance. SBC maintains an internal auditing program that independently assesses the effectiveness of the internal accounting controls and recommends improvements thereto.

The Audit Committee of the Board of Directors, which consists of nine directors who are not employees, 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.

Edward E. Whitacre Jr.
Chairman of the Board and
Chief Executive Officer

Randall Stephenson
Senior Executive Vice President and
Chief Financial Officer

Report of Independent Auditors

The Board of Directors and Shareowners SBC Communications Inc.

We have audited the accompanying consolidated balance sheets of SBC Communications Inc. (the Company) as of December 31, 2001 and 2000, and the related consolidated statements of income, shareowners’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SBC Communications Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

Ernst & Young LLP
San Antonio, Texas
February 8, 2002

SBC Communications Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts

2001 2000 1999

Operating Revenues
Landline local service	$	22,754	$	22,029	$	19,432
Wireless subscriber		155		4,945		5,851
Network access		10,459		10,422		10,094
Long distance service		3,008		3,133		3,447
Directory advertising		4,518		4,439		4,266
Other		5,014		6,406		6,441

Total operating revenues 45,908 51,374 49,531

Operating Expenses
Operations and support	25,943	30,883	29,380
Depreciation and amortization	9,077	9,748	8,553

Total operating expenses	35,020	40,631	37,933
Operating Income	10,888	10,743	11,598

Other Income (Expense)
Interest expense	(1,599)	(1,592)	(1,430)
Interest income	682	279	127
Equity in net income of affiliates	1,595	897	912
Other income (expense) - net	(209)	2,561	(354)

Total other income (expense)	469	2,145	(745)
Income Before Income Taxes	11,357	12,888	10,853
Income taxes	4,097	4,921	4,280
Income Before Extraordinary Items and Cumulative Effect of Accounting Change	7,260	7,967	6,573

Extraordinary items, net of tax	(18)	-	1,379
Cumulative effect of accounting change, net of tax	-	-	207

Net Income $ 7,242 $ 7,967 $ 8,159

Earnings Per Common Share:
Income Before Extraordinary Items and    Cumulative Effect of Accounting Change	$	2.16	$	2.35	$	1.93

   Net Income $ 2.15 $ 2.35 $ 2.39

Earnings Per Common Share-Assuming Dilution:
Income Before Extraordinary Items and    Cumulative Effect of Accounting Change	$	2.14	$	2.32	$	1.90

   Net Income $ 2.13 $ 2.32 $ 2.36

The accompanying notes are an integral part of the consolidated financial statements.

SBC Communications Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts

December 31,

2001 2000

Assets
Current Assets
Cash and cash equivalents	$	703	$	643
Accounts receivable - net of allowances for uncollectibles of $1,254 and $1,016		9,376		10,144
Prepaid expenses		932		550
Deferred income taxes		713		671
Other current assets		856		1,640

Total current assets		12,580		13,648
Property, Plant and Equipment - Net		49,827		47,195
Goodwill - Net of Accumulated Amortization of $461 and $227		3,577		3,719
Investments in Equity Affiliates		11,967		12,378
Notes Receivable From Cingular Wireless		5,924		9,568
Other Assets		12,447		12,143
Total Assets	$	96,322	$	98,651

Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year	$	9,033	$	10,470
Accounts payable and accrued liabilities		11,459		15,432
Accrued taxes		2,598		3,592
Dividends payable		858		863

Total current liabilities	23,948	30,357
Long-Term Debt	17,133	15,492

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	8,578	6,806
Postemployment benefit obligation	9,839	9,767
Unamortized investment tax credits	274	318
Other noncurrent liabilities	4,059	4,448

Total deferred credits and other noncurrent liabilities	22,750	21,339
Corporation-Obligated Mandatorily Redeemable Preferred Securities Of Subsidiary Trusts#	-	1,000

Shareowners' Equity
Preferred shares ($1 par value, 10,000,000 authorized: none issued)	-	-
Common shares ($1 par value, 7,000,000,000 authorized: issued 3,433,124,836 at December 31, 2001 and 2000)	3,433	3,433
Capital in excess of par value	11,992	12,125
Retained earnings	22,138	18,341
Guaranteed obligations of employee stock ownership plans (ESOP)	-	(21)
Deferred compensation - leveraged ESOP (LESOP)	-	(37)
Treasury shares (78,908,896 at December 31, 2001 and 46,416,071 at December 31, 2000, at cost)	(3,482)	(2,071)
Accumulated other comprehensive income	(1,590)	(1,307)

Total shareowners' equity		32,491		30,463
Total Liabilities and Shareowners' Equity	$	96,322	$	98,651

^# The trusts contain assets of $1,030 in principal amount of the Subordinated Debentures of Pacific Telesis Group.
The accompanying notes are an integral part of the consolidated financial statements.

SBC Communications Inc.
Consolidated Statements of Cash Flows
Dollars in millions, increase (decrease) in cash and cash equivalents

2001 2000 1999

Operating Activities
Net Income	$	7,242	$	7,967	$	8,159
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,077		9,748		8,553
Undistributed earnings from investments in equity affiliates		(755)		(521)		(471)
Provision for uncollectible accounts		1,384		885		1,136
Amortization of investment tax credits		(44)		(71)		(85)
Deferred income tax expense		2,117		1,164		1,061
Gain on sales of investments		(498)		(2,902)		(335)
Extraordinary items, net of tax		18		-		(1,379)
Cumulative effect of accounting change, net of tax		-		-		(207)
Changes in operating assets and liabilities:
Accounts receivable		(672)		(1,892)		(731)
Other current assets		(61)		(446)		335
Accounts payable and accrued liabilities		(2,364)		1,405		2,054
Other - net		(639)		(1,271)		(1,416)

Total adjustments	7,563	6,099	8,515
Net Cash Provided by Operating Activities	14,805	14,066	16,674

Investing Activities
Construction and capital expenditures	(11,189)	(13,124)	(10,304)
Investments in affiliates	1,482	139	(45)
Purchase of short-term investments	-	(539)	(26)
Proceeds from short-term investments	510	-	31
Dispositions	1,254	4,476	4,867
Acquisitions	(445)	(5,121)	(5,198)
Other	1	(1)	2

Net Cash Used in Investing Activities (8,387) (14,170) (10,673)

Financing Activities
Net change in short-term borrowings with original maturities of three months or less	(1,424)	5,169	(787)
Issuance of long-term debt	5,723	1,087	738
Repayment of long-term debt	(4,025)	(1,128)	(2,301)
Early extinguishment of debt and related call premiums	-	-	(31)
Early extinguishment of corporation-obligated mandatorily redeemable preferred securities of subsidiary trusts	(1,000)	-	-
Issuance of common shares	-	-	313
Purchase of treasury shares	(2,068)	(2,255)	(1,169)
Issuance of treasury shares	323	732	318
Redemption of preferred shares of subsidiaries	(470)	-	-
Issuance of preferred shares of subsidiaries	-	-	103
Dividends paid	(3,456)	(3,418)	(3,287)
Other	39	65	(2)

Net Cash Provided by (Used in) Financing Activities		(6,358)		252		(6,105)
Net increase (decrease) in cash and cash equivalents		60		148		(104)
Cash and cash equivalents beginning of year		643		495		599
Cash and Cash Equivalents End of Year	$	703	$	643	$	495

The accompanying notes are an integral part of the consolidated financial statements.

SBC Communications Inc.
Consolidated Statements of Shareowners' Equity
Dollars and shares in millions except per share amounts

       2001        2000        1999

Shares Amount Shares Amount Shares Amount

Common Stock
Balance at beginning of year	3,433	$	3,433	3,433	$	3,433	3,434	$	3,434
Purchase of shares	-		-	-		-	(8)		(8)
Issuance of shares	-		-	-		-	7		7

Balance at end of year 3,433 $ 3,433 3,433 $ 3,433 3,433 $ 3,433

Capital in Excess of Par Value
Balance at beginning of year	$	12,125	$	12,453	$	12,439
Purchase of shares		-		-		(398)
Issuance of shares		(281)		(678)		215
Other		148		350		197

Balance at end of year $ 11,992 $ 12,125 $ 12,453

Retained Earnings
Balance at beginning of year	$	18,341	$	13,798	$	8,948
Net income ($2.15, $2.35 and $2.39 per share)		7,242		7,967		8,159
Dividends to shareowners ($1.025, $1.015 and $0.975 per share)		(3,448)		(3,443)		(3,312)
Other		3		19		3

Balance at end of year $ 22,138 $ 18,341 $ 13,798

Guaranteed Obligations of ESOP
Balance at beginning of year	$	(21)	$	(106)	$	(261)
Reduction of debt associated with ESOP		21		85		155

Balance at end of year $ - $ (21) $ (106)

Deferred Compensation - LESOP
Balance at beginning of year	$	(37)	$	(73)	$	(82)
Cost of LESOP trust shares allocated to employees		37		36		9

Balance at end of year $ - $ (37) $ (73)

Treasury Shares
Balance at beginning of year	(46)	$	(2,071)	(38)	$	(1,717)	(28)	$	(882)
Purchase of shares	(47)		(2,068)	(49)		(2,255)	(23)		(1,169)
Issuance of shares	14		657	41		1,901	13		334

Balance at end of year (79) $ (3,482) (46) $ (2,071) (38) $ (1,717)

Accumulated Other Comprehensive Income, net of tax
Balance at beginning of year	$	(1,307)	$	(1,062)	$	(822)
Foreign currency translation adjustment, net of taxes of $(172), $(234) and $290		(320)		(435)		(336)
Reclassification adjustment to net income for cumulative translation adjustment    on securities sold		-		329		-
Unrealized gains (losses) on available-for-sale securities, net of taxes of $(35), $(22) and $61		(65)		(40)		113
Less reclassification adjustment for net (gains) losses included in net income		5		(99)		(17)
Less reclassification adjustment for loss included in deferred revenue		97		-		-

Other comprehensive income (loss)		(283)		(245)		(240)
Balance at end of year	$	(1,590)	$	(1,307)	$	(1,062)

Total Comprehensive Income
Net income	$	7,242	$	7,967	$	8,159
Other comprehensive income (loss) per above		(283)		(245)		(240)

Total Comprehensive Income $ 6,959 $ 7,722 $ 7,919

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, SBC Communications Inc. is referred to as “we” or “SBC”. The consolidated financial statements include the accounts of SBC and its majority-owned subsidiaries. The statements reflect the merger of one of our subsidiaries with Ameritech Corporation (Ameritech) as a pooling of interests (see Note 2). Our subsidiaries and affiliates operate in the communications services industry both domestically and worldwide providing wireline and wireless telecommunications services and equipment as well as directory advertising and publishing services.

All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships, joint ventures, including Cingular Wireless (Cingular) and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign investments accounted for using the equity method are included for periods ended within up to three months of our year end (see Note 7).

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimations of probable losses and expenses. Actual results could differ from those estimates. Certain amounts in prior-period financial statements have been reclassified to conform to the current year’s presentation.

Income Taxes - Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.

Investment tax credits earned prior to their repeal by the Tax Reform Act of 1986 are amortized as reductions in income tax expense over the lives of the assets which gave rise to the credits.

Cash Equivalents - Cash and cash equivalents include all highly liquid investments with original maturities of three months or less, and the carrying amounts approximate fair value.

Deferred Charges - Directory advertising costs are deferred until the directory is published and advertising revenues related to these costs are recognized.

Revenue Recognition - In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101), which we adopted effective January 1, 2000. SAB 101 addresses, among other items, when revenue relating to nonrefundable, up front fees should be recognized. Upon adoption, we performed a detailed analysis of our activation fees and recorded deferred revenues and associated expenses accordingly. These deferred amounts will be recognized over the average customer life of five years. Expenses, though exceeding revenue, were only deferred to the extent of revenue. Accordingly, these adjustments had no significant effect on operating or net income.

Certain revenues derived from local telephone and wireless services are billed monthly in advance and are recognized the following month when services are provided. Revenues derived from other telecommunications services, principally network access, long distance and wireless airtime usage, are recognized monthly as services are provided.

