10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2012
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to     

Commission File Number 1-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

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

208 S. Akard St., Dallas, Texas 75202

Telephone Number:  (210) 821-4105

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]   No [   ]

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

Large accelerated filer	[X]		Accelerated filer	[   ]
Non-accelerated filer	[   ]	(Do not check if a smaller reporting company)	Smaller reporting company	[   ]

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

Yes [   ]   No [X]

At July 31, 2012 there were 5,769 million common shares outstanding.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
Operating Revenues
Wireless service	$	14,765		$	14,157		$	29,331		$	28,118
Data		7,923			7,349			15,718			14,520
Voice		5,697			6,340			11,590			12,890
Directory		305			841			1,049			1,709
Other		2,885			2,808			5,709			5,505
Total operating revenues		31,575			31,495			63,397			62,742
Operating Expenses
Cost of services and sales (exclusive of depreciation
and amortization shown separately below)		12,369			12,756			25,282			25,569
Selling, general and administrative		7,890			7,972			16,138			16,014
Depreciation and amortization		4,499			4,602			9,059			9,186
Total operating expenses		24,758			25,330			50,479			50,769
Operating Income		6,817			6,165			12,918			11,973
Other Income (Expense)
Interest expense		(941	)		(848	)		(1,800	)		(1,694	)
Equity in net income of affiliates		132			207			355			456
Other income (expense) – net		23			27			75			86
Total other income (expense)		(786	)		(614	)		(1,370	)		(1,152	)
Income Before Income Taxes		6,031			5,551			11,548			10,821
Income tax expense		2,066			1,893			3,931			3,695
Net Income		3,965			3,658			7,617			7,126
Less: Net Income Attributable to Noncontrolling Interest		(63	)		(67	)		(131	)		(127	)
Net Income Attributable to AT&T	$	3,902		$	3,591		$	7,486		$	6,999
Basic Earnings Per Share Attributable to AT&T	$	0.67		$	0.60		$	1.27		$	1.18
Diluted Earnings Per Share Attributable to AT&T	$	0.66		$	0.60		$	1.27		$	1.18
Weighted Average Number of Common Shares
Outstanding – Basic (in millions)		5,855			5,932			5,886			5,929
Weighted Average Number of Common Shares
Outstanding – with Dilution (in millions)		5,876			5,953			5,907			5,948
Dividends Declared Per Common Share	$	0.44		$	0.43		$	0.88		$	0.86
See Notes to Consolidated Financial Statements.

2 

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
Net income	$	3,965		$	3,658		$	7,617		$	7,126
Other comprehensive income, net of tax:
Foreign currency translation adjustments (includes $(1), $0,            $0 and $0 attributable to noncontrolling interest), net of            taxes of $(55), $73, $76 and $123		(101	)		135			142			228
Net unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses), net of taxes of $(27), $2, $27            and $29		(52	)		6			49			55
Reclassification adjustment realized in net income, net of            taxes of $(3), $(2), $(6) and $(21)		(6	)		(6	)		(12	)		(41	)
Net unrealized gains (losses) on cash flow hedges:
Unrealized losses, net of taxes of $(58), $(12),            $(58) and $(8)		(107	)		(21	)		(107	)		(14	)
Reclassification adjustment included in net income,            net of taxes of $4, $2, $7 and $3		7			3			13			5
Defined benefit postretirement plans:
Net actuarial loss from equity method investees arising            during period, net of taxes of $(29), $0, $(29) and $0		(53	)		-			(53	)		-
Amortization of net prior service credit included in            net income, net of taxes of $(87), $(66), $(171)            and $(137)		(137	)		(109	)		(274	)		(224	)
Other		1			(1	)		1			(1	)
Other comprehensive income (loss)		(448	)		7			(241	)		8
Total comprehensive income		3,517			3,665			7,376			7,134
Less: Total comprehensive income attributable to      noncontrolling interest		(62	)		(67	)		(131	)		(127	)
Total Comprehensive Income Attributable to AT&T	$	3,455		$	3,598		$	7,245		$	7,007
See Notes to Consolidated Financial Statements.

3 

AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
	June 30,			December 31,
	2012			2011
Assets	(Unaudited)
Current Assets
Cash and cash equivalents	$	2,151		$	3,185
Accounts receivable - net of allowances for doubtful accounts of $614 and $878		12,430			13,606
Prepaid expenses		1,533			1,155
Deferred income taxes		1,418			1,470
Other current assets		1,624			3,611
Total current assets		19,156			23,027
Property, plant and equipment		263,648			260,279
Less: accumulated depreciation and amortization		(156,165	)		(153,192	)
Property, Plant and Equipment – Net		107,483			107,087
Goodwill		69,763			70,842
Licenses		51,981			51,374
Customer Lists and Relationships – Net		1,881			2,757
Other Intangible Assets – Net		5,045			5,212
Investments in and Advances to Equity Affiliates		4,388			3,718
Other Assets		6,597			6,327
Total Assets	$	266,294		$	270,344
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year	$	3,402		$	3,453
Accounts payable and accrued liabilities		16,298			19,858
Advanced billing and customer deposits		3,743			3,872
Accrued taxes		3,705			1,003
Dividends payable		2,554			2,608
Total current liabilities		29,702			30,794
Long-Term Debt		61,132			61,300
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes		26,011			25,748
Postemployment benefit obligation		34,021			34,011
Other noncurrent liabilities		11,849			12,694
Total deferred credits and other noncurrent liabilities		71,881			72,453
Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2012 and
December 31, 2011: issued 6,495,231,088 at June 30, 2012 and December 31, 2011		6,495			6,495
Additional paid-in capital		90,927			91,156
Retained earnings		27,788			25,453
Treasury stock (690,487,327 at June 30, 2012 and 568,719,202
at December 31, 2011, at cost)		(24,869	)		(20,750	)
Accumulated other comprehensive income		2,939			3,180
Noncontrolling interest		299			263
Total stockholders’ equity		103,579			105,797
Total Liabilities and Stockholders’ Equity	$	266,294		$	270,344
See Notes to Consolidated Financial Statements.

4 

AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
	Six months ended
	June 30,
	2012			2011
Operating Activities
Net income	$	7,617		$	7,126
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,059			9,186
Undistributed earnings from investments in equity affiliates		(355	)		(417	)
Provision for uncollectible accounts		572			523
Deferred income tax (benefit) expense and noncurrent unrecognized tax benefits		(639	)		2,818
Net loss (gain) from sale of investments, net of impairments		2			(44	)
Changes in operating assets and liabilities:
Accounts receivable		(220	)		(521	)
Other current assets		1,228			1,007
Accounts payable and accrued liabilities		441			(2,037	)
Other - net		(246	)		(884	)
Total adjustments		9,842			9,631
Net Cash Provided by Operating Activities		17,459			16,757
Investing Activities
Construction and capital expenditures:
Capital expenditures		(8,742	)		(9,405	)
Interest during construction		(130	)		(77	)
Acquisitions, net of cash acquired		(477	)		(62	)
Dispositions		800			30
(Purchases) and sales of securities, net		124			45
Other		-			19
Net Cash Used in Investing Activities		(8,425	)		(9,450	)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less		-			(1,603	)
Issuance of long-term debt		6,935			2,985
Repayment of long-term debt		(7,035	)		(1,290	)
Purchase of treasury stock		(4,623	)		-
Issuance of treasury stock		376			199
Dividends paid		(5,187	)		(5,082	)
Other		(534	)		(122	)
Net Cash Used in Financing Activities		(10,068	)		(4,913	)
Net (decrease) increase in cash and cash equivalents		(1,034	)		2,394
Cash and cash equivalents beginning of year		3,185			1,437
Cash and Cash Equivalents End of Period	$	2,151		$	3,831
Cash paid during the six months ended June 30 for:
Interest	$	2,373		$	2,200
Income taxes, net of refunds	$	127		$	(196	)
See Notes to Consolidated Financial Statements.

5 

AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
	June 30, 2012
	Shares			Amount
Common Stock
Balance at beginning of year		6,495		$	6,495
Issuance of stock		-			-
Balance at end of period		6,495		$	6,495
Additional Paid-In Capital
Balance at beginning of year				$	91,156
Issuance of treasury stock					109
Share-based payments					(178	)
Share of equity method investee capital transactions					(160	)
Balance at end of period				$	90,927
Retained Earnings
Balance at beginning of year				$	25,453
Net income attributable to AT&T ($1.27 per diluted share)					7,486
Dividends to stockholders ($0.88 per share)					(5,137	)
Other					(14	)
Balance at end of period				$	27,788
Treasury Stock
Balance at beginning of year		(568	)	$	(20,750	)
Purchase of stock		(143	)		(4,623	)
Issuance of treasury stock		21			504
Balance at end of period		(690	)	$	(24,869	)
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of year				$	3,180
Other comprehensive loss attributable to AT&T					(241	)
Balance at end of period				$	2,939
Noncontrolling Interest
Balance at beginning of year				$	263
Net income attributable to noncontrolling interest					131
Distributions					(95	)
Balance at end of period				$	299
Total Stockholders’ Equity at beginning of year				$	105,797
Total Stockholders’ Equity at end of period				$	103,579
See Notes to Consolidated Financial Statements.

6 

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Dollars in millions except per share amounts

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of Presentation  Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” We believe that these consolidated financial statements include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the results for the presented interim periods. The results for the interim periods are not necessarily indicative of those for the full year. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both in the United States and internationally, providing wireless communications services, local exchange services, long-distance services, data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services. On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. for $750 in cash, a $200 note and a 47% equity interest in the new entity, YP Holdings LLC (YP Holdings), subject to closing adjustments. Our operating results include the results of the Advertising Solutions segment through May 8. Beginning on May 9, we included our 47% equity in YP Holdings in equity in net income of affiliates in our Other segment and on our consolidated income statement.

All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity method are included for periods ended within up to one month of our period end. We also record our proportionate share of our equity method investees’ other comprehensive income items, including actuarial gains and losses on pension and other postretirement benefit obligations.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates. We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation, including a reclassification of certain operating expenses based on an enhanced activity-based expense tracking system.

Employee Separations  We established obligations for expected termination benefits provided under existing plans to former or inactive employees after employment but before retirement. At June 30, 2012, we had severance accruals of $129 and at December 31, 2011, we had severance accruals of $335.

Stock Repurchase Program  In December 2010, the Board of Directors authorized the repurchase of up to 300 million shares of AT&T common stock. We began buying back stock under this program in January 2012. For the six months ended June 30, 2012, we had repurchased approximately 143 million shares totaling $4,623. In July 2012, the Board of Directors authorized the repurchase of an additional 300 million shares. We intend to continue repurchasing shares.

To implement these authorizations, we use open market repurchase programs, relying on Rule 10b5-1 where feasible. We also use accelerated share repurchase programs with large financial institutions since these programs allow us to more efficiently repurchase our stock.

7 

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for net income attributable to AT&T for the three and six months ended June 30, 2012 and 2011, are shown in the table below:

	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
Numerators
Numerator for basic earnings per share:
Net Income	$	3,965		$	3,658		$	7,617		$	7,126
Net income attributable to noncontrolling interest		(63	)		(67	)		(131	)		(127	)
Net Income attributable to AT&T		3,902			3,591			7,486			6,999
Dilutive potential common shares:
Other share-based payment		2			3			6			6
Numerator for diluted earnings per share	$	3,904		$	3,594		$	7,492		$	7,005
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		5,855			5,932			5,886			5,929
Dilutive potential common shares:
Stock options		4			5			4			4
Other share-based payment		17			16			17			15
Denominator for diluted earnings per share		5,876			5,953			5,907			5,948
Basic earnings per share attributable to AT&T	$	0.67		$	0.60		$	1.27		$	1.18
Diluted earnings per share attributable to AT&T	$	0.66		$	0.60		$	1.27		$	1.18

At June 30, 2012 and 2011, we had issued and outstanding options to purchase approximately 22 million and 90 million shares of AT&T common stock. For the quarter ended June 30, 2012 and 2011, the exercise prices of 4 million and 57 million shares were above the market price of AT&T stock for the respective periods. Accordingly, we did not include these amounts in determining the dilutive potential common shares. At June 30, 2012 and 2011, the exercise prices of 17 million and 30 million vested stock options were below market price.

8 

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 3. SEGMENT INFORMATION

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. We analyze our various operating segments based on segment income before income taxes. We make our capital allocations decisions based on our strategic direction of the business, needs of the network (wireless or wireline) providing services and other assets needed to provide emerging services to our customers. Actuarial gains and losses from pension and other postretirement benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. The customers and long-lived assets of our reportable segments are predominantly in the United States. We have four reportable segments: (1) Wireless, (2) Wireline, (3) Advertising Solutions and (4) Other.

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless voice and advanced data communications services. The Wireless segment results have been reclassified to include the operating results of a subsidiary that provides services for subscribers to wirelessly monitor their home that was previously reported in the Wireline segment.

The Wireline segment uses our regional, national and global network to provide consumer and business customers with landline voice and data communications services, AT&T U-verse® TV, high-speed broadband and voice services and managed networking to business customers. Additionally, we receive commissions on sales of satellite television services offered through our agency arrangements. The Wireline segment results have been reclassified to exclude the operating results of the business moved to our Wireless segment and to include the operating results of customer information services, which were previously reported in our Other segment’s results.

The Advertising Solutions segment includes our directory operations, which publish Yellow and White Pages directories and sell directory advertising and Internet-based advertising and local search through May 8, 2012 (see Note 1).

The Other segment includes our portion of the results from our international equity investments, our 47 percent equity interest in YP Holdings and all corporate and other operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest cost and expected return on plan assets for our pension and postretirement benefit plans. The Other segment results have been reclassified to exclude the operating results of customer information services, which are now reported in our Wireline segment’s results.

In the following tables, we show how our segment results are reconciled to our consolidated results reported.

9 

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended June 30, 2012
	Wireless			Wireline			Advertising Solutions		Other			Consolidations			Consolidated Results
Total segment operating revenue	$	16,353		$	14,904		$	305	$	13		$	-		$	31,575
Operations and support expenses		9,705			10,085			226		243			-			20,259
Depreciation and amortization expense		1,696			2,766			29		8			-			4,499
Total segment operating expense		11,401			12,851			255		251			-			24,758
Segment operating income (loss)		4,952			2,053			50		(238	)		-			6,817
Interest expense		-			-			-		-			941			941
Equity in net income (loss) of affiliates		(15	)		(1	)		-		148			-			132
Other income (expense) - net		-			-			-		-			23			23
Segment income (loss) before income taxes	$	4,937		$	2,052		$	50	$	(90	)	$	(918	)	$	6,031
For the six months ended June 30, 2012
	Wireless			Wireline			Advertising  Solutions		Other			Consolidations			Consolidated Results
Total segment operating revenue	$	32,489		$	29,832		$	1,049	$	27		$	-		$	63,397
Operations and support expenses		19,788			20,382			773		477			-			41,420
Depreciation and amortization expense		3,362			5,574			106		17			-			9,059
Total segment operating expense		23,150			25,956			879		494			-			50,479
Segment operating income (loss)		9,339			3,876			170		(467	)		-			12,918
Interest expense		-			-			-		-			1,800			1,800
Equity in net income (loss) of affiliates		(28	)		(1	)		-		384			-			355
Other income (expense) - net		-			-			-		-			75			75
Segment income (loss) before income taxes	$	9,311		$	3,875		$	170	$	(83	)	$	(1,725	)	$	11,548
For the three months ended June 30, 2011
	Wireless			Wireline			Advertising Solutions		Other			Consolidations			Consolidated Results
Total segment operating revenue	$	15,603		$	15,030		$	841	$	21		$	-		$	31,495
Operations and support expenses		9,786			10,145			581		216			-			20,728
Depreciation and amortization expense		1,615			2,876			101		10			-			4,602
Total segment operating expense		11,401			13,021			682		226			-			25,330
Segment operating income (loss)		4,202			2,009			159		(205	)		-			6,165
Interest expense		-			-			-		-			848			848
Equity in net income (loss) of affiliates		(7	)		-			-		214			-			207
Other income (expense) - net		-			-			-		-			27			27
Segment income (loss) before income taxes	$	4,195		$	2,009		$	159	$	9		$	(821	)	$	5,551
For the six months ended June 30, 2011
	Wireless			Wireline			Advertising Solutions		Other			Consolidations			Consolidated  Results
Total segment operating revenue	$	30,913		$	30,081		$	1,709	$	39		$	-		$	62,742
Operations and support expenses		19,647			20,457			1,153		326			-			41,583
Depreciation and amortization expense		3,121			5,834			207		24			-			9,186
Total segment operating expense		22,768			26,291			1,360		350			-			50,769
Segment operating income (loss)		8,145			3,790			349		(311	)		-			11,973
Interest expense		-			-			-		-			1,694			1,694
Equity in net income (loss) of affiliates		(11	)		-			-		467			-			456
Other income (expense) - net		-			-			-		-			86			86
Segment income (loss) before income taxes	$	8,134		$	3,790		$	349	$	156		$	(1,608	)	$	10,821

10

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 4. PENSION AND POSTRETIREMENT BENEFITS

Substantially all of our employees are covered by one of various noncontributory pension and death benefit plans. We also provide certain medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to meet the plans’ obligations to provide benefits to employees upon their retirement. No significant cash contributions are required under ERISA regulations during 2012.

The following table details pension and postretirement benefit costs included in operating expenses (in cost of services and sales, and selling, general and administrative expenses) in the accompanying consolidated statements of income. We recognize actual gains and losses on pension and postretirement plan assets in our operating results at our annual measurement date of December 31, unless earlier remeasurements are required.

In the following table, gains are denoted with parentheses. A portion of these benefit costs is capitalized as part of the benefit load on internal construction projects, providing a small reduction in the net expense recorded.

	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
Pension cost:
Service cost – benefits earned during the period	$	304		$	296		$	614		$	593
Interest cost on projected benefit obligation		700			739			1,400			1,479
Expected return on assets		(880	)		(922	)		(1,760	)		(1,844	)
Amortization of prior service (credit)		(4	)		(4	)		(8	)		(8	)
Net pension cost	$	120		$	109		$	246		$	220
Postretirement cost:
Service cost – benefits earned during the period	$	82		$	91		$	166		$	181
Interest cost on accumulated postretirement benefit obligation		447			512			894			1,025
Expected return on assets		(201	)		(260	)		(401	)		(520	)
Amortization of prior service (credit)		(215	)		(173	)		(432	)		(347	)
Net postretirement cost	$	113		$	170		$	227		$	339
Combined net pension and postretirement cost	$	233		$	279		$	473		$	559

Our combined net pension and postretirement cost decreased $46 in the second quarter and $86 for the first six months of 2012. The decrease was related to higher amortization of prior service credits due to our plan change that provides prescription drug benefits on a group basis under Medicare Part D, as allowed under federal healthcare law. Also contributing to the decrease was lower interest costs on the projected benefit obligation, largely offset by a lower expected return on plan assets, reflecting the performance of the U.S. securities markets and declining bond rates.

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental retirement pension benefits cost, which is not included in the table above, was $32 in the second quarter of 2012, of which $29 was interest cost, and $63 for the first six months, of which $58 was interest cost. In 2011, net supplemental retirement pension benefits cost was $36 in the second quarter, of which $32 was interest cost, and $71 for the first six months, of which $63 was interest cost.

11 

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 5. FAIR VALUE MEASUREMENTS AND DISCLOSURE

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy that gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.

Level 2 Inputs to the valuation methodology include:

·   Quoted prices for similar assets and liabilities in active markets.

·   Quoted prices for identical or similar assets or liabilities in inactive markets.

·   Inputs other than quoted market prices that are observable for the asset or liability.

·   Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

·   Fair value is often based on developed models in which there are few, if any, external observations.

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2011.

Long-Term Debt and Other Financial Instruments

The carrying amounts and estimated fair values of our long-term debt, including current maturities and other financial instruments, are summarized as follows:

	June 30, 2012				December 31, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Notes and debentures	$	64,295	$	75,191	$	64,514	$	73,738
Investment securities		2,061		2,061		2,092		2,092

The fair values of our notes and debentures were estimated based on quoted market prices, where available. The carrying value of debt with an original maturity of less than one year approximates market value. The fair value measurements used for notes and debentures are considered Level 2 under the Fair Value Measurement and Disclosure framework.

12 

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Investment Securities

Our investment securities consist of primarily available-for-sale instruments, which include equities, fixed income bonds and other securities. Substantially all the fair values of our available-for-sale securities were estimated based on quoted market prices. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Realized gains and losses on securities are included in “Other income (expense) – net” in the consolidated statements of income using the specific identification method. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in accumulated other comprehensive income (accumulated OCI). Unrealized losses that are considered other than temporary are recorded in “Other income (expense) – net” with the corresponding reduction to the carrying basis of the investment. Fixed income investments have maturities of $27 less than one year, $89 within one to three years, $68 within three to five years, and $260 for five or more years.

Our short-term investments, other short- and long-term held-to-maturity investments (including money market securities) and customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values.

Our investment securities maturing within one year are recorded in “Other current assets,” and instruments with maturities of more than one year are recorded in “Other Assets” on the consolidated balance sheets.

Following is the fair value leveling for available-for-sale securities and derivatives as of June 30, 2012 and December 31, 2011:

	June 30, 2012
	Level 1			Level 2				Level 3			Total
Available-for-Sale Securities
Domestic equities		$	1,007		$	-			$	-		$	1,007
International equities			516			-				-			516
Fixed income bonds			-			444				-			444
Asset Derivatives1
Interest rate swaps			-			335				-			335
Cross-currency swaps			-			116				-			116
Foreign exchange contracts			-			3				-			3
Liability Derivatives1
Cross-currency swaps			-			(1,011	)			-			(1,011	)
Foreign exchange contracts			-			(8	)			-			(8	)
	December 31, 2011
	Level 1			Level 2				Level 3			Total
Available-for-Sale Securities
Domestic equities		$	947		$	-			$	-		$	947
International equities			495			-				-			495
Fixed income bonds			-			562				-			562
Asset Derivatives1
Interest rate swaps			-			521				-			521
Cross-currency swaps			-			144				-			144
Foreign exchange contracts			-			2				-			2
Liability Derivatives1
Cross-currency swaps			-			(820	)			-			(820	)
Interest rate locks			-			(173	)			-			(173	)
Foreign exchange contracts			-			(9	)			-			(9	)
1 Derivatives designated as hedging instruments are reflected as other assets, other liabilities and, for a portion of interest rate swaps, accounts receivable.

13 

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Derivative Financial Instruments

We employ derivatives to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.

The majority of our derivatives are designated either as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), or as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge).

Fair Value Hedging We designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount. Accrued and realized gains or losses from interest rate swaps impact interest expense on the consolidated statements of income. Unrealized gains on interest rate swaps are recorded at fair market value as assets, and unrealized losses on interest rate swaps are recorded at fair market value as liabilities. Changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed-rate notes payable they hedge due to changes in the designated benchmark interest rate and are recognized in interest expense. Gains or losses realized upon early termination of our fair value hedges are recognized in interest expense. In the six months ended June 30, 2012 and June 30, 2011, no ineffectiveness was measured.

Cash Flow Hedging Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities, both for the period they are outstanding. For derivative instruments designated as cash flow hedges, the effective portion is reported as a component of accumulated OCI until reclassified into interest expense in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as other income or expense in each period.

We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our Euro and British pound sterling denominated debt. These agreements include initial and final exchanges of principal from fixed foreign denominations to fixed U.S. denominated amounts, to be exchanged at a specified rate, which was determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed foreign-denominated rate to a fixed U.S. denominated interest rate. We evaluate the effectiveness of our cross-currency swaps each quarter. In the six months ended June 30, 2012 and June 30, 2011, no ineffectiveness was measured.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to income. Over the next 12 months, we expect to reclassify $45 from accumulated OCI to interest expense due to the amortization of net losses on historical interest rate locks. In February 2012, we utilized $800 notional value of interest rate locks related to our February 2012 debt issuance.

We hedge a large portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Some of these instruments are designated as cash flow hedges while others remain nondesignated, largely based on size and duration. Gains and losses at the time we settle or take delivery on our designated foreign exchange contracts are amortized into income in the same period the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to income. In the six months ended June 30, 2012 and June 30, 2011, no ineffectiveness was measured.

14 

AT&T INC.

JUNE 30, 2012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Collateral and Credit-Risk Contingency  We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At June 30, 2012, we had posted collateral of $308 (a deposit asset) and held collateral of $54 (a receipt liability). Under the agreements, if our credit rating had been downgraded one rating level by Moody’s Investors Service and Fitch, Inc. before the final collateral exchange in June, we would have been required to post additional collateral of $163. At December 31, 2011, we had posted collateral of $98 (a deposit asset) and had no held collateral (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable), against the fair value of the derivative instruments.

Following is the notional amount of our outstanding derivative positions:

	June 30,		December 31,
	2012		2011
Interest rate swaps	$	4,000	$	8,800
Cross-currency swaps		9,481		7,502
Interest rate locks		-		800
Foreign exchange contracts		174		207
Total	$	13,655	$	17,309

Following is the related hedged items affecting our financial position and performance:

Effect of Derivatives on the Consolidated Statements of Income
	Three months ended						Six months ended
Fair Value Hedging Relationships	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	(76	)	$	75		$	(137	)	$	(11	)
Gain (Loss) on long-term debt		76			(75	)		137			11

In addition, the net swap settlements that accrued and settled in the quarter ended June 30 were also reported as reductions of interest expense.

	Three months ended						Six months ended
Cash Flow Hedging Relationships	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	(160	)	$	(117	)	$	(165	)	$	(149	)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI		-			87			-			122
Interest income (expense) reclassified from
accumulated OCI into income		(11	)		(5	)		(20	)		(8	)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		(5	)		(3	)		-			5

The balance of the unrealized derivative gain (loss) in accumulated OCI was $(515) at June 30, 2012 and $(421) at December 31, 2011.

15 

AT&T INC.

JUNE 30, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dollars in millions except per share amounts

RESULTS OF OPERATIONS

For ease of reading, AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate in the communications services industry in both the United States and internationally, providing wireless communications services, local exchange services, long-distance services, data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services. You should read this discussion in conjunction with the consolidated financial statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2011. A reference to a “Note” in this section refers to the accompanying Notes to Consolidated Financial Statements. In the tables throughout this section, percentage increases and decreases that are not considered meaningful are denoted with a dash.

Consolidated Results  Our financial results in the second quarter and for the first six months of 2012 and 2011 are summarized as follows:

	Second Quarter							Six-Month Period
	2012		2011		Percent Change			2012		2011		Percent Change
Operating Revenues	$	31,575	$	31,495		0.3	%	$	63,397	$	62,742		1.0	%
Operating expenses
Cost of services and sales		12,369		12,756		(3.0	)		25,282		25,569		(1.1	)
Selling, general and administrative		7,890		7,972		(1.0	)		16,138		16,014		0.8
Depreciation and amortization		4,499		4,602		(2.2	)		9,059		9,186		(1.4	)
Total Operating Expenses		24,758		25,330		(2.3	)		50,479		50,769		(0.6	)
Operating Income		6,817		6,165		10.6			12,918		11,973		7.9
Income Before Income Taxes		6,031		5,551		8.6			11,548		10,821		6.7
Net Income		3,965		3,658		8.4			7,617		7,126		6.9
Net Income Attributable to AT&T	$	3,902	$	3,591		8.7	%	$	7,486	$	6,999		7.0	%

Overview

Operating income increased $652, or 10.6%, in the second quarter and $945, or 7.9%, for the first six months of 2012. The increase was primarily due to continued growth in wireless service and equipment revenue, driven mostly by subscriber and data revenue growth, along with increased revenues from AT&T U-verse® (U-verse) services and strategic business services. Both operating revenues and expenses for the quarter were affected by the May 2012 sale of our Advertising Solutions segment, as discussed below. Our operating income margin in the second quarter increased from 19.6% in 2011 to 21.6% in 2012 and for the first six months increased from 19.1% in 2011 to 20.4% in 2012.

Operating revenues increased $80, or 0.3%, in the second quarter and $655, or 1.0%, for the first six months of 2012. The increase reflects continued growth in wireless service and equipment revenues, driven by growth in the subscriber base and the increasing percentage of smartphone customers which contribute to higher wireless data revenues. Higher wireline data revenues from U-verse services and strategic business services also contributed to the increase. The increase was mostly offset by the Advertising Solutions segment sale, which decreased revenues by $536 in the second quarter and $660 for the first six months, and continued declines in Wireline voice revenues.

Revenue growth continues to be tempered by declines in our voice revenues. Total switched access lines decreased 12.7% since June 30, 2011. Customers disconnecting access lines switched to wireless, Voice over Internet Protocol (VoIP) and cable offerings for voice and data or terminated service permanently as businesses closed or consumers left residences. While we lose wireline voice revenues, we have the opportunity to increase wireless service or wireline data revenues should the customer choose us as their wireless or VoIP provider. We also continue to expand our VoIP service for customers who have access to our U-verse video service.

16 

AT&T INC.

JUNE 30, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Cost of services and sales expenses decreased $387, or 3.0%, in the second quarter and $287, or 1.1%, for the first six months of 2012. The decrease primarily reflects the sale of our Advertising Solutions segment, which reduced expenses $192 in the second quarter and $222 for the first six months. Expenses also decreased due to lower wireless equipment costs and other non-employee-related expenses partially offset by increased wireline costs attributable to U-verse subscriber growth, higher USF and reseller fees, and wireless network costs.

Selling, general and administrative expenses decreased $82, or 1.0%, in the second quarter and increased $124, or 0.8%, for the six months of 2012. The sale of our Advertising Solutions segment reduced expenses $162 in the second quarter and $159 for the first six months. Also contributing to the second-quarter decrease were lower sales and advertising costs and the T-Mobile USA, Inc. (T-Mobile) related expenses incurred in 2011, which were partially offset by higher selling and administrative fees. The increase in the first six months was primarily due to higher administrative costs, employee-related expenses and increased commissions paid on smartphone upgrades. The increases were partially offset by decreased sales and advertising costs, the sale of our Advertising Solutions Segment, and prior-year T-Mobile expenses.

Depreciation and amortization expense decreased $103, or 2.2%, in the second quarter and $127, or 1.4%, for the first six months of 2012. The sale of our Advertising Solutions segment reduced expenses $72 in the second quarter and $101 for the first six months. Expenses also decreased due to lower amortization of intangibles for customer lists related to acquisitions, partially offset by increased depreciation associated with ongoing capital spending for network upgrades and expansion.

Interest expense increased $93, or 11.0%, in the second quarter and $106, or 6.3%, for the first six months of 2012. Increased interest expense was due to call premiums paid for the early redemption of debt in the second quarter, which were partially offset by net gains on the settlement of interest-rate swaps and an increase in the amount of interest capitalized on wireless spectrum that will be used in the future.

Equity in net income of affiliates decreased $75, or 36.2%, in the second quarter and $101, or 22.1%, for the first six months of 2012. Decreased equity in net income of affiliates was due to decreased earnings at América Móvil, S.A. de C.V. (América Móvil), resulting from foreign exchange losses. Partially offsetting the decreases were earnings from YP Holdings LLC (YP Holdings).

Other income (expense) – net We had other income of $23 in the second quarter and $75 for the first six months of 2012, compared to other income of $27 in the second quarter and $86 for the first six months of 2011. Income in the second quarter and for the first six months of 2012 included interest and dividend income of $19 and $34, leveraged lease income of $8 and $41 and a net loss on the sale of investments of $11 and $1, respectively.

Other income in the second quarter and for the first six months of 2011 included interest and dividend income of $30 and $43 and leveraged lease income of $4 and $11, respectively. Income for the first six months of 2011 also included a net gain of $28 from appreciation and sale of investments.

Income taxes increased $173, or 9.1%, in the second quarter and $236, or 6.4%, for the first six months of 2012 as a result of increased income before income taxes. Our effective tax rate was 34.3% for the second quarter and 34.0% for the first six months of 2012, as compared to 34.1% for both the second quarter and the first six months of 2011.

17 

AT&T INC.

JUNE 30, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Selected Financial and Operating Data
	June 30,
	2012			2011
Wireless subscribers (000)		105,206			98,615
Network access lines in service (000)		34,274			39,275
Total wireline broadband connections (000)		16,434			16,473
Debt ratio1		38.4	%		36.8	%
Ratio of earnings to fixed charges2		5.36			5.40
Number of AT&T employees		242,380			258,870

1 Debt ratios are calculated by dividing total debt (debt maturing within one year plus long-term debt) by total capital (total debt plus total stockholders’ equity) and do not consider cash available to pay down debt. See our “Liquidity and Capital Resources” section for discussion.

2 See Exhibit 12.

Segment Results

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. Our operating segment results presented in Note 3 and discussed below for each segment follow our internal management reporting. We analyze our various operating segments based on segment income before income taxes. We make our capital allocations decisions based on our strategic direction of the business, needs of the network (wireless or wireline) providing services and other assets needed to provide emerging services to our customers. Actuarial gains and losses from pension and other postretirement benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. We have four reportable segments: (1) Wireless, (2) Wireline, (3) Advertising Solutions and (4) Other.

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless voice and advanced data communications services. The Wireless segment results have been reclassified to include the operating results of a subsidiary that provides services for subscribers to wirelessly monitor their homes that was previously reported in the Wireline segment’s results.

The Wireline segment uses our regional, national and global network to provide consumer and business customers with landline voice and data communications services, U-verse TV, high-speed broadband and voice services and managed networking to business customers. Additionally, we receive commissions on sales of satellite television services offered through our agency arrangements. The Wireline segment results have been reclassified to exclude the operating results of the business moved to our Wireless segment and to include the operating results of customer information services, which were previously reported in our Other segment’s results.

The Advertising Solutions segment includes our directory operations, which publish Yellow and White Pages directories and sells directory advertising and Internet-based advertising and local search through May 8, 2012 (see Note 1).

The Other segment includes our portion of the results from our international equity investments, our 47 percent equity interest in YP Holdings, and all corporate and other operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest cost and expected return on plan assets for our pension and postretirement benefit plans. The Other segment results have been reclassified to exclude the operating results of customer information services, which are now reported in our Wireline segment’s results.

18 

AT&T INC.

JUNE 30, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Operations and support expenses include bad debt expense; advertising costs; sales and marketing functions, including customer service centers; real estate costs, including maintenance and utilities on all buildings; credit and collection functions; and corporate support costs, such as finance, legal, human resources and external affairs. Pension and postretirement service costs, net of amounts capitalized as part of construction labor, are also included to the extent that they are associated with these employees. Our Wireless and Wireline segments also include certain network planning and engineering expenses, information technology, our repair technicians and repair services, and property taxes as operations and support expenses.

The following tables show components of results of operations by segment. Significant segment results are discussed following each table. Capital expenditures for each segment are discussed in “Liquidity and Capital Resources.”

Wireless
Segment Results
	Second Quarter						Six-Month Period
		2012		2011	Percent Change			2012		2011	Percent Change
Segment operating revenues
Service	$	14,765	$	14,157	4.3	%	$	29,331	$	28,118	4.3	%
Equipment		1,588		1,446	9.8			3,158		2,795	13.0
Total Segment Operating Revenues		16,353		15,603	4.8			32,489		30,913	5.1
Segment operating expenses
Operations and support		9,705		9,786	(0.8)			19,788		19,647	0.7
Depreciation and amortization		1,696		1,615	5.0			3,362		3,121	7.7
Total Segment Operating Expenses		11,401		11,401	-			23,150		22,768	1.7
Segment Operating Income		4,952		4,202	17.8			9,339		8,145	14.7
Equity in Net Income (Loss) of Affiliates		(15)		(7)	-			(28)		(11)	-
Segment Income	$	4,937	$	4,195	17.7	%	$	9,311	$	8,134	14.5	%

19 

AT&T INC.

JUNE 30, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

The following table highlights other key measures of performance for the Wireless segment:

	Second Quarter						Six-Month Period
	2012		2011		Percent Change		2012		2011		Percent Change
Wireless Subscribers (000)1							105,206		98,615		6.7	%
Gross Subscriber Additions (000)2	4,970		5,301		(6.2)	%	10,248		11,208		(8.6)
Net Subscriber Additions (000)2	1,266		1,095		15.6		1,992		3,079		(35.3)
Total Churn	1.18	%	1.43	%	(25) BP		1.32	%	1.40	%	(8) BP
Postpaid Subscribers (000)							69,666		68,353		1.9	%
Net Postpaid Subscriber Additions (000)2	320		331		(3.3)	%	507		393		29.0
Postpaid Churn	0.97	%	1.15	%	(18) BP		1.03	%	1.17	%	(14) BP
Prepaid Subscribers (000)							7,473		6,750		10.7	%
Net Prepaid Subscriber Additions (000)2	92		137		(32.8)	%	217		222		(2.3)
Reseller Subscribers (000)							14,382		12,522		14.9	%
Net Reseller Subscriber Additions (000)2	472		248		90.3	%	656		809		(18.9)
Connected Device Subscribers (000)3							13,685		10,990		24.5	%
Net Connected Device Subscriber Additions (000)	382		379		0.8	%	612		1,655		(63.0)

1 Represents 100% of AT&T Mobility customers.

2 Excludes merger and acquisition-related additions during the period.

3 Includes data-centric devices such as eReaders, home security and automobile monitoring systems, and fleet management. Tablets are primarily reflected in our prepaid subscriber category, with the 

   remainder in postpaid.

Wireless Subscriber Relationships

As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative services and devices and a wireless network that has sufficient spectrum and capacity to support these innovations and make them available to more subscribers. To attract and retain subscribers, we offer a broad handset line and a wide variety of service plans.

Our handsets offerings include at least 16 smartphones (handsets with voice and data capabilities using an advanced operating system to better manage data and Internet access) from nine manufacturers. As technology evolves, rapid changes are occurring in the handset and device industry with the continual introduction of new models (e.g., various Android, Apple, Windows and other smartphones) or significant revisions of existing models. We believe a broad offering of a wide variety of smartphones reduces dependence on any single operating system or manufacturer as these products continue to evolve in terms of technology and subscriber appeal. In the first six months of 2012, we continued to see increasing use of smartphones by our postpaid subscribers. Of our total postpaid subscriber base, 61.9% uses smartphones, up from 49.9% a year earlier. As is common in the industry, most of our subscribers’ phones are designed to work only with our wireless technology, requiring subscribers who desire to move to a new carrier with a different technology to purchase a new device. From time to time, we offer and have offered attractive handsets on an exclusive basis. As these exclusivity arrangements expire, we expect to continue to offer such handsets (based on historical industry practice), and we believe our service plan offerings will help to retain our subscribers by providing incentives not to move to a new carrier. We do not expect exclusivity terminations to have a material impact on our Wireless segment income, consolidated operating margin or our cash flows from operations.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Our postpaid subscribers typically sign a two-year contract, which includes discounted handsets and early termination fees. About 88% of our postpaid smartphone subscribers are on FamilyTalk® Plans (family plans) or business discount plans, which provide for service on multiple handsets at discounted rates, and such subscribers tend to have higher retention and lower churn rates. During the first quarter of 2011, we introduced our Mobile to Any Mobile feature, which enables our new and existing subscribers with qualifying messaging plans to make unlimited mobile calls to any mobile number in the United States, subject to certain conditions. We also offer data plans at different price levels (tiered data plans) to attract a wide variety of subscribers and to differentiate us from our competitors. Our postpaid subscribers on data plans increased 12.2% year over year. A growing percentage of our postpaid smartphone subscribers are on tiered data plans, with 61.6% on these plans as of June 30, 2012, up from 44.8% as of June 30, 2011. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers, and minimize subscriber churn. In July 2012, we announced new data plans that would allow subscribers to share data among devices covered by their plan.