Cumulative Effect of Accounting Change - Ameritech, prior to January 1, 1999, recognized revenues and expenses related to publishing directories using the “amortization” method, under which revenues and expenses were recognized over the lives of the directories, generally one year. Effective January 1, 1999, for Ameritech, the accounting was changed to the “issue basis” method of accounting, which recognizes the revenues and expenses at the time the related directory is published. The change in methodology was made because the issue basis method is generally followed in the publishing industry, including by our other directory subsidiaries, and better reflects the operating activity of the business.

The cumulative after-tax effect of applying the changes in method to prior years was recognized as of January 1, 1999, as a one-time, noncash gain of $207, or $0.06 per share, net of deferred taxes of $125. Had the current method been applied during prior periods, income before extraordinary items and cumulative effect of accounting change would not have been materially affected.

Property, Plant and Equipment - Property, plant and equipment is stated at cost. The cost of additions and substantial improvements to property, plant and equipment is capitalized. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Property, plant and equipment is depreciated using straight-line methods over their estimated economic lives. Most of our plant is depreciated using composite group depreciation methodology; accordingly, when a portion of our depreciable property, plant and equipment is retired in the ordinary course of business, the gross book value is reclassified to accumulated depreciation; no gain or loss is recognized on the disposition of this plant.

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 and are amortized over three years.

Intangible Assets - Intangible assets consist primarily of goodwill and customer lists. These assets are amortized using the straight-line method over periods generally ranging from three to forty years. Management periodically reviews the carrying value and lives of all intangible assets based on expected future cash flows.

On January 1, 2002, we were required to adopt Statement of Financial Accounting Standards No. 141, “Business Combinations” (FAS 141) and Statement No. 142, “Goodwill and Other Intangible Assets” (FAS 142). FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. FAS 141 also provides new criteria to determine whether an acquired intangible asset should be recognized separately from goodwill. Adoption of FAS 142 means that we will stop amortizing goodwill. At least annually, we will test the remaining book value for impairment using a new two-step test, which is described below. After initial adoption of the statements, any future impairments will be recorded in operating expenses.

For the fourth quarter of 2001, we reviewed the carrying values and lives of our intangible assets, including approximately $3,200 of goodwill, using the criteria of Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (FAS 121), which was the current accounting rule for impairment of goodwill. Our review indicated that the estimated future undiscounted cash flows were sufficient to recover the related carrying values, so no impairment was recorded.

Under FAS 142, we will also stop amortizing goodwill recorded on our equity investments. However, we will continue to test this embedded goodwill for impairment under accounting rules for equity investments, which are based on comparisons between fair value and carrying value. In addition, we will adjust the equity in net income of affiliates line item to reflect the impact of adopting these new accounting standards on the operations of our equity investments.

Cingular has determined that the FCC wireless licenses they own have an indefinite useful life because cash flows are expected to continue, and historical practice has shown that Cingular has been able to renew the licenses at each expiration period. Under FAS 142, Cingular will not amortize these wireless licenses until Cingular determines that the licenses have a finite life. Cingular is currently performing the required impairment tests under FAS 142. Cingular held approximately $7,190 of wireless licenses as of December 31, 2001, and has also determined that no impairment exists under FAS 121 as of that date.

Our existing and embedded goodwill amortization and our share of Cingular’s license amortization was approximately $380 net of tax, or $0.11 per share in 2001. Amortization for these items will not occur in 2002, thus increasing our net income in 2002. Our international holdings are still reviewing the impact of FAS 141 and 142 on their own operations and these reviews will also impact us. Our current estimate of the impact on us of our international holdings ceasing amortization of goodwill is between $45 and $65 net of tax. This amount will also increase our net income in 2002.

During 2002, we will perform the first step of the required FAS 142 impairment tests as of January 1, 2002. This first step requires us to compare the carrying value of any reporting unit that has goodwill to the estimated fair value of the reporting unit. A reporting unit is one of our operating segments or a discrete component of that segment. If the current fair value is less than the carrying value, then we will perform the second step of the impairment test. This second step requires us to measure the excess of the recorded goodwill over the current value of the goodwill, and to record any excess as an impairment.

We have determined that the fair value of our investment in Sterling is less than the carrying value, and are performing the second step of the impairment test. Although we have not yet completed the impairment testing, we expect the impairment to be between $1,500 and $1,900, before taxes. We plan to complete the impairment tests on our direct investments in the first quarter of 2002. We do not expect that all of our international holdings will have completed their own impairment tests by that time. Any impairment resulting from the initial application of the statements will be recorded as a cumulative effect of accounting change as of January 1, 2002, and will reduce our net income in 2002.

Advertising Costs - Costs for advertising products and services or corporate image are expensed as incurred.

Foreign Currency Translation - Our foreign investees generally report their earnings in their own local currencies. We translate our share of their foreign assets and liabilities at exchange rates in effect at the balance sheet dates. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income in the accompanying consolidated balance sheets (other components of other comprehensive income are immaterial). Our share of their revenues and expenses are translated using average rates for the year. Other transaction gains and losses resulting from exchange rate changes on transactions denominated in a currency other than the local currency are included in earnings as incurred.

Derivative Financial Instruments - Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (FAS 133), requires all derivatives to be recorded on the balance sheet at fair value, and requires changes in the fair value of the derivatives to be recorded in net income or other comprehensive income. We adopted FAS 133 on January 1, 2001, as a one-time, noncash cumulative effect of accounting change. However, because of our minimal use of derivatives, the adoption of this standard did not have a significant effect on our financial position or results of operations.

We do not invest in derivatives for trading purposes. From time to time, as part of our risk-management strategy, we use derivative financial instruments, including interest rate swaps, to hedge exposures to interest rate risk on debt obligations, and foreign currency forward-exchange contracts to hedge exposures to changes in foreign currency rates for transactions related to foreign investments. Derivative contracts are entered into for hedging of firm commitments only. Interest rate swap settlements are recognized as adjustments to interest expense in the consolidated statements of income when paid or received. Foreign currency forward-exchange contracts are set up to coincide with firm commitments. Gains and losses are deferred until the underlying transaction being hedged occurs and then are recognized as part of that transaction (see Note 9).

Note 2. Completion of Mergers

In October 1999, SBC and Ameritech completed the merger of an SBC subsidiary with Ameritech in a transaction in which each share of Ameritech common stock was exchanged for 1.316 shares of SBC common stock (equivalent to approximately 1,446 million shares). Ameritech became a wholly owned subsidiary effective with the merger, and the transaction has been accounted for as a pooling of interests and a tax-free reorganization. Financial statements for prior periods have been restated to include the accounts of Ameritech. Transaction costs related to the merger were $77 ($48 net of tax). Of this total, $25 ($16 net of tax) was included in expenses in 1999.

Post-Merger Initiatives

Upon completion of the merger, we reviewed operations throughout the merged company. Based on these merger integration reviews, we made certain strategic decisions, integrated certain operations and consolidated some administrative and support functions resulting in one-time charges. The following table summarizes the charges recorded in 1999 for the merger-related reviews and decisions:

One-time charges Pre-tax After-tax

Reorganization	$	582	$	379
Impairments/asset valuation		690		472
Wireless conversion		220		143
Regulatory and legal		164		102
Merger approval		31		19
Other items and estimates of other obligations		79		342

Total one-time charges $ 1,766 $ 1,457

One-time charges incurred in the third and fourth quarter of 1999 totaled $1,766 ($1,457 net of tax). These charges included various regulatory and legal issues, merger approval and other related costs of $274 ($174 net of tax). In addition, these charges included costs related to strategic decisions reached by the review teams of $1,492 ($1,283 net of tax) in 1999. At December 31, 2001 and 2000, anticipated remaining cash expenditures related to the accruals for the Ameritech merger decisions totaled $14 and $147. Remaining accruals for anticipated cash expenditures for decisions related to the 1998 pooling of interests with Southern New England Telecommunications Corp. (SNET) and decisions related to the 1997 pooling of interests with Pacific Telesis Group (PAC) were $0 at December 31, 2001 and approximately $11 at December 31, 2000.

Reorganization - - We centralized several key functions that will support the wireline operations including network planning, strategic marketing and procurement. We also consolidated a number of corporatewide support activities, including research and development, information technology, financial transaction processing and real estate management. These initiatives resulted in the creation of some jobs and the elimination and realignment of others, with many of the affected employees changing job responsibilities and in some cases assuming positions in other locations.

We recognized net charges of approximately $582 ($379 net of tax) during the fourth quarter of 1999 in connection with these initiatives. The charges were comprised mainly of postemployment benefits, primarily related to severance, and costs associated with closing duplicate operations, primarily contract cancellations. Other charges, arising out of the mergers related to relocation, retraining and other effects of consolidating certain operations, are being recognized in the periods those charges are incurred. The fourth-quarter 1999 charge is net of $45 ($29 net of tax) of reversals of accruals made in connection with the SNET and PAC mergers that were related to plans now superseded by the subsequent reorganization plan.

Impairments/Asset Valuation - As a result of our merger integration plans and strategic review of domestic operations and organizational alignments, we reviewed the carrying values of the long-lived assets in the third and fourth quarter of 1999. These reviews included estimating remaining useful lives and cash flows and identifying assets to be abandoned. Where this review indicated impairment, fair market values, including, in some cases, discounted cash flows as an estimate of fair value related to those assets, were analyzed to determine the amount of the impairment. As a result of these reviews, we wrote off certain assets and recognized impairments to the value of other assets with a combined charge of $690 ($472 net of tax) in the third and fourth quarter of 1999.

The 1999 adjustments include an impairment of $300 ($224 net of tax) related to SecurityLink. This impairment adjustment, taken as a reduction in goodwill of $300, reflected a reduction of the investment to fair market value based upon the value of comparable businesses. In connection with this adjustment, we shortened the estimated life of the remaining goodwill on the security business from 40 to 15 years. In January 2001, we sold SecurityLink. In connection with the sale, we took an additional charge of $614 ($454 net of tax) in 2000 (see Note 3).

Also in 1999, we performed a review of the allowance for doubtful accounts at the Ameritech subsidiaries and recognized a charge of $212 ($135 net of tax). This charge resulted from adjusting Ameritech’s estimation methods to the method we use. Other 1999 adjustments consisted primarily of valuation adjustments on certain analog switching equipment at Ameritech and certain cost investments.

Wireless Conversion - In December 1999, Ameritech notified its wireless customers that the current wireless network platform (Code Division Multiple Access or CDMA) would be converted to our network platform (Time Division Multiple Access or TDMA). As part of the conversion, we sold the CDMA network assets and leased them back over the conversion period. A charge of $220 ($143 net of tax) was recognized in the fourth quarter of 1999 to recognize the loss on the sale and leaseback, and to replace the customers’ CDMA handsets.

Other Items and Estimates of Other Obligations - We performed reviews of Ameritech’s accounting operations and applied consistent accounting techniques between the merging companies. As a result, we recognized charges in 1999 related to the impact of several regulatory and legal rulings of $164 ($102 net of tax). Also in 1999, we incurred a charge of $31 ($19 net of tax) for Ameritech merger approval costs. In 1999 charges for deferred taxes on Ameritech’s international investments of $289, net charges related to the routine deferral of certain costs and revenues by Ameritech of $62 ($40 net of tax), and other miscellaneous items of $17 ($13 net of tax) were recognized.

Note 3. Acquisitions, Dispositions, and Valuation and Other Adjustments

Acquisitions - In November 2001, we acquired the shares of Prodigy Communications Corporation (Prodigy) that we did not already own through a cash tender offer followed by a merger of a subsidiary into Prodigy. We paid approximately $470 and assumed debt of $105. This transaction resulted in approximately $589 in goodwill, which was not amortized in 2001. The majority of the shares we bought in the cash tender offer were from persons or entities affiliated with Teléfonos de México, S.A. de C.V. (Telmex), of which we own approximately 8.1%. In the fourth quarter of 2000, in connection with a change to our agreements with Prodigy, we recognized a charge of approximately $143 ($89 net of tax). Approximately $110 of the charge was recorded in equity in net income of affiliates reflecting previously unrecognized equity losses from our investment in Prodigy.

In August 2000, we acquired wireless properties in Washington and Texas from GTE Corporation for approximately $1,349. These properties were included in the contribution to Cingular (see Note 7).

In March 2000, we acquired Sterling, a provider of electronic business integration solutions, in an all-cash tender offer valued at approximately $3,576. The assets acquired include certain intangible assets such as developed technology, trade name, assembled work force, customer relationships and goodwill, which were assigned amortization lives of between 3 and 20 years. We expensed the acquired in-process research and development of approximately $132 in March 2000. In accordance with FAS 142, we have determined that the fair value of our investment in Sterling is less than the carrying value at January 1, 2002. Although we have not yet completed the impairment testing, we expect the impairment to goodwill to be between $1,500 and $1,900, which we will record as a cumulative effect of accounting change in the first quarter of 2002.

In July 1999, we acquired wireless properties in Pennsylvania, Delaware, New Jersey and Illinois from Comcast Corporation for approximately $677 in cash and $1,400 in assumed debt. These properties were included in the contribution to Cingular (see Note 7).

In June 1999, we acquired 20% of Bell Canada, a subsidiary of BCE Inc., a publicly traded Canadian communications company, for approximately $3,447.

These acquisitions were accounted for under the purchase method of accounting. The purchase prices in excess of the underlying fair value of identifiable net assets acquired were assigned amortization lives not to exceed 40 years. However, beginning in 2002, this goodwill amount will not be amortized and goodwill will be tested annually for impairment (see Note 1). Results of operations of the properties acquired have been included in the consolidated financial statements from their respective dates of acquisition.

Dispositions - In November 2001, we sold the assets of Ameritech New Media, a cable television operation, for approximately $205, resulting in a pre-tax loss of $61. In the first quarter of 2001, in anticipation of the disposal of these cable operations and in accordance with Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” we evaluated these operations for impairment. We estimated that the future undiscounted cash flows of these operations were insufficient to recover their related carrying values. The impairment was measured by comparing the book value to fair value of the assets as indicated by prevailing market prices. The resulting adjustment of approximately $316 ($205 net of tax) to reduce the book value of these assets, primarily writing down property, plant and equipment, was recorded in the first quarter of 2001 as a charge to operating expenses.

In January 2001, we sold SecurityLink, our electronic security services operations, for approximately $479. As a result of the pending sale, as well as a general decline in the market value of companies in the security industry, we reviewed the carrying value of our investment in SecurityLink at December 31, 2000. This review included estimating remaining useful lives and cash flows. As this review indicated impairment, fair market values, including in some cases discounted cash flows as an estimate of fair value related to those assets, were analyzed to determine the amount of the impairment. Those fair market values also were compared to market values of comparable publicly traded companies. As a result of this review, we recognized impairments to the carrying value of SecurityLink of approximately $614 ($454 net of tax) in the fourth quarter of 2000. Approximately $430 of that charge was a write-off of goodwill.

Due to our wireless property contribution to Cingular in October 2000, we were required to sell our overlapping properties, which included selected wireless properties in Louisiana and Indiana. This resulted in a pre-tax gain of $357 (see Note 7).

In August 2000, we sold our interest and TDC A/S (TDC) (formerly known as TeleDanmark A/S), an equity investee, also sold its interest in Netcom GSM, a wireless telecommunications provider in Norway, which resulted in a direct and indirect pre-tax gain of approximately $546. In August 2000, we also sold our interest in MATÁV, a Hungarian telecommunications company, to Deutsche Telekom, our partner in the investment, for approximately $2,199, resulting in a pre-tax gain of approximately $1,153.

In October 1999, we completed the required disposition, as a condition of the merger with Ameritech, of 20 Midwestern cellular properties consisting of the competing cellular licenses in several markets, including, but not limited to, Chicago, Illinois, and St. Louis, Missouri. We recognized an extraordinary gain from these sales of approximately $1,379, or $0.40 per share.

Valuation Adjustments - In January 2002, we purchased from América Móvil S.A. de C.V. (América Móvil) its approximately 50% of Cellular Communications of Puerto Rico (CCPR) for cash and a note redeemable for our investment in Telecom Américas Ltd. (Telecom Américas). This represents a forward sale of our interest in Telecom Américas. In connection with this transaction, we reviewed the values at which we would carry CCPR and our interest in Telecom Américas and recognized a charge of $390 ($262 net of tax) for the reduction of our direct and indirect book values to the value indicated by the transaction. The charges were recorded in both other income (expense) – net ($341) and equity in net income of affiliates ($49).

We have cost investments in Williams Communications Group Inc. (Williams) and alternative providers of digital subscriber line (DSL) services accounted for under Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (FAS 115). We periodically review the investments to determine whether an investment’s decline in value is other than temporary. If so, the cost basis of the investment is written down to fair value, which is the new cost basis.

In the third quarter of 2001, we recognized an other than temporary decline of $162 ($97 net of tax) in the value of shares we received as payment of future rents on land and wireless towers and related equipment. We have determined that the other than temporary decline in the value of these marketable securities should reduce the overstatement of deferred revenue for these payments that were recorded when the marketable securities were originally received. Future rent revenues will also be reduced.

In the second quarter of 2001, we concluded that the continued depressed market values for certain of our investments, as well as difficulties experienced by many similar companies, indicated the decline in value of our investments was other than temporary. As a result of these reviews, we recognized a combined charge of $401 ($261 net of tax) in the second quarter of 2001 in other income (expense) - net primarily related to our investment in Williams.

In the fourth quarter of 2000, we concluded that the precipitous decline of the market values of the alternative providers of DSL, as well as difficulties experienced by many companies in that industry, indicated the decline in value of our investments was other than temporary. As a result of these reviews, we recognized a combined charge of $214 ($134 net of tax) in the fourth quarter of 2000 in other income (expense) - net.

Comprehensive Review of Operations - During the fourth quarter of 2001, we performed a comprehensive review of operations that resulted in decisions to reduce our work force, terminate certain real estate leases and shut down certain operations. The charges related to those decisions, which we recorded as expense in 2001 are as follows:

• Work force reduction charges Our review of staffing needs led to decisions to reduce our number of management and nonmanagement employees. We recorded a charge of approximately $377 ($244 net of tax), related to severance costs under our existing plans and an enhanced retirement benefit for certain nonmanagement employees (see Note 11).
• Lease termination charges As part of a review of real estate needs for our adjusted work force, all company-leased facilities were evaluated for probability of future usefulness. For each lease having no substantive future use or benefit to us, an accrual was made which represented either the buyout provisions of the lease, a negotiated lease termination or future required payments under the lease, net of anticipated sublease rentals. We recorded a charge of approximately $138 ($90 net of tax) in relation to these leases.
• Asset impairments and other charges A review of certain nonstrategic operations indicated the need, in some cases, for either impairment or shutdown. We recorded asset impairment and shutdown costs and other charges of approximately $104 ($91 net of tax) for operations including exiting operations at InQuent Technologies Inc., the parent company of Webhosting.com.

Note 4. Earnings Per Share

A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for income before extraordinary items and cumulative effect of accounting change for the years ended December 31, 2001, 2000 and 1999 are shown in the table below:

Year Ended December 31, 2001 2000 1999

Numerators
Numerator for basic earnings per share:     Income before extraordinary items and      cumulative effect of accounting change	$	7,260	$	7,967	$	6,573
Dilutive potential common shares:      Other stock-based compensation		6		6		4

Numerator for diluted earnings per share $ 7,266 $ 7,973 $ 6,577

Denominators
Denominator for basic earnings per share:     Weighted average number of common      shares outstanding (000,000)	3,366	3,392	3,409
Dilutive potential common shares (000,000):      Stock options	21	33	42
Other stock-based compensation	9	8	7

Denominator for diluted earnings per share 3,396 3,433 3,458

Basic earnings per share
Income before extraordinary items and      cumulative effect of accounting change	$	2.16	$	2.35	$	1.93
Extraordinary items		(0.01)		-		0.40
Cumulative effect of accounting change		-		-		0.06

Net income $ 2.15 $ 2.35 $ 2.39

Diluted earnings per share
Income before extraordinary items and      cumulative effect of accounting change	$	2.14	$	2.32	$	1.90
Extraordinary items		(0.01)		-		0.40
Cumulative effect of accounting change		-		-		0.06

Net income $ 2.13 $ 2.32 $ 2.36

Note 5. Segment Information

Our segments are strategic business units that offer different products and services and are managed accordingly. We evaluate performance based on income before income taxes adjusted for normalizing (e.g., one-time) items that we describe below. For internal management reporting purposes, we exclude (i.e., normalize) these items from our results and analyze them separately. We have five reportable segments that reflect the current management of our business: (1) wireline; (2) wireless; (3) directory; (4) international; and (5) other.

In the second quarter of 2001, we moved the results of the SBC Services unit from the other segment to the wireline segment because the SBC Services unit now primarily supports the wireline segment. We have restated all prior period information for this change, and this had no effect on our consolidated results.

The wireline segment provides landline telecommunications services, including local, network access, long distance services, messaging, Internet services, and sells customer premise and private business exchange equipment.

Prior to the fourth quarter of 2000, the wireless segment included our consolidated businesses that provided wireless telecommunications services and sold wireless equipment. In October 2000, we contributed substantially all of our wireless businesses to Cingular and began reporting results from Cingular’s operations as equity in net income of affiliates in the Consolidated Financial Statements. However, for internal management reporting purposes, we analyze Cingular’s results using proportional consolidation and therefore will discuss Cingular’s results on that basis for segment reporting.

The directory segment includes all directory operations, including Yellow and White Pages advertising and electronic publishing. All investments with primarily international operations are included in the international segment. The other segment includes all corporate operations and Ameritech’s paging, cable television and SecurityLink operations. SecurityLink was sold in January 2001, and we sold Ameritech New Media, Ameritech’s cable television operations, in November 2001.

Normalized results for 2001 exclude the following items:

• Pension settlement gains of $1,097 ($688 net of tax) related to management employees, primarily resulting from a fourth-quarter 2000 voluntary retirement program net of costs associated with that program.
• Combined charges of $401 ($261 net of tax) primarily related to valuation adjustments of Williams as well as certain other cost investments accounted for under FAS 115. The charges resulted from an evaluation that the decline was other than temporary.
• Reduction of a valuation allowance of $120 ($78 net of tax) on a note receivable related to the sale of SecurityLink. The note was collected in July 2001.
• Combined charges of $316 ($205 net of tax) related to impairment of our cable operations.
• A charge of $390 ($262 net of tax) indicated by a transaction pending as of December 31, 2001 to reduce the direct and indirect book value of our investment in Telecom Américas.
• A charge of $197 (with no tax effect) for costs related to TDC’s decision to discontinue nonwireless operations of its Talkline subsidiary and our impairment of the goodwill we allocated to Talkline.
• A charge of $197 ($128 net of tax) representing a proposed settlement agreement with the Illinois Commerce Commission (ICC) related to a provision of the Ameritech merger. The amount represents an estimate of all future savings to be shared with our Illinois customers.
• Combined charges of $619 ($425 net of tax) associated with our comprehensive review of operations in the fourth quarter of 2001, which resulted in decisions to reduce work force, terminate certain real estate leases and shut down certain operations (see Note 3).