As of June 30, 2012, over one-third of our postpaid smartphone subscribers use a 4G-capable device (i.e., a device that would operate on our HSPA+ or Long Term Evolution (LTE) network). Due to substantial increases in the demand for wireless service in the United States, AT&T is facing significant spectrum and capacity constraints on its wireless network in certain markets. We expect such constraints to increase and expand to additional markets in the coming years. While we are continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the quality of existing voice and data services and our ability to launch new, advanced wireless broadband services, unless we are able to obtain more spectrum. Any spectrum solution will require that the Federal Communications Commission (FCC) make new or existing spectrum available to the wireless industry to meet the needs of our subscribers. We will continue to attempt to address spectrum and capacity constraints on a market-by-market basis.

Also as part of our ongoing efforts to improve our network performance and help address the need for additional spectrum capacity, we intend to redeploy spectrum currently used for basic 2G services to support more advanced mobile Internet services on our 3G and 4G networks. We will manage this process consistent with previous network upgrades and will transition customers on a market-by-market basis from our Global System for Mobile Communications (GSM) and Enhanced Data rates for GSM Evolution (EDGE) networks (referred to as 2G networks) to our more advanced 3G and 4G networks. We expect to fully discontinue service on our 2G networks by approximately January 1, 2017. Throughout this multi-year upgrade process, we will work proactively with our customers to manage the process of moving to 3G and 4G devices, which will help minimize customer churn. As of June 30, 2012, approximately 12 percent of our postpaid customers were using 2G handsets. We do not expect this transition to have a material impact on our operating results, but will continue to evaluate the financial impact of transitioning customers from 2G devices to 3G or 4G devices.

Wireless Metrics

Subscriber Additions As of June 30, 2012, we served 105.2 million wireless subscribers, an increase of 6.7%. We continue to see a declining rate of growth in the industry’s subscriber base compared to prior years, as reflected in a 6.2% decrease in gross subscriber additions (gross additions) in the second quarter and an 8.6% decrease for the first six months of 2012, primarily related to a slower rate of postpaid and connected device additions. Higher net subscriber additions (net additions) in the second quarter were primarily attributable to more reseller additions in 2012 when compared to the prior year. Lower net additions in the first six months were primarily attributable to lower connected device additions, which reflected adjustments for customers not using such devices (zero-revenue customers). Higher net postpaid additions for the first six months reflected an increase in postpaid tablet subscribers.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Average service revenue per user (ARPU) from postpaid subscribers increased 1.7% in the second quarter and for the first six months of 2012, driven by an increase in postpaid data services ARPU of 14.1% in the second quarter and 14.7% for the first six months, reflecting greater use of smartphones and data-centric devices. The growth in postpaid data services ARPU was partially offset by a 6.1% decrease in postpaid voice and other service ARPU in the second quarter and 6.2% decrease for the first six months. Postpaid voice and other service ARPU declined due to lower access and airtime charges, triggered in part by continued growth in our family plans subscriber base, which generates lower ARPU compared to our traditional postpaid subscribers, and lower roaming revenues. About 88% of our postpaid smartphone subscribers are on family plans or business discount plans.

Total ARPU declined 2.3% in the second quarter and 2.5% for the first six months, reflecting growth in connected device, tablet and reseller subscribers. Connected devices and other data-centric devices, such as tablets, have lower-priced data-only plans compared with our postpaid smartphone plans, which have voice and data features. Accordingly, ARPU for these subscribers is typically lower compared to that generated from our smartphone subscribers on postpaid and other plans. Data services ARPU increased 11.3% in the second quarter and 11.6% for the first six months, reflecting greater smartphone and data-centric device use. We expect continued revenue growth from data services as more subscribers use smartphones and data-centric devices, and as we continue to expand our network. Voice and other service ARPU declined 10.7% in the second quarter and 10.9% for the first six months due to voice access and usage trends and a shift toward a greater percentage of data-centric devices. We expect continued pressure on voice and other service ARPU.

Churn  The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Churn rate is calculated by dividing the aggregate number of wireless subscribers who canceled service during a period by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period. Total and postpaid churn rates were lower in the second quarter of 2012 due primarily to higher postpaid tablet additions and lower adjustments for zero-revenue devices. The total churn rate was higher for the first six months of 2012 due to adjustments for zero-revenue devices. The postpaid churn rate was higher last year due to integration efforts connected to a prior merger.

Operating Results

Our Wireless segment operating income increased $750, or 17.8%, in the second quarter and increased $1,194, or 14.7%, for the first six months of 2012. Segment operating income margin in the second quarter increased from 26.9% in 2011 to 30.3% in 2012 and for the first six months increased from 26.3% in 2011 to 28.7% in 2012. The margin increases reflected higher data revenues generated by our postpaid subscribers, fewer smartphone upgrades and total device sales, and operating efficiencies.

Service revenues are comprised of local voice and data services, roaming, long-distance and other revenue. Service revenues increased $608, or 4.3%, in the second quarter and $1,213, or 4.3%, for the first six months of 2012. The increases consisted of the following:

·   Data service revenues increased $1,014, or 18.8%, in the second quarter and $2,032, or 19.3%, for the first six months. The increases were primarily due to the increased number of subscribers and increased Internet usage by subscribers using smartphones and data-centric devices, such as eReaders, tablets, and mobile navigation devices. Data service revenues accounted for 42.8% of our wireless service revenues for the first six months, compared to 37.4% last year.

·   Voice and other service revenues decreased $406, or 4.6%, in the second quarter and $819, or 4.7%, for the first six months. While we had a 6.7% year-over-year increase in the number of wireless subscribers, ARPU continues to decline for voice and other non-data wireless services due to voice access and usage trends.

Equipment revenues increased $142, or 9.8%, in the second quarter and $363, or 13.0%, for the first six months of 2012 due to a year-over-year increase in smartphone sales as a percentage of total device sales to postpaid subscribers. During the first quarter of 2012, we introduced an increase in the handset upgrade fee, which also contributed to the year-over-year increase in equipment revenues this year.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Operations and support expensesdecreased $81, or 0.8%, in the second quarter and increased $141, or 0.7%, for the first six months of 2012. The second-quarter decrease was primarily due to the following:

·   Equipment costs decreased $377 reflecting the overall decline in handset upgrade activity and total device sales, which was partially offset by sales of the more expensive smartphones.

·   Incollect roaming fees decreased $39 due to rate declines and lower roaming use associated with the integration of previously acquired subscribers into our network.

·   Commission expenses decreased $36 due primarily to the overall decline in handset upgrade activity and total device sales, partially offset by a year-over-year increase insmartphone sales as a percentage of total device sales.

Partially offsetting these decreases were the following:

·   Selling expenses (other than commissions) and administrative expenses increased $167 due primarily to a $106 increase in information technology costs in conjunction with ongoing support systems development, a $27 increase in payroll and benefit costs and a $37 increase in bad debt expense due to higher write-offs, partially offset by a $46 decline in advertising costs.

·   Network system, interconnect, and long-distance costs increased $103 due to higher network traffic, personnel-related network support costs in conjunction with our network enhancement efforts, and higher leasing costs.

·   USF and reseller fees increased $98 primarily due to federal USF rate increases and higher handset insurance costs.

The increase for the first six months of 2012 was primarily due to the following:

·   Network system, interconnect, and long-distance costs increased $209 due to higher network traffic, personnel-related network support costs in conjunction with our network enhancement efforts, and higher leasing costs.

·   Commission expenses increased $174 due to a year-over-year increase in smartphone sales as a percentage of total device sales, partially offset by the overall decline in handset upgrade activity and total device sales.

·   Selling expenses (other than commissions) and administrative expenses increased $120 due primarily to a $118 increase in bad debt expense due to higher write-offs, a $76 increase in information technology costs in conjunction with ongoing support systems development, and a $50 increase in payroll and benefit costs, partially offset by a $160 decline in advertising costs.

·   USF and reseller fees increased $158 primarily due to federal USF rate increases and higher handset insurance costs.

Partially offsetting these increases for the first six months of 2012, equipment costs decreased $423 reflecting the overall decline in upgrade activity and total device sales, which was partially offset by sales of the more expensive smartphones. Incollect roaming fees also decreased $105 for the first six months due to rate declines and lower roaming use associated with the integration of previously acquired subscribers into our network.

Depreciation and amortization expenses increased $81, or 5.0%, in the second quarter and $241, or 7.7%, for the first six months of 2012. Depreciation expense increased $158, or 11.2%, in the second quarter and $398, or 14.8%, for the first six months primarily due to ongoing capital spending for network upgrades and expansion and the reclassification of shared information technology costs partially offset by certain network assets becoming fully depreciated. We expect substantially all of our GSM and EDGE network assets to be fully depreciated by end-of-year 2016.

Amortization expense decreased $77, or 37.0%, in the second quarter and $157, or 35.8%, for the first six months primarily due to an accelerated method of amortization for customer lists related to acquisitions.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Wireline
Segment Results
	Second Quarter							Six-Month Period
		2012			2011	Percent Change			2012			2011	Percent Change
Segment operating revenues
Data	$	7,923		$	7,349	7.8	%	$	15,718		$	14,520	8.3	%
Voice		5,697			6,340	(10.1	)		11,590			12,890	(10.1	)
Other		1,284			1,341	(4.3	)		2,524			2,671	(5.5	)
Total Segment Operating Revenues		14,904			15,030	(0.8	)		29,832			30,081	(0.8	)
Segment operating expenses
Operations and support		10,085			10,145	(0.6	)		20,382			20,457	(0.4	)
Depreciation and amortization		2,766			2,876	(3.8	)		5,574			5,834	(4.5	)
Total Segment Operating Expenses		12,851			13,021	(1.3	)		25,956			26,291	(1.3	)
Segment Operating Income		2,053			2,009	2.2			3,876			3,790	2.3
Equity in Net Income (Loss) of Affiliates		(1	)		-	-			(1	)		-	-
Segment Income	$	2,052		$	2,009	2.1	%	$	3,875		$	3,790	2.2	%

Operating Income and Margin Trends

Our Wireline segment operating income increased $44, or 2.2%, in the second quarter and $86, or 2.3%, for the first six months of 2012. Segment operating income margin in the second quarter increased from 13.4% in 2011 to 13.8% in 2012, and for the first six months increased from 12.6% in 2011 to 13.0% in 2012. Our increased operating margins reflect increased data revenue growth and lower depreciation and amortization expenses. Our operating income and margins continued to be pressured by access line declines as our consumer and business customers either reduced usage or disconnected traditional landline services and switched to alternative technologies, such as wireless and VoIP. Our strategy is to offset these line losses by increasing non-access-line-related revenues from customer connections for data, video, and U-verse voice. Additionally, we have the opportunity to increase Wireless segment revenues if customers choose AT&T Mobility as an alternative provider.

Operating Results

Data revenues increased $574, or 7.8%, in the second quarter and $1,198, or 8.3%, for the first six months of 2012. Data revenues accounted for approximately 53% of wireline operating revenues for the first six months of 2012 and 48% for the first six months of 2011. Data revenues include transport, IP and packet-switched data services.

·   Strategic business services, which include Ethernet, Virtual Private Networks (VPN), Hosting, IP Conferencing and application services, increased $186, or 13.5%, in the second quarter and $434, or 16.2%, for the first six months of 2012. In the second quarter and for the first six months VPN revenue increased by $106 and $266 and Ethernet revenue increased by $67 and $141, respectively.

·   IP data revenues (excluding strategic services) increased $514, or 15.4%, in the second quarter and $990, or 15.1%, for the first six months of 2012 primarily driven by higher U-verse penetration. In the second quarter and for the first six months U-verse video revenues increased $280 and $534, broadband high-speed Internet access revenue increased $145 and $272 and U-verse voice revenue increased $58 and $119, respectively. The increase in IP data revenues reflects continued growth in the customer base and migration from other traditional circuit-based services. New and existing U-verse customers are shifting from traditional landlines and DSL to our U-verse Voice and High Speed Internet access offerings.

·   Traditional data revenues, which include transport (excluding Ethernet) and packet-switched data services, decreased $126, or 4.8%, in the second quarter and $226, or 4.3%, for the first six months of 2012. This decrease was primarily due to lower demand as customers continue to shift to IP-based technology such as VPN, U-verse High Speed Internet access and managed Internet services. We expect these traditional services to continue to decline as a percentage of our overall data revenues.

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JUNE 30, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Voice revenues decreased $643, or 10.1%, in the second quarter and $1,300, or 10.1%, for the first six months of 2012 primarily due to declining demand for traditional voice services by our consumer and business customers. Included in voice revenues are revenues from local voice, long-distance (including international) and local wholesale services. Voice revenues do not include VoIP revenues, which are included in data revenues.

·   Local voice revenues decreased $395, or 10.1%, in the second quarter and $795, or 10.0%, for the first six months of 2012. The decrease was driven primarily by a 12.7% decline in total switched access lines. We expect our local voice revenue to continue to be negatively affected by increased competition from alternative technologies and the disconnection of additional lines.

·   Long-distance revenues decreased $246, or 11.4%, in the second quarter and $494, or 11.2%, for the first six months of 2012. Lower demand for long-distance service from global businesses and consumer customers decreased revenues $205 in the second quarter and $408 for the first six months of 2012. Additionally, expected declines in the number of our national mass-market customers decreased revenues $41 in the second quarter and $86 for the first six months of 2012.

Other operating revenues decreased $57, or 4.3%, in the second quarter and $147, or 5.5%, for the first six months of 2012. Major items included in other operating revenues are integration services and customer premises equipment, government-related services and outsourcing, which account for approximately 60% of total other revenue for both periods.

Operations and support expensesdecreased $60, or 0.6%, in the second quarter and $75, or 0.4%, for the first six months of 2012. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and personnel costs, such as compensation and benefits.

The decrease in the second quarter and for the first six months of 2012 was primarily due to lower nonemployee related expense of $183 and $234, employee related expenses of $62 and $108, reflecting ongoing workforce reduction initiatives, traffic compensation expenses of $58 and $108, contract services of $60 and $73, and bad debt expense of $5 and $37 due to lower revenue and improvements in cash collections, respectively. These decreases were partially offset by increased cost of sales of $139 and $262, primarily related to U-verse related expenses, and USF fees of $155 and $198, respectively.

Depreciation and amortization expenses decreased $110, or 3.8%, in the second quarter and $260, or 4.5%, for the first six months of 2012. The decrease was primarily related to lower amortization of intangibles for the customer lists associated with acquisitions and lower depreciation as assets become fully depreciated.

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JUNE 30, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Supplemental Information

Telephone, Wireline Broadband and Video Connections Summary

Our switched access lines and other services provided by our local exchange telephone subsidiaries at June 30, 2012 and 2011 are shown below.

	June 30,		June 30,		Percent
(in 000s)	2012		2011		Change
Switched Access Lines
Retail Consumer		17,301		20,712		(16.5)	%
Retail Business1		14,988		16,333		(8.2)
Retail Subtotal1		32,289		37,045		(12.8)
Wholesale Subtotal1		1,945		2,176		(10.6)
Total Switched Access Lines2		34,274		39,275		(12.7)	%
Total Retail Consumer Voice Connections3		19,868		22,735		(12.6)	%
Total Wireline Broadband Connections4,5		16,434		16,473		(0.2)	%
Satellite service6		1,684		1,852		(9.1)	%
U-verse video		4,146		3,407		21.7
Video Connections		5,830		5,259		10.9	%

1 Prior-period amounts restated to conform to current-period reporting methodology.

2 Total switched access lines includes payphone access lines of 40 at June 30, 2012 and 54 at June 30, 2011.

3 Includes consumer U-verse VoIP connections of 2,567 at June 30, 2012 and 2,023 at June 30, 2011.

4 Total wireline broadband connections include DSL, U-verse High Speed Internet and satellite broadband.

5  Includes U-verse High Speed Internet connections of 6,494 at June 30, 2012 and 4,132 at June 30, 2011.

6  Satellite service includes connections under our agency and resale agreements.

Advertising Solutions
Segment Results
	Second Quarter						Six-Month Period
		2012		2011	Percent Change			2012		2011	Percent Change
Total Segment Operating Revenues	$	305	$	841	(63.7)	%	$	1,049	$	1,709	(38.6)	%
Segment operating expenses
Operations and support		226		581	(61.1)			773		1,153	(33.0)
Depreciation and amortization		29		101	(71.3)			106		207	(48.8)
Total Segment Operating Expenses		255		682	(62.6)			879		1,360	(35.4)
Segment Income	$	50	$	159	(68.6)	%	$	170	$	349	(51.3)	%

Operating Results

On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. Following the sale, we are no longer recording operating results for this segment. Our Advertising Solutions segment operating income margin in the second quarter decreased from 18.9% in 2011 to 16.4% in 2012, and for the first six months decreased from 20.4% in 2011 to 16.2% in 2012.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Operating revenues decreased $536, or 63.7%, in the second quarter and $660, or 38.6%, for the first six months of 2012.

Operating expenses decreased $427, or 62.6%, in the second quarter and $481, or 35.4%, for the first six months of 2012.

Other
Segment Results
	Second Quarter						Six-Month Period
		2012		2011	Percent Change			2012		2011	Percent Change
Total Segment Operating Revenues	$	13	$	21	(38.1)	%	$	27	$	39	(30.8)	%
Total Segment Operating Expenses		251		226	11.1			494		350	41.1
Segment Operating Loss		(238)		(205)	(16.1)			(467)		(311)	(50.2)
Equity in Net Income of Affiliates		148		214	(30.8)			384		467	(17.8)
Segment Income (Loss)	$	(90)	$	9	-		$	(83)	$	156	-

The Other segment includes results from all corporate and other operations. This segment includes our portion of the results from our domestic and international equity investments. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including the interest cost and expected return on pension and postretirement benefits assets.

Segment operating revenues decreased $8, or 38.1%, in the second quarter and $12, or 30.8%, for the first six months of 2012 primarily due to reduced revenues from leased equipment programs.

Segment operating expenses increased $25, or 11.1%, in the second quarter and $144, or 41.1%, for the first six months of 2012 due to higher employee related charges. These increases were partially offset by T-Mobile related expenses incurred in 2011.

Our Other segment also includes our equity investments in América Móvil and YP Holdings, the income from which we report as equity in net income of affiliates. Our earnings from foreign affiliates are sensitive to exchange-rate changes in the value of the respective local currencies.

Equity in net income of affiliates decreased $66, or 30.8%, in the second quarter and $83, or 17.8%, for the first six months of 2012. Decreased equity in net income of affiliates in the second quarter was primarily due to decreased earnings by América Móvil during 2012, resulting from foreign exchange losses. Partially offsetting the decreases were earnings from YP Holdings.

Our equity in net income of affiliates by major investment is listed below:

	Second Quarter					Six-Month Period
	2012		2011			2012		2011
América Móvil	$	127	$	191		$	364	$	418
YP Holdings		19		-			19		-
Telmex1		-		24			-		49
Other		2		(1	)		1		-
Other Segment Equity in Net Income of Affiliates	$	148	$	214		$	384	$	467
1 Acquired by América Móvil in late 2011.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

OTHER BUSINESS MATTERS

U-verse Services  We had approximately 4.1 million U-verse TV subscribers as of June 30, 2012. U-verse penetration of eligible living units at the end of the second quarter of 2012 was 17.3%.

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

Retiree Phone Concession Litigation  In May 2005, we were served with a purported class action in U.S. District Court, Western District of Texas (Stoffels v. SBC Communications Inc.), in which the plaintiffs, who are retirees of Pacific Bell Telephone Company, Southwestern Bell and Ameritech, contend that the cash reimbursement formerly paid to retirees living outside their company’s local service area, for telephone service they purchased from another provider, is a “defined benefit plan” within the meaning of the Employee Retirement Income Security Act of 1974, as amended (ERISA). In October 2006, the court certified two classes. In May 2008, the court ruled that the concession was an ERISA pension plan. In May 2009, we filed a motion for reconsideration with the trial court. That motion was granted in January 2011, and a final judgment was entered in our favor. Plaintiffs appealed the judgment to the Fifth Circuit Court of Appeals and in April 2012, the Fifth Circuit affirmed the lower court’s judgment in our favor dismissing the case. On July 16, 2012, Plaintiffs filed a petition for a writ of certiorari in the U.S. Supreme Court.

NSA Litigation  Twenty-four lawsuits were filed alleging that we and other telecommunications carriers unlawfully provided assistance to the National Security Agency in connection with intelligence activities that were initiated following the events of September 11, 2001. In the first filed case, Hepting et al v. AT&T Corp., AT&T Inc. and Does 1-20, a purported class action filed in U.S. District Court in the Northern District of California, plaintiffs alleged that the defendants disclosed and are currently disclosing to the U.S. Government content and call records concerning communications to which Plaintiffs were a party. Plaintiffs sought damages, a declaratory judgment and injunctive relief for violations of the First and Fourth Amendments to the U.S. Constitution, the Foreign Intelligence Surveillance Act (FISA), the Electronic Communications Privacy Act and other federal and California statutes. We filed a motion to dismiss the complaint. The United States asserted the “state secrets privilege” and related statutory privileges and also filed a motion asking the court to dismiss the complaint. The court denied the motions, and we and the United States appealed. In August 2008, the U.S. Court of Appeals for the Ninth Circuit remanded the case to the district court without deciding the issue in light of the passage of the FISA Amendments Act, a provision of which addresses the allegations in these pending lawsuits (immunity provision). The immunity provision requires the pending lawsuits to be dismissed if the Attorney General certifies to the court either that the alleged assistance was undertaken by court order, certification, directive or written request or that the telecom entity did not provide the alleged assistance. In September 2008, the Attorney General filed his certification and asked the district court to dismiss all of the lawsuits pending against the AT&T Inc. telecommunications companies. The court granted the Government's motion to dismiss and entered final judgments in July 2009. In addition, a lawsuit seeking to enjoin the immunity provision’s application on grounds that it is unconstitutional was filed. In March 2009, we and the Government filed motions to dismiss this lawsuit. The court granted the motion to dismiss and entered final judgment in July 2009. All cases brought against the AT&T entities have been dismissed. In August 2009, plaintiffs in all cases filed an appeal with the Ninth Circuit Court of Appeals. In December 2011, the Ninth Circuit Court of Appeals affirmed the dismissals in all cases. In March 2012, the Plaintiffs in all but three cases filed a petition for writ of certiorari with the United States Supreme Court. The plaintiffs in two of the three cases filed petitions for rehearing with the Ninth Circuit Court of Appeals, both of which have been denied. The plaintiffs in the third case did not file a petition in either court. Management believes that any further appeal is without merit and intends to continue to defend these matters vigorously.

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JUNE 30, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Universal Service Fees Litigation  In October 2010, our wireless subsidiary was served with a purported class action in Circuit Court, Cole County, Missouri (MBA Surety Agency, Inc. v. AT&T Mobility, LLC), in which the plaintiffs contend that we violated the FCC’s rules by collecting Universal Service Fees on certain services not subject to such fees, including Internet access service provided over wireless handsets commonly called “smartphones” and wireless data cards, as well as collecting certain other state and local fees. Plaintiffs define the class as all persons who from April 1, 2003, until the present had a contractual relationship with us for Internet access through a smartphone or a wireless data card. Plaintiffs seek an unspecified amount of damages as well as injunctive relief. We believe that an adverse outcome having a material effect on our financial statements in this case is unlikely.

Wage and Hour Litigation Two wage and hour cases were filed in federal court in December 2009 each asserting claims under the Fair Labor Standards Act (Luque et al. v. AT&T Corp. et al., U.S. District Court in the Northern District of California) (Lawson et al. v. BellSouth Telecommunications, Inc., U.S. District Court in the Northern District of Georgia). Luque also alleges violations of a California wage and hour law, which varies from the federal law. In each case, plaintiffs allege that certain groups of wireline supervisory managers were entitled to paid overtime and seek class action status as well as damages, attorneys’ fees and/or penalties. Plaintiffs have been granted conditional collective action status for their federal claims and also are expected to seek class action status for their state law claims. We have contested the collective and class action treatment of the claims, the merits of the claims and the method of calculating damages for the claims. A jury verdict was entered in favor of the Company in October 2011 in the U.S. District Court in Connecticut on similar FLSA claims. In April 2012, we settled these cases, subject to court approval, on terms that will not have a material effect on the Company’s financial statements.

Advertising Solutions and Interactive Business Sale  On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. We received approximately $750 in cash, a $200 note and a 47% equity interest in the new entity YP Holdings, subject to closing adjustments. This transaction did not have a material effect on our financial statements.

NextWave Acquisition  On August 2, 2012, we announced an agreement to acquire NextWave Wireless Inc. (NextWave), which holds wireless licenses in the Wireless Communication Services (WCS) and Advanced Wireless Service (AWS) bands. We will acquire all the equity and satisfaction of all debt of NextWave for $600. In addition certain of NextWave's assets will be paid to its holders of debt in partial satisfaction of that debt. The holders of NextWave's debt and shareholders representing a majority interest have agreed to support our acquisition. This acquisition is subject to regulatory approval and other customary closing conditions. We anticipate closing this transaction by the end of 2012. WCS spectrum has not been suitable for mobile Internet usage due to technical rules designed to avoid possible interference to satellite radio users in adjacent spectrum bands. In June 2012, AT&T and Sirius XM filed a joint proposal with the FCC that would protect the adjacent satellite radio spectrum from interference and enable WCS spectrum to be used for mobile Internet service. That proposal remains pending at the FCC.

Labor Contracts  Contracts covering approximately 40,000 collectively-bargained wireline employees expired in early April 2012. An additional contract covering approximately 22,000 wireline employees will expire on August 4, 2012. The Company and the employees’ union are continuing to negotiate new contracts. In the absence of an effective contract, the union is entitled to call a work stoppage.

In July 2012, the Company and the Communications Workers of America (CWA) reached tentative three-year agreements in the wireline contract negotiations for the AT&T Midwest region and AT&T Corp. The Midwest contract covers approximately 13,000 employees and the AT&T Corp contract covers approximately 5,700 employees. These agreements, which are subject to ratification by CWA members by August 17, 2012, generally provide a base wage increase of 2.25 percent in the first year, 2.75 percent in the second year, three percent in the third year, and pension band increases of one percent for each year of the agreement. These agreements also provide continued health care coverage.

COMPETITIVE AND REGULATORY ENVIRONMENT

Overview  AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is provided, and regulation is generally limited to operational licensing authority for the provision of services to enterprise customers.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare. However, since the Telecom Act was passed, the FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. We are pursuing additional legislative and regulatory measures to reduce regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our ability to compete more effectively and offer services wanted and needed by our customers. At the same time, we also seek to ensure that legacy regulations are not extended to broadband or wireless services, which are subject to vigorous competition.

In addition, states representing a majority of our local service access lines have adopted legislation that enables new video entrants to acquire a single statewide or state-approved franchise (as opposed to the need to acquire hundreds or even thousands of municipal-approved franchises) to offer competitive video services. We also are supporting efforts to update and improve regulatory treatment for retail services. Regulatory reform and passage of legislation is uncertain and depends on many factors.

Our wireless operations operate in robust competitive markets but are likewise subject to substantial governmental regulation. Wireless communications providers must be licensed by the FCC to provide communications services at specified spectrum frequencies within specified geographic areas and must comply with the rules and policies governing the use of the spectrum as adopted by the FCC. The FCC has recognized that the explosive growth of bandwidth-intensive wireless data services requires the Government to make more spectrum available. We seek to ensure that we have the opportunity to obtain the spectrum we need to provide our customers with high-quality service. While wireless communications providers’ prices and service offerings are generally not subject to state regulation, states continue to attempt to regulate or legislate various aspects of wireless services, such as in the area of consumer protection.

Intercarrier Compensation/Universal Service  In October 2011, the FCC adopted an order fundamentally overhauling its high-cost universal service program, through which it disburses approximately $4,500 per year to carriers providing telephone service in high-cost areas, and its existing intercarrier compensation (ICC) rules, which govern payments between carriers for the exchange of traffic. The order adopts rules to address immediately certain practices that artificially increase ICC payments, as well as other practices to avoid such payments. The order also establishes a new ICC regime that will result in the elimination of virtually all terminating switched access charges and reciprocal compensation payments over a six-year transition. In the order, the FCC also repurposed its high-cost universal service program to encourage providers to deploy broadband facilities in unserved areas. To accomplish this goal, the FCC will transition support amounts disbursed through its existing high-cost program to its new Connect America Fund, which eventually will award targeted high-cost support amounts to providers through a competitive process. We support many aspects of the order and new rules. AT&T and other parties have filed appeals of the FCC’s rules, which are pending in the Tenth Circuit Court of Appeals. Our appeal challenges only certain, narrow aspects of the order; AT&T intervened in support of the broad framework adopted by the order. We do not expect the FCC’s rules to have a material impact on our operating results.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

LIQUIDITY AND CAPITAL RESOURCES

We had $2,151 in cash and cash equivalents available at June 30, 2012. Cash and cash equivalents included cash of $448 and money market funds and other cash equivalents of $1,703. In the first six months of 2012, cash outflows were primarily used to meet the needs of the business, including, but not limited to, payment of operating expenses, funding capital expenditures and repayment of debt. In addition, we returned value to stockholders through dividends and by repurchasing shares of common stock. These outflows were partially offset by cash provided by cash receipts from operations and the issuance of long-term debt. We discuss many of these factors in detail below.

Cash Provided by or Used in Operating Activities

During the first six months of 2012, cash provided by operating activities was $17,459, compared to $16,757 for the first six months of 2011.

Cash Used in or Provided by Investing Activities

For the first six months of 2012, cash used in investing activities totaled $8,425, which consisted primarily of $8,742 for capital expenditures (excluding interest during construction), and acquisitions of $477, which included wireless spectrum of $392. These expenditures were partially offset by cash of approximately $750 received from the sale of our Advertising Solutions segment.

Virtually all of our capital expenditures are spent on our wireless and wireline subsidiaries’ networks, our U-verse services, and support systems for our communications services. Capital spending in our Wireless segment of $4,578, excluding capitalized interest during construction, represented 52% of our total spending and increased 6% in the first six months. Wireless expenditures were primarily used for network capacity expansion, integration and upgrades to our High-Speed Downlink Packet Access network and the deployment of LTE (4G) equipment for our commercial launch. The Wireline segment which includes U-verse services represented 47% of total capital expenditures, excluding interest during construction, and decreased 18% in the first six months.

We continue to expect that our capital expenditures during 2012 will be approximately $20,000, assuming that the regulatory environment remains favorable for investment. The amount of capital investment is influenced by demand for services and products, continued growth and regulatory considerations.

Cash Used in or Provided by Financing Activities

For the first six months of 2012, our financing activities included proceeds of $6,935 from the following:

·   February 2012 issuance of $1,000 of 0.875% global notes due 2015, $1,000 of 1.6% global notes due 2017, and $1,000 of 3% global notes due 2022.

·   May 2012 issuance of £1,250 of 4.875% global notes due 2044 (equivalent to $1,979 when issued).

·   June 2012 issuance of $1,150 of 1.7% global notes due 2017 and $850 of 3% global notes due 2022.

During the first six months of 2012, debt redemptions totaled $7,021 with a weighted average interest rate of 5.68% and consisted of the following:

·   February 2012 redemption of $1,200 of 6.375% senior notes due 2056.

·   March 2012 redemption of $1,000 of 5.875% notes due August 2012.

·   June 2012 redemption of $800 of 4.75% notes due November 2012, $2,500 of 4.95% notes due January 2013, and $1,500 of 6.7% notes due November 2013.

In December 2010, the Board of Directors authorized the repurchase of up to 300 million shares of AT&T common stock. We began buying back stock under this program in January 2012. As of June 30, 2012, we have repurchased approximately 143 million shares totaling $4,623. In July 2012, the Board of Directors authorized the repurchase of an additional 300 million shares. We intend to continue repurchasing shares.

We paid dividends of $5,187 during the first six months of 2012, compared with $5,082 for the first six months of 2011, primarily reflecting an increase in the quarterly dividend approved by our Board of Directors in December 2011. Dividends declared by our Board of Directors totaled $0.44 per share in the second quarter of 2012 and $0.88 per share for the first six months of 2012 and $0.43 per share in the second quarter and $0.86 per share for the first six months of 2011. Our dividend policy considers the expectations and requirements of stockholders, internal requirements of AT&T and long-term growth opportunities. It is our intent to provide the financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by our Board of Directors.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

At June 30, 2012, we had $3,402 of debt maturing within one year, all of which were long-term debt maturities. Debt maturing within one year includes the following notes that may be put back to us by the holders:

·   $1,000 of annual put reset securities issued by BellSouth Corporation (BellSouth) that may be put back to us each April until maturity in 2021.

·   An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030.

We have two revolving credit agreements with a syndicate of banks: a $5,000 agreement expiring in December 2015 and a $3,000 agreement expiring in December 2012. Advances under either agreement may be used for general corporate purposes, which could include repayment of maturing commercial paper. Advances are not conditioned on the absence of a material adverse change. All advances must be repaid no later than the date on which lenders are no longer obligated to make any advances under each agreement. Under each agreement, we can terminate, in whole or in part, amounts committed by the lenders in excess of any outstanding advances; however, we cannot reinstate any such terminated commitments. Under the multi-year agreement, we must maintain a debt-to-EBITDA, including modifications described in the agreement, financial debt ratio of not more than three-to-one as of the last day of each fiscal quarter for the four quarters then ended. Both agreements also contain a negative pledge covenant, which generally provides that if we pledge assets or permit liens on our property, then any advances must also be secured. At June 30, 2012, we had no advances outstanding under either agreement and were in compliance with all covenants under each agreement.

Other

Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by América Móvil or YP Holdings. At June 30, 2012, our debt ratio was 38.4%, compared to 36.8% at June 30, 2011, and 38.0% at December 31, 2011. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Dollars in millions except per share amounts

At June 30, 2012, we had interest rate swaps with a notional value of $4,000 and a fair value of $335.

We have fixed-to-fixed cross-currency swaps on foreign-currency-denominated debt instruments with a U.S. dollar notional value of $9,481 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of $(895) at June 30, 2012. We have foreign exchange contracts with a notional value of $174 and a net fair value of $(5) at June 30, 2012.

Item 4. Controls and Procedures

The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of June 30, 2012. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of June 30, 2012.

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AT&T INC.

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CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.

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

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

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

·   Increases in our benefit plans’ costs, including increases due to adverse changes in the U.S. and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates and adverse medical cost trends and unfavorable healthcare legislation, regulations or related court decisions.

·   The final outcome of FCC and other federal agency proceedings and reopenings of such proceedings and judicial reviews, if any, of such proceedings, including issues relating to access charges, intercarrier compensation, universal service, broadband deployment, E911 services, competition, net neutrality, unbundled loop and transport elements, availability of new spectrum from the FCC on fair and balanced terms, wireless license awards and renewals and wireless services, including data roaming agreements and spectrum allocation.

·   The final outcome of regulatory proceedings in the states in which we operate and reopenings of such proceedings and judicial reviews, if any, of such proceedings, including proceedings relating to Interconnection terms, access charges, universal service, unbundled network elements and resale and wholesale rates; broadband deployment including our U-verse services; net neutrality; performance measurement plans; service standards; and intercarrier and other traffic compensation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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PART II – OTHER INFORMATION

Dollars in millions except per share amounts

Item 1. Legal Proceedings

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

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AT&T INC.

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PART II – OTHER INFORMATION

Dollars in millions except per share amounts

Item 1A. Risk Factors

We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. For the second quarter 2012, there were no such material developments.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
(c) A summary of our repurchases of common stock during the second quarter of 2012 is as follows:
Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs2
April 1, 2012 - April 30, 2012	12,602,394	$	33.01	12,602,394	219,697,606
May 1, 2012 - May 31, 2012	27,719,296		33.35	27,719,296	191,978,310
June 1, 2012 - June 30, 2012	35,444,259		34.33	35,444,259	156,534,051
Total	75,765,949	$	33.75	75,765,949
1 In December 2010, we announced our stock repurchase plan, under which our Board of Directors authorized the repurchase of up to 300 million shares of our common stock. The plan has no expiration date.
2 In July 2012, the Board authorized the repurchase of an additional 300 million shares. The plan has no expiration date.

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Item 6. Exhibits

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

10-a	2005 Supplemental Employee Retirement Plan, amended and restated May 1, 2012
10-b	AT&T Inc. Health Plan, amended and restated June 28, 2012
10-c	Bellsouth Corporation Supplemental Executive Retirement Plan, amended and restated as of May 1, 2012
12	Computation of Ratios of Earnings to Fixed Charges
31	Rule 13a-14(a)/15d-14(a) Certifications 31.1Certification of Principal Executive Officer 31.2Certification of Principal Financial Officer
32	Section 1350 Certifications
101	XBRL Instance Document

37 

SIGNATURE

Pursuant to the requirements 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.

                                                            AT&T Inc.

August 3, 2012                                                                                                                                                 /s/ John J. Stephens

                                                            John J. Stephens

                                                            Senior Executive Vice President

                                                                 and Chief Financial Officer

38

EX-10.A

Exhibit 10-a

2005 SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN

Adopted:  November 19, 2004

Effective:  November 18, 2005

Amended and Restated:  May 1, 2012

1.   Purpose.

The purpose of the 2005 Supplemental Employee Retirement Plan (the “SERP” or the "Plan") is to provide Participants with retirement benefits to supplement benefits payable pursuant to qualified group pension plans sponsored by AT&T or an affiliate of AT&T.  The Plan is a successor to the AT&T Supplemental Retirement Income Plan (“SRIP”) that was effective January 1, 1984 and which was amended, effective December 31, 2004, to cease accruals so that the benefits payable under the SRIP shall be grandfathered and administered in accordance with the provisions of the SRIP in a manner that does not invoke Section 409A of the Code.

2.   Definitions.

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

Administrative Committee. "Administrative Committee" means a Committee, consisting of the SEVP-HR and two or more other members designated by the SEVP-HR, which shall administer the Plan.

Agreement.  "Agreement" means the written agreement entered into between AT&T by its SEVP-HR and a Participant prior to January 1, 2009 to carry out the Plan with respect to such Participant.  No Agreements are necessary for Participants who become eligible to participate in the Plan on or after January 1, 2009.

AT&T.  "AT&T" means AT&T Inc.

Beneficiary.  "Beneficiary" shall mean any beneficiary or beneficiaries designated by the Participant pursuant to the AT&T Rules for Employee Beneficiary Designations as may hereafter be amended from time-to-time ("Rules").  If a Participant fails to execute a Beneficiary designation form with respect to Plan benefits, his or her Beneficiary designation form with respect to his SRIP benefits shall apply with respect to his Plan benefits.  If a Participant fails to execute a Beneficiary designation form with respect to Plan benefits and with respect to SRIP benefits, the default provisions in the Rules shall apply.

1 

CEO or Chief Executive Officer.  “CEO” or “Chief Executive Officer” shall mean the Chief Executive Officer of AT&T.

Disabled or Disability.  “Disabled” or "Disability" means the Participant’s (i) inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident or health plan covering employees of the Participant’s employer.  The Administrative Committee, in its complete and sole discretion, determines whether a Participant is Disabled.  The Administrative Committee may require that the Participant submit to an examination by a competent physician or medical clinic selected by the Administrative Committee.  On the basis of such medical evidence, the determination of the Administrative Committee as to whether or not a Participant is Disabled shall be conclusive.

Earnings.  "Earnings" means for a given calendar year the Participant's: (1) bonus earned as a short term award during the calendar year but not exceeding 200% of the target amount of such bonus (or such other portion of the bonus or target bonus as may be determined by the Human Resources Committee of the Board of AT&T), plus (2) base salary before reduction due to any contribution pursuant to any deferred compensation plan or agreement sponsored by AT&T or an AT&T affiliate, including but not limited to compensation deferred in accordance with Sections 401(k), 125, or 132(f) of the Internal Revenue Code.

Final Average Earnings.  "Final Average Earnings" means the average of the Participant's Monthly Earnings for the thirty-six (36) consecutive months out of the one hundred twenty (120) months next preceding the Participant's Termination of Employment which yields the highest average earnings.  If the Participant has fewer than thirty-six (36) months of employment, the average shall be taken over his or her period of employment.

2 

GAAP Rate.  For a referenced calendar year, "GAAP Rate" means the interest rate used for valuing Plan liabilities on December 31 of the immediately preceding calendar year and for calculating periodic pension expense for the referenced calendar year, both for purposes of AT&T's financial statement reporting requirements.

Human Resources Committee.  “Human Resources Committee” means the Human Resources Committee of the AT&T Inc. Board of Directors.

Immediate Annuity Value of any AT&T or affiliate Qualified Pensions.  “Immediate Annuity Value of any AT&T or affiliate Qualified Pensions” shall have the meaning as provided in Attachment B.

Immediate Annuity Value of SRIP. "Immediate Annuity Value of SRIP" shall have the meaning as provided in Attachment C.

Immediate Annuity Value of any other AT&T or affiliate Non-Qualified Pensions other than SERP. "Immediate Annuity Value of any AT&T or affiliate Non-Qualified Pensions other than SERP" shall have the meaning as provided in Attachment D.

Mid-Career Hire.  “Mid-Career Hire” means an individual whose Service Commencement Date is on or after the individual’s thirty-fifth (35th) birthday.

Monthly Earnings.  "Monthly Earnings" means one-twelfth (1/12) of Earnings.

Mortality Tables.  "Mortality Tables" means the mortality tables as defined by Code Section 417(e) for valuing minimum lump sum benefits payable from qualified pension plans for the referenced period.

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

3 

Participant. "Participant" means:

(a)    Any person who, as of close of business on December 31, 2004, was employed by an AT&T affiliate and was a participant in the SRIP; or

(b)    Any person who was a participant in the SRIP, terminated employment in 2004 and receives Earnings in 2005; or

(c)    An Officer of AT&T or an AT&T affiliate who is designated by the Human Resources Committee as eligible to participate in the Plan.

Notwithstanding the foregoing definition of Participant, the Human Resources Committee, may, at any time and from time to time, exclude any person or group of persons from being a “Participant” under this plan.

An individual’s participation in SERP shall commence as of his or her SERP Effective Date.

Retire or Retirement.  "Retire" or "Retirement" shall mean the Termination of Employment of a Participant for reasons other than death, on or after the earlier of the following dates:  (1) the date the Participant is Retirement Eligible or (2) the date the Participant has attained one of the following combinations of age and service at Termination of Employment:

Years of Service                                                                          Age

25 years or more                                                                50 or older

30 years or more                                                                Any age

Retirement Eligible.  "Retirement Eligible" or "Retirement Eligibility" means that a Participant has attained age 55 and has at least five (5) Years of Service.

Retirement Percent.  "Retirement Percent" means the percent specified in the Agreement with the Participant (if any) which establishes a Target Retirement Benefit (see Section 3.1) as a percentage of Final Average Earnings. For an individual who becomes a Participant on or after January 1, 2006, "Retirement Percent" means 50 percent unless otherwise provided by the Human Resources Committee of the Board of Directors of AT&T.

4 

SERP Effective Date.  “SERP Effective Date” means the date of the written designation of the Participant’s eligibility to participate in SERP, signed by the CEO or authorized by the Human Resources Committee, as required by the Plan.

SEVP-HR.  “SEVP-HR” means AT&T’s Senior Executive Vice President responsible for Human Resources matters.

Supplemental Retirement Income Plan or SRIP.  "Supplemental Retirement Income Plan” or “SRIP" means the AT&T Inc. Supplemental Retirement Income Plan effective January 1, 1984.

Service Commencement Date.  “Service Commencement Date” means the Participant’s employment commencement date with AT&T or any AT&T affiliate, as such date may be adjusted from time-to-time in accordance with rules, policies and procedures generally applied by AT&T to adjust for breaks in service or other periods of time, as reflected in AT&T’s or an AT&T affiliate’s records, all as determined in the discretion of the SEVP-HR.

Service Factor.  "Service Factor" means, unless otherwise agreed in writing by the Participant and AT&T, either (a) a deduction of 1.43 percent, or .715 percent for Mid-Career Hires, multiplied by the number by which (i) thirty-five (or thirty in the case of a Participant who is an Officer) exceeds (ii) the number of Years of Service of the Participant, or (b) a credit of 0.715 percent multiplied by the number by which (i) the number of Years of Service of the Participant exceeds (ii) thirty-five (or thirty in the case of a Participant who is an Officer).  For purposes of the above computation, a deduction shall result in the Service Factor being subtracted from the Retirement Percent whereas a credit shall result in the Service Factor being added to the Retirement Percent.

Termination of Employment.  "Termination of Employment" means the ceasing of the Participant's employment from the AT&T controlled group of companies for any reason whatsoever, whether voluntarily or involuntarily.  A Participant will be deemed to have realized a Termination of Employment at any time that a Participant and the Administrative Committee reasonably anticipate that the bona fide level of services the Participant will perform (whether as an employee or an independent contractor) will be permanently reduced to a level that is less than fifty percent (50%) of the average level of bona fide services the Participant performed during the immediately preceding thirty-six (36) months (or the entire period the Participant has provided services if the Participant has been providing services to the AT&T controlled group of companies less than thirty-six (36) months).

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Year.  A "Year" is a period of twelve (12) consecutive calendar months.

Years of Participation.  "Years of Participation" means the number of each complete Years beginning with the Participant’s SERP Effective Date through each annual anniversary of such date.

Years of Service.  "Years of Service" means the number of each complete Years of full-time service as an employee of AT&T or an AT&T affiliate beginning with the Participant’s Service Commencement Date through each annual anniversary of such date, including service prior to the adoption of this Plan. “Years of Service” shall also include, without duplication, (i.) a Participant’s Years of service that are recognized for purposes of the BellSouth Corporation Supplemental Employee Retirement Plan, or (ii.) a Participant’s years of service on the Cingular Wireless payroll during the period beginning on 10/28/01 and ending on or prior to 12/31/04 that were recognized for purposes of the Cingular Wireless SBC Executive Transition Supplemental Retirement Income Plan, but that are not otherwise included pursuant to the immediately preceding sentence.

3.   Plan ("SERP") Benefits.

      3.1   SERP Benefit Formula.

With respect to (1) a Participant who was a participant in the SRIP prior to January 1, 1998, or (2) a Participant who, prior to January 1, 1998, was an officer of a Pacific Telesis Group ("PTG") company and became a participant in the SRIP after January 1, 1998, the amount of such Participant’s SERP Benefit is calculated as follows:

   Final Average Earnings

x Revised Retirement Percentage                                                                                                                     

= Target Retirement Benefit

-  Immediate Annuity Value of any AT&T or affiliate Qualified Pensions

-  Immediate Annuity Value of any other AT&T or affiliate Non-Qualified Pensions other than the SERP

= Target Benefit

-  Age Discount                                                                                                                    

= Annual Value of Life with 10 Year Certain SERP Benefit payable as a result of Termination of Employment Before SRIP Reduction

-  Immediate Annuity Value of SRIP                                                                                                                    

= Annual Value of Life with 10 Year Certain SERP Benefit payable as a result of Termination of Employment

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With respect to all other Participants, subject to the provisions of Attachment E, the amount of such Participant’s SERP Benefit is calculated as follows:

    Final Average Earnings

x Revised Retirement Percentage                                                                                                                

= Target Retirement Benefit

-Age Discount                                                                                                                

= Discounted Target Benefit

        -  Immediate Annuity Value of any AT&T or affiliate Qualified Pensions

-  Immediate Annuity Value of SRIP

-  Immediate Annuity Value of any other AT&T or affiliate Non-Qualified Pensions other than SERP

= Annual Value of Life with 10 Year Certain SERP Benefit payable as a result of Termination of Employment

Where in both of the above cases the following apply:

            (a) Revised Retirement Percentage = Retirement Percent + Service Factor

             (b) For purposes of determining the Service Factor, the Participant's actual Years of Service as of the date of Termination of Employment, to the day, shall be used.

             (c) For purposes of determining the Final Average Earnings, the Participant's Earnings history as of the date of Termination of Employment shall be used.

             (d) Age Discount means the Participant's SERP Benefit shall be decreased by five-tenths of one percent (.5%) for each month that the date of the Participant’s Termination of Employment precedes the date on which the Participant will attain age 60.

 Notwithstanding the foregoing, if at the time of Termination of Employment the Participant is, or has been within the one year period immediately preceding the Participant's Termination of  

 Employment, an Officer with 30 or more Years of Service such Participant's Age Discount shall be zero.

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Except to true up for an actual short term award paid following Termination of Employment, there shall be no recalculation of the value of a Participant's SERP Benefit hereunder following a Participant's Termination of Employment.

3.2.Vesting.

Notwithstanding any other provision of this Plan:

     (a)   upon any Termination of Employment of the Participant for a reason other than death or Disability, AT&T shall have no obligation to the Participant under this Plan if the Participant has less than five (5) Years of Service or, for Participants who are informed, in writing, of their SERP eligibility on or after September 28, 2006, less than four (4) Years of Participation, at the time of Termination of Employment; provided, however, for any Participant whose Termination of Employment occurs on September 30,2010 and who timely executes and does not revoke a Release and Waiver in favor of the Company, shall be deemed to satisfy the Years of Service and Years of Participation vesting requirements of this Section as of their Termination of Employment; and

      (b)   the terms and conditions set forth in Section 8.2 shall apply to any benefits accrued on or after January 1, 2010, and in order for a Participant to accrue (or collect) such Plan benefits on or after January 1, 2010, the Participant must comply with the terms and conditions set forth in Section 8.2.

4.   Election and Form of Distribution of SERP Benefits.

    4.1   Normal Form.

The normal form of a Participant's benefits hereunder shall be a Life with 10-Year Certain Benefit as described in Section 4.2(a).

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    4.2   Election Alternatives.

Notwithstanding the normal form for distribution of a Participant’s SERP Benefits, a Participant may elect one of the following Benefit Payout Alternatives:

(a) Life with a 10-Year Certain Benefit.  An annuity payable during the longer of (i) the life of the Participant or (ii) the 10-year period commencing on the Participant’s Termination of Employment and ending on the day next preceding the tenth anniversary of such date (the "Life With 10-Year Certain Benefit").  If a Participant who is receiving a Life with 10-Year Certain Benefit dies prior to the expiration of the 10-year period described in this Section 4.2(a), the Participant's Beneficiary shall be entitled to receive the remaining Life With 10-Year Certain Benefit installments which would have been paid to the Participant had the Participant survived for the entire such 10-year period.

(b) Joint and 100% Survivor Benefit.  A joint and one hundred percent (100%) survivor annuity payable for life to the Participant and at his or her death to his or her Beneficiary, in an amount equal to one hundred percent (100%) of the amount payable during the Participant's life, for life (the "Joint and 100% Survivor Benefit").

(c) Joint and 50% Survivor Benefit.  A joint and fifty percent (50%) survivor annuity payable for life to the Participant and at his or her death to his or her Beneficiary, in an amount equal to fifty percent (50%) of the amount payable during the Participant's life, for life (the "Joint and 50% Survivor Benefit").

(d) Lump Sum Benefit.  A lump sum benefit, which shall apply only if the Participant has attained the age of fifty-five (55) years as of his or her Termination of Employment.  If a Participant elects a lump sum benefit but realizes a Termination of Employment prior to attaining age fifty-five (55), the Participant’s SERP Benefit shall be paid as provided in Section 4.2(a), 4.2(b) or 4.2(c), as elected or deemed elected by the Participant.

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The Benefit Payout Alternatives described in Section 4.2(b), 4.2(c) and 4.2(d) shall be the actuarially determined equivalent (using the same reasonable actuarial assumptions and methods for valuing each Benefit Payout Alternative as determined by the SEVP-HR in his or her complete and sole discretion) of the Life With 10-Year Certain Benefit that is converted by such election.  The amount of a Participant's lump sum benefit shall be calculated as of the Participant's Termination of Employment by applying the Mortality Tables and the GAAP Rate, both as in effect for the calendar year immediately preceding the calendar year of the Participant’s Termination of Employment, but using the Participant’s age, Years of Service and other factors as of the Participant’s Termination of Employment.

    4.3   Distribution Election.

(a) Individual Who Is A Participant On or Before December 31, 2008.  An individual who was a Participant on or before December 31, 2008 may make an irrevocable election of a Benefit Payout Alternative before the earlier of December 31 of the year immediately preceding his or her Termination of Employment or December 31, 2008 by delivery of such election, in writing, telecopy, email or in another electronic format, pursuant to or as instructed by the SEVP-HR (as determined by the SEVP-HR in his or her sole and absolute discretion).

(b) Individual Who Becomes A Participant After December 31, 2008.  An individual who becomes a Participant after December 31, 2008 may make an irrevocable election of a Benefit Payout Alternative no later than the thirtieth (30th) day immediately following the Participant’s SERP Effective Date by delivery of such election in writing, telecopy, email or in another electronic format, pursuant to or as instructed by the SEVP-HR (as determined by the SEVP-HR in his or her sole and absolute discretion).

(c) Failure to Timely Make a Distribution Election.  If a Participant fails to make a timely election of a Benefit Payout Alternative as provided in Section 4.3(a) or 4.3(b), such Participant shall be deemed to have elected and such Participant's form of benefit shall be the Life With 10-Year Certain Benefit described in Section 4.2(a).

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(d) Death of or Divorce from Annuitant During Participant’s Lifetime.  Notwithstanding any other provision of this Plan to the contrary, in the event of the death of a designated annuitant during the life of the Participant, the Participant's election to have a Benefit Payout Alternative described in Section 4.2(b) or 4.2(c) shall, without any action by the Participant, be revoked, and the Participant’s benefit, or remaining benefit, under the Plan, as the case may be, shall be paid as provided in Section 4.2(a).  Any conversion of benefit from one form to another pursuant to the provisions of this paragraph shall use the same reasonable actuarial assumptions and methods for valuing each annuity form of benefit before and after the death of the designated annuitant and shall be subject to actuarial adjustment (as determined by the SEVP-HR in his or her complete and sole discretion) such that the Participant's new benefit is the actuarial equivalent of the Participant's remaining prior form of benefit.  Payments pursuant to Participant's new form of benefit shall be effective commencing with the first monthly payment for the month following the death of the annuitant.

 Notwithstanding any other provision of this Plan to the contrary, in the event of the divorce or legal separation of the Participant, the Participant’s election to have a Benefit Payout  

 Alternative described in Section 4.2(b) or 4.2(c), with a survivor annuity for the benefit of the Participant's former spouse as Beneficiary, shall, without any action by the Participant, be

 revoked, and the Participant's benefit, or remaining benefit, under the Plan, as the case may be, shall be paid as provided in Section 4.2(a) (using the same reasonable actuarial assumptions

 and methods for valuing each annuity form of benefit before and after the divorce or legal separation  and shall be subject to actuarial adjustment (as determined by the SEVP-HR in his or her

 complete and sole discretion).  In such event, the 10-Year period as described in Section 4.2(a) shall be the same 10-year period as if such form of benefit was the form of benefit originally

 selected and the expiration date of such period shall not be extended beyond its original expiration date.  Payments pursuant to Participant’s new form of benefit shall be effective

 commencing with the first monthly payment following notice from the Participant to the SEVP-HR after the divorce (or legal separation) becomes final.

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(e) Special Provisions for Lump Sum Benefit Election.  A Participant who elects a lump sum benefit under Section 4.2(d) must, contemporaneous with such Lump Sum Benefit election, elect a specific number of year(s), not to exceed twenty (20) years, following his or her Termination of Employment upon which the lump sum benefit (including any interest accrued thereon) shall be distributed; provided, however,

(i) the Participant may not receive more than thirty percent (30%) of his or her lump sum benefit (excluding any interest thereon) until the third (3rd) anniversary of his or her Termination of Employment; provided, however, if the Participant is age sixty (60) or older as of his or her Termination of Employment, the Participant, if elected in his or her timely filed election of a Benefit Payout Alternative, may receive one hundred percent (100%) of his or her lump sum benefit upon the day that is six (6) months following his or her Termination of Employment if he or she agrees, in writing, substantially in the form provided in Attachment A, not to compete with an Employer Business within the meaning of Section 8.2 for a period of three (3) years from such Participant’s Termination of Employment and further agrees that if he or she fails to abide by such agreement, the non-compete agreement is challenged, or the non-compete agreement is unenforceable, he or she shall forfeit all benefits hereunder and repay the lump sum benefit to AT&T; and

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(ii) prior to distribution of the Participant’s lump sum benefit, interest on such lump sum benefit shall accrue and shall be added to the Participant’s lump sum benefit or distributed monthly, as elected by the Participant in his or her election of a Benefit Payout Alternative.

A Participant’s lump sum benefit payment schedule must comply with the rules for payment schedules as adopted by the SEVP-HR (as determined by the SEVP-HR in his or her sole and absolute discretion), which, for example, may require payment of principal to be made no more frequently than once per calendar year.

If the payment schedule elected by a Participant does not comply with the rules for payment schedules, (i) thirty percent (30%) of such Participant’s lump sum benefit shall be paid to the Participant upon the date that is six (6) months following the Participant’s Termination of Employment,and (ii) the remaining seventy percent (70%) shall be paid to the Participant on the third (3rd) anniversary of such Participant’s Termination of Employment.

(f) Lump Sum Benefit or Frozen Account Balance.  From and after a Participant’s Termination of Employment, the SEVP-HR shall maintain records of a lump sum benefit account balance for each Participant who elected a lump sum benefit.  During such period of time that all or any portion of a Participant’s lump sum benefit is not paid, interest shall be credited using the same methodology used by AT&T for financial accounting purposes using the GAAP Rate that was used to calculate such Participant’s lump sum benefit.  Payments of principal and interest shall be deducted from the lump sum benefit account balance.

A Participant whose employment has not terminated may change a prior distribution election at any time on or before December 31, 2008, provided, however, if the Participant’s employment terminates for any reason in the calendar year in which the new distribution election is filed, such new election shall be null and void.  In the event the Participant’s new election is null and void, the Participant’s prior election, if any, shall apply.  If there is no prior election, the Plan’s default distribution provisions shall apply.

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5.   Death or Disability Benefits.

    5.1   Death Following Termination of Employment.

If a Participant who has commenced payment of his or her SERP benefit hereunder dies, his or her Beneficiary shall be entitled to receive the remaining SERP benefit in accordance with the Benefit Payout Alternative elected or deemed elected by the Participant.

    5.2   Death Prior to Termination of Employment.

If a Participant dies prior to his or her Termination of Employment, a pre-retirement death benefit will be calculated and paid as though the Participant had Retired  (determined without regard to the 5 Years of Service or the 4 Years of Participation requirements) on the day prior to the date of death.  The pre-retirement death benefit shall be paid at such time and in such form as timely elected or deemed elected by the Participant; provided, if the Participant elected or is deemed to have elected any form of an annuity, such pre-retirement death benefit shall be paid as a Beneficiary Life Annuity (as such term is hereinafter described) based on the life expectancy of the Beneficiary, and, if the Participant elected or is deemed to have elected a Life with a 10-Year Certain Benefit, such Beneficiary Life Annuity shall continue for the longer of (i) the Beneficiary’s life, or (ii) the 10 year period commencing on the Participant’s death.  If paid as a Beneficiary Life Annuity, such benefit shall be the actuarially determined equivalent using the same reasonable actuarial assumptions and methods (as determined by the SEVP-HR in his or her complete and sole discretion) of the Life With 10-Year Certain Benefit that would have been paid to the Participant had he or she Retired on the day immediately prior to his or her death.  If the Participant had timely elected and qualified to receive a Lump Sum Benefit, it shall be calculated in the same manner as provided in Section 4.2 as if the Participant were alive; e.g., calculated as of the Participant's death applying the Mortality Tables and the GAAP Rate, both as in effect for the calendar year immediately preceding the calendar year of the Participant’s death, but using the Participant’s age, Years of Service and other factors as of the Participant’s date of death.

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    5.3   Disability.

Upon a Participant's Termination of Employment and contemporaneous qualification for receipt of long term disability benefits under an AT&T or AT&T affiliate sponsored long term disability benefit plan in which the Participant participates prior to being Retirement Eligible (without regard to the 5 Years of Service or 4 Years of Participation requirements), the Participant will continue to accrue Years of Service during such disability until the earliest of his or her:

(a) Recovery from Disability,

(b) Retirement (determined without regard to the 5 Years of Service or 4 Years of Participation requirements), or

(c) Death.

Upon the occurrence of either (a) Participant's recovery from Disability prior to his or her Retirement Eligibility if Participant does not return to employment, or (b) Participant's Retirement (determined without regard to the 5 Years of Service or 4 Years of Participation requirements), the Participant shall be entitled to receive a SERP Benefit as if he or she realized a Termination of Employment as of the date of such occurrence.

For purposes of calculating the foregoing benefit, the Participant's Final Average Earnings shall be determined using his or her Earnings history as of the date of his or her Disability.

If a Participant who continues to have a Disability dies prior to his or her Retirement Eligibility (without regard to the 5 Years of Service or 4 Years of Participation requirements), the Participant will be treated in the same manner as if he or she had died while in employment (See Section 5.2).

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6.Payment of Benefits.

     6.1   Commencement of Payments.

(a) Except as provided in Section 5.3, benefit payments shall commence pursuant to the Benefit Payout Alternative elected by the Participant in his or her Agreement on the date that is six (6) months following his or her Termination of Employment; provided, however, if the Participant dies after Termination of Employment and prior to the lapse of such six (6) month period, benefit payments shall commence upon the Participant’s death.  If a Participant elected (or is deemed to have elected) an annuity form of benefit under Section 4.2(a), 4.2(b) or 4.2(c), the aggregate monthly amount that would be paid between the Participant’s Termination of Employment through the date that benefit payments actually commence, shall be paid in a lump sum on the date that benefit payments actually commence hereunder.  In addition, during the period of time between a Participant’s Termination of Employment and the date that annuity payments hereunder actually commence, interest shall be credited on the withheld annuity amounts for such period of time that each annuity payment is withheld.  The credited interest shall be paid in a lump sum on the date that payments hereunder actually commence.  Interest shall be credited using the GAAP Rate in effect for the calendar year immediately preceding the calendar year of the Participant’s Termination of Employment.

(b) Notwithstanding the designation of a specific date for commencement of payment of a distribution hereunder, commencement of payments under this Plan may be delayed for administrative reasons in the discretion of the SEVP-HR, but shall begin not later than sixty (60) days following the date upon which payment(s) would otherwise commence under this Plan. A Participant shall not have the right to designate or participate in the decision as to the taxable year of benefit commencement.

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     6.2   Withholding; Unemployment Taxes.

(a) A payment may be made from the Plan to reflect the payment of state, local, or foreign tax obligations arising from participation in the Plan that apply to an amount deferred under the Plan before the amount is paid or made available to a Participant (the “State, Local, or Foreign Tax Amount”).  Such payment may not exceed the amount of such taxes due as a result of participation in the Plan.  Such payment may be made by distributions to the Participant in the form of withholding pursuant to provisions of applicable state, local, or foreign law or by distribution directly to the Participant.  Additionally, a payment may be made from the Plan to pay the income tax at source on wages imposed under Code Section 3401 as a result of the payment of the State, Local, or Foreign Tax Amount and to pay the additional income tax at source on wages attributable to such additional Code Section 3401 wages and taxes.  However, the total payment under this Section 6.2(a) shall not exceed the aggregate of the State, Local, or Foreign Tax Amount and the income tax withholding related to such State, Local, or Foreign Tax Amount.

(b) A payment may be made from the Plan to pay the Federal Insurance Contributions Act tax imposed by Code Sections 3101, 3121(a), and 3121(v)(2) on compensation deferred under the Plan (the “FICA Amount”).  Additionally, a payment may be made from the Plan to pay the income tax at source on wages imposed under Code Section 3401 or the corresponding withholding provisions of applicable state, local or foreign tax laws as a result of the payment of the FICA Amount and to pay the additional income tax at source on wages attributable to the pyramiding section 3401 wages and taxes.  However, the total payment under this Section 6.2(b) shall not exceed the aggregate of the FICA Amount and the income tax withholding related to such FICA Amount.

17 

     6.3   Recipients of Payments; Designation of Beneficiary.

 All payments to be made under the Plan shall be made to the Participant during his or her lifetime, provided that if the Participant dies prior to the completion of such payments, then all subsequent 

 payments under the Plan shall be made to the Participant's Beneficiary or Beneficiaries.

 In the event of the death of a Participant, distributions/benefits under this Plan shall pass to the Beneficiary (ies) designated by the Participant in accordance with this Plan and the Rules.

     6.4   No Other Benefits.

 No benefits shall be paid hereunder to the Participant or his or her Beneficiary except as specifically provided herein.

     6.5   Small Benefit.

 Notwithstanding any election made by the Participant, the SEVP-HR in his or her sole discretion may pay any benefit in the form of a lump sum payment if (A) the lump sum equivalent amount is or would

 be less than the applicable dollar amount under Code Section 402(g)(1)(B) when payment of such benefit would otherwise commence, and (B) the payment of the lump sum equivalent amount results in the

 termination and liquidation of the entirety of the Participant’s interest under the Plan and under any other plan that is considered a single nonqualified deferred compensation plan under Treasury

 Regulations Section 1.409A-1(c)(2).

7.Conditions Related to Benefits.

     7.1   Administration of Plan.

 The Administrative Committee and the SEVP-HR with respect to specific functions identified in the Plan, shall be the sole administrators of the Plan and will, in their discretion, administer, interpret,

 construe and apply the Plan in accordance with its terms.  The Administrative Committee or the SEVP-HR shall further establish, adopt or revise such rules and regulations as each may deem necessary or

 advisable for the administration of the Plan.  The Administrative Committee shall serve as the Plan’s “administrator” within the meaning of the Employee Retirement Income Security Act of 1974, as 

 amended, and regulations thereunder (“ERISA”).All decisions of the Administrative Committee or the SEVP-HR shall be final and binding unless the Board of Directors should determine otherwise.

18 

     7.2   No Right to AT&T Assets.

 Neither a Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of any AT&T company whatsoever including, without limiting the

 generality of the foregoing, any specific funds or assets which AT&T, in its sole discretion, may set aside in anticipation of a liability hereunder, nor in or to any policy or policies of insurance on the life

 of a Participant owned by AT&T.  No trust shall be created in connection with or by the execution or adoption of this Plan or any Agreement, and any benefits which become payable hereunder shall be

 paid from the general assets of AT&T.  A Participant shall have only a contractual right to the amounts, if any, payable hereunder unsecured by any asset of AT&T.

     7.3   Trust Fund.

 AT&T shall be responsible for the payment of all benefits provided under the Plan.  At its discretion, AT&T may establish one or more trusts, for the purpose of providing for the payment of such

 benefits.  Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of AT&T's creditors.  To the extent any benefits provided under the Plan are actually paid from any

 such trust, AT&T shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by AT&T.

     7.4   No Employment Rights.

 Nothing herein shall constitute a contract of continuing employment or in any manner obligate any AT&T company to continue the service of a Participant, or obligate a Participant to continue in the

 service of any AT&T company and nothing herein shall be construed as fixing or regulating the compensation paid to a Participant.

19 

     7.5   Modification or Termination of Plan.

 This Plan may be modified or terminated at any time in accordance with the provisions of AT&T's Schedule of Authorizations.  A modification may affect present and future Participants, provided that any

 prospective amendment or restatement of the Plan shall not apply to any benefits accrued prior to such amendment or restatement.   AT&T also reserves the sole right to terminate at any time any or all

 Agreements.  In the event of termination of the Plan or of a Participant's Agreement, a Participant shall be entitled to benefits hereunder, if prior to the date of termination of the Plan or of his or her

 Agreement, such Participant has attained 5 Years of Service and, if applicable, 4 Years of Participation, in which case, regardless of the termination of the Plan/Participant's Agreement, such Participant

 shall be entitled to benefits at such time as provided in and as otherwise in accordance with the Plan and his or her Agreement, provided, however, a Participant's benefit shall be computed as if the

 Participant had realized a Termination of Employment as of the date of termination of the Plan or of his or her Agreement; provided further, however, a Participant's service subsequent to Plan/Agreement

 termination shall be recognized for purposes of reducing or eliminating the Age discount provided for by Section 3.1(d).  No amendment, including an amendment to this Section 7.5, shall be effective,

 without the written consent of a Participant, to alter, to the detriment of such Participant, the benefits described in this Plan as applicable to such Participant as of the effective date of such 

 amendment.  For purposes of this Section 7.5, an alteration to the detriment of a Participant shall mean a reduction in the amount payable hereunder to a Participant to which such Participant would be

 entitled if such Participant realized a Termination of Employment at such time, or any change in the form of benefit payable hereunder to a Participant to which such Participant would be entitled if such

 Participant realized a Termination of Employment at such time.  Any amendment which reduces a Participant's benefit hereunder to adjust for a change in his or her pension benefit resulting from an

 amendment to any company-sponsored defined benefit pension plan which changes the pension benefits payable to all employees, shall not require the Participant's consent.  Written notice of any

 amendment shall be given to each Participant.

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     7.6   Offset.

 If at the time payments or installments of payments are to be made hereunder, a Participant or his or her Beneficiary or both are indebted to AT&T or any AT&T affiliate as a result of debt incurred in the

 ordinary course of the employment relationship between the Participant and the AT&T company, then, annually, up to $5,000 of the payments remaining to be made to the Participant or his or her

 Beneficiary or both, may, at the discretion of the SEVP-HR, be reduced by the amount of such indebtedness; provided, however, that the reduction must be made at the same time and in the same amount

 as the debt otherwise would have been due and collected from the Participant or his or her Beneficiary; provided, further, however, that an election by the Board of Directors not to reduce any such

 payment or payments shall not constitute a waiver of such AT&T company's claim for such indebtedness.

     7.7   Change in Status.

 In the event of a change in the employment status of a Participant to a status in which he is no longer an Participant, the Participant shall immediately cease to be eligible for any benefits under this Plan

 except such benefits as had previously vested.  Only Participant's Years of Service and Earnings history prior to the change in his employment status shall be taken into account for purposes of

 determining Participant's vested benefits hereunder.

8.Miscellaneous.

     8.1   Nonassignability.

 Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual

 receipt of the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable.  No part of the amounts payable

 shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be

 transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency.

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     8.2   Non-Competition.

 AT&T would be unwilling to provide Plan benefits but for the loyalty conditions and covenants set forth in this Section 8.2, and the conditions and covenants herein are a material inducement to AT&T’s

 willingness to sponsor the Plan and to offer Plan benefits for the Participants on or after January 1, 2010.  Accordingly, as a condition of accruing and/or receiving any Plan benefits on or after January 1,

 2010, each Participant is deemed to agree that he shall not, without obtaining the written consent of AT&T in advance, participate in activities that constitute engaging in competition with AT&T or

 engaging in conduct disloyal to AT&T, as those terms are defined in this Section 8.2.  Further, notwithstanding any other provision of this Plan, all benefits provided under the Plan with respect to a

 Participant shall be subject to the enforcement provisions of this Section 8.2 if the Participant, without the consent of AT&T, participates in an activity that constitutes engaging in competition with

 AT&T or engaging in conduct disloyal to AT&T, as so defined below.  Furthermore, for benefits accrued before January 1, 2010, the provisions of this Section 8.2 as in effect immediately before such date

 shall also be applicable to the Participant’s Plan benefits, with such provisions and those herein being each separately applicable and effective.

(a) Definitions.  For purposes of this Section 8.2 and of the Plan generally:

(i) an “Employer Business” shall mean AT&T, any subsidiary of AT&T, or any business in which AT&T or a subsidiary or affiliated company of AT&T has a substantial interest or joint venture interest;

(ii) “engaging in competition with AT&T” shall mean, while employed by an Employer Business or within two (2) years after the Participant’s Termination of Employment, engaging by the Participant in any business or activity in all or any portion of the same geographical market where the same or substantially similar business or activity is being carried on by an Employer business.  “Engaging in competition with AT&T” 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 AT&T shall include representing or providing consulting services to, or being an employee or director of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.

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(iii)   “engaging in disloyal conduct disloyal to AT&T” means, while employed by an Employer Business or within two  (2) years after the Participant’s Termination of Employment, (i) soliciting for employment or hire, whether as an employee or as an independent contractor, for any business in competition with an Employer Business, any person employed by AT&T or its affiliates during the one (1) year prior to Participant’s Termination of Employment, whether or not acceptance of such position would constitute a breach of such person’s contractual obligations to AT&T and its affiliates; (ii) soliciting, encouraging, or inducing any vendor or supplier with which Participant had business contact on behalf of any Employer Business during the two (2) years prior to Participant’s Termination of Employment, to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or its affiliate; or (iii) soliciting, encouraging, or inducing any customer or active prospective customer with whom Participant had business contact, whether in person or by other media (“Customer”), on behalf of any Employer Business during the two (2) years prior to Participant’s Termination of Employment, to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with any Employer Business, or to purchase competing goods or services from a business competing with any Employer Business, or accepting or servicing business from such Customer on behalf of himself or any other business.  “Engaging in conduct disloyal to AT&T” also means, disclosing Confidential Information to any third party or using Confidential Information, other than for an Employer Business, or failing to return any Confidential Information to the Employer Business following termination of employment.

23 

(iv)   “Confidential Information” shall mean all information belonging to, or otherwise relating to, an Employer Business, which is not generally known, regardless of the manner in which it is stored or conveyed to Participant, and which the Employer Business has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure.  Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by Participant.  For example, Confidential Information includes, but is not limited to, information concerning the Employer Business’ business plans, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Employer Business, or any of the products or services made, developed or sold by the Employer Business.  Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by Participant from a third party; (iii) was known to Participant prior to receipt from the Employer Business; or (iv) was independently developed by Participant or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by Participant or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Plan.

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(b) Forfeiture of Benefits.  A Participant’s right to receive benefits accrued on or after January 1, 2010 shall terminate and no benefits accrued on or after January 1, 2010 shall be provided under this Plan if the Administrative Committee determines that, within the time period and without the written consent specified, Participant has been either engaging in competitive activity with AT&T or engaging in conduct disloyal to AT&T.

(c)   Equitable Relief.  The parties recognize (i) that any Participant’s breach of any of the covenants in this Section 8.2 will cause irreparable injury to AT&T, and will represent a failure of the consideration under which AT&T (in its capacity as creator and sponsor of the Plan) agreed to provide the Participant with the opportunity to accrue or receive Plan benefits on and after January 1, 2010, and (ii) that monetary damages would not provide AT&T with an adequate or complete remedy that would warrant AT&T’s continued sponsorship of the Plan and payment of Plan benefits for all Participants.  Accordingly, in the event of a Participant’s actual or threatened breach of covenants in this Section 8.2, the Administrative Committee, in addition to all other rights and acting as a fiduciary under ERISA on behalf of all Participants, shall have a fiduciary duty (in order to assure that AT&T receives fair and promised consideration for its continued Plan sponsorship and funding) to seek an injunction restraining the Participant from breaching the covenants in this Section 8.2.  To enforce its repayment rights with respect to a Participant, the Plan shall have a first priority, equitable lien on all Plan benefits that are paid to the Participant.  In addition, AT&T shall pay for any Plan expenses that the Administrative Committee incurs hereunder, and shall be entitled to recover from the Participant its reasonable attorneys’ fees and costs incurred in obtaining such injunctive remedies.  In the event the Administrative Committee succeeds in enforcing the terms of this Section through a written settlement with the Participant or a court order granting an injunction hereunder, the Participant shall be entitled to collect Plan benefits prospectively, if the Participant is otherwise entitled to such benefits, net of any fees and costs assessed pursuant hereto (which fees and costs shall be paid to AT&T as a repayment on behalf of the Participant), provided that the Participant complies with said settlement or injunction.

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(d)   Uniform Enforcement.  In recognition of AT&T’s need for nationally uniform standards for the Plan administration, it is an absolute condition in consideration of any Participant’s accrual or receipt of benefits under the Plan on or after January 1, 2010 that each and all of the following conditions apply to all Participants and to any benefits that are accrued on or after January 1, 2010 and that are thereafter paid or are payable under the Plan:

(i)   ERISA shall control all issues and controversies hereunder, and the Administrative Committee shall serve for purposes hereof as a “fiduciary” of the Plan and as its “named fiduciary” within the meaning of ERISA.

(ii)   All litigation between the parties relating to this Section shall occur in federal court, which shall have exclusive jurisdiction, any such litigation shall be held in the United States District Court for the Northern District of Texas, and the only remedies available with respect to the Plan shall be those provided under ERISA.

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(iii)   If the Administrative Committee determines in its sole discretion either (I) that AT&T or its affiliate that employed the Participant terminated the Participant’s employment for cause, or (II) that equitable relief enforcing the Participant’s covenants under this Section 8.2 is either not reasonably available, not ordered by a court of competent jurisdiction, or circumvented because the Participant has sued in state court, or has otherwise sought remedies not available under ERISA, then in any and all of such instances the Participant shall not be entitled to collect any Plan benefits accrued on or after January 1, 2010, and if any such Plan benefits have been paid to the Participant, the Participant shall immediately repay all such Plan benefits to the Plan (which shall be used to pay Plan administrative expenses or Plan benefits) upon written demand from the Administrative Committee.  Furthermore, the Participant shall hold AT&T and its affiliates harmless from any loss, expense, or damage that may arise from any of the conduct described in clauses (I) and (II) hereof.

     8.3   Notice.

 Any notice required or permitted to be given to the Administrative Committee or the SEVP-HR under the Plan shall be sufficient if in writing and hand delivered, or sent by certified mail, to the principal

 office of AT&T, directed to the attention of the SEVP-HR.  Any notice required or permitted to be given to a Participant shall be sufficient if in writing and hand delivered, or sent by certified mail, to

 Participant at Participant's last known mailing address as reflected on the records of his or her employing company or the company from which the Participant incurred a Termination of Employment, as

 applicable.  Notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for certification.

     8.4   Validity.

 In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this plan.

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     8.5   Applicable Law.

 This Plan shall be governed and construed in accordance with ERISA, and the laws of the State of Texas to the extent not preempted by ERISA.

9.Claims and Appeal.