Normalized results for 2000 exclude the following items:

• Gains of $1,886 ($1,248 net of tax) related to the sale of direct and indirect investments in MATÁV and Netcom GSM, two international equity affiliates, and from the contribution of our investment in ATL - Algar Telecom Leste S.A. (ATL), a Brazilian telecommunications company, to Telecom Américas.
• Gains of $238 ($155 net of tax) on the sale of Telmex L shares associated with our private purchase of a note receivable with characteristics that essentially offset future mark-to-market adjustments on the Debt Exchangeable for Common Stock (DECS).
• Pension settlement gains of $512 ($328 net of tax) associated with pension litigation, first-quarter payments primarily related to employees who terminated employment during 1999 and gains resulting from a voluntary retirement program net of enhanced pension and postretirement benefits associated with that program (see Note 12).
• Costs of $1,205 ($800 net of tax) associated with strategic initiatives and other adjustments resulting from the merger integration process with Ameritech.
• A charge of $132 (with no tax effect) related to in-process research and development from the March 2000 acquisition of Sterling (see Note 3).
• Combined charges of $971 ($677 net of tax) related to valuation adjustments of SecurityLink and certain cost investments accounted for under FAS 115, and the restructure of agreements with Prodigy, including the extension of a credit facility and recognition of previously unrecognized equity losses from our investment (see Note 3).
• Gains of $357 ($99 net of tax) primarily related to our required disposition of overlapping wireless properties in connection with our contribution of operations to Cingular.

Normalized results for 1999 exclude the following items:

• Charges totaling $1,766 ($1,457 net of tax) including recognition of impairment of long-lived assets, adjustments to the estimate of allowance for doubtful accounts, estimation of deferred taxes on international investments, wireless conversion costs and other items (see Note 2).
• Elimination of income of $197 ($119 net of tax) from the incremental impacts of overlapping wireless properties sold in October 1999 relating to the Ameritech merger.
• Pension settlement gains of $566 ($368 net of tax) associated with lump sum pension payments that exceeded the projected service and interest costs.
• Gains of $131 ($77 net of tax) recognized from the sale of property by an international equity affiliate.
• A reduction of $44 ($27 net of tax) related to a portion of a first-quarter 1998 charge to cover the cost of consolidating security monitoring centers and company-owned wireless retail stores.

In the tables below, the Wireline, Wireless, Directory, International and Other columns represent the results of each such operating segment. The Elim. column reflects intercompany transactions that are eliminated upon consolidation and the elimination of 60% of our intercompany transactions with Cingular. The Cingular de-consolidation column removes the proportionally consolidated results of Cingular (reflected in the wireless segment) and includes these results in the equity in net income of affiliates line item.

Segment results, including a reconciliation to SBC consolidated results, for 2001, 2000 and 1999 are as follows:

At December 31, 2001 or for the year ended

Wireline Wireless Directory International Other Elim. Normalized Results Cingular De-consolidation Normalizing Adjustments As Reported

Revenues from external customers	$	40,657	$	8,647	$	4,382	$	152	$	535	$	(72)	$	54,301	$	(8,393)	$	-	$	45,908
Intersegment revenues		30		-		86		33		54		(203)		-		-		-		-

Total operating revenues 40,687 8,647 4,468 185 589 (275) 54,301 (8,393) - 45,908

Operations and support expenses	24,041	5,957	1,898	238	151	(275)	32,010	(5,714)	(353)	25,943
Depreciation and   amortization expenses	8,381	1,232	36	3	207	-	9,859	(1,170)	388	9,077

Total operating expenses 32,422 7,189 1,934 241 358 (275) 41,869 (6,884) 35 35,020

Operating income	8,265	1,458	2,534	(56)	231	-	12,432	(1,509)	(35)	10,888
Interest expense	1,205	538	-	49	883	(917)	1,758	(159)	-	1,599
Interest income	29	25	4	(15)	1,248	(917)	374	308	-	682
Equity in net income of affiliates	-	(11)	-	800	14	-	803	1,038	(246)	1,595
Other income (expense) - net	2	8	5	384	15	-	414	(1)	(622)	(209)

Income before income taxes 7,091 942 2,543 1,064 625 - 12,265 (5) (903) 11,357

Segment assets	70,879	14,231	2,764	9,454	57,257	(44,748)	N/A	(13,515)	N/A	96,322
Investment in equity method    investees	120	1,314	21	8,196	3,441	-	N/A	(1,125)	N/A	11,967

Expenditures for additions to
   long-lived assets 11,032 40 24 - 93 - N/A - N/A 11,189

At December 31, 2000 or for the year ended

Wireline Wireless Directory International Other Elim. Normalized Results Cingular De-consolidation Normalizing Adjustments As Reported

Revenues from external customers	$	39,707	$	7,941	$	4,251	$	320	$	1,014	$	(22)	$	53,211	$	(1,814)	$	(23)	$	51,374
Intersegment revenues		184		1		89		8		86		(368)		-		-		-		-

Total operating revenues 39,891 7,942 4,340 328 1,100 (390) 53,211 (1,814) (23) 51,374

Operations and support expenses	23,472	5,348	2,008	458	571	(390)	31,467	(1,339)	755	30,883
Depreciation and   amortization expenses	7,867	1,083	32	17	352	-	9,351	(253)	650	9,748

Total operating expenses 31,339 6,431 2,040 475 923 (390) 40,818 (1,592) 1,405 40,631

Operating income	8,552	1,511	2,300	(147)	177	-	12,393	(222)	(1,428)	10,743
Interest expense	1,298	424	4	174	895	(1,157)	1,638	(46)	-	1,592
Interest income	37	1	55	17	1,234	(1,157)	187	92	-	279
Equity in net income of affiliates	(12)	12	-	862	(1)	-	861	72	(36)	897
Other income (expense) - net	47	(121)	10	372	90	-	398	14	2,149	2,561

Income before income taxes 7,326 979 2,361 930 605 - 12,201 2 685 12,888

Segment assets	65,948	14,478	2,808	12,282	57,567	(42,230)	N/A	(12,202)	N/A	98,651
Investment in equity method    investees	(5)	232	20	9,394	2,777	-	N/A	(40)	N/A	12,378

Expenditures for additions to
   long-lived assets 12,093 856 35 - 140 - N/A - N/A 13,124

At December 31, 1999 or for the year ended

Wireline Wireless Directory International Other Elim. Normalized Results Cingular De-consolidation Normalizing Adjustments As Reported

Revenues from external customers	$	37,050	$	6,624	$	4,045	$	242	$	1,041	$	-	$	49,002	$	-	$	529	$	49,531
Intersegment revenues		322		1		81		13		97		(514)		-		-		-		-

Total operating revenues 37,372 6,625 4,126 255 1,138 (514) 49,002 - 529 49,531

Operations and support expenses	21,422	4,464	2,081	249	639	(514)	28,341	-	1,039	29,380
Depreciation and   amortization expenses	6,828	918	33	17	342	-	8,138	-	415	8,553

Total operating expenses 28,250 5,382 2,114 266 981 (514) 36,479 - 1,454 37,933

Operating income	9,122	1,243	2,012	(11)	157	-	12,523	-	(925)	11,598
Interest expense	1,188	226	9	235	701	(941)	1,418	-	12	1,430
Interest income	55	24	6	23	960	(941)	127	-	-	127
Equity in net income of affiliates	(2)	42	-	739	2	-	781	-	131	912
Other income (expense) - net	61	(200)	2	186	(381)	-	(332)	-	(22)	(354)

Income before income taxes 8,048 883 2,011 702 37 - 11,681 - (828) 10,853

Segment assets	53,763	11,559	2,422	12,613	44,699	(41,841)	N/A	-	N/A	83,215
Investment in equity method    investees	31	216	48	10,372	(19)	-	N/A	-	N/A	10,648

Expenditures for additions to
   long-lived assets 8,781 988 52 1 482 - N/A - N/A 10,304

Geographic Information

Our investments outside of the United States are primarily accounted for under the equity method of accounting, and accordingly, we do not include in our operating revenues and expenses, the revenues and expenses of our individual investees. Therefore, less than 1% of total operating revenues for all years presented are from outside the United States.

Long-lived assets consist primarily of net property, plant and equipment; net goodwill; and the book value of our equity investments, and are shown in the table below:

December 31, 2001 2000

United States	$	57,174	$	53,885
Canada		3,429		3,593
Denmark		1,959		3,024
Belgium		876		861
Mexico		725		738
France		478		406
South Africa		415		596
Other foreign countries		314		189

Total $ 65,370 $ 63,292

Note 6. Property, Plant and Equipment

Property, plant and equipment is summarized as follows at December 31:

Lives (years) 2001 2000

Land	-	$	601	$	592
Buildings	35-45		10,645		9,864
Central office equipment	3-10		52,164		47,094
Cable, wiring and conduit	10-50		49,008		47,143
Other equipment	5-15		10,277		10,529
Software	3		2,044		1,438
Under construction	-		2,785		3,093

		127,524		119,753
Accumulated depreciation and amortization		77,697		72,558
Property, plant and equipment - net	$	49,827	$	47,195

Our depreciation expense was $8,596, $8,480 and $8,175 for 2001, 2000 and 1999.

Certain facilities and equipment used in operations are leased under operating or capital leases. Rental expenses under operating leases for 2001, 2000 and 1999 were $799, $755 and $707. At December 31, 2001, the future minimum rental payments under noncancelable operating leases for the years 2002 through 2006 were $361, $306, $301, $215 and $161 with $574 due thereafter. Capital leases are not significant.

Note 7. Equity Investments

Investments in equity affiliates are accounted for under the equity method of accounting. Our equity investments include Cingular and various international investments.

The following table is a reconciliation of our investments in equity affiliates:

2001 2000 1999

Beginning of year	$	12,378	$	10,648	$	7,412
Additional investments		184		783		3,702
Cingular contributions		506		2,688		-
Equity in net income		1,595		897		912
Dividends received		(840)		(376)		(445)
Currency translation adjustments		(528)		(849)		(707)
Dispositions and other adjustments		(1,328)		(1,413)		(226)

End of year $ 11,967 $ 12,378 $ 10,648

The currency translation adjustment for 2001 primarily reflects the effect of exchange rate fluctuations on our investments in Bell Canada, Telkom S.A. Limited (Telkom), Telmex and América Móvil. Dispositions and other adjustments for 2001 reflect the return of capital in Cingular and the combination of diAx A.G. (diAx) with TDC.

The currency translation adjustment for 2000 primarily reflects the effect of exchange rate fluctuations on our investments in TDC, Telmex, Telkom and Bell Canada. Dispositions and other adjustments for 2000 reflect the sale of Telmex L shares, the sale of our investment in MATÁV and the contribution of ATL to Telecom Américas.

The currency translation adjustment for 1999 primarily reflects the effect of exchange rate fluctuations on our investments in TDC and Belgacom S.A. (Belgacom). Dispositions and other adjustments for 1999 reflect the sale of portions of Telmex L shares and the sale of our investment in Chile.

Undistributed earnings from equity affiliates were $2,858 and $2,140 at December 31, 2001 and 2000, including $1,109 and $80 from Cingular.

Wireless

We account for our 60% economic interest in Cingular under the equity method of accounting because we share control equally with our 40% partner. Cingular serves approximately 21.6 million customers, is the second-largest wireless operator in the United States and has approximately 219 million potential customers in 41 states, the District of Columbia, Puerto Rico and the United States Virgin Islands.

The following table presents summarized financial information for Cingular at December 31, or for the period then ended:

Income Statement 2001
(12 months) 2000
(3 months)

Operating revenues	$	14,108	$	3,060
Operating income		2,551		381

  Net income 1,692 127

Balance Sheet

Current assets	$	2,820	$	2,343
Noncurrent assets		19,706		15,575
Current liabilities		3,261		3,467

  Noncurrent liabilities 13,235 12,000

Prior to the fourth quarter of 2000, our wireline operations recorded network access revenue from interconnection agreements with our wireless properties. This revenue was eliminated in the consolidation process. For operations contributed to Cingular, this network access revenue is no longer eliminated, but does not have a material impact on our net income since the revenue is mostly offset when we record our share of equity income from Cingular. The incremental amount of network access revenue from Cingular, which was previously eliminated, was approximately $120 during 2001 and $37 for the fourth quarter of 2000.