     9.1   Claims.

 A person who believes that he or she is being denied a benefit to which he or she is entitled under this Plan (hereinafter referred to as a “Claimant”) may file a written request for such benefit with the

 Executive Compensation Administration Department, setting forth his or her claim. The request must be addressed to the AT&T Executive Compensation Department at its then principal place of

 business.

     9.2   Claim Decision.

 Upon receipt of a claim, the AT&T Executive Compensation Department shall review the claim and provide the Claimant with a written notice of its decision within a reasonable period of time, not to

 exceed ninety (90) days, after the claim is received. If the AT&T Executive Compensation Department determines that special circumstances require an extension of time beyond the initial ninety (90)-day

 claim review period, the AT&T Executive Compensation Department shall notify the Claimant in writing within the initial ninety (90)-day period and explain the special circumstances that require the

 extension and state the date by which the AT&T Executive Compensation Department expects to render its decision on the claim. If this notice is provided, the AT&T Executive Compensation Department

 may take up to an additional ninety (90) days (for a total of one hundred eighty (180) days after receipt of the claim) to render its decision on the claim.

 If the claim is denied by the AT&T Executive Compensation Department, in whole or in part, the AT&T Executive Compensation Department shall provide a written decision using language calculated to

 be understood by the Claimant and setting forth:  (i) the specific reason or reasons for such denial; (ii) specific references to pertinent provisions of this Plan on which such denial is based; (iii) a

 description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or such information is necessary; (iv) a description of the

 Plan’s procedures for review of denied claims and the steps to be taken if the Claimant wishes to submit the claim for review; (v) the time limits for requesting a review of a denied claim under Section 9.3

 and for conducting the review under Section 9.4; and (vi) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA if the claim is denied following review under Section 9.4.

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    9.3   Request for Review.

Within sixty (60) days after the receipt by the Claimant of the written decision on the claim provided for in Section 9.2, the Claimant may request in writing that the Administrative Committee review the 

determination of the AT&T Executive Compensation Department. Such request must be addressed to the Administrative Committee at the address for giving notice pursuant to Section 8.3. To assist the

Claimant in deciding whether to request a review of a denied claim or in preparing a request for review of a denied claim, a Claimant shall be provided, upon written request to the Administrative Committee

and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim. The Claimant or his or her duly authorized representative may, but need not,

submit a statement of the issues and comments in writing, as well as other documents, records or other information relating to the claim for consideration by the Administrative Committee. If the Claimant

does not request a review of the AT&T Executive Compensation Department’s decision by the Administrative Committee within such sixty (60)-day period, the Claimant shall be barred and estopped from

challenging the determination of the AT&T Executive Compensation Department.

    9.4   Review of Decision.

Review of Decision. Within sixty (60) days after the Administrator’s receipt of a request for review, the Administrative Committee will review the decision of the AT&T Executive Compensation Department. If the Administrative Committee determines that special circumstances require an extension of time beyond the initial sixty (60)-day review period, the Administrative Committee shall notify the Claimant in writing within the initial sixty (60)-day period and explain the special circumstances that require the extension and state the date by which the Administrative Committee expects to render its decision on the review of the claim.  If this notice is provided, the Administrative Committee may take up to an additional sixty (60) days (for a total of one hundred twenty (120) days after receipt of the request for review) to render its decision on the review of the claim.

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During its review of the claim, the Administrative Committee shall:

(a)   Take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial review of the claim conducted pursuant to Section 9.2;

(b)   Follow reasonable procedures to verify that its benefit determination is made in accordance with the applicable Plan documents; and

(c)   Follow reasonable procedures to ensure that the applicable Plan provisions are applied to the Participant to whom the claim relates in a manner consistent with how such provisions have been applied to other similarly-situated Participants.

After considering all materials presented by the Claimant, the Administrative Committee will render a decision, written in a manner designed to be understood by the Claimant. If the Administrative Committee denies the claim on review, the written decision will include (i) the specific reasons for the decision; (ii) specific references to the pertinent provisions of this Plan on which the decision is based; (iii) a statement that the Claimant is entitled to receive, upon request to the Administrative Committee and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and (iv) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA.

30 

The Administrative Committee shall serve as the final review committee under the Plan and shall have sole and complete discretionary authority to administer, interpret, construe and apply the Plan provisions, and determine all questions of administration, interpretation, construction, and application of the Plan, including questions and determinations of eligibility, entitlement to benefits and the type, form and amount of any payment of benefits, all in its sole and absolute discretion. The Committee shall further have the authority to determine all relevant facts and related issues, and all documents, records and other information relevant to a claim conclusively for all parties, and in accordance with the terms of the documents or instruments governing the Plan. Decisions by the Administrative Committee shall be conclusive and binding on all parties and not subject to further review.

In any case, a Participant or Beneficiary may have further rights under ERISA. The Plan provisions require that Participants or Beneficiary pursue all claim and appeal rights described in this Section 9 before they seek any other legal recourse regarding claims for benefits.  In any case, a Participant or Beneficiary may have further rights under ERISA. The Plan provisions require that Participants or Beneficiary pursue all claim and appeal rights described in this Section 9 before they seek any other legal recourse regarding claims for benefits.

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Attachment A

LUMP SUM DISTRIBUTION AGREEMENT

This Lump Sum Distribution Agreement is made as of the ____ day of ______________, ____ by and between AT&T Inc. (“AT&T” or the “Company”) and _______________(“Participant”).  Unless otherwise indicated herein, capitalized words used herein shall have the same meaning ascribed to such words in the 2005 Supplemental Employee Retirement Plan (the “Plan” or SERP”).

WHEREAS, Participant is a Participant in the Plan, which is sponsored by the Company;

WHEREAS, pursuant to the Plan, Participant executed an Agreement, governing Participant’s benefits in the Plan;

WHEREAS, Participant’s Agreement provides for the distribution of his benefits in the form of a lump sum, payable one hundred percent (100%) upon the six (6) month anniversary of his Termination of Employment provided that Participant is age sixty (60) or older as of the date of his Termination of Employment and Participant agrees not to compete with an Employer Business;

NOW, THEREFORE, the parties hereto, for good and valuable consideration, the sufficiency of which is hereby acknowledged, hereby agree as follows:

1.   If Participant is age sixty (60) or over as of the date of his Termination of Employment, Company shall pay to Participant hisbenefits under the Plan in the form of a lump sum distribution, one

one hundred percent (100%) of which shall be paid upon the six (6) month anniversary of Participant’s Termination of Employment.

2.   In exchange for the right to receive the payment described in Paragraph 1, above, Participant acknowledges and agrees to the terms and conditions of Section 8.2 of the Plan in the form attached hereto.

3.   Participant acknowledges and agrees that he shall promptly return to the Company and forfeit all consideration previously received pursuant to this Lump Sum Distribution Agreement, specifically the payment referred to in Paragraph 1, if he violates the provisions of Paragraph 2.

4.   Participant may submit a description of any proposed activity that could arguably violate Section 8.2 of the Plan in writing to AT&T and AT&T shall advise Participantin writing within fifteen (15) business days whether such proposed activity would constitute engaging in competition with an Employer business, within the meaning of this Lump Sum Distribution Agreement.

5.   It is hereby specifically agreed that the terms of this Lump Sum Distribution Agreement shall be kept strictly confidential and that neither party shall, except as necessary for performance of the terms hereof or as specifically required by law, disclose the existence of this Lump Sum Distribution Agreement or any of its terms to third persons without the express consent of the other party.

1 

Attachment A

6.   Participantagrees that for any breach or threatened breach of any of the provisions of this Lump Sum Distribution Agreement by Participant, including but not limited to the provisions in Section 8.2 of the Plan, incorporated herein pursuant to Paragraph 2 of this Lump Sum Distribution Agreement, the Company shall have no adequate legal remedy, and in addition to any other remedies available, including the repayment and forfeiture remedies described in Paragraph 3, a restraining order and/or an injunction may be issued against Participantto prevent or restrain any such breach.

7.   Any notice required hereunder to be given by either party will be in writing and will be deemed effectively given upon personal delivery to the party to be notified, or five (5) days after deposit with the United States Post Office by certified mail, postage prepaid, to the other party at the address set forth below, or to such other address as either party may from time to time designate by ten (10) days advance written notice pursuant to this Paragraph.

8.   In the event any provision of this Lump Sum Distribution Agreement is held invalid, void, or unenforceable, the same shall not affect in any respect whatsoever the validity of any other provision of this Lump Sum Distribution Agreement, except that should any part of the non-compete provisions of Paragraph 2 of this Agreement be held invalid, void, or unenforceable as applicable to and as asserted by Participant, this Lump Sum Distribution Agreement, at the Company's option, may be declared by the Company null and void.  If this Lump Sum Distribution Agreement is declared null and void by Company pursuant to the provisions of this Paragraph, Participant shall return to Company all consideration previously received pursuant to this Lump Sum Distribution Agreement.

AT&T Inc.

By: Senior Executive Vice

 President-Human Resources

       208 S. Akard

       Dallas, Texas  75202

Date                                                                           Date

2 

Attachment B

“Immediate Annuity Value of any AT&T or affiliate Qualified Pensions” shall mean:

The annual amount of annuity payments that would be paid out of the qualified defined benefit pension plan sponsored by AT&T or an AT&T affiliate in which the Participant participates on a single life, level payment annuity basis assuming payment of such qualified defined benefit pension plan benefit commenced immediately upon the Participant’s Termination of Employment, notwithstanding the form of payment of such qualified defined benefit pension plan’s benefit actually made to the Participant (i.e., joint and survivor annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such qualified defined benefit pension plan benefit.

1 

Attachment C

Immediate Annuity Value of SRIP. "Immediate Annuity Value of SRIP" shall mean

An objectively determined amount as of December 31, 2008 equal to the annual amount of a level payment, single life with 10 year certain annuity benefit that would be paid to the Participant pursuant to the SRIP as it exists on December 31, 2008 assuming the Participant became eligible to receive a distribution of benefit payments under the SRIP on December 31, 2008, applying the Participant’s Final Average Earnings and Years of Service (both as defined in the SRIP) as of December 31, 2004 and the Participant’s age as of December 31, 2008, notwithstanding the form of payment of the SRIP benefit that would actually be made to the Participant (i.e., joint and survivor annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such SRIP benefit.

1 

Attachment D

Attachment D to the AT&T 2005 Supplemental Employee Retirement Plan

Immediate Annuity Value of any AT&T or AT&T affiliate Non-Qualified Pensions other than SERP.  "Immediate Annuity Value of any AT&T or AT&T affiliate Non-Qualified Pensions other than SERP" shall mean with respect to a Participant, any one or more of the following, as applicable:

1.           For a Participant who is a participant in (or otherwise has a benefit in) the AT&T Pension Benefit Make Up Plan No. 1  (“PBMU No. 1”), the AT&T Pension Benefit Make Up Plan No. 2 (“PBMU No. 2”), the AT&T Inc. Management Mid-Career Hire Plan (the “Mid-Career Plan”), the Cingular Wireless SBC Executive Transition Pension Make Up Plan (the “Cingular Plan”) and/or the Pacific Telesis Group Executive Supplemental Cash Balance Pension Plan (“PTG Plan”) and is a Participant in the Plan on December 31, 2008:

An objectively determined amount as of December 31, 2008 equal to the annual amount of a level payment, single life annuity benefit that would be paid to the Participant pursuant to the PBMU No. 1, the PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or the PTG Plan, as applicable, as they exist on December 31, 2008 assuming the Participant became eligible to receive a distribution of benefit payments under the PBMU No. 1, the PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or the PTG Plan, as applicable, on December 31, 2008, notwithstanding the form of payment of the benefit that would actually be made to the Participant pursuant to the PBMU No. 1, the PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or the PTG Plan, (i.e., 10-year certain annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such PBMU No. 1, PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or PTG Plan benefit.

2.           For a Participant who is a participant in (or otherwise has a benefit in) the PBMU No. 1, the PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or the PTG Plan and has a SERP Effective Date after December 31, 2008:

An objectively determined amount as of the Participant’s SERP Effective Date equal to the annual amount of a level payment, single life annuity benefit that would be paid to the Participant pursuant to the PBMU No. 1, the PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or the PTG Plan, as applicable, as they exist on the Participant’s SERP Effective Date assuming the Participant became eligible to receive a distribution of benefit payments under the PBMU No. 1, the PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or the PTG Plan, on his or her SERP Effective Date, notwithstanding the form of payment of the benefit that would actually be made to the Participant pursuant to the PBMU No. 1, the PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or the PTG Plan (i.e., 10-year certain annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such PBMU No. 1, PBMU No. 2, the Mid-Career Plan, the Cingular Plan, and/or PTG Plan benefit.

1 

Attachment D

3.           For a Participant who is a participant in (or otherwise has a benefit in) the BellSouth Corporation Supplemental Executive Retirement Plan (the “BellSouth Plan”) and is a Participant in the Plan on December 31, 2008:

An objectively determined amount as of December 31, 2008 equal to the annual amount of a level payment, single life annuity benefit that would be paid to the Participant pursuant to the BellSouth Plan as it exists on December 31, 2008 assuming the Participant became eligible to receive a distribution of benefit payments under the BellSouth Plan on December 31, 2008, but applying the Participant’s age and years of service as if the Participant remained employed through the fourth anniversary of his or her SERP Effective Date and the Participant’s Included Earnings (as defined in the BellSouth Plan) as of December 31, 2008, notwithstanding the form of payment of the BellSouth Plan’s benefit that would actually be made to the Participant (i.e., joint and survivor annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such BellSouth Plan benefit.

4.           For a Participant who is a participant in (or otherwise has a benefit in) the BellSouth Plan and has a SERP Effective Date after December 31, 2008:

An objectively determined amount as of the Participant’s SERP Effective Date equal to the annual amount of a level payment, single life annuity benefit that would be paid to the Participant pursuant to the BellSouth Plan as it exists on the Participant’s SERP Effective Date assuming the Participant became eligible to receive a distribution of benefit payments under the BellSouth Plan on his or her SERP Effective Date (applying the Participant’s age, years of service and Included Earnings (as defined in the BellSouth Plan) as of the Participant’s SERP Effective Date), notwithstanding the form of payment of the BellSouth Plan’s benefit that would actually be made to the Participant (i.e., joint and survivor annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such BellSouth Plan benefit.

2 

Attachment D

5.           For a Participant who is a participant in (or otherwise has a benefit in) the AT&T Corp. Long Term Disability and Survivor Protection Plan (“LTDSPP”) and is entitled to a nonqualified defined benefit from the LTDSPP, the AT&T Corp. Excess Benefit and Compensation Plan, (“Excess Plan”), and/or the AT&T Corp. Non-Qualified Pension Plan (“NQPP”) and is a Participant in the Plan on December 31, 2008 (the Participant’s election as to the time and form of benefits under these plans is identical to such election under this Plan):

The benefit payments paid pursuant to the LTDSPP (nonqualified defined benefit only), Excess Plan, and/or the NQPP, as applicable, commencing at the actual time and pursuant to the actual form such benefit payments are made from the LTDSPP, Excess Plan, and/or the NQPP, as applicable.

6.           For a Participant who is a participant in (or otherwise has a benefit in) the LTDSPP and is entitled to a nonqualified defined benefit from the LTDSPP, the Excess Plan, and/or the NQPP and has a SERP Effective Date after December 31, 2008:

An objectively determined amount as of the Participant’s SERP Effective Date equal to the annual amount of a level payment, single life annuity benefit that would be paid to the Participant pursuant to the LTDSPP (nonqualified defined benefit only), the Excess Plan, and/or the NQPP, as applicable, as they exist on the Participant’s SERP Effective Date assuming the Participant became eligible to receive a distribution of benefit payments under the AT&T Corp. LTDSPP (nonqualified defined benefit only), the Excess Plan, and/or the NQPP, on his or her SERP Effective Date, notwithstanding the form of payment of the benefit that would actually be made to the Participant pursuant to the LTDSPP (nonqualified defined benefit only), the Excess Plan, and/or the NQPP (i.e., 10-year certain annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such the AT&T Corp. LTDSPP (nonqualified defined benefit only), the Excess Plan, and/or the NQPP benefit.

3 

Attachment E

Attachment E applies with respect to any Participant who:

·   Became a Participant in the 2005 AT&T Supplemental Executive Retirement Plan on or before December 31, 2008;

·   Is a participant in the BellSouth Corporation Supplemental Executive Retirement Plan; and

·   Attained the age of fifty-four (54) on or before March 1, 2007; and

·   Realizes a Termination of Employment on or after January 1, 2009.

Upon Termination of Employment, such Participant’s Plan benefit shall equal the greater of his or her benefit determined in accordance with Section 3 of the Plan or this Attachment E.

A.           Definitions.  Solely for purposes of this Attachment E, the following words shall have the meanings as provided in this Attachment E.  Any other capitalized word, not otherwise defined in this Attachment E, shall have the meaning as provided in Section 2 of the Plan.

1. The term "Annual Bonus Award" shall mean the bonus amount paid annually to an Attachment E Participant that is included in the calculation of pension benefits under the Pension Plan.

2. The term “Attachment E Participant” shall mean any Participant to whom Attachment E applies as described in the first paragraph of this Attachment E.

3. The terms "BellSouth Corporation" and "Company" shall mean BellSouth Corporation, a Georgia corporation, or its successors.

4. The term "Included Earnings" shall mean the 12 month average of the sum of (1) the last sixty (60) months of base pay, plus (2) the Annual Bonus Awards payable during or after that sixty (60) month period; provided, however, Included Earnings shall not include base pay or Annual Bonus Awards earned after March 1, 2011.  The amounts of base pay and other payments used to determine Included Earnings as described above include all amounts during the specified period including those amounts previously deferred pursuant to other plans.  If an Attachment E Participant terminates employment while eligible for a benefit under this Attachment E and thereafter receives Included Earnings, these additional Included Earnings shall be deemed to have been paid as of the date of the Attachment E Participant’s Termination of Employment, and the amount of benefit payable under this Attachment E shall be corrected accordingly.

1 

Attachment E

5. The term “Merger” shall mean the merger, pursuant to the Agreement and Plan of Merger dated as of March 4, 2006 (the “Merger Agreement”), by and among BellSouth, AT&T Inc. (“AT&T”), and ABC Consolidation Corp., a Georgia corporation and wholly-owned subsidiary of AT&T (“Merger Sub”), pursuant to which, at the “Effective Time” (as defined in the Merger Agreement), BellSouth was merged with and into the Merger Sub.

6. The term "Pension Plan" shall mean the BellSouth Personal Retirement Account Pension Plan as in effect on the date of the Merger.

7. The term "Standard Annual Bonus" shall mean the Attachment E Participant’s Target Award under the AT&T 2006 Incentive Plan or the AT&T Short Term Incentive Plan and for periods of time prior to the Attachment E Participant’s participation in the AT&T 2006 Incentive Plan or the AT&T Short Term Incentive Plan, Standard Annual Bonus shall mean an amount determined by applying a target percentage of an Attachment E Participant’s base pay rate as determined by the annual compensation plan and the Attachment E Participant’s job or pay grade.

8. The term "Vesting Service Credit", except as expressly limited or otherwise provided in this Attachment E or under an individual Attachment E Participant’s employment-related agreement with the Company, shall have the same meaning as is attributed to such term under the Pension Plan and shall be interpreted in the same manner as that term is interpreted for purposes of the Pension Plan; provided, however, Vesting Service Credit shall not include any period of time on or after March 1, 2011.

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Attachment E

B.           Benefit Amount.  An Attachment E Participant’s benefit under this Attachment E shall be determined as follows:

The aggregate annualized benefit of each Attachment E Participant shall be determined by adding the sum of two percent (2%) of Included Earnings for each year of the Attachment E Participant's Vesting Service Credit for the first twenty years, plus one and one-half percent (1.5%) of Included Earnings for each year of the Attachment E Participant's Vesting Service Credit for the next ten years, plus one percent (1%) of Included Earnings for each year of the Attachment E Participant's Vesting Service Credit for each additional year up to the month in which the Attachment E Participant retires less (1) 100% of the Primary Social Security benefit payable at age 65, (2) 100% of the retirement benefit (unreduced for survivor annuity) payable from the Pension Plan (as defined below), and (3) 100% of the benefit payable from the BellSouth Corporation Supplemental Executive Retirement Plan (as defined below).

a.           The benefit reduction to be applied for the benefit payable from the Pension Plan shall be the amount of such benefit that would be payable on the date that benefits are eligible to be paid (or become payable) under the Plan, or, if earlier, March 1, 2011 (regardless of the Attachment E Participant’s actual pension commencement date under the Pension Plan) and determined assuming that the Attachment E Participant elected a single life annuity (regardless of the actual form of benefit elected under the Pension Plan).

The benefit reduction to be applied for the benefit payable from the BellSouth Corporation Supplemental Executive Retirement Plan shall be an objectively determined amount as of December 31, 2008 equal to the annual amount of a level payment, single life annuity benefit that would be paid to the Attachment E Participant pursuant to the BellSouth Supplemental Executive Retirement Plan as it exists on December 31, 2008 assuming the Attachment E Participant became eligible to receive a distribution of benefit payments under the BellSouth Supplemental Executive Retirement Plan on December 31, 2008, but applying the Attachment E Participant’s age and years of service as of March 1, 2011 and the Attachment E Participant’s Included Earnings as of December 31, 2008, notwithstanding the form of payment of the BellSouth Supplemental Executive Retirement Plan’s benefit that would actually be made to the Attachment E Participant (i.e., joint and survivor annuity, lump sum, etc.) and notwithstanding the actual commencement date of the payment of such BellSouth Supplemental Executive Retirement Plan benefit.

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Attachment E

b.           The benefit amount determined in accordance with this Attachment E (expressed as an annuity) at the time of the Attachment E Participant’s Termination of Employment shall not be less than the benefit that would have been payable to the Attachment E Participant if the Attachment E Participant had a Termination of Employment on any prior December 31 (using pay, service, offsets and all factors applicable on the previous dates and assuming an immediate benefit commencement).

c.           The benefit amount determined in accordance with this Attachment E shall be reduced (before the offset for benefits under the Pension Plan) by one-quarter percent (0.25%) for each calendar month or part thereof by which the Attachment E Participant’s Termination of Employment precedes his or her 62nd birthday.

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Attachment F

SPECIAL PROVISIONS APPLICABLE TO NAMED PARTICIPANTS

I.

SCOPE OF ATTACHMENT

1.1   The provisions of this Attachment apply to specifically named Participants (a “Named Participant”).  To the extent the provisions of this Attachment conflict with other provisions of the Plan, this Attachment will control with respect to the named Participants.

1.2   Capitalized terms used in this Attachment shall have the meaning assigned to such terms in the Plan, unless defined otherwise in this Attachment F or the context clearly indicates to the contrary.

1.3   As of the Determination Date, a Named Participant’s Target Retirement Benefit shall be converted to a lump sum amount (“Target Retirement Cash Balance Account”), to which interest credits shall be applied.  At the Named Participant’s Termination of Employment, the lump sum account balance (including interest credits) shall be converted to a Life with 10 Year Certain SERP Benefit for purposes of applying any applicable offsets and the net benefit shall then be converted, as applicable, to the Benefit Payout Alternative elected by the Named Participant.

II.

2.1   Target Retirement Cash Balance Account.  The SERP Benefit formula of Plan Section 3.1 shall be applied using the following elements for the Named Participant as of the Determination Date, except in the case of the named Participant’s earlier Termination of Employment, to determine the Named Participant’s Target Retirement Cash Balance Account:

Named Participant:	Determination Date	Service Factor Determined as of:	Final Average Earnings Determined as of:	Age Discount Determined  as of:	Applicable Interest Rate and Mortality Table
Randall Stephenson	December 31, 2012	December 31, 2012	June 30, 2010	December 31, 2012	5.8%; 2011 Applicable PPA  Mortality Rates

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Attachment F

2.2   Interest Credits.  From and after the Determination Date, the SEVP-HR shall maintain a record of each Named Participants’ Target Retirement Cash Balance Account.  During such period of time that all or any portion of a Named Participant’s Target Retirement Cash Balance Account is not paid, interest shall be credited at the Applicable Interest Rate.

2.3   Action at Named Participant’s Termination of Employment. Upon Termination of Employment:

(a)   a Named Participant’s Target Retirement Cash Balance Account, as adjusted for interest credits, shall be converted to an equivalent Life with a 10-Year Certain Benefit (as described in Plan Section 4.2(a)).  For purposes of such conversion, the Applicable Interest Rate and Mortality Table in the table above shall apply; provided, however, the Named Participant’s age on his or her Termination of Employment date shall apply.

(b)   The resulting Life with a 10-Year Certain Benefit shall be offset by the amounts described in Plan Section 3.1 (such as other pension values and age discount) to obtain the Annual Value of Life with 10 Year Certain SERP Benefit payable as a result of Termination of Employment.

   (c)   The Named Participant’s Annual Value of Life with 10 Year Certain SERP Benefit payable as a result of Termination of Employment shall be converted, as necessary, to the actuarial equivalent of the Benefit Payout Alternative elected by the Named Participant using the Applicable Interest Rate and Mortality Table in the table above; provided, however, the Named Participant’s age on his Termination of Employment date shall apply.

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Attachment G

PROVISIONS APPLICABLE TO NAMED PARTICIPANTS

TRANSFERRING TO EMPLOYMENT WITH YP HOLDINGS LLC

I.

SCOPE OF ATTACHMENT

1.1   On April 7, 2012, AT&T reached an agreement to sell its Advertising Solutions (AS) business to Cerberus Capital Management, L.P. pursuant to an agreement entitled the “Purchase Agreement by and between AT&T Inc. and Congo Buyer LLC” (with this transaction known as the “YP Transaction”). The closing of the YP Transaction shall be referred to as the “Closing.”  The provisions of this Attachment G apply to specifically named Participants (see section 1.3, below) who, as part of the YP Transaction, cease employment at an AT&T controlled group company and transfer employment to YP Holdings LLC (“YP Holdings”) at Closing.  A Participant specifically named in Section 1.3, below shall be referred to herein as a “Named YP Participant”.  To the extent the provisions of this Attachment G conflict with other provisions of the Plan, this Attachment will control with respect to a Named YP Participant.

1.2   Capitalized terms used in this Attachment shall have the meaning assigned to such terms in the Plan, unless defined otherwise in this Attachment G or the context clearly indicates to the contrary.

1.3 Named YP Participant shall mean Gale Wickham.

II.

PROVISIONS FOR NAMED YP PARTICIPANTS

2.1 In compliance with Code section 409A, a Termination of Employment will not occur for a Named YP Participant as a result of the Closing for purposes of Plan Section 6, “Payment of Benefits.”  However, a Named YP Participant realizes a Termination of Employment at Closing for other purposes under the Plan, including for purposes of determining the Named YP Participant’s Final Average Earnings and, absent the provisions of this Attachment G, Years of Service.

2.2 Years of Service under the Plan shall include a Named YP Participant’s actual years of service with YP Holdings, up to a maximum of four years from the Closing.

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Attachment G

2.3 Furthermore, if the Plan Administrator determines that a Named YP Participant’s employment was involuntarily terminated by YP Holdings for any reason other than for cause within the four year period immediately following the Closing, then the Named YP Participant shall be deemed to have completed 30 Years of Service under the Plan.  For purposes of clarity, if the Named YP Participant is involuntarily terminated for cause or voluntarily terminates his employment (as determined by the Plan Administrator), then his actual service with YP Holdings through the time of such termination will be recognized by the Plan for the purposes described above in Section 2.2.

2.4 The Named YP Participant’s age upon his actual termination of employment from YP Holdings will be used to determine the Age Discount, if any, as well as eligibility for the Named YP Participant’s elected Benefit Payout Alternatives.

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EX-10.B

Exhibit 10-b

AT&T HEALTH PLAN

Effective:  January 1, 1987

                                                        Previously Amended and Restated:  January 1, 2012

Amended and Restated June 28, 2012

 Effective:  January 1, 2013 (unless otherwise provided herein)

AT&T HEALTH PLAN

TABLE OF CONTENTS

ARTICLE 1      PURPOSE ......................................................................................................   1

ARTICLE 2      DEFINITIONS ..............................................................................................   1

ARTICLE 3      ELIGIBILITY .................................................................................................   5

ARTICLE 4      BENEFITS .....................................................................................................   5

ARTICLE 5      TERMINATION OF PARTICIPATION ...................................................   7

ARTICLE 6      DISABILITY .................................................................................................   9

ARTICLE 7      COSTS ...........................................................................................................   9

ARTICLE 8      LOYALTY CONDITIONS .......................................................................... 10

ARTICLE 9      MISCELLANEOUS ..................................................................................... 13

ARTICLE 10    COBRA ......................................................................................................... 15

ARTICLE 11    PRIVACY OF MEDICAL INFORMATION ............................................. 18

ARTICLE 12    CLAIM AND APPEAL PROCESS ............................................................ 21

AT&T HEALTH PLAN

ARTICLE 1   PURPOSE

The AT&T Health Plan ("Plan") provides Participants with supplemental medical, dental, and vision benefits.  Effective March 23, 2010, the Plan shall be frozen to new Participants, as further described in Section 2.16.  The Company intends this Plan to be a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the “Affordable Care Act”).  Appendix C hereto contains the required Participant disclosure regarding the Plan’s grandfathered status under the Affordable Care Act.

ARTICLE 2   DEFINITIONS

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

2.1Active Participant.  “Active Participant” shall mean an Active Employee Participant and his Dependents.

2.2Active Employee Participant.  “Active Employee Participant” shall mean an Eligible Employee electing to participate in the Plan while in active service, on a Leave of Absence or while receiving short term disability benefits under the Officer Disability Plan.

2.3Annual Deductible.  “Annual Deductible” shall mean the amount the Active Participant must pay for Covered Health Services in a Plan Year before the Plan will begin paying for Covered Benefits in that calendar year.  The Annual Deductible applies to all Covered Health Services.  The Annual Deductible does not apply to Preventive Care, Dental Services and Vision Services.  Solely for purposes of this Plan, the Annual Deductible will operate on a combined basis with the Annual Deductible (both the “Network/ONA” and “Non-Network Benefit” annual deductibles) applicable in the AT&T Medical Plan.  Once the Participant meets his applicable Annual Deductible, the Plan will begin to pay Covered Benefits, subject to any required Coinsurance, in accordance with and as governed by Section 4.1.  The applicable Annual Deductible is set forth in Appendix A to this Plan.

2.4Annual Out-of-Pocket Maximum.  “Annual Out-of-Pocket Maximum” shall mean the maximum amount of Covered Health Services an Active Participant must pay out-of-pocket every calendar year, including the Participant’s Annual Deductible.  Solely for purposes of this Plan, the Annual Out-of-Pocket Maximum will operate on a combined basis with the Annual Out-of-Pocket Maximum (both the “Network/ONA” and “Non-Network Benefit annual out-of-pocket maximums) applicable in the AT&T Medical Plan (or the Annual Out-of-Pocket Maximum in the AT&T International Health Plan for Officers serving in expatriate positions with the Company).  Once the Participant reaches the applicable Annual Out-of-Pocket Maximum, Covered Benefits for those Covered Health Services that apply to the Annual Out-of-Pocket Maximum are payable in accordance with and as governed by Section 4.1 during the rest of that Plan Year.  The following costs shall never apply toward the Annual Out-of-Pocket Maximum:  (a) any applicable Monthly Contributions and (b) any charges for Non-Covered Health Services.  Even when the Annual Out-of-Pocket Maximum has been reached, Covered Benefits will not be provided for the following:  (a) any applicable Monthly Contributions and (b) any charges for Non-Covered Health Services.  The applicable Annual Out-of-Pocket Maximum is set forth in Appendix A to this Plan.

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2.5AT&T.  “AT&T” shall mean AT&T Inc.  References to “Company” shall mean AT&T.

2.6Basic Plan(s). “Basic Plan(s)” shall mean AT&T’s group medical (known as the “AT&T Medical Plan” (or the “AT&T International Health Plan” for Officers serving in expatriate positions with the Company)), dental (non-DHMO option), and vision care plans (including the AT&T Retiree Vision Care Program).  For a Participant who Retired on or before August 31, 1992, Basic Plans shall mean the AT&T Medical and Group Life Insurance Plan–CustomCare (“CustomCare”) and dental (non-DHMO option) plans. For this purpose, the Plan Administrator maintains governing records setting forth the names of those Participants who Retired on or before August 31, 1992.

2.7CEO.  "CEO" shall mean the Chief Executive Officer of AT&T Inc.

2.8COBRA.  “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

2.9Coinsurance.  “Coinsurance” shall mean the amount an Active Participant must pay each time he receives Covered Health Services, after he meets the applicable Annual Deductible.  Coinsurance payments are calculated as a percentage of Covered Health Services, rather than a set dollar amount.  Coinsurance does not apply to Preventive Care, Dental Services and Vision Services (or Medical Services for Retired Participants as provided in Section 4.1(c)).  The applicable Coinsurance percentage is set forth in Appendix A to this Plan.

2.10Committee.  "Committee" shall mean the Human Resources Committee of the Board of Directors of AT&T Inc.

2.11Covered Benefits.  “Covered Benefits” shall mean the benefits provided by the Plan, as provided for and governed by Section 4.1 of the Plan.

2.12Covered Health Services.  “Covered Health Services” means all Medical Services or Preventive Care that would qualify as deductible medical expenses for federal income tax purposes, whether deducted or not.  Dental Services and Vision Services are not included in the definition of Covered Health Services.

2.13Dental Services.  “Dental Services” shall mean services for dental and orthodontic care.   The Plan Administrator, in its sole discretion, shall determine whether a particular service is classified as Preventive Care or a Dental, Medical or Vision Service.

2.14Dependent(s).  “Dependent(s)” shall mean those individuals who would qualify as a Participant’s dependent(s) under the terms of the group medical Basic Plan in which the Participant participates, or, if applicable, Substitute Basic Coverage.

2.15      Disability.  "Disability" shall mean qualification for long term disability benefits under Section 3.1 of the Officer Disability Plan.

2.16Eligible Employee.  "Eligible Employee" shall mean an Officer.  Notwithstanding the foregoing, the CEO may, from time to time, exclude any Officer or group of Officers from being an “Eligible Employee” under this Plan.  Employees of a company acquired by AT&T shall not be considered an Eligible Employee unless designated as such by the CEO.  Notwithstanding the foregoing, only the Committee shall have the authority to exclude from participation or take any action with respect to Executive Officers.

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Notwithstanding the foregoing provisions, individuals hired, rehired or promoted to an Officer level position on or after March 23, 2010 shall be excluded from the term Eligible Employee, and such individuals (and their Dependents) shall not be eligible to participate in this Plan.

2.17Employer.  "Employer" shall mean AT&T Inc. or any of its Subsidiaries.

2.18Executive Officer.  “Executive Officer” shall mean any executive officer of AT&T, as that term is used under the Securities Exchange Act of 1934.

2.19      Leave of Absence.  “Leave of Absence” shall mean a Company-approved leave of absence.

2.20Medical Services.  “Medical Services” shall mean medical/surgical, mental health/substance abuse and prescription pharmacy services.  The Plan Administrator, in its sole discretion, shall determine whether a particular service is classified as Preventive Care or a Medical, Dental or Vision Service.  Medical Services do not include Dental Services and Vision Services.

2.21Monthly Contributions.  “Monthly Contributions” shall mean the monthly premiums or contributions required for participation in this Plan as further governed by Article 7 of the Plan.  The applicable Monthly Contributions are set forth in Exhibit A to this Plan.

2.22Non-Covered Health Services.  “Non-Covered Health Services” shall mean any Medical Services or Preventive Care which do not meet the definition of Covered Health Services.

2.23Officer.  "Officer" shall mean an individual who is designated as an officer level employee for compensation purposes on the records of AT&T.

2.24Participant.  “Participant” shall mean an Active Participant or Retired Participant or both, as the context indicates.

2.25Plan Administrator.  “Plan Administrator” shall mean the SEVP-HR, or any other person or persons whom the Committee may appoint to administer the Plan; provided that the Committee may act as the Plan Administrator at any time.

2.26Plan Year. ”Plan Year” shall mean the calendar year.

2.27Preventive Care.  “Preventive Care” shall have the same meaning as such term has in the AT&T Medical Plan.  The plan administrator for the AT&T Medical Plan shall determine whether a particular service constitutes Preventive Care and the Plan Administrator for this Plan shall rely upon such determination.

2.28Qualified Dependent.  “Qualified Dependent” shall mean a Dependent who loses coverage under a COBRA eligible program due to a Qualifying Event.

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2.29Qualifying Event.“Qualifying Event” shall mean any of the following events if, but for COBRA continuation coverage, they would result in a Participant’s loss of coverage under this Plan:

(1) death of a covered Eligible Employee;

(2) termination (other than by reason of such Eligible Employee’s gross  misconduct) of an Employee’s employment;

(3) reduction in hours of an Eligible Employee;

(4) divorce or legal separation of an Eligible Employee or dissolution of an Eligible Employee’s registered domestic partnership;

(5) an Eligible Employee’s entitlement to Medicare benefits; or

(6) a Dependent child ceasing to qualify as a Dependent under the group medical Basic Plan, or, if applicable, Substitute Basic Coverage.

2.30Retire, Retired or Retirement.  “Retire,” “Retired” or "Retirement" shall mean the termination of an Active Employee Participant's employment with AT&T or any of its Subsidiaries, for reasons other than death, on or after the earlier of the following dates:  (1) the date such Active Employee Participant has attained age 55, and, for an Active Employee Participant on or after January 1, 2002, has five (5) years of service, or (2) the date the Active Employee Participant has attained one of the following combinations of age and service at termination of employment on or after April 1, 1997: 

Net Credited Service                        Age

25 years or more                                                      50 or older

30 years or more                                                      Any age

2.31      Retired Participant.  “Retired Participant” shall mean a Retired Employee Participant and his Dependents.

2.32      Retired Employee Participant.  “Retired Employee Participant” shall mean a former Active Employee Participant who has Retired within the meaning of Section 2.30 and who meets the additional requirements of Section 3.2 to be eligible for coverage in Retirement.

2.33      SEVP-HR.                      “SEVP-HR” shall mean AT&T’s highest ranking Officer, specifically responsible for human resources matters.

2.34      Subsidiary.  "Subsidiary" shall mean any corporation, partnership, venture or other entity in which AT&T 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.  Notwithstanding anything herein to the contrary, unless designated a “Subsidiary” pursuant to the immediately preceding sentence, Cingular Wireless LLC, Sterling Commerce, Inc., and their respective subsidiaries shall not be considered a Subsidiary under this Plan.

2.35      Vision Services.  “Vision Services” shall mean services for vision care.  The Plan Administrator, in its sole discretion, shall determine whether a particular service is classified as Preventive Care or a Vision, Medical or Dental Service.

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ARTICLE 3   ELIGIBILITY

3.1Active Participants.Each Eligible Employee shall be eligible to participate in this Plan along with his/her Dependent(s) beginning on the effective date of the employee becoming an Eligible Employee.

Upon becoming an Eligible Employee, he/she shall have 90 days to elect to participate in this Plan.  In order to continue participation, the Active Participant must pay all applicable Monthly Contributions.  If an Active Employee Participant terminates participation in this Plan at any time for any reason, that Participant and his/her Dependent(s) shall be ineligible to participate in the Plan at any time in the future.

3.2Retired Participants.  Provisions of this Plan will continue in effect during Retirement for each Retired Employee Participant and his/her Dependent(s) with respect to any Eligible Employee who became a Participant before January 1, 1999.  Neither an Eligible Employee who became a Participant after December 31, 1998 nor his/her Dependent(s) shall be eligible for participation hereunder on or after such Participant’s Retirement. Coverage for Retired Participants shall be subject to the payment of all applicable Monthly Contributions, as governed by Article 7.  The provisions of this Plan related to Retired Participants, including the level of Covered Benefits and the applicable Monthly Premiums, shall begin to apply on the first day of the month following the month in which the Active Employee Participant Retires.  If a Retired Employee Participant terminates participation at any time for any reason, participation of that Retired Employee participant and his/her Dependent(s) may not be reinstated for any reason.

3.3Requirement to Enroll and Participate in Basic Plans and Medicare.  Notwithstanding any provision in this plan to the contrary, as a condition to participation in the Plan, each Participant must be enrolled in, paying for, and participating in (i) the Basic Plans, or, if applicable, Substitute Basic Coverage, and (ii) all parts of Medicare for which such Participant is eligible and for which Medicare would be primary if enrolled therein, except for Medicare Part D relating to prescription drug coverage.

Notwithstanding any other provision of the Plan to the contrary, an individual who first becomes an Eligible Employee in the middle of a Plan Year and who is enrolled in AT&T sponsored group health plans other than the Basic Plans, will be allowed to participate in the Plan for the remainder of the Plan Year along with his/her Dependent(s) who are enrolled in such other AT&T sponsored health plans, as if they were participating in the Basic Plans.  At the next group enrollment opportunity for the Basic Plans, the Active Employee Participant and his/her Dependent(s) must enroll in the Basic Plans to continue participation in this Plan.

ARTICLE 4   BENEFITS

4.1Covered Benefits. Subject to the limitations in this Plan (including but not limited to the loyalty conditions set forth in Article 8 below), this Plan provides the benefits described below.  Monthly Contributions for participation in this Plan, the Basic Plans, Medicare, or any other health plan are not considered “services”, and are therefore are not Covered Benefits under this Plan.

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   (a)  Active Participants (Medical Services and Preventive Care) -

Medical Services - After the Annual Deductible has been met, 100% payment of Covered Health Services not paid under the AT&T Medical Plan (or AT&T International Health Plan with respect to Officers serving in expatriate positions with the Company) or Medicare minus the amount of Coinsurance, until the Active Participant reaches the Annual Out-of-Pocket Maximum, at which time coverage is 100% of Covered Health Services not paid under the AT&T Medical Plan (or AT&T International Health Plan with respect to Officers serving in expatriate positions with the Company) .

Preventive Care - Preventive Care, whether received as a “Network/ONA” service or “Non-Network” service, as defined in the AT&T Medical Plan, is covered at 100%, not subject to the Annual Deductible or Coinsurance.

(b)  Active Participants (Dental Services and Vision Services) -

100% payment, through reimbursement or otherwise, of all Dental Services and Vision Services not paid under the Active Participant’s (i) Basic Plans or (ii) Medicare, provided expenses for such services would qualify as deductible medical expenses for federal income tax purposes, whether deducted or not.

(c)  Retired Participants –

100% payment, through reimbursement or otherwise, of all Medical, Dental, Vision and Preventive services not paid under the Retired Participant’s (i) Basic Plans or, if applicable, Substitute Basic Coverage, or (ii) Medicare, provided expenses for such services would qualify as deductible medical expenses for federal income tax purposes, whether deducted or not.

4.2Covered Benefit Limits.  RESERVED

4.3Priority of Paying Covered Claims.  Claims for benefits will be applied against the various health plans and coordinated with Medicare in the following order:

 (1) Medicare, to the extent the Participant is eligible therefore and such claim is actually paid by Medicare,

 (2) Basic Plans,

 (3) CarePlus, if elected,

 (4) Long Term Care Plan, if elected,

 (5) this Plan.

4.4Substitute Basic Coverage.  Notwithstanding any other provision of this Plan to the contrary, if a Retired Employee Participant is eligible for participation under this Plan during Retirement, but not eligible to participate under the Basic Plans, the Plan shall provide medical, dental, and vision benefits for the Retired Employee Participant and his/her Dependent(s) substantially equivalent to the benefits under the Basic Plans through an insured product (hereinafter, "Substitute Basic Coverage").  Eligibility for Substitute Basic Coverage is conditioned upon the Retired Participant’s payment of contributions in the same amount that a similarly situated retired Basic Plan participant is required to pay under the Basic Plans. Such Substitute Basic Coverage shall constitute such Retired Participant’s Basic Plans for all purposes under this Plan.  The costs of Substitute Basic Coverage (except for the required monthly contributions referenced in this paragraph) shall be borne by AT&T, and the costs of Substitute Basic Coverage shall not be included in the determination of any Retired Participant’s annual Plan contribution amount as provided in Article 7.  In addition, certain other Retired Employee Participants participate in the “Separation Medical Plan” rather than the Basic Plans.  References to Substitute Basic Coverage throughout this Plan shall be deemed to include the Separation Medical Plan.  The Plan Administrator maintains records governing the names of those Retired Employee Participants who have Substitute Basic Coverage or Separation Medical Plan coverage.

  6

ARTICLE 5   TERMINATION OF PARTICIPATION

5.1Termination of Participation.  Participation will cease on the last day of the month in which one of the following conditions occurs:

 (1)  The Participant is no longer a participant in the Basic Plans or Substitute Basic Coverage, in which case participation ceases for such Participant;

 (2)  A Participant eligible to enroll in Medicare is no longer a participant in all parts of Medicare for which such Participant is eligible to enroll and for which Medicare would be primary if enrolled therein, except for Medicare Part D relating to prescription drug coverage, in which case participation ceases for such Participant;

 (3)  The Active Employee Participant’s termination of employment for reasons other than Death, Disability, or Retirement by an individual who meets the applicable requirements of Section 3.2 in order to qualify for Plan benefits in Retirement, in which case participation ceases for the Participant and his/her Dependent(s);

 (4)  The demotion or designation of an Active Employee Participant so as to no longer be eligible to participate in the Plan, in which case participation ceases for the Participant and his/her Dependent(s);

 (5)  The Active Employee Participant (or Retired Employee Participant) participates in an activity that constitutes engaging in competitive activity with AT&T or engaging in conduct disloyal to AT&T under Article 8, in which case participation ceases for the Active Employee Participant (or Retired Employee Participant) and his/her Dependent(s); or

 (6)  Discontinuance of the Plan by AT&T, or, with respect to a Subsidiary’s Active Employee Participants (or Retired Employee Participants), such Subsidiary’s failure to make the benefits hereunder available to Active Employee Participants employed by it (or its Retired Employee Participants).

5.2Dependents Failure to Participate in Basic Plans.  If a Dependent ceases participation under a Basic Plan or, if applicable, Substitute Basic Coverage, such Dependent’s participation under this Plan will cease with the same effective date.

7 

5.3Death.  In the event of the Active Employee Participant’s (or Retired Employee’s Participant’s) death, his  Dependents may continue participation in this Plan as follows:

(1) In the event of the death of a Retired Employee Participant such Retired Employee Participant’s Dependents may continue participation in this Plan, eligible for the Covered Benefits described in Section 4.1(c) of the Plan, for so long as such Dependents are participating in the Basic Plans (or, if applicable, Substitute Basic Coverage) and are paying any applicable contributions for this Plan as provided in Article 7. If a surviving spouse of such deceased Active Employee Participant otherwise eligible for participation in the Plan remarries, his/her participation and the participation of any otherwise eligible Dependents will cease with the effective date of his/ her marriage.

(2) In the event of an in-service death of an Active Employee Participant eligible to participate in the Plan in Retirement as provided under Article 3.2, who was Retirement eligible, within the meaning of Section 2.30, at the time of death, such Active Employee Participant’s surviving Dependents may continue participation in this Plan, eligible for the Covered Benefits described in Section 4.1(a) and (b),  for so long as such Dependents are participating in the Basic Plans (or, if applicable Substitute Basic Coverage) and are paying any applicable contributions for this Plan as provided in Article 7.  If a surviving spouse of such deceased Active Employee Participant otherwise eligible for participation in the Plan remarries, his/her participation and the participation of any otherwise eligible Dependents will cease with the effective date of his/ her marriage.

(3) In the event of (i) an in-service death of an Active Employee Participant not eligible to participate in the Plan in Retirement as provided in Article 3.2 or (ii) an in-service death of an Active Employee Participant eligible to participate in the Plan in Retirement as provided in Article 3.2 but the individual was not Retirement eligible, within the meaning of Section 2.30, at the time of death, such Active Employee Participant’s Dependent(s) may continue participation in this Plan, eligible for the Covered Benefits described in Sections 4.1(a) and (b), for a 36-month period commencing the month following the month in which such Active Employee Participant dies as long as such Dependent(s) are participating in the Basic Plans and subject to the payment of Active Participant Contributions for the first 12 months and payment of Active COBRA Contributions for the remaining 24 months, as provided by Articles 7 and 10.1.  If the Active Employee Participant’s Dependent(s) are eligible for COBRA, they will automatically be enrolled in COBRA so that there is no lapse in coverage, and this 36-month coverage will be integrated and run concurrently with COBRA coverage.

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ARTICLE 6   DISABILITY

6.1Disability.  With respect to any Active Employee Participant who commences receipt of short term or long term disability benefits under the Officer Disability Plan, participation under this Plan will be as follows:

 (1) The Participant will continue to participate in this Plan, eligible for the Covered Benefits described in Section 4.1(a) and (b), for as long as he/she receives short term disability benefits under the Officer Disability Plan and pays the applicable contributions for this Plan as provided by Article 7.

(2) An Active Employee Participant not eligible to participate in the Plan in Retirement as provided in Article 3.2 who commences long term disability benefits under the Officer Disability Plan or an Active Employee Participant eligible to participate in the Plan in Retirement as provided in Article 3.2 but who is not Retirement eligible, within the meaning of Section 2.30, at the time long term disability benefits under the Officer Disability Plan commence, will cease participation in this Plan (along with his/her Dependents) effective as of the last day of the calendar month in which such long term disability benefits commence, unless such benefits commence on the first day of a calendar month, in which case participation in this Plan shall cease effective as of the last day of the prior month.

(3) An Active Employee Participant eligible to participate in the Plan in Retirement as provided in Article 3.2 ,who is Retirement eligible, within the meaning of Section 2.30, at the time long term disability benefits under the Officer Disability Plan commence, will be eligible to continue participation in this Plan on the same terms and conditions that participation would be available to such Participant in Retirement, subject to the payment of applicable contributions for this Plan as provided by Article 7, regardless of his/her continued receipt of long term disability benefits under the Officer Disability Plan.

ARTICLE 7   COSTS

7.1Provision of Benefits under the Plan.  Except as provided below in this Article 7 with respect to required Monthly Contributions or with respect to any required Coinsurance, the benefits available to Participants under this Plan shall be provided through an insurance policy maintained by AT&T.

7.2Active Participant Contributions.  An Active Participant electing to participate in the Plan will pay Monthly Contributions to participate in the Plan while in active service, while on Leave of Absence or while receiving short term disability benefits under the Officer Disability Plan. The Monthly Contribution for participation may change annually, effective at the beginning of each Plan Year.  Contributions to be made by Active Participants electing to participate in the Plan shall be set annually by the SEVP-HR, determined in the SEVP-HR’s sole and absolute discretion.  The SEVP-HR may adopt tiered rates for similarly situated groups of Participants based on factors such as the number of Dependents covered or Medicare eligibility.  Notwithstanding the foregoing, required Monthly Contributions for Executive Officers shall be approved by the Committee.

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7.3Retired Participant Contributions.  Retired Participants who elect to participate will pay Monthly Contributions to participate in the Plan. The Monthly Contribution for participation may change annually, effective at the beginning of each Plan Year.  Contributions to be made by Retired Participants who elect to participate shall be set annually by the SEVP-HR (in his/her sole and absolute discretion), to the extent their contributions have not previously been provided for in a separate agreement.

7.4Survivor Contributions.  Upon the death of a Participant, the Participant’s Dependents shall be required to pay Monthly Contributions to participate in the Plan.  The Monthly Contributions shall be set annually by the SEVP-HR, in the SEVP-HR’s sole and absolute discretion.  Any changes to the Monthly Contributions shall be effective at the beginning of each Plan Year.

7.5Contributions for Participants on Disability.  Participants continuing benefits while on Disability shall be required to pay Monthly Contributions to participate in the Plan.  The Monthly Contributions shall be set annually by the SEVP-HR, determined in the SEVP-HR’s sole and absolute discretion.  Any changes to the Monthly Contributions shall be effective at the beginning of each Plan Year.

ARTICLE 8   LOYALTY CONDITIONS

8.1Participants acknowledge that no coverage and benefits would be provided under this Plan on and after January 1, 2010 but for the loyalty conditions and covenants set forth in this Article, and that the conditions and covenants herein are a material inducement to AT&T’s willingness to sponsor the Plan and to offer Plan coverage and benefits for the Participants on or after January 1, 2010.  Accordingly, as a condition of receiving coverage and any Plan benefits on or after January 1, 2010, each Participant is deemed to agree that he shall not, without obtaining the written consent of the Plan Administrator in advance, participate in activities that constitute engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as those terms are defined in this Section.  Further and notwithstanding any other provision of this Plan, all coverage and benefits under this Plan on and after January 1, 2010 with respect to a Participant and his or her Dependents shall be subject in their entirety to the enforcement provisions of this Section if the Participant, without the Plan Administrator’s consent, participates in an activity that constitutes engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as defined below.  The provisions of this Article 8 as in effect immediately before such date shall be applicable to Participants who retire before January 1, 2010.

8.2Definitions.  For purposes of this Article and of the Plan generally

(1)an “Employer Business” shall mean AT&T, any Subsidiary, or any business in which AT&T or a Subsidiary or an affiliated company of AT&T has a substantial ownership or joint venture interest;

(2)“engaging in competition with AT&T” shall mean, while employed by an Employer Business or within two (2) years after the Participant’s termination of employment, engaging by the Participant in any business or activity in all or any portion of the same geographical market where the same or substantially similar business or activity is being carried on by an Employer Business.  “Engaging in competition with AT&T” shall not include owning a nonsubstantial publicly traded interest as a shareholder in a business that competes with an Employer Business.  “Engaging in competition with AT&T” shall include representing or providing consulting services to, or being an employee or director of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.

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(3)“engaging in conduct disloyal to AT&T” means, while employed by an Employer Business or within two  (2) years after the Participant’s termination of employment, (i) soliciting for employment or hire, whether as an employee or as an independent contractor, for any business in competition with an Employer Business, any person employed by AT&T or its affiliates during the one (1)  year prior to the termination of the Participant’s employment, whether or not acceptance of such position would constitute a breach of such person’s contractual obligations to AT&T and its affiliates; (ii) soliciting, encouraging, or inducing any vendor or supplier with which Participant had business contact on behalf of any Employer Business during the two (2) years prior to the termination of the Participant’s employment, for any reason to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or its affiliate; or (iii) soliciting, encouraging, or inducing any customer or active prospective customer with whom Participant had business contact, whether in person or by other media, on behalf of any Employer Business during the two (2) years prior to the termination of Participant’s employment for any reason (“Customer”), to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with any Employer Business, or to purchase competing goods or services from a business competing with any Employer Business, or accepting or servicing business from such Customer on behalf of himself or any other business.  “Engaging in conduct disloyal to AT&T” also means, disclosing Confidential Information to any third party or using Confidential Information, other than for an Employer Business, or failing to return any Confidential Information to the Employer Business following termination of employment.

(4)“Confidential Information” shall mean all information belonging to, or otherwise relating to, an Employer Business, which is not generally known, regardless of the manner in which it is stored or conveyed to the Participant, and which the Employer Business has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure.  Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by the Participant.  For example, Confidential Information includes, but is not limited to, information concerning the Employer Business’ business plans, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Employer Business, or any of the products or services made, developed or sold by the Employer Business.  Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by the Participant from a third party; (iii) was known to the Participant prior to receipt from the Employer Business; or (iv) was independently developed by the Participant or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by the Participant or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Plan.

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8.3Forfeiture of Benefits.  Subject to the provisions of Section 1001(5) of the Affordable Care Act, coverage and benefits shall be forfeited and shall not be provided under this Plan for any period as to which the Plan Administrator determines that, within the time period and without the written consent specified, Participant has been either engaging in competition with AT&T or engaging in conduct disloyal to AT&T.

8.4Equitable Relief.  The parties recognize that any Participant’s breach of any of the covenants in this Article 8 will cause irreparable injury to AT&T, will represent a failure of the consideration under which AT&T (in its capacity as creator and sponsor of the Plan) agreed to provide the Participant with the opportunity to receive Plan coverage and benefits, and that monetary damages would not provide AT&T with an adequate or complete remedy that would warrant AT&T’s continued sponsorship of the Plan and payment of Plan benefits for all Participants.  Accordingly, in the event of a Participant’s actual or threatened breach of the covenants in this Article, the Plan Administrator, in addition to all other rights and acting as a fiduciary under ERISA on behalf of all Participants, shall have a fiduciary duty (in order to assure that AT&T receives fair and promised consideration for its continued Plan sponsorship and funding) to seek an injunction restraining the Participant from breaching the covenants in this Article 8.  In addition, AT&T shall pay for any Plan expenses that the Plan Administrator incurs hereunder, and shall be entitled to recover from the Participant its reasonable attorneys’ fees and costs incurred in obtaining such injunctive remedies.  To enforce its repayment rights with respect to a Participant, the Plan shall have a first priority, equitable lien on all Plan benefits provided to or for the Participant and his or her Dependents.  In the event the Plan Administrator succeeds in enforcing the terms of this Article through a written settlement with the Participant or a court order granting an injunction hereunder, the Participant shall be entitled to collect Plan benefits collect Plan benefits prospectively, if the Participant is otherwise entitled to such benefits, net of any fees and costs assessed pursuant hereto (which fees and costs shall be paid to AT&T as a repayment on behalf of the Participant), provided that the Participant complies with said settlement or injunction.

8.5Uniform Enforcement.  In recognition of AT&T’s need for nationally uniform standards for the Plan administration, it is an absolute condition in consideration of any Participant’s accrual or receipt of benefits under the Plan after January 1, 2010 that each and all of the following conditions apply to all Participants and to any benefits that are paid or are payable under the Plan:

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(1)ERISA shall control all issues and controversies hereunder, and the Committee shall serve for purposes hereof as a “fiduciary” of the Plan, and as its “named fiduciary” within the meaning of ERISA.

(2)All litigation between the parties relating to this Article shall occur in federal court, which shall have exclusive jurisdiction, any such litigation shall be held in the United States District Court for the Northern District of Texas, and the only remedies available with respect to the Plan shall be those provided under ERISA.

(3)If the Plan Administrator determines in its sole discretion either (I) that AT&T or its affiliate that employed the Participant terminated the Participant’s employment for cause, or (II) that equitable relief enforcing the Participant’s covenants under this Article 8 is either not reasonably available, not ordered by a court of competent jurisdiction, or circumvented because the Participant has sued in state court, or has otherwise sought remedies not available under ERISA, then in any and all of such instances the Participant shall not be entitled to collect any Plan benefits, and if any Plan benefits have been paid to the, the Participant shall immediately repay all Plan benefits to the Plan (with such repayments being used within such year for increased benefits for other Participants in any manner determined in the Plan Administrator’s discretion) upon written demand from the Plan Administrator.  Furthermore, the Participant shall hold AT&T and its affiliates harmless from any loss, expense, or damage that may arise from any of the conduct described in clauses (I) and (II) hereof.

ARTICLE 9  MISCELLANEOUS

9.1Administration.  The Plan Administrator is the named fiduciary of the Plan and has the power and duty to do all things necessary to carry out the terms of the Plan.  The Plan Administrator has the sole and absolute discretion to interpret the provisions of the Plan, to make findings of fact, to determine the rights and status of Participants and other under the Plan, to determine which expenses and benefits qualify as Covered Health Services or Covered Benefits, to make all benefit determinations under the Plan, to decide disputes under the Plan and to delegate all or a part of this discretion to third parties and insurers.  To the fullest extent permitted by law, such interpretations, findings, determinations and decisions shall be final, binding and conclusive on all persons for all purposes of the Plan.  The Plan Administrator may delegate any or all of its authority and responsibility under the Plan to other individuals, committees, third party administrators, claims administrators or insurers for any purpose, including, but not limited to the processing of benefits and claims related thereto.  In carrying out these functions, these individuals or entities have been delegated responsibility and discretion for interpreting the provisions of the Plan, making findings of fact, determining the rights and status of Participants and others under the Plan, and deciding disputes under the Plan and such interpretations, findings, determinations and decisions shall be final, binding and conclusive on all persons for all purposes of the Plan.

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9.2Amendments and Termination.  This Plan may be modified or terminated at any time in accordance with the provisions of AT&T's Schedule of Authorizations.

9.3Newborns' and Mothers' Health Protection Act of 1996.  To the extent this Plan provides benefits for hospital lengths of stay in connection with childbirth, the Plan will cover the minimum length of stay required for deliveries (i.e., a 48-hour hospital stay after a vaginal delivery or a 96-hour stay following a delivery by Cesarean section.)  The mother’s or newborn’s attending physician, after consulting with the mother, may discharge the mother or her newborn earlier than the minimum length of stay otherwise required by law.  Such coverage shall be subject to all other provisions of this Plan.

9.4Women's Health and Cancer Rights Act of 1998.  To the extent this Plan provides benefits for mastectomies, it will provide, for an individual who is receiving benefits in connection with a mastectomy and who elects breast reconstruction in connection with such mastectomy, coverage for reconstruction on the breast on which the mastectomy was performed, surgery and reconstruction on the other breast to give a symmetrical appearance, and prosthesis and coverage for physical complications of all stages of the mastectomy, including lymphedemas.  Such coverage shall be subject to all other provisions of this Plan.

9.5Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008.   To the extent this Plan provides mental health benefits or substance use disorder benefits it will not place annual or lifetime maximums for such benefits that are lower than the annual and lifetime maximums for physical health benefits.  In addition, the financial requirements (e.g., deductibles and co-payments) and treatment limitations (e.g., number of visits or days of coverage) that apply to mental health benefits or substance use disorder benefits will not be more restrictive than the predominant financial requirements or treatment limitations that apply to substantially all medical/surgical benefits; mental health benefits and substance use disorder benefits will not be subject to any separate cost sharing requirements or treatment limitations that only apply to such benefits; if the Plan provides for out of network medical/surgical or substance use disorder benefits, it will provide for out of network mental health and substance use disorder benefits and standards for medical necessity determinations and reasons for any denial of benefits relating to mental health benefits and substance use disorder benefits will be made available upon request to plan participants.  Such coverage shall be subject to all other provisions of this Plan.

9.6Continuation of Coverage During Family or Medical Leave.  During any period which an Active Employee Participant is on a family or medical leave as defined in the Family or Medical Leave Act, any benefit elections in force for such Participant shall remain in effect.  While the Participant is on paid leave, contributions shall continue.  If the Participant is on an unpaid leave, the Participant may elect to prepay required contributions on a pre-tax basis before the commencement of such unpaid leave.  Alternatively, the Participant may elect to make such payments on an after-tax basis monthly in accordance with an arrangement that the Plan Administrator shall provide.  If coverage is not continued during the entire period of the family or medical leave because the Participant declines to pay the premium, the coverage must be reinstated upon reemployment with no exclusions or waiting periods, notwithstanding any other provision of this Plan to the contrary. If the Participant does not return to work upon completion of the leave, the Participant must pay the full cost of any health care coverage that was continued on his/her behalf during the leave.  These rules apply to the COBRA eligible programs.

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9.7Rights While on Military Leave.  Pursuant to the provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994, an Active Employee Participant on military leave will be considered to be on a Leave of Absence and will be entitled during the leave to the health and welfare benefits that would be made available to other similarly situated employees if they were on a Leave of Absence.  This entitlement will end if the individual provides written notice of intent not to return to work following the completion of the military leave.  The individual shall have the right to continue his/her coverage, including any Dependent coverage, for the lesser of the length of the leave or 18 months.  If the military leave is for a period of 31 days or more, the individual may be required to pay 102 percent of the total premium (determined in the same manner as a COBRA continuation coverage premium).  If coverage is not continued during the entire period of the military leave because the individual declines to pay the premium or the leave extends beyond 18 months, the coverage must be reinstated upon reemployment with no pre-existing condition exclusions (other than for service-related illnesses or injuries) or waiting periods (other than those applicable to all Eligible Employees).

9.8Qualified Medical Child Support Orders.  The Plan will comply with any Qualified Medical Child Support Order issued by a court of competent jurisdiction or administrative body that requires the Plan to provide medical coverage to a Dependent child of an Active Employee or Retired Employee Participant.  The Plan Administrator will establish reasonable procedures for determining whether a court order or administrative decree requiring medical coverage for a Dependent child meets the requirements for a Qualified Medical Child Support Order.  The cost of coverage or any additional cost of such coverage, if any, shall be borne by the Participant.

9.9Right of Recovery.  If the Plan has made an erroneous or excess payment to any Participant, the Plan Administrator shall be entitled to recover such excess from the individual or entity to whom such payments were made.  The recovery of such overpayment may be made by offsetting the amount of any other benefit or amount payable by the amount of the overpayment under the Plan.

ARTICLE 10   COBRA

10.1Continuation of Coverage Under COBRA.  Participants shall have all COBRA continuation rights required by federal law and all conversion rights.  COBRA continuation coverage shall be continued as provided in this Article 10.

10.2COBRA Continuation Coverage for Terminated Participants.  A covered Active Employee Participant may elect COBRA continuation coverage, at his/her own expense, if his participation under this Plan would terminate as a result of one of the following Qualifying Events: an Employee’s termination of employment or reduction of hours with an Employer.

10.3COBRA Continuation Coverage for Dependents.  A Qualified Dependent may elect COBRA continuation coverage, at his/her own expense, if his/her participation under this Plan would terminate as a result of a Qualifying Event.

10.4Period of Continuation Coverage for Covered Participants.  A covered Active Employee Participant who qualifies for COBRA continuation coverage as a result of a Participant’s termination of employment or reduction in hours of employment described in Subsection 10.2 may elect COBRA continuation coverage for up to 18 months measured from the date of the Qualifying Event.

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Coverage under this Subsection 10.4 may not continue beyond the:

(1)   date on which the Active Employee Participant’s Employer ceases to maintain this Plan;

(2)   last day of the month for which premium payments have been made with respect to this Plan, if the individual fails to make premium payments on time, in accordance with Subsection 10.6;

(3)   date the covered Active Employee Participant becomes entitled to Medicare; or

(4)   date the covered Participant is no longer subject to a pre-existing condition exclusion under the Participant's other coverage or new employer plan for the type of coverage available under the COBRA eligible program for which the COBRA election was made.

10.5Period of COBRA Continuation Coverage for Dependents.  If a Qualified Dependent elects COBRA continuation coverage under a COBRA eligible program as a result of the an Active Employee Participant’s termination of employment as described in Subsection 10.2, continuation coverage may be continued for up to 18 months measured from the date of the Qualifying Event.  COBRA continuation coverage for all other Qualifying Events may continue for up to 36 months.

Continuation coverage under this Subsection 10.5 with respect to a COBRA eligible program may not continue beyond the date:

(1)   on which premium payments have not been made, in accordance with Subsection 10.6 below;

(2)   the Qualified Dependent  becomes entitled to Medicare;

(3)   on which the Employer ceases to maintain this Plan; or

(4)   the Qualified Dependent is no longer subject to a pre-existing condition exclusion under the Participant’s other coverage or new employer plan for the type of coverage available under this Plan.

10.6Contribution Requirements for COBRA Continuation Coverage.  Covered Participants and Qualified Dependents who elect COBRA continuation coverage as a result of a Qualifying Event will be required to pay continuation coverage payments.  Continuation coverage payments are the payments required for COBRA continuation coverage that is an amount equal to a reasonable estimate of the cost to this Plan of providing coverage for all covered Participants at the time of the Qualifying Event plus a 2% administrative expense.  In the case of a disabled individual who receives an additional 11-month extended coverage under COBRA, the Employer may assess up to 150% of the cost for this extended coverage period.  Such cost shall be determined on an actuarial basis and take into account such factors as the Secretary of the Treasury may prescribe in regulations.

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Covered Participants and Qualified Dependents must make the continuation coverage payment prior to the first day of the month in which such coverage will take effect.  However, a covered Participant or Qualified Dependent has 45 days from the date of an affirmative election to pay the continuation coverage payment for the first month's payment and the cost for the period between the date medical coverage would otherwise have terminated due to the Qualifying Event and the date the covered Participant and/or Qualified Dependent actually elects COBRA continuation coverage.

The covered Participant and/or Qualified Dependent shall have a 30-day grace period to make the continuation coverage payments due thereafter.  Continuation coverage payments must be postmarked on or before the completion of the 30-day grace period.  If continuation coverage payments are not made on a timely basis, COBRA continuation coverage will terminate as of the last day of the month for which timely premiums were made.  The 30-day grace period shall not apply to the 45-day period for the first month’s payment of COBRA premiums as set out in the section above.

If payment is received that is significantly less than the required continuation coverage payment, then continuation coverage will terminate as of the last day of the month for which premiums were paid.  A payment is considered significantly less than the amount due if it is greater than the lesser of $50 or 10% of the required continuation coverage payment.  Upon receipt of a continuation coverage payment that is insignificantly less than the required amount, the Plan Administrator must notify the covered Participant or Qualified Dependent of the amount of the shortfall and provide them with an additional 30-day grace period from the date of the notice for this payment only.

10.7Limitation on Participant's Rights to COBRA Continuation Coverage.

(1) If a Qualified Dependent loses, or will lose medical coverage under this Plan as a result of divorce, legal separation, entitlement to Medicare, or ceasing to be a Dependent, such Qualified Dependent is responsible for notifying the Plan Administrator in writing within 60 days of the Qualifying Event.  Failure to make timely notification will terminate the Qualified Dependent's rights to COBRA continuation coverage under this Article.

(2) A Participant must complete and return the required enrollment materials within 60 days from the later of (a) the date of loss of coverage, or (b) the date the Plan Administrator sends notice of eligibility for COBRA continuation coverage.  Failure to enroll for COBRA continuation coverage during this 60-day period will terminate all rights to COBRA continuation coverage under this Article.  An affirmative election of COBRA continuation coverage by a Participant or his/her spouse shall be deemed to be an election for that Participant's Dependent(s) who would otherwise lose coverage under the Plan.

10.8Subsequent Qualifying Event.  If a second Qualifying Event occurs during an 18-month extension explained above, coverage may be continued for a maximum of 36 months from the date of the first Qualifying Event.  In the event the Dependent loses coverage due to a Qualifying Event and after such date the Participant becomes entitled to Medicare, the Dependent shall have available up to 36 months of coverage measured from the date of the Qualifying Event that causes the loss of coverage.  If the Participant was entitled to Medicare prior to the Qualifying Event, the Dependent shall have up to 36 months of coverage measured from the date of entitlement to Medicare.

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10.9Extension of COBRA Continuation Period for Disabled Individuals.  The period of continuation shall be extended to 29 months in total (measured from the date of the Qualifying Event) in the event the individual is disabled as determined by the Social Security laws within 60 days of the Qualifying Event.  The individual must provide evidence to the Plan Administrator of such Social Security determination prior to the earlier of 60 days after the date of the Social Security determination, or the expiration of the initial 18 months of COBRA continuation coverage.  In such event, the Employer may charge the individual up to 150% of the COBRA cost of the coverage.

ARTICLE 11   PRIVACY OF MEDICAL INFORMATION

11.1Definitions.  For purposes of this Article 11, the following defined terms shall have the meaning assigned to such terms in this subsection:

(1) “Business Associate” shall have the meaning assigned to such phrase at 45 C.F.R. § 160.103;  

(2) “Health Care Operations” shall have the meaning assigned to such phrase at 45 C.F.R. § 164.501;  

(3) “HIPAA” shall mean Parts 160 (“General Administrative Requirements”) and 164 (“Security and Privacy”) of Title 45 of the Code of Federal Regulations as such parts are amended  

from time to time;  

(4) “Payment” shall have the meaning assigned to such phrase at 45 C.F.R § 160.103;

(5) “Protected Health Information” or “PHI” shall have the meaning assigned to such phrase at 45 C.F.R. § 160.103; and

(6) “Treatment” shall have the meaning assigned to such phrase at 45 C.F.R. § 164.501.

11.2Privacy Provisions Relating to Protected Health Information (“PHI”).  The Plan and its Business Associates shall use and disclose PHI to the extent permitted by, and in accordance with, HIPAA, for purposes of providing benefits under the Plan and for purposes of administering the plan, including, by way of illustration and not by way of limitation, for purposes of Treatment, Payment, and Health Care Operations.

11.3Disclosure of De-Identified or Summary Health Information.  The HIPAA Plan, or, with respect to the HIPAA Plan, a health insurance issuer, may disclose summary health information (as that phrase is defined at 45 C.F.R. § 160.5049a))  to the Plan Sponsor of the HIPAA Plan (and its affiliates) if such entity requests such information for the purpose of:

(1) Obtaining premium bids from health plans for providing health insurance coverage under the HIPAA Plan;

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(2) Modifying, amending or terminating the group health benefits under the HIPAA Plan.

In addition, the HIPAA Plan or a health insurance insurer with respect to the HIPAA Plan may disclose to the Plan Sponsor of the HIPAA Plan (or its affiliates) information on whether an individual is participating in the group health benefits provided by the HIPAA Plan or is enrolled in, or has ceased enrollment with health insurance offered by the HIPAA Plan.

11.4The HIPAA Plan Will Use and Disclose PHI as Required by Law or as Permitted by the Authorization of the Participant or Beneficiary.

Upon submission of an authorization signed by a Participant, beneficiary, subscriber or personal representative that meets HIPAA requirements, the HIPAA Plan will disclose PHI.

In addition, PHI will be disclosed to the extent permitted or required by law, without the submission of an authorization form.

11.5Disclosure of PHI to the Plan Sponsor.  The HIPAA Plan will disclose information to the Plan Sponsor only upon certification from the Plan Sponsor that the HIPAA Plan documents have been amended to incorporate the assurances provided below.

The Plan Sponsor agrees to:

(1) not use or further disclose PHI other than as permitted or required by the HIPAA Plan document or as required by law;

(2) ensure that any affiliates or agents, including a subcontractor, to whom the Plan Sponsor provides PHI received from the HIPAA Plan, agrees to the same restrictions and conditions that apply to the Plan Sponsor with respect to such PHI;

(3) not use or disclose PHI for employment-related actions and decisions unless authorized by the individual to whom the PHI relates;

(4) not use or disclose PHI in connection with any other benefits or employee benefit plan of the Plan Sponsor or its affiliates unless permitted by the Plan or authorized by an individual to whom the PHI relates;

(5) report to the Plan any PHI use or disclosure that is inconsistent with the uses or disclosures provided for of which it becomes aware;

(6) make PHI available to an individual in accordance with HIPAA’s access rules;

(7) make PHI available for amendment and incorporate any amendments to PHI in accordance with HIPAA;

(8) make available the information required to provide an accounting of disclosures;

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(9) make internal practices, books and records relating to the use and disclosure of PHI received from the HIPAA Plan available to the Secretary of the United States Department of Health and Human Resources for purposes of determining the Plan’s compliance with HIPAA; and

(10) if feasible, return or destroy all PHI received from the HIPAA Plan that the Plan Sponsor still maintains in any form, and retain no copies of such PHI when no longer needed for the purpose for which disclosure was made (or if return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction infeasible).

11.6Separation Between the Plan Sponsor and the HIPAA Plan.  In accordance with HIPAA, only the following employees and Business Associate personnel shall be given access to PHI:

(1) employees of the AT&T Benefits and/or AT&T Executive Compensation organizations responsible for administering group health plan benefits under the HIPAA Plan, including those employees whose functions in the regular course of business include Payment, Health Care Operations or other matters pertaining to the health care programs under a HIPAA Plan;

(2) employees who supervise the work of the employees described in (1), above;

(3) support personnel, including other employees outside of the AT&T Benefits or AT&T Executive Compensation organizations whose duties require them to rule on health plan-related appeals or perform functions concerning the HIPAA Plan;

(4) investigatory personnel to the limited extent that such PHI is necessary to conduct investigations of possible fraud;

(5) outside and in-house legal counsel providing counsel to the HIPAA Plan;

(6) consultants providing advice concerning the administration of the HIPAA Plan; and

(7) the employees of Business Associates charged with providing services to the HIPAA Plan.

  The persons identified above shall have access to and use PHI to the extent that such access and use is necessary for the administration of group health benefits under a HIPAA Plan.  If these

  persons do not comply with this Plan document, the Plan Sponsor shall provide a mechanism for resolving issues of noncompliance, including disciplinary sanctions.

11.7Enforcement.

Enforcement of this Article 11 shall be as provided for by HIPAA. In particular, participants and beneficiaries are not authorized to sue with regard to purported breaches of this Article 11 except as explicitly permitted by HIPAA.

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ARTICLE 12    CLAIM AND APPEAL PROCESS

12.1      Claims for Benefits under the Plan. – See Appendix B.

12.2      Claims Related to Basic Eligibility for Coverage under the Plan and Claims Related to the Article 8 Loyalty Conditions.

     (a)           Claims.  A person who believes that he or she is being denied a benefit to which he or she is entitled under this Plan (hereinafter referred to as a “Claimant”) based on a claim for basic eligibility for coverage under the Plan or a claim related to the Article 8 Loyalty Conditions may file a written request for such benefit with the Executive Compensation Administration Department, setting forth his or her claim. The request must be addressed to the AT&T Executive Compensation Administration Department at its then principal place of business.

(b)           Claim Decision.  Upon receipt of a claim, the AT&T Executive Compensation Administration Department shall review the claim and provide the Claimant with a written notice of its decision within a reasonable period of time, not to exceed ninety (90) days, after the claim is received. If the AT&T Executive Compensation Administration Department determines that special circumstances require an extension of time beyond the initial ninety (90)- day claim review period, the AT&T Executive Compensation Administration Department shall notify the Claimant in writing within the initial ninety (90)-day period and explain the special circumstances that require the extension and state the date by which the AT&T Executive Compensation Administration Department expects to render its decision on the claim. If this notice is provided, the AT&T Executive Compensation Administration Department may take up to an additional ninety (90) days (for a total of one hundred eighty (180) days after receipt of the claim) to render its decision on the claim.

If the claim is denied by the AT&T Executive Compensation Administration Department, in whole or in part, the AT&T Executive Compensation Administration Department shall provide a written decision using language calculated to be understood by the Claimant and setting forth:  (i) the specific reason or reasons for such denial; (ii) specific references to pertinent provisions of this Plan on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or such information is necessary; (iv) a description of the Plan’s procedures for review of denied claims and the steps to be taken if the Claimant wishes to submit the claim for review; (v) the time limits for requesting a review of a denied claim under this section and for conducting the review under this section ; and (vi)  a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA if the claim is denied following review under this section.