Prior to the fourth quarter of 2000, our other segment recorded interest income on notes receivable with our wireless properties that was eliminated in the consolidation process. For operations contributed to Cingular, this interest income is no longer eliminated. However, this does not have a material impact on our net income because the interest income is mostly offset when we record our share of equity income in Cingular. The interest income from Cingular was approximately $555 in 2001 and $154 for the fourth quarter of 2000.

In the second quarter of 2001, we netted approximately $2,500 of payables to Cingular with our notes receivable from Cingular. In addition, based on our revised expectations of when Cingular will repay the amount owed, we reclassified the notes receivable from Cingular from current to noncurrent assets. At December 31, 2001, we had notes receivable from Cingular of $5,924 bearing interest at the rate of 7.5%.

In October 2001, Cingular announced it plans to begin upgrading its network to EDGE (Enhanced Data Rates for Global Evolution) third-generation wireless data technology. Cingular targets completion of the upgrade for early 2004 and approximates capital expenditures of 18 to 19 dollars per potential customer in the affected Cingular coverage area. We expect funding for this upgrade to be provided by Cingular.

International

Our investments in equity affiliates include a 20% interest in Bell Canada, the largest supplier of telecommunications services in Canada; an 8.1% interest in Telmex, Mexico’s national telecommunications company; an 8.0% interest in América Móvil, a wireless provider in Mexico and Latin America that was spunoff from Telmex in 2001; and a 41.6% interest in TDC, the national communications provider in Denmark.

In January 2001, TDC increased its investment in Sunrise, a Swiss landline and Internet operator; purchased a 70% stake in diAx, a Swiss mobile and landline operator; and consolidated its Swiss operations by subsequently merging diAx with Sunrise. As part of this transaction, TDC obtained our 40% interest in diAx, and we received 1,200 million Swiss francs (approximately $783) in cash and notes. Due to the nature of our investment in TDC, we accounted for the consideration received as a dividend from an equity investee.

Other international equity investments that we hold include a 17.5% interest in Belgacom, the national communications provider in Belgium; an 18% interest in Telkom, the state-owned telecommunications company of South Africa; and a 15% interest in Cegetel S.A., a joint venture providing a broad range of telecommunications offerings in France. TDC also holds a 16.5% interest in Belgacom.

The following table presents summarized financial information of our significant international investments accounted for using the equity method, taking into account all adjustments necessary to conform to GAAP but excluding our purchase adjustments, including goodwill, at December 31 or for the year then ended:

Income Statements 2001 2000 1999

Operating revenues	$	44,662	$	40,190	$	32,776
Operating income		11,598		11,911		8,941

   Net income 5,838 5,714 4,892

Balance Sheets

Current assets	$	12,491	$	17,092
Noncurrent assets		47,395		37,052
Current liabilities		17,495		16,490

   Noncurrent liabilities 25,539 25,318

At December 31, 2001, we had goodwill, net of accumulated amortization, of approximately $4,747 related to our international investments in equity affiliates. Equity in net income of affiliates in future periods will reflect our adoption of FAS 142 (see Note 1).

Based on the December 31, 2001, quoted market price, the aggregate market value of our investment in TDC was approximately $3,168. The fair value of our investment in Telmex, based on the equivalent value of Telmex L shares at December 31, 2001, was approximately $1,856. The fair value of our investment in América Móvil, based on the equivalent value of América Móvil L shares at December 31, 2001, was approximately $1,032. Our weighted average share of operating revenues shown above was 17% in 2001 and 2000 and 19% in 1999.

Note 8. Debt

Long-term debt of SBC and its subsidiaries, including interest rates and maturities, is summarized as follows at December 31:

2001 2000

Notes and debentures
1.84% - 5.98% 2001 - 20071	$	5,800	$	2,831
6.03% - 7.85% 2001 - 20482		14,006		14,584
8.85% - 10.50% 2001 - 2016		240		556

20,046 17,971

Unamortized discount - net of premium (170) 51

Total notes and debentures 19,876 18,022

Capitalized leases 248 84

Total long-term debt, including current maturities	20,124	18,106
Current maturities of long-term debt	(2,991)	(2,614)

Total long-term debt $ 17,133 $ 15,492

¹ Includes $250 of 5.95% debentures maturing in 2038 with a put option by holder in 2005.

² Includes $125 of 6.35% debentures maturing in 2026 with a put option by holder in 2006.

At December 31, 2001, the aggregate principal amounts of long-term debt and weighted average interest rate scheduled for repayment for the years 2002 through 2006 were $2,991 (4.1%), $1,330 (6.0%), $832 (6.6%), $1,112 (6.8%) and $2,840 (5.9%) with $11,189 (6.8%) due thereafter. As of December 31, 2001, we were in compliance with all covenants and conditions of instruments governing our debt. Substantially all of our outstanding long-term debt is unsecured.

Financing Activities

During 2001, approximately $3,334 in long-term notes matured. In addition to these maturities, we redeemed notes totaling approximately $1,320 and issued approximately $5,750 of new notes whose proceeds were used primarily to pay down short-term borrowings and for general corporate purposes.

In March 2001, we paid the principal amount of each of the DECS, as adjusted by the exchange rate specified in the DECS, in the form of cash, which we received from settlement of our note receivable with characteristics similar to the DECS.

In March 2001, we issued two, one-year notes for approximately $500 each, which carry variable interest rates. Each note’s interest is calculated based on the London Interbank Offer Rate (LIBOR), one recalculating monthly at the LIBOR less 1 basis point and the other recalculating quarterly at the LIBOR less 2.5 basis points.

In March 2001, we also issued approximately $1,250 of 10-year, 6.25%, global notes and in April 2001, we issued approximately $2,000 of five-year, 5.75%, global notes. The March and April 2001 global notes are redeemable at any time, in whole or in part, and under certain circumstances, at a premium.

In June 2001, we issued approximately $500 of 7.00% notes due 2041. We may redeem the notes, in whole or in part, at any time on or after June 13, 2006.

In June 2001, we also privately sold $1,000 of 20-year annual Puttable Reset Securities. The notes will bear interest at 4.25% until June 2002, at which time an investment bank has an annual option to require us to remarket or redeem the notes. If the option is exercised, the investment bank will reset the interest rate and remarket the notes for another 12-month term. If the bank does not exercise its option on that reset date, we will be required to redeem the notes at par. The notes are classified as short-term debt.

In July and August 2001, we redeemed approximately $615 of multiple bonds with maturities up to 40 years and interest rates ranging from 5.8% to 8.5%.

In October and November 2001, we redeemed approximately $665 of multiple bonds with maturities up to 40 years and interest rates ranging from 4.4% to 6.9%.

In February 2002, we issued approximately $1,000 of 10-year, 5.875%, global notes. The notes will pay interest semiannually, beginning in August 2002, and are redeemable at any time, in whole or in part, and under certain circumstances, at a premium.

Debt maturing within one year consists of the following at December 31:

2001 2000

Commercial paper	$	6,039	$	6,437
Current maturities of long-term debt		2,991		2,614
Other short-term debt		3		1,419

Total $ 9,033 $ 10,470

The weighted average interest rate on commercial paper debt at December 31, 2001 and 2000 was 2.07% and 6.51%. We have lines of credit with several banks totaling $3,700, all of which may be used to support commercial paper borrowings. We had no borrowings outstanding under these lines of credit as of December 31, 2001 or 2000.

Note 9. 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 at December 31:

2001 2000

Carrying
Amount Fair
Value Carrying
Amount Fair
Value

Notes and debentures	$	19,876	$	20,315	$	18,022	$	17,592
TOPrS		-		-		1,000		990

Preferred stock of subsidiaries 350 350 820 820

The fair values of our notes and debentures were estimated based on quoted market prices, where available, or on the net present value method of expected future cash flows using current interest rates. The fair value of the Trust Originated Preferred Securities (TOPrS) was estimated based on quoted market prices. The carrying amounts of preferred stock of subsidiaries and commercial paper debt approximate fair values. Our short-term investments and customer deposits are recorded at amortized cost and the carrying amounts approximate fair values. Our notes receivable from Cingular are recorded at face value and the carrying amounts approximate fair values.

TOPrS Redemption - Pacific Telesis Financing I and II (the Trusts) were formed in 1996 for the exclusive purpose of issuing preferred and common securities representing undivided beneficial interests in the Trusts and investing the proceeds from the sales of TOPrS in unsecured subordinated debt securities of PAC. Under certain circumstances, dividends on TOPrS could be deferred for up to a period of five years.

In February 2001, we redeemed prior to maturity approximately $500 of the TOPrS with an interest rate of 7.56%, and in June 2001, we redeemed the remaining $500 of the TOPrS with an interest rate of 8.50%. The TOPrS had an original maturity of 30 years and were included on the balance sheet as corporation-obligated mandatorily redeemable preferred securities of subsidiary trusts. Due to this early redemption, we recognized an extraordinary loss of $18, net of taxes of $10, during 2001.

Preferred Stock Redemptions - In April 1998, a subsidiary issued, through private placements, 3,250 shares in multiple series of stated rate auction preferred stock (STRAPS). Net proceeds from these issuances totaled $322. Dividends are cumulative from the date of issuance and accrue at varying rates, which are adjusted periodically through separate auctions on each series. In November and December of 2001, we redeemed the STRAPS at par.

In June 2001, we redeemed $60 of variable rate Series B Preferred Stock of a subsidiary that was not subject to mandatory redemption. In August 2001, we redeemed $85 of 7.04% Series A Preferred Stock of a subsidiary that was subject to mandatory redemption in 2001.

Preferred Stock Issuances by Subsidiaries - In June 1997 and December 1999, a subsidiary issued $250 and $100 of preferred stock in private placements. The holders of the preferred stock may require SBC’s subsidiary to redeem the shares after May 20, 2004. Holders receive quarterly dividends based on a rolling three-month LIBOR. The dividend rate for the December 31, 2001, payment was 3.37%.

The preferred stock of subsidiaries discussed above is included in other noncurrent liabilities on the consolidated balance sheets.

Derivatives - - We use interest rate swaps to manage interest rate risk. Related gains and losses are reflected in net income when the underlying transaction being hedged occurs. The notional amounts, carrying amounts and estimated fair values of our derivative financial instruments are summarized as follows at December 31:

2001 2000

		Notional Amount		Carrying Amount		Fair Value		Notional Amount		Carrying Amount		Fair Value
Interest rate   swaps	$	580	$	0	$	5	$	1,020	$	0	$	$4

Note 10. Income Taxes

Significant components of our deferred tax liabilities and assets are as follows at December 31:

2001 2000

Depreciation and amortization	$	6,749	$	7,683
Equity in foreign affiliates		586		789
Deferred directory expenses		498		533
Other		3,777		1,794

Deferred tax liabilities 11,610 10,799

Employee benefits	1,619	2,069
Currency translation adjustments	871	698
Allowance for uncollectibles	286	205
Unamortized investment tax credits	106	122
Other	1,329	2,052

Deferred tax assets		4,211		5,146
Deferred tax assets valuation allowance		140		156
Net deferred tax liabilities	$	7,539	$	5,809

The decrease in the valuation allowance is the result of an evaluation of the uncertainty associated with the realization of certain deferred tax assets. The valuation allowance is maintained in deferred tax assets for certain unused federal and state loss carryforwards.

The components of income tax expense are as follows:

2001 2000 1999

Federal:
Current	$	1,803	$	3,249	$	2,883
Deferred - net		1,712		1,051		814
Amortization of investment tax credits		(44)		(71)		(85)

3,471 4,229 3,612

State and local:
Current	206	575	421
Deferred - net	405	113	247
Foreign	15	4	-

		626		692		668
Total	$	4,097	$	4,921	$	4,280

A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate (35%) to income before income taxes, extraordinary items and cumulative effect of accounting change is as follows:

2001 2000 1999

Taxes computed at federal statutory rate	$	3,975	$	4,511	$	3,798
Increases (decreases) in income taxes resulting from:
Amortization of investment tax credits over the life of the       plant that gave rise to the credits		(28)		(46)		(55)
State and local income taxes - net of federal income tax benefit		407		450		440
Contributions of appreciated investments		(208)		-		(12)
Other - net		(49)		6		109

Total $ 4,097 $ 4,921 $ 4,280

Note 11. Pension and Postretirement Benefits

Pensions - - Substantially all of our employees are covered by one of various noncontributory pension and death benefit plans. Management employees participate in either cash balance or defined lump sum pension plans with a new minimum based upon a stated percentage of employees’ adjusted career income adopted in 2001. The pension benefit formula for most nonmanagement employees is based on a flat dollar amount per year according to job classification. Most employees can elect to receive their pension benefits in either a lump sum payment or annuity.

Our objective in funding the plans, in combination with the standards of the Employee Retirement Income Security Act of 1974 (as amended), is to accumulate funds sufficient to meet the plans’ benefit obligations to employees upon their retirement. Contributions to the plans are made to a trust for the benefit of plan participants. Plan assets consist primarily of stocks, U.S. government and domestic corporate bonds, index funds and real estate.

Effective with the Ameritech merger, we performed a midyear valuation affecting the net pension benefit for all pension plans in 1999. Additionally, per our joint venture agreement with BellSouth, our employees that were previously leased to Cingular became Cingular employees on or before December 31, 2001, and the pension assets and liabilities related to those former employees were transferred to Cingular. The amounts that follow reflect the impacts and assumptions of the midyear valuation and the transfer of employees to Cingular.

The following table presents the change in the pension plan projected benefit obligation for the years ended December 31:

2001 2000

Benefit obligation at beginning of year	$	25,577	$	25,685
Service cost - benefits earned during the period		550		525
Interest cost on projected benefit obligation		1,847		1,927
Amendments		317		425
Actuarial loss		1,512		940
Special termination benefits		164		1,104
Transfer to Cingular		(167)		-
Benefits paid		(4,740)		(5,029)

Benefit obligation at end of year $ 25,060 $ 25,577

The following table presents the change in pension plan assets for the years ended December 31 and the pension plans’ funded status at December 31:

2001 2000

Fair value of plan assets at beginning of year	$	40,814	$	45,958
Actual return on plan assets		(2,798)		95
Transfer to Cingular		(290)		-
Benefits paid		(5,011)		(5,239)

Fair value of plan assets at end of year ¹ $ 32,715 $ 40,814

Funded status	$	7,655	$	15,237
Unrecognized prior service cost		1,946		1,963
Unrecognized net gain		(1,852)		(11,395)
Unamortized transition asset		(412)		(683)

Prepaid pension cost ² $ 7,337 $ 5,122

¹ Plan assets include SBC common stock of $14 at December 31, 2001, and $18 at December 31, 2000.

² Represents net amount recognized in our consolidated balance sheets. Accrued pension liability was $0 at December 31, 2001 and 2000.

Net pension benefit is composed of the following:

2001 2000 1999

Service cost - benefits earned   during the period	$	550	$	525	$	584
Interest cost on projected benefit obligation		1,847		1,927		1,831
Expected return on plan assets		(3,515)		(3,149)		(2,951)
Amortization of prior service cost		81		43		(35)
Recognized actuarial gain		(413)		(491)		(273)

Net pension benefit $ (1,450) $ (1,145) $ (844)

Significant weighted-average assumptions used in developing pension information include:

2001 2000 1999

Discount rate for determining projected benefit obligation	7.50%	7.75%	7.75%
Long-term rate of return on plan assets	9.50%	8.50%	8.50%

Composite rate of compensation increase 4.25% 4.25% 4.25%

The projected benefit obligation is the actuarial present value of all benefits attributed by the pension benefit formula to previously rendered employee service. It is measured based on assumptions concerning future interest rates and employee compensation levels. At December 31, 2001, we determined our 7.5% discount rate based on a range of factors including the rates of return on high-quality, fixed-income investments available at the time of measurement. During 2001, we reduced our discount rate by 0.25%, resulting in an increase in our pension plan benefit obligation of approximately $471 at December 31, 2001. For each of the three years ended 2001, our actual 10-year return on investments exceeded 10%, including the effect of the negative returns in 2001; this, along with future expectations, was the rationale behind the change in our expected long-term rate of return on plan assets from 8.5% to 9.5% in 2001. A 0.25% change in the expected long-term rate of return causes a change of approximately $90 in net pension benefit. Should actual experience differ from the actuarial assumptions, the projected benefit obligation and net pension benefit will be affected.

During 2001, as part of our force-reduction program, an enhanced retirement program (ERB) was offered to eligible PTG nonmanagement employees. The ERB program offered eligible employees who voluntarily decided to terminate employment an enhanced pension benefit and increased eligibility for postretirement medical and dental benefits. Approximately 1,400 employees accepted this offer and terminated employment before the end of December 31, 2001. Enhanced pension benefits related to this program were recognized as an expense of $164 in 2001.

In October 2000, we implemented a voluntary enhanced pension and retirement program (EPR) to reduce the number of management employees. The program offered eligible management employees who decided to terminate employment an enhanced pension benefit and increased eligibility for postretirement medical and dental benefits. Approximately 7,000 of the employees who accepted this offer terminated employment before December 31, 2000; however, under the program, approximately 2,400 employees were retained for up to one year. Enhanced pension benefits related to this program were recognized as an expense of $1.1 billion in 2000. We recognized $896 in net settlement and curtailment gains in the fourth quarter of 2000 and $940 in settlement gains in 2001 primarily associated with the EPR program. In addition to the net pension benefit and EPR amounts, we also recognized $423 in net settlement gains in 2001, $1.2 billion in 2000 and $566 in 1999.

We anticipate that additional lump sum payments will be made in 2002 in connection with the force reductions resulting from the comprehensive review of operations we conducted in the fourth quarter of 2001 (see Note 3). These payments may require the recognition of additional settlement gains in 2002.

In December 2001 and 2000, under the provisions of Section 420 of the Internal Revenue Code, we transferred $286 and $220 in pension assets to a health care benefit account for the reimbursement of certain retiree health care benefits paid by us.

Supplemental Retirement Plans - We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. These plans include supplemental defined 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. Expenses related to these plans were $166, $195 and $149 in 2001, 2000 and 1999. Liabilities of $1,479 and $1,408 related to these plans have been included in other noncurrent liabilities in our consolidated balance sheets at December 31, 2001 and 2000.

Postretirement Benefits - We provide certain medical, dental and life insurance benefits to substantially all retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits. We maintain Voluntary Employee Beneficiary Association trusts to fund postretirement benefits. Assets consist principally of stocks and U.S. government and corporate bonds.

The following table sets forth the change in the accumulated postretirement benefit obligation (APBO) for the years ended December 31:

2001 2000

Benefit obligation at beginning of year	$	17,802	$	15,511
Service cost - benefits earned during the period		256		245
Interest cost on APBO		1,316		1,201
Amendments		(605)		(134)
Actuarial loss		2,395		1,776
Special termination benefits		9		79
Transfer to Cingular		(36)		-
Benefits paid		(997)		(876)

Benefit obligation at end of year; $ 20,140 $ 17,802

The following table sets forth the change in plan assets for the years ended December 31 and the plans' funded status at December 31:

2001 2000

Fair value of plan assets at beginning of year	$	7,220	$	7,871
Actual return on plan assets		(641)		(401)
Employer contribution		-		42
Benefits paid		(304)		(292)

Fair value of plan assets at end of year ¹ $ 6,275 $ 7,220

Funded status	$	(13,865)	$	(10,582)
Unrecognized prior service cost (benefit)		(28)		680
Unrecognized net loss		3,962		203

Accrued postretirement benefit obligation $ (9,931) $ (9,699)

¹ Plan assets include SBC common stock of $13 at December 31, 2001, and $1 at December 31, 2000.

Postretirement benefit cost is composed of the following:

2001 2000 1999

Service cost - benefits earned   during the period	$	256	$	245	$	260
Interest cost on APBO		1,316		1,201		1,050
Expected return on assets		(665)		(549)		(504)
Amortization of prior service cost		94		147		157
Recognized actuarial (gain) loss		13		(33)		(13)

Postretirement benefit cost $ 1,014 $ 1,011 $ 950

The fair value of plan assets restricted to the payment of life insurance benefits was $968 and $1,114 at December 31, 2001 and 2000. At December 31, 2001 and 2000, the accrued life insurance benefits included in the APBO were $614 and $593.

In addition to the postretirement benefit cost reported in the table above, we recognized $107 in net curtailment losses in 2000 associated with EPR. Enhanced benefits related to the EPR program were recognized as an expense of $71 in 2000. Enhanced benefits related to the ERB program were recognized as an expense of $9 in 2001.

The assumed medical cost trend rate in 2002 is 8.0% for retirees 64 and under and 9.0% for retirees 65 and over, decreasing to 5.0% in 2007, prior to adjustment for cost-sharing provisions of the medical and dental plans for certain retired employees. The assumed dental cost trend rate in 2002 is 5.0%. A one percentage-point change in the assumed health care cost trend rate would have the following effects:

One Percentage-
Point Increase One Percentage-
Point Decrease

Effect on total of service and interest cost components $ 214 $ 172

Effect on APBO 2,308 1,900

Significant assumptions for the discount rate, long-term rate of return on plan assets and composite rate of compensation increase used in developing the APBO and related postretirement benefit costs were the same as those used in developing the pension information. The reduction of our discount rate by 0.25% during 2001 resulted in an increase in our postretirement benefit obligation of approximately $599 at December 31, 2001. A 0.25% change in the expected long-term rate of return causes a change of approximately $18 in postretirement benefit cost. Should actual experience differ from the actuarial assumptions, the APBO and postretirement benefit cost will be affected. Due to the Ameritech merger, a midyear valuation also was performed for all postretirement benefit plans in 1999. The amounts above reflect the impacts and assumptions of the midyear valuation and the 2001 transfer of employees to Cingular.

Note 12. Employee Stock Ownership Plans

We maintain contributory savings plans that cover substantially all employees. Under the savings plans, we match a stated percentage of eligible employee contributions, subject to a specified ceiling.

As a result of past mergers, we had six leveraged ESOPs as part of our existing savings plans. Five of the ESOPs were funded with notes issued by the savings plans to various lenders, the proceeds of which were used to purchase shares of SBC’s common stock in the open market. The original principal amounts were paid off in 2000 with our contributions to the savings plans, dividends paid on SBC shares and interest earned on funds held by the ESOPs. We extended the terms of certain ESOPs through previous internal refinancing of the debt, resulting in unallocated shares remaining in one of those ESOPs at December 31, 2001 and two at December 31, 2000.

One ESOP purchased PAC treasury shares in exchange for a promissory note from the plan to PAC. All PAC shares were exchanged for SBC shares effective with the merger April 1, 1997. The provisions of the ESOP were unaffected by this exchange. This promissory note from the plan to PAC was paid off in 2001 with our contributions to the savings plans, dividends paid on SBC shares and interest earned on funds held by the ESOPs.

Our match of employee contributions to the savings plans is fulfilled with shares of stock allocated from the ESOPs and with purchases of SBC’s stock in the open market. Shares held by the ESOPs are released for allocation to the accounts of employees as employer-matching contributions are earned. Benefit cost is based on a combination of the contributions to the savings plans and the cost of shares allocated to participating employees’ accounts. Both benefit cost and interest expense on the notes are reduced by dividends on SBC’s shares held by the ESOPs and interest earned on the ESOPs’ funds.