(c)           Request for Review. Within sixty (60) days after the receipt by the Claimant of the written decision on the claim provided for in this section, the Claimant may request in writing that the Plan Administrator review the determination of the AT&T Executive Compensation Administration Department.  Such request must be addressed to the Plan Administrator at the address provided in the written decision regarding the claim.  To assist the Claimant in deciding whether to request a review of a denied claim or in preparing a request for review of a denied claim, a Claimant shall be provided, upon written request to the Plan Administrator and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim.  The Claimant or his or her duly authorized representative may, but need not, submit a statement of the issues and comments in writing, as well as other documents, records or other information relating to the claim for consideration by the Committee.  If the Claimant does not request a review by the Plan Administrator of the AT&T Executive Compensation Administration Department’s decision within such sixty (60)-day period, the Claimant shall be barred and estopped from challenging the determination of the AT&T Executive Compensation Administration Department.

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(d)           Review of Decision.  Within sixty (60) days after the Plan Administrator’s receipt of a request for review, the Plan Administrator will review the decision of the AT&T Executive Compensation Administration Department.  If the Plan Administrator determines that special circumstances require an extension of time beyond the initial sixty (60)-day review period, the Plan Administrator shall notify the Claimant in writing within the initial sixty (60)-day period and explain the special circumstances that require the extension and state the date by which the Plan Administrator expects to render its decision on the review of the claim.  If this notice is provided, the Plan Administrator may take up to an additional sixty (60) days (for a total of one hundred twenty (120) days after receipt of the request for review) to render its decision on the review of the claim.

During its review of the claim, the Plan Administrator shall:

(1)           Take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial review of the claim conducted pursuant to this section;

(2)           Follow reasonable procedures to verify that its benefit determination is made in accordance with the applicable Plan documents; and

(3)           Follow reasonable procedures to ensure that the applicable Plan provisions are applied to the Participant to whom the claim relates in a manner consistent with how such provisions have been applied to other similarly-situated Participants.

After considering all materials presented by the Claimant, the Plan Administrator will render a decision, written in a manner designed to be understood by the Claimant.  If the Plan Administrator denies the claim on review, the written decision will include (i) the specific reasons for the decision; (ii) specific references to the pertinent provisions of this Plan on which the decision is based; (iii) a statement that the Claimant is entitled to receive, upon request to the Plan Administrator and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and (iv) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA.

In any case, a Participant or Beneficiary may have further rights under ERISA. The Plan provisions require that Participants or Beneficiary pursue all claim and appeal rights described in this section before they seek any other legal recourse regarding claims for benefits.

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Appendix A

AT&T Health Plan

2013 Monthly Contributions, Annual Deductible, Coinsurance Percentages and

Annual Out-of-Pocket Maximum

Active Participants

Monthly Contributions	Individual - $57 Individual +1 - $57 Individual +2 or more - $117
Annual Deductible	Individual - $1,250 Individual + 1 - $2,500 Individual +2 or more - $2,500
Coinsurance Percentage (Note 1)	10% after the Annual Deductible is met. Coinsurance applies until the Annual Out-of-Pocket Maximum is reached.
Annual Out-of-Pocket Maximum	Individual - $4,125 Individual +1 - $6,188 Individual +2 or more - $8,250

Note 1:  For prescription pharmacy services, the Coinsurance shall equal the lesser of (i) the Coinsurance Percentage multiplied by the amount of the Covered Health Services or (ii) the amount payable by the Participant for such services under the Basic Plan.

Retired Participants – Monthly Contributions

Retired Prior to August 31, 1992 and Surviving Spouses	$107
Retired on or after September 1, 1992 and Surviving Spouses Note:  The Plan Administrator shall maintain records governing whether a Retired Participant is in Class A, B, C or D.	Class A	Individual: $459 Individual +1: $471 Individual +2 or more: $471
	Class B	Individual: $556 Individual +1: $577 Individual +2 or more: $577
	Class C	Individual: $569 Individual +1: $721 Individual +2 or more: $728
	Class D	Individual: $569 Individual +1: $1,111 Individual +2 or more: $1,157

Monthly Contributions for COBRA Continuation Coverage

Active COBRA	Individual - $569 Individual + 1 - $1,110 Individual +2 or more - $1,594
Retiree COBRA	Individual - $580 Individual +1 - $1,133 Individual +2 or more - $1,627

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Appendix B

Claims Procedure Applicable to Claims for Benefits under the Plan

Claim for Benefits Procedures

You, your covered dependents or a duly authorized person has the right under ERISA and the Plan to file a written claim for benefits under the Plan. The following describes the procedures used by the Plan to process claims for benefits, along with your rights and responsibilities. These procedures were designed to comply with the rules of the Department of Labor (DOL) concerning claims for Benefits. It is important that you follow these procedures to make sure that you receive full benefits under the Plan.

The Plan is an ERISA plan, and you may file suit in federal court if you are denied benefits you believe are due you under the Plan. However, you must complete the full claims and appeal process offered under the Plan before filing a lawsuit.

Filing a Claim for Benefits

When filing a claim for benefits, you should file the claim with the Claims Administrator.  The Claims Administrator is the third party to whom claims and appeal responsibility has been delegated as permitted under Section 9.1 of the Plan.

The following are not considered claims for benefits under the Plan:

·   A claim related to basic eligibility for coverage under the Plan (See Section 12.2 of the Plan).

·   A claim related to the Loyalty Conditions contained in Article 8 of the Plan (See Section 12.2 of the Plan).

Claim Filing Limits

A request for payment of benefits must be submitted within one year after the date of service or the date the prescription was provided.

Required Information

When you request payment of benefits from the Plan, you must provide certain information as requested by the Claims Administrator.

Benefit Determinations

Post-Service Claims

Post-service claims are those claims that are filed for payment of benefits after medical care has been received. If your post-service claim is denied, you will receive a written notice from the Claims Administrator within 30 days of receipt of the claim, as long as all needed information identified above and any other information that the Claims Administrator may request in connection with services rendered to you was provided with the claim. The Claims Administrator will notify you within this 30-day period if additional information is needed to process the Claim and may request a one-time extension not longer than 15 days and pend your Claim until all information is received.

Once notified of the extension, you then have 45 days to provide this information. If all of the needed information is received within the 45-day time frame and the claim is denied, the claims Administrator will notify you of the denial within 15 days after the information is received. If you don't provide the needed information within the 45-day period, your claim will be denied.

A denial notice will explain the reason for denial, refer to the part of the Plan on which the denial is based, and provide the claim appeal procedures.

Pre-Service Claims

Pre-service claims are those claims that require notification or approval prior to receiving medical care or require notification within a specified time period after service begins as required under the Plan provisions. If your claim is a pre-service claim and is submitted properly with all needed information, you will receive written notice of the claim decision from the Claims Administrator within 15 days of receipt of the claim. If you file a pre-service claim improperly, the Claims Administrator will notify you of the improper filing and how to correct it within five days after the pre-service claim is received. If additional information is needed to process the pre-service claim, the Claims Administrator will notify you of the information needed within 15 days after the claim was received and may request a one-time extension not longer than 15 days and pend your claim until all information is received. Once notified of the extension, you then have 45 days to provide this information. If all of the needed information is received within the 45-day time frame, the Claims Administrator will notify you of the determination within 15 days after the information is received. If you don't provide the needed information within the 45-day period, your claim will be denied. A denial notice will explain the reason for denial, refer to the part of the Plan on which the denial is based, and provide the claim appeal procedures.

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Urgent Care Claims That Require Immediate Action

Urgent care claims are those claims that require notification or approval prior to receiving medical care in which a delay in treatment could seriously jeopardize your life or health or the ability to regain maximum function or, in the opinion of a physician with knowledge of your medical condition, could cause severe pain. In these situations:

·   You will receive notice of the benefit determination in writing or electronically within 72 hours after the Claims Administrator receives all necessary information, taking into account the seriousness of your condition.

·   Notice of denial may be oral with a written or electronic confirmation to follow within three days.

If you filed an urgent claim improperly, the Claims Administrator will notify you of the improper filing and how to correct it within 24 hours after the urgent claim was received. If additional information is needed to process the claim, the Claims Administrator will notify you of the information needed within 24 hours after the claim was received. You then have 48 hours to provide the requested information.

You will be notified of a determination no later than 48 hours after either:

·   The Claims Administrator's receipt of the requested information.

·   The end of the 48-hour period within which you were to provide the additional information, if the information is not received within that time.

A denial notice will explain the reason for denial, refer to the part of the Plan on which the denial is based, and provide the claim appeal procedures.

Concurrent Care Claims

If an ongoing course of treatment was previously approved for a specific period of time or number of treatments, and your request to extend the treatment is an urgent care claim as defined above, your request will be decided within 24 hours, provided your request is made at least 24 hours prior to the end of the approved treatment. The Claims Administrator will make a determination on your request for the extended treatment within 24 hours from receipt of your request.

If your request for extended treatment is not made at least 24 hours prior to the end of the approved treatment, the request will be treated as an urgent care claim and decided according to the time frames described above. If an ongoing course of treatment was previously approved for a specific period of time or number of treatments, and you request to extend treatment in a non-urgent circumstance, your request will be considered a new claim and decided according to post-service or pre-service timeframes, whichever applies.

How to Appeal a Claim Decision

If you disagree with a pre-service or post-service claim determination after following the above steps, you can contact the applicable Claims Administrator in writing to formally request an appeal. Your first appeal request must be submitted to the Claims Administrator within 180 days after you receive the Claim denial.

Appeal Process

A qualified individual who was not involved in the decision being appealed will be appointed to decide the appeal. The Claims Administrator may consult with, or seek the participation of, medical experts as part of the appeal resolution process. You must consent to this referral and the sharing of pertinent medical claim information. Upon written request and free of charge you have the right to reasonable access to and copies of all documents, records and other information relevant to your claim for benefits.

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Appeals Determinations

Pre-Service and Post-Service Claim Appeals

You will be provided written or electronic notification of the decision on your appeal as follows:

·   For appeals of pre-service claims, the first-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 15 days from receipt of a request for appeal of a denied Claim. The second-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 15 days from receipt of a request for review of the first-level appeal decision.

·   For appeals of post-service claims, the first-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 30 days from receipt of a request for appeal of a denied claim. The second-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 30 days from receipt of a request for review of the first-level appeal decision.

·   For procedures associated with urgent Claims, refer to the following "Urgent Claim Appeals That Require Immediate Action" section.

·   If you are not satisfied with the first-level appeal decision of the Claims Administrator, you have the right to request a second-level appeal from the Claims Administrator. Your second level appeal request must be submitted to the Claims Administrator in writing within 60 days from receipt of the first-level appeal decision.

·   For pre-service and post-service claim appeals, the Plan Administrator has delegated to the Claims Administrator the exclusive right to interpret and administer the provisions of the Plan. The Claims Administrator's decisions are conclusive and binding.

Please note that the Claims Administrator's decision is based only on whether or not benefits are available under the Plan for the proposed treatment or procedure. The determination as to whether the pending health service is necessary or appropriate is between you and your physician.

Urgent Claim Appeals That Require Immediate Action

Your appeal may require immediate action if a delay in treatment could significantly increase the risk to your health or the ability to regain maximum function or cause severe pain.

In these urgent situations, the appeal does not need to be submitted in writing. You or your physician should call the Claims Administrator as soon as possible. The Claims Administrator will provide you with a written or electronic determination within 72 hours following receipt by the Claims Administrator of your request for review of the determination taking into account the seriousness of your condition.

For urgent claim appeals, the Plan Administrator has delegated to the applicable Claims Administrator the exclusive right to interpret and administer the provisions of the Plan. The Claims Administrator's decisions are conclusive and binding.

In any case, a Participant or Beneficiary may have further rights under ERISA. The Plan provisions require that Participants or Beneficiary pursue and exhaust all claim and appeal rights described in this section before they seek any other legal recourse regarding claims for benefits.

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APPENDIX C

DISCLOSURE OF GRANDFATHERED STATUS

MODEL NOTICE

AT&T, as plan sponsor, believes this Plan is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the “Affordable Care Act”).  As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted.  Being a grandfathered health plan means that the plan may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing.  However, grandfathered health plans must comply with certain other consumer protections of the Affordable Care Act, for example, the elimination of lifetime limits on benefits.

Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at P.O. Box 30558, Salt Lake City, Utah  84130-0558.  You may also contact the Employee Benefits Security Administration, U.S. Department of labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform.  This website has a table summarizing which protections do and do not apply to grandfathered health plans.

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EX-1.C

Exhibit 10-c

BELLSOUTH CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Amended and Restated effective as of May 1, 2012

BELLSOUTH CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

ARTICLE I.     STATEMENT OF PURPOSE

The purpose of the BellSouth Corporation Supplemental Executive Retirement Plan is to provide supplemental pension benefits to Executives and certain other employees of BellSouth Corporation and certain subsidiaries of BellSouth Corporation, hereinafter referred to as Participants, who retire or terminate from service.  The Plan was originally effective as of January 1, 1984 and was subsequently amended from time to time.  The Plan was amended and restated, effective as of January 1, 2005, and as so amended and restated is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to all benefits accrued and vested on or after January 1, 2005.  Further, with respect to all benefits of Participants employed on or after January 1, 2007, the Plan is intended to fully comply with the requirements of Code Section 409A.  During the period from January 1, 2005, to the date of the adoption of this restated Plan document, the Plan has been operated in good faith compliance with the provisions of Code Section 409A, Internal Revenue Service Notice 2005-1, the proposed Treasury Regulations for Code Section 409A, the Final Treasury Regulations for Code Section 409A, applicable Internal Revenue Services Notices and Announcements and any other generally applicable guidance published in the Internal Revenue Service Bulletin.

Following the merger of AT&T Inc. and BellSouth Corporation, the Plan was amended and restated, effective January 1, 2008, to reflect the transition of certain participants to other AT&T retirement plans and/or other AT&T companies.  The Plan was further amended and restated effective January 1, 2010.  In order for a Participant to accrue benefits on or after January 1, 2010, the provisions of Article VIII shall apply.  The Plan was previously amended and restated effective December 31, 2011 in order to freeze benefit accruals for active participants, as specifically set forth herein.  The Plan is now hereby amended and restated effective May 1, 2012 to include certain provisions related to the disposition of the Ad Solutions business unit to Cerberus Capital Management LLC.  The provisions are set forth in Article IV, Section 9. This amendment and restatement shall supersede in all respects the amendment and restatement previously effective December 31, 2011.

ARTICLE II.     DEFINITIONS

1. The term “ADEA” shall mean the Age Discrimination in Employment Act of 1967, as amended from time to time.

2. The term "Affiliate" shall mean any corporation, other than BellSouth Corporation (or a Participating Company), which is a member of the same controlled group of corporations (within the meaning of Code Section 414(b)) as BellSouth Corporation and any trade or business (whether or not incorporated) which is under common control with BellSouth Corporation within the meaning of Code Section 414(c).

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3. The term "Annual Bonus Award" shall mean the bonus amount paid annually to a Participant that is included in the calculation of pension benefits under the Pension Plan.

4. The term “AT&T SERP Participant” shall mean an officer who is designated as a participant in the AT&T, Inc. 2005 Supplemental Employee Retirement Plan (the “A&T SERP”).  The initial day of participation in such plan is the named officer’s “SERP Effective Date” as defined in the AT&T SERP.

5.   The term “AT&T SERP Vesting Date” shall mean the date that an AT&T SERP Participant becomes 100% vested in the AT&T SERP.

6. The terms "BellSouth Corporation" and "Company" shall mean BellSouth Corporation, a Georgia corporation, or its successors.

7. The terms "Chairman of the Board", "President" and "Board of Directors" or "Board" shall mean the Chairman of the Board of Directors, President and Board of Directors, respectively, of the Company.

8. The term “Claim Review Committee” shall mean the BellSouth Corporation Employees’ Benefit Claim Review Committee appointed by the Committee to be the claims fiduciary for any claims brought under the Pension Plan.

9. The term "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.

10. The term "Committee" shall mean the Employee Benefit Committee of BellSouth Corporation appointed by the Company to administer the Pension Plan.

11. The term “Disabled” or “Disability” means the following:

(a) the inability of the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; OR

(b) the Participant is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under a short-term disability plan covering employees of a Participating Company.

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12. The term "Executive" shall mean an employee on the active payroll of any Participating Company who holds a position that the Board of Directors has designated to be within the Company’s executive compensation group.

13. The term “Executive Severance Agreement” means a BellSouth executive change in control agreement entered into by and between an executive who is a Participant in this Plan and BellSouth, as amended and/or superseded from time to time, providing certain benefits in the event of a change in corporate control of BellSouth Corporation.

13. The term "Former Affiliate" shall have the same meaning as “Interchange Company”.

15. The term "Included Earnings" shall have the meaning ascribed to such term in Section 4(a)(ii) of Article IV of this Plan.

16. The term "Interchange Company" shall have the same meaning as is attributed to such term under the Pension Plan.

17. The term "Mandatory Retirement Age" shall have the same meaning as is attributed to such term under the Pension Plan.

18. The term “Merger” shall mean the merger, pursuant to the Agreement and Plan of Merger dated as of March 4, 2006 (the “Merger Agreement”), by and among BellSouth, AT&T Inc. (“AT&T”), and ABC Consolidation Corp., a Georgia corporation and wholly-owned subsidiary of AT&T (“Merger Sub”), pursuant to which, at the “Effective Time” (as defined in the Merger Agreement), BellSouth was  merged with and into the Merger Sub.

19. The term “Merger Severance Plan” means a severance plan (or plans) adopted under the terms of the Company Disclosure Letter to the Merger Agreement (as defined in Section 16 of this Article II).

20. The term “Officer” shall mean any Participant who is an “officer” for compensation purposes as shown on the records of AT&T.

21. The term "Net Credited Service", except as expressly limited or otherwise provided in this Plan or under an individual Participant’s employment-related agreement with the Company, shall have the same meaning as is attributed to such term under the Pension Plan and shall be interpreted in the same manner as that term is interpreted for purposes of the Pension Plan.  In addition, Net Credited Service shall include periods of employment as described in Article IV, Section 9.

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22.   The term "Participants" shall mean all Executives as defined herein, as well as all other management employees (i.e., non-collectively bargained employees) at pay grade E01 (or equivalent) and above and any other employees designated by the Chief Executive Officer of BellSouth Corporation or his or her delegated representative.

No employee shall commence or re-commence participation in the Plan on and after February 8, 2007.

23.   The term "Participating Company" shall mean BellSouth Corporation, and each subsidiary of BellSouth Corporation which shall have determined, with the concurrence of the senior human resources officer of BellSouth Corporation, to participate in the Plan.  Each Participating Company participating in the Plan as of the adoption of this amendment and restatement shall be a Participating Company in the Plan.

In addition, any Participant who transfers employment on or after December 29, 2006 from a Participating Company to an Affiliate shall remain an eligible Participant in this Plan, and the employing Affiliate shall be considered a Participating Company for purposes of that Participant’s service and earnings hereunder.

24. The term "Pension Act" shall mean the Employee Retirement Income Security Act of 1974 (ERISA) as it may be amended from time to time.

25. The term "Pension Commencement Date" shall have the same meaning as is attributed to such term under the Pension Plan.

26. The term "Pension Plan" shall mean the BellSouth Personal Retirement Account Pension Plan as in effect on the date of the Merger.

27. The term "Plan" shall mean this BellSouth Corporation Supplemental Executive Retirement Plan.

28. The term "Post-04 Benefit” shall mean the Participant’s Plan benefit accrued on or after January 1, 2005 determined in accordance with the provisions of Code Section 409A.

29. The term "Pre-05 Benefit” shall mean the Participant’s Plan benefit accrued and vested as of December 31, 2004 determined in accordance with the provisions of Code Section 409A.

30. The term “Rabbi Trust Agreement” shall mean each and all of the following: (i) BellSouth Corporation Trust Under Executive Benefit Plan(s); (ii) BellSouth Telecommunications, Inc. Trust Under Executive Benefit Plan(s); (iii) BellSouth Enterprises, Inc. Trust Under Executive Benefit Plan(s); (iv) BellSouth Corporation Trust Under Executive Benefit Plan(s) for Mobile Systems Executives; (v) BellSouth Corporation Trust Under Executive Benefit Plan(s) for Advertising and Publishing Executives; (vi) Trust Under Executive Benefit Plan(s) for Certain BellSouth Companies; in each case, as amended from time to time.

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31. The term “Senior Manager” shall mean any Participant who is a “senior manager” for compensation purposes as shown on the records of AT&T.

32. The term “Specified Employee” shall mean, for periods on or after December 29, 2006, any Participant who is a “Key Employee” (as defined in Code Section 416(i) without regard to paragraph (5) thereof), as determined by AT&T in accordance with its uniform policy with respect to all arrangements subject to Code Section 409A, based upon the 12-month period ending on each December 31st (such 12-month period is referred to below as the “identification period”).  All Participants who are determined to be Key Employees under Code Section 416(i) (without regard to paragraph (5) thereof) during the identification period shall be treated as Key Employees for purposes of the Plan during the 12-month period that begins on the first day of the 4th month following the close of such identification period.  For periods prior to December 29, 2006, the term Specified Employee shall mean a specified employee under Code Section 409A.

33. The term "Standard Annual Bonus" shall mean an amount determined by (1) a stated dollar amount, or (2) applying a target percentage of a Participant’s base pay rate, as determined by the annual compensation plan and the Participant’s current job or pay grade.

34. The term "Vesting Service Credit", except as expressly limited or otherwise provided in this Plan or under an individual Participant’s employment-related agreement with the Company, shall have the same meaning as is attributed to such term under the Pension Plan and shall be interpreted in the same manner as that term is interpreted for purposes of the Pension Plan.

An AT&T SERP Participant whose SERP Effective Date is prior to January 1, 2009 shall have his Vesting Service Credit (“VSC”) determined in the same manner that is determined in the Pension Plan; provided however, his VSC shall not increase after his AT&T SERP Vesting Date (i.e., years of VSC earned after that date will not be included for purposes of calculating this Plan’s benefit).

In addition, any AT&T SERP Participant whose SERP Effective Date is on or after January 1, 2009 shall have his VSC determined in the same manner that is determined in the Pension Plan; provided however, his VSC shall not increase after his SERP Effective Date.

Lastly, Vesting Service Credit for all Participants shall be frozen and shall not increase after December 31, 2011.  For Participants who are otherwise accruing benefits under the Plan as of December 31, 2011, their Vesting Service Credit shall be frozen to the period of service as would have been recognized if such Participant had terminated employment on that date.

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35. The use in this Plan of personal pronouns of the masculine gender is intended to include both the masculine and feminine genders.

ARTICLE III.     ADMINISTRATION

1. The Company shall be the Plan Administrator and the Plan Sponsor of the Plan as those terms are defined in the Pension Act.  The Company may allocate all or any part of its responsibilities for the operation and administration of the Plan, except to the extent expressly prohibited by the Plan's terms. The Company may designate in writing other persons to carry out its responsibilities under the Plan, and may employ persons to advise it with regard to such responsibilities.  The Company, acting through the Committee, the Claim Review Committee or any other person designated by the Company, as applicable, shall have the exclusive responsibility and complete discretionary authority to interpret the terms of the Plan (including the power to construe ambiguous or uncertain terms), to control the operation and administration of the Plan and to resolve all questions in connection therewith, with all powers necessary to enable it to properly carry out such responsibilities, including without limitation the powers and responsibilities set forth in this Article III, and its determinations shall be final, conclusive and binding on all  persons.

2. The Plan Administrator shall have the power to determine status, coverage, eligibility for and the amount of benefits under the Plan and all questions arising in connection therewith, with respect to employees of each Participating Company, respectively, and shall have the power to authorize disbursements according to this Plan.

3. The review and final determination of claims and appeals for Participants and beneficiaries under the Plan shall be determined by, and in the complete discretion of, the Plan Administrator acting through the Claim Review Committee and in accordance with the claims and appeals procedures set forth in the summary plan description for the Pension Plan and shall be administered and interpreted in accordance with the Pension Act and procedures in effect under the Pension Plan.  All determinations of the Plan Administrator shall be final and binding and not subject to further administrative review.

4. The expenses of administering the Plan shall be borne by the Company and/or the applicable Participating Company.

5. The Company, the Committee and the Claim Review Committee, and each other Plan Administrator described herein, are each a named fiduciary as that term is used in the Pension Act with respect to the particular duties and responsibilities herein provided to be allocated to each of them.

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6.   Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan.

7. Notwithstanding the preceding, effective as of the date of the Merger, responsibility for administration of the Plan shall be determined under the terms of the Rabbi Trust Agreements.  As provided in the Rabbi Trust Agreements, claims for benefits, appeals of benefit denials and Plan interpretations shall be made by a “Trust Contractor” or “Independent Fiduciary” (as such terms are defined in the Rabbi Trust Agreements), as the case may be.  At any time during which a Trust Contractor or Independent Fiduciary shall, under the terms of the Rabbi Trust Agreements, have such Plan administrative responsibilities, the term “Plan Administrator” as used in this Plan shall refer to such Trust Contractor or Independent Fiduciary.

ARTICLE IV.     BENEFITS

1. Participation

All persons included in the definition of the term "Participants" are deemed participants in this Plan.  In addition, each individual who has participated in this Plan but who has ceased to be included in the definition of "Participants", whether due to demotion, termination or otherwise, shall continue to be a Participant in this Plan, except for purposes of accruing additional benefits under Section 4 of this Article IV, and shall be entitled to a benefit under this Plan if, at the time such individual ceased to be included in the definition of "Participants", he or she had satisfied the service requirements for a deferred vested pension under the Pension Plan.  Each such individual shall receive a benefit under the terms of the Plan as in effect immediately prior to the effective date of such demotion, termination or other event, the amount of such benefit to be calculated as if the individual retired (or otherwise terminated employment) on such date, it being the Company's intent that any such demotion, termination or other event removing individuals from the definition of "Participants" shall not adversely affect entitlement to such benefits.

2. Mandatory Retirement Age

Each Participant, whether or not eligible for benefits under this Plan, shall cease to be eligible for continued employment no later than the last day of the month in which such Participant attains the Mandatory Retirement Age.

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3. Eligibility

(a) Service Benefit

An individual who is both a Participant in this Plan and who is eligible for a service pension pursuant to the terms of the Pension Plan at the time of employment termination or whose age and Net Credited Service recognized under this Plan would satisfy the eligibility requirements of the Pension Plan for a service pension is eligible for a service benefit pursuant to this Plan.  Additionally, each Participant who has attained age 62 or older and whose Net Credited Service is ten years or more at the time of employment termination is eligible for a service benefit under this Plan.  Each Participant whose employment terminates pursuant to and under the terms of the Merger Severance Plan may also be eligible for a service benefit under this Plan, if at the time of employment termination the Participant's age and Net Credited Service meets the requirements established under such severance program to be deemed service pension eligible for purposes of this Plan.  Each Participant whose employment terminates pursuant to and under the terms of an Executive Severance Agreement shall be deemed to be eligible for a service pension for purposes of this Plan.

(b) Deferred Benefit

(i) Any individual not described in Section 3(a) of this Article IV who is a Participant in this Plan at the time of voluntary employment termination is eligible for a deferred vested pension pursuant to this Plan, provided he is eligible for a deferred vested pension pursuant to the Pension Plan.

(ii) In the event that a Participant’s employment is terminated involuntarily prior to his or her becoming eligible for a deferred benefit under this Plan, and the termination is not for cause, such Participant shall nevertheless be entitled to a deferred benefit hereunder, based upon the Participant’s Vesting Service Credit at his or her date of termination.

(c) Disability Pension

An individual who while a Participant in this Plan has become eligible for a disability pension pursuant to the terms of the Pension Plan and who is also determined to be Disabled shall be eligible for a disability pension hereunder, calculated as follows:  the amount is determined in accordance with Section 4 of this Article IV calculated to one year after date of Disability (pro-rata if less than 20 years of service) with no reduction factor but offset by the actual service or deferred benefit determined under Section 4 of this Article IV applying all applicable early retirement reduction factors (determined assuming that the service or deferred benefit is payable as an annuity).  Should the disability pension be discontinued pursuant to the terms of the Pension Plan, the disability pension hereunder shall be discontinued as well.  Regardless of the Participant’s Disabled status, the disability pension hereunder shall be discontinued upon the Participant’s attaining age 65.

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4. Benefit Amounts

(a) Computation of Benefit

 (i) (A) Benefit Formula

The aggregate annualized benefit of each Participant payable as provided in the Plan shall be determined by adding the sum of two percent (2%) of Included Earnings for each year of the Participant's Vesting Service Credit for the first twenty years, plus one and one-half percent (1.5%) of Included Earnings for each year of the Participant's Vesting Service Credit for the next ten years, plus one percent (1%) of Included Earnings for each year of the Participant's Vesting Service Credit for each additional year up to the month in which the Participant retires less (1) 100% of the retirement benefit (unreduced for survivor annuity) payable from the Pension Plan and (2) 100% of the Primary Social Security benefit payable at age 65.

An AT&T SERP Participant whose SERP Effective Date is prior to January 1, 2009 shall have his Pension Plan benefit and Primary Social Security benefit calculated and frozen as of his AT&T SERP Vesting Date for purposes of calculating this Plan’s benefit.

In addition, any AT&T SERP Participant whose SERP Effective Date is on or after January 1, 2009 shall have his Pension Plan benefit and Primary Social Security benefit calculated and frozen as of his AT&T SERP Effective Date.

Furthermore, any Participant who is otherwise accruing a benefit as of December 31, 2011 shall have his Pension Plan benefit and Primary Social Security benefit calculated and frozen as if he had terminated employment on that date.

Lastly, any Participant whose annualized benefit (as described in the first paragraph of Section 4(a)(i)(A) above) determined as of December 31, 2011, including offsets for the Pension Plan and Primary Social Security (both frozen as described in the preceding sentence), is equal to $0, shall not be due any benefit from this Plan.  Future years of age and service will not be applied for any benefit calculation purpose.

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(B) Special Rules

(1) With respect to service benefits, the benefit reduction to be applied pursuant to Section 4(a)(i)(A)(1) above for the benefit payable from the Pension Plan shall be the amount of such benefit that would be payable on the date that benefits are eligible to be paid (or become payable) under this Plan (regardless of the Participant’s actual pension commencement date under the Pension Plan) and determined assuming that the Participant elected a single life annuity (regardless of the actual form of benefit elected under the Pension Plan).

(2) With respect to deferred vested benefits, the benefit reduction to be applied pursuant to Section 4(a)(i)(A)(1) above for the benefit payable from the Pension Plan shall be the amount of such benefit that would be payable on the Participant’s 65th birthday (regardless of the Participant’s actual pension commencement date under the Pension Plan) and determined assuming that the Participant elected a single life annuity (regardless of the actual form of benefit elected under the Pension Plan).

(3) In the case of any Executive (i) who has attained the age of sixty-two (62) or more or who is deceased, (ii) who was previously employed by a Former Affiliate, (iii) who serves or has served as an officer (as such term is used in the employment practices and policies of the relevant company) of BellSouth Corporation or an Affiliate, and (iv) whose service with a Former Affiliate is disregarded in determining the Executive's Vesting Service Credit under the Pension Plan, for purposes of this Plan, the Executive’s Vesting Service Credit and Net Credited Service shall be increased by

(x)  the Executive's Vesting Service Credit and Net Credited Service with the Former Affiliate(s) (determined under the rules of the Pension Plan as if the Executive had been employed by BellSouth Corporation during such period and had no other service covered under the Pension Plan), multiplied by

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(y) a fraction, the numerator of which is the number of whole years (not to exceed ten (10)) of such Executive's Net Credited Service as an officer of BellSouth Corporation or an Affiliate and the denominator of which is ten (10).

Notwithstanding the foregoing, no Executive's Vesting Service Credit or Net Credited Service, for purposes of this Plan shall be increased for service with a Former Affiliate to the extent that any such service would otherwise be considered, directly or indirectly, in determining such Executive's benefits under this Plan by virtue of the terms of any other agreement, plan or arrangement.

(4)       In the case of any Participant whose Vesting Service Credit or Net Credited Service includes a period of service with an employer with respect to which the Participant is entitled to any retirement benefit payable from defined benefit pension plan(s ) (including qualified plans and nonqualified plans such as excess benefit and supplemental executive retirement plans), including any Executive whose Vesting Service Credit and Net Credited Service under this Plan is increased pursuant to Section 4(a)(i)(B)(3) preceding, the benefit reduction described in Section 4(a)(i)(A)(1) above for the retirement benefit payable from the Pension Plan shall include any such retirement benefit payable by such employer.  The determination of the benefit reduction for any such benefit shall be made using approaches which approximate as nearly as practicable the approaches used in making such determinations with respect to benefits payable under the Pension Plan, as described above in this Section 4(a)(i).  In the case of any Executive whose Vesting Service Credit and Net Credited Service under this Plan is increased pursuant to paragraph (B)(3) of this Section 4(a)(i), the benefit payable by such employer shall first be multiplied  by the fraction described in that paragraph and the product thereof shall be the amount of the benefit reduction.

(5)       A Participant’s service or deferred benefit (the value of which is expressed as an annuity) at the time of termination of employment shall not be less than the service or deferred benefit that would have been payable to the Participant if the Participant had terminated employment on any prior December 31, through December 31, 2011, (using pay, service, offsets and all factors applicable on the previous dates and assuming an immediate benefit commencement).

(6)       In the case of each Participant who terminates employment pursuant to the terms of the Merger Severance Plan, the service benefit or deferred vested benefit calculated hereunder shall be calculated by adding additional months of Vesting Service Credit and an equal amount of months of age with the amount of such months equaling (i) 24, minus (ii) the number of months that have elapsed since the closing of the Merger (but not below zero).

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(7)       The terms and conditions set forth in Article VIII shall apply to any benefits accrued under any provision of this Plan on or after January 1, 2010, and in order for a Participant to accrue (or collect) such Plan benefits on or after January 1, 2010, the Participant must comply with the terms and conditions set forth in Article VIII.

(ii) Included Earnings

Included Earnings shall equal the 12 month average of the sum of (1) the last sixty (60) months of base pay, plus (2) the Annual Bonus Awards payable during or after that sixty (60) month period.  The amounts of base pay and other payments used to determine Included Earnings as described above include all amounts during the specified period including those amounts previously deferred pursuant to other plans.  If a Participant terminates employment while eligible for a benefit under this Plan and thereafter receives compensation of the types described in clause (ii) of this Section 4(a), the additional Included Earnings shall be deemed to have been paid as of the date the Participant terminated employment, and the amount of benefit payable under this Plan shall be corrected accordingly.

An AT&T SERP Participant whose SERP Effective Date is prior to January 1, 2009 shall have his Included Earnings calculated and frozen as of his AT&T SERP Vesting Date for purposes of calculating this Plan’s benefit.

In addition, any AT&T SERP Participant whose SERP Effective Date is on or after January 1, 2009 shall have his Included Earnings calculated and frozen as of his SERP Effective Date.

Lastly, for Participants who are otherwise accruing benefits under the Plan as of December 31, 2011, their Included Earnings shall be frozen at the amount as would have been recognized under this Section if such Participant had terminated employment on that date.

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(b) Minimum Benefit

In no event shall a Participant, whose Vesting Service Credit has been five years or more, who terminates employment on or after his or her sixty-second birthday, or who is retired on a service or disability pension under the Pension Plan or is otherwise eligible for a service pension benefit hereunder, receive a total annual retirement benefit (including any benefit under the Pension Plan) from the Company of less than 15% of the employee's annual base salary plus Standard Annual Bonus in effect on the employee's last day on the active payroll.

An AT&T SERP Participant whose SERP Effective Date is prior to January 1, 2009 shall have his Minimum Benefit calculated and frozen as of his AT&T SERP Vesting Date for purposes of calculating this Plan’s benefit.

In addition, any AT&T SERP Participant whose SERP Effective Date is on or after January 1, 2009 shall have his Minimum Benefit calculated and frozen as of his SERP Effective Date.

Lastly, any Participant who is otherwise accruing benefits under the Plan as of December 31, 2011 shall have his Minimum Benefit calculated and frozen as of December 31, 2011 as if he had terminated employment on such date.

(c) Early Retirement Discount

(i) The service benefit amount, determined in accordance with the provisions of this Section 4, for each Participant who is granted a service benefit, shall be reduced (before the offset for benefits under the Pension Plan) by one-half percent (0.5%) for each calendar month or part thereof by which the commencement of benefits under this Plan precedes the Participant’s 62nd birthday, except that each employee retired with thirty (30) or more years of service (either Net Credited Service or Vesting Service Credit) shall receive a service benefit reduced by one-quarter percent (0.25%) for each calendar month or part thereof by which the commencement of benefits under this Plan precedes the Participant’s 62nd birthday. With respect to Participants who terminate employment and receive benefits under the Merger Severance Plan, the preceding sentence shall be applied by substituting “twenty-eight (28) or more” for the words “thirty (30) or more.”  Further, with respect to a Participant who retires during 2006, in no event shall the amount by which such Participant’s benefit is reduced pursuant to this provision be greater than the amount by which such benefit would have been reduced pursuant to this provision had the Participant retired on December 31, 2005.

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(ii) The deferred vested benefit amount, determined in accordance with the provisions of this Section 4, for each Participant who is granted a deferred vested benefit, shall be reduced (after the offset for benefits under the Pension Plan) by an actuarially equivalent amount, using mortality rates and other assumptions then in effect under the Pension Plan, for each calendar month or part thereof by which the commencement of benefits under this Plan precedes the Participant’s 65th birthday.

(iii) An AT&T SERP Participant whose SERP Effective Date is prior to January 1, 2009 shall have his Early Retirement Discount calculated and frozen as of his AT&T SERP Vesting Date for purposes of calculating this Plan’s benefit.

 In addition, any AT&T SERP Participant whose SERP Effective Date is on or after January 1, 2009 shall have his Early Retirement Discount calculated and frozen as of his SERP Effective Date.

(d)           Survivor/Death Benefits for Participant’s Terminating Employment priorto January 1, 2007

(i)   Benefit Payable Before Benefit Commencement

If a Participant who has not made a valid lump sum election with respect to his or her Pre-2005 Benefit dies prior to termination of employment (or commencement of benefits for Participants with a deferred benefit) and leaves a surviving spouse at the time of his death, a pre-retirement survivor benefit is payable to the surviving spouse as an immediate life annuity equal to 100% of the service benefit or deferred benefit that the Participant would have received with respect to his or her Pre-2005 Benefit had he survived and terminated employment on the date of his death and commenced benefit payments.  In addition, with respect to the Participant’s Post-2004 Benefit, such benefit shall be paid to the surviving spouse as soon as administratively feasible following the Participant’s death in a single sum payment calculated in accordance with Section 5 of this Article IV.  If such Participant does not have a surviving spouse at the time of his death, the entire survivor benefit described in this paragraph shall be paid to the Participant’s estate as soon as administratively feasible following the Participant’s death (even if the Participant was a Band BB officer or above) in the form of a single sum payment calculated in accordance with the provisions of Section 5 of this Article IV.

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(ii)   Benefit Payable After Benefit Commencement

If the Participant was receiving benefits in the form of an annuity with respect to his Pre-2005 Benefit (or was eligible to receive benefits in the form of an annuity because of termination of employment), and leaves a surviving spouse at the time of his/her death, then such surviving spouse shall automatically receive a survivor annuity for life equal to 50% of the net pension benefit that the Participant was receiving (or eligible to receive) just prior to his death.  If the Participant was eligible to receive payment of his Post-2004 Benefit but had not yet received such payment, then his Post-2004 Benefit shall be paid to the spouse, if any, and otherwise to the Participant’s estate in the form of a single lump sum payment calculated in accordance with the provisions of Section 5 of this Article IV.