Information related to the ESOPs and the savings plans is summarized below:

2001 2000 1999

Benefit expense - net of dividends and interest income	$	185	$	134	$	90
Interest expense - net of dividends and interest income		-		5		10

Total expense $ 185 $ 139 $ 100

Company contributions for ESOPs $ 177 $ 47 $ 104

Dividends and interest income for debt service $ 58 $ 93 $ 75

SBC shares held by the ESOPs are summarized as follows at December 31 (in millions):

2001 2000

Unallocated	4	8
Allocated to participants	76	103

Total 80 111

Note 13. Stock-Based Compensation

Under our various plans, senior and other management and nonmanagement employees and nonemployee directors have received stock options, performance stock units, and other nonvested stock units. Stock options issued through December 31, 2001, carry exercise prices equal to the market price of the stock at the date of grant and have maximum terms ranging from five to ten years. Beginning in 1994 and ending in 1999, certain Ameritech employees were awarded grants of nonqualified stock options with dividend equivalents. Depending upon the grant, vesting of stock options may occur up to four years from the date of grant. Performance stock units are granted to key employees based upon the common stock price at the date of grant and are awarded in the form of common stock and cash at the end of a two- or three-year period, subject to the achievement of certain performance goals. Nonvested stock units are valued at the market price of the stock at the date of grant and vest over a three- to five-year period. As of December 31, 2001, we were authorized to issue up to 133 million shares of 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 measure compensation cost for these plans using the intrinsic value-based method of accounting as allowed in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (FAS 123). Accordingly, no compensation cost for our stock option plans has been recognized. Had compensation cost for stock option plans been recognized using the fair value-based method of accounting at the date of grant for awards in 2001, 2000 and 1999 as defined by FAS 123, our net income would have been $7,008, $7,800 and $7,969 (i.e., lower by $234, $167 and $190), and basic net income per share would have been $2.08, $2.30 and $2.34. The compensation cost that has been charged against income for our other stock-based compensation plans totaled $0, $19 and $42 for 2001, 2000 and 1999. These amounts include $(33), $(23) and $2 in 2001, 2000 and 1999 for the mark-to-market effect on dividend equivalents.

For purposes of these pro forma disclosures, the estimated fair value of the options granted is amortized to expense over the options’ vesting period. The fair value for these options was estimated at the date of grant, using a Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999: risk-free interest rate of 4.51%, 6.67% and 5.31%; dividend yield of 2.37%, 2.19% and 1.65%; expected volatility factor of 24%, 16% and 15%; and expected option life of 4.0, 4.6 and 4.5 years.

Information related to options is summarized below (shares in millions):

Number Weighted-Average Exercise Price

Outstanding at January 1, 1999	146	26.26
Granted	26	48.70
Exercised	(19)	23.13

Forfeited/Expired (4) 39.06     

Outstanding at December 31, 1999        (116 exercisable at weighted-average price of $26.91)	149	30.24
Granted	51	39.62
Exercised	(30)	24.22

Forfeited/Expired (14) 41.05     

Outstanding at December 31, 2000        (101 exercisable at weighted-average price of $29.22)	156	33.53
Granted	76	43.41
Exercised	(13)	24.41

Forfeited/Expired (12) 43.09     

Outstanding at December 31, 2001
       (109 exercisable at weighted-average price of $32.36) 207 $37.21     

Information related to options outstanding at December 31, 2001:

Exercise Price Range $10.90-$17.39 $17.40-$29.99 $30.00-$35.49 $35.50-$59.00

Number of options (in millions):
Outstanding	6	51	7	143
Exercisable	6	51	7	45
Weighted-average exercise price:
Outstanding	$15.48	$24.13	$34.17	$43.02
Exercisable	$15.48	$24.13	$34.17	$43.95

Weighted-average remaining
  contractual life 2.54 years 4.43 years 6.30 years 8.47 years

The weighted-average, grant-date fair value of each option granted during 2001, 2000 and 1999 was $8.37, $8.31 and $9.31.

As of December 31, additional shares available under stock options with dividend equivalents were approximately 1 million in 2001 and 2000 and 2 million in 1999.

Note 14. Shareowners' Equity

Share Repurchase - From time to time, we repurchase shares of common stock for distribution through our employee benefit plans or in connection with certain acquisitions. In November 2001, the Board of Directors authorized the repurchase of up to 100 million shares of SBC common stock. This is in addition to the authorization to repurchase 100 million shares in January 2000. As of January 31, 2002, we have repurchased a total of approximately 99 million shares of our common stock of the 200 million authorized to be repurchased.

We have entered into a series of put options on SBC stock with institutional counterparties. The put options are exercisable only at maturity and expire in February, May and December 2002. We have a maximum potential obligation to purchase 9,000,000 shares of our common stock at a weighted average exercise price of $37.45. Three million of the put options expired on February 15, 2002, with the remaining options having a weighted average exercise price of $39.14. We have the right to settle the put options by physical settlement of the options or by net share settlement using shares of the SBC common stock. We received cash of $38 in 2001 and $65 in 2000 from these transactions, which was credited to shareowners’ equity.

Note 15. Subsidiary Financial Information

We have fully and unconditionally guaranteed certain outstanding capital securities of Pacific Bell Telephone Company (PacBell) and Southwestern Bell Telephone Company (SWBell), each of which is a wholly owned subsidiary of SBC. These securities are reflected on our consolidated balance sheet. In accordance with SEC rules, we are providing the following condensed consolidating financial information.

The Parent column presents investments in all subsidiaries under the equity method of accounting. PacBell and SWBell are listed separately because each has securities that we have guaranteed that would otherwise require SEC periodic reporting. All other wholly owned subsidiaries that do not have securities guaranteed by us that would require separate reporting are presented in the Other column. The consolidating adjustments column (Adjs.) eliminates the intercompany balances and transactions between our subsidiaries.

Condensed Consolidating Statements of Income
For the Twelve Months Ended December 31, 2001

Parent PacBell SWBell Other Adjs. Total

Total operating revenues	$	-	$	10,842	$	11,802	$	24,766	$	(1,502)	$	45,908
Total operating expenses		(141)		7,391		8,722		20,550		(1,502)		35,020

Operating Income 141 3,451 3,080 4,216 - 10,888

Interest expense	528	365	362	928	(584)	1,599
Equity in net income of affiliates	6,696	-	-	1,593	(6,694)	1,595
Royalty income (expense)	471	(414)	(471)	414	-	-
Other income (expense) - net	423	6	1	630	(587)	473

Income Before Income Taxes		7,203		2,678		2,248		5,925		(6,697)		11,357
Income Taxes		(39)		1,088		830		2,218		-		4,097
Income Before Extraordinary Items		7,242		1,590		1,418		3,707		(6,697)		7,260
Extraordinary Items		-		-		-		(18)		-		(18)
Net Income	$	7,242	$	1,590	$	1,418	$	3,689	$	(6,697)	$	7,242

Condensed Consolidating Statements of Income
For the Twelve Months Ended December 31, 2000

Parent PacBell SWBell Other Adjs. Total

Total operating revenues	$	-	$	10,356	$	11,580	$	30,778	$	(1,340)	$	51,374
Total operating expenses		(199)		7,437		8,636		26,097		(1,340)		40,631

Operating Income 199 2,919 2,944 4,681 - 10,743

Interest expense	504	391	383	1,379	(1,065)	1,592
Equity in net income of affiliates	7,417	-	-	961	(7,481)	897
Royalty income (expense)	460	(407)	(460)	407	-	-
Other income (expense) - net	728	2	10	3,104	(1,004)	2,840

Income Before Income Taxes		8,300		2,123		2,111		7,774		(7,420)		12,888
Income Taxes		333		847		778		2,963		-		4,921
Net Income	$	7,967	$	1,276	$	1,333	$	4,811	$	(7,420)	$	7,967

Condensed Consolidating Statements of Income
For the Twelve Months Ended December 31, 1999

Parent PacBell SWBell Other Adjs. Total

Total operating revenues	$	-	$	9,718	$	11,173	$	29,567	$	(927)	$	49,531
Total operating expenses		(228)		7,459		8,358		23,271		(927)		37,933

Operating Income 228 2,259 2,815 6,296 - 11,598

Interest expense	206	388	384	1,393	(941)	1,430
Equity in net income of affiliates	8,137	-	-	937	(8,162)	912
Other income (expense) - net	113	42	6	528	(916)	(227)

Income Before Income Taxes	8,272	1,913	2,437	6,368	(8,137)	10,853
Income Taxes	106	752	896	2,526	-	4,280
Income Before Extraordinary Items and    Cumulative Effect of Accounting Change	8,166	1,161	1,541	3,842	(8,137)	6,573

Extraordinary Items	-	-	-	1,379	-	1,379
Cumulative Effect of Accounting Change	(7)	(1,010)	(274)	1,498	-	207

Net Income $ 8,159 $ 151 $ 1,267 $ 6,719 $ (8,137) $ 8,159

Condensed Consolidating Balance Sheets
December 31, 2001

Parent PacBell SWBell Other Adjs. Total

Cash and cash equivalents	$	445	$	4	$	99	$	155	$	-	$	703
Accounts receivable - net		4,238		2,223		1,919		13,535		(12,539)		9,376
Other current assets		304		381		838		978		-		2,501

Total current assets		4,987		2,608		2,856		14,668		(12,539)		12,580
Property, plant and equipment - net		118		13,522		15,588		20,599		-		49,827
Goodwill - net		-		-		-		3,577		-		3,577
Investments in equity affiliates		35,226		-		-		14,907		(38,166)		11,967
Other assets		8,140		2,382		428		11,140		(3,719)		18,371
Total Assets	$	48,471	$	18,512	$	18,872	$	64,891	$	(54,424)	$	96,322

Debt maturing within one year	$	8,094	$	2,594	$	3,914	$	2,654	$	(8,223)	$	9,033
Other current liabilities		690		3,598		3,629		11,314		(4,316)		14,915

Total current liabilities		8,784		6,192		7,543		13,968		(12,539)		23,948
Long-term debt		4,137		3,673		2,868		10,125		(3,670)		17,133
Postemployment benefit obligation		57		2,860		2,996		3,926		-		9,839
Other noncurrent liabilities		3,002		1,816		1,369		6,773		(49)		12,911
Total shareowners' equity		32,491		3,971		4,096		30,099		(38,166)		32,491
Total Liabilities and Shareowners' Equity	$	48,471	$	18,512	$	18,872	$	64,891	$	(54,424)	$	96,322

Condensed Consolidating Balance Sheets
December 31, 2000

Parent PacBell SWBell Other Adjs. Total

Cash and cash equivalents	$	436	$	9	$	52	$	146	$	-	$	643
Accounts receivable - net		9,503		2,219		2,111		10,439		(14,128)		10,144
Other current assets		631		474		697		1,059		-		2,861

Total current assets		10,570		2,702		2,860		11,644		(14,128)		13,648
Property, plant and equipment - net		138		13,028		14,984		19,045		-		47,195
Goodwill - net		-		-		-		3,719		-		3,719
Investments in equity affiliates		30,072		-		-		17,058		(34,752)		12,378
Other assets		3,750		2,061		272		20,478		(4,850)		21,711
Total Assets	$	44,530	$	17,791	$	18,116	$	71,944	$	(53,730)	$	98,651

Debt maturing within one year	$	8,918	$	1,776	$	2,648	$	4,607	$	(7,479)	$	10,470
Other current liabilities		2,527		3,795		4,112		16,102		(6,649)		19,887

Total current liabilities		11,445		5,571		6,760		20,709		(14,128)		30,357
Long-term debt		568		4,293		3,976		11,505		(4,850)		15,492
Postemployment benefit obligation		83		2,817		2,993		3,874		-		9,767
Other noncurrent liabilities		1,971		1,535		1,314		6,752		-		11,572
Corporation-obligated mandatorily redeemable    preferred securities of subsidiary trusts		-		-		-		1,000		-		1,000
Total shareowners' equity		30,463		3,575		3,073		28,104		(34,752)		30,463
Total Liabilities and Shareowners' Equity	$	44,530	$	17,791	$	18,116	$	71,944	$	(53,730)	$	98,651

Condensed Consolidating Statements of Cash Flows
Twelve Months Ended December 31, 2001

Parent PacBell SWBell Other Adjs. Total

Net cash from operating activities	$	1,150	$	3,395	$	3,285	$	12,880	$	(5,905)	$	14,805
Net cash from investing activities		1,328		(2,397)		(2,996)		(5,416)		1,094		(8,387)
Net cash from financing activities		(2,469)		(1,003)		(242)		(7,455)		4,811		(6,358)