(iii)   Lump Sum Election

In the event of the death of a Participant who has made a valid lump sum election under the Plan with respect to his or her Pre-2005 Benefit, his surviving spouse (or his estate if there is no surviving spouse) shall be entitled to receive 100% of the lump sum payment that would have been payable to the Participant as of the date of his death (including the lump sum payment of the Participant’s Post-2004 Benefit), and such lump sum shall be payable as soon as administratively feasible following the Participant’s death (even if the Participant was an Executive designated as a Band BB officer or above).

(iv)   Lump Sum Settlement

If a Participant has already received a lump sum settlement of his entire benefit under the Plan, then no further benefits are payable under this subparagraph (d).

(e)           Survivor/Death Benefits for Participant’s Terminating Employment on orafter January 1, 2007

(i)   Benefit Payable Before Benefit Commencement

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If a Participant dies prior to termination of employment and leaves a surviving spouse at the time of his death, a pre-retirement survivor benefit is payable to the surviving spouse in the same form as elected by the Participant for payment of his benefit (i.e., single lump sum, 10 year installments, or single life annuity) in an amount equal to 100% of the service benefit or deferred benefit that the Participant would have received with respect to his benefit had he survived and terminated employment on the date of his death and commenced benefit payments; provided, if the survivor benefit is payable in a single life annuity, there will be no payment of an additional survivor annuity upon the surviving spouse’s death.  If such Participant does not have a surviving spouse at the time of his death, the entire survivor benefit described in this paragraph shall be paid to the Participant’s estate as soon as administratively feasible following the Participant’s death (even if the Participant was a “specified employee” as defined under Code Section 409A) in the form of a single sum payment calculated in accordance with the provisions of Section 5 of this Article IV.

(ii)   Benefit Payable After Benefit Commencement

(A)   Life Annuity.  If the Participant leaves a surviving spouse and was receiving benefits in the form of an annuity (or was eligible to receive benefits in the form of an annuity because of termination of employment and because the Participant had elected an annuity form of payment in accordance with Section 5 of this Article IV),  then such surviving spouse shall automatically receive a survivor annuity for life equal to 50% of the net pension benefit that the Participant was receiving (or eligible to receive) just prior to his death.  If the Participant does not leave a surviving spouse and was receiving benefits in the form of an annuity (or was eligible to receive benefits in the form of an annuity because of termination of employment and because the Participant had elected an annuity form of payment in accordance with Section 5 of this Article IV), then no further benefits will be payable after the Participant’s death, subject to the provisions of Section 6(b)(iii) of this Article IV.

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(B)   10-Year Installments.  If the Participant leaves a surviving spouse and was receiving benefits in the form of 10-year installments, then the remaining installments shall continue to be paid to the surviving spouse.  If the Participant was receiving benefits in the form of 10-year installments and does not leave a surviving spouse, then the remaining installments shall be paid in the form of a single lump sum payable to his estate, subject to the provisions of Section 6(b)(iii) of this Article IV.

(C)   Lump Sum Payment.  If the Participant was eligible to receive a single lump sum payment of his Plan benefit but dies prior to the payment being made, then the single lump sum payment shall be made to his surviving spouse, if applicable, and otherwise to his estate, subject to the provisions of Section 6(b)(iii) of this Article IV.

(iii)   Lump Sum Settlement

If a Participant has already received a lump sum settlement of his entire benefit under the Plan, then no further benefits are payable under this subparagraph (e).

(f) Special Increases

Service and disability benefit payments of retired Participants shall be increased by the same percentage and pursuant to the same terms and conditions as are set forth in the Pension Plan.

5. Form of Benefit Payments

(a) Rules Applicable to Participants who terminate Employment Prior to January 1, 2007

(i) Annuity Payments.  With respect to a Participant who has not made a valid lump sum election in accordance with subparagraph (ii) hereof, such Participant’s Pre-2005 Benefit shall be paid in monthly payments.  Notwithstanding the foregoing, if at the time of the Participant’s termination of employment, the present value of the benefit of a Participant, whether payable as a service benefit, a deferred benefit, or a survivor’s benefit, is less than $20,000, such benefit shall be paid in the form of a single lump sum payment, calculated in accordance with subparagraph (c) of this Section 5.

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(ii) Lump Sum Benefit Payment

(1) Pre-2005 Benefit.   A Participant may elect to receive his Pre-2005 Benefit hereunder, whether payable as a service benefit, a deferred benefit or a survivor’s benefit, paid in the form of a single lump sum payment,  calculated in accordance with the provisions of subparagraph (c) of this Section 5; provided, any such election must be made in accordance with procedures established by the Company and must be on file with the Company, or its designee, for at least 12 consecutive calendar months prior to the Participant’s termination of employment or death in order to be valid and in effect.

(2) Post-2004 Benefit.  All Post-2004 Benefits, whether payable as a service benefit or a deferred benefit shall be paid in the form of a single lump sum payment, calculated in accordance with the provisions of subparagraph (c) of this Section 5.

(b) Rules Applicable to Participants who terminate Employment on or after January 1, 2007

(i) Lump Sum Benefit Payment.   Absent an election to the contrary in accordance with subparagraph (iv) hereof, a Participant’s entire benefit under the Plan, whether payable as a service benefit or a deferred benefit, shall be paid in the form of a single lump sum payment, calculated in accordance with the provisions of subparagraph (c) of this Section 5.

(ii) 10-Year Installments.  If a Participant made a valid election for 10-year installments under subparagraph (iv) hereof, such Participant’s entire benefit under the Plan, whether payable as a service benefit or a deferred benefit, shall be paid in the form of annual installments payable over a period of 10 years.  The amount of the annual installments shall be determined by calculating the Participant’s benefit under the Plan as a single lump sum in accordance with subparagraph (c) of this Section 5 and then paying 1/10th of the amount each year plus interest annually at the rate then specified under the Pension Plan.

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(iii)   Life Annuity.  If a Participant made a valid election for a life annuity under subparagraph (iv) hereof, such Participant’s entire benefit under the Plan, whether payable as a service benefit or a deferred benefit, shall be paid in the form of monthly payments payable over the life of the Participant.  The amount of the monthly payments shall equal the Participant’s annualized benefit determined under Section 4(a)(i)(A) of Article IV divided by 12.

If a Participant is Disabled, the disability pension described in Section 3(d) of Article IV shall be paid in the form of monthly payments until the earlier of the Participant’s death or attaining age 65.

(iv) Election Opportunity

(1)   Initial Election.  Participants who are participating in the Plan as of September 30, 2006 (or become newly eligible during October 2006) may elect a single lump sum payment, 10-year installments or a life annuity during the period between October 1, 2006 and November 30, 2006.  Participants who first become Participants in the Plan on or after November 1, 2006 may elect a single lump sum, 10-year installments or a life annuity; provided such election must be made within 30 days of the Participant’s initial participation in the Plan.

(2)   Subsequent Elections.  Participants may elect to change the form of payment (and the timing of payment) during a time other than that specified under subparagraph (1) above; however, such election must comply with the requirements of Code Section 409A and applicable regulations thereunder, which means that the subsequent election will only be effective if made at least one year prior to the time at which the distribution would be made absent the subsequent election AND if the first payment under the form of payment elected is delayed for at least a five year period.

   Participants may not make a payment election with regard to any disability benefit that may become payable under the Plan.

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(v) De Minimis Cash-Out.  Notwithstanding any election made under subparagraph (iv) of this Section 5(b), if at the time of the Participant’s termination of employment, the present value of the benefit of a Participant, whether payable as a service benefit or a deferred benefit, is less than $20,000, such benefit shall be paid in the form of a single lump sum payment, calculated in accordance with subparagraph (c) of this Section 5.  The preceding paragraph will no longer apply for distributions made after December 31, 2008.

(c)           Lump Sum Calculation

Benefits payable in a single lump sum in accordance with the Plan shall be the amount that is the actuarial present value of the Participant’s benefit, or applicable portion thereof, expressed as a single life annuity and shall be determined using (i) the applicable interest rate then in effect under the Pension Plan, and (ii) the applicable mortality table then in effect under the Pension Plan.

6.             Timing of Payment of Benefits

Except for the reasons specified below, benefits granted under this Plan shall commence on the day following the date of termination of employment from the Company and all Affiliates.

(a)   For Terminations of Employment Occurring Prior to January 1, 2007

(i)   An Executive who is a Band BB officer or above and who has made a valid lump sum election shall receive the lump sum payment (including interest accrued annually at the applicable interest rate in effect under the Pension Plan) as soon as administratively feasible following the date that is 2 years following his date of retirement or other termination of employment.

(ii) Participants eligible for a deferred vested benefit will have their entire benefit commence at such time as the individual otherwise elects to commence payment of benefits under the Pension Plan provided such benefits commence on or before December 31, 2008.  Otherwise, payment of the deferred vested benefit will automatically commence as soon as administratively practicable following July 1, 2009.

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(iii) Participants who have a Post-2004 Benefit and who are Executives or otherwise Specified Employees at the time of his or her termination of employment shall receive the lump sum payment (including interest accrued annually at the applicable interest rate in effect under the Pension Plan) as soon as administratively feasible following the date that is 6 months following his or her date of retirement or other termination of employment.

(b)   For Terminations of Employment On or After January 1, 2007

(i) Participants electing a single lump sum payment or 10-year installment payments and who are Executives or otherwise Specified Employees at the time of his or her termination of employment shall receive the single lump sum payment or the first installment under the 10-year installment form of benefit (each including interest accrued annually at the applicable interest rate in effect under the Pension Plan) as soon as administratively feasible following the date that is 6 months following his or her date of retirement or other termination of employment.

(ii) Participants electing a life annuity payment form and who are Executives or otherwise Specified Employees shall receive the first annuity payment as soon as administratively feasible following the date that is 6 months following his or her retirement date or other termination of employment and this first payment shall equal 7 monthly annuity payments.

(iii) Notwithstanding anything herein to the contrary, if a Participant whose benefit is delayed under subparagraphs (i) or (ii) of this Section 6(b) dies prior to the payment of such delayed amounts, such delayed amounts shall be paid in a single lump sum payment to the Participant’s estate.  The remainder of such Participant’s benefit (if any) shall be paid in accordance with Section 4(e) of this Article IV.

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7.             Treatment During Subsequent Employment

Employment with any Participating Company or Affiliate for which a Participant is an eligible employee, subsequent to retirement or termination of employment with entitlement to any type of benefits described heretofore, shall result in the permanent suspension of the benefit for the period of such employment or reemployment.  Upon termination of such subsequent employment, the full benefit payable hereunder shall be recalculated and then offset by any amounts previously paid to the Participant using assumptions set forth under the Pension Plan.  The benefit will commence following the subsequent termination of employment but shall be subject to the provisions set forth in Section 6 of this Article IV regarding the timing of payment of benefits.  This Section 7 shall not apply on or after January 1, 2009, provided, however, that any Participant whose benefits were suspended as of December 31, 2008 shall be grandfathered and shall continue to have his benefits suspended subject to the provisions of this Section 7.

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8.             Employment with Cingular

Individuals who were Participants as of December 23, 2001 and who transferred to Cingular Wireless, LLC on or before December 23, 2001 pursuant to the Contribution Agreement by and between BellSouth Corporation and AT&T Inc. (formerly SBC Communications, Inc.) continue to be treated as actively employed by the Company for all purposes of this Plan while they remain actively employed by Cingular Wireless, LLC or an AT&T Affiliate, subject to all conditions and provisions set forth in this plan.

9.   Employment with YP Holdings, LLC

On April 7, 2012, AT&T reached an agreement to sell its Advertising Solutions (AS) business to Cerberus Capital Management, L.P. pursuant to an agreement entitled the “Purchase Agreement by and between AT&T Inc. and Congo Buyer LLC.” (the “Agreement”). The transaction contemplated by the Agreement shall be referred to as the “YP Transaction.”  The closing of the YP Transaction shall be referred to as the “Closing.”  Participants in the AS unit who transfer employment to YP Holdings, LLC (“YPH”) as a result of the Closing shall be referred to as a “YP Participant.”  In compliance with the requirements of Code Section 409A, a YP Participant will not experience a termination of employment (separation of service) under the Plan, and therefore will not be eligible to commence their benefits under the Plan until such time as he incurs a termination of employment (separation from service) from YPH.

A YP Participant shall have his/her actual period of employment with YPH included as Net Credited Service for purposes of this Plan, up to a maximum of four years.  The Net Credited Service recognized under this Article IV, Section 9 shall be counted for purposes of determining a YP Participant’s eligibility for a Service Benefit and for determining a YP Participant’s Early Retirement Discount (as described in Article IV, Sections 3(a) and 4(c)).  This YPH service will not be used for any other purpose in the Plan, specifically including, but without limitation, for purposes of determining Vesting Service Credit.

24 

Furthermore, if the Plan Administrator determines that a YP Participant’s employment with YPH is involuntarily terminated (other than for “cause”) by YPH before he has accrued four years of Net Credited Service at YPH , then he will be deemed to have earned four completed years of Net Credited Service while at YPH as of such termination.  For purposes of clarity, if a YP Participant voluntarily terminates his employment with YPH or is involuntarily terminated for “cause” (as determined by the Plan Administrator) from YPH before he has accrued four years of Net Credited Service at YPH, the additional service with YPH to be recognized under the Plan shall cease as of the date of such termination from YPH.

For purposes of the above paragraph, “cause” shall mean(A) the refusal or willful material failure to perform the YP Participant’s lawful responsibilities to YPH; (B) the refusal or willful material failure to follow or carry out any reasonable, lawful, material direction from YPH; (C) any material breach of fiduciary obligation on the part of the YP Participant or that otherwise could reasonably be expected to have a materially adverse effect upon the business, interests or reputation of YPH; (D) the conviction of the YP Participant of, or plea by him of nolo contendere to, any felony; (E) the YP Participant has breached any applicable non-competition, non-solicitation or confidentiality agreements or provisions that results in material harm to YPH; or (F) the commission of fraud, embezzlement, or theft by the YP Participant.

Last, for purposes of clarity, any individual described in the last paragraph of ARTICLE IV, Section 4.(a)(i)(A) of the Plan (i.e., an individual whose annualized benefit determined as of December 31, 2011 was equal to $0 as set forth in such paragraph) is not considered a Participant in the Plan after December 31, 2011 and would not be considered a YP Participant under any circumstances, so the foregoing provisions of this Section 9 would not be applicable to such individuals.

ARTICLE V.    DEATH BENEFITS

1. Eligibility and Administration

All individuals who became eligible to participate in the Plan prior to January 1, 2006 shall be eligible for death benefits under this Plan.  With respect to individuals who become eligible to participate in the Plan on or after January 1, 2006, no death benefits shall be payable pursuant to this Article V.  Death benefits described herein are in addition to death benefits payable under the Pension Plan but shall be subject to the same terms and conditions of, and administered in the same manner as, corresponding death benefit provisions of the Pension Plan.

25 

2.             Amount of Death Benefit

For an Executive, the benefit equals the annual base salary plus two times the Standard Annual Bonus.  The above stated amounts of base salary and Standard Annual Bonus are those amounts in effect at the earlier of retirement or death including those amounts previously deferred pursuant to other plans. For all other Participants, the benefit equals the Standard Annual Bonus in effect at the earlier of retirement or death.  In addition, the death benefit for all Participants will include the amount of death benefit, if any, that would otherwise have been payable under the Pension Plan had there been no deferral of compensation under any plan of the Company.  The benefit amount will also include the amount of death benefit, if any, that would otherwise have been payable under the Pension Plan had the restriction on the amount of compensation that may be taken into account under Code Section 401(a)(17) not been applicable.

3.             Death Benefits After 2005

Notwithstanding the provisions of Section 2 of this Article V, with respect to each Participant in the Plan on December 31, 2005, the amount of any death benefit payable pursuant to Section 1 of this Article V shall in no event be based on base salary and/or Standard Award amounts greater than such Participant’s base salary and the Standard Award applicable with respect to such Participant on December 31, 2005.

4. Form and Source of Payments

All death benefits payable pursuant to this Article V of the Plan shall be paid in a single lump sum as soon as administratively feasible following the death of the Participant and shall be paid from Company or Participating Company's operating expenses, or through the purchase of insurance from an insurance company as the Company may determine.

ARTICLE VI.    GENERAL PROVISIONS

1.             Effective Date

This Plan was originally effective January 1, 1984 and this restatement of the Plan is effective December 31, 2011.

2.             Rights to Benefit

26 

There is no right to any benefit under this Plan except as may be provided by the Company or each Participating Company.  Participants have the status of general, unsecured creditors of the Participating Company and the Plan constitutes a mere promise by the Participating Company to make benefit payments in the future.  A Participant shall have only a contractual right to receive the benefits provided for hereunder if and when he complies with all of the conditions set forth herein.  Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind.  The Plan is intended to be "unfunded" for purposes of the Pension Act and the Code. If any payment is made to a Participant, his or her surviving spouse or other beneficiary with respect to benefits described in this Plan from any source arranged by the Company or a Participating Company including the Rabbi Trust Agreements and also including, without limitation, any other fund, trust, insurance arrangement, bond, security device, or any similar arrangement, such payment shall be deemed to be in full and complete satisfaction of the obligation of the Company or Participating Company under this Plan  to the extent of such payment as if such payment had been made directly by the Company or Participating Company.  If any payment from a source described in the preceding sentence shall be made, in whole or in part, prior to the time payment would be made under the terms of this Plan, such payment shall be deemed to satisfy the obligation of the Company or Participating Company to pay Plan benefits beginning with the benefit which would next become payable under the Plan and continuing in the order in which benefits are so payable, until the payment from such other source is fully recovered. In determining the benefits satisfied by a payment, Plan benefits, as they become payable, shall be discounted to their value as of the date such actual payment was made using an interest rate equal to the valuation interest rate for deferred annuities as last published by the Pension Benefit Guaranty Corporation prior to the date of such actual payment.  If the benefits which actually become payable under this Plan, after applying the discount described in the preceding sentence, are less than the amount of any prepayment described herein, any such shortfall shall not be collected from or enforced against the Participant as a claim by the Company or Participating Company.

3.             Liability for Payment of Benefits

Where a Participant's period of service includes service in more than one Participating Company or in a company that is not a Participating Company, the last Participating Company to employ him or her immediately prior to his or her retirement or termination of employment with entitlement to a benefit hereunder shall be responsible for the full benefit under this Plan.

4.             Governing Law

The Company intends that this Plan be an unfunded deferred compensation plan maintained primarily for a select group of management and highly compensated employees exempt from Parts 2, 3 and 4 of Title I of the Pension Act by reason of the exemptions set forth in Sections 201(a), 301(a) and 401(a) of the Pension Act and from Part 1 of the Pension Act by reason of the exemption set forth in Section 2520.104-23 of applicable United States Department of Labor regulations.  This Plan shall be interpreted and administered accordingly.  This Plan shall be construed in accordance with the laws of the State of Texas to the extent such laws are not preempted by the Pension Act.  Notwithstanding any provision to the contrary in this Plan, each provision of this Plan shall be interpreted to permit the deferral of compensation and the payment of deferred amounts in accordance with Code Section 409A and any provision that would conflict with such requirements shall not be valid or enforceable.

27 

 5.            Assignment or Alienation

Benefits payable, and rights to benefits, under this Plan may not in any manner be anticipated, sold, transferred, assigned (either at law or in equity), alienated, pledged, encumbered or subject to attachment, garnishment, levy, execution or other legal or equitable process.

6.             Employment at Will

Nothing contained in this Plan shall be construed as conferring upon a Participant the right to continue in the employ of the Company.

7.             Savings Clause

In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

8.             Payments to Others

Benefits payable to a former employee or retiree unable to execute a proper receipt may be paid to other person(s) in accordance with the standards and procedures set forth in the Pension Plan.

9.             Plan Termination

Subject to the limitations described below, the Company retains the right to terminate, in whole or in part, and each Participating Company retains the right to withdraw from this Plan, at any time, for any reason, with or without notice.  The Company will continue to make payments, in accordance with the terms and conditions of the Plan, to all Participants who were either retired or terminated prior to Plan termination, and will also continue to recognize its obligation to the surviving spouse of the aforementioned individuals.  Additionally, Participants who have satisfied the service requirements for a deferred vested pension under the Pension Plan on the date of Plan termination shall receive benefits under the terms of the Plan as in effect immediately prior to its termination, the amount of such benefit to be calculated as if the Participant retired (or otherwise terminated employment) on the termination date of the Plan, it being the Company's intent that termination of the Plan shall not adversely affect any entitlement to such benefits and any amendment, modification or termination of this Plan inconsistent with this expression of intent shall be null and void.

28 

ARTICLE VII.    INTERCHANGE OF BENEFIT OBLIGATION

The same transfer of service credit provisions contained in interchange agreements presently in existence under the Pension Plan, or as they may be amended from time to time, by and between the Company, on behalf of all Participating Companies, and any Interchange Company shall apply to the transfer of service credit for purposes of this Plan.

ARTICLE VIII.    LOYALTY CONDITIONS FOR OFFICERS AND SENIOR MANAGERS

This Article shall apply only to Participants who are Officers or Senior Managers at the time benefits accrue or are received.

1.   Generally

AT&T would be unwilling to provide Plan benefits but for the loyalty conditions and covenants set forth in this Article VIII, and the conditions and covenants herein are a material inducement to AT&T’s willingness to sponsor the Plan and to offer Plan benefits for the Participants on or after January 1, 2010.  Accordingly, as a condition of accruing and/or receiving any Plan benefits on or after January 1, 2010, each Participant is deemed to agree that he shall not, without obtaining the written consent of AT&T in advance, participate in activities that constitute engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as those terms are defined in Article VIII, Section 2 hereof.  Further, notwithstanding any other provision of this Plan, all benefits provided under the Plan with respect to a Participant shall be subject to the enforcement provisions of this Article VIII if the Participant, without the consent of AT&T, participates in an activity that constitutes engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as so defined.

2.   Definitions.

29 

For purposes of this Article VIII and of the Plan generally:

(a)   an “Employer Business” shall mean AT&T, any subsidiary of AT&T, the Company, a Participating Company, an Affiliate, and any business in which any of them or a subsidiary or an affiliated company of theirs has a substantial ownership or joint venture interest;

(b)   “engaging in competition with AT&T” shall mean, while employed by an Employer Business or within two (2) years after the Participant’s termination of employment, engaging by the Participant in any business or activity in all or any portion of the same geographical market where the same or substantially similar business or activity is being carried on by an Employer Business.  “Engaging in competition with AT&T” 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 AT&T” shall include representing or providing consulting services to, or being an employee or director of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.

(c)   “engaging in conduct disloyal to AT&T” means, while employed by an Employer Business or within two (2) years after the Participant’s termination of employment, (i) soliciting for employment or hire, whether as an employee or as an independent contractor, for any business in competition with an Employer Business, any person employed by an Employer Business during the one (1) year prior to Participant’s termination of employment, whether or not acceptance of such position would constitute a breach of such person’s contractual obligations to any Employer Business; (ii) soliciting, encouraging, or inducing any vendor or supplier with which Participant had business contact on behalf of any Employer Business during the two (2) years prior to Participant’s termination of employment, to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or its affiliate; or (iii) soliciting, encouraging, or inducing any customer or active prospective customer with whom Participant had business contact, whether in person or by other media (“Customer”), on behalf of any Employer Business during the two (2) years prior to Participant’s termination of employment, to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with any Employer Business, or to purchase competing goods or services from a business competing with any Employer Business, or accepting or servicing business from such Customer on behalf of himself or any other business. “Engaging in conduct disloyal to AT&T” also means, disclosing Confidential Information to any third party or using Confidential Information, other than for an Employer Business, or failing to return any Confidential Information to the Employer Business following termination of employment.

30 

(d)   “Confidential Information” shall mean all information belonging to, or otherwise relating to, an Employer Business, which is not generally known, regardless of the manner in which it is stored or conveyed to Participant, and which the Employer Business has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure.  Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by Participant.  For example, Confidential Information includes, but is not limited to, information concerning the Employer Business’ business plans, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Employer Business, or any of the products or services made, developed or sold by the Employer Business.  Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by Participant from a third party; (iii) was known to Participant prior to receipt from the Employer Business; or (iv) was independently developed by Participant or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by Participant or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Plan.

3.   Forfeiture of Benefits

A Participant’s right to receive Plan benefits accrued on or after January 1, 2010 shall be forfeited and no benefits accrued on or after January 1, 2010 shall be provided under this Plan if the Committee determines that, within the time period and without the written consent specified, Participant either engaged in competition with AT&T or engaged in conduct disloyal to AT&T, as defined in Article VIII, Section 2, hereof, regardless of the position or duties the Participant takes and regardless of whether or not the employing company, or the company that Participant becomes associated with or renders service to, is itself engaged in direct competition with an Employer Business.

4.   Equitable Relief

31 

The parties recognize (i) that any Participant’s breach of any of the covenants in this Article VIII will cause irreparable injury to the Company, and will represent a failure of the consideration under which the Company (in its capacity as creator and sponsor of the Plan) agreed to provide the Participant with the opportunity to accrue Plan benefits on and after January 1, 2010, and (ii) that monetary damages would not provide the Company with an adequate or complete remedy that would warrant the Company’s continued sponsorship of the Plan and payment of Plan benefits for all Participants.  Accordingly, in the event of a Participant’s actual or threatened breach of covenants in this Article VIII, the Committee, in addition to all other rights and acting as a fiduciary under ERISA for the limited purpose of enforcing the provisions hereof on behalf of all Participants, shall have a fiduciary duty (in order to assure that the Company receives fair and promised consideration for its continued Plan sponsorship and funding) to seek an injunction restraining the Participant from breaching the covenants in this Article VIII.  To enforce its repayment rights with respect to a Participant, the Plan shall have a first priority, equitable lien on all Plan benefits that are paid to the Participant.  In addition, the Company shall pay for any Plan expenses that the Committee incurs hereunder, and shall be entitled to recover from the Participant its reasonable attorneys’ fees and costs incurred in obtaining such injunctive remedies.  In the event the Committee succeeds in enforcing the terms of this Section through a written settlement with the Participant or a court order granting an injunction hereunder, the Participant shall be entitled to collect Plan benefits prospectively, if the Participant is otherwise entitled to such benefits, net of any fees and costs assessed pursuant hereto (which fees and costs shall be paid to AT&T as a repayment on behalf of the Participant), provided that the Participant complies with said settlement or injunction.

5.   Uniform Enforcement.

In recognition of AT&T’s need for nationally uniform standards for the Plan’s administration, it is an absolute condition in consideration of any Participant’s accrual or receipt of benefits under the Plan on or after January 1, 2010 that each and all of the following conditions apply to all Participants and to any benefits that are accrued on or after January 1, 2010 and that are thereafter paid or are payable under the Plan:

(a)   ERISA shall control all issues and controversies hereunder, and the Committee shall serve for the limited purposes of this Article VIII as a “fiduciary” of the Plan.

(b)   All litigation between the parties relating to this Section shall occur in federal court, which shall have exclusive jurisdiction, any such litigation shall be held in the United States District Court for the Northern District of Texas, and the only remedies available with respect to the Plan shall be those provided under ERISA.

(c)   If the Committee determines in its sole discretion either (I) that the Company or any Employer Business that employed the Participant terminated the Participant’s employment for cause, or (II) that equitable relief enforcing the Participant’s covenants under this Article VIII is either not reasonably available, not ordered by a court of competent jurisdiction, or circumvented because the Participant has sued in state court, or has otherwise sought remedies not available under ERISA, then in any and all of such instances the Participant shall not be entitled to collect any Plan benefits accrued on or after January 1, 2010, and if any such Plan benefits have been paid to the Participant, the Participant shall immediately repay all such Plan benefits to the Plan (which shall be used to pay Plan administrative expenses or Plan benefits.) upon written demand from the Committee.  Furthermore, the Participant shall hold the Company and each Employer Business harmless from any loss, expense, or damage that may arise from any of the conduct described in clauses (I) and (II) hereof.

32 

ARTICLE IX.     PLAN MODIFICATION

The Company may, in its sole discretion, from time to time make any changes in the Plan as it deems appropriate, provided, that no such action shall accelerate or postpone the time or schedule of payment of any Plan benefit except as may be permitted under Code Section 409A and regulations thereunder; and provided further, such modifications shall not result in a reduction of benefits to either: (i) those participants or their surviving spouses already receiving benefits under this Plan, or (ii) those participants who have satisfied the service requirements for a deferred vested pension under the Pension Plan.  Specifically, no Plan modification shall have the effect of reducing a Participant's benefits under the Plan to which he or she would be entitled under the terms of the Plan as in effect immediately prior to its modification, the amount of such benefit to be calculated as if the Participant retired (or otherwise terminated employment) on the date the Plan was modified, it being the Company's intent that any modification of the Plan shall not adversely affect any entitlement to such benefits and any amendment, modification or termination of this Plan inconsistent with this expression of intent shall be null and void.  In addition, the Company may authorize the execution of agreements providing retirement benefits subject generally to the terms and conditions of the Plan and benefits under such agreements shall be deemed provided hereunder, and any such amendments authorized prior to the amendment and restatement of the Plan shall be incorporated herein by reference.

33 

EX-12

															EXHIBIT 12
AT&T INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
			Six Months Ended
			June 30,				Year Ended December 31,
			(Unaudited)
			2012		2011		2011		2010		2009		20081				2007
Earnings:
	Income (loss) from continuing operations before income taxes		$	11,548	$	10,821	$	6,716	$	18,238	$	18,518	$	(4,572)		$	27,186
	Equity in net income of affiliates included above			(355)		(456)		(784)		(762)		(734)		(819)			(692)
	Fixed charges			2,539		2,348		4,900		4,786		5,071		4,943			4,489
	Distributed income of equity affiliates			-		39		161		161		317		164			395
	Interest capitalized			(130)		(77)		(162)		(772)		(740)		(659)			(171)
		Earnings, as adjusted	$	13,602	$	12,675	$	10,831	$	21,651	$	22,432	$	-		$	31,207
Fixed Charges:
	Interest expense		$	1,800	$	1,694	$	3,535	$	2,994	$	3,368	$	3,369		$	3,460
	Interest capitalized			130		77		162		772		740		659			171
	Dividends on preferred securities			-		-		-		-		-		4			3
	Portion of rental expense representative of interest factor			609		577		1,203		1,020		963		911			855
		Fixed Charges	$	2,539	$	2,348	$	4,900	$	4,786	$	5,071	$	4,943		$	4,489
	Ratio of Earnings to Fixed Charges			5.36		5.40		2.21		4.52		4.42		-			6.95
1Earnings were not sufficient to cover fixed charges in 2008. The deficit was $943.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Randall Stephenson, certify that:

1.   I have reviewed this report on Form 10-Q of AT&T Inc.

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2012

/s/ Randall Stephenson

Randall Stephenson

Chairman of the Board,

  Chief Executive Officer and President

EX-31.2

Exhibit 31.2

CERTIFICATION

I, John J. Stephens, certify that:

1.   I have reviewed this report on Form 10-Q of AT&T Inc.

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2012

/s/ John J. Stephens

John J. Stephens

Senior Executive Vice President

    and Chief Financial Officer

EX-32

Exhibit 32

Certification of Periodic Financial Reports

Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of AT&T Inc. (the “Company”) hereby certifies that the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 August 3, 2012 August 3, 2012

 By: /s/ Randall Stephenson By:           /s/ John J. Stephens

Randall Stephenson   John J. Stephens

Chairman of the Board, Chief Executive Officer   Senior Executive Vice President

and President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (“Exchange Act”) or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to AT&T Inc. and will be retained by AT&T Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Pension And Postretirement Benefits (Pension And Postretirement Benefit Costs Included In Operating Expenses) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Defined Benefit Plan Disclosure [Line Items]
Net cost	$ 233	$ 279	$ 473	$ 559
Pension Benefit Cost [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost - benefits earned during the period	304	296	614	593
Interest cost on benefit obligation	700	739	1,400	1,479
Expected return on assets	(880)	(922)	(1,760)	(1,844)
Amortization of prior service (credit)	(4)	(4)	(8)	(8)
Net cost	120	109	246	220
Postretirement Benefit Cost [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost - benefits earned during the period	82	91	166	181
Interest cost on benefit obligation	447	512	894	1,025
Expected return on assets	(201)	(260)	(401)	(520)
Amortization of prior service (credit)	(215)	(173)	(432)	(347)
Net cost	$ 113	$ 170	$ 227	$ 339

XML

Consolidated Statement Of Changes In Stockholders' Equity (Parenthetical) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements Of Changes In Stockholders' Equity (Unaudited)
Net income attributable to AT&T, per diluted share	$ 0.66	$ 0.60	$ 1.27	$ 1.18
Dividends to stockholders, per share	$ 0.44	$ 0.43	$ 0.88	$ 0.86

XML

Fair Value Measurements And Disclosure (Notional Amount Of Our Outstanding Derivative Positions) (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Derivative [Line Items]
Notional Amount of Outstanding Derivative Positions	$ 13,655	$ 17,309
Interest Rate Swaps [Member]
Derivative [Line Items]
Notional Amount of Outstanding Derivative Positions	4,000	8,800
Cross-Currency Swaps [Member]
Derivative [Line Items]
Notional Amount of Outstanding Derivative Positions	9,481	7,502
Interest Rate Locks [Member]
Derivative [Line Items]
Notional Amount of Outstanding Derivative Positions	0	800
Foreign Exchange Contracts [Member]
Derivative [Line Items]
Notional Amount of Outstanding Derivative Positions	$ 174	$ 207

XML

Fair Value Measurements And Disclosure (Fair Value Leveling) (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Interest Rate Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	$ 335	$ 521
Cross-Currency Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	116	144
Liability Derivatives (at fair value)	(1,011)	(820)
Interest Rate Locks [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability Derivatives (at fair value)		(173)
Foreign Exchange Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	3	2
Liability Derivatives (at fair value)	(8)	(9)
Domestic Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	1,007	947
International Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	516	495
Fixed Income Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	444	562
Level 1 [Member] | Interest Rate Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	0	0
Level 1 [Member] | Cross-Currency Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	0	0
Liability Derivatives (at fair value)	0	0
Level 1 [Member] | Interest Rate Locks [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability Derivatives (at fair value)		0
Level 1 [Member] | Foreign Exchange Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	0	0
Liability Derivatives (at fair value)	0	0
Level 1 [Member] | Domestic Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	1,007	947
Level 1 [Member] | International Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	516	495
Level 1 [Member] | Fixed Income Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	0	0
Level 2 [Member] | Interest Rate Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	335	521
Level 2 [Member] | Cross-Currency Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	116	144
Liability Derivatives (at fair value)	(1,011)	(820)
Level 2 [Member] | Interest Rate Locks [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability Derivatives (at fair value)		(173)
Level 2 [Member] | Foreign Exchange Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	3	2
Liability Derivatives (at fair value)	(8)	(9)
Level 2 [Member] | Domestic Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	0	0
Level 2 [Member] | International Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	0	0
Level 2 [Member] | Fixed Income Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	444	562
Level 3 [Member] | Interest Rate Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	0	0
Level 3 [Member] | Cross-Currency Swaps [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	0	0
Liability Derivatives (at fair value)	0	0
Level 3 [Member] | Interest Rate Locks [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability Derivatives (at fair value)		0
Level 3 [Member] | Foreign Exchange Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Derivatives (at fair value)	0	0
Liability Derivatives (at fair value)	0	0
Level 3 [Member] | Domestic Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	0	0
Level 3 [Member] | International Equities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	0	0
Level 3 [Member] | Fixed Income Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-Sale Securities (at fair value)	$ 0	$ 0

XML

Fair Value Measurements And Disclosure (Effect Of Derivatives On The Consolidated Statements Of Income) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Fair Value Hedging Relationships [Member] | Interest Rate Swaps [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) on long-term debt	$ 76	$ (75)	$ 137	$ 11
Fair Value Hedging Relationships [Member] | Interest Rate Swaps [Member] | Interest expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) on interest rate swaps	(76)	75	(137)	(11)
Cash Flow Hedging Relationships [Member] | Cross-Currency Swaps [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) recognized in accumulated OCI	(160)	(117)	(165)	(149)
Cash Flow Hedging Relationships [Member] | Interest Rate Locks [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) recognized in accumulated OCI	0	87	0	122
Interest income (expense) reclassified from accumulated OCI into income	(11)	(5)	(20)	(8)
Cash Flow Hedging Relationships [Member] | Foreign Exchange Contracts [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) recognized in accumulated OCI	$ (5)	$ (3)	$ 0	$ 5

XML

Consolidated Statement Of Changes In Stockholders' Equity (USD $) In Millions	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income Attributable to AT&T, net of tax [Member]	Noncontrolling Interest [Member]
Balance at beginning of year at Dec. 31, 2011	$ 105,797	$ 6,495	$ 91,156	$ 25,453	$ (20,750)	$ 3,180	$ 263
Balance at beginning of year (in shares) at Dec. 31, 2011		6,495			(568)
Issuance of stock		0
Issuance of stock (in shares)		0
Purchase of stock					(4,623)
Purchase of stock (in shares)					(143)
Issuance of treasury stock			109		504
Issuance of treasury stock, (in shares)					21
Share-based payments			(178)
Share of equity method investee capital transactions			(160)
Net income attributable to AT&T ($1.27 per diluted share)	7,486			7,486
Dividends to stockholders ($0.88 per share)				(5,137)
Other				(14)
Other comprehensive loss attributable to AT&T						(241)
Net income attributable to noncontrolling interest	131						131
Distributions							(95)
Balance at end of period at Jun. 30, 2012	$ 103,579	$ 6,495	$ 90,927	$ 27,788	$ (24,869)	$ 2,939	$ 299
Balance at end of period (in shares) at Jun. 30, 2012		6,495			(690)

XML

Consolidated Statements Of Income (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Operating Revenues
Wireless service	$ 14,765	$ 14,157	$ 29,331	$ 28,118
Data	7,923	7,349	15,718	14,520
Voice	5,697	6,340	11,590	12,890
Directory	305	841	1,049	1,709
Other	2,885	2,808	5,709	5,505
Total operating revenues	31,575	31,495	63,397	62,742
Operating Expenses
Cost of services and sales (exclusive of depreciation and amortization shown separately below)	12,369	12,756	25,282	25,569
Selling, general and administrative	7,890	7,972	16,138	16,014
Depreciation and amortization	4,499	4,602	9,059	9,186
Total operating expenses	24,758	25,330	50,479	50,769
Operating Income	6,817	6,165	12,918	11,973
Other Income (Expense)
Interest expense	(941)	(848)	(1,800)	(1,694)
Equity in net income of affiliates	132	207	355	456
Other income (expense) - net	23	27	75	86
Total other income (expense)	(786)	(614)	(1,370)	(1,152)
Income Before Income Taxes	6,031	5,551	11,548	10,821
Income tax expense	2,066	1,893	3,931	3,695
Net Income	3,965	3,658	7,617	7,126
Less: Net Income Attributable to Noncontrolling Interest	(63)	(67)	(131)	(127)
Net Income Attributable to AT&T	$ 3,902	$ 3,591	$ 7,486	$ 6,999
Basic Earnings Per Share Attributable to AT&T	$ 0.67	$ 0.60	$ 1.27	$ 1.18
Diluted Earnings Per Share Attributable to AT&T	$ 0.66	$ 0.60	$ 1.27	$ 1.18
Weighted Average Number of Common Shares Outstanding - Basic (in millions)	5,855	5,932	5,886	5,929
Weighted Average Number of Common Shares Outstanding - with Dilution (in millions)	5,876	5,953	5,907	5,948
Dividends Declared Per Common Share	$ 0.44	$ 0.43	$ 0.88	$ 0.86

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Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Consolidated Balance Sheets (Unaudited)
Allowances for doubtful accounts	$ 614	$ 878
Common stock, par value	$ 1	$ 1
Common stock, authorized	14,000,000,000	14,000,000,000
Common stock, issued	6,495,231,088	6,495,231,088
Treasury stock, held	690,487,327	568,719,202

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Segment Information (Summary Of Operating Revenues And Expenses By Segment) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Segment Reporting Information [Line Items]
Total segment operating revenues	$ 31,575	$ 31,495	$ 63,397	$ 62,742
Operations and support expenses	20,259	20,728	41,420	41,583
Depreciation and amortization expenses	4,499	4,602	9,059	9,186
Total segment operating expenses	24,758	25,330	50,479	50,769
Segment operating income (loss)	6,817	6,165	12,918	11,973
Interest expense	941	848	1,800	1,694
Equity in net income (loss) of affiliates	132	207	355	456
Other income (expense) - net	23	27	75	86
Segment income (loss) before income taxes	6,031	5,551	11,548	10,821
Wireless [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues	16,353	15,603	32,489	30,913
Operations and support expenses	9,705	9,786	19,788	19,647
Depreciation and amortization expenses	1,696	1,615	3,362	3,121
Total segment operating expenses	11,401	11,401	23,150	22,768
Segment operating income (loss)	4,952	4,202	9,339	8,145
Interest expense	0	0	0	0
Equity in net income (loss) of affiliates	(15)	(7)	(28)	(11)
Other income (expense) - net	0	0	0	0
Segment income (loss) before income taxes	4,937	4,195	9,311	8,134
Wireline [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues	14,904	15,030	29,832	30,081
Operations and support expenses	10,085	10,145	20,382	20,457
Depreciation and amortization expenses	2,766	2,876	5,574	5,834
Total segment operating expenses	12,851	13,021	25,956	26,291
Segment operating income (loss)	2,053	2,009	3,876	3,790
Interest expense	0	0	0	0
Equity in net income (loss) of affiliates	(1)	0	(1)	0
Other income (expense) - net	0	0	0	0
Segment income (loss) before income taxes	2,052	2,009	3,875	3,790
Advertising Solutions [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues	305	841	1,049	1,709
Operations and support expenses	226	581	773	1,153
Depreciation and amortization expenses	29	101	106	207
Total segment operating expenses	255	682	879	1,360
Segment operating income (loss)	50	159	170	349
Interest expense	0	0	0	0
Equity in net income (loss) of affiliates	0	0	0	0
Other income (expense) - net	0	0	0	0
Segment income (loss) before income taxes	50	159	170	349
Other Segment [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues	13	21	27	39
Operations and support expenses	243	216	477	326
Depreciation and amortization expenses	8	10	17	24
Total segment operating expenses	251	226	494	350
Segment operating income (loss)	(238)	(205)	(467)	(311)
Interest expense	0	0	0	0
Equity in net income (loss) of affiliates	148	214	384	467
Other income (expense) - net	0	0	0	0
Segment income (loss) before income taxes	(90)	9	(83)	156
Consolidations [Member]
Segment Reporting Information [Line Items]
Total segment operating revenues	0	0	0	0
Operations and support expenses	0	0	0	0
Depreciation and amortization expenses	0	0	0	0
Total segment operating expenses	0	0	0	0
Segment operating income (loss)	0	0	0	0
Interest expense	941	848	1,800	1,694
Equity in net income (loss) of affiliates	0	0	0	0
Other income (expense) - net	23	27	75	86
Segment income (loss) before income taxes	$ (918)	$ (821)	$ (1,725)	$ (1,608)

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Pension And Postretirement Benefits (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Pension And Postretirement Benefits
Combined net pension and postretirement cost decrease	$ 46		$ 86
Net supplemental retirement pension benefits costs	32	36	63	71
Net supplemental retirement pension benefits costs - interest cost	$ 29	$ 32	$ 58	$ 63

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Consolidated Statements Of Cash Flows (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Operating Activities
Net income	$ 7,617	$ 7,126
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,059	9,186
Undistributed earnings from investments in equity affiliates	(355)	(417)
Provision for uncollectible accounts	572	523
Deferred income tax (benefit) expense and noncurrent unrecognized tax benefits	(639)	2,818
Net loss (gain) from sale of investments, net of impairments	2	(44)
Changes in operating assets and liabilities:
Accounts receivable	(220)	(521)
Other current assets	1,228	1,007
Accounts payable and accrued liabilities	441	(2,037)
Other - net	(246)	(884)
Total adjustments	9,842	9,631
Net Cash Provided by Operating Activities	17,459	16,757
Investing Activities
Capital expenditures	(8,742)	(9,405)
Interest during construction	(130)	(77)
Acquisitions, net of cash acquired	(477)	(62)
Dispositions	800	30
(Purchases) and sales of securities, net	124	45
Other	0	19
Net Cash Used in Investing Activities	(8,425)	(9,450)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less	0	(1,603)
Issuance of long-term debt	6,935	2,985
Repayment of long-term debt	(7,035)	(1,290)
Purchase of treasury stock	(4,623)	0
Issuance of treasury stock	376	199
Dividends paid	(5,187)	(5,082)
Other	(534)	(122)
Net Cash Used in Financing Activities	(10,068)	(4,913)
Net (decrease) increase in cash and cash equivalents	(1,034)	2,394
Cash and cash equivalents beginning of year	3,185	1,437
Cash and Cash Equivalents End of Period	2,151	3,831
Cash paid during the six months ended June 30 for:
Interest	2,373	2,200
Income taxes, net of refunds	$ 127	$ (196)

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Consolidated Statements Of Comprehensive Income (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 3,965	$ 3,658	$ 7,617	$ 7,126
Other comprehensive income, net of tax:
Foreign currency translation adjustments (includes $(1), $0, $0 and $0 attributable to noncontrolling interest), net of taxes of $(55), $73, $76 and $123	(101)	135	142	228
Net unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses), net of taxes of $(27), $2, $27 and $29	(52)	6	49	55
Reclassification adjustment realized in net income, net of taxes of $(3), $(2), $(6) and $(21)	(6)	(6)	(12)	(41)
Net unrealized gains (losses) on cash flow hedges:
Unrealized losses, net of taxes of $(58), $(12), $(58) and $(8)	(107)	(21)	(107)	(14)
Reclassification adjustment included in net income, net of taxes of $4, $2, $7 and $3	7	3	13	5
Defined benefit postretirement plans:
Net actuarial loss from equity method investees arising during period, net of taxes of $(29), $0, $(29) and $0	(53)	0	(53)	0
Amortization of net prior service credit included in net income, net of taxes of $(87), $(66), $(171) and $(137)	(137)	(109)	(274)	(224)
Other	1	(1)	1	(1)
Other comprehensive income (loss)	(448)	7	(241)	8
Total comprehensive income	3,517	3,665	7,376	7,134
Less: Total comprehensive income attributable to noncontrolling interest	(62)	(67)	(131)	(127)
Total Comprehensive Income Attributable to AT&T	$ 3,455	$ 3,598	$ 7,245	$ 7,007

XML

Segment Information (Tables)

6 Months Ended

Jun. 30, 2012

Segment Information

Summary Of Operating Revenues And Expenses By Segment

For the three months ended June 30, 2012						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	16,353	$	14,904	$	305	$	13	$	-	$	31,575
Operations and support expenses		9,705		10,085		226		243		-		20,259
Depreciation and amortization expenses		1,696		2,766		29		8		-		4,499
Total segment operating expenses		11,401		12,851		255		251		-		24,758
Segment operating income (loss)		4,952		2,053		50		(238)		-		6,817
Interest expense		-		-		-		-		941		941
Equity in net income (loss) of affiliates		(15)		(1)		-		148		-		132
Other income (expense) – net		-		-		-		-		23		23
Segment income (loss) before income taxes	$	4,937	$	2,052	$	50	$	(90)	$	(918)	$	6,031
For the six months ended June 30, 2012						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	32,489	$	29,832	$	1,049	$	27	$	-	$	63,397
Operations and support expenses		19,788		20,382		773		477		-		41,420
Depreciation and amortization expenses		3,362		5,574		106		17		-		9,059
Total segment operating expenses		23,150		25,956		879		494		-		50,479
Segment operating income (loss)		9,339		3,876		170		(467)		-		12,918
Interest expense		-		-		-		-		1,800		1,800
Equity in net income (loss) of affiliates		(28)		(1)		-		384		-		355
Other income (expense) – net		-		-		-		-		75		75
Segment income (loss) before income taxes	$	9,311	$	3,875	$	170	$	(83)	$	(1,725)	$	11,548
For the three months ended June 30, 2011						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	15,603	$	15,030	$	841	$	21	$	-	$	31,495
Operations and support expenses		9,786		10,145		581		216		-		20,728
Depreciation and amortization expenses		1,615		2,876		101		10		-		4,602
Total segment operating expenses		11,401		13,021		682		226		-		25,330
Segment operating income (loss)		4,202		2,009		159		(205)		-		6,165
Interest expense		-		-		-		-		848		848
Equity in net income (loss) of affiliates		(7)		-		-		214		-		207
Other income (expense) – net		-		-		-		-		27		27
Segment income (loss) before income taxes	$	4,195	$	2,009	$	159	$	9	$	(821)	$	5,551
For the six months ended June 30, 2011						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	30,913	$	30,081	$	1,709	$	39	$	-	$	62,742
Operations and support expenses		19,647		20,457		1,153		326		-		41,583
Depreciation and amortization expenses		3,121		5,834		207		24		-		9,186
Total segment operating expenses		22,768		26,291		1,360		350		-		50,769
Segment operating income (loss)		8,145		3,790		349		(311)		-		11,973
Interest expense		-		-		-		-		1,694		1,694
Equity in net income (loss) of affiliates		(11)		-		-		467		-		456
Other income (expense) – net		-		-		-		-		86		86
Segment income (loss) before income taxes	$	8,134	$	3,790	$	349	$	156	$	(1,608)	$	10,821

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Document And Entity Information In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jul. 31, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Document Period End Date	Jun. 30, 2012
Current Fiscal Year End Date	--12-31
Entity Central Index Key	0000732717
Entity Filer Category	Large Accelerated Filer
Entity Registrant Name	AT&T Inc.
Entity Common Stock, Shares Outstanding		5,769

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Pension And Postretirement Benefits (Tables)

6 Months Ended

Jun. 30, 2012

Pension And Postretirement Benefits

Pension And Postretirement Benefit Costs Included In Operating Expenses

	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
Pension cost:
Service cost – benefits earned during the period	$	304	$	296	$	614	$	593
Interest cost on projected benefit obligation		700		739		1,400		1,479
Expected return on assets		(880)		(922)		(1,760)		(1,844)
Amortization of prior service (credit)		(4)		(4)		(8)		(8)
Net pension cost	$	120	$	109	$	246	$	220
Postretirement cost:
Service cost – benefits earned during the period	$	82	$	91	$	166	$	181
Interest cost on accumulated postretirement benefit obligation		447		512		894		1,025
Expected return on assets		(201)		(260)		(401)		(520)
Amortization of prior service (credit)		(215)		(173)		(432)		(347)
Net postretirement cost	$	113	$	170	$	227	$	339
Combined net pension and postretirement cost	$	233	$	279	$	473	$	559

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Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements of Comprehensive Income [Abstract]
Foreign currency translation adjustments, attributable to noncontrolling interest, net of taxes	$ (1)	$ 0	$ 0	$ 0
Foreign currency translation adjustments, tax effect	(55)	73	76	123
Unrealized gains (losses) on available-for-sale securities, tax effect	(27)	2	27	29
Reclassification adjustment realized in net income on available-for-sale securities, tax effect	(3)	(2)	(6)	(21)
Unrealized losses on cash flow hedges, tax effect	(58)	(12)	(58)	(8)
Reclassification adjustment included in net income on cash flow hedges, tax effect	4	2	7	3
Net actuarial loss from equity method investees arising during period - tax effect	(29)	0	(29)	0
Amortization of net prior service credit included in net income, tax effect	$ (87)	$ (66)	$ (171)	$ (137)

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Segment Information

6 Months Ended

Jun. 30, 2012

Segment Information

Segment Information

NOTE 3. SEGMENT INFORMATION

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. We analyze our various operating segments based on segment income before income taxes. We make our capital allocations decisions based on our strategic direction of the business, needs of the network (wireless or wireline) providing services and other assets needed to provide emerging services to our customers. Actuarial gains and losses from pension and other postretirement benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. The customers and long-lived assets of our reportable segments are predominantly in the United States. We have four reportable segments: (1) Wireless, (2) Wireline, (3) Advertising Solutions and (4) Other.

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless voice and advanced data communications services. The Wireless segment results have been reclassified to include the operating results of a subsidiary that provides services for subscribers to wirelessly monitor their home that was previously reported in the Wireline segment.

The Wireline segment uses our regional, national and global network to provide consumer and business customers with landline voice and data communications services, AT&T U-verse® TV, high-speed broadband and voice services and managed networking to business customers. Additionally, we receive commissions on sales of satellite television services offered through our agency arrangements. The Wireline segment results have been reclassified to exclude the operating results of the business moved to our Wireless segment and to include the operating results of customer information services, which were previously reported in our Other segment's results.

The Advertising Solutions segment includes our directory operations, which publish Yellow and White Pages directories and sell directory advertising and Internet-based advertising and local search throughMay 8, 2012 (see Note 1).

The Other segment includes our portion of the results from our international equity investments, our 47 percent equity interest in YP Holdings and all corporate and other operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest cost and expected return on plan assets for our pension and postretirement benefit plans. The Other segment results have been reclassified to exclude the operating results of customer information services, which are now reported in our Wireline segment's results.

In the following tables, we show how our segment results are reconciled to our consolidated results reported.

For the three months ended June 30, 2012						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	16,353	$	14,904	$	305	$	13	$	-	$	31,575
Operations and support expenses		9,705		10,085		226		243		-		20,259
Depreciation and amortization expenses		1,696		2,766		29		8		-		4,499
Total segment operating expenses		11,401		12,851		255		251		-		24,758
Segment operating income (loss)		4,952		2,053		50		(238)		-		6,817
Interest expense		-		-		-		-		941		941
Equity in net income (loss) of affiliates		(15)		(1)		-		148		-		132
Other income (expense) – net		-		-		-		-		23		23
Segment income (loss) before income taxes	$	4,937	$	2,052	$	50	$	(90)	$	(918)	$	6,031
For the six months ended June 30, 2012						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	32,489	$	29,832	$	1,049	$	27	$	-	$	63,397
Operations and support expenses		19,788		20,382		773		477		-		41,420
Depreciation and amortization expenses		3,362		5,574		106		17		-		9,059
Total segment operating expenses		23,150		25,956		879		494		-		50,479
Segment operating income (loss)		9,339		3,876		170		(467)		-		12,918
Interest expense		-		-		-		-		1,800		1,800
Equity in net income (loss) of affiliates		(28)		(1)		-		384		-		355
Other income (expense) – net		-		-		-		-		75		75
Segment income (loss) before income taxes	$	9,311	$	3,875	$	170	$	(83)	$	(1,725)	$	11,548
For the three months ended June 30, 2011						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	15,603	$	15,030	$	841	$	21	$	-	$	31,495
Operations and support expenses		9,786		10,145		581		216		-		20,728
Depreciation and amortization expenses		1,615		2,876		101		10		-		4,602
Total segment operating expenses		11,401		13,021		682		226		-		25,330
Segment operating income (loss)		4,202		2,009		159		(205)		-		6,165
Interest expense		-		-		-		-		848		848
Equity in net income (loss) of affiliates		(7)		-		-		214		-		207
Other income (expense) – net		-		-		-		-		27		27
Segment income (loss) before income taxes	$	4,195	$	2,009	$	159	$	9	$	(821)	$	5,551
For the six months ended June 30, 2011						Advertising Solutions						Consolidated Results
		Wireless		Wireline				Other		Consolidations
Total segment operating revenues	$	30,913	$	30,081	$	1,709	$	39	$	-	$	62,742
Operations and support expenses		19,647		20,457		1,153		326		-		41,583
Depreciation and amortization expenses		3,121		5,834		207		24		-		9,186
Total segment operating expenses		22,768		26,291		1,360		350		-		50,769
Segment operating income (loss)		8,145		3,790		349		(311)		-		11,973
Interest expense		-		-		-		-		1,694		1,694
Equity in net income (loss) of affiliates		(11)		-		-		467		-		456
Other income (expense) – net		-		-		-		-		86		86
Segment income (loss) before income taxes	$	8,134	$	3,790	$	349	$	156	$	(1,608)	$	10,821

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Earnings Per Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share

Earnings Per Share

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for net income attributable to AT&T for the three and sixmonths ended June 30, 2012and 2011, are shown in the table below:

	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
Numerators
Numerator for basic earnings per share:
Net Income	$	3,965	$	3,658	$	7,617	$	7,126
Net income attributable to noncontrolling interest		(63)		(67)		(131)		(127)
Net Income attributable to AT&T		3,902		3,591		7,486		6,999
Dilutive potential common shares:
Other share-based payment		2		3		6		6
Numerator for diluted earnings per share	$	3,904	$	3,594	$	7,492	$	7,005
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		5,855		5,932		5,886		5,929
Dilutive potential common shares:
Stock options		4		5		4		4
Other share-based payment		17		16		17		15
Denominator for diluted earnings per share		5,876		5,953		5,907		5,948
Basic earnings per share attributable to AT&T	$	0.67	$	0.60	$	1.27	$	1.18
Diluted earnings per share attributable to AT&T	$	0.66	$	0.60	$	1.27	$	1.18

At June 30, 2012and 2011, we had issued and outstanding options to purchase approximately 22 million and 90million shares of AT&T common stock.For the quarter endedJune 30, 2012and 2011, the exercise prices of 4million and 57million shares were above the market price of AT&T stock for the respective periods.Accordingly, we did not include these amounts in determining the dilutive potential common shares.At June 30, 2012 and 2011, the exercise prices of 17million and 30million vested stock options were below market price.

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Segment Information (Summary Of Operating Revenues And Expenses By Segment) (Narrative) (Details)	1 Months Ended
	May 31, 2012
Advertising Solutions and Interactive [Member]
Business Segment Disposal [Line Items]
Date of sale of subsidiary	May 8, 2012
YP Holdings LLC [Member]
Business Segment Disposal [Line Items]
Equity interest in new company	47.00%

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Fair Value Measurements And Disclosure (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Measurements And Disclosure

Long-Term Debt And Other Financial Instruments

	June 30, 2012				December 31, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Notes and debentures	$	64,295	$	75,191	$	64,514	$	73,738
Investment securities		2,061		2,061		2,092		2,092

Fair Value Leveling

		June 30, 2012
		Level 1		Level 2		Level 3		Total
Available-for-Sale Securities
Domestic equities		$	1,007	$	-	$	-	$	1,007
International equities			516		-		-		516
Fixed income bonds			-		444		-		444
Asset Derivatives1
Interest rate swaps			-		335		-		335
Cross-currency swaps			-		116		-		116
Foreign exchange contracts			-		3		-		3
Liability Derivatives1
Cross-currency swaps			-		(1,011)		-		(1,011)
Foreign exchange contracts			-		(8)		-		(8)
		December 31, 2011
		Level 1		Level 2		Level 3		Total
Available-for-Sale Securities
Domestic equities		$	947	$	-	$	-	$	947
International equities			495		-		-		495
Fixed income bonds			-		562		-		562
Asset Derivatives1
Interest rate swaps			-		521		-		521
Cross-currency swaps			-		144		-		144
Foreign exchange contracts			-		2		-		2
Liability Derivatives1
Cross-currency swaps			-		(820)		-		(820)
Interest rate locks			-		(173)		-		(173)
Foreign exchange contracts			-		(9)		-		(9)
1	Derivatives designated as hedging instruments are reflected as other assets, other liabilities and, for a portion of interest
	rate swaps, accounts receivable.

Notional Amount Of Outstanding Derivative Positions

	June 30,		December 31,
	2012		2011
Interest rate swaps	$	4,000	$	8,800
Cross-currency swaps		9,481		7,502
Interest rate locks		-		800
Foreign exchange contracts		174		207
Total	$	13,655	$	17,309

Effect Of Derivatives On The Consolidated Statements Of Income

Following is the related hedged items affecting our financial position and performance:
Effect of Derivatives on the Consolidated Statements of Income
Fair Value Hedging Relationships	Three months ended				Six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	(76)	$	75	$	(137)	$	(11)
Gain (Loss) on long-term debt		76		(75)		137		11

Cash Flow Hedging Relationships	Three months ended				Six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	(160)	$	(117)	$	(165)	$	(149)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI		-		87		-		122
Interest income (expense) reclassified from
accumulated OCI into income		(11)		(5)		(20)		(8)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		(5)		(3)		-		5

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Preparation Of Interim Financial Statements (Policy)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” We believe that these consolidated financial statements include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the results for the presented interim periods. The results for the interim periods are not necessarily indicative of those for the full year. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both in the United States and internationally, providing wireless communications services, local exchange services, long-distance services, data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services.On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. for $750 in cash, a $200 note and a 47% equity interest in the new entity, YP Holdings LLC (YP Holdings), subject to closing adjustments. Our operating results include the results of the Advertising Solutions segment through May 8. Beginning on May 9, we included our 47% equity in YP Holdings in equity in net income of affiliates in our Other segment and on our consolidated income statement.

All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity methodare included for periods ended within up to one month of our period end. We also record our proportionate share of our equity method investees' other comprehensive income items, including actuarial gains and losses on pension and other postretirement benefit obligations.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates. We have reclassified certain amounts in prior-period financial statements to conform to the current period's presentation, including a reclassification of certain operating expenses based on an enhanced activity-based expense tracking system.

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Pension And Postretirement Benefits

6 Months Ended

Jun. 30, 2012

Pension And Postretirement Benefits

Pension And Postretirement Benefits

NOTE 4. PENSION AND POSTRETIREMENT BENEFITS

Substantially all of our employees are covered by one of various noncontributory pension and death benefit plans. We also provide certain medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to meet the plans' obligations to provide benefits to employees upon their retirement. No significant cash contributions are required under ERISA regulations during 2012.

The following table details pension and postretirement benefit costs included in operating expenses (in cost of services and sales, and selling, general and administrative expenses) in the accompanying consolidated statements of income. We recognize actual gains and losses on pension and postretirement plan assets in our operating results at our annual measurement date of December 31, unless earlier remeasurements are required.

In the following table, gains are denoted with parentheses. A portion of these benefit costs is capitalized as part of the benefit load on internal construction projects, providing a small reduction in the net expense recorded.

	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
Pension cost:
Service cost – benefits earned during the period	$	304	$	296	$	614	$	593
Interest cost on projected benefit obligation		700		739		1,400		1,479
Expected return on assets		(880)		(922)		(1,760)		(1,844)
Amortization of prior service (credit)		(4)		(4)		(8)		(8)
Net pension cost	$	120	$	109	$	246	$	220
Postretirement cost:
Service cost – benefits earned during the period	$	82	$	91	$	166	$	181
Interest cost on accumulated postretirement benefit obligation		447		512		894		1,025
Expected return on assets		(201)		(260)		(401)		(520)
Amortization of prior service (credit)		(215)		(173)		(432)		(347)
Net postretirement cost	$	113	$	170	$	227	$	339
Combined net pension and postretirement cost	$	233	$	279	$	473	$	559

Our combined net pension and postretirement cost decreased$46 in the second quarter and $86 for the first six months of 2012. The decrease was related to higher amortization of prior service credits due to our plan change that provides prescription drug benefits on a group basis under Medicare Part D, as allowed under federal healthcare law. Also contributing to the decrease was lower interest costs on the projected benefit obligation, largely offset by a lower expected return on plan assets, reflecting the performance of the U.S. securities markets and declining bond rates.

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental retirement pension benefits cost, which is not included in the table above, was $32 in the second quarter of 2012, of which $29 was interest cost, and $63 for the first six months, of which $58 was interest cost. In 2011, net supplemental retirement pension benefits cost was $36 in the second quarter, of which $32 was interest cost, and $71 for the first six months, of which $63 was interest cost.

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Fair Value Measurements And Disclosure

6 Months Ended

Jun. 30, 2012

Fair Value Measurements And Disclosure

Fair Value Measurements And Disclosure

NOTE 5. FAIR VALUE MEASUREMENTS AND DISCLOSURE

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy that gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1       Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.

Level 2       Inputs to the valuation methodology include:

• Quoted prices for similar assets and liabilities in active markets.
• Quoted prices for identical or similar assets or liabilities in inactive markets.
• Inputs other than quoted market prices that are observable for the asset or liability.
• Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3       Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

• Fair value is often based on developed models in which there are few, if any, external observations.

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2011.

Long-Term Debt and Other Financial Instruments

The carrying amounts and estimated fair values of our long-term debt, including current maturities and other financial instruments, are summarized as follows:

	June 30, 2012				December 31, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Notes and debentures	$	64,295	$	75,191	$	64,514	$	73,738
Investment securities		2,061		2,061		2,092		2,092

The fair values of our notes and debentures were estimated based on quoted market prices, where available. The carrying value of debt with an original maturity of less than one year approximates market value. The fair value measurements used for notes and debentures are considered Level 2 under the Fair Value Measurement and Disclosure framework.

Investment Securities

Our investment securities consist of primarily available-for-sale instruments, which include equities, fixed income bonds and other securities. Substantially all the fair values of our available-for-sale securities were estimated based on quoted market prices. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Realized gains and losses on securities are included in “Other income (expense) – net” in the consolidated statements of income using the specific identification method. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in accumulated other comprehensive income (accumulated OCI). Unrealized losses that are considered other than temporary are recorded in “Other income (expense) – net” with the corresponding reduction to the carrying basis of the investment. Fixed income investments have maturities of $27less than one year, $89within one to three years, $68within three to five years, and $260for five or more years.

Our short-term investments, other short- and long-term held-to-maturity investments (including money market securities) and customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values.

Our investment securities maturing within one year are recorded in “Other current assets,” and instruments with maturities of more than one year are recorded in “Other Assets” on the consolidated balance sheets.

Following is the fair value leveling for available-for-sale securities and derivatives as of June 30, 2012and December 31, 2011:

		June 30, 2012
		Level 1		Level 2		Level 3		Total
Available-for-Sale Securities
Domestic equities		$	1,007	$	-	$	-	$	1,007
International equities			516		-		-		516
Fixed income bonds			-		444		-		444
Asset Derivatives1
Interest rate swaps			-		335		-		335
Cross-currency swaps			-		116		-		116
Foreign exchange contracts			-		3		-		3
Liability Derivatives1
Cross-currency swaps			-		(1,011)		-		(1,011)
Foreign exchange contracts			-		(8)		-		(8)
		December 31, 2011
		Level 1		Level 2		Level 3		Total
Available-for-Sale Securities
Domestic equities		$	947	$	-	$	-	$	947
International equities			495		-		-		495
Fixed income bonds			-		562		-		562
Asset Derivatives1
Interest rate swaps			-		521		-		521
Cross-currency swaps			-		144		-		144
Foreign exchange contracts			-		2		-		2
Liability Derivatives1
Cross-currency swaps			-		(820)		-		(820)
Interest rate locks			-		(173)		-		(173)
Foreign exchange contracts			-		(9)		-		(9)
1	Derivatives designated as hedging instruments are reflected as other assets, other liabilities and, for a portion of interest
	rate swaps, accounts receivable.

Derivative Financial Instruments

We employ derivatives to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.

The majority of our derivatives are designated either as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), or as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge).

Fair Value Hedging We designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount. Accrued and realized gains or losses from interest rate swaps impact interest expense on the consolidated statements of income. Unrealized gains on interest rate swaps are recorded at fair market value as assets, and unrealized losses on interest rate swaps are recorded at fair market value as liabilities. Changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed-rate notes payable they hedge due to changes in the designated benchmark interest rate and are recognized in interest expense. Gains or losses realized upon early termination of our fair value hedges are recognized in interest expense. In the six months ended June 30, 2012 and June 30, 2011, no ineffectiveness was measured.

Cash Flow Hedging Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities, both for the period they are outstanding. For derivative instruments designated as cash flow hedges, the effective portion is reported as a component of accumulated OCI until reclassified into interest expense in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as other income or expense in each period.

We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our Euro and British pound sterling denominated debt. These agreements include initial and final exchanges of principal from fixed foreign denominations to fixed U.S. denominated amounts, to be exchanged at a specified rate, which was determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed foreign-denominated rate to a fixed U.S. denominated interest rate. We evaluate the effectiveness of our cross-currency swaps each quarter. In the six months ended June 30, 2012 and June 30, 2011, no ineffectiveness was measured.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to income. Over the next 12 months, we expect to reclassify $45 from accumulated OCI to interest expense due to the amortization of net losses on historical interest rate locks. In February 2012, we utilized $800 notional value of interest rate locks related to our February 2012 debt issuance.

We hedge a large portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Some of these instruments are designated as cash flow hedges while others remain nondesignated, largely based on size and duration. Gains and losses at the time we settle or take delivery on our designated foreign exchange contracts are amortized into income in the same period the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to income. In the six monthsended June 30, 2012 and June 30, 2011, no ineffectiveness was measured.

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At June 30, 2012, we had posted collateral of $308 (a deposit asset) and held collateral of $54 (a receipt liability). Under the agreements, if our credit rating had been downgraded one rating level by Moody's Investors Service and Fitch, Inc. before the final collateral exchange in June, we would have been required to post additional collateral of $163. At December 31, 2011, we had posted collateral of $98 (a deposit asset) and had no held collateral (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable), against the fair value of the derivative instruments.

Following is the notional amount of our outstanding derivative positions:

	June 30,		December 31,
	2012		2011
Interest rate swaps	$	4,000	$	8,800
Cross-currency swaps		9,481		7,502
Interest rate locks		-		800
Foreign exchange contracts		174		207
Total	$	13,655	$	17,309

Following is the related hedged items affecting our financial position and performance:
Effect of Derivatives on the Consolidated Statements of Income
Fair Value Hedging Relationships	Three months ended				Six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	(76)	$	75	$	(137)	$	(11)
Gain (Loss) on long-term debt		76		(75)		137		11

In addition, the net swap settlements that accrued and settled in the quarter ended June 30 were also reported as reductions of interest expense.

Cash Flow Hedging Relationships	Three months ended				Six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	(160)	$	(117)	$	(165)	$	(149)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI		-		87		-		122
Interest income (expense) reclassified from
accumulated OCI into income		(11)		(5)		(20)		(8)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		(5)		(3)		-		5

The balance of the unrealized derivative gain (loss) in accumulated OCI was $(515) at June 30, 2012 and $(421)at December 31, 2011.

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share

Reconciliation Of The Numerators And Denominators Of Basic Earnings Per Share And Diluted Earnings Per Share

	Three months ended				Six months ended
	June 30,				June 30,
	2012		2011		2012		2011
Numerators
Numerator for basic earnings per share:
Net Income	$	3,965	$	3,658	$	7,617	$	7,126
Net income attributable to noncontrolling interest		(63)		(67)		(131)		(127)
Net Income attributable to AT&T		3,902		3,591		7,486		6,999
Dilutive potential common shares:
Other share-based payment		2		3		6		6
Numerator for diluted earnings per share	$	3,904	$	3,594	$	7,492	$	7,005
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		5,855		5,932		5,886		5,929
Dilutive potential common shares:
Stock options		4		5		4		4
Other share-based payment		17		16		17		15
Denominator for diluted earnings per share		5,876		5,953		5,907		5,948
Basic earnings per share attributable to AT&T	$	0.67	$	0.60	$	1.27	$	1.18
Diluted earnings per share attributable to AT&T	$	0.66	$	0.60	$	1.27	$	1.18

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Earnings Per Share (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share
Net income	$ 3,965	$ 3,658	$ 7,617	$ 7,126
Net income attributable to noncontrolling interest	(63)	(67)	(131)	(127)
Net income attributable to AT&T	3,902	3,591	7,486	6,999
Other share-based payment	2	3	6	6
Numerator for diluted earnings per share	$ 3,904	$ 3,594	$ 7,492	$ 7,005
Weighted average number of common shares outstanding	5,855	5,932	5,886	5,929
Stock options	4	5	4	4
Other share-based payment (in shares)	17	16	17	15
Denominator for diluted earnings per share	5,876	5,953	5,907	5,948
Basic Earnings Per Share Attributable to AT&T	$ 0.67	$ 0.60	$ 1.27	$ 1.18
Diluted Earnings Per Share Attributable to AT&T	$ 0.66	$ 0.60	$ 1.27	$ 1.18
Stock options issued and outstanding	22	90	22	90
Stock options with exercise prices above average market price of company stock	4	57
Vested stock options with exercise prices below market price of company stock	17	30	17	30

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Fair Value Measurements And Disclosure (Narrative) (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Feb. 29, 2012	Jun. 30, 2012	Dec. 31, 2011
Fair Value Measurements And Disclosure
Fixed income investments - maturities less than 1 year		$ 27
Fixed income investments - maturities within 1 to 3 years		89
Fixed income investments - maturities within 3 to 5 years		68
Fixed income investments - maturities for 5 or more years		260
Anticipated reclassification of holding losses during the next 12 months - cash flow hedges		45
Notional amount of cash flow hedge instruments interest rate locks change during period	800
Collateral received from counterparty		54	0
Collateral submitted to counterparty		308	98
Collateral contingently payable to the counterparty		163
Accumulated holding gain (loss) related to derivatives		$ (515)	$ (421)

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Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current Assets
Cash and cash equivalents	$ 2,151	$ 3,185
Accounts receivable - net of allowances for doubtful accounts of $614 and $878	12,430	13,606
Prepaid expenses	1,533	1,155
Deferred income taxes	1,418	1,470
Other current assets	1,624	3,611
Total current assets	19,156	23,027
Property, plant and equipment	263,648	260,279
Less: accumulated depreciation and amortization	(156,165)	(153,192)
Property, Plant and Equipment - Net	107,483	107,087
Goodwill	69,763	70,842
Licenses	51,981	51,374
Customer Lists and Relationships - Net	1,881	2,757
Other Intangible Assets - Net	5,045	5,212
Investments in and Advances to Equity Affiliates	4,388	3,718
Other Assets	6,597	6,327
Total Assets	266,294	270,344
Current Liabilities
Debt maturing within one year	3,402	3,453
Accounts payable and accrued liabilities	16,298	19,858
Advanced billing and customer deposits	3,743	3,872
Accrued taxes	3,705	1,003
Dividends payable	2,554	2,608
Total current liabilities	29,702	30,794
Long-Term Debt	61,132	61,300
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	26,011	25,748
Postemployment benefit obligation	34,021	34,011
Other noncurrent liabilities	11,849	12,694
Total deferred credits and other noncurrent liabilities	71,881	72,453
Stockholders' Equity
Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2012 and December 31, 2011: issued 6,495,231,088 at June 30, 2012 and December 31, 2011	6,495	6,495
Additional paid-in capital	90,927	91,156
Retained earnings	27,788	25,453
Treasury stock (690,487,327 at June 30, 2012 and 568,719,202 at December 31, 2011, at cost)	(24,869)	(20,750)
Accumulated other comprehensive income	2,939	3,180
Noncontrolling interest	299	263
Total stockholders' equity	103,579	105,797
Total Liabilities and Stockholders' Equity	$ 266,294	$ 270,344

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Preparation Of Interim Financial Statements

6 Months Ended

Jun. 30, 2012

Preparation Of Interim Financial Statements Disclosure [Abstract]

Preparation Of Interim Financial Statements

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” We believe that these consolidated financial statements include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the results for the presented interim periods. The results for the interim periods are not necessarily indicative of those for the full year. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both in the United States and internationally, providing wireless communications services, local exchange services, long-distance services, data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services.On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P. for $750 in cash, a $200 note and a 47% equity interest in the new entity, YP Holdings LLC (YP Holdings), subject to closing adjustments. Our operating results include the results of the Advertising Solutions segment through May 8. Beginning on May 9, we included our 47% equity in YP Holdings in equity in net income of affiliates in our Other segment and on our consolidated income statement.

All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity methodare included for periods ended within up to one month of our period end. We also record our proportionate share of our equity method investees' other comprehensive income items, including actuarial gains and losses on pension and other postretirement benefit obligations.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates. We have reclassified certain amounts in prior-period financial statements to conform to the current period's presentation, including a reclassification of certain operating expenses based on an enhanced activity-based expense tracking system.

Employee Separations We established obligations for expected termination benefits provided under existing plans to former or inactive employees after employment but before retirement. At June 30, 2012, we had severance accruals of $129 and at December 31, 2011, we had severance accruals of $335.

Stock Repurchase Program In December 2010, the Board of Directors authorized the repurchase of up to 300 million shares of AT&T common stock. We began buying back stock under this program in January 2012. For the six months ended June 30, 2012, we had repurchased approximately 143million shares totaling $4,623. In July 2012, the Board of Directors authorized the repurchase of an additional 300 million shares. We intend to continue repurchasing shares.

To implement these authorizations, we use open market repurchase programs, relying on Rule 10b5-1 where feasible. We also use accelerated share repurchase programs with large financial institutions since these programs allow us to more efficiently repurchase our stock.

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Fair Value Measurements And Disclosure (Long-Term Debt And Other Financial Instruments) (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Level 2 [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Notes and debentures	$ 75,191
Carrying Amount [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Notes and debentures	64,295	64,514
Investment securities	2,061	2,092
Fair Value [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Notes and debentures	75,191	73,738
Investment securities	$ 2,061	$ 2,092

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Preparation Of Interim Financial Statements (Details) (USD $) In Millions, unless otherwise specified			1 Months Ended		6 Months Ended	1 Months Ended		6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	May 31, 2012 Advertising Solutions and Interactive [Member]	May 31, 2012 YP Holdings LLC [Member]	Jun. 30, 2012 Stock Repurchase Program December 2010 [Member]	Jul. 31, 2012 Common Class A [Member] Stock Repurchase Program July 2012 [Member]	Dec. 31, 2010 Common Class A [Member] Stock Repurchase Program December 2010 [Member]	Jun. 30, 2012 Common Class A [Member] Stock Repurchase Program December 2010 [Member]
Preparation Of Interim Financial Statements Disclosure [Abstract]
Other termination benefits	$ 129	$ 335
Equity, Class of Treasury Stock [Line Items]
Stock Repurchase Program, Number of Shares Authorized to be Repurchased						300	300
Treasury Stock, Value, Acquired, Cost Method								4,623
Treasury Stock, Shares, Acquired								143
Date stock repurchases began					January-12	July-12	December-10
Business Segment Disposal [Line Items]
Note from sale of subsidiary			200
Type of noncash consideration subject to receipt from sale of subsidiary			Note
Cash from sale of subsidiary			$ 750
Equity interest in new company				47.00%
Date of sale of subsidiary			May 8, 2012