Net Increase (Decrease) in Cash $ 9 $ (5) $ 47 $ 9 $ - $ 60

Condensed Consolidating Statements of Cash Flows
Twelve Months Ended December 31, 2000

Parent PacBell SWBell Other Adjs. Total

Net cash from operating activities	$	3,853	$	3,197	$	4,152	$	5,311	$	(2,447)	$	14,066
Net cash from investing activities		(4,154)		(2,679)		(3,630)		(3,873)		166		(14,170)
Net cash from financing activities		637		(521)		(519)		(1,626)		2,281		252

Net Increase (Decrease) in Cash $ 336 $ (3) $ 3 $ (188) $ - $ 148

Condensed Consolidating Statements of Cash Flows
Twelve Months Ended December 31, 1999

Parent PacBell SWBell Other Adjs. Total

Net cash from operating activities	$	2,434	$	3,233	$	4,393	$	9,772	$	(3,158)	$	16,674
Net cash from investing activities		(364)		(2,437)		(2,882)		(4,708)		(282)		(10,673)
Net cash from financing activities		(2,284)		(799)		(1,522)		(4,940)		3,440		(6,105)

Net Increase (Decrease) in Cash $ (214) $ (3) $ (11) $ 124 $ - $ (104)

Note 16. Additional Financial Information

December 31,

Balance Sheets 2001 2000

Accounts payable and accrued liabilities:
Accounts payable	$	3,959	$	5,018
Accounts payable - Cingular		-		2,514
Advance billing and customer deposits		1,317		1,322
Compensated future absences		1,017		837
Accrued interest		486		440
Accrued payroll		669		986
Other		4,011		4,315

Total $ 11,459 $ 15,432

Statements of Income		2001		2000		1999
Advertising expense	$	354	$	774	$	812

Interest expense incurred	$	1,718	$	1,693	$	1,511
Capitalized interest		(119)		(101)		(81)

Total interest expense $ 1,599 $ 1,592 $ 1,430

Statements of Cash Flows 2001 2000 1999

Cash paid during the year for:
Interest	$	1,546	$	1,681	$	1,516

   Income taxes, net of refunds 2,696 3,120 2,638

No customer accounted for more than 10% of consolidated revenues in 2001, 2000 or 1999.

Note 17. Contingent Liabilities

In addition to issues specifically discussed elsewhere, we are party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. In our opinion, although the outcomes of these proceedings are uncertain, they should not have a material adverse effect on the company’s financial position, results of operations or cash flows.

Note 18. Quarterly Financial Information (Unaudited)

Total Basic Diluted

Calendar Operating Operating Net Earnings Earnings Stock Price

Quarter Revenues Income Income Per Share Per Share High Low Close

2001

First	$	11,190	$	2,659	$	1,854	$	0.55	$	0.54	$	53.06	$	39.50	$	44.63
Second		11,477		3,077		2,071		0.62		0.61		45.68		38.20		40.06
Third		11,338		2,822		2,072		0.62		0.61		47.50		39.74		47.12
Fourth		11,903		2,330		1,245		0.37		0.37		47.25		36.50		39.17

Annual $ 45,908 $ 10,888 $ 7,242 2.15 2.13

2000

First	$	12,553	$	3,076	$	1,822	$	0.54	$	0.53	$	49.00	$	34.81	$	42.13
Second		13,191		2,998		1,851		0.54		0.54		50.00		40.44		43.25
Third		13,422		2,846		2,999		0.89		0.88		50.19		38.44		49.88
Fourth		12,208		1,823		1,295		0.38		0.38		59.00		41.75		47.75

Annual $ 51,374 $ 10,743 $ 7,967 2.35 2.32

We reclassified all four quarters of 2000 to conform with the current year's presentation. The first and second quarters of 2001 include extraordinary losses of $10 and $8 for a total of $18, or $0.01 per share, related to the early redemption of $1,000 of our corporation-obligated mandatorily redeemable preferred securities of subsidiary trusts. There were also normalizing (e.g., one-time) items which are included in the information above but are excluded from the information that management uses to evaluate the performance of each segment of the business (see Note 5).

The quarterly impact of the year 2001 normalizing items was as follows:

• Pension settlement gains of $526 ($329 net of tax) in the first quarter, $315 ($189 net of tax) in the second quarter, $123 ($72 net of tax) in the third quarter and $133 ($98 net of tax) in the fourth quarter related to management employees, primarily resulting from a fourth-quarter 2000 voluntary retirement program net of costs associated with that program.
• Combined charges of $401 ($261 net of tax) in the second quarter primarily related to valuation adjustments of Williams as well as certain other cost investments accounted for under FAS 115. The charges resulted from an evaluation that the decline was other than temporary.
• Reduction of a valuation allowance of $120 ($78 net of tax) in the second quarter on a note receivable related to the sale of SecurityLink. The note was collected in July 2001.
• Combined charges of $316 ($205 net of tax) in the first quarter related to impairment of our cable operations.
• A charge of $390 ($262 net of tax) indicated by a transaction pending as of December 31, 2001 to reduce the direct and indirect book value of our investment in Telecom Américas.
• A charge of $197 (with no tax effect) in the fourth quarter for costs related to TDC’s decision to discontinue nonwireless operations of its Talkline subsidiary and our impairment of the goodwill we allocated to Talkline.
• A charge of $197 ($128 net of tax) in the fourth quarter representing a proposed settlement agreement with the ICC related to a provision of the Ameritech merger. The amount represents an estimate of all future savings to be shared with our Illinois customers.
• Combined charges of $619 ($425 net of tax) in the fourth quarter associated with our comprehensive review of operations, which resulted in decisions to reduce work force, terminate certain real estate leases and shut down certain operations (see Note 3).

The quarterly impact of the year 2000 normalizing items was as follows:

• Gains of $1,699 ($1,125 net of tax) in the third quarter related to the sale of direct and indirect investments in MATÁV and Netcom GSM, two international equity affiliates and $187 ($123 net of tax) in the fourth quarter from the contribution of our investment in ATL to Telecom Américas.
• Gains of $238 ($155 net of tax) in the third quarter on the sale of Telmex L shares associated with our private purchase of a note receivable with characteristics that essentially offset future mark-to-market adjustments on the DECS.
• Pension settlement gains of $250 ($161 net of tax) in the first quarter, $124 ($80 net of tax) in the second quarter, $29 ($19 net of tax) in the third quarter and $109 ($68 net of tax) in the fourth quarter associated with pension litigation; first-quarter payments primarily related to employees who terminated employment during 1999 and gains resulting from a voluntary retirement program net of enhanced pension and postretirement benefits associated with that program (see Note 12).
• Costs of $141 ($117 net of tax) in the first quarter, $239 ($153 net of tax) in the second quarter, $400 ($258 net of tax) in the third quarter and $425 ($272 net of tax) in the fourth quarter associated with strategic initiatives and other adjustments resulting from the merger integration process with Ameritech.
• A charge of $132 (with no tax effect) in the first quarter related to in-process research and development from the March 2000 acquisition of Sterling.
• Combined charges of $971 ($677 net of tax) related to valuation adjustments of SecurityLink and certain cost investments accounted for under FAS 115 and the restructure of agreements with Prodigy, including the extension of a credit facility and recognition of previously unrecognized equity losses from our investment.
• Gains of $357 ($99 net of tax) in the fourth quarter primarily related to our required disposition of overlapping wireless properties in connection with our contribution of operations to Cingular.

EX-21

Exhibit 21

PRINCIPAL SUBSIDIARIES OF
SBC COMMUNICATIONS INC.
AS OF DECEMBER 31, 2001

Name                 State of Incorporation Conducts Business Under

Ameritech Corporation	Delaware	Same
Illinois Bell Telephone Company	Illinois	Same
Indiana Bell Telephone Company, Incorporated	Indiana	Same
Michigan Bell Telephone Company	Michigan	Same
Nevada Bell Telephone Company	Nevada	Same
Pacific Bell Telephone Company	California	Same
Pacific Telesis Group	Nevada	Same
Prodigy Communications Corporation	Delaware	Same
SBC International, Inc.	Delaware	Same
Southern New England Telecommunications Corporation	Connecticut	Same
Southwestern Bell Communications Services, Inc.	Delaware	SBC Long Distance
Southwestern Bell Telephone, L.P.	Texas	Same
Southwestern Bell Yellow Pages, Inc.	Missouri	Same
Sterling Commerce, Inc.	Delaware	Same
The Ohio Bell Telephone Company	Ohio	Same
The Southern New England Telephone Company	Connecticut	Same
The Woodbury Telephone Company	Connecticut	Same
Wisconsin Bell, Inc.	Wisconsin	Same

EX-23

Exhibit 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form 10-K) of SBC Communications Inc. (SBC) of our report dated February 8, 2002, included in the 2001 Annual Report to the Shareowners of SBC.

Our audits included the financial statement schedules of SBC listed in Item 14(a). These schedules are the responsibility of SBC's management. Our responsibility is to express an opinion based on our audits. In our opinion, based on our audits, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We consent to the incorporation by reference in the Registration Statements (Form S-8) pertaining to the SBC Savings Plan and the SBC Savings and Security Plan and other certain plans (Nos. 333-24295, 333-66105 and 333-88667), the Stock Savings Plan (Nos. 33-37451, 33-54291 and 333-34062), the 1992 Stock Option Plan (No. 33-49855), the 1995 Management Stock Option Plan (Nos. 33-61715, 333-49343 and 333-95887), the 1996 Stock and Incentive Plan and the 2001 Incentive Plan (Nos. 333-30669 (1996 Plan only) and 333-54398), the 2001 Stock Option Grant to Bargained-for and Certain Other Employees (No. 333-58332), and in the Registration Statements (Form S-3) pertaining to SBC Communications Capital Corporation and SBC Communications Inc. (Nos. 33-45490, 33-56909, and 333-36926) and in the related prospectuses, of our report dated February 8, 2002, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) for the year ended December 31, 2001.

Ernst & Young LLP
San Antonio, Texas
February 25, 2002

EX-24

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

        THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

        WHEREAS, the undersigned is an officer and a director of the Corporation;

        NOW, THEREFORE, the undersigned hereby constitutes and appoints James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio and State of Texas, his attorneys for him and in his name, place and stead, and in each of his offices and capacities 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Edward E. Whitacre, Jr.
Edward E. Whitacre, Jr.
Chairman of the Board, Director
and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is an officer of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio and State of Texas, his attorneys for him and in his name, place and stead, and in his 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Randall L. Stephenson
Randall L. Stephenson
Senior Executive Vice President and
Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Gilbert F. Amelio
Gilbert F. Amelio
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Clarence C. Barksdale
Clarence C. Barksdale
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ James E. Barnes
James E. Barnes
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ August A. Busch III
August A. Busch III
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ William P. Clark
William P. Clark
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Martin K. Eby, Jr.
Martin K. Eby, Jr.
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Herman E. Gallegos
Herman E. Gallegos
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Jess T. Hay
Jess T. Hay
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ James A. Henderson
James A. Henderson
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Carlos Slim Helu
Carlos Slim Helu
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Bobby R. Inman
Bobby R. Inman
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Charles F. Knight Charles F. Knight
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Lynn M. Martin
Lynn M. Martin
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ John B. McCoy
John B. McCoy
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Mary S. Metz
Mary S. Metz
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Toni Rembe
Toni Rembe
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ S. Donley Ritchey
S. Donley Ritchey
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Joyce M. Roche
Joyce M. Roche
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Laura D'Andrea Tyson
Laura D'Andrea Tyson
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

         THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter referred to as the "Corporation," proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and

         WHEREAS, the undersigned is a director of the Corporation;

         NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E. Whitacre, Jr., James D. Ellis, Randall L. Stephenson, Peter A. Ritcher, Michael J. Viola, or any one of them, all of the City of San Antonio 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, the undersigned executed this Power of Attorney the 25th day of January 2002.

/s/ Patricia P. Upton
Patricia P. Upton
Director